Guohua Ku - CEO David Chong - CFO

Hello and welcome to the China Recycling Energy's 2013 Full Year Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note that this event is being recorded. Now, I would like to turn the conference over to [Ms. Wei] (ph) please go ahead.

Thank you. Thank you for joining us on today’s call. Before we start, I would like to remind you that the management’s prepared remarks contains forward-looking statements that are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today due to such risks as but not limited to saturations in customers demand, management of rapid growth, intensity of competition, general economic conditions, geo-political events and regulatory changes, and other information detailed from time-to-time in the company’s filings and future filings with the United States Securities and Exchange Commission. Accordingly, although the company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. In addition any projections as with the company’s future performance represents management's estimate as of today March 26, 2014. The company undertakes no obligation to correct or update any forward-looking statements provided as a result of new information, future events, or event change in our expectations. Joining us on today's call are Mr. Ku, our Chief Executive Officer; and Mr. Chong, Chief Financial Officer. As there will be some translations during the call, we ask for your patience at that time. Mr. Ku, the Chief Executive Officer of China Recycling Energy Corporation will now deliver his opening remarks and Mr. Chong will translate them thereafter. Please go ahead sir.

[Foreign Language]

Thank you, Mr. Ku. I will now translate the speech by Mr. Ku. Good morning and for those in China, good evening. CREG saw healthy income growth in this year characterized by increase of $62.01 million in system sales compared to last year as five systems were completed. For the financial year ended December 31st, 2013, the total sales including system sales and contingent rental income was $63.19 million, an increase of $61.95 million compared to last year. During the financial year ended December 31st, the company completed a 12-megawatt biomass power generation system in Pucheng Phase 2, 12-megawatt biomass power generation system in Shenqiu Phase 2, two units of 3-megawatt plus furnace pressure recovery turbine system in Shanxi Datong project and a 25-megawatt waste heat power generation system in Jitie project. And continue the construction of the ongoing projects including the 15-megawatt waste gas power generation system of Shanxi Datong, Xuzhou Zhongtai, CDQ power generation project Zhangzhi CDQ project and Shenqiu and Pucheng CDQ project. CDQ stands for Coke Dry Quenching waste heat power generation project. All projects under construction are progressing well and I expect it to be delivered on schedule. Before we get Mr. Chong on the financials, I would like to briefly discuss the current dynamics of our market and our place in the market as well as our outlook going forward. In recent years, energy saving and environmental protection became the new fronts for marking the development of hi-tech industry. According to the statistics, the global market size for environmental protection industry increased from US$250 billion in 1992 to US$600 billion last year with the annual growth rate to 8%, which greatly surpasses the global economic growth rate. The energy saving and environmental protection has become the sunrise industry globally. China is at the crucial time of economy in transition and energy saving becomes more and more important factor. According to the Government work report of National People's Congress and Chinese People's Political Consultative Conference, the budget of Central Government will focus on energy saving and environmental protection. Increasing investment in energy saving and environmental protection has been constantly included in the governmental papers for several years and energy saving and environmental protection industry has become one of national pillar industry. Nonetheless, as required in the development and energy saving and environmental protection industry for the 12th five-year plan, total output value for national energy saving and environmental protection industry reaches US$733 billion. The value added is about 2% of the GDP and annual growth rate for the output value energy saving and environmental protection industry shall be over 15%. As the first mover in waste energy market in China, CREG has always been committed to providing energy recovery solution package to those heavy industrial companies providing for the full financing leasing arrangements, construction, integration, and in some cases operation of this energy saving systems for the largest of industrial times. The strong support by the government allows us to move further and faster in the new energy market. In 2013, besides operating our existing projects, we’re focusing on developing new Coke Dry Quenching of CDQ project incorporated with several large enterprises. With higher requirements of energy saving and large scale application of coke carbons, CDQ is the trend in the future for the industry. CREG will seize this opportunity and expand our market share in this new area. As for the financing and project planning, we have established a recycling energy fund with Hongyuan Securities to invest in CDQ waste heat power generation projects. Already we have two CDQ power generation projects under construction which goes on very well. Hongyuan Securities is a national comprehensive, innovative, stock bookings approved by China Securities Regulatory Commission. Also as one of the first major sponsors in China, Hongyuan Securities has become a company dealing with innovative and experimental securities approved by China Securities Industry Association. We also set up a green recycling energy collective capital trust plan with Zhongrong International Trust Company Limited, the financial and new developed project. We have very huge project pipeline and we will conduct due diligence of our new clients to ensure our investment return and profit growth are protected. In closing, I would like to again thank our shareholders and strategic partners for their support of CREG. We look forward to updating all of you our successes this year and in the years to come. Now, let's turn the call over to our CFO, Mr. Chong to review our 2013 full year financial results. After the prepared financial review, I will come back to take your questions. Thank you.

