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China New Energy Ltd (CNEL)

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Wednesday 02 May, 2012

China New Energy Ltd

Final Results

RNS Number : 5352C
China New Energy Ltd
02 May 2012
 



 


2 May 2012

China New Energy Limited

("CNE" or the "Company" or the "Group")

 

 

China New Energy Limited (AIM: CNEL), the engineering and technology solutions provider to the bioenergy sector, announces audited full year results for the year ended 31 December 2011.

 

HIGHLIGHTS

 

Financial

·       Revenue up by 29.4% to RMB179m (£17.6m) (2010: RMB138.4m (£13.6m))

·       Profit before tax increased by 9% to RMB25.8m (£2.5m) (2010 RMB23.7m (£2.3m))

 

Operational

·       International business expanded as large proportion of revenue (approximately 40%) achieved through EPC contracts outside of China

·       Agreement of Intent entered into with JEIC, post year end, to modify and convert an existing ethanol facility into a "second generation" 50,000 tonne plant capable of converting cellulosic plant waste into biofuel

 

Mr. Weijun Yu, Executive Chairman of CNE, commented; "It has been a very satisfactory year with strong growth in revenue through demonstration of our competitiveness outside of China.  Against this background the management team will continue to target growth internationally in addition to identifying new revenue streams that can provide complementary and sustainable growth.  In the Board's view, CNE is poised to capture the opportunities presented by growing demand for second generation biofuel and we remain confident that the Company will continue to deliver and achieve profitable growth in 2012."

 

For further Information:-

 

China New Energy Limited

www.chinanewenergy.co.uk

Richard Bennett

Tel: 020 7148 3148

Shiang Peow Foo

   +65 9623 8948


 

Cairn Financial Advisers LLP (NOMAD)

Tel: 020 7148 7900

Jo Turner / Liam Murray     


 

SVS Securities plc (Joint Broker)

Tel: 020 7638 5600

Alex Mattey / Ian Callaway


 

VSA Capital Limited (Joint Broker)

Tel: 020 3005 5000

Charlie Wilson / Andrew Raca


 

Newgate Threadneedle

Tel: 020 7653 9850

Graham Herring/Terry Garrett/ Alex White

 

 

Chairman's Statement

 

I am pleased to report the Company's first full year results since joining the London AIM market in May 2011. In the year to 31 December 2011, China New Energy achieved a very satisfactory result with a strong 29.4% growth in revenue to RMB179 million (£17.6m) while the total value of contracts secured in the period was RMB 171 million (£16.8m), more than double the RMB79 million achieved in 2010.

 

Against this strong trading background during 2011, the management team also embarked on the next stage of the Company's growth strategy.  Principally, CNE provides EPC (Equipment, Procurement and Construction) services and VAS (Value Added Services) mainly to ethanol, ethanol downstream product and biobutanol producers.  The Board believes that prospects for the Company can be significantly advanced by identifying new streams of revenue that can complement and sustain the Company's turnover and growth, as well as lessen its dependence on the EPC business. In the Board's view, CNE is poised to capture the opportunities of growing demand for second generation biofuel.

 

Unlike most other forms of renewable energy, biofuels can be used as a direct substitute for petrol, as has been demonstrated by their extensive use in Brazil and the United States. The Board believes that in an environment where the price of oil is in excess of $100 a barrel, biofuels will continue to play an increasingly important role in the energy market.  Ambitious biofuel support policies have been adopted in both the United States (with 60 billion litres of second-generation biofuel by 2022) and the European Union (with 10% renewable energy in the transport sector by 2020).

 

Due to the size of the US and EU markets and their considerable biofuel imports, US and EU policies could become an important driver for the global development of second-generation biofuels. Current IEA analysis sees a shortfall in domestic production in both the US and EU that would need to be met with imports. This shortfall could be particularly favourable for Brazil and China, where pilot plants are already operating and infrastructure allows for biofuel exports.

 

In the future, the Company intends to expand on its core EPC business to develop complementary services, such as supply of active yeast and biogas recovery.

 

Furthermore CNE's own R&D programme together with collaborations with other world class third parties, should enable the Company to remain at the forefront of developments in second generation biofuel production and to scale-up of future biofuel and biochemical technology platforms quickly and cost efficiently.

