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Edited Transcript of CXDC earnings conference call or presentation 1-Jun-20 12:00pm GMT

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Q4 2019 China XD Plastics Company Ltd Earnings Call Haerbin Heilongjiang Jul 16, 2020 (Thomson StreetEvents) -- Edited Transcript of China XD Plastics Company Ltd earnings conference call or presentation Monday, June 1, 2020 at 12:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jie Han China XD Plastics Company Limited - Chairman, CEO & President * Shaojie Wen China XD Plastics Company Limited - IR Contact of New York, US * Zhang Dahe China XD Plastics Company Limited - CFO, Secretary & Director ================================================================================ Conference Call Participants ================================================================================ * Matthew Larson;National Securities Corporation;Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the first (sic) [fourth] quarter 2019 China XD Plastics Co Limited Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, China XD Plastics IR team, Shaojie Wen. Thank you. Please go ahead, sir. -------------------------------------------------------------------------------- Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [2] -------------------------------------------------------------------------------- Hello, everyone. Thank you all for joining us for the China XD Plastics Fourth Quarter 2019 Financial Results Conference Call. Joining me on the call today are Mr. Jie Han, Chairman and CEO; Mr. Qingwei Ma, Chief Operating Officer and Chief Technology Officer; Mr. Taylor Zhang, Chief Financial Officer. Earlier today, China XD Plastics issued a press release announcing the fourth quarter 2019 results. Before management's presentation, I would like to refer to the safe harbor statements in connection with today's conference call and remind our listeners that management's prepared remarks during the call may contain forward-looking statements which are subject to risks and uncertainties and that management may take additional forward-looking statements in response to your questions. All statements other than statements of historical facts contained 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, 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 projection of performance in 2019 and other risks detailed in the company's filings with the SEC and available on its website at 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, therefore, claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and we refer you to a more detailed discussion for the risks and uncertainties in the company's filings with the Securities and Exchange Commission. To supplement the financial results present in accordance with the U.S. GAAP, management will make reference to earnings before interest expense, income tax, depreciation and amortization, which we refer to as EBITDA. EBITDA is a non-GAAP financial measure reconciled from net income, which the company believes to provide meaningful additional information to better understand its operating performance. A table reconciling net income to EBITDA can be found on the earnings press release issued earlier today. I would now like to turn the call over to our Chairman and Chief Executive Officer, Mr. Han. Mr. Han will be speaking in Chinese, and I will translate his opening remarks into English. (foreign language) -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [3] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [4] -------------------------------------------------------------------------------- [Interpreted] Our fiscal 2019 results were consistent with the overall slow recovery of China auto industry. The trade tension between China and United States, the stricter environmental protection standard and the larger reduction of subsidies on new energy vehicles have generated a lot of pressure on the entire auto industry in China, resulting in depressed domestic demand. China XD has taken proactive measures to respond this change. Since the second quarter of 2019, we have achieved revenue by increased sale of new categories of higher-end products of PA66 and PA6, produced with high-priced raw material with higher selling price in domestic market, and sales of high-priced semi-finished goods in domestic market to accelerate inventory return over and replenish operating funds. We are pleased to see an overall increase of 45.9% in the average RMB selling price of our products, partially offset the increase -- decreased sales volume of 18.8% for the year-end December 31, 2019. At the same time, the company has achieved a rapid increase of customer orders in non-automobile application, evidenced by our stable sales growth in several domestic regions. -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [5] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [6] -------------------------------------------------------------------------------- [Interpreted] For 2020, the COVID-19 has caused a sharp fall in production and sales of the Chinese automotive industry with the risk of supply disruption of some parts of the domestic automobile industry increase. As a result, China XD has responded to start producing raw materials for PPE, such as goggles and masks, to help alleviate the pandemic to our communities and mitigate their negative impact of world pandemic on Chinese auto industry. -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [7] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [8] -------------------------------------------------------------------------------- [Interpreted] We are committed to complete industry project for upgrading existing equipment for 100,000 metric tons of engineering plastics by the end of second quarter of 2020 and our Qinling Road Project and Jiangnan Road Project for equipment upgrade and factory