China Hydroelectric Corporation Announces First Quarter 2011 Results
NEW YORK, May 19, 2011 /PRNewswire-Asia-FirstCall/ — China Hydroelectric Corporation (NYSE: CHC, CHCWS) (“China Hydroelectric” or “the Company”), an owner, developer and operator of small hydroelectric power projects in the People’s Republic of China (“PRC”), today announced its financial results for the first quarter ended March 31, 2011.
“Although as a result of differing weather conditions during the first quarter of 2011 versus the unusually favorable weather conditions during the first quarter of 2010, revenue and profitability are down from the prior year period, we are extremely pleased with our results for this period and are equally pleased to report all of our equipment is performing within designed utilization rate ranges in anticipation of the second and third quarters, which traditionally experience more rainfall than the first and fourth quarters. As a hydroelectric power producer, we are subject to seasonal variations in precipitation at each of our 26 operating projects spread across four different PRC provinces. In order to mitigate the possible risk of low rainfall in one region and to take advantage of two different weather systems in the PRC, we own and operate hydroelectric power projects in the eastern and western parts of China. Overall, our projects for the first three months of 2011 experienced less than average rainfall in Fujian and Zhejiang, while our projects in Yunnan and Sichuan experienced average rainfall, whereas in the first quarter of 2010 each province experienced better than average precipitation. While 2010 benefited from better than average rainfall, 2009 was adversely affected by below average rainfall,” commented Mr. John D. Kuhns, Chief Executive Officer and Chairman of the Board of Directors of the Company. The impact of hydrological conditions, whereby precipitation in any given year could vary by about 25% above or below the mean, is something beyond the control of the Company.
“Furthermore, last month we expanded our geographic diversification by completing one acquisition in Yunnan with an installed capacity of 15 MW,” Mr. Kuhns continued.
“For the remainder of 2011, we are committed to continuing to operate our hydroelectric power projects efficiently and sell the electricity to the grid, anticipating our typical pattern of improved hydrology in the second and third quarters.”
With the completion of an acquisition of an operating hydroelectric power project with 15 megawatts (“MW”) of installed capacity on April 10, 2011, as of March 31, 2011, the Company’s installed capacity was 548.8 MW as compared to 376.6 MW as of March 31, 2010. Comparing the Company’s results of operations from one period to another and its financial condition at the end of two comparable periods may be difficult due to the impact of those newly acquired hydroelectric power projects.
First Quarter 2011 Financial and Operating Highlights
- Q1 revenue decreased by 27% to $11.5 million.
- Q1 gross profit decreased by 61% to $4.1 million. Gross margin decreased by 31% to 36%.
- Q1 adjusted EBITDA (see reconciliation table) decreased by 44% to $6.0 million. Adjusted EBITDA margin was 52% vs. 68% first quarter last year.
- Q1 GAAP net loss attributable to ordinary shareholders was $5.6 million, or $0.11 net loss per American Depository Share (“ADS”) (each representing three ordinary shares) compared to a loss of $13.5 million in Q1 2010, which included $15.8 million in non-cash charges.
- Q1 non-GAAP net loss (see reconciliation table) decreased to $4.4 million, or $0.09 net loss per ADS, from a non-GAAP income of $2.6 million in Q1 2010.
Summary Financials Q1 2011 Q1 2010 % Change ------------------ ------- ------- -------- Revenue $11.5 million $15.8 million -27% Gross profit $4.1 million $10.5 million -61% Adjusted EBITDA (1) $6.0 million $10.7 million -44% ($5.6) ($13.5) GAAP Net Loss million million -59% GAAP EPS per ADS ($0.11) ($0.36) -69% ($4.4) Non-GAAP Net (Loss)/Income (2) million $2.6 million -269% Non-GAAP EPS per ADS (2) ($0.09) 0.07 -229%
(1) See "Net income (loss) to adjusted EBITDA reconciliation" below (2) See "GAAP net income (loss) to non-GAAP net income (loss) reconciliation" below
First Quarter 2011 Financial and Operational Results
Operating Statistics for the First Quarter 2011
- Increase of 172.2 MW installed capacity to 548.8 MW at the end of first quarter 2011 from 376.6 MW at the end of the first quarter 2010.
