CNEL.L Regulatory News (CNEL)

30 September 2014

China New Energy Limited

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

Half-yearly report for the six months to 30 June 2014

China New Energy Limited (AIM: CNEL), the engineering and technology solutions provider to the bioenergy sector, announces its unaudited half-yearly results for the six months ended 30 June 2014.

Financial Highlights

· Total contractedamount for the period increased by 159.5% to RMB 49.57m (H1 2013: RMB 19.1m)

· Revenue for the period of RMB 16.4m (H1 2013: RMB 20.1m)

· Gross profit of RMB 2.98m (H1 2013: RMB 2.67m)

· Improved gross margin of 18.2% (H1 2013: 13.2%)

· Decreased loss for the financial period of RMB 4.55m (H1 2013: loss of RMB 5.39m)

· Loss per share of RMB 0.01425 (H1 2013: RMB 0.0097)

Operational Highlights

· Subscription of £594,766 by Hong Kong listed group China Best Group Holding Limited, for working capital to assist with current projects

· CNE entered into a second agreement with Ubon Bio Ethanol Co., Ltd for the building of a second biorefinery in Thailand, which is expected to commence in late 2014 or early 2015

· Sunbird Bioenergy Africa Limited is progressing planning negotiations Nigeria, with this project expected to start in 2015

· Contracts with a Hungarian company to build two biorefineries progressed to preparation of detailed executive plan and expected to be executed in 2015

· CNE terminated the proposed acquisition of BAPP Ethanol Holdings Limitedafter findings from due diligence

· ZKTY won the China Alcoholic Drinks Association's annual award for Science and Technology Improvement

· Current balance of order book stands at RMB 665m.

Yu Weijun, Chairman, commented:

"Our focus during the first half of the year was to develop our pipeline of international projects. In this respect, I am pleased to report that during the first half of 2014 our total contracted amount increased by 159.5%, when compared with the same period in 2013. We expect for work on our second bioethanol project in Thailand to commence this year or in early 2016. We continue to make progress in Europe and Africa and expect that planning consent for our projects in Hungary and Nigeria will be granted and that these projects will commence in 2015.

Looking further ahead, we remain confident that low-carbon biofuel will be a clear alternative to fossil fuel and that 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 pleased to present CNE's unaudited half-yearly results for the six month period ended 30 June 2014.

Financial Review

Revenue for the first six months of the year decreased to RMB 16.4m (H1 2013: RMB 20.1m), while the Group's gross profit increased to RMB 2.98m (H1 2013: RMB 2.67m). The Group's loss for the financial period was also reduced to RMB 4.5m (H1 2013: RMB 5.4m). Due the cyclical nature of our business, 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.

Selling and distribution expenses decreased by 26.98% to RMB 1.38m (H1 2013: RMB 1.89m), while administrative expenses increased by 1.4% to RMB 5.22m (H1 2013: RMB 5.15m), as no incentives were granted to employees through the company's Employee Benefit Trust. The Group's other operating expenses increased to RMB 0.76m (H1 2013: RMB 0.72m). Finance expenses decreased by 49% to RMB 0.22m (H1 2013: RMB 0.43m), due to reduced debt.

Operational Review

In the first half of 2014, the Group secured several small contracts for its products and services in China's domestic market. The Group's total contracted amount rose by 159.5% to RMB 49.57m (H1 2013: RMB 19.1 million).

The successful completion of the Ubon Bio Ethanol Co., Ltd ("UBBE") project is a testament to the Group's ability to design and construct high quality cassava or molasses based ethanol production facilities. Based upon this successful project, UBBE has entered into a memorandum of understanding to commission a second project and additional auxiliary facilities within a two-year period. We are expecting for this project to commence in the second half of 2015 or the first half of 2016. The successful completion of this project has given CNE a key reference site, which has helped the Group to win new business opportunities in South East Asia and Africa, where there is abundance of inexpensive cassava feedstock. 

In South East Asia, CNE secured two contracts in Burma during 2013, which were completed in H1 2014. The total contract value of these Burmese projects was RMB 18 million.

In Africa, our development partner, Sunbird Bioenergy, signed a letter of intent in 2013 with Nigeria's Federal Ministry of Agriculture and Rural Development to expand agricultural investment and operations in Nigeria, via the construction of 10 biorefineries in the country. Sunbird Bioenergy continues to make progress, despite being slowed by the Ebola outbreak, and is negotiating planning consent for their first flagship biorefinery in Edo State. This project is scheduled to commence in 2015.

At the end of last year, the Company entered into a memorandum of understanding to acquire BAPP Ethanol Holdings Limited ("BAPP"), a wholly owned subsidiary of Sino Distillery Group Limited. This proposed acquisition was intended to allow CNE to meet its stated strategic goal of expanding its core operation from an engineering, procurement and construction services provider to an operating company. However, findings from the legal and financial due diligence process determined that the completion of this transaction would have led to significant capital commitments for the Group, which would have required the Company to raise significant funds. Accordingly, the board decided to terminate acquisition discussions. We remain focused on our core strategy and delivering our existing project pipeline, but still believe that acquisitions may play a significant role in the Group's overall strategy in the future.

On 22 April, 2014, CNE's wholly owned subsidiary, Guangdong Zhongke Tianyuan New Energy Technology Co., Ltd ("ZKTY"), won the China Alcoholic Drinks Association's 2013 annual award for Science and Technology Improvement. This recognition was received in respect of the Group's patented Five-Tower Two-stage Differential Pressure Distillation Equipment & Process for Superfine-grade Edible Alcohol technology (Patent Number ZL 2007 1 0030550.8). This technology was designed for ZKTY's client Jilin Province New Tian Long Wine Co., Ltd and was installed at their commercial distillery which has an edible alcohol production capacity of 120,000 tonnes per year. This edible alcohol is blended with other products and is sold in the alcoholic drinks market across China.

Outlook

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

Identifying new lines of business with recurring income remains a priority for management. During the first half of 2014, the Group conducted initial due diligence on a number of potential acquisitions that meet this criteria. The Board continues to seek M&A opportunities which have the potential to deliver recurring income and stable cash flows and will update the market in this respect as and when appropriate.

China is an important participant in the 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 the full spectrum of engineering and technology solutions for the renewable fuel and chemicals sector. We strive to provide superior technology and engineering solutions for the bioenergy and biochemical sectors, ranging from feedstock conversion through to end waste management, enabling producers in these sectors to achieve environmentally friendlier products and improve operating margins.

The global recession, especially in the U.S. and Europe, may further impede the resources available 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. Our collaboration partners include the Guangzhou Institute of Energy Conversion ("GIEC"), which is part of the Chinese Academy of Sciences. GIEC is a leading research institute in the PRC, which specialises in the research of alternative and renewable energy technologies. We believe our close long-term working relationship with GIEC will help us to commercialise our R&D faster and at a lower cost.

The Directors and management team are confident in the Group's outlook and are determined to position the Group for growth. 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.

While the Board maintains its cautious approach in view of the current global macro-economic conditions and a slowdown in demand for ethanol, the Group also continues to explore opportunities and negotiate new projects with prospective customers in the PRC and internationally.

Yu Weijun

Chairman

29 September 2014Consolidated 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 2014

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 2014 and are unchanged from those disclosed in the group's Report and Financial Statements for the year ended 31 December 2013, 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 2013 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 29 September 2014.

2. Ordinary shares

The substantial shareholders have not changed from 31 December 2013. The Group has one class of ordinary shares which carry no right to fixed income.

3. 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).

4. 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:

5. Directors' interests

The following Directors have held office during the period and their interests as at 30 June 2014, 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:

6. 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.