Orient Paper, Inc. Reports Third Quarter 2012 Results

            Orient Paper, Inc. Reports Third Quarter 2012 Results

PR Newswire

BAODING, China, Nov. 8, 2012

BAODING,China, Nov. 8, 2012 /PRNewswire/ --Orient Paper, Inc. (AMEX: ONP)
("Orient Paper" or the "Company"), a leading manufacturer and distributor of
diversified paper products in northern China, today announced financial
results for the third quarter ended September 30, 2012.

Financial Highlights:

US$ million              3Q 2012 YOY Change 9M 2012 YOY Change
Revenue                  37.7    1.6%       107.6   -3.8%
Corrugating medium paper 24.3    126.1%     64.9    114.3%
Offset printing paper    11.5    -52.8%     37.4    -50.3%
Digital photo paper      1.9     -5.9%      5.3     -16.8%
Gross profit             6.8     -14.7%     20.4    -17.2%
Gross margin             18.1%   -3.5pp     18.9%   -3.1pp
Corrugating medium paper 18.9%   -8.7pp     19.9%   -9.3pp
Offset printing paper    15.3%   -2.7pp     16.3%   -1.7pp
Digital photo paper      24.8%   -7.3pp     25.4%   -9.3pp
Operating income         6.2     -18.2%     18.0    -20.0%
Net income               4.4     -19.4%     12.7    -21.5%
EBITDA                   8.3     -3.7%      24.2    -6.1%

Note: Pp represents percentage points.

Key Highlights for Third Quarter 2012:

  oReduced profitability amidst continuing weak pricing environment
  oCorrugating Medium Paper sales volume up 157.6% YoY as ramp-up of new
    production line (360,000 tonnes) accelerates
  oPlan upgrade production facilities and phase out legacy line to reinforce
    cost-leadership position in North China
  oSeek future expansion to capture higher value and high growth tissue
    paper business
  oBoard implements regular dividend payout on top of quarterly cash dividend
    of $0.0125 per share declared in September 2012
  oDownward revision of FY2012 guidance in view of current headwinds

Mr. Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper,
commented, "In the third quarter, the paper industry continued to suffer from
a weak pricing environment, which affected the margins of all our products.
Coupled with the production disruptions that occurred from the second quarter
to early part of the third quarter that have impacted our revenues in August
particularly, our results have declined and fallen short of expectations. In
view of this, we have revised down our full year guidance.

"However, we are pleased to have resolved all these operational interruptions,
and to be able to ramp up the new production line to achieve of over 72%
utilization in September. The Company will continue to focus on enhancing our
operational efficiency together with maintaining our position as the cost
leader in Northern China with our stringent cost management discipline.

"Looking ahead, we will expand our business further to higher value products
including tissue paper which potentially offer high gross margins and will be
a key future growth driver to the Company. With the rise of growing
consumerism in China, the currently low penetration of tissue paper in rural
areas of North China offers us tremendous potential for growth."

Commenting further on the future of the Company, Mr. Liu said, "Orient Paper
is still in the investment stage but we have confidence in its future
prospects riding on our unique market position as the cost leader in North
China, demonstrated by our industry leading margins and strong cash flow. On
behalf of the board of directors, I reiterate that there are no plans for
privatization and in fact, the Board is pleased to approve the payout of
dividends to shareholders on a regular basis."

Financial Review:

Third Quarter ended September, 2012 Financial Results compared with quarter
ended September,2011
Changes in revenues, sales volumes, and Average Selling Prices ("ASPs") for 3Q
2012 are presented as follows:
                     Sales                 Revenue             ASP
                     Volumes     YOY                  YOY             YOY
                     (Tonne)     Change    (US$       Change   (US$)  Change
Corrugating Medium   66,956      157.6%    24.3       126.1%   363    -12.1%
Offset Printing      16,295      -45.1%    11.5       -52.8%   706    -14.0%
Digital Photo Paper  480         -3.2%     1.9        -5.9%    3,865  -2.8%


Total Revenue in the third quarter of 2012 was $37.7 million, increased 1.6%
from $37.1 million.

Corrugating Medium Paper

  oRevenue from corrugating medium paper in the quarter increased 125.1% to
    $24.3 million, representing 64.5% of total revenue. The increase was a
    direct outcome of the ramp up of the new production line.
  oVolumes sold during the third quarter were up 157.6% to 66,956 tonnes, of
    which 47,091 tonnes, or 70.3%, of total corrugating medium paper sold in
    the third quarter of 2012 were produced by the new production line.
  oThe ASP for corrugating medium paper decreased 12.1% year-over-year to
    $363/tonne in the third quarter of 2012. The decline in ASP was mainly
    attributable to overall contraction of the manufacturing sector in China
    due to the sovereign debt crisis in Europe, as well as the Chinese
    government's effort to cool off domestic construction activities.

