Exhibit 99.1
China Dredging Group Co., Ltd. Reports Unaudited Third Quarter 2012 Results
FUZHOU, China, December 13, 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 third quarter of 2012.
Nine Months Ended September 30, 2012 Highlights
| · | Revenues of $166.0 million, a 1.1% year-over-year increase |
| · | Gross profit of $89.4 million, a 4.0% year-over-year decrease |
| · | Net income of $60.8 million, a 17.3% year-over-year decrease |
| · | Operating cash flow of $73.3 million, a 21.0% year-over-year increase |
| · | Cash of $210.6 million and working capital of $226.9 million as of September 30, 2012 | |
Three Months Ended September 30, 2012 Highlights
| · | Revenues of $46.9 million, a 17.4% year-over-year decrease |
| · | Gross profit of $25.9 million, an 18.5% year-over-year decrease |
| · | Net income of $17.4 million, a 26.3% year-over-year decrease | |
"I am very pleased that we were able to deliver steady quarterly results in revenue in the third quarter of 2012," said Mr. Xinrong Zhuo, Chairman and Chief Executive Officer of China Dredging. "We expanded our dredging volume in the first half of 2012 and took steps to reconfigure our modern dredging fleet to allow us to continue completing multiple projects simultaneously and to deliver our services more effectively in projects requiring a variety of dredging methods. In September 2012, we entered into a BT project in the Kemen Industrial Zone of Lianjiang County, Fujian Province with an estimated investment of $2 billion. In light of this upcoming project, we stopped leasing dredgers that are not suitable for it and continue to seek opportunities to lease dredgers suitable for our needs. While this transition in our fleet composition impacted our dredging capacity and revenues in third quarter of 2012, we expect to continue to gain recognition and increase 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, as these three dredgers were not suitable for 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 Third Quarter Operating Results
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Contract Revenue | $ | 46,892,465 | $ | 56,796,654 | $ | 165,986,546 | $ | 164,152,489 | ||||||||
| Percentage Change | (17.4 | )% | 1.1 | % | ||||||||||||
Contract revenue increased by $1.8 million, or 1.1% (1.4% without foreign exchange effect), to $166.0 million in the nine months ended September 30, 2012, compared to $164.2 million in the same period of 2011. Contract revenue decreased by $9.9 million, or 17.4% (-18.3% without foreign exchange effect), to $46.9 million in the three months ended September 30, 2012, compared to $56.8 million in the same period of 2011. The year-over-year increase primarily reflected the increase of our dredging and unit construction price. The sequential decrease primarily reflected the decrease in our dredging capacity.
The projects we perform vary in size, span of time and other factors. Accordingly, we measure our business volume by the cubic meters we dredge. Applying the metric to our contract revenue allows us to track trends in unit construction price per cubic meter dredged. The unit construction price for each contract varies and reflects the negotiated price with the contractor for each specific project, depending on the nature of sediments in the river bed, difficulties in the dredging, and other factors specific to the project. We completed 91.1 million cubic meters of dredging volume in the nine months ended September 30, 2012 as compared to 91.9 million cubic meters in the same period of 2011, a 0.9% decrease in dredging volume. We completed 25.9 million cubic meters of dredging volume in the three months ended September 30, 2012 as compared to 31.6 million cubic meters in the same period of 2011, an 18.1% decrease in dredging volume. However, the unit construction price per cubic meter increased by $0.03, or 1.7% (-0.4% without foreign exchange effect), to $1.82 in the nine months ended September 30, 2012 from $1.79 in the same period of 2011, and it increased by $0.01, or 0.6% (-0.3% without foreign exchange effect), to $1.81 in the three months ended September 30, 2012 from $1.80 in the same period of 2011. This increase reflects improved pricing on our dredging projects.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Gross Profit | $ | 25,949,976 | $ | 31,840,457 | $ | 89,448,828 | $ | 93,209,439 | ||||||||
| Gross Profit Margin | 55.3 | % | 56.1 | % | 53.9 | % | 56.8 | % | ||||||||
