China Shengda Packaging Group Inc. Reports Full Year 2014 Financial Results

Revenues grew 13.7 % to $152.6 million for the year of 2014

HANGZHOU, China, March 30, 2015 /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 fiscal year ended December 31, 2014.

Mr. Daliang Teng, Chief Executive Officer of Shengda commented, "2014 remained a challenging year for the Chinese paper packaging industry as China's economic growth rate fell to its lowest level in a quarter century, marking a likely end of a high-growth heyday. This, combined with tightened credit environment, prompted many of our customers to put their expansion plan on hold and, consequently, limited our ability to grow our paper cartons business during the year of 2014. However, our overall revenues grew 13.7% to $152.6 million for the year of 2014, thanks to increased contribution from our corrugating medium paper business which saw its sales volume more than doubled in 2014, highlighting our strengthened market position through vertical integration."

Mr. Teng continued, "While the Chinese paper packaging industry is likely to face continuing macro headwinds and intensifying competition in the near future, we believe that Shengda is on a solid footing with our unwavering efforts to grow our businesses through the combination of vertical integration and geographical expansion."

Full Year 2014 Financial Highlights:

• Revenues increased by 13.7% year-over-year to $152.6 million for the year of 2014 mainly driven by increase in sales volume of corrugating medium paper which increased 128.5% to 117.7 thousand tons from 51.5 thousand tons for the year of 2013.
• Operating margin improved 48 basis points to 2.1% for the year of 2014 from 1.6% for the year of 2013, as selling, general and administrative expenses as a percentage of revenues decreased, more than offset by slight decrease in overall gross margin.
• Net income attributable to the Company's stockholders decreased by $0.1 million or 5.7%, to $2.6 million for the year of 2014.
• Basic and diluted earnings per share were essentially unchanged at $0.07 for the years of both 2014 and 2013.

Twelve Months Ended December 31, 2014 Results

Total revenues for the year ended December 31, 2014 increased by $18.4 million, or 13.7% to $152.6 million from $134.2 million for the year of 2013 primarily driven by increased sales volume of corrugating medium paper.

Revenues of paper cartons and other paper products increased by $0.4 million, or 0.3%, to $119.8 million for the year of 2014 from $119.4 million for the year of 2013. Sales volume of paper carton and other paper products increased by 1.2% to 304.9 million square meters for the year of 2014 from 301.2 million square meters for the year of 2013 while the average price of paper cartons and other paper products declined slightly to $0.39 per square meter for the year of 2014 from $0.40 per square meter for the year of 2013. Color and flexo cartons accounted for 21.1% and 57.4% of total revenues for the year of 2014, compared to 26.3% and 62.7%, respectively, for the year of 2013. Average sales prices per square meter for color and flexo cartons were approximately $0.40 and $0.39, respectively, for the year of 2014, compared to approximately $0.41 and $0.39, respectively, for the year of 2013. 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 20.3% and 17.2%, respectively, of total revenues for the year of 2014, compared to 23.6% and 24.3%, respectively, of total revenues for the year of 2013.

Revenues of corrugating medium paper increased by $23.6 million, or 127.8%, to $42.1 million for the year of 2014, from $18.5 million for the year of 2013. The increase was mainly due to the increased sales volume as our corrugating medium paper business officially went into production in June 2013. Sales volume of corrugating medium paper was approximately 117.7 thousand tons and the average selling price was approximately $358 per ton for the year of 2014, compared to 51.5 thousand tons and $359 per ton, respectively, for the year of 2013.

Overall gross profit increased by $2.4 million, or 12.4%, to $21.9 million for the year of 2014 from $19.5 million for the year of 2013. The increase in gross profit was mainly due to improvement in gross margin for our paper cartons and other paper products business as well as narrower gross loss our corrugating medium paper business. Gross profit of paper cartons and other paper products increased by $2.0 million, or 8.7%, to $24.5 million for year of 2014 from $22.5 million for the year of 2013. Gross profit of color and flexo cartons were $7.0 million and $17.5 million, respectively, for the year of 2014, compared to $7.3 million and $15.2 million, respectively, for the year of 2013. Gross loss of corrugating medium paper was $2.6 million for the year of 2014, compared to gross loss of $3.0 million for the year of 2013. Overall gross margin decreased by 16 basis points to 14.3% for the year of 2014 from 14.5% for the year of 2013. Gross margins for paper cartons and other paper products and corrugating medium paper were 20.4% and negative 6.1%, respectively, for the year of 2014, compared to 18.8% and negative 16.5%, respectively, for the year of 2013.

