Puda Coal Announces Strong Second Quarter 2010 Results
Second quarter 2010 revenue rose 72% year over year to $82.3 million
Second quarter 2010 adjusted net income rose 295% year over year to $7.3 million, or $0.36 per diluted share
TAIYUAN, China, Aug. 16 /PRNewswire-Asia/ -- Puda Coal, Inc. (NYSE Amex: PUDA) (the "Company"), a supplier of high grade metallurgical coking coal used to produce coke for steel manufacturing in China and consolidator of twelve coal mines in Shanxi Province, today announced its 2010 second quarter financial results.
Second Quarter 2010 Highlights
-- Second quarter revenue increased 71.5% year over year to $82.3 million
-- Gross profit increased 235.2% year over year to $12.1 million
-- Gross margin increased to 14.7% from 7.5% a year ago
-- Operating income grew 291.0% year over year to $10.4 million
-- Net income rose 400.5% to $8.7 million from $1.7 million in the second
quarter of 2009
-- Excluding non-cash gains related to the fair value of derivative
warrants, adjusted net income rose 295.5% to $7.3 million, or $0.36
per diluted share
-- Sales of cleaned coal increased 36.5% year over year to 601,000 metric
tons (MT)
-- Average selling price of cleaned coal grew 25.7% year over year to $137
per MT
-- Acquired 100% of the assets and mining rights of the Da Wa Coal and
Guanyao Coal mines in Pinglu County for an aggregate purchase price of
$42.0 million
-- Strengthened its management team with the addition of Irene Cheong as
Financial Controller
"Our coal washing operations performed well in the second quarter of 2010, reflecting the continued recovery in the steel industry. Increased volume and a higher average selling price of cleaned coal resulted in a significant increase in our profitability this quarter," commented Mr. Liping Zhu, President and CEO of Puda Coal. "We continued to move forward with our coal mine consolidation projects, acquiring the assets and mining rights of the first two coal mines in Pinglu County. Furthermore, we recently entered into an investment cooperation agreement to develop the remaining coal mines in Pinglu County, which provides us with the capital we need to acquire and develop all six mines simultaneously."
Second Quarter 2010 Results
For the quarter ended June 30, 2010, net revenue increased 71.5% to $82.3 million, compared to $48.0 million in the second quarter of 2009. Revenue growth was driven by increases in sales volume and the average selling price of cleaned coal. Sales of cleaned coal increased 36.5% to 601,000 MT, compared to 440,000 MT in the second quarter of 2009. The average selling price rose 25.6% to $137 per MT, compared to $109 per MT (after adjusting for exchange rate differences) in the same quarter last year.
Gross profit for the second quarter of 2010 expanded 235.2% to $12.1 million, compared to $3.6 million in the second quarter of 2009. Gross margin increased 7.2 percentage points to 14.7%, as compared to 7.5% in the comparable period of 2009. The increase was mainly attributable to an increase in the average selling price of cleaned coal, which exceeded the increase in the average cost of raw coal in the second quarter of 2010.
Operating expenses for the second quarter of 2010 rose 76.5% to $1.7 million, compared to $0.9 million in the second quarter of 2009. Selling expenses rose 59.5% year over year to $0.9 million, due to an increase in sales volume. General and administrative expenses increased 99.0% year over year to $0.8 million, primarily due to higher stock compensation expenses and professional fees.
Operating income for the second quarter of 2010 increased 291.0% to $10.4 million, compared to $2.7 million in the comparable period of 2009. Operating margin expanded 7.1 percentage points to 12.7% in the second quarter of 2010 from 5.6% in the second quarter of 2009.
During the second quarter of 2010, the Company recorded a non-cash gain of $1.3 million related to the change in fair value of the derivative warrants issued in November 2005, as compared to a corresponding loss of $121,000 in the second quarter of 2009.
Income tax expense for the second quarter of 2010 increased 287.0% to $2.7 million, compared to $0.7 million in the same period last year, primarily due to the increase in operating profit to $10.9 million in the second quarter of 2010 from $2.8 million in the second quarter of 2009.
