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IT Tech Packaging, Inc. Announces Third Quarter 2018 Financial Results

  • Friday, November 9, 2018, 5:30 am
  • ACROFAN=PRNasia
  • hkcs@prnasia.com

Company to Host Earnings Conference Call on Friday, November 9, 2018, at 8:00 am ET


BAODING, China, Nov. 8, 2018 /PRNewswire/ -- IT Tech Packaging, Inc. (NYSE MKT: ITP) ("IT Tech Packaging" or the "Company"), a leading manufacturer and distributor of diversified paper products in North China, today announced its unaudited financial results for the third quarter ended September 30, 2018.


  • Revenue for the third quarter of 2018 decreased by 20.2% to $26.72 million, primarily attributable to a decrease in overall sales volume of 23.8% and partially offset by an increase in average selling prices ("ASP") of 4.7%.
  • Gross profit for the third quarter of 2018 decreased by 82.6% to $1.26 million. Gross margin decreased by 16.8 percentage points to 4.7%. The decreases in gross profit and gross margin were primarily due to increases in unit costs of recycled paper board and recycled white scrap paper.
  • Net loss for the third quarter of 2018 was $1.40 million, or net loss of $0.07 per diluted share, compared to net income of $1.57 million, or net earnings of $0.07 per diluted share, for the same period of the prior year.
  • Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the third quarter of 2018 decreased by 70.7% to $1.89 million.

Mr. Zhenyong Liu, Chairman and Chief Executive Officer of the Company, commented, "with decreases in both revenues and margins, our third quarter results highlighted continued challenges facing our business. With China's GDP registered the slowest growth rate since the first quarter of 2009, the continuing slowdown of China's growth momentum clearly took a toll on paper companies including us during the third quarter. Looking ahead, with the ongoing trade war between China and the U.S. as well as heightened government efforts on environmental protection, the paper industry faces significant risks and uncertainties, and, as a result, our financial performance could be volatile in the near term."


Third Quarter 2018 Unaudited Financial Results





 For the Three Months Ended September 30,


 ($ millions)



2018



2017



 % Change


 Revenues



26.72



33.51



-20.2%


 Regular Corrugating Medium Paper ("CMP")*



19.22



22.40



-14.2%


 Light-Weight CMP**



6.85



5.00



37.1%


 Offset Printing Paper



0.66



5.45



-88.0%


 Tissue Paper Products



0.00



0.66



-100.0%
















 Gross profit



1.26



7.22



-82.6%


 Gross profit (loss) margin



4.7%



21.6%



-16.8 pp


 Regular Corrugating Medium Paper ("CMP")*



4.9%



22.5%



-17.6 pp


 Light-Weight CMP**



5.1%



25.8%



-20.8 pp


 Offset Printing Paper



-3.3%



15.6%



-18.9 pp


 Tissue Paper Products



NA



6.7%



NM
















 Operating income (loss)



-1.57



2.72



-157.7%


 Net income (loss)



-1.40



1.57



-189.4%


 EBITDA



1.89



6.45



-70.7%


 Basic and Diluted earnings (loss) per share



-0.07



0.07



-189.4%









 * Products from PM6








 ** Products from PM1








 *** pp represents percentage points








Revenue


For the third quarter of 2018, total revenue decreased by $6.78 million, or 20.2%, to $26.72 million from $33.51 million for the same period of the prior year. The decrease in total revenue was mainly due to the decrease in sales volume across the board and partially offset the increase in ASP. The following table summarizes revenue, volume and ASP by product for the third quarter of 2018 and 2017, respectively:



 For the Three Months Ended September 30, 



2018



2017



 Revenue
($'000) 



 Volume
(tonne) 



 ASP
($/tonne) 



 Revenue
($'000) 



 Volume
(tonne) 



 ASP
($/tonne) 


 Regular CMP 


19,219



33,928



566



22,397



43,202



518


 Light-Weight CMP 


6,850



12,319



556



4,996



10,173



491


 Offset Printing Paper 


656



902



727



5,454



8,035



679


 Tissue Paper Products 


-



-



-



660



493



1,339


 Total 


26,724



47,149



567



33,507



61,903



541



Revenue from CMP, including both regular CMP and light-Weight CMP, decreased by $1.32 million, or 4.8%, to $26.07 million and accounted for 97.6 % of total revenue for the third quarter of 2018, compared to $27.39 million, or 81.8% of total revenue, for the same period of the prior year. The Company sold 46,247 tonnes of CMP at an ASP of $564/tonne in the third quarter of 2018, compared to 53,375 tonnes at an ASP of $513/tonne in the same period of the prior year.


Of the total CMP sales, revenue from regular CMP decreased by $3.18 million, or 14.2%, to $19.22 million, resulting from sales of 33,928 tonnes at an ASP of $566/tonne, during the third quarter of 2018, compared to revenue of $22.40 million, resulting from sales of 43,202 tonnes at an ASP of $518/tonne, for the same period of the prior year. Revenue from light-weight CMP increased by $1.85 million, or 37.1%, to $6.85 million, resulting from sales of 12,319 tonnes at an ASP of $556/tonne for the third quarter of 2018, compared to revenue of $5.00 million, resulting from sales of 10,173 tonnes at an ASP of $491/tonne for the same period of the prior year.


