CNEL.L Regulatory News (CNEL)

30 August 2011

China New Energy Limited

("China New Energy" "CNE" or "the Company")

Half-yearly report to 30 June 2011

China New Energy Limited (AIM: CNE), the engineering and technology solutions provider to the bioenergy sector, announces the unaudited half-yearly results for the six months ended 30 June 2011.

Financial Highlights

·; Revenue up 54.7% to RMB 49.2m (2010: RMB 31.8m)

·; Gross profit up 60.9% to RMB 6.97m (2010: RMB 4.33m)

·; Gross margins improved to 14.1% (2010: 13.6%)

·; Selling & distribution expenses down 15.9 % to RMB 1.46m (2010: RMB 1.74m)

·; Administrative expenses down 10% to RMB 5.9m (2010: RMB 6.7m)

·; Other operating expenses of RMB 1.25m (2010: RMB 0.4m) mainly due to higher R&D spend.

·; Finance expenses up RMB 1.0m due to bondrelated expenses

·; Profit after taxation was RMB 0.8m, reversing from net loss of RMB 1.0m in 1H2010

·; EPS of 0.003 RMB (2010: Loss of 0.004 RMB)

Operational Highlights

·; RMB 168m of new contracts secured in H12011 (H12010: RMB 57m.

·; Major contract in Thailand for a cassava-based ethanol project

·; Significant progress in R&D activities, and commercialisation of technology converting biomass into biofuels

Commenting on the prospects for the full year, Yu Weijun, Chairman, said:

"Historically we complete more projects and booked more revenue in the second half of the financial year. We have secured RMB168 million of new contracts in the first half of the year, and we expect to complete these projects substantially by end of the year. Barring unforeseen circumstances such as delays and cancellations of projects, the Directors view the prospects for the full year with confidence."

Chairman's Statement

On behalf of the Board, I am very pleased to present to you the unaudited interim results for the six months period ended 30 June 2011.

Financial Review

We are pleased with the results we made in the first half of the year. We have made good progress and delivered strong growth relative to the same period last year. Underpinned by the sustained recovery in global oil prices and still robust economic growth in China and South East Asia, we have witnessed growth in renewable energy, beverage and chemical industries.

On the back of strong new sales and services orders, the Group's revenue increased by 54.7% to RMB 49.2m in 1H2011 from RMB 31.8m the same period last year. The Group's gross profit grew 60.9% to RMB 6.97m in 1H2011 compared to RMB 4.33m in 1H2010; gross margins improved from 13.6% in 1H2010 to 14.1% in 1H2011. Reflecting our ability to control overheads, and despite significant increased sales, our selling and distribution expenses in 1H2011 fell by 15.9 % to RMB 1.46m from RMB 1.74 million the same period last year.Also, in spite of RMB 0.6m expense charges relating to exceptional incentives granted to employees (in the form fully issued and paid up Company shares to Employee Benefit Trust at nominal consideration), administrative expenses decreased significantly from RMB 6.7m in 1H2010 to RMB 5.9m in 1H2011.

The Group's other operating expenses were RMB 1.25m in 1H2011, up from RMB 0.4m in 1H2010. This was mainly attributable to higher research and development spending incurred during the period.

On the back of significant growth in revenue and gross margin, coupled with effort to control overheads, we managed to reverse a net loss of RMB 1.03m in 1H2010 to a net profit after tax of RMB 0.78m in 1H2011. Due to significant growth in revenue, we have a net profit of RMB 0.78m in 1H2011.

Operational Review

In 1H2011, we secured a major contract in Thailand to sell products and services to Ubon Bio-ethanol Company Limited in the Ubon Ratchathani province of Thailand, for a cassava-based ethanol project which is intended to produce up to 400,000 litres per day of edible ethanol or fuel ethanol. The amount due to Guangdong Zhongke Tianyuan New Energy Science and Technology Co. Ltd ("ZKTY"), the Company's wholly owned subsidiary, under its agreement with Ubon currently totals RMB 77m. The Company has received RMB 7.7m as an initial deposit and has completed the engineering and design stages of the project. In addition, the Company is currently negotiating to provide further products and services to construct additional auxiliary facilities for the project. Our success in securing this contract is a testament to the Group's ability to design and construct high quality cassava based ethanol production facilities. We believe our success in this project will strongly position the Group to capture market share in South East Asian, where there is abundance of inexpensive cassava feedstock.

