Orient Paper, Inc. Reports First Quarter 2014 Results

BAODING, China, May 15, 2014 /PRNewswire/ -- Orient Paper, Inc. (NYSE MKT: ONP) ("Orient Paper" or the "Company"), a leading manufacturer and distributor of diversified paper products in North China, today announced its financial results for the first quarter ended March 31, 2014.

Financial Highlights:

US$ million

1Q 2014

YoY Change

Revenue

25.8

30.4%

Corrugating medium paper

17.1

35.6%

Offset printing paper

7.4

14.3%

Digital photo paper

1.3

85.6%

Gross profit

4.7

186.5%

Gross margin

18.1%

9.8pp

Corrugating medium paper

16.0%

7.5pp

Offset printing paper

21.4%

13.1pp

Digital photo paper

27.5%

24.2pp

Operating income

3.8

406.3%

Net income

2.5

735.9%

EBITDA

5.7

111.1%

Pp represents percentage points

Key Highlights for First Quarter 2014:

  • Significant improvement year-over-year of key financial metrics with an over sevenfold increase in net income
  • PM1 conducting test runs to prepare for trial production. Early completion of PM1 renovation is expected during the second quarter.
  • PM6 monthly annualized utilization reached 80% in March2014
  • Full year 2014 guidance unchanged

Mr. Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper, commented, "Our first quarter results for 2014 has shown significant improvement on top-line and bottom-line figures. This is largely due to the normalization of operations in the period for both CMP and offset printing paper, which were affected by the county-wide environmental inspection in the first quarter of 2013."

Mr. Liu continued, "In addition, we are pleased to report a successful ramp up of PM6 with a utilization rate of 80% for March after our seasonally slower months of January-February due to the Chinese New Year break and scheduled annual equipment maintenance. This has contributed to the increase of our CMP sales volumes in the quarter, compared to the same period a year. We have also completed PM1 installation and are currently conducting test runs to prepare for trial production before we commence actual commercial production of insulation liner paper."

"Furthermore, we are very pleased to report that, through our continued efforts to optimize the production schedules at our digital photo paper facility since the second half of 2013, we are seeing an increase in digital photo paper production and a 76% growth in sales volumes, while minimizing disturbance to the neighboring residents," added Mr. Liu.

Financial Review:

Quarter ended March 2014 Financial Results compared with quarter ended March 2013

Changes in revenues, sales volumes, and Average Selling Prices ("ASPs") for 1Q 2014 are presented as follows:


Sales Volumes(Tonnes)

YOY Change

Revenue 

(US$ millions)

YOY Change

ASP

(US$)

YOY Change

Corrugating Medium Paper

45,335

+37.1%

17.1

+35.6%

377

-1.1%

Offset Printing Paper

10,860

+14.9%

7.4

+14.3%

678

-0.4%

Digital Photo Paper

326

+76.2%

1.3

+85.6%

3,970

+5.3%

Revenue

Total Revenue in the first quarter of 2014 was $25.8 million, an increase of 30.4% from $19.7 million for the previous year.

Corrugating Medium Paper ("CMP")

  • Revenue from CMP increased 35.6% to $17.1 million, representing a 66.4% of total revenue.
  • Volumes sold during the first quarter wereup37.1% to 45,335 tonnes. The increase is mainly due to the interruption of operation at our Xushui Paper Mill for government environment protection inspections in February and March 2013.
  • ASP dropped slightly (by 1.1%) year-over-year to $377/tonne.

Offset Printing Paper

  • Revenue from offset printing paper in the quarter increased 14.3% to $7.4 million, representing 28.6% of total revenue.
  • Volumes sold were up 14.9% to 10,860 tonnes. The increase is mainly due to the interruption of operation at our Xushui Paper Mill for government environment protection inspections in February and March 2013.
  • ASP decreased 0.4% year-over-year to $678/tonne.

Digital Photo Paper

  • Revenue from digital photo paper increased 85.6% to $1.3 million, representing5.0% of total revenue.
  • Volumes sold increased 76.2% to 326 tonnes, as a result of our continued efforts to optimize the production schedules at our digital photo paper facility since the second half of 2013, while minimizing disturbance to neighboring residences.
  • ASP increased 5.3% year-over-year to $3,970/tonne.

Cost of Sales

Cost of Sales in the first quarter of 2014 was $21.1 million, up16.4%, due to declining raw material price and the increased production quantities. CMP cost per tonne decreased from $349 in the first quarter of 2013 to $317 in the first quarter of 2014.

