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China Biodiesel International Holding Co., Ltd.

('China Biodiesel', 'CBI' or 'the Company')

Preliminary Results

China Biodiesel International Holding Co., Ltd (AIM:CBI), one of China's leading renewable energy companies, focused on research and development, production, and marketing of biodiesel as a substitute for diesel or petrochemical materials, announces its preliminary results for the year ended 31 December 2008.

Key financials 

	2006 (RMB)	2007 (RMB)	2008 (RMB)
Revenue	101.1m	124.6m	164.2m
Profit before tax	38.84m	16.79m	4.31m
Earning per share (basic)	0.910	0.365	0.091
Cash generated from operation	30.2m	33.2m	2.81m
Proposed final dividend per share	0.0816	0.0365	-

Highlights

• Turnover from biodiesel up 31.8 per cent to RMB 164.2 million (2007: RMB 124.6 million);

• Increase in higher margin B1 and B2 biodiesel sales volume to 89.87% (2007: 41.36%);

• Xiamen plant finished trial production in June 2008, doubling the annual capacity of the Company to 100,000 tonnes;

• Annual Government grants and subsidies of RMB19.66 million;

• CBI's branded biodiesel of 'Zhuoneng' officially named as a 'Provincial Famous Brand Product'

Commenting on the final results, Executive Chairman Huodong Ye said: '2008 was a difficult year across the world. The financial crisis impacted the Chinese and global economy leading to increased volatility within commodity markets. Despite this volatility and the tough challenges experienced by the management of the Company during 2008, we believe that CBI is well placed to recover quickly in the period ahead, especially as the Chinese economy continues to develop in 2009. 

Enquiries:

Gloria He, CFO: +86 (592) 7191103
James Wang, Company Secretary: +86 (592) 7191109

Tom Price or Bobbie Hilliam
Evolution Securities: +44 (0) 20 7071 4300

Chairman's Statement

2008 was a difficult year for the biodiesel industry. CBI experienced a number of difficulties caused by the international financial crisis, turbulence in the oil market and continued governmental control on fossil fuel prices. Despite these difficulties and the associated depreciation loss incurred on inventory in the second half, management took a number of decisive actions to maintain a positive net profit (including government grants and subsidies) for the year and to further consolidate the Company's position in the biodiesel industry. 

The Company has continued to focus on a higher margin sales product mix during 2008. This focus has led to higher sales volumes in B1 and B2, helping increase CBI's competitiveness within the biodiesel industry. Since the beginning of 2009, management has been undertaking a new project in CBI's Xiamen plant to produce a kind of surfactant, which is a by-product of B1 and commonly used in detergent products. This will allow the Company to exploit a new sales opportunity and achieve a higher overall sales margin in the future.

Strict inventory risk control has been a key focus for CBI in 2008. The prices of raw materials used by the Company have continued to be closely correlated to the price of fossil fuels. These fossil fuel prices have proved to be extremely volatile in 2008. Management continued to analyse the market in order to keep inventory volumes at a rational level. This approach led the management to cut down the procurement of inventory quickly in the summer of 2008 as the market began to deteriorate so as to match inventory to sales. This action meant that in the second half of 2008 the level of inventory and final product were strictly controlled so as to reduce the potential loss.

Management has worked hard to raise the operational efficiency of the Company and to maintain stability. In 2008, the Company hired more loyal and skilled persons and management now believes CBI is well positioned to operate the Xiamen plant at a high capacity. 

In December 2008, regulations released by the Chinese government announced that biodiesel companies which utilise waste animal and vegetable oils as feedstock can apply for refund of value-added tax for selling biodiesel. As announced in our trading statement in February 2009, both CBI's Longyan and Xiamen subsidiaries have qualified for this refund and therefore the Company expects to realise a lower tax rate going forward.

The global financial crisis has impacted the economy greatly. For the period ahead, with the experience of the past year behind us, we believe that CBI is well placed to make a profitable recovery, especially as the Chinese economy continues to develop in 2009. 

Operational Review

In 2008, CBI has been able to strengthen its position for growth.