The Group has made good progress in conducting research and development activities, internally and in collaboration with external institutions. R&D has focused on the possibility of developing new processes to maximise the extraction of ethanol and other biogases from cassava, as well as cost effective and efficient ways to extract ethanol and butunol from cellulosic feedstock, such as wood waste and the non-food parts of the current crops. In particular, jointly with our collaboration partners, we have made significant advancement in converting cellulosic biomass such as corncobs and corn stovers into biobutanol. The initial pilot testing of this technology has been very encouraging and in the second half of the year we will be working towards scaling up and producing biobutanol using these biomass cellulosic feedstocks in larger and commercially viable sizes.

Outlook

After the recent dramatic volatility in the global financial markets and compounded by the sovereign debt crisis in Europe, there is always some risk that we may face harder trading conditions and so we have adopted a more cautious business approach in the near term. Nevertheless, we remain positive about our prospects and outlook.

Despite recent drops on fear of worsening demand from Europe and the U.S., the current price of crude oil remains high and 30% above the last 5 years average (US$80 per barrel), helping to increase the awareness and demand for alternative energy sources.

China is an important participant in global energy markets. In the interests of its energy security, the PRC government has enacted various laws and regulations encouraging the use of renewable energy as a substitute for fossil fuels. Bioenergy is widely considered to be one of the key alternatives to fossil fuel use because of its easy acquisition and cleaner emissions. Our strategy is to craft core competence in the provision of a full spectrum of engineering technology for the renewable fuel and chemicals sector. We strive to provide superior technology and engineering solutions from feedstock conversion to end waste management to the bioenergy and biochemical sectors, enabling producers in these sectors to produce environmentally friendlier products with improving operating margins.

The recent market turmoil may cut back resources globally, especially in the U.S. and Europe, into Research and Development activities in our industry. The Group, however, intends to continue to channel resources into research and development in biofuel production by relying on our qualified staff and by collaborating with external institutions to carry out further research and development activities. Our collaboration partners include Guangzhou Institute of Energy Conversion ("GIEC"), part of the Chinese Academy of Sciences. GIEC is a leading research institute in the PRC that specialises in the research of alternative and renewable energy technologies. We believe our close working relationship with GIEC can help to commercialise our R&D much faster and at a lower cost.

The Directors and management team are confident in the Company's outlook and are determined to position the Group for organic growth. To strengthen our market position and to add value to our existing business, the Group is also actively exploring opportunities to expand into complimentary businesses or operations through acquisitions, joint ventures or strategic alliances. The Group looks forward to keep its shareholders duly and timely informed of such developments.

While we are adopting a more cautious business approach in view of the recent financial market turmoil, theGroup is already currently exploring opportunities and negotiating new projects in the PRC and overseas with prospective customers.

Current trading

Historically we complete more projects and hence booked more revenue in the second half of the financial year. As already mentioned, we have secured RMB168m of new contracts in the first half of the year, and we expect to complete these projects substantially by end of the year. Barring unforeseen circumstances such as delays and cancellations of projects, the directors view the prospects for the full year with confidence.

Yu Weijun

Chairman

30 August 2011Consolidated Statement of Financial Position

Consolidated Statement of Comprehensive Income

Consolidated Statement of Cashflows

Consolidated Statement of Changes in Equity

Notes to the Interim Financial Information - Period ended 30 June 2011

1. Basis of preparation

The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union. The principal accounting policies used in preparing the interim results are those the group expects to apply in its financial statements for the year ending 31 December 2011 and are unchanged from those disclosed in the group's Report and Financial Statements for the year ended 31 December 2010, except for the following additional accounting policies:

Basis of consolidation

The Company includes the assets and liabilities of the Employee Benefit Trust ("EBT") within its Statement of Financial Position. In the event of the winding up of the Company, neither the shareholders nor the creditors would be entitled to the assets of the EBT.

Long-term incentive scheme charge

The fair value of the employee services received in exchange for the grant of shares or share options is recognised as an expense.

The total amount to be expensed over the performance period, from grant date to vesting date, is determined by reference to the fair value of the shares determined at the date the employee is deemed to be fully aware of their potential entitlement and all conditions of vesting.

Own shares

Company shares held by the EBT are deducted from the shareholders' funds and classified as Own Shares until such time as they vest unconditionally to participating employees and their families.

This interim financial information has not been reviewed nor audited by the Company's auditors. The comparatives for the period ended 31 December 2010 are not the Company's full statutory accounts for that period but have been extracted from those financial statements. A copy of the statutory financial statements for that period, which were prepared under IFRS, has been delivered to the Companies Registry. The auditors' report on those accounts was unqualified.

