IT Tech Packaging Inc (ITP) 2016 Q4 法說會逐字稿

Hello, ladies and gentlemen, and welcome to participate in Orient Paper's fourth quarter and fiscal year 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 fourth quarter and fiscal year 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 the Company's key operational highlights over the fourth quarter and fiscal year 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 provisions of the Private Securities Litigation Reform Act of 1995. All statements other than the statements of historical fact in this 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 the 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 these expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from 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 a discussion 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 the EBITDA to net income.

As a kind reminder, all numbers in our presentation are quoted in US dollars, and all comparisons refer year to date -- year-over-year comparisons unless otherwise stated.

I would now like to turn over the call to Mr. Liu. His comments will be delivered in English by Tony Tian from Weitian investor relations. Mr. Tian, please go ahead.

(Interpreted) Thank you, operator, and good morning, everyone. Thanks for joining our fourth quarter and fiscal year 2016 earnings conference call. During 2016, slowing GDP growth trends and government's heightened efforts to combat pollution continued to take a toll on the paper industry.

We saw both revenues and profits decreased slightly in 2016 as a result of a 4.3% year-over-year decrease in blended ASP that more than offset a 4% increase in overall sales volume. However, starting from the latter half of 2016, we see more stabilized order trends and upticks in prices for our paper products. This gives us reasons to be cautiously optimistic for the gradual recovery in overall market conditions in 2017.

Now, I will turn the call over to our CFO, Ms. Jing Hao, who will review and comment on the fourth quarter and full year financial results. Her comments will be delivered in English by my colleague [Janice Wong]. Janice, please go ahead?

(Interpreted) Thanks, Tony, and thanks 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 2016. 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 a reference though, the numbering system for our production lines is provided in our earnings press release and on slide number 17, the earnings call presentations.

Now, let's look at our financial performance for the fourth quarter of 2016. Please turn to slide number 24. For the fourth quarter of 2016, total revenue decreased 10.6% to $31.4 million due to the decrease in sales of offset printing paper and the continuing suspension of the production of digital photo paper.

Turning to slide 18, for the fourth quarter of 2016, the CMP segment, including both regular CMP and lightweight CMP, generated a revenue of $23.6 million, representing 75.1% of total revenues. $18.3 million of revenue was from our regular CMP products, and $5.3 million was from lightweight CMP.

Volume for CMP segment decreased by 14.1% to 60,701 tonnes, of which 47,338 tonnes were regular CMP and 30,363 tonnes was lightweight CMP.

Average selling price, or ASP, for regular CMP decreased by 15.6% [sic - see presentation page 18 "15.5%] to $386 per tonne, while ASP for lightweight CMP increased 17 points to 15.2% to $395 per tonne.

Turning to slide 20, for the fourth quarter of 2016, our offset printing paper segment generated a revenue of $6.5 million, representing 20.6% of total revenue. We shipped 10,815 tonnes offset printing paper in the first quarter, decreased 25.9% from the same period of last year.

ASP for offset printing paper also decreased by 10.5% [sic - see presentation page 20 "10.4%"] to $598 per tonne.

Turning to slide 22, for the fourth quarter of 2016, tissue paper segment generated sales of $1.4 million. We shipped 1,129 tonnes of tissue paper in the fourth quarter, increased 2.7% from the same period of last year.

ASP decreased by 8.5% towards $1,201 per tonne.

For the fourth quarter of 2016, we shipped zero tonnes of digital photo paper. Slide number 24 summarizes the changes in our revenue mix.

For the fourth quarter of 2016, cost of sales decreased by $5.3 million to $23.8 million, leading to gross profit of $7.5 million from $6.0 million for the same period of last year, and a gross margin of 24% increased by 7 percentage points from the last year.

For the fourth quarter of 2016, SG&A increased by $0.4 million, or 18.5% to $2.7 million compared to $2.3 million for the same period of the prior year.

For the fourth quarter of 2016, income from operations was $4.6 million compared to $3.7 million for the same period of last year.

Operating margin was 14.8% compared to 10.4% for the same period of last year.

