Orient Paper, Inc. Announces Fourth Quarter and Fiscal Year 2017 Financial Results

BAODING, China, April 17, 2018

BAODING, China, April 17, 2018 /PRNewswire/ -- 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 fiscal year ended December 31, 2017.

		For the Three Months Ended December 31,
($ millions)		2017		2016		% Change  ARIVA.DE Börsen-Geflüster Kurse IT Tech Packaging 0,2309 $ 0,00%
Revenues		35.4		31.4		12.9%
Regular Corrugating Medium Paper ("CMP")*		24.6		18.3		34.8%
Light-Weight CMP**		5.2		5.3		-2.5%
Offset Printing Paper		5.4		6.5		-16.8%
Tissue Paper Products		0.3		1.4		-80.1%
Digital Photo Paper		0.0		0.0		-100.0%
Gross profit		3.6		7.5		-52.1%
Gross margin		10.2%		24.0%		-13.8 pp
Regular Corrugating Medium Paper ("CMP")*		8.9%		23.2%		-14.3 pp
Light-Weight CMP**		10.0%		28.8%		-18.9 pp
Offset Printing Paper		16.5%		25.1%		-8.6 pp
Tissue Paper Products		5.8%		11.0%		-5.3 pp
Digital Photo Paper		NA		-58.8%		NM
Operating income (loss)		-1.7		4.6		-136.2%
Net income (loss)		-1.6		3.1		-153.1%
EBITDA		2.0		8.3		-75.3%
Basic and Diluted earnings (loss) per share		-0.08		0.14		-153.1%
* Products from PM6
** Products from PM1
*** pp represents percentage points

Revenue increased by 12.9% to $35.4 million, primarily due to increase in average selling prices ("ASPs") and partially offset by decreases in sales volumes across all product categories.

• Gross profit decreased by 52.1% to $3.6 million. Gross margin decreased by 13.8 percentage points to 10.2%. The decrease in gross margin was across all product categories.
• Net loss was $1.6 million, or loss per share of $0.08, compared to net income of $3.1 million, or earning per share of $0.14, for the same period of the prior year. The Company booked loss on impairment of assets of $2.3 million in the fourth quarter of 2017.
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") decreased by 75.3% to $2.0 million.

"Revenue increased by 12.9% to $35.4 million for the fourth quarter of 2017, benefitted from an increase of 35.8% in blended ASP and partially offset by a decrease of 16.9% in overall sales volume," said Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper.

Mr, Liu continued, "As previously announced, the Company temporarily suspended its production in January 2018 due to a government-mandated restriction on the natural gas supply, which is the energy resource we need for production. As of March 14, 2018, the company resumed production at its manufacturing facilities. As a result of the temporary suspension of production, we expect revenue to be significantly impacted in the first quarter of 2018."

Fourth Quarter 2017 Financial Results

Revenue

For the fourth quarter of 2017, total revenue increased by $4.1 million, or 12.9%, to $35.4 million from $31.4 million for the same period of the prior year. The increase in total revenue was mainly due to increase in ASP and partially offset by decreases in sales volume across all product categories. Production of tissue paper was suspended in September and October for the replacement of coal boilers, and began intermittent production in the following months. In addition, we decreased the production volume of regular CMP, light-Weight CMP and offset printing paper and sales of these products due to environmental conditions in Northern China. The government strengthened its pollution control and rectification measures, resulting in restrictions on production in the manufacturing industry. As a result, the production volume of regular CMP, light-Weight CMP and offset printing paper and sales of these products decreased in the fourth quarter of 2017 as compared to the same period of the prior year. The following table summarizes revenue, volume and ASP by product for the fourth quarter of 2017 and 2016, respectively:

Revenue from CMP, including both regular CMP and light-Weight CMP, increased by $6.2 million, or 26.5%, to $29.8 million and accounted for 84.1% of total revenue for the fourth quarter of 2017, compared to $23.6 million, or 75.1%, of total revenue for the same period of the prior year. The Company sold 53,705 tonnes of CMP at an ASP of $555/tonne in the fourth quarter of 2017, compared to 60,701 tonnes at an ASP of $388/tonne in the same period of the prior year.

