Gulf Resources Reports Fourth Quarter and Fiscal Year 2010 Results

Published Mar 17th, 2011

NEW YORK and SHANDONG, China, March 17, 2011 /PRNewswire-Asia-FirstCall/ -- Gulf Resources, Inc. (Nasdaq:GFRE - News) ("Gulf Resources" or the "Company"), a leading manufacturer of bromine, crude salt and specialty chemical products in China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2010.
 

Fourth Quarter Highlights

• Revenue was $37.1 million, a year-over-year increase of 26.4%  
• Gross profit was $19.6 million, a year-over-year increase of 45.0%
• Gross margin increased to 52.7% from 46.0% for the fourth quarter of 2009
• Income from operations was $16.1 million, a year-over-year increase of 57.6%
• Operating margin was 43.4% compared to 34.7% for the fourth quarter of 2009
• Net income was $12.0 million, or $0.34 and $0.35 per basic and diluted share, respectively, an increase of 77.5% from $6.8 million, or $0.21 per basic and diluted share a year ago
• Cash totaled $68.5 million as of December 31, 2010

Full Year 2010 Highlights

• Revenue was $158.3 million, a year-over-year increase of 43.6%
• Gross profit was $78.1 million, an increase of 59.8%
• Gross margin was 49.3%, compared to 44.3% in 2009
• Net income was $51.3 million, or $1.48 per basic and diluted share, a year-over-year increase of 67.6% from $30.6 million, or $1.00 per basic and diluted share

Fourth Quarter 2010 Results

"We are pleased to report another strong quarter both in terms of top line growth and profitability, driven by high bromine prices. For the three months ended December 31, 2010, our average selling price for bromine was approximately $3,800 per tonne compared with approximately $2,100 per tonne in the corresponding quarter last year. In light of the high bromine prices and as we moved towards the winter maintenance season for bromine production, we maintained our utilization rate at a moderate level," said Xiaobin Liu, Chief Executive Officer of Gulf Resources. "Our chemical business also contributed to the record earnings in the fourth quarter of 2010. These events allowed us to exceed our financial guidance for 2010."
 

Gulf Resources' revenue was $37.1 million for the fourth quarter of 2010, an increase of 26.4% from $29.4 million for the fourth quarter of 2009. The increase in net revenue was primarily attributable to the strong performance of the Company's bromine and crude salt segment.
 

Revenue from the bromine and crude salt segment was $26.5 million, or 71.5% of total revenue, an increase of 36.4% from $19.5 million in the corresponding period last year. The increase in revenue from the Company's bromine and crude salt segment was mainly due to an increase in the average selling price of bromine and crude salt.
 

Revenue from the chemical products segment was $10.6 million, or 28.5% of total revenue, for the fourth quarter of 2010, an increase of 6.6% from $9.9 million in the corresponding period last year. The increase in revenue from the Company's chemical product segment was mainly due to solid demand for environmentally friendly oil and gas exploration chemicals and agricultural intermediaries.
 

Gross profit for the fourth quarter of 2010 was $19.6 million, an increase of 45.0% from $13.5 million for the fourth quarter of 2009 and gross profit margin for the three months ended December 31, 2010 was 52.7%, compared to 46.0% for the corresponding three-month period last year. The improved gross profit margin was due to the higher average selling prices of bromine.
 

Sales, marketing and other operating expenses for the fourth quarter of 2010 were $41,889 compared with $5,031 for the corresponding quarter last year. The increase was mainly due to increased sales.
 

General and administrative expenses for the fourth quarter of 2010 were $2.9 million, compared to $3.2 million for the fourth quarter of 2009. The decrease was mainly due to lower warrant expenses.
 

Research and development expenses were $587,429 million for the fourth quarter of 2010 compared with $125,219 for the corresponding period last year. The increase was mainly due to research activities related to the Company's new waste water treatment chemical additives.
 

As a result, income from operations for the fourth quarter of 2010 was $16.1 million, an increase of 57.6% compared to $10.2 million for the corresponding quarter of 2009. Operating margin was 43.4% for the fourth quarter of 2010, compared to 34.7% for the fourth quarter of 2009.
 

For the fourth quarter of 2010, the Company incurred other income of $0.2 million compared to $0.6 million for the corresponding quarter last year mainly due to a decrease in sundry income.
 

Income taxes were $4.3 million for the fourth quarter of 2010, an increase of 45.7% from $2.9 million for the fourth quarter of 2009. The Company's effective income rate was 26.4% compared to 30.4% in the year ago period. The Company's effective income tax rate was higher in the three month period ended December 31, 2009 due to the loss from the disposal of assets not being deducted from taxation in 2009 and being recorded as a deferred tax asset.
 

Net income was $12.0 million for the fourth quarter of 2010, an increase of 77.5% from $6.8 million for the fourth quarter of 2009. Basic and diluted earnings per share in fourth quarter of 2010 were $0.34 and 0.35, respectively, compared to $0.21 per fully diluted share in the fourth quarter of 2009. Weighted average number of diluted shares for the three months ended December 31, 2010 was 34,667,614 compared with 32,250,669 for the three months ended December 31, 2009.
 

