Zhenyong Liu - Chairman and Chief Executive Officer Jing Hao - Chief Financial Officer

Tim Clarkson - Van Clemens & Co., Inc. John Tumazos - Very Independent Research

Ladies and gentlemen, welcome to the Fourth Quarter and Full Year 2014 Orient Paper Inc. Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and all participants are in a listen-only mode. With us today are Mr. Zhenyong Liu, Orient Paper’s Chairman and Chief Executive Officer and Ms. Jing Hao, the company’s Chief Financial Officer. Remarks from both Mr. Liu and Ms. Hao will be delivered in English by interpreters. Orient Paper announced its fourth quarter and full year 2014 financial results via press release yesterday, which is available on the company’s website at orientpaperinc.com. First, Mr. Liu will brief you on the company’s key operational highlights and corporate developments over the fourth quarter and full year 2014 and then Ms. Hao will review the company’s financial results. After that, we will take questions. Before we begin, I would like to draw your attention to our 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 facts in its announcement are forward-looking statements, including, but not limited to anticipated revenues from the corrugating medium paper, offset printing paper and digital photo paper business segment; the actions and initiatives of current and potential competitors; the company’s ability to introduce the new products; the company’s ability to implement capacity expansion; market acceptance to 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 company and the industry. The company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances or to changes in its expectation, except as maybe required by law. Although the company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that its expectation will turn out to be correct and investors are cautioned that the actual results may differ materially from the anticipated results. There is a presentation document featuring management’s prepared remarks and it’s now available for download from the company’s website at www.orientpaperinc.com. Please note that there will be discussions on non-GAAP financial measures or EBITDA or earnings before interest, taxes, depreciation or amortization. Please refer to our press release for a complete reconciliation of EBITDA to net income. As a kind reminder, all numbers in our presentation are quoted in U.S. dollars and all comparisons refer to year-over-year comparisons unless otherwise stated. I would now like to turn the call over to Mr. Liu. His comments will be delivered in English by Victor Ho [ph] from ICR, the company’s Investor Relations firm. Please proceed.

Hello. I am Victor Ho [ph] of ICR. I will deliver the English version of Mr. Liu’s prepared comments. Good morning and thank you for attending our earnings call. We are gratified to have reported another year of volume and revenue growth despite very challenging industry conditions in our region. Revenue increased by 9% from 2013 largely due to solid execution and ramping up our regular CMP production combined with good market acceptance of our new Light-Weight CMP products. Volume of regular CMP increased 22% from 2013, while Light-Weight CMP sold 28,226 tons since its launch midyear. We achieved this growth despite production interruptions created by various government mandates. In the third quarter, we ceased production of digital photo paper in order to relocate the production lines as it’s perhaps [ph] of the local county government. In November, we lost two weeks of production of all products due to mandated suspensions across Hebei due to the APEC Summit held in Beijing. Showing our ability to manage through a tough environment gives us great optimism for the year ahead. There are some of the positive instances [ph] we foresee in 2015. Number one, we expect CMP pricing to stabilize or even improve since more small scale manufacturers will be forced to shutdown obsolete production lines reducing overall industry capacity. Number two, we expect our new Light-Weight CMP to continue to ramp up. Light-Weight CMP is a premium product that garners a modestly higher price and our cost of production is well below that of the year. As such, the Light-Weight CMP is an attractive contributor to our profitability. Number three, we will enter the tissue paper market later in 2015. Number four, the digital photo paper relocation should also be completed later in 2015 restoring an attractive revenue stream. I want to add more thoughts regarding the first point about industry mandated closures. For years, we have demonstrated our commitment to sustainability and environmental stewardship, while not sacrificing profitability. We use only recycled wastepaper for our feedstock, which gives us a cost advantage today compared to regular pulp and also gives us future opportunities to market our products as green. We are optimistic about 2015 and expect to be in a strong position to capture new growth opportunities. Now, Ms. Hao will review our financial results.

