Orient Paper, Inc. Reports Third Quarter 2013 Results
BAODING, China, Nov. 12, 2013
BAODING, China, Nov. 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 third quarter ended September 30, 2013.
US$ million 3Q 2013 YOY Change 9M 2013 YOY Change
Revenue 37.7 0.1% 90.5 -15.9%
Revenue excluding PM1* 37.7 20.2% 90.5 5.5%
Corrugating medium paper 24.4 0.4% 57.6 -11.3%
CMP excluding PM1* 24.4 35.5% 57.6 33.6%
Offset printing paper 11.7 1.8% 29.4 -21.3%
Digital photo paper 1.6 -14.4% 3.5 -34.2%
Gross profit 8.4 23.7% 16.2 -20.6%
Gross margin 22.4% 4.3pp 17.9% -1.1pp
Corrugating medium paper 21.9% 2.9pp 18.3% -1.6pp
Offset printing paper 23.1% 7.7pp 17.1% 0.8pp
Digital photo paper 25.6% 0.8pp 18.0% -7.4pp
Operating income 7.6 22.8% 13.5 -24.8%
Net income 5.5 26.4% 9.5 -25.1%
EBITDA 9.8 17.7% 19.7 -18.4%
*PM1 suspended operation since 31 December 2012 for modernization
Pp represents percentage points.
Key Highlights for Third Quarter 2013:
oGross profit up 23.7% YoY to US$8.4 million
oNet income up 26.4% YoY US$5.5 million
oConstruction of tissue paper production facility progressing on schedule,
installation of PM8 commencing in 4Q13
oDismissal of the Tribank litigation in its entirety by the Federal
oBoard of Directors approved payment of quarterly dividend of US$0.005 per
oFull year 2013 guidance revised upwards
Chairman and Chief Executive Officer of Orient Paper, Mr. Zhenyong Liu
commented, "We are pleased to report that the Company's production continue to
recover steadily in the third quarter. The ramp up of PM6 has further
accelerated from the previous quarter and achieved a utilization rate of 74%.
The decline in recycled paper raw material costs has also improved our
profitability, and this was all achieved despite the prevailing challenges in
the current economic environment."
Mr. Liu added, "We have also made further progress in the Company's expansion
plans. While the infrastructure construction works continue, we expect the
installation of the new PM8 will begin in the fourth quarter of 2014. We have
also initiated planning of the second tissue paper production line, or PM9.
Installation is expected to begin in early 2014, with a target to roll out
production by the second half of 2015. On the other hand, modernization of PM1
is underway and is scheduled to be completed by the third quarter of 2014.
These investments are expected to deliver mid-to-long term business growth for
Mr. Liu concluded, "Orient Paper remains committed to establish a track record
of solid financial performance, and we have revised upwards our full-year
guidance for 2013. We are also pleased to announce that the Board of Directors
has decided to resume payment of quarterly dividend. This decision was taken
in consideration of the Company's expansion plans and financial obligations,
which are critical to our long-term success, while rewarding shareholders for
their long-term support in Orient Paper, particularly during challenging times
Quarter ended September 2013 Financial Results compared with quarter ended
Changes in revenues, sales volumes, and Average Selling Prices ("ASPs") for 3Q
2013 are presented as follows:
Sales YOY Revenue YOY ASP YOY
Volumes Change Change Change
(Tonnes) (US$millions) (US$)
CorrugatingMediumPaper 66,472 -0.7% 24.4 0.4% 367 1.1%
CMP excluding PM1 66,472 41.2% 24.4 35.5% - -
Offset Printing Paper 17,259 5.9% 11.7 1.8% 679 -3.8%
Digital Photo Paper 407 -15.3% 1.6 -14.4% 3,906 1.1%
Total Revenue in the third quarter of 2013 was $37.69 million, increased 0.1%
from $37.65 million.
Corrugating Medium Paper ("CMP")
oRevenue from CMP increased 0.4% to $24.4 million, representing 64.7% of
total revenue. The increase was mainly due to the ramp up of PM6
production in the quarter, offsetting the loss of revenue contribution by
PM1, which has been suspended since the end of 2012 for modernization.
oVolumes sold were down 0.7% to 66,472 tonnes, which were solely produced
from PM6, as no CMP was produced from PM1, which contributed 19,865 tonnes
to the third quarter 2012 sales revenue.
oASP increased 1.1% year-over-year to $367/tonne, a sign that the downward
pressure in the Chinese packaging paper industry has started to stabilize.
