Gulf Resources, Inc. (Nasdaq:GURE) ("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 first quarter ended March 31, 2016.
Despite the on-going weaknesses in the Chinese
economy and the fact that production in our chemical factories was
significantly impacted by new government environmental
rectification measures, GURE still reported strong increases in net
income and EPS in the first quarter of 2016.
For the three months ended March 31, 2016:
- Net Revenue decreased 1%
- Gross Profit increased 12.6%
- Income from operations increased 22% to $8,666,318
- Net income increased 22% to $6,466,964
- EPS increased 16.7% to $0.14.
- Cash flow from operations was $14.4 million.
- Free cash flow was $14.8 million.
- Cash equaled $148.4 million ($3.21 per share*)
- Working capital equaled $189.3 million ($4.09 per share*)
- Net net cash equaled $127.7 million ($2.76 per share*)
“We are very pleased with our first quarter,” stated Xiaobin
Liu, the CEO of Gulf Resources. “The Chinese economy continues to
be weak, impacting some of our economically sensitive businesses.
In addition, during the quarter, we had to perform environmental
rectification in our chemical factories, which significantly
impacted our production. Nonetheless, we reported significantly
better income from operations, net income, and EPS. We continue to
strengthen our balance sheet, and now have cash of $3.21 per share
and net net cash of $2.76 per share, both significantly above our
market price. With strong pricing in bromine and expected
improvements in chemicals, we continue to expect that financial
results in 2016 will be better than those in the previous
year.”
“We are moving ahead with our exploration project in Sichuan,”
Mr. Liu continued. “If this project proves as successful as we
expect, we will be able to generate substantially higher earnings
in 2017 and beyond. If this project is not as successful as we
expect, we will explore ways of returning capital to
shareholders.”
Financial Results
For the three months ended March 31, 2016, net revenue was
$34,495,450, a 1% decrease compared to the same period in 2015.
Cost of net revenue was $23,881,646, a decrease of 6%. This
decrease was primarily attributable to the decrease of volume of
products sold due to the macro-economic tightening policy imposed
by the PRC government, which has affected our customers’ industries
as well as to the environmental rectification programs.
Gross profit was $10,613,804, or 31%, of net revenue compared to
$9,429,971, or 27%. General and administrative expenses were
$1,916,030, a decrease of $65,087 (3%). Income from operations was
$8,666,318 (25% of net revenue), an increase of $1,555,667, or
approximately 22%. Net income was $6,466,964, an increase of
$1,151,693 (22%). Earnings per share were $0.14 compared to $0.12,
an increase of 16.7%.
During the three-month periods ended March 31 2016, we had cash
flow from operating activities of $14.4 million. We invested
$383,812. The change in the exchange rate was $816,906. As a
result, our net cash flow was $14,805,408.
We ended the quarter with cash of $148,411,800, ($3.21* per
share), current assets of $207,398,677 ($4.48 *per share). working
capital of $189,300,878 ($4.09 *per share), and shareholders equity
of $346,478,200 ($7.49 per share*). Our net net cash, cash minus
all liabilities was $127,745,308 ($2.76 per share*). We do not
believe there are any other profitable public companies selling at
as large a discount to their net net cash.
Bromine
Revenue from the bromine products segment increased 19% to
$13,169,528 from $11,033,249, despite the weak economic conditions
in China. The increase in net revenue was due to the increase in
the selling price of bromine. The sales volume decreased 7% to
3,428 metric tons, but the average price increased 28% to $3,481
from $3,006. The cost of net revenue for the bromine segment was
$9,158,013, a decrease of 4% over the same period in 2015. Gross
profit margins were 30%, compared to 13% for the same period in
2015. This 17% increase is mainly due to the selling price of
bromine. We expect that the average selling price and gross profit
margin of bromine will remain at current levels in 2016.
Our utilization ratio decreased by 2% for the three-month period
ended March 31, 2016. To reduce the leakage rate and increase
production capacity of bromine, we plan to carry out enhancement
projects for the transmission channels and ducts and our existing
bromine extraction in 2016.
Income from operations was $3,005,518, an increase of $2,868,559
(or approximately 2094%) compared to the same period in 2015. This
increase is mainly due to the 28% increase in the selling price of
bromine. We expect strong results from our bromine segment in
2016.
Crude Salt
Revenue from the crude salt segment decreased 10% to $1,766,608
from $1,963,731. The cost of net revenue was $1,443,634, a decrease
of 10%, compared to $1,601,121 for the same period in 2015. The
gross profit margin was 18%, which remained flat from the prior
year. Income from operations was $227,613, an increase of 21%.
Chemicals
Net revenue from the chemical segment decreased 11% to
$19,559,314 from $21,913,849. Within the segment, Oil & Gas,
Paper manufacturing, and Pesticides Additives all declined by 29%.
