HEAT Smartheat Inc. (MM)

NEW YORK, May 10, 2011 /PRNewswire-Asia/ -- SmartHeat Inc. (NASDAQ: HEAT; website: www.smartheatinc.com), a market leader in China's clean technology, energy savings industry, today announced financial results for the first quarter ended March 31, 2011. SmartHeat management is scheduled to host an investor conference call at 7:30 a.m. EDT on May 10, 2011.

Mr. James Jun Wang, Chairman and Chief Executive Officer of SmartHeat Inc., made the following comments regarding the performance of SmartHeat during the first quarter of 2011: "This is the first fiscal quarter in the history of SmartHeat in which we encountered a simultaneous decrease in sales and a net loss. Unfortunately, we are not alone in China with respect to these challenges. Some of our plate heat exchanger (PHE) unit customers postponed or canceled their orders due to the Chinese government's tightened fiscal policy used to fight inflation. We also faced increased prices of some key materials we use in our manufacturing operations. We expect to overcome these difficulties and maintain our gross margin by strengthening our sales efforts through the maturation of our sales force, increasing sales channels, improving cost controls, increasing prices and continuing to improve the efficiency of our manufacturing operations, which may include staff reductions in certain plants in response to the decrease in revenue from PHE Units.

"Despite a drop in PHE Unit sales, we are encouraged by the continued strength in sales of heat exchangers and heat meters in this quarter. We also anticipate increased sales in the heat pump sector from our acquisition of Gustrower Warmepumpen GmbH and Shenyang Bingchuan Refrigerating Machine Limited.  In addition, SmartHeat has been selected as the sole supplier of heat exchangers and complete packaged units for a series of projects in North and South America. This program fits with SmartHeat's energy efficiency mandate because our technology converts waste heat from diesel and gas engine power plants into electricity using no additional fuel and creating no greenhouse gas emissions. Despite the temporary fiscal tightening impacting our PHE Unit customers, we expect that the Chinese government will continue to require implementation of energy savings policies to reduce emissions, which we believe will continue to increase the demand for our energy-saving products in all industrial sectors. We are optimistic about taking advantage of West China's economic development and urbanization trends throughout China as well as positioning ourselves as a forward-thinking 'green' company."  

Financial Summary

In the first quarter of 2011, total sales decreased 16% to $7.89 million compared to $9.39 million in Q1 2010 resulting from a decrease in sales of our PHE Units to our customers that are state-owned enterprises. The decrease in sales was primarily due to tightened fiscal policy in China, which impacted state-owned enterprises that are encountering difficulties in obtaining grants from the government and facing an extended bank loan application process. The new fiscal policy resulted in unexpected cancelations of orders and unscheduled delays in the performance of PHE Unit contracts, which decreased revenue from that product line. The company expects that a significant portion of the canceled PHE Unit orders will be reinstated and some of the contracts that have been partially delayed will be performed within this fiscal year or in 2012.

Despite the drop in PHE Unit sales, sales of the company's heat exchangers increased robustly by 33.78% to $6.02 million in Q1 2011 from $4.05 million in Q1 2010 as a result of the continued strength and growth in the metallurgy and petrochemical sectors. The percentage of total sales from heat exchangers increased to approximately 76.24% in Q1 2011 from approximately 48.02% in Q1 2010. Sales of heat meters continued to increase by approximately 63.70% from Q1 2010 and accounted for approximately $0.92 million in revenues for the quarter as a result of our entry into northwestern heat meter markets in China.

Operating loss totaled $4.51 million, compared with operating income of $1.82 million in Q1 2010.  Net loss in the quarter totaled $3.95 million, down from $1.7 million net income ($0.05 per diluted share) in Q1 2010. Total operating expenses including selling, general and administrative ("SG&A") expenses totaled $7.08 million, compared with $1.42 million a year ago. Due to the Chinese government's tightened fiscal policy, some of the company's state-owned customers that purchase PHE Units encountered difficulties in obtaining grants from the government, obtaining loans from state-owned banks and paying the company's account receivables on time. As a result of these delays, we reserved $2.07 million for a bad debt allowance in the first quarter even though we expect a substantial portion of the bad debt to be paid.

The company believes that the impact of the government's tightened fiscal policy will be temporary and that the previous expansion and training of its marketing team and other employees will continue to improve sales and the efficiency of its operations. Nevertheless, the company will institute a rigorous program of cost cutting to continue tight control of its budget and maintain cost-effectiveness and implement additional cost control measures including a review of the staffing levels of its employees in response to the decrease in revenue from PHE Units.

Revised Full Year 2011 Earnings Guidance

Due to the impact of China's tightened fiscal policy on the company's PHE Unit customers, impact of rising prices on business and the integration costs of Gustrower Warmepumpen GmbH and Shenyang Bingchuan Refrigerating Machine Limited Company, two companies acquired by SmartHeat in Q1 2011, the company is revising its full year 2011 earnings guidance to $9.5 million to $14 million in net income and $63 million to $93 million in revenues, reflecting $0.25 - $0.36 earnings per share.

Investor Conference Call Instructions:

SmartHeat management will host an earnings conference call today to discuss its first quarter financial results and outlook.

Date and time: 7:30 a.m. U.S. Eastern Daylight Time, May 10, 2011

U.S. toll free number: +1-888-339-2688

International direct dial-in: +1-617-847-3007

Conference passcode: 82285490

About SmartHeat Inc.

Founded by James Jun Wang, a former executive at Honeywell China, SmartHeat Inc. (www.smartheatinc.com) is a NASDAQ Global Market listed (NASDAQ: HEAT) U.S. company with its primary operations in China. SmartHeat is a market leader in China's clean technology energy savings industry. SmartHeat manufactures heat exchangers, custom plate heat exchanger units (PHE Units) and heat meters. SmartHeat's products directly address air pollution problems in China where massive coal burning for cooking and heating is the only source of economical heat energy in China. With broad product applications, SmartHeat's products significantly reduce heating costs, increase energy use and reduce air pollution. SmartHeat's customers include global Fortune 500 companies, municipalities and industrial/residential users. China's heat transfer market is currently estimated at approximately $2.4 billion with double-digit annual growth according to the China Heating Association.

Safe Harbor Statement

All statements in this press release that are not historical are forward-looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ from the company's expectations. SmartHeat's actual results may differ from its projections. Further, preliminary results are subject to normal year-end adjustments. You are cautioned not to place undue reliance on any forward-looking statements in this press release as they reflect SmartHeat's current expectations with respect to future events and are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated. Potential risks and uncertainties include, but are not limited to, the risks described in SmartHeat's filings with the Securities and Exchange Commission.

Contact Corporate Communications:

Ms. Jane Ai, Corporate Secretary

SmartHeat Inc.

Tel: 011-86-24-25363366

Email: info@SmartHeatinc.com

SOURCE SmartHeat Inc.