Orient Paper's final Q4 results show net income was up 75% year-over-year, to US$3.5M; Q4 net revenue fell 19.1% from year ago, to US$35.2M, with volumes down 25.3%, to 62,562 tonnes, as PM No. 1 was shut down for conversion project
Debra Garcia
BAODING, China
,
March 26, 2014
(press release)
–
Orient Paper, Inc. (NYSE MKT: ONP) ("Orient Paper" or the "Company"), a leading manufacturer and distributor of diversified paper products in North China, today announced its financial results for the fourth quarter and full year 2013 ended December 31, 2013. Financial Highlights: US$ million 4Q 2013 YoY Change FY 2013 YoY Change Revenue 35.2 -19.1% 125.7 -16.8% Revenue excluding PM11 35.2 -2.5% 125.7 +2.6% Corrugating medium paper 23.3 -24.6% 80.9 -15.6% CMP excluding PM11 23.3 -0.5% 80.9 +44.6% Offset printing paper 10.4 -11.1% 39.8 -18.9% Digital photo paper 1.5 +66.7% 5.0 -19.7% Gross profit 7.2 +7.5% 23.3 -14.0% Gross margin 20.3% +4.9pp3 18.6% +0.7pp3 Corrugating medium paper 18.8% +3.4pp3 18.4% -0.1pp3 Offset printing paper 23.0% +7.3pp3 18.6% +2.5pp3 Digital photo paper 25.6% +15.0pp3 12.2% -3.0pp3 Operating income 5.32 +77.0% 18.8 -10.2% Net income 3.52 +75.0% 13.0 -11.6% EBITDA 7.1 +38.5% 26.9 -8.8% Note: (1) PM1 suspended operation since December 31, 2012 for modernization Key Highlights for Fourth Quarter 2013: Key Highlights for Full Year 2013: Mr. Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper, commented, "We have experienced a very eventful 2013 quarter to quarter. Nonetheless, we are pleased to have achieved satisfactory results well within our financial guidance for the full year, and made good progress on all our projects." Mr. Liu continued, "In particular, we are pleased to announce that we are wrapping up the conversion works of PM1 into an insulation liner paper production line. The conversion project is looking at a completion months ahead of schedule with a much lower cost than budgeted. We will launch the new PM1 production during the second quarter of 2014 and will be ramping up production in the months to come. For our existing operations, we will continue to ramp up production of PM6, after achieving a record high monthly annualized utilization of 86% in December and a 24% increase of production volumes for the full year." Mr. Liu concluded, "Meanwhile, we continue to make progress in our new tissue business expansion in Wei County, with the PM8 installation to be completed in the second half of 2014. We remain committed to ensuring the success of our new businesses such as insulation liner and tissue paper, which are expected to be additional key revenue growth drivers for the Company in 2015 and beyond." Financial Review: Quarter ended December 2013 Financial Results compared with quarter ended December 2012 Changes in revenues, sales volumes, and Average Selling Prices ("ASPs") for 4Q 2013 are presented as follows: Sales Volumes (Tonnes) YOY Change Revenue (US$ millions) YOY Change ASP (US$) YOY Change Corrugating Medium Paper 62,562 -25.3% 23.3 -24.6% 373 +1.1% CMP excluding PM1 62,562 -1.6% 23.3 -0.5% 373 +1.1% Offset Printing Paper 15,469 -8.0% 10.4 -11.1% 676 -3.0% Digital Photo Paper 382 +61.2% 1.5 +66.7% 3,879 +4.1% Revenue Total Revenue in the fourth quarter of 2013 was $35.2 million, decreased 19.1% from $43.5 million. Corrugating Medium Paper ("CMP") Offset Printing Paper Digital Photo Paper Cost of Sales Cost of Sales in the fourth quarter of 2013 was $28.1 million, down 23.8%, primarily due to the decreased production volume and the lower raw material unit cost. CMP cost per tonne decreased from$312 in the fourth quarter of 2012 to $303 in the fourth quarter of 2013. Gross Profit Gross profit in the fourth quarter of 2013 was $7.2 million, up 7.5% from $6.7 million for the fourth quarter of 2012. The improvement was mainly due to lower raw material prices and stabilization of average selling prices. Overall gross margin in the fourth quarter of 2013 was 20.3%, up from 15.4% for the fourth quarter of 2012. Gross profit margins for CMP, offset printing paper and digital photo paper for the fourth quarter of 2013 were 18.8%, 23.0% and 25.6%, respectively. Selling, General and Administrative Expenses Selling, general and administrative expenses were $1.8 million for the fourth quarter of 2013, compared to $0.9 million for the fourth quarter of 2012.The increase was