Fuwei Films (Holdings) Co., Ltd.

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Good day, ladies and gentlemen, and welcome to the Fu Wei Films fourth 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. At this time, it is my pleasure to turn the floor over to your host, Mr. Shu Wei Yin.

Sir, the floor is yours. Thank you, Jess. Let me remind you that today's call is being recorded. A replay of today's call will be made available shortly after the conclusion of the call. Before we start, I want 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 harbor provisions of the Private Security Litigation Reform Act of 1995. If you know that, the company's actual results may differ materially from those projected in these statements due to the 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. The call today is Mr. Yung Chiang, corporate secretary. Before I walk you through our financial results, Mr. Chiang will deliver his opening remarks. Sir, please go ahead.

Thank you, Mr. Wei.

Welcome and thank you all for attending today's phone conference. Although the market is still in a state of crisis, However, the company's revenue and net profit continue to grow. The initial sales revenue increased by 9.1%, accounting for 48.4% of total sales revenue in 2019. In 2019, the net profit rate was 24.9%, which increased by 8.5%. In 2018, the net profit rate was 16.4%. We believe that continuous innovation and development can help the company expand the range of middle-end product operations, attract new customers, and broaden the cooperation relationship with existing customers. We believe that with the immediate impetus of increasing income and profit, the company can better deal with the future industry and economic situation. Next, Thank you for joining us today.

Despite persisting oversupply in the Bopad plastic film market, our revenues and gross margins continue to grow. Sales of specialty films increased by 9.1% year-over-year, and accounted for 48.4% of our total revenues in 2019. Our gross margin increased by 8.5 percentage points to 24.9% for the year of 2019, as compared to 16.4% in 2018. We believe that our focus on innovation will enable the company to extend end-user product applications and attract new clients and expand relationships with existing customers. We're encouraged by positive trends in revenues and gross margins, which we expect to enable us to better navigate the industrial and economic landscape ahead. Now I will read to you our financial results for the fourth quarter and full year of 2019. Revenues for the fourth quarter were RMB 86.8 million, or US 12.5 million, compared with RMB 90.1 million in the fourth quarter of 2018. a decrease of RMB 3.3 million or 3.7%. So the volume accounted for an increase of RMB 3.2 million while the decrease of average sales price caused a decrease of RMB 6.5 million. Sales of specialty firms for the fourth quarter were RMB 47.7 million or US 6.9 million or 54.9% of total revenues. Compared with RMB 39.8 million, were 44.1% of total revenue in the fourth quarter of 2018. So the volume accounted for an increase of RMB 10.9 million, while the decrease of average sales price caused a decrease of RMB 3.0 million. Fourth quarter, RMB 81.4 million, or US 11.7 million, were 93.8% of total revenues compared with RMB 80.8 million or 89.7 percent of total revenues in the fourth quarter of 2018. So, the volume accounted for an increase of RMB 7.0 million while the decrease of average sales price caused a decrease of RMB 6.4 million. For the fourth quarter, where RMB 5.4 million or US 0.8 million or 6.2 percent of total revenues. compared with RMB 9.3 million or 10.3% of total revenues in the fourth quarter of 2018. The quarter of RMB 31.0 million or US 4.5 million representing a gross margin of 35.7% compared with a gross profit of RMB 21.3 million representing a gross margin of 23.7% in the fourth quarter of 2018. The fourth quarter of 2019 were RMB $13.7 million or US $2.3 million compared with RMB $19.0 million in the fourth quarter of 2018. And net profit attributable to the company for the fourth quarter was RMB $10.3 million or US $1.5 million compared with net loss attributable to the company of RMB $3.5 million in the fourth quarter of 2018. Profit per share was RMB $3.2 million. 3.17 or U.S. 0.46, compared with basic and diluted loss per share of RMB 1.06 in the fourth quarter of 2018. Here are the results. Net revenues were RMB 335.6 million, U.S. 48.2 million, compared to RMB 333.5 million in 2018, representing an increase of RMB 2.1 million or 0.6%. The decrease in average sales price caused a decrease of RMB 0.8 million, which was more than offset by the increase in sales volume factor caused an increase of RMB 2.9 million. Specialty firms were RMB 162.4 million, U.S. 23.3 million, or 48.4% of our total revenues as compared to RMB 148.8 million, or 44.6% in 2018. which was an increase of RMB 13.6 million or 9.1% higher than 2018. The increase of sales volume led to an increase of RMB 14.3 million offset in part by the decline in average sales price which caused a decrease of RMB 0.7 million. Overseas sales were RMB 47.6 million, US 6.8 million or 14.2% of total revenues compared with RMB 45.4 million or 13.6 percent of total revenues in 2018. The increase of average sales price caused an increase of RMB 0.6 million and the decrease of sales volume caused an increase of RMB 1.6 million. The company for the year was RMB 11.4 million or U.S. 1.6 million compared with net loss of RMB 22.2 million in 2018. Basic and diluted earnings per share for the year ended December 31, 2019 with RMB 3.48 or US $0.50. Operating activities was RMB 54.4 million for the year ended December 31, 2019 as compared to net cash provided by operating activities of RMB 25.4 million for the year ended December 31, 2018. Cash and cash equivalents. At year end was RMB 60.9 million or US 8.7 million compared with RMB 8.9 million as of December 31st, 2018. In conclusion, we would like to thank our shareholders for their continued loyalty and support. I believe we are well positioned to face the current challenges and are committed to providing value to our shareholders and customers. We'll keep you informed of our progress. With that, Mr. Chairman, we'll be happy to answer your questions.

