China Shengda Packaging Group Inc. Announces Third Quarter 2011 Results

HANGZHOU, China, Nov. 14, 2011 /PRNewswire-Asia-FirstCall/ -- China Shengda Packaging Group Inc. (NASDAQ: CPGI), a leading Chinese paper packaging manufacturer, today announced its financial results for the three months ended September 30, 2011.

"Volumes were 8% ahead of the same quarter last year and revenues 9% higher.  Average selling prices were marginally higher overall.  We are pleased that we increased our presence in the market place through higher levels of shipments," Mr. Daliang Teng, Chief Executive Officer of China Shengda Packaging, commented. "Despite the growth in revenues, labor and raw material cost pressures persisted and our margins were lower as we absorbed some of those higher costs.  Even so, early in the fourth quarter, raw materials prices appear to be softening and we expect to meet our full year guidance for both sales and EPS."

Third Quarter 2011 Results

Revenues increased $2.7 million, or 8.7%, to $33.6 million for the three months ended September, 2011, from $30.9 million during the same period of 2010. The increase was primarily a result of increased sales volume. The sales volume increased 6.5 million square meters, or 8.0%, to 87.6 million square meters for the three months ended September 30, 2011, from 81.1 million square meters during the same period of 2010. The increased sales volume was mainly the result increased efforts from the sales team.

Color cartons accounted for 28.3% of total revenues for in the third quarter of 2011 and flexo cartons accounted for 71.7%, compared to 27.2% and 72.8%, respectively, in the same period of 2010. Average per square meter prices for color cartons and flexo cartons during the third quarter of 2011 were $0.44 and $0.36, respectively, approximately the same as the corresponding period a year ago.

Consumer and industrial goods manufacturing sectors are the Company's principal markets. Its major customers remained home appliances and electronics manufacturers and food, beverage and cigarette manufacturers in the YRD, which accounted for 24.1% and 26.6%, respectively, of the total revenues in the third quarter of 2011.

Gross profit declined 29.3% to $6.0 million from $8.4 million in the same period of 2010. Gross profit from flexo cartons declined 32.6% to $3.9 million from $5.8 million in the same period of 2010. Gross profit from color cartons declined 23.2% to $2.0 million from $2.6 million in the same period of 2010. Gross margin declined to 17.7% from 27.2% in the same period of 2010. The decrease in gross margin was primarily due to an increase in the cost of raw materials compared to the same period a year ago.

Selling expenses increased from 3.2% of sales to 3.3% of sales in the third quarter as compared to the third quarter in 2010.  

General and administrative ("G&A") expenses increased 76.2% to $2.3 million from $1.3 million in the same period of 2010. The increase was mainly attributable to a $0.6 million increase in research and development ("R&D") expenses and a $0.3 million increase in staff cost and office expenses. R&D expenses, which mainly related to product functionality improvement and cost saving expenses, increased to $0.9 million from $0.3 million in the same period of 2010. As a percentage of revenues, G&A expenses for the three months ended September 30, 2011 increased to 7.0%, as compared to 4.3% for the same period of 2010.

Income tax expense decreased to $0.4 million during the three months ending September 30, 2011, from $1.3 million during the same period of 2010. The decrease in income tax expense was mainly attributable to the decrease in income before income tax expense and noncontrolling interest, and the fact that Great Shengda was subject to the uniform income tax rate of 25% for the period ended September 30, 2010 as compared to 15% for the same period of 2011. In October 2010, Great Shengda qualified as a National High-Tech Enterprise, a status recognized by China's Ministry of Science and Technology, Ministry of Finance, and State Administration of Taxation. In December 2010, the status was approved by the local tax bureau. Accordingly, under the PRC Enterprise Income Tax Law, Great Shengda is eligible for a preferential tax rate of 15% for the calendar years of 2010, 2011 and 2012, as opposed to the uniform income tax rate of 25%. The preferential tax rate of 15% was retroactively effective as of January 1, 2010, and the retroactive effect was accounted for in the fourth quarter of 2010.

Net income attributable to common stockholders decreased 51.5% to $2.3 million, or $0.06 per diluted share, from $4.8 million, or $0.15 per diluted share, in the same period of 2010.

Nine Months Ended September 30, 2011

Revenue for the first nine months of 2011 was $93.2 million, up 1.4% from revenue of $91.9 million for the first nine months of 2010, mainly due to higher average per square meter prices partially offset by decreased sales volume. The sales volume decreased 4.2 million square meters, or 1.7%, to 241.4 million square meters from 245.6 million square meters during the same period of 2010. Gross profit was $19.2 million compared to $25.7 million for the nine months of 2010. Gross margin was 20.6%, compared to 28.0% for the first nine months of 2010. Net income attributable to the Company's common stockholders was $8.0 million, or $0.20 per diluted share, compared to $14.1 million, or $0.47 per diluted share, for the same period a year ago.

