Cleantech Solutions International Reports First Quarter 2016 Results

WUXI, China, May 16, 2016

"In the first quarter of 2016, challenging economic conditions, falling steel prices, a continuous decline in oil prices and limited availability of credit in China presented numerous challenges for our business. Our forged rolled rings and related components segment and petroleum and chemical equipment segment both experienced significant reductions in sales and generated losses during the quarter. Given the sharp declines in revenue and future outlook, we are currently evaluating the long-term viability of these two segments on an ongoing basis. The dyeing equipment segment, which accounted for 92% of total revenue in the quarter, experienced softer demand for our low-emission airflow dyeing machines although it remained profitable," said Mr. Jianhua Wu, Chairman and CEO of Cleantech Solutions. "We continue working with our strategic advisors to assist us in implementing a new business plan with the objective of improving our long-term growth."

First Quarter 2016 Results

Revenue for the first quarter of 2016 decreased by 68.6% to $4.9 million, compared to $15.6 million for the same period of 2015.

The Company experienced a significant decline in sales of forged rolled rings and related components to customers in the wind power and other industries and to dyeing and finishing equipment customers compared to the comparable quarter last year. Furthermore, sales of equipment to customers in the petroleum and chemical industries declined due to the loss of its largest customer.   

• Revenue from the dyeing and finishing equipment segment decreased by 30.6% to $4.5 million, compared to $6.5 million for the first quarter of 2015. The decrease was primarily related to the challenging economic conditions and limited availability of credit in China. Additionally, the Company experienced a slowdown in shipments of its low-emission airflow dyeing machines as many companies in the dyeing industry had already upgraded to new models and did not require additional equipment. Also, some of our customers stopped operation in the first quarter of 2016 in order to comply with stricter environmental requirements, which resulted in the decrease in orders for dyeing machines from these customers. Additionally, the Company believes that orders for new low-emission airflow dyeing machines have slowed down in 2016 because the remaining potential customer base included more companies that did not have the ability to make the significant capital expenditures necessary to upgrade their equipment.
• Revenue from the sale of forged rolled rings and related products to the wind power and other industries fell by 96.4% to $0.3 million, compared with $7.3 million for the comparable period of the prior year. The significant decrease was mainly due to reduced demand for construction of wind power facilities, which was the Company's principal customer base during the quarter, due to the effects of lower oil and gas prices.
• Revenue from sales of equipment to customers in the petroleum and chemical industries fell 92.9% to $0.1 million, compared to $1.8 million for the comparable period last year.  Revenue in this segment is highly dependent upon sales to a very small number of Chinese petrochemical companies, whose purchasing policies affect both revenue and gross margin for this segment. In December 2015, the Company received a notice of contract termination in writing from the Company's largest customer in 2015 that alleged breach of contract for late delivery of product and for delivery of product with quality defects. Accordingly, the Company has not generated any revenues from this customer in the first quarter of 2016 and does not expect any further revenues from this customer in the future. 

Gross profit for the first quarter of 2016 was $0.2 million, compared to gross profit of $3.1 million for the same period in 2015. Gross margin was 4.3% during the first quarter of 2016 compared to 19.6% for the same period a year ago. The decline in gross margin for the first quarter of 2016 was primarily attributable to (i) the reduced scale of operations resulting from lower revenues, including the allocation of fixed costs mainly consisting of depreciation, to cost of revenues in the forged rolled rings and related products segment, as a result of which cost of revenue from this segment were greater than revenues, resulting in a negative gross profit from the segment, (ii) lower gross margin in the petroleum and chemical segment, primarily attributed to the reduced scale of operations resulting from lower revenues, which is reflected in the allocation of fixed costs, mainly consisting of depreciation, to cost of revenues, and (iii) a decline in gross margin from the dyeing and finishing equipment segment reduced scale of operations, which is reflected in the allocation of fixed costs, mainly consisting of depreciation, to cost of revenues, and the slight increase in raw material costs.

Operating expenses decreased 28.6% to $0.9 million, compared to $1.2 million in the comparable period last year, due to decreases in selling, general and administrative expenses, depreciation and research and development expenses.