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CF Energy Announces Financial Results For The Nine-Month Period ended September 30, 2020

CF Energy Corp.
·13 min read

TORONTO, Nov. 30, 2020 (GLOBE NEWSWIRE) -- CF Energy Corp., (TSX-V: CFY) (“CF Energy” or the “Company”, together with its subsidiaries, the “Group”), an energy provider in the People’s Republic of China (the ”PRC” or “China”), announces that the Company has filed its unaudited condensed interim consolidated financial results for the nine-month period ended September 30, 2020 (“Nine Months in 2020”).

Results for the nine-month period ended September 30, 2020

Nine months ended Sept 30,

Nine months ended Sept 30,

In millions

2020

2019

Change

%

2020

2019

Change

%

(except for % figures)

RMB

RMB

RMB

CAD

CAD

CAD

Revenue

254.2

316.6

(62.4)

-20%

49.2

61.4

(12.2)

-20%

Gross Profit

95.5

124.0

(28.5)

-23%

18.5

24.0

(5.5)

-23%

Gross Profit Margin

37.6%

39.2%

-1.6%

Net Profit

37.2

29.6

7.6

26%

7.2

5.7

1.5

25%

EBITDA

72.2

65.6

6.6

10%

14.0

12.7

1.3

10%

Revenue of Nine Months in 2020 was RMB254.2 million (approx. CAD49.2 million), a decrease of RMB62.4 million (approx. CAD12.2 million), or 20%, from RMB316.6 million (approx. CAD61.4 million) for the nine-month period ended June 30, 2019 (“Nine Months in 2019”). Gross profit for Nine Months in 2020 was RMB95.5 million (approx. CAD18.5 million), a decrease of RMB28.5 million (approx. CAD5.5 million), or 23%, from RMB124.0 million (approx. CAD24.0 million) for Nine Months in 2019. Gross profit margin for Nine Months in 2020 was 37.6%, a decrease of 1.6 percentage points as compared to 39.2% for Nine Months in 2019.

Net profit for Nine Months in 2020 was RMB37.2 million (approx. CAD7.2 million), an increase of RMB7.6 million (approx. CAD1.5 million), or 26%, from RMB29.6 million (approx. CAD5.7 million) for Nine Months in 2019. EBITDA for Nine Months in 2020 was RMB72.2 million (approx. CAD14.0 million), an increase of RMB6.6 million (approx. CAD1.3 million), or 10% from RMB65.6 million (approx. CAD12.7 million) for Nine Months in 2019.

Comparison of results for the third quarter of 2020 and 2019

Three months ended Sept 30,

Three months ended Sept 30,

In millions

2020

2019

Change

%

2020

2019

Change

%

(except for % figures)

RMB

RMB

RMB

CAD

CAD

CAD

Revenue

98.5

106.6

(8.1)

-8%

19.1

20.7

(1.6)

-8%

Gross Profit

40.1

45.3

(5.2)

-12%

7.8

8.8

(1.0)

-12%

Gross Profit Margin

40.7%

42.6%

-1.9%

Net Profit

22.6

13.5

9.1

68%

4.4

2.6

1.8

67%

Adjusted net Profit

13.9

13.5

0.4

3%

2.7

2.6

0.1

4%

EBITDA

37.6

26.6

11.0

41%

7.3

5.2

2.1

41%

Adjusted EBITDA

28.9

26.6

2.3

9%

5.6

5.2

0.4

7%

Revenue for the three-month period ended September 30, 2020 (the “Third Quarter in 2020”) was RMB98.5 million (approx. CAD19.1 million), a decrease of RMB8.1 million (approx. CAD1.6 million), or 8%, from RMB106.6 million (approx. CAD20.7 million) for the three-month period ended September 30, 2019 (the “Third Quarter in 2019”). Gross profit for Third Quarter in 2020 was RMB40.1 million (approx. CAD7.8 million), a decrease of RMB5.2 million (approx. CAD1.0 million), or 12%, from RMB45.3 million (approx. CAD8.8 million) for Third Quarter in 2019. Gross profit margin for Third Quarter in 2020 was 40.7%, a decrease of 1.9 percentage points as compared to 42.6% for Third Quarter in 2019. Lower gross profit and margin for Third Quarter in 2020 were mainly attributable to the higher mix of revenue from residential customers with lower margin than commercial customers with higher margin and the lowering of gas selling price as a result of price control imposed by the Sanya government which commenced from August 1, 2020, and these were partially offset by the decrease in consumption of LNG with relatively higher cost and the drop in LNG prices in line market demand as compared to Third Quarter in 2019.

