Nine Dragons decreased average selling price of paper approx. 15% in FY 23 due to sluggish market; headwinds remain in play

Nine Dragons decreased average selling price of paper approx 15% in FY 23 due to sluggish market; headwinds remain in play 

- Sluggish market forced to lower prices to promote sales and suspend production several times

The Pulp and Paper Times:

The pandemic containment measures and sluggish post-pandemic economic recovery in mainland China, has decreased the revenue of Nine Dragons Paper (Holdings) Limited, One of the largest paper manufacturing group worldwide by 12.1% in FY2023. 

In the financial report issued by Nine Dragons, stated, the insufficient domestic demand and consumption as well as the shrinking export market imposed significant constraints on both the demand of packaging paper and its prices, which therefore had continued to weaken. Meanwhile, unfavourable factors such as global inflation, fluctuations in energy prices, US dollars interest rate hikes and intensified import competition had adversely affected the profit performance of the Group. 

“In view of such challenging operating conditions, the Group adjusted its operating strategies from time to time by actively reducing costs and inventories, and strengthening working capital and cash flow management. At the same time, we responded to market demand by taking the initiative to develop new products and find new customers, while utilizing alternative raw materials to increase our competitiveness. As a result, we saw a slight increase in sales volume during the Year. However, as sluggish market forced us to lower prices to promote sales and suspend production several times to reduce inventories, we recorded a loss this year for the first time since our listing” the report stated.

In order to achieve sustainable development and lay a solid foundation for driving profitable development in the long run, a number of the Group’s capacity expansion projects for paper production and raw materials have started production as scheduled during the Year. As of 30 June 2023, the Group’s total design production capacity for fibre raw materials amounted to 4.62 million tpa (wood pulp of 2.17 million tonnes, recycled pulp of 0.70 million tonnes and wood fibre of 1.75 million tonnes), and the total design production capacity for paper amounted to 20.02 million tpa, while the total annual design production capacity for downstream packaging plants exceeded 2.8 billion sq.m. 

Capacity Expansion Plan 

Sourcing high-quality raw materials is fundamental to the development of a paper making enterprise, and is also the key to cost control. As such, the Group has been actively expanding the supply of raw materials. Upon the completion of all projects, the Group’s total design production capacity for fibre raw materials will reach 6.83 million tpa (wood pulp of 4.07 million tonnes, recycled pulp of 0.70 million tonnes and wood fibre of 2.06 million tonnes), which will give better play to the advantages of its vertical integration of the production chain.

Besides, optimization of product mix and improvement of structural profitability have become the main direction for future development of the Group. A number of our domestic and overseas capacity expansion projects for paper production are underway, including the production capacity expansion projects for virgin kraftliner, printing and writing paper and bleached folding boxboard. These projects are expected to add new production capacity of 4.25 million tonnes to the Group upon commencement of production, bringing the total design production capacity for paper manufacturing to reach 24.27 million tpa by that time.

Revenue 

The Group achieved a revenue of approximately RMB56,739.4 million for FY2023, representing an decrease of approximately 12.1% as compared with FY2022. The major contributor of the Group’s revenue was still its packaging paper business, including linerboard, high performance corrugating medium and coated duplex board, which accounted for approximately 89.9% of the revenue, with the remaining revenue of approximately 10.1% generated from its printing and writing paper, high value specialty paper and pulp products.

The Group’s revenue for FY2023 decreased by approximately 12.1% as compared with FY2022, resulting from the net effect of the decrease in average selling price of approximately 15.0% and the increase in sales volume of approximately 3.4%. Revenue of linerboard, high performance corrugating medium, coated duplex board and printing and writing paper for FY2023 accounted for approximately 49.5%, 25.5%, 15.0% and 8.3% respectively of the total revenue, compared to 49.3%, 25.3%, 18.2% and 5.7% respectively in FY2022.

The Group’s annual design production capacity in packaging paperboard, printing and writing paper, and high value specialty paper and pulp products as at 30 June 2023 was approximately 22.9 million tpa in aggregation, comprising approximately 12.6 million tpa of linerboard, approximately 3.4 million tpa of high performance corrugating medium, approximately 2.6 million tpa of coated duplex board, approximately 1.1 million tpa of printing and writing paper and approximately 3.2 million tpa high value specialty paper and pulp products. The four US mills capacity of approximately 1.3 million tpa, including of approximately 0.9 million tpa coated one-side, coated freesheet and coated groundwood grade for printing and writing paper and specialty paper products; and of approximately 0.4 million tpa recycled pulp and wood pulp products.

The majority of the Group’s revenue continued to be realised from the China market, in particular from the linerboard and high performance corrugating medium sectors. For FY2023, revenue related to China consumption represented 89.0% of the Group’s total revenue, while the remaining revenue of 11.0% represented overseas sales to customers in other countries.

Future Outlook 

As we look forward to the post-pandemic era, there will be both opportunities and challenges. Despite headwinds remain in play over the current business environment, such as the unresolved geopolitical crises and the contraction of overseas economic activities which are unfavourable to export business, the Chinese Central Government has scaled up its policy support for the development of private economy, giving the Group the confidence that both domestic demand and consumption will pick up further while the industrial economy will continue to stabilize and improve. In the mid-to-long term, market drivers such as opportunities arising from both the trend of replacing plastic with paper and consumption upgrades as well as the tightened raw material supply will further strengthen the Group’s competitive advantages of integrated pulp and paper production, which will be beneficial to enhancing its market share and gradually achieving steady operation and profitability.

The Group will strive to strike a proper balance between production and sales, and push forward the raw material expansion plans. It will also cater to the market demand by developing innovative products and, at the same time, work on cost reduction and efficiency enhancement. With a focus on fostering profitable growth in the long run, the Group is committed to pursuing safe and green production, and will achieve a turnaround as soon as possible.
 

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