Offset Printing Paper

  oRevenue from offset printing paper in the quarter decreased 52.8% to $11.5
    million, representing 30.6% of total revenue.
  oVolumes sold during the quarter were down 45.1% to 16,295 tonnes.
  oThe ASP for offset printing paper decreased 14.0% year-over-year to
    $706/tonne in the third quarter of 2012.
  oThe decrease in revenue from offset printing paper was mainly due to
    softening demand for printing paper in the North China region, and
    production interruption in the month of August 2012 due to the
    installation and official inspection of the new boiler. In view of the
    very low ASPs that would have squeezed the margins substantially, the
    Company have suspended trading activities of offset printing paper since
    the first quarter this year.

Digital Photo Paper

  oRevenue from digital photo paper in the quarter decreased 5.9% to $1.9
    million, representing 4.9% of total revenue.
  oVolumes sold during the quarter were down 3.2% to 480 tonnes.
  oThe ASP for digital photo paper decreased 2.8% year-over-year to
    $3,865/tonne in the third quarter of 2012. The decline was mainly due to
    softening customer demand resulting from the weakening economy.

Cost of Sales

Cost of Sales in the third quarter of 2012 was $30.8 million, up 6%, primarily
due to the increase in sales and revenue of corrugating medium paper in the
quarter, while costs per tonne for corrugating medium paper edged down by 1.7%
to $294, as a result of increased economies of scale derived from the ramp-up
of the new production line.

Gross Profit

Gross profit in the third quarter of 2012 was $6.8 million, down 14.7% from
$8.0 million. The decline was mainly due to the falling average selling prices
of the offset printing paper and corrugating medium paper.

Overall gross margin in the third quarter of 2012 was 18.1%, down from 21.6%.
Gross profit margins for corrugating medium paper, offset printing paper and
digital photo paper for the third quarter of 2012 were 18.9%, 15.3% and 24.8%

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") were $0.7 million for
the third quarter of 2012, up 52.6% from $0.5 million. The increase was mainly
due to the currency exchange gain/loss between inter-company transactions and
increase in depreciation of properties and land use rights amortization, and
the increase in wages and salary in the third quarter 2012.

Income from Operations & Operating Margin

Income from operations was $6.2 million for the third quarter of 2012, down
18.2% from $7.5 million, primarily due to weakened demand, lowered ASPs and
sales. Despite the difficult operating environment, the Company achieved a
respectable operating margin of 16.4%, compared to 20.3% a year ago, which
continues to lead the industry, reaffirming its cost-competitive edge in this


Excluding the impact of interest expenses, income tax expenses, depreciation
and amortization, EBITDA, a non-GAAP measurement, was $8.3 million, down 3.7%
from $8.7 million. *(Refer to Table 1 for a discussion of non-GAAP financial
measures, including the reconciliation EBITDA to net income.)

Net Income

Net income was $4.4 million, down 19.4% from $5.4 million. Basic and diluted
earnings per share for the third quarter of 2012 were $0.24 compared to $0.3
for the corresponding period of 2011. Weighted average shares used in the
calculation of diluted earnings per share were 18,459,775 in the third quarter
of 2012 compared to 18,350,186 in the corresponding period of 2011.

Cash, Liquidity and Financial Position

The Company is now better capitalized and highly liquid with strong cash flows
from its operating activities compared to the financial position at the end of
2011, and its cash position has reverted to normal levels after the
construction of the new production line.

As of September 30, 2012, cash and cash equivalents were $13.2 million,
compared to $4.2 million at the end of 2011. Working capital was $14.4 million
at the end of September 30, 2012. Short-term debt was $4.3 million, and long
term debt was $1.6 million. As of September 30, 2012, shareholders' equity
totaled $140.6 million, compared to $127.5 million at the end of 2011.

