Longwei Petroleum Announces Financial Results for First Quarter Fiscal 2012

TAIYUAN CITY, China, November 9, 2011 /PRNewswire-Asia-FirstCall/ -- Longwei Petroleum Investment Holding Ltd. (NYSE Amex: LPH) ("Longwei" or the "Company"), an energy company engaged in the storage and distribution of finished petroleum products in the People's Republic of China ("PRC"), today announced its financial results for the three months ended September 30, 2011.

First Quarter Fiscal Year 2012 Financial Highlights: (Year-over-Year, 3-Month Results)

• Revenues increased 4.7% to $118.6 million, compared with $113.3 million.

• Income Before Taxes increased 128.6% to $23.2 million, compared with $10.1 million.

• GAAP Net Income Attributable to Common Shareholders increased 272.6% to $17.8 million, compared with $4.9 million.

• Basic and Diluted Earnings per Share ("EPS") increased to $0.18 per share for the three months ended September 30, 2011, compared to $0.05 per Basic and Diluted Share for the three months ended September 30, 2010.

• The Company's Taiyuan and Gujiao fuel storage facilities contributed revenues of $58.2 million and $54.8 million, respectively. Agency fees contributed $5.5 million to revenues.

• Stockholders' Equity increased $20.7 million to $282.4 million, compared with $261.7 million.

"We are pleased to report another quarter of strong profitability," stated Mr. Cai Yongjun, Chairman and CEO of Longwei. "We carefully managed our cash flow to take advantage of declining international oil prices during the quarter by building our inventory position, while balancing the funding required to complete our purchase of the Huajie Petroleum assets. The Huajie Petroleum assets will add another 100,000 metric tons to our storage capacity and we believe will better position us to serve China's rising demand for petroleum products. By remaining focused on executing our growth strategy, we expect to deliver continued shareholder value improvement in fiscal 2012."

Three Months Results of Operations

The following table contains selected statements of operations information, and should be read in conjunction with our financial statements and related notes included elsewhere in the Company's Form 10-Q filed with the SEC on November 9, 2011.

Reconciliation of GAAP to Non-GAAP Financial Measures

The following table contains financial measures that are not calculated in accordance with GAAP. Such measures, which are unaudited and should only be read in conjunction with our financial statements and related notes included elsewhere in this report, are intended to serve as a supplement to the GAAP results. The unaudited non-GAAP information reflects the adjustment to GAAP Net Income Attributable to Common Shareholders on a non-GAAP basis, whereby the effect of the noncash adjustment for each period presented of the change in the fair value of derivatives associated with the October 2009 Warrants is added back to the GAAP Net Income Attributable to Common Shareholders. This non-GAAP adjustment has been used to calculate the non-GAAP basic and diluted earnings per share. The non-GAAP operating results for the quarters presented are not necessarily indicative of results for any future periods, but management believes these non-GAAP financial measures provide useful information to investors for a more accurate picture of the Company's operations on an ongoing basis.

Summary of Results of Operations

Revenues - During the first quarter ended September 30, 2011, Longwei's sales increased approximately 4.7% to $118.6 million, up from $113.3 million in the first quarter of fiscal 2011. The sales increase was mainly a result of a year-over-year increase in the average sales price per metric ton of product sold. The Company's Taiyuan and Gujiao fuel storage facilities contributed revenues of $58.2 million and $54.8 million, respectively, during the first quarter.

During this period Longwei's product mix was approximately split evenly between diesel and gasoline sales. The sales increase was due to the increase in product sales price. The weighted average sales price per metric ton ("mt") of petroleum products sold increased approximately 33.4% to $1,205mt from $903mt during the three months ended September 30, 2011 and 2010, respectively.

The increase in the price per mt of petroleum products was due to the increase in international crude oil prices, which rose steadily during the first half of calendar 2011. During the time between the two periods ended September 30, 2011 and 2010, the PRC increased retail petroleum prices four times, but did not decrease retail prices when international crude oil prices dropped during the summer months of 2011. The Company continues to allocate product sales between its two facilities to better serve its customer base. The two facilities are approximately 31 miles apart, and their service markets overlap. Total sales volume for the three-month period ended September 30, 2011 dropped 21.2% to 93,862mt from 119,074mt for the three-month period ended September 30, 2010. The drop in volume was primarily due to rising fuel prices and the PRC's attempts to slow down economic growth. During this timeframe, the Company also declined certain sales opportunities to maintain its margins, as well as carefully managed its cash flow due to the large deposit paid for the Huajie Petroleum assets. The deposit of $86.0 million has been paid in cash generated through operations.