For the fourth quarter of 2016, net income was $3.1 million, or $0.14 per basic and diluted share. This compared to net income of $2.2 million, or $0.11 per basic and diluted share for the same period of last year.

Now I'll shift gears to year-to-date financial results. Turning to slide 24 for the year ended December 31, 2016. Total revenues decreased 0.4% to $134.7 million, primarily due to the decreases in sales of regular CMP and offset printing paper, which were partially offset by increases in sales of tissue paper and the digital photo paper products.

Turning to slide 18. For the year ended December 31, 2016, the CMP segment, including both regular CMP and lightweight CMP generated a revenue of $94.6 million, representing 70.2% of total revenues. $77.9 million of revenues was from our regular CMP products, and $50.7 million was from lightweight CMP.

Volume for CMP segment increased by 3.7% to 278,223 tonnes, of which 230,382 tonnes was regular CMP, and 47,841 tonnes was lightweight CMP.

ASP for regular CMP decreased by 6.1% to $338 per tonne, while ASP for lightweight CMP also decreased by 4.6% to $334 per tonne.

Turning to slide 20. For the year ended December 31, 2016 our offset printing paper segment generated a revenue of $33.4 million, representing 24.8% of total revenue. We shipped 52,255 tonnes offset printing paper for the year ended December 31, 2016, decreased 1.7% from the same period of last year.

ASP for offset printing paper decreased slightly by 6.6% to $639 per tonne.

Turning to slide 22. For the year ended December 31, 2016, tissue paper segment generated sales of $6.1 million. We shipped 4,970 tonnes tissue paper.

And the ASP for tissue paper decreased slightly, by 6.1% to $1,235 per tonne for the year ended December 31, 2016.

For the year ended December 31, 2016, digital photo paper segment generated a revenue of approximately $0.7 million. In June 2016, we shut down the production due to the market contractions and we expect that our digital photo paper production will remain suspended in the near future.

For the year ended December 31, 2016, we shipped 372 tonnes of digital photo paper. ASP for digital photo paper segment was $1,757 per tonne.

Slide number 24 summarizes the changes in our revenue mix. For the year ended December 31, 2016, cost of sales decreased by $1.8 million to $109.2 million, leading to gross profits of $25.5 million from $27.9 million last year and a gross margin of 18.9%, decreased by 1.7 percentage points from last year.

For the year ended December 31, 2016, SG&A expenses were $12.4 million compared to $9.7 million for the same period of last year. The increase was primarily due to, number one, the increase in the securitization expenses for our temporarily idle property, plant and equipment at our tissue paper plants in Wei County industrial park. And number two, 1.21 million shares of common stock granted under compensation incentive plans valued at $1.4 million.

For the year ended December 31, 2016, income from operations was $13 million compared to $18.2 million for the same period of last year.

Operating margin was 9.6% compared to 13.4% for the same period of last year.

For the year ended December 31, 2016, net income was $7.3 million, or $0.34 per basic and diluted share for the year ended December 31, 2016. This compared to net income of $11.5 million, or $0.57 per basic and diluted share for the same period of last year.

Moving to slide 25, let's look at the balance sheet and the liquidity. As of December 31, 2016, the Company had cash and cash equivalents, short-term debt, including notes payable, signed obligations on the capital lease, long-term debt, including loans from credit union and from related parties, and long-term obligations on the capital needs of $2.3 million, $5.1 million, $8.8 million, $20.9 million and $0 million, respectively. This compared to $2.6 million, $40.2 million, $6.9 million, $19 million and $3.2 million respectively at the end of 2015.

Net cash provided by operating activities was $15.3 million for the year ended December 31, 2016 compared to $21.2 million for the same period last year.

Net cash used in investing activities was $11.5 million for the year ended December 31, 2016 compared to $19.3 million for the same period of last year.

Net cash used in financing activities was $3.7 million for the year ended December 31, 2016 compared to $2.8 million for the same period of last year.

Now, 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.

Operator, please go ahead.

Thank you for attending Orient Paper's fourth quarter and fiscal year 2016 earnings conference call. This concludes our call today, and we thank you all for listening in. 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.