In the first nine months of 2012,  Orient Paper generated net cash flow from
operating activities of $19.6 million, representing a decrease of 9.8%, from
$21.7 million for the corresponding period of 2011. The Company incurred $11.4
million in cash expenditures for the construction of employee dormitories,
ancillary facilities of the new 360,000 tonnes-per-year production line,
facilities to house the new 75-tonne boiler, and additional power substation

Recent Developments

Operation Updates

Production Line Ramp Up

Orient Paper has resolved all operational issues involving its boiler and
water treatment and has successfully completed installation of its new 75
tonnes/hour boiler in August 2012, which is expected to accelerate production
speed of corrugating medium paper significantly. For the month of September
and October 2012, the new 360,000 tonnes/year production line installed in
December 2011 achieved an operational run rate of 72.5% and 73.7% of the
monthly design capacity. Ramping up further, the Company estimates annual
production output for the new line to reach 178,000 to 179,000 tonnes for the
year of 2012.

Renew Production Lines - Phase out old line and Rebuild new line

In anticipation of increasing regulatory concerns on energy efficiencies and
to further upgrade the strength and quality of its corrugating medium
products, Orient Paper has taken the strategic decision to voluntarily phase
out the 150,000 tonnes/year corrugating medium paper line, which was built
back in 2000. At the current stage, Orient Paper plans to submit a renovation
scheme to the Chinese government to the phased out line, which includes the
building of a new 250,000 tonnes/year production line on the same foundation
in Q1 2013. The Company estimates total renovation cost to be up to $20-$25
million, which is expected to be funded by a leasing company and cash flows
generated from its own operations, as well as certain government subsidies.

Business Updates

Expansion into tissue paper segment

To take advantage of the rapid industry consolidation as well as the upside
potential of the tissue paper sector on the back of rising affordability,
penetration, urbanization and lifestyle changes in China, Orient Paper is
seeking to build new production capacities, which will allow the Company to
enter the tissue paper businesses. China's tissue paper consumption volume
per capita has increased substantially in the last few years to 3.9 kg in 2011
but penetration is still very low compared to other regions in the world (10
kg for Hong Kong, Taiwan and Macau, 15 kg for Japan and western Europe, and 25
kg for North America) and hence represent a key driver for future growth of
the Company.

Orient Paper intends to enter into a long-term industrial-use land lease of
250 mu (approximately 16.7 hectares) in a new location with an unrelated third
party, which will allow the Company to build two 15,000 tonne-per-year
production lines and infrastructures for tissue paper over the next two years
respectively. Total estimated cost of the project is up to $43.5 million,
which would be financed by a mixture of cash flow from operating activities
and debt financing. Orient Paper will announce further details when all
agreements are finalized.

Regular Dividend Policy

On September 4, 2012, the Company announced another quarterly dividend of
$0.0125 per share, with record date on September 14, 2012. The dividends were
paid on October 1, 2012. Considering the earnings, strong cash position and
confidence in the future prospects of the Company, the Board of Directors also
approved that quarterly dividend of $0.0125 per share will also be paid in the
next two quarters on such dates as the Board of Directors shall determine.

Litigation updates

On June 21, 2012, the Company reached a proposed settlement of the securities
class action lawsuit with the plaintiffs. The terms of the proposed settlement
call for dismissal of all the defendants from the action in exchange for a $2
million payment from the Company's insurer. The Court granted preliminary
approval of the settlement on November 5, 2012, and the Company expects final
settlement approval by the court during the first Quarter of 2013. The
management believes that the proposed settlement, if approved, should have no
material impact on the Company's consolidated financial statements.

Regarding a separate complaint filed by Tribank Capital Investments, Inc.
("Tribank") initially on March 30, 2011 against the Company and its Chairman
and CEO Mr. Zhenyong Liu (the "Tribank Matter"), Tribank subsequently filed a
notice of appeal with the court on August 5, 2011 and filed an opening brief
with the U.S. Court of Appeals for the Ninth Circuit, to which the Company
filed an answering brief on August 31, 2012. The Company continues to believe
that the complaint has no merit and intends to vigorously defend the lawsuit.
While certain legal defense costs may be later reimbursed by the Company's
insurance carrier, no reasonable estimate of any impact of the outcome of the
litigation or related legal fees on the financial statements can be made as of
date of this statement.

Investor Communications Initiatives

The Company has also appointed Fleishman-Hillard as its investor relations
firm to strengthen its investor communications. Together with the firm, Orient
Paper will be conducting a revamp of all its communication vehicles, such as
IR website, presentations, frequently asked questions, factsheet, in the
coming six months to enhance further investor understanding and communications
of the Company and its businesses.

Business Outlook

The overall outlook for the paper industry remains soft with slowdown of
China's economy, coupled with the correction of the construction and real
estate market in North China. Pressure on prices will remain low with
continuing weakened demand and structural overcapacity, which the Company
believes, will lead to further consolidation within the industry in the coming
12 months.

