Statement: Andatee China Marine Fuel Services Corporation
Andatee China Marine Fuel Services Corporation, a leading producer, distributor, and retailer of quality marine fuel for small cargo and fishing vessels in China, has announced its financial results for the second quarter and six months ended June 30, 2011.
Q2 2011 Financial Highlights
* Total revenues of $63.1 million, an increase of 43.3% year over year.
* Net income attributable to Andatee shareholders of $1.4 million, compared to $2.7 million in the prior-year period, primarily due to increased global oil prices and higher general and administrative expenses.
* Earnings per share of $0.14.
Six Months 2011 Financial Highlights
* Total revenues of $107.4 million, an increase of 45.5% from the prior-year period.
* Net income attributable to Andatee shareholders of $3.7 million, compared to $4.0 million in the prior-year period.
* Earnings per share of $0.37.
Operational Highlights
* Total sales volume (metric tons of blended fuel) in Q2 increased 11.5% year over year to 81,400 tonnes.
* Company is relocating headquarters to new offices in Shanghai.
* Operations commenced at new blending facilities in Zibo City, Shandong province, and Panjin City, Liaoning province, in May 2011 and June 2011, respectively.
Outlook for 2011 (Excludes any acquisitions that the Company may consummate this year)
* Revises revenue guidance to between $225 million and $275 million (from $275 million and $325 million) and net income guidance to between $5 million and $8 million (from $10 million to $12 million) for the year ending December 31, 2011, as a result of the global economic environment causing volatility in costs of inventory (significant increases and decreases in oil prices) and affecting demand for marine fuel products.
* Expects total sales volume to increase between 7% and 24% for the year ending December 31, 2011.
Mr. An Fengbin, Chairman, CEO, and President of Andatee China Marine Fuel Services Corporation, stated, “We are pleased to report continued strength in our top-line growth during the 2011 second quarter, with Andatee’s revenues growing over 43% from the prior-year period. During the period, our total sales volume grew 11.5% year over year. This growth rate is more modest those we have seen from recent quarters, and we believe the volatile oil price environment is the reason behind the decrease in demand for our fuel products. Despite these headwinds, we feel that the growth in sales volume during the period is a testament to the quality and recognition of our ‘Xingyuan’ brand as we continue to build our share in a highly fragmented market. Our retail business continues to expand, and we are working hard to improve all aspects of our operations, including raw material procurement through an expanding supplier network, expansion of blending capacity by building and acquiring additional facilities, improved distribution, and a diversified customer base.”
Operational Review
During the second quarter of 2011, the Company’s sales volume of its blended fuel products increased 11.5% to 81,400 tons from 73,000 tons in the prior-year period. This increase was primarily the result of increased sales of the Company’s #1 blended marine fuel product, which is utilized by larger fishing vessels. At August 11, 2011, the Company offered six separate blended fuel products, which service smaller fishing vessels to larger handysize cargo ships.
For the six months ended June 30, 2011, sales volume of its blended fuel products increased 15.3% to 138,400 tons from 120,000 tons in the prior-year period. The primary drivers behind this increase in sales volume were increased demand from the Company’s existing distribution network and ongoing efforts in promoting its #1 blended marine fuel product. To continue the growth in sales volume through the latter half of 2011, the Company remains focused on enhancing its marketing efforts tailored to “retail”, or individual, operations and expanding its distribution base in southern China.
The Company continues to make progress on its plan to set up market development offices in large cities. The Company expects to utilize these offices to establish an effective sales and marketing network to pursue organic expansion possibilities, such as new supply agreements and customer sales, while also providing solid foundations to pursue its acquisition-driven growth strategy in neighboring areas around major cities.
The Company has begun operations at its new blending facilities in Zibo City, Shandong province, and Panjin City, Liaoning province, which were completed in May 2011 and June 2011, respectively. Andatee expects these facilities will improve the Company’s production capabilities in blending by adding over 30,000 cubic meters in tank capacity and will also help to reduce the cost of procuring raw materials and the cost of transportation incurred by shipping products to customers due to their close proximity to refineries and Andatee’s current major suppliers.
Company to Relocate Headquarters to Shanghai
The Company is in the process of relocating its headquarters to Shanghai, which is more central to Andatee’s various operations in mainland China. Shanghai is China‘s most populous city, as well as the country’s commercial and financial center. The Company will maintain its offices in Dalian, where Andatee currently has its headquarters.
