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Gulf Resources Reports Strong Fourth Quarter and Fiscal Year 2008 Results
Published Mar 16th, 2009
Gulf Resources Reports Strong Fourth Quarter
and Fiscal Year 2008 Results
New York & Shandong Province, March 16 2009 - Gulf Resources, Inc. (OTCBB: GFRE) (“Gulf Resources†or the “Companyâ€), 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, 2008.
Fourth Quarter Highlights and Recent Events
- Revenue was $24.1 million, a year-over-year increase of 57.6%
- Gross profit was $9.9 million, a year-over-year increase of 61.4%
- Gross margin increased to 40.9% from 40.0% for the fourth quarter of 2007
- Operating margin was 35.2% compared to 34.0% for the fourth quarter of 2007
- Net income was $6.2 million, or $0.06 per basic and diluted share, an increase of 136.8% from $2.6 million, or $0.03 per basic and diluted share a year ago
- Cash totaled $30.9 million as of December 31, 2008
Full Year 2008 Highlights
- Revenue was $87.5 million, a year-over-year increase of 61.8%
- Gross profit was $35.2 million, an increase of 58.9%
- Gross margin was 40.2%, compared to 41.2% in 2007
- Net income was $22.4 million, or $0.22 per basic and diluted share, a year-over-year increase of 83.1% from $12.2 million, or $0.13 per basic and diluted share
- Met revenue and net income guidance of $84 million to $90 million in revenue and $20 million to $23 million in net income
Fourth Quarter 2008 Results
“During the fourth quarter, our bromine, crude salt, and chemical product sales recovered as expected from the slump caused by the Beijing 2008 Olympic Games, allowing us to meet both our revenue and net income guidance for fiscal year 2008,†said Xiaobin Liu, the new Chief Executive Officer of Gulf Resources. “Following our expansion into environmentally friendly chemical products in September 2008, the revenue from our chemical products segment reached 33.6% of total revenue for the quarter, compared to 25.3% for the third quarter of 2008. Moving forward in 2009, we expect to see auxiliary revenue growth from crude salt sales in addition to sales of bromine and chemical products, as we have increased the extraction capacity of this bromine by-product by establishing halogen water pools.â€
Gulf Resources’ revenue was $24.1 million for the fourth quarter of 2008, an increase of 56.9% from $15.4 million for the fourth quarter of 2007. The increase in net revenue was primarily attributable to the significant increase in sales of bromine and crude salt as the production assets acquired at the end of 2007 and in the beginning of 2008 reached full utilization. The bromine and crude salt segment contributed 66.4 % of total revenue for the fourth quarter of 2008. Due to the establishment of halogen water pools and improved utilization of halogen water, sales revenue from crude salt significantly increased to $1.5 million for the fourth quarter of 2008, from $80,158 for the same period of last fiscal year.
Revenue from the chemical products segment was $8.1 million, or 33.6% of total revenue, for the fourth quarter of 2008, an increase of 54.4% from $5.2 million in the corresponding period last year. The growth in sales of chemical products was due to the expansion of production capacity and the introduction of new environmentally friendly additive products, including solid lubricant and polyether lubricant used in oil and gas exploration, in September 2008. Revenue from the Company’s chemical business segment has returned to levels obtained for the first quarter of 2008 after the Beijing 2008 Olympic Games,which imposed restrictions on chemical production and distribution in Beijing and Qingdao.
Gross profit for the fourth quarter of 2008 totaled $9.9 million, compared to $6.1 million for the fourth quarter of 2007 and gross profit margin for the three months ended December 31, 2008 was 40.9%, compared to 40.0% for the corresponding three-month period last year.The improved gross profit margin was due to increased sales of newly introduced environmental friendly additive products and crude salt. Both of these products generate higher gross profit margins than bromine. In addition, declined raw material prices resulted in lower raw material costs during the fourth quarter of 2008, further supporting the Company’s overall gross margin.
Research and development and general and administrative expenses for the fourth quarter of 2008 were $1.39 million, compared to $0.9 million in the fourth quarter of 2007. The increase was due to higher land tax fees, amortization of technology, and compensation fees for mineral resources.
Income from operations for the fourth quarter of 2008 was $8.5 million, an increase of 62.9% compared to $5.2 million for the corresponding quarter of 2007. Operating margin was 35.2% for the fourth quarter of 2008, compared to 34.0% for the fourth quarter of 2007.
Income taxes were $2.3 million for the fourth quarter of 2008, a decrease of 13.3% from $2.6 million for the fourth quarter of 2007. The Company’s income rate was 25% compared to 33% in the year ago period due to reductions in the Chinese corporate income tax rates, which became effective January 1, 2008. Adjustments to income taxes contributed to the exceptionally high effective income tax in the fourth quarter of 2007.
Net Income was $6.2 million for the fourth quarter of 2008, an increase of 136.8% from $2.6 million for the fourth quarter of 2007. Basic and diluted earnings per sharein fourth quarter of 2008 were $0.06 compared to $0.03 per fully diluted share in the fourth quarter of 2007. Weighted average number of diluted shares for the three months ended December 31, 2008 was 99,668,842.
Fiscal Year 2008 Financial Results
Revenue for fiscal year 2008 was $87.5 million, an increase of 61.3% from $54.2 million for fiscal year 2007. Gross profit was $35.2 million, an increase of 58.9% from $22.1 million for fiscal year 2007. Gross margin for fiscal 2008 was 40.2%, compared to 40.8% for fiscal year 2007. Operating income was $30.6 million, an increase of 52.7% from $20.0 million for fiscal year 2007. Net income was $22.4 million, or $0.22 per basic and diluted share, an increase of 83.1% from $12.2 million, or $0.13 per basic and diluted share, for fiscal year 2007.
