Guanwei Recycling Reports 2012 Second Quarter Results

Revenues Increased 18.6% Compared With Prior Year, But Profits Declined Mainly Due to Higher Raw Material and Labor Costs; Company Believes Raw Material Costs Are Stabilizing and Selling Prices Will Continue to Increase at a Moderate Rate

Investor Conference Call to Be Held Wednesday, August 15th at 8:00am ET

Marketwired

FUQING CITY, CHINA--(Marketwire -08/14/12)- Guanwei Recycling Corp. (GPRC), China's leading clean tech manufacturer of recycled low density polyethylene (LDPE), reported today that revenues in its second quarter ended June 30, 2012 increased 18.6% to $18,694,938, including $1,773,129 from the resale of raw materials, compared with revenues of $15,757,662 in the same quarter last year. The Company also reported an increase of 3.41% in the selling prices of its manufactured recycled LDPE year over year. However, this increase was not sufficient to offset increased raw material, labor and overhead costs in the period. The resulting lower profit margins contributed to an 8.41% year over year decline in net income to $3,163,030, or $0.15 per share, compared with $3,453,360, or $0.17 per share, in the 2011 second quarter.

For the six months ended June 30, 2012, revenue increased 16.61% to $34,866,428 compared with $29,900,274 in the first half of 2011, while net income decreased 15.24% to $5,228,286 or $0.26 per share, compared with $6,168,642 or $0.31 per share a year earlier.

The Company noted that a "bright spot" in the 2012 second quarter was more than 16% sequential increase in manufactured recycled LDPE sales volume -- an additional 1,938 tons sold -- compared with the 2012 first quarter. In part, this reflected "weak" results in this year's first quarter largely due to an earlier than usual Spring Festival in China. On a year over year basis, recycled LDPE sales in the 2012 second quarter were up 6.58% to $16,410,448, reflecting a 3.41% increase in average selling prices to $1,212 per ton and an increase of 3.06% in tons sold to 13,538 tons compared with the corresponding period in 2012. An additional $511,361 in 2012 second quarter sales resulted from sales of non-LDPE materials, an increase of 41.94% compared with the same period in 2011. The reported $1,773,129 from the sale of raw materials in the 2012 second quarter, at a marginal mark-up to cover administrative costs, was a consequence of limited space availability in the Company's storage facility. No substantial additional revenue from sales of this type are anticipated in the near future.

In the first six months of 2012, revenues from sales of recycled LDPE were up 3.85% to $30,455,090, while total sales including non-LDPE materials ($949,128) and the resale of raw materials ($3,462,210) were $34,866,428, a 16.61% increase over the same period last year. Average recycled LDPE selling prices in the 2012 first half increased 4.84% to $1,212 per ton and tonnage sales declined 0.91% to 25,138 tons.

Costs

Increased raw material costs, as well as increased labor and overhead expenses, contributed to the year over year reduction in second quarter gross profit from $5,095,376 in 2011 to $4,891,796 this year, while gross profit margins declined from 32.34% in last year's second quarter to 28.34% in 2012. The Company explained that a shortage of workers in Southern China rapidly increased wages and welfare costs. With respect to raw material costs, which included primarily imported plastic waste, the year over year increase in the second quarter of 2012 to an average of $690 per ton for recycled LDPE and sorted non-LDPE material was a relatively minor 2.83%. This reflected a stabilization in prices, which the Company believes will continue through the remainder of the year as a consequence of negotiating with suppliers. The Company noted further that selling and marketing expenses declined in the 2012 second quarter as lower gas prices decreased transportation costs, while G&A expenses increased moderately.

Through the first six months of 2012, the per ton raw material cost of recycled LDPE and sorted non-LDPE material increased 10.81% to $722 per ton, reflecting the sustained strong demand for the LDPE product. This increase, as well as increased labor and overhead costs -- while average product prices only increased 4.84% in the period -- resulted in a reduction in gross profit margin in the first half of 2012 to 26.43%, compared with 31.21% in the same period last year

Continuing Financial Strength

As of June 30, 2012, the Company reported cash and cash equivalents of $13,216,366, compared with $12,432,803 at December 31, 2011. In the same time frame shareholders' equity increased to $39,935,168 from $33,007,268. As of June 30, 2012, the Company had no long term debt, and no short term bank debt.

During the six months ended June 30, 2012 cash used in investing activities was $746,327. The Company reported it was building an additional storage area for raw materials and, in order to plan for future expansion, it made a deposit for additional machinery and equipment which the Company expects will be placed into service in the third quarter of 2012. The Company noted that production capacity as of the end of the second quarter was 80,000 tons per year, as a result of significant improvements to its factory equipment and facilities made in 2011. Additionally, the Company's import quota for imported plastic waste was 115,000 tons, including 35,000 tons contracted from Huan Li.

Management Comment

Mr. Min Chen, Chairman and CEO of the Company, commented, "While the cyclical softening in China's economy has affected most industries, we have been fortunate in maintaining a diversified customer list which, coupled with the continuing strong demand for recycled LDPE, has enabled us to see sequential quarter over quarter growth thus far this year. In the second half of the year, we believe we will benefit from moderate increases in prices for our products as well as stabilizing raw material costs based on negotiations with our suppliers. Longer term, we believe the outlook for our Company remains very bright, given the anticipated increasing demand in an improved economy for our low-cost, high quality products."