Net income increased 400.5% to $8.7 million, or $0.36 per diluted share, compared to $1.7 million, or $0.11 per diluted share, in the second quarter of 2009. Diluted earnings per share were calculated using weighted average shares of 20,360,158 and 15,370,319 for the quarters ended June 30, 2010 and June 30, 2009, respectively.
Excluding non-cash gains or losses in the fair value of derivative warrants, adjusted net income rose 295.5% to $7.3 million, or $0.36 per diluted share, compared to adjusted net income of $1.9 million, or $0.12 per diluted share, in the second quarter in 2009.
Six Months Results
Net revenue was $144.3 million in the first half of 2010, up 47.7% from $97.7 million in the first half of 2009. Gross profit was $22.3 million, or 15.5% of revenue, up 199.0% from $7.5 million, or 7.6% of revenue, in the first half of 2009. Operating income was $19.5 million, or 13.5% of revenue, up 247.0% from $5.6 million, or 5.7% of revenue, in the first half of 2009. Net income increased 266.6% to $14.1 million, or $0.72 per diluted share, compared to $3.8 million, or $0.25 per diluted share, in the first half of 2009. Excluding non-cash gains or losses in the fair value of derivative warrants, adjusted net income rose 252.9% to $14.0 million, or $0.72 per diluted share, compared to adjusted net income of $4.0 million, or $0.26 per diluted share, for the first half of 2009.
Financial Condition
As of June 30, 2010, Puda Coal had $70.3 million in cash and cash equivalents, compared to $19.9 million at year-end 2009. Working capital was $98.0 million and a current ratio of 4.5:1. Long-term debt, excluding the current portion, was $41.2 million. At June 30, 2010, shareholders' equity was $130.5 million, up from $84.0 million at the end of 2009.
In the first half of 2010, the Company generated $16.4 million in cash from operating activities, compared to cash used in operating activities of $12.7 million in the same period last year. The used $27.2 million in cash for investing activities the first half of 2010, representing the second installment payments for the Da Wa Coal and Guanyao Coal mines in Pinglu County. The remaining payments for these two mines of approximately $8.4 million will be made upon the one-year anniversary of the completion of the transfer of the mines.
Net cash provided by financing activities was $61.0 million for the six months ended June 30, 2010 and includes $14.5 million in cash proceeds from the sale of common stock, $4.7 million from the exercise of warrants, a $35.4 million loan from the Company's significant shareholder and Chairman of the board of directors, Mr. Ming Zhao, and a $7.0 million increase in the registered capital of the Company's 90% subsidiary, Shanxi Puda Coal Group Co., Ltd. ("Shanxi Coal"), to meet new capital requirements for coal consolidators enacted by the Shanxi provincial government earlier this year.
Coal Mine Consolidation Project Status
In order to improve production efficiency, workplace safety and reduce coal mine accidents, in early 2009, the Shanxi provincial government adopted a policy requiring mergers and acquisitions of smaller coal mines in Shanxi Province. Pursuant to the government policy, Shanxi Coal was appointed as a consolidator of eight thermal coal mines located in Pinglu County in southern Shanxi Province (the "Pinglu Project"). Under the Pinglu Project, Shanxi Coal will acquire and consolidate eight thermal coal mines into five mines with approximate reserves of 163.9 million MT, based on government records. In early 2010, Shanxi Coal received the government's approval to consolidate four metallurgical coal mines into one large metallurgical mining operation representing total recoverable reserves of 23.7 million MT (the "Jianhe Project"). Below is an update of the progress of the Pinglu Project and Jianhe Project.
Pinglu Project Phase I
In June 2010, Shanxi Coal acquired 100% of the assets and mining rights of the Da Wa Coal Industry Co., Ltd. and Pinglu County Guanyao Coal Industry Co., Ltd., ("Dawa Coal and Guanyao Coal") located in Pinglu County, for an aggregate purchase price of $41.7 million.