Pharmaceuticals Intermediaries & By Products increased by 8.9%
to 11,440,439. However, on a pro-forma basis, pharmaceuticals
declined, because we only owned Rongyuan for two months in the
first quarter of 2015.
There were two major reasons for the decline in revenues in the
chemical segment. The overall weakness in the Chinese economy had
an impact, especially in natural gas and paper manufacturing. In
addition, with a slightly earlier Chinese New Year and some
economic uncertainties, many customers appear to have cut back on
their inventories.
We do not know how the Chinese economy will fare during the
remainder of 2016. However, we are seeing a recovery in orders
after Chinese New Year. In addition, with much of the rectification
behind us, we are seeing good orders in our pharmaceutical
business. Overall, we believe pharmaceuticals will recover, while
some of the other chemical segments may lag compared to results in
2015.
Gross profit margins in chemicals decreased by 3%. We saw
pricing increases in oil & gas, paper manufacturing, and
pesticides additives, as well as in by-products. The main source of
the decline was lower margins in our pharmaceutical intermediary
products. We expect these margins to improve during the remainder
of the year.
Cost of net revenue was $13,279,999, a decrease of 7%. Income
from operations was $5,723,731, a decrease of $19%. We have seen
some improvement in the chemicals business, especially in
pharmaceuticals. Given the current weakness in the Chinese economy,
we expect a small decline in earnings of this segment during 2016.
Should the Chinese economy improve, these economically sensitive
industries could provide positive surprises.
Sichuan Natural Gas and Brine Project
We are making excellent progress on our natural gas and brine
project in Sichuan province. We have hired a leading design firm to
design our drilling and production facilities. We expect to place
an order for the equipment from one of China’s leading
manufacturers soon, and begin to build roads, workers housing, and
other infrastructure needed. At the present time, we expect to
begin drilling between September and November 2016.
Once we begin drilling, we should be able to quickly understand
the opportunities in Sichuan. If there are as much natural gas and
brine resources as we expect, we should be able to apply for
permission to drill an additional 10-30 wells soon. While it is
difficult to project how much profit we can generate from each
well, the original estimate for the first well is around $2.3
million in annual net income based on the assessment report.
“With the strength in bromine pricing, the opportunities in
antibiotics, and the potential recovery of the Chinese economy,”
Mr. Liu stated, “we believe our core business is well positioned.
If the natural gas and brine opportunity in Sichuan proves as
successful as we expect it to be, Gulf Resources could be
transferred into a major company that could attract institutional
investors, investment bankers, other stock exchanges, acquirers, or
potential JV partners. If the initial wells do not provide the
revenues and profits we expect, we will then consider other ways of
utilizing our extremely strong balance sheet to enhance shareholder
value.”
“We appreciate the support of our shareholders,” Mr. Liu
concluded. “We are all dedicated to working as hard as we can to
make Gulf Resources an even more successful company and to find a
way to obtain a fair value for our shares.”
(* All per share calculations have not
been audited and have been calculated using the end of the
quater share count of
46,276,269
as shown on the balance sheet in the 10-Q)
Conference CallThe Company will host a
conference call on Thursday, May 12, 2016 at 08:00 Eastern Time to
discuss its financial results for the first quarter 2016 ended
March 31, 2016.
Hosting the call will be Mr. Xiaobin Liu, CEO of Gulf Resources.
The Company's management team will be available for investor
questions following the prepared remarks.
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 dial +1 (706)
643-1666. The conference participant pass code is
8850532.
The webcasting is also available then, just simply click on the
link below: http://www.gulfresourcesinc.com/events.html
A replay of the conference call will be available two hours
after the call's completion during 05/12/2016 11:00 EDT -
06/12/2015 23:59 EDT. To access the replay, call +1 (855) 859-2056.
International callers should call +1 (404) 537-3406. The conference
ID is 8850532.
About Gulf Resources, Inc.Gulf Resources, Inc.
operates through four wholly-owned subsidiaries, Shouguang City
Haoyuan Chemical Company Limited ("SCHC"), Shouguang Yuxin Chemical
Industry Co., Limited ("SYCI"), Shouguang City Rongyuan Chemical
Co, Limited (“SCRC”) and Daying County Haoyuan Chemical Company
Limited (“DCHC”). 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 and
gas field explorations and papermaking chemical agents. SCRC is a
leading manufacturer of materials for human and animal antibiotics
in China and other parts of Asia. DCHC was established to further
explore and develop natural gas and brine resources (including
bromine and crude salt) in China. For more information, visit
www.gulfresourcesinc.com.
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.
