Orchids to Install New Tissue Machine, Upgrade Converting Line

Orchids Paper Products Co., Pryor, Okla., USA, will invest $30.4 million to upgrade its tissue making and converting assets. The paper mill project, to replace two existing tissue machines, will start up in approximately 20 months. The new machine will be supplied by Recard, S.p.A, Italy, and will provide the following advantages:

Improved quality and manufacturing flexibility. The new machine will be capable of producing a broader range of grades that are utilized in value and premium tier products. It will replace two machines that produce tissue utilized only in value tier products. This provides greater flexibility to the operation and allows for maximizing production output across all machines.
Increased capacity and lower production costs. The project is expected to increase the annual capacity of Orchids' paper mill from 57,000 tons to more than 70,000 tons. Completion of the project will provide Orchids with sufficient tissue to produce approximately 11 million cases of converted products annually. The new machine offers higher production rates and improved energy efficiency, thereby resulting in significantly lower production costs than the two machines being replaced.
Return to the shareholders. The combination of lower production costs and increased capacity is expected to increase annual EBITDA by approximately $6 million to $8 million once the project is complete.

The converting line project is an upgrade to an existing asset and will improve manufacturing flexibility and capacity with a lower cost structure. This project is expected to be completed by the end of 2014 and to generate an additional annual EBITDA of $2.8 million to 3.4 million when fully utilized.

Jeff Schoen, president and CEO, said that "Orchids is implementing an "upgrade and debottleneck" strategy that improves our manufacturing flexibility, capacity, and cost structure. These projects increase our ability to produce higher quality grades of value and premium products supporting our vision of being recognized as a 100% retailer-focused, national supplier of high quality consumer tissue products in the value, premium, and ultra-premium product categories."

"We are pleased to further our relationship with Recard. Due to the success of our previous paper machine project with them, we believe they are an excellent choice as the supplier for this next phase in improving our paper making capabilities."

Schoen added that "furthermore, we anticipate the increased production capacity and reduced operating costs associated with this plan will create long-term value for our stockholders. We do not expect this level of capital investment and associated leverage to impede our ability to return excess cash to our shareholders."

Orchids is an integrated producer of tissue paper products serving the at home private label consumer market. From its operations in northeast Oklahoma, the company produces a full line of tissue products, including paper towels, bathroom tissue, and paper napkins, to serve the value through premium quality market segments. The company provides these products to retail chains throughout the U.S.

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