Gulf Resources, Inc.
Q3 2014 Earnings Call Transcript

Published: 10 Nov 2014

[Operator:]

Good morning. My name is Vanessa and I will be your conference operator today. At this time, I would like to welcome everyone to the Gulf Resources 2014 third 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. I will now like to turn the call over to Ms. Helen Xu. Please go ahead ma’am.

[Helen Xu:]

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 third quarter 2014 earnings conference call. My name is Helen, the IR Director and Assistant of Company's CEO. Our CEO and CFO of the Company, Mr. Xiaobin Liu; and Mr. Min Li, will also join us on this call today. I will be offering translation for the management’s comments for the company’s operating results. I’d like to remind you, to our listeners that in this call management’s remarks will contain forward-looking statements, which are subject to risks and uncertainties. Management may make additional forward-looking statements. Therefore the company claims protection of Safe Harbor for the 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 business conditions in China, future product development and production capabilities, shipments to end customers, market acceptance of new and existing products, additional competition from existing and new competitors for the bromine and other oil fields, agriculture and the production chemicals and the changing technology, the ability to make future broadened asset check and various other factors beyond the company control. All forward-looking statements are expressly qualified in their entirety by this precautionary statement and the risk factors detailed with 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 were proven to be correct. In addition, any reference to the company’s future performance reflecting the company’s management estimates as of today, November 11, 2014, Gulf Resources assumes no obligation to update these projections in the future as market conditions may change. For those of you unable to listen to the entire call at this time, a replay will be available for 14 days on the company’s website. This call is also accessible through the webcast and the link is accessible through our website. Please look at our press release issued earlier for details. It’s now my pleasure to turn this call to Mr. Liu, the company’s CEO, who is going to provide some initial remarks and I will do the translate for him. Xiaobin.

[Xiaobin Liu (Interpreted):]

[Foreign Language] First of all, thank you all for participating in Gulf Resources, third quarter of 2014 earnings conference call. [Foreign Language] Despite the continuing macro-economic tightening policy imposed by the PRC government beginning in the second half of 2011, and a decrease in raw material prices of bromine and crude salt, the company's net revenue decreased slightly by 6% for the third quarter of 2014 compared to the same period of 2013, even though the net revenue from our chemical product segment slightly increased, approximately 4.5%. [Foreign Language] Considering the current low prices in the period its an opportunity for the company to extend its low cost goal as we continue to pursue a long term growth strategy by extending our business segment, exploring more brine water resources, obtaining bromine assets through acquisition, developing new projects, and continually looking for and making attractive horizontal and vertical acquisition in the industry, while evaluating our cash flow from operating activities, which will help the company achieve a sustainable long-term competitive advantage. In the meantime, the company will also continue to try to improve its internal controls, expand its sales markets, increase its production utilization rate and decrease management and administration expenses. Currently the company is in discussion with our largest chemical company based in China, majored with TMP crude product and TMB. We intended to enter into an acquisition agreement by end of the year. The company is also doing deeper prospects on similar projects in the future, in order to evaluate the underground resources besides bromine.

[Helen Xu:]

Thank you Mr. Liu. I’m going to continue with presenting the company’s results for the third quarter of 2014 on behalf of the CEO. For the third quarter 2014 financial results the company’s net revenue was around $31 million for the three months period ended September 30, 2014, a decrease of approximately 6% as compared with the same period of 2013. This decrease was mainly due to the decrease in our Bromine and Crude Salt segment. The revenue from Bromine product segment decreased approximately 6.5%, revenue from the crude salt segment decreased approximately 32%, but revenue from the chemical product segment projects increased approximately 4.5%. Gross profit was $9.2 million or 30% of net revenue for the third quarter of 2014 as compared to $10.9 million or 33% of net revenue for the same period in 2013. The decrease in gross profit percentage was mainly due to the decrease in the margin percent of bromine and crude salt segments. The total research and development costs incurred for the third quarter of 2014 and 2013 were $31,000 and $33,000 respectively, a decrease of 7%. Research and development costs; we currently reserved (ph) raw materials used by SYCI chemical for testing the manufacturing routine. General and administrative expenses were around $1.9 million for the three months period ending September 30, 2014, a decrease of 3% as compared to the same period in 2013. This decrease in general and administrative expenses were primarily due to legal costs and expenses incurred in connection with the Class Action, also as described in our 2014 Form 10-K and deal with all our particular internal portion since the lawsuit was settled in early 2014. Other operating income was $116,900 for the three-month period ended September 30, 2014, an increase of 9% as compared to the same period in 2013 of sales of wastewater. Income from operations was $6.7 million for the third quarter of 2014, a decrease of around 39% over the same period in 2013. The decrease resulted primarily from the decrease in bromine and crude salt selling prices. Other income net of $76,700 represented the bank interest income and net of taxable interest expense for the third quarter of 2014, an increase of 116% as compared to the same period of 2013, mainly due to higher average advance balance held during the third quarter of 2014. Net income was $5.0 million for the third quarter of 2014, a decrease of approximately 38% as compared to the same period in 2013. This significant decrease was primarily attributable to the decrease in the selling price of bromine and crude salt. Income taxes were $1.7 million for the third quarter of 2014, a decrease of 39% of the third quarter of 2013. The company’s effective tax rate was 26% for the third quarter of 2014 and 2013 respectively. So now we are going to discuss about the nine months ended September 30, 2014 operating results. The net income was $50 million for the nine months period ended September 30, 2014, a decrease of around 2% compared to the same period in 2013, which was $15.3 million. The net revenue was $88 million, which you can see an increase of approximately 0.2% over the same period in 2013. Gross profit was $75 million for the nine months period ended September 30, 2014 and $75 million for the same period in 2013. The increase in gross profit percentage was mainly due to the increase in the margin percentage of our chemical product segment, which was offset by our gross cost segment. Income from operations was $20 million for the nine-month period ended September 30, 2014, and a decrease of $1 million over our income from operations for the same period in 2013. For the financial condition, as of September 30, 2014 the company had cash of $132 million, total liability of $13.9 million and stockholder equity of $207,100 million. As of September 30, 2014 the company had working of $174.9 million. As of September 30, 2014, the company generated $32.5 million in cash flow from operation, yielded approximately $0.66 million cash for the prepayment of land leases. In the same period, we also used around $6.46 million cash for our third phase enhancement work project, which related to the protective shelf to transmission channel and ducts in Factory No. 10 and 11 for the nine month period ended September 30, 2014. So for further inventing inquiries, investors may continue to reach our IR manager and CEO assistant at our website and disclosed our email address. With that, we would like to open up the call to any questions pertaining to the third quarter 2014 financial and operating performance. Operator.

[Operator:]

(Operator Instructions) And there are no audio questions at this time. At this time there are no questions. (Operator Instructions). At this time there are no questions.

[Helen Xu:]

Operator, is anyone asking, otherwise we can conclude the call today.

[Operator:]

Yes ma’am. (Operator Instructions). At this time there are no questions.

[Helen Xu:]

[Foreign Language] Okay, thank you very much. If there are no further questions, then I will conclude and call it a day for the conference. Thank you very much.

[Operator:]

This does conclude today’s conference call. You may now disconnect.