Fuwei Films (Holdings) Co., Ltd.

Good day, ladies and gentlemen, and welcome to the Fu Wei Film's third quarter 2019 earnings conference call. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero. At this time, it is my pleasure to turn the floor over to your host, Mr. Shu Wei Yin. Sir, the floor is yours.

Yes. Thank you, everyone. Let me remind you that today's call is being recorded. A replay of this call will be made available shortly after the conclusion of today's call. And before we start, I would like to remind you that certain statements that are not of historical facts made during the course of this conference call about future events and projected financial results constitute forward-looking statements that are made pursuant to the safe-hearted provisions of the Private Security Litigation Reform Act of 1995. You should know that the company's actual results may differ 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 U.S. 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 today's call is Mr. Yong Zhang, Thank you, Secretary. Before I walk you through our financial results, Mr. Zhang will deliver his opening remarks and I'll translate Mr. Zhang's remarks. Sir, please go ahead. Mr. Zhang, please.

Thank you, Secretary. Hello, everyone. Thank you for attending today's meeting. We are very happy to be able to continue to make profits in this quarter due to the change in the product strategy and innovation and development. Special model sales maintain the leading position in the company's overall sales, accounting for 51% of the total sales in each quarter. Looking forward to the future, the COPT industry can overcome the intense competition that has caused it, and it still exists. Despite this, we will continue to innovate and develop, and we will continue to work hard to open up the overseas market, continue to implement the XF strategy, and make the company's performance improve indirectly. Thank you for joining us today. Benefiting from our differentiated product strategy and continuous R&D, we are pleased to continue to operate profitably for the third quarter.

Sales of specialty films stayed dominant in wholesale and accounted for 51% of total sales during the quarter. Looking ahead, despite the Bopat industry continuing to be competitive as a result of higher supply, we will continue to innovate, tackle overseas markets, and execute our differentiated product strategy to improve performance and capture opportunities. Now I'm sure we will read to you our financial results for the third quarter and first nine months of 2019, then we'll begin the Q&A session. Thank you, Mr. John. Net sales during the third quarter into September 30th, 2019, were RMB 79.6 million, U.S. 11.1 million, compared to RMB 86.9 million during the same period in 2018. The decrease of average sales price caused a decrease of RMB 4.6 million, and the sales volume decrease caused a decrease of RMB 2.7 million. In the third quarter, sales of specialty films were RMB 40.6 million, U.S. 5.7 million, or 51% of total revenues as compared to RMB 45.3 million or 52.2% in the same period of 2018. The decrease in average sales price caused a decrease of RMB 1.5 million, and the decrease in sales volume caused a decrease of RMB 3.2 million. Sales were RMB 11.6 million or U.S. 1.6 million. or 14.6% of total revenues compared with RMB 8.5 million or 9.8% of total revenues in the third quarter of 2019. The decrease in average sales price caused a decrease of RMB 0.8 million, and the increase in sales volume resulted in an increase of RMB 3.9 million. Gross profit was RMB 21.6 million, U.S. 3.0 million, representing a gross margin of 27.1% compared to gross profit of RMB 17.1 million and a gross margin rate of 19.6% for the same period in 2018. Correspondingly, gross margin rate increased by 7.5 percentage points compared to the same period in 2018. Operating expenses for the third quarter were RMB 16.3 million, US 2.3 million, which was RMB 1.5 million, or 8.4%, lower than the same period in 2018. This decrease was mainly due to decreased expenses on research and development. Net profit attributable to the company during the third quarter was RMB 3.4 million, US 0.5 million, compared to net loss attributable to the company of RMB 1.8 million during the same period in 2018, representing an increase in profit of RMB 5.2 million. The first nine months results Net sales during the first nine-month period and the September 30th, 2019, were RMB 248.8 million, U.S. 34.8 million, compared to RMB 243.4 million during the same period in 2018, representing an increase of RMB 5.4 million, or 2.2%, mainly due to the increase in sales prices in the first half of 2019. In the first nine months, sales of specialty homes were RMB 1114.7 million, U.S. 16.0 million, or 46.1% of total revenues as compared to RMB 109.0 million, or 44.8% in the same period of 2018, which was an increase of RMB 5.7 million, or 5.2% as compared to the same period in 2018. The increase of average sales price in the first half of 2019 caused an increase of RMB 1.8 million and the increase in the sales volume caused an increase of RMB 3.9 million. Sales during the first nine months were RMB 42.2 million or US 5.9 million or 16.9% of total revenues compared to RMB 36.1 million or 14.8% of total revenues in the same period in 2018. This was RMB 6.1 million higher than the same period in 2018. The increase in sales volume resulted in an increase of RMB 4.7 million, and the increase of average sales price caused an increase of RMB 1.4 million. Gross profit was RMB 52.6 million, US 7.4 million, representing a gross margin of 21.2% compared to a gross margin of 13.7% in the same period in 2018. Correspondingly, gross margin increased by 7.5%. Average product sales price increased by 2.2% compared to the same period last year, while the average cost of goods sold decreased by 6.6% compared to the same period last year. This resulted in an increase in gross profit. Operating expenses for the first nine months were RMB 44.9 million, US 6.3 million compared to RMB 47.0 million in the same period in 2018, which was RMB 2.1 million, or 4.5% lower than the same period in 2018. The decrease was mainly due to decreased expenses on research and development. Net profit attributable to the company during the first nine months was RMB 1.0 million, US 0.1 million, compared to net loss attributable to the company of RMB 18.7 million during the same period in 2018. represented an increase of RMB 19.7 million during the same period in 2018 due to factors described above. Equivalent and restricted cash totaled RMB 74.9 million or US 10.4 million as of September 30th, 2019. Total shareholders equity was RMB 197.85 million or US 27.68 million. As of September 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 are well-positioned to face the current challenges and are committed to providing value to our shareholders and customers. We will keep you informed of our progress. With that, Mr. Chen will be happy to answer your questions. We require your patience as we translate these questions and answers. Jess, please begin the Q&A.

