HEAT Smartheat Inc. (MM)

NEW YORK, Aug. 9, 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 second quarter ended June 30, 2011. SmartHeat management is scheduled to host an investor conference call at 7:30 a.m. EDT on August 9, 2011.

Mr. James Jun Wang, Chairman and Chief Executive Officer of SmartHeat Inc., made the following comments regarding the performance of SmartHeat during the second quarter of 2011: "Even though the first quarter’s trend of decreasing sales and deliveries continued in the second quarter of 2011, we are well positioned to take advantage of the results of China’s current anti-inflation policies. Our business trend is due to the continued slowdown in the heating-supply and other industrial markets caused in part by the Chinese government's ongoing tightening of fiscal policy to fight inflation. We are overcoming the postponement and cancellation of some of our plate heat exchanger (PHE) orders in the first half of 2011 and maintaining 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.

"Despite the drop in sales, we are encouraged by the continued strength of sales of heat meters in the first half of this year. We have been investing and working on integration after the acquisition of Gustrower Warmepumpen GmbH and Shenyang Bingchuan Refrigerating Machine Limited, and we continue our efforts to expand into international markets where we believe our products have significant advantages over our competitors. We anticipate increased sales in the heat pump sector from both of these companies. Despite the temporary fiscal tightening impacting our customers in China, 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 an international forward-thinking 'green' company."

Financial Summary

In the second quarter of 2011, total sales decreased to $7.08 million compared to $7.89 million in Q1 2011. In the first six months of 2011, total sales decreased to $14.97 million compared to $32.14 million in the same period of 2010. The decrease in sales was primarily due to tightened fiscal policy in China, which has contributed to a general slowdown in many sectors of the Chinese economy and caused a decrease in sales of our PHE Units and PHEs. Some of our customers faced an extended bank loan application process and other state-owned enterprises encountered difficulties in obtaining grants from the government, both of which typically are used to finance the purchase of our products, which resulted in the unexpected cancelation of orders and delays in the performance of PHE Unit and PHE contracts. Although these events caused a decrease in sales, we expect that a portion of the canceled PHE Unit and PHE orders will be reinstated and contracts that have been partially delayed will be performed within this fiscal year or 2012, reducing the impact of the drop in sales over the long term. We are taking steps to increase the sales of our PHE Units and PHEs by continuing our expansion into regional areas of China and are encouraged by our progress in establishing international sales channels in Europe, North and South America, which we expect will meaningfully contribute to revenue in 2012.

Operating loss totaled $7.10 million in Q2 2011, compared with operating loss of $7.41 million in Q1 2011. Our net loss for Q2 2011 was $6.42 million compared to net loss of $6.41 million for Q1 2011. Net loss totaled $10.37 million in the first six months of 2011, compared to net income of $5.07 million for the same period of 2010, a decrease of $15.44 million. This decrease in net income was attributable to the temporary decrease of net sales and increased bad debt allowance reserve.

Last week, China’s central bank vowed to “keep reasonable financing scale by utilizing comprehensive combination of fiscal policies.” This was acknowledged as the possible inflection point of stringent fiscal policy. The Company believes 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 the Company’s marketing team and other employees should result in improved sales and efficiency of its operations. Nevertheless, the Company expects to 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 in response to the decrease in sales.

Investor Conference Call Instructions:

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

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.