Industry Press Releases

Orient Paper, Inc. Reports Financial Results for Second Quarter 2015

Thursday, Aug 13, 2015
Pressreleases

Orient Paper, Inc., a leading manufacturer and distributor of diversified paper products in North China, today announced its unaudited financial results for the second quarter ended June 30, 2015.

Financial Highlights:

US$ million

2Q 2015

YOY Change

1H 2015

YOY Change

Revenue

 

41.3

+9.1%

67.8

+6.6%

   

-          Regular Corrugating Medium Paper* ("Regular
           CMP")

 

25.8

 

+6.5%

 

42.3

 

+2.4%

-          Light-Weight CMP**

5.0

+227.0%

8.2

+436.5%

-          Offset Printing Paper

10.5

-4.9%

17.3

-6.0%

Gross profit

10.5

+71.3%

15.5

+43.4%

Gross margin

25.4%

+9.2pp

22.8%

+5.9pp

-          Regular CMP*

24.8%

+10.5pp

21.9%

+6.9pp

-          Light-Weight CMP**

34.3%

+11.5pp

31.7%

+9.0pp

-          Offset Printing Paper

22.7%

+3.4pp

20.9%

+0.8pp

Operating income

8.6

+68.6%

11.9

+34.1%

Net income

5.6

+56.5%

7.7

+26.1%

EBITDA

11.3

+61.4%

17.4

+35.9%

Note:

*Products from PM6 production line

**Products from the newly renovated PM1 production line

Pp represents percentage points.

Key Highlights for Second Quarter 2015:

  • •    Revenue up 9.1% year over year (YoY) to $41.3 million
  • •    Gross profit up 71.3% YoY to $10.5 million and gross margin up 9.2 percentage points to 25.4% due to increased sales volume of Light-Weight CMP product
  • •    Net income up 56.5% YoY to $5.6 million
  • •    Launched commercial production of Tissue Paper products
  • •    Completed relocation of Digital Photo Paper production lines in August 2015 and resumed commercial production
     

Mr. Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper, commented, "The second quarter was an excellent quarter for Orient Paper, as measured by revenue and net income growth as well as margin improvement.  We experienced higher sales volume for our Light-Weight CMP product as production accelerated. Our margin improved as result of a better pricing environment and lower material costs. We are particularly pleased to have achieved this growth during a period in which there was a temporary interruption in production resulting from maintenance performed on our PM3 production line as well as an absence in sales of our digital photo paper products due to the relocation of the production lines."

Mr. Liu continued, "We are optimistic about our growth prospects in the second half of the year as our new tissue paper products have begun commercial production and our digital photo paper production lines have resumed. We also continue to experience strong demand for our Light-Weight CMP products. The overall pricing environment is expected to remain stable in the second half of the year, and we expect our expanded production capabilities to capture greater market share for the company in China's consolidating paper industry."

Financial Review:

Second Quarter 2015 Financial Results compared with Second Quarter 2014

The table below summarizes changes in revenues, sales volumes, and average selling prices ("ASPs") for 2Q 2015:

 

Sales
Volumes
(Tonnes)

YOY
Change

Revenue
(US$ millions)

YOY
Change

ASP
(US$)

YOY
Change

-          Regular CMP

68,452

+1.0%

25.8

+6.5%

377

+5.3%

-          Light-Weight CMP

12,984

+208.0%

5.0

+227.0%

384

+6.1%

-          Offset Printing Paper

14,982

-6.4%

10.5

-4.9%

698

+1.6%

Revenue

Total Revenue in the second quarter of 2015 was $41.3 million, an increase of 9.1% from $37.8 million in the prior year period.  The revenue increase was mainly attributable to increased sales of both the Company's Regular CMP and new Light-Weight CMP products, which were partially offset by the absence of revenue from the digital photo paper due to the production line relocation.

CMP

  • •    Revenue from CMP increased 19.5% year over year to $30.8 million, representing 74.6% of total revenue.
  • •    Of the total CMP sales, $5.0 million was generated by Light-Weight CMP and $25.8 million was generated by Regular CMP.
  • •    Total volume of CMP sold was up 13.1% year over year to 81,436 tonnes. Volume sold for regular CMP was up 1.0% year over year to 68,452 tonnes, while volume sold for Light-Weight CMP was up 208.0% to 12,984 tonnes.
  • •    Regular CMP ASP increased by 5.3% to $377/tonne.
  • •    Light-Weight CMP ASP increased by 6.1% to $384/tonne.
     

