Specialty Chemical Company China XD Plastics Announces First Quarter 2019 Financial Results
HARBIN, China, May 15, 2019 /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, 2019.
First Quarter 2019 Financial Summary
-- Revenue was $301.5 million, a decrease of 2.9% YoY
-- Gross profit was $50.3 million, a decrease of 6.7% YoY
-- Gross margin of 16.7%, a decrease of 700 basis points YoY
-- Net income was $11.0 million, a decrease of 42.4% YoY
-- EBITDA was $47.6 million, a decrease of 4.0% YoY
-- Total volume shipped was 94,444 metric tons, down 11.1% YoY
"Our first quarter 2019 results are consistent with the declining trend of the Chinese auto industry though the declining trend becomes narrower during the first quarter of 2019. Besides increased sales of higher-end products such as modified POM and PPO, the Company started sales of new categories of higher-end products of PA66 and PA6 produced with high-priced raw materials for higher selling price in China, leading to an increase of sales price in domestic market by 14.3%." said Jie Han, Chairman of the Board of Directors and Chief Executive Officer.
"Our successful trial production at our production base in Dubai has brought us prospect in international sales targeting high-end products. We are working hard to complete the equipment installation and testing of our industrial projects in Heilongjiang base for upgrading existing equipment for 100,000 metric tons of engineering plastics by the end of the third quarter of 2019. These are our strategic plans of producing specialized high-tech products for various important new markets, targeting high-end products for new markets, which will ultimately enable more active inroads into various product applications and other market regions."
"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 continuing 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 2019, we are reiterating our financial guidance of $1.3 -$1.6 billion in revenue, $90- $110 million in net income ." Mr. Han concluded.
First Quarter 2019 Results
Revenues were US$301.5 million in the first quarter ended March 31, 2019, a decrease of US$9.0 million, or 2.9%, compared to US$310.5 million in the same period of last year. This was due to approximately 11.1% decrease in sales volume, and 6.5% negative impact from exchange rate due to depreciation of RMB against US dollars, and partially offset by 15.7% increase in the average RMB selling price, as compared with those of the same period of last year.
(i) Domestic market
For the three months ended March 31, 2019, revenues from domestic market decreased by US$14.7 million as a combined result of: i) a decrease of 11.8% in sales volume; ii) a depreciation of RMB against US dollars by 6.5%; and iii) partially offset by an increase of 14.3% 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 production and sales in China decreased by 9.8% and 11.3%, respectively, for the first quarter of 2019 as compared to the same period of 2018. A weakening in macroeconomic conditions since summer of 2018 continued to deteriorate auto business environment, our domestic sales during the first quarter of 2019 decreased by 4.9% as compared to the same period of the prior year, including 26.9% decrease in Southwest China and 22.0% decrease in East China.
Thanks to our positive efforts to expand customers' bases to meet their new requirements, the Company has achieved sales growth of 13.6% in North China and 12.0% in South China. As for the RMB selling price, the increase of 14.3% was mainly due to higher sales of higher-end products such as modified POM and PPO, and sales of new categories of higher-end products of PA66 and PA6 produced with high-priced raw materials for higher selling price in China.
(ii) Overseas market
For the three months ended March 31, 2019, revenues from overseas market was US$5.8 million as compared to US$54,854 in the same period of 2018.
After a successful trial production at our production base in Dubai in November 2018, the Company has tried to develop new overseas customers besides the existing ROK customer, established business relationships with new customers in UAE and India, and shipped products to the end users in Europe. We are optimistic about the prospect of our business expansion overseas.
Premium products (PA66, PA6, Plastic Alloy, PLA, POM and PPO) in total accounted for 82.7% of revenues in the first quarter of 2019, compared to 81.0% for the same period of 2018. The Company continued to shift production mix from traditional lower-end products such as PP to higher-end products such as POM and PPO, 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 and consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, Sino-U.S. and Sino-Japanese joint ventures where manufacturers tend to use more and higher-end modified plastics in quantity per vehicle in China.