Gross Profit

Gross profit in the first quarter of 2014 was $4.7 million, up193.7% from $1.6 million for the first quarter of 2013. We benefited from the cheaper raw material unit cost and the resulting lower unit cost of sales relative to the very slight drop in product ASPs.

Overall gross margin in the first quarter of 2014 was 18.1%, up from8.3% for the first quarter of 2013. Gross profit margins for CMP, offset printing paper and digital photo paper for the first quarter of 2014 were 16.0%, 21.4% and 27.5%, respectively, compared to 8.5%, 8.3% and 3.3% respectively in the same period last year due to the low utilization of production capacity.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $908,916 for the first quarter of 2014, compared to$887,166 for the first quarter of 2013.

Income from Operations& Operating Margin

Income from operations was $3.8 million for the first quarter of 2014, up 406.3% from$743,071 for the first quarter of 2013, primarily due to the below-normal level of production activities in the first quarter of 2013 for the government environmental inspection.

EBITDA

Excluding the impact of interest expenses, income tax expenses, depreciation and amortization, EBITDA, a non-GAAP measurement, was $5.7million, up111.1% from $2.7 million. See Note 2 hereto for a reconciliation of Net Income to EBITDA.

Net Income

Net income was $2.5 million, up 735.9% from $303,055. The increase was primarily attributable to the below-normal level of production activities in the first quarter of 2013 for the government environmental inspection. Basic and diluted earnings per share for the first quarter of 2014 were $0.14, compared to $0.02 for the corresponding period of 2013.

Cash, Liquidity and Financial Position

As of March 31, 2014, cash and cash equivalents were $5.8million, compared to $16.6 million twelve months ago.

As of March 31, 2014, we had $31.5 million of current assets and $32.2 million of current liabilities (including $2.3 million of various related party payables), resulting in a working capital deficit of$648,599. As of March 31, 2014, shareholders' equity totaled $162.2 million, compared to $161.1 million at the end of 2013.

Operations and Business Updates

PM1 Modernization Plan

We have completed the installation of the new PM1 and are now conducting test runs to prepare for trial production of insulation liner paper. As announced earlier, Orient Paper has voluntarily shut down PM1 as part of its facility upgrade plan. The modernization plan is to convert PM1 into a more energy-efficient production line, producing insulation liner paper, which is used to sandwich certain insulation materials as a construction material for wall and floor insulation.  Revenue contribution from PM1 when operation commences is expected to be in the range of between $7 million to $9 million for 2014.

Tissue Paper Expansion (PM8 and PM9)

Building of the factory and other infrastructures for the tissue paper production facilities located in the Wei County Industrial Park in Hebei Province is largely completed while installation of PM8, the first 15,000 tonnes-per-year production line is underway with expected completion on or before the end of the second half of 2014.

The Company has also started planning for the installation of PM9, the second 15,000 tonnes-per-year tissue paper production line. If cash flow permits, installation could start by the end of the year, with a target to roll out production by the second half of 2015.

Outlook

Industry analysts expect market demand to remain around the same pace as the last quarter, while continued action by the government to eliminate outdated capacity would help to curb surplus capacity in certain sectors in the paper industry. Raw material prices for domestically sourced recycled paper may remain lower but may show some volatility going forward, as paper mills in China attempt to reduce the imported OCC and take advantage of the domestic recycled paper.

Looking ahead, the Company intends to maintain strong operating cash flows, look for opportunities to restructure its short term liabilities, and to best utilize its available cash to support our investments and expansion. We plan to achieve this in the remaining quarters of the year by executing our business strategy. This includes the ramp up of PM6, commencing commercial production of the renovated PM1 and ramping up production thereafter. At the same time, we believe our future growth lies very much in our tissue business expansion and we would strive to complete the installation and launch of PM8 by the end of the year within our available resources.

2014 Guidance

The Company is maintaining its full year guidance for 2014, with revenue ranging between $146 million and $161 million, gross profit to be between $27 million and $30million, net income to be between $15million and $17million, and basic and diluted earnings per share between $0.81and $0.90.

Conference Call

Orient Paper's management will host a conference call for institutional and retail investors at 8:30 am US Eastern Time (5:30 am US Pacific Time/8:30 pm Beijing Time) on Friday, May 16, 2014, to discuss its quarterly results and recent business, operational and corporate activities.

