Ken Donenfeld - Investor Relations, DGI
Chen Min - Chairman and Chief Executive Officer
Yang Feng - Treasurer and Chief Financial Officer
Guanwei Recycling Corp. (GPRC) Q2 2013 Earnings Conference Call August 16, 2013 8:00 AM ET
Welcome to the Guanwei Recycling Corporation 2013 second quarter investor conference call on the 16th of August 2013. (Operator Instructions) I will now hand the conference over to Mr. Kenneth Donenfeld, DGI Investor Relations. Please go ahead, sir.
Thank you very much operator, and thanks to those of you who have joined us today. A link to this call will be posted on the company's website and instructions for accessing the call are included in the company's earnings release.
On the conference call today will be Mr. Chen Min, the CEO; Mr. Yang Feng, CFO; and Mr. [Lawrence Won] member of the company’s financial team, together with Mr. Richard Sun who will serve as our interpreter.
Mr. Chen asked that I present his opening comments and then Mr. [Lawrence Won] will walk you through the numbers. After that Mr. Chen will be available to answer your questions. We appreciate your holding any questions you may have until after we've completed the opening remarks and then your patience as we go through the translation process in answering your questions.
Before we get started, I am going to read a disclaimer regarding forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the federal securities laws regarding Guanwei Recycling Corp. Except for historical information contained in our comments, the statements we make 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.
And now for Mr. Chen's opening comments. First, it is a pleasure to be with you today. For those of you who follow us, I think you will agree that the second quarter of 2013 was another good quarter for us. Beginning in mid-2012, after a few unusual quarters in which external economic factors put a damper on our sales volume and minimized price increases, we began to see a pickup in volumes and pricing which has continued to the present. We also were affected throughout 2012 by increased labor cost, namely due to shortage of labor in southern China as well as by bigger than usual increases in the cost of our raw material, which is imported plastic waste.
I have been pleased to report that the stabilization of these costs that we began to see mid to late 2012, also had continued thus far in 2013. Throughout this time, we also have kept our focus on maintaining what I believe is our most distinguishing characteristic, mainly maintaining and improving where possible, our environmental status as a zero emission, green manufacturing facility. Those of you who know us understand my [priority] in this regard based on strong personal concerns for improving our environment here in China. (Inaudible) Guanwei's environmental leadership also has provided us with an important competitive aspect, namely by continually meeting the highest environmental standards of both Chinese and German authorities. We are one of the few Chinese recyclers permitted to purchase our plastic waste directly from German and other European suppliers without middlemen thereby providing a distinct price to cost advantage.
I can also say, based on ongoing discussions with our customers and suppliers, we believe the favorable trends we are now seeing will continue through the remainder of the year. Looking beyond 2013, we are very confident that customers will increasingly look to utilize our recycled LDPE, wherever they can and replace the virgin plastic or mix with it, given its continuing cost advantage. Further, we have come through a difficult period in very strong financial shape with zero bank debt and a very sound cash position so we are ready to tackle the future.
I will let [Lawrence] discuss the specifics of our results thus far this year and then be back to answer your questions right after that. Lawrence, can you take over here?
Unidentified Company Representative
Sure, Ken. Thank you and hello again to those of you who are joining us on the call. We of course discuss fairly comprehensively in our 10-Q and the press release, but let me spend a few minutes going over some of the highlights.
Now starting with the revenues, first, let me explain for those of you who may be new to this call, that Guanwei's revenues are derived primarily the sales of recycled pallets of low density polyethylene or LDPE that it produces, which typically are 40% cheaper than virgin plastic. It can be replaced with virgin plastic in almost all cases except where the plastic required is clear rather than white, which is the color of the highest grade produced by the company.
Sales are made to more than 300 customers, including 150 of which are active in more than 10 different industries. The company does not manufacture any end products, nor does it sell its recycled products outside of China. As Mr. Chen pointed out, one of Guanwei's key distinguishing features is that it is one of the few, perhaps the only, company in China that manufactures all of the products from plastic waste imported from Europe, primarily, Germany. This is typically higher quality plastic waste that requires less assorting and therefore is less expensive to produce. The company can import this material because it is one of the few companies in China that has regularly passed rigorous inspections, allowing it to be certified by German authorities for meeting the highest green standards.
So on to the revenues. Net revenues in the second quarter of 2013 were $17,732,000, including $17,266,000 in sales of manufactured, recycled LDPE and approximately $466,000 in sales of sorted non-LDPE materials. All raw materials obtained by the company has amount of non-LDPE material in it that the company's doesn’t process but just sells off. 2013 second quarter sales of manufactured recycled LDPE were up 5.21% compared with the $16,410,000 in sales of manufactured recycled LDPE in the same period last year. Revenues in last year’s second quarter of $18,694,000 also included sales of sorted nonLDPE materials of approximately $511,000.
