China ACM

November 15, 2010 08:00 ET

China ACM Reports First Quarter FY-2011 Results

Growing Sales and Higher Capacity Drive Record FY-11 Outlook; Q1-11 Non-GAAP Adjusted Net Income Available to Common Shareholders up 35% YOY to $3.3 Million; Teleconference Begins Today at 10 a.m. Eastern, 7 a.m. Pacific

BEIJING--(Marketwire - November 15, 2010) - China Advanced Construction Materials Group, Inc. (NASDAQ: CADC) ("China ACM"), a leading provider of ready-mix concrete and related technical services in China, today announced its financial results for the Fiscal Year 2011 first quarter ended September 30, 2010. The Company will host a conference call to discuss the results today at 10:00 a.m. Eastern, 7:00 a.m. Pacific; details are provided below.

First Quarter FY 2011 Financial Highlights

--  Revenue increased 59% year over year to $31.0 million
--  Gross margin at 13.33%
--  Non-GAAP adjusted net income available to common shareholders up 35%
    YOY to $3.3 million
--  Non-GAAP adjusted fully diluted EPS to common shareholders at $0.19

Management Commentary

Mr. Xianfu Han, Chairman and Chief Executive Officer of China ACM, commented, "Fiscal Year 2011 is off to an excellent start as we announced HSR contracts worth $12 million, and have increased our total number of portable plants from 16 to 23 at a net cost of only $4.6 million. Six of these new plants are not yet committed. I am confident we will contract them shortly and place them into production in the second half boosting Manufacturing Services revenue. Additionally, by recently raising RMC prices in Concrete Sales, we target total Company revenues and earnings to be at solidly record levels in the second half of the fiscal year.

"Also, in the first quarter we raised $10.5 million in debt financing at 5.8 percent which, combined with strong cash flow, will fund a higher level of operations and growth.

"China ACM's patented RMC blends and expert, flexible and reliable technical and engineering services gain increasing respect and demand in our industry and our industry leadership position is strengthening," Mr. Han added. "We are continuing to build relationships with our key State Owned Enterprise (SOE) primary contractor clients for HSR and other infrastructure projects, which reinforces barriers to entry and provides us greater pricing power. Our strong market position enables China ACM to choose those projects offering the best pricing, location, contract expansion potential and strategic value."

Commenting on the quarter's results and outlook for Fiscal Year 2011, China ACM President and Chief Financial Officer Jeremy Goodwin, said, "Operationally, the first quarter of Fiscal Year 2011 was highlighted by rapidly increasing sales, higher capacity and growing new business opportunities. The start up of an unusually high number of new long term HSR contracts is quite positive, so despite a dip in first quarter margins from portable plant redeployment and start ups, the outlook for the 2011 fiscal year is robust and on track. We generated $4.93 million in EBITDA and finished the quarter with $28.8 million in working capital.

"The first quarter reflected a large number of new HSR portable plant start ups in ramp-up stage as well as an unusually high number of plants in redeployment transition whose downtime was lengthened due to a client SOE contractor's local permit issue. While start dates were delayed, those newly contracted projects will require the same number of cubic meters of the Company's premium RMC to be delivered by the originally scheduled project completion date, so that full revenue is expected to be realized subsequently.

"Concrete Sales in the quarter were impacted by higher commodity raw materials costs that increased our overall cost of goods by about two percent. As many of our Concrete Sales fixed-price contracts signed prior to the material cost increase have ended or will soon be ending, the price raise we announced today averaging 25 percent across the range of our concrete sales products is expected to boost margins back to normal levels in our second quarter. Our Manufacturing Services portable plants are unaffected by raw material costs as the client provides the raw materials.

"Additionally, two of our high margin consulting contracts in the Technical Services business expired. This Segment has been trending higher in recent years but has been highly variable, and the Company will be selectively pursuing more such contracts in our target markets around the country to replace and grow this business.

"Driven by modernization and urbanization, our addressable markets, infrastructure, continue to accelerate in growth -- unaffected by China's import/export markets. According to the Investment Research Institute of China's State Development and Reform Commission, during the 12th 5-year plan from 2011-2015 the Chinese Government will invest $450 billion in railway plus another $460 billion in rural infrastructure which plays to our strength in commercial and industrial real estate, utilities, airports rail and subway stations.

"Our diversified backlog and new business pipeline are strong, near record levels at $58 million and $31 million respectively. Given our increasing capacity, they support the outlook for a record year," Mr. Goodwin concluded.