Cost of Sales - Costs of sales increased by $5.4 million or 5.9%, from $91.3 million for the quarter ended September 30, 2010 to $96.6 million for the quarter ended September 30, 2011. The Company experienced some positive gain from the impact of fluctuating prices in the international price of crude oil during 2011 by carefully managing inventory levels. The Company pays market prices from its refinery suppliers and carefully manages its inventory levels to adjust to pricing fluctuations. The three-month weighted average cost basis per metric ton of petroleum product the Company sold increased by $254mt or 33.0% to $1,023mt from $769mt during the three months ended September 30, 2011 and 2010, respectively. During the quarter ended September 30, 2011, the Company improved its product sales gross profit by 0.3% to 15.1% from 14.8% during the quarter ended September 30, 2010 through good inventory management.

Operating Expenses - Operating expenses for the first quarter totaled $973,000 as compared to $1.6 million for the first quarter of fiscal 2011. As a percentage of revenues, operating expenses decreased to 0.8% for the quarter ended September 30, 2011 from 1.4% for the quarter ended September 30, 2010. Operating income increased 2.4% to $21.0 million during the first quarter of fiscal 2012.

Net Income - Net income increased by $13.0 million or 264.8% from $4.9 million for the first quarter ended September 30, 2010 to $17.9 million for the first quarter ended September 30, 2011. For the quarter ended September 30, 2011, net income attributable to common shareholders reduced net income by $15 due to cash dividends paid on preferred stock related to the Company's October 2009 financing. Net income attributable to common shareholders increased by $13.0 million or 272.6% to $17.8 million for the quarter ended September 30, 2011, up from $4.8 million for the quarter ended September 30, 2010.

EPS - The Company's basic and diluted GAAP earnings per share for the first quarter ended September 30, 2011 was $0.18, representing growth of 260.0% over basic and diluted GAAP EPS of $0.05, respectively, for the same period a year ago.

Liquidity and Capital Resources

Cash and cash equivalents totaled $2.9 million at September 30, 2011. As of September 30, 2011, the Company's current assets increased $15.2 million or 10.7% to $157.7 million at September 30, 2011 from $142.5 million at year-end June 30, 2011, primarily due to the increase in inventory and advances to suppliers to take advantage of price fluctuations in international crude oil prices during the quarter ended September 30, 2011. The Company also maintained a cash deposit of $86.0 million for the purchase of the Huajie Petroleum assets. Overall, the Company had a decrease in cash flows of $6.5 million during the three-month period ended September 30, 2011 resulting from $6.6 million of cash used in operating activities, no cash provided or used in investing activities, cash used in financing activities of $15,000, and the effect of the exchange rate changes in cash of $131,000.

The Company's current ratio is approximately 23:1 (current assets to current liabilities) and improves to approximately 39:1 including the deposit, but net of the fair value of the warrant derivative liability at June 30, 2011. Total current assets including the fixed asset purchase deposit as of September 30, 2011 were $243.8 million. The Company had no long-term debt as of September 30, 2011.

The average age of accounts receivable improved to 18 days from 22 days on total sales, and improved to 73 days from 88 days on credit sales during the three-month period ended September 30, 2011 compared to the three-month period ended September 30, 2010. (Payments are due upon receipt of the products unless the customer has been pre-approved for payment terms. Approximately 75% of the Company's customers are cash-payment only upon delivery, and certain large customers are preapproved for payment terms of up to 90 days. All accounts receivable are paid current.)

The average age of inventory increased to 55 days from 36 days during the three months ended September 30, 2011 compared to the three-month period ended September 30, 2010 to account for additional product purchases for on-hand inventory during a period of fluctuating prices to take advantage of refinery price drops in product cost by utilizing the Company's large storage capacity. During this time the Company also increased its advances to suppliers to lock in pricing based on uncertainty associated with the international price fluctuations and the impact of declining world economic conditions on international crude oil prices. The ratio of advances to suppliers to inventory remained approximately 1:1 at September 30, 2011 and June 30, 2010, but the combined balance in both inventory on-hand and advances to suppliers increased $21.3 million or 19.5% to $130.5 million from $109.2 million during the three-month period. The Company has used its working capital to increase inventory and product availability based on current changes in market price. The Company is balancing its working capital to take advantage of pricing opportunities, as well as balancing the funding required to complete the acquisition of the Huajie Petroleum assets.

Longwei entered into a letter of intent with Shangxi Jiangtong Chemicals Co., Ltd. ("Jiangtong") in March 2011 to acquire the assets of Jiangtong's wholly-owned subsidiary Huajie Petroleum Co., Ltd. ("Huajie"). The Company intends to acquire the assets of a fuel storage depot in northern Shanxi Province (located in Xingyuan, Shanxi) including fuel tanks with a 100,000 metric ton storage capacity. The Company has paid a deposit of 550 million RMB (approximately USD $86.0 million) toward the full purchase price of 700 million RMB (approximately USD $109.5 million). The assets are nonoperational with no revenue-producing history and include land use rights for 98 acres of land, 100,000 tonnage fuel tanks with accessory facilities and equipment, a special transportation railway line, and a 3,000-square-meter office building. The acquisition is subject to final due diligence and board approval. The Company intends to use cash on hand to finance the acquisition. The Company engaged a third-party, independent valuation firm for the appraisal of the fair market value of the assets to be acquired. Longwei will account for the purchase of the proposed assets as an Asset Purchase.