Additionally, there was $1,773,000 in excess raw material inventories that was sold with a very small markup basically to recoup costs. Significantly, we saw favorable trends in [price] and volume underlying the small increase in LDPE sales in the 2013 second quarter. Specifically, average selling prices in this year's second quarter averaged roughly $1,239 per ton, a 2.23% increase over the same period of last year. And 13,939 tons sold in this year's second quarter reflect a 2.96% increase in volume sold compared with the same period last year.
In the six months ended June 30, 2013, sales of recycled LDPE grew 4.35% year-over-year to $31,779,000. This reflected 1.57% increase in the selling price year-over-year and a 2.66% increase in tons sold over the same timeframe. Total revenues in the first six months of 2013 were $32,572,000. This compared with $34,866,000 in the prior year period which included $3,462,000 in low margin sales of raw materials. Sales of sorted nonLDPE materials totaled $793,000 and $949,000 for the six months ended June 30, 2013 and 2012, respectively.
Looking at cost. The cost of imported plastic waste was approximately $748 per ton in the second quarter this year, up 8.41% from $690 per ton in the second quarter last year. However, reflecting the stabilization in cost, we believe we are seeing the cost per ton of plastic waste in the year (inaudible) went down 2.35% from our cost in the first quarter of this year. This stabilization extended as well as to labor cost per ton, which were 3.57% lower in this year's second quarter compared to the second quarter of 2012. With better control of labor and overhead cost, excluding the sales of raw materials in the second quarter of 2012, we saw a small improvement in gross margins from 28.34% in the last year's second quarter to 28.96% in 2013 second quarter.
In the first six months this year, we saw a 4.71% year-over-year increase in raw material cost to $756 per ton. However, in the same period year-over-year timeframe, labor costs per declined 8.93%. Looking at the bottom line, net income in the 2013 second quarter $3,238,000, up 2.37% from $3,163,000 in the year earlier quarter. These numbers translate to earnings per share of $0.31 in both periods. The earnings per share figures are calculated on approximately 10.41 million diluted weighted average number of common shares outstanding in the 2013 second quarter, up slightly from 10.35 million common shares in the year earlier quarter.
In the six months ended June 30, 2013, net income was up 7.17% to $5,603,000 compared with $5,228,000 in last year's first half. Earnings per share for the first six months of 2013 was $0.54 on approximately 10.41 million diluted weighted average number of common shares outstanding, up from $0.51 per share on approximately 10.18 million diluted shares outstanding in the same period last year.
Looking at the balance sheet, it should be noted that as of June 30, 2013, the company had zero bank debt and cash and cash equivalents of approximately $15.4 million, up from approximately $12.1 million as of December 31, 2012. The increase in cash and cash equivalents was one reason for the increase in working capital to approximately $42.1 million as of June 30, 2013, as compared with approximately $35.5 million at year-end of 2012. In addition, the company had an increase advances to suppliers which led to a reduction in accounts payable and also had a partial offsetting decrease in accounts receivable which came from the continuing efforts to speed up collections from customers.
I hope this summary was helpful I would be happy to answer any questions you may have. So I will turn the floor back to Ken. Ken?
Okay. Thank you, very much Lawrence. All that Mr. Chen would like to add here is that he hopes the continuing favorable trends at the company will pass the attention of Wall Street where it seems to be the beginnings of a more favorable disposition for China based companies after a very long hiatus. Whether one is looking at value or future growth potential, GPRC would appear to offer both as well as considerable leverage given its very small scope. And with that I would like to open the call to your questions.
Operator, could you please provide instructions for that?
Operator, I guess I will jump in here. I have questions, this is Ken, again. Let's see the caller on my email here say, congratulations on good results. When does the company this it will be possible to start seeing again the double-digit growth that it had experienced before 2011? What will be needed to get this?
Hello, Ken. The response to this question is that, well, in order to get that double-digit growth like we did in the years -- like we did two years ago, we need to invest more in our production facilities to expand our capacity. And actually the company has already started to do so. And we are just waiting for a proper opportunity to close this [path] into a -- turn this event into (inaudible).
Thank you. Operator, are there any questions from anyone else?
There are no questions at this time sir.
Okay. Then I have another question here. Well, it's not a question, it says I noted that you had -- it had appears that you have had new supplier in the quarter, of raw materials. Can you comment on that?
Well, the reply is, it has been a continuing effort of the company to seek diversified suppliers for better quality and better price. Okay.
And so did you add new supplier there as a consequent of that?
Yeah, exactly. And we just always need more of [them].
Right. Okay. Operator, are there any other questions?
(Operator Instructions) Sir, there are no questions at this time.
Okay. I guess, I have answered the questions that I have gotten, so that’s it for this phone call. Thank you very much to those of you who are on the line, and please if you have any additional questions after this call, feel free to give me a call and I will be happy to forward those questions to the company. We will be happy to answer them. Thank you very much again.
Thank you. This concludes the Guanwei Recycling Corporation 2013 second quarter investor conference call. Thank you for participating, you may now disconnect.
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