China ACM reported first quarter Fiscal Year 2011 non-GAAP adjusted net income available to common shareholders increased 35 percent, year over year, to $3.3 million on 59 percent higher revenue of $31.0 million. The non-GAAP adjusted net income available to common shareholders is before non-cash change in fair value of warrants, option and equity-based compensation.

First quarter Manufacturing Services revenue increased by 59 percent to a record $4.5 million year over year with a 28.1 percent gross margin. Technical Services revenue decreased by 7 percent to $1.2 million with a 91 percent gross margin. Concrete Sales revenue at our fixed plants in Beijing increased by 70 percent to $25.3 million with a gross margin of 7.2 percent.

The Company's first quarter blended gross margin was 13.3 percent, declining from 16.9 percent a year ago temporarily reflecting portable plant projects completion ramp down, relocation delays and new portable plant projects ramp up, higher seasonal concrete sales raw material costs as well as higher margin Technical Services contracts expiring.


China ACM reported that, on September 30, its backlog, or bids in house, was $58 million, 82% of which is contracted with Government State Owned Enterprise contractors and 12% contracted with private sector developers. This is comprised of $33 million in contracted unfilled orders for its Concrete Sales segment, and $25 million in contracted unfilled order for its Manufacturing Services segment. Based on its historical experience, the Company's estimated time to convert these contracted orders into recognized revenues averages is between six and twelve months for Concrete Sales, and 12 to 30 months for Manufacturing Services depending on the scope of the project.

The Company's new business pipeline, or bids outstanding, which is a measure of the value of bids it has submitted for either Concrete Sales and Manufacturing Services business, was $16 million and $15 million, respectively, or $31 million total.

Market Opportunity

The China Ministry of Rail has announced its plans to invest $120.75 billion in 70 new projects upgrading rail infrastructure in calendar 2010 which together with future planned rail infrastructure investment will total $730 billion by 2020. China's State Development and Reform Commission recently announced plans to expand China's subway system to 6,100 KM investing $105 billion through 2020.

According to a recent article in The Journal of Commerce, infrastructure spending in Asia (not including Japan) could total roughly $1.4 trillion in the next two years, with China committing $585 billion or more. India is also projected to spend more than $500 billion by 2015. China is already at work on 12 major highway projects connecting rural areas to urban centers, which will give the country 53,000 miles of highways by 2020.

China is also in the midst of a $200 billion campaign to expand its railways and freight-handling facilities, and plans to build 97 new airports by 2020, including 10 with the capacity to handle more than 30 million passengers per year. All told, China is expected to account for more than 28 percent of global infrastructure spending totaling $70 trillion over the next two decades, reports CG/LA Infrastructure LLC, a Washington-based consulting firm for the construction industry.

FY 2011 First Quarter Results

Revenue. We generated first quarter Fiscal Year 2011 revenue of $30.9 million compared to $19.5 million during the same period of Fiscal Year 2010, an increase of $11.4 million, or 59%. We increased our production volumes in and outside of Beijing in this fiscal year's first quarter as compared to the same period last fiscal year.

Our concrete sales revenue was $25.3 million for the first quarter ended September 30, 2010, an increase of $10.4 million or 70%. The increase in revenues attributable to concrete sales was principally due to the addition of two new fixed plants as well as a broader client base.

During the first quarter ended September 30, 2010, we continued to supply concrete products to ten railway projects throughout China through our portable plants, specifically the projects located in Shaanxi Province, Jiangsu Province, Hebei Province, Guangxi Province, Zhejiang Province, Guangdong Province, Liaoning Province, and Anhui Province. These ten projects contributed $4.5 million to our total revenue for the quarter, an increase of $1.7 million, or 59%, compared to the year ago quarter. The increase in revenues attributable to our manufacturing services was principally due to addition of eleven new portable plants to service a growing business pipeline.

In addition, revenue generated through our technical consulting services was $1.2 million during the first quarter ended September 30, 2010, a decrease of 7% as compared to the same fiscal quarter in 2009. The decrease is due to the expiration of two technically serviced plants in Beijing.

Gross Profit was $4.1 million for the first quarter ended September 30, 2010, as compared to $3.3 million for the first quarter ended September 30, 2009. Our gross profit for sale of concrete was $1.8 million, or 7.2% of revenue, for the quarter, compared to $0.5 million, or 3.6% of revenue, for the same period last year, an increase of $1.3 million. The higher gross margin for concrete sales for the first quarter ended September 30, 2010, compared with the same period in 2009, reflects higher demand and higher prices for our concrete products in Beijing as compared to the same period last year.

