Tri-Tech Holding Reports Fourth Quarter and Fiscal Year 2011 Financial Results

BEIJING, March 22, 2012 /PRNewswire-Asia-FirstCall/ -- Tri-Tech Holding Inc. (Nasdaq: TRIT), which provides turn-key water resources management, water and wastewater treatment, industrial safety and pollution control solutions, announced today that its revenue for the fiscal year ended December 31, 2011 increased by 97.3% to $85.9 million from $43.5 million in 2010. Net income rose 14.3% to $8.1 million from $7.1 million a year earlier. Fully diluted earnings per share ("EPS") for 2011 was $0.98, the same as 2010.

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Fiscal Year 2011 Financial Highlights

• Total revenues increased by 97.3% to $85.9 million from $43.5 million in fiscal year 2010.
• Gross profit increased by 48% to $21.9 million from $14.8 million in fiscal year 2010.
• Gross margin decreased from 33.9% in fiscal year 2010 to 25.5% in fiscal year 2011.
• Income from operations increased by 24.1% to $10.7 million from $8.7 million in fiscal year 2010.
• Net income increased by 14.3% to $8.1 million from $7.1 million in fiscal year 2010.
• Diluted EPS was $0.98 (based on 8.2 million weighted average diluted shares outstanding), equal to 2010 diluted EPS (based on 7.2 million weighted average diluted shares outstanding).

Fourth Quarter 2011 Highlights

• Total revenues for the fourth quarter of 2011 increased by 68.4% to $24.1 million from $14.3 million in the fourth quarter of 2010.
• Gross profit was $5.5 million for the fourth quarter of 2011, approximately equal to $5.5 million in the fourth quarter of 2010.
• Fourth quarter 2011 gross margin decreased from 38.3% to 22.6% in the corresponding period in 2010.
• Income from operations decreased by 35.9% to $2.1 million from $3.3 million in the fourth quarter of 2010.
• Net income slightly increased by 3.7% to $2.7 million from $2.6 million in the fourth quarter of 2010.
• Diluted EPS was $0.32 (based on 8.2 million weighted average diluted shares outstanding), equal to $0.32 in the fourth quarter of 2010 (based on 8.1 million weighted average diluted shares outstanding).

Fiscal Year 2011 Business Development Highlights

• $1.5 million recycled water project for Tianjin Airport Industrial Park
• $20 million contract for expansion phase of Ordos Water Treatment Plant project
• INR 2.06 billion ($39 million) EPC contract in India for sewerage collection and treatment systems and a water treatment system contract for Jasper Fairmont Lodge in Canada
• $3.1 million investment in build-own-operate-subsidy-transfer ("BOOST") contract for construction of municipal infrastructure for a Township in Xinjiang
• $14.1 million in flash flood forecasting and hydrologic monitoring contracts in fourteen Chinese provinces.
• $8.3 million contract for a seawater desalination unit in Qatar.
• $7.9 million contract for wastewater pipeline network and treatment plant for an industrial park in Hebei Province.
• $4 million in two contracts for oil and gas production security system and communication system from Shaanxi Yanchang Petroleum Group Field.
• $1 million contract for natural gas analysis and monitoring from Uzbekistan Branch of China Petroleum Engineering Construction Corporation.
• Acquired 100% of operating assets of J&Y International Inc, a Wisconsin water technology company and 51% equity of Beijing Huaxia Yuan Jie Water Technology Co., Ltd, a company specializing in integrated water supply and treatment system for high-rise buildings.

Mr. Warren Zhao, CEO of Tri-Tech Holding, commented, "We are pleased to report solid growth in 2011. Our successful Ordos water treatment plant project continued to contribute considerable revenue last year, and our flash flood monitoring and forecasting projects helped propel the company to record revenue levels. . Beyond the domestic market, we also expanded internationally in 2011, with three sewage water system projects in India, a hotel water treatment project in Canada and a seawater desalination project in Qatar.

"With a strong start already this year, 2012 looks to be another exciting year for Tri-Tech. Although we expect the Chinese economy's growth rate is likely to slow in 2012, we expect that the Chinese government will increase its focus on infrastructure and public health improvements. At the beginning of the year, the Chinese government issued a number of regulations and policies to motivate further development of environmental industries, where measures on pollution control and water conservancy were specified and regulatory standards were raised. We believe these changes will present growing business opportunities for Chinese water companies.

