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Gushan Environmental Energy Limited (GU)

F4Q11 Earnings Call

April 27, 2012 8:30 AM ET


Wilson Kwong – President



Welcome to Gushan Environmental Energy Limited Q4 and Full Year 2011 Results Earnings Conference Call.

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At this time all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. (Operator Instructions). I must advise you that this conference is being recorded today, Friday, 27


of April, 2012.

I would now like to hand the conference over to your speaker today, Mr. Wilson Kwong, President of Gushan Environmental Energy. Sir, please go ahead.

Wilson Kwong

Good morning ladies and gentlemen and welcome to Gushan’s fourth quarter 2011 earnings call. Joining me on the call is Frank Chan, Principal Financial Officer of Gushan.

Please note that today’s discussion may contain forward-looking statements made under the Safe Harbor provisions of U.S. federal securities laws. Please see today’s press release under the section Safe Harbor statement for a discussion of risks and uncertainties that may affect our results.

Before opening the call to questions, I would like to briefly review our fourth quarter and full year 2011 results.

Gushan reported total revenues of $63.5 million for the fourth quarter of 2011, an increase of 70.4% year-to-year and a decrease of 15.9% quarter-on-quarter. Virtually all of the company’s revenue for the quarter was provided by our recycled copper product business. The two consolidated subsidiaries comprising our recycled copper product business, Mianyang Jin Xin Copper and Hunan Yinlian Xiangbei Copper provided for the $1.8 million and $21.1 million in revenue respectively. The company holds a 75% beneficial ownership interest in each of these two subsidiaries.

Combined fourth quarter revenue from our recycled copper products business totaled $62.9 million, down 15.4% quarter-on-quarter from the third quarter of 2011. Revenue from Jin Xin declined 37.6% quarter-to-quarter, largely reflecting a 28% drop in sales volume of recycled copper products. This was partly offset by a sharp increase in Xiangbei’s contribution to revenue following consolidation of its operating results in August 2011.

The quarter-on-quarter decline in revenue and sales volume at Jin Xin was mainly due to a decrease in raw material supply, as suppliers opted to hold on to inventories in the face of declines in copper raw material prices during the quarter. Unit costs of raw materials for the quarter were down 11.7% year-over-year and 23.5% quarter-to-quarter to RMB42,872 per ton while average selling prices of our recycled copper products decreased 5.7% year-over-year and 14.9% quarter-on-quarter to RMB50,615 per ton.

Revenue from the company’s biodiesel business totaled $0.6 million for the fourth quarter of 2011, down 87.1% year-to-year and up 116.1% quarter-to-quarter. On biodiesel sales volume of just 82 tons for the fourth quarter reflecting continued suspension of production at most of our biodiesel plants due to raw material shortages and the slowing PRC economy. I would address the future of our biodiesel business shortly.

For the full year, revenue totaled $230.3 million, up 254.9% from 2010. Full year revenue from our recycled copper business totaled $221.9 million, increase of 581% over 2010, reflecting the consolidation Jin Xin’s operating results beginning in November 2010 and the consolidation of Xiangbei’s result beginning in August 2011. For 2011, revenue contributions of Jin Xin and Xiangbei were $192.6 million and $23.3 million respectively. Sales volume of recycled copper products for the full year of 2011 were 20,288 tons at Jin Xin and 280,066 tons at Xiangbei.

For the full year, average selling prices of our recycled copper products rose 6.4% to RMB57,113 per ton while average unit cost of raw materials increased 8.5% year-over-year to RMB52,671 per ton.

In 2011, profit margin of recycled copper business was enhanced by the increase in proportion of sales of scrap and processing income, which commends the higher profit margin than major recycled copper products.

For the full year, biodiesel revenue totaled $8.5 million, a decrease of 73.8% from 2010. Biodiesel sales volume decreased 80.7% to 8,178 tons. Average selling prices of our biodiesel products rose 27.5% year-over-year to RMB5,742 while our average raw material unit cost for vegetable oil offal and used cooking oil increased 24% to RMB4,431.

For the fourth quarter, the company reported gross profit of $4.9 million comprising a gross profit of $7.2 million from the recycled copper products business and a gross loss of $2.3 million from the biodiesel business. The gross profit margin for the recycled copper products business for the quarter was 11.5% compared to a gross profit margin of 6.5% in the fourth quarter of 2010. The gross loss margin from the biodiesel business was 388.3% in Q4 2011 compared to a gross loss margin of 19.3% excluding unresolved consumption tax provision in the fourth quarter of 2010.

For the full year 2011, the company reported gross profit of $7.1 million consisting of gross profit of $11.9 million for the recycled copper products business representing a gross profit margin of 5.4% and a gross loss of $4.8 million for the biodiesel business representing a gross loss margin of 56.5%.

At the end of 2011, in view of our changes to the operating environment, in particular, the continued raw material supply shortages which resulted in the uncertainty of weather, the company would be able to receive normal economic production of biodiesel and biodiesel byproducts on a sustainable basis in the near future, the company in accordance with relevant (inaudible) rules recognized impairment losses of $95.8 million on certain property plant and equipment and a goodwill impairment of $6.6 million in the fourth quarter of 2011.

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