China Shengda Packaging Group 2013 net income down 50.8% year-over-year to US$2.7M due to continued challenges in domestic and foreign economic environment, increases in selling expenses, general and administrative expenses; revenue up 7.1% to US$134.3M

HANGZHOU , March 28, 2014 (press release) – China Shengda Packaging Group Inc. (NASDAQ: CPGI) ("Shengda" or the "Company"), a leading Chinese paper packaging company, today reported its financial results for the fiscal year ended December 31, 2013. 

"2013 was another challenging year for the paper packaging industry as China's economy appeared to lose some steam in the past couple of years. This, combined with tightened credit environment, compelled many of our customers to put their expansion plans on hold, and therefore, our ability to grow our paper carton business. Despite these challenges, we grew our revenues by 7.1% to $134.2 million with the paper mill at our Shuangsheng subsidiary, generating $18.5 million in sales which offset the slight decline in our paper carton business," commented Mr. Daliang Teng, Chief Executive Officer of Shengda, "Looking ahead, as the central government starts to induce a transition from the pursuit of pure GDP growth to more sustainable and quality economic growth, we believe the outlook for the paper packaging industry remains tempered in the near term. However, as we continue focusing on growing our business through both vertical integration and geographical expansion, we are confident of the long-term growth prospect of our business."

Full Year 2013 Financial Highlights:

  • Revenues increased by 7.1% year-over-year to $134.2 million for the year of 2013 with revenues of paper cartons and other paper products decreasing 4.7% to $119.4 million mainly due to decrease in sales volume.  
  • The paper mill at our Shuangsheng subsidiary, which officially went into production in June 2013, produced 51.5 thousand tons of corrugating medium paper and generated $18.5 million in revenues for the year of 2013.
  • Gross profit decreased by 13.8% to $19.5 million for the year of 2013.  Gross margin was 14.5% for the year of 2013 compared to 18.0% for the year of 2012. The decreases in gross profit and gross margin were mainly related to high production cost of corrugating medium paper at our paper mill.
  • Net income attributable to the Company's stockholders decreased by 50.8%, to $2.7 million for the year of 2013.
  • Basic and diluted earnings per share were $0.07 for the year of 2013, compared to $0.14 for the year of 2012.

Twelve Months Ended December 31, 2013 Results

Sales Analysis (Millions)

Twelve Months
Ended December 31,
2013

Twelve Months
Ended December 31,
2012

     

Revenues– Paper Cartons (millions)

$119.4

$125.3

Revenues– Corrugating Medium Paper (millions)

$18.5

NA

Revenues– Inter-segment Transactions Elimination (millions)

($3.8)

NA

Color Cartons (% of total revenues)

26.3%

28.7%

Flexo Cartons (% of total revenues))

62.7%

71.3%

Paper Cartons Sales Volume (M sq meters)

301.2

317.4

Corrugating Medium Paper Sales Volume ('000 tons)

51.5

NA

Color Cartons (avg price per sq meter)

$0.41

$0.42

Flexo Cartons (avg price per sq meter)

$0.39

$0.39

Corrugating Medium Paper (avg price per ton)

$359

NA

 

Summary Results (Millions)

 

Twelve Months
Ended December 31,
2013

 

Twelve Months
Ended December 31,
2012

     

Revenues

$134.2

$125.3

Gross Profit

$19.5

$22.6

Gross Margin (%)

14.5%

18.0%

Operating Expenses

$17.3

$16.1

Operating Income

$2.1

$6.5

Operating Margin (%)

1.6%

5.2%

Net Income attributable to stockholders

$2.7

$5.6

EPS Basic & Diluted

$0.07

$0.14

Wtd Avg Shares Outstanding (millions)

38.8

38.8

Total revenues for the year ended December 31, 2013 increased by $8.9 million, or 7.1% to $134.2 million from $125.3 million for the year of 2012. Revenues of paper cartons and other paper products decreased by $5.9 million, or 4.7%, to $119.4 million for the year of 2013 from $125.3 million for the year of 2012. The decrease in revenues of paper cartons was a result of continued challenges in domestic and foreign economic environment that led to 5.1% decline in sales volume of paper cartons to 301.2 million square meters for the year of 2013 from 317.4 million square meters for the year of 2012. Our paper mill generated $18.5 million revenues from corrugating medium paper with sales volume of 51.5 thousand tons and average selling price of $359 per ton. Eliminating internal sales of approximately $3.8 million, revenues of external sales of corrugating medium paper was $14.7 million or 11% of total revenues for the year of 2013.