Offset Printing Paper
oRevenue from offset printing paper in the quarter increased 1.8% to $11.7
million, representing 31.1% of total revenue. Despite the increase of
volumes sold, the revenue was offset by the decline of the ASP in the
third quarter of 2013.
oVolumes sold were up 5.9% to 17,259 tonnes.
oASP decreased 3.8% year-over-year to $679/tonne.
Digital Photo Paper
oRevenue from digital photo paper decreased 14.4% to $1.6 million,
representing 4.2% of total revenue.
oVolumes sold dropped 15.3% to 407 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 1.1% year-over-year to $3,906/tonne.
Cost of Sales
Cost of Sales in the third quarter of 2013 was $29.3 million, down 5.1%,
primarily due to the raw material cost during the quarter. Cost per tonne for
CMP went down by 2.4% to $287, 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 "Operation 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 in the third quarter of 2013 was $8.4 million, up 23.7% from $6.8
million for the third quarter of 2012. The improvement was mainly due to the
decline of raw materials costs.
Overall gross margin in the third quarter of 2013 was 22.4%, up from 18.1% for
the third quarter of 2012. Gross profit margins for CMP, offset printing paper
and digital photo paper for the third quarter of 2013 were 21.9%, 23.1% and
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") were $1.0 million for
the third quarter of 2013, up 36.0% from $0.7 million for the third 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
Income from Operations & Operating Margin
Income from operations was $7.6 million for the third quarter of 2013, up
22.8% from $6.2 million for the third quarter of 2012, primarily due to the
increased gross profit margin. Operating margin improved to 20.1% from 16.4% a
year ago, as well as 15.8% from the previous quarter.
Excluding the impact of interest expenses, income tax expenses, depreciation
and amortization, EBITDA, a non-GAAP measurement, was $9.8 million, up 17.7%
from $8.3 million. See Note 2 hereto for a reconciliation of Net Income to
Net income was $5.5 million, up 26.4% from $4.4 million. Basic and diluted
earnings per share for the third quarter of 2013 were $0.30, compared to $0.24
for the corresponding period of 2012.
Cash, Liquidity and Financial Position
As of September 30, 2013, cash and cash equivalents were $13.8 million,
compared to $13.1 million at the end of 2012. In the third quarter of 2013,
Orient Paper generated net cash flow from operating activities of $18.2
million, representing a decrease of 7.3%, from $19.6 million for the
corresponding period of 2012.
Working capital was $12.4 million at the end of September 30, 2013. Short-term
debt was $6.5 million, and long-term debt was $30.5 million, of which $24.6
million are long-term obligations under capital lease. As of September 30,
2013, shareholders' equity totaled $156.1 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 third quarter of 2013 increased to 74%
from 61.1% in the previous quarter. The Company will continue to focus on the
ramp up of PM6 for the rest of 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 profit margin products of
insulation paper, which is used as a construction material for wall and
ceiling insulation. As of September 30, 2013, the Company has ordered the
first batch of components for the rebuild of PM1. Under the current plan, the
Company expects the PM1 renovation project will cost approximately $15 million
and will be completed by the third quarter of 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. While
the infrastructure construction continues, the installation of PM8, the first
15,000 tonnes-per-year production line will commence soon in the fourth
quarter. Installation of PM8 is targeted for completion by the second half of
The Company has also started planning for the installation of PM9, the second
15,000 tonnes-per-year tissue paper production line. Installation is scheduled
to start in early 2014, with a target to roll out production by the second
half of 2015.
Declaration of Quarterly Dividend
The Board of Directors has approved the payment of a quarterly dividend of
$0.005 per share, with the record date on November 29, 2013. The dividend is
expected to be paid on December 16, 2013.
Relocation and sale of headquarters estate
As announced in August this year, 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. We have not identified new locations for the office
and the digital photo paper workshop but are exploring the possibility of
moving the headquarters office to near our Xushui Paper Mill. We may also
consider moving the digital photo paper operations to the new industrial park
in Wei County.
As of September 30, 2013, the sale of the land use right and Industrial
Buildings has been completed. The Company generated a total sales price of
approximately $4.0 million and a net gain on disposal of approximately $0.08
million. We expect the sale of Dormitories will be closed by the end of 2013.
