Specialty Chemical Company China XD Plastics Announces Third Quarter 2017 Financial Results
- Revenue of $311.4 million -
- Net Income of $14.1 million -
- Reiterating Fiscal 2017 Guidance of $1.2 - $1.3 Billion in Revenue, $85.0 - $100.0 Million in Net Income -
HARBIN, China, Nov. 9, 2017 /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 third quarter ended September 30, 2017.
Third Quarter 2017 Financial Summary
-- Revenue was $311.4 million, a decrease of 6.1% YoY
-- Gross profit was $47.3 million, a decrease of 32.0% YoY
-- Gross margin of 15.2%, a decrease of 580 basis points YoY
-- Net income was $14.1 million, a decrease of 30.2% YoY
-- EBITDA was $39.0 million, a decrease of 15.4% YoY
-- Total volume shipped was 111,852 metric tons, up 3.0% YoY
"Our total revenue fell short of expectations for the third quarter, although our PRC domestic revenue was up marginally as compared to the same period last year," said Jie Han, Chairman of the Board of Directors and Chief Executive Officer. "As reported by the China Association of Automobile Manufacturers, for the first nine months of 2017, automobile production increased 5.5% relative to the same period last year. A favorable macroeconomic environment throughout China's automotive supply chain led to positive growth in our sales volume, although this was offset by the Company's marketing strategy of offering lower-end products with lower RMB pricing in order to further penetrate the new regional markets in Central China and South China, which negatively affected our average selling price and gross margin. However, we are confident in our operating capabilities and believe that our new geographical positioning and new development projects will create a more robust and diversified enterprise."
Mr. Han continued, "We continued to gain traction into new territories attributable to our new, state-of-the-art Sichuan manufacturing facility located in southwest China. When fully operational, this strategic initiative will add 300,000 metric tons of annual production capacity to our 390,000 metric tons of annual production capacity from our more established northeast Harbin plant. Our Sichuan facility currently has 50 production lines with 216,000 metric tons of annual production capacity, and we expect that the ongoing construction at our Sichuan campus will be completed by the end of the first quarter of 2018. The installation of high precision equipment in our Sichuan facilities will enable us to broaden our product platform to serve an array of high-growth verticals which will ultimately result in additional income streams."
"We are very enthusiastic about all of our new industrial projects. Our development project with the Management Committee of Harbin Economic - Technological Development Zone includes an industrial project for upgrading existing equipment for 100,000 metric tons of engineering plastics, which we expect will be completed by the end of June 2018. Also included is an industrial project for 300,000 metric tons of biological composite materials, an industrial project for a 3D printing intelligent manufacture demonstration factory and a 3D printing display and experience cloud factory, all of which we expect to be completed by the end of July 2019. We anticipate our development project with the People's Government of Shunqing District, Nanchong City of Sichuan Province for the production of 300,000 metric tons of bio-composite materials and additive manufacturing and 20,000 metric tons of functional masterbatch will be completed by the end of December 2018."
"Our Dubai facility extends our specialized high-tech products into an important overseas market. We plan to complete the installation of 45 production lines with 12,000 metric tons of annual production capacity by the first quarter of 2018, and to complete the installation of an additional 50 production lines with 13,000 metric tons of annual production capacity by the end of 2018. This will bring the total annual production capacity of our Dubai facility to 25,000 metric tons. The Dubai facility will target high-end products for overseas markets and will ultimately help us both source raw materials and make inroads into the markets of Europe, the Middle East, Russia and other overseas markets."
"We believe that our increased production capabilities, geographical expansion and more diversified customer base both strengthen and augment our core automotive business. Further, our new development projects, which leverage our technical expertise, could lead to additional new business. We view ourselves as the leader in the polymer composites sector, which will enable us to provide creative technology solutions for China's modernizing transportation, energy, healthcare and industrial sectors. We reiterate our financial guidance for fiscal 2017 and continue to be excited by our core market positioning and expanded platform for growth," Mr. Han concluded.
Third Quarter 2017 Results
Revenues were $311.4 million for the third quarter of 2017, compared to $331.8 million for the same period of 2016, representing a decrease of $20.4 million, or 6.1%. The year-over-year decrease was primarily due to an 8.3% decrease in the average RMB selling price of our products, attributable to the current quarter's greater percentage of lower-end modified polypropylene sold in China, offset by a 3.0% increase in sales volume. There was also a 0.6% negative impact from the exchange rate due to the weakening RMB against the US dollar in the current quarter as compared to the same period of 2016.
PRC domestic revenues increased by 0.8% in the third quarter of 2017, compared to the same period of 2016, driven by modest growth in demand for our products in the China market and our continued efforts to expand our customer base attributable to our new plant in Sichuan. In the current quarter, we recorded sales increases of 42.8% in Central China, 61.1% in Southwest China and 0.5% in North China, which was offset by decreases of 5.1% in South China, 5.2% in East China and 6.8% in Northeast China as compared to the same period in 2016. Overseas sales resumed in the second quarter of 2017 and were $14.1 million in the current quarter, compared to $37.0 million in the same period of 2016, representing a decrease of $22.9 million, or 61.9%. The overseas customer has made payments of $62.6 million for the first three quarters of 2017, and expects to pay off the overdue outstanding balance of $44.9 million in the fourth quarter of 2017.
Premium products (PA66, PA6, Plastic Alloy, PLA, POM and PPO) in total accounted for 74.9% of revenues in the third quarter of 2017, compared to 82.8% for the same period of 2016. During the third quarter of 2017, the Company 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. Pending this marketing strategy, the Company intends to shift its production mix on a longer-term basis from traditional lower-end products to higher-end products such as modified polylactic acid (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 $47.3 million in the third quarter ended September 30, 2017, compared to $69.6 million in the same period of 2016, representing a decrease of $22.3 million, or 32.0%. Our gross margin decreased to 15.2% for the third quarter ended September 30, 2017 from 21.0% for the same quarter of 2016 primarily due to (i) the usage of higher-priced modified polyamide (PA) raw materials inventory for the third quarter of 2017 leading to higher cost of goods sold, (ii) lower sales of higher-end products by Dubai Xinda; and (iii) implementation of a marketing strategy to offer lower-end products with lower RMB pricing to further penetrate the new regional markets in Central China and Southwest China for the third quarter of 2017 as compared to that of the prior year.
General and administrative (G&A) expenses were $10.4 million for the third quarter of 2017, compared to $8.4 million for the same period of 2016, representing an increase of $2.0 million, or 23.8%. This increase was primarily due to the increase of (i) $2.2 million in salary and welfare expenses resulting from the increase in the number of management and general staff from supporting departments and in average salary and bonus, and (ii) $0.3 million in depreciation and amortization which was partially offset by the decrease of (iii) $0.3 million in professional fees, and (iv) $0.2 million in travelling and transportation.
Research and development (R&D) expenses were $9.8 million for the third quarter of 2017, compared to $7.9 million for the same period of 2016, representing an increase of $1.9 million, or 24.1%. This increase was primarily due to (i) elevated R&D activities to meet the higher quality requirements of potential customers from Europe mainly engaged in the automobile components industry; and (ii) increased efforts directed towards applications in new electrical equipment and electronics, alternative energy applications, power devices, aviation equipment and ocean engineering, in addition to other new products primarily for advanced industrialized applications in the automobile sector and in new verticals such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics and medical devices. As of September 30, 2017, the number of ongoing research and development projects was 366.
Operating income was $26.2 million for the third quarter of 2017, compared to $53.1 million for the same period of 2016, representing a decrease of $26.9 million, or 50.7%. This decrease was primarily due to lower gross profit, higher G&A expenses and higher R&D expenses.
Net interest expense was $9.0 million for the third quarter of 2017, compared to net interest expense of $9.7 million for the same period of 2016, representing a decrease of $0.7 million, or 7.2%. This decrease was primarily due to the increase in interest income resulting from the increase in the average deposit balance to $503.1 million for the three month period ended September 30, 2017 compared to $355.8 million for the same period in 2016, and an increase of the average interest rate to 1.5% for the three month period ended September 30, 2017 compared to 1.4% for the same period of 2106.
