Half Yearly Report

28 September 2012

China New Energy Limited

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

Half-yearly report for the six months to 30 June 2012 and directorate change

China New Energy Limited (AIM: CNE), the engineering and technology solutions provider to the bioenergy sector, announces its unaudited half-yearly results for the six months ended 30 June 2012.

Financial Highlights

·; Revenue of RMB 48.7m (H1 2011: RMB 49.2m)

·; Gross profit of RMB 6.30m (H1 2011: RMB 6.97m)

·; Cost of finance down to RMB 0.85m due to partial repayment of bond

·; One-off exceptional costs amounting to RMB 3.6m incurred during first half

·; Net loss of RMB 6.04m (H1 2011: RMB 0.8m profit, including RMB 4.13m from other income)

·; Loss per share of RMB 0.019 (H1 2011: EPS of RMB 0.003)

Operational Highlights

·; RMB 65m of new contracts secured in H1 2012 (H1 2011: RMB 154m)

·; Major contracts executed in Thailand and North China 

·; Significant progress in cooperation with JEIC

Directorate Change

China New Energy Limited further announces that Shiang Peow Foo, who has been a Non-executive Director of the Company since its admission to AIM in May 2011, has resigned with effect from the end of the September 2012 due to other work commitments and responsibilities.

Yu Weijun, Chairman, commented:

"Despite the difficult trading conditions globally, particularly in the larger EPC contract environment, our core business continues to show resilience with our revenues remaining broadly consistent with the same period last year. Historically, we complete more projects and book more revenue in the second half of the financial year. By the end of July 2012, the Company had secured new contracts worth RMB 128m and we expect to complete these projects substantially by end of the year."

"Looking ahead, we remain confident that biofuel will be the clear alternative to fossil oil as it is greener and readily available. We look to the long term with confidence."

The board is sorry that Mr Foo has resigned as he has been a key member of the team for these last two years. He played a significant role in enabling the company to reach its milestone of being admitted to AIM and we appreciate his commitment to the Company during his tenure. We wish him every success in the future."

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 2012.

Financial Review

In the first half of the year, our revenue held up well despite the weak market in the biofuel sector as a result of wider global macro-economic conditions. Given that background I believe a revenue decline of only 1% against the comparable period reflects the underlying strength of our business. Moreover, we believe a return to growth in the renewable energy, beverage and chemicals industries is not too far away and, once that recovery gets under way, we could experience a rapid improvement in our own performance. 

Revenue for the six months under review was RMB 48.7m compared to RMB 49.2m in the same period last year. The Group's gross profit was RMB 6.3m (H1 2011:RMB 6.97m).

Selling and distribution expenses rose by 5.2% to RMB 1.54m from RMB 1.46 million while administrative expenses increased by 37.3% from RMB 5.9m to RMB 8.3m due to a RMB 2.21m exceptional charge relating to incentives granted to employees in 2011 through the Company's Employee Benefit Trust.

The Group's other operating expenses were down to RMB 0.6m from RMB 1.25m in 1H 2011. An investment loss of RMB 1.4m relates to the disposal of the stock of Bio-Dynamic Group Limited, which had previously issued 11,326,134 shares to the Group, in lieu of RMB6.65m of outstanding invoices to the Company in 2011.

The Company incurred two exceptional items in the period which amounted to RMB 3.6m in total, being RMB 2.2m in respect of employee incentives and RMB 1.4m in respect of a loss on investment noted above, which greatly affected the overall half year performance of the Group with a loss of RMB 6.04m (H1 2011: RMB 0.38m profit which includes a RMB 4.1m bad debt recovery).

To date, the company has repaid RMB 7.5m of Citadel's bond from a total of RMB 37.7m. During the half year, operating activities absorbed RMB 2.3m of cash which has restrained the Company's plans for expansion. The Directors are taking prudent actions to ensure that sufficient operating cash flow is maintained and working capital is being carefully managed. Further fundraising may be required in the near future.

Operational Review

In H1 2012, the Group secured additional significant contracts for its products and services in Thailand and North China, relating to Ubon Bio-ethanol Company Limited ("Ubon") in Thailand, for a cassava-based ethanol project intended to produce up to 400,000 litres per day of edible ethanol or fuel ethanol. The contracts were worth RMB 19.2m to the Company's wholly owned subsidiary, Guangdong Zhongke Tianyuan New Energy Science and Technology Co. Ltd ("ZKTY") and follows on from last year's RMB 74m contact with Ubon. In addition, the Company is currently negotiating to provide further products and services to construct additional auxiliary facilities for the project. Our success in securing these contracts is a testament to the Group's ability to design and construct high quality cassava or molasses based ethanol production facilities. The Board believes that the Company's customers consider the Company to be a reliable and suitable development partner. We believe our success in this project will strongly position the Group to capture market share in South East Asia where there is abundance of inexpensive cassava feedstock.

From 2011, ZKTY has been developing a strategic cooperation with Jilin Ethanol Industrial Company Limited ("JEIC"), to exploit and commercialise bio-ethanol production technology and engineering solutions. JEIC was formed in 2011 to amalgamate a number of inefficient state-owned ethanol producers in Jilin Province. JEIC currently has an annual corn processing capacity of 2,000,000 tons, annual ethanol production capacity of 600,000 tons and a 25% shareholding over a further 500,000 tons of annual biofuel grade ethanol capacity. JEIC is targeting to increase its own annual production of ethanol to 1,000,000 tons by 2013, thereby becoming the largest ethanol producer in Asia.

As announced on 18 July 2012, ZKTY has been awarded a £7.4m (RMB 74m,including VAT) contract by JEIC to improve the production efficiency and capacity of its plants. ZKTY expects to have the bulk of the work completed by the end of this year. With the inclusion of JEIC, the total value (net of VAT) of new contracts secured in the year to July is approximately RMB128 million compared to RMB154 million for the same period last year.

Outlook

After the recent volatility in the global financial markets and the bio ethanol market downturn, there is a risk that the Group may face harder trading conditions and as a result the Board maintains it cautious business approach. Nevertheless, the Board remains positive about the Company'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 globally 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.

The Directors and management team are confident in the Company'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 in the PRC and overseas with prospective customers.

Yu Weijun

Chairman

20 September 2012Consolidated Statement of Financial Position

Consolidated Statement of Comprehensive Income

Consolidated Statement of Cashflows

Consolidated Statement of Changes in Equity

Notes to the Interim Financial Information - Period ended 30 June 2011

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 2012 and are unchanged from those disclosed in the group's Report and Financial Statements for the year ended 31 December 2011, except for the following additional accounting policies:

Basis of consolidation

The Company 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 Company, 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 Company's auditors. The comparatives for the period ended 31 December 2011 are not the Company'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 27 September 2012.

 2. Ordinary shares

The substantial shareholders have not changed from 31 December 2011.The Company 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:

5. Directors' interests

The following Directors have held office during the period and their interests as at 30 June 2012, 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.