- Electricity sold was 245.6 million kilowatt hours (“kWh”) for the first quarter of 2011 compared to 315.5 million kWh for the first quarter of 2010.
- The consolidated effective utilization rate was 21% for the first quarter of 2011 compared to 39% for the first quarter of 2010. Consolidated effective utilization rate is calculated by dividing the quantity of electricity sold by the theoretical quantities of electricity which could be generated from the Company’s hydroelectric power projects.
Revenues, net of value added taxes, for the first quarter of 2011 were $11.5 million, a decrease of 27%, or $4.3 million from $15.8 million for the first quarter of 2010. The Company sold 245.6 million kWh for the first quarter of 2011, a decrease of 22% from 315.5 million kWh for the first quarter of 2010. The decrease in revenues was due to less precipitation in the first quarter of 2011 as described above compared to the prior year period which experienced better than average precipitation. Of the decrease in revenue for the first quarter of 2011, $6.9 million decrease was contributed by existing projects as of March 31, 2010 due to hydrological factors, which was partially offset by a $2.6 million contribution by the projects acquired in the last twelve months with a total installed capacity of 172.2 MW as set forth below. The company recently acquired the Dazhaihe operating project in Yunnan with 15.0 MW of installed capacity in April 2011.
Date Project Name Acquired Capacity ------------ -------- -------- Husahe (100% April 19, interest) 2010 18.7 MW Aluhe(100% June 22, interest) 2010 10.0 MW Zilenghe(100% June 22, interest) 2010 25.2 MW Latudi(100% August 16, interest) 2010 18.9 MW Xiaopengzu (100% September interest) 8, 2010 44.0 MW Jinwei (74% December interest) 30, 2010 16.0 MW Jintang (74% December interest) 30, 2010 11.6 MW Jinlong (55% December interest) 30, 2010 10.0 MW Qianling (100% December interest) 30, 2010 13.0 MW Dongguan (100% December interest) 30, 2010 4.8 MW ------ 172.2 First Quarter Total MW ------ Dazhaihe (100% April 10, interest) 2011 15.0 MW ------- 187.2 Current Total MW
The effective tariff, calculated by dividing revenues, before Value Added Tax, or VAT, in RMB (Renminbi), the functional currency of the hydroelectric power projects, by the amount of electricity sold, for the first quarter of 2011 was RMB 0.33 per kWh, a decrease of 11% from RMB 0.37 per kWh in the first quarter of 2010. The decrease was caused by project mix, that is, a slightly lower revenue contribution from operating projects in Zhejiang province, a relatively high tariff region, due to lower precipitation, and a higher revenue contribution from newly acquired projects in Yunnan, a lower tariff region. Tariffs vary at the Company’s individual hydroelectric power projects, which causes effective tariffs, which are a consolidated figure, to vary based on different revenue contribution mixes.
The consolidated effective utilization rate was 21% for the first quarter of 2011, compared to 39% for the first quarter of 2010. The lower consolidated effective utilization rate was mainly the result of less than average precipitation in Fujian and Zhejiang provinces, compared to average precipitation in Yunnan and Sichuan provinces in the first quarter of 2011.
Cost of Revenues
Cost of revenues, which consists principally of fixed expenses such as depreciation and compensation for core operating personnel, for the first quarter of 2011 was $7.4 million, as compared to $5.3 million for the first quarter of 2010, primarily due to the increased number of operating assets we operated due to acquisitions since the end of the first quarter of 2010. Cost of revenues as a percentage of revenues increased to 64% for the first quarter of 2011, from 33% in the first quarter of 2010, as a result of lower revenue contribution from the projects in Fujian and Zhejiang provinces in the first quarter of 2011 and the fixed nature of the associated cost of revenues.
Higher costs were also associated with increased power generation and labor costs associated with the previously mentioned acquisitions.
