SmartHeat, Inc. Announces Financial Results for 2011

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 fiscal year ended December 31, 2011.  

Mr. James Jun Wang, Chairman and Chief Executive Officer of SmartHeat, Inc., made the following comments regarding the performance of SmartHeat during the fiscal year of 2011:

"Despite a very challenging sales environment caused by a continuation of China's restrictive fiscal policy in 2011, we are encouraged by our fourth quarter results due to our efforts to expand into regional areas of China, the development of our marketing force and our restructuring efforts.

If not for one-time impairments to goodwill and inventory taken in the fourth quarter of 2011, our operating loss of $8.82 million for the fourth quarter would have resulted in operating income of approximately $3.77 million compared to operating loss of $2.54 million in the third quarter of 2011. While we wrote-down goodwill for the acquisition of Gustrower Warmepumpen GmbH ("SmartHeat Germany") and Shenyang Bingchuan Refrigerating Machine Limited ("SmartHeat Pump") in 2011, we still anticipate increased sales in the heat pump sector from these acquisitions over the long term, and we believe that they remain strategically important steps that should enable us to improve our market share for both our existing product lines and emerging energy-saving solutions. We expect that the Chinese government will continue to require the implementation of energy-saving 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 an international forward-thinking 'green' company.

"Our decrease in sales and deliveries in the fiscal year of 2011 compared to the fiscal year of 2010 resulted primarily from a continued slowdown in China's general economy and demand in the heating-supply and other industrial market sectors, which caused the abandonment or postponement of certain projects by our customers. We have been actively combating the negative trend by maintaining our gross margin and expanding 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 included staff reductions in certain plants."

Financial Summary

In the fourth quarter of 2011, total sales increased to $33.68 million compared to $16.57 million in Q3 2011 due to seasonality factors, reinstated orders which were postponed or cancelled and our steps to increase sales of our PHE Units and PHEs by continuing our expansion into regional areas of China. We are encouraged by our progress in restructuring our business organization, integrating our heat pump manufacturing subsidiaries and improving operating efficiency.

Mainly due to goodwill impairment of $8.96 million taken in Q4 2011, we experienced an operating loss of $8.82 million in Q4 2011 compared to an operating loss of $2.54 million in Q3 2011 and a net loss for Q4 2011 of $9.59 million compared to net loss of $4.0 million for Q3 2011. If not for one-time impairments to goodwill and inventory taken in Q4 2011, our operating loss would have resulted in operating income of approximately $3.77 million in Q4 2011 compared to operating loss of $2.54 million in Q3 2011.

We concluded that the entire goodwill balance of $6.06 million for SmartHeat Pump and $2.90 million of the SmartHeat Germany goodwill balance was impaired as of December 31, 2011. We wrote-off goodwill for these acquisitions based on our near-term assessment of the cash flows they will produce. However, we still anticipate growth in the heat pump markets in the future and are continuing the operations of SmartHeat Pump and SmartHeat Germany. We continue to view these acquisitions as driving value over the long term but felt it prudent to incur the one-time impairment at the end of 2011. We also recorded provision of inventory impairment of $3.73 million for the year ended December 31, 2011, based on our assessment of increased inventory resulting from the unexpected abandonment and postponement of certain projects by our customers. The inventory write-off was an unusual incident resulting from our expectation of customer orders to occur in 2011 but that were canceled or delayed. In anticipation of those orders, and in conformity with our standard manufacturing procedures, we purchased raw materials in advance of production, which now must be written off. We believe that a portion of the canceled orders from 2011 for PHEs and PHE Units will be reinstated and contracts that have been partially delayed will be performed in 2012, gradually consuming our increased levels of inventory.

We believe that the current slowdown in heat-supply and other industrial markets caused by the Chinese government's tightened fiscal policy will be temporary and that the previous expansion and training of our marketing team and other employees should result in improved sales and efficiency of operations. Nevertheless, we are instituting a rigorous program of cost cutting to continue tight control of our budget, maintain cost-effectiveness and implement additional cost-control measures.

About SmartHeat, Inc.

Founded by James Jun Wang, a former executive at Honeywell China, SmartHeat, Inc. (www.smartheatinc.com) is a NASDAQ Global Select Market listed (NASDAQ: HEAT - News) 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), heat meters and heat pumps. 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: This email address is being protected from spambots. You need JavaScript enabled to view it.