Orient Paper, Inc. Reports Second Quarter 2013 Results PR Newswire BAODING, China, Aug. 12, 2013 BAODING, China, Aug. 12, 2013 /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 unaudited financial results for the second quarter ended June 30, 2013. Financial Highlights: US$ million 2Q 2013 YOY Change 1H 2013 YOY Change Revenue 33.0 -7.0% 52.8 -24.5% Revenue excluding PM1* 33.0 17.0% 52.8 -3.9% Corrugating medium paper 20.6 -4.6% 33.2 -18.3% Offset printing paper 11.3 -6.9% 17.7 -31.6% Digital photo paper 1.2 -35.8% 1.9 -44.9% Gross profit 6.1 5.4% 7.7 -42.9% Gross margin 18.5% 2.2pp 14.6% -4.7pp Corrugating medium paper 20.0% 4.0pp 15.6% -4.8pp Offset printing paper 15.8% 0.5pp 13.1% -3.8pp Digital photo paper 16.5% -9.2pp 11.6% -14.0pp Operating income 5.2 2.2% 6.0 -49.6% Net income 3.7 1.3% 4.0 -52.3% EBITDA 7.1 -1.4% 9.4 -40.9% Note: *PM1 suspended operation since 31 December 2012 for modernization Pp represents percentage points. Key Highlights for Second Quarter 2013: oSecured RMB150 million (approximately US$24 million) financing arrangement to fund new tissue business expansion oConstruction of tissue paper production facility on schedule oMaintain 2013 net income and EPS guidance Chairman and Chief Executive Officer of Orient Paper, Mr. Zhenyong Liu commented, "We are pleased to report that our businesses have started to recover with production ramping up steadily from the previous quarter and the decline in raw material costs. As a result, the Company's overall profitability has improved even though the economic environment remains challenging." Mr. Liu added, "Our expansion into the tissue paper segment is also progressing well. The construction works in the Wei County Economic Development Zone site is on schedule to be completed by the end of 2013, and we have successfully obtained the $24 million financing arrangement, which reflects creditable rating of Orient Paper as a Company especially in the midst of tight credit conditions in China. This financing will provide adequate working capital for the later stage of the expansion plan critical to driving our mid to long term business growth." Mr. Liu concluded, "Orient Paper is committed to establish a track record for solid financial performance. With product prices gradually stabilizing, we reiterate our commitment to meeting our 2013 guidance. Financial Review: Quarter ended June 2013 Financial Results compared with quarter ended June 2012 Changes in revenues, sales volumes, and Average Selling Prices ("ASPs") for 2Q 2013 are presented as follows: Sales Volumes YOY Revenue YOY ASP YOY (Tonnes) Change Change Change (US$millions) (US$) Corrugating Medium 55,025 -5.8% 20.6 -4.6% 374 1.4% Paper Offset Printing Paper 16,424 -1.2% 11.3 -6.9% 686 -5.8% Digital Photo Paper 311 -36.4% 1.2 -35.8% 3,870 1.0% Revenue Total Revenue in the second quarter of 2013 was $33.0 million, decreased 7.0% from $35.5 million. Corrugating Medium Paper ("CMP") oRevenue from CMP decreased 4.6% to $20.6 million, representing 62.3% of total revenue. The decrease was mainly due to the suspension of operation of CMP production line PM1 for modernization since the end of 2012. oVolumes sold were down 5.8% to 55,025 tonnes, which were solely produced from PM6. No CMP was produced from PM1, which contributed 20,269 tonnes to the second quarter 2012 sales revenue. oASP increased 1.4% year-over-year to $374/tonne, as the downward pressure in the Chinese packaging paper industry started to ease off. Offset Printing Paper oRevenue from offset printing paper in the quarter decreased 6.9% to $11.3 million, representing 34.1% of total revenue. The decrease is mainly attributable to the decline of the ASP in the second quarter of 2013. oVolumes sold were down 1.2% to16,424 tonnes. oASP decreased 5.8% year-over-year to $686/tonne. Digital Photo Paper oRevenue from digital photo paper decreased 35.8% to $1.2 million, representing 3.6% of total revenue. oVolumes sold dropped 36.4% to 311 tonnes, resulting from the suspension of night-time operations that started since October 2012, due to intensifying restrictions from government urban planning officials and rising pressure from the residential community, owing to the increasing presence of residential buildings in the neighborhood. oASP increased 1.0% year-over-year to $3,870/tonne. Cost of Sales Cost of Sales in the second quarter of 2013 was $26.9 million, down 9.4%, primarily due to the decrease of revenue and declining raw material cost during the quarter. Costs per