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

Hello, ladies and gentlemen. And welcome to the Third Quarter 2015 Orient Paper Inc. Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. Joining 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 third quarter 2015 financial results via press release yesterday, which can be found on the company's website at www.orientpaperinc.com. First, Mr. Liu will brief you on the company’s key operational highlights and corporate developments over the third quarter 2015 and then Ms. Hao will review the company’s financial results. Then Management will respond to your questions during the Q&A session after management prepared remarks. Before we start, I would like to draw your attention to our Safe Harbor statement. This Management's prepared remarks contain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts and its announcement are forward-looking statements, including, but not limited to anticipated revenues from our corrugating medium paper, offset printing paper and digital photo paper business segments, the actions and initiatives of current and potential competitors, the company’s ability to introduce new products, the company’s ability to implement capacity expansion, market acceptance of new products, general economic and business condition, 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 this 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, and 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 [Tina] [ph] from Investor Relations, Ms. Zhao, please go ahead.

Thank you, operator and good morning everyone. This is Tina Zhao from Investor Relations. I will deliver the English version of Mr. Liu’s prepared remarks. Thank you for attending our third quarter 2015 earnings conference call today. We experienced decrease in both revenues and earnings in the third quarter with total revenue decreasing 20.5% to $32.4 million and that income decreasing 50% to $1.7 million or $0.08 per diluted share. This was primarily driven by the negative impact of the temporary production suspension from August 20 to September 04, 2015, which was mandated by the Baoding City government in connection with the International Association of Athletics Federations World Championship Games and the military parade commemorating the 7th anniversary of the end of World War II held in Beijing. The production of affected products was resumed on September 5, 2015 and has returned to its normal levels. During the third quarter of 2015, our EBITDA was increased of 11.7% to $7.8 million. Gross margin also improved 4.1 percentage point to 19.8% as declines in unit material cost for regular CMP and energy cost as well as an increase in ASP of regular CMP. During the third quarter we focused on execution of several initiatives and have positioned ourselves to capture greater market share in the long run. As we continue to see tremendous opportunities in the consolidating China paper market. As previously announced we commenced a packaging operation of tissue paper in Wei County Industry Park which generated $0.3 million in sales on shipment of 208 tonnes of tissue paper for the third quarter. We also completed the relocation of digital photo paper production lines and resumed its commercial production in August 2015. With productions continuing to ramp up, we anticipate increased revenue contributions from both tissue paper and digital photo paper in coming quarters. Now I would like to turn the call over to Ms. Hao, CFO of the company, who will review and comment on our financial results. [Rachael] [ph] will deliver her comments in English as well. Rachael, please go ahead.

