SOURCE: Guanwei Recycling Corp.

Guanwei Recycling Corp.

May 15, 2014 07:40 ET

Guanwei Recycling Corp. Reports 2014 First Quarter Results

Weaker Than Anticipated Economic Environment Impacts Results and Near Term Outlook

2014 First Quarter Investor Conference Call to Be Held Friday, May 16, 2014 at 8:00am ET

FUQING CITY, CHINA--(Marketwired - May 15, 2014) - Guanwei Recycling Corp. (NASDAQ: GPRC), China's leading clean tech manufacturer of recycled low density polyethylene (LDPE), today reported that weaker than anticipated demand from customers, a worsened South China labor shortage in the quarter, and changes in manufacturing implemented to comply with new government environmental rules, were key factors in generating lower year over year comparisons in its first quarter ended March 31, 2014.

While the Company saw prices for its manufactured LDPE continue to advance moderately in the 2014 first quarter, sales volume declined approximately 22% year over year, leading to a 20.6% year over year decrease in first quarter revenues to $11,780,338. This was coupled with an increase in the cost of manufacturing to 85.93% of net revenue from 73.86% in the first quarter last year which, combined with lower sales, resulted in a 68.04% year over year reduction in 2014 first quarter net income to $756,066.

Mr. Chen Min, Chairman and CEO of the Company, commented, "While the economic outlook for most of our customers going into the year was uncertain, as the quarter developed it became clear they were proceeding with much more caution than anticipated. At the same time, the labor situation in Southern China also got a lot tougher as reflected in the fact that following the Chinese Spring Festival in February, many more experienced workers than anticipated, including ours, did not return to their positions. This slowed our production and increased our labor costs as we raised wages and benefits to try to quickly attract and train new workers. This occurred as the government imposed new procedures on the industry to further improve environmental standards which also slowed production and increased our cost structure. This unusual confluence of negative occurrences, coupled with a somewhat higher than planned increase in raw material costs, is reflected in our results. Mr. Chen added, "Unfortunately, at least for the next quarter or two, these events are likely to continue to affect year over year comparisons, unless and until we see, in particular, an improvement in the domestic Chinese economy."

Continued Financial Strength

Mr. Chen noted further that the Company remained in a strong financial position, with no bank debt and cash and cash equivalents of $14,860,475 as of March 31, 2014, up from $13,491,880 at the same time last year. Working capital as of March 31, 2014 was $45,553,532, an increase of $94,342 from December 31, 2013.

Financial Highlights

  • Revenues for the three months ended March 31, 2014 were $11,780,338, down 20.62% from $14,839,806 in last year's first quarter. The lower results were mainly a consequence of lower sales of the Company's principal product, self-manufactured recycled LDPE, down 20.64% year over year as customers facing economic uncertainty reduced orders. 
  • Average selling prices of recycled LDPE increased 1.55% per ton to approximately $1,242 in the 2014 first quarter. However, during the quarter the Company sold 9,275 tons of recycled LDPE, a decline of 21.84% from the 11,867 tons sold in the first quarter last year. Sales of non-LDPE materials also declined year over year by approximately 19.7%, and prices for this material were slightly lower. 
  • Net income in the 2014 first quarter was $756,066 or $0.07 per share, compared with $2,365,393, or $0.23 per share in the first quarter of 2013. The primary factor in this decline as described above was the decrease in sales volume year over year as a result of the economic slowdown in China, and increases in key costs, namely raw material costs which increased 13.05% to $866 per ton and outpaced the increase in selling prices, as well as a 27% increase in labor costs to $61 per ton for the reasons described above. Additional costs were incurred for new infrastructure procedures required by the government to limit pollution.
  • In January 2014, the Company received government approval for an import quota of 100,000 tons of raw material for the year, which brought the Company's total quota for the year to 135,000 tons, based on its ability to also utilize the import quota of Fuqing Huan Li Plastics Company.

Outlook

"While the near term outlook has become cloudier," Mr. Chen stated, "we are doing what we can about the situation and are fortunate to have strong financials and a committed and experienced management team to help weather the storm. In particular, we are focused on maintaining the cost differential between recycled and virgin plastic and working closely with our customer base to be responsive to their needs. The key boost required to improve the outlook must come, though, from an improved economy."

Conference Call Invitation
The Company will discuss 2014 first quarter results during a live conference call and webcast on Friday, May 16, 2014 at 8:00am ET.

To participate in the call, interested participants should call 1-877-941-2068 when calling within the United States or 1-480-629-9712 when calling internationally. Please ask for the Guanwei Recycling Corp. 2014 First Quarter Conference Call, Conference ID: 4683630. There will be a playback available until May 23, 2014. To listen to the playback, please call 1-877-870-5176 when calling within the United States or 1-858-384-5517 when calling internationally. Use the Replay Pin Number: 4683630.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://public.viavid.com/index.php?id=109286 or at ViaVid's website at http://viavid.com.

Description of Guanwei Recycling Corp.

Adhering to the highest "green" standards, Guanwei Recycling Corp. (the "Company") has generated rapid growth producing recycled low density polyethylene (LDPE) from plastic waste procured mostly in Europe. The Company sells the recycled LDPE to more than 300 customers (including over 150 active recurring customers) in more than ten different industries in China. The Company is licensed by Chinese authorities and also has been issued a Compliance Certificate by TÜV Rheinland, which issues certificates of approval for certain plastics manufacturers that meet Germany's strict environmental standards. This enables the Company to procure high quality plastic waste directly from Germany and other European countries with no middlemen, and permits highly economic production of the highest grades of LDPE. Additional information regarding Guanwei Recycling Corp. is available at www.guanweirecycling.com.