During the year, the Company focused on the preparation of the Xiamen plant for production, with an annual capacity of 50,000 tonnes, and on growing the procurement and sales networks. With the successful trial production of  Xiamen plant in June, the Company's annual capacity has now doubled to 100,000 tonnes. To secure more supply of raw materials following the completion of Xiamen, CBI has also built relationships with a number of new suppliers both domestically and internationally. CBI has done trade with companies in South Korea, the Philippines, Malaysia,  Indonesia, Chile, Thailand, and Norway.

The international fossil fuel price touched $147 per barrel in July, followed by a collapse in its price to around $40 per barrel over the following 4 months. This sharp drop accompanied the global financial crisis. The prices of CBI's feedstock and products followed this volatility, making the demand on biodiesel reduced sharply in the second half of the year. Management was able to partially foresee this decline and took appropriate action to cut down the procurement volume of feedstock and successfully kept the trade receivables at a low level, so as to avoid increased inventory write downs. 

With the selling price peaking in the summer, sales volume increased in the first half but dropped sharply in the second half of the year. Nevertheless, the product mix became more efficient. The sales volume of the higher value B1 and B2 biodiesels achieved a higher percentage of sales with 89.87% from 41.36% in 2007. B1 and B2 are used as substitutes for petrochemical products in the manufacturing industries, and are free of the pricing cap imposed by government controls on diesel. 

As announced in the last trading statement, falling selling prices impacted the cost of raw materials in the second half of 2008, leading the Company to incur an inventory loss of around RMB7 million. We expect the global financial crisis to continue to affect economies in the future and therefore raw material prices to stay at a relatively low level. At this price we would hope to see an improvement in gross margins during 2009. 

The advanced technology and well-positioned strategy of CBI has helped the Company receive increased governmental support and strengthen its status in leading the industry in China. The financial grants and subsidies received by the Company during 2008 amounted to RMB19.66 million, an increase of 129.1% from RMB8.58 million in 2007. According to the latest law, government subsidy is expected to continue and also, another grant of RMB8.44 million has been received during the first quarter of 2009. In December 2008, CBI's branded biodiesel of 'Zhuoneng' was officially named by the government as a 'Provincial Famous Brand Product', with the reputation strengthened again, following a name of 'Provincial Famous Trademark' won in November 2007.

CBI has maintained its competitive advantage with its proprietary technology, which enables it to utilise lower-grade waste animal or vegetable oils as feedstock. Also for this reason, CBI's two subsidiaries have started to enjoy the preferential policy of getting refunds of value-added tax. With the recovery of market demand, we are as confident as before that the Company will achieve financial and operational growth in the period ahead.

Financial Review

Revenues

Company revenues increased by 31.8 per cent to RMB 164.2 million (2007: RMB 124.6 million). Due to a weak market in the fourth quarter of the year, the total sales volume came in at 25,273 tons, a decline of 3.2 percent (2007: 26,095 tons). The sharp fall in selling price in the fourth quarter helped counter the effect of high prices in the first three quarters of the year and resulted in an average selling price of RMB 6,497 per ton (2007: RMB 4,774 per ton). However the new technology employed by the Company helped increase the output of B1 and B2 products, with higher value and non-capped price, which now account for 89.87 per cent of the total sales. This improved sales mix meant gross margins were prevented from falling sharper and allow management to believe margins will rebound in 2009 if the cost of raw materials remains low.

Costs and expenses 

The cost of raw materials had been running at high levels for the first three quarters of the year. As a result production cost increased by 47.9 per cent to RMB 6,283 per ton (2007: RMB 4,248 per ton).

Distribution cost was 0.7 per cent of revenue (2007: 0.82 per cent). As the Xiamen plant was put into use in August 2008, while had to suspend for three months, administrative expenses increased by 79 per cent to RMB 14.48 million (2007: RMB 8.09 million). Meanwhile, with market price of inventory falling dramatically in the fourth quarter, the Company made an impairment provision of RMB 7.04 million for the inventory on hand at the end of the year. 

