Sino Clean Energy, Inc.a.eqcdn.com/sinocei/media/2591a217f9386d64dbb2a8afc13c27e1.pdf · Sino Clean Energy Inc. 3 Leading producer of oal Water Slurry Fuel (WSF), offering heating

Investor Presentation

Sino Clean Energy Inc.

April 2011

www.sinocei.net

Sino Clean Energy Inc. 2

Safe Harbor Statement

Statements in this presentation may be "forward-looking statements" within the meaning of federal securities laws. The matters discussed herein that are forward-looking statements are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. Forward-looking statements involve risks and uncertainties that may cause actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition expressed or implied in any forward-looking statements. Such risks include, but are not limited to, competition in the coal industry, declines in demand for the Company’s products, rising raw materials costs, changes to management or key personnel, risks associated with conducting business in China, the Company’s ability to expand into markets outside of China and other risks detailed in the Company’s filings with the Securities and Exchange Commission. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous potential risks and uncertainties. Forward-looking statements made during this presentation speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this presentation.

Additional information regarding the risks faced by the Company may be found in its filings from time to time with the Securities and Exchange Commission. Because forward-looking statements are subject to risks and uncertainties, we caution you not to place undue reliance on any forward-looking statements. All written or oral forward-looking statements by the Company or persons acting on its behalf are qualified by these cautionary statements.


Leading producer of Coal Water Slurry Fuel (“CWSF”), offering heating and energy solutions for residential, commercial and industrial uses in China1

Largest third-party CWSF producer in China

Current installed capacity of 1,150,000 metric tons with 6 production lines

Develop, produce, and distribute CWSF, which is a liquefied form of coal that burns more efficiently and cleaner than traditional briquette coal

An economic alternative to oil and natural gas (scarce and expensive resources in China)

Significantly cleaner than briquette coal

Mainly focus on two categories of customers

Residential/commercial： steam for heating

Industrial: steam for heating /production processes

Company Profile

1. Source: Frost & Sullivan 2. Adjusted Net Income (Non-GAAP): net income have been adjusted for expense related to escrow shares, cost of private placement, change in fair value of derivative liabilities, extinguishment of derivative liability and amortization of notes discount 3. 2011E data per Company guidance

2

3

(in $MM)


Financial Summary (as of 4/14/2011) Market Price: $4.04 Common stock outstanding: 23.5MM shares

Market Cap:1 $94.9 MM Total diluted shares: 26.7MM shares P/E Multiple: 3.0x (LTM Pre-money)

Record Financial Performance For FY 2010

FY2010 revenues increased 131% to $106.3 million; adjusted net income increased 154.7% to $27.9 million, with adjusted EPS of $1.46

FY2010 gross margins increased 230 bps year-over-year to 39.4% Generated $26.2 million in operating cash flow for full year 2010

Financial Summary

1. Market Capitalization is calculated using common stock outstanding multiplied by the market price 2. Adjusted Net Income (Non-GAAP): net income have been adjusted for expense related to escrow shares, cost of private placement, change in fair value of derivative liabilities, extinguishment of derivative

liability and amortization of notes discount

US$MM, except per share data) FY 2010 FY 2009 FY2008 FY2007 2007-2010 CAGR

Revenue $106.3 $46.0 $14.3 $2.8 236.1%

Revenue Growth 131.1% 222.8% 408.5% NA

Gross Profit $41.8 $17.1 $5.0 $1.0 247.1%

Gross Profit Margin 39.4% 37.1% 35.0% 36.3%

Non –GAAP Adjusted Net Income2 $27.9 $10.9 $3.7 $1.0 203.3%

Non –GAAP Net Income Margin 26.2% 23.7% 25.9% 36.3%

Non –GAAP Diluted EPS $1.46 $0.57 $0.36 $0.12 130.0%


Company History

2004.04

Started CWSF research and

planning

2010.06

2008.09

Raised $1.3 million

through a PIPE transaction

2006.12

Obtained public listing through reverse merger

2006.04

Started building CWSF operation

2007.07

Started producing CWSF, annual

capacity of 100,000 metric

tons (Tongchuan – line 1)

2008.02

Boiler referral agreement signed with

Haizhong Boiler

2010.01

Increased production capacity to 850,000

metric tons (Tongchuan – line 5)

2009.02

Increased production capacity to

350,000 metric tons (Tongchuan –

line 2)

