Orient Paper, Inc. Announces Second Quarter 2016 Financial Results

BAODING, China, August 11, 2016 /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, 2016.

Second Quarter of 2016 Financial Highlights

• Total revenue decreased by 8.0% to $38.0 million, mainly due to the decrease in sales of regular CMP which was partially offset by increase in sales of tissue paper products and digital photo paper.
• Gross profit decreased by 34.3% to $6.9 million and gross margin decreased by 7.3 percentage points to 18.1% for the second quarter of 2016, mainly due to decrease in sales volume for CMP and decrease in average selling prices ("ASPs") across all products.
• Net income was $2.6 million, or $0.12 per basic and diluted share, for the second quarter of 2016, as compared to net income of $5.6 million, or $0.28 per basic and diluted share, for the same period of last year.
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") was $8.0 million, a decrease of 29.2% from the same period of last year.
• The newly launched tissue paper products segment generated revenue of $1.5 million with quantities sold of 1,194 tonnes and ASP of $1,250/tonne.

Mr. Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper, commented, "The overall business environment remained challenging for the paper industry in China during the second quarter of 2016, as China's economy continued to slow down and the RMB further depreciated against the U.S. dollar. In this quarter, we saw an 8.0% year-over-year decrease in our total revenues. Despite the decrease in our total revenues, our tissue paper products have continued to experience strong sales growth since their commercial production launch in June 2015, and generated revenue of $1.5 million in the second quarter of 2016. Looking ahead, the macroeconomic environment and the state of the paper industry in China will continue to have significant impact on our financial performance. We expect that our tissue paper product segment will continue to experience strong growth."

Three Months Ended June 30, 2016 Financial Results

Revenue

For the second quarter of 2016, total revenue decreased by $3.3 million, or 8.0%, to $38.0 million from $41.3 million for the same period of the last year. The decrease in total revenue was primarily due to the decrease in sales of CMP, which was partially offset by increase in sales of tissue paper products and digital photo paper. The following table summarizes revenue, volume sold and ASP by product for the second quarters of 2016 and 2015:

Revenue from CMP, including both regular CMP and light-weight CMP, decreased by $5.0 million, or 16.3%, to $25.8 million, and accounted for 67.8% of total revenue for the second quarter of 2016, as compared to $30.8 million, or 74.6% of total revenue, for the same period of last year. The Company sold 78,487 tonnes of CMP at an ASP of $328/tonne in the second quarter of 2016, as compared to 81,436 tonnes at an ASP of $378/tonne in the same period of last year.

Of the total CMP sales, revenue from regular CMP decreased by $4.3 million, or 16.8%, to $21.5 million, a result of sales of 65,620 tonnes at an ASP of $327/tonne for the second quarter of 2016, as compared to revenue of $25.8 million, a result of sales of 68,452 tonnes at an ASP of $377/tonne, for the same period of last year. Revenue from light-weight CMP decreased by $0.7 million, or 13.9%, to $4.3 million, a result of sales of 12,867 tonnes at an ASP of $334/tonne, for the second quarter of 2016, as compared to revenue of $5.0 million, a result of sales of 12,984 tonnes at an ASP of $384/tonne, for the same period of the last year.

Revenue from offset printing paper decreased by 0.1% to $10.4 million for the second quarter of 2016, from $10.5 million for the same period of last year. The Company sold 15,984 tonnes of offset printing paper at an ASP of $654/tonne in the second quarter of 2016, as compared to 14,982 tonnes at an ASP of $698/tonne in the same period of last year. The decrease in ASP for offset printing paper in USD was the result of the depreciation of the RMB against the USD in 2016.

Revenue from tissue paper products was $1.5 million. The Company sold 1,194 tonnes of tissue paper products at an ASP of $1,250/tonne for the second quarter of 2016. Revenue from digital photo paper was $0.3 million for the second quarter of 2016. The Company sold 160 tonnes of digital photo paper at an ASP of $1,793/tonne in the second quarter of 2016. In October 2014, we shut down and disassembled our digital photo paper production facilities (the PM4 and PM5 production lines) for the relocation mandated by the local county government to a new workshop that we built across the street from our main production base, Xushui Paper Mill. We completed the relocation and resumed commercial production of digital photo paper in August 2015. However, in June 2016, we suspended the production due to low market demand for our photo paper products. We expect that our digital photo paper production will remain suspended for the rest of 2016. We intend to resume the production of digital photo paper when the market shows a higher demand for our products.