Results for the year

As a result of global economic downturn and sharp fall in oil related commodities, profit before tax fell 74.33 per cent to RMB 4.31 million (2007: RMB 16.79 million).

Income from sales of package barrels, which comprised part of other income, contributed RMB 3.73 million (2007: RMB 3.95 million).

The Company received RMB 15.35 million (2007: RMB 8.58 million) in government grants relating to China Biodiesel's achievements in development of renewable energy and energy saving. Also, the Company recognised  RMB 4.31 million government subsidies in the form of value added tax rebate, based on the latest tax regulation. 

Finance expenses of RMB 1.73 million in 2008 (2007: RMB 0.52 million) were related to bank debts.

Taxation

According to latest income tax law, the two producing units of the company in PRC are entitled to enjoy a preferential policy of deducting 10% of biodiesel sales income from 2008 taxable profit. This reduction means the Company is expected to incur a reduced practical tax rate in the future. 

Meanwhile, a deferred tax asset of RMB 0.26 million, out of total deferred tax assets of RMB0.7 million, was recognized in 2008 mainly arising from deductible temporary differences of inventory impairment provisions made by LZNE. 

Cash flow

During the year, the Company successfully established good relationship with a local bank and acquired a bank loan of RMB 30 million which increased the resource available to the Company. This greater cash position has been used to help manage inventory.

Capital expenditure

With the completion of construction of Xiamen plant in the first half year of 2008, capital expenditure fell to RMB 18.52 million (2007: RMB 90.71 million). 

Balance sheet 

With the XM plant being put into use in August 2008, the Company's value-generating property, plant and equipment increased to RMB 164.94 million at the end of 2008 (2007: RMB 157.36 million). 

Meanwhile, the inventory increased by 72.5% to RMB 14.56 million (2007: RMB 8.44 million), to meet the needs of two plants instead of one plant in 2007. 

As a result of strict controls over credit to clients, the outstanding balance of third-party trading accounts receivable reduced to RMB 8.83 million (2007: RMB 12.03 million). 

Bank loans increased by RMB 29.80 million to RMB 38.35 million (2007: RMB 8.55 million). Other liabilities decreased by RMB 9.09 million, as a result of the clearance of liabilities to the contractors for construction and acquisition of property, plant and equipment.

Dividend

The directors propose no dividend for 2008.

 CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2008

 

	Notes		2008		2007
			RMB		RMB
Revenue	1		164,199,041		124,590,090
Cost of sales			(158,782,804)		(110,841,077)
Gross profit			5,416,237		13,749,013
Other income	2		23,387,735		12,529,106
Distribution costs			(1,145,390)		(1,015,597)
Write-down of inventories			(7,036,340)		-
Administrative expenses			(14,486,471)		(8,087,065)
Other operating expenses			(244,917)		(144,882)
Profit from operations			5,890,854		17,030,575
Finance income			140,156		282,217
Finance costs			(1,725,228)		(520,705)
Profit before income tax expense			4,305,782		16,792,087
Income tax expense			(202,076)		(237,825)
Profit for the year			4,103,706		16,554,262
Attributable to:
- Equity holders of the Company			4,127,722		16,569,774
- Minority interests			(24,016)		(15,512)
			4,103,706		16,554,262
Dividends	4		-		456,089
Earnings per share	3
Basic			0.091		0.365
Diluted			0.091		0.365

  CONSOLIDATED BALANCE SHEET

AT 31 DECEMBER 2008

 

			2008		2007
			RMB		RMB
Assets
Non-current assets
Property, plant and equipment			164,944,419		157,359,553
Deposits for acquisition of property, plant and equipment			-		4,649,915
Payments for leasehold land held for own use under   operating leases			8,743,363		8,853,858
Other intangible assets			2,341		2,787
Deferred tax assets			711,518		162,500
Total non-current assets			174,401,641		171,028,613
Current assets
Inventories			14,558,258		8,443,232
Trade and other receivables			23,252,801		14,469,918
Income tax recoverable			940,405		-
Cash and cash equivalents			17,492,467		12,462,094
Total current assets			56,243,931		35,375,244
Total assets			230,645,572		206,403,857
Liabilities
Current liabilities
Trade and other payables			9,540,460		17,067,159
Current tax liabilities			-		1,567,078
Other financial liabilities			38,350,000		8,115,859
Total current liabilities			47,890,460		26,750,096
Non-current liabilities
Other financial liabilities			-		500,000
Total liabilities			47,890,460		27,250,096
NET ASSETS			182,755,112		179,153,761
Capital and reserves attributable to equity holders of the Company
Share capital			3,632,941		3,632,941
Reserves			178,841,667		175,216,300
Equity attributable to equity holders of the Company			182,474,608		178,849,241
Minority interests			280,504		304,520
TOTAL EQUITY			182,755,112		179,153,761