Color cartons and flexo cartons accounted for 26.3% and 62.7% of total revenues for the year of 2013, compared to 28.7% and 71.3%, respectively, for the year of 2012. Average sales prices per square meter for color cartons and flexo cartons were approximately $0.41 and $0.39, respectively, for the year of 2013, compared to approximately $0.42 and $0.39, respectively, for the year of 2012.

Consumer and industrial goods manufacturing sectors remained the Company's principal markets. Major customers remained home appliances & electronics manufacturers, and food, beverage & cigarette manufacturers in the Yangtze River Delta Region, which accounted for 23.6% and 24.3%, respectively, of total revenues for the year of 2013, compared to 23.2% and 30.1%, respectively, of total revenues for the year of 2012.

Gross profit decreased by $3.1 million, or 13.8%, to $19.5 million for the year of 2013 from $22.6 million for the year of 2012. Gross margin dropped by approximately 3.5 points to 14.5% for the year of 2013 from 18.0% for the year of 2012. Gross profit of paper cartons and other paper products decreased by $0.1 million, or 0.3%, to $22.5 million for the year of 2013 from $22.6 million for the year of 2012. Gross profit of corrugating medium paper was negative $3.0 million as we continued to ramp up the production at our paper mill.

Selling expenses increased by $0.7 million, or 13.7%, to $5.8 million for the year of 2013 from $5.1 million for the year of 2012. The increase was mainly due to higher business development expenses and freight expenses. As a percentage of revenues, selling expenses for the year of 2013 increased to 4.3% from 4.1% for the year of 2012.

General and administrative expenses increased by $0.5 million, or 4.7%, to $11.5 million for the year of 2013 from $11.0 million for the year of 2012. This increase was mainly due to the increase in staff costs, which include salary, benefits, social insurance and other relevant staff expenses.  As a percentage of revenues, general and administrative expenses for the year of 2013 decreased to 8.6% from 8.8% for the year of 2012.

Net income attributable to the Company's common stockholders decreased by $2.9 million, or 50.8%, to $2.7 million for the year of 2013, from $5.6 million for the year of 2012. Basic and diluted earnings per share were $0.07 for the year of 2013, compared to $0.14 for the year of 2012.

Financial Condition

As of December 31, 2013, the Company had cash and cash equivalents of $6.6 million and restricted cash of $10.1 million. Shareholders' equity was $111.4 million, compared to $105.4 million at December 31, 2012. Net cash used in operating activities was $8.0 million for the year of 2013, compared to net cash provided by operating activities of $27.2 million for the year of 2012. This was attributable to net income of $2.6 million, adjusted by depreciation and amortization expenses of $6.0 million, and a net decrease in cash from accounts and notes payable of $13.7 million and a net decrease in cash from other working capital items of $2.9 million. Net cash used in investing activities was $4.8 million for the year of 2013, compared to $27.7 million for the year of 2012. The $4.8 million was used for purchases of property, plant and equipment. Net cash provided by financing activities was $7.1 million for the year of 2013, compared to $7.0 million net cash used in financing activities for the year of 2012. During the year ended December 31, 2013, we received loan proceeds amounting to $6.5 million, prepaid $4.4 million loans and received restricted cash of $5.1 million which was for the notes payable and loans as collateral.

Recent Developments

On December 20, 2013, the Company held its annual general meeting of shareholders in Hangzhou, Zhejiang Province. Nengbin Fang, Congyi Fang, Yaoquan Zhang, Zhihai Mao and Michael Zhang were re-elected to the Board of Directors of the Company. Shareholders also ratified the appointment of Marcum Bernstein & Pinchuk LLP as the independent registered public accounting firm of the Company for the fiscal year ending December 31, 2013.

In February 2014, Great Shengda passed the National High-Tech Enterprise status review, which is recognized by China's Ministry of Science and Technology, Ministry of Finance, and State Administration of Taxation.  As a result, Great Shengda is entitled to a preferential tax rate of 15% for another three years, retroactively effective as of January 1, 2013.

