IT Tech Packaging Inc (ITP) 2015 Q4 法說會逐字稿

Hello, ladies and gentlemen, and welcome to 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 fourthquarter 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 provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact 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 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 expectations except as may be 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 to correct and investors are cautioned that actual results may differ materially from the anticipated results.

There is a presentation document featuring management's prepared remarks and it is 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 US 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. Mr. Tian, please go ahead.

Thanks operator, and good morning everyone. I am Tony Tian from Weitian 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 negative impact of government mandated temporary production suspension in December 2015, we experienced increase in revenues in the fourth quarter of 2015, with total revenue increasing 7.4% to $35.1 million. Net income was $2.2 million, or $0.11 per diluted share,both are essentially unchanged from the same period of last year. The increase in total revenue was primarily due to strength 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.

During the Fourth quarter of 2015 our EBITDA increased by 16.5% to $7.1 million. Gross margin decreased by a bit to 17.0% 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 stiff macro challenges to remain with signs pointing to 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 our 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 of 2015 and tweleve months ended December 31, 2015, respectively.

Also, I will occasionally refer to specific production lines associated with various products. I will make clear to which products I am referring to. For reference, though, the numbering system for our production line is provided in our earnings press release and on slice number 21 the Earnings Call presentation.

Now let's look at our financial performance for the fourth quarter of 2015. Please turn to slide number 7.

For the fourth quarter of 2015 total revenue increased 7.4% to $35.1 million due to strength 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 our Regular CMP products and $4.2 million from Light-Weight CMP. Volume for CMP segment increased by [7.7%] - to 70,640 tonnes of which 58,343 tonnes was Regular CMP and 12,297 tonnes was Light-Weight CMP.(corrected by company after the call) Average selling price, for regular CMP decreased by 9.7% to $334 per tonne while ASP for Light-Weight CMP decreased 8.0% to $343 per tonne.

Turning to slide number 9, for the fourth quarter of 2015 our offset printing paper segment generated revenue of $9.7 million representing 27.6% of total revenues. We shipped 14,592 tonnes offset printing paper in the fourth quarter -- increased 20.5% from the same period of last year. ASP for 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% increase versus the same period of last year. ASP for digital photo paper segment was [$2,582] per tonne down 15.9% year over year(corrected by company after the call).

Now let's slide to number 10, summarize the changes in 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 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 production lines for relocation that was charged to SG&A and our temporarily idled property, plants and equipment at our new tissue plans in the Wei County Industrial Park.

For the fourth quarter of 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, both are 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 let's shift gears 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 lightweight CMP and contributions 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 lightweight CMP, generated revenue of $96.9 million, representing 71.6% of total revenue. $80.78 million of revenue was from our regular CMP products and $16.1 million was from lightweight CMP.

Volume for CMP segment increased by 1.2% to 268,222 tonnes of which 224,302 tonnes was regular CMP and 43,920 tonnes was lightweight CMP. Average selling price for regular CMP decreased by 0.8% to $360 per tonne while ASP for lightweight CMP also decreased by 0.5% to $367 per tonne.

Turning to slide number 14. For the 12 months 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 for 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 or 0.3% of total revenue. In October [2014], we shut down and disassembling our digital photo paper production facility, our 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 the main production base Xushui Paper Mill. (corrected by company after the call) We completed the relocation and resumed commercial production of our digital photo paper in August of 2015.

For the 12 months ended December 31, 2015, we shipped 121 tonnes of digital photo paper including 6 tonnes in the second quarter and [38] 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(corrected by company after the call).

Now last slide number 10 summarizes the changes in 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 percentage points 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 depreciation cost associated with disassembling the digital photo products in line for relocation that was charged to SG&A. And our temporarily idle property, plant and equipment at our new tissue paper plant in Wei County Industrial Park.

For the 12 months ended December 31, 2015 income from operations increased by $0.8 million to $18.2 million. Operating margin was 13.3% (sic - 13.4%, see slide 22) 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 moving to slide number 23. Let's look at the balance sheet and liquidity. As of December 31, 2015, the Company had cash and cash equivalents, short-term debt, current capital lease obligation, long-term debt and long-term capital lease obligations 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 ended December 31, 2015, compared to $32.3 million for the same period of last year. Net cash using 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 activity 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 email 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 [product] and the closing remarks. Mr. Liu, please go ahead.

Thank you. Slide number 17 has our most recent photos related 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 commercial production of our own brand of tissue paper products using base tissue paper 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 changes in the county government zoning policy we moved these production lines to a new location right across the street from our Xushui Paper Mill, which we called the Xushui Mill Annex. We had completed the relocation and the resumed commercial production in 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 operations.

If you have any additional questions please contact us; we strive to answer all investor inquiries and invite you to address your questions through 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. Goodbye.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this event.