Gulf Resources [GURE] Conference call transcript for 2022 q1
2022-05-16 14:27:05
Fiscal: 2022 q1
Operator: Good day, ladies and gentlemen, and welcome to the Gulf Resources 2022 First Quarter Earnings Conference. At this time, all participants have been placed on a listen-only mode and the floor will be open for question and comments after the presentation. It is now my pleasure to turn the floor over to your host, Helen Xu. Ma'am, the floor is yours.
Helen Xu: Thank you, operator. Good morning, ladies and gentlemen, and good evening to all those of you for joining for us from China. And we'd like to welcome all of you to Gulf Resources' first quarter 2022 earnings conference call. I'm Helen Xu, the IR Director. Our CEO of the company; Mr. Xiaobin Liu, is also joining this call today. I'd like to remind you to all of our listeners that in this call certain management's statements during the call will contain forward-looking information about Gulf Resources Incorporation and its subsidiaries business and products within the meaning of Rule 175 on the Securities Act of 1933 and the Rule 3b-6 under the Securities Exchange Act of 1934 and are subject to the safe harbor created by those rules. Actual results may differ from those discussed today, taking into account a number of risk factors including, but not limited to, the general economic and business conditions in the PRC. The risk associated with the COVID-19 pandemic outbreak, future product development and production capabilities, shipments to end customers, market acceptance of new and existing products, additional competition from existing and new competition from the bromine and other oil field and power production categories, changing technology, the ability to make future bromine assets, and the various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this cautionary statement and the risk factors detailed with the company's reports filed with the SEC. Gulf Resources assumes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Accordingly, our company believes expectations reflecting those forward-looking statements are reasonable and there can be no assurance of such will prove to be correct. In addition, any reference to the company’s future performance represents the management's estimates as of today, the 16th of May 2022. For those of you unable to listen to the entire call at this time, a replay will be available at the company's website. The call is also accessible through the webcast and the link is accessible through our website. So please look at our press release issued earlier for the details. Xiaobin?
Xiaobin Liu: Thank you, Mr. Liu. So I will do the translation for Mr. Liu comments just now he provided. So, first of all, I'm Xiaobin Liu, the CEO of the company and I like to welcome all of you to Gulf Resources earnings conference call for the first quarter year 2022. Since the year 2017, our company has been forced to deal with new government rules, which involved closing our facilities for environmental planning and protection and rectification permanently closed three bromine factories and relocating our chemical factories. We were also hit with the most destructive typhoon in Shandong province. During this period, we have been in a short-term react mode dealing with one crisis after another. As a result, we have not been able to provide investors with a framework to understand our long-term potential, nor have been able to strengthen cash methods for enhancing our shareholder value. Now we are in a position to share our plans with our investors. Our team is trying to developing a six-year plan division by division through year 2027. Before the end of next month, we will put a detailed presentation on our website and host a conference call during which we will review all of our projected assumptions. Our plan will demonstrate the earnings potential for our company, and we believe investors will be pleased because we will present in this plan. So we will not provide second quarter of full year guidance on this call for year 2022. However, our company is positioned to profitable operations, in coming quarters and for this year. So now let me turn the call over to Helen to review the first quarter of 2022.
