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

BAODING, China, August 13, 2015 /PRNewswire/ -- Orient Paper, Inc. (NYSE MKT: ONP) ("Orient Paper" or the "Company"), a leading manufacturer and distributor of diversified paper products in North China, today announced its unaudited financial results for the second quarter ended June 30, 2015.

Financial Highlights:

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:

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:

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

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

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$)

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.

-tables to follow-

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