CNEL.L Regulatory News (CNEL)

28 September 2015

China New Energy Limited

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

Half-yearly report for the six months to 30 June 2015

China New Energy Limited (AIM: CNEL), an engineering and technology solutions provider to the bioenergy sector, announces its unaudited half-yearly results for the six months ended 30 June 2015.

Financial Highlights

· Revenue of RMB 26.7m (H1 2014: RMB 16.4m)

· Gross profit of RMB 3.06m (H1 2014: RMB 2.98m)

· Net loss of RMB 5.54m (H1 2014: loss of RMB 4.55m)

· Loss per share of RMB 0.014 (H1 2014: RMB 0.014)

Yu Weijun, Chairman, commented:

"As previously commented, historically we usually make a loss in the first half of the year as most projects are completed and paid for in the second half of the year. For the remainder of this financial year, we will focus on biofuel development in developing countries and hope to secure new international contracts.

Looking ahead, we remain confident that low-carbon biofuel will be a clear alternative to fossil fuel and growth will return to the bioenergy sector. We continue to look to the long-term future with confidence."

Enquiries:

Chairman's Statement

On behalf of the Board, I am very pleased to present the unaudited half-yearly results for the six month period ended 30 June 2015.

Financial Review

Revenue for the first six months of the year was up to RMB 26.7m (H1 2014:RMB 16.4m) and the Group's gross profit increased to RMB 3.06m (H1 2014:RMB 2.98m). The net loss for the period under review was RMB 5.5m (H1 2014: RMB 4.5m). Due to the cyclical nature of our business, we usually make a loss in the first half of the year as most projects are completed and paid for in the second half of the year.

The first half of the year was challenging for the Group's core Equipment, Procurement and Construction ("EPC") business. This is mainly due to the continued depressed ethanol price and lower demand for ethanol related products during the period, which in-turn continues to delay the capital expenditure of ethanol producers.

Selling and distribution expenses increased by 63.0% to RMB 2.25m (H1 2014:RMB 1.38m) while administrative expenses decreased by 11.4% to RMB 4.63m (H1 2014:RMB 5.22m). The Group's other operating expenses increased to RMB 1.26m (H1 2014:RMB 0.76m). Finance expense increased by to RMB 0.51m (H1 2014:RMB 0.22m) due to short term borrowing debt, but as of the end of June, the borrowing was repaid to the bank.

Operational Review

The Group principally provides EPC services and Value Added Services ("VAS") to ethanol and biobutanol producers. The EPC team primarily design and build commercial-scale biorefineries that convert feedstock into ethanol for both the biofuel and edible alcohol markets, whilst the VAS team provide services and technology to optimise the ethanol production at existing biorefineries.

CNE is a market leader in China at designing and building 1st Generation biorefineries that convert agricultural feedstock such as corn, cassava and sugarcane into ethanol. We have completed more than 100 1st Generation projects in China and around the world.

The market is evolving as our customers in developed nations seek to use cellulosic (non-food) feedstock such as corn stover and municipal waste in 2nd Generation biorefineries. It remains a priority for CNE to commercialise the 2nd Generation technology, as we believe this will stimulate demand for building new biorefineries in China and around the world.

In H1 2015, the Group secured several contracts for its products and services in China and Southeast Asia. The total contracted amount for the period was RMB 41.98m (H1 2014:RMB 49.57 million), 15.3% lower than the same period in 2014. During the period, CNE acquired a 24% stake in the Visontai Bioetanol Fejlesztő Korlátolt Felelősségű Társaság ("Visontai") bioenergy project that is being developing by Hungarian partners in Hungary.

We also continue to focus on our sales pipeline of EPC contracts, particular in South East Asia and Sub-Saharan Africa. CNE had signed a MOU with UBE who wanted to develop the second project in Thailand. To meet local environmental legislation, UBE is currently conducting an Environmental Impact Assessment ("EIA") for the new project and the influence of the lower oil price. CNE is waiting for the project to commence.

In Sub-Saharan Africa, CNE entered into a development partnership with Sunbird Bioenergy Africa ("Sunbird") in 2013 with the intention of developing an initial 120 million litre per year cassava-to-ethanol biorefinery in Nigeria with an additional 9 projects forecast across the region. In Nigeria, Sunbird and the local development partner OBAX World Wide Limited ("OBAX") reported that they have completed the land and agricultural survey and crop enumeration of the 20,000 Ha of land for the project and are awaiting the final certificate of occupancy from the Ministry of Agriculture and Rural Development. Sunbird and OBAX have met the conditions needed for the certificate of occupancy and expect it to be granted imminently. CNE reviewed Sunbird's project pipeline for the region and met with key stakeholders in Zambia and Zimbabwe. As in Thailand, employment and energy security were identified as the key drivers for bioenergy projects in the region. Sunbird has been awarded an investment license by the Zambian Development Agency for US$150 million to build a cassava to ethanol biorefinery and cassava plantation. CNE is optimistic about tendering for a part of this business in due course.

Outlook

After the recent turmoil in the global financial markets and the bioethanol market downturn, there is a risk that the Group may continue to face difficult trading conditions and as a result the Board maintains its cautious business approach. Nevertheless, the Board remains positive about the Group's prospects and outlook in the biofuel industry.

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 for the bioenergy and biochemical sectors, enabling producers in these sectors to achieve environmentally friendlier products with improving operating margins.

The global recession, especially in the U.S. and Europe, may further impede the available resources for research and development activities in our industry. The Group, however, intends to continue to channel its own resources into biofuel production research and development 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 long term working relationship with GIEC can help to commercialise our R&D much faster and at a lower cost.

While the Board maintains its cautious approach in view of the current global macro-economic conditions and a slowdown in demand for ethanol, the Directors and management team are optimistic for the Group's long-term outlook and are determined to position the Group for growth. The Group also continues to explore opportunities and negotiate new projects in the PRC and overseas with prospective customers. To strengthen our market position and to add value to our existing business, the Group is also actively exploring opportunities to expand into complementary businesses or operations through acquisitions, joint ventures or strategic alliances.

Yu Weijun

Chairman

Consolidated Statement of Financial Position

Consolidated Statement of Comprehensive Income

Consolidated Statement of Cash flows

Consolidated Statement of Changes in Equity

Notes to the Interim Financial Information - Period ended 30 June 2015

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 2015 and are unchanged from those disclosed in the group's Report and Financial Statements for the year ended 31 December 2014, except for the following additional accounting policies:

Basis of consolidation

The Group 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 Group, 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 or audited by the Group's auditors. The comparatives for the period ended 31 December 2014 are not the Group'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 28 September 2015.

2. Ordinary shares

The substantial shareholders have not changed from 31 December 2014. The Group has one class of ordinary shares which carry no right to fixed income.

3. Property, plant and equipment

4. Intangible assets

5. Earnings per share

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

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

6. Directors' interests

The following Directors have held office during the period and their interests as at 30 June 2015, 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:

7. 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.