revamping by the end of the third quarter of 2020. Thus, bringing the production capacity in Heilongjiang Campus back to 390,000 metric tons. At the same time, we expect to complete additional 10 production lines our Sichuan plant by the end of the third quarter of 2020, thus to bring the total capacity of Sichuan base to 300,000 metric tons. Together with the production capacity ramp-up in Dubai, we will continue to remain our ability to make further inroads into more specialized high-end products for various important new markets. -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [9] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [10] -------------------------------------------------------------------------------- [Interpreted] We will continue to optimize our management structure and enhance our operating efficiency. And we are confident through our cooperation with Chinese big banks to succeed company's expansion strategy in multiple regions and sectors and to be confident with our core market positioning and expand platform for growth. -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [11] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [12] -------------------------------------------------------------------------------- [Interpreted] With that, I would now turn the call over to Taylor Zhang, our CFO, to walk you through our financials. Taylor? -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [13] -------------------------------------------------------------------------------- Thank you, Mr. Han, and thank you, everyone, for joining the call today. Before I review the numbers, let me remind you that all figures I discuss are for this reporting period for first (sic) [fourth] quarter of 2019 unless stated otherwise. Additionally, any year-over-year comparison is to the fourth quarter of 2018 and any sequential comparison is to the third quarter of 2019. So let's go over our first (sic) fourth quarter results. Revenues were $310.5 million for the first (sic) fourth quarter of 2019 compared to $349.8 million for the same period last year, representing a decrease of $39.3 million or 11.2%. The year-over-year decrease was primarily as a combined results of 46.3% decrease in sales volume, a depreciation of RMB against U.S. dollar by 4.2%, and partially offset by a 69.5% increase in average RMB selling price of our products as compared to those of last year. In domestic markets, for the 3-months period ended December 31, 2019, revenues from domestic market decreased by $41.5 million or 12.4% compared with that in the same period last year. As a combined result of a decrease of 47% in sales volume, the depreciation of RMB against U.S. dollars by 4.2%, and partially offset by an increase of 69.5% in average RMB selling price of our products as compared with those of last year. According to China Association of Automobile Manufacturers, during the first (sic) fourth quarter of 2019, the decline of China's auto production and sales continue to narrow, but the overall market rebound is slow, witnessed by an increase of 0.03% in auto production and decrease of 0.03% in auto sales, respectively, compared to the same period in 2018. Though the company kept its positive efforts to expand our marketing areas and the customer bases and to meet their new requirements in domestic markets, the company has achieved sales growth of 232.1% in South China and 6.7% in Central China. We still had sales decrease of 30.3% in Northeast China, 18.7% in North China, 16.1% in Southwest China and 9.5% in East China. As for the RMB selling price, the increase of 69.5% was mainly due to increased sales of new categories of high-end products of PA66 and PA6, produced with high-priced raw materials with higher selling price in domestic market, and sales of high-priced semi-finished goods in domestic markets during the 3 months period ended December 31, 2019. In overseas markets, overseas sales were $16.9 million, accounting for 5.4% of total sales for the first (sic) fourth quarter of 2019 as compared to $15 million and accounting for 4.3% of total sales for the same period last year. After a successful trial production at our production base in Dubai in November 2018, the company has established business relationships with new customers in UAE and India and shipped products to end users in Europe and Southeast Asia. We are optimistic about the prospects of our business expansion overseas. Gross profit was $43.7 million for the first (sic) fourth quarter of 2019 compared to $62.4 million for the same period of 2018, representing a decrease of $18.7 million or 30%. Gross margin was 14.1% compared to 17.8% in the first (sic) fourth quarter of 2018, primarily due to the implementation of low price strategy on higher-end products to penetrate new markets. G&A expenses were $14.8 million for the first (sic) fourth quarter of 2019 compared to $8.6 million for the same period of 2018, representing an increase of $6.2 million or 72.1%. The increase was primarily due to the increase of professional fees, salary, welfare, traveling, and transportation and miscellaneous expenses. R&D expenses were $10.8 million for the first (sic) fourth quarter of 2019 compared to $26.9 million for the same period of 2018, representing a decrease of $16.1 million or 59.9%. The decrease was mainly due to the decrease of $15.9 million in raw materials consumption. As of December 31, 2019, the number of ongoing research and development projects was 357. Operating loss was $45.3 million for the first (sic) fourth quarter of 2019 compared to $24.1 million of operating income for the same period last year, representing a decrease of $69.4 million or 288%. This substantial decrease is primarily due to the decreased gross profits by 30%, provision of doubtful accounts of $62.8 million for a UAE customer and higher G&A expenses, partially offset by the lower selling expenses and R&D expenses. Income