China Recycling Energy Corporation Reports Third Quarter 2014 Financial Results
Interest Income on Sales-Type Leases Increased by 35.8% Year-over-Year
XI'AN, China, Nov. 14, 2014 /PRNewswire-FirstCall/ -- China Recycling Energy Corp. (NASDAQ: CREG; "CREG" or "the Company"), a leading industrial waste-to-energy solution provider in China, today announced its unaudited financial results for the third quarter ended September 30, 2014.
Third Quarter 2014 Financial Highlights
- Interest income on sales-type leases increased by 35.8% to US$7.07 million from US$5.20 million for the third quarter of 2013.
- Total sales were US$0.24 million, compared with US$21.74 million for the third quarter of 2013.
- Net income was US$4.77 million, increased by 8.5% as compared with US$4.39 million for the third quarter of 2013.
- Basic and fully diluted earnings per share (EPS) was US$0.07, as compared with US$0.08 for the third quarter of 2013.
Summary of Financial Results:
| (US$ in thousands, except for per share data) |
Three Months Ended September 30 |
|
| 2014 |
2013 |
|
| Total Sales (1) + (2) |
245 |
21,739 |
| (1) Sales of Systems |
- |
21,389 |
| (2) Contingent Rental Income |
245 |
349 |
| Gross Profit |
245 |
5,259 |
| Interest Income on Sales-Type Leases |
7,068 |
5,205 |
| Total Operating Income |
7,313 |
10,464 |
| Net Income |
4,767 |
4,394 |
| Basic EPS |
0.07 |
0.08 |
| Diluted EPS |
0.07 |
0.08 |
Mr. Guohua Ku, Chairman and CEO of CREG commented, "We are very pleased to report a 36% year-over-year growth in interest income on sale-type leases which constitute the major and consistent revenue stream for the Company. While we experienced the early termination of a lease contract for a TRT system to Zhangzhi, which happened under very unique circumstances, we believe this is an isolated case. From a revenue standpoint going forward, the lease contract signed with Yida at the end of the second quarter more than offsets the annual loss from the early termination and we expect to soon add to revenue with the completion of one project by the end of this fourth quarter. Another four more projects are expected to be completed in 2015 and one in the first half of 2016. Once completed, these six projects will bring our total capacity to 267 MW, approximately double our current level."
Third Quarter 2014 Financial Results
SALES. Total sales, including sales of systems and contingent rental income, were US$0.24 million for the third quarter of 2014, as compared with US$21.74 million for the same period of 2013, a decrease of $21.49 million as the Company did not recognize any system sales revenue since no projects were completed in the third quarter of 2014.
Sales of systems for the third quarter of 2014 were US$0, as compared with US$21.39 million for the same period of 2013 as no power generation system was completed in the quarter. In comparison, in the same period of 2013, the Pucheng Biomass Phase II system was completed and sold. For the three months ended September 30, 2014, the Company received contingent rental income of US$0.24 million from the usage of electricity in addition to the minimum lease payments, compared to US$0.35 million for the comparable period in 2013. For sales-type leases, sales and cost of sales are recorded at the time of the lease commencement; in addition to systems sales revenue, CREG's other major source of revenues is interest income from sales-type leases.
COST OF SALES. Cost of sales for the third quarter of 2014 was US$0, as compared with US$16.48 million in the same period of 2013. This decrease was mainly due to the lack of the completion and sales of any power generation systems for the third quarter of 2014, in comparison to the same period in 2013 when the Pucheng Biomass Phase II system was sold.
GROSS PROFIT and GROSS MARGIN. Gross profit was US$0.24 million for the third quarter of 2014, as compared with US$5.26 million for the same period of 2013. Blended gross margin for the third quarter of 2014 was 100%, compared with 24% for the same period of 2013. The increased profit margin for the third quarter of 2014 was mainly attributable to all the sales generated from contingent rental income and no cost of sales occurred in the quarter.
INTEREST INCOME ON SALES TYPE LEASES. Interest income on sales-type leases, which is a major and consistent regular revenue for the Company, was US$7.07 million for the third quarter of 2014, an increase of 35.8% from US$5.20 million for the same period of 2013. During the third quarter of 2014, interest income was derived from fifteen sales-type leases, including TRT system to Zhangzhi (13 year term originally, early terminated on September 24, 2014), BMPG systems to Pucheng Phase I and II (15 year and 11.9 year term, respectively), BMPG systems to Shenqiu Phase I and II (11 year and 9.5 year term, respectively), five power and steam generating systems to Erdos (20 year term), WHPG system of Zhongbao (9 year term), WHPG systems of Jitie (24 year term), two BPRT systems to Datong (30 year term), and WGPG system to Yida (15 years). In comparison, during the same period of 2013, interest income was derived from fourteen systems.