Gross Profit and Gross Margin

Total cost of sales increased by $0.3 million, or 1.0%, to $31.1 million for the second quarter of 2016, from $30.8 million for the same period of last year. Cost of sales per tonne was $325 for the second quarter of 2016, as compared to $319 for the same period of last year. Costs of sales per tonne for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper were $273, $250, $516, $1,104, and $2,600, respectively, for the second quarter of 2016, as compared to $284, $252, $540, $nil, and $3,608, respectively, for the same period of last year.

Total gross profit decreased by $3.6 million, or 34.3%, to $6.9 million for the second quarter of 2016, from $10.5 million for the same period of last year. Total gross margin decreased by 7.3 percentage points to 18.1% for the second quarter of 2016, from 25.4% for the same period of last year. The decrease in total gross margin was mainly due to (i) decreased gross margins for CMP and offset printing paper and (ii) negative gross margin for digital photo paper.

Gross margin for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper was 16.7%, 25.0%, 21.0%, 11.7% and -45.0%, respectively, for the second quarter of 2016, as compared to 24.8%, 34.3%, 22.7%, nil, and 16.0%, respectively, for the same period of last year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") increased by $0.9 million, or 48.4%, to $2.7 million for the second quarter of 2016, from $1.8 million for the same period of the last year. The increase was mainly due to the increase in the depreciation expenses for our temporarily idle property, plant and equipment at our new tissue paper plant in Wei County.

Income from operations decreased by $4.5 million, or 51.8%, to $4.2 million for the second quarter of 2016 from $8.6 million for the same period of last year. Operating profit margin was 11.0% for the second quarter of 2016, as compared to operating profit margin of 21.0% for the same period of last year.

Net Income

Net income decreased by $3.0 million, or 53.8%, to $2.6 million for the second quarter of 2016 from $5.6 million for the same period of last year. Basic and diluted earnings per share for the second quarter of 2016 were $0.12, compared to $0.28 for the same period of last year.

EBITDA

EBITDA decreased by $3.3 million, or 29.2%, to $8.0 million for the second quarter of 2016, from $11.3 million for the same period of last year. See the reconciliation of Net Income to EBITDA below.

Note 1: Non-GAAP Financial Measures

In addition to our U.S. GAAP results, this press release includes a discussion of EBITDA, a non-GAAP financial measure as defined by the Securities and Exchange Commission ("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.

Revenue

For the six months ended June 30, 2016, total revenue decreased by $1.9 million, or 2.8%, to $65.9 million from $67.8 million for the same period of the last year. The decrease in total revenue was primarily due to the decrease in sales of regular CMP in the second quarter of 2016 which was partially offset by increase in sales of tissue paper products and digital photo paper. The following table summarizes revenue, volume sold and ASP by product for six months ended June 30, 2016 and 2015:

Revenue from CMP, including both regular CMP and light-weight CMP, decreased by $5.9 million, or 11.6%, to $44.6 million, and accounted for 67.7% of total revenue for the six months ended June 30, 2016, as compared to $50.5 million, or 74.5% of total revenue for the same period of last year. The Company sold 136,487 tonnes of CMP at an ASP of $327/tonne in the six months ended June 30, 2016, as compared to 134,707 tonnes at an ASP of $375/tonne in the same period of last year.

Of the total CMP sales, revenue from regular CMP decreased by $5.0 million, or 11.7%, to $37.4 million, a result of sales of 114,622 tonnes at an ASP of $326/tonne for the six months ended June 30, 2016, as compared to revenue of $42.3 million, a result of sales of 113,222 tonnes at an ASP of $374/tonne, for the same period of last year. Revenue from light-weight CMP decreased by $0.9 million, or 11.1%, to $7.3 million, a result of sales of 21,865 tonnes at an ASP of $333/tonne, for the six months ended June 30, 2016, as compared to revenue of $8.2 million, a result of sales of 21,485 tonnes at an ASP of $381/tonne, for the same period of the last year.

Revenue from offset printing paper increased by $0.3 million, or 1.8%, to $17.6 million for the six months ended June 30, 2016, from $17.3 million for the same period of last year. The Company sold 26,869 tonnes of offset printing paper at an ASP of $654/tonne in the six months ended June 30, 2016, as compared to 24,856 tonnes at an ASP of $695/tonne in the same period of last year. The decrease in ASP for offset printing paper in USD was the result of the depreciation of the RMB against the USD in 2016.

Revenue from tissue paper products was $3.1 million. The Company sold 2,461 tonnes tissue paper products at an ASP of $1,254/tonne for the six months ended June 30, 2016.

Revenue from digital photo paper was $0.6 million for the six months ended June 30, 2016. The Company sold 334 tonnes of digital photo paper at an ASP of $1,795/tonne in the six months ended June 30, 2016. As discussed above, in June 2016, we suspended the production of digital photo paper due to low market demand for our products. We expect that our digital photo paper production will remain suspended for the rest of 2016. We intend to resume the production of digital photo paper when the market shows a higher demand for our products.