 

Financial Review

 

Pre-tax profits for the year increased by 9% to RMB25.8 million (£2.5m)  (2010: RMB23.7 million (£2.3m))    During the year gross profit margins were lower at 22.8%, compared to 29.1% in 2010, mainly due to the distorting effect of unusually high margin contracts delivered during 2010 and the cost overruns of certain projects. Gross profit for the period was RMB41 million (£4.0m) (2010: RMB40 million (£3.9m)).

 

Other operating income grew from RMB0.46 million (£0.05m) in 2010 to RMB9.33 million (£0.9m) in 2011. This was mainly due to the recovery of bad debts previously written off.  A 12% reduction in distribution expenses to RMB3.4 million (£0.3m) (2010: RMB3.9 (£0.4m)) reflected management's continued focus on controlling and minimising business overheads.

 

Administrative expenses were higher at RMB15.8 million (£1.6m) in 2011 (2010: RMB10.9 million (£1.1m)) largely due to charges for share based payments to employees and overheads comprising compliance and regulatory costs.

 

Operating expenses were up marginally to RMB2.3 million (£0.2m) in FY2011. Financial expenses were RMB 3.4 million (£0.3m) reflecting expenses arising from Citadel Bonds and bank loan of RMB 20 million (£2.0m) that were used to finance working capital for the Company's contract with Thailand-based customer, Ubon Bio-ethanol Company Limited.  

 

Profit after tax was up by 10.0% to RMB22 million (£2.2m) in (2010: RMB20 million (£2.0m)).

 

As set out in the Admission Document in May 2011, the Company has agreed with Citadel Equity Fund Limited to repay its outstanding loan, via a series of repayments, US$ 3 million plus interest by 8 October 2012. To date the Company has paid US$1.5 million, plus interest, and will pay the balance of $1.5 million in three instalments ending on 8 October 2012.

 

As part of our strategy to maximise the opportunities available to us, whilst ensuring that the Company maintains its strong position in China and internationally, the Board will consider debt or equity fundraisings in order to take advantage of the opportunities presented to them.  

 

Operational Review

 

Joint venture with Jilin Ethanol Industrial Co., Ltd ("JEIC") to exploit and commercialise technology and engineering solutions in the field of bioethanol production

 

In 2011, Guangdong Zhongke Tianyuan New Energy Science and Technology Co., Ltd ("ZKTY"), the Company's wholly owned operating subsidiary, entered a strategic agreement with Jilin Ethanol Industrial Company Limited ("JEIC") and Jilin City Keda Applied Technology Development Limited ("JKDAT") to form a joint venture company ("JV"), Jilin Tianshun Biochemical Development Company Limited ("Tianshun") to exploit and commercialise technology and engineering solutions in the field of bio-ethanol production. ZKTY owns 34% of Tianyi while JEIC and JKDAT own 51% and 15% respectively.

 

Post financial year end, CNE entered an Agreement of Intent with JEIC subsidiary to provide technology solutions to modify and convert an existing ethanol production facility into a commercial-scale 50,000 tonne facility capable of converting non-edible "cellulosic" plant waste into acetone, butanol and ethanol (the "Jilin Biofuel Facility").

 

The Board believes the Jilin Biofuel Facility will play a critical role in the development and scale-up of CNE's future biofuel and biochemical technology platforms based on the biological conversion to biofuels using sustainable, low cost feedstocks. Approximately 80 per cent. of fuel-grade ethanol is produced from corn. The Board, therefore, believes that the successful completion of the Project, which is intended to process the waste material from corn crops, will be a significant milestone in meeting both China's energy objectives and its food security objectives.

 

Progress in Developing Cellulosic Biofuel

 

During the period, CNE also achieved significant progress in developing process technologies for the production of biobutanol using cellulosic materials (agricultural waste). The process essentially involves a pre-treatment process to reduce the different chemical components of cellulosic biomass using unique combinations of acid, steam and other specific catalysts (such as ionic liquids) followed by enzymatic digestion of cellulose and/or hemicelluloses. As a direct result of this innovation, CNE is now able to offer its clients process technologies to ferment raw feed stock materials using corn starch, instead of dry milled corn, which enables clients to efficiently capture all co-products and by-products such as Acetone, Butanol and Ethanol (commonly known as "ABE") and biogases to generate additional revenue streams.