Gross profit decreased by $3.8 million, or 4.0% (-6.3% without foreign exchange effect), to $89.4 million in the nine months ended September 30, 2012, compared to $93.2 million in the same period of 2011. Gross profit decreased by $5.9 million, or 18.5% (-19.2% without foreign exchange effect), to $25.9 million in the three months ended September 30, 2012, compared to $31.8 million in the same period of 2011. Our cost of contract revenue for three months ended September 30, 2012 decreased by $4.0 million, or 16.1% (-17.2% without foreign exchange effect), to $20.9 million, from $25.0 million for the same period of 2011. Our cost of contract revenue for nine months ended September 30, 2012 increased by $5.6 million, or 7.9% (5.0% without foreign exchange effect), to $76.5 million, from $70.9 million for the same period of 2011. These changes in our cost of contract revenue primarily reflected the size of our fleet of vessels, including the decrease of three vessels in the third quarter of 2012, as well as general increases in consumable parts’ prices and growth of use. As a percentage of revenue, our cost of contract revenue increased from 43.9% for the three months ended September 30, 2011 to 44.7% for the same period of 2012, and it increased from 43.2% for the nine months ended September 30, 2011 to 46.1% the same period of 2012. Our average unit construction cost in the nine months ended September 30, 2012 increased by 9.1% (6.0% without foreign exchange effect) compared to the same period of 2011. Our average unit construction cost in the three months ended September 30, 2012 increased by 2.5% (1.0% without foreign exchange effect) compared to the same period of 2011. Our gross profit margin decreased from 56.8% to 53.9%, or a 2.9% decrease, between the nine months ended September 30, 2012 and 2011, respectively, and decreased from 56.1% to 55.3%, or a 0.8% decrease, between the three months ended September 30, 2012 and 2011.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| General and Administrative Expenses | $ | 1,900,068 | $ | 2,104,946 | $ | 6,544,286 | $ | 6,256,870 | ||||||||
| Percentage Change | (9.7 | )% | 4.6 | % | ||||||||||||
General and administrative expenses increased 4.6% from $6.3 million, or 3.8% of revenues, in the nine months ended September 30, 2011 to $6.5 million, or 3.9% of revenues, in the same period of 2012. The increase in general and administrative expenses were primarily attributable to an increase in business tax levied in the PRC based on revenue of $0.4 million, offset by our reduced fleet size in the third quarter of 2012. General and administrative expenses decreased 9.7% from $2.1 million, or 3.7% of revenues, in the three months ended September 30, 2011 to $1.9 million, or 4.1% of revenues in the same period of 2012. We also had an aggregate of $0.2 million of non-recurring restructuring expenses in the nine months ended September 30, 2012, which mainly reflected auditor and legal fees.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Gain on Obligation under Make-Good Escrow | $ | - | $ | 1,360,836 | $ | - | $ | 13,794,643 | ||||||||
| Loss on Derivative | $ | (747,839 | ) | $ | (158,736 | ) | $ | (1,669,516 | ) | $ | (5,643,319 | ) | ||||
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For the three and nine months ended September 30, 2012, we had $0.7 million and $1.7 million, respectively, 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 net gains of $1.2 million and $8.2 million, respectively, for the same periods of 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 and nine months ended September 30, 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 decreased by 24.4% and 14.3% for the three and nine months ended September 30, 2012, compared to the same periods of 2011. Income tax expense decreased by $1.4 million, or 18.3%, to $6.1 million for the three months ended September 30, 2012, compared to $7.5 million for the same period of 2011. Income tax expense decreased by $0.9 million, or 4.2%, to $21.0 million for the nine months ended September 30, 2012, compared to $21.9 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 September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net Income | $ | 17,375,250 | $ | 23,589,921 | $ | 60,773,049 | $ | 73,524,887 | ||||||||
| Percentage Change | (26.3 | )% | (17.3 | )% | ||||||||||||
| Earnings per Diluted Ordinary Share | $ | 0.28 | $ | 0.38 | $ | 0.97 | $ | 1.17 | ||||||||
As a result of the foregoing, our net income decreased by $6.2 million, or 26.3% (-26.8% without foreign exchange effect), to $17.4 million for the three months ended September 30, 2012, compared to $23.6 million for the same period of 2011. Our net income decreased by $12.8 million, or 17.3% (19.3% without foreign exchange effect), to $60.8 million for the nine months ended September 30, 2012, compared to $73.5 million for the same period of 2011.
As of September 30, 2012, we had cash of $210.6 million, total current assets $249.9 million, total assets of $343.6 million, total current liabilities of $23.0 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 nine months ended September 30, 2012 of $73.3 million, primarily attributable to the decrease in accounts receivable 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.
