China Dredging Group Reports Third Quarter 2011 Results

China Dredging Group Reports Third Quarter 2011 Results

China Dredging Group Co., Ltd. one of the leading independent providers of dredging services in the PRC, today announced its financial results for the third quarter of 2011.

Nine-Months Ended September 30, 2011 – Highlights

Revenues of $164.2 million, a 79.6% year-over-year increase

Gross profit of $93.2 million, a 81.4% year-over-year increase

Net income of $73.5 million, a 114.0% year-over-year increase

Operating cash flow of $60.6 million, a 49.2% year-over-year increase

Cash of $103.5 million and working capital of $115.9 million as of September 30, 2011

Backlog balance of $84.0 million at September 30, 2011, a 34.8% increase from December 31, 2010

Three-Months Ended September 30, 2011 Highlights

Revenues of $56.8 million, a 25.1% year-over-year increase

Gross profit of $31.8 million, a 23.4% year-over-year increase

Net income of $23.6 million, a 36.3% year-over-year increase

“I am very pleased that we were able to deliver strong quarterly results in the third quarter of 2011 and for the nine-months ending September 30, 2011,” said Mr. Xinrong Zhuo, chairman and chief executive officer of China Dredging.We believe this significant growth reflects our strong strategic relationship with our main contractors as well as the addition of new dredgers to our fleet.”

 Recent Developments

In July 2011, Group entered into agreements to lease one non-self-propelling cutter suction dredger with dredging capacity of 3000 cubic meters per hour (“m3/h”) and one trailer suction hopper dredger with dredging capacity of 7000 m3/h. In September 2011, Group entered into an agreement to lease one non-self-propelling cutter suction dredger with dredging capacity of 2500 m3/h. As a result, Group currently have 13 dredgers in its fleet, including 8 non-self-propelling cutter suction dredgers, 3 trailer suction hopper dredgers and 2 grab dredgers.

2011 Third Quarter Operating Results

For the Three Months Ended                                             For the Nine Months Ended

September 30,                                                                         September 30,

2011    2010                                                                              2011    2010

Contract Revenue $ 56,796,654 $ 45,409,804       $ 164,152,489 $ 91,391,237

Percentage Change 25.1%                                                   79.6%

Contract revenue increased by $11.4 million, or 25.1% (18.1% without foreign exchange effect), to $56.8 million for the three months ended September 30, 2011, compared to $45.4 million for the same period of 2010. Contract revenue increased by $72.8 million, or 79.6% (71.3% without foreign exchange effect), to $164.2 million for the nine months ended September 30, 2011, compared to $91.4 million for the same period of 2010. 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. With a net increase of four dredgers joining our fleet in 2011, Group was able to deliver larger business volume and execute more projects requiring a variety of dredging methods. Group completed 31.6 million and 91.9 million cubic meters of dredging volume for the three and nine months ended September 30, 2011, respectively, as compared to 26.7 million and 55.5 million cubic meters for the three and nine months ended September 30, 2010, representing increases of 18.3% and 65.8%, respectively, in dredging volume. In addition, the unit construction price per cubic meter increased by $0.10, or 5.9% (-0.2% without foreign exchange effect), to $1.80 for the three months ended September 30, 2011 from $1.70 for the same period of 2010, and increased by $0.14, or 8.5% (3.3% without foreign exchange effect), to $1.79 for the nine months ended September 30, 2011 from $1.65 for the same period of 2010. The increase was primarily due to an increase of demand for our dredging services and general market conditions.

For the Three Months Ended                                                   For the Nine Months Ended

September 30,                                                                               September 30,

2011   2010                                                                                     2011    2010

Gross Profit $ 31,840,457 $ 25,797,913                          $ 93,209,439 $ 51,389,900

Gross Profit Margin 56.1% 56.8%                                         56.8% 56.2%

Gross profit increased by $6.0 million, or 23.4% (16.1% without foreign exchange effect), to $31.8 million for the three months ended September 30, 2011, compared to $25.8 million for the same period of 2010. Gross profit increased by $41.8 million, or 81.4% (72.8% without foreign exchange effect), to $93.2 million for the nine months ended September 30, 2011, compared to $51.4 million for the same period of 2010. The increased gross profit primarily reflected our increased revenue. Group’scost of contract revenue for three months ended September 30, 2011 increased by $5.3 million, or 27.3% (20.8% without foreign exchange effect), to $25.0 million, from $19.6 million for the same period of 2010. Group’scost of contract revenue for nine months ended September 30, 2011 increased by $30.9 million, or 77.4% (69.4% without foreign exchange effect), to $70.9 million, from $40.0 million for the same period of 2010. As a percentage of revenue, Group’s cost of contract revenue increased slightly from 43.2% for the three months ended September 30, 2010 to 43.9% for the same period of 2011, and it decreased slightly from 43.8% for the nine months ended September 30, 2010 to 43.2% the same period of 2011. Group’s gross profit margin decreased from 56.8% for the three months ended September 30, 2010 to 56.1% for the same period in 2010, and increased from 56.2% in nine months ended September 30, 2010 to 56.8% for the same period of 2011.