mainly due to the 2013 year end stock-based compensation in the amount of $790,020. Income from Operations& Operating Margin Income from operations was $5.3 million for the fourth quarter of 2013, up 77.0% from $3.0 million for the fourth quarter of 2012, partly due to a $2.8 million asset impairment loss on the conversion of PM1 in the fourth quarter of 2012. EBITDA Excluding the impact of interest expenses, income tax expenses, depreciation and amortization, EBITDA, a non-GAAP measurement, was $7.1 million, up36.5% from $5.2 million. See Note 2 hereto for a reconciliation of Net Income to EBITDA. Net Income Net income was $3.5 million, up 75.0% from $2.0 million. Basic and diluted earnings per share for the fourth quarter of 2013 were $0.19, compared to $0.11 for the corresponding period of 2012. Cash, Liquidity and Financial Position As of December 31, 2013, cash and cash equivalents were $3.1 million, compared to $13.1 million at the end of 2012. The decrease is mainly due to the use of cash to fund the of new tissue business expansion at Wei County. For the full year of 2013, Orient Paper generated net cash flow from operating activities in the amount of $29.9million, representing an increase of 34.7% from$22.2 million in 2012. As of December 31, 2013, we had $26.0 million of current assets and $28.4 million of current liabilities, resulting in a working capital deficit of $2.4 million as of the end of 2013. However, $2.3 millionof the current liabilities were actually related parties security deposit or accruals that do not require immediate cash outflows or payments. Short-term debts and notes payable were $11.5 million, and current portion of long-term debts were another $10.0 million. Long-term debt was $20.1 million, of which $13.5 million are long-term capital lease obligations. As of December 31, 2013, shareholders' equity totaled $161.1 million, compared to $142.8 million at the end of 2012. Operations and Business Updates PM1 Modernization Plan As announced earlier, Orient Paper has voluntarily shut down PM1 as part of its facility upgrade plan. The modernization plan is to convert PM1 into a more energy-efficient production line, producing higher profit margin products of insulation liner paper, which is used to sandwich certain insulation materials as a construction material for wall and floor insulation. The PM1 renovation project cost is estimated to be approximately $6.8 million, well below previous expected budget of $15 million, and is expected to be completed months ahead of schedule during the second quarter of 2014. Revenue contribution from PM1 when operation commences is expected to be in the range of between $7 million to $9 million for 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 Provincesince mid- February 2013. The installation of PM8, the first 15,000 tonnes-per-year production line is progressing on schedule and is targeted for completion by the second half of 2014. The Company has also started planning for the installation of PM9, the second 15,000 tonnes-per-year tissue paper production line. If our cash flow permits, installation will be scheduled to start in the second half of2014, with a target to roll out production by the second half of 2015. Outlook Despite the mild economic recovery and the government's continued elimination of outdated capacity, the consensus among industry analysts, appears to be that paper ASPs in China may continue to stay the same level as 2013. We believe that while the ASP for corrugating medium paper may not substantially decline, the price may not noticeably improve in 2014. Since the government has identified environmental protection as a top priority, we expect an increase in environmental inspections and more stringent requirements for manufacturers. Although this would inevitably lead to increased costs and resources to comply, we believe this would advance the paper industry and benefit committed players like Orient Paper, while creating a long term benefit for China and its people. Looking forward, the Company's Wei County Project is well positioned to take advantage of China's growing urbanization and economic development. Strategically located at the junction of Hebei,Shandong, and Shanxi provinces, Wei County enjoys good transportation links with direct access to three national highways, and close proximity to the