While the combined effect of increased sales and production volume, as well as
increasing economies of scale generated from the ramp-up of the new production
line can partially offset the downward pressure on prices, the Company has
prudently revised down its full fiscal 2012 guidance in view of the current
headwinds. Revenues are now expected to be in the range of between $146
million and $148 million, gross profit to be between $26 million and $28
million, net income to be between $15 million and $17 million, and basic and
diluted earnings per share to be between $0.90 and $0.92.

Conference Call

The Company will host a conference call at 8:30 am US Eastern Time (5:30 am US
Pacific Time/9:30 pm Beijing Time) on Friday, November 9, 2012, to discuss its
quarterly results and recent business activities.

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

China:         400-120-0654
Hong Kong:     800-903-737
United States: 1-855-500-8701
International: +65-6723-9385
Passcode:      6384 4920

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

China:         400-120-0932 / 800-870-0205
Hong Kong:     800-963-117
United States: 1-855-452-5696
International: +61-2-8199-0299
Passcode:      6384 4920

The replay will be archived for 14 days following the earnings announcement
until November 22, 2012.

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., through its wholly owned subsidiary, Shengde Holdings,
Inc., controls and operates Baoding Shengde Paper Co., Ltd. ("Baoding
Shengde"), and Hebei Baoding Orient Paper Milling Co., Ltd ("HBOP"). Founded
in 1996, HBOP is engaged in the production and distribution of products such
as corrugating medium paper, offset printing paper, and other paper and
packaging-related products in China. The Company uses recycled paper as its
primary raw material. Baoding Shengde, founded in June 2009 located in
Baoding, is engaged in the production and distribution of digital photo paper.
As one of the largest paper producers in Hebei Province, China, HBOP is
strategically located in Baoding, a city in close proximity to Beijing where
the majority of publishing houses are based. Orient Paper is led by an
experienced management team committed to diversifying the Company's product
offering and delivering tailored services to its customers. For more
information, please visit http://www.orientpaperinc.com.

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 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.

Use of Non-GAAP Financial Measures

The Company has included in this press release certain non-GAAP financial
measures. The Company believes that both management and investors benefit from
referring to these non-GAAP financial measures in assessing the performance of
the Company and when planning and forecasting future periods. Readers are
cautioned not to view non-GAAP financial measures on a stand-alone basis or as
a substitute for GAAP measures, or as being comparable to results reported or
forecasted by other companies, and should refer to the reconciliation of GAAP
measures with non-GAAP measures also included herein.

For investor and media inquiries, please contact:

Investor and Media Contacts:

Orient Paper, Inc.
E: ir@orientpaperinc.com

Reconciliation of Net Income to EBITDA
(Amounts expressed in US$)
                          For the Three Months Ended For the Nine Months Ended

                          September 30               September 30
                          2012          2011         2012         2011
Net income                $  4,379,071  $  5,431,760 $ 12,671,552 $ 16,145,634
Add: Income tax              1,570,098     1,884,909   4,670,726    5,860,066
Add: Net interest expense    219,263       222,742     644,898      489,797
Add: Depreciation and        2,171,851     1,122,519   6,222,600    3,311,618
EBITDA                    $  8,340,283  $  8,661,930 $ 24,209,776 $ 25,807,115

September 30, 2012 AND 2011
                ThreeMonthsEnded                 NineMonthsEnded
                September30,                      September30,
                2012            2011             2012             2011
Revenues        $ 37,651,354    $ 37,074,759     $ 107,582,025    $ 111,834,364
Cost of Sales     (30,831,301)    (29,080,624)     (87,223,136)     (87,259,264)
Gross Profit      6,820,053       7,994,135        20,358,889       24,575,100
general and       (703,877)       (461,312)        (2,434,679)      (2,041,277)
Gain (Loss)
from disposal
of property,      45,242          (460)            45,242           (69,628)
plant and
Income from       6,161,418       7,532,363        17,969,452       22,464,195
Other Income
Interest          7,014           7,048            17,724           31,302
Interest          (219,263)       (222,742)        (644,898)        (489,797)
Income before     5,949,169       7,316,669        17,342,278       22,005,700
Income Taxes
Provision for     (1,570,098)     (1,884,909)      (4,670,726)      (5,860,066)
Income Taxes
Net Income        4,379,071       5,431,760        12,671,552       16,145,634
currency          (263,772)       1,161,028        498,063          3,617,082
Comprehensive   $ 4,115,299     $ 6,592,788      $ 13,169,615     $ 19,762,716
Earnings Per
Basic and
Fully Diluted   $ 0.24          $ 0.30           $ 0.69           $ 0.88
Earnings per
Average Number
of Shares
Outstanding –
Basic and         18,459,775      18,350,186       18,455,776       18,349,044
Fully Diluted

