Fiscal 2011 Yearend Investor Conference Call Script
2011 Fiscal Yearend Conference Call Script
Welcome to the Fiscal 2011 Yearend earnings conference call for China Direct Industries. For those of you who may be new to the company, China Direct Industries trades on the NASDAQ global market under the symbol, CDII.
China Direct Industries is a US-based company with operations in China and the Americas focusing on pure magnesium production, distribution of basic materials and metal ores, and cross boarder corporate advisory services.
Headquartered in Deerfield Beach, Florida, China Direct Industries has a unique infrastructure that provides a platform to expand business opportunities globally while effectively and efficiently accessing the U.S. capital markets. For more information on the company, please visit its web site at www.cdii.net .
Our call today is hosted by Mr. Andrew Wang, CFO, and Richard Galterio, Vice President. Additionally Dr. James Wang, CEO and Chairman, will also be available during the Q&A session that will follow management's discussion of the full year ended September 30, 2011.
At this time, I would like to refer to the Safe Harbor statement under the Private Securities Litigations Reform Act of 1995.
During this conference call, management may discuss financial projections, information or expectations about the company's products or markets, or otherwise make statements about the future, which statements are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements made.
These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission including its most recent form 10k.
At this time, I would like to introduce Mr. Richard Galterio, Vice President of China Direct Industries. Mr. Galterio, you may begin your call.
Richard Galterio - China Direct Industries, Inc. ? Vice President
Thank you (operator ) and all of you who are joining us for our Fiscal 2011 year end conference call. I'm pleased to announce that China Direct Industries recorded revenues of $187.8 million for the fiscal year ended September 30, 2011, up 66.6% compared to $112.7 million recorded in fiscal 2010. Our gross profit reached $19.5 million, up 171% compared to gross profit of $7.2 million recorded in fiscal 2010. Net income attributable to China Direct Industries for the full year was $9.3 million, a substantial improvement compared to a net loss of $3.2 million recorded in fiscal 2010. Earnings per basic share reached $0.26 in fiscal 2011 on 36.1 million weighted average shares. Earnings per diluted share were $0.25 in fiscal 2011 on 36.8 million weighted average shares. This compares to a net loss of ($0.11) for basic and diluted share in fiscal 2010 on 29.6 million weighted average shares.
Our improvement in performance was evident across all of our business segments in fiscal 2011.
First, in our Magnesium segment we witnessed a continued improvement in pricing and volumes throughout the course of fiscal 2011. We generated $99.9 million in revenues in fiscal 2011 up by 95.3% from the $51.1 million in revenue recorded in fiscal 2010. Our average selling price was $2,703 per metric ton, up over 15% from the average selling price of $2,348 in fiscal 2010. We shipped 36,637 metric tons of magnesium products during this fiscal year, an increase of 68.2% from shipments of 21,786 metric tons in fiscal 2010. We continued with our consolidation plan, acquiring the remaining 48% non-controlling interest in Golden Magnesium, making it a wholly owned subsidiary of our company and by entering in to a definitive agreement, subject to shareholder approval, to acquire 100% of Golden Trust Magnesium Industry Co., Ltd. and 80% of Lingshi Xinghai Magnesium Industry Co., Ltd. We also sold our stake in Pan Asia Magnesium for $3.05 million in cash, providing us with more liquidity for our operations.
Overall, the improvement in average sale price and sales volume enabled us to achieve bottom line profitability in the fourth quarter of fiscal 2011 with net income attributable to China Direct Industries of approximately $243,000 for this segment.
In our Basic Materials segment, overall revenues totaled $68.9 million, an increase of 17.2% when compared to fiscal 2010. We continue to see a marked improvement in our chemical operations where revenue in fiscal 2011 was up15.9% from fiscal 2010. Revenue from CDI Beijing declined by 3.5% compared to fiscal 2010 due to reduced demand from slower urban infrastructure expansion in China. Throughout the course of fiscal 2011 we have established domestic logistics and materials processing capabilities in Mexico, Bolivia and Chile for our international commodities business which began generating revenue in fiscal 2011. We also established an ongoing relationship with a leading European logistics and trading solutions company to sell our sourced iron ore for delivery into China. In the latter half of fiscal 2011we worked with our suppliers and local governmental authorities to obtain the necessary permits and approvals to process and export iron ore on a continuous basis in these countries. While this delayed our ability to ship already processed ore in the fourth quarter of fiscal 2011, we believe we are now positioned to progressively build revenue from these operations throughout fiscal 2012 and for the foreseeable future.