Gross Profit and Margin
Gross profit was $4.1 million for the first quarter of 2011, a decrease of $6.4 million, from $10.5 million in the first quarter of 2010. The $6.4 million decrease in gross profit reflects $6.9 million decrease contributed by existing projects as of March 31, 2010, offset by $0.5 million increase contributed by projects acquired in the last twelve months. Gross margin for the first quarter of 2011 was 36% compared to 67% in the same period of 2010.
General and Administrative Expenses
General and administrative expenses (“G&A expenses”) for the first quarter of 2011 were $5.1 million, or 45% of revenues, compared to $4.3 million, or 27% of revenues for the first quarter of 2010. The G&A expenses in the first quarter of 2011 included an employee stock-based compensation expense of $0.92 million, compared to $0.62 million in 2010. The increase in G&A expenses was also due to acquisition costs and higher professional fees associated with us being a public company.
Adjusted EBITDA and EBITDA Margin
Adjusted EBITDA was $6.0 million for the first quarter of 2011 compared to $10.7 million for the first quarter of 2010. Adjusted EBITDA margin was 52% for the first quarter of 2011 compared to 68% in the same period of 2010.
Interest expenses were $5.5 million during the first quarter of 2011 compared to $3.7 million in the same period of 2010.
GAAP and Non-GAAP Net Income
As a result of the factors discussed above, the net loss attributable to China Hydroelectric Corporation shareholders, was $5.6 million in the first quarter of 2011, compared to a net profit of $2.4 million in the comparable period in 2010. Net loss attributable to ordinary shareholders (or “GAAP net loss attributable to ordinary shareholders”) was $5.6 million, or $0.11 net loss per ADS, for the first quarter of 2011 compared to a GAAP net loss attributable to ordinary shareholders of $13.5 million, for the first quarter of 2010.
Non-GAAP net loss was $4.4 million, or $0.09 per ADS, for the first quarter of 2011 compared to a net income of $2.6 million, for the first quarter of 2010. For reconciliation between GAAP and non-GAAP earnings, see the table entitled “GAAP Net Income (loss) to Non-GAAP Net Income (Loss) Reconciliation.”
Weighted average American Depository Shares used in the earnings per share calculation was 51.1 million ADS, representing 153.3 million ordinary shares, for the first quarter of 2011.
Business Outlook for Full Year 2011
Although Yunnan continued to experience normal rainfall during the first quarter of 2011, less than favorable rainfall was realized in Fujian and Zhejiang as a result of fewer than normal monsoons. However, the impact the rest of the year’s rainfall will have on the Company’s full year results remains uncertain at this time as the precipitation level in the upcoming quarters is not known.
In addition to our 563.8 MW capacity as of today, we have signed an MOU for the remaining two Taiyu Projects in Fujian, Yangkou, a 48 MW project and Huangtangjia, an 11 MW project. Consummation of these two acquisitions is expected to occur this year.
Non-GAAP Net Income Figures
Non-GAAP net income for the first quarter of 2011 and the first quarter of 2010, excludes the following non-cash charges: stock-based compensation expenses; non-cash cumulative dividends and beneficial conversion features on convertible redeemable preferred shares; exchange gains or losses; and, the change in fair value of warrant liability. A reconciliation of GAAP and non-GAAP items is provided in the table entitled “GAAP Net Income (Loss) to Non-GAAP Net Income (Loss) Reconciliation.”
Adjusted EBITDA to Net Income Reconciliation
Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization and excluding certain non-cash charges, including: stock-based compensation expenses, exchange losses, change in fair value of warrant liability. For further details, see the table entitled “Adjusted EBITDA to Net Income (Loss) Reconciliation.”
China Hydroelectric will host a conference call at 6:00 am (Pacific) /9:00 am (Eastern) / 9:00 pm (Beijing/Hong Kong) on Friday, May 20, 2011 to discuss its first quarter 2011 financial results and recent business activities. To access the live teleconference, please dial (US) +1-877-941-2068 or (International) + 1-480-629-9712, and enter pass code 4442823.
