Gulf Resources' CEO Discusses Q1 2013 Results - Earnings Call Transcript

May.10.13 | About: GULF RESOURCES (GURE)

Gulf Resources, Inc. (NASDAQ:GURE)

Q1 2013 Results Earnings Call

May 10, 2013 8:00 AM ET

Executives

Helen Xu - CEO Assistant

Xiaobin Liu - Chief Executive Officer

Min Li - Chief Financial Officer

Analysts

Peter Cyrus - Analyst

Operator

Good morning. My name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gulf Resources 2013 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Ms. Xu, you may begin your conference.

Helen Xu

Okay. Thank you, Operator. Good morning, ladies and gentlemen and good evening to those of you, who are joining us from China. And we would like to welcome all of you to Gulf Resources First Quarter 2013 Earnings Conference Call. My name is Helen, the assistant of the company CEO. Our CEO and the CFO of the company, Mr. Xiaobin Liu and Mr. Min Li, who will join this call today.

I will be offering translation for the management’s comment for the company’s operating results. I would like to remind you that for our listener’s attending this call, managements’ remark will contain forward-looking statements, which are subject to risks and uncertainties. The management may make additional forward-looking statement before the company claims the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today depending upon a number of risk factors, including, but not limited to, the general economic and business condition in China. Future product development and production capabilities, shipments to end customers, market acceptance of new and existing products, additional competition from the existing and new competitors for the bromine and other oilfield, agricultural and flame production chemicals and the change in technology, the ability to make future bromine asset purchases and various other factors beyond the company’s control.

All forward looking statements are expressly qualified in their entirety by these precautionary statements and the risks factors detailed in the company’s reports filed with the SEC. Accordingly, our company believes the expectations reflected in these forward-looking statements are reasonable and there can be no assurance of such will prove to be correct.

In addition, any reference to the company’s future performance represents the company’s estimate as of today the 10th of May, 2013. Gulf Resources assume no obligations to update these projections in the future as market conditions change. For those of you unable to listen to the entire call at this time, a replay will be available for 14 days at the company’s website. The call is also accessible through webcast and the link is accessible through our website. Please look at our press release issued earlier for details.

It is now my pleasure to turn this call to Mr. Liu, the company’s CEO, who is going to provide some initial remarks and then I will do the translation.

Xiaobin Liu

First of all, thank you for participating in our first quarter 2013 earnings conference call. Due to the lower demand of bromine as influenced by the continuing macroeconomic tightening policy imposed by the PRC government, the average selling price of bromine decreased from $3,569 per tonne for the first quarter in 2012 to $3,053 per tonne for the same period this year.

We reported lower operating performance in this quarter in comparison to the same period of last year as we were unable to offset the decreasing revenue of bromine segment by those increasing from crude salt and chemical products segments. Cold weather condition in winter and the long holiday for Chinese festival also had some impact on this tighter bromine segments operation.

As we can see that selling price of bromine has increased from $2,954 per tonne to $3,053 per tonne as compared to the fourth quarter of 2012. We believe that the indication increase in demand of bromine from the downstream industrial customers. Therefore we are confident that we can achieve that earnings target set forth in the financial guidance announced in January this year.

Helen Xu

Thank you, Mr. Liu. I’m going to continue with presenting the company’s results for the first quarter of 2013 on the behalf of the company’s CEO, Mr. Liu. The slowdown of the economy growth in China have affected the chemical industry, and caused the selling price of bromine to be lower than the same period of last year, due to the weak market demand and with the main factor that caused the company to report a lower performance in the first quarter of this year in comparisons to the last year’s same period.

The average selling price of bromine had decreased from $3,560 per metric ton for the first quarter in 2012 to $3,063 per metric ton for this quarter, representing a decrease of nearly 14 percentage.

However the sales volume of bromine increased from $3,770 ton for the three months period ended March 31, 2012 to $3,843 ton for the same period in 2013, an increase of 2% due to increase in the number of our bromine production plant in recent year.

