China XD Plastics Announces First Quarter Fiscal 2013 Financial Results

HARBIN, China, May 14, 2013 /PRNewswire/ -- China XD Plastics Company Limited (NASDAQ: CXDC, "China XD Plastics" or the "Company"), one of China's leading specialty chemical players engaged in the development, manufacture and sale of modified plastics primarily for automotive applications, today announced its financial results for the first quarter ended March 31, 2013.

First Quarter Fiscal 2013 Financial Highlights:

• Revenues were $171.0 million, an increase of 38.8% from $123.2 million in the first quarter of Fiscal 2012
• Gross profit was $29.2 million, a decrease of 6.4% from $31.2 million in the first quarter of Fiscal 2012
• Gross profit margin was 17.1%, compared to 25.3% in the first quarter of Fiscal 2012
• Net income was $14.5 million, compared to $20.6 million in the first quarter of Fiscal 2012
• Total volume shipped was 61,145 metric tons, up 33.4% from 45,835 metric tons in the first quarter of Fiscal 2012

Mr. Jie Han, Chairman and Chief Executive Officer of China XD Plastics, commented, "I am pleased to report our solid revenue growth and positive business development especially during the changing and challenging macro environment affecting different industries in China. Although gross margin declined during the first quarter of 2013 mainly due to our marketing strategy such as discounts off the original prices since the fourth quarter of 2012, this strategy has helped us achieve tremendous progress in market penetration, especially in East China, the largest automobile market in China. Revenues from East China during the first quarter of Fiscal 2013 increased by 113.9%, followed by 21.5% and 16.9% from Northeast China and North China Markets compared to the first quarter of Fiscal 2012. As evidenced by the higher volumes shipped, we continue to experience strong demand for our products across our portfolio. As market demand grows for our higher-end products and as part of our long-term growth strategy, we remain committed to our investment in research and development in order to enhance our product offerings especially for the higher-end applications. We believe this strategy is the key to further strengthening our market position and will help us deliver long-term value for our stockholders. The 30 additional production lines installed in December of 2012 ramped up as scheduled during the first quarter of 2013, 58% utilized during the first quarter of Fiscal 2013, and are geared to reach similar utilization as the rest of production lines in the second quarter."

First Quarter 2013 Results

Revenues for the first quarter of fiscal 2013 were $171.0 million, representing a year-over-year increase of 38.8% from $123.2 million in the first quarter of fiscal 2012. The increase in revenues was due to approximately 33.4% increase in sales volume and 4.0% increase average RMB selling price of our products, driven by increasing demand for automotive modified plastics used in the parts of mid- and high-end branded automobiles by the Company's major customers.

Gross profit for the first quarter of fiscal 2013 was $29.2 million, down 6.4% from $31.2 million in the first quarter of fiscal 2012. Gross margin was 17.1%, compared to 25.3% in the same period of the prior year.

The decrease of gross margin was primarily due to:

(i) an average 7% discount off the original prices to early-paying distributors and end customers. The discount is our proactive marketing initiative to accelerate our market penetration and expand our customer base and product offering in East China. As the largest automobile market in China, East China is of strategic importance to our long term plan and will be reached and supplied by our Sichuan production base once in operation. As a result, revenues contribution from East China grew to 30.1% during the first quarter of 2013 compared to 19.5% in the first quarter of 2012. Benefited from this marketing initiative, cash flows from operating activities improved dramatically in the first quarter of 2013, providing additional source to fund our capital requirements for our Sichuan project. Cash flows from operating activities increased to $68.8 million in the three months period ended March 31, 2013 compared to $4.5 million in the same period of 2012. We plan to reduce the discounts close to 5% during this year.

(ii) an 1.4% increase in shipping expenses as a percentage of revenues during the three-month period ended March 31, 2013 in order to obtain timely information of product usage by our customers and to provide more effective technical support to our customers. Such arrangement is expected to continue in the future in order to better serve our customers.

For the second quarter of 2013, the Company expects its gross margin to be approximately 18% as we started retracting discounts. Due to our high level of product customization and comprehensive technical support offered to our customers, the substantial switching cost deters customer turnover and our customers have remained very loyal to us. We are confident in our ability to leverage our bargaining power and to gradually ratchet up our profitability without compromising the growth momentum created by our marketing strategy. Our effective penetration in East China market serves well our strategy to make inroad to Southwest market where we planned to build our fourth production base in Sichuan province as previously disclosed and expand our sales network coverage nationwide.

G&A expenses were $3.5 million, compared to $2.4 million for the same period of the prior year. This increase is primarily due to increase of payroll resulting from an increase in both average salary and headcount.  R&D expenses were $5.0 million, compared to $2.5 million in the same period of the prior year. The increase in R&D expenses was due to the Company's ongoing efforts in research and development activities on new products primarily in consumption of raw materials for various experiments for automotive applications from automobile manufacturers as well as other non-automotive applications. During the quarter ended March 31, 2013, the Company successfully launched 7 new automobile manufacturers certified products ("AMCP"), which increased its total number of AMCP to 253. As of March 31, 2013, the Company had 57 products in the process of being certified by automotive and non-automotive manufacturers.

