Changfeng Energy Inc.
TSX VENTURE : CFY

Changfeng Energy Inc.

November 12, 2014 18:23 ET

Changfeng Revenue Up 25% and Gross Profit Up 23% for the Nine Months Ended September 30, 2014 Compared to the Same Period of 2013

TORONTO, ONTARIO--(Marketwired - Nov. 12, 2014) - Changfeng Energy Inc. (TSX VENTURE:CFY) ("Changfeng" or the "Company") is pleased to announce that the Company has filed its unaudited condensed interim consolidated financial results for the third quarter ended September 30, 2014. The unaudited condensed interim consolidated financial results and Management's Discussion and Analysis can be downloaded from www.SEDAR.com or from the Company's website at www.changfengenergy.com.

Summary of the Third Quarter of 2014 Consolidated Financial Results

In thousands of Canadian dollars except percentages and per share amounts Three months ended September 30, Nine months ended September 30,
2014 2013 Change % 2014 2013 Change %
Revenue 12,094 10,240 1,854 18 % 36,250 29,053 7,197 25 %
Gross margin 5,580 4,867 713 15 % 18,108 14,768 3,340 23 %
Net income 696 571 125 22 % 3,233 2,468 765 31 %
EBITDA (1) 2,877 2,450 427 17 % 10,281 7,555 2,726 36 %

Note:

(1) See Non- IFRS Financial Measures in this Press Release.

Sales from the gas distribution utilities for the three months ended September 30, 2014 were $9.8 million, an increase of $1.6 million, or 19%, from $8.2 million for same period of 2013. Sales from the gas distribution utilities for the nine months ended September 30, 2014 were $29.8 million, an increase of $6.4 million, or 28%, from $23.3 million for same period of 2013. This increase was attributable to the following:

  • the 6.9% appreciation of the Chinese RMB against the Canadian dollar;
  • an increase in connection fees in the Sanya operation; and
  • increased gas volume sold of 25.4 million m3 in the Sanya operation in the first nine months of 2014 compared to 24.7 million m3 sold in Sanya operation in the same period of 2013 (of which 7.2 million m3 was sold in the third quarter of 2014, compared to 6.8 million m3 sold in the third quarter of 2013).

Total revenue from the CNG refueling retail station for the three months ended September 30, 2014 was $2.3 million, an increase of $0.3 million, from $2.0 million for same period of 2013. This increase was attributable to the appreciation of the Chinese RMB and offset by the decreased gas volume sold. Total revenue from the CNG refueling retail station for the nine months ended September 30, 2014 was $6.4 million, representing an increase of $0.7 million, or 12%, from $5.7 million for same period of 2013. The increase was attributable to the combined effect of the increased gas volume sold (9.9 million m3 in the first nine months of 2014 compared to 9.7 million m3 sold in the same period of 2013) and the appreciation of the Chinese RMB against the Canadian dollar. The Company has upgraded its station's refueling facility to increase its capacity. Given both rising gasoline prices and continued government support for clean energy vehicles, it is expected that more existing gasoline-fueled vehicles in the city will be converted into dual-fuel vehicles (gasoline/CNG).

Gross margin for the three months ended September 30, 2014 increased $0.7 million, or 15%, and increased 3.3 million or 23% for the nine months ended September 30, 2014 compared to the same periods in 2013. The gross margin percentage of 50.0% for the first nine months of 2014 is approximately the same as for the first nine months of 2013.

General and administrative expenses for the three months ended September 30, 2014 were $2.9 million, an increase of $0.6 million, or 26%, from $2.3 million in the same period of 2013. For the nine months ended September 30, 2014, general and administrative expenses were $8.0 million, an increase of $1.5 million, or 23%, from $6.5 million in the same period of 2013. The increase was attributable to higher employee salaries and benefits as a result of a higher inflation rate in China, additional employees, higher conference and professional fees and a stronger Chinese RMB. General and administrative expenses as a percentage of sales for the three and nine month periods ended September 30, 2014 were 23.7% and 22.1%, compared to 22.2% and 22.5% for the same periods of 2013, respectively.

Travel and business development expenses for the three months ended September 30, 2014 were $0.7 million, consistent with the same period of 2013. Travel and business development expenses for the nine months ended September 30, 2014 were $2.6 million, an increase of $0.2 million, or 8%, from $2.4 million in the same period of 2013. As a percentage of sales, travel and business development expenses for the three and nine month periods ended September 30, 2014 were 6.1% and 7.2% respectively, a decrease from 7.3% and 8.3% in the same periods of 2013. These expenses normally fluctuate with travel and business development activities in mainland China as the Company seeks to develop new projects in close proximity to the new national pipelines.

Net income for the three months ended September 30, 2014 was $0.7 million, or $0.011 per share (basic and diluted) compared to $0.6 million or $0.009 per share (basic and diluted) for the same period in 2013. Net income for the nine months ended September 30, 2014 was $3.2 million, or $0.052 per share-basic and $0.051 per share-diluted compared to $2.5 million or $0.039 per share (basic and diluted) for the same period in 2013. These increases are primarily driven by an increase in sales.