Okay. Thank you, everyone for being on the call. Next, on behalf of the Management Team, I will summarize some key financial results for the third quarter of 2015 and nine months ended September 30, 2015, respectively. Also I will occasionally refer to specific production lines associated with various products. I'll make clear to which product I am referring to, for reference though the numbering system for our production line is provided in our earnings press release and on Slide Number 17 the earning call presentation. Now let’s look at our financial performance for the third quarter of 2015. Please turn to Slide Number 7, for the third quarter of 2015 total revenue was down 20.5% to $32.4 million as a result of government mandated temporarily suspension of production from August 22 to September the 4 2015. Turning to Slide 8 for the third quarter of 2015, the CMP statement including both regular CMP and likely CMP generated revenue of $22.7 million representing 69.9% of total revenue. $90 million of revenue was from our regular CMP products and $3.7 million was from likely CMP. Volume for CMP segment decreased by 23.5% to 62,875 tonnes of which 52,737 tonnes was regular CMP and 10,138 tonnes was lightweight CMP at a recurring price or ASP for regular CMP increased by 1.4% to $359 per ton while ASP for lightweight CMP decreased 0.6% to $356 per ton. Turning to Slide 9 for the third quarter of 2015, our Offset Printing Paper Segment generated revenue of $9.3 million, representing 28.7% of total revenue. We shipped 13,689 tonnes of the printing paper in the third quarter, down 13.3% from the centre of last year. ASP of offset printing paper also decreased slightly by 1% to $680 per ton. For the third quarter of 2015, tissue paper segment generated sales of $0.3 million. Volume of tissue paper was 208 tonnes and ASP was $1,324 per tonn. For the third quarter of 2015 digital photo paper segment generated revenue of approximately $0.2 million or 0.5% of total revenue. In October 2014, we shut down and dissembled our digital photo paper production facilities for the relocation mandated by the Local County Government to aid new workshop that we build across the street from our main production base Xushui Paper Mill. As mentioned earlier today, we completed the relocation or resumed commercial production of our digital photo paper in August 2015. During the third quarter we shipped 38 tonnes of digital photo paper representing a 73.5% decrease versus the same period of last year. ASP of digital photo paper segment was $3,983 per tonn at 1.9% year-over-year. Slide Number 10 summarizes the changes in our revenue mix. For the third quarter of 2015 cost of steel decreased by $8.4 million to $26 million leading to gross profit of $6.4 million essentially unchanged from the last year, gross margin of 19.8%, which increased by 4.1 percentage points from the 15.7% in prior year. For the third quarter of 2015 our selling, general and administrative expenses was $3.8 million, compared to $1 million for the same period of last year. The increase was primarily due to the increase in depreciation cost associated with dissembling the digital photo production line for relocation that was charged to FTA and for the new facility in the Wei County Industrial Park. For the third quarter of 2015 income from operations decreased by $2.3 million to $2.6 million. Operating margin was 8% compared to 12.1% for the same period of last year. For the third quarter of 2015 net income decreased by 50% to $1.7 million or $0.08 per basic or diluted share, compared to $3.4 million or $0.18 per share for the same period of last year. For the third quarter of 2015 earnings before interest, taxes, depreciation and amortization or EBITDA decreased by $0.8 million to $7.8 million from $7 million for the same period of last year. Now shift gear to year-to-date financial results. For the nine months ended September 30, 2015, total revenue was down 4% to $100.2 million as a result of government mandated two week suspension of production from August 20 to September 2015 that more than offset strength in the first half of 2015. Turning to Slide 8 for the nine months ended September 30, 2015, the CMP Segment including post regular CMP and lightweight CMP generated revenue of $73.8 million representing 73% of total revenue, $51.3 million of revenue was from our regular CMP products and $11.9 million was from lightweight CMP. Volume for CMP segment decreased by 1% to 197,582 tonnes of which 165,959 tonnes were regular CMP and 31,623 tonnes were lightweight CMP. ASP for regular CMP decreased by 2.2% to $369 per ton while ASP for lightweight CMP also increased by 2.5% to $376 per ton. Turning to Slide 9, for the nine months ended September 30, 2015, our Offset Printing Paper segment generated revenue of $26.6 million representing 26.5% of total revenue. We shipped 38,545 tonn Offset Printing Paper for the nine months ended September 30, 2015, down 9.7% from the same period of last year. ASP Offset Printing Paper increased slightly by 0.7% to $689 per ton. For the nine months ended September 30, 2015, tissue paper segment generated sales of $0.3 million, volume of tissue paper was 208 tons and ASP was $1,324 per ton. For the nine months ended September 30, 2015 digital Photo Paper segment generated revenue of approximately $0.2 million or 0.2% of total revenue. In October 2014 we shut down and dissembled our digital Photo Paper production facility our TM4 and TM5 production line for the relocation mandated by the Local Country Government to a new workshop that we build across the street from our main production base tissue paper mill. We completed the relocation and resumed commercial production of our Digital Photo Paper in August 2015. For the nine months ended September 30, 2015 we shipped 44 tonn of Digital Photo Paper including 6 tonn in second quarter and 38 tonn in the third quarter, representing a 94.1% decrease versus the same period of last year. ASP of Digital Photo Paper segment was $4,026 per tonn at 2.7% year-over-year. Slide number 10 summarizes the changes in our revenue mix. For the nine months ended September 30, 2015, cost of sales decreased by $8.8 million to $78.3 million gross profit increased by 27.2% to $21.9 million and gross margin increased by 5.4 percentage points to 21.8%. For the nine months ended September 30, 2015 selling, general and administrative expenses was $7.4 million compared to $2.9 million for the same period of last year. The increase was primarily due to the increase in the depreciation cost associated with dissembling the digital photo production lines for relocation that was charged to FTA and with the new facility in the Wei County Industrial Park. For the nine months ended September 30, 2015 income from operations decreased by $0.7 million to $14.5 million. Operating margin was 14.5% compared to 13.2% for the same period of last year. For the nine months ended September 30, 2015 net income decreased by 1% to $9.4 million or $0.46 per basic or diluted share compared to $9.5 million or $0.5 per share for the same period of last year. For the nine months ended September 30, 2015, EBITDA increased by $5.4 million to $25.1 million from $19.8 million for the same period of last year. Moving to Slide 11, let’s look at the balance sheet and liquidity. As of September 30, 2015, the company had cash and cash equivalent short-term debt, current capital lease obligation, long-term debt and non-current capital lease obligation of $4.4 million, $14.9 million, $6.3 million, $19.4 million and $6.7 million respectively. This compares to $3.9 million, $28.5 million, $12.3 million, $13.6 million and $4.1 million respectively at the end of 2014. Net cash provided by operating activities was $10.7 million for the nine months ended September 30, 2015, compared to $35.8 million for the same period of the last year. Net cash used in investing activity was $11.3 million for the nine months ended September 30, 2015, compared to $22.8 million for the same period of the last year. Net cash provided by financing activities was $1.4 million for the nine months ended September 30, 2015. Net cash used in financing activity of $9.1 million for the same period of the last year. Let me now turn the call back over to Mr. Liu as we are making in our key capital projects.