Thank you. Ladies and gentlemen, the floor is now open for your questions. If you have a question or comment, please press star 1 on your telephone keypad at this time. If you're using a speakerphone, we ask that while posing your question, you pick up your handset to provide the best sound quality. Again, ladies and gentlemen, if you have a question or comment, it is star 1 on your telephone keypad at this time. We'll move first to private investor Kareem Maroon.

Yes, hi. Thank you for taking my question. I was interested in any comments you might have about the balance sheet going forward, especially in light of the proposed Gold Glory blockchain acquisition that you had announced.

What is your question specifically?

Yeah, about the balance sheet. How will that look? going forward uh and what would happen to the uh to the assets and liabilities under the proposed acquisition of the blockchain company okay uh

This question is like this. I will answer it like this. Because now,

The audit is not complete yet. According to our information, it still needs more time to complete the audit. If there is any new progress, we will tell you in time. At present, there is no significant impact on the quality of the product.

Karim? Yes. Management's answer is right now, so the auditing that is necessary for the transaction to move forward has not been completed on the part of Gold Glory. So based on what we know at this point in time, they would need more time to work on that auditing. So based on what we know at this point, we don't think there's going to be a lot of impact on the balance sheet per se. But we have to see. We have to see.

Okay. So your expectation of stockholders' equity would be around the same at the time of the transaction? That's your expectation? Yes.

Mr. Jiang, his next question is, according to our current understanding, if this potential transaction happens, will it be the same as it is now for the shareholder rights? Or will there be any changes?

So the idea here is that whatever happens with the transaction, the idea for the management and the board obviously is

to maintain and create value for our shareholders. That's the big goal.

All right. Thank you.

Once again, ladies and gentlemen, if you had a question or comment, it is star one at this time.

Thank you.

I currently have no other questions holding. I'll turn the conference back to management for any additional or closing comments.

During us on today's call, we look forward to being in touch with you, and we'll keep you updated about our progress.

Thank you. Ladies and gentlemen, that will conclude today's conference. We appreciate your participation. You may disconnect your line at this time, and have a great day.