Specialty Chemical Company China XD Plastics Announces First Quarter 2018 Financial Results

Specialty Chemical Company China XD Plastics Announces First Quarter 2018 Financial Results

- Revenue of $$310.5 million -

- Net Income of $19.1 million -

- Reiterating Fiscal 2018 Guidance of $1.2-$1.4 Billion in  Revenue, $90-$110Million in Net Income -

HARBIN, China, May 10, 2018 /PRNewswire/ -- China XD Plastics Company Limited (NASDAQ: CXDC) ("China XD Plastics" or the "Company"), one of China's leading specialty chemical companies engaged in the development, manufacture and sale of polymer composite materials primarily for automotive applications, today announced its financial results for the first quarter ended March 31, 2018.

First Quarter 2018 Financial Summary     

  • Revenue was $310.5 million, an increase of 30.6% YoY
  • Gross profit was $53.9 million, an increase of 54.9% YoY
  • Gross margin of 17.4%, an increase of 280 basis points YoY
  • Net income was $19.1 million, an increase of 92.9% YoY
  • EBITDA was $49.6 million, an increase of 45.9% YoY
  • Total volume shipped was 106,236 metric tons, up 24.4% YoY

"We are pleased with our quarterly results, both top and bottom line growths as well as margin improvement," said Jie Han, Chairman of the Board of Directors and Chief Executive Officer. "An improved macroeconomic environment has improved business conditions and we are well position to execute our strategic plan."

"We are particularly pleased to see major revenue contributions from major new growth frontiers, fostered in large part by the gradual ramp up of our Sichuan manufacturing facility, a key milestone in our corporate development.  The new facility also extends our geographical reach and accelerates our market penetration beyond our established Northeast base, evidenced by our strong and consistent growth from Southwest, Central, North and South China."

"The Sichuan facility substantially expands the footprint of our auto business in China and while we expect that automotive applications will continue to be our core business, the new facility includes precision equipment which will enable us to diversify our product platform into such high-growth verticals as ships, high-speed rail, airplanes, bio-degradable materials, medical-grade materials, food packaging, electronic equipment, electrical products, alternative energy applications and power devices, which will help to propel the Company's growth." 

"Our new facility in Dubai also extends our specialized high-tech products into an important new market. We are planning to complete installing 45 production lines with 12,000 metric tons of annual production capacity by the end of May 2018, and an additional 50 production lines with 13,000 metric tons of annual production capacity by the end of 2018.  This will bring the total installed production capacity in our Dubai facility to 25,000 metric tons. The Dubai facility will target high-end products for the overseas market and will ultimately enable more active inroads into the markets of Europe, the Middle East, Russia and other international regions with several global top customers in automotive sector."

"China XD continues to value our deep working relationships with our customers above all, and is committed to creating value with our culture of hard work and innovation.  We anticipate that the continued execution of our strategic plan supported by an increase in our production capacity, our entry into new markets, a diversified customer base and a diversification with international sales will help to generate business growth for years to come.  For fiscal 2018, we are reiterating our financial guidance of between $1.2 and $1.4 billion in revenue, $90 and $110 million in net income ", Mr. Han concluded.

First Quarter 2018 Results

Revenues were $310.5 million for the first quarter of 2018, compared to $237.8 million for the same period of 2017, representing an increase of $72.7 million, or 30.6%. The year-over-year increase was primarily due to an increase of 24.4% in sales volume, a depreciation of USD against RMB by 8% and offset by a decrease of 3% in the average RMB selling price of our products, as compared with those of last year. 

