XI'AN, China, March 30, 2012 /PRNewswire-Asia-FirstCall/ Sino Clean Energy Inc. SCEI ("Sino Clean Energy," or the "Company"), a leading producer and distributor of coal-water slurry fuel ("CWSF") in China, today announced audited financial results for the full year ended December 31, 2011.

Fourth Quarter 2011 Financial Highlights

• Revenues in the fourth quarter of 2011 were $28 million, a decrease of 16% from $33 million in the same quarter of 2010.
• Net income in the fourth quarter of 2011 was $4 million, a significant decrease from $13 million in the same quarter of 2010. Non-GAAP adjusted earnings were $4 million, a decrease of 52% from $8 million in the same quarter of 2010.
• Earnings per share were $0.15. Adjusted earnings per share were $0.15.

Full Year 2011 Financial Highlights

• Revenues for the full year ended December 31, 2011 were $102.2 million, a decrease of 3.9% from $106.3 million in the same period of 2010.
• Net income in the full year 2011 was $32.1 million, a decrease of 33.1% from $48.0 million in the same period of 2010. Non-GAAP adjusted earnings, which excludes change in fair value of derivative liabilities of $10.2 million and gain on extinguishment of derivative liability of $3.6 million, were $18.3 million, a decrease of 34.3% from $27.9 million in the same quarter of 2010.
• Basic earnings per share were $1.37. Adjusted basic earnings per share were $0.70.
• Net cash used in operations was $15.7 million for the year ended December 31, 2011, compared with net cash provided by operations of $26.2 million for the year ended December 31, 2010.

Mr. Baowen Ren, chairman and chief executive officer of Sino Clean Energy, commented, "2011 was a challenging year for Sino Clean Energy, but I'm pleased that the year ended on a strong note. During the fourth quarter, our largest customer, Haizhong Heating in Shenyang, resumed its operations and order processing. In Tongchuan, we maintained order flow in spite of tough competition. In Dongguan, our customer base and order volume continued to increase as well."

Mr. Ren continued, "In 2011, we succeeded in growing our proportion of industrial users to a clear 59% majority of our customer base, thus significantly reducing the impact of seasonality related to residential and commercial users. Such diversification in our user base complements our efforts at geographic diversification to move beyond a sales concentration in northern China through construction and acquisition of CWSF production facilities in southern China and through a new venture in Thailand. All these initiatives provide a more stable base for our overarching goal to expand production capacity so as to increase our revenue-generating potential."

Ms. Wendy Fu, chief financial officer of Sino Clean Energy, added, "In the past year, management worked on improving its corporate governance structures, under the Audit Committee's supervision. As previously noted, asset and cash verifications conducted by Thornhill Capital addressed concerns raised about the Company's credibility. After a comprehensive review and evaluation of internal controls, we are working to have a more robust internal control system in place. Moving forward, our Audit Committee has formulated an effective internal control enhancement program for 2012 to monitor the operations of these controls and to detect non-compliance with policies and governance procedures."

Full Year 2011 Financial Results

Revenue for the year ended December 31, 2011 decreased 3.9% to $102.2 million from $106.3 million in the same period of 2010, a decrease that is within the Company's previous guidance. The decrease in revenue was primarily due to a decrease in sales to the Company's major customer, Haizhong Heating, which suspended operations of its CWSF boilers between April and October 2011. The reduction in sales volume due to this business interruption was 81,251 metric tons, worth approximately $10.3 million in lost revenue. A new 300,000 metric ton production line added to the Dongguan facilities in February led to an increase in production capacity, but the Dongguan operations did not reach planned production volume for the year because a potential customer, Yongchang Paper, did not start operations as planned in 2011.

During the full year 2011, the Company sold 848,114 metric tons of CWSF compared to 982,167 metric tons in the same period of 2010, representing a decrease of 13.6%. The Company's annual production capacity as of December 31, 2011 was 1,150,000 metric tons, compared to 850,000 metric tons as of December 31, 2010.

As of December 31, 2011 Sino Clean Energy had 35 active customers under CWSF supply agreements, compared to 43 customers as of December 31, 2010.

Cost of Goods Sold was $70.0 million for the year ended December 31, 2011, compared to $64.4 million in the same period of 2010, representing an increase of 8.6%. CWSF's 2011 average unit cost was 20.7% higher than that of 2010 level. The overall increase in Cost of Goods Sold is also attributable to an impairment of prepaid inventory of $2.8 million.  The Company will use every endeavour to recover the prepaid advance from the supplier should the coal not be delivered in 2012 but provided a reserve for the amount due to the uncertainty of realization.