Offset Printing Paper

  • •    Revenue from offset printing paper decreased 4.9% year over year to $10.5 million, representing 25.3% of total revenue, due to reduced volume.
  • •    Volume sold was down 6.4% year over year to 14,982 tonnes, mainly due to a temporary interruption in production resulting from maintenance performed on the PM3 production line in April 2015.
  • •    ASP increased 1.6% year over year to $698/tonne.
     

Digital Photo Paper

  • •    Production of digital photo paper was suspended while production facilities were relocated pursuant to regulatory mandates by the Xushui county government; consequently there were no digital photo paper production in the second quarter of 2015. The small amount of digital photo paper sold in the second quarter of 2015 was sales from inventory. The relocation was completed in August 2015.
     

Cost of Sales and Gross Profit

Cost of Sales in the second quarter of 2015 was $30.8 million, relatively unchanged year over year.  Cost per tonne for Light-Weight CMP was down 9.7% to $252 and cost per tonne for Regular CMP was down 7.5% to $284, as a result of declining raw material prices. Cost per tonne for offset printing paper decreased by 2.5% to $540.

Gross profit in the second quarter of 2015 was $10.5 million, up 71.3% year over year.  Gross margin was 25.4%, up from 16.2% in the same quarter a year ago. Gross profit margins for Regular CMP, Light-Weight CMP, and offset printing paper were 24.8%, 34.3% and 22.7%, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") were $1.8 million for the second quarter of 2015, up 85.4% from $1.0 million for the second quarter of 2014.  The increase was primarily due to the increase in the depreciation costs associated with disassembling the digital photo production lines for relocation that was charged to SG&A and the property, plant and equipment in the Company's Wei County Industrial Park.

Income from Operations

Income from operations was $8.6 million for the second quarter of 2015, up 68.6% from $5.1 million in the same quarter a year ago.

Net Income

Net income was $5.6 million, up 56.5% from $3.6 million in the same quarter a year ago. Basic and diluted earnings per share for the second quarter of 2015 were $0.28, compared to $0.19 for the corresponding period of 2014.

EBITDA

Earnings before interest, taxes, depreciation and amortization ("EBITDA") were $11.3 million, up from $7.0 million in the second quarter of 2014.  EBITDA is a non-GAAP financial measure. Please see Note 2 for the reconciliation of Net Income to EBITDA.

Cash, Liquidity and Financial Position

As of June 30, 2015, cash and cash equivalents were $2.2 million, compared to $3.9 million at the end of 2014. Net cash provided by operating activities was $6.4 million for the six months ended June 30, 2015, compared with $20.9 million of net cash provided by operating activities in the six months ended June 30, 2014.

As of June 30, 2015, short-term debt (including notes payable of $6.5 million) was $15.7 million, and current capital lease obligations were $12.7 million.  Long-term debt was $15.5 million, and non-current capital lease obligations were nil.  Debt (including capital leases) represents 19% of total capital, which the Company believes, is within a normal range for paper companies in China.

Operations and Business Updates

Expansion into Tissue Paper Market

The Company continues to build production facilities in the Wei County Industrial Park in Hebei Province for tissue paper production. The Company completed the installation of the tissue paper packaging equipment and commenced commercial production in early June 2015 using base tissue paper as raw material sourced from third parties. The Company is in the process of installing two production lines to produce base tissue paper, each of which will have an annual capacity of 15,000 tonnes.

Relocation of Digital Photo Paper Production

In early August 2015, the Company completed the relocation of its digital photo paper production lines from its Headquarters Compound to a new location across the street from the Company's Xushui Paper Mill ("Xushui Mill Annex"), and resumed commercial production.  The relocation was completed within the planned timeline and below the budgeted costs.

Conference Call

The Company will host a conference call at 8:00 am US Eastern Time (5:00 am US Pacific Time/8:00 pm Beijing Time) on Thursday, August 13, 2015, to discuss its financial 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:

800-906-606

United States:

1-855-500-8701

International:

+65-6713-5440

Passcode:

3551039

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:

3551039

The replay will be archived for fourteen days following the earnings announcement, until August 27, 2015.

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

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 (with the exception of its digital photo paper and tissue paper products), Orient Paper produces and distributes three categories of paper products: corrugating medium paper, offset printing paper, and other paper products, including digital photo paper and tissue paper.

With production 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.