PRC domestic revenues increased by $72.6 million in the first quarter of 2018, compared to the same period of 2017, as a result of an increase of 24.4% in sales volume, a depreciation of USD against RMB by 8%and offset by a decrease of 3% in the average RMB selling price of our products, as compared with those of last year. According to the China Association of Automobile Manufacturers, automobile sales in China increased by 2.8% for the first quarter of 2018 as compared to the same period of 2017. An improvement in macroeconomic conditions since 2017 has improved business conditions and eased pricing pressures. Driven by accelerating growth of 7.6% in Northeast China, 184% in Central China, 124% in South China, 89% in Southwest China, 26% in North China, and 22% in East China, our domestic sales during the three months ended March 31, 2018 increased by 30.5% as compared to the same period of the prior year. As for the RMB selling price, the Company also implemented a marketing strategy of offering lower-end products with lower RMB pricing to further penetrate the new regional markets in Central China and Southwest China.

For the three months ended March 31, 2018, revenues from overseas market was US$54,854 as compared to nil of that in 2017.The Company has tried to develop new customers overseas besides the existing oversea customer.  The sales with this customer was suspended due to account receivable balance overdue situation.  As of March 31, 2018, the customer has an outstanding balance of US$48.3 million, including US$5.8 million was 3-6 month past due, US$32.4 million was overdue for less than 3 month.  The customer expected to pay off the outstanding balance by June 2018.  As the account receivable balance was overdue, the Company suspended sales to the customer in 2018.

Premium products (PA66, PA6, Plastic Alloy, PLA, POM and PPO) in total accounted for 81.1% of revenues in the first quarter of 2018, compared to 81.3% for the same period of 2017.  During the first quarter of 2018, the Company continued to shift production mix from traditional lower-end products to higher-end products such as PA66, PA6, Plastic Alloy, and PLA, primarily due to (i) greater growth potential of advanced modified plastics in luxury automobile models in China, (ii) the stronger demand as a result of promotion by the Chinese government for clean energy vehicles and (iii) better quality from end consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, and U.S. and Japanese joint ventures, which manufacturers tend to use more and higher-end modified plastics in quantity per vehicle in China.

Gross profit was $53.9 million in the first quarter ended March 31, 2018, compared to $34.8 million in the same period of 2017, representing an increase of $19.1 million, or 54.9%. Our gross margin increased to 17.4% for the first quarter ended March 31, 2018 from 14.6% for the same quarter of 2017 primarily due to  higher gross margin of higher-end products in  domestic market for the first quarter ended March 31, 2018 as compared to that of the prior year.

General and administrative (G&A) expenses were US$ 8.9 million in the quarter ended March 31, 2018 compared to US$7.1 million in the same period in 2017, representing an increase of 25.4%, or US$1.8 million. This increase is primarily due to the increase of US$0.9 million salary and welfare which was due to the increase in the number of management and general staff from supporting departments and the increase of US$0.9 million in professional fee.

Research and development (R&D) expenses were $5.0 million for the first quarter of 2018, compared to $5.9 million for the same period of 2017, representing a decrease of $0.9 million, or 15.3%. The decrease was primarily due to the decrease of raw materials used by HLJ Xinda Group. As of March 31, 2018, the number of ongoing research and development projects was 326.

Operating income was $38.9 million for the first quarter of 2018, compared to $21.3 million for the same period of 2017, representing an increase of $17.6 million, or 82.6%.This increase is primarily due to increased gross profit, lower research and development expenses, partially offset by a higher G&A expenses and selling expenses.

Net interest expense was $10.6 million for the first quarter of 2018, compared to net interest expense of $8.8 million for the same period of 2017, representing an increase of $1.8 million, or 20.5%. This increase is primarily due to (i) the increase of average short-term and long-term loan balance in amount of US$854.2 million for the three months ended March 31, 2018 compared to US$785.4 million for the same period in 2017, partially offset by (ii) the decrease of interest expense resulting from the average loan interest rate decreased to 4.72% for the three months ended March 31, 2018 compared to 4.77% of the same period in 2017 ; (iii) the increase of average deposit balance in amount of US$626.8 million for the first quarter ended March 31, 2018 compared to US$485.3 million for the same period in prior year ; (iv) the increase of interest income resulting from the average deposit interest rate increased to 1.5% for the first quarter ended March 31, 2018 compared to 1.2 % of the same period in 2017.