A replay of the conference call will be available from 12:00 noon (Eastern) on May 20, 2011 to 11:59 pm (Eastern) on June 3, 2011, by dialing (US)+1-877-870-5176 or (International) +1-858-384-5517 and entering the pass code 4442823.
About China Hydroelectric
China Hydroelectric Corporation (NYSE: CHC, CHCWS) (“China Hydroelectric” or “the Company”) is an owner and operator of small hydroelectric power projects in the People’s Republic of China. Led by an international management team, the Company’s primary business is to identify, evaluate, acquire, develop, construct and finance hydroelectric power projects. China produces approximately 22% of its total energy from hydroelectric power. The Company currently owns 27 operating hydropower stations in China with total installed capacity of 563.8 MW. These hydroelectric power projects are located in four provinces: Zhejiang, Fujian, Yunnan and Sichuan.
Cautionary Note Regarding Forward-looking Statements
Statements contained herein that address operating results, performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. The forward-looking statements include, among other things, statements relating to the Company’s business strategies and plan of operations, the Company’s ability to acquire hydroelectric assets, the Company’s capital expenditure and funding plans, the Company’s operations and business prospects, projects under development, construction or planning and the regulatory environment. The forward-looking statements are based on the Company’s current expectations and involve a number of risks, uncertainties and contingencies, many of which are beyond the Company’s control, which may cause actual results, performance or achievements to differ materially from those anticipated. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Among the factors that could cause actual results to materially differ include: supply and demand changes in the electric markets, changes in electricity tariffs, hydrological conditions, the Company’s relationship with and other conditions affecting the power grids we service, the Company’s production and transmission capabilities, availability of sufficient and reliable transmission resources, our plans and objectives for future operations and expansion or consolidation, interest rate and exchange rate changes, the effectiveness of the Company’s cost-control measures, the Company’s liquidity and financial condition, environmental laws and changes in political, economic, legal and social conditions in China, and other factors affecting the Company’s operations that are set forth in the Company’s Annual Report on Form 20-F for the year ended December 31, 2010 filed with the Securities and Exchange Commission (the “SEC”) on April 4, 2011 and in the Company’s future filings with the SEC. Unless required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Notes to Unaudited Financial Information
The preparation of the unaudited interim consolidated financial statements of the Company in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. This release contains unaudited financial information which is subject to year-end audit adjustments, which could result in significant differences between the Company’s audited financial statements and this unaudited financial information.
About Non-GAAP Financial Measures
To supplement China Hydroelectric consolidated financial results presented in accordance with GAAP, China Hydroelectric uses non-GAAP net income (loss) and adjusted EBITDA, which are non-GAAP financial measures. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Adjusted EBITDA to Net Income (Loss) Reconciliation” and “GAAP Net Income (Loss) to Non-GAAP Net Income (Loss) Reconciliation” below.
China Hydroelectric believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain expenses that may not be indicative of its operating performance and financial condition from a cash perspective. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company’s performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to China Hydroelectric historical performance and liquidity. China Hydroelectric has computed its non-GAAP financial measures using methods consistent with the Company’s annual report on Form 20-F. We believe these non-GAAP financial measures are useful for investors because they permit greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using these non-GAAP financial measures is that they exclude certain charges that have been and may continue for the foreseeable future to be significant expenses in the Company’s results of operations.
