Orient Paper, Inc. Reports Fourth Quarter and Full Year 2013 Results

BAODING, Hebei, China, March 25, 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 fourth quarter and full year 2013 ended December 31, 2013.

Financial Highlights:

US$ million

4Q 2013

YoY Change

FY 2013

YoY Change

Revenue

35.2

-19.1%

125.7

-16.8%

Revenue excluding PM11

35.2

-2.5%

125.7

+2.6%

Corrugating medium paper

23.3

-24.6%

80.9

-15.6%

CMP excluding PM11

23.3

-0.5%

80.9

+44.6%

Offset printing paper

10.4

-11.1%

39.8

-18.9%

Digital photo paper

1.5

+66.7%

5.0

-19.7%

Gross profit

7.2

+7.5%

23.3

-14.0%

Gross margin

20.3%

+4.9pp3

18.6%

+0.7pp3

Corrugating medium paper

18.8%

+3.4pp3

18.4%

-0.1pp3

Offset printing paper

23.0%

+7.3pp3

18.6%

+2.5pp3

Digital photo paper

25.6%

+15.0pp3

12.2%

-3.0pp3

Operating income

5.32

+77.0%

18.8

-10.2%

Net income

3.52

+75.0%

13.0

-11.6%

EBITDA

7.1

+38.5%

26.9

-8.8%


Note:

(1) PM1 suspended operation since December 31, 2012 for modernization
(2) 4Q13 operating income and net income includes a US$0.8m share-based compensation
(
3) pp represents percentage points.

 

Key Highlights for Fourth Quarter 2013:

  • Gross profit up 7.5% YoY to $7.2 million and net income up 75.0% YoY to $3.5 million
  • PM6 monthly annualized utilization reached 86% in December 2013
  • PM1 conversion expected to be completed months ahead of schedule during the second quarter of 2014
  • PM8 construction progressing according to schedule

Key Highlights for Full Year 2013:

  • Achieved full year 2013 guidance with net income at $13.0 million and basic and diluted EPS at $0.71
  • Revenue down 16.8% YoY to US$125.7 million due primarily to suspension of PM1 for renovation
  • Operating activities generated approximately $30 million cash, a company record high
  • Invested over $60 million in the development of the Wei County Industrial Park and our first tissue paper production line
  • Debt-to-equity ratio at 30.1% as of the end of 2013,  maintaining a level well below industry average in China

Mr. Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper, commented, "We have experienced a very eventful 2013 quarter to quarter. Nonetheless, we are pleased to have achieved satisfactory results well within our financial guidance for the full year, and made good progress on all our projects."

Mr. Liu continued, "In particular, we are pleased to announce that we are wrapping up the conversion works of PM1 into an insulation liner paper production line. The conversion project is looking at a completion months ahead of schedule with a much lower cost than budgeted. We will launch the new PM1 production during the second quarter of 2014 and will be ramping up production in the months to come.

For our existing operations, we will continue to ramp up production of PM6, after achieving a record high monthly annualized utilization of 86% in December and a 24% increase of production volumes for the full year."

Mr. Liu concluded, "Meanwhile, we continue to make progress in our new tissue business expansion in Wei County, with the PM8 installation to be completed in the second half of 2014. We remain committed to ensuring the success of our new businesses such as insulation liner and tissue paper, which are expected to be additional key revenue growth drivers for the Company in 2015 and beyond."

Financial Review:

Quarter ended December 2013 Financial Results compared with quarter ended December 2012

Changes in revenues, sales volumes, and Average Selling Prices ("ASPs") for 4Q 2013 are presented as follows:


Sales Volumes (Tonnes)

YOY Change

Revenue

(US$ millions)

YOY Change

ASP

(US$)

YOY Change

Corrugating Medium Paper

62,562

-25.3%

23.3

-24.6%

373

+1.1%

CMP excluding PM1

62,562

-1.6%

23.3

-0.5%

373

+1.1%

Offset Printing Paper

15,469

-8.0%

10.4

-11.1%

676

-3.0%

Digital Photo Paper

382

+61.2%

1.5

+66.7%

3,879

+4.1%

Revenue

Total Revenue in the fourth quarter of 2013 was $35.2 million, decreased 19.1% from $43.5 million.

Corrugating Medium Paper ("CMP")

  • Revenue from CMP decreased 24.6% to $23.3 million, representing 66.2% of total revenue.
  • Volumes sold during the fourth quarter were down 25.3% to 62,562 tonnes, which were solely produced from PM6, as PM1, which contributed 20,181 tonnes to the fourth quarter 2012 sales revenue, was not in operation.
  • ASP increased 1.1% year-over-year to $373/tonne, a sign that the downward pressure in the Chinese packaging paper industry has started to stabilize.

