Fuwei Films (Holdings) Co., Ltd.

Good day, ladies and gentlemen, and welcome to the Fu Wei Films second quarter 2019 earnings conference call. All lines have been placed in a listen-only mode, and there will be a question and answer session following the presentation. If you should require assistance during the call, please press star zero, and an operator will assist you. At this time, it's my pleasure to turn the floor over to Mr. Xueyin. Sir, the floor is yours.

Thank you, Tom. Let me remind you that today's call is being recorded and the replay of the call will be made available shortly after the conclusion of today's call. Before we start, I would like to remind you that certain statements that are not of historical facts major in the course of this conference call about future events and projected financial results constitute forward-looking statements that are made pursuant to the state power provisions of the private security litigation reform act of 1995. You should know that the company's actual results made different materially from those projected in these statements due to a variety of factors affecting the business. Forward-looking statements are subject to risks and uncertainties. Discussion of the factors that may affect future results is contained in our filings with the US Securities and Exchange Commission. We undertake no obligation to correct or update any forward-looking statements provided as a result of new information, future events, or changes in our expectations. Joining us on the call today is Mr. Yong Jiang, Corporate Secretary. Before I walk you through our financial results, Mr. Zhang will deliver his opening remarks, and I will translate Mr. Zhang's remarks. Mr. Zhang, please go ahead. Thank you, Mr. Zhang.

Thank you, Mr. Zhang. The number of sales has continued to grow. In this year's total sales, it accounts for 47.6%. In the same period of time, it was 38.6%. At the same time, we believe that innovation and development will help expand the product category of the company, thereby helping the company to expand its middle-end customer range. Looking forward to the future, the competitive situation of the global competition caused by the overproduction of the BOPT industry still exists. I will continue to implement a diversified strategy, continue to innovate and develop, and continue to work hard to expand the overseas market, so that the company's business can continue to improve, so that the company can seize the opportunity in the challenging industry and its strong economic potential. Next, Shi Wei will read for you the second quarter of 2019 and the financial performance of the first half of the year. After that, I will answer your questions.

Hello, everyone, and thank you for joining us today. We're pleased to return to profitability after years of hard work and believe that the worst may be behind us. We believe the turnaround was a result of our commitment to differentiate product strategy and continuous R&D. Sales of specialty films continue to increase and accounted for 47.6% of total sales during the quarter compared to 38.6% last year. Meanwhile, we believe research and development is helping us launch new products and expand the end-user applications of our films. Looking ahead, the bulkhead film industry remains competitive as a result of higher supply. Nevertheless, we will continue to innovate, tackle overseas markets, and execute differentiated product strategy to improve performance and capture opportunities. Now, she will read to you our financial results for the second quarter and first six months of 2019. Then we'll begin the Q&A session. Thank you, Mr. Jones. And then sales during the second quarter were RMB 88.1 million, U.S. 12.8 million, compared to RMB 79.6 million during the same period in 2019, representing an increase of RMB 8.5 million, or 10.7%. The increase of average sales price caused an increase of RMB 7.4 million, and the sales volume increase caused an increase of RMB 1.1 million. In the second quarter, sales of specialty phones were RMB 43.0 million, U.S. $6.1 million, or 47.6% of our total revenues as compared to RMB $30.7 million, or 38.6% in the same period of 2018, which was an increase of RMB $11.3 million, or 36.8% as compared to the same period in 2018. The increase of average sales price caused an increase of RMB $1.2 million, and the increase in the sales volume caused an increase of RMB $10.1 million. Overseas sales were RMB $14.3 million or $2.1 million or 16.3% of total revenues compared with RMB $16.6 million or 20.9% of total revenues in the second quarter of 2018. The increase of average sales price caused an increase of RMB $0.8 million and a decrease in sales volume resulted in a decrease of RMB $3.1 million. Our gross profit was RMB 18.6 million, US 2.7 million for the second quarter, representing a gross profit rate of 21.1% as compared to a gross profit rate of 8.5% for the same period in 2018. Correspondingly, gross margin increased by 12.6 percentage points compared to the same period in 2018. Our average product and sales price increased by 9.1% compared to the same period last year, while the average cost of goods sold decreased by 5.9% compared to the same period last year. As a result, it resulted in an increase in our gross profit. Operating expenses for the second quarter were RMB 15.0 million, US 2.2 million, best compared to RMB 13.3 million for the same period in 2018. Net profit attributable to the company during the second quarter was RMB 1.0 million, US 0.1 million, while net loss attributable to the company was RMB 8.7 million during the same period in 2018. Moving on to first six months results. Net sales during the first six months were RMB 169.2 million, U.S. 24.6 million, compared to RMB 156.5 million in the same period in 2018, representing an increase of RMB 12.7 million, or 8.1%. The increase in average sales price caused an increase of RMB 10.4 million, and the decrease in the sales volume caused an increase of RMB 2.3 million. Sales of specialty films were RMB 74.2 million, U.S. 10.8 million, or 43.8% of our total revenues as compared to RMB 63.7 million, or 40.7% in the same period of 2018, which was an increase of RMB 10.5 million, or 16.4%, as compared to the same period in 2018. The increase in average sales price caused an increase of RMB 3.4 million and the increase in sales volume caused an increase of RMB 7.1 million. Overseas sales during the first six months were RMB 30.6 million or US 4.5 million or 18.1% of total revenues compared with the RMB 27.6 million or 17.6% of the total revenues in the same period in 2018. This was RMB 3.0 million higher than the same period in 2018. The increase in sales volume resulted in an increase of RMB 1.2 million, and the increase in average sales price caused an increase of RMB 1.8 million. Our gross profit was RMB 31.0 million, U.S. 4.5 million for the first six months, representing a gross margin rate of 18.3%. as compared to a gross margin rate of 10.4% for the same period in 2018. Our average product sales price increased by 6.5% compared to the same period last year, while the average cost of goods sold decreased by 2.9% compared to the same period last year. Ultimately, it resulted in an increase in our gross margin. Operating expenses for the first six months were RMB $28.5 million, U.S. $4.2 million, compared to RMB 29.2 million in the same period in 2018, which was RMB 0.7 million or 2.4% lower than the same period in 2018. The decrease was mainly due to decreased allowances. Net loss attributable to the company during the first half of 2019 was RMB 2.4 million, US 0.4 million, compared to net loss attributable to the company of RMB 16.9 million during the same period in 2018. representing a decrease of RMB 14.5 million from the same period last year during the liquidity factors described above. Cash, cash equivalent, and restricted cash totaled RMB 73.4 million, or U.S. 10.7 million as of June 30th, 2019, and total shareholder's equity was RMB 194.4 million, or U.S. 28.3 million. As of June 30th, 2019, the company had 3,265,837 basic and diluted total ordinary shares outstanding. In conclusion, we would like to thank our shareholders for their continued loyalty and support. We believe we're well positioned to face the current challenges and our value to our shareholders and customers. We will keep you informed of our progress. With that, we're happy to answer your questions. We require your patience as we translate each question and answer.