Mr. An stated, “We chose to base our headquarters in Dalian in 2001 because the city serves as a major seaport in northeast China and is an important international shipping and logistics hub. As our operations have continued to expand across different regions of China, particularly into southern China, we decided that it was time to invest in moving our main offices to a more central location. Shanghai has seen extraordinary development over the past decade, and we are looking forward to being at the center of global finance and international shipping.”
Market Overview
During the 2011 second quarter, the average international oil price increased to $104 per barrel, compared to $81 per barrel in the prior-year period. Andatee uses oil refinery by-products as raw materials for production, such as tar and heavy diesel, blends the products at its facilities, and then sells its “Xingyuan” brand to customers at a favorable rate to the market.
Mr. An continued, “The rise in oil prices had a positive effect on our revenues during the 2011 second quarter, but we were unable to pass the entirety of the increase to our customers and therefore suffered some adverse effects from our increasing raw material costs. Rising oil prices, in addition to the PRC government’s attempts to control inflation, which extends to the price of diesel fuel, also had an effect on demand in our industry. We continue to closely monitor the movement of global oil prices, in conjunction with demand for our fuel products, as one of our competitive advantages is the cost efficiency for our customers compared with traditional diesel fuel.”
2011 Second Quarter Financial Review
The Company reported revenues for the 2011 second quarter of $63.1 million, an increase of 43.3% compared to $44.1 million in the second quarter of 2010. The increase was largely due to increased sales volume and higher global oil prices. Total sales volume increased to 81,400 tons in the second quarter of 2011 from 73,000 tons in the prior-year period, which was the result of increased sales in the Company’s #1 marine fuel product. Rising oil costs that the Company passed through to its customers also contributed to the increased revenues during the quarter.
Gross profit for the 2011 second quarter was $4.2 million, compared to $5.3 million in the prior-year period. Gross margin was 6.6% for the three months ended June 30, 2011, compared to 12.0% in the prior-year period. The decrease was largely due to increased costs of raw materials, which the Company managed to partially pass through to its customers during the 2011 second quarter.
The Company’s general and administrative (G&A) expenses for the 2011 second quarter increased 45.8% to $1.0 million, or 1.6% of revenues, from $0.7 million, or 1.5% of revenues, in the prior-year period. This slight increase in G&A expenses as a percentage of revenues was primarily due to start-up expenses incurred to relocate Andatee’s headquarters from Dalian to Shanghai.
The Company reported net income for the second quarter of 2011 of $1.4 million, or $0.14 per diluted share based on 9.8 million weighted average diluted shares outstanding, compared to net income of $2.7 million, or $0.28 per diluted share based on 9.6 million diluted shares outstanding, in the prior-year period.
Six Months 2011 Financial Review
The Company reported revenues for the first six months of 2011 of $107.4 million, an increase of 45.5% compared to $73.8 million in the second quarter of 2010. This increase was largely the result of increased sales volume and higher global oil prices, as mentioned in the second quarter financial summary.
Gross profit increased 6.4% to $9.4 million from $8.9 million in the prior-year period. Gross margin was 8.8% for the six months ended June 30, 2011, compared to 12.0% for the prior-year period. The decrease was primarily due to increased costs of raw materials, as mentioned in the second quarter financial summary.
The Company reported net income for the first six months of 2011 of $3.7 million, or $0.37 per diluted share based on 9.8 million weighted average diluted shares outstanding, compared to net income of $4.0 million, or $0.45 per diluted share based on 9.0 million diluted shares outstanding, in the prior-year period. This decrease was primarily the result of increased costs of raw materials and higher G&A expenses incurred by the Company’s relocation of its headquarters to Shanghai.
Balance Sheet Highlights
At June 30, 2011, Andatee’s cash and cash equivalents (excluding $12.8 million in restricted cash) were $5.2 million, total debt was $36.1 million, and stockholders’ equity was $54.8 million, compared to $10.8 million, $36.3 million, and $49.9 million, respectively, at December 31, 2010.
Outlook for 2011
Mr. An concluded, “Andatee is adjusting its revenue and net income guidance for 2011 as we have observed volatility in global oil prices, resulting from the overall instability of the global economic environment. Significant increases and decreases in oil prices in tight timeframes make it challenging for us to price our products for optimal profitability and also cause pressure on demand. The industry was affected by the unexpected spike in oil price during the first half of 2011. While we attempt to mitigate the effects of the current swings in raw material costs on our bottom line, we remain focused on growing our sales volume and revenues. We are very pleased with the upwards of 45% growth in revenues for the first six months of 2011 and are working hard to maintain this trend. We are confident that our improving brand recognition and balanced fleet growth will continue to drive the marine fuel market in China in the long term.”
