Gushan Environmental Energy Ltd. (GU)
Q2 2011 Earnings Call
August 23, 2011 8:30 am ET
Wilson Kwong – President
Frank Chan – Principle Financial Officer
Jin Ming Liu – Ardour Capital
Previous Statements by GU
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Good day ladies and gentlemen and welcome to the Second Quarter 2011 Gushan Environmental Energy Limited Earnings conference call. My name is Iana and I’ll be the operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. If at any time you require operator assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the conference over to your host, Mr. Wilson Kwong, President of Gushan Environmental Energy. Please proceed, sir.
Good morning ladies and gentlemen and welcome to Gushan’s Second Quarter 2011 Earnings call. Joining me on the call is Frank Chan, Principle 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 results for the second quarter of 2011. Gushan reported its third consecutive quarter of revenue growth in the second quarter of 2011, reflecting the contribution of the Company’s recycled copper product business, Mianyang Jin Xin Copper Company Limited, which was acquired in November 2010 as part of Gushan’s ongoing diversification strategy. Total revenues for the quarter rose 443% year-to-year and 32% quarter-on-quarter to 50.6 million. Jin Xin Copper contributed 47.2 million in revenue, up 37.2% quarter-to-quarter from the first quarter of this year and accounted for all the growth in revenue in the second quarter of 2011.
Sales volume of recycled copper products rose 33.9% quarter-to-quarter to 4,958 tons. The higher volume in the second quarter of 2011 reflected an increase from lower production in the first quarter of 2011 which was impacted by the Chinese New Year holiday in February and a temporary contraction in our business operations during a period of significant market volatility immediately following the earthquake in Japan in March.
For the second quarter of 2011, revenues from the Company’s biodiesel business declined 63% year-to-year and 12.9% quarter-on-quarter to 3.4 million. Biodiesel sales volume in the second quarter of 2011 was down 73.8% year-to-year and 25.8% quarter-on-quarter to 3,361 tons. The year-to-year decline in biodiesel revenue and sales volume were attributable to suspension of production at the Company’s Sichuan plant in August 2010 while production lines were relocated to the Company’s new Sichuan plant. The quarter-to-quarter declines were attributable to a decrease in production and sales volume at our Beijing and Hebei production plants as a result of the Company’s strategy to avoid negative operating cash flows due to increasingly high raw materials costs.
During the second quarter, we saw rises in average selling prices in both our recycled copper products business and biodiesel business. Average selling prices for our recycled copper products for the second quarter of 2011 rose 1.8% quarter-to-quarter to RMB 60,638 per ton. Average selling prices for biodiesel also rose significantly during the quarter. In the second quarter of 2011, the average selling price of our biodiesel products rose 38.7% year-to-year and 14.6% quarter-on-quarter to RMB 6,156 per ton, continuing the improvement in average selling prices which began in the fourth quarter of 2009.
Cost of revenues for the second quarter of 2011 increased 242.5% year-to-year and 32% quarter-to-quarter to 49.7 million, largely reflecting the impact of Jin Xin which accounted for 45.6 million of those costs. Cost of revenues at Jin Xin increased 39.2% quarter-to-quarter largely as a result of higher raw material costs, which rose 4.4% quarter-to-quarter to RMB 58,657 per ton and an increase in sales volume by 34% to 4,958 tons.
Cost of revenues for the biodiesel business totaled 4.1 million in the second quarter of 2011, representing a decrease of 71.9% year-to-year and 16.5% quarter-to-quarter. Excluding the effects of the provision for consumption tax in the second quarter of 2010, which was reversed in the fourth quarter of that year, cost of revenues for the biodiesel business decreased 70.7 year-to-year. Whilst biodiesel selling prices rose in the second quarter of 2011, that rise was offset by a continued increase in the cost of our raw material feedstock. The overall average unit cost of our raw material input increased 32.5% year-to-year and 16.3% quarter-to-quarter to RMB 4,770 during the second quarter of 2011.
For the second quarter of 2011, the Company reported gross profit of 0.9 million comprising a gross profit of 1.5 million attributable to the recycled copper products business and a gross loss of 0.6 million from the biodiesel business. This translated into a gross profit margin for the quarter of 3.3% for the recycled copper products business, down slightly from a gross profit margin of 4.7% in the first quarter of 2011. The gross loss margin for the biodiesel business in the second quarter of 2011 was 18.6% compared to a gross loss margin of 23.7% in the first quarter of 2011 and a gross loss margin excluding the effects of the consumption tax provision of 49.4% for the second quarter of 2010.