burgeoning economies of the neighboring tier three and tier four cities. Meanwhile, Orient Paper has also been progressively modernizing facilities to raise capacity, as well as to improve energy-efficiency and environmental conservation, thereby positioning itself to increase market share and further establish its leadership in the industry. Looking ahead to 2014, the Company will continue to focus on the execution of its business strategy, ramping up PM6, launching the renovated PM1 in the second quarter, and completing the installation and launch of PM8 in the second half of the year. At the same time, we will strive to maintain strong cash flows and restructure our debt to support our investments and expansion. 2014 Guidance Revenues for the full year are expected to be in the range of between $146 million and $161 million, gross profit to be between $27 million and $30million, net income to be between $15million and $17million, and basic and diluted earnings per share to be between $0.81 and $0.90. Conference Call 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/8:30 pm Beijing Time) on Wednesday, March 26, 2014, 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: 400-120-3170 Hong Kong: 800-966-120 United States: 1-855-811-0264 International: +61-2-8038-5361 Passcode: 1145035 A replay of this conference call will be available by dialing: China: 400-120-0932 Hong Kong: 800-963-117 United States: 1-855-452-5696 International: +61-2-8199-0299 Passcode: 1145035 The replay will be archived for fourteen days following the earnings announcement until April 9, 2014. 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 (tonnes/year) Location PM1* Insulation liner paper 50,000 Xushui County, Baoding city, Hebei province PM2 Offset printing paper 50,000 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 city, Hebei province PM7* Specialty paper 10,000 PM8* Tissue paper 15,000 Economic Development Zone in Wei County, Hebei Province PM9* Tissue paper 15,000 *: Paper machines under renovation or under construction, or in the planning stage. Note 2: Reconciliation of Net Income to EBITDA (Amounts expressed in US$) (in millions) For the Three Months Ended December 31 For the Year Ended December 31 2013 2012 2013 2012 Net income $ 3.5 2.0 $ 13.0 14.7 Add: Income tax 1.5 0.8 5.1 5.5 Add: Net interest expense 0.3 0.2 1.0 0.9 Add: Depreciation and amortization 1.8 2.2 7.8 8.4 EBITDA $ 7.1 5.2 $ 26.9 29.5 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 tissue 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 AND YEARS ENDED DECEMBER 31, 2013 AND 2012 Three Months Ended Year Ended December 31, December 31, 2013 2012 2013 2012 Revenues $ 35,246,348 $ 43,534,781 $ 125,717,630 $ 151,116,806 Cost of Sales (28,085,195) (36,837,423) (102,392,031) (124,060,559) Gross Profit 7,161,153 6,697,358 23,325,599 27,056,247 Selling, general and administrative (1,836,328) (925,841) (4,567,079) (3,360,520) Loss on impairment of assets - (2,762,349) - (2,762,349) Gain from disposal of property, plant and 235 46 84,972 45,288 Income from Operations 5,325,060 3,009,214 18,843,492 20,978,666 Other Income (Expense): Interest income 11,312 12,950 90,260 30,674 Subsidy income 474 - 171,125 - Interest expense (272,591) (226,936) (995,694) (871,834) Income before Income Taxes 5,064,255 2,795,228 18,109,183 20,137,506 Provision for Income Taxes (1,543,642) (794,117) (5,094,535) (5,464,843) Net Income 3,520,613 2,001,111 13,014,648 14,672,663 Other Comprehensive Income: Foreign currency translation 736,669 386,810 4,818,869 884,872 Total Comprehensive Income $ 4,257,282 $ 2,387,921 $ 17,833,517 $ 15,557,535 Earnings Per Share: Basic and Fully Diluted Earnings per $ 0.19 $ 0.11 $ 0.71 $ 0.79 Weighted Average Number of Shares Outstanding - Basic and Fully Diluted 18,458,446 18,459,775 18,458,446 18,456,781 ORIENT PAPER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2013 AND 2012 December 31, December 31, 2013 2012 ASSETS Current Assets Cash and cash equivalents $ 3,131,163 $ 13,140,288 Restricted cash 2,454,108 1,585,138 Accounts receivable (net of allowance for doubtful 3,327,494 2,836,335 Inventories 11,428,405 15,104,101 Prepayments and other current assets 1,068,031 5,401,705 Asset held for sale 4,130,590 - Deferred tax assets - current 413,537 - Total current assets 25,953,328 38,067,567 Prepayment on property, plant