Income tax expense was $6.2 million for the first quarter of 2018, representing an effective income tax rate of 24.5%, compared to income tax expense of $3.6 million in the same period of 2017, representing an effective income tax rate of 26.4%. The effective income tax rate reduced from 26.4% for the three-month period ended March 31, 2017 to 24.5% for the three-month period ended March 31, 2018is primarily due to the decrease of continuous operating loss occurred in oversea subsidiaries, and partially offset by the decrease of Sichuan Xinda's profit before tax ("PBT")ratio. The effective income tax rate for the three-month period ended March 31, 2018 differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda's preferential income tax rate and R&D 50% additional deduction of the major PRC operating entities.

Net income was $19.1 million for the first quarter of 2018, compared to $9.9 million for the same period of 2017, representing an increase of $9.2 million, or 92.9%. Basic and diluted earnings per share for the three-month period ended March 31, 2018 were $0.29, compared to $0.15 per basic and diluted share for the same period of 2017.  The average number of shares used in the computation of basic and diluted earnings per share in the current quarter was 49.7 million compared to 49.5 million shares for basic and diluted earnings per share in the prior year period.

Earnings before interest, tax, depreciation and amortization (EBITDA) was $49.6 million for the first quarter of 2018, compared to $34.0 million for the same period of 2017, representing an increase of $15.6 million, or 45.9%.  For a detailed reconciliation of EBITDA, a non-GAAP measure, to its nearest GAAP equivalent, please see the financial tables at the end of this release.

Financial Condition

As of March 31, 2018, the Company had $564.8 million in cash and cash equivalents, restricted cash and time deposits, a decrease of $43.3 million or 7.1% as compared to $608.1 million as of December 31, 2017.  As of the March 31, 2018, working capital was $110.1 million (current assets minus current liabilities) and the current ratio  (current assets divided by current liabilities) was 1.1, as compared to the current ratio of1.0 as of December 31, 2017. Stockholders' equity as of March 31, 2018 was $761.6 million, an increase of $48.8 million or 6.8% as compared to $712.8 million as of December 31, 2017.

Accounts receivable decreased by 36.3% or US$108.6 million due to the management efforts to collect outstanding balances due from the domestic customers. Inventories increased by 32.1% as a result of more purchases of the raw materials and the Company's strategy to stock up the finished goods for the upcoming orders.  Prepaid expenses and other current assets decreased by 22.5% or US$32.5 million as Sichuan Xinda received the refund of prepayment from an equipment supplier in January 2018. Prepayments to equipment and construction suppliers increased by 17.9% or US$34.2 million because HLJ Xinda Group prepaid to an equipment supplier for purchase equipment for the industrial project of upgrading existing equipment for 100,000 metric tons of engineering plastics. The aggregate short-term and long-term bank loans decreased by 7.9% due to the repayments of the loans. We define the manageable debt level as the sum of aggregate short-term and long-term loans, and notes payable over total assets. We expect that we will be able to meet our needs to fund operations, capital expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents, operating cash flows and bank borrowings. 

Financial Guidance and Business Outlook

The Company reiterates its financial guidance for fiscal 2018 to range between $1.2 and $1.4billion in revenue. Gross margin in fiscal 2018 is expected to remain stable as compared to that of fiscal 2017. The Company project net income to range between $90and$110million. This is based on the anticipation of a steady recovery throughout the Chinese automotive supply chain and a stabilization of crude oil pricing and its impact on polymer composite materials in 2018. This forecast also assumes contributions from the Sichuan plant and the Dubai second phase project, which will be completed by the end of second quarter of 2018 and the end of 2018, respectively.  It also assumes the average exchange rate of the US dollar to RMB at 6.3. This financial guidance reflects the Company's preliminary view of its business outlook for fiscal 2018 and is subject to revision based on changing market conditions at any time.