The average selling price of crude salt increased from $30 -- approximately $38 per ton for three months period ended March 31, 2012 to approximately $39.52 per ton for the same period in 2013, a increase of 4% and sales volume of crude salt also increased by nearly 4% from $59,836 tons for the three months period ended March 31, 2012 to $62,007 tons for the same period in 2013.

Net revenue from our chemical product segment increased from -- approximately $8,079,000 for the three months period ended March 31, 2012 to -- approximately $8,317,000 for the same period in 2013, an increase of approximately 3%. The increase was mainly attributable to the increase in demand for our oil and gas exploration additives and [second] manufacturing additives.

Our oil and gas exploration chemicals are the most popular products within the chemical product segments, which contributed $4,621,678 or around 65% and $4,161,559 or around 52% of our chemical segment revenue for the three months period ended March 31, 2013 and 2012.

Now, I would like to provide some more detail on the financial performance. You can see that the company’s total revenues was $22,502,580 for the three months period ended March 31, 2013, a decrease of approximately of $1.3 million or around 5% as compared to the same period in 2012.

This decrease was primarily attributable to the reduction of our bromine segment products, which decreased from around approximately $30,453,000 for the three months period ended March 31, 2012 to approximately $11,734,000 for the same period in 2013, a decrease of approximately 13%.

Gross profit was $4,517,108 .or around 20% of net revenue for three months period ended March 31, 2013, compared to $6,692,792 or around 28% of net revenue over the same period in 2012, a decrease in gross profit percentage was primary attributable to a drop in the margin percent in all of our three segments.

Total research and development costs incurred for the three months period ended March 31, 2013 and 2012 were $17,702 and $42,798, respectively, a decrease of 59%. Research and development costs for the three-month period ended March 31, 2013 and 2012 represented raw materials used by company’s subsidiary SYCI for testing the manufacturing routine.

General and administrative expenses were $1,969,217 for the three-month period ended March 31, 2013, a decrease of $142,988 around 7% as compared to the same period in 2012 which is approximately $2,112,000.

The decrease of this was primarily due to the decrease in legal cost in connection with class action reached from around $411,000 for the three months period March 31, 2012 to $39,000 for the same period in 2013 since the workload was reduced in settlement stage discussion, partially offset by an increase in the depreciation of the newly acquired office units in a commercial building in September 2012.

Our income from operations was approximately $2,605,000 for the three-month period ended March 31, 2013 or around 12% of the net revenue, a decrease of approximately $1,972,000 around 43%, over income from operations for the same period in 2012. The decrease resulted primarily from the decrease of selling price of our bromine segment as mentioned early and the increase in depreciation and amortization of the plant and machinery due to the enhancement projects from the second quarter of 2012 to our extraction wells and transmission channels and ducts, which accelerated the depreciation and amortization of the plant and machinery.

Other operating income, which represented the sales of wastewater for some of our customers, was $95,562 for the three-month period ended March 31, 2013, representing an increase of $38,488 or around 67% from $57,074 for the same period in 2012.

Other income, net of $19,837 represented bank interest income, net of capital lease interest expense for the three-month period ended March 31, 2013, a decrease of approximately 55% as compared to the same period in 2012, mainly due to the lower average bank balance held in the period ended March 31, 2013 compared to the period ended March 31, 2012.

Net income was approximately $1,882,965 for the three-month period, a decrease of approximately 43% and approximately $1,404,000 compared to the same period last year. This decrease was primarily attributable to the decrease of selling price for our bromine segment due to the macro-economic tightening policy imposed by the PRC government to slow down the economy as mentioned by Mr. Liu early.

Income taxes were $0.7 million for the first quarter of 2013, a decrease of 44% from $1.3 million for the first quarter of 2012. The Company’s effective tax rate was 28% and 29% for the three-month periods ended March 31, 2013 and 2012 respectively.