Of the total CMP sales, revenue from regular CMP increased by $6.4 million, or 34.8%, to $24.6 million, resulting from sales of 44,411 tonnes at an ASP of $555/tonne, during the fourth quarter of 2017, compared to revenue of $18.3 million, resulting from sales of 47,338 tonnes at an ASP of $386/tonne, during the same period of the prior year. Revenue from light-weight CMP decreased by $0.1 million, or 2.5%, to $5.2 million, resulting from sales of 9,294 tonnes at an ASP of $554/tonne for the fourth quarter of 2017, compared to revenue of $5.3 million, resulting from sales of 13,363 tonnes at an ASP of $395/tonne for the same period of the prior year.

Revenue from offset printing paper decreased by $1.1 million, or 16.8%, to $5.4 million for the fourth quarter of 2017, from $6.5 million for the same period of the prior year. The Company sold 6,512 tonnes of offset printing paper at an ASP of $826/tonne in the fourth quarter of 2017, compared to 10,815 tonnes at an ASP of $598/tonne in the same period of the prior year.

Revenue from tissue paper products decreased by $1.1 million, or 80.1%, to $0.3 million for the fourth quarter of 2017, from $1.4 million for the same period of the prior year. The Company sold 185 tonnes of tissue paper products at an ASP of $1,456/tonne in the fourth quarter of 2017, compared to 1,129 tonnes at an ASP of $1,201/tonne in the same period of the prior year.

We had no revenue from digital photo paper for the fourth quarter of 2017 and for the same period of the prior year. In June 2016, we suspended the production of digital photo paper due to low market demand for our products and are now upgrading the production line to produce more competitive products. We expect to resume our digital photo paper production in the near future.

Gross Profit and Gross Margin

Total cost of sales increased by $8.0 million, or 33.5%, to $31.8 million for the fourth quarter of 2017, from $23.8 million for the same period of the prior year. Cost of sales per tonne was $527 for the fourth quarter of 2017, compared to $328 for the same period of the prior year. The increase in overall cost of sales per tonne was mainly attributable to the higher average unit purchase costs of recycled paper board, cost of recycled white scrap paper and additional subsidies to the labors during the production restriction, and partially offset by the use of natural gas and liquefied gas to replace coal into the production. Costs of sales per tonne for regular CMP, light-weight CMP, offset printing paper, and tissue paper products were, $505, $499, $690, and $1,373, respectively, for the fourth quarter of 2017, compared to $296, $281, $448, and $1,068, respectively, for the same period of the prior year.

Total gross profit decreased by $3.9 million, or 52.1%, to $3.6 million for the fourth quarter of 2017, from $7.5 million for the same period of the prior year. Overall gross margin was 10.2% for the fourth quarter of 2017, compared to 24.0% for the same period of the prior year. Gross margins for regular CMP, light-weight CMP, offset printing paper, and tissue paper products were 8.9%, 10.0%, 16.5%, and 5.8%, respectively, for the fourth quarter of 2017, compared to 23.2%, 28.8%, 25.1%, and 11.0%, respectively, for the same period of the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") increased by $0.3 million, or 9.3%, to $3.0 million for the fourth quarter of 2017 from $2.7 million for the same period of the prior year. As a percentage of total revenue, SG&A was 8.4% for the fourth quarter of 2017, compared to 8.7% for the same period of the prior year.

Loss on Impairment of Assets

The Company booked loss on impairment of assets of $2.3 million in the fourth quarter of 2017, compared to $nil in the same period of the prior year.

Income (loss) from Operations

Loss from operations was $1.7 million for the fourth quarter of 2017, compared to income from operations of $4.6 million for the same period of the prior year. Operating loss margin was 4.7% for the fourth quarter of 2017, compared to operating income margin of 14.8% for the same period of the prior year.

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