Recent Development

This year at National Plastics Exhibition 2018 ("NPE 2018") in Orlando FL, China XD is showcasing to its potential customers its comprehensive product range of petro-based, bio-based and additive manufacturing (aka 3D printing) composite materials, spanning the automotive, ships, high-speed rail, airplanes, bio-degradable materials, medical-grade materials, food packaging, electronic equipment, electrical products, alternative energy applications and power devices. NPE 2018: The Plastics Show is known as the world's leading plastics trade show and features exhibitors from over 2,000 companies to showcase cutting-edge technology through polymer materials, process and full-scale operating prototypes and machinery. Held every three years, this year's event takes place in Orlando, Florida, from May 7-11, 2018. NPE is produced by the Plastics Industry Association (PLASTICS) and includes the entire global plastics supply chain, along with the full range of end-user markets.

Conference Call

China XD Plastics' senior management will host a conference call at 9:00 am Eastern Time on Thursday, May10, 2018, to discuss its first quarter 2018 financial results.  The conference call can be accessed by dialing +1- 845-675- 0437 (for callers in the U.S.), +86-4006- 208-038 (for Mainland China callers) or +852- 3018-6771 (for Hong Kong callers)and entering passcode 2985596.

A recording of the conference call will be available through May 17, 2018, by calling +1-855-452-5696(for callers in the U.S.) and entering pass code 2985596.

 A live webcast and replay of the conference call will be available on the investor relations page of the Company's website at http://chinaxd.net/.

About China XD Plastics Company Limited      

China XD Plastics Company Limited, through its wholly-owned subsidiaries, develops, manufactures and sells polymer composites materials, primarily for automotive applications. The Company's products are used in the exterior and interior trim and in the functional components of 30 automobile brands manufactured in China, including without limitation, Audi, Mercedes Benz, BMW, Toyota, Buick, Chevrolet, Mazda, Volvo, Ford, Citroen, Jinbei and VW Passat, Golf, Jetta, etc.The Company's wholly-owned research center is dedicated to the research and development of polymer composites materials and benefits from its cooperation with well-known scientists from prestigious universities in China. As of March31, 2018, 456 of the Company's products have been certified for use by one or more of the automobile manufacturers in China. For more information, please visit the Company's English website at http://chinaxd.irpass.com/, and the Chinese website at http://www.xdholding.com.

Safe Harbor Statement

This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to, the Company's growth potential in international markets; the effectiveness and profitability of the Company's product diversification strategy; the impact of the Company's product mix shift to more advanced products and related pricing policies;  the effectiveness, profitability, and the marketability of its the ongoing mix shift to more advanced products; the prospects of the Company's Dubai facility, and the associated expansion into Middle East, Europe and other parts of Asia; the prospects of the Company's Sichuan facility, and its penetration into Southwest China; the prospects of the Company's Harbin facility, and its penetration into Northeast China; the Company's projections of its revenues for performance in fiscal 2018.  These forward-looking statements can be identified by terminology such as "will," "expect," "project," "anticipate," "forecast," "plan," "believe," "estimate" and similar statements. Forward-looking statements involve inherent risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the Company and the industry. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, the global economic uncertainty which could further impair the automotive industry and limit demand for our products; fluctuations in automotive sales and production which could have a material adverse effect on our results of operations and liquidity; our financial performance which may be affected by the prospect of our Dubai facility and the associated expansion into Middle East, Europe and other parts of Asia; the withdrawal of preferential government policies, the tightening control over the Chinese automotive industry, automobile purchase restrictions imposed in certain major cities which may limit market demand for our products;the slowing of Chinese automotive industry's growth; the concentration of our distributors, customers and suppliers; and other risks detailed in the Company's filings with the Securities and Exchange Commission and available on its website at http://www.sec.gov. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law.  Although the Company believes that the expectations expressed in these forward looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 
   