For further information, please contact: Company: Investor Relations: John. E. Donahue, Vice President Scott Powell China Hydroelectric Corporation HC International, Inc. Phone: +1-646-467-9810 Phone: +1-917-721-9480 Email: Email: John.firstname.lastname@example.org email@example.com
CHINA HYDROELECTRIC CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In US$ 000's, except for share and per share data)
Three Months Ended ------------------ March 31, March 31, 2011 2010 ---------- ---------- Revenues 11,510 15,821 Cost of revenues (7,377) (5,278) Gross profit 4,133 10,543 ----- ------ Operating expenses General and administrative expenses (5,123) (4,272) ------ ------ Total operating expenses (5,123) (4,272) Operating (loss)/income (990) 6,271 ---- ----- Interest income 33 483 Interest expenses (5,486) (3,674) Change in fair value of warrant liability - 365 Exchange loss (286) (10) Other income, net 223 18 (Loss)/Income before income tax expenses (6,506) 3,453 ------ ----- Income tax benefits/(expenses) 676 (1,055) Consolidated net (loss)/income (5,830) 2,398 Net loss /(income) attributed to noncontrolling interest 220 (43) Net (loss)/income attributable to China Hydroelectric Corporation shareholders (5,610) 2,355 Less: Cumulative dividends on Series A convertible redeemable preferred shares - (1,989) Cumulative dividends on Series B convertible redeemable preferred shares - (1,412) Cumulative dividends on Series C convertible redeemable preferred shares - (162) Accretion of beneficial conversion feature on Series A convertible redeemable preferred shares - (6,990) Accretion of beneficial conversion feature on Series B convertible redeemable preferred shares - (5,040) Accretion of beneficial conversion feature on Series C convertible redeemable preferred shares - (222) Net loss attributable to ordinary shareholders (5,610) (13,460) ====== ======= GAAP net loss per ADS - basic and diluted (0.11) (0.36) GAAP net loss per share - basic and diluted (0.04) (0.12) Weighted average American Depository Shares - basic and diluted 51,098,505 37,523,120 Weighted average ordinary shares -basic and diluted 153,295,516 112,569,361
CHINA HYDROELECTRIC CORPORATION GAAP NET INCOME (LOSS) TO NON-GAAP NET INCOME (LOSS) RECONCILIATION (In US $ 000's)
Three Months Ended ------------------ March 31, March 31, 2011 2010 ---------- ---------- Net loss attributable to ordinary shareholders (5,610) (13,460) Non-GAAP Adjustments: Non-cash cumulative dividends on convertible redeemable preferred shares (1) - 3,563 Non-cash beneficial conversion feature on convertible redeemable preferred shares (1) - 12,252 Stock-based compensation expense (2) 920 615 Exchange losses 286 10 Change in fair value of warrant liability - (365) Non-GAAP (loss)/income (4,404) 2,615 ====== ===== Non-GAAP net (loss)/income per ADS - basic and diluted (3) (0.09) 0.07 Non-GAAP net (loss)/income per ordinary share - basic and diluted (0.03) 0.02 Weighted average American depository shares - basic and diluted 51,098,505 37,523,120 Weighted average ordinary shares -basic and diluted 153,295,516 112,569,361 (1) Non-cash equity charges Cumulative dividends on Series A convertible redeemable preferred shares - 1,989 Cumulative dividends on Series B convertible redeemable preferred shares - 1,412 Cumulative dividends on Series C convertible redeemable preferred shares - 162 Accretion of beneficial conversion feature on Series A convertible redeemable preferred shares - 6,990 Accretion of beneficial conversion feature on Series B convertible redeemable preferred shares - 5,040 Accretion of beneficial conversion feature on Series C convertible redeemable preferred shares - 222 --- --- Total - 15,815 === ======
(2) Stock-Based Compensation Related Items: We provide non-GAAP information relative to our expense for stock-based compensation. We include stock-based compensation expense in our GAAP financial measures in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718, Compensation - Stock Compensation ("FASB ASC Topic 718"). Because of varying available valuation methodologies, subjective assumptions and the variety of award types, which affect the calculations of stock-based compensation, we believe that the exclusion of stock- based compensation allows for more accurate comparisons of our operating results to our peer companies. Stock-based compensation is very different from other forms of compensation. The expense associated with granting an employee a stock option is spread over multiple years unlike other compensation expenses which are more proximate to the time of award or payment. For example, we may recognize expense on a stock option in a year in which the stock option is significantly underwater and typically would not be exercised or would not generate any compensation for the employee. The expense associated with an award of a stock option for 1,000 shares of stock by us in one quarter, for example may have a very different expense than an award of an identical number of shares in a different quarter. Further, the expense recognized by us for such an option may be very different than the expense recognized by other companies for the award of a comparable option. This makes it difficult to assess our operating performance relative to our competitors. Because of these unique characteristics of stock-based compensation, management excludes these expenses when analyzing the organization's business performance. We also believe that presentation of such non-GAAP information is important to enable readers of our financial statements to compare current period results with future periods. (3) The Company's American depository shares ("ADS") convert to ordinary shares at a rate of one ADS to three ordinary shares.