Helen Xu: So thank you, Mr. Liu. The company tried to answer most of the questions we received from our investors during this call. And some may relate to our future planning may be discussed with our six-year plan conference call later on. So for the first quarter 2022 revenues increased 70% to approximately $8.9 million from approximately $5.3 million. Our factories were closed for environmental reasons until February 21, 2022. In the previous year, they were closed until February 19, 2021. We had 39 days of operations in the year 2022 versus 41 days in 2021. So our daily revenues increased 78.5%. Gross profits increased 306% to approximately $4.4 million from approximately $1.1 million. Direct labor and factory overheads incurred during the plant shutdown were approximately $2.2 million. General and administrative expenses increased 29% to approximately $2.2 million. A major factor impacting this G&A expense was a swing in unrecorded foreign translation losses. The loss from operations decreased 98% to approximately $65,100 from approximately $3.3 million. If the direct labor and factory overheads of approximately $2.2 million and with the foreign translation losses of approximately $283,800 are excluded, the first quarter of year 2022 would have been very profitable, even with only 39 days of operations. So now to look at our business segment data by segment. Firstly, let's look at our Bromine segment. The revenues in bromine increased 69% to approximately $8.1 million. Tonnes produced increased 5% to 1,005 tonnes. The average selling price increased 60.5% to $8,086. At the present time, based on the spot price from sunsirs.com and the current exchange rate, the selling price of bromine is $8,270, which is higher than in the first quarter. Gross profits were approximately $4.2 million compared to $1.3 million, an increase of 224%. As a percentage of sales, gross margins were 51.8% compared to 27%. Our utilization rate was 19% compared to 17% in the previous year. Given that our factories were only open for 39 days versus 41 in the previous year, our utilization rate was much improved. Net profits in bromine were approximately $1.3 million versus a loss of approximately $1.3 million. These numbers include overhead costs of the closed factories, G&A expenses, and negative non-cash foreign currency adjustments. The total assets in our bromine business increased to approximately $186 million from $144.7 million in the previous year. We have been drilling new wells, building aqueducts, and making other improvements. We believe we will receive approval to open at least one and potentially more of the closed factories in the year 2022. Secondly, let’s look at crude salt segment. Crude salt as with bromine, the crude salt facilities were open only 39 days of the 90 days in the quarter. In addition, because of low temperatures, winter is a very slow time for crude salt production. Lastly, crude salt revenues increased 68% to $754,000. Despite the substantial revenue increase, the cost of revenues declined 6% to $629,560. Gross profit was approximately $124,500 compared to a loss of $219,100. For the quarter, including its share of costs from closed facilities, corporate overhead, and unrecorded foreign exchange losses, crude salt lost approximately $522,000 versus $1 million. Third, let’s look at the Chemicals Segment. Chemicals had zero revenues and an operating loss of approximately $513,000. The construction of our new Yuxin chemical factory has been delayed by electricity restrictions as well as by the winter shutdown. On February 22, 2022 we announced that we believed the electricity restrictions were being eased. As a result, the company has contacted our suppliers and will have the remainder of the equipment produced and delivered, so we can complete installation and begin testing and trial production. At this time, the company may begin commercial production during the year 2023. Now let's look at the natural gas segment. Our natural gas business reported revenues of approximately $57,000 thousand on the rental of some of our equipment. The business reported a loss of $26,739. The company is still waiting for the provincial government of Sichuan to finalize the land and resource planning for Sichuan Province. The company has no assurances on the timing of these plans. However, since the government of China has approved that privately owned enterprises are allowed to participate in natural gas production and since there is great demand for natural gas in China, the company remains optimistic about this project. Now let's look at the company's balance sheet. The company ended the quarter with cash of approximately $105.7 million, an increase of approximately $9.9 million from the level in the previous year. Cash per share was $10.05. Shareholders' equity was approximately $288.1 million. The shareholders' equity per share was $27.39. Cash flow despite the closure of our facilities for more than half of the quarter, the company generated strong cash flow from operating activities of approximately $8.5 million. We spent approximately $395,100 on property, plant and equipment. Free cash flow excluding the impact of foreign currency translation was approximately $8.1 million. There is one question regarding the accounts receivable after the company's 10-Q be filed. The investor is asking why there was approximately $2.4 million of receivable older than 90 days in our 10-Q. And I just want to let all our investors in this conference call notice that these receivables have been received in the month of April 2022. So now let's send the call back to Mr. Liu for some concluding remarks.
Xiaobin Liu: Hi operator.
Operator: Hi.
Xiaobin Liu: Okay.