Gross Profit and Gross Margin

Total cost of sales increased by $2.9 million, or 5.6%, to $55.3 million for the six months ended June 30, 2016, from $52.3 million for the same period of last year. Cost of sales per tonne was $333 for the six months ended June 30, 2016, as compared to $328 for the same period of last year. Costs of sales per tonne for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper were $278, $254, $528, $1,106, and $2,913, respectively, for the six months ended June 30, 2016, as compared to $292, $260, $549, $nil, and $3,608, respectively, for the same period of last year.

Total gross profit decreased by $4.8 million, or 31.1%, to $10.7 million for the six months ended June 30, 2016, from $15.5 million for the same period of last year. Total gross margin decreased by 6.7 percentage points to 16.2% for the six months ended June 30, 2016, from 22.8% for the same period of last year. The decrease in total gross margin was mainly due to (i) decreased gross margins for CMP and offset printing paper and (ii) negative gross margin for digital photo production lines.

Gross margin for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper was 14.8%, 23.7%, 19.3%, 11.8% and -62.2%, respectively, for the six months ended June 30, 2016, as compared to 21.9%, 31.7%, 20.9%, nil, and 16.0%, respectively, for the same period of last year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") increased by $3.5 million, or 99.6%, to $7.1 million for the six months ended June 30, 2016, from $3.5 million for the same period of the last year. The increase was mainly due to (i) the increase in the depreciation expenses for our temporarily idle property, plant and equipment at our new tissue paper plant in Wei County and (ii) 1,133,916 shares of common stock granted under compensatory incentive plans, valued at $1.4 million.

Income from operations decreased by $8.3 million, or 69.9%, to $3.6 million for the six months ended June 30, 2016 from $11.9 million for the same period of last year. Operating margin was 5.4% for the six months ended June 30, 2016, as compared to operating profit margin of 17.6% for the same period of last year.

Net Income

Net income decreased by $6.5 million, or 84.3%, to $1.2 million for the six months ended June 30, 2016, from $7.7 million for the same period of last year. Basic and diluted earnings per share for the second quarter of 2016 were $0.06, compared to $0.38 for the same period of last year.

EBITDA

EBITDA decreased by $5.8 million, or 33.0%, to $11.6 million for six months ended June 30, 2016, from $17.4 million for the same period of last year. See the reconciliation of Net Income to EBITDA below.

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.

Cash, Liquidity and Financial Position

As of June 30, 2016, the Company had cash and cash equivalents, short-term debt (including notes payable and related party loan), current capital lease obligations, long term debt (including related party loans) and non-current capital lease obligations of $4.0 million, $16.7 million, $9.5 million, $12.6 million and nil million, respectively, as compared to $2.6 million, $28.1 million, $6.9 million, $19.0 million and $3.2 million, respectively, at the end of 2015.

Net cash used in operating activities was $0.8 million for the six months ended June 30, 2016, as compared to net cash provided by operating activities of $6.4 million for the same period of last year. Net cash used in investing activities was $2.1 million for the six months ended June 30, 2016, as compared to net cash used in investing activities of $5.9 million for the same period of last year. Net cash provided by financing activities was $4.4 million for the six months ended June 30, 2016, as compared to net cash used in financing activities of $2.2 million for the same period of last year.

Earnings Conference Call:

The Company's management will host a conference call to discuss its second quarter 2016 financial results at 8:00 am US Eastern Time (5:00 am US Pacific Time/ 8:00 pm Beijing Time) on Thursday, August 11, 2016.

To attend the conference call, please dial in using the information below. When prompted upon dialing-in, please provide the conference ID or ask for the "Orient Paper Second Quarter 2016 Earnings Conference Call."

This conference call will be broadcast live on the Internet and can be accessed by all interested parties at http://www.orientpaperinc.com/, or http://edge.media-server.com/m/p/b2d4tm36.

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 playback will be available through August 18, 2016. To listen, please dial +1-855-452-5696 if calling from the United States, or +61-290-034-211 if calling internationally. Use the passcode 58830267 to access the replay.

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 products.

With production based in Baoding and Xingtaiin 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 about the Company, please visit http://www.orientpaperinc.com.

Safe Harbor Statements

This press release may contain forward-looking statements. These forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks outlined in the Company's public filings with the SEC, including the Company's latest annual report on Form 10-K. All information provided in this press release speaks as of the date hereof. Except as otherwise required by law, the Company undertakes no obligation to update or revise its forward-looking statements.

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