GULF RESOURCES, INC. 
By SHANGDONG, China, Aug. 9, 2012 /PRNewswire-Asia-FirstCall/ -- Gulf Resources, Inc. (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 second quarter ended June 30, 2012.
Second Quarter 2012 Highlights
-- Revenue was $31.3 million, a year-over-year decrease of 39.0%
-- Gross profit was $9.9 million, a year-over-year decrease of 62.4%
-- Gross margin decreased to 31.6 % compared to 51.3% in the second quarter
of 2011
-- Income from operations was $7.6 million as compared to $13.4 million in
the second quarter of 2011
-- Operating margin was 24.3% compared to 26.1% for the second quarter of
2011
-- Net income was $5.7 million or $0.16 per basic and diluted share, versus
$10.0 million, or $0.29 per basic and diluted share a year ago,
respectively
-- Cash totaled $72.0 million as of June 30, 2012
"Although the Chinese central government has now adopted a more flexible credit and monetary policy to cope with the slowdown of economic growth and the accompanying structural change in the economy, we are inevitably impacted by the lower demand in private investing and moderate decrease in consumption by our customers in the business segments of our company. In comparison to the same period last year, our operating performance for the second quarter this year was significantly lower. While bromine average selling price decreased from $4,333 per tonne for the second quarter in 2011 to $3,486 per tonne for the same period this year, we expect bromine prices to remain relatively stable throughout the year given current economy condition. We expect this economic condition to continue throughout the rest of the year," said CEO Mr. Xiaobin Liu.
Second Quarter 2012 Results
For the second quarter of 2012, Gulf Resources' revenue was $31.3 million, a decrease of 39.0 %, from $51.3 million for the second quarter of 2011. The decrease in net revenue was primarily attributable to the decline in selling price and sales volume in the segments of bromine and crude salt. Revenue from the bromine and crude salt segments was $17.5 million and $3.8 million, respectively, representing a total of 68.1% of sales revenue for the second quarter of 2012.
Revenue from our chemical products segment was $10.0 million, or 31.9% of total revenue, for the second quarter of 2012, a decrease of 17.4%, from $12.1 million in the corresponding period in 2011. The decrease in revenue from this product segment was mainly due to a drop in sales volume for oil and gas exploration additives and paper manufacturing additives compared to the same quarter last year, which offset the incremental benefit arising from a higher sales volume and higher average selling prices for pesticides manufacturing additives.
Gross profit for the second quarter of 2012 was $9.9 million, a decrease of 62.4%, from $26.3 million from the second quarter of 2011, and our gross profit margin for the three months ended June 30, 2012 was 31.6%, compared to 51.3% for the corresponding period last year. The decrease in gross margin was mainly due to the decrease in selling prices in bromine and crude salts segments.
Sales, marketing and other operating expenses for the second quarter of 2012 were $22,709 compared with $23,733 for the corresponding quarter last year. The decrease in these costs in the second quarter of 2012 was mainly due to a decrease in sales that caused reduced sales-related expenses.
Due to the replacement of government officials in the government of Sichuan Daying county, the Company have not made any progress on the project of underground brine resources in this area, and therefore no exploration cost was incurred for the quarter.
General and administrative expenses for the second quarter of 2012 were $1.4 million, compared to $1.7 million for the second quarter of 2011. The decrease of $0.3 million was primarily due to the inclusion of demolition and re-installation expense for the three-month period ended June 30, 2011 for relocating Factory No. 4.
Income from operations for the second quarter of 2012 was $7.6 million, compared to $13.4 million for the corresponding quarter of 2011. The operating margin was 24.3% for the second quarter of 2012, compared to 26.1% for the second quarter of 2011.
Other operating income, which represented the sales of wastewater at market price, was $76,104 for the second quarter of 2012 as compared to $392,298 for the same period in 2011.
For the second quarter of 2012, the Company incurred other income of $30,660 compared to expense of $13,009 for the corresponding quarter last year.
Income taxes were $2.0 million for the second quarter of 2012, a decrease of 41.2%, from $3.4 million for the second quarter of 2011. The Company's effective tax rates were 26% and 25% for the three-month periods ended June 30, 2012 and 2011, respectively.
Net income was $5.7 million for the second quarter of 2012, a decrease of 43.0%, from $10 million for the second quarter of 2011. Basic and diluted earnings per share in second quarter of 2012 were $0.16 per basic and diluted share compared to $0.29 per basic and diluted share respectively in the second quarter of 2011. Weighted average number of diluted shares for the three months ended June 30, 2012 was 34,560,743 compared with 34,733,188 for the three months ended June 30, 2011.