Helen Xu: Okay. Thank you, Mr. Liu. So I will do the translation based on Mr. Liu's concluding remarks. So first off the company, we're very pleased with this quarter’s operation results. We're almost breakeven in, and without the winter closure we would have earned extra profit. Bromine pricing has remained extremely strong. Imports have become more expensive. Capacity in China has been reduced, because of the environmental controls and demand remains strong. We are seeing increased use of bromine in pharmaceuticals and other products, such as zinc-bromine batteries and flame retardants. We also expect to open at least one of our closed factories in the year 2022. Based on the improvements we have made and our current outlook on pricing the company are extremely bullish on the opportunities in this sector. Results in crude salt should improve as well as there is want. We are optimistic, our Yuxin chemical business, we are planning to finish the construction and begin testing and trial production, and then may start our commercial production in year 2023. We are also optimistic that we will receive permission to drill for natural gas and brine in Sichuan Province. China faces great shortage of natural gas. We hope to be part of this solution. Our team has been working diligently to produce detailed financial projections by division through year 2027. We will share this plan with investors before the end of next month? So now let's turn the call back to Helen for QA section.
Operator: Ladies and gentlemen the floor is now open for questions. Your first question for today is coming from Glenn Krevlin . Please announce your affiliation then pose your question.
Unidentified Analyst: Good morning. Glenn Krevlin , I'm an individual. I was wondering if you could go through each of your business segments and discuss how many plants are currently open, how many plants are currently closed and when you expect the closed plants to be reopen? If you could do that for the bromine business, the salt business and the chemical business individually, how many plants are currently open, closed and when you expect them to reopen?
Helen Xu: Hi, Glen. Do you mean this is your question or you mean we put this in our six-year plan?
Unidentified Analyst: No, currently in the quarter.
Helen Xu: In the quarter, okay.
Unidentified Analyst: You gave utilization, but I want to know how many plants, how many actual plants are opened in each of those businesses? How many are closed? And when you expect the closed plants to reopen? That's my first question.
Helen Xu: Okay. Okay.
Xiaobin Liu: Hi, Glen. Here is the response from Mr. Liu. First of all, there are three business segments in the company. We have bromine firstly, secondly is – bromine and crude salt firstly, secondly is our chemical segments, the third is nature gas. So, currently, we only have our bromine and crude salt segments open. The rest too including chemical and natural gas are closed. So there are one-segment opened. And in this one segment, we have bromine and crude salt. For bromine business, we have four bromine factories are open currently and there rest three are closed. So, by this year, we hope to open, at least, one more before the end of the year. So before the end of year, we would have some five factories, bromine factories in operation. Secondly, if we look at the crude salt, which have the similar case as our bromine segment, it also has four crude salt plants in operation. And before the year – end of the year, we try to get another crude salt plant in operation. So we would have some to – add sum to five crude salt plant.
Unidentified Analyst: Okay. Let me ask the question slightly differently. If all your plants were open, give me some metric on how much capacity you have, will have and how much of that is open today? So if all the bromine plants were fully open, what's the capacity when they're all open and how much is open today for bromine and salt only?
Helen Xu: Okay. Do you mean capacity in terms?
Unidentified Analyst: Yes. You can give it to me tonnes of capacity. What the capacity would be if all the plants were open? And then what is – and how much capacity is open today in bromine and salt only?
Helen Xu: Okay. Got you. Thank you. Hi, Glen. So the biggest capacity for seven bromine factories would be 13,000 tonnes per year. And for the crude salt would be 60,000 tonnes from seven bromine factories, crude salt factory.
Unidentified Analyst: So 13,000 tonnes of bromine capacity if all seven were opened and 60,000 tonnes in salt, and how much is opened today for bromine and how much is open today for salt, how many tonnes?
Helen Xu: Okay. 50,000 tonnes are crude salt.
Unidentified Analyst: Okay. And how much is opened today?
Xiaobin Liu: Okay. Hi, Glen. So, currently, the bromine production per annual is 8,000 tonnes and the crude salt is 32,000 tonnes per annual.
