Ted Haberfield – EVP, HC International
Baowen Ren – CEO
Zhixin Jing [ph] – Assistant to the CEO
Wendy Fu – CFO
Sino Clean Energy Inc. (OTC:SCEI) Q1 2011 Earnings Conference Call May 18, 2011 11:00 AM ET
Good day ladies and gentlemen, thank you for standing by. Welcome to the Sino Clean Energy 2011 first quarter financial results conference call.
Today today’s presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded today Wednesday May 18th of 2011.
At this time I would like to turn the conference over to Ted Haberfield of HC International. Please go ahead sir.
Thank you and welcome everyone to today’s call for Sino Clean Energy. This call will cover Sino Clean Energy’s financial and operating results for the first quarter of 2011. The earnings press release accompanying this conference call went to the wire yesterday. On our call today is Mr. Baowen Ren, CEO of Sino Clean Energy; Ms. Wendy Fu, CFO; and Zhixin Jing [ph], Assistant to the CEO.
Before we get started I’m going to quickly read the disclaimer to our forward-looking statements. This conference call may contain in addition to historical information, forward looking statements within the meaning of the Federal Securities Law regarding Sino Clean Energy. Forward looking statements include statements of our plan, objectives, goal, strategies, future events, performance and underlying assumptions and other statements that for difference in historical facts.
These forward looking statements are based on current management expectations and are subject to risks, uncertainties that may result in expectation not being realized and may cause actual outcome to differ materially from expectations reflected in this forward looking statements. Potential risks and uncertainties include change in the demands of the company’s services, the impact of competition and government regulations and other risks contained in the statement filed at that time with the SEC.
All such forward looking statements whether written or oral being on behalf of the company are expressively qualified by these cautionary statements and such forward looking statements are subject to risks and uncertainty. And we caution you not to place undue reliance on this.
During the call today the company will discuss non-GAAP financial measures as such the calculation which address operating income, net income or earnings per share which should not include this charge or non-GAAP in nature and solely to help investors to have visibility to the financial matrices which are reflective of the operations which shouldn’t be relied on for making informed decisions and as again we would like to point you to the SEC filings and subsequent notes.
With this statement is very important, due to the ongoing litigation against Alfred Little and Geoinvesting. The company’s attorneys have advised management against making any statements concerning the allegations made against the company in those reports. We hope that the company actions confirm how seriously they take the situation so they will not be doing a question and answering session at the end of this call. So I would like to correct the operator there.
Given the inability to differentiate the questions from the listeners on the call we will not hold discussion of answering session after the prepared remarks instead the company is asking all investors to submit any questions they have regarding their operations and or financial results for the first quarter results by Wednesday May 18th at midnight. The company will consolidate the applicable response and then submit an 8-K by this Friday May 20th.
Please send all questions via email to Ted Haberfield at HC international. The email address is email@example.com that’s firstname.lastname@example.org that email address can also be found at the adjacent press release that was issued yesterday. Management appreciates your understanding for the protocol covering this call. At this time I would like to turn the call over to Mr. Ren who will be providing brief opening remarks in Mandarin and Mr. Zhixin Jing will interpret. Mr. Ren the floor is now yours.
Thanks Ted and thank you everyone for joining us for an update on our financial results for the first quarter of 2011. We are pleased with our strong revenue growth and operating performance for the quarter as we achieved a record result due to strong growth in sales for our coal water slurry fuel or CWSF. Ms. Wendy Fu will be providing our detailed financial results for the first quarter of 2011 and Mr. Ted will finish up by discussing our growth, strategy and outlook as on being one of the leading producers and distributors of CWSF in China.
I would now like to turn the call over to Mr. Zhixin Jing and Ms. Wendy Fu for additional commentary.
Okay. Thank you, Mr. Ren. This is Zhixin Jing, the Assistant to the CEO. I’ll give a brief introduction to Sino Clean Energy business and then discuss our first quarter financial results. We are pleased with our strong operating results for the first quarter of 2011 as reflected in the growth in our sales, operating income and cash flows. The early successes we have experienced first and foremost our production in our new 300,000 ton facility in Guangdong signing nine customers to deliver approximately 404,000 tons of CWSF over the next years, reaffirm our confidence in the long term growth opportunities we have in this market.
Our strong balance sheet and a cash flow provide us with the flexibility to capitalize on a variety of investment opportunities. The board reiterated its confidence in Sino Clean Energy by authorizing a $20 million stock buyback program last week with over $70 million in cash and cash equivalent at quarter end; we are aggressively deploying our capital investment that will generate tremendous returns to our shareholders.
