China XD Plastics Announces Second Quarter 2015 Financial Results

HARBIN, China, Aug. 6, 2015 /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, 2015.

Second Quarter 2015 Financial Highlights 

• Revenue was $265.4 million, an increase of 0.5% YoY and 19.6% sequentially
• Gross profit was $51.5 million, a decrease of 1.5% YoY and increase of 6.0% sequentially
• Gross margin of 19.4% decreased 39 basis points YoY and 252 basis points sequentially
• Net income was $25.5 million, an increase of 28.8% YoY and 0.4% sequentially
• Total volume shipped was 84,833 metric tons, up 4.0% from 81,584 metric tons in the second quarter of 2014

"We reported consistently stable cash flow in the first half of 2015 amidst slowing and challenging conditions in China's domestic automotive market," said Jie Han, Chairman of the Board of Directors and Chief Executive Officer. Vehicle sales in China grew by 1.4% in the first half of 2015, the slowest rate in approximately 24 years, amid which the State-backed auto association revised its 2015 full year forecast to 3% growth due to the economic slowdown in the world's largest car market. Further, both automakers and parts manufacturers in China experienced pricing pressure from 2014 to the present. The unusual volatility of the Chinese stock market since June 2015 also seemed to have certain negative impact on consumer sentiments. While our top line was virtually even with the year-ago quarter, our focus on high-end manufacturing led to strong sales outside of our traditional sales base in China, which coupled with our disciplined working capital management, resulted in a 14% increase in EBITDA for the quarter.

"We are pleased to announce that our new facility in Dubai has been operational since late May. The facility contains state-of-the-art equipment that produces an array of specialized high-margin products and serves as a gateway to geographic opportunities in the Middle East and Europe. It is expected that further expansion of this facility will be mostly completed by the end of the year."

Mr. Han continued, "Our expansion plans in Southwest China are proceeding as scheduled and we are seeing new and increasing demand for our products from this region, since Southwest China is rapidly becoming a major auto manufacturing hub and a center for high speed rail, shipping and aviation. While we expect automotive applications to continue to be our core business, the new facility will include precision equipment that will facilitate product deployment into additional growth verticals."

"We continue to work closely with our upstream customers in the earliest phases of the development process and believe that it is our technological edge as well as our relentless pursuit of new and improved products for our customers that afford us a strong competitive advantage.  We are confident that our ongoing expansion and culture of innovation will enable us to leverage our market position and weather different industry conditions in the periods ahead," concluded Chairman and Chief Executive Officer Jie Han.

Second Quarter 2015 Results

Revenues for the second quarter of 2015 were $265.4 million, representing a year-over-year increase of 0.5% from $264.2 million in the second quarter of 2014. The year-over-year increase was primarily due to a 4.0% increase in sales volume, which was partially offset by a 3.4% decrease in the average selling price of our products.

Gross profit was $51.5 million in the second quarter ended June 30, 2015 compared to $52.3 million in the same period of 2014, representing a decrease of 1.5%. Our gross margin decreased to 19.4% during the quarter ended June 30, 2015 from 19.8% during the same quarter of 2014 primarily due to pricing pressure resulting from the slowdown of the auto industry in China, the increase of depreciation expenses as the production facility in Dubai was put into operation and no more orders for two individual products from a Korean customer. The average selling price decreased by 3.4% for the quarter ended June 30, 2015 as compared to that of the prior year.

Premium products in total (PLA, POM, PPO, PA6, PA66 and plastic alloy) accounted for 79.0% of revenues in the second quarter of 2015 compared to 75.3% in the comparable year-ago quarter. Sales to the Korean market accounted for 11.0% of total revenue, which primarily consisted of long carbon chain plastic alloy and high-performance modified applications for auto functional components which include engine parts and components for high-end appliances and circuit boards.

General and administrative expenses were $6.6 million in the second quarter of 2015 compared to $4.5 million in the same period of 2014, representing an increase of 46.7%, or $2.1 million. This increase is primarily due to the increase of (i) $0.7 million of stamp duties in connection with our business expansion; (ii) $ 0.7 million of expenses incurred for the opening of temporary exhibition centre in Sichuan; and (iii) $0.7 million of other miscellaneous expenses. 

Research and development expenses (R&D) were $6.7 million during the quarter ended June 30, 2015 compared with $13.4 million during the same period in 2014, a decrease of $6.7 million, or 50.0%. This reflects the Company's efforts to adjust its research and development activities to focus on new products primarily for industrialized applications from automotive to other advanced fields such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, and medical devices, etc. As of June 30, 2015, the number of ongoing research and development projects was 144.

Operating income was $37.8 million in the second quarter ended June 30, 2015, compared to $34.3 million in the same period of 2014, representing an increase of 10.2%, or $3.5 million. The increase in operating income was primarily due to lower R&D expenses, partially offset by higher general and administrative expenses.

Net interest expense was $8.5 million for the three-month period ended June 30, 2015, compared to net interest expense of $8.2 million in the same period of 2014, primarily due to (i) the decrease of interest income which was caused by the decrease of average deposit balance in the amount of $344.5 million for the three months ended June 30, 2015 compared to $442.4 million for the same period of 2014, combined with the decrease in the average interest rate of 2.8% for the three month period ended June 30, 2015 compared to 3.0% for the same period of 2014; and (ii) the decrease of interest expense which was caused by the decrease in the average interest rate to that of 5.3% for the three months ended June 30, 2015 compared to 5.7% for the three months ended June 30, 2014, which was offset by the increase of short-term and long-term loans in the amount of $409.9 million for the three months ended June 30, 2015 compared to $374.4 million of the prior year.