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2008

		Equity attributable to equity holders of the Company
		Share capital		Share Premium		Contributed surplus		Foreign exchange reserve		Share option reserve		Merger reserve		General reserve		Proposed dividend		Retained earnings		Sub-total		Minority interests		Total
		RMB		RMB		RMB		RMB		RMB		RMB		RMB		RMB		RMB		RMB		RMB		RMB
At 1 January 2007		3,632,941		90,572,623		5,047,816		(1,307,048)		2,229,427		(121,330)		6,273,540		1,020,019		56,462,536		163,810,524		320,032		164,130,556
Effect from translation of functional currency to presentation currency		-		-		-		(511,038)		-		-		-		-		-		(511,038)		-		(511,038)
Net loss recognised directly in equity		-		-		-		(511,038)		-		-		-		-		-		(511,038)		-		(511,038)
Profit/(loss) for the year		-		-		-		-		-		-		-		-		16,569,774		16,569,774		(15,512)		16,554,262
Total recognised income and expense		-		-		-		(511,038)		-		-		-		-		16,569,774		16,058,736		(15,512)		16,043,224
Dividends paid																(1,020,019)		-		(1,020,019)		-		(1,020,019)
Provision for general reserve		-		-		-		-		-		-		2,245,169		-		(2,245,169)		-		-		-
2007 proposed dividends		-		-		-		-		-		-		-		456,089		(456,089)		-		-		-
At 31 December 2007 and 1 January 2008		3,632,941		90,572,623		5,047,816		(1,818,086)		2,229,427		(121,330)		8,518,709		456,089		70,331,052		178,849,241		304,520		179,153,761
Effect from translation of functional currency to presentation currency		-		-		-		(46,266)		-		-		-		-		-		(46,266)		-		(46,266)
Net loss recognised directly in equity		-		-		-		(46,266)		-		-		-		-		-		(46,266)		-		(46,266)
Profit/(loss) for the year		-		-		-		-		-		-		-		-		4,127,722		4,127,722		(24,016)		4,103,706
Total recognised income and expense		-		-		-		(46,266)		-		-		-		-		4,127,722		4,081,456		(24,016)		4,057,440
Dividends paid		-		-		-		-		-		-		-		(456,089)		-		(456,089)		-		(456,089)
Provision for general reserve		-		-		-		-		-		-		1,634,568		-		(1,634,568)		-		-		-
At 31 December 2008		3,632,941		90,572,623		5,047,816		(1,864,352)		2,229,427		(121,330)		10,153,277		-		72,824,206		182,474,608		280,504		182,755,112

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2008

				2008		2007
				RMB		RMB
Cash flows from operating activities
Profit before income tax expense				4,305,782		16,792,087
Adjustments for:
Interest income				(140,156)		(282,217)
Depreciation of property, plant and equipment				8,424,420		4,230,968
Amortisation of land lease payments				198,046		167,717
Amortisation of other intangible assets				446		446
Write-down of inventories				7,036,340		-
Interest expense				1,725,228		520,705
Operating profit before working capital changes				21,550,106		21,429,706
Increase in inventories				(13,151,366)		(2,272,665)
(Increase)/decrease in trade and other receivables				(5,126,654)		11,866,395
(Decrease)/increase in trade and other payables				(458,056)		2,189,828
Cash generated from operations				2,814,030		33,213,264
Income tax paid				(3,258,577)		(216,569)
Net cash (used in)/from operating activities				(444,547)		32,996,695
Cash flows from investing activities
Acquisition of property, plant and equipment				(18,428,014)		(90,521,186)
Land lease payments				(87,551)		(184,860)
Advances to a shareholder				(156,229)		-
(Advances to)/repayments from related companies				(3,500,000)		940,000
Interest received				140,156		282,217
Net cash used in investing activities				(22,031,638)		(89,483,829)

