RNS Number:4268F
China Biodiesel International Hold
30 June 2006
FOR IMMEDIATE RELEASE FRIDAY 30 June 2006
China Biodiesel International Holding Co., LTD
First day of dealings on AIM
LONGYAN CITY, FUJIAN PROVINCE, China - China Biodiesel International Holding
Co., LTD ("China Biodiesel" or "the Company"), a renewable energy business
focused on Biodiesel manufacture, marketing, sales and technology research and
development, today announces its first day of dealings on AIM under the ticker
symbol CBI. This follows a successful placing of 45,411,765 ordinary shares at
85p per share, valuing the company at #38.6 million.
The company raised #8.0 million following the placing of 9,411,765 new ordinary
shares. Evolution Securities Limited is nominated adviser and broker and
Evolution Securities China Limited is financial adviser and broker to the
Company.
The group has developed its own production process for biodiesel. The principal
raw material used by the group for the production of biodiesel is waste oil,
which is purchased from oil processors. The Directors believe that the group is
the only biodiesel manufacturer in the PRC that is engaged in commercial
production of the fuel, which it commenced in March 2005.
It is intended that the net proceeds of the placing will finance the group's
capital expenditure and business expansion, strengthen the group's capital base
and improve its financial position.
Hudong Ye, Chairman, commented:
""We are delighted with the response we have received from the international
investment community in very challenging stock market conditions. Our Admission
to AIM is a significant step forward for the group and the new funds will enable
us to increase the production capacity and meet the increasing demand from our
customers. We will now use the funds raised to build a significant and
profitable position in China's rapidly growing biodiesel market."
Details of the placing
Placing price 85 pence
Total number of new ordinary shares placed on behalf of the
Company 9,411,765
Number of ordinary shares in issue following the placing 45,411,765
Percentage of enlarged issued share capital subject to the 20.73 per cent
placing
Gross proceeds of the placing to be received by the Company #8.0 million
Estimated net proceeds of the placing receivable by the Company #6.6 million
Market capitalisation of the Company at the placing price #38.6 million
CONTACTS
Evolution Securities Limited 020-7071-4300
Tom Price or Gina Gibson
Evolution Securities China 020-7220-4850
Nick Martin or Jerry Zheng
Bankside 020-7367-8888
Simon Bloomfield or Simon Rothschild
NOTES
Business overview
China Biodiesel commenced operations in 2001, through Longyan Zhoyue New Energy
Co Limited ("ZYNE"), and is a renewable energy business focused on Biodiesel
manufacture, marketing and technology research and development. The Directors
believe that the Company is the only Biodiesel manufacturer in the People's
Republic of China ("PRC) that is engaged in commercial production of the fuel,
which it commenced in March 2005. Its manufacturing facilities are located in
Longyan, in the Fujian province of the PRC.
The principal raw material used by the company for the production of Biodiesel
is waste oil purchased from oil processors. These processors principally source
their oil from waste palm oil, used cooking oil, or other waste oil sources.
Currently, the available supply of waste oil to the company exceeds its demand
and the group does not need to actively seek suppliers, as it is generally
approached by approved processors wishing to dispose of their waste oil. The
Directors believe that the supply of waste oil will exceed demand for the
foreseeable future.
The group has developed its own production process for Biodiesel. Its production
facility utilises equipment which has been designed by, and made to order for,
the group. This design has been further refined in preparation for the
construction of a second production facility that the group is building in
Longyan, and for the construction of an intended new plant in Xiamen which is
also in the Fujian province of the PRC.
For the Year ended 31 December 2005 the company generated revenues of RMB 68
million and net profit of RMB 27 million.
Production
The production process used by the group is a continuous flow process, although
for operational management purposes, production is measured in daily batches.
The waste oil received is loaded into tanks, following which Esterification and
Trans-esterication occur. At this point, the waste oil is mixed with a catalyst
(the formula for which is proprietary to the group) and the two other principal
ingredients, methanol and sulphuric acid. This is the most critical stage of
production, as the reaction of the waste oil with the other materials affects
the efficiency of the whole procedure. The oil is then pumped to the
refractionating plant, where, by a combination of vacuum and temperature
control, the oil is separated into the three key products, which are referred to
by the group as Biodiesel I, Biodiesel II and Biodiesel III.
At this point, Biodiesel III, which is the main product of the process, is
pumped into tanks for storage. Biodiesel I and II require further materials to
be added to them before they may be pumped into finished goods storage tanks.
The production process has now been in operation on a commercial basis for more
than a year, and the Directors believe that the process is now mature, with only
minor refinements continuing to be made. The raw materials take approximately
eight hours to flow through the system, from start to finish, and the plant
currently operates 24 hours per day at its maximum capacity of 20,000 tonnes per
annum.
