Sino Clean Energy, Inc. Announces Unaudited First Quarter 2012 Financial Results

XI'AN, China, May 16, 2012 /PRNewswire-Asia-FirstCall/ -- Sino Clean Energy Inc. (NASDAQ: SCEI) ("Sino Clean Energy," or the "Company"), a leading producer and distributor of coal-water slurry fuel ("CWSF") in China, today announced unaudited financial results for the first quarter of 2012.

First Quarter 2012 Financial Highlights

• Revenues in the first quarter of 2012 were $27.8 million, a decrease of 17.6% from $33.8 million in the same quarter of 2011.
• Net income in the first quarter of 2012 was $2.8 million, a decrease of 77.0% from $12.1 million in the same quarter of 2011. Non-GAAP adjusted earnings, which excludes change in fair value of derivative liabilities of $1.7 million, was $4.5 million, a decrease of 44.8% from $8.1 million in the same quarter of 2011.
• Earnings per share were $0.12. Adjusted earnings per share were $0.16.
• Net cash provided by operations was $22.4 million in the first quarter of 2012, compared to $5.1 million in the same period of 2011.

Mr. Baowen Ren, chairman and chief executive officer of Sino Clean Energy, commented, "The past quarter was a challenging period for Sino Clean Energy but also one marked by encouraging developments. Although we had expected a slowdown in order volume from our largest customer, which is based in Shenyang, our Shenyang facility sales were more sluggish than anticipated. We are encouraged, however, that order volume at Dongguan continued to expand and partly offset the revenue reductions from our other two facilities.

"Our ongoing progress at Dongguan serves as a benchmark for other facilities," continued Mr. Ren. "Our management team and I are carefully reviewing both the successes and shortcomings of the year's first quarter to find ways to recapture the growth that our experience has shown this company is fully capable of achieving."

First Quarter 2012 Financial Results

Revenue in the first quarter 2012 decreased 17.6% to $27.8 million from $33.8 million in the same period of 2011, primarily due to a year-on-year decrease in sales to the Company's major customer, Haizhong Heating, in Shenyang. Sales to Haizhong Heating decreased by $4.4 million or 38.3% to $7.0 million. In addition, the Company's subsidiary Shaanxi Suo'ang New Energy lost nine customers in 2011. The reduction in sales due to this loss of customers was approximately $5.0 million. This decrease in sales was partially offset by an increase in sales of $5.2 million from the Company's customer in Dongguan, Xin Xing Industry Group.

During the first quarter of 2012, the Company sold 221,033 metric tons of CWSF compared to 290,933 metric tons in the same period of 2011, representing a decrease of 24.0%. The Company's annual production capacity at March 31, 2012 was 1,150,000 metric tons, unchanged from March 31, 2011.

As of March 31, 2012 Sino Clean Energy had 35 active customers under CWSF supply agreements, compared to 47 customers at March 31, 2011.

Cost of Goods Sold was $19.3 million in the first quarter 2012, compared to $21.3 million in the same period of 2011, representing a decrease of 9.3%, in line with the decrease in selling volume.

Gross Profit in the first quarter of 2012 decreased 31.7% to $8.5 million from $12.5 million in the same period of 2011. Gross margin decreased from 37% in 2011 to 31% in 2012, mainly as a combination of significantly higher purchase price for coal in Dongguan and higher depreciation costs for plant and machinery at that facility.

Selling expenses were $1.2 million in the first quarter of 2012, as compared to $1.5 million in the same period of 2011, a decrease of 20.6%. This decrease was mainly attributable to decreased transportation costs due to decreased selling volume.

General and Administrative Expenses were $1.3 million in the first quarter of 2012, compared to $1.0 million in the same period of 2011, representing an increase of 25.1%. This was primarily due to the legal expense and professional fees related to the Company's operations, and increased expenses related to being a public company. The general expenses associated with the development of new plant in southern China also contributed to the increase in general and administrative expenses.

Income from Operations decreased 39.3% to $6.0 million in the first quarter of 2012 from $9.9 million in the same period of 2011, due to the above-mentioned factors.

Provision for income taxes was $1.6 million in the first quarter of 2012, compared to $1.9 million in the same quarter of 2011. The decrease in income taxes reflects the decrease in taxable income from the Company's operations in China. For the three-month periods ended March 31, 2012 and 2011, the Company's effective tax rate was 37.1% and 13.7%, respectively, on income before provision for income taxes. 

