Half-year Report

19 September 2017

China New Energy Limited

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

Half-yearly report for the six months to 30 June 2017

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 2017.

Financial Highlights

· Revenue of RMB 68.76m (£7.73m) (H1 2016: RMB 45.4m (£5.11m)), which represents a 51% increase over the same period last year

· Gross profit of RMB 16.6m (£1.87m) (H1 2016: RMB 16.2m (£1.82m))

· Net Profit of RMB 10.6m (£1.19m) (H1 2016: RMB 11.3m (£1.27m))

· Earnings per share of RMB 0.023 (0.26p) (H1 2016 RMB 0.029 (0.33p))

RMB8.89: GBP £1 used as an indicative exchange rate.

Yu Weijun, Chairman, commented:

"I am very pleased to report that, based on contracts from China, the Company has had its third successive profitable half year and is demonstrating a return to sustained profitability. The bioenergy industry still faces many headwinds due to the low-oil price, however, regulatory changes are helping drive our domestic business. The company has a current order book and work in progress of RMB 255 million (c. £28.7m) to be fulfilled in 2017/18, and I am optimistic that the business outlook is for sustained revenue growth.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Enquiries:

Chairman's Statement

On behalf of the Board, I am very pleased to present the unaudited half-yearly results for the six months period ended 30 June 2017.

Financial Review

Revenue for the first six months of the year has grown to RMB 68.76m (H1 2016: RMB 45.4m), an increase of approximately 51%. A significant driver of the increase in revenue was the change of rules pertaining to the types of feedstock that may be used to produce ethanol in China, which stimulated new orders from existing clients including Jilin Boda and COFCO. The Company's order book is currently RMB 255m of which RMB 41m is carried forward from 2016 and the remainder is new orders in H1 2017 that are expected to be fulfilled in 2017 and 2018.

The Group's gross profit also increased in the period to RMB 16.6m (H1 2016: RMB 16.2m) which resulted in the Group returning a net profit in the period of RMB 10.6m (H1 2016: RMB 11.3m). The gross margin has decreased to 24.1% from 35.8%, which the board believes is temporary and specifically relates to competitive bidding on the COFCO contract.

Selling and distribution expenses increased by 30% to RMB 3.1m (H1 2016: RMB 2.39m) while administrative expenses decreased by 47% to RMB 2.5m (H1 2016: RMB 4.76m). The Group's other income was RMB 0.7m (H1 2016: RMB 2.89m). The other expenses were RMB 0.68m (H1 2016: RMB 0.55m). Finance expense increased to RMB 0.4m (H1 2016: RMB 0.14m).

Operational Review

CNE is a market leader in China at designing and building biorefineries that convert agricultural feedstock such as corn, cassava and sugarcane into ethanol. We have completed more than 180 projects in China and around the world. The Group principally provides EPC (Equipment, Procurement and Construction) services and VAS (Value Added Service) to ethanol and biobutanol producers. The EPC team primarily designs and builds 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.

As a result of recent policy changes that allows approximately 300 million tonnes of accumulated agricultural feedstocks to be converted to ethanol and animal feed, China currently represents the largest potential market for the Group. This provides an immediate opportunity for alcohol and fuel ethanol producers to increase their production capacity and expand their production. As a leading provider of bioenergy technology in China, the Group expects to bid for more upcoming contracts with existing clients and domestic ethanol producers including COFCO Group, Jilin Boda Biochemical Company, Inner Mongolia Liniu Biochemical Group.

To meet this market growth, during the first half of the year the Group recruited more than 20 technicians and engineers to fulfil the current and anticipated future orders.

The Group's strategy remains to diversify into international markets. However, progress is slower than anticipated including contracts already won and most, notably, the Group is still awaiting a project start date from the Supercare Group in Ghana. Elsewhere in sub-Sharan Africa, Sunbird Bioenergy Africa ("Sunbird") continues to make progress with their projects and reaffirmed their commitment to developing an ethanol project in Zambia at the Luapula Investment Conference in July. CNE remains optimistic about tendering for the ethanol distillery and associated plant in due course, and will update the market as contractual developments take place.

Corporate Development.

With the return to profitability, the Directors are reviewing a number of initiatives to support the continued growth of the Group and the value created is reflected in the share price. These include:

· Implementing a share option scheme to attract, retain and motivate new and current employees

· Strategic acquisitions

· Requesting shareholder permission by way of an EGM to use free cash for a share buy-back program

Outlook

After the downturn in the bioenergy market in the past few years, we are beginning to see an increased demand for our products and services. This is attributed to the economic recovery in the industry and the change of rules pertaining to ethanol feedstock usage in China.

China remains an important participant in the global energy market and is very focussed on delivering renewable energy to both reduce emissions and increase energy security and reliance on importing fossil fuels. We note the country recently signed the Paris Climate Change Agreement, and also announced its intention to rollout a national ethanol-fuel blending (E10) program. Ethanol is widely considered to be one of the key alternatives to fossil fuel and a pathway to lower emissions.

The company intends to continue its research and development activities in partnership with institutions including Guangzhou Institute of Energy Conversion ("GIEC"), part of the Chinese Academy of Sciences, to commercialise advanced alternative and renewable energy technologies for the bioenergy market.

Internationally, we continue to promote our products and services through our partners. We continue to see an interest in our existing 1st generation bioenergy technology in emerging markets such as Africa and South East Asia. We also see an increased interest in 2nd generation bioenergy technology in developed markets which is also being aided by changes in the regulatory environment to support biofuel production.

The Board are very pleased with our current progress and profitability. The board is also confident about the increased interest in the bioenergy sector and our pipeline of sales opportunities. However, we continue to maintain a cautious business approach due to the macro-economic climate and continued low-oil prices.

Yu Weijun

Chairman

19 September 2017

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 2017

1. General information

The Group (or "CNE") with registration number 93306 was incorporated in Jersey on 2 May 2006 as an investment holding Group. The Group is domiciled in Jersey with its registered office at Queensway House, Hilgrove Street, St Helier, Jersey JE1 1ES.

The principal activities of its main subsidiary, Guangdong Zhongke Tianyuan New Energy Science and Technology Co Ltd. ("ZKTY") are engaged in turnkey technology solutions to manufacturers of ethanol, edible alcohol and acetic acid from a range of bio-resources including corn, sugarcane, cassava and other bio-resources.

The principal place of business is located at No 4, Nengyuan Road, Wushan, Tianhe District, Guangzhou, People's Republic of China ("PRC").

2. 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 2017 and are unchanged from those disclosed in the Group's Report and Financial Statements for the year ended 31 December 2016, 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 2016 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 19 September 2017.

3. Ordinary shares

The substantial shareholders have not changed from 30 June 2017 we outlined in the annual report.The Group has one class of ordinary shares which carry no right to fixed income.

4. Property, plant and equipment

5. Intangible assets

6. 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:

7. Directors' interests

The following Directors have held office during the period and their interests as at 30 June 2017, 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

A business segment is a Group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. 

The Group's revenue breakdown by geographical location is determined based on its customers' country of incorporation. The Group's cost of sales and operating expenses are aggregated on a cumulative basis and are not attributable to specific geographical regions. Therefore, a breakdown of gross profit for the financial years by geographical regions is not shown.

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.