China Dredging Group Co., Ltd. Reports Unaudited First Quarter 2012 Results
FUZHOU, China, Sept. 23, 2012 /PRNewswire/ — China Dredging Group Co., Ltd. (together with its consolidated subsidiaries and variable interest entities, “China Dredging,” the “Company,” “we,” “us” and “our”), one of the leading independent (non-state-owned) providers of dredging services in the PRC, today announced its unaudited financial results for the first quarter of 2012.
Three Months Ended March 31, 2012 Highlights
- Revenues of $59.5 million, a 18.7% period-over-period increase
- Gross profit of $31.5 million, a 8.2% period-over-period increase
- Net income of $21.7 million, a 18.7% period-over-period decrease
- Operating cash flow of $33.8 million, a 175.8% period-over-period increase
- Cash of $146.1 million and working capital of $159.4 million as of March 31, 2012
“I am very pleased that we were able to deliver strong quarterly results in revenue in the first quarter of 2012,” said Mr. Xinrong Zhuo, Chairman and Chief Executive Officer of China Dredging. “We believe this revenue growth reflects our strong strategic relationship with our main contractors, and we are committed to enhancing our market share in China’s dredging industry.”
Recent Developments
In July 2012, we did not renew two dredgers lease agreements when the contracts expired, and terminated leasing one dredger in the consideration of its working efficiency. We try to integrate our management and technology for new projects. These three dredgers are not suitable for the new upcoming projects. As a result, we currently have 10 dredgers in our fleet, including 6 non-self-propelling cutter suction dredgers, 2 trailer suction hopper dredgers and 2 grab dredgers.
2012 First Quarter Operating Results
For the Three Months Ended
March 31,
---------
2012 2011
---- ----
Contract Revenue $59,499,531 $50,131,369
Percentage Change 18.7%
Contract revenue increased by $9.4 million, or 18.7% (13.7% without foreign exchange effect), to $59.5 million for the three months ended March 31, 2012, compared to $50.1 million for the three months ended March 31,2012. The increased contract revenue primarily resulted from the increase of our dredging volume and unit construction price, which is a price negotiated with the contractor for each specific project. We completed 32.5 million cubic meters of dredging volume for the three months ended March 31, 2012, as compared to 28.5 million cubic meters for the three months ended March 31, 2011, representing an increase of 13.9% in dredging volume. In addition, the unit construction price per cubic meter increased by $0.07, or 4.0% (-0.2% without foreign exchange effect), to $1.83 for the three months ended March 31, 2012 from $1.76 for the same period of 2011. The increase was primarily due to an increase of demand for our dredging services and general market conditions.
For the Three Months Ended
March 31,
---------
2012 2011
---- ----
Gross Profit $31,477,413 $29,091,405
Gross Profit Margin 52.9% 58.0%
Gross profit increased by $2.4 million, or 8.2% (3.7% without foreign exchange effect), to $31.5 million for the three months ended March 31, 2012, compared to $29.1 million for the same period of 2011. Our cost of contract revenue for three months ended March 31, 2012 increased by $7.0 million, or 33.2% (27.5% without foreign exchange effect), to $28.0 million for the three months ended March 31, 2012, compared to $21.0 million for the same period of 2011. As a percentage of revenue, our cost of contract revenue increased from 42.0% for the three months ended March 31, 2011 to 47.1% for the same period of 2012 due to the increased headcount of employee and vessel leasing fee, the increasing price of consumable parts as well as the increased quantity demands for the projects. As a result, our gross profit margin decreased from 58.0% for the three months ended March 31, 2011 to 52.9% for the same period in 2012.
For the Three Months Ended
March 31,
---------
2012 2011
---- ----
General and Administrative Expenses $2,435,274 $1,950,684
Percentage Change 24.8%
General and administrative expenses increased by $0.5 million, or 24.8%, from $2.0 million, or 3.9% of revenues, for the three months ended March 31, 2011 to $2.4 million, or 4.1% of revenues, for the same period of 2012. The increase in general and administrative expenses was primarily attributable to an increase in other taxes, such as business tax, which is levied in the PRC based on revenue.
For the Three Months Ended
March 31,
---------
2012 2011
---- ----
Gain on Obligation under Make-Good Escrow $ - $6,298,527
Loss on Derivative $(192,957) $(22,852)
For the three months ended March 31, 2012, we had $0.2 million in net losses from the reductions of estimated obligations to investors that had been incurred as a result of our fourth quarter 2010 Private Placement, as compared to $6.3 million in net gains for the three months ended March 31, 2011. The gain on obligation under the make-good escrow related to our meeting earnings targets both in 2010 and 2011, resulting in release of the contingent liability and a resulting gain, which significantly impacted our other income (expense) for the three months ended March 31, 2011. There is no such gain or loss in 2012 as the make-good escrow expired on December 31, 2011. The loss on derivative related to the fair value adjustment to the embedded derivatives in our preferred shares issued in our 2010 Private Placement. These gains or losses have no income tax effect.