 

Entry into niche business of supplying liquid active yeast directly to ethanol producers

 

The Company has signed a Letter of Intent dated 9 December 2011 with Guangzhou Zhongke Tianyuan Regeneration Resources Engineering Co. Ltd ("GZTY Regeneration Resources") to acquire 88.5% of the legal and beneficial interests of Bengbu Boltech Bio-technology Co., Ltd ("Boltech"). Boltech produces and sells active yeast, which is specifically formulated for use in the process of ethanol production, as well as yeast extracts.

 

Yeasts are essential to ethanol production and must be readily available to the fermentation process with consistent viability and vitality for optimal performance. Yeast used in commercial ethanol production can be in the form of dry active yeast or liquid active yeast. In China, commercial ethanol producers have generally used active dry yeast, purchased from yeast manufacturers, in the ethanol production process as it has the necessary stability properties for being stored and can therefore be used as and when needed. However, liquid active yeast has superior qualities for being used in the fermentation process itself. Boltech therefore intends to build specialised liquid active yeast production facilities adjacent to large scale commercial ethanol production facilities, in order to supply fresh liquid active yeast, with strong control on dosages, direct to the fermentation process. The result is that, when compared to the existing method of using dry active yeast, Boltech can help ethanol producers achieve superior performance, improve efficiency and reduce costs. Boltech believes that its business model of supplying active liquid yeast directly to ethanol producers is the first of its kind in China.

 

By leveraging the Company's customer base in China and around the world, the Board believes that the Boltech business model can radically change the way Chinese commercial ethanol producers use and source their yeast material. The Company's objective is to make Boltech the leading yeast supplier to ethanol producers in China. Subject to funding, the Company intends to complete the acquisition as soon as practicable, and intends to scale up this business and replicate its current success elsewhere in China and abroad.

 

Biogas recovery and purifying business progressing well

 

CNE successfully completed and handover the Xin'ao biogas plant and, on 1st Nov 2011, this plant started commercial operation to recover and sell purified 7,000 cu. metre of biogas daily as fuel for civilian use. CNE specialises in the production of biogas through the treatment and anaerobic fermentation of waste-by-products from the bioethanol production process. Commercial production of biogas through CNE's process is relatively new. The successful completion of Xin'ao biogas plant is a testimony of the Company's technical and engineering capability to construct biogas recovery and purifying plant for bioethanol producers.

 

In addition to the Xin'ao biogas plant, CNE has an agreement to design and build a biogas recovery and purifying plant at a beer brewery owned by Kingway Beer Group, located in Shenzhen China, with the intention that the purified biogas be sold to Shenzhen City Gas Group.CNE expects to complete this project in the first half of 2012. Under this agreement, CNE shall bear the cost of constructing the biogas plant and co-share the revenue generated from the sale of biogas. This plant shall have a daily purified output of 7,000 cu. metre biogas and generate estimated total sales revenue of RMB8 million annually.

 

The successful completion of Xin'ao biogas plant enhances the Company's reputation for providing integrated solutions to the biofuel and biochemical industries both in China and internationally. The Board is confident that ZKTY's background and experience in designing and constructing ethanol production plants will help build a competitive strength for the Group in biogas production. Indeed, we intend to leverage our customer base to build aggressively the biogas recovery and purifying business, a business that can generate recurring cash flow with good margins to the Company.

 

Outlook

 

In 2011, the Company has made progress in securing new contracts and generating revenue whilst continuing to enhance its reputation for providing integrated solutions to the biofuel and biochemical industries both in China and internationally.

 

Looking forward we expect the market for ethanol and butanol, as replacements to fossil fuels, to continue to grow as such fuels provide form party of energy security policies and assist to mitigate the high price of oil. Our proven track record in first generation biofuel production and our competitive cost structure provides us with a real advantage in international markets.

 

We also remain committed to improving the efficiency of existing generation one plants by optimising the fermentation process with our yeast management services, and to delivering energy management conservation ("EMC") solutions, as well as working with our partners to implement second generation biofuel technologies that utilise cellulosic materials or non-food feedstock such as corn stover to produce biofuels 

 

We remain confident that the Company will continue to deliver and achieve profitable growth in 2012 despite the softening economy and tight monetary conditions in China and elsewhere.  Our strategic collaborations with Jilin Ethanol Industrial Company Limited lead us to believe that we will secure significant new contracts this year which will increase JEIC's production capacity and improve efficiency.