March 31,

   

December 31,

 
   

2018

   

2017

 
   

US$

   

US$

 

ASSETS

           

Current assets:

           

Cash and cash equivalents

   

50,814,789

     

190,392,211

 

Restricted cash

   

170,455,598

     

129,699,454

 

Time deposits

   

343,505,988

     

288,023,017

 

Accounts receivable, net of allowance for doubtful
accounts

   

190,293,398

     

298,868,984

 

Inventories

   

556,919,906

     

421,736,682

 

Prepaid expenses and other current assets

   

111,816,277

     

144,326,151

 

    Total current assets

   

1,423,805,956

     

1,473,046,499

 

Property, plant and equipment, net

   

844,425,358

     

835,561,739

 

Land use rights, net

   

33,025,874

     

31,943,652

 

Long-term prepayments to equipment and
construction suppliers

   

224,826,888

     

190,627,514

 

Other non-current assets

   

13,148,575

     

12,924,279

 

    Total assets

   

2,539,232,651

     

2,544,103,683

 
                 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY

 

Current liabilities:

               

Short-term loans, including current portion of long-term bank loans

   

674,006,093

     

775,396,929

 

Bills payable

   

431,472,146

     

252,768,510

 

Accounts payable

   

47,678,749

     

227,993,140

 

Income taxes payable

   

15,879,046

     

17,710,217

 

Accrued expenses and other current liabilities

   

144,619,028

     

138,605,509

 

    Total current liabilities

   

1,313,655,062

     

1,412,474,305

 

Long-term bank loans, excluding current portion

   

145,577,201

     

114,208,319

 

Deferred income

   

108,962,772

     

99,168,276

 

Other non-current liabilities

   

111,839,048

     

107,898,318

 

    Total liabilities

   

1,680,034,083

     

1,733,749,218

 
                 

Redeemable Series D convertible preferred stock
(redemption amount of US$252,601,000 and
US$244,044,200 as of March 31, 2018 and
December 31, 2017, respectively)

   

97,576,465

     

97,576,465

 

Stockholders' equity:

               

Series B preferred stock

   

100

     

100

 

Common stock, US$0.0001 par value, 500,000,000
shares authorized, 49,748,731 shares and
49,748,731 shares issued, 49,727,731 shares and
49,727,731 shares outstanding as of  March 31,
2018 and December 31, 2017, respectively

   

4,975

     

4,975

 

Treasury stock, 21,000 shares at cost

   

(92,694)

     

(92,694)

 

Additional paid-in capital

   

83,242,685

     

83,159,893

 

Retained earnings

   

667,890,370

     

648,790,469

 

Accumulated other comprehensive income (loss)

   

10,576,667

     

(19,084,743)

 

    Total stockholders' equity

   

761,622,103

     

712,778,000

 

Commitments and contingencies

   

-

     

-

 

    Total liabilities, redeemable convertible
      preferred stock and stockholders' equity

   

2,539,232,651

     

2,544,103,683

 

 

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
   

Three-Month Period Ended March 31,

 
   

2018

   

2017

 
   

US$

   

US$

 
             

Revenues

   

310,453,033

     

237,840,197

 

Cost of revenues

   

(256,585,577)

     

(203,068,027)

 

    Gross profit

   

53,867,456

     

34,772,170

 
                 

Selling expenses

   

(1,051,009)

     

(518,813)

 

General and administrative expenses

   

(8,875,009)

     

(7,053,671)

 

Research and development expenses

   

(5,049,898)

     

(5,851,100)

 

    Total operating expenses

   

(14,975,916)

     

(13,423,584)

 
                 

    Operating income

   

38,891,540

     

21,348,586

 
                 

Interest income

   

2,312,623

     

1,163,259

 

Interest expense

   

(12,894,205)

     

(10,021,976)

 

Foreign currency exchange losses

   

(3,955,808)

     

(476,085)