Operating income for the first quarter of fiscal 2013 was $20.6 million, or 12.1% of revenues, a decrease of 21.4% over operating income of $26.2 million, or 21.3% of revenues, in the same period of the prior year. This decrease is primarily due to lower gross margin, and higher G&A and R&D expenses.

Net income for the first quarter of fiscal 2013 was $14.5 million, compared to a net income of $20.6 million for the same period of the prior year. This decrease is primarily due to lower gross profit margin, and higher G&A and R&D expenses.

Basic and diluted earnings per share were $0.23, compared to last year's $0.32 and $0.32, respectively. 

Basic average numbers of shares used in computation of basic earnings per share for the three months ended March 31, 2013 was 47.7 million, compared to 47.5 million in the same period of the prior year.

Weighted average numbers of shares used in computation of diluted earnings per share for the three months ended March 31, 2013 was 47.7 million, compared to 47.6 million in the same period of the prior year.

EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) for the first quarter of 2013 was $27.6 million, a decrease of 8.3% from EBITDA of $30.1 million in the same period of the prior year. 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, 2013, China XD Plastics had $113.7 million in cash and cash equivalents, $111.9 million in time deposits with commercial banks, $168.7 million in working capital and a current ratio of 1.5. Stockholders' equity as of March 31, 2013 was $280.0 million, compared to $264.4 million as of December 31, 2012.

Business Outlook and Guidance

Given the Company's positive outlook on customer demand and successful geographic market penetration with the backdrop of on schedule ramp-up of its production capacity during the first quarter of 2013, the Company now reiterates its annual guidance and expects revenues for fiscal 2013 to range between $935 million and $1 billion and net income for fiscal 2013 to range between $100 million and $132 million. This forecast excludes any non-cash charges related to deferred income tax benefit, stock based compensation and change in fair value of existing derivative liabilities and is based on constant exchange rates and reflects the Company's current and preliminary view, which is subject to change.

Mr. Han concluded, "Thanks to our committed practice of business strategy periodic review and timely adjustment in response to the ever-changing business environment, we continue to execute our business plan in multiple fronts. We generated solid operational results and cash flows and further enhanced our position in the marketplace especially amidst current challenging economic conditions both globally and nationally. We are pleased with the development of our product mix and our market penetration in different regional markets, both key areas that we believe will give us significant competitive advantages as we continue to expand our customer base and increase sales in China's automotive modified plastics market. In light of our business development so far this year and positive growth trends for the sector and our business, we remain optimistic about our business and growth this year. 2013 marks an exciting year with both opportunities and challenges for China XD. As previously reported, we plan to commerce constructing our fourth production base with annual capacity of 300,000 metric tons in Sichuan in the second half of this year. Once our southwest production base is completed and in operation in 2015, we will be able to effectively cover the entire country geographically and reach our goal of 10% market penetration with our major products, with our southwest production base covering southwest and central China and reaching into east China and our northeast production bases covering northeast and north China and reaching into east China."

Conference Call

China XD Plastics' management will host a conference call at 9:00 a.m. ET on Tuesday, May 14, 2013, to discuss its first quarter of fiscal 2013 financial results. The conference call may be accessed by calling +1-866-519-4004 (for callers in the U.S.) or +65-6723-9381 (for international callers) and entering pass code 70609328.

A recording of the conference call will be available through May 22, 2013, by calling +1-855 452 5696 (for callers in the U.S.) or +61-28199 0299 (for callers outside the U.S.) and entering pass code 70609328.

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

About China XD Plastics Company Limited

China XD Plastics Company Limited, through its wholly-owned subsidiaries (the "Company"), develops, manufactures and sells modified plastics, primarily for automotive applications. The Company's products are used in the exterior and interior trim and in the functional components of 24 automobile brands manufactured in China, including AUDI, BMW, Toyota, Buick, Mazda, VW Golf, Jetta, and Hafei new energy vehicles. The Company's wholly-owned research center is dedicated to the research and development of modified plastics, and benefits from its cooperation with well-known scientists from prestigious universities in China. As of March 31, 2013, 253 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://cxdc.irpage.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 ability to raise additional capital to finance the Company's activities; the effectiveness, profitability, and the marketability of its products; legal and regulatory risks; the ability for the 30 new production lines added in the fiscal year 2012 to increase the Company's annual production capacity; the Company's ability to execute its growth 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; the Company's ability to protect its proprietary information; 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
Phone: +1-212-747-1118 
Email: [email protected]

-Financial Tables Follow-

SOURCE China XD Plastics Company Limited

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