"In view of economic climate changes and the industry trends, we will continue to pursue diversified growth based on geographical expansion, development of broad customer bases across our business segments and flexible business models, such as build-operate-transfer ("BOT"), build-own-operate-subsidy-transfer ("BOOST") and other models like providing turnkey solutions and specialty products. In addition to project deployments in the West and the Northwest of China, we will focus on India, the Middle East and North America. Based on our established relationships with municipalities and government agencies, we will continue to develop opportunities from private and overseas state-owned entity industries particularly in fields such as oil, gas, petrochemical and power. To diversify and improve our revenue portfolio, we will further position ourselves as a provider of engineering, procurement and construction, build-operate-transfer, turnkey solutions, specialty products and facility management in water industry. In particular, some of specialty products, we plan to provide include emerging seawater evaporator technology and zero liquid discharge solution for industrial wastewater treatment. We believe our strategy of pursuing diversified growth in these ways will position us for continued profitability, while making our company even more resilient and less reliant on a limited number of markets and industries."

Fiscal Year 2011 Financial Performance Metrics

Revenue

Net revenue for 2011 was $85.9 million, an increase of $42.4 million, or 97.3%, from that of $43.5 million in 2010.

By segment, revenue from Water/Wastewater Treatment and Municipal Infrastructure continued to be strong, constituting 67.7% of total revenues, or $58.1 million, an increase of $39 million, or 204%, from $19.1 million in 2010. This solid increase was mainly attributable to the progress on the Ordos drinking water plant project, which contributed 56% of the total revenue for 2011. In 2011, we recognized revenue of $48.2 million on the Ordos project, which consisted of 75% of the initial phase contract value and 60% of the expansion phase contract value in 2011. In aggregate 95% of the initial phase was completed as of the end of 2011 and the customer's acceptance of the initial phase is expected to be finished shortly. The test runs of the expansion phase will be scheduled for the end of June 2012 when the project is expected to be 95%complete. The Indian Bihar municipal wastewater project was 5% complete as of the end of 2011. Substantial revenue will be expected from the project starting the first quarter of 2012.

Revenue from Water Resources Management Systems and Engineering Services saw a growth of 136.6%, to $12.9 million from $5.5 million in 2010, representing 15% of total revenues. Revenue in this segment increased significantly mainly due to a large number of flash flood early warning projects awarded in the second and third quarters and timely implementation of these projects.

Revenue from Industrial Pollution Control and Safety was $14.8 million, a decrease of 21.8% from 2010, representing 17.3% of total revenues for 2011. This decrease was primarily due to lower sales in this segment. The Qatar seawater desalination project reached 10% completion by the end of 2011. This segment experienced a complete strategic transition during the year, as the company shifted focus from its traditional services in pollution control projects to industrial wastewater treatment and seawater desalination. Despite a slower year than 2010, we anticipate improvement in the upcoming quarters of 2012 for this segment, which has a strong backlog of approximately $15 million as well as several large projects the company is pursuing.

Gross Profit and Margin

Gross profit increased by 48% to $21.9 million for 2011, compared to $14.8 million in 2010. Our gross margin decreased from 33.9% in 2010 to 25.5% in 2011. This decrease was a result of several factors, including increases in material and equipment costs and labor subcontracting costs. We expect gross margin to remain stable over the near term. Our overall international expansion also had a direct impact on the increase of cost of sales.

Total Operating Expenses

Total operating expenses for 2011 were $11.1 million, an increase of 81.8% from $6.1 million for 2010. The increase was a result of the rapid growth of expenses for travel, market surveying and project initializing as a result of our aggressive marketing development efforts to pursue new businesses during 2011.

Selling and Marketing Expenses

In 2011, total selling and marketing expenses increased by $0.9 million, or 70.2%, from $1.3 million in 2010 to $2.2 million. This increase was mainly due to increases in sales personnel salaries, business travel, and new market development costs.

General and Administrative Expenses

General and administrative expenses increased by 92.3%, from $4.6 million in 2010 to $8.8 million in 2011. This increase was mainly due to the increase of office staff salary, professional fees and amortization of intangibles. General and administrative expenses for fiscal year 2011 were approximately 10% of total revenues, equal to 2010 levels.