Taxable income increased by 7.3% for the three months ended March 31, 2012, compared to the same period of 2011. Income tax expense increased by $0.5 million, or 7.1%, to $7.3 million for the three months ended March 31, 2012, compared to $6.8 million for the same period of 2011. The applicable income tax was 25%, which was effective on January 1, 2008 in the PRC.
For the Three Months Ended
March 31,
---------
2012 2011
---- ----
Net Income $21,668,818 $26,647,614
Percentage Change -18.7%
Earnings per Diluted Ordinary Share $0.35 $0.40
As a result of the foregoing, our net income decreased by $5.0 million, or 18.7% (22.0% without foreign exchange effect), to $21.7 million for the three months ended March 31, 2012, compared to $26.6 million for the same period of 2011.
As of March 31, 2012, we had cash of $146.1 million, total current assets $181.5 million, total assets of $302.6 million, total current liabilities of $22.1 million, no non-current liabilities, and a balance to Class A Preferred Shares of $50.0 million. We had a positive operating cash flow for the three months ended March 31, 2012 of $33.8 million, primarily attributable to the decrease in accounts receivable, cost and estimated earnings in excess of billings on contracts in progress, and prepaid expenses.
About China Dredging
China Dredging is one of the leading independent (non-state-owned) providers of specialized dredging services to the Chinese marine infrastructure market. With a modern fleet of ten dredging vessels, China Dredging has broad capabilities with which it is able to address diverse types of dredging projects. Its services, which require significant engineering and project management expertise, include on-site investigation and measurement, cost estimation, sediment and obstruction removal and transport and disposal of dredged material in an environmentally responsible manner. China Dredging conducts dredging operations through Fujian Xing Gang Port Service Co., Ltd., in which it holds a 50% equity interest, with the remaining 50% interest controlled by China Dredging pursuant to variable interest entity agreements.
Cautionary Note Regarding Forward-Looking Statements
This press release contains “forward-looking” statements regarding China Dredging’s operating results and business prospects that involve substantial risks and uncertainties. You can identify some of these forward-looking statements by words or phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “likely to,” “may,” “plan,” “project,” “potential,” “predict,” “should,” “scheduled to,” “target,” “will,” “would,” or similar words, as well as statements in the future tense, in connection with any discussion of future operating or financial performance. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of China Dredging, or industry results, to differ materially from those expressed or implied by such forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to: continued public spending on PRC marine infrastructure; our ability to manage costs under our fixed-price contracts; our ability to maintain our concentrated customer base; the variable billing and payment cycles associated with our milestone contracts; our ability to maintain adequate working capital; our ability to expand our dredging fleet; unexpected adjustments or cancellations to our backlog; our ability to meet schedule requirements in our contracts; the significant competition in the markets in which we operate; our ability to attract and retain qualified personnel, including executive officers; extensive regulations of our business in the PRC; and political and economic policies of the Chinese government. Additional information and discussion of these risks, uncertainties, and other factors can be found in China Dredging’s Annual Report on Form 20-F for the year ended December 31, 2011 and other filings by China Dredging with the U.S. Securities and Exchange Commission.
The forward-looking statements contained in this press release are made only as of the date hereof and China Dredging does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise.
CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN US DOLLARS)
(Unaudited)
March 31, 2012 December 31, 2011
-------------- -----------------
Assets
Current assets
Cash $146,146,866 $112,409,544
Accounts receivable 22,625,611 27,020,183
Cost and estimated earnings in excess of billings
on contracts in progress 7,041,713 14,008,972
Prepaid expenses 1,059,825 4,767,072
Inventories 4,630,125 2,048,158
Other receivables 3,520 3,364
-----
Total current assets 181,507,660 160,257,293
----------- -----------
Other assets
Prepaid dredger deposits 23,025,010 23,038,180
Security deposits 48,844,780 48,872,718
Property, plant and equipment, net 49,242,976 51,131,051
----------
Total other assets 121,112,766 123,041,949
----------- -----------
Total assets $302,620,426 $283,299,242
============ ============
Liabilities and equity
Liabilities
Current liabilities
Accounts payable $3,650,920 $3,653,008
Advance from related companies 13,656 13,664
Income tax payable 7,332,457 8,295,538
Accrued liabilities and other payables 2,625,817 4,045,227
Derivative liability 8,472,784 8,279,827
---------
Total current liabilities 22,095,634 24,287,264
