China XD Plastics Announces First Quarter 2016 Financial Results

HARBIN, China, May 10, 2016 /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, 2016.

First Quarter 2016 Financial Highlights    

• Revenue was $215.0 million, a decrease of 3.1% YoY and 21.2% sequentially
• Gross profit was $34.8 million, a decrease of 28.4% YoY and 32.9% sequentially
• Gross margin of 16.2% decreased 570 basis points YoY and 280 basis points sequentially
• Net income was $11.4 million, a decrease of 55.1% YoY and 57.5% sequentially
• Total volume shipped was 76,755 metric tons, up 10.7% YoY and a decrease of 20.3% sequentially

"Our first quarter 2016 results were consistent with stabilizing industry fundamentals as domestic revenues increased significantly," said Jie Han, Chairman of the Board of Directors and Chief Executive Officer.  "However, our overseas sales fell substantially and impacted our average selling price and gross margin.  As previously disclosed, the collection of the outstanding balance due from an overseas customer is virtually complete with a small remaining balance to be collected within the second quarter. To buoy our overseas efforts, we have completed testing trials and a pilot trial is also underway with one of the new customers we have been working with and commercial orders are expected to be received in the second quarter of 2016."

Mr. Han continued, "We remain focused on maintaining our position as an industry leader in China's auto market while also strategically expanding our business into new markets. Our expansion in Sichuan will enable us to more effectively market our products and provide timely service to our customers in the market and its neighboring regions. In particular, the Southwest region is rapidly becoming a major auto manufacturing hub as well as a center for high speed rail, shipping and aviation.  The new facility in Sichuan will include state-of-the-art and precision equipment that will facilitate product deployment into an array of high growth verticals. We plan to begin production in our new Sichuan facility in the second half of this year with an expected 60,000 metric tons of production capacity.  When fully operational, the Sichuan plant will increase our total production capacity by 300,000 metric tons."

" We continue to stay ahead of the competition by working closely with our customers and offering new products with more cost-efficient formulations.  Our ability to generate a 10.7% increase in sales volume in the first quarter was driven by our technological prowess as well as by the momentum in customer acquisition and the ability for us to increase commercial order sizes among our existing customers in the attractive Southwest and East China markets.  We have already begun to penetrate the Southwest and East China markets with year-over-year revenue growth in these regions of 80.5% and 15.3%, respectively.  These are critical points of differentiation for China XD Plastics among our peers."

"We are pleased to announce that our new facility in Dubai will be operational as of this quarter as Phase 1 was completed last year with plant capacity capable of producing 2,500 metric tons.  Phase 2 of Dubai will add 14,000 metric tons of capacity and is currently under construction and expected to be operational in early 2017. Our presence in Dubai will provide numerous advantages including the development and production of high end products and more active participation in markets in Europe, the Middle East and other international regions."

"We continue to anticipate a steady recovery throughout the Chinese automotive supply chain this year and reiterate our 2016 financial guidance. We believe that our deep customer relationships and culture of innovation will enable us to succeed in new applied plastics verticals and enable us to optimally adapt to market conditions.  We remain confident in the resilience of our business model and our ability to capitalize on our exciting growth opportunities," Mr. Han concluded.

First Quarter 2016 Results

Revenues were $215.0 million in the first quarter ended March 31, 2016, compared to $221.9 million in the same period of 2015, representing a decrease of $6.9 million, or 3.1%.  This year-over-year decrease was primarily due to an 8.5% decrease in the average selling RMB price of our products and 4.5% negative impact from the exchange rate due to the weakening of the RMB against the US dollar, offset somewhat by an approximate 10.7% increase in sales volume.

Premium products (PA66, PA6, plastic alloy, PLA, POM and PPO) in total accounted for 77.3% of revenues, compared to 78.4% in the prior year period. The Company continued to shift its production mix from traditional Modified Polypropylene (PP) to higher-end products, despite slight pricing pressure on high average selling price products during the first quarter of 2016.

Gross profit was $34.8 million in the quarter ended March 31, 2016, compared to $48.6 million in the same period of 2015, representing a decrease of 28.4% or $13.8 million. Our gross margin decreased to 16.2% during the quarter ended March 31, 2016 from 21.9% during the same quarter of 2015 primarily due to a lower sales contribution and a lower gross margin of higher-end products sold in the overseas markets to an overseas customer for the first quarter ended March 31, 2016 as compared to that of the prior year.

General and administrative (G&A) expenses were $5.1 million in the quarter ended March 31, 2016 compared to $5.0 million in the same period in 2015, representing an increase of 2.0%, or $0.1 million. This increase is primarily due to an increase of $0.5 million in profession fees, offset by the decrease of $0.4 million in taxation expenses.

Research and development (R&D) expenses were $4.9 million during the quarter ended March 31, 2016, compared with $5.8 million during the same period in 2015, a decrease of 15.5% or $0.9 million.  This decrease reflects the Company's efforts to adjust R&D activities 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, medical devices and other fields and thus fewer active projects during this R&D directional shift. As of March 31, 2016, we were engaged in 169 ongoing research and development projects.

Total operating income was $24.5 million in the first quarter ended March 31, 2016, compared to $37.6 million in the same period of 2015, representing a decrease of 34.8% or $13.1 million. This decrease is primarily due to lower gross profit, partially offset by lower R&D expenses.