Shanxi Coal's on-site team has already begun necessary mine maintenance and construction in the permitted areas while awaiting the remaining permits. Shanxi Coal has obtained necessary approvals from both county and municipal governments for the transitional production permit and is waiting for final approval from the provincial government, which it expects to obtain in the near future. Once the transitional production permit is granted, the coal mines can resume production under the currently approved capacity of 450,000 MT per year. Meanwhile, Shanxi Coal has submitted the required documents to the government for the coal mine upgrade permit. Upon receipt of the coal mine upgrade permit, Shanxi Coal will begin expanding production capacity of the mines to 900,000 MT per year.
Pinglu Project Phase II
The remaining six coal mines of the Pinglu Project will be consolidated into three larger thermal coal mining operations. The production capacity of the six mines is 1.2 million MT per year prior to consolidation and will be expanded to 2.7 million MT following consolidation. Shanxi Coal is in active discussions with each of the six coal mine owners and expects to finalize definitive acquisition agreements in the near term.
On August 1, 2010, Shanxi Coal signed an investment cooperation agreement to co-develop Phase Two of Pinglu Project with Mr. Ming Zhao, Chairman of Puda Coal Inc., and Mr. Jianping Gao, an unrelated party. Pursuant to the investment cooperation agreement, Shanxi Coal is responsible for 40% of the total investment in the Phase Two of Pinglu Project, Mr. Zhao is responsible for 30% and Mr. Gao is responsible for the remaining 30%. Shanxi Coal estimates that the total purchase price for the six Pinglu mines to be $130 to $160 million, with additional funds required to construct the target coal mines. Shanxi Coal will control and manage the Phase Two of Pinglu project.
Shanxi Coal has begun the necessary steps to apply for the transitional production permit. It has assigned employees on site, formed the safety management team and is actively verifying asset status and begun drafting the safety and operational policies. Concurrently, Shanxi Coal is preparing the required documents to apply for the upgrade permit, including the safety analysis reports, environmental assessments, preliminary construction and expansion proposals and geological exploration and data collection.
Jianhe Project
Shanxi Coal will consolidate four metallurgical coal mines in Huozhou County into one large metallurgical mining operation. Production capacity of the four mines will be increased from 720,000 MT to 900,000 MT. Similar to the Pinglu Project, Shanxi Coal has begun the necessary steps to apply for the transitional production and coal mine upgrade permits. Shanxi Coal is actively engaged in negotiations with the current mine owners and expects acquisition agreements to be finalized this year. Although it is early in the process, the Company expects total investment required for the target mines assets purchase to be between $130 million to $150 million.
Business Outlook
"In the second half of 2010, we expect our coal washing operations to continue to perform well. Despite some indications of a slow down in the real estate market, we expect China's steel-intensive industries to exhibit strong demand in the second half of the year," said Mr. Zhu. "We are moving forward with our coal mine consolidation projects and will continue the preconstruction work as we await the required government approvals. We believe that we have strong execution capabilities and we expect that we will continue to make substantial progress once the approvals are obtained. We expect to receive the transitional production permit and resume production for the first two Pinglu County mines in the near term. We continue negotiations with the owners of the remaining six coal mines in Pinglu County as well as the four coal mines in Huozhou County."
Upcoming Events
Puda Coal will present at 2010 ROTH Fall Conference in Maui, Hawaii from September 1-6, 2010 and at the Rodman & Renshaw Annual Global Conference in New York, NY from September 12-15, 2010. Management will be available for one-on-one meetings at both conferences.
Conference Call
The Company will host a conference call to discuss its second quarter 2010 financial results on Monday, August 16, 2010 at 10:00 a.m. Eastern Time. To participate in the live conference call, please dial (877) 409-5558 (international callers dial (706) 679 - 8017) approximately five to ten minutes prior to the start of the call and enter passcode 926 861 33. A replay will be available for 14 days starting on Monday, August 16, 2010 at 11:00 a.m. Eastern Time and can be accessed by dialing (800) 642-1687 (international callers dial (706) 645-9291) and entering passcode 926 861 33.
About Puda Coal, Inc.
