Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Gulf Resources, Inc. (NASDAQ:GURE)

Q4 2013 Results Earnings Conference Call

March 18, 2014 8:00 AM ET

Executives

Helen Xu - CEO Assistant

Xiaobin Liu - Chief Executive Officer

Min Li - Chief Financial Officer

Analysts

Operator

Good morning. My name is Jennifer, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gulf Resources’ 2013 Fourth Quarter and Annual 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. I will now turn the conference over to Helen. Please go ahead.

Helen Xu

Thank you, Jennifer. Good morning, ladies and gentlemen, and good evening to those of you who are joining us in China. And I would like to welcome all of you to Gulf Resources’ 2013 fourth quarter and annual earnings conference call. My name is Helen, the CEO Assistant of the company. Our CEO and CFO of the company, Mr. Xiaobin Liu; and Mr. Min Li is also join us today.

I will be offering translation for the management’s comments for the company’s operating results. And I’d like to remind all of listeners that in this call management’s remarks will contain forward-looking statements which are subject to risks and uncertainties.

The management may make additional forward-looking statements. Therefore the company claims protections of 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 number of risk factors, including but not limited to, the general economic 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 bromine and other oil fields, agriculture and the production chemicals, changes in technology, the ability to make future bromine asset purchase and various other factors beyond the company’s control.

All forward-looking statements are expressly qualified in their entirety by this cautionary statement and the risk factors detailed the company’s reports filed with SEC. Accordingly, our company believes that the expectations reflected in these forward-looking statements are reasonable and therefore, there can be no assurance of such exhibit proved to be correct.

In addition, any reference to the company’s future performance represents management’s the company’s estimate as of today, the 18 of March, 2014. Gulf Resources assumes no obligation 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 one month at the company’s website and this call is also accessible through the webcast and the link is accessible through our website. Please look at the press release issued earlier for details.

It’s my pleasure to turn this call to Mr. Liu, the company’s CEO, who is going to provide us some initial remarks and then I will translate for him. Xiaobin?

Xiaobin Liu

First of all, thank you all for participating for -- in Gulf Resources fourth quarter 2013 and its annual earnings conference call. Although, the PRC government continued imposing macro-economic tightening policy to slowdown the economy, which began in the second half of 2011, the company made persistent efforts to expand its sales markets, increase production utilization rate and from management and administration expenses during the fiscal year 2013.

We are pleased to report that company's crude salt and chemical products segments did performance well, sales volume of bromine segments also increased with slightly decrease in average selling prices. In fiscal year 2013 as compared with the last year which resulted in a 16% increase in net revenue and a 40% increase in net income in fiscal year 2013 as compared with last year.

Especially during the fourth quarter of 2013 the company’s net revenue increased 36.5%. Gross profit increased 117%. Gross margin increased to 30.4% from 19.1%. Net income increased 195% as compared with the same period of last year 2012.

This increases was mainly due to the revenue increase from all of our business segments and the recognized net compensation amount approximately $623 received from Transportation Bureau of Dongying City and the other local government agencies, due to the requisition of land where our original Factory 3 was located for railway construction. Among all, the net revenue of bromine segment increased 24.7%, crude salt segment increased 19.5% and chemical segment increased 52.5%.

Based on the business operation experience from year 2013, company will continue as it is in the foreseeable future and continually looking for both of horizontal and vertical acquisition targets, in order to increase the company's anti-risk ability and profitability in year 2014.

Helen Xu

Thank you, Mr. Liu. I’m going to continue with presenting the company’s results for the fourth quarter 2013 and fiscal year 2013 on the behalf of the CEO, Mr. Liu. For fourth quarter 2013, the company’s revenue was $30 million for fourth quarter, an increase of 36.5% from $22 million for the fourth quarter of 2012.

The increase in net revenue was primarily attributable to the increased revenue from the entire three business segments include our bromine segment, crude salt segment and chemical products segment. Revenue from bromine and the crude salt segments was around $14 million and $3.8 million, respectively, representing an increase of 24.7% and an increase of 39.5% for bromine and crude salt segments respectively. The total revenue of both bromine and crude salt business segments represented 59.8% of sales revenue for the fourth quarter of 2013.

