China XD Plastics Announces Fourth Quarter and Fiscal Year 2014 Financial Results

HARBIN, China, March 16, 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 fourth quarter and fiscal year ended December 31, 2014.

Full Year 2014 Financial Highlights

• Revenue was $1,110.6 million, an increase of 5.7% from $1,050.8  million in 2013
• Gross profit was $222.4 million, a decrease of 0.4% from $223.4 million in 2013
• Gross profit margin was 20.0%, compared to 21.3% in 2013
• Net income was $120.7 million, compared to $133.8  million in 2013
• Total volume shipped was 341,520 metric tons, up from 339,602 metric tons in 2013

Fourth Quarter 2014 Financial Highlights

• Revenue was $307.1 million, a decrease of 20.2% YoY and 2.7% sequentially
• Gross profit was $58.1 million, a decrease of 36.4% YoY and 11.2% sequentially
• Gross margin of 18.9% declined 490 basis points YoY and 180 basis points sequentially
• Net income was $35.8 million, a decrease of 37.7% YoY and 17.1% sequentially
• Total volume shipped was 96,086 metric tons, down 17.9% YoY but up 0.9% sequentially

"We are pleased with our results in 2014 considering the challenging conditions in China's automotive industry.  We increased volume shipments, increased revenue, and diversified our product offering and customer base to position ourselves for future growth," said Jie Han, Chairman of the Board of Directors and Chief Executive Officer.  "In 2014, vehicle sales in China grew by their lowest rate in over 20 years, pressuring auto makers and their suppliers to reduce costs up and down the supply chain. We responded quickly to changing demand from our China automotive customers by offering new lower-cost formulations of Polyamide (PA) products. Furthermore, benefiting from tax exemption, abundance of raw materials and logistics from our Dubai subsidiary, we increased sales to more customers outside of China and offered higher-margin products for automotive, high-end, appliances and electronics. In 2014, 12.6% of our sales were generated from outside of China, demonstrating our ability to execute on our diversification strategy."

Mr. Han continued, "We continue to see numerous opportunities to grow our business in carefully-selected markets. Our new Dubai facility, which is scheduled to be fully operational in the first half of 2015, will more effectively expand our reach into the Middle East, Europe and other parts of Asia.  Similarly, our new Southwest China facility will enable us to further penetrate this fast-growing region of the domestic market once it is operational in the first half of 2016.  Through our R&D efforts, we have added electronics, high-speed rail, 3D printing and biodegradable plastics to our product portfolio.  In 2015, we will further refine our product mix in auto applications, and expect to gradually generate revenues from more diversified product offerings  including electronics, biodegradable plastics, 3D printing, high-speed rail, as well as marine."

Fourth Quarter 2014 Results

Revenues for the fourth quarter of 2014 were $307.1 million, representing a year-over-year decrease of 20.2% from $384.6 million in the fourth quarter of 2013.  Sales by volume decreased by 17.9% and average RMB selling price decreased by 2.1% year-over-year in the fourth quarter.

Gross profit for the fourth quarter of 2014 was $58.1 million, representing a 36.4% decrease from $91.4 million in the prior year period.  Gross margin was 18.9%, compared to 23.8% in the fourth quarter of 2013. Gross margin decreased due to new lower-cost formulations of PA products developed in response to pricing pressure throughout the auto supply chain as a result of slower-than-estimated growth rate in the Chinese automotive industry, and the impact of spread compression resulting from falling market prices of certain products due to the significant decline in crude oil prices while the associated input materials had been procured at a higher unit cost before the decline in oil price. These factors were partially offset by high margin products sold in overseas markets and a reduction in average sales discounts applied to lower-end products sold in China (modified PP and ABS).

Premium products (mainly PA6, PA66, POM, PPO and plastic alloy) accounted for 75.8% of total revenues in the fourth quarter of 2014, compared to 72.4% in the prior year period.  Sales to the Korean market accounted for 19.8% of total revenues.  Sales to the Korean market primarily consisted of high-end modified PA66 and plastic alloys.

General and administrative (G&A) expenses were $6.8 million in the quarter, compared to $5.5 million in the same period of 2013, representing an increase of 23.6%, or $1.3 million.  The growth was primarily due to increases of $2.0 million in payroll expense, $0.3 million in non-income tax expense, $0.2 million in professional fees and $0.2 million depreciation expense, partially offset by a decrease of $1.8 million in share-based compensation expense.

