Fuwei Films' (FFHL) CEO Xiaoan He on Q2 2014 Results - Earnings Call Transcript

Aug.22.14 | About: Fuwei Films (FFHL)

Fuwei Films (Holdings) Co., Ltd. (NASDAQ:FFHL)

Q2 2014 Earnings Conference Call

August 22, 2014 9:00 a.m. ET

Executives

Vivian Chen - IR

Xiaoan He - Chairman & CEO

Xiuyong Zhang - CFO

Jiang Yong - Corporate Secretary

Analysts

Operator

Greetings, and welcome to Fuwei Films Second Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a remainder, this conference is being recorded.

It is now my pleasure to introduce your host, Vivian Chen of Grayling. Thank you. You may begin.

Vivian Chen

Thank you. 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.

Before we start, I'd like to remind you that certain statements that are not 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 note 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 factor 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 are Mr. Xiaoan He, Chairman and Chief Executive Officer of the company; Mr. Xiuyong Zhang, Director and Chief Financial Officer of the company; and Mr. Jiang Yong, Corporate Secretary.

Before I walk you through our financial results, Mr. He will deliver his opening remarks. Sir, please go ahead.

Xiaoan He

Thank you, Vivian. Hello, everyone, and thank you for joining us today. The second quarter 2014 financial results continue to reflect weakened market conditions due to intense competition which caused oversupply and excess capacity in the marketplace. However, I'm pleased to announce that a sample diffusion film, a type of TFT-LCD optical film, was preliminarily accepted by a new customer after being delivered for testing. We expect to supply small batches of the product according to this customer's purchase order.

In addition, a small base film for solar backsheets has been delivered to a customer for initial testing. This demonstrates our ability to better serve our customers by expanding our product offering to the market and we will seek to capitalize upon opportunities in emerging markets with expanded end user applications by focusing our efforts on continued innovation and R&D.

We believe that with the support of the new controlling shareholder, the company will be in a better position to adjust to various challenges and to obtain better support in the serious marketplace.

Now, Vivian will read it to you in our financial results for the second quarter of 2014. Then, Mr. Zhang and I'll begin the Q&A session.

Vivian Chen

Thank you, Mr. He. I'll now provide you with an overview of our key financials for the second quarter of 2014. Then I'll offer some updates on the company's operations followed by management Q&A.

Net sales during the second quarter ended June 30, 2014 were RMB70 million or US11.3 million compared to RMB77.4 million during the same period in 2013, representing a decrease of RMB7.4 million or 9.6%, mainly due to the reduction of average sales price by 14.0% arising from stronger competition in China. Although the reduction of average sales price caused a decrease of RMB11.3 million, this was partially offset by an increase in sales volume of RMB3.9 million.

In the second quarter of 2014, sales of specialty films were RMB16.6 million or US2.7 million or 23.7% of our total revenues as compared to RMB29.7 million or 38.4% in same period of 2013, which was a decrease of RMB13.1 million or 44.1% as compared to the same period in 2013. The reduction of average sales price caused the decrease of RMB0.9 million and the decrease in sales volume caused a decrease of RMB12.2 million. The decrease was largely attributable to the decrease in sales of dry films and heat shrinkable films due to the entry of new competitors in these markets.

Overseas sales were RMB11.1 million or US1.8 million or 15.9% of total revenues compared with RMB9.5 million or 12.3% of total revenues in the second quarter of 2013. The increase in overseas sales was primarily due to the increase in volume which accounted for RMB3.3 million although this was partially offset by the decrease of RMB1.7 million in the average sales price.

Our gross loss is RMB9.5 million or US1.5 million for the second quarter ended June 30, 2014 representing a gross loss percentage of 13.6% as compared to a gross loss percentage of 3% for the same period in 2013. Correspondingly, gross loss percentage increased by 10.6 percentage points compared to the same period in 2013.

Our average product sales price decreased by 14% compared to the same period last year while the average cost of goods sold decreased by 5.1% compared to the same period last year. Consequently, the amount of decrease in sales revenue was greater than the decrease in the cost of goods sold during the second quarter ended June 30, 2014, compared with the same period in 2013 which resulted in an increase in gross loss.