Revenue from the chemical products segment was $12.1 million, or 40.2% of total revenue, for the fourth quarter of 2013, an increase of 52.5% from around $7.9 million in the corresponding period from 2012. The increase in revenue from this chemical segment product -- chemical product segment was mainly due to the sales volume and prices increasing from all of the chemical products as compared to the same quarter last year.

Gross profit for the fourth quarter of 2013 was $9.1 million, an increase of 117% from $4.2 million of the fourth quarter of 2012, and gross profit margin for the three months ended [December] (sic) 31, 2013 was 30.4%, as compared to 19.1% for the corresponding period last year. The increase in gross margin was mainly due to the increase of sales volume and price in chemical product segment, as compared to the same period of last year.

Sales, marketing and other operating expenses for the fourth quarter of 2013 were approximately $26,000 as compared with $21,000 for the corresponding quarter last year.

General and administrative expenses for the fourth quarter of 2013 were $2.2 million, as compared to the same quarter of 2012’s $1 million. The increased G&A expenses for the fourth quarter in 2013 was mainly due to the increase in the depreciation of the newly acquired office units in a commercial building in September 2012 and as a reason is a increase of depreciation of property, plant and equipment of Factory, whose operations were temporarily suspended due to relocation in fiscal year 2013 compared to previous year in which the depreciation was classified as cost of goods sold.

Income from operations for the fourth quarter of 2013 was $7.6 million, as compared to $2.6 million for the same quarter of 2012. The operating margin was 25.1% for the fourth quarter of 2013, as compared to 12% for the fourth quarter of 2012.

For the fourth quarter of 2013, the company incurred other income around $50,000 as to the last year’s $13,000. Income tax was around $2 million for the fourth quarter of 2013, an increase of 165.6% from $0.8 million for the fourth quarter of 2012. The company's effective tax rate was 26% during this quarter, as compared to 28% in last year’s 2012.

Net income was $5.6 million for the fourth quarter of 2013, an increase of 194.7% from $1.9 million from the fourth quarter of 2012. Basic and diluted earnings per share in this quarter of 2013 were $0.15 per basic share and $0.14 per diluted share as compared to $0.05 per basic and diluted share in the fourth quarter of 2012.

Weighted average number of basic shares for the three months ended December 31, 2013 was 38,477,982 shares as compared with 34,706,356 shares for the three months ended December 31, 2012.

Now, we are going to discuss about fiscal year 2013 financial results. Net revenue for the fiscal year 2013, was approximately $118.3 million, representing an increase around 7% as compared to last year.

Revenue from our crude salt segment increased around 24% as compared with last year and the revenue from our chemical segment increased from around $34 million for the fiscal year 2012 to $44 million for the same period in 2013 and this represented an increase of approximately 29%.

Gross profit was around $34 million or 29% of net revenue for the fiscal year 2013 as compared to approximately $28 million or 28% of net revenue for fiscal year 2012. Net income from operations was approximately $28 million for the fiscal year 2013, an increase of around $7.95 million, approximately 39% of income from operations for the fiscal year 2012.

Net income was approximately $20.9 million for the fiscal year 2013, which represented an increase of around $6 million or around 40% increase as compared to the same period in 2012.

So the financial condition as of December 31, 2013, Gulf Resources had cash of around $107.8 million, current liabilities around $11.3 million and shareholders' equity of $295 million. At fiscal year end, the company had working capital of approximately $146.8 million with positive cash flow from operating activities of $40.2 million.

The company received compensation proceeds of approximately $3.9 million from the Transportation Bureau of Dongying City and other local government agencies for its factory, number of factory location and used approximately $3.2 million for the construction of our new Factory No.3.

And with all that, now we would like to open the call to any questions pertaining to this fourth quarter and end year of 2013 financial and operating performance. Hi, Operator.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question is from [John Rawls] (ph).

Unidentified Analyst

Would like to ask what progress has been made from the brine water refine in Daying County, just one province. Do you have an estimate of when production may begin at this site?

Xiabon Liu

[Foreign Language] Hi, John. This is response from Mr. Liu that we did one trial really and did one well already in Daying project and from the halogen water. But due to because Daying is the mountain area due to its own physical characters it’s different from Shouguang, Shandong actually.

So in order to estimate the correct commercial reserve of halogen water or other resources from this area, we will have to drill ever more wells there. There we need to do more discussion with local government. And now due to the environment issue in China which increased our difficulty to do the negotiation with local government as well.