GULF RESOURCES, INC. |
AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |
(Expressed in U.S.
dollars) |
(UNAUDITED) |
|
|
|
Three-Month Period EndedMarch 31, |
|
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
NET REVENUE |
|
|
|
|
|
|
Net revenue |
|
$ |
34,495,450 |
|
|
$ |
34,910,829 |
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES/INCOME |
|
|
|
|
|
|
|
|
Cost of net revenue |
|
|
(23,881,646 |
) |
|
|
(25,480,858 |
) |
Sales, marketing and other
operating expenses |
|
|
(81,901 |
) |
|
|
(81,430 |
) |
Research and development cost |
|
|
(59,837 |
) |
|
|
(48,235 |
) |
Exploration cost |
|
|
- |
|
|
|
(325,840 |
) |
General and administrative
expenses |
|
|
(1,916,030 |
) |
|
|
(1,981,117 |
) |
Other operating income |
|
|
110,282 |
|
|
|
117,302 |
|
|
|
|
(25,829,132 |
) |
|
|
(27,800,178 |
) |
|
|
|
|
|
|
|
|
|
INCOME FROM
OPERATIONS |
|
|
8,666,318 |
|
|
|
7,110,651 |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME
(EXPENSE) |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(46,129 |
) |
|
|
(50,853 |
) |
Interest income |
|
|
114,446 |
|
|
|
126,961 |
|
INCOME BEFORE
TAXES |
|
|
8,734,635 |
|
|
|
7,186,759 |
|
|
|
|
|
|
|
|
|
|
INCOME TAXES |
|
|
(2,267,671 |
) |
|
|
(1,871,488 |
) |
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
6,466,964 |
|
|
$ |
5,315,271 |
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME: |
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
6,466,964 |
|
|
$ |
5,315,271 |
|
OTHER COMPREHENSIVE
INCOME/(LOSS) |
|
|
|
|
|
|
|
|
- Foreign currency
translation adjustments |
|
|
1,893,061 |
|
|
|
(1,110,348 |
) |
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME |
|
$ |
8,360,025 |
|
|
$ |
4,204,923 |
|
|
|
|
|
|
|
|
|
|
EARNINGS PER
SHARE: |
|
|
|
|
|
|
|
|
BASIC |
|
$ |
0.14 |
|
|
$ |
0.12 |
|
DILUTED |
|
$ |
0.14 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER
OF SHARES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC |
|
|
46,007,120 |
|
|
|
42,680,899 |
|
DILUTED |
|
|
46,740,326 |
|
|
|
43,477,401 |
|
|
See
accompanying notes to the condensed consolidated financial
statements. |
|
GULF RESOURCES, INC. |
AND SUBSIDIARIES |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(Expressed in U.S.
dollars) |
|
|
|
March 31, 2016Unaudited |
|
|
December 31, 2015Audited |
|
Current Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
148,411,800 |
|
|
$ |
133,606,392 |
|
Accounts
receivable |
|
|
51,625,649 |
|
|
|
49,980,358 |
|
Inventories |
|
|
6,958,269 |
|
|
|
7,180,800 |
|
Prepayments and deposits |
|
|
30,000 |
|
|
|
- |
|
Prepaid land leases |
|
|
369,211 |
|
|
|
49,833 |
|
Other
receivable |
|
|
559 |
|
|
|
599 |
|
Deferred tax assets |
|
|
3,189 |
|
|
|
3,173 |
|
Total
Current Assets |
|
|
207,398,677 |
|
|
|
190,821,115 |
|
Non-Current Assets |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
121,711,274 |
|
|
|
127,871,323 |
|
Property, plant and equipment under capital leases, net |
|
|
847,663 |
|
|
|
927,218 |
|
Prepaid land leases, net of current portion |
|
|
5,101,093 |
|
|
|
5,197,216 |
|
Deferred tax assets |
|
|
2,379,015 |
|
|
|
2,367,180 |
|
Goodwill |
|
|
29,706,970 |
|
|
|
29,559,174 |
|
Total non-current
assets |
|
|
159,746,015 |
|
|
|
165,922,111 |
|
Total
Assets |
|
$ |
367,144,692 |
|
|
$ |
356,743,226 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
12,000,259 |
|
|
$ |
9,929,700 |
|
Retention payable |
|
|
634,841 |
|
|
|
1,135,956 |
|
Capital lease obligation, current portion |
|
|
244,133 |
|
|
|
196,778 |
|
Taxes
payable |
|
|
5,218,566 |
|
|
|
4,814,003 |
|
Total
Current Liabilities |
|
|
18,097,799 |
|
|
|
16,076,437 |
|
Non-Current Liabilities |
|
|
|
|
|
|
|
|
Capital lease obligation, net of current portion |
|
|
2,568,693 |
|
|
|
2,555,914 |
|
Total