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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
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| CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES | |||||
| CONSOLIDATED BALANCE SHEETS | |||||
| (IN US DOLLARS) | |||||
| September 30, 2012 | December 31, 2011 | |||||||||||
| (Unaudited) | ||||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash | $ | 210,552,835 | $ | 112,409,544 | ||||||||
| Accounts receivable | 20,922,369 | 27,020,183 | ||||||||||
| Cost and estimated earnings in excess of billings on contracts in progress | 14,031,818 | 14,008,972 | ||||||||||
| Prepaid expenses | 516,415 | 4,767,072 | ||||||||||
| Inventories | 3,909,325 | 2,048,158 | ||||||||||
| Other receivables | 3,909 | 3,364 | ||||||||||
| Total current assets | 249,936,671 | 160,257,293 | ||||||||||
| Other assets | ||||||||||||
| Prepaid dredger deposits | 23,071,538 | 23,038,180 | ||||||||||
| Security deposits | 24,869,526 | 48,872,718 | ||||||||||
| Dredger, machinery and equipment, net | 45,713,566 | 51,131,051 | ||||||||||
| Total other assets | 93,654,630 | 123,041,949 | ||||||||||
| Total assets | $ | 343,591,301 | $ | 283,299,242 | ||||||||
| Liabilities and equity | ||||||||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Accounts payable | $ | 3,658,297 | $ | 3,653,008 | ||||||||
| Income tax payable | 6,143,998 | 8,295,538 | ||||||||||
| Accrued liabilities and other payables | 3,070,680 | 4,045,227 | ||||||||||
| Advance from a shareholder | 182,163 | - | ||||||||||
| Advance from related companies | - | 13,664 | ||||||||||
| Derivative liability | 9,949,343 | 8,279,827 | ||||||||||
| Total current liabilities | 23,004,481 | 24,287,264 | ||||||||||
| Total liabilities | 23,004,481 | 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 September 30, 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 September 30, 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 | 159,332,145 | 98,559,096 | ||||||||||
| Accumulated other comprehensive income | 16,618,140 | 15,816,347 | ||||||||||
| Total shareholders' equity | 270,521,885 | 208,947,043 | ||||||||||
| Total liabilities and equity | $ | 343,591,301 | $ | 283,299,242 | ||||||||
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| CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||||
| (IN US DOLLARS) | ||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Contract revenue, including revenue from customers under control of a common parent company for the three months ended September 30 (2012: $23,914,205, 2011: $38,761,883); for the nine months ended September 30 (2012: $93,788,205, 2011: $102,952,419) | $ | 46,892,465 | $ | 56,796,654 | $ | 165,986,546 | $ | 164,152,489 | ||||||||
| Cost of contract revenue, including depreciation for the three months ended September 30 (2012: $1,837,337, 2011: $1,817,573); for the nine months ended September 30 (2012: $5,520,575, 2011: $5,326,748) | (20,942,489 | ) | (24,956,197 | ) | (76,537,718 | ) | (70,943,050 | ) | ||||||||
| Gross profit | 25,949,976 | 31,840,457 | 89,448,828 | 93,209,439 | ||||||||||||
| General and administrative expenses | (1,900,068 | ) | (2,104,946 | ) | (6,544,286 | ) | (6,256,870 | ) | ||||||||
| Income from operations | 24,049,908 | 29,735,511 | 82,904,542 | 86,952,569 | ||||||||||||
| Other income/(expense): | ||||||||||||||||
| Interest income | 169,988 | 115,254 | 498,666 | 310,309 | ||||||||||||
| Gain on obligation under "Make-Good Escrow" | - | 1,360,836 | - | 13,794,643 | ||||||||||||
| Loss on derivative | (747,839 | ) | (158,736 | ) | (1,669,516 | ) | (5,643,319 | ) | ||||||||
| Total other (expense)/income | (577,851 | ) | 1,317,354 | (1,170,850 | ) | 8,461,633 | ||||||||||
| Income before income taxes | 23,472,057 | 31,052,865 | 81,733,692 | 95,414,202 | ||||||||||||
| Income tax expense | (6,096,807 | ) | (7,462,944 | ) | (20,960,643 | ) | (21,889,315 | ) | ||||||||
| Net income | 17,375,250 | 23,589,921 | 60,773,049 | 73,524,887 | ||||||||||||
| Accretion of discount on Class A Preferred Shares | - | - | - | (6,135,012 | ) | |||||||||||
| Net income attributable to ordinary shareholders | $ | 17,375,250 | $ | 23,589,921 | $ | 60,773,049 | $ | 67,389,875 | ||||||||
| Earnings per ordinary share | ||||||||||||||||
| - Basic | $ | 0.33 | $ | 0.45 | $ | 1.15 | $ | 1.28 | ||||||||