                                                September30,    December31,
                                                2012             2011
Current Assets
Cash and cash equivalents                       $ 13,216,171     $ 4,165,446
Accounts receivable (net of allowance for
doubtful accounts of $74,187 and $76,752 as of    3,689,553        3,820,696
September 30, 2012 and December 31, 2011,
Inventories                                       9,084,316        10,007,928
Prepayments and other current assets              4,303,233        5,071,215
Total current assets                              30,293,273       23,065,285
Prepayment on property, plant and equipment       -                7,241,472
Property, Plant, and Equipment, net               127,342,238      114,651,107
Deferred tax asset                                384,648          -
Total Assets                                    $ 158,020,159    $ 144,957,864
Current Liabilities
Short-term bank loans                           $ 4,346,795      $ 2,833,619
Current portion of long-term debt from credit     4,157,117        -
Loan from related parties                         2,308,688        2,499,312
Accounts payable                                  1,135,377        2,766,554
Notes payable                                     553,228          -
Accrued payroll and employee benefits             237,409          308,290
Other payables and accrued liabilities            1,667,896        1,589,541
Income taxes payable                              1,445,077        1,744,253
Total current liabilities                         15,851,587       11,741,569
Loan from credit union                            1,556,943        5,690,852
Total liabilities                                 17,408,530       17,432,421
Commitments and Contingencies
Stockholders' Equity
Common stock, 500,000,000 shares authorized,
$0.001 par value per share, 18,459,775 and
18,350,191 shares issued and outstanding as of    18,460           18,350
September 30, 2012 and December 31, 2011,
Additional paid-in capital                        46,135,975       45,758,020
Statutory earnings reserve                        5,863,442        5,863,442
Accumulated other comprehensive income            11,940,630       11,442,567
Retained earnings                                 76,653,122       64,443,064
Total stockholders' equity                        140,611,629      127,525,443
Total Liabilities and Stockholders' Equity      $ 158,020,159    $ 144,957,864

                                               2012            2011
Cash Flows from Operating Activities:
Net income                                     $ 12,671,552    $ 16,145,634
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization                    6,222,600       3,311,618
(Gain)/loss from disposition of property,        (45,242)        69,628
plant and equipment
(Recovery from)/allowance for bad debts          (2,882)         12,179
Stock-based expense for service received         378,065         30,369
Deferred tax                                     (385,166)       -
Changes in operating assets and liabilities:
Accounts and notes receivable                    149,802         (294,494)
Prepayments and other current assets             789,462         (112,098)
Inventories                                      965,723         3,921,066
Accounts payable                                 (1,644,669)     (278,873)
Notes payable                                    553,973         -
Accrued payroll and employee benefits            (71,853)        49,844
Other payables and accrued liabilities           325,358         (1,030,876)
Income taxes payable                             (306,701)       (95,535)
Net Cash Provided by Operating Activities        19,600,022      21,728,462
Cash Flows from Investing Activities:
Prepayment/deposit for purchase of property,     (3,927,667)     (133,314)
plant and equipment
Refund of prepayment for purchase of             3,109,418       -
property, plant and equipment
Purchases of property, plant and equipment       (10,747,083)    (29,392,070)
Proceeds from disposal of property, plant and    175,416         748
Net Cash Used in Investing Activities            (11,389,916)    (29,524,636)
Cash Flows from Financing Activities:
Proceeds from related party loans                890,000         -
Repayment of related party loans                 (1,090,000)     (2,080,636)
Proceeds from bank loans                         4,352,643       8,345,664
Repayments of bank loans                         (2,849,003)     (4,975,033)
Dividend paid                                    (461,494)       -
Net Cash Provided by Financing Activities        842,146         1,289,995
Effect of Exchange Rate Changes on Cash and      (1,527)         103,213
Cash Equivalents
Net  Increase/(Decrease) in Cash and Cash        9,050,725       (6,402,966)
Cash and Cash Equivalents - Beginning of         4,165,446       11,348,108
Cash and Cash Equivalents - End of Period      $ 13,216,171    $ 4,945,142
Supplemental Disclosure of Cash Flow
Cash paid for interest                         $ 417,712       $ 512,748
Cash paid for income taxes                     $ 5,362,593     $ 5,955,602

SOURCE Orient Paper, Inc.

Website: http://www.orientpaperinc.com
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