Ladies and gentlemen, thank you for standing by, and welcome to the HollySys Automation Technologies' Fiscal Year 2015 Fourth Quarter and Fiscal Year Ended on 30th June, 2015 Earnings Conference Call. [Operator Instructions] Please be advised that this conference is being recorded today, August 13, 2015. I would like to hand the conference over to Mr. Arden Xia, the Investor Relations of HollySys Automation Technologies. Thank you. Please go ahead, Mr. Xia [ph].

Hello everyone and thank you for joining us. Today our speakers will be Mr. Baiqing Shao, CEO of HollySys Automation Technologies; Ms. Herriet Qu, CFO of HollySys; and myself from Investor Relations. On today's call Mr. Shao will provide a general overview of our business, including some highlights for the quarter and fiscal year, and Ms. Qu will discuss our performance from a financial perspective and financial outlook for fiscal year 2016. And the whole senior management will answer questions afterwards. Before we get started, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts, including statements relating to the expected growth of HollySys' future product introductions, the mix of products in future periods and future operating results. Such forward-looking statements, based upon the current beliefs and expectations of HollySys' management, are subject to risks and uncertainties which could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the statements: business conditions in China and in Southeast Asia; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which Hollysys is engaged; cessation or changes in government incentive programs; potential trade barriers affecting international expansion; fluctuations in customer demand; management of rapid growth and transitions to new markets; intensity of competition from or introduction of new and superior products by other providers of automation and control system technology; timing, approval and market acceptance of new product introductions; general economic conditions; geopolitical events and regulatory changes; as well as other relevant risks detailed in HollySys' filings with the Securities and Exchange Commission. The information set forth herein should be read in light of such risks. HollySys does not assume any obligation to update the information discussed in this conference call or in its filings. Please note that all amounts noted in this conference call will be in U.S. dollars unless otherwise noted. And now I'd like to turn the call over to Mr. Baiqing Shao. Please go ahead, Mr. Shao.