tax expense was $2.2 million for the first (sic) fourth quarter of 2019, representing an effective income tax rate of negative 3.5% compared to income tax benefit of $0.5 million in the same period last year, representing an effective income tax rate of negative 3.6%. The increase of expected income tax rates was primarily due to the increased operating loss in Dubai Xinda. Net loss was $65 million for the first (sic) fourth quarter of 2019 compared to net income of $13 million for the same period last year, representing a decrease of $78 million or 600%. Basic and diluted loss per share for the first (sic) fourth quarter of 2019 were both $0.97 compared to $0.20 per share for the same period of 2018. The average number of shares used in computation of basic and diluted losses per share for the 3 months ended December 31, 2019, was 66.9 million compared to 50.5 million shares of earnings per share in the prior year period. Earnings before interest, tax, depreciation and amortization was negative $27.3 million for the first (sic) fourth quarter of 2019 compared to $38.4 million for the same period of 2018, representing a decrease of $65.7 million or 171.1%. For a detailed reconciliation of EBITDA, a non-GAAP measure to the nearest GAAP equivalent, please see the financial tables at the end of the press release issued earlier today. Now let's turn to the balance sheet. As of December 31, 2019, the company had $228.4 million in the total amount of cash and cash equivalents and restricted cash, a decrease of $138.6 million or 37.8% as compared to $367 million as of December 31, 2018. Working capital was negative $14.1 million, and current ratio was 1 as compared to the current ratio of 0.9 as of December 31, 2018. Stockholders' equity as of December 31, 2019, was $836.4 million, an increase of 11.7% as compared to $748.9 million as of December 31, 2018, mainly due to the conversion of Series D Preferred Stock into common on September 26, 2019. As a result of the outbreak of COVID-19 in the PRC, China auto industry production and sales drastically decreased by 33.4% and 31.14% for the first 4 months of 2020. According to the China Association of Automobile Manufacturers, it has a ripple effect and impact to our China auto supply chain, including the company. Due to the fact that the company had temporarily closed its manufacturing facilities and offices in the PRC in accordance with the requirements of the PRC government, recurrence of the ongoing COVID-19 pandemic has had a material adverse effect on our business operations. In light of these circumstances and ongoing uncertainties, the company will not be able to forecast our financial guidance for fiscal 2020 until further notice. Now before we open the call to your questions, I would like to note that for any question directed to the management in China, I'll translate both their questions and their answers. If you want to ask a question in Chinese, please also ask it in English for the benefit of our other listeners. Please also note that we will only be able to follow questions about our financial and operating results. For other matters, including the going-private offer, we refer you to our already issued press releases. We'll not be able to respond to questions that are directed to the principles of the going-private offer about the proposed transaction. With that, we will now open the call to your question. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Matt Larson. -------------------------------------------------------------------------------- Matthew Larson;National Securities Corporation;Analyst, [2] -------------------------------------------------------------------------------- Okay. I've got a lot of them because there's a lot of things going on. I'll start with the positive. You guys crushed your guidance. You did a lot better than your expectation. The last conference call, you had guidance for revenues, the top line of $1.1 billion to $1.3 billion. I pointed out you had already done more than $1.1 billion after 3 quarters. So it was a little strange, just like this quarter's strange. You ended up with $1.44 billion. So you beat your guidance significantly on the top line. The glaring problem is, of course, the large uncollectible, as you call it, bill for some customer in the UAE. All right? You must have known that was uncollectible during the fourth quarter. And that actually, in December, is when you were able to close on the very, very important financing. So the banks were willing to lend you money for the first time, these state-owned enterprise banks, even though they knew that there was supposedly some sort of collection problem. So to me, that's a one-off event. And can you tell us the status of that loan now? Okay. It's in June now. And that was uncollectible as of the end of the quarter. It kind of paints the quarter negatively. But if it's a one-off event, it really doesn't matter going forward, okay. So how does that stand now? -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [3] -------------------------------------------------------------------------------- Matt, this is Taylor. Thank you for the call. Let me translate your question so management in China can respond. -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [4] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [5] -------------------------------------------------------------------------------- Matt, this is Taylor. So the answer comes from our Chairman, Mr. Jie Han. So first of all, we accrue such loss based on the U.S. GAAP and also, obviously, the member were by our other KPMG. Secondly, we still continue our efforts in collection. And we think sometime later this year, we'll be able to collect the outstanding amount. Lastly, he doesn't necessarily believe this is related to the bank or the bank insertion. -------------------------------------------------------------------------------- Matthew