Fuwei Films' (FFHL) Q3 2016 Results - Earnings Call Transcript

| About: Fuwei Films (FFHL)

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

Q3 2016 Earnings Conference Call

November 29, 2016 8:00 AM ET

Executives

Weijia Dai - Investor Relations, Grayling

Yong Jiang - Corporate Secretary

Analysts

Operator

Greetings, and welcome to the Fuwei Films Third Quarter 2016 Earnings 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 reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Weijia Dai of Grayling. Thank you. Ms. Dai, you may begin.

Weijia Dai

Thank you. Let me remind you today’s call is being recorded. A replay of this call will be made available shortly at the conclusion of today’s call. 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 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 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 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.

Yong Jiang

[Foreign Language]

Thank you, Weijia. Hello, everyone, and thank you for joining us today. On November 22, 2016, we announced a majority of the shareholders of the company have approved, in principal, a 1-for-4 reverse stock split of our authorized ordinary shares, accompanied by a corresponding decrease in our issued and outstanding ordinary shares and an increase of the par value of each ordinary share from US$0.129752 to US$0.519008, subject to an extraordinary meeting of shareholders to be held on December 5, 2016.

On November 23, 2016, we announced a receipt of a letter from NASDAQ stating that since we have not regained compliance with Listing Rule 5550(a)(2) regarding our bid price, our ordinary shares will be delisted from the NASDAQ Capital Market. The letter further stated that unless we request an appeal of the staff's determination, trading of our ordinary shares will be suspended at the opening of business on December 1, 2016. We have appealed the staff's determination to a Hearing Panel. A hearing request will stay the suspension of our ordinary shares pending the Panel's decision.

Now Weijia will read to you our financial results for the third quarter of 2016. Then I will begin the Q&A session.

Weijia Dai

Now I will provide you with an overview of our key financials for the third quarter 2016. Then I will offer some updates on the company’s operations followed by management Q&A.

Financial highlights for the three months ended September 30, 2016. Net sales during the third quarter ended September 30, 2016 were RMB61.6 million or US$9.2 million, compared to RMB65.7 million during the same period in 2015, representing a decrease of RMB4.1 million or 6.2%, mainly due to the reduction of average sales price by 5.9% arising from stronger competition in China and large reduction in prices of main raw materials. Reduction of average sales price caused a decrease of RMB3.8 million and the sales volume decrease caused a decrease of RMB0.3 million.

In the third quarter of 2016, sales of specialty films were RMB22.7 million or US$3.4 million or 36.8% of our total revenues as compared to RMB18.7 million or 28.5% in the same period of 2015, which was an increase of RMB4.0 million, or 21.4% as compared to the same period in 2015. The reduction in average sales price caused a decrease of RMB0.2 million and the increase in the sales volume caused an increase of RMB4.2 million.

Overseas sales were RMB11.4 million or US$1.7 million, or 18.4% of total revenues, compared with RMB16.1 million or 24.5% of total revenues in the third quarter of 2015. This is a decrease of RMB4.7 million. The decrease in average sales price caused a decrease of RMB1.4 million and the decrease in sales volume resulted in a decrease of RMB3.3 million.

Our gross profit was RMB1.1 million or US$0.2 million for the third quarter ended September 30, 2016, representing a gross profit rate of 1.7%, as compared to a gross profit rate of 5.8% for the same period in 2015. Correspondingly, gross profit rate decreased by 4.1% compared to the same period in 2015 mainly due to the reduction of average sales price.

Operating expenses for the third quarter ended September 30, 2016 were RMB12.7 million or US$1.9 million, which was RMB1.8 million or 12.4% lower than the same period in 2015. This increase was mainly due to decreased [indiscernible].

Net loss attributable to the company during the third quarter ended September 30, 2016 was RMB13.4 million or US$2.0 million compared to the net loss attributable to the company of RMB12.3 million during the same period in 2015, representing an increase in loss of RMB1.1 million compared for the same period in 2015. Basic and diluted net loss per share was RMB1.03 or US$0.15 and RMB0.94 for the three-month period ended September 30, 2016 and 2015 respectively.

Total shareholders' equity was RMB283.9 million or US$42.6 million as of September 30, 2016, compared with RMB319.7 million as of December 31, 2015. As of September 30, 2016, the company had 13,062,500 basic and diluted total ordinary shares outstanding.

Financial highlights for the nine months ended September 30, 2016, net sales during the six month period ended September 30, 2016 were RMB183.0 million or US$27.4 million, compared to RMB185.2 million during the same period in 2015, representing a decrease of RMB2.2 million or 1.2%, mainly due to the reduction of average sales price by 4.8% arising from stronger contribution in China together with a reduction in price of mainly raw material.

In the nine month period ended September 30, 2016, sales of specialty films were RMB68.0 million or US$10.2 million or 37.1% of our total revenues as compared to RMB55.0 million or 29.7% in the same period of 2015, which was an increase of RMB13.0 million or 23.6% as compared to the same period in 2015. The reduction of average sales price caused a decrease of RMB2.3 million and increase in the sales volume caused an increase of RMB15.3 million.

Overseas sales during the nine months ended September 30, 2016 were RMB35.1 million or US$5.3 million or 19.2% of total revenues, compared with RMB44.3 million or 29% of total revenues in the same period in 2015. This was RMB9.2 million lower than the same period in 2015. The reduction in sales volume resulted in a decrease of RMB5.7 million and a decrease of average sales price caused a decrease of RMB3.5 million.

Our gross profit was RMB12.3 million or US$1.8 million for the first nine months ended September 30, 2016, representing a gross profit rate of 6.7%, as compared to a gross loss rate of 2.0% for the same period in 2015. Correspondingly, gross profit rate increased by 8.7 percentage points. Our average product sales price decreased by 4.8% compared to the same period last year, while the average cost of goods sold decreased by 12.9% compared to the same period last year. Consequently, the amount of decrease in cost of goods sold was higher than that in sales revenue during the nine months ended September 30, 2016 compared with the same period in 2015, which resulted in an increase of our gross profit.

Operating expenses for the nine months ended September 30, 2016 were RMB42.2 million or US$6.3 million, compared to RMB36.4 million in the same period in 2015, which was RMB5.8 million or 15.9% higher than the same period in 2015. This increase is mainly due to depreciation charged to general and administrative expenses in the accounting period in which they are incurred as a result of lack of manufacturing from the third production line since April 2015 and increased allowance for doubtful accounts receivable.

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 we are committed to providing value to our shareholders and customers. We will keep you informed of our progress.

With that, Mr. Zhang will be happy to answer your questions. We recall your patience as we translate each question and each answer. Operator, please begin the Q&A.

Question-and-Answer Session

Operator

Weijia Dai

Thank you for joining us on today’s conference call. We look forward to be in touch with you and we will keep you updated about our progress.

Operator

Thank you. 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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