China Shengda Packaging Group Inc. Reports Second Quarter 2014 Results

HANGZHOU, China, Aug. 14, 2014 /PRNewswire-FirstCall/ -- China Shengda Packaging Group Inc. (NASDAQ: CPGI) ("Shengda" or the "Company"), a leading Chinese paper packaging company, today reported its financial results for the second quarter ended June 30, 2014.

Mr. Daliang Teng, Chief Executive Officer of Shengda, commented, "We are pleased to announce solid second quarter results with revenues increasing both annually and sequentially, thanks to continued ramp of the paper mill at our Shuangsheng subsidiary that contributed $10.7 million in revenues and more than offset the weakness in our paper cartons business. Our gross margin continued to recover and reached the highest level to 17.4% since the second quarter of 2013, benefitting from lower material cost for our paper cartons business and narrower loss at Shuangsheng."      

Mr. Teng continued, "While economic headwinds will likely continue to sap our customers' ability to expand, therefore negatively affecting our paper cartons business in the near term, we remain confident that the long-term growth prospects of our market, our vertical integration and geographical expansion strategy, and our execution capabilities will allow us to deliver significant long-term returns for our shareholders."

Second Quarter 2014 Financial Highlights:

• Revenues increased by 11.2%  to $37.2 million for the second quarter of 2014 with revenues of paper cartons and other paper products decreasing 8.9% to $29.9 million as a result of decreases in both sales volume and average price per square meter.
• The paper mill at Shuangsheng, which officially went into production in June 2013, produced 30.2 thousand tons of corrugating medium paper and generated $10.7 million in revenues for the second quarter of 2014.
• Gross profit increased by 34.4% to $6.5 million for the second quarter of 2014. Gross margin was 17.4% for the second quarter of 2014 compared to 14.4% for the same period of last year. The increases in gross profit and gross margin were mainly due to decrease in raw material cost per square meter for our paper cartons business, which decreased by 8.6% to $0.30 for the second quarter of 2014 from $0.33 for the same period of last year.
• Net income attributable to the Company's stockholders was $1.1 million, or $0.03 per basic and diluted share, for the second quarter of 2014. This compares to net income attributable to the Company's stockholders of $0.8 million, or $0.02 per basic and diluted share, for the same period of last year.

Total revenues for the second quarter of 2014 increased by $3.7 million, or 11.2% to $37.2 million from $33.5 million for the same period of last year. Revenues of paper cartons and other paper products decreased by $2.9 million, or 8.9%, to $29.9 million for the second quarter of 2014 from $32.8 million for the same period of last year. The decrease was mainly due to weakness in sales volume as a result of challenging economic environment. Sales volume of paper cartons decreased by 6.6% to 77.3 million square meters for the second quarter of 2014 from 82.9 million square meters for the same period of last year. Our paper mill generated $10.7 million revenues from corrugating medium paper with sales volume of 30.2 thousand tons and average selling price of $356 per ton, compared to revenues of $0.7 million on volume of 1.9 thousand tons and average selling price of $356 per ton for the same period of last year. Eliminating internal sales of approximately $3.4 million, revenues of external sales of corrugating medium paper was $7.3 million or 19.7% of total revenues for the second quarter of 2014.

Color cartons and flexo cartons accounted for 29.5% and 67.8% of total revenues for the second quarter of 2014, compared to 28.5% and 69.5%, respectively, for the same period of last year. Average sales prices per square meter for color cartons and flexo cartons were approximately $0.39 and $0.38, respectively, for the second quarter of 2014, compared to approximately $0.39 and $0.40, respectively, for the same period of last year.

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 21.0% and 19.1%, respectively, of total revenues for the second quarter of 2014, compared to 25.0% and 24.7%, respectively, for the same period of last year.