Six Months Ended June 30, 2012
Revenues for the six months ended June 30, 2012 were $55.1 million, down 43.0% from revenues of $96.7 million for the six months ended June 30, 2011. Gross profit for the six months ended June 30, 2012 was $16.6 million, down 67.5% from gross profit of $51.1 million for the corresponding period of 2011. Gross margin was 30.1%, compared to 52.8% for the first six months of 2011. Operating income was $12.2 million, a decrease of 63.8%, from $33.7 million for the first six months of 2011. Net income was $9.0 million, or $0.26 per basic and diluted share, respectively, compared to $24.4 million, or $0.70 and $0.69 per basic and diluted share, respectively, for the same period a year ago.
"Although the unfavorable economy condition has lowered the demand of bromine and it negatively impacted our operating performance in the first half of this year, we decided to adhere to the 2012 earnings forecast announced earlier this year as we have confidence that we can accomplish the task set forth in the earning guidance by the end of this year." Said CEO, Xiaobin Liu.
Financial Condition
As of June 30, 2012, Gulf Resources had cash of $72.0 million, current liabilities of $12.0 million, and shareholders' equity of $251.1 million. For the three months ended June 30, 2012, the Company had working capital of $106.1 million and a current ratio of 9.8. As of June 30, 2012, the Company generated $2.3 million in cash flow from operations, and used $8.3 million for investing activities, mainly for construction of plant, machinery and equipment.
Subsequent Events
The company has decided to hold 2012 annual shareholders meeting in mid October. Further information regarding the shareholders meeting will be disclosed soon.
In an effort to pursue more effective and seamless communications with our investors and promote accelerated press releases, the Company has been handling investor relations issues through its own IR department since April 2012. For future investor inquiries, investors may continue to reach our IR manager Max Ma at email address Max_vx@163.com or our CEO's assistant Helen Xu at email address beishengrong@vip.163.com.
Business Outlook
"In the near term, we are likely to encounter operating pressure due to a foreseeable increase in labor and lowered bromine price influenced by the nationwide housing price control by the central government. As soon as the economy pass the phase of structural change and the condition, turn favorable, we expect we will be able to benefit from the underground bromine reserve we previously obtained with our equipment and facilities being consistently upgraded. In addition, as the market prices of potential acquisition targets are subjected to undervaluation due to the current economic environment, we will attempt to retain cash in order to take advantage of the market by acquiring quality assets that can enable our company to sustain long term growth in the future." Said CEO, Xiaobin Liu.
Conference Call
Gulf Resources' management will host a conference call on Friday, August 10, 2012 at 8:00 AM Eastern Time to discuss its financial results for the second quarter 2012 ended June 30, 2012.
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 call +1 (706) 643-1666. The conference participant pass code is 19042704.
A replay of the conference call will be available for 14 days starting from 11:00 AM ET on Friday, August 10, 2012. To access the replay, call +1 (855) 859-2056. International callers should call +1 (404) 537-3406. The pass code is 19042704
This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.gulfresourcesinc.com/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.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, as amended and Rule 3b-6 under the Securities Exchange Act of 1934 as amended, 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 of its disclosure.
-Financial tables to follow-
GULF RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. dollars)
(UNAUDITED)
June 30, 2012 December 31, 2011
------------- -----------------
Current Assets
Cash $72,044,771 $78,576,060
Accounts receivable 41,297,358 21,919,828
Inventories 3,955,232 4,437,972
Prepayments and deposits 346,210 307,600
Prepaid land leases 371,894 46,582
Deferred tax assets 105,583 228,702
------- -------
Total Current Assets 118,121,048 105,516,744
----------- -----------
Non-Current Assets
Property, plant and equipment, net 142,496,477 147,200,740
Property, plant and equipment under capital leases, net 2,156,071 2,336,920
Prepaid land leases, net of current portion 752,385 763,814
Deferred tax assets 2,461,863 2,509,481
--------- ---------
Total non-current assets 147,866,796 152,810,955
----------- -----------
Total Assets $265,987,844 $258,327,699
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $7,556,148 $7,373,643
Retention payable 97,804 556,450
Capital lease obligation, current portion 90,551 189,742
Taxes payable 4,232,081 4,058,550
--------- ---------
Total Current Liabilities 11,976,584 12,178,385
---------- ----------
Non-Current Liabilities
Capital lease obligation, net of current portion 2,934,527 3,036,558
--------- ---------
