Wilson Kwong – President
Gushan Environmental Energy Limited (GU) F4Q11 Earnings Call April 27, 2012 8:30 AM ET
Welcome to Gushan Environmental Energy Limited Q4 and Full Year 2011 Results Earnings Conference Call.
At this time all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. (Operator Instructions). I must advise you that this conference is being recorded today, Friday, 27th of April, 2012.
I would now like to hand the conference over to your speaker today, Mr. Wilson Kwong, President of Gushan Environmental Energy. Sir, please go ahead.
Good morning ladies and gentlemen and welcome to Gushan’s fourth quarter 2011 earnings call. Joining me on the call is Frank Chan, Principal Financial Officer of Gushan.
Please note that today’s discussion may contain forward-looking statements made under the Safe Harbor provisions of U.S. federal securities laws. Please see today’s press release under the section Safe Harbor statement for a discussion of risks and uncertainties that may affect our results.
Before opening the call to questions, I would like to briefly review our fourth quarter and full year 2011 results.
Gushan reported total revenues of $63.5 million for the fourth quarter of 2011, an increase of 70.4% year-to-year and a decrease of 15.9% quarter-on-quarter. Virtually all of the company’s revenue for the quarter was provided by our recycled copper product business. The two consolidated subsidiaries comprising our recycled copper product business, Mianyang Jin Xin Copper and Hunan Yinlian Xiangbei Copper provided for the $1.8 million and $21.1 million in revenue respectively. The company holds a 75% beneficial ownership interest in each of these two subsidiaries.
Combined fourth quarter revenue from our recycled copper products business totaled $62.9 million, down 15.4% quarter-on-quarter from the third quarter of 2011. Revenue from Jin Xin declined 37.6% quarter-to-quarter, largely reflecting a 28% drop in sales volume of recycled copper products. This was partly offset by a sharp increase in Xiangbei’s contribution to revenue following consolidation of its operating results in August 2011.
The quarter-on-quarter decline in revenue and sales volume at Jin Xin was mainly due to a decrease in raw material supply, as suppliers opted to hold on to inventories in the face of declines in copper raw material prices during the quarter. Unit costs of raw materials for the quarter were down 11.7% year-over-year and 23.5% quarter-to-quarter to RMB42,872 per ton while average selling prices of our recycled copper products decreased 5.7% year-over-year and 14.9% quarter-on-quarter to RMB50,615 per ton.
Revenue from the company’s biodiesel business totaled $0.6 million for the fourth quarter of 2011, down 87.1% year-to-year and up 116.1% quarter-to-quarter. On biodiesel sales volume of just 82 tons for the fourth quarter reflecting continued suspension of production at most of our biodiesel plants due to raw material shortages and the slowing PRC economy. I would address the future of our biodiesel business shortly.
For the full year, revenue totaled $230.3 million, up 254.9% from 2010. Full year revenue from our recycled copper business totaled $221.9 million, increase of 581% over 2010, reflecting the consolidation Jin Xin’s operating results beginning in November 2010 and the consolidation of Xiangbei’s result beginning in August 2011. For 2011, revenue contributions of Jin Xin and Xiangbei were $192.6 million and $23.3 million respectively. Sales volume of recycled copper products for the full year of 2011 were 20,288 tons at Jin Xin and 280,066 tons at Xiangbei.
For the full year, average selling prices of our recycled copper products rose 6.4% to RMB57,113 per ton while average unit cost of raw materials increased 8.5% year-over-year to RMB52,671 per ton.
In 2011, profit margin of recycled copper business was enhanced by the increase in proportion of sales of scrap and processing income, which commends the higher profit margin than major recycled copper products.
For the full year, biodiesel revenue totaled $8.5 million, a decrease of 73.8% from 2010. Biodiesel sales volume decreased 80.7% to 8,178 tons. Average selling prices of our biodiesel products rose 27.5% year-over-year to RMB5,742 while our average raw material unit cost for vegetable oil offal and used cooking oil increased 24% to RMB4,431.