Information Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this press release are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, product demand, market competition, and risks inherent in our operations. These and other risks are described in our filings with the U.S. Securities and Exchange Commission.

 
GUANWEI RECYCLING CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
         
    March 31,
2014
  December 31,
2013
ASSETS            
Current assets            
  Cash and cash equivalents   $ 14,860,475   $ 11,887,032
  Accounts receivable     8,505,822     9,367,569
  Accounts receivable from affiliate     -     5,469,629
  Inventories     17,315,339     14,717,808
  Advances to suppliers     6,939,501     7,426,023
  Value added tax refundable     977,480     -
  Prepaid expenses and other current assets     218,318     136,396
    Total current assets     48,816,935     49,004,457
Property, plant and equipment, net     11,799,360     11,074,021
Construction in progress     -     534,556
Land use right, net     659,063     668,597
Other assets     200,831     203,751
    Total Assets   $ 61,476,189   $ 61,485,382
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities            
  Accounts payable   $ 1,343,926   $ 612,303
  Accrued expenses and other payables     549,803     720,888
  Value added taxes payable     -     827,517
  Amount due to shareholder     1,070,201     934,892
  Income tax payable     299,473     449,667
    Total current liabilities     3,263,403     3,545,267
Commitments and contingencies            
Shareholders' Equity            
  Common stock, $0.001 par value, 500,000,000 shares authorized, 10,407,839 shares issued and outstanding, as of March 31, 2014 and December 31, 2013     10,408     10,408
  Additional paid-in capital     2,826,408     2,811,370
  PRC statutory reserves     805,483     805,483
  Accumulated other comprehensive income     3,650,553     4,148,986
  Retained earnings     50,919,934     50,163,868
    Total shareholders' equity     58,212,786     57,940,115
             
    Total liabilities and shareholders' equity   $ 61,476,189   $ 61,485,382
                 
                 
 
GUANWEI RECYCLING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
    Three Months Ended
March 31,
 
    2014     2013  
                 
Net revenue   $ 11,780,338     $ 14,839,806  
Cost of revenue     10,122,495       10,960,865  
    Gross profit     1,657,843       3,878,941  
                 
Operating expenses:                
  Selling and marketing     73,513       155,906  
  General and administrative     662,433       599,287  
    Total operating expenses     735,946       755,193  
                 
Income from operations     921,897       3,123,748  
                 
Other income (expenses)                
  Interest income     10,511       13,402  
  Interest expense     (15,038 )     -  
  Net foreign exchange gain     146,388       59,943  
  Miscellaneous     (5,952 )     (681 )
    Total other income     135,909       72,664  
                 
Income before income taxes     1,057,806       3,196,412  
                 
Income taxes     301,740       831,019  
                 
Net income     756,066       2,365,393  
                 
Other comprehensive income (loss) - foreign currency translation adjustments     (498,432 )     263,295  
                 
Comprehensive income   $ 257,634     $ 2,628,688  
                 
Earnings per share - basic and diluted   $ 0.07     $ 0.23  
                 
                 
Weighted average number of common shares outstanding - basic and diluted     10,407,839       10,407,839  
 
 
 
GUANWEI RECYCLING CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
    Three Months Ended
March 31,
 
    2014     2013  
                 
Cash flows from operating activities                
Net income   $ 756,066     $ 2,365,393  
Adjustments to reconcile net income to net cash provided by operating activities                
Depreciation of property, plant and equipment     324,320       243,715  
Amortization of land use rights     3,976       3,874  
Imputed interest on advances from shareholder     15,038       -  
                 
Change in operating assets and liabilities:                
Accounts receivable     789,386       1,666,653  
Accounts receivable from affiliate     5,464,978       -  
Inventories     (2,741,136 )     2,148,983  
Advances to suppliers     427,670       (565,584 )
Value added taxes refundable     (984,881 )     (131,445 )
Prepaid expenses and other current assets     (83,090 )     (24,388 )
Other assets     1,226       1,195  
Accounts payable     742,318       (3,915,641 )
Accrued expenses and other payables     (166,461 )     (52,857 )
Value added taxes payable     (826,813 )     (110,910 )
Income tax payable     (147,545 )     (204,048 )
Net cash provided by operating activities     3,575,052       1,424,940  
                 
Cash flows from investing activities                
Purchase of property, plant and equipment     (614,306 )     (256,362 )
Net cash used in investing activities     (614,306 )     (256,362 )
                 
Cash flows from financing activities                
Advance from shareholder     135,308       171,219  
Net cash provided by financing activities     135,308       171,219  
                 
Effect of exchange rate change on cash     (122,611 )     68,725  
                 
Net increase in cash and cash equivalents     2,973,443       1,408,522  
                 
Cash and cash equivalents at the beginning of period     11,887,032       12,083,358  
Cash and cash equivalents at the end of period   $ 14,860,475     $ 13,491,880  
Supplemental disclosure of cash flow information                
Income taxes paid   $ 449,285     $ 1,035,067  
Non-cash investing and financing activities                
Construction in progress transferred to property, plant and equipment   $ 534,101     $ -  
Accrued expense related to purchases of property, plant and equipment   $ -     $ 7,966  
                 

Contact Information