In our Consulting segment we achieved a very strong performance with revenues reaching $19.0 million compared to $2.8 million recorded in fiscal 2010. During fiscal 2011, we added two clients through our increased marketing efforts in the U.S. and in China. Additionally, we recently launched a new marketing initiative for our One-Stop China Value TM program. This program is designed to implement a broad range of strategies to enhance and maximize shareholder value for China-based U.S. listed companies. We are confident that the current environment for our services coupled with our marketing efforts will enable us to add additional clients in fiscal 2012 to further strengthen this segment.
Overall, we are pleased to have completed a return to profitability and strong growth in our operations and will look to continue to build on that growth in fiscal 2012. We finished fiscal 2011 with a strong balance sheet having cash of $12.6 million and prepaid expenses of $14.4 million compared to cash of $10.1 million with $8.6 million in prepaid expenses at the end of fiscal 2010.
We will continue to execute on our strategy of being a global leader in the magnesium industry and to globally diversify our revenue through our commodities business and consulting operations. I would now like to turn the call over to our chief financial officer to discuss the full year in more detail. Andrew?
Andrew - China Direct Industries, Inc. ? CFO
Thank you, Richard.
For the fiscal year 2011, China Direct Industries recorded consolidated revenues of approximately of $187.8 million up 66.6% compared to $112.7 recorded in fiscal 2010 . Gross profit for the period was $19.5 million, a 171% improvement over the $7.2 million in gross profit recorded in fiscal 2010. After including other income and operating expenses, we recorded a net income attributable to common stockholders of $9.2 million. This compares to a loss of $3.3 million for fiscal 2010.
Our net income applicable to stockholders resulted in basic income per share of $0.26 on 36.1 million weighted average shares and diluted income per share of $0.25 on 36.8 million weighted average shares for fiscal 2011. This represents a substantial improvement from the loss of ($0.11) per basic and diluted share on 29.6 million weighted average shares recorded in the fiscal 2010. These results reflect the stronger growth in all of our business segments in fiscal 2011.
Revenues from our magnesium segment in fiscal 2011reached $99.9 Million, up 95% compared to $51.1 million recorded in fiscal 2010. Shipment volume and average pricing per ton increased progressively throughout fiscal 2011. We shipped 36,637 metric tons during fiscal year 2011, up 68.2% from shipments of 21,786 metric tons of magnesium products in the comparable prior year. Average sale price of our magnesium product per ton increased to $2,703 in fiscal 2011, up 15.1% from $2,348 realized in the prior year as magnesium prices incrementally improved throughout fiscal 2011. The improvement in average sale price and sales volumes enabled our magnesium segment to achieve net profitability in the fourth quarter of fiscal 2011 with net income attributable to China Direct Industries of approximately $243,000. For fiscal 2011, gross profit for this segment was $3.2 million, inclusive of $2.5 million in depreciation expenses, an increase of 81.9% compared to gross profit of $1.8 million, inclusive of $1.3 million in depreciation, recorded in fiscal 2010. Our magnesium operations resulted in an operating loss of ($865,000) including $4.3 million in depreciation related expenses. This compares to fiscal 2010 operating loss of ($897,000) inclusive of $2.6 million in depreciation related expenses.
Our basic materials segment revenue totaled approximately $68.9 Million in fiscal 2011, an increase of 17% compared to the $58.8 Million recorded in fiscal 2010. Our basic materials segment generated a gross profit of $3.8million in fiscal 2011, up 22.5% compared to $3.1 million recorded in fiscal 2010. Operating income for fiscal 2011 was $129,000 (inclusive of $700,000 in accruals for legal expenses and selling and commission expenses) compared to $174,000 recorded in fiscal 2010. Performance at our Lang Chemical operations was strongest with revenues up by 15.9% to $47.0 million. In addition our industrial commodities trading division contributed $4.3 million in revenues during fiscal 2011.