Gross profit increased by $1.7 million, or 34.4%, to $6.5 million for the second quarter of 2014 from $4.8 million for the same period of last year. The increase in gross profit was mainly due to decrease in raw material cost for our paper cartons business as well as narrower gross loss at our paper mill. Gross profit of paper cartons and other paper products increased by $1.0 million, or 19.4%, to $6.6 million for the second quarter of 2014 from $5.6 million for the same period of last year. Gross profit for color cartons and flexo cartons were $2.1 million and $4.5 million, respectively for the second quarter of 2014, compared to $1.7 million and $3.9 million, respectively, for the same period of last year. Gross profit of corrugating medium paper was negative $0.1 million for the second quarter of 2014, compared to negative $0.7 million for the same period of last year. Overall gross margin increased by approximately 3.0 points to 17.4% for the second quarter of 2014 from 14.4% for the same period of last year. Gross margins for paper cartons and other paper products and corrugating medium paper were 22.2% and negative 1.4%, respectively, for the second quarter of 2014.

Selling expenses increased by $0.5 million, or 51.1%, to $1.6 million for the second quarter of 2014 from $1.1 million for the same period of last year. The increase was mainly related to the operation of Shuangsheng which went into production in June 2013. As a percentage of revenues, selling expenses for the second quarter of 2014 increased to 4.3% from 3.2% for the same period of last year.

General and administrative expenses increased by $0.2 million, or 6.5%, to $3.2 million for the second quarter of 2014 from $3.0 million for the same period of last year. As a percentage of revenues, general and administrative expenses for the second quarter of 2014 decreased to 8.5% from 8.9% for the same period of last year.

Net income attributable to the Company's stockholders was $1.1 million, or $0.03 per basic and diluted share, for the second quarter of 2014. This compares to net income attributable to the Company's stockholders of $0.8 million, or $0.02 per basic and diluted share, for the same period of last year.

Total revenues for the six months ended June 30, 2014 increased by $8.9 million, or 14.8% to $69.5 million from $60.6 million for the same period of last year. Revenues of paper cartons and other paper products decreased by $3.9 million, or 6.5%, to $56.0 million for the six months ended June 30, 2014 from $59.9 million for the same period of last year. The decrease was mainly due to weakness in sales volume as a result of challenging economic environment. Sales volume of paper cartons decreased by 4.5% to 145.3 million square meters for the six months ended June 30, 2014 from 152.1 million square meters for the same period of last year. Our paper mill generated $20.1 million revenues from corrugating medium paper with sales volume of 55.5 thousand tons and average selling price of $362 per ton, compared to revenues of $0.7 million on volume of 1.9 thousand tons and average selling price of $356 per ton for the same period of last year. Eliminating internal sales of approximately $6.6 million, revenues of external sales of corrugating medium paper was $13.5 million or 19.4% of total revenues for the six months ended June 30, 2014.

Color cartons and flexo cartons accounted for 24.8% and 55.8% of total revenues for the six months ended June 30, 2014, compared to 28.4% and 70.5%, respectively, for the same period of last year. Average sales prices per square meter for color cartons and flexo cartons were approximately $0.39 and $0.38, respectively, for the six months ended June 30, 2014, compared to approximately $0.40 and $0.39, respectively, for the same period of last year.

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 21.5% and 20.0%, respectively, of total revenues for the six months ended June 30, 2014, compared to 26.5% and 27.0%, respectively, for the same period of last year.

Gross profit increased by $0.5 million, or 5.1%, to $10.6 million the six months ended June 30, 2014 from $10.1 million for the same period of last year. The increase in gross profit was mainly due to decrease in raw material cost for our paper cartons business. Gross profit of paper cartons and other paper products increased by $1.3 million, or 11.2%, to $12.1 million for the six months ended June 30, 2014 from $10.8 million for the same period of last year. Gross profit for color cartons and flexo cartons were $3.9 million and $8.2 million, respectively for the six months ended June 30, 2014, compared to $3.3 million and $7.5 million, respectively, for the same period of last year. Gross profit of corrugating medium paper was negative $1.4 million for the six months ended June 30, 2014, compared to negative $0.7 million for the same period of last year. Overall gross margin increased by approximately 1.4 points to 16.7% for the six months ended June 30, 2014 from 15.3% for the same period of last year. Gross margins for paper cartons and other paper products and corrugating medium paper were 21.5% and negative 7.1%, respectively, for the six months ended June 30, 2014.

