Edmund Hen
Thank you, Mr. Huang. I will now move on to a more detailed discussion of our financial results for the six month ending December 31, 2018. Our revenue for the six months end December 31, 2018 was RMB 142.6 million or $20.8 million, a decrease of 70.6% from RMB 485.3 million or $72.7 million for the same period of 2017. The 70.6% year-over-year decrease in investment was still due to the 72% decrease in our sales volume for the six month end December 31, 2018, compared to the same period of 2017. Gross loss for the six months end December 31, 2018 was RMB 46 million or $6.7 million, as compared to gross profit of RMB 57.8 million or $8.7 million for the same period of 2017. The gross loss margin was 32.3% for the six months end December 31, 2018, as compared to an 11.9% gross profit margin for the same period of 2017, which was due to a 72.1% period-to-period decrease in sales volume, and an increase in the provision for inventory impairment, which was RMB 56 million or $8.2 million for the six months end December 31, 2018, as compared to a reversal of the inventory impairments of RMB 2.7 million or $0.4 million for the same period of 2017. Other income for the six months end December 31, 2018 was RMB 7.5 million or $1.1 million, as compared to RMB 7.3 million or $1.1 million for the same period of 2017. Other income mainly consists of rental income for the company received by leasing out one of their production lines for its Hengdali facility pursuant to an eight-year lease contract. Selling expenses for the six months end December 31, 2018 were RMB 5.3 million or $0.8 million, as compared to RMB 6.1 million or $0.9 million for the same period of 2017. The year-over-year decrease in our selling expense was mainly due to lower sales during the current period. Administrative expenses for the six months end December 31, 2018 were RMB 7.5 million or $1.1 million, as compared to RMB 8.2 million or $0.7 million for the same period of 2017. The year-over-year decrease in administrative expenses was primarily due to a decrease in office and travel expenses. Bad debt expenses for the six months end December 31, 2018 was RMB 210.1 million or $30.6 million, as compared to RMB 71.6 million or $10.8 million for the same period of 2017, with the increase due to the write-off of bad debt due to a rise in uncollectible debt associated with our customers. We believe that we have undertaken appropriate measures to resolve the bad debt expense. We will continue to review each of our customers for credit quality as well as assiduously test for accounts receivable balances in each upcoming fiscal years. Loss from asset devaluation resulting from an impairment of non-current assets, fixed assets and land use rights for the six month end December 31, 2018 was RMB 85 million or $12.9 million that's compared to RMB 36.7 million or $5.5 million for the same period of 2017. The loss from asset devaluation resulted from an impairment of non-current assets due to decelerating growth in China and an expected contraction in the demand for the company's products. Net loss for the six months end December 2018 was RMB 346.6 million or $50.6 million as compared to a net loss of RMB 82.2 million or $12.4 million for the same period in 2017. Loss per basic and fully diluted share for the six months end December 31, 2018 were RMB 75.95 or $11.07 as compared to RMB 24.29 or $3.66 for the same period of 2017. Adjusted EBITDA was RMB 10.2 million or $1.5 million for the sixth-month end December 31, 2018, adjusted for the write-off of fixed assets and land use rights, the inventory impairment provision and bad debt expense, as compared to RMB 51.6 million or $7.8 million adjusted for the write-off of fixed asset, slow moving inventories and better expense for the same period of 2017. Turning to our balance sheet, as of December 31, 2018, we had a cash on bank balances of RMB 9 million or $1.3 million as compared to RMB 2.3 million or $0.4 million as of December 31, 2017. As of December 31, 2018, our inventory turn was 117 days as compared to 95 days as of December 31, 2017. We recorded an inventory impairment provision of RMB 56 million or $8.2 million in 2018 and a reversal of an inventory impairment provision of RMB 2.7 million or $0.4 million in 2017. Subsequent to the inventory impairment for fiscal year 2018, we believe that the value of our current inventories is realizable. Our trade receivables turnovers as of December 31, 2018 was 223 days as compared to 206 days as of fiscal year-end 2017. The increase in trade receivables turnover days was primarily due to a continued difficult economic environment which has prompted us to offer extended credit terms to certain customers, resulting in a high trade receivable turnover figure than normal. Our trade payable turnover was 26 days as of