China Clean Energy ()TCBB:CCGY) Announces Third Quarter 2008 Results

China Clean Energy ()TCBB:CCGY) Announces Third Quarter 2008 Results


FUQING CITY, China, Nov. 14 2008 -- China Clean Energy Inc. (OTC Bulletin Board: CCGY.OB) ("China Clean Energy", the "Company"), a producer of biodiesel fuel and environmentally-friendly specialty chemical products made from renewable resources in The People's Republic of China ("PRC"), today reported results for the third quarter ended on September 30, 2008.


Third Quarter 2008 Highlights -- Revenue totaled $4.1 million, down 24.9% from the third quarter of 2007 -- Gross Profits totaled $ 0.9 million, down 39.1% from the third quarter of 2007 -- Operating Income totaled $262,452 down 72.4% from the third quarter of 2007 -- Net Income during the third quarter of 2008 was $401,699, or $0.01 per share
"We are disappointed with our results for the quarter as our revenue, which was 100% generated from specialty chemicals, declined sequentially and year over year primarily due to slower production and sales driven by restrictions placed on the transportation of chemical products during the Beijing Olympics, as well as the temporary halt in our biodiesel production," commented Mr. Tai-ming Ou, Chairman and CEO of China Clean Energy. "Subsequent to the end of the quarter we were very pleased to announce the resumption of our biodiesel production, which may help compensate for slower demand for specialty chemicals due to global slowdown."
Third Quarter 2008 Results
Net revenue for the third quarter of 2008 was $4.1 million, down 24.9% from $5.5 million reported in the third quarter of 2007. Specialty chemical accounted for 100% of total revenue compared to approximately 70.7% in the same period of last year, as the Company's biodiesel production remained temporarily halted during the quarter. The Company shipped 1,989 tons of specialty chemicals in the third quarter of 2008, compared to 3,540 tons in the same period of last year. Exports accounted for 40.0% of the Company's specialty chemicals shipment and 42.0% of revenues in this quarter.

Gross profit for the third quarter of 2008 was $0.9 million, down 39.1% from $1.4 million in the third quarter of 2007. Gross margin for the third quarter of 2008 was 21.2%, down from 26.1% in the same period of last year, and down from 24.8% in second quarter of 2008. The decrease in gross margin was due to the significant increase in feedstock costs which averaged RMB 4,000 per ton in the third quarter of 2008 compared to RMB 2,600 in the comparable period of last year.

Operating expenses totaled $606,078 for the third quarter of 2008, up 27.5% from $475,478 in the third quarter of 2007, and down 1.2% from $613,651 in the second quarter of 2008. General and administrative expenses were up due to expenses related to employee stock based compensation of $251,103 in the quarter, offset by lower marketing and sales expenses resulting from lower export volume.

Operating income was $262,452 with operating margin of 6.4% for the third quarter of 2008 compared to $950,808 and 17.4% in the third quarter of 2007, and $774,802 and 13.6% in the second quarter of 2008 respectively.

During the third quarter of 2008, the Company recorded a tax benefit of $61,074. The Company's Fujian Zhongde Technology Co. Ltd. subsidiary received official approval from the Chinese tax authority for corporate income tax exemption and reduction status. As a result the Company will be subject to the income tax rate of 12% (versus a normal 25% rate) between January 1, 2008 and December 31, 2010.
Net income for the third quarter of 2008 was $401,699 or $0.01 per basic share compared to $834,586 or $0.04 per basic share in the comparable period of last year, and $557,690 or $0.02 per basic and diluted share in the second quarter of 2008.
Nine-Month Results
Revenue for the nine months ended September 30, 2008 was down 5.4% over the comparable period in 2007 to $14.1 million. Gross profit was down 18.3% in the same period to $3.3 million, with gross margin coming in at 23.3%. Operating expenses for the nine months ended September 30, 2008 increased 7.7% to $2.0 million compared from $1.8 million during the same period in 2007. Operating profits in the first nine months of 2008 were down 39.9% over the comparable period in 2007 to $1.3 million, with operating margins coming in at 9.4%. Net income for the nine months ended September 30, 2008 was $1.2 million or $0.04 per basic and diluted shares, compared to $2.0 million or $0.09 per basic and diluted share in the first nine months of 2007. Cash flow from operations for the nine months ended September 30, 2008 totaled $4.2 million, compared to $1.2 million in the comparable period in 2007. Capital expenditures for the nine months ended September 30, 2008 totaled $12 million, which was primarily for additions to the Company's new Jiangyin plant, purchases and advances for equipment, as well as property.
Financial Condition
As of September 30, 2008, China Clean Energy had $6.4 million in total cash, approximately $8.3 million in working capital, and $0.3 million in debt. Shareholder's equity at the end of the third quarter stood at $32.3 million, compared to $14.8 million recorded at the end of 2007.

