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