But by the way due to our discussions with local government and that in order to develop more wells, and we are evaluating our current well and try to make it deeper, try to find out beside halogen water if there are any other materials then decide the company’s future development strategy in that area.

Unidentified Analyst

Thank you.

Xiabon Liu

Thank you.

Operator

(Operator Instructions) The next question is from [Peter Cyrus] (ph).

Unidentified Analyst

Hi.

Helen Xu

Hi, Peter

Unidentified Analyst

I have a few questions. First question is, is it the bromine went down but salt went up? And I am curious what do you expect for this year in terms of pricing of those two?

Xiabon Liu

[Foreign Language] Okay. First, on the macroeconomic conditions in China, we think that bromine price will have a big change, maybe it does fluctuate at a current price level, but crude salt price might have slightly increased in 2014.

Unidentified Analyst

Okay. Second question is, I noticed that in the chemical segment, margins were much higher in the oil and pricing not -- the pricing was much higher in it than pesticide and that is there something, how come…

Helen Xu

Hi, Peter, because the line was not quite clear, I missed you. In the segment, chemical segment, the price increased a lot as compared to 2013?

Unidentified Analyst

No, in the chemical segment, I look at -- in the K, the selling price is pesticides factoring with oil and gas in the middle, and I am wondering, is it -- why is there such a big difference in the three businesses?

Helen Xu

Okay. You mean chemical segment and their three kind of products, the pesticides and -- papermaking and oil field and we have a like a different price range.

Unidentified Analyst

Pesticides is 28 million RMB per ton, paper manufacturing 7 million RMB. Big difference, I’m just curious, why such a big difference?

Helen Xu

Okay.

Xiaobin Liu

[Foreign Language]

Helen Xu

Okay. [Foreign Language] Mr. Liu said this difference was just -- I think the major reason was due from the market condition. Based on the demand from market and we did some sales effort difference for different product in chemical segment. So of course the increase for every chemical segments would be different?

Unidentified Analyst

Okay. And the third question I have is that in the press release, of course, you have a lot of case. And in the press release, it says that the company will continually look for both vertical and horizontal with vertical projects. And what it will increase to risk and profitability. So you talk about the types that we know there is that companies in China, a lot of -- smaller company don’t have money right now. So what kind of business is would you being looking at in terms of acquisition?

Xiaobin Liu

Okay. So for the horizontal acquisition target, it would be still as a small -- the people related from these assets like several proceedings in the past several years and the process is due to the consolidation in this bromine industry for several years. We have few targets left, targets left, bromine asset targets left in the market. The company has been able to acquire and continually looking for it.

And for the vertical asset acquisition targets that we are referring to the related target in bromine industry, like the downstream of bromine industry. This will also include some chemical production manufacturers because based on slowdown of the economic conditions, there might be a good price in the market for this kind of acquisition. Assuming this, we will send the company’s production chain and increase the company’s, like we say that the profitability and the rich stability.

Unidentified Analyst

So, can you explain -- I understood the explanation, can you give me examples of high potential you are looking at, could be looking at?

Xiaobin Liu

Like the chemical manufacturers, which might be using bromine as a kind of raw material.

Unidentified Analyst

So, it would be more in customers?

Helen Xu

Yes.

Xiaobin Liu

Okay. And at the present time are you, any companies or this is just something that may have something you are looking for?

Xiaobin Liu

[Foreign language] Hi, Peter. Yes. And there are still package in the market currently which the companies are doing discussion and negotiation with them. But until now it is not confirmed yet or expressed, we cannot see anything but once it is confirmed, we will make announcement to let shareholders know about it.

Unidentified Analyst

Okay. [Foreign Language]

Helen Xu

[Foreign Language] Thank you.

Xiaobin Liu

[Foreign Language]

Operator

There are no further questions at this time. There are no further questions at this time.

Helen Xu

Hi, Jennifer. I think if there is no more questions then we’d like to thank you all of the investors who have joined our call today and can close the call now.

Operator

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may now disconnect. Have a great day.

Helen Xu

Okay. Thank you. Have a good day.

Xiaobin Liu

[Foreign language]

Helen Xu

[Foreign language]

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Gulf Resources' CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts