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

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

PR Newswire

- Revenue of $317.3 million -
Net Income of $27.2 million -
- Reiterating Fiscal 2018 Guidance of $1.2-$1.4 Billion in  Revenue, $90-$110 Million in Net Income -

HARBIN, China, Aug. 9, 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 second quarter ended June 30, 2018.

Second Quarter 2018 Financial Summary

  • Revenue was $317.3 million, an increase of 1.2% YoY
  • Gross profit was $56.2 million, a decrease of 10.9% YoY
  • Gross margin of 17.7%, a decrease of 240 basis points YoY
  • Net income was $27.2 million, an decrease of 3.2% YoY
  • EBITDA was $55.3 million, an increase of 1.1% YoY
  • Total volume shipped was 103,678 metric tons, a decrease of 0.9% YoY

"We are pleased with our quarterly results with continuing top line growth." 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 positioned 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.  It is expected that the construction of Sichuan facility with 300,000 metric tons of annual production will be completed by the end of September, 2018, a key milestone in our corporate development. The new facility also further 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."

"Our new facility in Dubai also extends our specialized high-end 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 August 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."

"We take pride of our achievement in the past and remain confident in the long term prospect of our business. The recent nationwide deleveraging efforts in China, however, has significant impact on activities of many companies in China, including merger and acquisition as well as privatization. To ensure the success of the Company's expansion strategy in multiple regions and sectors, we will be more fiscally vigilant and responsible and improving our capital structure by swapping more short term debts with longer term instruments among other means in order to maintain a stable and sound balance sheet and weather potential and unexpected turbulence in the future."

Second Quarter 2018 Results

Revenues were $317.3 million for the second quarter of 2018, compared to $313.6 million for the same period of 2017, representing an increase of $3.7 million, or 1.2%. The year-over-year increase was primarily due to i) a depreciation of USD against RMB by 7.0%; partially offset by: ii) a decrease of 5.0% in the average RMB selling price of our products; and iii) a decrease of 0.9% in sales volume, as compared with those of last year.

PRC domestic revenues increased by $37 million in the second quarter of 2018, compared to the same period of 2017, as a result of i) an increase of 2.2% in sales volume; ii) a depreciation of USD against RMB by 7.0%; and iii) an increase of 2.8% 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 production and sales in China increased by 4.15% and 5.57%, respectively, for the first half year of 2018 as compared to the same period of 2017. An improvement in macroeconomic conditions since 2017 has improved business conditions and ease pricing pressures. Driven by accelerating growth of 1.5% in Northeast China, 120.8% in Central China, 111.0% in South China, 52.1% in Southwest China, 1.0% in North China, and 1.7% in East China, our domestic sales during the three month ended June 30, 2018 increased by 13.0%, as compared to the same period of the prior year. As for the RMB selling price, the increase was mainly due to more sales of higher end product of modified PA66, PLA and PPO in China.

For the three months ended June 30, 2018, revenues from overseas market was US$53,353 as compared to US$33.0 million 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 June 30, 2018, the customer has an outstanding balance of US$46.6 million, among which balance of US$10.2 million was less than 3 months, US$32.4 million was 3-6 month past due, US$4.0 million was overdue for 7-12 month past due.  The customer expected to pay off the outstanding balance by September 2018.  As the account receivable balance was overdue, the Company suspended sales to this oversea customer in 2018.

Premium products (PA66, PA6, Plastic Alloy, PLA, POM and PPO) in total accounted for 82.5% of revenues in the second quarter of 2018, compared to 81.5% for the same period of 2017.  During the second 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 demand from end consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, Sino-U.S. and Sino-Japanese joint ventures, which manufacturers tend to use more and higher-end modified plastics in quantity per vehicle in China.

Gross profit was $56.2 million in the second quarter ended June 30, 2018, compared to $63.1 million in the same period of 2017, representing a decrease of $6.9 million, or 10.9%. Our gross margin decreased to 17.7% during the second quarter ended June 30, 2018 from 20.1% during the same quarter of 2017 primarily because there were no overseas sales in the second quarter ended June 30, 2018 which usually contains high profits products sales.

General and administrative (G&A) expenses were US$ 11.3 million for the quarter ended June 30, 2018 compared to US$8.8 million in the same period in 2017, representing an increase of 28.4%, or US$2.5 million. The increase was primarily due to the increase of (i) US$2.4 million in stock based compensation and (ii) US$0.1 million in salary and welfare resulting from the increase in the number of management and general staff from supporting departments.

Research and development (R&D) expenses were US$5.3 million for the second quarter of 2018, compared to US$9.5 million for the same period of 2017, representing a decrease of $4.2 million, or 44.2%. The decrease was primarily due to the decrease of raw materials used. As of June 30, 2018, the number of ongoing research and development projects was 401.

Operating income was $36.0 million for the second quarter of 2018, compared to $44.0 million for the same period of 2017, representing a decrease of $8.0 million, or 18.2%. This decrease is primarily due to lower gross profit, higher selling expenses and G&A expenses, partially offset by lower R&D expenses.

Net interest expense was $10.3 million for the second quarter of 2018, compared to net interest expense of $11.0 million for the same period of 2017, representing a decrease of $0.7 million, or 6.4%. This decrease is primarily due to (i) the decrease of interest expense resulting from the weighted average loan interest rate decreased to 4.6% for the three-month period ended June 30, 2018 as compared to 4.9% of the same period of 2017; and partially offset by (ii) the increase of average short-term and long-term loan balance in the amount of US$925.0 million for the three-month period ended June 30, 2018 compared to US$849.0 million for the same period in 2017.

Income tax expense was $5.5 million for the second quarter of 2018, representing an effective income tax rate of 16.8%, compared to income tax expense of $4.1 million in the same period of 2017, representing an effective income tax rate of 12.8%. The increase of effective income tax rate was primarily due to increase of continuous operating losses occurred in overseas subsidiaries such as Dubai Xinda and Xinda Holding (HK), the decrease of 50% additional deduction of R&D expense and partially offset by the increase of Sichuan Xinda's PBT percentage within the consolidating entities. The effective income tax rate for the three-month ended June 30, 2018 differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda's preferential income tax rate, the reversal of the unrecognized tax benefits in year 2012 and 50% additional deduction of R&D expenses of the major PRC operating entities.

Net income was $27.2 million for the second quarter of 2018, compared to $28.1 million for the same period of 2017, representing a decrease of $0.9 million, or 3.2%. Basic and diluted earnings per share for the three-month period ended June 30, 2018 were $0.41, compared to $0.43 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 50.3 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 $55.3 million for the second quarter of 2018, compared to $54.7 million for the same period of 2017, representing an increase of $0.6 million, or 1.1%.  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 June 30, 2018, the Company had $449.4 million in the total amount of cash and cash equivalents, restricted cash and time deposits, a decrease of $158.7 million or 26.1% as compared to $608.1 million as of December 31, 2017.  As of the June 30, 2018, working capital was negative $174.3 million (current assets minus current liabilities) and the current ratio  (current assets divided by current liabilities) was 0.9, as compared to the current ratio of 1.0 as of December 31, 2017. Stockholders' equity as of June 30, 2018 was $752.1 million, an increase of $39.3 million or 5.5% as compared to $712.8 million as of December 31, 2017.

Inventories increased by 30.4% as compared to the end of fiscal year 2017 as a result of more purchases of the raw materials and the Company's strategy to stock up the finished goods for the upcoming order.  Prepaid expenses and other current assets decreased by 41.0% or US$59.1 million as compared to the end of fiscal year 2017 as Sichuan Xinda received the refund of prepayment from equipment supplier in January 2018. Prepayments to equipment supplier and construction suppliers increased by 166.2% or US$316.7 million as compared to the end of fiscal year 2017 because HLJ Xinda Group prepaid to equipment  to purchase equipment for the industrial project of upgrading existing equipment for 300,000 metric tons of biological based composite material and 100,000 metric tons of engineering plastics and Sichuan Xinda prepaid to equipment supplier to purchase equipment for the production of 300,000 metric tons of bio-composite materials. The aggregate short-term and long-term bank loans decreased by 13.7% as compared to the end of fiscal year 2017 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.

