Gushan Environmental Energy Limited (Gushan Environmental Energy) has reported revenues of RMB332.8 million for the first quarter of 2009, compared with the revenues of RMB272.7 million in the year-ago quarter. It has also reported a net income of RMB111.2 million for the first quarter of 2009, compared with the net loss of RMB2.3 million in the year-ago quarter.
The impact of the global economic slowdown, falling world oil prices and contraction in China’s industrial production made for a very challenging environment during the first quarter and this was reflected in Gushan’s results, said Jianqiu Yu, Chairman and Principal Executive Officer of Gushan. While the global economic outlook remains uncertain, there are some signs that industrial activity in China is recovering and we believe that Gushan’s position as one of China’s leading biodiesel producers, strong financial position and strong customer and supplier relationships leave it well-positioned to benefit from any economic improvement.
Revenues
The company’s revenues amounted to RMB272.7 million ($39.9 million) for the first quarter of 2009, representing a decrease of 18.1% from RMB332.9 million for the first quarter of 2008 and a decrease of 13.5% from RMB315.1 million for the previous quarter. The decreases in revenues on both a year-to-year basis and a sequential quarterly basis were mainly due to a decrease in average selling prices of both biodiesel and biodiesel by-products and a slight decrease in sales volume of the Company’s biodiesel by-products.
The sales volume of biodiesel amounted to 63,290 tons for the first quarter of 2009, representing an increase of 22.3% from 51,761 tons for the first quarter of 2008 and an increase of 12.9% from 56,063 tons for the previous quarter.
The average selling price of biodiesel was RMB4,003 ($585.8) per ton for the first quarter of 2009, representing a decrease of 27.4% from RMB5,512 per ton for the first quarter of 2008 and a decrease of 21.4% from RMB5,092 per ton for the previous quarter.
The sales volume of biodiesel by-products amounted to 5,888 tons for the first quarter of 2009, representing a decrease of 3.1% from 6,074 tons for the first quarter of 2008, and a decrease of 2.3% from 6,025 tons for the previous quarter.
The average selling price of biodiesel by-products was RMB3,289 ($481.3) per ton for the first quarter of 2009, representing a decrease of 58.0% from RMB7,824 per ton for the first quarter of 2008 and a decrease of 33.2% from RMB4,921 per ton for the previous quarter.
The year-to-year increase in the sales volume of biodiesel was mainly due to the commencement of production at the Company’s Shanghai plant in June 2008 which added an additional 50,000 tons to the Company’s annual biodiesel production capacity. The sequential quarterly increase in sales volume was principally attributed to the fact that Fujian Gushan Biodiesel Energy Co., Ltd. (Fujian Gushan), Sichuan Gushan Vegetable Fat Chemistry Co., Ltd. (Sichuan Gushan) and Handan Gushan Bio-Sources Energy Co., Ltd. (Handan Gushan) each had resumed production after having suspended production for a few weeks in November and December 2008 due to repairs and maintenance.
The year-to-year and sequential quarterly decrease in the average selling price of biodiesel was principally attributed to a decline in the market price of diesel in China which commenced in the fourth quarter of 2008 and continued throughout the first quarter of 2009 resulting from a significant decrease in global oil prices and to the rapid contraction of China’s industrial production amid the global financial crisis.
The overall decreases in sales volume of biodiesel by-products on both a year-to-year basis and a sequentially quarterly basis were mainly due to decreased sales volumes of erucic acid and erucic amide produced by Sichuan Gushan resulting from the lower amount of rapeseed content in the feedstock used at the Sichuan plant. The decreases were partly offset by the increased sales volumes of glycerine and plant asphalt contributed by Beijing Gushan Bio-sources Energy Co., Ltd. (Beijing Gushan) and Shanghai Gushan Bio-Energy Technologies Co. Ltd. (Shanghai Gushan), as both companies commenced operations in 2008.
The average selling prices of all biodiesel by-products decreased individually on both a year-to-year basis and a sequential quarterly basis as a result of a rapid decline in market prices of raw materials in the chemical industry caused by China’s slowing economy.
Cost of Revenues
Cost of revenues for the first quarter of 2009 totaled RMB245.0 million ($35.9 million), representing an increase of 26.4% from RMB193.8 million for the first quarter of 2008 and a decrease of 1.7% from RMB249.3 million for the fourth quarter of 2008. This increase on year-to-year basis was principally attributable to increases in the Company’s production volume and in overall average unit costs for vegetable oil offal and used cooking oil. The decrease of cost of revenues on a sequential quarterly basis was principally due to the decrease in the overall average unit cost of feedstock.
Overall average unit cost of feedstock, which mainly comprised used cooking oil and vegetable oil offal, amounted to RMB2,430 ($355.6) per ton in the first quarter of 2009, representing an increase of 6.2% from RMB2,288 per ton in the first quarter of 2008 and a decrease of 10.1% from RMB2,704 in the fourth quarter of 2008. The year-to-year increase in costs of feedstock was caused by the increase in the Company’s suppliers’ costs which are primarily affected by general cost inflation, particularly in labor and
transportation, in China, as well as a general increase in prices charged by its suppliers. The decrease in costs of feedstock on a sequential quarterly basis resulted from the Company’s efforts in negotiating for price reductions with its suppliers.
Gross Profit
The Company’s gross profit for the first quarter of 2009 totaled RMB27.7 million ($4.1 million), representing a decrease of 80.1% from RMB139.1 million for the first quarter of 2008 and a decrease of 57.8% from RMB65.8 million for the fourth quarter of 2008. The Company’s gross profit margin decreased to 10.2% for the first quarter of 2009 from 41.8% for the first quarter of 2008 and 20.9% for the fourth quarter of 2008. On a year-to-year basis, the average unit costs of the Company’s raw materials increased by 6.2% while the average selling prices of its biodiesel and biodiesel by-products decreased by 27.4% and 58.0%, respectively. On a sequential quarterly basis, although the average unit costs of the Company’s raw materials decreased by 10.1%, the average selling prices of its biodiesel and biodiesel by-products decreased at a higher rate of 21.4% and 33.2%, respectively. Both trends accounted for the decrease in the Company’s gross margin.
Research and Development Expenses
Research and development expenses totaled RMB0.4 million ($0.1 million) in the first quarter of 2009, representing a slight decrease compared to RMB0.5 million for the first quarter of 2008 and RMB1.0 million for the fourth quarter of 2008.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first quarter of 2009 totaled RMB25.6 million ($3.7 million), representing an increase from RMB16.2 million for the first quarter of 2008 and a decrease from RMB32.8 million for the fourth quarter of 2008.