Selling expenses increased by $1.3 million, or 55.3%, to $3.5 million for the six months ended June 30, 2014 from $2.2 million for the same period of last year. The increase was mainly related to the operation of Shuangsheng which went into production in June 2013. As a percentage of revenues, selling expenses for the six months ended June 30, 2014 increased to 5.0% from 3.7% for the same period of last year.

General and administrative expenses increased by $0.2 million, or 3.7%, to $6.0 million for the six months ended June 30, 2014 from $5.8 million for the same period of last year. As a percentage of revenues, general and administrative expenses for the six months ended June 30, 2014 decreased to 8.6% from 9.6% for the same period of last year.

Net income attributable to the Company's stockholders was $0.5 million, or $0.01 per basic and diluted share, for the six months ended June 30, 2014. This compares to net income attributable to the Company's stockholders of $1.6 million, or $0.04 per basic and diluted share, for the same period of last year.

Financial Condition

As of June 30, 2014, the Company had cash and cash equivalents of $9.5 million and restricted cash of $13.1 million. Shareholders' equity was $111.0 million, compared to $111.4 million at December 31, 2013. Net cash provided by operating activities was $7.8 million for the six months ended June 30, 2014, compared to net cash used in operating activities of $4.8 million for the same period of 2013. This was attributable to net income of $0.5 million, adjusted by depreciation and amortization expenses of $3.9 million, loss from disposal of property, plant, and equivalent of $0.6 million, and a net increase in cash from accounts and notes receivable of $3.3 million and a net decrease in cash from other working capital items of $0.5 million. Net cash used in investing activities was $3.0 million for the six months ended June 30, 2014, compared to $3.3 million for the same period of last year. The $3.0 million was used for purchases of property, plant and equipment. Net cash used in financing activities was $1.9 million for the six months ended June 30, 2014, compared to net cash provided by financing activities of $3.2 million for the same period of last year. During the six months ended June 30, 2014, we received proceeds from borrowings of $15.5 million, repaid $14.7 million loans, and added $2.7 million in restricted cash as collateral for loans.

Recent Development

On April 18, 2014, Great Shengda increased its equity investment in Shuangsheng amounting to RMB112 million (approximately $18.1 million). As a result, Shuangsheng has registered capital amounting to RMB200 million (approximately $32.4 million), with 98.68% held by Great Shengda and 1.32% held by Shuangdeng Paper Industrial Company Limited ("Shuangdeng Paper"), a company incorporated in PRC and controlled by the same ultimate stockholders of the Company.

On June 16, 2014, Shengda Concept was in incorporated in Yancheng city, Jiangsu province, PRC as a wholly-owned subsidiary of Great Shengda. With registered capital of RMB30.2 million (approximately $4.9 million), Shengda Concept is a development stage company which engages in - manufacturing and sales of paper cartons and paperboard as well as research and development of paper packaging technology.

On July 25, 2014, the Company held an annual meeting of its shareholders (the "Annual Meeting") at which a majority of the Company's shareholders (i) elected Messieurs Nengbin Fang, Zhen Yuan and Yaoquan Zhang and Ms. Congyi Fang to serve as a director of the Company; (ii) ratified the appointment of Marcum Bernstein & Pinchuk LLP ("Marcum BP") to serve as the Company's independent registered public accounting firm for 2014; and (iii) approved, on a non-binding and advisory basis, the executive compensation.

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:  [email protected]                                                               
Website: http://www.cnpti.com                                    

Investor Relations Contact:
Weitian Group LLC  
Tina Xiao
Tel: +1-917-609-0333
Email: [email protected]

SOURCE China Shengda Packaging Group Inc.