Good day, ladies and gentlemen, and welcome to the Fuwei Films' Second Quarter 2019 Earnings Conference Call. [Operator Instructions] At this time, it's my pleasure to turn the floor over to Mr. Shiwei Yin. Sir, the floor is yours..

Thank you, Tom. Let me remind you that this call is being recorded, and a replay of the call will be made available shortly after 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 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 the call today 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..

[Foreign Language] Hello, everyone, and thank you for joining us today. We're pleased to return to profitability after years of hard work and believe that the worse maybe behind us. We believe the turnaround was a result of our commitment to differentiated product strategy and continuous R&D.

Sales of specialty films continued to increase and accounted for 47.6% of total sales during the quarter compared to 38.6% last year. Meanwhile, we believe, research and development is helping us launch new products and expand the end user applications of our films.

Looking ahead, the [indiscernible] industry remains competitive as a result of higher supply. Nevertheless, we will continue to innovate, tackle overseas markets and execute differentiated product strategy to improve performance and capture opportunities.

Now, Shiwei will read to you our financial results for the second quarter and first six months of 2019. Then, we'll begin the Q&A session..

Thank you, Mr. Jiang. Our net sales during the second quarter were RMB88.1 million (US$12.8 million) compared RMB79.6 million during the same period of 2018, representing an increase of RMB8.5 million or 10.7%. The increase of average sales price caused an increase of RMB7.4 million, and the sales volume caused an increase of RMB1.1 million.

In the second quarter, sales of specialty films were RMB42.0 million (US$6.1 million) or 47.6% of our total revenues as compared to RMB30.7 million or 38.6% in the same period of 2018, which was an increase of RMB11.3 million or 26.8% as compared to the same period in 2018.

The increase of average sales price caused an increase of RMB1.2 million, and the increase in the sales volume caused an increase of RMB10.1 million. The increase was largely attributable to the increase in sales volume.

Overseas sales were RMB14.3 million or (US$2.1 million), or 16.3% of total revenues compared with RMB16.6 million or 20.9% of total revenue in the second quarter of 2018. The increase of average sales price caused an increase of RMB 0.8 million, and the decrease in sales volume resulted in a decrease of RMB3.1 million.

Our gross profit was RMB18.6 million (US$2.7 million) for the second quarter, representing a gross profit rate of 21.1% as compared to a gross profit rate of 8.5% for the same period in 2018. Correspondingly, gross margin increased by 12.6 percentage points compared to the same period in 2018.

Our average product sales price increased by 9.1% compared to the same period last year; while the average cost of goods sold, decreased by 5.9% compared to the same period of last year. As a result - it resulted in an increase in our gross profit.

Operating expenses for the second quarter were RMB15.0 million (US$2.2 million) as compared to RMB13.3 million for the same period in 2018. Net profit attributable to the Company during the second quarter was RMB1.0 million (US$0.1 million) while net loss attributable to the Company was RMB8.7 million during the same period in 2018.

Moving now to first six months results. Net sales during the first six months were RMB169.2 million (US$24.6 million) compared to RMB156.5 million in the same period in 2018, representing an increase of RMB12.7 million or 8.1%.

The increase in average sales caused an increase of RMB10.4 million, and the [decrease] in the sales volume caused an increase of RMB2.3 million.

Sales of specialty films were RMB74.2 million (US$10.8 million) or 43.8% of our total revenues as compared to RMB3.7 million or 40.7% in the same period of 2018, which was an increase of RMB10.5 million or 16.4% as compared to same period in 2018.

The increase in average sales price caused an increase of RMB3.4 million, and the increase in sales volume caused an increase of RMB7.1 million. Overuses sale during the first six months were RMB30.6 million or (US$4.5 million) or 18.1% of total revenues compared with RMB27.6 million or 17.6% of the total revenues in the same period in 2018.

This was RMB3.0 million higher than the same period in 2018. The increase in sales volume resulted in an increase of RMB1.2 million, and the increase in average sales price caused an increase of RMB1.8 million.

Our gross profit was RMB31.0 million (US$4.5 million) for the first six months, representing a gross margin rate of 18.3% as compared to a gross margin rate of 10.4% for the same period in 2018.

Our average product sales price increased by 6.5% compared to the same period last year, while the average cost of goods sold decreased by 2.9% compared to the same period last year. Consequently, it resulted in an increase in our gross margin.

Operating expenses for the period of six months were RMB28.5 million (US$4.2 million) compared to RMB29.2 million in the same period in 2018, which was RMB0.7 million or 2.4% lower than same period in 2018. The decrease was mainly due to decreased allowances.

Net loss attributable to the Company during the first half of 2019 was RMB2.4 million (US$0.4 million) compared to net loss attributable to the Company of RMB16.9 million during the same period in 2018, representing a decrease of RMB14.5 million from the same period last year due to the factors described above.

Cash, cash equivalent and restricted cash totaled RMB73.4 million or US$10.7 million as of June 30, 2019. And total shareholders' equity was RMB194.4 million or US$28.3 million. As of June 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're 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, we're happy to take your questions.

We require your patience as we translate each question and answer. Tom, please begin the Q&A..

Thank you. [Operator Instructions] We do have a question from [Kareem Murad], he's a Private Investor..

My question is about the product mix; going forward, what do you see for Q3 and the rest of the year in terms of the specialty films and the impact on gross margins?.

Okay, Kareem.

So your question is about product mix for Q3 and the rest of the year; what was the second part?.

And the impact on gross margins of the product mix..

Okay, got it. Let me translate back to the Management. [Foreign Language].

So the strategy for the product mix for the rest of the year, first and foremost, is that we will continue to develop new products. So, yes, as we said, we're going to continue to focus on the product development for the rest of the year. And specifically, we will be focusing on digital films and the specialty films.

So, with the development of such new products, we hope to achieve higher gross margin going forward..

In terms of your geographical reach, do you see any developments there in terms of markets and locations?.

[Foreign Language].

Kareem, so in terms of the geographic end markets for our products, it's – at this point it's mostly still in China. Now in terms of the overseas market, as we said in our press release, the Company will try to tackle overseas market going forward as well, and specifically into Japanese market.

And the reason for that is because of higher value add products in that market..

[Operator Instructions] There are no further questions at this time. And ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may disconnect at this time, and have a good day..