CHINA HYDROELECTRIC CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In US $ 000's)
As of December As of March 31, 31, 2011 2010 --- --- ASSETS (unaudited) (audited) Current Assets: Cash and cash equivalents 17,100 33,457 Accounts receivable 5,214 4,359 Deferred tax assets 1,463 1,260 Amount due from related parties 1,282 5,950 Prepayments and other current assets 12,231 9,486 Total current assets 37,290 54,512 ------ ------ Non-current Assets: Property, plant and equipment, net 585,153 583,686 Long term assets - Land, net 49,158 48,944 Intangible assets, net 6,260 6,249 Goodwill 136,587 135,219 Deferred tax assets 540 512 Other non-current assets 935 709 Total non-current assets 778,633 775,319 ------- ------- TOTAL ASSETS 815,923 829,831 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 4,613 4,784 Short-term loans 8,770 17,742 Current portion of long-term loans 55,160 60,798 Amounts due to related parties 10,451 12,866 Accrued expenses and other current liabilities 53,179 66,905 Total current liabilities 132,713 163,095 ------- ------- Non-current Liabilities: Long term loans 247,750 224,297 Deferred tax liabilities 24,989 25,350 Other non-current liabilities 109 106 Subtotal of non-current liabilities 272,848 249,753 ------- ------- TOTAL LIABILITIES 405,561 412,848 ======= ======= Shareholders' equity Ordinary shares (par value US$0.001 per share, 130,000,000 and 400,000,000 shares 153 153 authorized as of December 31, 2010 and March 31, 2011, respectively; 153,295,516 shares issued and outstanding as of December 31, 2010 and March 31, 2011, respectively) Additional paid in capital 491,665 495,652 Accumulated other comprehensive income 27,151 22,922 Accumulated deficit (118,450) (112,840) -------- -------- Total China Hydroelectric Corporation Shareholders' equity 400,519 405,887 Noncontrolling interests 9,843 11,096 Equity attributable to equity holders of the Company 410,362 416,983 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 815,923 829,831 ======= =======
CHINA HYDROELECTRIC CORPORATION ADJUSTED EBITDA TO NET INCOME (LOSS) RECONCILIATION
Three Months Ended ------------------ March 31, March 31, 2011 2010 ---------- ---------- Net (loss)/income available to China Hydroelectric Corporation shareholders (5,610) 2,355 Interest expenses, net 5,453 3,191 Other non cash charges, including exchange loss, change in fair value of warrant liability, and stock-based compensation 1,206 260 Income tax expenses (676) 1,055 Depreciation of property, plant and equipment and amortization of intangible assets 5,665 3,828 EBITDA, as adjusted 6,038 10,689 ===== ====== EBITDA margin, as adjusted 52% 68%
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization and certain non-cash charges including exchange loss, change in fair value of warrant liability and stock-based compensation. We believe that EBITDA is widely used by other companies in the power industry and may be useful to investors as a measure of the Company’s financial performance. Given the significant investments that we have made in net property, plant and equipment, depreciation and amortization expense comprises a meaningful portion of the Company’s cost structure. We believe that EBITDA will provide a useful tool for comparability between periods because it eliminates depreciation and amortization expenses attributable to capital expenditures and business acquisitions. The presentation of EBITDA should not be construed as an indication that the Company’s future results will be unaffected by other charges and gains we consider to be outside the ordinary course of our business.
SOURCE China Hydroelectric Corporation