Offset Printing Paper

  • Revenue from offset printing paper in the quarter decreased 11.1% to $10.4 million, representing 29.5% of total revenue.
  • Volumes sold were down8.0% to15,469 tonnes due to slower customer demand.
  • ASP decreased 3.0% year-over-year to $676/tonne.

Digital Photo Paper

  • Revenue from digital photo paper increased 66.7% to $1.5 million, representing 4.3% of total revenue.
  • Volumes sold increased 61.2% to382tonnes due to longer hours of operation compared to the quarter ended December 31, 2012
  • ASP increased 4.1% year-over-year to $3,879/tonne.

Cost of Sales

Cost of Sales in the fourth quarter of 2013 was $28.1 million, down 23.8%, primarily due to the decreased production volume and the lower raw material unit cost. CMP cost per tonne decreased from $312 in the fourth quarter of 2012 to $303 in the fourth quarter of 2013.

Gross Profit

Gross profit in the fourth quarter of 2013 was $7.2 million, up 7.5% from $6.7 million for the fourth quarter of 2012. The improvement was mainly due to lower raw material prices and stabilization of average selling prices.

Overall gross margin in the fourth quarter of 2013 was 20.3%, up from 15.4% for the fourth quarter of 2012. Gross profit margins for CMP, offset printing paper and digital photo paper for the fourth quarter of 2013 were 18.8%, 23.0% and 25.6%, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $1.8 million for the fourth quarter of 2013, compared to $0.9 million for the fourth quarter of 2012.The increase was mainly due to the 2013 year end stock-based compensation in the amount of $790,020.

Income from Operations& Operating Margin

Income from operations was $5.3 million for the fourth quarter of 2013, up 77.0% from $3.0 million for the fourth quarter of 2012, partly due to a $2.8 million asset impairment loss on the conversion of PM1 in the fourth quarter of 2012.

EBITDA

Excluding the impact of interest expenses, income tax expenses, depreciation and amortization, EBITDA, a non-GAAP measurement, was $7.1 million, up36.5% from $5.2 million. See Note 2 hereto for a reconciliation of Net Income to EBITDA.

Net Income

Net income was $3.5 million, up 75.0% from $2.0 million. Basic and diluted earnings per share for the fourth quarter of 2013 were $0.19, compared to $0.11 for the corresponding period of 2012.

Cash, Liquidity and Financial Position

As of December 31, 2013, cash and cash equivalents were $3.1 million, compared to $13.1 million at the end of 2012. The decrease is mainly due to the use of cash to fund the of new tissue business expansion at Wei County. For the full year of 2013, Orient Paper generated net cash flow from operating activities in the amount of $29.9million, representing an increase of 34.7% from $22.2 million in 2012.

As of December 31, 2013, we had $26.0 million of current assets and $28.4 million of current liabilities, resulting in a working capital deficit of $2.4 million as of the end of 2013. However, $2.3 million of the current liabilities were actually related parties security deposit or accruals that do not require immediate cash outflows or payments. Short-term debts and notes payable were $11.5 million, and current portion of long-term debts were another $10.0 million.  Long-term debt was $20.1 million, of which $13.5 million are long-term capital lease obligations. As of December 31, 2013, shareholders' equity totaled $161.1 million, compared to $142.8 million at the end of 2012.

Operations and Business Updates

PM1 Modernization Plan

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 higher profit margin products of insulation liner paper, which is used to sandwich certain insulation materials as a construction material for wall and floor insulation.  The PM1 renovation project cost is estimated to be approximately $6.8 million, well below previous expected budget of $15 million, and is expected to be completed months ahead of schedule during the second quarter of 2014.  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) on schedule

Orient Paper has started building the factory and other infrastructures for the household/tissue paper production facilities located in the Wei County Economic Development Zone in Hebei Province since mid- February 2013. The installation of PM8, the first 15,000 tonnes-per-year production line is progressing on schedule and is targeted for completion by 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 our cash flow permits, installation will be scheduled to start in the second half of2014, with a target to roll out production by the second half of 2015.

Outlook

Despite the mild economic recovery and the government's continued elimination of outdated capacity, the consensus among industry analysts, appears to be that paper ASPs in China may continue to stay the same level as 2013. We believe that while the ASP for corrugating medium paper may not substantially decline, the price may not noticeably improve in 2014.