Selling, General and Administrative expenses were $2.2 million for the three months ended September 30, 2010, an increase of $1.3 million or 145%, as compared to $0.9 million for the three months ended September 30, 2009. The increase was principally due to an increase in employment, salary and benefit and lease expenses resulting from higher production and a larger base of operations during the year, and professional and consulting expenses from being a public company and resulting from our overall production expansion during the year.

Net Income available to Common shareholders. Excluding the effect from non-cash charges related to changes in fair market of warrants, and stock and option-based compensation, our net income available to Common shareholders would be $3.3 million for the three months ended September 30, 2010, an increase of $0.9 million or 35%, as compared to net income after cash dividends paid of $2.5 million for the same period in 2009.

Balance Sheet Overview

China ACM had working capital of $28.8 million at September 30, 2010, including $12.7 million cash. Shareholders' equity was $65.7 million compared with $61.2 million on June 30, 2010. The total number of shares outstanding as of November 15, 2010 is 17,602,104.

Conference Call

The company will host a corresponding conference call with a live webcast and a full Q&A session today at 10:00 a.m. Eastern time/7:00 a.m. Pacific time, to discuss these results and answer questions.

Individuals interested in participating in the conference call may do so by dialing 877-477-1461 from the United States, or 973-409-9694 from outside the United States and referencing conference ID #23972832. Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Company's Web site at Please visit the website at least 15 minutes early to register for the web cast and download any necessary audio software.

A telephone replay will be available through November 29, 2010, by dialing 800-642-1687 from the United States, or 706-645-9291 from outside the United States, and entering conference ID #23972832. A webcast replay will be available for 90 days.

About China ACM

China ACM is a leading producer of advanced, certified eco-friendly ready-mix concrete (RMC) and related technical services for large scale, high-speed rail (HSR) and other complex infrastructure projects. Leveraging its proprietary technology and value-add engineering services model, the Company has won work on numerous high profile projects including the 30,000 km China HSR expansion, the Olympic Stadium Birds' Nest, Beijing South Railway Station, Beijing International Airport, National Centre for Performing Arts, CCTV Headquarters, Beijing Yintai Building and U.S. and French embassies.

Founded in 2002, Beijing-based China ACM provides its materials and services through its network of fixed ready-mix concrete plants covering the Beijing metropolitan area. It also has technical services and preferred procurement agreements with other independently-owned plants across China. Additionally, the Company owns numerous portable plants deployed in various provinces across China. More information about the Company is available at

              Use of Non-GAAP Financial Measures

                                           Three Months Ended
                                      September 30,
                             -------------------------------  ------------
                                 2010               2009       (Decrease)
                             ------------       ------------  ------------
Net Income (Loss) -- GAAP    $  3,308,321       $ (4,522,937) $  7,831,258
   Dividends and accretion on
    redeemable convertible
    preferred stock          $          0       $    340,864  $   (340,864)
                             ------------       ------------  ------------
Net Income available to
 Common shareholders -- GAAP $  3,308,321       $ (4,863,801) $  8,172,122
                             ------------       ------------  ------------
  Add Back (Subtract):
   Change in fair value of
    warrants                 $   (154,258)      $  7,273,441  $ (7,427,699)
                             ------------       ------------  ------------
  Add Back:
   Change in Option and
    Equity Based
    Compensation             $    178,302       $     60,155  $    118,147
                             ------------       ------------  ------------
Adjusted Net Income
 available to Common
 shareholders -- non-GAAP    $  3,332,365       $  2,469,795  $    862,570
                             ------------       ------------  ------------

Basic earnings per share --
 GAAP                        $       0.19       $      (0.44) $       0.63
  Add back (Subtract):
   Change in fair value of
    warrant                  $       0.01       $       0.66  $      (0.67)
                             ------------       ------------  ------------
  Add back (Subtract):
   Change in Option and
    Compensation             $       0.01       $       0.01  $          -
                             ------------       ------------  ------------
Adjusted basic earnings per
 share non-GAAP              $       0.19       $       0.23  $      (0.04)
                             ------------       ------------  ------------

Diluted earnings per
 share-GAAP                  $       0.18       $      (0.44) $       0.62
  Add back (Subtract):
   Change in fair value of
    warrant                  $      (0.01)  (a) $       0.66  $      (0.67)
                             ------------       ------------  ------------
  Add back (Subtract):
   Change in Option and
    Compensation             $       0.01   (b) $       0.01  $          -
                             ------------       ------------  ------------
Adjusted diluted earnings
 per share non-GAAP          $       0.19       $       0.23  $      (0.04)
                             ------------       ------------  ------------

Weighted average number of
Basic                          17,518,544         10,985,405
                             ============       ============
Diluted                        18,022,815         10,985,405
                             ============       ============

Use of Non-GAAP Financial Measures

The Company makes reference to non-GAAP financial measures. Management believes that investors may find it useful to review our financial results that exclude the non-cash expenses of change in fair value of warrants and management owned options as a result of the adoption of a Financial Accounting Standards Board's ("FASB") ASC 815 (EITF 07-05) accounting standard effective from January 1, 2010.