Thank you. Ladies and gentlemen, if you had a question or comment, it is star 1 on your telephone keypad at this time. Again, star 1 for any questions or comments. We'll pause while we assemble the roster. We'll go first to Joe Morad.

Yes, well, that's very good results. And I was curious about the cash flow for the fourth quarter, how much cash was generated from operations and follow-up on that. Do you have any plans for the cash that you're generating for the company? Thank you.

Part of your question? No. Do you have any plan for the first part first? First of all, our first question is, how much is the cash flow of the fourth quarter?

Thank you.

Joseph, the annual cash flow from operation

was 54 million RMB. And we didn't, we're not breaking down by the quarter.

What was it, the nine months? I suppose we could subtract from the nine months report.

He said, do we have the cash flow of the previous nine months? If we have the previous nine months, we can push it from that number, right?

Yes, we do. I don't have it.

Okay, Joe, so the cash flow for operations the first nine months is about 36 million RMB. So the difference is the number that you're looking for. It's about 18. Okay, very good. Thank you. And any plans, lastly, for...

For cash?

Like what to use for that cash?

Yeah.

Okay.

Although the company has a limited supply of workers, the company's financial foundation is not very strong. We still need to use the limited supply of workers to manage our current business, including the expansion of our current customers and products. Thank you.

Joe, so as you may know, the company, after a couple of years of challenging situation, we are starting to turn things around. So while you see that we are starting to generate positive cash flow again, which is good, as you pointed out. But, you know, we're being prudent with that, and we're planning to use that cash to consolidate, to strengthen our balance sheet, our financial situation, and also we'll need that cash to run our operation, and specifically that means, you know, to expand our customer and also product base.

Because of the unforeseen situation of the market this year, the COVID-19 pandemic is more serious than ever. We need to prepare more cash flow to deal with the unforeseen changes in the market.

And also, one other factor, obviously, the elephant in the room, so to speak, is the huge uncertainty that's created by the COVID-19 virus. So, obviously, we would need that cash as sort of a reserve in case of uncertainty down the road.

Thank you. And also, with your competitive situation, given the the health crisis. Has that changed relative to your competitors in terms of getting out of the crisis and in terms of your supply chain and your market share?

The next question is about the COVID-19 situation. According to the current situation, Whether it's domestic or international, the situation of the epidemic, in terms of market competition, we have seen some changes. For example, compared to competitors, in terms of supply chain, or in terms of market share, what are the movements that we think may be beneficial to us?

Let me answer this question. Because this year's outbreak was not affected. But this will bring some unforeseen factors to the entire market. For example, now China's demand will decrease in the first quarter. Now the market demand will spread to the entire international market. The company is like this. In terms of the supply and demand of the entire market, the total supply and demand of the Chinese market is still relatively large. The overall environment is very large. The measures taken by the company are, first of all, the constant expansion of the market share and proportion of decentralized products. This year, we will continue to promote the market share ratio of X1 products on the basis of 2019. X1 products have always been the focus of the company's development. This market should have a relatively large development in 2019. After 2020, we will do more work on the continuous development and customer development of X1 products. This is a very important factor in dealing with the new market situation. In addition, the price of raw materials is relatively low. The price of raw materials is relatively low in the market situation. The company now has a lot of cash flow to spend. When the price is relatively cheap, some raw materials are spent. Relatively cheap raw materials are also used to deal with market changes. So, um,

Given the tremendous uncertainty as a result of the virus directly, what we are seeing is that demand for products was down in the first quarter in China, and we're probably seeing that across the world as well. And then on top of that, as we have mentioned in our release and also during our call, is that the overall demand and supply situation in our specific industry at this moment in time is that there's still more supply than demand. So in response to all these external factors, our policy is threefold. Number one is we'll continue to increase the development of differentiated products. And this is going to be a focus of our work. This was a focus of our work in 2019. And going into 2020, this will continue to be our focus. Because differentiated products is where we believe that we have, we may have an edge over competitors. And also where there might be higher margins. And then the second fold is that we are trying to take advantage of the low oil price right now to stock up on some raw material. And then the third one is that we aim to expand in the international market, such as Japan or Europe, given the crisis. Thank you.

Once again, ladies and gentlemen, if you had a question or comment, it is star 1 on your telephone keypad. Again, star 1 for any questions. And with no other questions signaled, I'll turn the conference back to management for any additional or closing comments.

Thank you for joining us on today's call. We look forward to being in touch with you and keep you updated on our progress. Have a nice day.

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

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