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
Government continued to push for industry efficiency and environment
In September 2013, MIIT announced the second batch of paper mill closures,
including a total of 67 low-end small paper mills by the end of 2013 at an
aggregate of 1.2 million tonnes. The second batch of production capacity based
in Hebei province that is set to retire is 0.1 million tonne.
The MIIT also unveiled the closure of 274 paper mills with total capacity of
6.35 million tonnes by the end of 2013, including 0.9 million tonne based in
Hebei province, implying a total supply cut of approximately 7-8%.
Regarding the complaint filed by Tribank Capital Investments, Inc. ("Tribank")
initially on March 30, 2011 against Orient Paper and its Chairman and Chief
Executive Officer Mr. Zhenyong Liu (the "Tribank Matter"), an evidentiary
hearing was held on August 12, 2013 at the Federal District Court. Subsequent
to the hearing, the Federal District Court gave order to dismiss the case in
its entirely. The appeal period for Tribank has expired.
Outlook and Full Year 2013 Guidance
The Company remains cautiously optimistic towards the prospects of the Chinese
paper manufacturing sector, while several industry analysts expect a mild
recovery in the corrugated medium paper market in the next few quarters.
The Company is adjusting 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 $120
million and $132 million, gross profit to be between $21 million and $23
million, net income to be between $11 million and $13 million, and basic and
diluted earnings per share to be between $0.64 and $0.71.
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/9:30 pm
Beijing Time) on Wednesday, November 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:
Hong Kong: 800-903-737
United States: 1-855-500-8701
Passcode: 8592 2367
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
Passcode: 8592 2367
The replay will be archived for fourteen days following the earnings
announcement until November 29, 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
PM1* Insulation paper 50,000 Xushui County, Baoding
PM2 Offset printing paper 50,000 city, Hebei
PM3 Offset printing paper 40,000 province
PM4 Digital photo paper 2,500 ONP's Headquarters
PM5 Digital photo paper 2,500** Compound
PM6 Corrugatingmediumpaper 360,000 Xushui County, Baoding
PM7* Specialty paper 10,000 province
PM8* Tissue paper 15,000 Economic Development Zone
PM9* Tissue paper 15,000
County, Hebei Province
*: Paper machines under renovation or under construction, or in the planning
**: PM4 and PM5 have a total coating capacity of 2,500 tonnes per year.
Reconciliation of Net Income to EBITDA
(Amounts expressed in US$)
For the Three Months Ended For the Nine Months Ended
September 30 September 30
2013 2012 2013 2012
Net income $ 5.5 4.4 9.5 12.7
Add: Income tax 2.0 1.6 3.6 4.7
Add: Net interest expense 0.2 0.2 0.7 0.6
Add: Depreciation and 2.1 2.2 6.0 6.2
EBITDA $ 9.8 8.3 19.7 24.2
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.
For investor and media inquiries, please contact:
Investor and Media Contacts:
Orient Paper, Inc.
ORIENT PAPER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2013 AND 2012
September 30, September 30,
2013 2012 2013 2012
Revenues $ 37,686,114 $ 37,651,354 $ 90,471,282 $ 107,582,025
Cost of Sales (29,250,300) (30,831,301) (74,306,836) (87,223,136)
Gross Profit 8,435,814 6,820,053 16,164,446 20,358,889
general and (957,029) (703,877) (2,730,751) (2,434,679)
property, 84,737 45,242 84,737 45,242
Income from 7,563,522 6,161,418 13,518,432 17,969,452
Interest 24,159 7,014 78,948 17,724
Subsidy income 170,651 - 170,651 -
Interest (244,385) (219,263) (723,103) (644,898)
Income before 7,513,947 5,949,169 13,044,928 17,342,278
Provision for (1,979,103) (1,570,098) (3,550,893) (4,670,726)
Net Income 5,534,844 4,379,071 9,494,035 12,671,552
currency 882,139 (263,772) 4,082,200 498,063
Comprehensive $ 6,416,983 $ 4,115,299 $ 13,576,235 $ 13,169,615
Fully Diluted $ 0.30 $ 0.24 $ 0.51 $ 0.69
Basic and 18,456,900 18,459,775 18,457,879 18,455,776
ORIENT PAPER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2013 AND DECEMBER 31, 2012