tonne for CMP went down by 3.6% to $299, due to the drop of the recycled paperboard cost correlated to the sudden decline in price of the imported recycled paper, which is a result of the Chinese government's "Green Fence" policy lifting the import standards for all recycled materials. The policy has been implemented since February and will be in force till the end of 2013. Gross Profit Gross profit in the second quarter of 2013 was $6.1 million, up 5.4% from $5.8 million for the second quarter of 2012. The improvement was mainly due to the decline of raw materials costs and a slight increase of ASP for CMP. Overall gross margin in the second quarter of 2013 was 18.5%, up from16.3% for the second quarter of 2012. Gross profit margins for CMP, offset printing paper and digital photo paper for the second quarter of 2013 were 20.0%, 15.8% and 16.5%, respectively. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") were $0.9 million for the second quarter of 2013, up 29.2% from $0.7 million for the second quarter of 2012.The increase was mainly due to land lease payment for the Wei County industrial park facilities, which was not present until the fourth quarter of 2012. Income from Operations & Operating Margin Income from operations was $5.2 million for the second quarter of 2013, up 2.2% from $5.1 million for the second quarter of 2012, primarily due to the increased gross profit margin. Operating margin improved to 15.8% from 14.4% a year ago, as well as 3.8% from the previous quarter. EBITDA Excluding the impact of interest expenses, income tax expenses, depreciation and amortization, EBITDA, a non-GAAP measurement, was $7.1 million, down 1.4% from $7.2 million. See Note 2 hereto for a reconciliation of Net Income to EBITDA. Net Income Net income was $3.7 million, up 1.3% from $3.6 million. Basic and diluted earnings per share for the second quarter of 2013 were $0.20, compared to $0.20 for the corresponding period of 2012. Cash, Liquidity and Financial Position As of June 30, 2013, cash and cash equivalents were $22.5 million, compared to $13.1 million at the end of 2012.In the second quarter of 2013,Orient Paper generated net cash flow from operating activities of $9.1 million, representing a decrease of 34.1%, from $13.9 million for the corresponding period of 2012. Working capital was $19.3 million at the end of June 30, 2013. Short-term debt was $4.0 million, and long-term debt was $30.3 million, of which $24.5 million are long-term obligations under capital lease. As of June 30, 2013, shareholders' equity totaled $149.7 million, compared to $142.8 million at the end of 2012. Operations and Business Updates PM6 ramp up on track The average utilization rate in the second quarter of 2013 was 61.1%, compared to 36.8% in the previous quarter. The Company will continue to focus on the ramp up of PM6 in the second half of 2013 to achieve the goal of an average utilization rate of 70% by the end of fiscal 2013. PM1 Modernization Plan As announced earlier, Orient Paper has voluntarily shut down PM1 as part of its facility upgrade plan. The modernization will transform PM1 into a more energy-efficient production line, producing higher quality and higher profit margin products. The management is evaluating the feasibility of different options for the modernization, including the possibility of moving the location of the production line from Baoding to the Wei County industrial park, the site of the new household/tissue paper production facilities. Tissue Paper Expansion 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 this year. The building of the factory is set to be ready by the end of the third quarter for the installation of PM8, the first 15,000 tonnes-per-year production line. Installation of PM8 is targeted for completion by the end of the second quarter of 2014. Relocation and sale of headquarters estate As announced separately today, in order to comply with the recent Xushui County urban development plan mandates to develop the area where the Company's Headquarters Compound is located into residential area, the Company's Audit Committee and the Board of Directors have approved the sale of the land use rights of the Headquarters Compound, the office building and all industrial-use buildings (the "Industrial Buildings"), and three employee dormitory buildings located within the Headquarters Compound (the "Dormitories") to Hebei Fangsheng Real Estate Development Co. Ltd. ("Hebei Fangsheng") on August 7, 2013 for a total sales prices of $8.23 million. In connection with the sale, Hebei Fangsheng agrees to lease the Industrial Buildings back to Orient Paper for a term up to three years, while the Company explores different options to relocate its office and Digital Photo Paper workshop for PM4 and PM5. The net proceeds from the sale were approximately $7.84 million and are expected to be used to fund the Company's household and tissue paper business expansion. Government continued to push for industry efficiency and environment conservation Following the Ministry of Industry and Information Technology's ("MIIT") April 2013 announcement to retire a total of 4.6 million tonnes of old and inefficient paper production capacities in China, the Hebei Province also announced in May its target to close 2.15 million tonnes of paper production capacities in 2013. In July, the MIIT released its list for the first phase of the 2013 closures for 6.2 million tonnes in the country, with 0.9 million tonnes of such capacities located in the Hebei Province. This has led to the expectation in the market that the actual closures for 2013 may eventually exceed the earlier announced target plan. While this will curb surplus capacity, several industry analysts view that paper ASPs are not likely to recover significantly for the rest of the year. As a leading player in the fragmented North China packaging paper segment, Orient Paper is committed to both efficiency and environmental conservation, and believes it is well positioned to take advantage of the mandatory closures to increase market share and further establish its leadership in the industry consolidation." Full Year 2013 Guidance The Company is maintaining its guidance on most of the financial KPI or metrics, including net income and earnings per share, for the full year of 2013. Revenues for the full year are expected to be in the range of between $117 million and $129 million, gross profit to be between $17 million and $19 million, net income to be between $9 million and $10 million, and basic and diluted earnings per share to be between $0.51 and $0.56. Conference Call The Company 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 Tuesday, August 13, 2013, 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: 400-120-0654 Hong Kong: 800-903-737 United States: 1-855-500-8701 International: +65-6723-9385 Passcode: 2212 4989 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: 2212 4989 The replay will be archived for fourteen days following the earnings announcement until August 27, 2013. 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 Location (tonnes/year) PM1* Corrugatingmediumpaper 150,000 Xushui County, Baoding PM2 Offset printing paper 50,000 city, Hebei province 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 PM7* Specialty paper 10,000 city, Hebei province PM8* Tissue paper 15,000 Economic Development Zone in Wei County, Hebei PM9* Tissue paper 15,000 Province *: 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$) For the Three Months Ended For the Six Months Ended (in millions) June 30 June 30 2013 2012 2013 2012 Net income $ 3.6 $ 3.6 $ 4.0 $ 8.3 Add: Income tax 1.3 1.3 1.1 3.1 Add: Net interest expense 0.2 0.2 0.4 0.4 Add: Depreciation and 2.0 2.1 3.9 4.1 amortization EBITDA $ 7.1 $ 7.2 $ 9.4 15.9 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. ORIENT PAPER, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2013 AND 2012 (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2013 2012 2013 2012 Revenues $ 33,038,512 $ 35,521,672 52,785,168 69,930,671 Cost of Sales (26,940,117) (29,736,008) (45,056,536) (56,391,835) Gross Profit 6,098,395 5,785,664 7,728,632 13,538,836 Selling, general and administrative (886,556) (686,130) (1,773,722) (1,730,802) expenses Income from Operations 5,211,839 5,099,534 5,954,910 11,808,034 Other Income (Expense): Interest income 35,796 5,994 54,789 10,710 Interest expense (252,393) (220,761) (478,718) (425,635) Income before Income Taxes 4,995,242 4,884,767 5,530,981 11,393,109 Provision for Income Taxes (1,339,106) (1,273,977) (1,571,790) (3,100,628) Net Income 3,656,136 3,610,790 3,959,191 8,292,481 Other Comprehensive Income: Foreign currency translation 2,236,487 92,341 3,200,061 761,834 adjustment Total Comprehensive Income $ 5,896,623 $ 3,703,131 7,159,252 9,054,315 Earnings Per Share: Basic and Fully Diluted Earnings per $ 0.20 $ 0.20 0.21 0.45 Share Weighted Average Number of Shares Outstanding- Basic and Fully Diluted 18,456,995 18,459,775 18,458,377 18,453,754 ORIENT