China Dredging 6-K China Dredging Group Co., Ltd. Reports Unaudited First Quarter 2012 Results

China Dredging Group Co., Ltd. Reports Unaudited First Quarter 2012 Results

FUZHOU, China, Sep. 21, 2012  /PRNewswire-Asia/ — 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 monthsended 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 PRCbased 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.

CONTACT: Alfred Ho, CFO of China Dredging, +86-591-8727-1266

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
Total comprehensive income	$	21,512,814		$	22,327,843

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
	with no Par Value										other			Total
	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