 

Conclusion

 

On behalf of the Board, I would like to extend my appreciation to our valued shareholders, supportive business partners and associates, insightful management and dedicated staff for all their contribution and commitment towards the Company. Personally, I would also like to thank the Board of Directors for their invaluable counsel in steering the Group through this period.

 

 

Yu Weijun

Chairman

 

 

Statement of Financial Position



As at 31 December




2010



RMB'000


RMB'000






Non-current assets





Property, plant and equipment


9,888


11,118

Intangible assets


4,177


3,370

Trade receivables


4,402


6,601

Investment in subsidiary


-


-

Investment in associated companies


1,700


-



20,167


21,089






Current assets





Inventories


23,354


35,026

Due from customers for construction contracts


93,241


56,735

Financial asset at fair value through profit and loss


7,181


-

Trade and other receivables


53,896


45,675

Notes receivable


3,150


6,893

Cash and cash equivalents


6,682


10,631

187,504

154,960

Current liabilities


Trade and other payables


92,352


72,959

Due to customers for  construction contracts


 

10,054


 

18,725

Notes payable


4,725


8,166

Interest payable


1,781



Income tax payable


4,640


1,118

Short-term borrowing


6,500


5,000

Convertible bonds


37,758


49,790

 



157,810


155,758






Net current (liabilities)/assets


29,694


(798)

Non-current liabilities





Deferred tax liabilities


913


1,018



913


1,018


Net assets


48,948


19,273


Equity





Share capital


1,118


1,013

Share premium


38,601


29,354

Combination reserve


(33,156)


(33,156)

Statutory reserve


9,856


7,247

Convertible bonds reserve


6,549


9,722

Warrant reserve


1,673


-

Own shares


(5,853)


-

Accumulated earnings/(losses)


6,467


(16,442)

Foreign currency translation reserve


23,693


21,535



 





48,948


19,273






 

 

 

Statement of Changes in Equity

 


Share capital


Share premium


Combination

 reserve


Statutory reserve


Convertible bonds reserve


Own shares


Accumulated earnings/ (losses)


Foreign currency translation reserve


Total


RMB'000


RMB'000


RMB'000


RMB'000


RMB'000


RMB'000


RMB'000


RMB'000


RMB'000



















Balance at 31 December 2009

     1,013


     29,354


(33,156)


    4,788


           9,722


-


(34,022)


18,039


(4,262)

Profit for the year

             -  


              -


             -  


             -  


                 -  


-  


           20,039


                 -


        20,039

Exchange difference arising on the translation of overseas subsidiaries

                  -  


                  -  


                  -  


                  -  


                 -  


                  -  


                  -  


           3,496


           3,496

Total comprehensive income for the year

                  -  


                  -  


                  -  


                  -  


                -  


                  -  


             20,039


           3,496


        23,535



















Transfer to statutory reserve

             -  


                -  


              -  


     2,459


                  - 


             -  


(2,459)


                 -


                  -  




















 


 


 


 


 




 


 


 

Balance at 31 December 2010

     1,013


      29,354


(33,156)


     7,247


           9,722


              - 


(16,442)


        21,535


        19,273

Profit for the year

                  -  


                  -  


                  -  


                  -  


                 -  


                  -  


22,044


                -  


        22,044

Exchange difference arising on the translation of overseas subsidiaries

                  -  


                  -  


                  -  


                  -  


                 -  


                  -  


                  -  


           2,158


2,158

Total comprehensive income for the year













22,044


2,158


        24,202

Issue of shares, net of share issue cost

                84


           3,415


                  -  


                  -  


(3,173)


                  -  


1,673  


                 -


           1,999

Shares granted to Employee Benefit  Trust

                21


           5,832


                  -  


                  -  


                 -  


(5,853)


               3,474


                -  


           3,474

Transfer to statutory reserve

             -  


                 -  


             -  


      2,609


                -


              -


(2,609)


                -  


                 -  


 


 