Income tax expense was $3.1 million for the third quarter of 2017, representing an effective income tax rate of 17.8%, compared to income tax expense of $5.3 million in the same period of 2016, representing an effective income tax rate of 20.8%. The decrease of the effective income tax rate was primarily due to a greater portion of the profit generated by Sichuan Xinda which enjoys preferential tax rate and the increase of the 50% additional deduction of R&D expense. The effective income tax rate for the three-month ended September 30, 2017 differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda Enterprise Group Company Limited's preferential income tax rate and R&D 50% additional deduction of the major PRC operating entities.
Net income was $14.1 million for the third quarter of 2017, compared to $20.2 million for the same period of 2016, representing a decrease of $6.1 million, or 30.2%. Basic and diluted earnings per share in the current quarter were $0.21, compared to $0.31 per basic and diluted share for the same period of 2016. The average number of shares used in the computation of basic and diluted earnings per share current quarter was 49.6 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 $39.0 million for the third quarter of 2017, compared to $46.1 million for the same period of 2016, representing an decrease of $7.1 million, or 15.4%. 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 September 30, 2017, the Company had $531.2 million in cash and cash equivalents, restricted cash and time deposits, an increase of $74.8 million or 16.4% as compared to $456.4 million as of December 31, 2016. As of the current period, working capital was $128.2 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 of 1.2 as of December 31, 2016. Stockholders' equity as of September 30, 2017 was $720.4 million, an increase of $86.1 million or 13.6% as compared to $634.3 million as of December 31, 2016.
Inventories increased by $127.8 million or 45.5% to $408.7 million as of the third quarter of 2017 as compared to fiscal year end 2016 as a result of more purchases of raw materials and the Company's strategy to stock up on finished goods for anticipated upcoming orders. The aggregate short-term and long-term bank loans increased by $144.3 million or 20.8% to $838.6 million due to the utilization of existing lines of credit to support the expansion of the Sichuan and Dubai facilities. We define the manageable debt level as the sum of aggregate short-term and long-term loans 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 2017 with revenue to range between $1.2 billion and $1.3 billion, and net income to range between $85.0 million to $100.0 million. This is based on the anticipation of a continued recovery throughout the Chinese automotive supply chain and a stabilization of crude oil pricing and its impact on polymer composite materials in 2017. This forecast also assumes additional contributions from the Sichuan facility and that overseas sales will stablize as expected. It also assumes the average exchange rate of the US dollar to RMB at 6.8 and that the Company will incur interest expenses for long term loans and short term loans. This financial guidance reflects the Company's view of its business outlook for the fiscal year of 2017 and is subject to revision based on changing market conditions at any time.
Conference Call
China XD Plastics' senior management will host a conference call at 9:00 am Eastern Time on Thursday, November 9, 2017, to discuss its third quarter 2017 financial results. The conference call can be accessed by dialing 1-866-564-2842 or +1-323-794-2094 (for callers in the U.S.), +86-4001-209-221 (for Mainland China callers) or +852-3008-1527 (for Hong Kong callers) and entering pass code 5456886.
A recording of the conference call will be available through November 16, 2017, by calling +1-888-203-1112 (for callers in the U.S.) and entering pass code 5456886.
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.irpass.com/.
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 September 30, 2017, 432 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 2017. 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 could further impair the automotive industry and limit demand for our products; fluctuations in automotive sales and production could have a material adverse effect on our results of operations and liquidity; our financial performance 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 and the tightening control over the Chinese automotive industry and automobile purchase restrictions imposed in certain major cities 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.
