Zhenyong Liu - Chairman & CEO Jing Hao - CFO

Hello, ladies and gentlemen. Welcome to participate in Orient Paper's First Quarter 2016 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 first quarter 2016 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 company's key operational highlights over the first quarter of 2016, 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, tissue 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 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 to 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 Tian from Weitian Investor Relations. Ms. Tian, please go ahead.

Thank you operator, and good morning everyone. I am Tony Tian from Weitian Investor Relations. I will deliver our prepared remarks on behalf of Mr. Liu. Thank everyone for dialing in our first quarter of 2016 earnings conference call. Despite the negative impact on macro difficulty and Yuan depreciation versus U.S. dollar, that led to a 5.5% year-over-year decline in overall blended ASP. We achievement achieved double-digit growth in overall sales volume with total shipment increasing by 11.4% to over 70,000 tonnes. And 5.3% increase in total revenue. Our tissue paper product line which we launched commercial production in the third quarter of 2015 continued to ramp and contributed $1.6 million or 5.7% of total revenue. Looking ahead, we expect the market environment to remain challenging in light of slowing turn for GDP growth and tight credit environment. This combined with central government tightened efforts on environment protection and pollution control will continue to fall from smaller players, particularly with outdated facilities to increase market and cause difficulties for new players to enter the markets potentially creating a non-pricing environment and benefitting established players like us. In the near term, we expect overall sales volume will continue to grow at a healthy clip with tissue paper product remaining to be the strongest segment. Now I will turn the call over to Shuni [ph] who will review and comment on Q1 financial results on behalf of Ms. Hao, CFO of the company.

Thank you and welcome being on the call. Next, on behalf of the management team I will summarize some key financial results for the first quarter of 2016. 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 numbering system for our production line is provided in our earnings press release on Slide number 21 of the earnings call presentation. Now let's look at our financial performance for the first quarter of 2016. Please turn to Slide number 7. For the first quarter of 2016 total revenue increased 5.3% to $27.9 million due to the sales of tissue paper products and printing paper as well as increased instead of offsetting printing paper, and partially offset by a decrease in terms of CMP. Turning to Slide 8, for the first quarter of 2015, the CMP segments including both regular CMP and light-weight CMP generated revenue of $18.9 million representing 67.6% of total revenue. $15.9 million of revenue was from our regular CMP products and $3 million from light-weight CMP. Volumes for CMP segment increased by 8.9% to 58,000 tonnes of which 49,002 tonnes was regular CMP and 8,998 tonnes was light-Weight CMP. Average selling price for ASP -- for regular CMP decreased by 12% to $324 per tonne while ASP for light-Weight CMP decreased 12% to $331 per tonne. Turning to Slide 9, for the first quarter of 2015 our offset printing paper segment generated revenue of $7.1 million representing 25.6% of total revenue. We shipped 10,885 tonnes offset printing paper in the first quarter, increase of 10.2% from the same period of last year. ASP for offset printing paper also decreased slightly by 4.9% to $655 per tonne. For the first quarter of 2016 tissue paper segment generated sales of $1.6 million. Volume of tissue paper was 1,267 tonnes and ASP was $1,258 per tonne. For the first quarter of 2016 digital photo paper segment generated revenue of approximately $0.3 million or 1.1% of total revenues. During the first quarter we shipped 174 tonnes of digital photo paper. ASP for digital photo paper segment was $1,498 per tonne. Slide number 10 summarizes the changes in our revenue mix. For the first quarter of 2016 cost of sales increased by $2.6 million to $24.1 million leading to gross profit of $3.8 million, a decrease from last year and gross margin of 30.5% decreased by 5.3% from the last year. For the first quarter of 2016, SG&A expense was $4.3 million compared to $1.7 million of the same period of last year. The increase was primarily due to the increase in the depreciation expense for our temporarily ideal property plant and equipment at our new tissue paper plant. And 1,143,915 shares of common stock granted under the compensation of incentive plan at the amount of $1,417,395. For the first quarter of 2016 wealth from operations of $0.6 million compared to income and operation of $3.2 million for the same period of last year. Operating gross margin was 2.1% compared to operating profit margin of 12.4% for the same period of last year. For the first quarter of 2016 net loss was $1.4 million or $0.06 per basic and diluted share for the first quarter of 2016, this compared to net income of $2.1 million or $0.10 per basic diluted share for the same period of last year. For the first quarter of 2016, Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA decreased by $2.5 million to $3.6 million from $6 million for the same period of last year. Moving to Slide 19, let's look at the balance sheet and liquidity. As of March 31, 2016 the company had cash and cash equivalent, short-term debt, including multi-paper work and related part loans, current capital lease obligations, long-term debt including related part loss, and non-current capital lease obligations of $3.7 million, $22.7 million, $6.8 million, $19.1 million and $3.2 million respectively. This compared to $2.6 million, $27.7 million, $6.9 million, $19 million and $3.2 million respectively at the end of 2016. Net cash provided by operating activities was $0.5 million for the three months ended March 31, 2016 compared to $2 million for the same period of last year. Net cash used in investing activities was $0.4 million for the three months ended March 31, 2016 compared to $2.41 million for the same period of last year. Net cash used in financing activities was $1.9 million for the three months ended March 31, 2016 compared to net cash provided by financing activities of $3.3 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. Operator, please go ahead. End of Q&A: Thank you. Thank you for attending Orient Paper's first quarter 2016 earnings conference call. This concludes our call for today. And we thank you for listening in. Good bye.