September 30, December31,
Cash and cash equivalents $ 13,811,733 $ 13,140,288
Restricted cash - 1,585,138
Accounts receivable (net of allowance for
accounts of $50,539 and $57,643 as of 2,476,418 2,836,335
September 30, 2013 and December 31,
Inventories 12,573,474 15,104,101
Prepayments and other current assets 698,601 5,401,705
Assets held for sale 4,116,497 -
Total current assets 33,676,723 38,067,567
Prepayment on property, plant and equipment 1,485,487 1,445,645
Property, plant, and equipment 161,647,758 122,391,456
Recoverable VAT 3,382,951 -
Deferred tax asset 814,522 941,646
Total Assets $ 201,007,441 $ 162,846,324
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term bank loans $ 6,515,295 $ 3,962,844
Current portion of long-term debt from credit 1,636,968 4,168,912
Current obligations under capital lease 8,245,818 -
Accounts payable 1,095,869 1,012,906
Security deposit from related party - 1,075,606
Notes payable - 3,170,276
Accrued payroll and employee benefits 280,913 292,638
Other payables and accrued liabilities 1,911,786 1,262,284
Income taxes payables 1,571,419 1,255,457
Total current liabilities 21,258,068 16,200,923
Loan from credit union 4,251,230 1,561,361
Loan from a related party 2,379,046 2,315,239
Deferred gain on sale-leaseback 698,896 -
Long-term obligations under capital lease 16,322,070 -
Total liabilities 44,909,310 20,077,523
Commitments and Contingencies
Common stock, 500,000,000 shares authorized,
$0.001 par value per share, 18,456,900
18,459,775 shares issued and 18,457 18,460
outstanding as of
September 30, 2013 and December 31,
Additional paid-in capital 46,119,820 46,135,975
Statutory earnings reserve 5,963,960 5,963,960
Accumulated other comprehensive income 16,409,639 12,327,439
Retained earnings 87,586,255 78,322,967
Total stockholders' equity 156,098,131 142,768,801
Total Liabilities and Stockholders' Equity $ 201,007,441 $ 162,846,324
ORIENT PAPER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
Cash Flows from Operating Activities:
Net income $ 9,494,035 $ 12,671,552
Adjustments to reconcile net income to net
cash provided by
Depreciation and amortization 5,980,720 6,222,600
Gain from disposition of property, plant and (84,737) (45,242)
Recovery from bad debts (8,592) (2,882)
(Reversal)/ provision of stock-based expense (16,158) 378,065
for service received
Gain on sale leaseback realized (62,798) -
Deferred tax 274,427 (385,166)
Changes in operating assets and liabilities:
Accounts receivable 441,591 149,802
Prepayments and other current assets 1,449,388 789,462
Inventories 2,912,685 965,723
Accounts payable 54,408 (1,644,669)
Notes payable (3,219,834) 553,973
Accrued payroll and employee benefits (18,336) (71,853)
Other payables and accrued liabilities 827,129 325,358
Income taxes payable 154,977 (306,701)
Net Cash Provided by Operating Activities 18,178,905 19,600,022
Cash Flows from Investing Activities:
Payment for construction in progress (47,041,154) (3,927,667)
Refund of prepayment for purchase of - 3,109,418
property, plant and equipment
Proceeds from sale of property, plant and 2,582,747 175,416
Purchases of property, plant and equipment (37,024) (10,747,083)
Net Cash Used in Investing Activities (44,495,431) (11,389,916)
Cash Flows from Financing Activities:
Proceeds from related party loans 953,507 890,000
Repayment of related party loans (953,507) (1,090,000)
Proceeds from bank loans 9,063,833 4,352,643
Proceeds from sale-leaseback financing 24,148,756 -
Repayments of bank loans (6,648,958) (2,849,003)
Payment of capital lease obligation (1,355,435) -
Release of restricted cash 1,609,917 -
Dividend paid (230,747) (461,494)
Net Cash Provided by Financing Activities 26,587,366 842,146
Effect of Exchange Rate Changes on Cash and 400,605 (1,527)
Net Increase in Cash and Cash Equivalents 671,445 9,050,725
Cash and Cash Equivalents - Beginning of 13,140,288 4,165,446
Cash and Cash Equivalents - End of Period $ 13,811,733 $ 13,216,171
Supplemental Disclosure of Cash Flow
Cash paid for interest, net of capitalized $ 644,524 $ 417,712
Cash paid for income taxes $ 3,121,490 $ 5,362,593
SOURCE Orient Paper, Inc.
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