Contacts:
China XD Plastics
Mr. Taylor Zhang, CFO (New York)
Phone: +1 (212) 747-1118
Email: cxdc@chinaxd.net
Investor Relations: Citigate Dewe Rogerson
Ms. Vivian Chen, Managing Director
US: +1 (347) 481-3711
Email: Vivian.chen@citigatedr.com
- Financial Tables Follow -
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
------------- ------------
2017 2016
---- ----
US$ US$
ASSETS
Current assets:
Cash and cash equivalents 46,767,025 168,086,445
Restricted cash 140,553,482 103,489,402
Time deposits 343,835,224 184,806,112
Accounts receivable, net of allowance for doubtful accounts 139,932,158 410,049,559
Amounts due from a related party - 229,624
Inventories 408,738,341 280,939,008
Prepaid expenses and other current assets 317,442,321 125,310,309
----------- -----------
Total current assets 1,397,268,551 1,272,910,459
------------- -------------
Property, plant and equipment, net 832,164,655 806,363,692
Land use rights, net 26,449,565 22,536,397
Long-term prepayments to equipment and construction suppliers 62,641,904 14,167,702
Other non-current assets 660,952 10,521,949
------- ----------
Total assets 2,319,185,627 2,126,500,199
============= =============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCKS AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term loans, including current portion of long-term bank loans 727,089,616 444,757,476
Bills payable 213,225,439 148,392,677
Accounts payable 100,965,200 320,013,040
Amounts due to related parties 282,348 11,548
Income taxes payable 3,170,970 897,625
Accrued expenses and other current liabilities 224,330,573 119,339,366
----------- -----------
Total current liabilities 1,269,064,146 1,033,411,732
------------- -------------
Long-term bank loans, excluding current portion 111,497,838 249,520,615
Deferred income 76,189,771 69,311,102
Other non-current liabilities 44,470,279 42,420,619
---------- ----------
Total liabilities 1,501,222,034 1,394,664,068
------------- -------------
Redeemable Series D convertible preferred stocks (redemption 97,576,465 97,576,465
amount of US$219,653,000 and US$212,212,300 as of September 30, 2
017 and December 31, 2016, respectively)
Stockholders' equity:
Series B preferred stock 100 100
Common stock, US$0.0001 par value, 500,000,000 shares authorized, 4 4,974 4,952
9,748,731 shares and 49,532,541 shares issued, 49,727,731 shares and 4
9,511,541 shares outstanding as of September 30, 2017 and December
31, 2016, respectively
Treasury stock, 21,000 shares at cost (92,694) (92,694)
Additional paid-in capital 83,075,318 82,606,404
Retained earnings 669,270,174 617,168,735
Accumulated other comprehensive loss (31,870,744) (65,427,831)
----------- -----------
Total stockholders' equity 720,387,128 634,259,666
----------- -----------
Commitments and contingencies - -
--- ---
Total liabilities, redeemable convertible preferred stocks and 2,319,185,627 2,126,500,199
stockholders' equity
See the accompanying notes to the unaudited condensed consolidated financial statements in the Company's third quarter 2017 10-Q as filed with the SEC
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three-Month Period Ended September 30, Nine-Month Period Ended September 30,
-------------------------------------- -------------------------------------
2017 2016 2017 2016
---- ---- ---- ----
US$ US$ US$ US$
Revenues 311,418,943 331,847,567 862,814,803 824,017,387
Cost of revenues (264,099,790) (262,206,936) (717,614,278) (659,218,624)
------------ ------------ ------------ ------------
Gross profit 47,319,153 69,640,631 145,200,525 164,798,763
---------- ---------- ----------- -----------
Selling expenses (858,739) (338,466) (2,082,889) (1,005,640)
General and administrative expenses (10,403,187) (8,369,224) (26,301,440) (20,034,920)
Research and development expenses (9,857,475) (7,864,732) (25,255,497) (18,681,018)
---------- ---------- ----------- -----------
Total operating expenses (21,119,401) (16,572,422) (53,639,826) (39,721,578)
----------- ----------- ----------- -----------
Operating income 26,199,752 53,068,209 91,560,699 125,077,185
Interest income 1,894,747 1,242,484 4,028,299 4,472,475