Liabilities |
|
$ |
20,666,492 |
|
|
$ |
18,632,351 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
|
PREFERRED STOCK; $0.001
par value; 1,000,000 shares authorized; none outstanding |
|
$ |
- |
|
|
$ |
- |
|
COMMON STOCK; $0.0005
par value; 80,000,000 shares authorized; 46,276,269 and 46,276,269
shares issued; and 46,007,120 and 46,007,120 shares outstanding as
of March 31, 2016 and December 31, 2015, respectively |
|
|
23,139 |
|
|
|
23,139 |
|
Treasury stock; 269,149 and 269,149 shares as of March 31, 2016 and
December 31, 2015 at cost |
|
|
(599,441 |
) |
|
|
(599,441 |
) |
Additional paid-in capital |
|
|
94,131,365 |
|
|
|
94,124,065 |
|
Retained earnings unappropriated |
|
|
221,253,353 |
|
|
|
215,286,395 |
|
Retained earnings appropriated |
|
|
20,840,442 |
|
|
|
20,340,436 |
|
Cumulative translation adjustment |
|
|
10,829,342 |
|
|
|
8,936,281 |
|
Total
Stockholders’ Equity |
|
|
346,478,200 |
|
|
|
338,110,875 |
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
367,144,692 |
|
|
$ |
356,743,226 |
|
|
GULF RESOURCES, INC. |
AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Expressed in U.S. dollars) |
(UNAUDITED) |
|
|
Three-Month Period Ended March 31, |
|
|
2016 |
|
|
2015 |
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES |
|
|
Net income |
$ |
6,466,964 |
|
$ |
5,315,271 |
|
Adjustments to
reconcile net income to net cash provided by operating
activities: |
|
|
Interest on capital lease
obligation |
|
45,891 |
|
|
50,657 |
|
Amortization of prepaid land
leases |
|
131,544 |
|
|
125,331 |
|
Depreciation and amortization |
|
6,869,721 |
|
|
7,378,988 |
|
Unrealized exchange gain on
translation of inter-company balances |
|
130,462 |
|
|
(101,359 |
) |
Stock-based compensation
expense |
|
7,300 |
|
|
7,400 |
|
Deferred tax asset |
|
- |
|
|
(81,459 |
) |
Changes in assets and
liabilities, net of effects of acquisition : |
|
|
Accounts receivable |
|
(1,380,964 |
) |
|
810,129 |
|
Inventories |
|
255,763 |
|
|
(8,173 |
) |
Prepayments and deposits |
|
(30,000 |
) |
|
84,009 |
|
Other receivables |
|
- |
|
|
37,713 |
|
Accounts payable and accrued
expenses |
|
2,000,630 |
|
|
3,649,074 |
|
Retention payable |
|
(501,556 |
) |
|
(281,241 |
) |
Taxes payable |
|
376,559 |
|
|
793,740 |
|
Net cash
provided by operating activities |
|
14,372,314 |
|
|
17,780,080 |
|
|
|
|
CASH FLOWS USED IN
INVESTING ACTIVITIES |
|
|
Additions of prepaid
land leases |
|
(326,526 |
) |
|
(325,533 |
) |
Purchase of property,
plant and equipment |
|
(52,286 |
) |
|
- |
|
Consideration paid for
business acquisition |
|
- |
|
|
(66,305,606 |
) |
Cash acquired from
acquisition |
|
- |
|
|
14,074,720 |
|
Net cash used
in investing activities |
|
(383,812 |
) |
|
(52,556,419 |
) |
|
|
|
CASH FLOWS USED IN
FINANCING ACTIVITIES |
|
|
Repurchase of common
stock |
|
- |
|
|
(37,713 |
) |
Net cash used
in financing activities |
|
- |
|
|
(37,713 |
) |
|
|
|
EFFECTS
OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
|
816,906 |
|
|
(358,960 |
) |
NET INCREASE/(DECREASE)
IN CASH AND CASH EQUIVALENTS |
|
14,805,408 |
|
|
(35,173,012 |
) |
CASH AND CASH
EQUIVALENTS - BEGINNING OF PERIOD |
|
133,606,392 |
|
|
146,585,601 |
|
CASH AND CASH
EQUIVALENTS - END OF PERIOD |
$ |
148,411,800 |
|
$ |
111,412,589 |
|
|
|
|
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION |
|
|
Cash paid during the
period for: |
|
|
Income taxes |
$ |
2,319,477 |
|
$ |
1,311,695 |
|
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
Issuance of common stock for
acquisition of business |
$ |
- |
|
|
13,373,140 |
|
CONTACT:
Gulf Resources, Inc.
Web: http://www.gulfresourcesinc.com
Director of Investor Relations
Helen Xu (Haiyan Xu)
beishengrong@vip.163.com
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