Research and Development Expenses

Research and development expenses decreased by $100,081 from $279,477 in 2010 to $179,396 in 2011.

Income from Operations

Income from operations totaled $10.7 million, a 24.1% increase from $8.7 million in 2010. Our operating margin was 12.5%, compared to 19.9% in 2010. The decrease in operating margin was a result of the lower gross margin and higher operating expenses.

Net Income and EPS

Diluted EPS was $0.98, based on net income of $8.1 million and 8,238,291 weighted average number of diluted shares outstanding for the year ended December 31, 2011, equal to $0.98 in 2010, based on net income of $7.1 million and 7,208,969 weighted average number of diluted shares outstanding in 2010.

Liquidity and Capital Resources

As of December 31, 2011, cash and cash equivalents excluding restricted cash of $4.6 million were $11.9 million, a decrease of $11.5 million, or 49% from the $23.4 million balance on December 31, 2010, due to the rapid international expansion. Restricted cash as of December 31 2011 amounted to $4.6 million. These amounts are not included in the total of cash and cash equivalents. The increase was caused by an $830,000 project performance bond for the Qatar project. Our restricted cash consisted of deposits as collateral for the issuance of Letters of Credit. Our subsidiaries, which own these deposits, do not have material cash obligations to any third parties. Therefore, the restriction does not impact the liquidity of the Company.

In September 2011, we received a line of credit of $9.6 million from China CITIC Bank. As of December 31, 2011, an aggregate of $8 million was drawn against the line of credit recently renewed with Hangzhou Bank and the new line of credit with China CITIC Bank. Recently we were approved to receive additional line of credit of $1.6 million from ICBC.

During the year ended December 31, 2011, capital expenditures were $2.8 million, including $2.3 million in construction of our Baoding facility, which remains in progress.

Recent Business Developments

Domestic Market

The initial and expansion phases of the Ordos water treatment plants project contributed the majority of our revenues in 2011. By the end of 2011, the initial phase of the Ordos project was 95% complete and started trial operation. The expansion phase contract, which was awarded in June 2011, was 60% completed by the end of 2011, including design, major parts of civil construction, and order placement of key equipment and materials. The test runs of the expansion phase will be scheduled for the end of June 2012.

In June 2011, we secured a water recycling engineering, procurement and construction ("EPC") project for Tianjin Airport Economic Zone, to improve the quality of recycled water produced from the wastewater treatment plant. After membrane filtration, the recycled water will be used as industrial processing water for plants in the park. The design and equipment procurement has been completed and the equipment is ready to be installed. The project was 20% complete as of the end of 2011. We expect the project will be completed by July 2012.

In November, we won a 30-year concession contract of a build-own-operate-subsidy-transfer ("BOOST") municipal infrastructure project covering the water supply system, and the water and wastewater collection and treatment system for the Yelaman Township of Buerjin County in Xinjiang. Currently, the design and partial equipment procurement of the water supply and sewage pipeline systems have been completed, and civil construction for the systems was partially completed by the end of 2011.

In January 2012, we secured a BT contract for the construction of a wastewater treatment plant and a wastewater pipeline network in Dawangdian Industrial Park in Xushui County, Hebei Province. The project was one of our initiatives in the industrial wastewater treatment sector in China. To implement the project, we established a project company in Xushui County. Currently we are close to the pre-design and are moving on to the preparation of the construction.

Since March 2011, we have received major contracts with an aggregate contract value of $14.13 million in flash flood forecasting and river hydrologic monitoring in fourteen Chinese provinces and municipalities. Currently half of these projects secured in 2011 have been completed and the remaining half is scheduled for completion in the first half of 2012. Continuing our active expansion to the water resources management market in 2012, we recently successfully bid for projects in Hunan, Henan, Hebei, Hubei, Liaoning and Fujian provinces in China, with an aggregate contract value of $7.9 million. We expect strong momentum in this segment and plan to submit further bids for flash flood monitoring and forecasting projects over the remainder of 2012. 