Thank you, Arden, and greetings for everyone. In fiscal year 2015, we achieved solid financial and operational results amidst weaker general economic environment [inaudible] achievements and new contractor [inaudible]. Here I would like to discuss some key events during this quarter. In fiscal year 2015, we made solid achievements and delivered robust growth in several areas in terms of financial performance and business operation, and achieved higher than our expected net income guidance. When we enjoy the exciting moment, we also calmly evaluate the future opportunities and challenges and carefully plan for the future growth. Here we would like to discuss the achievements in the past fiscal year and strategies in the future in the respective segments. In the industrial automation sector, during the past fiscal year, China was continuously adjusting its industry structure and reducing the capacity in some industries such as metallurgy, building material, paper mill and coal fire power, but we gained more market share from rising industries to make up the loss from decreasing industries and through winning more high-end projects such as Guangdong Yuedian Bohe Thermal Power Plant, Guohua Shouguang Coal Fire Power Plant, Datang Sanmenxia Coal Fire Generating Units and et cetera, to remain in good shape for our total industrial automation sector. In order to better cope with weak general environment, firstly, we have been continuously improving our industry solution capability and competition capability to strengthen industry marketing and influence on the base of regional network construction few years ago, and focus more on larger projects with more total solution supply. Secondly, we increased the higher gross margin products providing including Distributed Control System, Safety Instrumentation System and advanced control software, to improve operation quality and profitability. Thirdly, we continued to provide quality service and maintenance to our customers, to set up long term working relationship with old customers and provide more value adding technologies to improve their operation. Fourthly, capture the new growth opportunities of energy conservation and emission reduction, and pursue the new business opportunities driven by intelligent and automated production and working. The factory automation which is categorized in the industrial automation is relatively a new business but with strong potential, in this area we provide proprietary Programmable Logic Controller and develop our proprietary solution and equipment, to the industries such as coal mining, waste water treatment, and the Traditional Chinese Medicine which performed well in the past fiscal year and we expect solid growth in the coming year. We have built up the advanced technology platform, mature products and successful application track record in the above areas, and we'd like to seek more opportunities to replace labor and improve production efficiency for our customers. Besides, we are expecting another strong growth driver of industrial automation from overseas market, we have established subsidiary companies and offices in India, Malaysia and Singapore few years ago to provide our industrial automation products. We are currently enhancing the localization such as recruiting local talents and establishing local partnership, we believe that we will have the same strong advantages as in China like the quality products, better service and better value for money which will enable us to win more customers and enlarge overseas business scale. In high-speed rail sector, we were continuously making remarkable achievements in fiscal year 2015. In this year, we signed several sizable ground-based high-speed rail signaling system contracts to provide the Train Control Centers and other related products consecutively, including the Foshan-Zhaoqing intercity high-speed rail line which is the first TCC contract with Automatic Train Operation technology applied, Jinhua-Wenzhou high speed rail line, and Xi'an-Chengdu high-speed rail line Xi'an-Jiangyou section; and two batches of significant Automatic Train Protection equipment providing contracts value at RMB580 million and RMB118.7 million, respectively. The strong backlog and booming order pipeline make certain for another strong year ahead. We believe with our key position in China's high-speed rail signaling system providing, superior products performance and well-reputed track record, we are well prepared to take more market share in the high-speed rail signaling in the near future. Besides that, our new product, track circuit is making significant progress, we expect to win first contract in fiscal year 2016 and becoming growth driver in the long run. In subway sector, we signed the contract of Tianjin Subway Line 5, Shenzhen Subway Line 11 and Lanzhou Subway Line 1 to provide Supervisory Control and Data Acquisition System. In the future, we will closely work with local subway authorities to explore the SCADA and subway signaling business opportunities both in China and abroad. For overseas business, we were satisfied with Bond and Concord' capability of winning orders and execution, and we are expecting strong business growth from the overseas sector. In the next phase, we will continuously accelerate the overseas business expansion, ensure the healthy development of their business, increasing our proprietary products and systems providing leveraging their market resources, and improve our overseas business gross margin. In addition, analysts and investors are invited to attend our Annual Investor Day around mid-October, which will be filled with showcasing our whole executive team, insightful presentations from various corporate executives and facility tour, to further enhance our transparency, corporate investor relations and communication. Our shareholders who would like to participate in this annual event shall contact their brokerage firms or contact us directly to arrange the reservation; we are looking forward to meet with you in October at our premises. With that, I'd like to turn the call over to Aidan Xia [ph] who will read the financial results analysis on behalf of CFO, Ms. Herriet Qu.