Fiscal Year 2010 Financial Results

Revenue for fiscal year 2010 was $158.3 million, an increase of 43.6% from $110.3 million for fiscal year 2009. Gross profit was $78.1 million, an increase of 59.8% from $48.9 million for fiscal year 2009. Gross margin for fiscal 2010 was 49.3%, compared to 44.3% for fiscal year 2009. Operating income was $68.9 million, an increase of 63.0% from $42.2 million for fiscal year 2009. Net income was $51.3 million, or $1.48 per basic and diluted share, an increase of 67.6% from $30.6 million, or $1.00 per basic and diluted share, for fiscal year 2009.
 

Financial Condition

As of December 31, 2010, Gulf Resources had cash of $68.5 million, current liabilities of $14.0 million, and shareholders' equity of $192.7 million. At fiscal year end, the Company had working capital of $79.8 million and a current ratio of 6.7. For the twelve months ended December 31, 2010, the Company generated $58.0 million in cash flow from operations, primarily attributable to net income, and used $39.1 million in investing activities, mainly due to the acquisition of additional bromine manufacturing assets and the construction of a waste water chemical additives production line.
 

Subsequent Events

• In March 2011, the Company finalized an agreement to lease a property with an area of 3,192 square meters and buildings adjacent to the Company's Factory No. 1 from the State-Operated Shouguang Qingshuibo Farm.  There are currently non-operating bromine production facilities on the property which have not been in production for more than 12 months.  The annual lease payment for the property is RMB 5 million (approximately $760,000) per year and the term is twenty years. Shouguang Qingshuibo Farm has agreed to allow the Company to reconstruct and renovate the existing bromine production facilities on the property and to build 100 brine water drilling wells and transmission ditches on Shouguang Qingshuibo Farm's land adjacent to the property.

• In March 2011, the Company's internal control consultant Deloitte Touche Tohmatsu ("Deloitte") issued a final report regarding the internal control assessment performed. A follow up assessment was conducted in February 2011, based on which the Company has put in place measures to improve its internal controls in relation to the improvement areas identified by Deloitte.

• In December 2010, the Company signed an agreement to acquire a crude salt field from the state operated Shouguang Qingshuibo Farm. Consideration for the crude salt field purchase is RMB73 million (approximately $10.6 million) in cash, of which 50% was paid upon the signing of the agreement and the remaining 50% will be due within three days thereafter. The acquisition of additional crude salt fields increases annual crude salt production by 70,000 tonnes.

Business Outlook

For 2011, the Company continues to assess opportunities to increase bromine and crude salt production capacity through acquisitions and leases of production assets, although the higher bromine prices have impeded the progress of transactions. In order to leverage its bromine production capacity and diversify its revenue streams, the Company continues to assess opportunities to develop the market for downstream brominated products. The Company's management anticipates most growth potential from brominated pharmaceutical intermediates.
 

"In March 2011, we finalized a lease for a property adjacent to our Factory No. 1 with non-operating production facilities. We are conducting improvements to the assets in addition to constructing brine water drilling wells and transmission ditches. Once the scope of the improvements and renovations of the facility have been confirmed, we will be able to provide the additional capacity to be contributed by the facility," said Mr. Liu. "For 2011, we expect to maintain a utilization rate of our bromine production capacity of approximately between 65% and 75%."
 

Mr. Liu continued: "Bromine prices remained high throughout the winter slow season for bromine production. In March 2011, we recorded market prices of approximately $4,500 per tonne. As demand has remained resilient despite high prices, we believe Gulf Resources will continue to benefit from the current price environment in 2011."
 

Conference Call

Gulf Resources' management will host a conference call at 7:30 a.m. EDT on Thursday, March 17, 2011 to discuss its financial results for the fourth quarter and fiscal year 2010 ended December 31, 2010. To participate in this live conference call, please dial +1 (877) 275 - 8968 five to ten minutes prior to the scheduled conference call time. International callers should call +1 (706) 643 - 1666. The conference participant pass code is 51422230.
 

A replay of the conference call will be available for 14 days starting from 10:30 a.m. ET on Thursday, March 17, 2011. To access the replay, call +1 (800) 642-1687. International callers should call +1 (706) 645-9291. The pass code is 51422230.
 

This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.gulfresourcesinc.cn/events.html. Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.
 

About Gulf Resources, Inc.

Gulf Resources, Inc. operates through two wholly-owned subsidiaries, Shouguang City Haoyuan Chemical Company Limited ("SCHC") and Shouguang Yuxin Chemical Industry Co., Limited ("SYCI"). The Company believes that it is one of the largest producers of bromine in China. Elemental Bromine is used to manufacture a wide variety of compounds utilized in industry and agriculture. Through SYCI, the Company manufactures chemical products utilized in a variety of applications, including oil & gas field explorations and as papermaking chemical agents. For more information, visit www.gulfresourcesinc.cn.
 

Forward-Looking Statements

Certain statements in this news release contain forward-looking information about Gulf Resources and its subsidiaries business and products within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and are subject to the safe harbor created by those rules. The actual results may differ materially depending on a number of risk factors including, but not limited to, the general economic and business conditions in the PRC, 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 bromine and other oilfield and power production chemicals, changes in technology, the ability to make future bromine asset purchases, and various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risks factors detailed in the Company's reports filed with the Securities and Exchange Commission. Gulf Resources undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this release.