Okay. Following is the financial report. Thank you, Mr. Ku. And before that, I would like to state that all our numbers are presented in U.S. dollars. I will start with the three months ended December 31st, 2013. We had a number of operational highlights in the fourth quarter of 2013. The total sales increased $12.98 million as compared to $0.2 million for the fourth quarter of 2012. Net income grew by 169% or $4.21 million as compared to $1.57 million for the fourth quarter of 2012. Fully diluted earnings per share of $0.07 increased by $0.04 as compared to $0.03 of fourth quarter of 2012. For the full year ended 31st December, 2013, we also had a number of operational highlights. Total sales increased $61.95 million, compared to $1.25 million for the year 2012. Net income grew by 359% to $15.63 million as compared to $3.41 million for the year ended December 31st, 2012. And fully diluted earnings per share of $0.29 increased 314% from fully diluted EPS of $0.07 in the year ended December 2012. Total sales including system sales in contingent rental income for the year ended December 31st, 2013, was $63.19 million while total sales for the previous year was $1.25 million. So, this year increase of $61.94 million as a result of increases in system sales. Of the total sales, sales of systems for the year ended December 2013 were $62.01 million, compared to zero for the year ended December 2012, an increase of $62 million. For the year ended December 2013, Shenqiu Phase II, Datong, Pucheng Phase II and (indiscernible) were completed and so in comparison, in the previous year, none of the power generation system were completed. For the year ended December 2013, the company received contingent rental income of $1.1 million from the usage of electricity in addition to the minimum lease payments, compared to $1.25 million for the previous year. For the sales-type lease, sales and cost of sales are recorded at the time of the leases; and in addition to sales revenue, the other major source of revenue is interest income from sales-type leases. Cost of sales for the year ended December 31st, 2013, was $47.85 million, while cost of sales for previous year was zero, an increase of $47.85 million. The increase was mainly due to completion in sale of Shenqiu Phase II, Datong, Pucheng Phase II and Jilin Ferroalloys project. Gross profit was $15.35 million for the year ended December 2013, compared to $1.25 million for the year ended December 2012, a blended gross margin of 24% and 100% for the year respectively. And a decrease in the margin for December 2013 was mainly due to the sale of projects for which profit margin range between 23% to 28% compared to no sale of any projects in 2012, except for the extra electricity income from the contingent rentals, which hardly bears any cost. Now, interest income on sales-type leases for the year ended December 31st, 2013 was $19.34 million, a $1.11 million increase from the $18.23 million of the previous year December 2012. During the year ended December 2013 -- 2013, interest income was derived from 15 systems. One TRT to Zhangzhi 13 years; two CHPG systems to Jing Yang Shengwei for five years; two biomass system to Pucheng Phase I and II for 15 and 10 years respectively; two biomass system to Shenqiu Phase I and II for 11 years and Shenqiu Phase II for 9.5 years; five power and steam generating systems from waste heat from metal refining to Erdos for 20 years; one waste heat system to Zhongbao for nine year; one waste heat system to Jilin Ferroalloys for 24 years; and two TRT systems for Datong for 30 years. And in comparison, during the year ended December 2012, interest income was derived from 11 systems; one TRT, two CHPG, five systems with Erdos, the Pucheng and Shenqiu biomass and Zhongbao waste heat system. Operating expenses consisting of selling, general and administration expenses totaling $4.16 million for the year ended December, 2013 as compared to $5.66 million for the year ended December 2012, a decrease of $1.50 million or 27%. The decrease was mainly due to a $2.97million loss resulting from termination of the Erdos Phase III project in the year 2012. However, the following expenses increased. Consulting expense increased by $0.62 million. This is relating to Hongyuan Recycling Fund Raising; and also legal and miscellaneous expenses increased by $0.56 million relating to the fund raising of the Hongyuan fund. And also, our salary and bonus increase by $0.25 million resulting from additional projects being put into operations in 2013. Our net income for the year ended December 2013 was $15.63 million, compared net income of $3.41 million for the previous year 2012, an increase of $12.22. This increase in net income was mainly due to the increased sales and interest income on sales-type leases compared to the previous year 2012. For the year ended December 2013, GAAP diluted EPS was $0.29 with approximately 61.9 million shares common stock outstanding, compared to $0.07 for the previous year ended 2012 when the company had approximately 50.2 million shares of common stock outstanding. Here are some of the highlights on our balance sheet. As of December 31st, 2013, the company had cash and cash equivalent of $7 million, other current assets were $15.8 million, and current liabilities were $31.8 million. Total shareholders' equity was $155.02 million compared to $114.98 million of December 2012. With that let us join Mr. Ku, our CEO to take any of you questions. Operator, please begin the Q&A. Thank you.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions) Thank you. There are no questions at this time. So, I would like to turn the conference back to Ms. [Wei] (ph) for any closing comments.

Okay. Thank you for joining us on China Recycling Energy Corporations' 2013 full year financial results conference call. We look forward to update you on the future developments. Feel free to get in touch with us anytime if you have any further questions, concerns or comments. Have a nice day.

Thank you. That does conclude today's teleconference. You may now disconnect your phone lines. Have a nice day.