Fuwei Films (Holdings) Co., Ltd. (NASDAQ:FFHL) Q3 2019 Earnings Conference Call November 27, 2019 8:00 AM ET
Shiwei Yin – Investor Relations
Yong Jiang – Corporate Secretary
Conference Call Participants
Good day ladies and gentlemen and welcome to the Fuwei Films’ Third Quarter 2019 Earnings Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host Mr. Shiwei Yin. Sir, the floor is yours.
Yes. Thank you, everyone. Let me remind you 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 Harbor provisions of the Private Securities 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 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 today’s call is Mr. Yong Jiang, Corporate Secretary. Before I walk you through our financial results, Mr. Jiang will deliver his opening remarks and I will translate Mr. Jiang’s remarks. Sir, please go ahead.
Thank you for joining us today. Benefiting from our differentiated product strategy and continuous R&D, we’re pleased to continue to operate profitably for the third quarter. Sales of specialty films stayed dominant in wholesales and accounted for 51% of total sales during the quarter.
Looking ahead, despite the BOPET 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, Shiwei will read to you our financial results for the third quarter and first nine months o f2019. Then we will begin the Q&A session.
Thank you, Mr. Jiang. Net sales during the third quarter ended September 30, 2019 were RMB79.6 million, US$11.1 million compared to RMB86.9 million during the same quarter in 2018. The decrease of average sales price caused a decrease of RMB4.6 million and the sales volume decrease — caused a decrease of RMB2.7 million.
In the third quarter, sales of specialty films were RMB40.6 million, US$5.7 million or 51% of total revenues as compared to RMB45.3 million or 52.2% in the same period of 2018. The decrease in average sales price caused a decrease of RMB1.5 million and the decrease in the sales volume caused a decrease of RMB3.2 million.
Sales were RMB11.6 million, or US$1.6 million, or 14.6% of total revenues compared with RMB8.5 million or 9.8 million — 9.8% of total revenues in the third quarter of 2018. The decrease in average sales price caused a decrease of RMB0.8 million and increase in the sales volume resulted in an increase of RMB3.9 million.
Gross profit was RMB21.6 million, US$3.0 million, representing a gross margin of 27.1% compared to gross profit of RMB17.1 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 RMB16.3 million US$2.3 million, which was RMB1.5 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 RMB3.4 million, US$0.5 million compared to net loss attributable to the company of RMB1.8 million during the same period in 2018, representing an increase in profit of RMB5.2 million.
First nine months results. Net sales during the first nine months periods ended September 30, 2019 were RMB248.8 million, US$34.8 million compared to RMB243.4 million during the same period in 2018, representing an increase of RMB5.4 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 films were RMB114.7 million, US$16.0 million or 46.1% of total revenues as compared to RMB109 million or 44.8% in the same period of 2018, which was an increase of RMB5.7 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 RMB1.8 million. The increase in the sales volume caused an increase of RMB3.9 million.
Sales during the first nine months were RMB42.2 million or US$5.9 million or 16.9% of total revenues compared to RMB36.1 million or 14.8% of total revenues in the same period in 2018. This was RMB6.1 million higher than the same period in 2018. The increase in sales volume resulted in an increase of RMB4.7 million and the increase of average sales price caused an increase of RMB1.4 million.
Gross profit was RMB52.6 million, US$7.4 million, representing a gross margin of 21.2% compared to a gross margin of 13.7% for 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 RMB44.9 million, US$6.3 million compared to RMB47.0 million in the same periods in 2018, which was RMB2.1 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 RMB1.0 million, US$0.1 million compared to a net loss attributable to the company of RMB18.7 million during the same period in 2018, representing an increase of RMB19.7 million during the same period in 2018 due to the factors described above.
Cash equivalents and restricted cash totaled RMB74.9 million or US$10.4 million as of September 30, 2019. Total shareholders’ equity was RMB197.85 million or US$27.68 million.
As of September 30, 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. Jiang will be happy to answer your questions. We require your patience as we translate each question-and-answer. Jess, please begin the Q&A.
Thank you. [Operator Instructions] We’ll move first to Private Investor, Carrie Marum [ph].
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?
Yes, about the balance sheet. How that look going forward and what would happen to the assets and liabilities under the proposed acquisition of the Blockchain company?
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 their auditing. So based on what we know at this point, it’s — we don’t think there’s going to be whole lot of impact on the balance sheet per se. But we have to see. We have to see.
Okay. So stock — your expectation of stockholders’ equity would be around the same at the time of the transaction? That’s your expectation.
So the idea here is that whatever happens, whether this transaction — 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.
[Operator Instructions] Currently we have no other questions holding. I will turn the conference back to management for any additional or closing comments.
Joining us on today’s call, we look forward to being in touch with you and we will 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.