About China Shengda Packaging Group Inc.

China Shengda Packaging Group Inc. is a leading paper packaging company in China. It is principally engaged in design, manufacturing and sale of flexo-printed and color-printed corrugated paper cartons in a variety of sizes and strengths. It also manufactures corrugating medium paper and corrugated paperboards, which are used for the production of flexo-printed and color-printed cartons. The Company provides paper packaging solutions to a wide variety of industries, including food, beverage, cigarette, household appliance, consumer electronics, pharmaceuticals, chemicals, machinery and other consumer and industrial sectors in China.

Safe Harbor Statements

This press release may contain forward-looking statements. Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors include, but are not limited to, the Company's ability to develop and market new products, the ability to reach full production capacity of the new paper mill, the ability to access capital for expansion and continued investment in R&D, the ability to acquire other companies, changes from anticipated levels of sales, changes in national or regional economic and competitive conditions, changes in relationships with customers, changes in profit margins of principal product and other factors discussed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Company Contact:        
China Shengda Packaging Group Inc.  
Cindy Hu, Board Secretary     
Tel: +86-571 8283 8770    
E-mail:  cindy.hu@cnpti.com        
Website: http://www.cnpti.com     

Investor Relations Contact:
Weitian Group LLC  
Tina Xiao
Tel: +1-917-609-0333
Email: tina.xiao@weitian-ir.com
Website: http://www.weitian-ir.com     

CHINA SHENGDA PACKAGING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in US$)

         
   

December 31,

ASSETS 

 

2013

 

2012

Current assets

       

Cash and cash equivalents

 

$6,569,495

 

11,903,937

Restricted cash

 

10,129,756

 

22,615,099

Accounts and notes receivable, net

 

42,710,653

 

33,203,457

Inventories

 

18,605,074

 

15,543,213

Prepayments and other receivables

 

1,583,203

 

955,953

Amount due from related parties

 

225,822

 

207,112

Deductible value added tax

 

3,056,867

 

-

Total current assets

 

82,880,870

 

84,428,771

         

Non-current assets

       

Property, plant and equipment, net

 

68,481,643

 

70,184,832

Land use right

 

11,988,879

 

11,881,160

Customer relationships, net

 

-

 

74,766

Deferred tax assets

 

1,505,981

 

403,121

Goodwill

 

181,481

 

175,941

Total assets

 

$165,038,854

 

167,148,591

         

LIABILITIES AND EQUITY

       

Current liabilities

       

Accounts and notes payable

 

$32,820,222

 

45,246,615

Amounts due to related party

 

2,131,846

 

269,505

Accrued expenses and other payables

 

2,889,933

 

2,310,270

Taxes payable

 

1,215,127

 

1,360,386

Short-term loans

 

10,048,000

 

3,500,000

Current portion of long-term borrowing

 

4,500,000

 

4,500,000

Total current liabilities

 

53,605,128

 

57,186,776

         

Non-current liabilities

       

Long-term loans

 

-

 

4,500,000

Deferred tax liabilities

 

-

 

18,691

    Total liabilities

 

$53,605,128

 

61,705,467

         

Commitment and contingencies 

   

-

-

Equity

       

Stockholders' equity

       

Common stock (US$0.001 par value,  190,000,000 shares authorized, 38,790,811 and 39,456,311 shares issued at December 31, 2013 and 2012, respectively,  38,790,811 outstanding both at December 31, 2013 and 2012)

 

38,791

 

39,456

Treasury stock (nil and 665,500 shares at December 31, 2013 and 2012, respectively)

 

-

 

(729,444)

Additional paid-in capital

 

43,036,464

 

43,765,243

Appropriated retained earnings

 

7,240,218

 

6,997,530

Unappropriated retained earnings

 

48,360,582

 

45,859,324

Accumulated other comprehensive income

 

12,459,426

 

9,101,639

Total equity for stockholders of China Shengda  Packaging

 

111,135,481

 

105,033,748

Noncontrolling interest

 

298,245

 

409,376

    Total equity

 

111,433,726

 

105,443,124

Total liabilities and equity

 