For the Three Months Ended                                                 For the Nine Months Ended

September 30,                                                                              September 30,

2011     2010                                                                                 2011    2010

General and Administrative Expenses $ 2,104,946 $ 2,323,967    $ 6,256,870 $ 4,691,935

Percentage Change -9.4%                                                                                    33.4%

General and administrative expenses decreased by $0.2 million, or 9.4%, from $2.3 million, or 5.1% of revenues, for the three months ended September 30, 2010 to $2.1 million, or 3.7% of revenues, for the same period of 2011. General and administrative expenses increased by $1.6 million, or 33.4%, from $4.7 million, or 5.1% of revenues, for the nine months ended September 30, 2010 to $6.3 million, or 3.8% of revenues, for the same period of 2011. The increase in general and administrative expenses was primarily attributable to an increase in revenue.

For the Three Months Ended                                                   For the Nine Months Ended

September 30,                                                                               September 30,

2011     2010                                                                                   2011      2010

Gain on Obligation under “Make-Good Escrow” $ 1,360,836         $ 13,794,643

Loss on Derivative (158,736)                                                            (5,643,319)

During the three and nine months ended September 30, 2011, Group had $1.2 million and $8.2 million, respectively, in net gains from the reductions of estimated obligations to investors that had been incurred as a result of Group’s fourth quarter 2010 private placement. These gains have no income tax effect. Group had no such gains or losses during the three and nine months ended September 30, 2010.

Income tax expense increased by $1.5 million, or 24.6%, to $7.5 million for the three months ended September 30, 2011, compared to $6.0 million for the same period of 2010. Income tax expense increased by $10.1 million, or 86.0%, to $21.9 million for the nine months ended September 30, 2011, compared to $11.8 million for the same period of 2010. The increased income tax expense primarily reflects our increased revenues and gross profit.

For the Three Months Ended                                                   For the Nine Months Ended

September 30,                                                                               September 30,

2011    2010                                                                                    2011    2010

Net Income $ 23,589,921 $ 17,309,557                          $ 73,524,887 $ 34,351,223

Percentage Change 36.3%                                                        114.0%

Earnings per Diluted Ordinary Share $ 0.38 $ 0.33     $ 1.17 $ 0.66

As a result of the foregoing, Group’s net income increased by $6.3 million, or 36.3% (29.0% without foreign exchange effect), to $23.6 million for the three months ended September 30, 2011, compared to $17.3 million for the same period of 2010. Group’s net income increased by $39.2 million, or 114% (103.8% without foreign exchange effect), to $73.5 million for the nine months ended September 30, 2011, compared to $34.4 million for the same period of 2010.

As of September 30, 2011, Group had cash of $103.5 million, total current assets $132.0 million, total assets of $256.0 million, total current liabilities of $16.1 million, non-current liabilities of $7.5 million, and a balance to Class A Preferred Shares of $50.0 million. Group had operating cash flow for the nine months ended September 30, 2011 of $60.6 million.

Backlog

The following table summarizes changes in our backlog on contracts during the nine months ended September 30, 2011.

Backlog balance at December 31, 2010-$ 62,310,751

New contracts entered during the nine months ended September 30, 2011-185,692,139

Add: Adjustment of contracts due to change orders during the period-118,955

Adjusted contract amount at September 30, 2011-248,121,845

Less: Contract revenue earned during the nine months ended September 30, 2011-(164,152,489)

Backlog balance at September 30, 2011-$ 83,969,356

The new contracts entered into during the nine months ended September 30, 2011 included three one-year contracts for which work has commenced with an aggregate contract value of $61.0 million, which replaced preliminary agreements and notices of bid awards Group regarded as part of our pipeline but not our backlog as of December 31, 2010.

About China Dredging

China Dredging is one of the leading independent (not state-owned) providers of specialized dredging services to the Chinese marine infrastructure market. With a modern fleet of thirteen 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.

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Dredging Today Staff, February 13, 2012; Image: chinadredgingco

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