Whilst the financial information included in this Interim Financial information has been prepared in accordance with the recognition and measurement criteria of IFRS, it does not include sufficient information to comply with IFRS.

This interim report was approved by the Board of directors on 22 August 2011.

 2. Ordinary shares

On 21 March 2011, pursuant to written resolutions passed by the shareholders of the Company, the Company approved (i) the subdivision of the authorised share capital of the Company into 10,000,000,000 ordinary shares of par value £0.001 each and (ii) that each existing issued ordinary share of par value £0.01 at such date be subdivided into 10 ordinary shares of par value £0.001 each, and (iii) that the Company's memorandum of association be amended to reflect the same.

On 15 April 2011, by resolutions of the Board, the Board approved the allotment of an aggregate of 2,019,932 ordinary shares of par value £0.001 each to EES Trustees International Limited at Admission, to be held on trust in accordance with the terms of the China New Energy Limited Employee Benefit Trust and to be allocated to certain named employees of the Group provided such persons remain employees of the Group on the [first] anniversary of Admission to AIM.

On 6 May 2011, pursuant to written resolutions passed by the shareholders of the Company, the Company approved (i) the subdivision of the authorized share capital of the Company into 40,000,000,000 ordinary shares of par value £0.00025 each and (ii) that each existing issued ordinary share of par value £0.001 at such date be subdivided into 4 ordinary shares of par value £0.00025 each, and (iii) that the Company's memorandum of association be amended to reflect the same.

On 16 May 2011, by resolutions of the Board, the Board approved, conditional on Admission, (i) the allotment of up to 9,360,147 Ordinary Shares free of pre-exemption in connection with the Placing; (ii) that a further 2,966,845 Ordinary Shares be at the disposal of the Board pursuant to the warrant agreement to be executed in favour of Cairn in part settlement of fees; (iii) that a further 357,142 Ordinary Shares be allotted to Cairn on Admission in part settlement of fees; (iv) that a further 1,483,425 Ordinary Shares be allotted to SVS on Admission in part settlement of fees; and (v) that a further 8,079,728 Ordinary Shares be allotted to NovusAsia Capital Limited on Admission in part settlement of fees.

The Company has one class of ordinary shares which carry no right to fixed income.

3. Convertible reserve

On 9 June 2011, Citadel elected to exercise the cashless exercise mechanism in respect of its aggregate rights under the warrant. The effect of the cashless exercise mechanism results in Citadel being issued and allotted 7,932,412 new ordinary shares. The fair value of the warrants was RMB 3,172,856. Following this issue of equity, the company transferred RMB 3,172,856 to the warrants reserve from the convertible reserve.

4. Warrants reserve

On 23 May 2011, the Company issued 2,966,845 warrants for services provided to the Company. The fair value of the warrants was RMB 1,673,000.

5. Employee Benefit Trust

In accordance with the requirements of SIC 12 "Consolidation-special purpose entities" and IAS 32 "Financial Instruments: Presentation", certain of the assets and liabilities of the EBT have been included in the Company's and Group's accounts resulting in the inclusion of RMB 21,000 own shares and RMB 5,832,000 share premium. This represents shares held by the Employee Benefit Trust that had not vested to employees.

On 24 March 2011, the shareholders approved the establishment of the China New Energy Limited Employee Benefit Trust (the "EBT") and the associated share scheme as part of the Company's employee incentive arrangements. The scheme provided for the issue of up to 8,079,728 shares to employees in respect of the one year ended 23 May 2012 for nil consideration.

As required by SIC 12-"Consolidation - Special Purpose Entities" and IAS 32 the EBT is included in the Company's and Group's accounts, accordingly this shareholding of 8,079,728 ordinary shares is represented in the Statement of Changes In Equity as Own Shares (RMB 5,853,000).

6. Earnings per share

Earnings per share ("EPS") on a basic and diluted basis are as follows:

7. Directors' interests

The following Directors have held office during the period and their interests as at 30 June 2011, all of which are beneficial unless otherwise stated, whether direct or indirect, of the Directors and their families in the issued share capital of the Company and options over Ordinary Shares which had been granted, are as follows:

8. Business Segment

The CNE Group's assets, liabilities and capital expenditure are almost entirely attributable to a single business segment of provision of technology and engineering services to ethanol, ethanol downstream product and biobutanol producers. Therefore, the CNE Group does not have separately reportable business segments under IFRS 8 Segmental Reporting. Nonetheless the CNE Group's revenue and results can be classified into the following streams:

a. EPC of plants producing ethanol and ethanol downstream products ("EPC activities"); and

b. Value-added and other value added services ("VAS") services.