OPERATING EXPENSES. Operating expenses totaled US$0.86 million for the third quarter of 2014, a decrease of 8.4% as compared with US$0.93 million in the same period of 2013. The decrease was mainly due to a decrease in consulting expense, but slightly offset with certain rental and office expenses.
NON-OPERATING INCOME (EXPENSES). Non-operating expenses consisted of non-sales-type lease interest income, interest expenses, bank charges and miscellaneous expenses. For the third quarter of 2014, net non-operating expenses were US$0.13 million, compared with US$3.52 million for the same period of 2013. During the third quarter of 2014, the Company had US$0.61 million interest expense on loans, US$0.93 million income from sale of TRT system to Zhangzhi, but offset with US$0.48 million financial expense including an amortized consulting fee of US$0.38 million for the Company's Zhonghong funding project.
INCOME TAX EXPENSE. Income tax expense was US$1.58 million for the three months ended September 30, 2014, decreased by 3.2% as compared with US$1.64 million for the same period of 2013. The decrease in income tax expense was mainly due to a decrease in consolidated effective income tax rate, which was 25.0% for the three months ended September 30, 2014, compared with 27.2% for the same period of 2013.
NET INCOME. Net income for the third quarter of 2014 was US$4.77 million, an increase of 8.5% as compared with US$4.39 million for the same period of 2013. This increase in net income was mainly due to the increased interest income on sales-type leases and decreased non-operating expenses compared with the same period of 2013.
For the third quarter of 2014, basic and fully diluted EPS was US$0.07, compared with US$0.08 in the same period of 2013.
Financial Position as of September 30, 2014
As of September 30, 2014, the Company had cash and cash equivalents of US$16.38 million. Other current assets were US$21.32 million and current liabilities were US$39.66 million. Total shareholders' equity was US$201.21 million, as compared with US$154.68 million as of December 31, 2013.The net tangible asset per share was US$2.42 as of September 30, 2014.
Net Investment in Sales-Type Leases as of September 30, 2014
The components of the net investment in sales-type leases as of September 30, 2014 and December 31, 2013 are as follows:
| (US$) |
September 30, 2014 |
December 31, 2013 |
| Total future minimum lease payments receivable |
592,692,876 |
560,187,391 |
| Less: executory cost |
(126,030,082) |
(134,447,605) |
| Less: unearned interest income |
(276,999,872) |
(241,234,839) |
| Net investment in sales - type leases |
189,662,922 |
184,504,947 |
| Current portion |
7,523,075 |
9,063,386 |
| Noncurrent portion |
182,139,847 |
175,441,561 |
As of September 30, 2014, the future minimum rentals to be received on non-cancelable sales-type leases by years were as follows:
| 2014 |
43,610,006 |
| 2015 |
42,492,436 |
| 2016 |
42,492,436 |
| 2017 |
42,446,445 |
| 2018 |
42,308,471 |
| Thereafter |
379,343,082 |
| Total |
US$592,692,876 |
Recent Business Development
At the end of August, 2014, the Company announced that its Chairman and CEO, Mr. Guohua Ku, had entered into a Share Purchase Agreement ("SPA") with the Company on August 27, 2014 to purchase 13,829,074 shares of common stock of the Company (the "Shares") at the market price. Under the SPA, the Company shall issue and sell the Shares to Mr. Ku at US$1.37 per share, the average closing price quoted on the NASDAQ Global Market for the common stock of the Company for the 15 trading days prior to the effective date of the SPA.
At the end of September, 2014, the Company announced that its Top Gas Recovery Turbine System ("TRT System") originally leased to Zhangzhi Iron and Steel Holdings Ltd. ("Zhangzhi") was transferred to Zhangzhi for a price of about US$5.69 million (RMB35.0 million) on September 24, 2014.
Financial Results Conference Call
The Company will host a conference call at 8:00 a.m. EST on Friday, November 14, 2014, to discuss the Company's third quarter 2014 financial results. Mr. Guohua Ku, Chief Executive Officer, and Mr. David Chong, Chief Financial Officer, will be hosting the call.