Founded in 1996, Orient Paper has been listed on the NYSE MKT under the ticker symbol "ONP" since December 2009. (For more information, please visit http://www.orientpaperinc.com)

Note 1: Production Facilities of Orient Paper

Production Line#

Paper Product

Designed Capacity (tonnes/year)

Location

PM1

Corrugating medium paper

60,000

Xushui County, Baoding city, Hebei province

PM2

Offset printing paper

50,000

PM3

Offset printing paper

40,000

PM4

Digital photo paper

2,500*

Xushui County, Baoding city, Hebei province

PM5

Digital photo paper

2,500*

PM6

Corrugating medium paper

360,000

Xushui County, Baoding city, Hebei province

PM7**

Specialty paper

10,000

PM8**

Base Tissue paper

15,000

Economic Development Zone in Wei County, Hebei Province

PM9**

Base Tissue paper

15,000

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

**: Under renovation or construction, or in the planning stage.

Note 2: Non-GAAP Financial Measures

In addition to our U.S. GAAP results, this press release also includes a discussion of EBITDA, a non-GAAP financial measure as defined by the 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$)

(in millions)

For the Three Months Ended

For the Six Months Ended

June 30,

June 30,

 

2015

2014

2015

2014

Net income

$

5.6

$

3.6

$

7.7

$

6.1

Add: Income tax

 

2.0

 

1.3

 

2.8

 

2.3

Add: Net interest expense

 

1.1

 

0.2

 

1.8

 

0.5

Add: Depreciation and amortization

 

2.6

 

1.9

 

5.1

 

3.9

EBITDA

$

11.3

$

7.0

$

17.4

$

12.8

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, the plan to resume digital photo paper sales; anticipated launch of the tissue paper sales,  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 corrugate medium 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 AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2015

   

2014

   

2015

   

2014

 
                         

Revenues

 

$

41,283,142

   

$

37,836,265

   

$

67,787,486

   

$

63,590,129

 
                                 

Cost of sales

   

(30,799,628)

     

(31,715,258)

     

(52,317,239)

     

(52,798,286)

 
                                 

Gross Profit

   

10,483,514

     

6,121,007

     

15,470,247

     

10,791,843

 
                                 

Selling, general and
administrative expenses

   

(1,833,970)

     

(989,299)

     

(3,540,362)

     

(1,898,215)

 
                                 

Income from Operations

   

8,649,544

     

5,131,708

     

11,929,885

     

8,893,628

 
                                 

Other Income (Expense):

                               

  Interest income

   

6,391

     

39,451

     

55,199

     

44,848

 

  Subsidy income

   

46,999

     

-

     

277,042

     

-

 

Interest expense

   

(1,135,893)

     

(268,545)

     

(1,784,111)

     

(543,837)

 
                                 

Income before Income Taxes

   

7,567,041

     

4,902,614

     

10,478,015

     

8,394,639

 
                                 

Provision for Income Taxes

   

(1,976,511)

     

(1,330,506)

     

(2,781,996)

     

(2,289,237)

 
                                 

Net Income

   

5,590,530

     

3,572,108

     

7,696,019

     

6,105,402

 
                                 

Other Comprehensive Income:

                               
                                 

Foreign currency translation
adjustment

   

844,427

     

284,824

     

176,881

     

(1,090,666)

 
                                 

Total Comprehensive Income

 

$

6,434,957

   

$

3,856,932

   

$

7,872,900

   

$

5,014,736

 
                                 

 Earnings Per Share:

                               

Basic and Fully Diluted
Earnings per Share

 

$

0.28

   

$

0.19

   

$

0.38

   

$

0.33

 
                                 

Weighted Average Number of
Shares

                               

Outstanding - Basic and Fully
Diluted

   

20,316,400

     

18,753,900

     

20,316,400

     

18,753,900

 

 

ORIENT PAPER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2015 AND DECEMBER 31, 2014

(Unaudited)

   

June 30,

   

December 31,

 
   

2015

   

2014

 
             

ASSETS

           
             

Current Assets

           

Cash and cash equivalents

 

$

2,163,357

   

$

3,891,473

 

Restricted cash

   

3,271,395

     

8,873,999

 

Accounts receivable (net of allowance for doubtful accounts of $85,088
   and $76,125 as of June 30, 2015 and December 31, 2014, respectively)

   

4,169,359

     

3,730,123

 

Inventories

   

8,377,944

     

7,139,599

 

Prepayments and other current assets

   

775,160

     

2,919,668

 

Deferred tax assets - current

   

16,741

     

-

 
                 

Total current assets

   

18,773,956

     

26,554,862

 
                 

Prepayment on property, plant and equipment

   

1,491,756

     

1,490,440

 

Property, plant, and equipment, net

   

210,387,247

     

208,213,198

 

Value-added tax recoverable

   

3,234,106

     

3,228,075

 

Deferred tax asset – non-current

   

760,315

     

281,010

 
                 

Total Assets

 

$

234,647,380

   

