Orient Paper, Inc. Reports First Quarter 2013 Results

BAODING, China, May 16, 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 first quarter ended March 31, 2013.

Financial Highlights:

Key Highlights for First Quarter 2013:

• Financial impact from Chinese New Year and a 20-day suspension of production due to government environmental inspection were in line with Company's expectations
• Progress on schedule for tissue paper business expansion
• First quarter dividend payment of $0.0125 per share
• 2013 guidance on net income and EPS unchanged

Mr. Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper, commented, "We are pleased that our facilities passed the rigorous governmental inspection as we are committed to a business model that complies with the governmental initiative of building an environment-friendly operation."

Mr. Liu added, "Despite the challenges and the financial impact of the Chinese New Year and a 20-day suspension of production due to government environmental inspection in this quarter, we are pleased that our cash position has continued to improve, supported by the Company's ability to generate cash consistently and maintain a competitive cost structure."

"With demand slowly picking up, as reflected in a slight sequential increase of the average selling price of corrugating medium paper, raw material prices trending towards a normalized level, and the ramp up of our new production line PM6, we reiterate our commitment to our net income guidance for 2013," continued Mr Liu.

Financial Review:

Quarter ended March 2013 Financial Results compared with quarter ended March 2012

Changes in revenues, sales volumes, and Average Selling Prices ("ASPs") for 1Q 2013 are presented as follows:

Revenue

Total Revenue in the first quarter of 2013 was $19.7 million, decreased 42.6% from $34.4 million.

Corrugating Medium Paper ("CMP")

• Revenue from CMP decreased 33.8% to $12.6 million, representing 63.9% of total revenue. The decrease was due to a 20-day production suspension due to a government environmental inspection, which was part of a county-wide initiative, and suspension of PM1 since December 31, 2012 for a planned renovation. As a result, ramp up of PM6 has been affected, and no CMP was being produced by PM1.
• Volumes sold were down 27.1% to 33,077 tonnes, which were all produced from PM6. No CMP was produced from PM1, which contributed 18,105 tonnes to the first quarter 2012 sales revenue.
• ASP decreased 9.3% year-over-year to $381/tonne, due to a weakened manufacturing and consumption trend in China in the last 12 months.
• However, ASP recorded a sequential increase of 3.3% over fourth quarter 2012, owing to a modest economic recovery, and a regional shortage in paper products supply, due to tightened environmental protection reinforcement and mandatory closures of smaller paper manufacturers under government mandates in 2013.

Offset Printing Paper

• Revenue from offset printing paper in the quarter decreased 53.2% to $6.4 million, representing 32.6% of total revenue.
• Volumes sold were down 47.0% to 9,456 tonnes, resulting from the 20-days production suspension of PM2 and PM3 for offset printing paper by the county-wide government environmental inspection between February 26 and March 17, 2013.
• ASP decreased 11.8% year-over-year to $681/tonne.

Digital Photo Paper

• Revenue from digital photo paper decreased 55.8% to $0.7 million, representing 3.5% of total revenue.
• Volumes sold dropped 53.5% to 185 tonnes, resulting from the suspension of night-time operations that started since the fourth quarter of 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.
• ASP decreased 4.8% year-over-year to $3,770/tonne.

Cost of Sales

Cost of Sales in the first quarter of 2013 was $18.1 million, down 32.0%, primarily due to a reduction of production volumes caused mainly by the suspension of production during the environmental inspection from February 26 to March 17 and PM1's withdrawal from service for renovation. Costs per tonne for CMP moved slightly up by 11.5% to $349, due to a lower run rate of the production facilities, which resulted from the production suspension and a 5.3% increase in CMP raw material costs as compared to the end of the fourth quarter of 2012.

Gross Profit

Gross profit in the first quarter of 2013 was $1.6 million, down 79.0% from $7.8 million for the first quarter of 2012. The decline was mainly due to the production suspension during the government's environment inspection, and temporary suspension of PM1 for renovation, as described above.

Overall gross margin in the first quarter of 2013 was 8.3%, down from 22.5% for the first quarter of 2012. Gross profit margins for CMP, offset printing paper and digital photo paper for the first quarter of 2013 were 8.5%, 8.3% and 3.3%, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") were $0.9 million for the first quarter of 2013, decreased from $1.0 million for the first quarter of 2012. The decrease was mainly due to the increase in depreciation of properties and land use rights amortization and absence of any stock-based compensation in the first quarter 2013.

Income from Operations & Operating Margin

Income from operations was $0.7 million for the first quarter of 2013, down 88.9% from $6.7 million for the first quarter of 2012, primarily due to the production suspension resulting from local governmental environmental inspection and PM1's suspension for renovation. Operating margin was lowered to 3.8%, compared to 19.5% a year ago.

EBITDA

Excluding the impact of interest expenses, income tax expenses, depreciation and amortization, EBITDA, a non-GAAP measurement, was $2.7 million, down 68.9% from $8.7 million. See Note 2 hereto for a reconciliation of Net Income to EBITDA.

Net Income

Net income was $0.3 million, down 93.5% from $4.7 million. Basic and diluted earnings per share for the first quarter of 2013 were $0.02 compared to $0.25 for the corresponding period of 2012.

Cash, Liquidity and Financial Position

As of March 31, 2013, cash and cash equivalents were $16.6 million, compared to $13.1 million at the end of 2012. In the first quarter of 2013, Orient Paper generated net cash flow from operating activities of $4.4 million, representing a decrease of 53.2%, from $9.3 million for the corresponding period of 2012.

Working capital was $21.4 million at the end of March 31, 2013. Short-term debt was $4.0 million, and long-term debt was $6.5 million, of which $4.2 million matures within a year. As of March 31, 2013, shareholders' equity totaled $144.0 million, compared to $142.8 million at the end of 2012.

Operations and Business Updates

PM6 ramp up

According to management's original estimates, PM6 was expected to produce up to 50,000 tonnes of CMP in the first quarter of 2013. However, the ramp up was affected by government environment protection inspection between February 26 and March 17, 2013. Therefore, the average utilization rate in the first quarter of 2013 was 36.8%, compared to 69.0% in the previous quarter.

Tissue Paper Expansion

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 after the Chinese New Year in February 2013. The building of the factory is set to complete by the end of the year, and installation of PM8, the first 15,000 tonnes-per-year production line, will commence in the third quarter of 2013. Installation of PM8 is targeted for completion by the end of the second quarter of 2014.

First Quarter Dividend

In line with its earlier announced decision on a regular dividend payout, the Company announced on April 4, 2013, another quarterly dividend of $0.0125 per share, with the record date on April 16, 2013. The dividends were paid on April 30, 2013.

Relocation plan and proposed sale of headquarters estate

The Company's Headquarters Compound at Juli Road, Xushui County, Baoding City, is still undergoing appraisal process by the independent appraisal firm designated by the government, together with the other three manufacturers in the affected zone. The Audit Committee is in the process of screening reputable and international independent appraisal firms to conduct the second appraisal of the property.

Full Year 2013 Guidance

Thanks to recent raw material pricing decreases, the Company is maintaining its guidance on most of the financial benchmarks, 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 $125 million and $138 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 at 8:30 am US Eastern Time (5:30 am US Pacific Time/8:30 pm Beijing Time) on Thursday, May 16, 2013, 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:

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

The replay will be archived for 14 days following the earnings announcement until May 29, 2013. A PowerPoint presentation can be downloaded on our website www.orientpaperinc.com.

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

Note 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.