Please begin the Q&A. Thank you, and ladies and gentlemen, if you'd like to ask a question at this time, it is star one on your touch tone telephone. Please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star one at this time if you'd like to ask a question. We'll pause just a moment. Once again, Star 1 on your touch-tone telephone if you do have a question. Star 1 at this time, please. We do have a question from Karim Murad. He's a private investor.

Hi. Thank you for taking my question. My question is about the product mix going forward, what you see for Q3 and the rest of the year in terms of the specialty films and the impact on gross margins.

Okay, Karim. So your question is about product mix for Q3 and the rest of the year. What was the second part?

And the impact on gross margins of the product mix.

Okay, got it. Let me translate back to the management. Mr. Jiang, our investor's question is about our product combination. What will happen in the next third and fourth seasons? And what impact will this product combination have on our profit? Okay. Our product combination for the third and fourth seasons is as follows.

Okay, yeah, so the strategy for the product mix for the rest of the year, first and foremost, is we will continue to develop new products. Our products are mainly focused on the electronics industry and some special products. We expect that the market will continue to grow in the coming year. President Jiang, your line is a bit big. I didn't hear it clearly.

You said it was the architectural industry. No, our main product development direction is still the electronics industry.

Okay. Okay. Okay.

So, yes, as we said, we're going to continue to focus on the product development for the rest of the year, and specifically, we will be focusing on digital films and specialty films.

Okay. Okay. Yeah, so with the development of such new products, you know, we hope to achieve higher gross margin going forward. Okay.

In terms of your geographical reach, do you see any developments there in terms of markets and locations?

What is the next step for the product sales market? The product sales market, right? Yes. Let me answer this question.

Thank you for your question. Our product sales market is mainly in the domestic market. The domestic market is our majority. Our stock market is mainly trying to make a bigger breakthrough in the Japanese market. Because the value of the products in the Japanese market is relatively good. What do you mean by the Japanese market is relatively good? The value of the products. Oh, the value of the products, okay.

Yes, yes. I see. Let me tell you.

So in terms of the geographic end markets for our products, at this point, it's mostly still in China. Now, in terms of the overseas market,

As we stated in our press releases, the company will try to tackle overseas markets going forward as well, and that's specifically the Japanese market. And the reason for that is because of higher value-add for products in that market.

Thank you. That was very helpful. Okay. Thank you for your question. Thank you.

And again, ladies and gentlemen, Star 1, if you do have a question, Star 1 at this time, please. There are no further questions at this time. And ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may disconnect at this time and have a good day.