Unidentified Analyst: Right. One last question, you said that there is $186 million of assets in the bromine invested. How many dollars are invested in the salt? You did not give the salt number only bromine at $186 million.
Xiaobin Liu: Hi, Glen. I think for this detailed number, I may email back, how do you think, because we do not have this number on hand currently.
Unidentified Analyst: Okay.
Xiaobin Liu: Or maybe we can disclose it in our six year plan when we put it out.
Unidentified Analyst: Okay. Current liabilities in the quarter were 35 – I'm sorry, current payables, payables were $35 million in the quarter, at year end they were $10 million. Can you explain why they went up $20 million – $25 million?
Helen Xu: $25 million, okay, kay.
Unidentified Analyst: The growth in the payables.
Xiaobin Liu: So majorly because the company did some – purchased some equipments and materials.
Unidentified Analyst: For what – for what, for plant openings, what was it – what was it bought for?
Xiaobin Liu: …majorly for… …majorly because our chemical – our segments, we have older some equipments and for our bromine segments we have some projects on construction. So we have some payable and some materials for our bromine production needed.
Unidentified Analyst: Okay. My last question is what is your projection for capital spending in 2022? What's your capital spending plan for 2022?
Xiaobin Liu: Hi, Glen. So for this question we may discuss it in our six year plan later on in more detail. How do you think?
Unidentified Analyst: Okay. What is depreciation going to be for this year? What's your plan for depreciation?
Xiaobin Liu: Hi, Glen. So regarding this year like we explained at the beginning of this call, we will provide six year financial plan. So later on, on the company website – and we will hold a conference call later on when the presentation is put – will be put on the company website and which will discuss all these questions on that presentation and during the call later on, including all these depreciation, capital expenditures and detailed by segments by business segments.
Unidentified Analyst: Okay. Why six year plan and not three year plan or five year plan? Why six?
Xiaobin Liu: Hi, Glen. So because, first of all, if we take the company's chemical business segment, which may start commercial production in year 2023, and for the initial year, because it's just data, so in order to experience the business value of this segment, we think a six year would be more valuable to our shareholders. And the similar case to our share – to our natural gas segments, because we would put like the approval – need the approval from the government and the company needed to do some more projections on this project as well and in order for our shareholder to see the business value of this project as well. So the sixth year would be more reasonable year for us to do the assumption.
Unidentified Analyst: Okay. I'll let someone else to ask. I've been asking a lot of questions. I thank you for your answer.
Helen Xu: Okay. Thank you. Okay, you're welcome.
Operator: Your next question for today is coming from Asher Stein . Please announce your affiliation then pose your question.
Unidentified Analyst: Hi, good morning. I'm an individual. My first question is a follow up to the previous caller's question about the $ 25 million in payable expenses. So you answered that, part of that is due to expenses relating to the chemical factory. But in the notes to the balance sheet, it says that the expense that incurred in relation to the chemical plant didn't increase from the end of year 2021, still at around $45 million. So how do you reconcile that? Meaning if a $25 million in debt was incurred in relation to the chemical factory, should that number $45 million have increased also?
Xiaobin Liu: Hi, Asher. Let me explain that. Just now we did mention that the major increases are due to the construction projects for our bromine business segments.
Unidentified Analyst: Right. But you also said that it was because of expenses of equipment for the chemical plant. So why was on that – why was those…
Helen Xu: That is like a minor part. There is some, but not my major part. And because Ms. Liu did not put this way in the first, maybe my translation did not put his comments on the first.
Unidentified Analyst: And those expenses for the bromine plants, are those – was that going towards reopening the closed plants or is that going to improvements on the opened plants?
Xiaobin Liu: The expenses are on the operating plants for the improvement.
Unidentified Analyst: Of the operating plants, okay, got it. My second question is about share buybacks. So, we were first told that it couldn't be done. And then we were told that it could be done, but the company is holding onto their cash in case an investment opportunity arises. I just want to know, does the company feel that shares of their own company at $3.50 is not a good investment that the company should jump on with their $105 million in cash? Why did the company not feel that their own share is a good investment?