2009.10

Listed on NASDAQ 2009.07

Raised $11.6 million through a PIPE transaction

Joint development agreement signed with

Haizhong Boiler

Sino Clean is Well Positioned for Future Growth

Increased production capacity to 650,000

metric tons (Shenyang – line 3 and 4)


Large and fast growing CWSF market in China

China is the no. 1 coal consumption country in the world

CWSF, a “clean coal” solution, offers both cost savings and environmental benefits to the end users

and is feasible for large scale adoption

Strong government support (legislation and incentives) on both national and local levels

Dominant CWSF producer already in full scale commercial production

Largest third-party CWSF producer in China with first mover advantages

Stable and growing customer base brings visibility on long-term growth prospects

Long-term framework agreements in place with customers

100% customer retention rate since commercial operation began

Long-term strategic agreements with key industry partners

Strategic partnership with Haizhong Boiler, the largest CWSF boiler manufacturer in China

Experienced management team with extensive CWSF expertise

Key management team members have an average of 6 years of experience in the CWSF industry

Strong financial track record

Revenues increased at CAGR of 236% and non-GAAP net income increased at CAGR of 203% from

2007 to 2010

Key Investment Highlights


1. Source: National Bureau of Statistics of China 2. Source: Frost and Sullivan

China’s Heavy Reliance on Coal

72.2% 75.8% 76.2% 74.6% 67.8% 68.9% 66.7%

0

0.5

1

1.5

2

2.5

3

3.5

1980 1985 1990 1995 2000 2005 2010E

Bil

lio

n t

ce

Coal Other

• Coal is the most widely used energy source in China

Significant: China is the largest coal consumption country in the world, total coal consumption in China was 3 billion tons in 20091

Established: In 2010, coal accounted for 67% of overall energy consumption in China2

Abundant: Coal represents around 94% of China’s fossil fuel reserves2, while oil represents 5.4% and natural gas only 0.6%

Proven Fossil Fuel Resource Reserves (2008) China’s Energy Consumption by Type1


China’s Urgent Need to Switch to “Clean Coal”

China budgeted US$12 billion in 2010 for energy conservation and pollution reduction2

Government subsidy of $30 to $38 for every ton saved by upgrading traditional coal boilers to clean coal boilers and fining those who do not comply3

1. Source: Frost & Sullivan 2. Report on China's central, local budgets (2010) 3. Policy on Top 10 Energy Reservation Projects made by NDRC in 2007

Abundant, cheap and dirty coal

supply

Lack of oil & natural gas supply and

other alternative energies

National focus on clean coal

technologies + =

Increasing pollution from traditional coal usage – a terrible hidden price for the fast growing economy

China currently ranks first in terms of SO2 emissions Chinese coal resource is featured by high ash (23.0

percent) and high sulfur content (2.0 percent) It is estimated that 85.0 percent of CO2, 80.0 percent of

SO2, 67.0 percent nitrogen oxide and 80.0 percent of soot emissions are caused by coal burning in China1

Total Sulfur Dioxide Emissions by Country 1980-2000


Why CWSF?

CWSF is a significantly cheaper source of energy than other major traditional fossil fuels

50% cheaper than diesel oil

32% cheaper than natural gas

5% cheaper than coal briquette

CWSF is cleaner and more efficient than briquette coal

80% lower sulfur emissions

33% higher burn off rate

21% higher thermal efficiency

38% more energy generated

CWSF is a liquefied form of coal that burns more efficiently and cleaner than traditional briquette coal and an economic alternative to diesel oil and natural gas

Source: Frost & Sullivan

65%

98% 99% 99%

Briquette Coal CWSF Diesel Oil Natural Gas

Burn-off Rate

0

1.48

2.92

7.28

Natural Gas CWSF Diesel Oil Briquette Coal

SO2 Emission Index

0 0.030.26

2.78

CWSF Natural Gas Diesel Oil Briquette Coal

N0x Emission Index

Note: Emission index is emission/energy generated

Fuel Cost, Performance and Emission Comparison

100% 105%

147%

200%

CWSF Briquette Coal Natural Gas Diesel Oil

Economic Cost


Why CWSF?