Gross profit was US$50.3 million in the quarter ended March 31, 2019, compared to US$53.9 million in the same period of 2018, representing a decrease of 6.7% or US$3.6 million. Our gross margin decreased to 16.7% during the quarter ended March 31, 2019 from 17.4% during the same quarter of 2018 primarily due to the adopted lower-priced strategy as a new entrant to new categories of higher-end products of PA6 and PA66 in domestic market for the first quarter ended March 31, 2019 as compared to that of the prior year.
General and administrative (G&A) expenses were US$8.8 million in the quarter ended March 31, 2019 compared to US$8.9 million in the same period in 2018, representing a decrease of 1.1%, or US$0.1 million. The decrease was primarily due to our approach on optimizing management structure and enhancing efficiency, leading to the decrease of (i) US$0.9 million in salary and welfare, and partially offset by the increase of (ii) US$0.8 million in professional fees.
R&D expenses were US$10.1 million during the quarter ended March 31, 2019 compared with US$5.0 million during the same period in 2018, an increase of US$5.1 million, or 102.0%. This significant increase was primarily due to (i) elevated R&D activities to meet the new higher specification requirements from potential customers, especially overseas; 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 March 31, 2019, the number of ongoing research and development projects was 355.
Total operating income was US$31.2 million in the first quarter ended March 31, 2019 compared to $38.9 million in the same period of 2018, representing a decrease of 19.8% or US$7.7 million. This decrease is primarily due to due to the lower gross margin, higher R&D expenses, partially offset by the lower general & administration expenses and selling expenses.
Net interest expenses were US$17.1 million for the three-month period ended March 31, 2019, compared to $10.6 million in the same period of 2018, representing an increase of 61.3% or US$6.5 million, primarily due to i) the increase of average short-term and long-term loan balance in amount of US$990.1 million for the three months ended March 31, 2019 compared to US$854.2 million for the same period in 2018; ii) the increase of interest expense resulting from the average loan interest rate increased to 4.91% for the three months ended March 31, 2019 compared to 4.72% of the same period in 2018; iii) the decrease of average deposit balance in amount of US$242.4 million for the first quarter ended March 31, 2019 compared to US$626.8 million for the same period in prior year; and iv) the decrease of interest income resulting from the average deposit interest rate decreased to 0.72% for the first quarter ended March 31, 2019 compared to 1.52% of the same period in 2018.
Income tax expenses were $3.6 million for the three-month period ended March 31, 2019, compared to $6.2 million in the same period of 2018, representing a decrease of $2.6 million, or 41.9%. The effective income tax rate increased from 24.5% for the three-month period ended March 31, 2018 to 24.9% for the three-month period ended March 31, 2019, primarily due to the decrease of Sichuan Xinda's profit before tax ("PBT") ratio, which enjoys 15% preferential income tax rate.
Net income of US$11.0 million in the first quarter of 2019 compared to a net income of US$19.1 million in the same quarter of 2018, representing a decrease of $8.1 million, or 42.4%. Basic and diluted earnings per share for the three-month period ended March 31, 2019 were $0.16, compared to $0.29 per basic and diluted share for the same period of 2018. The average number of shares used in the computation of basic and diluted earnings per share for the three-month ended March 31, 2019 was 50.9 million, compared to 49.7 million shares for the same period of 2018.
Earnings before interest, tax, depreciation and amortization (EBITDA) was $47.6 million for the first quarter of 2019, compared to $49.6 million for the same period of 2018, representing a decrease of $2.0 million or 4.0%. 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, 2019, the Company had $506.2 million in cash and restricted cash, an increase of $139.2 million or 37.9% as compared to $367.0 million as of December 31, 2018. As of the March 31, 2019, working capital was negative $64.7 million (current assets minus current liabilities) and the current ratio (current assets divided by current liabilities) was 1.0, as compared to the current ratio of 0.9 as of December 31, 2018. Stockholders' equity as of March 31, 2019 was $774.6 million, an increase of $25.7 million or 3.4% as compared to $748.9 million as of December 31, 2018.