Income tax expense was $4.4 million in the second quarter of 2015, representing an effective income tax rate of 14.7%, compared to an effective income tax rate of 19.8% in the second quarter of 2014.The decrease was primarily due to the Sichuan Xinda Group's R&D expense bonus tax deduction. The decrease was partially offsetting by effect of tax rate differential on entities not subject to PRC income tax, effect of non-deductible expenses and increase of valuation allowances against deferred income tax assets of certain subsidiaries, which were at a cumulative loss position.

Net income was $25.5 million for the second quarter of 2015 compared to $19.8 million for the same period of 2014, representing an increase of  $5.7 million or 28.8%. Basic and diluted earnings per share for the second quarter of 2015 were $0.39 compared to $0.30 per basic and diluted share in the second quarter of 2014. 

Average number of shares used in the computation of basic and diluted earnings per share for the three months ended June 30, 2015 was 49.2 million compared to 48.8 million in the prior year period.

EBITDA was $47.8 million for the second quarter of 2015, an increase of 14.3% from EBITDA of $41.8 million in the prior year period. 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, 2015, the Company had $52.7 million in cash and cash equivalents, $43.6 million in restricted cash,  $231.8 million in time deposits with commercial banks, $346.8 million in working capital and a current ratio of 1.7 times.  The Company's financial condition continued to improve as measured by a 9.6% increase in stockholders' equity to $575.9 million as of June 30, 2015 as compared to $525.3 as of December 31, 2014.

Inventories were $287.1 million as of the second quarter of 2015, an increase of 14.9% from fiscal year end 2014.  This was attributable to the opportunistic purchase of lower cost raw materials due to lower crude oil prices, and the need to ship products to customers in farther locations, such as Southwest China, South China, Central China and Korea.

The Company's aggregate short-term bank loans, long-term bank loans and notes payable increased by 17.5% in the second quarter of 2015 from fiscal year end 2014 as we further utilized our existing lines of credit within the constraints of maintaining a manageable debt level. We define a manageable debt level as the aggregate sum of short-term bank loans, long-term bank loans and notes payable over total assets. Accounts payable and bills payable increased by 23.6% as a result of more purchases made by the Company because of the lower purchase price of the raw materials and its strategy to stock up the inventory.  As of June 30, 2015, notes payable was $148.8 million relating to the 11.75% guaranteed senior notes due in 2019, net of discount.  

Business Outlook and Guidance

This slowing growth of the economy and auto industry in China has increased pricing and sales pressure on China's auto industry's upstream suppliers. In Particular, plastic fabricators are seeking new products utilizing lower cost raw materials and more cost-efficient formulations. The pricing of the majority of the Company's existing products was under some pressure in the second quarter with our average selling price experiencing a 3.4% decline from the year-ago quarter.

While China continues to be a growing and prosperous economy, uncertainty as to China's macroeconomic environment both domestically and internationally, may inhibit consumer buying for such large-ticket items as automobiles. While the market environment for the automobile sector could be challenging for the rest of 2015, we believe that we have adapted to changing market dynamics by offering more cost-effective formulations of our products and by expanding our product portfolio to applications in other industries. 

Due to our leading market position, culture of innovation and visibility into current and new business, we are reiterating our full year guidance for 2015.  The Company expects full-year 2015 sales to be in the $960 million to $1.06 billion range, and expects net income to be in the $100 million to $120 million range. This financial forecast reflects the Company's business outlook for the remainder of fiscal 2015. It makes certain assumptions about the impact of crude oil prices on polymer composite materials for 2015 and makes assumptions about exchange rates and interest expense associated with both its long and short-term debt. This financial guidance is subject to revision based on changing market conditions at any time.

Conference Call

China XD Plastics' management will host a conference call at 8:30 a.m. ET on Thursday, August 6, 2015, to discuss its second quarter of 2015 financial results. The conference call can be accessed by dialing +1 (855) 298-3404 (for callers in the U.S.), +86-4001-200-539 (for Mainland China callers) or +852 5808 3202 (for Hong Kong callers) and entering pass code 8826053.

A recording of the conference call will be available through August 13, 2015, by calling +1 (866) 846-0868 (for callers in the U.S.) and entering pass code 8826053.

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

About China XD Plastics Company Limited

China XD Plastics Company Limited, one of China's leading specialty chemical companies, 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 27 automobile brands manufactured in China, including without limitation, AUDI, BMW, Volkswagen, Buick, Mazda, and Toyota. 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, 2015, 339 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 http://www.chinaxd.net.

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 volatility of the Company's operating results and financial condition; the Company's ability to raise additional capital to finance the Company's activities; the Company's and its subsidiaries' ability to fully perform all of their obligations under the guaranteed senior notes transaction and other contractual obligations applicable to them; 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, and its penetration into Southwest China; the impact of volatile crude oil prices on the Company's efforts to diversify its product offers; market for plastic resins; legal and regulatory risks; the Company's projections of its revenues for performance in fiscal in 2015; the Company's ability to execute its growth strategy and the effectiveness of its marketing strategy; the future trading of the common stock of the Company; the Company's ability to operate as a public company; the period of time for which its current liquidity will enable the Company to fund its operations; general economic and business conditions; the volatility of the Company's operating results and financial condition; the Company's ability to attract or retain qualified senior management personnel and research and development staff; 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. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the Company and the industry. 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 PlasticsMr. Taylor ZhangCFO (New York) US Phone: +1 (212) 747-1118  Email: [email protected]

GraylingVivian ChenManaging DirectorEmail: [email protected]

-Financial Tables Follow-

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE China XD Plastics Company Limited