 


 


 


 


 


 


 

Balance at 31 December 2011

1,118


38,601


(33,156)


9,856


6,549


(5,853)


8,140


23,693


48,948




































 

 

Statement of Comprehensive Income

 






Year Ended

31 December






2011


2010



RMB'000


RMB'000






Revenue


178,998


138,359






Cost of sales


(138,125)


(98,131)



 













Gross profit


40,873


40,228






Other operating income


9,331


464






Selling and distribution

expenses


(3,430)

 


(3,909)

 






Administrative expenses


(15,811)


(10,934)






Other operating expenses


(2,341)


(2,187)






Interest expense


(3,376)


-






Change in fair value of Held for sale investments


531


-





















Profit before income tax


 

25,777


 

23,662






Income tax expense


(3,733)


(3,623)



 








Profit  for the financial year attributable to owners of the company


22,044 


20,039






Other comprehensive income:





Exchange difference arising on translating foreign operations


2,158


3,496

Total comprehensive income for the financial year


24,202


23,535

Total comprehensive income attributable to owners of the company


24,202


23,535











Earnings per share (RMB)










Basic


RMB 0.077


  RMB 0.074






Diluted


RMB 0.075


RMB 0.074






 

 

 

Statement of Cash Flows


Year Ended

31 December







2011

2010



RMB'000

RMB'000





Operating activities




Profit/ before income tax


25,777

23,662

Adjustments for:




Depreciation and amortisation


2,060

1,761

Administrative expenses-issue of shares to employees


3,473

-

Allowance for doubtful trade receivable


-

502

Loss/(gain) on disposal of property, plant and equipment


(419)

446

Fair value gain


(531)

-

Dividend income


-

-

Interest income


(357)

-

Interest expenses


3,376

- 

Operating cash flows before movements in working capital


33,379

26,371

Inventories


11,672

(11,456)

Construction work-in-progress


(45,177)

(20,438)

Trade and other receivables


(12,672)

(11,511)

Notes receivables


3,743

(1,594)

Trade and other payables


19,393

10,349

Notes payables


(3,441)

2,675

Deferred tax


-

2,370

Cash generated from/(used in) operations


6,897

(3,234)

Income taxes paid


(314)

(170)

Dividend received


- 

- 

Net cash from/(used in) operating activities


6,583

(3,404)





Investing activities




Proceeds from disposal of property, plant and equipment

917

563

Acquisition of property, plant and equipment


(1,233)

 (290)

Acquisition of intangible assets


(902)

-

Net cash outflow from acquisition of subsidiary


-

(6,067)

Payment for associated company in the course of acquisition


(1,700)

- 

Net cash from/(used in) investing activities


(2,918)

(5,794)





Financing activities




Short-term borrowing


1,500

5,000

Proceeds from issuance of shares


2,001

-

Proceeds from issuance/ (redemption) of convertible bonds


(9,845)

(4,914)

Interest received


357

-

Interest paid


(1,595)

-

Net cash from/(used in) financing activities


(7,582)

86





Net increase/(decrease) in cash and cash equivalents

(3,917)

(9,112)

Cash and bank balances at beginning of year


10,631

19,743

Effect of foreign exchange rate changes in cash and bank balances


(32)

-

Cash and cash equivalents at end of year


6,682

10,631

 

 

Notes to the financial statements

 

1.  General

 

The Company (Registration Number 93306) was incorporated in Jersey on 2 May 2006 as an investment holding Company with its registered office at Ordnance House, 31 Pier Road, St Helier, Jersey JE4 8PW.

 

The principal activities of the main subsidiary, Guangdong Zhongke Tianyuan New Energy Science and Technology Co Ltd., are engaged in turnkey technology solutions to manufacturers of ethanol, edible alcohol and acetic acid from a range of bio-resources including corn, sugarcane, cassava and other bio-resources. On 28 September 2010, the Group acquired Guongdong Boluo Jiumeng High Technology Engineering Co. Ltd, , a company engaged in the fabrication and manufacture of equipment.

 

The principal place of business is located at Wushan, Tianhe District, Guangzhou, People's Republic of China ("PRC").

 

2.  Basis of preparation

 

The consolidated financial information have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS") issued by the International Accounting Standards Board ("IASB"), including related Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").