Mr. Chen added, "There has been a significant negative overreaction in the U.S. stock market to China-based companies, even to strong, well managed companies such as ours. However, we will keep working hard to grow our Company and rebuild investor confidence in our successes."

Conference Call Invitation

The Company will discuss 2012 second quarter and first half results during a live conference call and webcast on Wednesday, August 15th, at 8:00am ET.

To participate in the call, interested participants should call 1-877-941-4775 when calling within the United States or 1-480-629-9809 when calling internationally. Please ask for the Guanwei Recycling Corp. 2012 Second Quarter Conference Call, Conference ID: 4559509. There will be a playback available until 08/22/12. 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: 4559509.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://public.viavid.com/index.php?id=101461 or at ViaVid's website at http://viavid.com.

SEE ATTACHED TABLES

Description of Guanwei Recycling Corp.

Guanwei Recycling Corp. is China's largest manufacturer of recycled low density polyethylene (LDPE). Adhering to the highest "green" standards, it has generated rapid growth producing LDPE from plastic waste procured mostly in Europe for sales to more than 300 customers in more than ten different industries in China. Guanwei Recycling Corp. is one of the few plastic recyclers in China that has been issued a Compliance Certificate by Umweltagentur Erftstadt, which issues certificates of approval for certain plastics manufacturers which meet strict environmental standards in Germany. This enables the Company to procure high quality plastic waste directly from Germany and other European countries (Spain and Holland), 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 STATEMENTS OF INCOME AND COMPREHENSIVE
INCOME

Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2012 2011 2012 2011
----------- ----------- ----------- -----------

Net revenue $18,694,938 $15,757,662 $34,866,428 $29,900,274
Cost of revenue 13,803,142 10,662,286 26,419,246 20,569,798
----------- ----------- ----------- -----------
Gross profit 4,891,796 5,095,376 8,447,182 9,330,476
----------- ----------- ----------- -----------

Operating expenses:
Selling and marketing 78,228 115,154 167,750 203,945
General and
administrative 464,158 428,956 1,123,028 972,726
----------- ----------- ----------- -----------
Total operating
expenses 542,386 544,110 1,290,778 1,176,671
----------- ----------- ----------- -----------

Income from operations 4,349,410 4,551,266 7,156,404 8,153,805
----------- ----------- ----------- -----------

Other income (expenses)
Interest income 14,336 24,443 28,508 47,413
Interest expenses - (7,779) - (25,214)
Exchange (loss) gain (61,606) 59,828 (29,680) 131,124
Miscellaneous - 10,398 - 10,398
----------- ----------- ----------- -----------
Total other income
(expenses) (47,270) 86,890 (1,172) 163,721
----------- ----------- ----------- -----------

Income before income
taxes 4,302,140 4,638,156 7,155,232 8,317,526

Income taxes 1,139,110 1,184,796 1,926,946 2,148,884
----------- ----------- ----------- -----------

Net income 3,163,030 3,453,360 5,228,286 6,168,642

Other comprehensive
income - foreign
currency translation
adjustments 18,029 326,346 231,447 543,528
----------- ----------- ----------- -----------

Comprehensive income $ 3,181,059 $ 3,779,706 $ 5,459,733 $ 6,712,170
=========== =========== =========== ===========

Earnings per share
attributable to
shareholders of
Guanwei Recycling
Corp. - basic and
diluted $ 0.15 $ 0.17 $ 0.26 $ 0.31
=========== =========== =========== ===========

Weighted average number
of common shares
outstanding
- basic and diluted 20,708,096 20,000,006 20,354,051 20,000,006
=========== =========== =========== ===========




GUANWEI RECYCLING CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


June 30, December 31,
2012 2011
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 13,216,366 $ 12,432,803
Accounts receivable 5,433,397 4,475,386
Inventories 18,649,153 16,858,801
Refundable value added tax 1,887,436 1,221,531
Prepaid expenses and other current assets 179,523 882,818
------------ ------------
Total current assets 39,365,875 35,871,339

Deposit for property, plant and equipment 645,120 -
Property, plant and equipment, net 7,976,748 8,151,012
Construction in progress 79,253 174,295
Land use right, net 670,688 673,762
Other assets 204,473 205,437
------------ ------------
Total Assets $ 48,942,157 $ 45,075,845
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,938,886 $ 8,741,822
Accrued expenses and other payables 625,938 714,072
Amount due to shareholder 323,582 1,468,167
Income tax payable 1,118,583 1,144,516
------------ ------------
Total current liabilities 9,006,989 12,068,577
------------ ------------
Commitments and contingencies
Shareholders' Equity
Common stock, $0.001 par value, 500,000,000
shares authorized, 20,815,654 and 20,000,006
shares issued and outstanding, as of June 30,
2012 and December 31, 2011 20,816 20,000
Additional paid-in capital 2,757,379 1,290,028
PRC statutory reserves 805,483 805,483
Accumulated other comprehensive income 2,494,128 2,262,681
Retained earnings 33,857,362 28,629,076
------------ ------------
Total shareholders' equity 39,935,168 33,007,268
------------ ------------

Total liabilities and shareholders' equity $ 48,942,157 $ 45,075,845
============ ============
Contact:

Richard Sun
guanweirecycling@gmail.com
Ken Donenfeld
DGI Investor Relations
kdonenfeld@dgiir.com
Tel: 212-425-5700
Fax: 646-381-9727

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