Operating expenses for the second quarter ended June 30, 2014 were RMB10.4 million or US1.7 million, which was RMB3.2 million or 23.5% lower than the same period in 2013. This decrease was mainly due to the decreased R&D expenditures on new products in the second quarter of 2014.

Net loss attributable to the company during the second quarter ended June 30, 2014 was RMB23 million or US3.7 million compared to net loss attributable to the company of RMB18.2 million during the same period in 2013 representing an increase of RMB4.8 million for the same period in 2013.

Basic and diluted net loss per share was RMB1.76 or US0.28, and RMB1.39 for the three months ended June 30, 2014 and 2013 respectively.

Total shareholders equity was RMB424 million or US68.4 million as of June 30, 2014 compared with an RMB460.3 million as of December 31, 2013. As of June 30, 2014 the company had 13,062,500 basic and diluted total ordinary shares outstanding.

In conclusion, we would like to thank our shareholders for their continued loyalty and support. We will keep you updated about our progress with the third production line as well as other developments in the company.

With that; Mr. He, Mr. Zhang and Mr. Jiang will be happy to answer your questions. We require you to be patient as we translate each question and each answer. Operator, please begin the Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Thank you. Our first question comes from the line of [Neelam Desai] (ph), a Private Investor. Please proceed with your question.

Unidentified Analyst

Okay. What is your growth margin on the specialty films for LCD and solar backsheets?

Unidentified Company Representative

[Foreign language - Chinese]

[Translated] Okay, sir. So, the management's answer to your question is that since we're only supplying small quantities of samples of that product to customers at the moment. Right now, we're not disclosing the final judgment on that.

Unidentified Company Representative

[Foreign language - Chinese]

[Translated] By referencing our competitors in the same industry, we can tell you that the approximate gross margin for these products is about 20%.

Unidentified Analyst

Okay. Is there competitive pressure on it, like there is for metallized films?

Unidentified Company Representative

Competitive pressure, you mean later?

Unidentified Analyst

You have intense competition for both that films so on the specialty films; how will be competitive pressure?

Unidentified Company Representative

[Foreign language - Chinese]

[Translated] Okay. So, management's answer to your question, sir, is that right now, yes, there is competition for the new specialty film in China as well and the current demand/supply situation is that the supply currently outstrips the demand.

Unidentified Company Representative

[Foreign language - Chinese]

[Translated] Okay. So, okay and also the demands we are seeing there, right now, the competition comes from three different avenues. The first one is domestic companies will enter the market earlier than we did, and right now there are about two to three companies in that category.

And the second source of competition comes from overseas companies who have had established the local factories last year. And so, these companies in terms of their capital technology or product quality, they're better than we are. And so, we face competition in that avenue.

And then the last category are products provided by companies in Taiwan, Japan and Korea. So, these are the three categories of competitions that we face in those specialty films.

Unidentified Analyst

Okay. And just one last question; when do you expect full capacity on this production line? How long before you expect a full production capacity?

Unidentified Company Representative

[Foreign language - Chinese]

[Translated] So it is difficult right now to give an estimate as to when our third production line will reach its full capacity. And there are two reasons for that. Number one is being another incentive for it, but we're still at the stage of supplying small quantities of sample products to our customers, and this is going to take time for us to ramp our supply from small to large quantities.

And the second reason is because the market dynamic right now is such that we supply our strips in demand. So, because of these two reasons it is difficult right now to give you an estimate as to when that potentially reach full capacity. Thank you.

Unidentified Analyst

Thank you.

Xiaoan He

Thank you.

Operator

It appears we have no further questions at this time. I'd now like to turn the floor back over to management for closing comments.

Vivian Chen

Thank you for joining us on the conference call. We look forward to being in touch with you and we'll keep you updated about our progress. Thank you very much everyone.

Xiaoan He

Thank you.

Unidentified Company Representative

Thank you, bye-bye.

Operator

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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