Management believes that these non-GAAP financial measures are useful to investors in that they provide supplemental information to possibly better understand the underlying business trends and operating performance of the Company. The Company uses these non-GAAP financial measures to evaluate operating performance. However, non-GAAP financial measures should not be considered as an alternative to net income or any other performance measures derived in accordance with GAAP.

Forward-Looking Statements

This press release contains statements that are forward-looking in nature, including statements regarding the Company's competitive position and product and service offerings. These statements are based on current expectations on the date of this press release and involve a number of risks and uncertainties, which may cause actual results to differ significantly from such estimates. The risks include, but are not limited to, the degree of market adoption of the Company's product and service offerings; market competition; dependence on strategic partners; and the Company's ability to manage its business effectively in a rapidly evolving market. Certain of these and other risks are set forth in more detail in "Item 1A. Risk Factors" in China ACM's Annual Report on Form 10-K for the fiscal year ended June 30, 2010. China ACM does not assume any obligation to update or revise any such forward-looking statements, whether as the result of new developments or otherwise.

                        CONSOLIDATED BALANCE SHEETS
                AS OF SEPTEMBER 30, 2010 AND JUNE 30, 2010

                                                SEPTEMBER 30,   JUNE 30,
                                                    2010          2010
                                                ------------- -------------
  Cash                                          $  12,718,521 $   3,300,820
  Restricted cash                                           -        57,580
  Accounts receivable, net of allowance for
   doubtful accounts of $618,170 and  $456,085,
   respectively                                    51,102,000    36,072,691

  Inventories                                       1,740,499     2,164,769
  Other receivables                                 1,611,092     1,416,653
  Prepayments                                       3,721,906     2,821,687
                                                ------------- -------------
    Total current assets                           70,894,018    45,834,200
                                                ------------- -------------

PLANT AND EQUIPMENT, net                           28,198,369    26,488,354
                                                ------------- -------------

  Accounts receivable (non-current), net of
   allowance for doubtful accounts of $19,119
   and $4,607 respectively                          1,580,474       364,371
  Deferred tax assets                                       -       127,741
  Advances on equipment purchases                   5,932,144     8,382,383
  Long term prepayments                             4,052,422     4,414,391
                                                ------------- -------------
    Total other assets                             11,565,040    13,288,886
                                                ------------- -------------

      Total assets                              $ 110,657,427 $  85,611,440
                                                ============= =============


  Short term loans                              $  10,508,940 $           -
  Accounts payable                                 24,955,525    16,473,080
  Customer deposits                                 1,391,144       711,219
  Other payables                                      366,202       329,136
  Other payables -- shareholders                      817,256       772,644
  Accrued liabilities                               1,892,253     1,652,751
  Taxes payable                                     2,220,864     1,569,914
                                                ------------- -------------
    Total current liabilities                      42,152,184    21,508,744

  Warrants liabilities                              2,766,262     2,920,520
                                                ------------- -------------
      Total liabilities                            44,918,446    24,429,264
                                                ------------- -------------


  Common stock, $0.001 par value, 74,000,000
   shares authorized, 17,584,604  and 17,467,104
   shares issued and outstanding as of September
   30, 2010 and June 30, 2010, respectively            17,585        17,467
  Paid-in-capital                                  33,898,946    33,720,762
  Retained earnings                                22,856,268    19,912,444
  Statutory reserves                                4,876,017     4,511,520
  Accumulated other comprehensive income            4,090,165     3,019,983
                                                ------------- -------------
      Total shareholders' equity                   65,738,981    61,182,176
                                                ------------- -------------
        Total liabilities, and shareholders'
         equity                                 $ 110,657,427 $  85,611,440
                                                ============= =============