December 31, 2018 as compared to 43 days as of December 31, 2017. The average turnover days was within the normal credit period of one to four months granted by our suppliers. In terms of our plant utilization and capacity, we utilized plant capacity capable of producing 4.7 million square meters of ceramic tiles for the six months end December 31, 2018 and 16.9 million square meters of ceramic tiles for fiscal 2018 out of total annual production capacity of 56.5 million square meters. Our annual production capacity has been reduced from 66 million square meters of ceramic tiles as of December 31, 2017 to 56.5 million square meters of ceramic tiles, due to our having retired two old furnaces at the Hengda facility in July 2018. Our Hengda facility has an annual production capacity of 27.7 million square meters of ceramic tiles, as a result of two old furnace having been put out of use at the facility. The Company utilized production capacity capable of producing 2.3 million square meters of ceramic tiles for the six months end December 31, 2018 and 9.8 million square meters of ceramic tiles for fiscal 2018. Our Hengdali facility has an annual production capacity of 28.8 million square meters, excluding our leasing out 10 million square meters of production capacity to a third party. And we utilized production capacity capable of producing 2.4 million square meters of ceramic tile for the six months end December 31, 2018 and 7.1 million square meters of ceramic tiles for fiscal 2018. Moving on to our business outlook, sales in the second half of 2018 sharply decreased due to an unexpected slowdown in China's real estate sector. In an effort to bolster sales, in July of 2018, we decreased the pricing of our ceramic tiles products by an average of 10%. This follows a pricing increase of 5% that we instituted in April of 2018, following three price raises beginning in April of 2017. However, the 10% price decrease in July 2018 could not offset the certain fall in our sales volume due to deteriorating market conditions that persisted through the second half of 2018, and we do not believe that further price decreases would have a beneficial effect upon sales volume. To address the current market environment, we plan upon expanding our sales force to produce new customers, increasing our marketing to large property developer in targeted cities, and bolstering our R&D efforts to develop new products in order to expand our market. Looking ahead to the remainder of 2019 and based on the information currency available to us, we expect market conditions to continue to be challenging, due to a slowing domestic economy and government regulations intended to stabilize real estate prices and slow real estate developments. For example, the central government has imposed lending curbs, high mortgage rates and down payments, a price cap on new developments and restriction on the numbers of homes each family can buy. This has led to some restraint on the part of property developers to develop new residential housing, due to continued uncertainty resulting in the slowing construction sector. We believe that China's property market is resilient long term. And that despite specific austerity measures in certain cities, there is substantial potential for property development in many regions. New home prices in China showed a recent monthly up-tick reversing four months of decreases, which was fueled by China's smaller third and fourth tier cities, a sector in which the company is particularly focused. We typically received order from customers one or two months in advance of production on a rolling basis. However, due to potential for continued difficult market conditions in 2019, there has been a decreased demand for our products. And as of December 31, 2018, we did not have any backlog. The company believes that the reduction in backlog has to do with a general slowdown in the construction industry in China, as customers are continuing to defer orders and/or are waiting to start new projects. Our building materials sector is continuing to work through excessive production capacity, while government mandates to convert to cleaner and more expensive fuel resources could result in smaller, less well-capitalized competitors exiting the space. We believe that we have a competitive advantage in our sector due to our brand name recognition, extensive product platform, marketing expertise and modernized operation efficiencies. This business outlook reflects the company's current and preliminary views, which are subject to change and is subject to risks and uncertainties, as well as risks and uncertainties identified in the company's public filings. At this point, we would like to open up the call to any questions pertaining to our second half and fiscal year-end 2018 financial results. Operator?
