Zhenyong Liu - Chairman & CEO Jing Hao - CFO

Hello, ladies and gentlemen. And welcome to the participate in Orient Paper's Fourth Quarter and Fiscal Year 2015 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 fourth quarter and fiscal year 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 fourth quarter and fiscal year 2015 and then Ms. Hao will review the company's financial results. Before we start, I would like to draw your attention to our Safe Harbor statement. 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 the 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 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 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 Tony Chang [ph] from Wyshen [ph] Investor Relations. Ms. Chang, please go ahead.

Thanks operator, and good morning everyone. I am Tony Chang from Wyshen Investor Relations. I will deliver the English version of Mr. Liu's prepared remarks. Thank you for attending our fourth quarter and fiscal year 2015 earnings conference call. Despite China's challenged economic environment and the negative impact of the government mandated temporary production suspension in December 2015. We experienced increase in the revenues in the fourth quarter of 2015 with total earning increasing 7.4% to $35.1 million. Net income was $2.2 million for $0.11 per diluted share. Those are essentially unchanged from the same period of last year. The increase in total revenue was primarily into strength in sales of offset printing paper and contribution from the newly launched tissue paper packaging business. And partially offset by increase in sales from regular CMP. During the fourth quarter of 2015 our EBITDA increased by 16.5% to $7.1 million. Gross margin decreased by a bit to 17% with an increase in gross margin for light weight CMP offsetting the lower gross margin for the tissue paper packaging business. During the fourth quarter our newly launched tissue paper packaging business generated $1.4 million in sales or 4.1% of total revenue. Looking ahead we expect these macro challenges that remain besides pointing further weakening in China's GDP growth additionally as the central government steps up its anti-smog efforts in Beijing and surrounding provinces. Our production may still be subject to government mandated temporary suspension from time to time. Now I will turn the call over to Mrs. Hao, CFO of the company who will review and comment on all financial results. Tina will deliver her comments in English as well. Tina please go ahead.

Thank you everyone for being on the call. Next on behalf of the management team I will summarize some key financial results for the fourth quarter 2015 and 12 month ended December 31, 2015 respectively. Also, I will occasionally refer to a specific production lines associated with various products. I will make clear to which product I am referring to. For reference though, the numbers in system for our production line is provided in our earnings press release and offline number trending to earnings call presentation. Now let's look at our financial performance for the fourth quarter 2015. Please turn to Slide number 7. For the fourth quarter of 2015 total revenue increased 7.4% to $35.1 million due to the strengths in sales of offset printing paper and contribution from the newly launched tissue paper packaging business and partially offset by weakness in sales of regular CMP. Turning to Slide 8, for the fourth quarter 2015, the CMP segment including both regular CMP and light-weight CMP generated revenue of $23.7 million representing 67.6% of total revenue. $19.5 million of revenue was from regular CMP products and $4.2 million from light-weight CMP. Volumes for CMP segment increased by 7.37% to 70,640 tonnes of which 58,343 tonnes was regular CMP and 12,297 tonnes was light-Weight CMP. Every selling price for regular CMP decreased by 9.7% to $334 per tonne while ASP for light-Weight CMP decreased 8% to $343 per tonne. Turning to Slide 9, for the fourth quarter of 2015 our offset printing paper segment generated revenue of $9.7 million representing 27.6% of total revenue. We shipped 14,592 tonnes of printing paper in the fourth quarter, an increase of 20.5% from the same period of last year. ASP of offset printing paper also decreased slightly by 3.2% to $668 per tonne. For the fourth quarter of 2015 tissue paper segment generated sales of $1.4 million. Volume of tissue paper was 1,099 tonnes and ASP was $1,313 per tonne. For the fourth quarter of 2015 digital photo paper segment generated revenue of approximately $0.2 million or 0.6% of total revenue. During the fourth quarter we shipped 77 tonnes of digital photo paper representing a 492.3% versus the same period of last year. ASP of digital photo paper segment was $2,502 per tonne down 15.9% year-over-year. Now let's slide to number 10 summarize the changes in the revenue mix. For the fourth quarter of 2015 cost of sales increased by $2 million to $29.1 million leading to gross profit of $6 million. Slightly increased from the last year and gross margin of 17% which is essentially unchanged from the same period of last year. For the fourth quarter of 2015, SG&A expenses was $2.3 million compared to $2 million of the same period last year. The increase was primarily due to the increase in the depreciation cost associated with dis-assembling the digital photo production lines for relocation that was charged to SG&A and our temporarily either property, funds and equipment at our new tissue plants is Wei County Industrial Park. For the fourth quarter 2015 income from operations increased by $0.1 million to $3.7 million. Operating margin was 10.4% compared to 11% for the same period of last year. For the fourth quarter of 2015 net income was $2.2 million or $0.11 per diluted share.

Hi, operator are you there? Hi, operator are you there?

Hello, operator?

Please go ahead, ma'am.

Yes, can I go ahead?

Yes ma'am.