Thank you, Mr. Shao. I would like to share some highlights for the fourth quarter of fiscal year 2015 and the fiscal year ended June 30, 2015. Comparing to the prior fiscal year, the total revenues for fiscal year 2015 increased from $521.3 million to $531.4 million, representing an increase of 1.9%. Broken down by the revenue types, integrated contracts revenue increased by 0.6% to $481.0 million, products sales revenue increased by 24.6% to $39.8 million, and services revenue decreased by 4.8% to $10.6 million. The Company total revenue can be broken down into the following charts. Industrial Automation $213 million. Rail Transportation $193 million. M&E $110 million. Miscellaneous $14 million. Total $531 million. Overall gross margin excluding non-cash amortization of acquired intangibles was 41.2% for fiscal year 2015, as compared to 34.7% for the prior year. The non-GAAP gross margin for integrated contracts, product sales and services rendered were 38.5%, 68.4% and 61.4% for fiscal year 2015, as compared to 32.1%, 63.7%, and 63.3% for the prior year, respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. The GAAP overall gross margin which includes non-cash amortization of acquired intangibles was 40.3% for fiscal year 2015, as compared to 33.7% for the prior year. The GAAP gross margin for integrated contracts, product sales and service rendered were 37.6%, 68.4% and 61.4% for fiscal year 2015, as compared to 31%, 63.7% and 63.3% for the prior year, respectively. Selling expenses were $26.3 million for fiscal year 2015, representing a decrease of $2 million or 7.1% compared to $28.3 million for the prior year, mainly due to the Company's efforts in efficiency improvement. Presented as a percentage of total revenues, selling expenses were 4.9% and 5.4% for fiscal year 2015 and 2014, respectively. G&A expenses, excluding non-cash share-based compensation expenses, were $48.3 million for fiscal year 2015, representing an increase of $11.6 million or 31.5%, as compared to $36.7 million for the prior year. The increase was mainly due to an increase of $6.9 million in bad debt provision made by the Company at fiscal yearend from a conservative consideration. In addition, other factors contribute to the increase of the G&A including employee compensation expenses of $2.7 million and amortization and depreciation expenses of $0.8 million. Presented as a percentage of total revenues, non-GAAP G&A expenses were 9.1% and 7% for fiscal year 2015 and 2014, respectively. The GAAP G&A expenses which include the non-cash share-based compensation expenses were $50.8 million and $39.7 million for fiscal year 2015 and 2014, respectively. Impairment of goodwill was $1.9 million for fiscal year 2015. As the result of new projects delaying, the Concord group's performance was slightly deviate from previous expectation, which led the company to make an estimation of impairment of goodwill related to Concord acquisition. Research and development expenses were $35.8 million for fiscal year 2015, a decrease of $0.7 million or 1.9% compared to $36.5 million for the prior year. Presented as a percentage of total revenues, R&D expenses were 6.7% and 7% for fiscal year 2015 and 2014, respectively. The VAT refunds and government subsidies were $30.4 million for fiscal year 2015, as compared to $27.2 million for the prior year, representing a $3.1 million or 11.5% increase which is primarily due to the increase of the VAT refunds for $3.4 million. The income tax expenses and the effective tax rate were $26 million and 20.8% for fiscal year 2015, as compared to $19.9 million and 21.8% for the prior year. When excluding the impact of non-GAAP adjustments on the income before income taxes, the effective tax rate would have been 19.7% for fiscal year 2015 and 18.3% for the prior year. In addition, total of $3.3 million and $1.4 million withholding tax expenses were accrued for the potential profits distribution from PRC to overseas in fiscal year 2015 and 2014, respectively. Eliminating the impact of the withholding tax, the effective tax rate would have been 17.2% and 17%, respectively. The non-GAAP net income attributable to Hollysys, which excludes non-cash share-based compensation expenses, amortization of acquired intangibles and acquisition-related consideration fair value adjustments was $103.3 million or $1.72 per diluted share based on 60.1 million shares outstanding for fiscal year 2015. This represents a 15.4% increase over the $86.9 million or $1.49 per share based on 58.4 million shares outstanding reported in prior year. On a GAAP basis, net income attributable to Hollysys was $96.5 million or $1.61 per diluted share, representing an increase 35.3% over the $69.6 million or $1.19 per diluted share reported in prior year. Integrated contracts backlog highlights. Hollysys' backlog for integrated contracts as of June 30, 2015 was $568.5 million, representing an increase of 14% compared to $498.7 million as of March 31, 2015, and an increase of 2.3% compared to $556 million as of June 30, 2014. The detailed breakdown of backlog for integrated contracts by segments is shown below. Industrial Automation $134 million. Rail Transportation $299 million. M&E $135 million. Total $568 million. Cash flow highlights. For the fiscal year ended June 30, 2015, the total net cash inflow was $45.7 million. The net cash provided by operating activities was $79.5 million. The net cash used in investing activities was $40.2 million. The outflow was mainly due to the $33.4 million time deposit with original maturities over three months placed with the bank and the $14.6 million used to settle the third cash consideration in connection to the acquisition of the Bond Group. The outflow was partially offset by the cash inflow generated from matured time deposits with original maturities over three months for the amount of $11.6 million. The net cash provided by financing activities was $1.1 million. During the current year, we received $20 million convertible loan from International Finance Corporation and $25.1 million short-terms loans from various banks. These cash inflow was partially offset by dividend payment of $23.5 million plus the repayment of short-term and long-term loan for $12.6 million and $8.8 million, respectively. For the three months ended June 30, 2015, the total net cash inflow was $56.8 million. The net cash provided by operating activities was $76.6 million. The net cash used in investing activities was $22.5 million, the majority of which was time deposits with original maturities over three months placed with banks for the amount of $22.7 million. The net cash used in financing activities was $3.3 million. Balance sheet highlights. The total amount of cash and cash equivalents and time deposits with original maturities over three months were $257.5 million, $179.7 million, and $190.5 million as of June 30, March 31, 2015 and June 30, 2014, respectively. As of June 30, 2015, the Company held $207.8 million in cash and cash equivalents and $49.7 million in time deposits with original maturities over three months. For fiscal year ended June 30, 2015, DSO was 176 days, as compared to 150 days from the prior year. The inventory turnover was 41 days, as compared to 36 days from the prior year. For the three months ended June 30, 2015, DSO was 176 days, as compared to 148 days from the comparable prior year period and 228 days from last quarter. And inventory turnover was 43 days, as compared to 31 days from the comparable prior-year period and 66 days from last quarter. Outlook for fiscal year 2016. The management concluded, "Given our strong backlog currently on hand and sales pipeline envisioned so far, we reiterate our guidance for fiscal year 2016 with revenue in the range of $565 million to $600 million and non-GAAP net income in the range of $110 million to $120 million. At this time we'd like to open up for the Q&A session. Please note that, for Chinese-speaking participants, we can also do the Q&A in Mandarin and we will provide translation. [Chinese language spoken] Operator, please.