$165,038,854

 

167,148,591

         
         

CHINA SHENGDA PACKAGING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amounts in US$)

         
   

Year ended December 31,

   

2013

 

2012

         

Revenues

 

134,182,900

 

125,308,951

Cost of goods sold

 

114,729,483

 

102,739,063

Gross profit

 

19,453,417

 

22,569,888

Operating expenses

       

Selling expenses

 

5,774,715

 

5,080,011

General and administrative expenses

 

11,535,135

 

11,019,764

   

17,309,850

 

16,099,775

Other income (expenses)

       

Interest income

 

847,575

 

353,458

Interest expense

 

(835,975)

 

(717,946)

Subsidy income

 

813,213

 

352,748

Other income (expense)

 

(211,121)

 

27,091

   

613,692

 

15,351

         

Non operating expenses

 

202,529

 

-

         

Income before income tax expense and noncontrolling interest

 

2,554,730

 

6,485,464

         

Income tax expense (benefit)

 

(79,579)

 

915,461

Net income

 

2,634,309

 

5,570,003

Net loss attributable to noncontrolling interest

 

109,637

 

5,016

Net income attributable to Company's common stockholders

 

2,743,946

 

5,575,019

         

Basic and diluted earnings per share

 

0

 

0

Weighted-average number of shares outstanding - basic and diluted

 

38,790,811

 

38,790,811

         

Comprehensive income:

       

Net income

 

2,634,309

 

5,570,003

Foreign currency translation adjustment

 

3,356,293

 

843,196

Comprehensive income

 

5,990,602

 

6,413,199

Comprehensive loss attributable to noncontrolling interest

 

111,131

 

5,018

Net comprehensive income attributable to the Company's common stockholders

 

6,101,733

 

6,418,217

         
         

CHINA SHENGDA PACKAGING GROUP INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in US$)

         
   

 Year ended December 31,

   

2013

 

2012

         

Cash flows from operating activities

       

Net income

 

2,634,309

 

5,570,003

Adjustments to reconcile net income to net cash provided by operating activities:

       

   Depreciation and amortization expenses

 

6,024,574

 

4,541,247

   Loss from disposal of property, plant and equiment

 

211,121

 

-

Change in operating assets and liabilities:

       

   Restricted cash

 

7,932,880

 

(9,696,077)

   Accounts and notes receivable

 

(8,325,237)

 

3,941,038

   Inventories

 

(2,537,833)

 

4,066,201

   Prepayments and other receivables

 

(611,783)

 

(14,905)

   Accounts and notes payable

 

(13,660,440)

 

20,189,874

   Amount due from(to) related party

 

1,816,916

 

58,256

   Deferred tax

 

(1,094,535)

 

(109,870)

   Accrued expenses and other payables

 

93,132

 

645,088

   Tax payables

 

(471,008)

 

(2,025,570)

   Net cash provided by (used in) operating activities

 

(7,987,904)

 

27,165,285

         

Cash flows from investing activities

       

   Purchase of property, plant and equipment

 

(4,877,444)

 

(27,743,857)

   Disposal of property, plant and equipment

 

106,422

 

-

   Net cash used in investing activities

 

(4,771,022)

 

(27,743,857)

         

Cash flows from financing activities

       

   Proceeds from short-term loans

 

6,460,000

 

6,671,614

   Proceeds from long-term loan

 

-

 

4,473,943

   Repayment of short-term loans

 

(4,420,893)

 

(13,326,141)

   Restricted cash

 

5,087,250

 

(4,997,303)

   Investment from non controlling interests

 

-

 

209,487

   Net cash flows provided by (used in) financing activities

 

7,126,357

 

(6,968,400)

         

   Effect of foreign currency exchange rate fluctuation on
   cash and cash equivalents

 

298,127

 

156,820

   Net changes in cash and cash equivalents

 

(5,334,442)

 

(7,390,152)

Cash and cash equivalents, beginning of year

 

11,903,937

 

19,294,089

Cash and cash equivalents, end of year

 

6,569,495

 

11,903,937

         

Cash paid during the year for:

       

Interest paid

 

826,842

 

658,335

Income taxes paid

 

1,248,707

 

1,171,447


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