NOTES TO THE FINANCIAL STATEMENTS

31 DECEMBER 2008

 

1.    REVENUE 

 

Revenue represents the net invoiced value of goods sold and service income earned by the Group. The amount of each significant category of revenue recognised during the year is as follows:

   

		2008		2007
		RMB		RMB
Revenue arises from:
Sale of biodiesel products		164,099,041		124,490,090
Provision of technology services and others		100,000		100,000
		164,199,041		124,590,090

 

2.    GOVERNMENT GRANTS AND SUBSIDIES

 

Included in other income are government grants and subsidies, which represented the financial support from relevant government authorities for the encouragement of the Group's engagement in energy-saving industry and research and development of biodiesel products. Pursuant to relevant notices issued by the Finance Bureau of the PRC for energy saving biodiesel producers, the Group engaged in the production and sale of biofuel and biodiesel is entitled to financial rewards of which amount is determined by government authorities by reference either to production capacity the Group has or to the volume of biodiesel produced and sold. There are no unfulfilled conditions or contingencies relating to these grants and subsidies.

		2008		2007
		RMB		RMB
Grants rewarded for the usage of non-grain materials in the production of biodiesel products		8,020,000		-
Grants rewarded for engagement in energy-saving industry		6,000,000		-
Grants rewarded for research of biodiesel products		1,330,000		8,580,000
Refunded value-added tax ('VAT') paid for sale of biodiesel products (i)		4,305,092		-
		19,655,092		8,580,000

 

(i)     Pursuant to a new VAT regulation circular which was issued by the Ministry of Finance in the PRC on 9 December 2008, both Xiamen Zhuoyue Biomass Energy Co., Ltd. ('XZBM') and Longyan Zhuoyue New Energy Development Co., Ltd. ('LZNE'), being producers of biodiesel products by using waste oil, are eligible to claim for refund of VAT paid from sale of biodiesel products since 1 July 2008.

3.      EARNINGS PER SHARE

 

The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the Company is based on the following data:

   

	2008		2007
	RMB		RMB
Earnings
Earnings for the purpose of basic earnings per share	4,127,722		16,569,774
Effect of dilutive potential ordinary shares	-		-
Earnings for the purpose of diluted earnings per share	4,127,722		16,569,774
Number of shares
Weighted average number of ordinary shares for the  purpose of basic earnings per share	45,411,765		45,411,765
Effect of dilutive potential ordinary shares:
- share options	-		-
Weighted average number of ordinary shares for the purpose of diluted earnings per share	45,411,765		45,411,765
Earnings per share
	RMB		RMB
Basic	0.091		0.365
Diluted	0.091		0.365

 

 

The computation of diluted earnings per share for 2008 does not assume the exercise of the Company's outstanding share options as the exercise price of those options is higher than the average market price for shares for 2008.

 

4. DIVIDENDS

		2008		2007
		RMB		RMB
Final, proposed – nil (2007: RMB0.0365) per share		-		1,656,977
Less: waived by the Chairman, Mr. Ye Huodong		-		(1,200,888)
		-		456,089

 

At a Board of Directors' meeting held on 9 April 2009, the directors did not recommend any final dividend for 2008. 

 

At a Board of Directors' meeting held on 11 April 2008, the directors recommended a final dividend of 10% of the net profit for 2007. Meanwhile, the Chairman, Mr. Ye Huodong, holding 32,912,000 shares representing 72.47% of the issued capital, has confirmed to waive his dividend entitlement. The proposed dividend is reflected as an appropriation of retained earnings for the year ended 31 December 2007.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2008 or 2007 but it is derived from those accounts. The auditors have reported on those accounts; their reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports.

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