 

Losses on foreign currency option contracts

   

(520,981)

     

-

 

Government grant

   

1,477,559

     

1,439,531

 

    Total non-operating expense, net

   

(13,580,812)

     

(7,895,271)

 
                 

    Income before income taxes

   

25,310,728

     

13,453,315

 
                 

Income tax expense

   

(6,210,827)

     

(3,552,326)

 
                 

    Net income

   

19,099,901

     

9,900,989

 
                 

Earnings per common share:

               

Basic and diluted

   

0.29

     

0.15

 
                 

Net Income

   

19,099,901

     

9,900,989

 
                 

Other comprehensive income

               

Foreign currency translation adjustment, net of
nil income taxes

   

29,661,410

     

3,918,303

 
                 

Comprehensive income

   

48,761,311

     

13,819,292

 

 

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
   

Three-Month Period Ended March 31,

 
   

2018

   

2017

 
   

US$

   

US$

 

Cash flows from operating activities:

           

Net cash provided by (used in) operating
activities

   

28,429,789

     

(47,564,499)

 
                 

Cash flows from investing activities:

               

Purchase of time deposits

   

(163,426,937)

     

(59,853,272)

 

Proceeds from maturity of time deposits

   

119,741,660

     

168,083,097

 

Purchase of and deposits for property, plant
and equipment

   

(64,469,960)

     

(328,428,788)

 

Refund of deposit from an equipment supplier

   

60,054,417

     

75,052,508

 

Purchases of land use rights

   

-

     

(3,036,333)

 

Government grantrelated to the industrial
project for 300,000 metric tons
biological composite materials

   

6,953,816

     

-

 

Net cash used in investing activities

   

(41,147,004)

     

(148,182,788)

 
                 

Cash flows from financing activities:

               

Proceeds from bank borrowings

   

251,134,403

     

316,586,547

 

Repayment of bank borrowings

   

(347,339,779)

     

(188,024,421)

 

Net cash (used in) provided by financing activities

   

(96,205,376)

     

128,562,126

 
                 

Effect of foreign currency exchange rate 
     changes on cash, cash equivalents, and 
     restricted cash

   

10,101,313

     

1,608,314

 

Net decrease in cash, cash equivalents, and
restricted cash

   

(98,821,278)

     

(65,576,847)

 
                 

Cash, cash equivalents, and restricted cash
at beginning of period

   

320,091,665

     

271,575,847

 

Cash, cash equivalents, and restricted cash
at end of period

   

221,270,387

     

205,999,000

 
                 

Supplemental disclosure of cash flow
information:

               

Interest paid, net of capitalized interest

   

11,062,464

     

8,482,216

 

Income taxes paid

   

7,064,571

     

5,057,042

 

Non-cash investing and financing activities:

               

Accrual for purchase of property, plant and
equipment

   

196,911

     

4,147,349

 
                   

The following table shows a reconciliation of cash, cash equivalents and restricted cash on the condensed consolidated balance sheets to that presented in the above condensed consolidated statements of cash flows.

   

Three-Month Period Ended March 31,

 
   

2018

   

2017

 
   

US$

   

US$

 
             

Cash and cash equivalents

   

50,814,789

     

57,695,720

 

Restricted cash

   

170,455,598

     

148,303,280

 

Total cash, cash equivalents, and restricted 
     cash shown in the statement of cash flows

   

221,270,387

     

205,999,000

 
                 

 

 

CHINA XD PLASTICS COMPANY LIMITED

 

Reconciliation of Net Income to EBITDA

 

(Amounts expressed in United States Dollars)

 

Three Months Ended

 

March 31

 

2018

2017

     

Net income

$19,099,901

$9,900,989

Interest expense

12,894,205

10,021,976

Provision for income taxes

6,210,827

3,552,326

Depreciation and
amortization expense

11,442,287

10,493,783

EBITDA

$49,647,220

$33,969,074

 

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