---------- ----------
Total liabilities 22,095,634 24,287,264
---------- ----------
Class A Preferred Shares, no par value; 25,000,000 shares authorized;
10,012,987 shares issued and outstanding (liquidation preference
$50,064,935, less $0 discount)
as of March 31, 2012 and December 31, 2011 50,064,935 50,064,935
----------
Shareholders' equity
Ordinary shares, no par value; 225,000,000 shares authorized;
52,677,323 shares issued and outstanding as of
March 31, 2012 and December 31, 2011 - -
Statutory reserves 15,386,316 15,386,316
Additional paid-in capital 79,185,284 79,185,284
Retained earnings 120,227,914 98,559,096
Accumulated other comprehensive income 15,660,343 15,816,347
----------
Total shareholders' equity 230,459,857 208,947,043
----------- -----------
Total liabilities and equity $302,620,426 $283,299,242
============ ============
CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN US DOLLARS)
For the Three Months Ended
March 31,
---------
2012 2011
---- ----
Contract revenue $59,499,531 $50,131,369
Cost of contract revenue, including depreciation of
$1,864,560 and $1,727,801 for the three months
ended March 31, 2012 and 2011, respectively (28,022,118) (21,039,964)
----------- -----------
Gross profit 31,477,413 29,091,405
General and administrative expenses (2,435,274) (1,950,684)
---------- ----------
Income from operations 29,042,139 27,140,721
Other income (expense):
Interest income 149,486 72,128
Gain on exchange difference, net 46 -
Gain on obligation under Make-Good Escrow - 6,298,527
Loss on derivative (192,957) (22,852)
-------- -------
Total other (expense) income (43,425) 6,347,803
Income before income taxes 28,998,714 33,488,524
Income tax expense (7,329,896) (6,840,910)
---------- ----------
Net income 21,668,818 26,647,614
Accretion of discount on Class A Preferred Shares - (5,734,493)
--- ----------
Net income attributable to ordinary shareholders $21,668,818 $20,913,121
=========== ===========
Earnings per ordinary share
- Basic $0.41 $0.40
----- -----
- Diluted $0.35 $0.40
----- -----
Weighted average number of ordinary shares outstanding
- Basic 52,677,323 52,677,323
---------- ----------
- Diluted 62,690,310 62,690,310
---------- ----------
CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(IN US DOLLARS)
For the Three Months
March 31,
---------
2012 2011
---- ----
Net income attributable to ordinary shareholders $21,668,818 $20,913,121
Other comprehensive income
Foreign currency translation (loss) gain (156,004) 1,414,722
-------- ---------
$21,512,814 $22,327,843
=========== ===========
Total comprehensive income
CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2012
(IN US DOLLARS)
Ordinary Shares, Accumulated other Total
with no Par Value
-----------------
Number of Statutory Additional Retained comprehensive shareholders'
Shares Amount reserves paid-in capital earnings income equity
------ ------ -------- --------------- -------- ------ ------
Balance as of December 31, 2011 52,677,323 $ - $15,386,316 $79,185,284 $98,559,096 $15,816,347 $208,947,043
Net income - - - - 21,668,818 - 21,668,818
Foreign currency translation loss - - - - - (156,004) (156,004)
--- --- --- --- --- -------- --------
Balances as of March 31, 2012 52,677,323 $ - $15,386,316 $79,185,284 $120,227,914 $15,660,343 $230,459,857
========== ============= =========== =========== ============ =========== ============
CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN US DOLLARS)
For the Three Months Ended
March 31,
---------
2012 2011
---- ----
Cash flows from operating activities:
Net income $21,668,818 $26,647,614
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of property, plant and equipment 1,846,933 1,728,158
Gain on obligation under Make-Good Escrow - (6,298,527)
Loss on derivative 192,957 22,852
Changes in operating assets and liabilities:
Accounts receivable 4,377,597 (807,625)
Cost and estimated earnings in excess of billings
on contracts in progress 6,956,820 (5,344,982)
Other receivables (159) (774)
Prepaid expenses 3,703,227 (3,903,800)
Inventories (2,582,235) (3,351,786)
Accounts payable - 731,152
Income tax payable (958,004) 2,025,532
Accrued liabilities and other payables (1,416,885) 804,146
-----------
Net cash provided by operating activities 33,789,069 12,251,960
---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment - (1,123,719)
---
Net cash used in investing activities - (1,123,719)
--- ----------
Cash flows from financing activities:
Cash paid for deferred offering expenses - (437,295)
---
Net cash used in financing activities - (437,295)
--- --------
Net increase in cash 33,789,069 10,690,946
Effect of exchange rate changes on cash (51,747) 639,810
Cash as of the beginning of the year 112,409,544 88,532,472
----------- ----------
Cash as of the end of the period $146,146,866 $99,863,228
============ ===========
Supplemental disclosures of cash flow information:
Cash paid:
Income tax paid $8,287,901 $4,815,377
----------
Supplemental disclosures of non-cash transactions:
Accretion of discount on Class A Preferred Shares $ - $5,734,493
-------------------- ----------
Transfer of deposits paid for dredgers to property
plant and equipment $ - $12,541,131
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SOURCE China Dredging Group Co., Ltd