Since the government has identified environmental protection as a top priority, we expect an increase in environmental inspections and more stringent requirements for manufacturers. Although this would inevitably lead to increased costs and resources to comply, we believe this would advance the paper industry and benefit committed players like Orient Paper, while creating a long term benefit for China and its people.

Looking forward, the Company's Wei County Project is well positioned to take advantage of China's growing urbanization and economic development. Strategically located at the junction of Hebei, Shandong, and Shanxi provinces, Wei County enjoys good transportation links with direct access to three national highways, and close proximity to the burgeoning economies of the neighboring tier three and tier four cities.  

Meanwhile, Orient Paper has also been progressively modernizing facilities to raise capacity, as well as to improve energy-efficiency and environmental conservation, thereby positioning itself to increase market share and further establish its leadership in the industry.

Looking ahead to 2014, the Company will continue to focus on the execution of its business strategy, ramping up PM6, launching the renovated PM1 in the second quarter, and completing the installation and launch of PM8 in the second half of the year. At the same time, we will strive to maintain strong cash flows and restructure our debt to support our investments and expansion.

2014 Guidance

Revenues for the full year are expected to be in the range of 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 to be between $0.81 and $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 Wednesday, March 26, 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:

China:

400-120-3170

Hong Kong:

800-966-120

United States:

1-855-811-0264

International:

+61-2-8038-5361

Passcode:

1145035

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

China:

400-120-0932

Hong Kong:

800-963-117

United States:

1-855-452-5696

International:

+61-2-8199-0299

Passcode:

1145035

The replay will be archived for fourteen days following the earnings announcement until April 9, 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

December 31

For the Year Ended

December 31


2013

2012

2013

2012

Net income

$

3.5


2.0

$

13.0


14.7

Add: Income tax


1.5


0.8


5.1


5.5

Add: Net interest expense


0.3


0.2


1.0


0.9

Add: Depreciation and amortization


1.8


2.2


7.8


8.4

EBITDA

$

7.1


5.2

$

26.9


29.5

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 THE THREE MONTHS AND YEARS ENDED

DECEMBER 31, 2013 AND 2012




Three Months Ended


Year Ended



December 31,


December 31,



2013


2012


2013


2012










Revenues


$

35,246,348


$

43,534,781


$

125,717,630


$

151,116,806














Cost of Sales



(28,085,195)



(36,837,423)



(102,392,031)



(124,060,559)














Gross Profit



7,161,153



6,697,358



23,325,599



27,056,247














Selling, general and administrative
   expenses



(1,836,328)



(925,841)



(4,567,079)



(3,360,520)

Loss on impairment of assets



-



(2,762,349)



-



(2,762,349)

Gain from disposal of property, plant and
   equipment, net



235



46



84,972



45,288














Income from Operations



5,325,060



3,009,214



18,843,492



20,978,666














Other Income (Expense):













Interest income



11,312



12,950



90,260



30,674

Subsidy income



474



-



171,125



-

Interest expense



(272,591)



(226,936)



(995,694)



(871,834)














Income before Income Taxes



5,064,255



2,795,228



18,109,183



20,137,506














Provision for Income Taxes



(1,543,642)



(794,117)



(5,094,535)



(5,464,843)














Net Income



3,520,613



2,001,111



13,014,648



14,672,663














Other Comprehensive Income:


























Foreign currency translation
          adjustment



736,669



386,810



4,818,869



884,872














Total Comprehensive Income


$

4,257,282


$

2,387,921


$

17,833,517


$

15,557,535














Earnings Per Share:


























Basic and Fully Diluted Earnings per 
   Share


$

0.19


$

0.11


$

0.71


$

0.79

Weighted Average Number of Shares













Outstanding - Basic and Fully Diluted



18,458,446



18,459,775



18,458,446



18,456,781

 

 

 

ORIENT PAPER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2013 AND 2012




 December 31,



December 31,



2013



2012

ASSETS







Current Assets






Cash and cash equivalents


$

3,131,163



$

13,140,288

Restricted cash



2,454,108




1,585,138

Accounts receivable (net of allowance for doubtful
       accounts of $67,592 and $57,643 as of
       December 31, 2013 and 2012, respectively)