Interest expense (10,892,112) (10,870,903) (32,865,939) (32,403,784)
Foreign currency exchange gains (losses) (2,372,361) (14,902) (4,719,423) 356,672
Forward contract gains/(losses) (584,724) - (584,724) -
Loss on debt extinguishment - (18,963,834) - (18,963,834)
Government grant 2,955,045 1,011,870 5,418,498 1,438,589
--------- --------- --------- ---------
Total non-operating expense, net (8,999,405) (27,595,285) (28,723,289) (45,099,882)
---------- ----------- ----------- -----------
Income before income taxes 17,200,347 25,472,924 62,837,410 79,977,303
Income tax expense (3,063,889) (5,296,118) (10,735,971) (15,087,372)
---------- ---------- ----------- -----------
Net income 14,136,458 20,176,806 52,101,439 64,889,931
========== ========== ========== ==========
Earnings per common share:
Basic and diluted 0.21 0.31 0.79 0.98
==== ==== ==== ====
Net Income 14,136,458 20,176,806 52,101,439 64,889,931
Other comprehensive income (loss)
Foreign currency translation adjustment, 15,887,423 (4,953,926) 33,557,087 (18,467,228)
net of nil income taxes
Comprehensive income 30,023,881 15,222,880 85,658,526 46,422,703
========== ========== ========== ==========
See the accompanying notes to the unaudited condensed consolidated financial statements in the Company's third quarter 2017 10-Q as filed with the SEC
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Month Period Ended
September 30,
-------------
2017 2016
---- ----
US$ US$
Cash flows from operating activities:
Net cash provided by (used in) operating activities 117,785,202 (145,259,464)
----------- ------------
Cash flows from investing activities:
Proceeds from maturity of time deposits 249,029,754 389,418,762
Purchase of time deposits (396,036,693) (286,739,987)
Purchase of land use rights (3,203,611) -
Purchase of and deposits for property, plant and equipment (338,711,968) (140,826,457)
Refund of deposit from an equipment supplier 122,322,463 -
Government grant related to the construction of Sichuan plant 7,207,612 10,117,282
--------- ----------
Net cash used in investing activities (359,392,443) (28,030,400)
------------ -----------
Cash flows from financing activities:
Proceeds from bank borrowings 571,141,361 762,880,805
Repayments of bank borrowings (450,252,497) (424,933,705)
Redemption of notes payable - (165,366,000)
Release of restricted cash as collateral for bank borrowings 57,055,743 46,891,495
Placement of restricted cash as collateral for bank borrowings (61,566,506) (64,058,775)
----------- -----------
Net cash provided by financing activities 116,378,101 155,413,820
----------- -----------
Effect of foreign currency exchange rate changes on cash and cash equivalents 3,909,720 (1,907,442)
--------- ----------
Net decrease in cash and cash equivalents (121,319,420) (19,783,486)
Cash and cash equivalents at beginning of period 168,086,445 119,928,485
----------- -----------
Cash and cash equivalents at end of period 46,767,025 100,144,999
========== ===========
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest 28,035,022 37,645,235
Income taxes paid 9,098,388 14,880,461
Non-cash investing activities:
Accrual for purchase of equipment and construction included in accrued expenses 6,851,777 97,201,202
and other current liabilities
See the accompanying notes to the unaudited condensed consolidated financial statements in the Company's third quarter 2017 10-Q as filed with the SEC
CHINA XD PLASTICS COMPANY LIMITED
---------------------------------
Reconciliation of Net Income to EBITDA
--------------------------------------
Three Months Ended
------------------
September 30,
-------------
2017 2016
---- ----
Net Income $14,136,458 $20,176,806
---------- ----------- -----------
Interest expense 10,892,112 10,870,903
---------------- ---------- ----------
Income tax expense 3,063,889 5,296,118
------------------ --------- ---------
Depreciation and amortization expense 10,920,798 9,710,638
------------------------------------- ---------- ---------
EBITDA $39,013,257 $46,054,465
------ ----------- -----------
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SOURCE China XD Plastics Company Limited