and equipment 1,492,098 1,445,645 Property, plant, and equipment, net 178,535,259 122,391,456 Recoverable VAT 3,277,188 - Deferred tax asset - non-current 268,329 941,656 Total Assets $ 209,526,202 $ 162,846,324 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-term bank loans $ 6,544,288 $ 3,962,844 Current portion of long-term loan from credit union 1,660,613 4,168,912 Current obligations under capital lease 8,264,795 - Accounts payable 926,571 1,012,906 Notes payable 4,908,216 3,170,276 Security deposit from a related party 1,636,072 1,075,606 Due to a related party 64,546 - Accrued payroll and employee benefits 498,010 292,638 Other payables and accrued liabilities 2,651,472 1,262,284 Income taxes payables 1,218,140 1,255,457 Total current liabilities 28,372,723 16,200,923 Loan from credit union 4,253,788 1,561,361 Loan from a related party 2,389,633 2,315,239 Deferred gain on sale-leaseback 1,160,271 - Long-term obligations under capital lease 12,296,639 - Total liabilities 48,473,054 20,077,523 Commitments and Contingencies Stockholders' Equity Common stock, 500,000,000 shares authorized, 18,754 18,460 Additional paid-in capital 46,909,543 46,135,975 Statutory earnings reserve 6,038,406 5,963,960 Accumulated other comprehensive income 17,146,308 12,327,439 Retained earnings 90,940,137 78,322,967 Total stockholders' equity 161,053,148 142,768,801 Total Liabilities and Stockholders' Equity $ 209,526,202 $ 162,846,324 ORIENT PAPER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 Year Ended December 31, 2013 2012 Cash Flows from Operating Activities: Net income $ 13,014,648 $ 14,672,663 Adjustments to reconcile net income to net cash provided by Depreciation and amortization 7,794,743 8,382,859 (Gain) Loss from impairment and disposal of property, plant (84,972) 2,717,061 Allowance for (Recovery from) bad debts 7,990 (19,631) Stock-based expense for service received 773,862 378,065 Deferred tax 409,665 (941,207) Changes in operating assets and liabilities: Accounts receivable (402,709) 1,029,978 Prepayments and other current assets 1,211,679 (295,763) Inventories 4,105,876 (5,024,459) Accounts payable (117,308) (1,771,968) Notes payable 1,614,387 3,168,769 Accrued payroll and employee benefits 194,795 (17,306) Other payables and accrued liabilities 1,599,375 453,546 Income taxes payable (200,090) (500,641) Net Cash Provided by Operating Activities 29,921,941 22,231,966 Cash Flows from Investing Activities: Payment for construction in progress (64,181,991) (2,759,997) Refund of prepayment for purchase of property, plant and - 3,112,571 Proceeds from disposal of property, plant and equipment 2,589,919 175,593 Purchases of property, plant and equipment (384,794) (13,518,955) Security deposit from a related party 1,614,387 1,075,095 Net Cash Used in Investing Activities (60,362,479) (11,915,693) Cash Flows from Financing Activities: Proceeds from related party loans 1,390,802 1,030,097 Repayment of related party loans (1,390,802) (1,230,097) Proceeds from bank loans 10,703,389 5,941,441 Proceeds from sale-leaseback financing 24,215,811 - Repayments of bank loans (8,281,807) (4,832,372) Payment of capital lease obligation (5,406,481) - Restricted cash (807,194) (1,584,384) Dividend paid (323,032) (692,242) Net Cash Provided by (Used in) Financing Activities 20,100,686 (1,367,557) Effect of Exchange Rate Changes on Cash and Cash Equivalents 330,727 26,126 Net(Decrease) Increase in Cash and Cash Equivalents (10,009,125) 8,974,842 Cash and Cash Equivalents - Beginning of Period 13,140,288 4,165,446 Cash and Cash Equivalents - End of Period $ 3,131,163 $ 13,140,288 Supplemental Disclosure of Cash Flow Information: Cash paid for interest, net of capitalized interest cost $ 708,089 $ 486,278 Cash paid for income taxes $ 4,884,961 $ 6,909,690 SOURCE Orient Paper, Inc.
(2) 4Q13 operating income and net income includes a US$0.8m share-based compensation
(3) pp represents percentage points.
**: PM4 and PM5 have a total coating capacity of 2,500 tonnes per year.
expenses
equipment, net
adjustment
Share
accounts of $67,592 and $57,643 as of
December 31, 2013 and 2012, respectively)
$0.001 par value per share, 18,753,900 and
18,459,775 shares issued and outstanding as of
December 31, 2013 and 2012, respectively
operating activities
and equipment
equipment
* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.