In January and September 2011, we secured two contracts from Shaanxi Yanchang Petroleum (Group) Co., Ltd in Shaanxi province. One was to construct a command and control system for Yanchang and the other was to provide operations and closed circuit television systems for Jingbian Energy and Chemical Industrial Park. Both projects have been completed.

International Projects

In November 2011, we won $42 million EPC contracts from Bihar Urban Infrastructure Development Corporation Limited ("BUIDCo") for engineering, procurement and construction of three sewerage collection systems and sewerage treatment plants for three townships in the State of Bihar, Republic of India. We have completed partial design and established the project execution team. To execute those contracts, project offices are in the process of being established per Indian laws and regulations. We also finished selection of a few qualified subcontractors.

Also in November 2011, we secured a water treatment system contract for Fairmont Jasper Park Lodge at Jasper Town, Alberta, Canada. Detailed designed and procurement have been completed. We expect to complete installation and start commissioning by early June 2012.

In December, the company won an $8.3 million contract to provide a seawater desalination unit for the Utility Plant of Qatar Petrochemical Co. Ltd. in Doha, Qatar. We have finished part of the engineering design, procurement and arrangement of fabrication. The project is scheduled for completion by November 2012.

In May 2011, we won a $1 million natural gas analysis and monitoring contract in the Republic of Uzbekistan from the Uzbekistan branch of China Petroleum Engineering Construction Corporation. The contract was successfully completed in September 2011.

Acquisitions and Other Events

On June 9, 2011, the Company completed its acquisition of the operating assets of J&Y International Inc. for $1.5 million in cash and the Company's ordinary shares (subject to an earn-out based on J&Y's EBITDA through December 31, 2012). J&Y, headquartered in Menomonee Falls, Wisconsin, is a water treatment company focusing on industrial chemical water recovery systems, desalination plants, domestic and industrial wastewater treatment systems and reverse osmosis filtration systems. Following an effective integration into Tri-Tech as a water division of Tri-Tech Infrastructure LLC, J&Y Water Division showed a strong strength in business development, leveraging its specialties of membrane and thermal technologies for water treatment and seawater desalination. Since its integration in June 2011, Tri-Tech, through J&Y, has been awarded two major contracts totaling $9 million in Qatar and Canada in 2011.

On July 22, 2011, the Company completed its acquisition of 51% of equity of Yuanjie Water for $1.7 million in cash and intellectual property. Yuanjie Water is a high-tech enterprise engaged in water system integration for large high-rise buildings, including research and development, fabrication, installation and operation of water treatment systems directly for end-users. To further its business development, Yuanjie Water set up eight new offices in Anhui, Hunan, Gansu, Shanxi, Liaoning, Jiangsu, Shaanxi and Inner Mongolia in 2011 while successfully upgrading its integrated water treatment equipment with purifying overlying technology. The upgraded product was awarded certificates and recognition from related industry associations.

In 2012, we will continue seeking technology-oriented acquisition targets in China and overseas markets. We are studying several targets at this time, including engineering consulting firms and membrane technology companies; however, we do not have any commitment or understanding to acquire any such target at this time.

In November 2011, the Company made a capital injection of Indian National Rupee ("INR") 300,000, or $6,985, in the joint venture Tri-Tech Infrastructure (India) Pvt., Ltd. ("TTI"), formed by the Company and Allied Energy Systems, Pvt., Ltd. The total registered capital of TII amounts to INR 1,000,000, or $20,833. Equity ownership of the Company in TII increased from 5% to 30%, which we believe will better position our presence in the growing water treatment market in India.

In February 2012, the Company through its affiliate Yanyu was recognized as an AAA-level manufacturer and vendor by the China Water Engineering Association for 2011. The recognition helps the Company gain reputation and visibility in the marketplace and may make us eligible to compete for projects in locations that have different access thresholds for contract bidders. Yanyu is one of only three entities in China that received such recognition for 2011.

Recently, the company was recognized a 2011 Emerging Enterprise of the Water Industry of Year 2011 by the Chinese Water Enterprises 2011 Awards. The company was one of ten companies recognized in the Chinese water industry. The title recognizes our accomplishments and contributions to the development of China's environmental protection and water conservancy infrastructure.