Larson;National Securities Corporation;Analyst, [6] -------------------------------------------------------------------------------- No. What I was saying -- to answer my question. Yes. I'm sorry. Go ahead. -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [7] -------------------------------------------------------------------------------- So yes, this -- we view this as a one-off event. -------------------------------------------------------------------------------- Matthew Larson;National Securities Corporation;Analyst, [8] -------------------------------------------------------------------------------- Okay. Then if you, first of all -- it's still unclear. I mean the sale to some customer in the UAE basically was twice what you did for the whole year. And so whoever made that sale and approved it, you got to question what sort of due diligence they did. But it sounds to me that you're going to collect it. So you're going to write that loss back up this year. All right? So by a one-off event, you just dumped it into the fourth quarter. And the numbers look worse than they are because you're going to be able to recoup that and put it back on as an income item for this year. And the banks lent you the money knowing that, and that's a critical thing because they wouldn't be lending you money for the first time if you were showing some sort of shortfall of that magnitude. But your revenues grew dramatically. Your EBITDA was still very strong. And for long-term shareholders, the key is how is the company going to go -- be doing going forward? Mr. Han obviously believes it will be fine because he's trying to buy the company. And I know we're not supposed to ask any questions regarding the offer. But does Mr. Han know, I mean I know he knows this. But does he understand that when he makes an offer, after not even reporting 20-F or anything like that, at a cyclical low, that's like 4% or 5% above the average trading price is $1.10, it is not only insulting, all right, because the offer could have -- even if he'd offered $1.30 or $1.40, it still would be insulting, but at least it would be 30% or 40% above the price. And he must realize that shareholders would find that completely unacceptable, particularly if they've been holding the shares all these times. And if you're going to be recovering that, the unpaid balance, then you're looking at a company that he's made an offer at less than 1x earnings. It's certainly a lot less than EBITDA, okay. If you come in at $1.45, even with that poor fourth quarter showing, the $1.10 times 66 million shares is about a $70 some odd million. It's 1/2 of EBITDA. So it just makes no sense. And it's inappropriate and shareholders are rightfully upset about that sort of notion. All right? So he should know that. And he knows that anyway. All right? So it's something that in the United States here, nobody would even try because they would realize that there would be a class action lawsuit would be filed. So what is the current book value of the company? Can you give me the shareholder equity, please? -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [9] -------------------------------------------------------------------------------- Okay, Matt. Let me translate your question first. (foreign language) -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [10] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [11] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [12] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [13] -------------------------------------------------------------------------------- Okay. So for first of all, you asked the shareholder equity value as of the end of last year. It was $836.4 million. And also the answer came from our Chairman, Mr. Jie Han. He want to thank you for your understanding of his position as regard to the going-private offer. So he want to tell you that it's not an easy decision and there's also pressure associated with that. So as -- regarding the collection from the UAE customer, we believe that we'll be able to recoup sometime -- resolve it sometime later this year. -------------------------------------------------------------------------------- Matthew Larson;National Securities Corporation;Analyst, [14] -------------------------------------------------------------------------------- Right. You already said that. But -- so if you're going to collect that, then the loss last year, or the near loss since you only made -- the loss that occurred in the fourth quarter really isn't a loss. All right? It's almost as if it was a new customer. Whoever made the sales to that customer had to have done an up due diligence. These have represented over half your foreign sales. And it doesn't make sense you would make a sale to a new customer like that and not get paid. So it's almost as if it's purposely been delayed so that the numbers would look bad. I have to tell you that. All right? So now after makes an offer for -- about the value of the whole sale, $1.10 times 66 million shares, oh, it's about $69 million, $68 million, all right, $70 million. That's the whole amount of the uncollectible that is now going to be collectible this year. So it just doesn't look very good. And now he wants to buy the company so -- at the lowest price that is traded at since he came public for the -- he brought it public essentially. So anybody valuing the company would have to write the value back up based on the collectability of that sale. And since your margins have gone up dramatically because of the higher cost of the goods sold, then the company going forward is going to be significantly more profitable. Your current book value, by the way, I'll point out, is about 12x what he's interested in buying the company at. Does that seem like a fair assessment of the value of the company, 12x what the offer is? So these are things that just don't make any sense, all right, other than that the