For the fourth quarter, the company reported gross profit of $4.9 million comprising a gross profit of $7.2 million from the recycled copper products business and a gross loss of $2.3 million from the biodiesel business. The gross profit margin for the recycled copper products business for the quarter was 11.5% compared to a gross profit margin of 6.5% in the fourth quarter of 2010. The gross loss margin from the biodiesel business was 388.3% in Q4 2011 compared to a gross loss margin of 19.3% excluding unresolved consumption tax provision in the fourth quarter of 2010.
For the full year 2011, the company reported gross profit of $7.1 million consisting of gross profit of $11.9 million for the recycled copper products business representing a gross profit margin of 5.4% and a gross loss of $4.8 million for the biodiesel business representing a gross loss margin of 56.5%.
At the end of 2011, in view of our changes to the operating environment, in particular, the continued raw material supply shortages which resulted in the uncertainty of weather, the company would be able to receive normal economic production of biodiesel and biodiesel byproducts on a sustainable basis in the near future, the company in accordance with relevant (inaudible) rules recognized impairment losses of $95.8 million on certain property plant and equipment and a goodwill impairment of $6.6 million in the fourth quarter of 2011.
As a result, we reported a net loss of $108.5 million attributable to the company for the fourth quarter of 2011, representing a net loss per ADS of $6.43. On a non-GAAP basis, net loss attributable to the company was $1.4 million representing a net loss of $0.08 per ADS.
For the full year we reported a net loss of $118.8 million or a net loss of $7.11 per ADS. On a non-GAAP basis, net loss attributable to the company was $11.1 million for 2011 representing a net loss of $0.67 per ADS.
We ended 2011 with cash on hand of $10.4 million and short-term bank borrowings of $17.5 million.
Let me now address some recent developments that occurred after the fourth quarter reporting period. As we previously announced, on February 24, 2012, the company received a preliminary non-binding proposal letter from Gushan’s Chairman and Principal Executive Officer, Mr. Jianqiu Yu to acquire all of the outstanding shares he does not currently own for $1.599 per ADS or $0.1599 per ordinary share. As of the proposal letter date, Mr. Yu controls 34.8% of the company’s outstanding shares. The company’s Board of Directors has formed a special committee consisting of the company’s three independent directors to consider the proposed offer and the special committee has retained a financial advisor and legal counsel to assist them in the evaluation of the proposed transaction. As of today, that evaluation continues and we will provide further update as and when developments warrant.
As previously disclosed, on November 3, 2011, the company entered into definitive agreement to acquire controlling interest in Guangzhou Taiyue Communications Cable Limited, a PRC-based company that is currently engaged in the manufacture and sale of copper cable for applications that include communication and personal computing. The consummation of this acquisition is subject to the satisfaction of, among others, customary closing conditions, including obtaining approvals from relevant PRC governmental authorities. No assurance can be given that this transaction will be consummated.
Finally, let me turn to the outlook of our businesses. As our results over the past several quarters demonstrate, our biodiesel and biodiesel byproduct business remains largely dormant due to unfavorable market conditions and raw material supply constraint. While trends in both selling prices and raw material costs have improved somewhat, raw material shortages remain a significant obstacle to resumption of sustainable normal production at our idle plant. The shortages stem largely from a crackdown by local government on collectors of used cooking oil to prevent alleged reselling of used cooking oil as virgin edible oil for public consumption.
As a result of the continued crackdown, operations remain suspended at sellers of used cooking oil including our suppliers. Because our biodiesel business represents a legitimate channel for the processing of used cooking oil, we continue to the believe that the company will be a major beneficiary once used cooking oil collectors are able to resume operation. However, it remains uncertain when that will occur.
We will continue to monitor the situation closely and will make a determination on increasing biodiesel production levels only if and when individual plants are able to operate on a positive cash flow basis.
The company’s recycled copper products business continued to contribute positively to the company’s overall financial performance and we expect this to continue though the slowdown in China’s economy is expected to have a negative impact on this business. We remain confident in the long-term prospects of our recycled copper products business and will continue to explore opportunities for strategic acquisitions that further strengthen and complement that business.
At this time, we would be please to answer any questions you may have and I will now turn the call back to the operator to begin the Q&A session. Thank you.
(Operator Instructions) There is no question at this time. I would now like to hand the conference back to Mr. Kwong.
Thank you again for joining our fourth quarter 2011 earnings call and we very much look forward to speaking with you again on our next call. Thank you.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating, you may all disconnect.