Inventories increased by 27.9% 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 27.2% or US$35.9 million because (i) advances to suppliers for purchasing raw materials decreased by US$57.9 million; and partially offset by (ii) HLJ Xinda Group has reclassified US$16.1 million of long-term prepayments to Green River to receivables due from Shanghai sales; (iii) others increased by US$5.9 million. The aggregate short-term and long-term bank loans increased by 8.3% due to using the line of credits to support operating and investing activities in HLJ Xinda Group and Sichuan Xinda. We define the manageable debt level as the sum of aggregate short-term and long-term loans over total assets.
Financial Guidance and Business Outlook
In light of the current changing macro economic environment in China , Chinese auto industry market still showing certain decline though narrower, and the successful trial run in Dubai resulting in new production capacity to be added, our expansion into to new markets overseas, diversified customer base and escalation of sales categories, the Company reiterates its financial guidance for fiscal 2019 to range $1.3 and $1.6 billion in revenue, net income to range between $90 and $110 million. It also assumes the average exchange rate of the US dollar to RMB at 6.8. This financial guidance reflects the Company's current view of its business outlook for fiscal 2019 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 [Wednesday May 15], 2019, to discuss its first quarter 2019 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 3827289.
A recording of the conference call will be available through May 23, 2019, by calling +1-855-452-5696 (for callers in the U.S.) and entering pass code 3927289.
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 March 31, 2019, 489 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 prospect of the Company's Dubai facility, and the associated expansion into Middle East, Europe and other parts of Asia; the prospect of the Company's Southwest China facility, the prospects of the Company's Harbin facility, and its penetration into Northeast China; and its penetration into Southwest China; the Company's projections of its revenues for performance in fiscal 2019. 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.
Financial Tables Follow -
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2019 2018
ASSETS
Current assets:
Cash 78,891,580 41,301,817
Restricted cash 427,321,731 325,690,023
Accounts receivable, net of 154,051,127 294,688,288
allowance for doubtful accounts
Inventories 793,243,874 620,033,195
Prepaid expenses and other 96,270,070 132,218,528
current assets
Total current assets 1,549,778,382 1,413,931,851
Property, plant and equipment, 770,413,511 775,941,280
net
Land use rights, net 30,213,879 29,796,795
Long-term prepayments to 524,297,914 530,636,319
equipment and construction
suppliers
Operating lease right-of-use 15,918,647
assets, net
Other non-current assets 3,171,583 3,212,986
Total assets 2,893,793,916 2,753,519,231
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans, including 723,302,348 729,666,920
current portion of long-term
bank loans
Bills payable 730,318,556 618,166,453
Accounts payable 40,865,322 84,958,469
Amounts due to related parties 18,995,751 18,365,738
Income taxes payable 16,337,961 15,975,367
Operating lease liabilities, current 2,304,598
Accrued expenses and other 82,423,884 126,926,898
current liabilities
Total current liabilities 1,614,548,420 1,594,059,845
Long-term bank loans, excluding 188,183,909 111,808,244
current portion
Deferred income 100,255,791 99,583,477
Operating lease liabilities, non- 14,666,805
current
Other non-current liabilities 103,993,582 101,573,772
Total liabilities 2,021,648,507 1,907,025,338
Redeemable Series D 97,576,465 97,576,465
convertible preferred stock
(redemption amount of
US$290,491,100 and
US$280,650,800 as of March 31,
2019 and December 31, 2018,
respectively)
Stockholders' equity:
Series B preferred stock 100 100
Common stock, US$0.0001 par 5,097 5,097
value, 500,000,000 shares
authorized, 50,969,841 shares