Hello. I am Rene Jiang of ICR, the company’s Investor Relations firm. I will deliver the English version of Ms. Hao’s prepared remarks. Thank you everyone for being on the call. Before I begin, please remember that all figures are in U.S. dollars and all comparisons are year-over-year unless stated otherwise. Also, [indiscernible] specific production lines associated with product. I will make it clear to which product I am referring to. To reference those, the numbering system for our production line is provided in our earnings press release and on Slide #24 of the earnings call presentation. Now, let’s look at our financial performance for the fourth quarter of 2014. Please turn to Slide #8. Total revenue was down 7.1% to $32.7 million as a result of the loss in sales due to the relocation of our digital photo paper production facilities and the decline in volume of offset printing paper. CMP sales were up this year [indiscernible] mandatory production costs imposed by the central government during APEC Summit in Beijing. Turning to Slide 9, the CMP segment generated sales of $24.3 million representing 74% of total revenues full meeting within our Light-Weight CMP. Volume was up 4.8% to 65,592 tons, 10,700 of which was Light-Weight CMP. Average selling price, or ASP, for regular CMP decreased 1.1% to $369 per ton. ASP for Light-Weight CMP was $373 per ton. The offset printing paper segment generated sales of $8.3 million, representing 25.4% of total revenues. Volume was 12,110 tons, down 22% due to the 2-week APEC suspension. ASP was $619 per ton, up 2.1%. It was a big digital photo paper sales as we sit out of inventory, but revenue in this segment will basically be nil until we restart production later in 2015. Slide #11 summarized the progression of change in our revenue mix. Gross profit was $5.6 million compared to $7.2 million in the prior year period, while gross margin was 17.1%, down from 20.3%. The decline in margin was due to higher fixed cost absorption on per unit basis from increased material and energy costs. In the fourth quarter, our utilization rate for our regular CMP production line, PM6, was 61%, which compares to utilization of 76.6% in the third quarter of 2014. The income from operations was $3.6 million and operating margin was 11.6%, down from 15.1% a year ago. Net income was $2.2 million and net income margin was 6.8%, down from 10%. Basic and diluted earnings per share were $0.11 compared to $0.19 for the corresponding period of 2013. Now, let’s look at our financial performance for the full year of 2014. Please turn to Slide #12. Total revenue was up 9% to $137 million. As Mr. Liu mentioned, we wrapped up the new production line for regular CMP production and had two quarters of contribution from the new Light-Weight CMP products. The CMP segment generated sales of $96.5 million representing 70% of total revenue. Volume was up 22% to 265,132 tons, 11% of which was Light-Weight CMP. ASP for regular CMP decreased 2.7% to $363 per ton, while ASP for Light-Weight was $369 per ton. Sales of offset printing paper were $37.5 million, representing 27.4% of total revenue, volume was 54,774 tons and ASP was $686 per ton, up 0.9% from 2013. Sales of digital photo paper were $3 million, down 40%. Tonnage was 763, also down 41%. Due to the relocation, most sales were in the first half of the year. Gross profits were $22.8 million compared to $23.3 million in 2013. Gross margin was 16.6%, down from 18.6%. The decline was due to the combined effects of the mandatory production suspension during the APEC Summit and the relocation of our digital photo paper production line as well as higher energy costs and lower ASPs for our regular CMP product. For our regular CMP production line, PM6, the full year utilization rate was 65.8%, which compares to 60.3% in 2013. Income from operations was $17.4 million and operating margin was 12.7%, down from 15% a year ago. Net income was $11.7 million and net income margin was 8.5%, down from 10.4%. Basic and diluted earnings per share were $0.61 compared to $0.71 in 2013. Moving to Slide 15, let’s look at the balance sheet and liquidity as of December 31, 2014. Cash equivalents were up 24.3% to $3.9 million compared to $3.1 million at the end of 2013. The increase in cash was mainly from operating cash flow which was up 8% to $32.3 million from $29.9 million in 2013. Short-term debt was $26.1 million including notes payable of $16.1 million. Long-term debt was $17.9 million that represents 18% of total capitalization. We believe this is very manageable and it’s within a normal range for the domestic paper industry. I want to reemphasize that the company has no problem securing financing in China. However, due to the tightening credit policy of the Chinese government, local banks are unable to grant loans for longer terms, which we would prefer. Let me now share some photos of the progress we are making in our key capital projects. Slide 18 has most recent photos related to the tissue paper expansion project. The construction of office building, cafeteria and warehouses at Wei County sites remains on track and are in final stages. Tissue paper packaging equipment is being installed. When installation is completed the processing lines and the packaging section will function independently from the tissue paper machine section and can process commercially marketable tissue paper products using wastepaper sourced from third-parties. As we have previously announced, budget funding delays now lead us to expect first production in second half of 2015. The delay should not have a material impact on our 2015 financial results. Slide 19 shows the photos of the relocation of our digital photo paper production lines. We also saw changes through the country’s government zoning policy we were first to move these – our production lines to new locations right across the street from our Xushui Paper Mill, which we called as Xushui Mill Annex. The two production lines are disassembled and equipment is being transported for installation. The relocation remains on schedule. We continue to expect production to resume in the second half of 2015. We will find some purchases as our installation progresses at the Xushui Mill Annex on Slide 20. Finally, let me offer some comments on general industry conditions that could impact our results in the first half of 2015. Seasonal demand for containerboard normally peaks in the fourth quarter in preparation for the Christmas and the Chinese New Year holiday season. First quarter is likely to see a normal sequential reduction in demand. Regulatory environment is favorable. The government is expected to continue pushing for industry efficiency and the environmental protection. In 2014 the Ministry of the Industry and Information Technology of China or MIIT announced mandated closure of 4.63 million tons of paper manufacturing capacity including 505,000 tons in Hebei province. We believe that the government will continue to strictly enforce mandatory closure of upgraded capacity over the past four years. This should help to keep ASPs relatively stable in 2015. During the fourth quarter, we saw ASP of our regular CMP products recovered to $369 per ton from $355 per ton in the third quarter of 2014. We view this as early evidence of downward price pressure we saw in 2014 maybe abating. Looking at raw material costs, we see the possibility that ongoing inflationary pressures and higher demand for recycled paper could lead to an increase in our raw material and production costs. Additionally, we expect [Technical Difficulty] increase as well. We are now ready for question-and-answer session. Operator, please.