Financial Guidance and Business Outlook

The Company reiterates its financial guidance for fiscal 2018 to range between $1.2 and $1.4 billion 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 $90 and $110 million. 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 September of 2018 and the end of August of 2018, respectively.  It also assumes the average exchange rate of the US dollar to RMB at 6.8 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

On July 14, 2018, Xinda Holding (HK) entered into a subscription intent agreement with Changmu Investment (Beijing) Company Limited ("Changmu"), a company wholly controlled by Mr. Tiexin Han, the son of Mr. Jie Han, the Registrant's Chief Executive Officer and Chairman of the Company. Pursuant to the terms of the agreement, HLJ Xinda Group received USD75.6 million (RMB500 million) from Changmu on June 29, 2018 which was injected into HLJ Xinda Group in order to subscribe newly authorized registered capital of HLJ Xinda Group (the "Subscription"), subject to further negotiations among the parties of one or more definitive agreements governing the terms of the Subscription, including the valuation of HLJ Xinda Group. An agreement was subsequently entered on August 8, 2018 and the transaction will be reclassified as non-controlling interests and additional paid-in capital from amounts due to a related party. Subject to final independent evaluation, Xinda Holding (HK) Company Limited and Changmu's equity interests in HLJ Xinda Group are estimated to be 75% and 25%, respectively.

Conference Call

China XD Plastics' senior management will host a conference call at 9:00 am Eastern Time on Thursday, August 9th, 2018, to discuss its second 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 8991228.

A recording of the conference call will be available through August 16th, 2018, by calling +1-855-452-5696 (for callers in the U.S.) and entering pass code 89991228.

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 31 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 June 30, 2018, 464 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.

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.

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS



June 30,


December 31,


2018


2017


US$


US$

ASSETS




Current assets:




Cash and cash equivalents

72,721,460


190,392,211

Restricted cash

263,254,352


129,699,454

Time deposits

113,351,268


288,023,017

Accounts receivable, net of allowance for doubtful accounts

308,622,962


298,868,984

Inventories

549,782,095


421,736,682

Prepaid expenses and other current assets

85,211,205


144,326,151

    Total current assets

1,392,943,342


1,473,046,499

Property, plant and equipment, net

813,775,162


835,561,739

Land use rights, net

31,226,580


31,943,652

Long-term prepayments to equipment and construction suppliers

507,306,748


190,627,514

Other non-current assets

16,102,868


12,924,279

    Total assets

2,761,354,700


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

635,504,864


775,396,929

Bills payable

519,466,191


252,768,510

Accounts payable

166,693,789


227,993,140

Amounts due to a related party

75,567,512


-

Income taxes payable

16,612,181


17,710,217

Accrued expenses and other current liabilities

153,355,737


138,605,509

    Total current liabilities

1,567,200,274


1,412,474,305

Long-term bank loans, excluding current portion

132,304,205


114,208,319

Deferred income

105,746,194


99,168,276

Other non-current liabilities

106,440,118


107,898,318

    Total liabilities

1,911,690,791


1,733,749,218





Redeemable Series D convertible preferred stock (redemption amount of US$252,601,000
and US$244,044,200 as of June 30, 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, 50,308,731 shares and 

5,031


4,975

    49,748,731 shares issued, 50,287,731 shares and 49,727,731 shares outstanding as of  

    June 30, 2018 and December 31, 2017, respectively

Treasury stock, 21,000 shares at cost

(92,694)


(92,694)

Additional paid-in capital

85,789,902


83,159,893

Retained earnings

695,114,448


648,790,469

Accumulated other comprehensive loss

(28,729,343)


(19,084,743)

    Total stockholders' equity

752,087,444


712,778,000

Commitments and contingencies

-


-

    Total liabilities, redeemable convertible preferred stock and stockholders' equity

2,761,354,700


2,544,103,683

 

 

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



Three-Month Period Ended
June 30,


Six-Month Period Ended
June 30,


2018


2017


2018


2017


US$


US$


US$


US$









Revenues

317,329,520


313,555,663


627,782,553


551,395,860

Cost of revenues

(261,175,654)


(250,446,461)


(517,761,231)


(453,514,488)