To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time:

Mainland China:                                  

400-120-0654

Hong Kong:                          

800-903-737

United States:                   

1-855-500-8701

International:                      

+65-6723-9385

Passcode:                           

32473080

A replay of this conference call will be available by dialing:

Mainland China:                                  

400-632-2162 / 800-870-0205

Hong Kong:                          

800-963-117

United States:                   

1-855-452-5696

International:                      

+61-2-9003-4211

Passcode:                             

32473080

The replay will be archived for fifteen days following the earnings announcement until May 31, 2014.

This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.orientpaperinc.com. Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. A replay will be archived for one year shortly after the call by accessing the same link.

About Orient Paper, Inc.

Orient Paper, Inc. ("Orient Paper") is a leading paper manufacturer in North China. Using recycled paper as its primary raw material, Orient Paper produces and distributes three types of paper products namely, packaging paper (corrugating medium paper), offset printing paper, and other paper products, including digital photo paper, and household/tissue paper that the company is currently expanding into.

With production operations based in Baoding in North China's Hebei Province, Orient Paper is located strategically close to the Beijing and Tianjin region, home to a growing base of industrial and manufacturing activities and one of the largest markets for paper products consumption in the country.

Orient Paper's production facilities are controlled and operated by its wholly owned subsidiary Shengde Holdings, Inc., which in turn controls and operates Baoding Shengde Paper Co., Ltd., and Hebei Baoding Orient Paper Milling Co., Ltd for manufacturing digital photo, printing and packaging paper.

Founded in 1996, ONP has been listed on the NYSE MKT Board since December 2009. (Please visit http://www.orientpaperinc.com.)

Note 1: Production Facilities of Orient Paper

PM#

Paper Product

Designed Capacity

(tonnes/year)

Location

PM1*

Insulation liner paper

50,000

Xushui County, Baoding city, Hebei

province

PM2

Offset printing paper

50,000

PM3

Offset printing paper

40,000

PM4

Digital photo paper

2,500

ONP's Headquarters Compound

PM5

Digital photo paper

2,500**

PM6

Corrugating medium paper

360,000

Xushui County, Baoding city, Hebei

province

PM7*

Specialty paper

10,000

PM8*

Tissue paper

15,000

Economic Development Zone in Wei

County, Hebei Province

PM9*

Tissue paper

15,000

 

*: Paper machines under renovation or under construction, or in the planning stage.

**: PM4 and PM5 have a total coating capacity of 2,500 tonnes per year.

 

Note 2:

 

Reconciliation of Net Income to EBITDA

(Amounts expressed in US$)

 

(in millions)

For the Three Months Ended

March 31


2014

2013

Net income

$

2.5


0.3

Add: Income tax


1.0


0.2

Add: Net interest expense


0.3


0.2

Add: Depreciation and amortization


1.9


1.9

EBITDA

$

5.7


2.7

Safe Harbor Statement

This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to, anticipated revenues from the digital photo paper business segment; the actions and initiatives of current and potential competitors; the Company's ability to introduce new products; the Company's ability to implement the planned capacity expansion of tissue paper; market acceptance of new products; general economic and business conditions; the ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed in the Company's filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the companies and the industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.

ORIENT PAPER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THETHREE MONTHS ENDED

MARCH 31, 2014 AND 2013

(Unaudited)

 



Three Months Ended





March 31,





2014



2013











Revenues


$

25,753,864



$

19,746,656













Cost of Sales



(21,083,028)




(18,116,419)













Gross Profit



4,670,836




1,630,237













Selling, general and administrative

   expenses



(908,916)




(887,166)













Income from Operations



3,761,920




743,071













Other Income (Expense):










Interest income



5,397




18,993



Interest expense



(275,292)




(226,325)













Income before Income Taxes



3,492,025




535,739













Provision for Income Taxes



(958,731)




(232,684)













Net Income



2,533,294




303,055













Other Comprehensive Income:




















Foreign currency translation

   adjustment



(1,375,490)




963,574













Total Comprehensive Income


$

1,157,804



$

1,266,629













Earnings Per Share:




















Basic and Fully Diluted Earnings per

   Share


$

0.14



$

0.02



Weighted Average Number of Shares










Outstanding - Basic and Fully Diluted



18,753,900




18,459,775



 

ORIENT PAPER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2014 AND DECEMBER 31, 2013

(Unaudited)

 