Gross Profit for the year ended December 31, 2011 decreased 23.0% to $32.2 million from $41.8 million in the same period of 2010. Gross margin decreased to 31.5% in 2011 from 39.4% in 2010. This primarily resulted as a combination of significantly higher purchase prices for coal in general (and particularly in Dongguan) and higher depreciation costs for plant and machinery at the Dongguan facility, as well as the allowance for impairment of prepaid inventory.

Selling expenses were $4.9 million in 2011, compared to $4.6 million in 2010, an increase of 6.2%. This increase is mainly attributable to increased transportation costs and marketing costs.

General and Administrative Expenses were $3.9 million in 2011, compared to $2.6 million in 2010, representing an increase of 52.5%. This increase was primarily due to the increase in legal expense and professional fees of the Company's operations. The increase in those costs resulted from increased public company reporting costs, acquisition due diligence expenses and advisory services on legal and financial reporting. The increased legal and professional fees accounted for 29.3% of the total increase of general and administrative expenses. The general expenses associated with the development of a new plant in southern China also contributed to the significant increase in general and administrative expenses.

Income from Operations decreased 32.5% to $23.4 million in 2011 from $34.7 million in 2010, due to the above mentioned factors.

Provision for income taxes was $5.4 million in 2011, compared to $6.9 million in 2010. The decrease in income taxes reflects the decrease in taxable income from the Company's operations in China. For the year ended December 31, 2011 and 2010, the Company's effective tax rate was 14.3% and 12.6%, respectively, on income before provision for income taxes. 

Net income for the year ended December 31, 2011 was $32.1 million, compared to $48.0 million in the same period of 2010, representing a decrease of 33.1%. Basic earnings per share were $1.37 and $3.03 for full year 2011 and 2010, respectively. Adjusting for non-cash charges during each respective period, adjusted earnings were $18.3 million and $27.9 million for full year 2011 and 2010, yielding $0.70 and $1.46 in adjusted basic earnings per share, respectively.

As of December 31, 2011, the Company had cash and cash equivalents of $42.4 million, compared to $52.1 million as of December 31, 2010. Net cash used in operations was $15.7 million for the year ended December 31, 2011, compared with net cash provided by operations of $26.2 million for the year ended December 31, 2010. This decline was mainly due to a combination of the decrease in net income, amortization of the discount on convertible notes, change in fair value and the increase in accounts receivable, prepaid inventory and inventories. The Company had working capital of $88.7 million at December 31, 2011 and a current ratio of 17-to-1.

Net accounts receivable balance was $13.2 million at December 31, 2011, compared to $3.8 million at December 31, 2010. While sales remained relatively stable for the year ended December 31, 2011, the composition of sales changed significantly as the Company developed new industrial year-round customers in Guangdong province, offsetting some of the lost sales from Haizhong Heating in Shenyang. Allowance for doubtful accounts was both nil at December 31, 2011 and 2010, and all accounts receivables outstanding at December 31, 2011 have been collected by the end of February 2012.

The annualized days sales outstanding for the full year ended December 31, 2011 were 47 days compared to 13 days in full year 2010. The lengthening of days sales outstanding reflected the tightening credit environment around Tongchuan and the trend of growing CSWF purchaser power in Dongguan.

Prepaid inventories were $37.1 million for the year ended December 31, 2011, representing prepayment of approximately 291,000 metric tons of coal, compared to $10.2 million for the year ended December 31, 2010.

Recent Development and Updates

Acquisition Agreement for Foshan Nan Hai

In July 2011, Sino Clean Energy entered into a non-binding, preliminary agreement to purchase 100% of the outstanding equity interest in Crown Energy Limited, an investment company registered in Hong Kong, which as its sole business holds 60% of the equity interest in Foshan Nan Hai CWSF Co., Ltd. ("Foshan Nan Hai"). Founded in 2003, Foshan Nan Hai has an installed capacity of 1.2 million metric tons and reserved capacity of 1 million metric tons. Located in Foshan City, Guangdong province, where the local government promotes CWSF for energy conservation and carbon emissions reduction, Foshan Nan Hai supplies to the largest CWSF boiler in China and ships its CWSF output from its own 3,000 metric ton barge dock. Foshan Nan Hai has been performing annual audit work for 2011. After Foshan Nan Hai's 2011 financial statements are available, the Company will perform related due diligence. The Company expects to complete the evaluation and negotiation process for the acquisition of Foshan Nan Hai by the second quarter of 2012.