Revenue from offset printing paper decreased by $4.80 million, or 88.0%, to $0.66 million for the third quarter of 2018, from $5.45 million for the same period of the prior year. The Company sold 902 tonnes of offset printing paper at an ASP of $727/tonne in the third quarter of 2018, compared to 8,035 tonnes at an ASP of $679/tonne in the same period of the prior year.


Production of tissue paper was suspended in September and October 2017 for the replacement of coal boilers, and intermittent production resumed in the following months due to volatility in the price of tissue paper. We had no revenue from tissue paper products for the third quarter of 2018, compared to $0.66 million, resulting from sales of 493 tonnes at an ASP of $1,339/tonne, for the third quarter of 2017. We expect to resume and increase production of tissue products once the market condition becomes more favorable.


In June 2016, we suspended the production of digital photo paper due to low market demand for our products and now are considering renovating the line to produce more competitive products. We expect that our digital photo paper production will remain suspended for the near future.


Gross Profit and Gross Margin


Total cost of sales decreased by $0.82 million, or 3.1%, to $25.46 million for the third quarter of 2018, from $26.29 million for the same period of the prior year. Cost of sales per tonne was $540 for the third quarter of 2018, compared to $425 for the same period of the prior year. The increase in overall cost of sales per tonne was mainly due to increased material costs, specifically higher average unit purchase costs of recycled paper board and recycled white scrap paper. Costs of sales per tonne for regular CMP, light-weight CMP, offset printing paper, and tissue paper products were, $539, $528, $751, and $nil, respectively, for the third quarter of 2018, compared to $402, $364, $573 and $1,249, respectively, for the same period of the prior year.


Gross profit decreased by $5.96 million, or 82.6%, to $1.26 million for the third quarter of 2018, from $7.22 million for the same period of the prior year. Overall gross margin was 4.7% for the third quarter of 2018, compared to 21.6% for the same period of the prior year. The decrease in gross profit and gross margin were mainly due to the increase in unit cost of recycled paper board and recycled white scrap paper and decrease in overall sales volume, partially offset by an increase in average selling prices as discussed above. Gross margins for regular CMP, light-weight CMP, offset printing paper, and tissue paper products were 4.9%, 5.1%, -3.3%, and nil, respectively, for the third quarter of 2018, compared to gross profit margin of 22.5%, 25.8%, 15.6%, and 6.7%, respectively, for the same period of the prior year.


Selling, General and Administrative Expenses


Selling, general and administrative expenses ("SG&A") decreased by $0.02 million, or 0.7%, to $2.83 million for the third quarter of 2018 from $2.85 million for the same period of the prior year. As a percentage of total revenue, SG&A was 10.6% for the third quarter of 2018, compared to 8.5% for the same period of the prior year. 


Income (loss) from Operations


Loss from operations was $1.57 million for the third quarter of 2018, compared to income from operations of $2.72 million for the same period of the prior year. The decrease in operating income was primarily due to the decrease in gross profit as discussed above. Operating loss margin was 5.9% for the third quarter of 2018, compare to operating profit margin of 8.1% for the same period of the prior year.


Net Income (loss)


Net loss was $1.40 million, or net loss of $0.07 per basic and diluted share, for the third quarter of 2018, compared to net income of $1.57 million, or net earnings of $0.07 per basic and diluted share, for the same period of the prior year.


EBITDA


EBITDA was $1.89 million for the third quarter of 2018, compared to $6.45 million for the same period of the prior year.


Note 1: Non-GAAP Financial Measures


In addition to our U.S. GAAP results, this press release includes a discussion of EBITDA, a non-GAAP financial measure as defined by the Securities and Exchange Commission ("SEC"). The Company defines EBITDA as net income before interest, income taxes, depreciation and amortization. EBITDA is a key measure used by management to evaluate our results and make strategic decisions. Management believes this measure is useful to investors because it is an indicator of operational performance. Because not all companies use identical calculations, the Company's presentation of EBITDA may not be comparable to similarly titled measures of other companies, and should not be viewed as an alternative to measures of financial performance or changes in cash flows calculated in accordance with the U.S. GAAP.


