China Shengda Packaging Group Inc. Announces Second Quarter 2012 Results

HANGZHOU, China, Aug. 13, 2012 /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 June 30, 2012.

"The business environment remains challenging and in line with our expectations as previously reported. Pricing is somewhat stable but raw material costs continue to rise beyond our ability to pass them along to our customers. In that context, the second quarter produced a solid performance. We added new customers and increased our sales volumes and revenues significantly compared to last year. The apparent per meter price decline is mainly a function of sales mix. Gross margins declined due to higher raw materials costs, but control of our operating costs enabled us to generate operating income in line with our expectations," said Mr. Daliang Teng, Chief Executive Officer of China Shengda Packaging.

Second Quarter 2012 Results

Revenues increased 12.5% to $36.7 million from $32.6 million in the prior year period. The increase was attributable to the increase of sales volume, partially offset by the decrease in average prices per square meter. Sales volume increased by 11.8 million square meters, or 14.7%, to 91.9 million square meters for the three months ended June 30, 2012, from 80.1 million square meters for the same period of 2011. The increased sales volume was mainly the result of greater sales efforts despite challenges resulting from domestic and foreign economic environment, which adversely affected the business of many customers. The average price per square meter decreased by 2.6% to $0.40 for the three months ended June 30, 2012 from $0.41 in the same period of 2011.

Color cartons accounted for 30.3% of the revenues and flexo cartons accounted for 69.7% of the revenues, compared to 28.6% and 71.4%, respectively, for the same period of 2011. Average per square meter prices for the color cartons and flexo cartons for the three months ended June 30, 2012 were approximately $0.41 and $0.39, respectively, as compared to approximately $0.46 and $0.39, respectively, for the same period of 2011.

Consumer and industrial goods manufacturing sectors are the Company's principal markets. The major customers remained home appliances and electronics manufacturers and food, beverage and cigarette manufacturers in the YRD, which accounted for 25.7% and 32.1%, respectively, of the revenues for the three months ended June 30, 2012.

Gross profit declined 5.6% to $5.9 million from $6.2 million in the same period of 2011. Gross profit from flexo cartons decreased 2.5% to $4.1 million for the three months ended June 30, 2012, from $4.2 million for the same period of 2011. Gross profit from color cartons decreased 13.5% to $1.8 million for the three months ended June 30, 2012, from $2.0 million for the same period of 2011. Gross margin was 16.0% for the three months ended June 30, 2012, as compared to 19.0% for the same period of 2011. The decrease in the gross profit was mainly due to the 16.7% increase in cost of goods sold associated with increased sales volume compared to the same period last year.

Selling expenses increased 14.9% to $1.3 million for the three months ended June 30, 2012, from $1.1 million for the same period of 2011. Such increase resulted mainly from staff cost. As a percentage of revenues, selling expenses for the three months ended June 30, 2012 increased to 3.6%, from 3.5% for the same period of 2011.

General and administrative expenses were to $2.6 million for the three months ended June 30, 2012, largely the same as the year-ago quarter. As a percentage of revenues, general and administrative expenses for the three months ended June 30, 2012 decreased to 7.1%, as compared to 8.0% for the same period of 2011.

Income tax expense decreased to $0.4 million for the three months ended June 30, 2012. The decrease in income tax expense was mainly attributable to the decrease in income before income tax expense and non-controlling interest.

Net income attributable to common stockholders decreased 27.1% to $1.7 million, or $0.04 per diluted share, from $2.3 million, or $0.06 per diluted share, in the same period of 2011.

Six Months Ended June 30, 2011

Revenue for the first six months of 2012 was $65.1 million, up 9.4% from revenue of $59.5 million for the first six months of 2011, mainly due to increased sales volume. The sales volume increased 10.8 million square meters, or 7.0%, to 164.5 million square meters from 153.7 million square meters during the same period of 2011. Gross profit was $11.3 million, compared to $13.3 million for the six months of 2011. Gross margin was 17.4%, compared to 22.3% for the first six months of 2011. Net income attributable to the Company's common stockholders was $3.2 million, or $0.08 per diluted share, compared to $5.7 million, or $0.14 per diluted share, for the same period a year ago.

Financial Condition

As of June 30, 2012, China Shengda Packaging had cash and cash equivalents of $14.4 million and restricted cash of $18.5 million. Accounts receivable were $39.1 million as of June 30, 2012 compared with $36.8 million as of year-end 2011.  Working capital was $50.0 million compared to $50.5 million in the prior year period.  Shareholders' equity was $102.5 million, compared with $98.6 million as of December 31, 2011. 

Net cash provided by operating activities was $8.6 million for the six months ended June 30, 2012, as compared to $9.7 million net cash used in operating activities for the same period of 2011. The provision of cash in the first six months of 2012 was attributable to the net income of $3.2 million, adjusted by depreciation and amortization expenses of $2.2 million, and a net provision of cash from working capital items of $3.2 million. The cash provided by working capital items was mainly due to the increase in accounts and notes payable of $13.4 million, partially offset by the increase in restricted cash of $10.6 million. 

Net cash used in investing activities was $11.7 million for the six months ended June 30, 2012, as compared to $2.3 million for the same period of 2011. The $11.7 million net cash used in investing activities during the six months ended June 30 was attributable to the purchases of property, plant and equipment and prepayment paid for construction in progress, primarily related to the machinery purchases and plant construction of the Company's paper mill.

Net cash used in financing activities was $2.0 million for the six months ended June 30, 2012, as compared to nil for the same period of 2011. During the six months ended June 30, 2012, the Company received proceeds from borrowings amounting to $11.2 million and repaid loans amounting to $13.3 million.

Business Outlook

The Company reiterates its expectations for fiscal 2012 revenues of between $115 million and $125 million, net income of between $6.5 million and $7.5 million, and diluted earnings per share of between $0.17 and $0.19.

The Company continues to anticipate slow growth in demand from its client base as industries in the Yangtze River Delta experience modest growth in domestic demand and reduced export demand for their products. "We are pleased with our efforts to address this environment with better service levels, keen prices and new products, and with the response of our top line to this difficult market," said Mr. Teng. "We are continuing to negotiate with major new customers today, emphasizing color printing which commands higher pricing."

Mr. Teng concluded, "The second quarter developed along the lines we expected and our outlook for the year is broadly unchanged. We maintain our focus on adding new customers, providing top class customer service and controlling costs. We are looking forward to the opening of our paper mill at the end of the year and its contribution to the control of the cost of our raw materials."  

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.