We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Alex Chang from Citigroup. Please ask your question.

[Chinese language spoken]

[Chinese language spoken]

[Chinese language spoken]

Thank you, Alex. The first question is, please introduce the gross margin of fiscal year 2015 and the percentage of of 2016 fiscal year. The second question is about [inaudible] depreciation. And we have $20 million convertible loans, so, how to deal with the money? And what about the exchange rate loss, for example, like 1% decrease? And third question is about goodwill impairment, about $1.8 million, but the number seems like have some [inaudible] so how about the gap?

[Chinese language spoken]

Okay. For fiscal year 2015, the annual gross margin is 40%, including the service rendered margin of 65%, and the spare parts sales around 70%. And the Industrial Automation, this quarter, especially the nuclear power station revenue, will take a relatively high [inaudible] revenues. So the gross margins [inaudible] higher. But in the future [inaudible] 2016 fiscal year, their gross margin will slow down a little bit. But we'll keep the high gross margin in the future. About Rail sector, the gross margin is around 50% and the spare parts sales is around [inaudible]. In future, maybe the next year, the subway revenue will gain more, so it will drag down the [inaudible] gross margin [inaudible] in the year. M&E, the gross margin is 50% and then it will increase in the future. Thank you.

[Chinese language spoken]

About convertible bonds, this will transfer to the stocks. And we're right now not considering to change the U.S. dollar to have the exchange rate [inaudible]. And in the future we will consider some financial tools like keep the rate in some specific dates just like that.

[Chinese language spoken]

About goodwill impairment, actually it is $1.9 million. And the increase is from the balance sheet, they have some differences, that's because of the Singapore dollars translate. So, generally speaking [inaudible] provision still on $1.9 million.

Xie-xie.

Yes.

Your next question comes from the line of Jacqueline Du from Goldman Sachs. Please ask your question.

[Chinese language spoken]

Thank you, Jacqueline. The question is about the backlog [inaudible] automation in the [inaudible] in the backlog? And what about compared to the year by year and what is the difference or changes of the backlog? And what about the future, I mean 2016 fiscal year backlog change?

[Chinese language spoken] Relatively the factory automation in [inaudible] the IA, just takes a small portion of IA revenue. Most of [inaudible] like 97% are [inaudible] to BCS [ph].

[Chinese language spoken]

In the -- from the future perspective of the backlog, we will continue providing the -- enhance our input of the resource to whole Industrial Automation market and to provide our solution ability. And also we will penetrate the high end of the market, for example, like the thermal power this year, we get a lot of projects. And about automation, the factory automation, we will continue to transfer our products to solution provider. So we will try our best to achieve the future like the factory automation take more of our industry automation revenue. Thank you.

Our next question comes from the line of Patrick Xu from Nomura. Please go ahead.

[Chinese language spoken]

Thank you, Patrick. The first question is about track circuit. For fiscal year 2016, what do you think taxation [ph] of this product? And what about the turnover days and also what about the market share and then the whole [ph] market scale of this product, and also the gross margin about this product? And second question is about the income tax, that it seems like increasing this year. What about future?