EBITDA (non-IFRS measure as identified and defined under section "Non-IFRS Measures") for three months ended September 30, 2014 is $2.9 million, an increase of $0.4 million, or 17% from $2.5 million for the same period of 2013. EBITDA for the nine months ended September 30, 2014 was $10.3 million, an increase of $2.7 million, or 36%, from $7.6 million for the same period of 2013. The increase was driven primarily by higher sales. EBITDA as a percentage of revenue for the three months ended September 30, 2014 was 23.8%, compared to 23.9% in the same period in 2013. EBITDA as a percentage of revenue for the nine months ended September 30, 2014 was 28.4%, compared to 26.0% in the same period of 2013, representing an increase of 2.4% due to the sales increases but was partially offset by higher operating expenses.

Financial Position

Cash decreased by $0.3 million to $14.8 million at September 30, 2014 from $15.1 million at December 31, 2013, primarily resulting from cash provided by operating activities of $6.0 million and cash from bank indebtedness of $1.8 million, reinforced by the effects of foreign exchange on cash balances of $0.6 million, but offset by $1.8 million of repayment of bank indebtedness, $1.3 million repayment of long-term debt, $0.6 million for share buyback and cash used for capital expenditures of $5.0 million.

Net cash provided by operations was $1.3 million for the three months ended September 30, 2014 compared to $4.4 million for the same period of 2013. Net cash provided by operations was $6.0 million for the nine months ended September 30, 2014 compared to $7.0 million for the same period of 2013.

Cash spent in the financing activities for the three months ended September 30, 2014 was $1.9 million mainly for bank indebtedness repayment. Cash from financing activities for the nine months ended September 30, 2014 was an outflow of $1.9 million, and included a cash inflow of $1.8 million from an increase in bank indebtedness, offset by a 1.8 million principle payment of bank indebtedness, a long term debt principle repayment of $1.3 million and $0.6 million paid for the share buyback.

Capital expenditures were $1.5 million for the three months ended September 30, 2014 compared to $2.5 million in the same period of 2013. Capital expenditures totaled $5.0 million for the nine months ended September 30, 2014 compared to $6.8 million in the same period of 2013. The expenditures were mainly related to the purchase of equipment for the Xiangdong project and the on-going construction of pipeline networks to connect new customers in the Sanya region.

Changfeng will finance the majority of the upcoming construction of projects under development in mainland China through its long-term bank loans with BOC Sanya and BOC Pingxiang, as well as operating cash flow from its existing operations.

Non-IFRS Financial Measures

The Company uses the following non-IFRS financial measure: EBITDA. The Company believes this non-IFRS financial measure provides useful information to both management and investors in measuring the financial performance and financial condition of the Company for the reasons outlined below.

Management uses this non-IFRS financial measure to exclude the impact of certain expenses and income that must be recognized under IFRS when analyzing consolidated operating performance, as the excluded items are not necessarily reflective of the Company's underlying operating performance and make comparisons of underlying financial performance between periods difficult. From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.

This measure do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS. This measure is listed and defined below:

EBITDA

EBITDA is defined herein as income before income tax expense, interest expense, depreciation and amortization, share of loss of investment in associate, as well as non-cash stock-based compensation expense. EBITDA does not have any standardized meaning prescribed by IFRS and therefore may not conform to the definition used by other companies. A reconciliation of net income to EBITDA for each of the periods presented as follows:

In thousands Three months ended
September 30,
Nine months ended
September 30,
(except for % figures) 2014 2013 Change % 2014 2013 Change %
Net Income 696 571 125 22 % 3,233 2,468 765 31 %
Add (less):
Income tax 748 560 188 34 % 2,602 1,767 835 47 %
Interest (income) expense (17 ) (22 ) 5 -24 % (37 ) (40 ) 3 -9 %
Share of loss of investment in associate - - - 0 % 8 1 7 700 %
Stock-based compensation 87 294 (207 ) -70 % 262 294 (32 ) -11 %
Amortization 904 604 300 50 % 2,815 1,743 1,072 62 %
Interest on borrowing 458 443 15 3 % 1,397 1,322 75 6 %
EBITDA 2,877 2,450 427 17 % 10,281 7,555 2,726 36 %

About Changfeng Energy Inc.

Changfeng Energy Inc. is a natural gas service provider with operations located throughout the People's Republic of China. The Company services industrial, commercial and residential customers, providing them with natural gas for heating purposes and fuel for transportation. The Company has developed a significant natural gas pipeline network as well as urban gas delivery networks, stations, substations and gas pressure regulating stations in Sanya City & Haitang Bay. Through its network of pipelines, the Company provides safe and reliable delivery of natural gas to both homes and businesses. The Company is headquartered in Toronto, Ontario and its shares trade on the Toronto Venture Exchange under the trading symbol "CFY". For more information, please visit the Company website at www.changfengenergy.com.

Forward-Looking Statements

Information set forth in this news release may involve forward-looking statements under applicable securities laws. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this document are made as of the date of this document and the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities legislation. Although Management believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. This news release does not constitute an offer to sell or solicitation of an offer to buy any of the securities described herein and accordingly undue reliance should not be put on such.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.

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