                                                    2010          2009
                                                ------------  ------------
  Sales of concrete                             $ 25,320,947  $ 14,886,757
  Manufacturing services                           4,471,777     2,805,614
  Technical services                               1,159,060     1,244,895
  Others                                               5,298       543,870
                                                ------------  ------------
    Total revenue                                 30,957,082    19,481,136
                                                ------------  ------------

  Concrete                                        23,508,683    14,336,716
  Manufacturing services                           3,217,125     1,757,167
  Technical services                                 106,010        54,483
  Others                                                   -        45,734
                                                ------------  ------------
    Total cost of revenue                         26,831,818    16,194,100
                                                ------------  ------------

GROSS PROFIT                                       4,125,264     3,287,036

                                                ------------  ------------

INCOME FROM OPERATIONS                             1,931,476     2,392,005
                                                ------------  ------------

  Other subsidy income                             1,787,563       966,772
  Non-operating income (expense), net                169,227       (49,203)
  Change in fair value of warrant liability          154,258    (7,273,441)
  Interest income                                      4,929         1,497
  Interest expense                                   (12,906)      (23,753)
                                                ------------  ------------
    TOTAL OTHER INCOME (EXPENSE), NET              2,103,071    (6,378,128)
                                                ------------  ------------


PROVISION FOR INCOME TAXES                           726,226       536,814
                                                ------------  ------------

NET INCOME (LOSS)                                  3,308,321    (4,522,937)

 CONVERTIBLE PREFERRED STOCK                               -       340,864
                                                ------------  ------------

 SHAREHOLDERS                                      3,308,321    (4,863,801)
                                                ------------  ------------

  Net Income (loss)                                3,308,321    (4,522,937)
  Unrealized loss from marketable securities               -        (5,577)
  Foreign currency translation adjustment          1,070,182       (62,431)
                                                ------------  ------------

COMPREHENSIVE INCOME (LOSS)                     $  4,378,503  $ (4,590,945)
                                                ============  ============

  Weighted average number of shares:
    Basic                                         17,518,544    10,985,405
                                                ============  ============
    Diluted                                       18,022,815    10,985,405
                                                ============  ============

  Earnings (Losses) per share:
    Basic                                       $       0.19  $      (0.44)
                                                ============  ============
    Diluted                                     $       0.18  $      (0.44)
                                                ============  ============


                                                    2010          2009
                                                ------------  ------------
  Net income (loss)                             $  3,308,321  $ (4,522,937)
  Adjustments to reconcile net income to cash
   provided by (used in) operating activities:
    Depreciation                                     862,140       668,020
    Stock-based compensation expense                 178,302        60,155
    Bad debt expense                                 167,058       100,123
    Change in fair value of warrants                (154,258)    7,273,441
  Changes in operating assets and liabilities
    Accounts receivable                          (15,630,594)   (8,261,428)
    Note receivable                                        -        10,775
    Inventories                                      454,016      (445,100)
    Other receivables                               (181,162)    3,021,495
    Prepayments                                     (844,255)     (641,911)
    Deferred tax assets                              128,261             -
    Long term prepayment                             428,676       369,282
    Accounts payable                               7,967,380     4,462,894
    Customer deposits                                660,301       374,566
    Other payables                                    32,377        18,317
    Accrued liabilities                              211,575       166,128
    Taxes payable                                    617,851    (1,131,202)
                                                ------------  ------------
  Net cash (used in) provided by operating
   activities                                     (1,794,011)    1,522,618
                                                ------------  ------------

  Cash proceeds from sales of fixed assets           648,496             -
  Purchase of property, plant and equipment          (58,252)     (101,183)
                                                ------------  ------------
  Net cash provided by (used in) investing
   activities                                        590,244      (101,183)
                                                ------------  ------------

  Proceeds from short term loan                   10,485,440             -
  Payments of short term loan                              -    (4,385,260)
  Rent financed by (payment to) shareholder           43,725       (51,435)
  Restricted cash                                     57,580       235,710
  Proceeds from issuance of common stock, net
   of offering costs                                       -     1,497,242 
  Preferred dividends paid                                 -      (155,655)
                                                ------------  ------------
  Net cash provided by (used in) financing
   activities                                     10,586,745    (2,859,398)
                                                ------------  ------------

EFFECTS OF EXCHANGE RATE CHANGE IN CASH               34,723        (8,861)
                                                ------------  ------------

NET INCREASE (DECREASE) IN CASH                    9,417,701    (1,446,824)

CASH, beginning of period                          3,300,820     3,634,805
                                                ------------  ------------

CASH, end of period                             $ 12,718,521  $  2,187,981
                                                ============  ============

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