As of March 31, 2013, Gulf Resources had cash of $78.5 million, total liabilities of $12.7 million, and stockholders’ equity of $266.9 million. For the three months ended March 31, 2013, the Company had working capital of $105.3 million. As of March 31, 2013, the Company generated around $13.3 million in cash flow from operations, and used $290,000 in investing activities for additions of prepaid land leases.

And we are going to talk about subsequent events. On April 18, 2013 the Company announced that its board of directors has approved a new share repurchase program under which the Company is authorized, but not obligated, to purchase up to $2 million of its issued and outstanding shares of common stock from time to time over the next 12 months.

On April 30, 2013, the class action parties of the class action litigation executed a stipulation and agreement of settlement, which is subject to review and approval of the Court. The Company currently cannot estimate the amount or range of the overall costs in connection with this litigation. The Company believes that such costs will be reimbursed by the insurance company to the extent covered by the insurance policies.

The Company’s 2013 Annual Meeting of the stockholders will be held on June 18, 2013, at 10:00 a.m. China local time, at the Company’s headquarters located at Level 11, Vegetable Building, Industrial Park of the East City, Shouguang City, Shandong Province.

For further investor inquiries, investors may continue to reach our IR manager and CEO’s Assistant at the email address disclosed at our website.

With that we’d like to open the call for any questions pertaining to the first quarter 2013 financial and operating performance. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line Peter Cyrus.

Peter Cyrus - Analyst

Yeah, I am curious to ask two things. First, I see that the bromine prices have firmed a little bit since the last quarter and I am curious where’re they now and where do you see them going over the three to six months?

Helen Xu

Okay. Thank you. [Foreign Language]

Xiaobin Liu

[Foreign Language]

Helen Xu

Okay. So, Mr. Liu just answer that your question. The bromine price currently is still around $3,000 per metric ton and we have that in the next six month price of bromine will fluctuate -- actually it will be slowly improve -- increase.

Peter Cyrus - Analyst

Since fluctuate but slowly increase.

Helen Xu

That’s Correct. Slowly increase, yeah.

Peter Cyrus - Analyst

What happening competitively, there must be many smaller bromine producers who are having difficulty? Do you see people going out of business, are people coming to you and offering to sale to you at very cheap price, what’s happening in the market?

Helen Xu

Okay. [Foreign Language]

Xiaobin Liu

[Foreign Language]

Helen Xu

Okay. Yeah. You’re right. Because bromine pricing decrease you can see that offers last year and the asset on that, some are trying to sale their assets with lower price and the company is also as the market leader in this bromine industry, we always actively looking for more opportunities, acquisition opportunity and with lower prices. But there are some other large companies also looking for acquisition on assets…

Peter Cyrus - Analyst

Okay.

Helen Xu

… but we don’t know about their plan clear yet.

Peter Cyrus - Analyst

And finally, as I look at your balance sheet, you have well over $2 a share in cash and you have the market price of dollar share, why only buyback $2 million shares, why not buyback a whole lot of share because you have so much cash and such a little stock price?

Helen Xu

Okay. [Foreign Language]

Xiaobin Liu

[Foreign Language]

Helen Xu

Okay. These $2 million share repurchase program was the first step based on the share market condition depend and we may based on the market changes in later, we will make most other plans or make a suggestions to the Board of Directors.

Peter Cyrus - Analyst

Okay. Well, (inaudible)

Xiaobin Liu

[Foreign Language]

Helen Xu

[Foreign Language] Operator?

Operator

(Operator Instruction) And there no further question at this time.

Helen Xu

Okay. [Foreign Language]

Xiaobin Liu

[Foreign language]

Helen Xu

Okay, Operator. Thank you very much. If there are no further questions then I will conclude and call the day for the conference. Thank you very much.

Xiaobin Liu

Thank you.

Operator

Thank you. This concludes today’s conference call. You may now disconnect.

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