CWSF is one of the few energy sources that is available at low costs and with ample supply

Much cheaper than diesel oil and natural gas

Significantly less pollution than coal-briquette and diesel oil

Abundant and stable coal supply

CWSF Coal

Briquette Diesel Oil Natural Gas

Other clean energy

Low Economic Cost

High Efficiency

Low Emission

Stable supply

Technology


Source: Frost & Sullivan

CWSF: Strong Government Support – National Level

Development 1981 - 1985 CWSF successfully developed by Bayi Coal Mine

1986 – 1990 CWSF fuel started its trial use in key national projects and plants

Promotion 1991 – 1995 CWSF listed in the Current Catalogue of Key Industries, Products and Technologies to be Encouraged

1996 – 2000 9th Five-Year Plan: Research scope set out + demonstrative 220 t/h CWSF furnace built to replace oil burning boiler in power plants

2001 - 2005 10th Five Year Plan: Released stand-alone report “2010 Outline for Development of CWSF in China”

Wider applications

2006 - today Central government policies filtering down to local governments, driving increased support for CWSF

CWSF is listed in each national Five-Year Plan since 1981

Strong government incentive to promote CWSF for energy conservation and emission reduction campaign

CWSF industry in China is still at an early stage


1. Include policies carried out in cities including Dongguan (Guangdong), Nanning (Guangxi), Nanchang (Jiangxi), Xiamen (Fujian), Hangzhou (Zhejiang), Huaihua (Hunan), Xi’an (Shaanxi), Tongchuan (Shaanxi)

CWSF: Strong Government Support – Local Level

Sample Policies Carried out by Local Government for Promoting CWSF 1

Goal Promote application of CWSF and other new clean energy sources to save energy and reduce emissions

Upgrading Existing Boilers

(Government Mandate)

Convert all existing coal-briquette boilers to CWSF boilers or other clean energy sources

Installing New Boilers

(Government Mandate)

All new boilers must use CWSF or other clean energy sources to meet emission request or will be shut down

CWSF Centralized Heating Stations Build centralized heating project using CWSF in planned areas/industrial parks and pull down existing boilers in that area

Subsidies for Promoting CWSF Newly-built CWSF boilers: 10-15% of the total investment

Upgrading coal boilers to CWSF boilers: 20-30% of the total investment

Upgrading diesel boilers to CWSF boilers: $15,000 to $30,000

Centralized heat supply using CWSF: $22,500 to $75,000 subsidy depending on the output scale


CWSF: Strong Growth Outlook

7.8

11

15.9

21.3

27.3

33.8

41.3

49.9

59.9

0

10

20

30

40

50

60

70

2006

2007

2008

2009E

2010E

2011E

2012E

2013E

2014E

Dem

an

d (

mil

lio

n t

on

nes)

Power Generation Plants

Industrial Customers

Residential Heating

2006-2014 CAGR: 29.0%

CWSF market key growth drivers CWSF is the only clean energy in China available at low

costs and with ample supply

Stricter government policies on pollution

Energy prices have been growing for the past few years and the trend is expected to continue

Supply shortage of diesel oil and natural gas in China

Strong CWSF growth outlook CWSF is used in 700 industrial furnaces and in

hundreds of industrial kilns1

600,000 traditional fossil fuel boilers currently installed in China, with approximately 100,000 requiring replacement or major repairs each year2

Market demand for CWSF in China in 2008 was 15.9 million metric tons or less than 1% of total coal consumption1

The growing overall demand for CWSF in China provides great opportunities and large growth potential for CWSF suppliers

1. Source: Frost & Sullivan 2. Source: Beijing Zhongjing Zongheng Information and Consulting Center

CWSF Demand in China, 2006-2014E2


Dominant Market Position

We are the largest-third party producer of CWSF in China We accounted for 15.9% of total domestic commercial

CWSF supply in 1H2010

Dominant CWSF supplier in existing markets and first mover advantage

Approximately 40 to 50 commercial suppliers of CWSF in China, most have volume of less than 100,000 metric tons

No foreign competitors with a material presence in China

Market Share of Leading commercial Suppliers of CWSF in China 1

(by Sales Volume 1H2010)

Fast development of CWSF’s commercial application Historically, CWSF was only produced in-house by large state-owned manufacturers of

coal/electricity for internal consumption

Commercial supply refers to CWSF suppliers producing CWSF and selling to an external CWSF customer rather than for internal use

The commercial supply of CWSF starts to grow with the increasing demand of CWSF in residential, commercial and industrial use

Regional: Critical to establish production capacity within 200 km of the customer base

1. Source: Frost & Sullivan


Integrated Business Model

Stable and abundant supply of washed coal (through long-term supply contracts)

Our suppliers guarantee to satisfy the maximum volume demand of our production lines

Large scale capacity and fully automated production lines

Able to produce a wide range of CWSF particle sizes

Recognized as one of the best CWSF products in China

Top notch quality control systems

Direct sales to residential, commercial and industrial customers

Long term framework agreements in place

Strategic partnerships & sales channels

Supply Processing End User

Sino Clean Energy Inc.