Listeners may access the call by dialing:
International: +1-412-902-4272
US Toll Free: 1-888-346-8982
China Toll Free: 4001-201203
Conference Reference: China Recycling Energy Corp. conference call
A telephone replay will be available shortly after the call until November 21, 2014 by dialing the following numbers:
International: +1-412-317-0088
US Toll Free: 1-877-344-7529
Replay Access Code: 10056154
10Q Filing
For more information regarding China Recycling Energy Corp.'s financial performance during the third quarter ended September 30, 2014, please refer to the Quarterly Report on Form 10-Q, which was filed with the Securities and Exchange Commission on November 14, 2014.
About China Recycling Energy Corp.
China Recycling Energy Corp. (NASDAQ: CREG or "the Company") is based in Xi'an, China and provides environmentally friendly waste-to-energy technologies to recycle industrial byproducts for steel mills, cement factories and coke plants in China. Byproducts include heat, steam, pressure, and exhaust to generate large amounts of lower-cost electricity and reduce the need for outside electrical sources. The Chinese government has adopted policies to encourage the use of recycling technologies to optimize resource allocation and reduce pollution. Currently, recycled energy represents only an estimated 1 percent of total energy consumption and this renewable energy resource is viewed as a growth market due to intensified environmental concerns and rising energy costs as the Chinese economy continues to expand. The management and engineering teams have over 20 years of experience in industrial energy recovery in China. For more information about CREG, please visit http://www.creg-cn.com.
Safe Harbor Statement
This press release may contain certain "forward-looking statements" relating to the business of China Recycling Energy Corp. and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements." These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website at http://www.sec.gov. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.
For more information, please contact:
Mr. David Chong, Chief Financial Officer
China Recycling Energy Corp.
Tel: +86-1370-1813139; +65-9721 6163
Email: [email protected]
Christensen
Ms. Xiaoyan Su (China)
Vice President
Tel: +86-10-5900-1548
Email: [email protected]
Mr. Christian Arnell (China)
Vice President
Phone: +86-10-5900-1548
E-mail: [email protected]
| CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES |
||
| CONSOLIDATED BALANCE SHEETS |
||
| AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013 |
||
| 2014 |
2013 |
|
| (UNAUDITED) |
||
| ASSETS |
||
| CURRENT ASSETS |
||
| Cash and equivalents |
$ 16,380,089 |
$ 7,701,530 |
| Restricted cash |
6,501,970 |
2,296,249 |
| Accounts receivable |
4,061,552 |
71,573 |
| Current portion of investment in sales type leases, net |
7,523,075 |
9,063,386 |
| Interest receivable on sales type leases |
973,244 |
765,010 |
| Prepaid expenses |
1,442,725 |
1,045,802 |
| Other receivables |
734,571 |
1,813,220 |
| Notes receivable |
- |
656,071 |
| Prepaid loan fees - current |
82,893 |
83,649 |
| Total current assets |
37,700,119 |
23,496,490 |
| NON-CURRENT ASSETS |
||
| Prepaid loan fees - noncurrent |
62,170 |
125,474 |
| Investment in sales type leases, net |
182,139,847 |
175,441,561 |
| Long term investment |
773,492 |
738,513 |
| Long term deposit |
381,593 |
385,073 |
| Property and equipment, net |
27,516 |
44,243 |
| Construction in progress |
143,531,342 |
83,719,596 |
| Total non-current assets |
326,915,960 |
260,454,460 |
| TOTAL ASSETS |
$ 364,616,079 |
$ 283,950,950 |
| LIABILITIES AND STOCKHOLDERS' EQUITY |
||
| CURRENT LIABILITIES |
||
| Accounts payable |
$ 1,326,988 |
$ 2,642,663 |
| Notes payable - bank acceptances |