Cooperation with Nathalin Welstar Energy Co Ltd

In August 2011, Sino Clean Energy signed a Memorandum of Understanding ("MOU") and a preliminary engineering, procurement and construction ("EPC") agreement with Nathalin Welstar Energy, Company Limited ("Nathalin Welstar Energy" or "Nathalin") for cooperation in the construction of a coal water slurry plant in Thailand. Nathalin Welstar Energy, a subsidiary of leading Thai marine petroleum transport company Nathalin Group, focuses on developing environmentally-friendly energy sources, such as solar, wind and clean coal. Under the agreement, Nathalin would invest in a 50,000 metric ton CWSF production facility and a minimum 6,000 KW net output electricity power plant with associated infrastructure. SCEI management undertook a site visit in Thailand in December 2011 for feasibility study and inspections and to begin the process of technical and financial analysis of the project.

Asset and Cash Verification

In February 2012, Thornhill Capital LLC ("Thornhill") completed its Asset and Cash Verification Reports for the Audit Committee of Sino Clean Energy. In November 2011, the Company announced Thornhill's reconciliation of the Company's tax returns filed with the State Administration of Taxation (SAT) and its filings with the State Administration of Industry and Commerce (SAIC) against audited financial information filed with US Securities and Exchange Commission under US GAAP. After Thornhill's reconciliation, the Audit Committee requested Thornhill to do additional work, and provide additional reports, regarding verification of fixed assets and cash.

With regard to verification of fixed assets, Thornhill based its conclusions on a review of relevant original purchase, bank, and accounting documentation regarding the Company's fixed assets and a physical viewing of the facilities' assets. As a result, and based on the scope of its verification, Thornhill concluded in its report dated January 2, 2012 that it is unlikely that the Company's fixed asset balances as described in the Company's Form 10-K as of December 31, 2010, and Form 10-Q as of September 30, 2011, are materially misstated.

With regard to verification of the Company's cash balance, Thornhill made its verifications on December 31, 2011 and January 18, 2012. In a report dated February 1, 2012, Thornhill stated that it was able to verify over 95% of the Company's consolidated cash balance as of December 31, 2011, and January 18, 2012, respectively. These verifications were based on bank statements obtained directly by Thornhill staff from the relevant banks on January 18, 2012 and confirmed and reconciled to the Company's December 31, 2011 cash balance.

Legal Proceedings

On May 6, 2011, a complaint was filed in the Federal District Court for the Central District of California against the Company and certain of its current and former officers and directors. The complaint alleged violations of Sections 10(b) and 20(a) of the Exchange Act of 1934 and rules promulgated thereunder. On September 8, 2011, the putative class counsel filed a First Amended Complaint, now asserting claims under Sections 11 and 15 of the Securities Act of 1933 on behalf of all persons (other than the Defendants) who acquired Sino Clean common stock pursuant or traceable to the December 21, 2010 Registration Statement and Prospectus. The Company moved to dismiss the First Amended Complaint for failure to meet pleading requirements. The Court granted that motion but gave Plaintiff leave to amend his complaint. Plaintiff filed a Second Amended Complaint on or about March 5, 2012. By agreement, the served defendants have until April 20, 2012 to answer, move or otherwise respond to the Second Amended Complaint. The Company continues to deny the allegations. No prediction can be made, however, as to the final outcome of the matter.

Financial Outlook

SCEI management expects full year 2012 revenue of between $150 million and $168 million. The Company expects full year 2012 non-GAAP adjusted earnings to be in the range of $35 million to $40 million and adjusted earnings per share of between $1.35 and $1.54. This guidance assumes total sales volume of between 1.3 million to 1.4 million metric tons of CWSF in 2012.

Mr. Baowen Ren, chairman and chief executive officer of Sino Clean Energy, commented, "Looking ahead, we see 2012 as a year full of opportunities and development. Considering the larger macroeconomic environment, it is encouraging that earlier this month, the Chinese government increased gasoline and diesel prices for the second time in less than six weeks, by 6.5% and 7.0% respectively. After the increase, retail gas pricing in China has risen to the equivalent of $95 a metric ton. We have since then observed increasing interest among potential industrial customers to switch to cleaner and more cost-efficient fuel such as CSWF. Although it is still too early to estimate with any precision what the impact might be, this change in the macro environment is obviously favorable to our industry."