Substantial Production Capacity

Production Line

Capacity

(metric tons/yr) Method Start date Location

In-place

Line 1 100,000 Grinder July 2007 Tongchuan

Line 2 250,000 Atomizer March 2009 Tongchuan

Line 3 150,000 Grinder October 2009 Shenyang

Line 4 150,000 Grinder October 2009 Shenyang

Line 5 200,000 Grinder January 2010 Tongchuan

Sub-total 850,000

Additional Development

Line 6 300,000 Grinder January 2011 Guangdong

Line 7 750,000 Grinder August 2011 Guangdong

Grand total 1,900,000

Locations Production Lines

Substantial installed production capacity Currently six production lines with installed capacity of 1,150,000 metric tons

Plan to increase capacity to 1.9 million metric tons by the first half of 2011

Most immediate geographic expansion will focus on Guangdong Province

Tongchuan facility Current Capacity = 550,000 metric tons

Shenyang facility Current Capacity = 300,000 metric tons

Xi’an, Shaanxi Head Office

Nanning facility (Future development)

Planned Capacity = 500,000 metric tons

Guangdong facility Current Capacity =300,000

metric tons

Operating facility

Planned facility

Office


2009 Sales by Application

Residential/ commercial Industrial

2010 Sales Breakdown by Application

Established Customer Base

Diverse customer base representing multiple industries 43 direct customers as of December 31, 2010

Residential/commercial = steam for heating

Industrial = steam for heating + production processes

Long-term framework agreements in place with most customers Dominant CWSF producer in both of our present markets: Shannxi and Liaoning provinces

100% customer retention rate since commercial operation

Long-term framework agreements in place with approximately 90% of our customers

Stable end-markets with predictable utility-like cash flows

Industrial Processes Residential/commercial Heating


Strategic Partnerships

Haizhong Industry Inc. (“Haizhong Boiler”) The largest CWSF boiler manufacturer in China, with an estimated 78% market share1

We are the exclusive distributor in Shaanxi province and have sold 51 boilers to-date

Exclusive nationwide strategic partnership to provide one-stop shop for CWSF users

Leading CWSF Boiler Supplier

Leading CWSF supplier

Strategic Partnership CWSF Users

1. Source: Beijing Zhongjing Zhongheng Information and Consulting Center

Province Potential Addressable Market Size

(metric tons/annum)¹

Shaanxi 5,000,000

Liaoning 6,000,000

Guangxi 9,000,000

Guangdong 61,000,000


Growth Strategy

Pursue organic growth in existing markets

Leverage strategic partnership with Haizhong

Boiler

Capitalize on strong government support for

CWSF

Grow through expansion and acquisitions in other

regional markets

Continue to bring new production capacity on-line in existing markets (e.g. Tongchuan and Shenyang)

Continue to grow customer base - grew from 30 customers as of March 31, 2010 to 43 as of December 31, 2010

Haizhong Boiler is China’s largest CWSF boiler manufacturer

Exclusive sales agency agreement in Shaanxi

Exclusive nationwide strategic partnership agreement

Focus on the environment + extensive coal reserves = attractive opportunity for CWSF

CWSF has been listed as a key scientific and technological project in each of China’s Five-Year Plans

Nanning, Guangxi province – developing 500,000 metric tons

Potential future acquisitions


Name

Baowen Ren Chairman & CEO

41

Founded SCEI in 2002

Over 8 years experience in CWSF research, development and sales

Member of China CWSF Research Center, China Association of Environmental

Protection Industry, and China Association of Low- Carbon Economy

Age Experience

Wendy Fu CFO

42

Peng Zhou COO

42

Xueping Wang CTO

48

Former CFO of China Shenghuo Pharmaceutical Holdings Inc (NYSE: KUN)

Former VP-Finance of Shengdatech (Nasdaq: SDTH)

Former corporate controller of Wal-Mart China

Former senior consultant at Deloitte & Touche USA

11 years experience in plant operations and management

Former GM of Shaanxi Pengyuan Technology Co., Ltd.