We have the good fortunes to produce a clean and a pure source of energy in China coal water slurry fuel or CWSF. Coal water slurry fuel consists of fine coal particles and approximately 30% to 45% of water. The presence of water in CWSF release transfuse emission into the atmosphere making it a much more environmental friendly energy source because coal is relatively inexpensive compared to other energy sources. CWSF is a very cost comparative alternative to heat oil and gas, 30% to 70% cheaper in some instances.
With the Peoples Republic of China government mandate [ph] for these air pollutions and to become more energy efficient, Sino Clean Energy is well positioned to sustain robust growth as the leading producer of CWSF in China. With that quick introduction I’ll turn the call to company’s CFO Ms. Wendy Fu who will review our first quarter financial results. Wendy, please.
Yes, thank you. I’ll report our financials. Revenue for the first quarter ended March 31st 2011 increased 38% to $33.8 million from $24.5 million in the first quarter of 2010. For the first quarter of 2011 the company sold 290,934 metric pounds of coal water slurry fuel compared to 225,031 metric ton in the same period one year ago. Cost of goods sold was $21.3 million at the first quarter of 2011 compared to $14.4 million for the first quarter of 2010 representing an increase of 48% which was in line with the corresponding increase in sales.
Gross profit increased 24% to $12.5 million in quarter ended March 31st 2011. Gross profit margins decreased by 400 basis points from the same period last year to 37% mainly as a result of lower selling prices to the largest customer Shenyang Haizhong Heat Resource Limited due to government regulation on heating price to residential users and that higher purchase price of coal in Guangdong which increased our cost of production and higher depreciation cost on the machinery and plant of our Guangdong facility.
Selling expenses totaled $1.5 million for the first quarter of 2011 up 68% mainly as a result of transportation cost due to the growth of business in 2011. General and administrative expenses totaled $1 million for the first quarter of 2011 as compared to $0.7 million for the same period in 2010, an increase of approximately 43% primarily attributable to the expansion of our company’s operating size and increased expenses related to being a public company.
Income from operations in the first quarter of 2011 increased 17% to $10 million with operating margins decreasing 517 basis point year-over-year to 29.4%. GAAP net income was $12.1 million for the quarter ended March 31st 2011 compared to net income of $20.5 million for the first quarter of 2010 with a corresponding net income per share of $2.48 compared to $1.73 based on 25.4 million and 14.9 million diluted shares respectively.
Excluding the derivatives financial items adjusted earnings for the first quarter of 2011 and 2010 was $8.1 million and $6.8 million respectively with corresponding adjusted earnings per share of $0.3 and $0.45. We ended the first quarter in a strong financial condition. Cash and cash equivalents was $70.4 million at March 31st 2011 compared to $52.1 million at December 31st 2010. For the first quarter of 2011 the company generated $8.1 million with net cash flow from operations compared to $11.3 million in the first quarter of 2010.
The company had working capital of $71 million at March 31st 2011 and a current ratio of 4.8 to 1. Inventories was $2.7 million and the accounts receivable balance was $8.5 million at March 31st 2011 compared to approximately $1.3 million and $3.9 million at March 31st 2010 respectively. The annualized days sales outstanding for the first quarter of 2011 were 23 days.
We are reaffirming guidance for the full year 2011 of at least $170 million of revenue and at least $38 million of net income, representing an increase of approximately 60% and 35.7% compared to 2010 revenues and adjusted net income respectively. We also reaffirmed the full year earnings per share guidance of $1.43 to $1.57 based on 26.6 million fully diluted shares. This guidance assumes total sales volume of 1.4 million metric tons of coal water slurry fuel in 2011.
Now turning back to Ted.
Okay. Thank you, Wendy. So in closing, Sino Clean Energy is actually feeling extremely well with a favorable backdrop supported by China’s growing need for a clean, reliable source of energy. We are optimistic about our ability to sustain our healthy rate of growth. Our strong balance sheet and cash flow provide us with the flexibility to capitalize on a variety of investment opportunities.
As we previously authorized $7 million stock buyback program last week and have over $70 million in cash and cash equivalent at the quarter end. We are well capitalized taking advantage of the current [inaudible] drive further earnings per share growth. We plan to participate on a Global Hunter conference in San Francisco in July and plan to meet with shareholders and investors over the coming few months those in the United States of America and Hong Kong.
This concludes my summary. Thanks very much.
Thank you, ladies and gentlemen if you would like to listen to a replay of today’s conference, please dial 877-870-5176, international participants you may dial 858-384-5517 enter the pass code 4428282 Sino Clean Energy 2011 first quarter financial result conference call.
Thank you for your participation you may now disconnect.
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