issued, 50,948,841 shares
outstanding as of March 31, 2019
and December 31, 2018,
respectively
Treasury stock, 21,000 shares at (92,694) (92,694)
cost
Additional paid-in capital 86,633,582 86,633,582
Retained earnings 728,084,605 717,103,890
Accumulated other (40,061,746) (54,732,547)
comprehensive loss
Total stockholders' equity 774,568,944 748,917,428
Commitments and contingencies
Total liabilities, redeemable 2,893,793,916 2,753,519,231
convertible preferred stock and
stockholders' equity
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three-Month Period
Ended March 31,
2019 2018
US$ US$
Revenues 301,466,007 310,453,033
Cost of revenues (251,136,339) (256,585,577)
Gross profit 50,329,668 53,867,456
Selling expenses (277,820) (1,051,009)
General and administrative expenses (8,775,385) (8,875,009)
Research and development expenses (10,062,186) (5,049,898)
Total operating expenses (19,115,391) (14,975,916)
Operating income 31,214,277 38,891,540
Interest income 435,779 2,312,623
Interest expense (17,500,277) (12,894,205)
Foreign currency exchange losses (2,140,865) (3,955,808)
Losses on foreign currency option contracts (520,981)
Gains on disposal of a subsidiary 518,491
Government grant 2,094,937 1,477,559
Total non-operating expense, net (16,591,935) (13,580,812)
Income before income taxes 14,622,342 25,310,728
Income tax expense (3,641,627) (6,210,827)
Net income 10,980,715 19,099,901
Earnings per common share:
Basic and diluted 0.16 0.29
Net income 10,980,715 19,099,901
Other comprehensive income
Foreign currency translation adjustment, net of 14,670,801 29,661,410
nil income taxes
Comprehensive income 25,651,516 48,761,311
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Month Period
Ended March 31,
2019 2018
US$ US$
Cash flows from operating activities:
Net cash provided by operating activities 66,949,790 28,429,789
Cash flows from investing activities:
Purchase of time deposits (163,426,937)
Proceeds from maturity of time deposits 119,741,660
Purchase of and deposits for property, plant and equipment (11,471,899) (64,469,960)
Refund of deposit from an equipment supplier 60,054,417
Government grant related to the industrial project for 300,000 6,953,816
metric tons biological composite materials
Cash disposed for sales of a subsidiary (3,217)
Net cash used in investing activities (11,475,116) (41,147,004)
Cash flows from financing activities:
Proceeds from bank borrowings 357,291,327 251,134,403
Repayment of bank borrowings (281,123,795) (347,339,779)
Proceeds from interest-free advances from related parties 289,298
Net cash provided by (used in) financing activities 76,456,830 (96,205,376)
Effect of foreign currency exchange rate changes on cash, cash 7,289,967 10,101,313
equivalents, and restricted cash
Net increase (decrease) in cash, cash equivalents, and 139,221,471 (98,821,278)
restricted cash
Cash, cash equivalents, and restricted cash at beginning of 366,991,840 320,091,665
period
Cash, cash equivalents, and restricted cash at end of period 506,213,311 221,270,387
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized interest 13,316,939 11,062,464
Income taxes paid 2,276,847 7,064,571
Non-cash investing and financing activities:
Accrual for purchase of property, plant and equipment 1,181,670 196,911
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.
March 31, March 31,
2019 2018
US$ US$
Cash and cash equivalents 78,891,580 50,814,789
Restricted cash 427,321,731 170,455,598
Total cash, cash equivalents, and restricted cash shown in the 506,213,311 221,270,387
statement of cash flows
CHINA XD PLASTICS COMPANY LIMITED
Reconciliation of Net Income to EBITDA
(Amounts expressed in United States Dollars)
Three-Month Period Ended
March 31,
2019 2018
Net income -GAAP $10,980,715 $19,099,901
Interest expense 17,500,277 12,894,205
Provision for 3,641,627 6,210,827
income taxes
Depreciation and 15,326,044 11,442,287
amortization
expense
Amortization of 156,566
operating lease
right-of-use assets
EBITDA 47,605,229 49,647,220
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SOURCE China XD Plastics Company Limited