R&D expenses were $2.4 million during the quarter, compared to $5.3 in the same period of 2013.  During the quarter, the Company recalibrated its R&D programs in response to shifting market conditions. The Company scaled down R&D by ending several projects early, while expanding our R&D efforts to applications in more diversified industries.  As of December 31, 2014, the number of ongoing research and development projects was 96.

Operating income for the fourth quarter of 2014 was $48.6 million, or 15.8% of revenue, a decrease of 39.7% from $80.6 million, or 21.0% of revenue, in the prior year period. The decrease was due to the lower gross profit combined with higher selling and G&A expenses.

Net interest expense was $8.0 million for the quarter, compared to net interest expense of $1.9 million in the same period of 2013, primarily due to an increase of $4.7 million in interest payments resulting from the February 2014 guaranteed senior notes issuance, and $5.7 million in interest payments resulting from the bank loans used to fund capacity expansions in Southwest China and Dubai. Interest expense was partially offset by $2.4 million of interest income from time deposits.

Income tax expense was $1.7 million, representing an effective income tax rate of 4.5%, compared to an effective income tax rate of 9.5% in the third quarter of 2014.  The decrease in effective income tax rate was mainly due to the preferential income tax rate of the Company's Sichuan subsidiary and exemption of income taxes in the Dubai subsidiary and greater portion of income before taxes from these subsidiaries in the fourth quarter, compared to that in the third quarter.

Net income for the fourth quarter of 2014 was $35.8 million, compared to $57.5 million for the same period of the prior year. Basic and diluted earnings per share were $0.54, compared to $0.89 per basic and diluted share in the fourth quarter of 2013. 

Average number of shares used in the computation of basic and diluted earnings per share for the three months ended December 31, 2014 was 49.1 million, compared to 47.9 million in the prior year period.

EBITDA for the fourth quarter of 2014 was $53.8 million, a decrease of 39.4% from EBITDA of $88.8 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.

Full Year 2014 Financial Results

For the fiscal year 2014, revenues were $1,110.6 million, representing an increase of 5.7% over revenues of $1,050.8 million in 2013. Revenue growth was driven by a 0.6% increase in sales volume and 5.3% increase in average RMB selling price. The increase in sales volume was primarily due to new business from the Korean market.  The increase in ASP was driven by a shift in product mix to premium products.

Gross profit for the fiscal year 2014 was $222.4 million, down 0.4% from $223.4 million in 2013.  Gross margin was 20.0% compared to 21.3% in 2013.  Gross margin decreased primarily due to new lower-cost formulations of the Company's PA products developed in response to customer demand and the changing market conditions, and the impact of spread compression resulting from falling market prices of certain products due to the significant decline in crude oil prices while the associated input materials had been procured at a higher unit cost before the decline in oil price. These factors were partially offset by a shift in product mix to higher-margin products sold in overseas markets.

Premium products accounted for 75.1% of total revenues in 2014, compared to 69.1% in the prior year.  Sales to the overseas market accounted for 12.6% of total revenues in 2014.  The average discount applied to list prices of lower-end PP and ABS products was 1.0%, compared to 5.8% in 2013.  

General and administrative (G&A) expenses were $20.6 million in 2014, an increase of 26.4%, or $4.3 million, from $16.3 million in 2013.  This increase is primarily due to increases of $3.1 million in payroll expense, $0.4 million in rental fees due to the business expansion, $0.4 million in professional fees and $0.2 million in fixed asset depreciation.

R&D expenses were $29.4 million in 2014, an increase of 38.0%, or $8.2 million, from $21.3 million in 2013, reflecting increased R&D activities on new products.  The increase is primarily due to consumption of raw materials in various experiments for automotive and non-automotive applications. The majority of projects relate to modified plastics for automotive applications, while the balance apply to advanced fields such as marine, aircraft, high-speed rail, 3D printing, bio-plastics and medical devices.  In 2014, the Company successfully launched 38 new automobile manufacturer-certified products (AMCP), which increased its total number of AMCP to 321.