$

239,767,585

 
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

               
                 

Current Liabilities

               

Short-term bank loans

 

$

6,542,790

   

$

9,805,524

 

Current portion of long-term loans from credit union

   

179,927

     

147,083

 

Current portion of long-term loan from a related party

   

2,389,086

     

2,386,978

 

Current obligations under capital lease

   

12,657,697

     

12,258,488

 

Accounts payable

   

879,023

     

-

 

Notes payable

   

6,542,790

     

16,113,744

 

Due to a related party

   

309,886

     

227,900

 

Accrued payroll and employee benefits

   

557,803

     

492,765

 

Other payables and accrued liabilities

   

3,855,412

     

2,400,523

 

Income taxes payable

   

1,903,393

     

637,143

 
                 

Total current liabilities

   

35,817,807

     

44,470,148

 
                 

Loans from credit union

   

5,733,120

     

5,760,745

 

Loan from a related party

   

9,814,185

     

9,805,524

 

Deferred gain on sale-leaseback

   

464,002

     

695,389

 

Long-term obligations under capital lease

   

-

     

4,090,413

 
                 

Total liabilities

   

51,829,114

     

64,822,219

 
                 

Commitments and Contingencies

               
                 

Stockholders' Equity

               

Common stock, 500,000,000 shares authorized, $0.001 par value per
   share, 20,316,400 shares issued and outstanding as of June 30, 2015 and
   December 31, 2014

   

20,316

     

20,316

 

Additional paid-in capital

   

49,218,982

     

49,218,982

 

Statutory earnings reserve

   

6,080,574

     

6,080,574

 

Accumulated other comprehensive income

   

17,198,046

     

17,021,165

 

Retained earnings

   

110,300,348

     

102,604,329

 
                 

Total stockholders' equity

   

182,818,266

     

174,945,366

 
                 

Total Liabilities and Stockholders' Equity

 

$

234,647,380

   

$

239,767,585

 

 

 

 

ORIENT PAPER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014

(Unaudited)

   

Six Months Ended

 
   

June 30,

 
   

2015

   

2014

 
             

Cash Flows from Operating Activities:

               

Net income

 

$

7,696,019

   

$

6,105,402

 

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

               

Depreciation and amortization

   

5,092,217

     

3,867,694

 

Allowance for bad debts

   

8,874

     

3,856

 

Deferred tax

   

(494,559)

     

253,719

 

Changes in operating assets and liabilities:

               

Accounts receivable

   

(443,727)

     

(177,387)

 

Prepayments and other current assets

   

2,138,350

     

181,904

 

Inventories

   

(1,228,963)

     

(1,626,046)

 

Accounts payable

   

876,829

     

5,485,008

 

Notes payable

   

(9,561,259)

     

8,041,543

 

Accrued payroll and employee benefits

   

64,441

     

63,928

 

Other payables and accrued liabilities

   

1,012,879

     

(973,661)

 

Income taxes payable

   

1,262,528

     

(280,879)

 

Net Cash Provided by Operating Activities

   

6,423,629

     

20,945,081

 
                 

Cash Flows from Investing Activities:

               

Purchases of property, plant and equipment

   

(34,135)

     

(25,431)

 

Payment for construction in progress

   

(5,901,707)

     

(13,444,709)

 

Net Cash Used in Investing Activities

   

(5,935,842)

     

(13,470,140)

 
                 

Cash Flows from Financing Activities:

               

Proceeds from related party loans

   

300,000

     

343,500

 

Repayment of related party loans

   

(300,000)

     

(343,500)

 

Proceeds from bank loans

   

-

     

4,045,189

 

Repayment of bank loans

   

(3,263,228)

     

(2,417,346)

 

Payment of capital lease obligation

   

(4,551,517)

     

(4,088,678)

 

Release of (Increase in) restricted cash

   

5,596,436

     

(3,971,936)

 

Net Cash Used in Financing Activities

   

(2,218,309)

     

(6,432,771)

 
                 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

   

2,406

     

(39,971)

 
                 

Net (Decrease) Increase in Cash and Cash Equivalents

   

(1,728,116)

     

1,002,199

 
                 

Cash and Cash Equivalents - Beginning of Period

   

3,891,473

     

3,131,163

 
                 

Cash and Cash Equivalents - End of Period

 

$

2,163,357

   

$

4,133,362

 
                 

Supplemental Disclosure of Cash Flow Information:

               

Cash paid for interest, net of capitalized cost

 

$

1,384,324

   

$

467,400

 

Cash paid for income taxes

 

$

2,014,028

   

$

2,316,397

 

 

 

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