The production process does not need to be varied for different sources of waste
oil, which the Directors believe to be a key strength of the business, although
the constitution of the waste oil input will affect the proportions of Biodiesel
I, Biodiesel II and Biodiesel III that are produced.
* Biodiesel I accounts for 7 per cent of total group sales and is an
important raw material of phosphate-free detergent, for example, shampoo,
detergents and gels. It is mainly used by domestic chemical plants;
* Biodiesel II accounts for 19 per cent of total group sales and can be
used to produce toxin free plastics for food packaging and crockery. It its
also mainly used by domestic chemical plants;
* Biodiesel III accounts for 70 per cent of total group sales and is a
direct alternative to fossil diesel, which can be used in its pure form or
mixed with fossil diesel before sale.
The remaining 4 per cent of group sales is derived principally from the sale of
used oil drums and provision of technology services.
Catalyst
The Directors believe that the most critical factor in the production process is
the proprietary catalyst that is used by the group. Due to confidentiality
concerns, the group has not, and does not intend to, apply for a patent in
respect of the catalyst, as this would require disclosure of the ingredients,
formulae and method of manufacture. These details are currently known only to
the Chairman and Chief Technology Officer, Mr Luo, who is responsible for the
manufacture of the catalysts, and reports any proposed changes to the Chairman
in order to ensure that he is always aware of the current formulation of the
catalyst. The ingredients for the catalyst are ordered by the Chairman from
several different chemical suppliers, in order to ensure that no single supplier
is aware of all of the ingredients required. Additionally, in order to ensure
confidentiality of the catalyst amongst the group's workforce every member of
staff is required to sign a confidentiality agreement in respect of the
materials and processes used by the group. The Directors are currently in
discussions with the relevant government authorities regarding the possibility
of patenting the catalyst without requiring compliance with the usual detailed
disclosure provisions in the patent application process. In the meantime,
details of the catalyst and process have been lodged with a bank in China for
safekeeping.
Intellectual Property
The group has applied for three separate patents in relation to the equipment
used in the manufacture of Biodiesel. These patents relate to waste animal and
vegetable oils purification equipment, the waste gas and liquid segregator and
the group's continuous production facility.
Market opportunity and growth drivers
PRC Growth
Fuelled by rapid economic growth, the PRC has become the second largest energy
consumer in the world. Although the PRC's oil consumption is currently less than
a third of that of the US, volumes rose by 16 per cent. in 2004. Demand growth
in the PRC accounted for 52 per cent. of global energy demand growth from
2002-2004. The PRC government is eager to reduce the country's reliance on oil
imports and to increase the uptake of alternative fuels and is therefore very
supportive of the group's business.
PRC Legislation
The PRC government introduced the Renewable Energy Law in January 2006, which
encourages and supports the development of Biodiesel as a renewable form of
alternative energy and aims to generate 15 per cent. of total energy in the PRC
from renewables by 2020. As a result, the Directors expect to see demand for
Biodiesel grow significantly in the PRC in the coming years.
In the PRC, the Biodiesel market is still in its infancy, and the Directors
believe that this presents an opportunity to exploit the projected industry
growth. In addition, the Directors believe China Biodiesel is the first company
of its kind to engage in commercial production in PRC, which should allow it to
establish its position as market leader.
Competition
The Directors believe that the group is the only company based in the PRC that
is engaged in commercial production of Biodiesel. They are aware of two other
PRC companies that have been developing production processes in this area, but
are not aware at what stage of commercial production either of these companies
has reached.
Should competition arise in the future, the Directors believe that the group is
well positioned to retain its position as market leader for the following
reasons:
* unlike many overseas Biodiesel products that are produced from plant
oil, the group uses waste oil which is a cheaper alternative. As production
costs are lower, the Directors believe that the group has a pricing
advantage over potential competitors;
* the group, having established a streamlined production process, has the
opportunity to take advantage of economies of scale in order to secure a
pricing advantage over potential competitors;
* the group has an advantage over other potential PRC competitors, as it
is familiar with the Biodiesel market in the PRC, has established
relationships with key suppliers and has a well established client base and
distribution network; and
* the group is accredited by PRC's Ministry of Science & Technology as a
technologically advanced business and pioneer of new Biodiesel production
initiatives.
Key Strengths
The Directors consider the key strengths of China Biodiesel to include the
following:
Expected growth in demand for Biodiesel
The Directors believe that demand for Biodiesel in PRC currently exceeds supply.
The Directors believe that the PRC government is likely to support the group's
Biodiesel business due to its desire to decrease greenhouse gas emissions and to
reduce the country's reliance on oil imports.