Financial Condition
As of December 31, 2008, Gulf Resources had cash of $30.9 million, current liabilities of $18.6 million, long term debt of $18.3 million, and shareholders’ equity $52.5 million. At fiscal year end, the Company had working capital of $24.7 million and a current ratio of 2.3. For the twelve months ended December 31, 2008, the Company generated $24.9 million in cash flow from operations, primarily attributable to net income, and $17.4 million in cash flow from investing activities, mainly due to the addition of a new chemical production line and to the acquisition of additional mineral rights, property, plant and equipment to increase the Company’s bromine manufacturing capacity. The Company’s plans to invest $25 million to 30 million in 2009 in increasing bromine production capacity and upgrading chemical production lines, of which $11.5 million has already been used to acquire bromine and crude salt production assets.
Recent Developments
In February 2009, Gulf Resources completed the acquisition of manufacturing assets involved in bromine and crude salt production owned by three individual residents of the People’s Republic of China. Consideration for the bromine and crude salt manufacturing assets was $11.5 million, of which $10.0 million was paid in cash and $1.5 million was paid by the issuance of 1.5 million shares of the Company’s common stock at price of $1.00 per share. The Company expects the newly acquired manufacturing assets to contribute to additional annual production capacity of 3,000 metric tons of bromine and 200,000 metric tons of crude salt when put into production. The Company plans to begin production utilizing the assets in April 2009.
In February 2009, the Company entered into an agreement to issue 21.0 million shares of the Company’s common stock to three new shareholders at a price equal to $1.0137 per share in lieu of paying off in cash approximately $21.3 million in existing loans payable to Shenzhen Hua Yin Guaranty and Investment Limited Liability Company. The shares were issued on March 3, 2009, after which the non-interest bearing loans were deemed paid in full and cancelled. Following the transaction, the Company has a total of 122.2 million shares of common stock outstanding and no long term debt outstanding.
In March 2009, the Company’s subsidiary Shouguang Yuxin Chemical Industry Co., Limited (“SYCIâ€) signed an agreement with Kuerle City Xingdong Trading Co., Ltd. (“Xingdongâ€), a distributor of additive materials for oilfields in Xinjiang autonomous region, to deliver environmentally friendly chemical products valued at approximately $7.5 million. According to the purchase order, Gulf Resources will deliver 2,500 metric tons of environmentally friendly polyether lubricant, and 1,500 metric tons of environmentally friendly solid lubricant from March 2009 to December 2009.
Effective as of March 10, 2009, the Company appointed Mr. Xiaobin Liu as CEO and director. Mr. Ming Yang, the Company’s former CEO, will continue as Chairman of the board. Mr. Liu has been serving as Vice President of Gulf Resources since January 2007. From June 2005 to December 2006, he was the Vice President of Shenzhen SEG Dasheng Co., Ltd., a Shenzhen-listed company engaged in the real estate and hotel industries. From May 2000 to June 2005 he managed the securities department of Saige International Trust and Investment Corporation in Hainan province where he was in charge of asset management. From May 1995 to May 2000, Mr. Liu served as the Vice President of Hainan Wanquanhe Development, where he was in charge of corporate operations and finance control. Prior to that, he worked in the finance departments of Chinese Black Metal, Ltd. and Shanxi Aircraft Manufacturing Company. He has a Master’s degree in international accounting from the City University of Hong Kong.
Business Outlook
Gulf Resources expects to continue following a two-pronged growth strategy, focusing on both expanding bromine production capacity and on developing its chemical product business segment. The Company is developing its environmentally friendly additive business by increasing capacity utilization of its second chemical production line. The line is currently working at 50% of total capacity. The Company also plans to upgrade the technology of the first chemical production line and enhancing the level of sophistication of its products in order to qualify for VAT rebates introduced by the Chinese government to promote the development of the domestic chemical industry. In addition, the Company is assessing opportunities to enter production of bromine-based pharmaceutical intermediates and fire retardants.
Thus far, the Company has received bromine orders valued at approximately $47.8 million, and crude salt orders valued at approximately $5.9 million to be delivered throughout fiscal 2009.
“Even though we have experienced a slight decline in bromine orders from our largest customers for 2009, we continue seeing strong demand from downstream industries utilizing bromine. We expect the government stimulus package to render support for infrastructure and construction, which in turn should boost demand for brominated flame retardants,†concluded Mr. Liu. “As we have reduced debt and continued to accumulate cash, we are well positioned to quickly pursue acquisition opportunities in both our bromine and chemical product business segments, should we identify suitable targets.â€
Gulf Resources announces guidance for the first quarter of 2009, with expected revenue of $22.4 million, expected net income of $6.1 million, and expected diluted earnings per share of $0.05, using a share count of 122,168,842.
Conference Call
Gulf Resources’ management will host a conference call at 10:00 a.m. ET on Monday, March 16, 2009 to discuss its results for the period ended December 31, 2008. To participate in this live conference call, please dial 888-339-2688 five to ten minutes prior to the scheduled conference call time. International callers should call 617-847-3007. The conference pass code is 936 376 11.
A replay of the conference call will be available for 14 days starting from 12:00 a.m. ET on Monday, March 16. To access the replay, call 888-286-8010. International callers should call 617-801-6888. The replay pass code is 318 404 16.
About Gulf Resources, Inc.
Gulf Resources, Inc. operates through two wholly-owned subsidiaries, Shouguang City Haoyuan Chemical Company Limited (“SCHCâ€) and Shouguang Yuxin Chemical Industry Co., Limited (“SYCIâ€). 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.
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