 

The individual financial information of each group entity are measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated financial information of the CNE Group are presented in Chinese Renminbi ("RMB"), which is the presentation currency for the consolidated and Company financial statements. The functional currency of the Company is British pound sterling ("GBP"). As the CNE Group mainly operates in the PRC, RMB is used as the presentation currency of the CNE Group. All financial information presented in RMB has been recorded to the nearest thousand.

 

The consolidated financial information incorporates the financial information of the Company and its subsidiaries. The Subsidiaries are entities (including special purposes entities) over which the Company has the power to govern the financial operating policies, generally accompanied by a shareholding giving rise to the majority of the voting rights, as to obtain benefits from their activities.

 

3.  Earnings per share

       

The calculation for earnings per share (basic and diluted) for the relevant period is based on the profit after income tax attributable to equity holder for the years ended 31 December 2010 and 2011 are as follows:

 


Earnings


Weighted average number of shares


Earnings per share


RMB'000


'000


RMB

2011

 

 

 

 

 

Basic

22,044

 

285,860

 

0.077

Diluted

22,044

 

292,125

 

0.075







2010






Basic

20,039


        269,324


              0.074

Diluted

20,039

 

        269,324

 

              0.074

 

The weighted average of ordinary shares for diluted earnings per share reconciles to the weighted average number of ordinary shares for basic earnings per share as follows:

 


2011


2010

 

'000


'000

Weighted average number of ordinary shares used in the calculation of basic earnings  per share

285,860

 

        269,324

Dilutive effect of EBT

             6,265

 

-

Weighted average number of ordinary shares used in the calculation of diluted earnings  per share

292,125

 

        269,324

 

 

In order to show results from operating activities on a comparable basis, an adjusted profit after tax per share has been calculated which excludes the EBT charge where the relevant shares are satisfied by issues of new shares:

 


2011


2010


RMB'000


RMB'000

Profit for the year

           22,044

 

20,039

Add back: share based payments

             3,474

 

- 

 

           25,518

 

20,039

 


Adjusted Earnings


Weighted average number of shares


Earnings per share


RMB'000


'000



2011

 

 

 

 

 

Basic adjusted

25,518

 

285,860

 

0.089

Diluted adjusted

25,518

 

292,125

 

0.087

 

2010






Basic adjusted

20,039


        269,324


              0.074

Diluted adjusted

20,039

 

        269,324

 

              0.074

 

 

4.  Events after the balance sheet date

 

On 1 January 2012, the group signed a Letter of Intent with Guangzhou Zhongke Tianyuan Regeneration Resources Engineering Co. Ltd ("GZTY Regeneration Resources") to acquire 96.5% of the legal and beneficial interests of Bengbu Boltech Bio-technology Co., Ltd ("Boltech"). Boltech produces and sells active yeast, which is specifically formulated for use in the process of ethanol production, as well as yeast extracts. The aggregate purchase consideration for the Proposed Transaction shall be on an arm's length basis and on normal commercial terms.

 

5.  Posting of accounts

The annual report for the financial year to 31 December 2011 will be distributed to all shareholders shortly.

 

 

 

About China New Energy Limited:

China New Energy Limited listed on London's AIM Market in May 2011. CNE is a profitable and growing technology and engineering solutions provider, whose operations are based in China, for bioethanol and biobutanol projects.

 

Through its wholly owned subsidiary, Guangdong Zhongke Tianyuan New Energy Science and Technology Co. Ltd ("ZKTY"), CNE provides process technology, engineering designs, plant manufacturing and operational services in connection with the production of, inter alia, fuel ethanol, edible ethanol, biobutanol, bioacetic acid and other chemicals from agricultural plant materials and waste. CNE's activities are principally based in the PRC, however, it also provides services to overseas customers in areas including Romania, Taiwan, Russia, Thailand and Indonesia. Since its formation, ZKTY has advised on more than 90 projects with an aggregate production capacity of approximately 9.0 million tons per year.

 

ZKTY has proprietary and patented bioenergy technology, and maintains its own research and development laboratory to further develop its technology and patent portfolio. ZKTY has received international standards accreditations, including ISO 9001:2000, ISO 9001:2008 and CE marking for part of its equipment.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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