3,327,494




2,836,335

Inventories



11,428,405




15,104,101

Prepayments and other current assets



1,068,031




5,401,705

Asset held for sale



4,130,590




-

Deferred tax assets - current



413,537




-









Total current assets



25,953,328




38,067,567









Prepayment on property, plant and equipment



1,492,098




1,445,645

Property, plant, and equipment, net



178,535,259




122,391,456

Recoverable VAT



3,277,188




-

Deferred tax asset - non-current



268,329




941,656









Total Assets


$

209,526,202



$

162,846,324

















LIABILITIES AND STOCKHOLDERS' EQUITY


Current Liabilities








Short-term bank loans


$

6,544,288



$

3,962,844

Current portion of long-term loan from credit union



1,660,613




4,168,912

Current obligations under capital lease



8,264,795




-

Accounts payable



926,571




1,012,906

Notes payable



4,908,216




3,170,276

Security deposit from a related party



1,636,072




1,075,606

Due to a related party



64,546




-

Accrued payroll and employee benefits



498,010




292,638

Other payables and accrued liabilities



2,651,472




1,262,284

Income taxes payables



1,218,140




1,255,457









Total current liabilities



28,372,723




16,200,923









Loan from credit union



4,253,788




1,561,361

Loan from a related party



2,389,633




2,315,239

Deferred gain on sale-leaseback



1,160,271




-

Long-term obligations under capital lease



12,296,639




-









Total liabilities



48,473,054




20,077,523









Commitments and Contingencies
















Stockholders' Equity








Common stock, 500,000,000 shares authorized,
       $0.001 par value per share, 18,753,900 and
       18,459,775 shares issued and outstanding as of
       December 31, 2013 and 2012, respectively



18,754




18,460

Additional paid-in capital



46,909,543




46,135,975

Statutory earnings reserve



6,038,406




5,963,960

Accumulated other comprehensive income



17,146,308




12,327,439

Retained earnings



90,940,137




78,322,967









Total stockholders' equity



161,053,148




142,768,801









Total Liabilities and Stockholders' Equity


$

209,526,202



$

162,846,324









 

ORIENT PAPER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012




Year  Ended



December 31,



2013



2012







Cash Flows from Operating Activities:






Net income


$

13,014,648



$

14,672,663

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








Depreciation and amortization



7,794,743




8,382,859

(Gain) Loss from impairment and disposal of property, plant 
      and equipment



(84,972)




2,717,061

Allowance for (Recovery from) bad debts



7,990




(19,631)

Stock-based expense for service received



773,862




378,065

Deferred tax



409,665




(941,207)

Changes in operating assets and liabilities:








Accounts receivable



(402,709)




1,029,978

Prepayments and other current assets



1,211,679




(295,763)

Inventories



4,105,876




(5,024,459)

Accounts payable



(117,308)




(1,771,968)

Notes payable



1,614,387




3,168,769

Accrued payroll and employee benefits



194,795




(17,306)

Other payables and accrued liabilities



1,599,375




453,546

Income taxes payable



(200,090)




(500,641)









Net Cash Provided by Operating Activities



29,921,941




22,231,966









Cash Flows from Investing Activities:








Payment for construction in progress



(64,181,991)




(2,759,997)

Refund of prepayment for purchase of property, plant and
      equipment



-




3,112,571

Proceeds from disposal of property, plant and equipment



2,589,919




175,593

Purchases of property, plant and equipment



(384,794)




(13,518,955)

Security deposit from a related party



1,614,387




1,075,095









Net Cash Used in Investing Activities



(60,362,479)




(11,915,693)









Cash Flows from Financing Activities:








Proceeds from related party loans



1,390,802




1,030,097

Repayment of related party loans



(1,390,802)




(1,230,097)

Proceeds from bank loans



10,703,389




5,941,441

Proceeds from sale-leaseback financing



24,215,811




-

Repayments of bank loans



(8,281,807)




(4,832,372)

Payment of capital lease obligation



(5,406,481)




-

Restricted cash



(807,194)




(1,584,384)

Dividend paid



(323,032)




(692,242)









Net Cash Provided by (Used in) Financing Activities



20,100,686




(1,367,557)









Effect of Exchange Rate Changes on Cash and Cash Equivalents



330,727




26,126









Net(Decrease) Increase in Cash and Cash Equivalents



(10,009,125)




8,974,842









Cash and Cash Equivalents - Beginning of Period



13,140,288




4,165,446









Cash and Cash Equivalents - End of Period


$

3,131,163



$

13,140,288









Supplemental Disclosure of Cash Flow Information:








Cash paid for interest, net of capitalized interest cost


$

708,089



$

486,278

Cash paid for income taxes


$

4,884,961



$

6,909,690









SOURCE Orient Paper, Inc.



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