[Chinese language spoken]

Okay, thank you. The track circuit that we have already got the permission from CRC last year, at end of last year. And we gradually make progress, for example, like we [inaudible] examination of [inaudible]. After that, this year we are participating another second experiment and passed the testing trial operation. So, about the new order will emerge in the next year. And the whole project period will -- for each project for track circuit, it may be one to one-and-a-half year. And about the market scale, it is also very large as the high-speed rail and also it can use in the lower-speed market. So the potential market is very huge. Thank you.

[Chinese language spoken]

About the gross margin of track circuit, we have not integrated [ph] yet into our revenue, in the next year, and right now we have no data so it is hard to give you a specific gross margin for that analysis. But it belongs to the high -- to the rail market, so the gross margin is relatively high as the other signaling products. So we will see in future.

[Chinese language spoken]

About income tax, you could see why it increased, because it contains the withholding tax expenses were accrued for the potential profit distribution from PRC to overseas. So if deducted this part, the income tax rate would be around 17% and relatively it's a normal situation. Thank you.

[Chinese language spoken]

[Chinese language spoken]

The question is about, is it possible that we'll do the provision of the reported [ph] tax in future, each year in future? The answer is, if we need it, we will do that. Thank you. Due to the constraint, so we will now take one last question from the queue. Operator, thank you.

Your last question comes from the line of Frank Xu from Goldman Sachs. Please go ahead.

[Chinese language spoken]

Hi, Frank.

[Chinese language spoken]

The question is -- the first question is about new products. Beyond the track circuit, what about the subway CBTC system? And what about the factory automation new products? The second question is about [inaudible] rate loss. It seems like $6.7 million. What's exactly inside of that? And the third question is about the Industrial Automation. We said that the integrated contract gross margin is 40% and the service rendered is about 65% and the spare parts sales is about 78%, is that right?

[Chinese language spoken]

About new products, CBTC subway, we have already -- do have the national, international standards that [inaudible] and also finished the experimental design and testing. So we get the award from the industrial experts' evaluation. And they recognize our product and will help us to do some expand [ph] to introduce our product into the markets. We have some cooperation. And another thing is the -- you could see our subway revenue is [inaudible] because we have already recovery of our subway business. So that also will help us set up good relationship in the local partners to push our CBTC system. And about factory automation, we have already put a lot of resources in this area. For example, like TCM, Traditional Chinese Medicine dispensing machine and [inaudible] machine, right now is about third generation and we have already implied [ph] into more than 1,000 hospitals. So in future we will accelerate this part and also put more resources in the factory automation to help development.

[Chinese language spoken]

The second question [inaudible] about exchange loss, around $6.8 million. It's because of the Singapore exchange rate with U.S. dollars.

[Chinese language spoken]

[Chinese language spoken]

[Chinese language spoken]

And the number is right, but I want to emphasize that this is the 2015 fiscal year gross margin. For our perspective in future, it's not -- it may not reach this level. So we want to give you a [inaudible] number that maybe could decline -- relatively decline a little bit. Thank you.

[Chinese language spoken]

I noticed that the fourth quarter of 2015 fiscal year, the Industrial Automation revenue is about $46 million. It's relatively declined year to year about 30%. So, what about in future, if this will keep this number and also maintain high gross margin situation?

[Chinese language spoken]

About Industrial Automation, yes, there is some gap between -- beyond our expectation. And that's because, the first, micro-environment [inaudible] also we already set up some strategy [inaudible] like the control, our insight of management control, and we already implied SAP ERP systems. And we will control contracts strictly, to choose the good contracts, and actively give up the weak contracts. About the future investment, we will continue to invest into the [inaudible] like pharmaceutical and the environmental protection, this area, and we will cooperate with local institutes and also we will hire more [inaudible] in different industries. So in a word, we will keep the growth rate as [inaudible]. Thank you.

[Chinese language spoken]

Thank you everyone for joining us on the call today. If you haven't got a chance to raise your questions, we will be pleased to answer them through follow-up contacts. We're looking forward to speaking with you again in near future. Thank you.

Xie-xie.

Xie-xie.