Selling expenses increased by $0.6 million, or 11.2%, to $6.4 million for the year of 2014 from $5.8 million for the year of 2013. The increase was mainly due to higher freight expenses. As a percentage of revenues, selling expenses for the year of 2014 decreased to 4.2% from 4.3% for the year of 2013.

General and administrative expenses increased by $0.8 million, or 6.5%, to $12.3 million for the year of 2014 from $11.5 million for the year of 2013. 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 2014 decreased to 8.1% from 8.6% for the year of 2013.

Operating income increased by $1.1 million, or 47.9%, to $3.2 million for the year of 2014 from $2.1 million for the same period of last year. The increase in operating income was mainly due to increase in gross profit from the paper cartons and other paper products business and partially offset by higher selling, general and administrative expenses. Overall operating margin increased by 48 basis points to 2.1% for the year of 2014 from 1.6% for year of 2013.

Net income attributable to the Company's common stockholders decreased by approximately $0.1 million, or 5.7%, to $2.6 million for the year of 2014, from $2.7 million for the year of 2013. Basic and diluted earnings per share were $0.07 for the year of 2014, essentially unchanged from last year.

Financial Condition

As of December 31, 2014, the Company had cash and cash equivalents of $10.9 million and restricted cash of $13.8 million. Shareholders' equity was $113.3 million, compared to $111.4 million at December 31, 2013.

Net cash provided by operating activities was $23.9 million for the year of 2014, compared to net cash used in operating activities of $8.0 million for the year of 2013. This was attributable to net income of $2.5 million, adjusted by depreciation and amortization expenses of $7.6 million, and a net increase in cash from accounts and notes payable of $10.4 million and a net increase in cash from other working capital items of $3.4 million.

Net cash used in investing activities was $13.2 million for the year of 2014, compared to $4.8 million for the year of 2013. The $13.2 million net cash was used for purchases of property, plant and equipment, mainly related to the capital expenditure of property, plant, and equipment of $6.7 million as well as plant construction of $6.8 million, which was mainly for Shengda Concept, and cash generated from the disposal of property, plant and equipment of 0.3 million.

Net cash used in financing activities was $6.4 million for the year of 2014, compared to $7.1 million net cash provided by financing activities for the year of 2013. During the year ended December 31, 2014, we received $17.2 million of loan proceeds, repaid $23.7 million loans and received restricted cash of $0.1 million which was for the notes payable and loans as collateral.

Recent Developments

On December 2, 2014, Great Shengda, a wholly owned subsidiary of the Company, formed a joint venture in Chengdu, Sichuan Province with Chengdu Zhongtian Chengxin Packaging Co., Ltd., a Chinese company ("Chengdu Zhongtian"). The joint venture, Chengdu Shengda Zhongtian Packaging Co., Ltd. ("Shengda Zhongtian") has registered capital of RMB 42.86 million (approximately $6.89 million) with Great Shengda and Chengdu Zhongtian controlling 55% and 45% of its equity interest, respectively.

On December 10, 2014, NASDAQ notified the Company that while the Company had not regained compliance with the Bid Price Rule, it was eligible for an additional 180-day grace period, until June 8, 2015 (the "Expiration Date"), to regain compliance with the Bid Price Rule. NASDAQ's determination was based on the Company having met the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the NASDAQ Capital Market, with the exception of the Bid Price Rule, and on the Company's written notice to NASDAQ of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

On December 15, 2014, the Company's majority-owned subsidiary Jiangsu Shuangsheng Paper Technology Development Co., Ltd. ("Shuangsheng") submitted its Articles of Incorporation and applied business license to the local industrial and commercial bureau to form a company named Hangzhou Xiaoshan Xiaosheng Paper Co., Ltd. ("Xiaosheng") in Xiaoshan District, Hangzhou, Zhejiang Province for sale of paper products. Pursuant to Xiaosheng's Articles of Incorporation, Xiaosheng has registered capital of RMB 38 million (approximately $6.1 million).

On December 24, 2014, both Shengda Zhongtian and Xiaosheng received the business licenses dated as of the dates of their respective applications.

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 within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. 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 expand to new markets, the ability to grow business through vertical integration and geographical expansion, 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, current or future volatility in the credit market and future maret 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.