Thank you, ma’am. [Operator Instructions] We have the first question from the line of Tim Clarkson. Please ask your question.

Yes, this is more of a comment. I just wanted to say that I really appreciate persistence of Orient Paper and the effort of the Chairman to continue to invest in the company through [indiscernible] times here and our people here that do appreciate his hard efforts and keep doing it. So, I think you guys are doing an outstanding job and I am looking forward to getting your equipment put in and seeing better results further down the line. So, that’s just a comment, no question, thanks.

Well, we appreciate that. We appreciate your comments.

[Operator Instructions] We have the next question from the line of John Tumazos. Please ask your question.

It’s John Tumazos. Good morning. Thank you for taking my question. In the U.S., the price of scrap containerboard has fallen essentially through to 2009 recession levels around $71 a ton in the domestic market. Is it now optimal for Orient Paper to use a different fiber mix? Is the imported OCC cheaper than other grades of fiber either imported or locally that you use and if you use a higher quality fiber because the customers pay you more?

Let us translate this question for Chairman now and we will have a response with you. The Chairman’s answer to your question is like the price for scrap containerboard or for other raw material is saturating in China as well. So, domestic market trend is like in line with international trends. And from the company side, the company used recycled paper as the green material and the raw material costs will reflect the market price of raw material here in China.

Thank you.

[Operator Instructions] We have a question from the line of Tim Clarkson. Please ask your question.

Yes, I was just wondering if there is any additional difficulty is corrugating tissue paper versus doing your traditional papers that you have already done. Is it more technologically difficult or is it pretty similar?

Right. Let us translate the question. To answer your questions, so for on the tissue paper, we are now recruiting sales teams, we now have 20 salespeople ready in the Northeast part of China and we are going to keep building the team, so we can initiate sales – our process – the first set of processed tissue paper and really test the market and calculate the market there. So, that’s the first step. And that’s around mid-April and in the second half of 2015 that’s when that our manufacturing will be ready and as we calculate the market we are bringing our own products.

Thank you.

[Operator Instructions] Seeing no further questions let me turn the call over to Mr. Liu for closing remarks.

Thank you, operator. To reiterate, 2014 was a gratifying year for us given the challenges we overcame. Our new CMP product is seeing good market acceptance and we have more new product introductions coming later in 2015. We are approaching the completion of a number of capital projects as you are soon seeing CapEx declining, while revenue ramps. We are optimistic about our prospects in 2015 and beyond. If you have any additional questions, please contact us. We strive to answer all investor inquiries and invite you to address your questions to our Investor Relations contact at ir@orientpaperinc.com. This concludes our call today and we thank you all for listening in. Goodbye.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.