13,327,915 |
5,740,622 |
| Taxes payable |
2,402,938 |
1,560,829 |
| Accrued liabilities and other payables |
2,461,426 |
1,517,191 |
| Due to related parties |
40,938 |
2,420,391 |
| Deferred tax liability |
1,263,567 |
1,442,317 |
| Loans payable - current |
17,066,233 |
14,925,618 |
| Interest payable on entrusted loans |
257,912 |
287,887 |
| Current portion of long term payable |
1,514,711 |
1,441,051 |
| Total current liabilities |
39,662,628 |
31,978,569 |
| NONCURRENT LIABILITIES |
||
| Deferred tax liability, net |
13,453,837 |
11,884,068 |
| Refundable deposit from customers for systems leasing |
1,641,609 |
1,164,526 |
| Long term payable |
1,216,748 |
2,385,422 |
| Loans payable |
44,876,067 |
18,862,045 |
| Entrusted loan payable |
62,088,581 |
62,654,792 |
| Shares to be issued |
187,500 |
- |
| Total noncurrent liabilities |
123,464,342 |
96,950,853 |
| Total liabilities |
163,126,970 |
128,929,422 |
| CONTINGENCIES AND COMMITMENTS |
||
| STOCKHOLDERS' EQUITY |
||
| Common stock, $0.001 par value; 100,000,000 shares |
83,009 |
60,910 |
| authorized, 83,009,035 and 60,910,058 shares issued and |
||
| Additional paid in capital |
111,517,577 |
78,130,053 |
| Statutory reserve |
11,302,459 |
9,672,754 |
| Accumulated other comprehensive income |
14,856,552 |
16,209,403 |
| Retained earnings |
63,452,760 |
50,603,291 |
| Total Company stockholders' equity |
201,212,357 |
154,676,411 |
| Noncontrolling interest |
276,752 |
345,117 |
| Total equity |
201,489,109 |
155,021,528 |
| TOTAL LIABILITIES AND EQUITY |
$ 364,616,079 |
$ 283,950,950 |
| 2.42 |
2.54 |
|
| CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES |
|||||
| CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) |
|||||
| NINE MONTHS ENDED SEPTEMBER 30, |
THREE MONTHS ENDED SEPTEMBER 30, |
||||
| 2014 |
2013 |
2014 |
2013 |
||
| (UNAUDITED) |
(UNAUDITED) |
||||
| Revenue |
|||||
| Sales of systems |
$ 18,861,570 |
$ 49,092,120 |
$ - |
$ 21,389,320 |
|
| Contingent rental income |
674,651 |
899,582 |
244,916 |
349,248 |
|
| Total revenue |
19,536,221 |
49,991,702 |
244,916 |
21,738,568 |
|
| Cost of sales |
|||||
| Cost of contingent rental income and systems |
14,573,699 |
37,882,123 |
- |
16,479,275 |
|
| Total cost of sales |
14,573,699 |
37,882,123 |
- |
16,479,275 |
|
| Gross profit |
4,962,522 |
12,109,579 |
244,916 |
5,259,293 |
|
| Interest income on sales-type leases |
19,489,142 |
13,758,083 |
7,068,142 |
5,204,537 |
|
| Total operating income |
24,451,664 |
25,867,662 |
7,313,058 |
10,463,830 |
|
| Operating expenses |
|||||
| General and administrative |
2,463,693 |
2,700,589 |
855,490 |
934,029 |
|
| Total operating expenses |
2,463,693 |
2,700,589 |
855,490 |
934,029 |
|
| Income from operations |
21,987,971 |
23,167,073 |
6,457,568 |
9,529,801 |
|
| Non-operating income (expenses) |
|||||
| Interest income |
80,069 |
185,511 |
23,269 |
32,279 |
|
| Interest expense |
(2,471,733) |
(4,498,766) |
(610,140) |
(1,711,077) |
|
| Investment income |
17,138 |
- |
3,870 |
- |
|
| Other income (expenses) |
(376,555) |
(1,843,018) |
454,936 |
(1,845,891) |
|
| Total non-operating expenses, net |
(2,751,081) |
(6,156,273) |
(128,065) |
(3,524,689) |
|
| Income before income tax |
19,236,890 |
17,010,800 |
6,329,503 |
6,005,112 |
|
| Income tax expense |
4,823,037 |
5,363,136 |
1,583,868 |
1,636,266 |
|
| Income before noncontrolling interest |
14,413,853 |
11,647,664 |
4,745,635 |
4,368,846 |
|
| Less: income (loss) attributable to noncontrolling interest |
(65,321) |
222,348 |
(21,457) |
(24,936) |
|
| Net income attributable to China Recycling Energy Corp |
14,479,174 |
11,425,316 |
4,767,092 |
4,393,782 |
|
| Other comprehensive items |
|||||
| Foreign currency translation gain (loss) |
(1,352,851) |