Former VP of Hanzhong Ruisen Real Estate Company

Began research in CWSF in December 2004, focusing on papermaking, black

liquor, CWSF, sewage sludge and high efficiency desulfurization CWSF

dispersants

Former VP, Deputy GM and Chief Engineer of Xi'an Plastic Production Company

from 1987 to 1999

Experienced Management Team


Financial Summary


Proven Financial Track Record

Robust top-line and bottom-line growth

Strong and consistent margin and profitability

Strong Balance Sheet

Solid financial position with sufficient financing flexibility

Excellent working capital management

Significant Growth Prospects

All sales are done through long-term sales contracts with end-users that have highly visible ongoing long-term needs

Consistent margins and cash flow to support capacity expansion

Financial Overview


Proven Financial Track Record

USD million

CWSF COGS Breakdown (2010)

Robust Gross Profit Growth

Strong Revenue Growth

Adjusted Net Income2

USD million

USD million

1

1

1. 2011E data per Company guidance 2. Adjusted net income (Non-GAAP)

(1)


Rapid growth in revenue and profit

Effective cost management

Consistent margins and attractive profitability

Income Statement

Highlights Income Statement

(USD million) 12 Months Ended

Dec 31, 2010 Dec 31, 2009

Revenue $106.3 $46.0

Cost of goods sold 64.4 28.9

Gross profit 41.8 17.1

Gross margin 39.4% 37.1%

Selling expenses 4.6 1.1

G&A expenses 2.6 1.8

Income from operations 34.7 14.2

Operating Margin 32.6% 30.8%

Adjusted Net Income 27.9 10.9

Adjusted Net Margin 26.2% 23.7%


Strong Balance Sheet

Highlights

Maintained consistent financial flexibility to capitalize on attractive market opportunities

Low financial gearing with virtually no debt

Low receivables and no bad debt

(USD million)

Balance Statement

Assets

Cash and cash equivalents $52.1 $18.3

Accounts receivable, net 3.9 3.7

Inventory 1.3 0.9

Prepaid inventories 10.2 5.5

Total current assets 77.8 28.8

Property, plant and equipment, net 13.6 12.6

Total assets $103.4 $44.6

Liabilities & Shareholders' Equity

Accounts payable and accrued expenses $1.6 $2.7

Taxes payable and other payables 3.3 1.6

Derivative liabilities 14.6 16.8

Total Current Liabilities 19.5 21.1

Total Liabilities 19.7 51.1

Total Stockholders’ Equity 83.7 -6.5

Total Liabilities & Equity $103.4 $44.6

Dec 31, 2010 Dec 31, 2009


Companies in the Clean Technology Industry

Source: Capital IQ and company reports as of November 26, 2010

1

Note: 1. 2010E data per Company guidance


Large and fast growing CWSF market in China

Dominant CWSF producer already in full scale commercial production

Stable and growing customer base brings visibility on long-term growth

prospects

Long-term strategic agreements with key industry partners

Experienced management team with extensive CWSF expertise

Strong financial track record

Key Investment Highlights

Supplemental Information


Production Process

Method 1: Traditional ‘Grinder’ Process Method 2: Advanced ‘Atomizer’ Process

• High Concentration Preparation with Mixed Grinding process

1. Coal pulverization

2. Coal / water mixing

3. Quality control

4. CWSF Delivery

• Produces coal microns as fine as 50 to 80 microns

• Supersonic Fluid Dynamics Atomizer process (SFDA)

Similar to the ‘Grinder’ process, but the SFDA process uses a series of ultrasonic chambers to break coal briquettes down into smaller particle form

• Produces coal microns as fine as 20 to 30 microns

• Consumes 10% less electricity

• SCEI does regular quality control, checking for condensate, viscosity, evaporation rate, energy content, particle size, sulfur content and ash content

• All production lines are typically run at night to conserve electricity

Documents

Sino Clean Energy, Inc.a.eqcdn.com/sinocei/media/2591a217f9386d64dbb2a8afc13c27e1.pdf · Sino Clean Energy Inc. 3 Leading producer of oal Water Slurry Fuel (WSF), offering heating