Three months ended Sept 30,

Three months ended Sept 30,

In millions

2020

2019

Change

%

2020

2019

Change

%

(except for % figures)

RMB

RMB

RMB

CAD

CAD

CAD

Net profit for the period

22.6

13.5

9.1

68%

4.4

2.6

1.8

67%

Fair value change on derivative financial instrument

(3.6)

-

(3.6)

100%

(0.7)

-

(0.7)

100%

Government financial assistance

(5.1)

-

(5.1)

100%

(1.0)

-

(1.0)

100%

Adjusted net profit for the period

13.9

13.5

0.4

3%

2.7

2.6

0.1

4%

Net profit for Third Quarter in 2020 was RMB22.6 million (approx. CAD4.4 million), an increase of RMB9.1 million (approx. CAD1.8 million), or 68%, from the net profit of RMB13.5 million (approx. CAD2.6 million) for Third Quarter in 2019. Net profit for Third Quarter in 2020 included a government financial assistance of RMB5.1 million (approx. CAD1.0 million) and a gain in fair value change on derivative financial instrument of RMB3.6 million (approx. CAD0.7 million) in respect of the commitment by the estate of Mr. Lin to subscribe for common shares under a related party loan (please refer to the Related Party Transaction section of the MD&A for more details). On a comparable basis, after excluding the effect of the above-mentioned other income and fair value change on derivative financial instrument, the Company reported a respectable adjusted net profit of RMB13.9 million (approx. CAD2.7 million) for Third Quarter in 2020, an increase of RMB0.4 million (approx. CAD0.1 million), or 1% from RMB13.5 million (approx. CAD2.6 million) for Third Quarter in 2019.

Three months ended Sept 30,

Three months ended Sept 30,

In millions

2020

2019

Change

%

2020

2019

Change

%

(except for % figures)

RMB

RMB

RMB

CAD

CAD

CAD

EBITDA for the period

37.6

26.6

11.0

41%

7.3

5.2

2.1

41%

Fair value change on derivative financial instrument

(3.6)

-

(3.6)

100%

(0.7)

-

(0.7)

100%

Government financial assistance

(5.1)

-

(5.1)

100%

(1.0)

-

(1.0)

100%

Adjusted EBITDA for the period

28.9

26.6

2.3

9%

5.6

5.2

0.4

7%

On a comparable basis, the adjusted EDITDA for Third Quarter in 2020 was RMB28.9 million (approx. CAD5.6 million), an increase of RMB2.3 million (approx. CAD0.4 million), or 9%, from RMB26.6 million (approx. CAD5.2 million) for Third Quarter in 2019.

Gas Selling Price Adjustment

The Group’s natural gas business is a price regulated industry in China, where its business and operations are susceptible to risks associated with government pricing policy and regulation changes. The Group needs to enter into discussions and negotiations with local governments on pricing from time to time. Over the years, the Group has been able to increase the selling price several times.

In July 2020, the Sanya City Development and Reform Commission (“SYDRC”) has finalized the City’s natural gas utility pricing formula adjustment which became the guideline for the Group to follow on its gas selling prices starting from August 1, 2020 (the “New Gas Selling Price”). SYDRC is the government natural gas price regulating body in Sanya City, and this pricing formula adjustment (the “Pricing Formula”) is part of the pricing control strategy of China’s National Development and Reform Commission for the whole of China. The Development and Reform Commissions at the local level have gradually introduced specific regulations in line with such guiding principle. The natural gas market operators in the PRC have adjusted their strategies in the past years in anticipation of the specific pricing changes in their jurisdictions.

Effective from August 1, 2020, the Group’s New Gas Selling Price would be regulated by the Pricing Formula based on gas purchase price (the “Gas Purchasing Price”) plus gas distribution cost (the “Gas Distribution Cost”). The New Gas Selling Price are applicable to both residential and commercial customers. As a result, effectively from August 1, 2020, the New Gas Selling Price per m3 to commercial customers in Sanya would be adjusted from RM5.0735 to RMB4.00 while for social welfare units such as schools, government facilities, and other not-for-profit organizations which are classified under commercial customers from RMB3.46 to RMB3.23, and the New Gas Selling Price to residential customers in Sanya would be adjusted, based on 3 levels of consumption, from RMB3.15 to RMB2.94, RMB3.78 to RMB3.53 or RMB3.96 (remain unchanged). The New Gas Selling Price are to be reviewed and adjusted periodically (semi-annually) based on changes to the Gas Purchasing Price and the Gas Distribution Cost. The New Gas Selling Price applicable effectively from August 1, 2020 in Sanya for the distribution of gas to our customers will impact the Group’s Sanya natural gas distribution business segment and as such, the Company has filed a Material Change Report on sedar on July 23, 2020 on such policy changes to the regulated gas selling price. As the Price Formula uses historical Gas Purchasing Price and Gas Distribution Cost to determine future selling price, and the actual New Gas Purchase Price and Gas Distribution Cost will be different, therefore its impact on the Group’s net profit could not be readily quantified. Partly due to the new prices, for the Third Quarter in 2020 (covering 2 months of the new prices) the Group’s gas distribution business segment’s profit dropped during that period as compared to the Third Quarter in 2019. The actual Gas Purchasing Price for the period was lower than when determining the New Gas Selling Price so the actual impact on our profit was less severe. Going forward, the Group expects the New Gas Selling Price would continue to significantly and adversely impact the profitability of its natural gas distribution business segment.