3,309,105 |
121,422 |
948,570 |
|
| Foreign currency translation gain (loss) |
(3,044) |
79,263 |
(156) |
1,110 |
|
| Comprehensive income attributable to China Recycling Energy Corp |
$ 13,126,323 |
$ 14,734,421 |
$ 4,888,514 |
$ 5,342,352 |
|
| Comprehensive income (loss) attributable to noncontrolling interest |
$ (68,365) |
$ 301,611 |
$ (21,613) |
$ (23,826) |
|
| Basic weighted average shares outstanding |
65,117,458 |
51,472,254 |
73,088,178 |
53,927,370 |
|
| Diluted weighted average shares outstanding |
65,156,367 |
52,179,389 |
73,088,178 |
54,942,648 |
|
| Basic earnings per share |
$ 0.22 |
$ 0.22 |
$ 0.07 |
$ 0.08 |
|
| Diluted earnings per share |
$ 0.22 |
$ 0.22 |
$ 0.07 |
$ 0.08 |
|
| CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES |
||
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
||
| NINE MONTHS ENDED SEPTEMBER 30, |
||
| 2014 |
2013 |
|
| (UNAUDITED) |
||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||
| Income including noncontrolling interest |
$ 14,413,853 |
$ 11,647,664 |
| Adjustments to reconcile income including noncontrolling |
||
| interest to net cash used in operating activities: |
||
| Changes in sales type leases receivables |
(18,861,570) |
(49,092,120) |
| Shares issued for the cost of system purchase |
14,491,450 |
16,481,108 |
| Stock compensation for IR service |
187,500 |
- |
| Depreciation and amortization |
18,510 |
34,983 |
| Amortization of prepaid loan fees |
62,242 |
61,549 |
| Investment income |
(17,138) |
- |
| Changes in deferred tax |
1,513,196 |
2,503,693 |
| Changes in assets and liabilities: |
||
| Interest receivable on sales type leases |
(215,396) |
148,522 |
| Collection of principal on sales type leases |
12,028,342 |
7,735,644 |
| Prepaid expenses |
(406,843) |
(1,298,550) |
| Accounts receivable |
(3,995,237) |
(28,660) |
| Other receivables |
1,038,927 |
(1,032,584) |
| Construction in progress |
(60,638,295) |
(54,464,836) |
| Accounts payable |
6,354,711 |
2,127,152 |
| Taxes payable |
857,203 |
588,265 |
| Interest payable on entrusted loans |
(27,405) |
3,233,632 |
| Accrued liabilities and other payables |
954,857 |
(355,792) |
| Accrued interest on convertible notes |
- |
(383,929) |
| Refundable deposit from customers for systems leasing |
488,170 |
547,099 |
| Net cash used in operating activities |
(31,752,923) |
(61,547,160) |
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||
| Changes of restricted cash |
(4,231,355) |
(542,593) |
| Acquisition of property and equipment |
(2,164) |
(21,437) |
| Increased investment in subsidiary |
- |
(1,287,291) |
| Distribution to acquire noncontrolling interest |
- |
(226,585) |
| Long term investment |
- |
(12,629,936) |
| Net cash used in investing activities |
(4,233,519) |
(14,707,842) |
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||
| Notes receivable |
650,893 |
(643,646) |
| Proceeds from loans |
41,673,447 |
78,363,853 |
| Repayment of loans |
(13,180,590) |
(15,835,050) |
| Long term payable |
(1,061,660) |
(974,262) |
| Contribution from noncontrolling interest |
- |
400,669 |
| Proceeds from shares issued |
18,918,173 |
- |
| Advance from related parties |
(2,360,953) |
4,000,257 |
| Net cash provided by financing activities |
44,639,310 |
65,311,821 |
| EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS |
25,691 |
799,081 |
| NET INCREASE (DECREASE) IN CASH & EQUIVALENTS |
8,678,559 |
(10,144,100) |
| CASH & EQUIVALENTS, BEGINNING OF PERIOD |
7,701,530 |
45,004,304 |
| CASH & EQUIVALENTS, END OF PERIOD |
$ 16,380,089 |
$ 34,860,204 |
| Supplemental cash flow data: |
||
| Income tax paid |
$ 2,460,646 |
$ 2,712,123 |
| Interest paid |
$ 10,104,826 |
$ 6,777,997 |
SOURCE China Recycling Energy Corp.
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