Mr. Ren continued, "In 2012, we plan to aggressively increase our CWSF production capacity from 1.15 million to 2.9 million metric tons, through the construction of new facilities and the acquisition of existing facilities. We anticipate increased sales volumes to follow this increase in capacity. In light of our established track record of being able to adjust CWSF prices in response to coal price increases, we believe that the company can maintain relatively stable gross margins in the range of 30% to 40%."

Exchange Rate

This announcement contains translations of certain Renminbi amounts into US dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to US dollars were made at the noon buying rate of RMB6.3776 to USD1.00 on December 31, 2011 in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York.

Conference Call

The Company will host a conference call at 8:00 p.m. ET on Friday, March 30, 2012, which is 8:00 a.m. Beijing Time on Saturday, March 31, 2012, to discuss the full year 2011 results and answer questions from investors.

To access the conference call, please dial:

Please ask to be connected to the "Sino Clean Energy call" and provide the conference ID:  4527383.

Sino Clean Energy will also broadcast a live audio webcast of the conference call. The broadcast will be available by visiting the "Investor Relations" section of the Company's web site at http://www.sinocei.net.

An archive of the call will be available through April 6, 2012 by dialing:

About Sino Clean Energy

Sino Clean Energy is a major producer of coal-water slurry fuel ("CWSF") by sales in China. A leader in developing CWSF as a cleaner alternative to burning coal aggregate in heating, industrial and power generation for residential and industrial applications, the Company has seven production lines located in Shaanxi, Liaoning, and Guangdong provinces. For more information about Sino Clean Energy, please visit http://www.sinocei.net.

Contact Information

Sino Clean Energy Inc.
Jing Li, Assistant to the CEO
Phone: +86-29-8844-7960 ext. 802
Email: Jing.Li@sinocei.net

ICR Inc.
Rob Koepp
Phone: +86-10-6583-7516 or +1-646-328-2526
E-mail: SCEI@icrinc.com

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. The Company believes that these non-GAAP financial measures are useful to investors because they exclude non-cash charges that our management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes these non-GAAP measures reflect the essential operating activities of Sino Clean Energy.  Accordingly, management excludes the change in derivative liabilities, gains (losses) on extinguishment of derivative liabilities, and amortization of note discount when making operational decisions. The Company believes that providing the non-GAAP measures that management uses to its investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand the Company's financial performance in comparison to historical periods. In addition, it allows investors to evaluate the Company's performance using the same methodology and information as that used by our management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measures. However, our management compensates for these limitations by providing the relevant disclosure of the items excluded.

The following table provides the non-GAAP financial measure and the related GAAP measure and provides a reconciliation of the non-GAAP measure to the equivalent GAAP measure.

The adjusted number of shares used to determine adjusted earnings per share is calculated by adding the basic weighted number of shares to the number of shares that would be issued upon exercise of all warrants classified as derivative liabilities. At December 31, 2011, basic weighted number of shares of 23,498,018 is increased by 2,476,647 warrant shares that would be issued upon exercise of all the Company's warrants, resulting in 25,974,665, the adjusted earnings number of shares. For the year ended December 31, 2011, adjusted earnings of $18,299,631 divided by the 25,974,665 adjusted number of shares results in adjusted earnings per share of $0.70 per adjusted shares. At December 31, 2010, basic weighted number of shares of 15,855,682 is increased by 3,149,582 warrant shares that would be issued upon exercise of all the Company's warrants, resulting in 19,005,264, the adjusted earnings number of shares. For the year ended December 31, 2010, adjusted earnings of $27,870,070 divided by the 19,005,264 adjusted number of shares resulted in adjusted earnings per share of $1.46 per adjusted shares.

Safe Harbor Statement

This press release contains certain "forward-looking statements," as defined in the United States Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate and the actual results and future events could differ materially from management's current expectations. Such factors include, but are not limited to uncertainties in product demand, the impact of competitive products and pricing, our ability to obtain regulatory approvals, changing economic conditions around the world and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

 

 

 

 

 

 

 

 

SOURCE Sino Clean Energy, Inc.