Barriers to entry
The Directors believe that the most significant barrier to entry in establishing
a Biodiesel production facility in the PRC is the technical knowledge required
to support the development of a production facility.
Pricing advantage
The Directors believe that China Biodiesel is the only company in the PRC
engaged in the commercial production of Biodiesel and that demand for Biodiesel
in the PRC currently outstrips supply by a considerable margin. The group
therefore has substantial control and flexibility over the price of its
products. In addition, the costs to import Biodiesel into the PRC from the US
and Europe are high, placing the group's products in a strong competitive
position in the region, in comparison to similar, imported Biodiesel.
Low labour costs
The minimum wage guideline in Longyan city is set at approximately RMB 7,200 per
person per annum, which is generally lower than wage costs in more western
developed countries with higher wage demands. The Directors believe that the
lower wage costs in the PRC provide the group with a cost advantage in the
worldwide Biodiesel market.
Low material costs
The supply of waste oil currently exceeds the demand from the group, enabling it
to enjoy low raw material costs.
Management team
The group has a management team with considerable industry experience which has
been associated with the group for a number of years.
Directors and Senior Management
Executive Directors
Huodong Ye - Chairman, age 35
Mr Ye joined the group as Chairman in 2001. He is the founder of Haodi Chemical,
Zhuoyue Chemical, Caishantang Pharmaceutical, and Zhuoyue New Energy, which have
contributed significantly to the development of the local industrial economy. Mr
Ye has been honoured by Fujian provincial government with an entrepreneurial
award, the first of its kind, for young business leaders. Mr Ye is a consultant
for the Ministry of Science & Technology, in this capacity as an authority on
biomass energy technical feasibility studies for China's 'Five-Year Plan'. Mr Ye
is a member of the People's Political Consultative Conference of Yongding County
and Xinluo District and an economic advisor for Pinghe County Government of
Zhangzhou City. Mr Ye is also the Honorary President of Chamber of Commerce in
the Xinluo District.
Gloria (Zhengling) He - Chief Financial Officer, age 29
Ms He joined the group as Chief Financial Officer in 2006. Prior to joining the
group she worked as a senior project manager with Pan-China auditor's and as a
financial manager with Huisman Vekoma Steel Manufacturing Limited, a
Dutch-funded enterprise. Ms He is experienced in auditing, management
consultancy and financial management of foreign-funded manufacturing enterprises
and is experienced in internal financial control, cost management and capital
operation. Ms He is a certified public accountant, certified tax agent,
certified public valuer, and member of the Association of Chartered Certified
Accountants in the UK.
Jian Lu - Chief Operating Officer, age 49
Mr Lu joined the Board as Chief Operating Officer in 2002. Prior to joining the
group Mr Lu worked as a senior manager at two state owned enterprises, Longyan
Forestry Car Manufacture Plant Limited and Longyan Forestry Holding Company
where he was an executive vice president and gained a cross section of
managerial experience in the construction machinery and chemical equipment
industries.
Senior Manager
Danming Luo - Chief Technical Officer, age 43
Mr Luo is the Group's Chief Technical Officer. Mr Luo has been engaged in
chemical production for many years and has acted as general manager and chief
technical officer for several enterprises in the sector.
Non-Executive Directors
Christopher Butler, age 67
Mr Butler is currently a Director of Green BioDiesel Limited and JB Patterns
Limited, a property and services company. Mr Butler was also a non-executive
director of Tritech Precision Inc., a Canadian based metal specialist company.
Mr Butler was previously Vice Chairman of the Cast Metals Federation and
President of the Institute of British Foundrymen/ICME. He is also a member of
the Environmental Industries Commission (EIC) and the Renewable Transport Fuels
Working Group.
Ping Xu, age 43
Mr Xu started his career with the National Audit Administration of the PRC in
1983 and was appointed divisional chief three years later. Mr Xu was then
seconded to KPMG Peat Marwick for four years where he reached the position of
senior auditor.
Since 1993 Mr Xu has worked for various investment banks in the Greater China
region, including Standard Charter (Asia) and Wheelock Natwest. Mr Xu was a Vice
President at JP Morgan, and a Corporate Finance Director at HSBC. Mr Xu has
recently been working as Managing Director and Chief Operating Officer for the
Shanghai office of H&Q Asia Pacific, where he has been responsible for their
private equity division. Mr Xu gained a bachelor's degree in Finance and
Economics in 1983.