2012 Financial Outlook

The Company maintains its current guidance for fiscal 2012. The Company anticipates revenues of approximately $576 million with net income of approximately $78 million (adjusted net of non-cash warrant derivative liability expense) for the fiscal year ending June 30, 2012. The Company will update its fiscal 2012 guidance to reflect its purchase of the assets of Huajie Petroleum Co., Ltd. once the asset purchase is closed and online, which the Company anticipates to occur during the current fiscal quarter. Longwei expects the facility to contribute approximately $300 million to revenues and $40 million to net income during the first 12 months of operations.

According to a November 2010 report by the U.S. Energy Information Administration, China's oil consumption will continue to rise in 2011 and 2012, with oil demand expected to reach 9.6 million barrels per day in 2011 and nearly double to 17 million barrels per day by 2035. The PRC was also named the top global energy consumer in a recent report from the International Energy Agency.

"The Energy Information Administration forecasts that China will account for 40% of the world's oil demand growth in 2012," stated Michael Toups, CFO of Longwei. "As the leading private petroleum supplier in Shanxi Province, we are capitalizing on a tremendous market opportunity. Our customer base continues to grow, and we are set to repeat the success of our Gujiao acquisition with the near-term closing of the assets of the Huajie facility, which will nearly double our overall capacity and provide us with access to the growing northern industrial region of the province. Once Huajie comes online we believe we will be able to increase our sales, positioning us for another year of strong revenue and earnings growth."

Conference Call and Webcast

Management will host a conference call to discuss these financial results on Thursday, November 10, 2011 at 10:00 a.m. EST (7:00 a.m. PST).

To participate in the call please dial (877) 419-6600, or (719) 325-4750 for international calls, approximately 10 minutes prior to the scheduled start time. Interested parties can also listen via a live Internet webcast, which can be found via the Company's website at http://www.longweipetroleum.com, or alternately at http://ViaVid.net.

A replay of the call will be available for two weeks from 1:00 p.m. EST on November 10, 2011, until 11:59 p.m. EST on November 24, 2011. The number for the replay is (877) 870-5176, or (858) 384-5517 for international calls; the pin number for the replay is 5286947. In addition, a recording of the call will be available via the Company's website at http://www.longweipetroleum.com for one year.

About Longwei Petroleum Investment Holding Limited

Longwei Petroleum Investment Holding Limited is an energy company engaged in the storage and distribution of finished petroleum products in the People's Republic of China. The Company's oil and gas operations consist of transporting, storage and selling finished petroleum products, entirely in the PRC. The Company's headquarters are located in Taiyuan City, Shanxi Province. The Company has a storage capacity for its products of 120,000 metric tons located at storage facilities in Taiyuan and Gujiao, Shanxi. The Company's Taiyuan and Gujiao facilities can store 50,000 metric tons and 70,000 metric tons, respectively. The Company has the necessary licenses to operate and sell petroleum products not only in Shanxi but throughout the entire PRC. The Company's storage tanks have the largest storage capacity of any non-government operated entity in Shanxi.

The Company seeks to earn profits by selling its products at competitive prices with timely delivery to coal mining operations, power supply customers, large-scale gas stations and small, independent gas stations. The Company also earns revenue under an agency fee by acting as a purchasing agent for other intermediaries in Shanxi, and through limited sales of diesel and gasoline at two retail gas stations, each located at the Company's facilities. The Company seeks to continue to expand its customer base and distribution platform through the utilization of its large storage capacity, which allows the Company the flexibility to take advantage of pricing, supply and demand fluctuations in the marketplace.

For further information on Longwei Petroleum Investment Holding Limited, please visit http://www.longweipetroleum.com. You may register to receive Longwei Petroleum Investment Holding Limited's future press releases or request to be added to the Company's distribution list by contacting Dave Gentry at info@redchip.com.

Forward-Looking Statements

Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about Longwei's industry, management's beliefs and certain assumptions made by management. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Because such statements involve risks and uncertainties, the actual results and performance of the Company may differ materially from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Longwei's operations are conducted in the PRC and, accordingly, are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation. Other potential risks and uncertainties include but are not limited to the ability to procure, properly price, retain and successfully complete projects, and changes in products and competition. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here. Readers should review carefully reports or documents the Company files periodically with the Securities and Exchange Commission.