Thank you, Rachel. Slide 13 has our most recent photos related to the tissue paper expansion project. In April we completed installation of tissue paper packing equipment, which functions independently from the base tissue paper production line and launched commercial production of our own brand of tissue paper products using base tissue paper source from the third party. On Slide 14, you will find an update on the relocation of our digital photo paper production lines due to changes in the County Government’s roaming policy we moved this production lines to a new location right across the street from our Xushui Paper Mill, which we called the Xushui Mill Annex. We have completed the relocation and resume commercial production in the beginning of August. Now I would like to turn the discussion over to the operator for any questions.

Thank you. Ladies and gentlemen, we would now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of [Mr. John Talmato] [ph]. Please go ahead.

Thank you, very much. Roughly how many dollars of revenue do you think you did not have in the quarter because of the production curtailments due to the military parade or athletic games if any? For example, it's possible that you had good inventories and the production decline just cost you to reduce inventory and have better working capital management?

Thank you, for the question. Hi John, the company effective production line was basically temporarily shut down for about two weeks 15 days to be exact. During the normal course of the company's business, the company keeps about a two days of inventory level. so it's good enough to meet the sales target requirement for two days sales. So roughly the company lost about 13 days of production in terms of sales revenue during the third quarter.

Thank you for the explanation.

Okay. John go ahead. Do you have other questions.

This is more difficult thing for me to understand. I study other industries and other companies and in August and September, the aluminum production did not fall, it's up 18% this year in China and the steel production, which is more concentrated in the six northeast provinces and also affected by iron ore imports in Tianjin Port was about the same in August and September. Why do you think the production cutbacks for the 70th holiday or other reasons were enforced on your company, but not on other sectors and maybe steel or coal burning for aluminum is dirtier than paper production?

John, let me repeat your question, are you saying that your register is showing that some other sectors production is not affected by the temporary shutdown will lead to the…

The Chine Government Statistics, International Women Association Statistics, World Steel Association Statistics suggest that.

Okay. Let me translate your question. Hi John, to answer your question, the mandatory shut down, it only affects some certain industries neighboring Beijing City within 200 kilometers distance from the City of Beijing, starting in certain areas of Hebei, not in the entire Hebei Province, Beijing, Tianjin and Hebei Province.

Thank you.

And as far as we know, within the 200 kilometers of Beijing, I don't think there is any major steel manufacturing.

Thank you for the questions. Seeing no further questions, let me turn the call over to Mr. Liu, for closing remarks.

Thank you, operator and thank you all for participating in the call today. In closing, we would like to reiterate our optimism for the next quarter. We will continue to focus on our base tissue paper production, which we believe will help us further cut-costs and expand our new product operations. 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. Good-bye.