Asia Carbon Industries (PINK:ACRB)

First Quarter 2012 Results

• Revenues for the quarter ended March 31, 2012 were $12.6 million, down 6% from $13.4 million for the same period in 2011.
• Gross profit was $2.93 million in the quarter ended March 31, 2012, a decrease of 8% from $3.18 million for the same period in 2011.
• Net income for the quarter ended March 31, 2012 was $1.81 million, a decrease of 14% from $2.11 million for the same period in 2011.
• Earnings per share remained at $0.04 for the quarter ended March 31, 2012 and 2011, respectively.
• Tonnage sales of carbon black increased to 12,573 tons in the quarter ended March 31, 2012, up 3.5% from 12,140 tons in the same period in 2011.
• Naphthalene oil sales more than doubled to 1,050 tons in the quarter ended March 31, 2012, as compared to 500 tons in the same period of 2011.

Yao Guoyun, Asia Carbon's Chairman of the Board and Chief Executive Officer, commented, "I am pleased with Asia Carbon's performance this quarter. Carbon black unit sales increased 3.5% and naphthalene oil sales more than doubled compared to the same period of 2011. And while our results were affected by depressed carbon black market prices, we believe this trend has reversed and anticipate that prices will shortly return to previous levels."

Ms. Yao further stated, "Carbon black is a critical material for tire manufacturers, and China's tire production continues to increase. This is true for our customers, many of whom are expanding their operations. In order to meet continuing demand for our products, management is evaluating a number of options to build capacity, both organically and through acquisitions. Either alternative would be funded through a combination of operating income and outside sources."

GeoTeam® Note: 2011 vs. 2009 Fourth Quarter EPS was $0.03 vs. $0.04

Sales for 2011 totaled $49,122,044, an increase of $19,435,168 or 65%, compared to $29,686,876 for 2010. We sold 49,683 metric tons of carbon black and naphthalene oil, an increase of 16,478 metric tons, or 50%, compared to 33,205 metric tons in 2010. Increase in sales quantities accounted for approximately 86% of increase in sales in 2011, which was attributable mainly to our new wet production line starting production on October 26, 2010. The remaining 14% increase in sales was attributable to the increase of unit sales price which was a result of the recovery of financial crisis worldwide and recovery of the demand for our products. The average sales price of our products was $989 per metric ton during 2011, an increase of $95 per ton, or 11%, from $894 per ton during 2010. The Company’s total carbon black production capacity was 61,000 and 35,000 tons per annum as of December 31, 2011 and 2010, respectively. The production/total capacity utilization rate was 78% and 92% during 2011 and 2010, respectively.

Growth Strategy

We have a multi-prong growth strategy, with the objective of establishing the Company as a leading manufacturer and marketer in China’s growing carbon black sector, with a particular emphasis in the tire and automotive industries.
 
To execute this strategy, we intend to implement the following plan:

• Complete conversion of existing production facilities.  The primary component of this strategy is the addition of wet processing capabilities, which will provide the Company and its customers with several benefits, as discussed below.  The capacity of the first completed wet line is approximately 25,000 tons per year.
• Low-carbon and clean production. To pave the way to low-carbon and clean production, we seek to use natural gas to enhance its production process for energy conservation and emission reduction. Once completed, both dry and wet production line could use natural gas to operate, which will increase the quality of our products. Secondly, we are planning to build a power plant to recycle the tail gas produced in the manufacturing process to generate electricity needed in the production.
• Development of superior end product. Wet carbon black products are more stable than dry carbon black products in quality and performance.  In the next five years, we believe our clients will require their carbon black to be denser and of higher quality to satisfy these three properties: lower rolling resistance, higher wet skid resistance, and stronger wear resistance. This denser, higher quality carbon black can only be produced through wet processing means.
• Improved Margins.  The wet granulation method will improve the gross profit margin also.  While the raw materials expense is the same, the wet process will consume less raw materials and yield higher quality end product, enabling the Company to charge a premium for wet process carbon black.
  While demand for wet carbon black will gradually replace dry carbon black as an important raw material in the rubber tire industry, we anticipate that dry carbon black will still be in demand as many factories still utilize it for lower cost products.
• Expansion of the distribution network.  Management believes the domestic market represents a substantial opportunity, particularly as China’s rural economy is modernized.  The nation’s growing “middle class” continues to increase demand for automobiles.  To this end, we will continue to add to our dedicated sales force within existing markets, in addition to expanding into new geographic areas.
• Expansion of production capacity.  We will continue to expand our current production capacity in the future.  We intend to add new wet granulation production lines. We have the option of building a new wet line with 40,000 tons of capacity per year, or acquiring a target company with wet production capacity. We will continue to evaluate alternatives to add production capacity to our carbon black operation by analyzing the cost benefits of acquisition versus build out.
• Investment in recyclable energy. In conjunction with the addition of these new production lines, subject to the availability of financing, the Company intends to construct a thermal power plant within its facility campus that would use the tail gas generated from the manufacturing of the carbon black to generate electricity. There are no specific plans for construction of a thermal plant at this time.
• Continue to Develop and Market New Products. As China continues the shift from an agricultural market to a “controlled” capitalist environment, the demand for other carbon black related products, such as toner, high performance paints, electric materials, etc. is expected to expand as well.  Management will be opportunistic in its approach to new product development.  Line extensions are expected to come as a result of thorough internal research and development, customer requests, and acquisitions.  In conjunction with the expansion of production capacity, we plan to continue to target and cater to the needs of both our new and existing customers.
  