    Gross profit

56,153,866


63,109,202


110,021,322


97,881,372









Selling expenses

(3,562,711)


(705,337)


(4,613,720)


(1,224,150)

General and administrative expenses

(11,348,767)


(8,844,582)


(20,223,776)


(15,898,253)

Research and development expenses

(5,288,636)


(9,546,922)


(10,338,534)


(15,398,022)

    Total operating expenses

(20,200,114)


(19,096,841)


(35,176,030)


(32,520,425)









    Operating income

35,953,752


44,012,361


74,845,292


65,360,947









Interest income

1,029,675


970,293


3,342,298


2,133,552

Interest expense

(11,274,575)


(11,951,851)


(24,168,780)


(21,973,827)

Foreign currency exchange gains (losses)

5,632,970


(1,870,977)


1,677,162


(2,347,062)

Losses on foreign currency option contracts

-


-


(520,981)


-

Government grant

1,378,484


1,023,922


2,856,043


2,463,453

    Total non-operating expense, net

(3,233,446)


(11,828,613)


(16,814,258)


(19,723,884)









    Income before income taxes

32,720,306


32,183,748


58,031,034


45,637,063









Income tax expense

(5,496,228)


(4,119,756)


(11,707,055)


(7,672,082)









    Net income

27,224,078


28,063,992


46,323,979


37,964,981









Earnings per common share:








Basic and diluted

0.41


0.43


0.70


0.58









Net Income

27,224,078


28,063,992


46,323,979


37,964,981









Other comprehensive income (loss)








Foreign currency translation adjustment, net of nil income taxes

(39,306,010)


13,751,361


(9,644,600)


17,669,664









    Comprehensive income (loss) 

(12,081,932)


41,815,353


36,679,379


55,634,645

 

 

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



Six-Month Period Ended June 30,   


2018


2017


US$


US$

Cash flows from operating activities:




Net cash provided by operating activities

152,600,917


166,636,423





Cash flows from investing activities:




Proceeds from maturity of time deposits

388,105,630


244,825,478

Purchase of time deposits

(210,380,884)


(215,714,244)

Purchase of land use rights

-


(6,214,207)

Purchase of and deposits for property, plant and equipment

(334,739,673)


(281,550,529)

Refund of deposit from an equipment supplier

60,054,417


75,197,802

Deposits for acquisition of equity

(3,640,688)


-

Government grant related to the construction projects

10,558,608


7,136,482

Net cash used in investing activities

(90,042,590)


(176,319,218)





Cash flows from financing activities:




Proceeds from bank borrowings

470,494,396


441,425,024

Repayments of bank borrowings

(587,236,484)


(311,342,509)

Investment received in advance from a related party

75,567,512


-

Net cash (used in) provided by financing activities

(41,147,576)


130,082,515





Effect of foreign currency exchange rate changes on cash, cash equivalentsand restricted cash

(5,499,604)


7,995,135

Net increase in cash, cash equivalents and restricted cash

15,884,147


128,394,855





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

335,975,812


399,970,702





Supplemental disclosure of cash flow information:




Interest paid, net of capitalized interest

23,267,235


17,323,875

Income taxes paid

12,906,780


7,353,371

Non-cash investing and financing activities:




Accrual for purchase of equipment and construction included in accrued expenses and other
current liabilities

6,057,014


5,379,730


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.




June 30,


2018


2017


US$


US$





Cash and cash equivalents

72,721,460


279,825,075

Restricted cash

263,254,352


120,145,627

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

335,975,812


339,970,702

 

 

CHINA XD PLASTICS COMPANY LIMITED

Reconcilation of Net Income to EBITDA

(Amounts expressed in United States Dollars)


Three Months Ended


June 30,


2018

2017




Net income

$27,224,078

$28,063,992

Interest expense

11,274,575

11,951,851

Provision for income taxes

5,496,228

4,119,756

Depreciation and amortization expense

11,348,832

10,585,602

EBITDA

55,343,713

54,721,201

 

Cision View original content:http://www.prnewswire.com/news-releases/specialty-chemical-company-china-xd-plastics-announces-second-quarter-2018-financial-results-300694664.html

SOURCE China XD Plastics Company Limited

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