Business Outlook
The recent drop in commodity prices, combined with an increase in retail and wholesale diesel prices mandated by the Chinese government in June 2008, has allowed China Clean Energy to resume biodiesel production at its existing plant in November 2008. The Company expects to produce about 800 tons of biodiesel per month, which, at current prices and margin structure, is expected to improve results with expected gross profit contribution of 23%.
China Clean Energy expects its new plant to be ready for production start- up in the second quarter of 2009, which will add 100,000 tons capacity of biodiesel or specialty chemicals to its existing capacity. As previously disclosed, the new plant will have the flexibility to produce 100,000 tons of biodiesel per year, or 100,000 tons specialty chemicals per year, or a combination of biodiesel and specialty chemicals for a total output of 100,000 tons per year. Assuming the current margin structure remains unchanged, the Company hopes to produce up to 50,000 tons of biodiesel from the new plant in the second half of 2009. These projections are preliminary and subject to risks including construction delays, operating risks, feedstock availability at economical prices, as well as diesel wholesale price, which is regulated by the Chinese government.
"We remain cautiously optimistic that the margin structure for our biodiesel business will remain stable in the quarters ahead, allowing us to focus our efforts on ramping up our biodiesel production once our new plant comes online to deliver positive results to our shareholders," stated Mr. Ou. "We are currently seeing the impact of the global economic slowdown on the demand for our specialty chemicals both in China and abroad, but we are hopeful that our biodiesel product will make up for the slack in our specialty chemicals business"
Conference Call
China Clean Energy will hold its third quarter conference call for all interested persons at 9:00 a.m. Eastern Time on Monday, November 17, 2008 to discuss its results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 1-800-688-0796. International callers should dial +1-617-614-4070. When prompted by the operator, mention conference passcode 77660400. If you are unable to participate in the call at this time, a replay will be available for seven days starting on November 17, 2008 at 11:00 a.m. Eastern Time. To access the replay, dial 1-888-286-8010 and International callers should dial +1-617-801-6888 and enter the passcode 68223323.

About China Clean Energy:
China Clean Energy, through its wholly-owned subsidiary, Fujian Zhongde Technology Co., Ltd., is engaged in the development, manufacturing, and distribution of biodiesel fuel and specialty chemical products made from renewable resources. Since its inception, the Company has been engaged in the manufacture of high-quality specialty chemical products from renewable resources. Through its research and development efforts, the Company developed a proprietary process for refining biodiesel fuel from waste grease and certain vegetable oil-based waste. Using this proprietary process, China Clean Energy began producing biodiesel in 2005 and commenced selling biodiesel commercially starting in December 2005.
Safe Harbor Statement
This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to, the Company's ability to raise additional capital to finance the Company's activities; the effectiveness, profitability, and the marketability of its products; the availability of raw material feedstock at economical prices to support the profitable operation of the Company's biodiesel and specialty chemical plants; legal and regulatory risks associated with the share exchange; the future trading of the common stock of the Company; the ability of the Company to expand its production capacity; the period of time for which its current liquidity will enable the Company to fund its operations; the Company's ability to protect its proprietary information; general economic and business conditions; the volatility of the Company's operating results and financial condition; the Company's ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed in the Company's filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the Company and the industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, they cannot assure you that their expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.