Operating income was $171.7 million in 2014, a decrease of 7.5%, or $13.9 million, from $185.6 million in 2013. The decrease was due to lower gross profit, compounded by higher G&A and R&D expenses.

Net interest expense was $30.5 million in 2014, compared to net interest expense of $8.5 million in 2013. The increase is primarily due to an increase of $16.9 million in interest expense resulting from the notes issued on February 4, 2014, an increase of $9.3 million in interest expense resulting from the increase of bank loans to finance the Company's capacity expansion in Southwest China and Dubai. The average balance of short-term and long-term bank loans in 2014 was $373.7 million, compared to $238.4 million during the prior year. The average deposit balance in 2014 was $399.2 million, compared to $226.4 million during the prior year, resulting in an increase of $4.2 million in interest income, which partially offset the increase in interest expense.

Income tax expense was $18.3 million, representing an effective income tax rate of 13.1%, compared to an effective income tax rate of 25.9% in 2013. The decrease in effective income tax rate was mainly due to the preferential income tax rate of the Company's Sichuan subsidiary and exemption of income taxes for the Dubai subsidiary.

Net income for fiscal year 2014 was $120.7 million, compared to a net income of $133.8 million in the prior fiscal year.

Basic and diluted earnings per share were $1.85, compared to basic and diluted earnings per share of $2.08 in fiscal 2013. 

Average number of shares used in the computation of basic and diluted earnings per share for fiscal year 2014 was 48.8 million, compared to 47.8 million in the prior fiscal year.

EBITDA for the fiscal year 2014 was $203.5 million, a decrease of 6.3% from EBITDA of $217.2 million in the prior fiscal 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 December 31, 2014, the Company had $45.5 million in cash and cash equivalents, $238.5 million in time deposits with commercial banks, $438.8 million in working capital (current assets minus current liabilities) and a current ratio (current assets divided by current liabilities) of 2.4. Stockholders' equity as of December 31, 2014 was $525.3 million, compared to $412.3 million as of December 31, 2013.

Cash and cash equivalents, restricted cash and time deposits decreased by 24.1% during the year as the Company paid down bank loans and increased investing activities, including investments in plant and equipment.  Inventories increased by 72.4% to meet anticipated demand, especially those geographically located in more distant cities in the coming quarters.  Prepayment to equipment suppliers increased significantly due to advances for equipment to be used in the Company's new facilities in Southwest China and Dubai.

Leveraging its cash flow generated from operation, the Company reduced its short-term bank loans by 68.3% to improve its financial stability.  The Company took on long-term bank loans of $174.3 million to support its expansion in Southwest China and Dubai under a more stable capital structure.  Accounts payable increased by 24.2% as a result of increase in inventories.  Bills payable increased by 69.5% due to purchases of raw material to support inventory growth.  As of December 31, 2014, non-current notes payable was $148.6 million, due to the issuance of 11.75% guaranteed senior notes due in 2019.

Business Outlook and Guidance

Based on the Company's consideration for slowing demand throughout the Chinese automotive supply chain and uncertainty of the impact  of volatile crude oil prices on polymer composite materials in 2015, the Company projects revenue for fiscal 2015 to range between $960 million and $1.06 billion and net income to range between $100 million to $120 million.  This forecast assumes constant exchange rates and anticipated interest expense associated with both its long and short-term debt, and reflects the Company's current and preliminary view of its business outlook in fiscal 2015, which is subject to change based on then actual circumstances.

Conference Call

China XD Plastics' management will host a conference call at 8:00 a.m. ET on Monday, March 16, 2015, to discuss its fourth quarter and fiscal 2014 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 3575168.

A recording of the conference call will be available through March 23, 2015, by calling +1 (866) 846-0868 (for callers in the U.S.) and entering pass code 3575168.

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 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 December 31, 2014, 321 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 performance in fiscal 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 Plastics
Mr. Taylor Zhang
CFO (New York)
US Phone: +1 (212) 747-1118 
Email: [email protected]

ICR

Mr. Gary Dvorchak, CFA
Gary Dvorchak，CFA
Senior Vice President
US Phone: +1 (310) 954-1123
China Phone: +86 (138) 1079-1408
Email: [email protected]

-Financial Tables Follow-

SOURCE China XD Plastics Company Limited

Related Links

http://www.chinaxd.net

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