Puda Coal, through its subsidiaries, supplies premium high grade metallurgical coking coal used to produce coke for steel manufacturing in China. The Company currently possesses 3.5 million metric tons of annual coking coal capacity. The Company has recently moved upstream into coal mining, as a consolidator and acquirer of coal mines in Shanxi Province, including the Pinglu projects and the Jianhe projects. On September 30, 2009, Shanxi Coal, a 90% indirect subsidiary of the Company, was appointed by the Shanxi provincial government as an acquirer and consolidator of eight thermal coal mines located in Pinglu County in southern Shanxi Province. Shanxi Coal plans to consolidate the eight coal mines into five, increasing their total annual capacity from approximately 1.6 million to 3.6 million metric tons. Shanxi Coal received another approval by the Shanxi provincial government to consolidate four additional coking coal mines into one coal mine in Huozhou County. After the completion of the consolidation, the Jianhe project is expected to increase the total annual capacity from 720,000 metric tons to 900,000 metric tons, according to the Shanxi provincial government's approval. For more information, please visit http://www.pudacoalinc.com .
FORWARD-LOOKING STATEMENTS
The information contained herein includes forward-looking statements. These statements relate to future events or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You should not place undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. For example, our expectation that China's steel-intensive industries will exhibit strong demand is subject to the general economic conditions of China, which is not always predictable. In addition, our plan to acquire and consolidate the target coal mines are subject to the risks and uncertainties relating to the market and geological condition, receipt of requisite government approvals, due diligence, negotiation for definitive agreements, etc. which are beyond our control, as well as our management's ability and capacity to execute our coal mine acquisition strategy and manage the coal mine operations. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Use of Non-GAAP Financial Information
GAAP results for the three and six months ended June 30, 2010 and 2009 include non-cash gains and losses related to the change in fair value of the Company's warrants. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release, which are adjusted net income and diluted earnings per share. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company's historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies. Management believes that these adjusted financial measures are useful to investors because they exclude non-cash expenses that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, as these measures provide a consistent method of comparison to historical periods. As a result, the provision of these adjusted measures allows investors to evaluate the Company's performance using the same methodology and information as that used by the Company's management. Moreover, management believes that these adjusted measures reflect the essential operating activities of the Company. Adjusted measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the adjusted financial measure. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded. A reconciliation of each adjusted measures to the nearest GAAP measure appears in the table below.
PUDA COAL, INC. AND SUBSIDIARIES
RECONCILIATION OF ADJUSTED NET INCOME
Three months Ended Six Months Ended
June 30, June 30,
US$ - thousands, except per
share data 2010 2009 2010 2009
Net income from consolidated
statement of operations 8,653 1,729 14,097 3,845
Non-cash adjustment - derivative
unrealized fair
value (gain)/loss for warrants
issued (1,337) 121 (130) 113
Adjusted net income excluding
non-cash item 7,316 1,850 13,967 3,958
Adjusted earnings per share -
diluted $0.36 $0.12 $0.72 $0.26
Weighted average shares
Outstanding - '000 20,360 15,370 19,379 15,361
PUDA COAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2010 and 2009
(In thousands of United States dollars, except per share data)
Three Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2010 2009 2010 2009
NET REVENUE $82,319 $47,990 144,290 97,711
COST OF REVENUE 70,246 44,388 121,943 90,238
GROSS PROFIT 12,073 3,602 22,347 7,473
OPERATING EXPENSES
Selling expenses 850 533 1,488 1,110
General and administrative
expenses 804 404 1,362 745
TOTAL OPERATING EXPENSES 1,654 937 2,850 1,855
INCOME FROM OPERATIONS 10,419 2,665 19,497 5,618