Reconciliation of Net Income to EBITDA


(Amounts expressed in US$)





 For the Three Months Ended September 30,


 ($ millions)



2018




2017


 Net income (loss)



-1.40




1.57


 Add: Income tax



-0.54




0.51


         Net interest expense



0.37




0.65


         Depreciation and amortization



3.46




3.73


 EBITDA



1.89




6.45


 


 


Nine Months Ended September 30, 2018 Financial Results





 For the Nine Months Ended September 30,


 ($ millions)



2018



2017



 % Change


 Revenues



61.75



81.58



-24.3%


 Regular Corrugating Medium Paper ("CMP")*



43.43



55.74



-22.1%


 Light-Weight CMP**



13.10



10.45



25.4%


 Offset Printing Paper



5.21



13.31



-60.8%


 Tissue Paper Products



0.00



2.09



-100.0%


 Digital Photo Paper



0.01



0.00



NM









 Gross profit



3.6



16.3



-78.1%


 Gross margin



5.8%



20.0%



-14.2 pp


 Regular Corrugating Medium Paper ("CMP")*



6.6%



20.5%



-13.9 pp


 Light-Weight CMP**



5.1%



23.3%



-18.2 pp


 Offset Printing Paper



0.8%



17.7%



-16.8 pp


 Tissue Paper Products



NA



6.5%



NM


 Digital Photo Paper



-24.4%



NA



NM









 Operating income (loss)



-6.1



6.4



-196.0%


 Net income (loss)



-5.4



3.3



-263.3%


 EBITDA



5.0



17.4



-70.9%


 Basic and Diluted earnings per share



-0.25



0.15



-266.7%









 * Products from PM6








 ** Products from PM1








 *** pp represents percentage points








Revenue


For the nine months ended September 30, 2018, total revenue decreased by $19.82 million, or 24.3%, to $61.76 million from $81.58 million for the same period of the prior year. The decrease in total revenue was mainly the decreases in sales volume and partially offset by the increase in ASP across the board. The following table summarizes revenue, volume and ASP by product for the nine months ended September 30, 2018 and 2017, respectively:




 For the Nine Months Ended September 30, 



2018



2017



 Revenue
($'000) 



 Volume
(tonne) 



 ASP
($/tonne) 



 Revenue
($'000) 



 Volume
(tonne) 



 ASP
($/tonne) 


 Regular CMP 


43,434



74,141



586



55,741



128,988



432


 Light-Weight CMP 


13,101



23,114



567



10,449



24,396



428


 Offset Printing Paper 


5,212



6,191



842



13,307



20,098



662


 Tissue Paper Products 


-



-



-



2,087



1,619



1,289


 Digital Photo Paper 


14



-



 NM 



-



-



-


 Total 


61,761



103,446



597



81,584



175,101



466




Revenue from CMP, including both regular CMP and light-Weight CMP decreased by $9.66 million, or 14.6%, to $56.54 million, and accounted for 91.6 % of total revenue for the nine months ended September 30, 2018, compared to $66.19 million, or 81.1% of total revenue for the same period of the prior year. The Company sold 97,255 tonnes of CMP in the nine months ended September 30, 2018, compared to 153,384 tonnes of CMP in the same period of the prior year.


Of the total CMP sales, revenue from regular CMP decreased by $12.31 million, or 22.1%, to $43.43 million, resulting from sales of 74,141 tonnes at an ASP of $586/tonne during the nine months ended September 30, 2018 , compared to revenue of $55.74 million, resulting from sales of 128,988 tonnes at an ASP of $432/tonne for the same period of the prior year. Revenue from light-weight CMP increased by $2.65 million, or 25.4%, to $13.10 million, resulting from sales of 23,144 tonnes at an ASP of $567/tonne for the nine months ended September 30, 2018, compared to revenue of $10.45 million, resulting from sales of 24,296 tonnes at an ASP of $428/tonne for the same period of the prior year


Revenue from offset printing paper decreased by $8.09 million, or 60.8%, to $5.21 million for the nine months ended September 30, 2018, from $13.31 million for the same period of the prior year. The Company sold 6,191 tonnes of offset printing paper at an ASP of $842/tonne in the nine months ended September 30, 2018, compared to 20,098 tonnes at an ASP of $662/tonne in the same period of the prior year.


Production of tissue paper was suspended in September and October 2017 for the replacement of coal boilers, and intermittent production resumed in the following months due to volatility in the price of tissue paper. We had no revenue from tissue paper products for the nine months ended September 30, 2018, compared to $2.09 million, resulting from sales of 1,619 tonnes at an ASP of $1,289/tonne, for the same period of the prior year. We expect to resume and increase production of tissue products once the market condition becomes more favorable.


Revenue generated from digital photo paper were $13,822 for the nine months ended September 30, 2018. In June 2016, we suspended the production of digital photo paper due to low market demand for our products and now are upgrading the production line to produce more competitive products. We expect that our digital photo paper production will remain suspended for the near future.


Gross Profit and Gross Margin


Total cost of sales decreased by $7.08 million, or 10.9 %, to $58.16 million for the nine months ended September 30, 2018, from $65.24 million for the same period of the prior year. The decrease in overall cost of sales was mainly a result of decrease in sales volume, partially offset by increase of cost of recycled paper board and recycled white scrap paper. Costs of sales per tonne for regular CMP, light-weight CMP, offset printing paper, and tissue paper products were $547, $538, $835, and $nil, respectively, for the nine months ended September 30, 2018, compared to $344, $328, $545, and $1,205, respectively, for the same period of the prior year.


Total gross profit decreased by $12.76 million, or 78.1%, to $3.58 million for the nine months ended September 30, 2018, from $16.34 million for the sam