Xiaobin Liu: Actually, I didn't get your point.
Unidentified Analyst: My question was that at the last earning calls you said that the reason why you weren't – the company wasn't pursuing share buybacks at this time was they want to have cash on hand in case an investment comes up. I want to know, does the company not feel that their own shares at $3.50 is a good investment?
Xiaobin Liu: Okay. So, actually, firstly, the company wants to position itself at its business operation. So, our chemical segment, which may need more investments, and for cash and our tie in our initial gas business segments also needs more investment as well. So we needed to keep our cash on hands in order to make sure our future business can operate well when they need cash.
Unidentified Analyst: Okay. I would just suggest for the company to reconsider its position on that because no matter how well the company is operating, as we see now is operating great. And we appreciate that. But the company has yet to find a way to return the value to shareholders. As well as the company is operating, I think, the owners of the company would appreciate some return of their investment.
Xiaobin Liu: Okay. Thank you, actually. Okay, thank you.
Unidentified Analyst: Thanks a lot
Xiaobin Liu: You are welcome.
Operator: Your next question for today is coming from Bill Bender . Please announce your affiliation, then pose your question.
Unidentified Analyst : Good morning. Thank you for your time today. An individual and investor for over 11 years. And some of the previous people had mentioned your numbers are terrific this quarter. I'm sure the six-year plan is going to look terrific. The outlook always has been with the cash balance and the book value per share. But I'm concerned with the focus on shareholder value. We know the businesses, we know they are profitable. My question is if we're not going to do buybacks, is it possible to pay a dividend? Obviously just performing, isn't bringing the value to us. I have been a patient shareholder since the beginning. And I do recall a few quarters ago Chairman making some comments about the awareness. I know they have changed their compensation. And I just would like to know without deferring to the six-year plan, that there is a plan to bring shareholder value back to this company so that we can see a runway here of potential success. In general, would there be a dividend, would there be a buyback? What the plan is in general, if we could answer that rather than defer to the six-year plan? I would appreciate it. Thank you.
Xiaobin Liu: Okay. Thank you, Bill. Hi Bill. Yes. We will consider this like the plan to reward our shareholders, based on that we can make sure our business operations can go well.
Unidentified Analyst : Well currently…
Xiaobin Liu: part of the plan.
Unidentified Analyst : Now currently it appears to be going very well. So, I guess my second question would be how well do we have to be doing to be considering? Because earnings are clearly going to be back this year. Balance sheet is better than any, we have positive cash flow. So when we say the business is doing well, we compare that to other companies here in the United States. How well is, well, I guess would be my question. And is there a concern that our business is located in China and there is a lot of concern about technology, but do we have any concern at all with the geopolitical of where we're located, is that causing us any issues as shareholders on a regulatory basis that we should be made aware of?
Helen Xu: Okay. Thank you.
Xiaobin Liu: So the company major concern is the continuing impact of the national policies on the companies. For example, due the government policy changes, we still have three bromine manufacturers closed, and which did not start operation yet. And for years, our natural gas project in Sichuan – did not get the government approvals yet. This are the company's major concern.
Unidentified Analyst : Okay, thank you. I would suggest in this six-year plan that they could tie in their plans as a company for those items that we're all concerned with that. For example, if we open another plant or two, we do plan buybacks and/or dividends, so that as the six-year plan rolls out, we all, as shareholders can have an idea of the runway for us, the shareholders. So thank you for the call today.
Xiaobin Liu: Okay. Thank you're welcome.
Unidentified Analyst : Xiaobin Liu: Okay, well noted. Thank you Bill.
Operator: There are no further questions in queue.
Xiaobin Liu: Okay. Hi operator if there is no more questions, can we close the call for today? Thank you. Thank you everyone for attending this call. You have a good night. Thank you. Bye-bye.
Operator: Thank you, ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Xiaobin Liu: Thank you operator. Bye-bye.