March 31,



December 31,




2014



2013


ASSETS









Current Assets







Cash and cash equivalents


$

5,840,226



$

3,131,163


Restricted cash



4,494,418




2,454,108


Accounts receivable (net of allowance for doubtful accounts of 
      $59,435 and $67,592 as of March
31, 2014 and December
      31, 2013, respectively)



2,912,313




3,327,494


Inventories



12,894,835




11,428,405


Prepayments and other current assets



876,768




1,068,031


Assets held for sale



4,096,411




4,130,590


Deferred tax assets - current



410,115




413,537











Total current assets



31,525,086




25,953,328











Prepayment on property, plant and equipment



1,479,751




1,492,098


Property, plant, and equipment, net



177,961,502




178,535,259


Recoverable VAT



3,129,650




3,277,188


Deferred tax asset - non-current



103,806




268,329











Total Assets


$

214,199,795



$

209,526,202




















LIABILITIES AND STOCKHOLDERS' EQUITY




Current Liabilities









Short-term bank loans


$

6,490,135



$

6,544,288


Current portion of long-term loan from credit

union



1,646,872




1,660,613


Current obligations under capital lease



8,193,163




8,264,795


Accounts payable



964,263




926,571


Notes payable



9,086,189




4,908,216


Security deposit from a related party



1,622,534




1,636,072


Due to a related party



104,576




64,546


Accrued payroll and employee benefits



432,920




498,010


Other payables and accrued liabilities



1,730,466




2,651,472


Income taxes payables



1,902,567




1,218,140











Total current liabilities



32,173,685




28,372,723











Loan from credit union



4,218,588




4,253,788


Loan from a related party



2,369,859




2,389,633


Deferred gain on sale-leaseback



1,035,603




1,160,271


Long-term obligations under capital lease



12,191,108




12,296,639











Total liabilities



51,988,843




48,473,054











Commitments and Contingencies


















Stockholders' Equity









Common stock, 500,000,000 shares authorized, $0.001 par value
      per share, 18,753,900 and 18,753,900 shares issued and
      outstanding as of  March 31, 2014 and December 31, 2013, respectively



18,754




18,754


Additional paid-in capital



46,909,543




46,909,543


Statutory earnings reserve



6,038,406




6,038,406


Accumulated other comprehensive income



15,770,818




17,146,308


Retained earnings



93,473,431




90,940,137











Total stockholders' equity



162,210,952




161,053,148











Total Liabilities and Stockholders' Equity


$

214,199,795



$

209,526,202













 

ORIENT PAPER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(Unaudited)

 



 Three Months Ended




March31,




2014



2013









Cash Flows from Operating Activities:







Net income


$

2,533,294



$

303,055


Adjustments to reconcile net income to net cash provided by operating activities                                                                        









Depreciation and amortization



1,938,794




1,932,853


Recovery from bad debts



(7,654)




(9,285)


Deferred tax



163,509




50,058


Changes in operating assets and liabilities:









Accounts receivable



398,185




463,799


Prepayments and other current assets



305,382




1,012,752


Inventories



(1,572,609)




669,641


Accounts payable



45,697




321,979


Notes payable



4,249,964




(557,600)


Accrued payroll and employee benefits



(61,855)




(88,404)


Other payables and accrued liabilities



(866,457)




113,080


Income taxes payable



699,672




161,728











Net Cash Provided by Operating Activities



7,825,922




4,373,656











Cash Flows from Investing Activities:









Purchases of property, plant and equipment



(4,703)




(2,888)


Payment for construction in progress



(2,960,341)




(1,319,122)











Net Cash Used in Investing Activities



(2,965,044)




(1,322,010)











Cash Flows from Financing Activities:









Proceeds from related party loans



123,500




358,197


Repayment of related party loans



(123,500)




(358,197)


Payment of capital lease obligation



(6,039)




-


(Increase) Decrease in restricted cash



(2,075,943)




278,800











Net Cash  (Used in)Provided by Financing Activities



(2,081,982)




278,800











Effect of Exchange Rate Changes on Cash and Cash Equivalents



(69,833)




99,254











Net Increase in Cash and Cash Equivalents



2,709,063




3,429,700











Cash and Cash Equivalents - Beginning of Period



3,131,163




13,140,288











Cash and Cash Equivalents - End of Period


$

5,840,226



$

16,569,988











Supplemental Disclosure of Cash Flow Information:









Cash paid for interest, net of capitalized interest cost


$

111,290



$

62,833


Cash paid for income taxes


$

95,550



$

20,899











SOURCE Orient Paper, Inc.



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