Okay. For the fourth quarter of 2015 income from operations increased from $0.1 million to $3.7 million. Operating margin was 10.4% compared to 11% for the same period of last year. For the fourth quarter of 2015, net income was $2.2 million or $0.11 per diluted share, both essentially unchanged from the same period of last year. For the fourth quarter of 2015, EBITDA increased by $1.1 million to $7.1 million from $6 million from the same period of last year. Now, shift the gear to year-to-date financial results. For the fourth quarter ended December 31, 2015 total revenue was down 1.3% to $135.3 million as a result of decreasing sales from regular CMP, digital photo paper and offset printing paper and partially offset by increase in sales from light-Weight CMP and contribution from the newly launched tissue paper packing business. Turning to Slide number 13 for the 12 months ended December 31, 2015 the CMP segment including both regular CMP and light-Weight CMP generated revenue of $96.9 million representing 71.6% of total revenue. $80.78 million of revenue was from our regular CMP product and $16.1 million was from light-Weight CMP. Volume for CMP segment increased by 1.2% to 368,222 tonnes of which 224,302 tonnes was regular CMP. And 43,928 tonnes was light-Weight CMP. Average selling price of regular CMP decreased by 0.8% to $360 per tonne while ASP for light-Weight CMP also decreased by 0.5% to $367 per tonne. Turning to Slide number 14, for the 12 month ended December 31, 2015 our offset printing paper segment generated revenue of $36.3 million representing 26.8% of total revenue. We shipped 53,137 tonnes offset printing paper for 12 months ended December 31, 2015 down 3% from the same period of last year. ASP of offset printing paper increased slightly by 0.3% to $684 per tonne. For the 12 months ended December 31, 2015 tissue paper segment generated sales of $1.7 million. Volume of tissue paper was 1,307 tonnes and ASP was $1,315 per tonne. For the 12 months ended December 31, 2015 digital photo paper segment generated revenue of approximately $0.4 million, 0.3% of total revenue. 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 our digital photo paper in August 2015. For the twelve months ended December 31, 2015 we shipped 121 tonnes of digital photo paper including six tonnes in second quarter and 37 tonnes in the third quarter representing an 84.1% decrease versus the same period of last year. ASP for digital photo paper segment was $3,107 per tonne down 20.5% year-over-year. Now Slide 10 summarized the changes in the revenue mix. For the 12 months ended December 31, 2015 cost of sales decreased by $6.8 million to $107.4 million. Gross profit increased by 22.3% to $27.9 million and gross margin increased by 4% to 20.6%. For the 12 months ended December 31, 2015 SG&A expenses was $9.7 million compared to $4.8 million for the same period of last year. The increase was primarily due to the increase in the depreciation cost associated with disassembling the digital photo products line for relocation that was charged to SG&A and our temporarily idle property, plant and equipment at our new tissue paper plant in the Wei County Industrial Park. For the 12 months ended December 31, 2015 income operations increased by $0.8 million to $18.2 million. Operating margin was 13.3% compared to 12.7% for the same period of last year. For the 12 months ended December 31, 2015 net income decreased by 1.4% to $11.5 million or $0.57 per diluted share compared to $11.7 million or $0.61 per diluted share for the same period of last year. For the 12 months ended December 31, 2015 EBITDA increased by $6.3 million to $32.2 million from $25.7 million for the same period of last year. Now, let's move to Slide number 23. Let's look at the balance sheet and liquidity. As of December 31, 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 $2.6 million, $27.7 million, $6.9 million, $19 million and $3.2 million respectively. This compares to $3.9 million, $28.5 million, $12.3 million, $15.6 million and $4.1 million respectively at the end of 2014. Net cash provided by operating activities was $21.2 million for the 12 months ending December 31, 2015 compared to $32.3 million for the same period of last year. Net cash used in investing activities was $19.3 million for the 12 months ended December 31, 2015 compared to $36.3 million for the same period of last year. Net cash used in financing activities was $2.8 million from the 12 months ended December 31, 2015 compared to net cash provided by financing activities of $4.7 million for the same period of last year. If you have any questions please contact us through emails at ir@orientpaperinc.com, management will respond to your questions through emails as soon as possible. Now, let me turn the call back over to Mr. Liu who will update on progress we are making in our key capital projects and the closing remarks. Mr. Liu, please go ahead.

Thank you. Slide number 17 has all the most recent photos relating to the tissue paper expansion project. In April 2015, we completed the installation of tissue paper packaging equipment which functions independently from the base tissue paper production line and launched the commercial production of our own brand of tissue paper using best tissue papers sourced from third parties. On Slide number 18 you will find an update on the relocation of our digital photo paper production line due to change in the County Government zoning policy, we moved this production line to a new location right across the street from our Xushui Paper Mill. Which we call the Xushui Mill the next. We had completed the relocation and then resumed commercial production in the beginning of August. I would like to thank you all for participating in the call today. In closing we would like to reiterate our optimism for 2016. 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 operation. If you have any additional questions please contact us. We strive to answer all investor enquiries and invite you to address your questions to our Investor Relations contacts at ir@orientpaperinc.com. Thank you. Operator, please go ahead.

Thank you for attending Orient Paper's fourth quarter and fiscal year 2015 earnings conference call. This concludes our call today and we thank you all for listening. Good bye. Q -: