China Solar & Clean Energy Solutions, Inc. (China Solar & Clean Energy) has reported net revenues of $53.7 million for the year-end 2008, up 44.8%, compared with the net revenues of $37.1 million in the previous year-end. It has also reported a net loss of $4.2 million, or $0.34 loss per diluted share, for the year-end 2008, up 104%, compared with the net income $2.5 million, or $0.24 per diluted share, in the previous year-end.
The company also said that Heat Pipe revenues increased 136% to $16.6 million from $7.0 million in the previous year-end, as China Solar & Clean Energy did not begin to sell Heat Pipe related products until its acquisition of Tianjin Huaneng on July 1, 2007, and therefore, Heat Pipe revenue in the previous year-end only reflected second half of 2007 total sales. Energy-saving revenues increased 169% to $9.1 million, versus $3.4 million in the previous year-end, as the company completed its acquisition of Shenzhen PengSangPu (SZPSP) in March 2008. During 2008, revenues for the Solar Heater/Biomass Stove/Boiler (‘Solar-Biomass-Boiler’) segment reduced by $1.6 million to $25.1 million in 2008, as the company accounted for the sales of certain products of this segment under a new fourth segment and, to a lesser extent, due a decrease in the selling prices as a result of increased competition. In 2008, the company added a new revenue segment named Solar Heat Collector and Others and recorded $3.0 million of revenues in this segment, as compared with zero in the previous year-end.
Gross margin for the year-end 2008 was 17.4%, compared with 22.4% in the previous year-end, primarily due to a decrease in the selling prices as a result of increased competition in the industry. Operating expenses increased to $9.1 million for the year-end 2008 as compared with $5.1 million for 2007, primarily due to higher marketing and promotional expenses and higher salary and benefits associated with the expansion of the sales force. While recurring administrative expenses improved in 2008, the company incurred one-time liquidated expenses of around $0.5 million paid to certain investors due a delay in effecting a registration pursuant to its agreement with such investors in its February 2008 private placement. The company also reported higher administrative expenses attributable to the consolidation of SZPSP and professional fees associated with the private placement.
Operating income was $0.2 million for the year-end 2008, as compared with $3.2 million for 2007, and operating margin was 0.5% in 2008, as compared with 8.6% in the previous year-end. In 2008, the company reported non-recurring expenses of around $3.0 million, including goodwill impairment of $2.3 million related to its acquisition of SZPSP and inventory write-downs of around $0.2 million.
Cash and cash equivalents reduced to $2.4 million on December 31, 2008, compared with $5.5 million on December 31, 2007. This decrease was due to increased spending on working capital and capital expenditures and to two loans totaling $3.4 million made to Shenzhen Fuwaysun Technology Co., Ltd. (Fuwaysun), as part of a pending acquisition agreement between China Solar & Clean Energy and Fuwaysun. Net cash used in operating activities was $4.6 million for the year-end 2008, as compared with net cash provided for operations of $4.7 million for 2007, primarily because of an increase in inventories, advancements to suppliers, and production costs for energy saving projects. As of December 31, 2008, the company had net working capital of $8.7 million and zero debt.
Deli Du, chief executive officer and president of China Solar & Clean Energy, commented, ‘While I’m pleased that our total revenue increased 45% in 2008, in retrospect, fiscal year 2008 was a transition year for China Solar & Clean Energy. Although we have successfully integrated our acquisitions of Tianjin Huaneng and SZPSP and witnessed higher revenues in their respective segments, we experienced lower selling prices and gross margins in our Solar Heater segment. As we continued to invest into our sales organization and manufacturing infrastructure, we have yet to realize the full benefits from these investments and therefore incurred net losses for the full fiscal year. I am, however, excited about the significant expansion of our senior management team. In March, we announced the appointment of Ms. Veronica Jing Chen, a seasoned executive with broad experience and proven leadership, as our new chief financial officer. Today, I am delighted to announce the creation of two new senior positions of chief operating officer and chief technology officer and the addition of two excellent members to our growing senior management team, as we demonstrate our commitment to continue building a strong, diverse and capable management team.’
Growth Strategy
Du concluded, ‘With our strong, expanded management team in place, our solid portfolio of technologies and products in development, our nationwide distribution and sales force strengthened, China Solar & Clean Energy is well positioned to capture the many attractive opportunities in our immediate industry, as well as complementary markets in China and abroad. I am encouraged by the government’s initiatives to expand the availability of and access to electricity in China’s immense rural areas, which will create substantially higher demand for our products and solutions. I am energized by our gainful technical and marketing abilities to win additional market share in the energy-saving segment, as our customers continue to recognize the economic and social benefits of recycling. I am excited by our unique business model and pioneering solutions for solar projects in hot water systems throughout China’s numerous Universities. This business model, though requiring initial capital investments, can deliver reliable profits and cash flows for many years to come. We continue to explore government-supported financing facilities and subsidies that can further accelerate the ROIs of our unique solutions.’
‘Moreover, we continue to pursue additional strategic opportunities to further augment our existing business. On April 9, 2009, our Board approved an amendment to extend the consummation of our acquisition of Fuwaysun until June 30, 2009. We believe that Fuwaysun’s market leadership in portable solar applications for rural settings, combined with our nationwide distribution and marketing resources, will deliver immediate accretion to our revenue, margins, and overall profits upon completion of the acquisition. We have identified many applications both in China and abroad for Fuwaysun’s core technologies, and we are very excited by the responses from Fuwaysun’s existing and potential customers. We remain confident that we will complete Fuwaysun’s acquisition by the end of June 2009.’
‘Thus, as we near the completion our business transition and the completion of our Fuwaysun acquisition, I believe that China Solar & Clean Energy will achieve strong revenue growth, margin expansions, and solid profits and cash flows in the near future. Our new management team is dedicated to growing a strong, profitable and responsive enterprise at China Solar, and importantly, to serving the best interests of our supportive shareholders and maximizing our shareholders’ value.’