In November 2011, the company's shareholders elected two new members to the Board of Directors. The two new directors both have decades of experience in public company management and strong corporate financing backgrounds. The shareholders also approved the adoption of the Company's 2011 Share Incentive Plan. Recently, the company appointed Mr. Gavin Cheng, the former Co-President as a Joint CEO of Tri-Tech Holding. Gavin, in this new capacity, will be more deeply involved in decisions on all aspects of the Company's operations.

Research and Development

The construction of our Baoding research, development and production base is proceeding on schedule. Phase one, Part I (the odor control system manufacturing and automatic control box assembly workshop) has been completed and will be ready for acceptance inspection in the first half of 2012. Phase one, Part II construction is in process and should be completed around May 2012. Phase one of the facility is scheduled for operation around July to August 2012. From commencement through December 31, 2011, $2.3 million has been spent on construction of the Baoding facility.

Through Yanyu, we conducted a software upgrade for Remote Terminal Units (RTU) for groundwater quality monitoring during 2011. The upgraded software cleared the performance check and has received acceptance from sales and marketing personnel. Looking ahead, we will take steps on housing design and creation for the RTU and begin production of small quantities for trial applications.

During 2011, we were involved in localization of Hydration Technology Innovations licensed forward osmosis membrane personal hydration products. Through months of retrofit, redesign and production preparation, we carried out trial production of the products in mid-2011, and the products cleared technical verification from industry experts. At the end of 2011, we supplied a small number of sample products to potential customers for short-term trial application and received positive reactions from these potential customers.

Order Backlog and Pipeline

As of December 31, 2011, we had a total order backlog of $94.5 million. This included $63.1 million in water treatment services, $16.1 million in water resource management services, and $15.3 million in industrial pollution control services.

In addition to our order backlog, we are currently pursuing prospective projects with a total expected value of $127.1 million, of which approximately $66.8 million is in wastewater treatment and municipal infrastructure, $15.7 million in water resource management and engineering services, and $44.6 million in industrial pollution control and safety. We have not been awarded any of these projects yet, and there are no guarantees that we will be selected for any such projects.

2012 Outlook

In 2012, the Company anticipates that its revenues will be in the range of $103 million to $128 million. Net income will likely be between $9.7 million and $12.1 million. Assuming the number of total outstanding shares remains at 8.26 million without any additional share issuance in 2012, the Company expects earnings-per-share to range from $1.18 to $1.47. These are the company's targets, not predictions of actual performance. The foregoing statements regarding targets are forward-looking and actual results may differ materially.

Conference Call

Tri-Tech Joint CEOs Warren Zhao and Gavin Cheng, President Phil Fan and CFO Peter Dong will host a conference call at 9:00 AM EDT, Thursday, March 22, 2012 (9:00 PM Beijing/Hong Kong Time on March 22) to review the company's financial results and outlook on operations, to discuss our growth strategies and to respond to questions and comments.

To participate, call U.S. toll free number (877) 941-4774 approximately 10 minutes before the scheduled call. International callers, please dial 1-480-629-9760. The conference ID number is 4524089. A live and archived webcast of the call will be available at http://viavid.net/dce.aspx?sid=000094EB. Both an MP3 file one hour after the call and a transcript 48 hours after the call will be available. These will be archived for 90 days at http://www.tri-tech.cn.

About Tri-Tech Holding Inc.

Tri-Tech designs customized sewage treatment and odor control systems for municipalities and private sectors in China and international markets. These systems combine software, information management systems, resource planning and local and distant networking hardware that includes sensors, control systems, programmable logic controllers, supervisory control and data acquisition systems. The company also designs systems that track natural waterway levels for drought control, monitor groundwater quality and assist the Chinese government in managing its water resources. The company is also moving into the industrial pollution control market. Tri-Tech owns 39 software copyrights and 11 product patents, and employs 330 people. Please visit http://www.tri-tech.cn for more information.

An online investor kit including a company profile, presentations, press releases, current price quotes, stock charts and other valuable information for investors is available at http://www.tri-tech.cn/ir. To subscribe to future releases via e-mail alert, visit http://www.tri-tech.cn/ir/info/request .

This press release contains forward-looking statements. These statements are made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the company with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

For more information, please contact:

Tri-Tech Holding Inc.
www.tri-tech.cn
IR Department
+86 10 57323666
[email protected]

SOURCE Tri-Tech Holding Inc.

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