NEW YORK, Jan. 25, 2012 /PRNewswire/ -- Asia Carbon Industries, Inc. ("Asia Carbon", or the "Company"), OTCBB:ACRB, today announced its completion of two infrastructure projects: a gas pipeline and naphthalene oil processing facility. The self-funded projects will have a positive impact on the Company's future operations.

Asia Carbon began selling Naphthalene oil, a by-product of the carbon black production process in July, 2011. As demand continued to grow, the Company decided to increase its refining and storage capacity. Asia Carbon invested approximately $3 million (approximately 18.6 million RMB) in the facility which has the capacity to process an additional 2,400 tons naphthalene per year. Construction was completed in December 2011. At the current pricing, this Naphthalene project would contribute approximately $1.7 million in revenue, at full capacity.

Ms. Yao Guoyun, Asia Carbon's Chairwoman of the Board and Chief Executive Officer, commented, "We are very pleased to announce the completion of both gas pipeline and naphthalene projects at the end of 2011, as they represent an important step in our expansion plans for Asia Carbon. Together, these projects are expected to increase revenues and improve margins going forward. This contribution will also help us to offset any negative impact from increases in raw material pricing."

Ms. Yao went on to say, "In order to facilitate our ability to meet the growing demand for our product, we are building a new 3,700 square meters (approximately 40,000 square feet) warehouse for our carbon black products. We estimate the cost for this warehouse will be approximately US$1 million and anticipate construction will be completed by the end of the first quarter 2012."

Third Quarter 2011 Results

Second Quarter 2011 Results

First Quarter Results:

• Revenues for the first quarter of 2011 increased 154% to $13.44 million in 2011, from $5.29 million for the same period in 2010.
• Gross profit increased 302% to $3.18 million in the first quarter of 2011 from $0.79 million for the same period in 2010.
• Net income for the first quarter of 2011 increased 564% to $2.1 million in 2011 from $0.32 million for the same period in 2010.
• Earnings per share were at $0.04 for the first quarter of 2011, compared to $0.01 for the same period in 2010.

Yao Guoyun, Asia Carbon's Chairman of the Board and Chief Executive Officer, commented, "We are very excited to report our first quarter results to our shareholders. The Company's performance is a direct result of the successful implementation of the expansion plans we laid out at the time we brought Asia Carbon public; expanding our overall manufacturing capacity and transforming our existing production lines from dry-process to the higher quality wet-process production."

GeoTeam Note: Fourth quarter 2010 vs. 2009 EPS was $0.04 vs. $0.02

Yao Guoyun, Asia Carbon’s Chairman of the Board and Chief Executive Officer, commented, “We are pleased to report the yearend results, Asia Carbon’s improved revenues reflect the continued strengthening of market demand for our product, and our ability to satisfy that demand with a superior, wet-process product. We believe the negative impact of the global financial crisis is behind us now, as illustrated by our ability to successfully raise pricing on our carbon black product line.” Ms Yao further stated, “Our revenues continue to grow as a result of an increase in demand for both our Carbon Black product line and our Naphthalene Oil product. Net income for 2010 declined as a percentage of revenue as compared to the prior year reflecting an increase in raw material costs and the fees associated with the Company going public. We believe these expenses will have a lesser impact on our bottom line, in conjunction with our planned additions to production capacity and expanded sales efforts going forward.”