The management has always been fully aware of this and, while continue to maintain close communications with local government to obtain further financial and policy support and provide timely market feedback to our shareholders, will also take all necessary steps to further optimize the operation model and spare no effort in maintaining stable long-term growth in the overall profitability of the Group.

Chairman statement

We are very pleased to see increased momentum of economic recovery in China since we reported our results for the last quarter. This has helped us to move one step further to full recovery to the pre-COVID-10 level. Up against the pricing policy control on natural gas selling price imposed by the Sanya government, we managed to deliver respectable results for this quarter.

Although we expect to face more pressure on our revenue and bottom-line profit going forward as the price control policy is being further implemented, in the near term, we will continue to take proactive measures in enhancing our revenue through exploring opportunities to expand our natural gas customer base and coverage in Sanya created by lower and affordable gas prices. In the longer term, we will place more emphasis on the furtherance of the implementation of our strategic plan to develop the integrated smart energy projects and the EV swap station business for sustained growth and enhancement of return to our shareholders.

The unaudited condensed interim consolidated financial results and Management’s Discussion and Analysis (MD&A) can be downloaded from www.SEDAR.com or from the Company's website at www.cfenergy.com.

About CF Energy Corp. (Formerly “Changfeng Energy Inc.)

CF Energy Corp. is a Canadian public company currently traded on the Toronto Venture Exchange (“TSX-V”) under the stock symbol “CFY”. It is an integrated energy provider and natural gas distribution company (or natural gas utility) in the PRC. CF Energy strives to combine leading clean energy technology with natural gas usage to provide sustainable energy to its customer base in the PRC. In 2009, CF Energy was recognized as being one of China’s the Top Ten Most Influential Brands in the Natural Gas Industry and in 2019, ranked amongst the 2019 TSX Venture 50 top performers on the TSXV for the 2018 year.

TELE-CONFERENCE

A tele-conference will be held following the release of this press release and the results of the Group, details of which will be provided by way of a separate press release in due course.

CONTACT INFORMATION

Corporate Investment Relations
Investor.relations@changfengenergy.cn

Charles Wang
Executive Assistant to CEO & Chair of the Board
Zhaoyu.wang@changfengenergy.cn

Frederick Wong
Director of the Board
fred.wong@changfengenergy.cn

Forward-Looking Statements

Certain statements contained in this news release constitute forward-looking statements and forward-looking information (collectively, “Forward-Looking Statements”). All statements, other than statements of historical fact, included or incorporated by reference in this document are Forward-Looking Statements, including statements regarding activities, events or developments that the Company expects or anticipates may occur in the future. These Forward-Looking statements can be identified by the use of forward-looking words such as “will”, “expect”, “intend”, “plan”, “estimate”, “anticipate”, “believe” or “continue” or similar words or the negative thereof. No assurance can be given that the plans, intentions or expectations or assumptions upon which these Forward-Looking Statements are based will prove to be correct and such Forward-Looking Statements included in this news release should not be unduly relied upon.

Although management believes that the expectations represented in such Forward-Looking Statements are reasonable, there can be no assurance that such expectations will prove to be correct. Such Forward-Looking Statements are not a guarantee of performance and involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements to differ materially from the anticipated results, performance or achievements or developments expressed or implied by such Forward-Looking Statements. These factors include, without limitation, no significant and continuing adverse changes in general economic conditions or conditions in the financial markets. Readers are cautioned that all Forward-Looking Statements involve risks and uncertainties, including those risks and uncertainties detailed in the Corporation’s filings with applicable Canadian securities regulatory authorities, copies of which are available at www.sedar.com. The Company urges readers to carefully consider those factors.

The Forward-Looking Statements included in this news release are made as of the date of this document and the Company disclaims any intention or obligation to update or revise any Forward-Looking Statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities legislation. This news release does not constitute an offer to sell or solicitation of an offer to buy any of the securities described herein and accordingly undue reliance should not be put on such.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.