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Gulf Resources detail Q3 2014 results

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Gulf Resources, a manufacturer of bromine, crude salt and specialty chemical products in China, today announced its financial results for the third quarter ended September 30, 2014.

Third Quarter 2014 Highlights:

– Net revenue was $31.1 million, a year-over-year decrease of 6%
– Gross profit was $9.2 million, a year-over-year decrease of 16%
– Gross margin was 30%,as compared to 33% for the third quarter of 2013
– Income from operations was $6.7 million, as compared to $10.9 million in the third quarter of 2013, a year-over-year decrease of 39%
– Operating margin was 22%, as compared to 33% for the third quarter of 2013
– Net income was $5.0 million, or $0.13 per basic and diluted share, versus $8.1 million, or $0.21 per basic and diluted share a year ago, representing a year-over-year decrease of 38%.
– Cash totaled $132 million as of September 30, 2014

“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 2014 compared to the same period of 2013. Even though the net revenue from our chemical products segment slightly increased approximately 4.5%, our other two business segments, bromine and crude salt, experienced weaker results,” said Mr. Xiaobin Liu, CEO of the Company.

Third Quarter 2014 Financial Results:

Gulf Resources’ net revenue was $31,106,964 for three-month period ended September 30, 2014, a decrease of approximately 1.8 million (or 6%) as compared to the same period in 2013. This decrease was attributable to the decrease in our bromine and crude salt segments. Revenue from the bromine products segment decreased from $17,093,087 for the three-month period ended September 30, 2013 to $15,973,528 for the same period in 2014, a decrease of approximately 6.5%. Revenue from the crude salt segment decreased from $3,902,979 for the three-month period ended September 30, 2013 to $2,655,028 for the same period in 2014, a decrease of approximately 32%. But, revenue from the chemical products segment products increased from $11,939,211 for the three-month period ended September 30, 2013 to $12,478,408 for the same period in 2014, an increase of approximately 4.5%.

Gross profit was $9,205,908, or 30%, of net revenue for three-month period ended September 30, 2014 compared to $10,929,021, or 33%, of net revenue for the same period in 2013. The decrease in gross profit percentage was primarily attributable to a decrease in the margin percentage of bromine and crude salt segments.

The total research and development costs incurred for the three-month period ended September 30, 2014 and 2013 were $30,985 and $33,198, respectively, a decrease of 7%. Research and development costs for the three-month period ended September 30, 2014 and 2013 represented raw materials used by SYCI for testing the manufacturing routine.

General and administrative expenses were $1,894,507 for the three-month period ended September 30, 2014, a decrease of $67,989 (or 3%) as compared to $1,962,496 for the same period in 2013. This decrease in general and administrative expenses was primarily due to legal costs and expenses incurred in connection with the class action lawsuit as described in our 2013 Form 10-K, which was $51,626 for the three-month period ended September 30, 2013 and $0 for the same period in 2014 since the lawsuit was settled in early 2014.

Other operating income was $116,942 for the three-month period ended September 30, 2014, an increase of $9,936 (or 9%) as compared to $107,006 for the same period in 2013 for sales of wastewater. Wastewater is generated from the production of bromine and eventually becomes crude salt when it evaporates. Not all of our bromine production plants have sufficient area on the property to allow for evaporation of wastewater to produce crude salt. Certain of our customers who have facilities located adjacent to our bromine production plants have agreed to channel our wastewater into brine pans on their properties for evaporation. These customers then are able to sell the resulting crude salt themselves. We have signed agreements with four of our customers to sell them our wastewater at market prices.

Income from operations was $6,694,589 for the three-month period ended September 30, 2014 (or 22% of net revenue), a decrease of $4,197,931, or approximately 39%, over the income from operations for the same period in 2013. The decrease resulted primarily from the decrease in bromine and crude salt selling prices.

Other income, net of $76,675 represented bank interest income, net of capital lease interest expense for the three-month period ended September 30, 2014, an increase of $41,022 (or approximately 115%) as compared to the same period in 2013, mainly due to higher average bank balance held during the three months period ended September 30, 2014 compared to the same period ended September 30, 2013.

Net income was $5,038,403 for the three-month period ended September 30, 2014, a decrease of $3,071,326 (or approximately 38%) 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% from $2.8 million for the third quarter of 2013. The Company’s effective tax rate was 26% for the three-month periods ended September 30, 2014 and 2013, respectively.

Nine Months Ended September 30, 2014:

Net income was $15.0 million (or $0.39 and $0.38 per basic and diluted share, respectively) for the nine-month period ended September 30, 2014, a decrease of approximately 2% compared to the same period in 2013 which was $15.3 million (or $0.40 per basic and diluted share, respectively). Net revenue for the nine-month period ended September 30, 2014 was $88 million, representing an increase of approximately $0.2 million (or 0.2%) over the same period in 2013. Gross profit was $25 million, or 29%, of net revenue for nine-month period ended September 30, 2014 compared to $25 million, or 28%, of net revenue for the same period in 2013. The increase in gross profit percentage was primarily attributable to an increase in the margin percentage of our chemical products segment, which was offset by our crude salt segment. Income from operations was $20 million for the nine-month period ended September 30, 2014 (or 22% of net revenue), an decrease of $1 million, or approximately 24%, over income from operations for the same period in 2013.

Financial Condition:

As of September 30, 2014, the Company had cash of $132 million, total liabilities of $13.9 million, and stockholders’ equity of $307.1 million. As of September 30, 2014, the Company had working capital of $174.9 million. As of September 30, 2014, the Company generated $32.5 million in cash flow from operations, used approximately $0.66 million cash for the prepayment of land leases. In the same period, we also used approximately $6.46 million cash for our third phase enhancement project related to the protective shells to transmission channels and ducts in Factory No. 10 and 11 for the nine-month period ended September 30, 2014.

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