Net income in the first quarter of 2012 was $2.8 million and basic earnings per share were $0.12. Adjusting for non-cash charges during each respective period, adjusted earnings (non-GAAP) was $4.5 million and $8.1 million for the first quarter of 2012 and 2011, yielding $0.16 and $0.32 in adjusted basic earnings per share, respectively.

As of March 31, 2012, the Company had cash and cash equivalents of $66.5 million, compared to $42.4 million as of December 31, 2011. Net cash provided by operations was $22.4 million in the three months ended March 31, 2012, compared to $5.1 million in the same period in 2011. This increase in cash generated by operating activities was primarily due to the decrease in prepaid inventories of $17.8 million. The Company had net working capital of $96.6 million at March 31, 2012 and a current ratio of 14-to-1.

Net accounts receivable balance was $13.0 million at March 31, 2012, compared to $8.5 million at March 31, 2012 and $13.2 million at December 31, 2011, respectively. Allowance for doubtful accounts was nil as of March 31, 2012 and 2011.

The annualized days sales outstanding for three months ended on March 31, 2012 were 43 days compared to 23 days in the first quarter 2011. The lengthening of days sales outstanding reflects the tightening credit environment in China.

Prepaid inventories were $18.9 million and $37.1 million as of March 31, 2012 and December 31, 2011, respectively. The Company estimates that the remaining prepaid inventories at March 31, 2012 will be delivered to its factories and used in production by the end of 2012, and does not expect to make any more major prepayments of coal until such prepaid balances have been used.

Recent Development and Updates

Acquisition of Foshan Nan Hai

The Company has engaged Shaanxi Rongde Law Firm to conduct comprehensive due diligence and evaluation of Foshan Nan Hai's assets, ownership structure, liabilities, and credit worthiness. This due diligence and evaluation was still progressing as of March 31, 2012. Management expects the evaluation and negotiation process to be completed by the third quarter of 2012.

Cooperation with Nathalin Welstar Energy Co Ltd

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. In mid February 2012, the company sent a project quotation list to Nathalin. As of the end of the first quarter of 2012, Nathalin had submitted a quotation to the Company's board of directors for discussion. These discussions are still in progress.

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. As the Company previously announced, recent developments include the Plaintiff filing a Second Amended Complaint on or about March 5, 2012. On April 20, 2012, the Company moved to dismiss the Second Amended Complaint. The Company continues to deny the allegations and intends to defend the litigation vigorously. No prediction can be made, however, as to the final outcome of the matter.

On May 9, 2011, the Company filed a complaint in the Supreme Court of the State of New York against Geoinvesting LLC, an individual calling himself "Alfred Little", and unidentified persons acting with, for, or through them. The suit seeks, among other relief, $55 million in compensatory damages and $10 million in punitive damages resulting from the defendants' fraud, defamation, and tortuous interference with the Company's business relationships. The Court dismissed the complaint against Geoinvesting LLC, primarily on jurisdictional grounds, and reserved judgment with regard to "Alfred Little".

Financial Outlook

Management reiterates full year 2012 guidance and expects 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 1.3 million to 1.4 million metric tons of CWSF in 2012.

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 RMB6.3122 to USD1.00 on March 30, 2012 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 a.m. ET on Thursday, May 17, 2012, which is 8:00 p.m. Beijing Time on the same day, to discuss first quarter 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: 4539033

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 May 24, 2012 by dialing:

About Sino Clean Energy

Sino Clean Energy is one of the top producers of coal-water slurry fuel ("CWSF") by sales in China, according to data provided in Frost & Sullivan's 2010 Chinese CWSF market report. 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: [email protected]

ICR Inc.
Rob Koepp
Phone: +86-10-6583-7516 or +1-646-328-2526
E-mail: [email protected]

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, 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 March 31, 2012, basic weighted number of shares of 23,863,701 is increased by 2,790,885 warrant shares that would be issued upon exercise of all the Company's warrants, resulting in 26,654,586, the adjusted earnings number of shares. For the three-month period ended March 31, 2012, adjusted earnings of $4,457,000 divided by the 26,654,586 adjusted number of shares results in adjusted earnings per share of $0.16 per adjusted shares. At March 31, 2011, basic weighted number of shares of 23,465,794 is increased by 1,915,598 warrant shares that would be issued upon exercise of all the Company's warrants, resulting in 25,381,392, the adjusted earnings number of shares. For the three-month period ended March 31, 2011, adjusted earnings of $8,069,123 divided by the 25,381,392 adjusted number of shares resulted in adjusted earnings per share of $0.32 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.

FINANCIAL INFORMATION

SOURCE Sino Clean Energy Inc.

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