Revenue from our consulting segment increased to $19.0 million in fiscal 2011, up 586% from the $2.8 million recorded in fiscal 2010. Gross profit for this segment totaled $12.5 million compared to $2.3 million recorded in the fiscal 2010. We recognize all of our management and corporate overhead in this segment, and recorded an operating income of $7.3 million in fiscal 2011 as compared to a loss of ($3.5 million) in fiscal 2010. Our strong performance for this segment was mostly attributable to fees earned for consulting services provided to two new clients during fiscal 2011. Revenue in our consulting segment varies depending upon the level of service, transactional events and the addition of new clients.
From an overall balance sheet prospective we remain well positioned for future growth. We ended the 2011 fiscal year with $12.6 million in cash and cash equivalents with prepaid expenses of $14.4 million compared to cash and cash equivalents of $10.1 million with $8.6 million in prepaid expenses at September 30, 2010. Working capital improved to $44.5 million compared to $30.3 million at September 30, 2010.
In summary, we are pleased with the strong performance from various business segments and believe we can build on this momentum in the coming fiscal year. We continue to devote substantial efforts in improving our internal controls. We successfully completed implementation of our new UFIDA NC Enterprise Resource Planning (ERP) financial account software system at Golden Magnesium and we intend to finish corporate-wide implementation throughout our organization in the coming quarters. We are also rationalizing and streamlining our magnesium operations to reduce costs and increase operating efficiencies. We have taken a conservative approach to our balance sheet and positioning our operations to be more streamlined and focused. We believe our current staffing levels are appropriate and any additions or reductions to staff will reflect the prevailing environment. We will continue to look to reduce costs where necessary and maintain inventory levels appropriate to our level of business. Our balance sheet remains strong we believe we are well positioned for the future.
At this time, I'll turn the call back over to Richard for some closing comments.
Thank you, Andrew.
The overall environment in our various segments strengthened throughout fiscal 2011 and we now look to build on our momentum in fiscal 2012. Our magnesium customers in various industries including automobile manufacturing, aluminum alloying and steel production look to be further strengthening in calendar 2012. The current environment for our consulting operations remains strong and we anticipate adding additional clients as well as closing a significant transaction in the near future and we are working diligently to bring this to fruition. Our commodities business is now positioned to progressively grow through our established operations in Mexico, Chili and Bolivia.
As we look out into fiscal 2012 we are confident that we can continue to produce growth in our top and bottom line performance. The degree of improvement will be dependent on several factors:
First, as we believe magnesium will be the largest driver of revenue in fiscal 2012, our performance will be largely dependent on the strength of the market, as well as the approval and timing for closing our proposed acquisitions of Golden Trust Mag and Lingshi Mag. We currently have a production capacity of 50,000 metric tons and these two acquisitions would increase that capacity by about 60%. Additionally, we believe overall supply out of China will contract in 2012 as governmental regulations and energy costs for producers using coal as fuel will make those operations less viable.
Second, as we believe we have cleared regulatory hurdles in Mexico and South America that delayed our ability to deliver commodities on a continuous basis into China. We expect to progressively build this business and anticipate it will be the leading driver of growth in basic materials in addition to providing revenue diversification geographically.
Third, as we have previously stated we anticipate the near term closing of a transaction in our consulting segment and anticipate the addition of new clients resulting from our stepped up marketing efforts.
And fourth, we are evaluating certain opportunities in the U.S. and South America as we look to geographically diversify our business for the future.
While we believe our overall top and bottom line performance will improve in fiscal 2012, a number of these factors will become substantially clearer by the time we report our fiscal 2012 first quarter results in early February, and will enable us to provide more detailed financial guidance for the fiscal year at that time.
In closing, I would like to emphasize that we are confident that our strong balance sheet place us on a solid foundation for a growing future. Additionally, the investments we have made in magnesium and international commodities, coupled with strength in our consulting operations place us in strong position to deliver improved results in fiscal 2012.
Before I begin the Q&A I would like to address a point about our NASDAQ listing. As we mentioned in a press release regarding our stock trading below $1 we would like to emphasize that management is considering a number of initiatives and alternatives with regard to this situation. While we are confident that we will regain compliance through corporate performance, should we need an additional 180 days we could elect to move to the nasdaq capital market. Our board is also evaluating a stock repurchase program.
We remain steadfast in our belief in our business plan and our entire team continues working diligently to reach that goal. Allow me to thank you all again for joining us and now operator please begin the formal Q andA.