PAPER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2013 AND DECEMBER 31, 2012 (Unaudited) June 30, December 31, 2013 2012 ASSETS Current Assets Cash and cash equivalents $ 22,488,260 $ 13,140,288 Restricted cash - 1,585,138 Accounts receivable (net of allowance for doubtful accounts of $63,324 and $57,643 as of 3,150,784 2,836,335 June 30, 2013 and December 31, 2012, respectively) Inventories 13,452,703 15,104,101 Prepayments and other current assets 4,409,472 5,401,705 Total current assets 43,501,219 38,067,567 Prepayment on property, plant and equipment 1,477,354 1,445,645 Property, Plant, and Equipment 147,298,914 122,391,456 Deferred tax asset 982,681 941,646 Total Assets $ 193,260,168 $ 162,846,324 Current Liabilities Short-term bank loans $ 4,049,763 $ 3,962,844 Current portion of long-term debt from credit 5,855,958 4,168,912 union Current obligations under capital lease 8,206,234 - Accounts payable 1,193,562 1,012,906 Security deposit from related party 1,099,198 1,075,606 Notes payable - 3,170,276 Accrued payroll and employee benefits 499,274 292,638 Other payables and accrued liabilities 2,219,276 1,262,284 Income taxes payables 1,088,358 1,255,457 Total current liabilities 24,211,623 16,200,923 Loan from credit union - 1,561,361 Loan from a related party 2,366,020 2,315,239 Deferred gain on sale-leaseback 758,257 - Long-term obligations under capital lease 16,243,120 - Total liabilities 43,579,020 20,077,523 Commitments and Contingencies Stockholders' Equity Common stock, 500,000,000 shares authorized, $0.001 par value per share, 18,456,900 and 18,459,775 shares issued and 18,457 18,460 outstanding as of June 30, 2013 and December 31, 2012, respectively Additional paid-in capital 46,119,820 46,135,975 Statutory earnings reserve 5,963,960 5,963,960 Accumulated other comprehensive income 15,527,500 12,327,439 Retained earnings 82,051,411 78,322,967 Total stockholders' equity 149,681,148 142,768,801 Total Liabilities and Stockholders' Equity $ 193,260,168 $ 162,846,324 ORIENT PAPER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND DECEMBER 31, 2012 Six MonthsEnded June 30, 2013 2012 Cash Flows from Operating Activities: Net income $ 3,959,191 $ 8,292,481 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 3,921,450 4,050,749 Allowance for/ (recovery from) bad debts 4,370 (16,875) Stock-based expense for service received (16,158) 378,065 (reversed) Deferred tax (20,155) - Changes in operating assets and liabilities: Accounts and notes receivable (253,929) 806,855 Prepayments and other current assets 1,508,193 594,872 Inventories 1,961,617 1,478,010 Accounts payable 156,755 (2,045,625) Notes payable (3,205,385) - Accrued payroll and employee benefits 199,139 (73,871) Other payables and accrued liabilities 1,125,684 1,247,500 Income taxes payable (192,567) (829,437) Net Cash Provided by Operating Activities 9,148,205 13,882,724 Cash Flows from Investing Activities: Prepayment/deposit for purchase of property, plant and (24,231,749) (4,263,157) equipment Refund of prepayment for purchase of property, plant and - 3,111,240 equipment Purchases of property, plant and equipment (161,148) (10,245,764) Proceeds from disposal of property, plant and - - equipment Net Cash Used in Investing Activities (24,392,897) (11,397,681) Cash Flows from Financing Activities: Proceeds from related party loans 779,386 500,000 Repayment of related party loans (779,386) (700,000) Proceeds from bank loans - 1,979,696 Proceeds from sale-leaseback financing 24,158,461 - Repayments of bank loans - (2,058,884) Payment of lease obligation (1,348,571) - Release of restricted cash 1,602,693 - Dividend paid (230,747) (230,747) Net Cash Provided by/ (Used in) Financing 24,181,836 (509,935) Activities Effect of Exchange Rate Changes on Cash and 410,828 18,138 Cash Equivalents Net Increase in Cash and Cash Equivalents 9,347,972 1,993,246 Cash and Cash Equivalents - Beginning of 13,140,288 4,165,446 Period Cash and Cash Equivalents - End of Period $ 22,488,260 $ 6,158,692 Supplemental Disclosure of Cash Flow Information: Cash paid for interest $ 135,556 $ 357,974 Cash paid for income taxes $ 1,784,515 $ 3,930,064 SOURCE Orient Paper, Inc. Website: http://www.orientpaperinc.com Contact: Orient Paper, Inc., +1-562-818-3817, email@example.com; or FleishmanHillard, +852-2530-0228, firstname.lastname@example.org
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Orient Paper, Inc. Reports Second Quarter 2013 Results
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