Nine Dragons Paper reports net loss due to sluggish consumption under the impact of the pandemic containment measures in mainland China

Nine Dragons Paper reports net loss due to sluggish consumption under the impact of the pandemic containment measures in mainland China

- Current business environment remains uncertain given various headwinds faced by the export business.

China |  The Pulp and Paper Times: 

In the first half of FY2023, as affected by the sporadic COVID-19 outbreaks and the lockdown measures across China, consumption remained sluggish and the packaging paper industry suffered from low operating rate. In addition, with the impacts of prolonged high fuel cost resulted from the geopolitical war, interest rate hikes and weakening Renminbi, the paper industry was confronted with the most challenging business environment ever.

One of the largest paper manufacturing group worldwide, Nine Dragons Paper (Holdings) Limited has also felt the heat of sluggish consumption under the impact of the pandemic containment measures in mainland China. Both the demand and selling prices of packaging paper saw a marked decline accordingly. Meanwhile, the surging costs of energy and chemicals resulted from ongoing geopolitical conflicts, coupled with adverse factors such as weakening Renminbi and interest rate hikes, have exerted an immense negative impact on the Group’s profit performance.

“In response to the extremely weak market demand, the Group had to suspend production for destocking and offer sales discount for promotion during the Period. The Group reported an unsatisfactory performance on profitability with the soaring power cost, albeit sales remained steady as compared with the corresponding period last year. It was the first time that the Group had registered a loss since its listing in 2006,” said Ms Cheung Yan, Chairlady - Nine Dragons Paper (Holdings) Limited in the interim report for the six month ended on 31 December 2022.

The operating loss for the six months ended on 31 December 2022 was approximately RMB 861.6 million as compared with operating profit of RMB 2,888.3 million in corresponding period last year. The operating loss for the period was mainly due to the decrease in gross profit margin of the Group.

The Group achieved a revenue of approximately RMB 31,198.0 million for the period, representing a decrease of approximately 9.5% as compared with the corresponding period last year. 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 89.0% of the revenue, with the remaining revenue of approximately 11.0% generated from its printing and writing paper, high value specialty paper and pulp products.

Ms Yan further describe that Despite the setback in profitability, the Company put in place effective management measures in respect of cash flows and financial risks, and remained its position of “zero” bad or doubtful debts, thereby eliminating the risk of capital chain rupture. Meanwhile, we adopted a series of measures in a bid to break the deadlock and well prepare for market recovery. For instance, by stepping up our efforts to visit our customers, we developed white cardboard and more products that met market needs. We also focused on commencing production of wood pulp and alternative raw materials, implementing multi-pronged “cost reduction and efficiency enhancement” measures and optimizing the management system.

The Group strictly implemented its “cost reduction and efficiency enhancement” measures during the Period. We, on the one hand, adopted a product diversification strategy to develop new products, such as white cardboard, and expand our customer base in response to market changes, while on the other hand, reduced expenses in all aspects and lowered our financial risks by strengthening the management over working capital and cash flows. Despite the Group recorded a relatively stable sales volume during the Period, the sluggish market has impelled us to suspend production for destocking and lower prices to promote sales on multiple occasions. Combined with the high costs of coal and other materials, we recorded a loss during the Period.

FUTURE OUTLOOK

The year of 2023 marks a turning point in the COVID-19 pandemic over the past three years. As the Chinese Central Government further optimized the pandemic prevention policies with a series of policies and measures being put in place to stabilize the economic growth, domestic demand and consumption in China are expected to recover gradually, which would enable the packaging paper industry to get back on track. However, the current business environment remains uncertain given various headwinds faced by the export business, such as the unresolved geopolitical crisis, ongoing global interest rate hikes and overseas economic contraction. In the mid-to-long term, market drivers such as opportunities arising from both the trend of replacing plastic with paper in packaging and consumption upgrade 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 broadening its earnings base.

The Group will make every effort to strike a balance between production and sales, and exploit domestic and overseas raw materials and markets, at the same time striving to develop new products to cater to market needs and working aggressively on cost reduction and efficiency enhancement, aiming to realize a turnaround from loss to profit as soon as possible. The Group will leverage the key drivers for long-term growth in profitability while pursuing safe and green production
 

Web Title: Nine Dragons Paper reports net loss due to sluggish consumption under the impact of the pandemic containment measures in mainland China