| - Diluted | $ | 0.28 | $ | 0.38 | $ | 0.97 | $ | 1.17 | ||||||||
| Weighted average number of ordinary shares outstanding | ||||||||||||||||
| - Basic | 52,677,323 | 52,677,323 | 52,677,323 | 52,677,323 | ||||||||||||
| - Diluted | 62,690,310 | 62,690,310 | 62,690,310 | 62,690,310 | ||||||||||||
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| CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES | ||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) | ||||||
| (IN US DOLLARS) | ||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net income attributable to ordinary shareholders | $ | 17,375,250 | $ | 23,589,921 | $ | 60,773,049 | $ | 67,389,875 | ||||||||
| Other comprehensive income | ||||||||||||||||
| Foreign currency translation gain | 3,729,425 | 3,043,591 | 801,793 | 7,175,065 | ||||||||||||
| Total comprehensive income | $ | 21,104,675 | $ | 26,633,512 | $ | 61,574,842 | $ | 74,564,940 | ||||||||
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| CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES | ||||||
| CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) | ||||||
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 | ||||||
| (IN US DOLLARS) | ||||||
| Ordinary Shares, with no Par Value | Additional | Accumulated other | Total | |||||||||||||||||||||||||
| Number of Shares | Amount | Statutory reserves | paid-in capital | Retained earnings | comprehensive income | shareholders' 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 | - | - | - | - | 60,773,049 | - | 60,773,049 | |||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | - | 801,793 | 801,793 | |||||||||||||||||||||
| Balance as of September 30, 2012 | 52,677,323 | $ | - | $ | 15,386,316 | $ | 79,185,284 | $ | 159,332,145 | $ | 16,618,140 | $ | 270,521,885 | |||||||||||||||
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| CHINA DREDGING GROUP CO., LTD AND SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||
| (IN US DOLLARS) | ||||
| For the Nine Months Ended September 30, | ||||||||
| 2012 | 2011 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 60,773,049 | $ | 73,524,887 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation of dredger, machinery and equipment | 5,521,692 | 5,327,837 | ||||||
| Gain on obligation under "Make-Good Escrow" | - | (13,794,643 | ) | |||||
| Loss on derivative | 1,669,516 | 5,643,319 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 6,101,310 | 2,430,872 | ||||||
| Cost and estimated earnings in excess of billings on contracts in progress | (2,547 | ) | (9,450,576 | ) | ||||
| Other receivables | (536 | ) | (1,848 | ) | ||||
| Prepaid expenses | 4,232,841 | - | ||||||
| Inventories | (1,847,413 | ) | (6,864,939 | ) | ||||
| Accounts payable | - | (440,496 | ) | |||||
| Income tax payable | (2,150,990 | ) | 2,447,127 | |||||
| Accrued liabilities and other payables | (974,877 | ) | 1,766,199 | |||||
| Net cash provided by operating activities | 73,322,045 | 60,587,739 | ||||||
| Cash flows from investing activities: | ||||||||
| Deposits paid for dredgers | - | (20,053,063 | ) | |||||
| Changes in security deposits | 23,934,193 | (25,606,220 | ) | |||||
| Purchase of dredger, machinery and equipment | - | (1,892,255 | ) | |||||
| Net cash provided by/(used in) investing activities | 23,934,193 | (47,551,538 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Cash paid for deferred offering expenses | - | (1,023,702 | ) | |||||
| Advance to related companies | (13,604 | ) | - | |||||
| Advance from a shareholder | 182,163 | - | ||||||
| Net cash provided by/(used in) financing activities | 168,559 | (1,023,702 | ) | |||||
| Net increase in cash | 97,424,797 | 12,012,499 | ||||||
| Effect of exchange rate | 718,494 | 2,991,502 | ||||||
| Cash at the beginning of the period | 112,409,544 | 88,532,472 | ||||||
| Cash at the end of the period | $ | 210,552,835 | $ | 103,536,473 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid: | ||||||||
| Income tax paid | $ | 23,111,634 | $ | 19,442,187 | ||||
| Supplemental disclosures of non-cash transactions: | ||||||||
| Accretion of discount on Class A Preferred Shares | $ | - | $ | 6,135,012 | ||||
| Transfer of deposits paid for dredgers to dredger, machinery and equipment | $ | - | $ | 12,717,173 | ||||
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