Derrick Woolf, age 59
Mr Woolf qualified as a chartered accountant with Levy Gee in 1971 and was made
partner in 1974. Mr Woolf was senior partner when Levy Gee was sold to Numerica
Group plc which subsequently listed on AIM in October 2001. Mr Woolf joined the
board of Numerica Group plc as a non-executive director, having previously been
a director of the non-audit accountancy practice at Numerica Group plc. In 2005,
Numerica Group plc was taken over by Vanits plc and the two businesses merged
their activities into Vantis plc. Mr Woolf was appointed to lead the Numerica/
Vantis corporate finance practice and its restructuring services in China. Mr
Woolf has been a licensed insolvency practitioner since 1986 and was a founding
Director of the Society of Turnaround Professionals (STP) from its inception in
2001.
Strategy
The key elements of the company's strategy are to:
Expand its existing production capacity
ZYNE has agreed to acquire a neighbouring plot of land to the group's main
premises in Longyan in order to construct an additional production plant with a
capacity of 30,000 tonnes per annum. Although it has been awarded preliminary
permission by the Longyan Municipal Land Resources Bureau, ZYNE is awaiting
final approval for the change of land use from agricultural to industrial, which
is expected to be received in August 2006.
The group intends to use part of the proceeds of the Placing to buy land and
construct a plant in Xiamen, which the Directors believe will become operational
in mid 2007 and have an annual capacity of 50,000 tonnes. By 2008, the Company
plans to build two further 50,000-tonne Biodiesel facilities in Guangzhou and
Shanghai. The Directors estimate that these new facilities will bring China
Biodiesel's production capacity up to a level of 200,000 tonnes. New factories
are also planned for Beijing and Wuhan by late 2010.
Technology R&D
The group aims to integrate new technologies, continue to optimise manufacturing
technologies and process flows, reduce energy consumption, improve product
efficiency, reduce production costs, and maintain its leadership position in the
PRC Biodiesel technology field. In order to continue to improve its
technological competitiveness in the coming years, the group will, using funding
provided by the PRC government, take part in several programmes designed for
this purpose.
Expand its marketing initiatives
In order to achieve a sufficient scale and reduce market risks, the group aims
to stimulate the publicity surrounding Biodiesel, strengthen after-sale services
and client follow-up and establish further marketing channels.
Stabilise supply and demand through long-term contracts
The group is aiming to increase the visibility of its earnings through the
introduction of long-term sales contracts with customers. In addition, China
Biodiesel hopes to secure continuous supply by introducing longer term contracts
with its preferred oil processors that the Directors believe will help meet the
group's waste oil quality requirements.
To take advantage of increased environmental awareness and government interest
With increased environmental awareness and the implementation of the Renewable
Energy Law by the PRC government, the Directors believe that the PRC government
authorities will encourage and support the growth of the Biodiesel industry by
providing more efficient regulation, preferential tax policies and legal
protection.
The directors intend to use the net proceeds as follows:
*approximately #1.8 million to fund further expansion and output capacity
at the Longyan plant;
*approximately #3.5 million to buy land and build an additional plant in
Xiamen to enable the group to meet demand;
*approximately #0.9 million to pay down existing bank loans; and
*approximately #0.4 million to expand sales facilities and branch out into
additional target PRC geographies.
Current trading and prospects
In the three months ended 31 March 2006, the unaudited management accounts
showed that the group had achieved an operating margin of approximately 36.7
percent. The Directors believe this to be sustainable. Growth in turnover and
profitability in the current year will come from the first plant operating at
full capacity for the full year, as well as from initial production from the
second plant which is currently being built. The Directors expect further growth
in 2007 from both Longyan plants operating at full capacity, as well as from the
opening in mid 2007 of the planned third plant in Xiamen.
Dividend policy
The first dividend that the Company expects to pay will be a final dividend for
the year ending 31 December 2006. For all future years, the Directors intend to
pay dividends on a semi-annual basis where appropriate.
The declaration and payment by the company of any future dividends and the
amount of any such dividends will depend upon the group's results, financial
condition, cash requirements, future prospects, profits available for
distribution and any other factors considered by the Directors to be relevant at
the time.
Glossary of specialist terms
"Biodiesel" A lean burning alternative diesel-like fuel produced from
energy crops which produce vegetable oil, tallow or cooking
oils
"Biofuel" Any fuel from non-fossil organic matter such as vegetable
oil or ethanol
"Blends" Refers to the blend of Biodiesel with petroleum diesel. In
most modern engines any concentration of Biodiesel can be
used
"Cetane" A paraffinic hydrocarbon used as an additive in diesel fuel
"Esterification" The process of chemically combining an alcohol and an acid
resulting in the formation of an organic compound
"Trans-esterication" A reaction between an ester (an organic compound) and an
alcohol
ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
END
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