Financial Condition

As of September 30, 2011, China Shengda Packaging had cash and cash equivalents of $22.4 million and restricted cash of $5.2 million. Accounts and notes receivable were $39.9 million as of September 30, 2011 compared with $31.4 million as of year-end December 31, 2010.  Working capital was $48.8 million compared to $40.7 million at year end.  Shareholders' equity was $96.6 million, compared with $86.1 million as of December 31, 2010.  

Net cash used in operating activities was $7.5 million for the nine months ended September 30, 2011, as compared to $4.0 million in net cash provided by operating activities for the same period in 2010. This was attributable to the net income of $8.0 million, adjusted by depreciation and amortization expenses of $3.0 million, and a net decrease in cash from working capital items of $18.5 million. The net decrease in working capital items was mainly due to the decrease in the accounts and notes payable of $21.2 million and an increase in accounts and notes receivable of $7.2 million, partially offset by the decrease in restricted cash of $7.5 million. The $21.2 million decrease in accounts and notes payable is mainly due to the maturity of notes payable during the nine months ended September 30, 2011, amounting to $19.9 million.

Net cash used in investing activities was $3.9 million for the nine months ended September 30, 2011, as compared to $6.4 million in net cash used in investing activities for the same period in 2010. The decrease was mainly attributable to the purchase of a non-controlling interest for $3.0 million during the nine months ended September 30, 2010, as compared to no such purchase during the same period of 2011.

Net cash used in financing activities was $2.6 million for the nine months ended September 30, 2011, as compared to $4.3 million net cash provided by financing activities for the same period in 2010. During the nine months ended September 30, 2011, the Company received proceeds from short-term loans amounting to $18.0 million and repaid short-term loans amounting to $20.0 million.

The Company's Board of Directors approved a share repurchase program on July 18, 2011.  Under the program the Company may purchase up to $5.0 million of its common stock subject to market and other conditions.  The program is scheduled to expire on July, 18, 2012 although it may be extended.  During the third quarter the Company purchased 665,500 shares of its common stock at an average price of $1.10 per share for a total cost of approximately $0.7 million.

Recent Developments

• On September 22, 2011, the Company incorporated under the laws of the People's Republic of China a majority-owned subsidiary named Jiangsu Shuangsheng Paper Technology Development Co., Ltd. ("Shuangsheng"). On September 27, 2011, the Company received Shuangsheng's business license from the local administration of industry and commerce approving Shuangsheng to be engaged in the business of new paper making technology, related research and the development, application, transfer and consultation of such relevant technology. Pursuant to the business license, Shuangsheng has registered capital of RMB 88 million (approximately $13.7 million) with actually invested capital of RMB 22 million (approximately $3.4 million).
  
  Shuangsheng was incorporated pursuant to the Company's plan to build a new paper manufacturing plant with an annual production capacity of 100,000 to 300,000 tons. Such plan was disclosed in the Company's Annual Report on Form 10-K filed on March 28, 2011.
  
  In addition, the Company recently ordered equipment that will enable it to develop the first phase of this paper manufacturing plant. The Company expects the first phase to be in commercial use in October 2012.  

• On August 19, 2011, the Company announced the appointment of Ken He as the Company's new Chief Financial Officer, effective August 19, 2011. Ken He succeeds Thomas Jiayao Wu, who resigned as Chief Financial Officer on August 19, 2011 for personal reasons.
  

Business Outlook

The Company reiterates its guidance for the full fiscal year of 2011, of revenues of between $115 million and $125 million, net income of between $11.5 million and $12.5 million, and diluted earnings per share of between $0.29 and $0.32.

The Company anticipates that the fourth quarter of the year will experience stronger sales and margins than were experienced in the first three quarters of the year.  However, the Company expects headwinds to persist:

• The restrictive financial policies of the PBOC will continue to impact the manufacturing enterprises in the YRD  
• Although raw materials prices have been flat to down during October compared to third quarter levels, inflation in raw material prices and labor costs in China may occur.  These costs, based on past experience of management, are very difficult to pass on in full to customers

Mr. Teng concluded, "Volumes were again strong during the third quarter.  That momentum, together with a higher priced mix of product sales during the fourth quarter and lower raw materials prices will help deliver full year results within our guidance range and we expect to enter 2012 with an upward trend in performance."  

Conference Call Information

The Company will also host a conference call at 8:00 am ET on Monday, November 14, 2011.  

Listeners may access the call by dialing +1 (877) 275-8968 five to ten minutes prior to the scheduled conference call time. International callers should dial +1 (706) 643-1666. The conference participant pass code is 23736815.

A replay of the conference call will be available for 14 days starting from 10:00 am ET on Monday, November 14, 2011. To access the replay, dial +1 (855) 859-2056. International callers should dial +1 (404) 537-3406. The pass code is 23736815.

About China Shengda Packaging Group Inc.

China Shengda Packaging Group Inc. is a leading paper packaging company in China. It is principally engaged in the design, manufacturing and sale of flexo-printed and color-printed corrugated paper cartons in a variety of sizes and strengths. It also manufactures corrugated paperboards, which are used for the production of its 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. For more information, visit http://www.cnpti.com.

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 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.

SOURCE China Shengda Packaging Group Inc.