Total Liabilities $14,911,111 $15,214,943
=========== ===========
Stockholders' Equity
PREFERRED STOCK; $0.001 par value; 1,000,000 shares authorized; none $ $
COMMON STOCK; $0.0005 par value; 100,000,000 shares authorized; 17,373 17,373
34,745,342 and 34,745,342 shares issued; and 34,560,743 and
34,560,743 shares outstanding as of June 30, 2012 and December 31,
2011, respectively
Treasury stock; 184,599 shares as of June 30, 2012 and December 31, (500,000) (500,000)
2011 at cost
Additional paid-in capital 74,134,279 74,107,979
Retained earnings unappropriated 141,051,006 133,314,581
Retained earnings appropriated 15,648,913 14,409,557
Cumulative translation adjustment 20,725,162 21,763,266
---------- ----------
Total Stockholders' Equity 251,076,733 243,112,756
----------- -----------
Total Liabilities and Stockholders' Equity $265,987,844 $258,327,699
============ ============
GULF RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Expressed in U.S. dollars)
(UNAUDITED)
Three-Month Period Ended June 30, Six-Month Period Ended June 30,
2012 2011 2012 2011
---- ---- ---- ----
NET REVENUE
Net revenue $31,314,846 $51,300,812 $55,123,520 $96,679,344
OPERATING INCOME (EXPENSES)
Cost of net revenue (21,389,651) (24,994,703) (38,505,533) (45,586,087)
Sales, marketing and other operating expenses (22,709) (23,733) (40,473) (47,745)
Research and development cost (62,526) (133,519) (105,324) (313,856)
Exploration cost - (3,867,286) - (3,867,286)
Write-off/Impairment on property, plant and equipment (911,995) (7,570,566) (911,995) (7,570,566)
General and administrative expenses (1,370,866) (1,714,694) (3,483,071) (6,055,985)
Other operating income 76,104 392,298 133,178 415,083
------ ------- ------- -------
(23,681,643) (37,912,203) (42,913,218) (63,026,442)
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 7,633,203 13,388,609 12,210,302 33,652,902
OTHER INCOME (EXPENSE)
Interest expense (54,255) (65,740) (108,667) (107,956)
Interest income 84,915 52,731 183,805 128,775
------ ------ ------- -------
INCOME BEFORE TAXES 7,663,863 13,375,600 12,285,440 33,673,721
INCOME TAXES (1,975,189) (3,352,345) (3,309,659) (9,285,467)
---------- ---------- ---------- ----------
NET INCOME $5,688,674 $10,023,255 $8,975,781 $24,388,254
========== =========== ========== ===========
COMPREHENSIVE INCOME:
NET INCOME $5,688,674 $10,023,255 $8,975,781 $24,388,254
OTHER COMPREHENSIVE INCOME
- Foreign currency translation adjustments (1,316,002) 2,816,166 (1,038,104) 4,837,801
---------- --------- ---------- ---------
COMPREHENSIVE INCOME $4,372,672 $12,839,421 $7,937,677 $29,226,055
========== =========== ========== ===========
EARNINGS PER SHARE:
BASIC $0.16 $0.29 $0.26 $0.70
DILUTED $0.16 $0.29 $0.26 $0.69
WEIGHTED AVERAGE NUMBER OF SHARES:
BASIC 34,560,743 34,729,179 34,560,743 34,732,527
DILUTED 34,560,743 34,733,188 34,561,394 35,128,273
========== ========== ========== ==========
GULF RESOURCES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. dollars)
(UNAUDITED)
Six-Month Period Ended June 30,
2012 2011
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $8,975,781 $24,388,254
Adjustments to reconcile net income to net cash provided by operating:
Interest on capital lease obligation 108,044 106,835
Amortization of prepaid land leases 105,051 102,831
Depreciation and amortization 11,290,588 7,468,616
Write-off/Impairment loss on property, plant and equipment 911,995 7,570,566
Exchange gain on inter-company balances (92,057) -
Stock-based compensation expense 26,300 3,169,000
Deferred tax asset 160,826 (1,913,608)
Changes in assets and liabilities:
Accounts receivable (19,514,217) (14,033,743)
Inventories 467,279 (405,227)
Prepayments and deposits (38,610) 905,669
Other receivables - (151,853)
Accounts payable and accrued expenses 206,207 1,468,892
Retention payable (457,813) -
Taxes payable 189,434 697,706
------- -------
Net cash provided by operating activities 2,338,808 29,373,938
--------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Additions of prepaid land leases (422,877) (348,196)
Purchase of property, plant and equipment - (34,075,105)
Increase in construction in progress (7,871,130) (4,609,456)
---------- ----------
Net cash used in investing activities (8,294,007) (39,032,757)
---------- -----------
CASH FLOWS USED IN FINANCING ACTIVITIES
Repurchase of common stock - (348,147)
Repayment of capital lease obligation (297,598) (288,739)
-------- --------
Net cash used in financing activities (297,598) (636,886)
-------- --------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (278,492) 1,539,350
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,531,289) (8,756,355)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 78,576,060 68,494,480
---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $72,044,771 $59,738,125
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $2,945,542 $10,341,857
========== ===========
Interest paid $ - $1,121
=== === ======
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Inception of capital lease obligation for acquiring property, plant and equipment $ - $3,127,913
=== === ==========
Contact:
IR Manager
Max Ma
Max_vx@163.com
SOURCE Gulf Resources, Inc.