INTEREST INCOME 61 23 83 56
INTEREST EXPENSE (432) (132) (549) (269)
DERIVATIVE UNREALIZED FAIR
VALUE GAIN/(LOSS) 1,337 (121) 130 (113)
INCOME BEFORE INCOME TAXES 11,385 2,435 19,161 5,292
TAXATION (2,732) (706) (5,064) (1,447)
NET INCOME 8,653 1,729 14,097 3,845
OTHER COMPREHENSIVE INCOME
Foreign currency translation
adjustment 794 (30) 708 (196)
COMPREHENSIVE INCOME $9,447 $1,699 $14,805 $3,649
EARNINGS PER SHARE
- BASIC $0.44 $0.11 $0.75 $0.25
- DILUTED $0.36 $0.11 $0.72 $0.25
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
- BASIC 19,812,130 15,353,176 18,830,771 15,343,482
- DILUTED 20,360,158 15,370,319 19,378,799 15,360,625
PUDA COAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2010 and December 31, 2009
(In thousands of United States dollars)
June 30, December 31,
2010 2009
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $70,339 $19,918
Accounts receivable 34,505 25,340
Advances to suppliers
- Related parties 1,088 1,020
- Third parties 4,294 3,552
Inventories 15,582 22,531
Total current assets 125,808 72,361
PREPAYMENTS -- 6,259
PROPERTY, PLANT, EQUIPMENT AND MINING ASSETS 55,109 13,986
INTANGIBLE ASSETS 3,927 3,945
INVESTMENT, AT COST 14,746 14,650
TOTAL ASSETS $199,590 $111,201
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt
- Related party $1,300 $1,300
Accounts payable 7,180 4,839
Other payables
- Related parties 929 1,031
- Third parties 2,705 2,650
Assets acquisition price payable 8,399 --
Accrued expenses 702 1,076
Income taxes payable 2,749 1,091
VAT payable 1,397 1,135
Derivative warrants 2,464 7,620
Total current liabilities 27,825 20,742
LONG-TERM LIABILITIES
Long-term debt
- Related party 41,241 6,500
Total liabilities 69,066 27,242
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, authorized 5,000,000
shares, par value $0.01, issued and
outstanding None -- --
Common stock, authorized 150,000,000
shares, par value $0.001, issued and
outstanding 20,257,665 (2009: 15,828,863) 20 15
Paid-in capital 66,967 35,212
Statutory surplus reserve fund 1,366 1,366
Retained earnings 51,330 37,233
Accumulated other comprehensive income 10,841 10,133
Total stockholders' equity 130,524 83,959
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $199,590 $111,201
PUDA COAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2010 and 2009
(In thousands of United States dollars)
Six months ended June 30,
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $14,097 $3,845
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization of land-use rights 44 44
Depreciation 845 839
Allowance for doubtful debts -- 41
Derivative unrealized fair value (gain)/loss (130) 113
Stock compensation 393 33
Issue of common stock/warrants to directors -- 86
Changes in operating assets and liabilities:
Increase in accounts receivable (8,941) (13,620)
Decrease in other receivables -- 7
(Increase)/decrease in advances to suppliers (775) 2,563
Decrease/(increase) in inventories 7,051 (5,309)
Increase in accounts payable 2,294 1,377
Decrease in accrued expenses (295) (235)
Decrease in other payables (69) (313)
Increase/(decrease) in income tax payable 1,640 (612)
Increase/(decrease) in VAT payable 253 (1,511)
Net cash provided by/(used in) operating
activities 16,407 (12,652)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mining rights and mining assets (27,219) --
Prepayment for equity purchase of coal mine -- (8,781)
Net cash used in investing activities (27,219) (8,781)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of warrants 4,679 --
Issue of common shares 14,538 --
Increase in registered capital of Shanxi Coal 7,041 --
Borrowings from related party 35,391 --
Repayment of long-term debt (650) (650)
Net cash provided by/(used in) financing
activities 60,999 (650)
Effect of exchange rate changes on cash 234 (173)
Net increase/(decrease) in cash and cash
equivalents 50,421 (22,256)
Cash and cash equivalents at beginning of period 19,918 39,108
Cash and cash equivalents at end of period $70,339 $16,852
Supplementary cash flow information
Cash paid during the period for:
Interest $303 $269
Income taxes $3,424 $2,058
For more information, please contact:
Investor Relations Contact:
Elaine Ketchmere, Partner
CCG Investor Relations
Phone: +1-310-954-1345
Email: [email protected]
Crocker Coulson, President
Phone: +1-646-213-1915
Email: [email protected]
Web: http://www.ccgirasia.com
Company Contact:
Laby Wu, Chief Financial Officer, Director of Investor Relations
Puda Coal, Inc.
Phone: +86-10-6439-2405
Email: [email protected]
Web: http://www.pudacoalinc.com
SOURCE Puda Coal, Inc.
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