Net interest expense was $9.3 million for the three-month period ended March 31, 2016, compared to net interest expense of $8.2 million in the same period of 2015, primarily due to (i) $0.3 million interest expenses increase resulting from the average loan balance of $415.9 million bearing a weighted interest rate of  5.77% for the three month ended March 31, 2016  as compared to $383.7 million bearing a weighted interest rate of 5.64% for the three months ended March 31, 2015, leading to more interest expense;  and  (ii) an decrease of $0.8 million interest income due to the decrease of average deposit balance in the amount of $360.8 million bearing a weighted average interest rate of 1.72% for the three months ended March 31, 2016 compared to $316.6 million bearing a weighted average interest rate of 2.99% in 2015, leading to the decrease of interest income.

The effective income tax rates for the three-month periods ended March 31, 2016 and 2015 were 28.5% and 14.3%, respectively. The effective income tax rate for the three-month period ended March 31, 2016 differs from the PRC statutory income tax rate of 25% primarily due to (i) operating losses of entities not subject to income tax decreased  the consolidated income before income taxes for the three-month ended March 31, 2016; (ii) non-deductible expenses incurred in the PRC operating entities; partially offset by (iii) R&D bonus deduction of the major PRC operating entities; and (iv) Sichuan Xinda Group's preferential income tax rate.

Net income was $11.4 million in the quarter ended March 31, 2016, compared to $25.4 million for the same period of the prior year, representing a decrease of 55.1% or $14.0 million. Basic and diluted earnings per share were $0.17, compared to $0.39 per basic and diluted share in the first quarter of 2015. 

The average number of shares used in the computation of basic and diluted earnings per share for the three months ended March 31, 2016 was 49.4 million, compared to 49.2 million in the prior year period.

EBITDA was $33.9 million for the first quarter of 2016, compared to EBITDA of $46.3 million in the same period of 2015, representing a decrease of 26.8%, or $12.6 million.  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, 2016, the Company had $43.1 million in cash and cash equivalents, $300.9 million in time deposits with commercial banks, $166.8 million in working capital (current assets minus current liabilities) and a current ratio (current assets divided by current liabilities) of 1.2.  Stockholders' equity as of March 31, 2016 was $594.6 million, compared to $578.0 million as of December 31, 2015.

Inventories increased by 32.8% as a result of more purchases made by the Company to take advantage of the lower purchase price of the raw materials and the Company's strategy to stock up the inventory and prepare for the Sichuan plant opening. Prepayment to equipment suppliers decreased by 82.8% and was due to the equipment delivered to Dubai.

The aggregate short-term and long-term bank loans increased by 9.4%, or $37.0 million, as we utilized existing lines of credit while maintaining an asset to liability ratio at a healthy level. We define the asset to liability ratio as the sum of aggregate short-term and long-term loans, and notes payable over total assets.   As of March 31, 2016, notes payable was $145.9 million under the 11.75% guaranteed senior notes due in 2019, net of discount.

Recent Event

The Company recently participated in the Chinaplas 2016 Expo, Asia's premier plastics trade fair, held from April 25 to April 28 in Shanghai, China.  In addition to demonstrating its commitment to lighter, safer and more environmentally-friendly automobiles, China XD Plastics also demonstrated its new applied plastics technologies in new growth verticals, including 3-D printing technology.  The Company is increasingly focused on applying its high value-add technology to new growth verticals, and the Expo was a good opportunity to meet important industry players and garner new customers in these new fields.

Business Outlook and Guidance

The Company reiterates its financial guidance for fiscal 2016 with revenue to range between $1.0 billion and $1.1 billion and net income to range between $100.0 million to $110.0 million. This is based on the anticipation of a steady recovery throughout the Chinese automotive supply chain, the Company's belief in its ability to secure new customers and a stabilization of crude oil pricing and its impact on polymer composite materials in 2016. This forecast also assumes contributions from the Sichuan plant, which will start production in the second half of 2016.  It also assumes the average exchange rate of the US dollar to RMB at 6.5. This financial guidance reflects the Company's preliminary view of its business outlook for fiscal 2016 and is subject to revision based on changing market conditions at any time.

Conference Call

China XD Plastics' management will host a conference call at 9:00 a.m. ET on Tuesday, May 10, 2016, to discuss its first quarter of 2016 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 4029141.

A recording of the conference call will be available through May 17, 2016, by calling +1 (866) 846-0868 (for callers in the U.S.) and entering pass code 4029141.

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, 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 28 automobile brands manufactured in China, including without limitation, Audi, Mercedes Benz, BMW, Buick, Chevrolet, VW Passat, Golf and Jetta, 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 March 31, 2016, 369 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://www.chinaxd.net, 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 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 2016; 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 Plastics

Mr. Taylor Zhang, CFO (New York)
Phone: +1 (212) 747-1118
Email: [email protected]

Investor Relations: Grayling Communications Inc.

Ms. Vivian Chen, Managing Director
US: +1 (347) 481-3711
Email: [email protected]

- Financial Tables Follow -

SOURCE China XD Plastics Company Limited

Related Links

http://www.chinaxd.net