company got -- the market knows the company got some very important financing. Your revenues beat by a wide margin your projections for the year. The only reason you're showing reduced income is because of this one sale that you're still not being very clear on. It's some new customer who we don't even know who it is, but that customer is going to be paying you back anyway. And the banks that lent you the money know it. Otherwise, they would have never closed on the loan. So I just want Mr. Han to be very aware that this is not lost on investors. And if there's any chance to try and take the company private at $1.10, it's not going to work from the viewpoint of shareholders that are not part of the consortium because there's no point in agreeing to a deal at this level because it's such a low price, what would rather take the chance in courts or just not voting for it to go through. So I'll just leave you all with that. There's tremendous disappointment on my part and as well as investors that I represent that they feel that this is not a very honest or ethical maneuver by Mr. Han. And he should know that. I think he does. He probably doesn't care, but it needs to be said, and I'm using my opportunity on the phone call right now to say that. So I'll let somebody else express their opinion. So I'll be courteous and say thank you very much for the time. -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [15] -------------------------------------------------------------------------------- Sure, Matt. Thank you. And just want to comment, obviously, as to the valuation of the company, the market has a value on it. In addition, the special committee has their counsel adviser who will be looked after on behalf of the special committee for the shareholders. -------------------------------------------------------------------------------- Matthew Larson;National Securities Corporation;Analyst, [16] -------------------------------------------------------------------------------- Well, as long as you brought them up, the last time they made an offer for the company in February of 2017, you hired Duff & Phelps, but you never told us, even though you had been asking a number of times on conference calls, what Duff & Phelps -- what number Duff & Phelps had come up with when you had made the offer years ago. You just never told us. So when are we going to find out what value the company is assessed at by Duff & Phelps this time around? Is that -- are we going to be getting an opportunity to get this independent appraisal? -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [17] -------------------------------------------------------------------------------- Yes. So I think, Matt, it's very important to note that Duff & Phelps, they are hired by the special committee. They are now looking for the company. So we don't have any dialogue or communication with them regarding the going-private offer. So I'm sure you're very reform at appropriate time, they will make the right action for announcement -- at least advise to the special committee. -------------------------------------------------------------------------------- Matthew Larson;National Securities Corporation;Analyst, [18] -------------------------------------------------------------------------------- All right. Well, like they did last time, I guess. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from [Han Fong] from IA Investment Management. -------------------------------------------------------------------------------- Unidentified Analyst, [20] -------------------------------------------------------------------------------- I just have a quick question on your current operations, if you can comment on them. Obviously, Heilongjiang is an area that's still being affected in China, and that's where your main production facility is. Are you currently running for operations other than PPE? Has car production restarted in China? If not, do you have an estimate of when you'll be able to start producing again? And also maybe just comment on the situation and if you can comment on your profitability of PPE production as well. -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [21] -------------------------------------------------------------------------------- Sure. Thank you, Han. Let me translate your question to the management. (foreign language) -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [22] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [23] -------------------------------------------------------------------------------- Han, here's the answer from our Chairman, Mr. Han. So as you correctly noticed, Heilongjiang has a resurged of confirmed cases compared to the rest of China. So it was worsening before getting better. So during which, we have closed down the factory in February and March. So right now, we are operating at approximately 60% of our capacity for the same period last year. As for your question regarding the margin situation with PPE materials. For example, we have materials for [Melbourne] fabrics. So the margin has fluctuated a lot recently. That's not only in China, but also in many areas in the world. For example, in April, the gross margin was approximately 50%. And then in May, it came down to 30%. But anyway, in any events, over the long term, we believe still a good business. So the gross margin probably will be normalized at the level of 18% or better. -------------------------------------------------------------------------------- Unidentified Analyst, [24] -------------------------------------------------------------------------------- Okay. That's helpful. Maybe just on most for retailers that maybe in the -- when u issue Q1 results or guidance, if you ever do, we would just like to point out the percentage of PPE product sales just so we know how relevant it is compared to the additional sales that made you cleared up. And just have a follow-up questions on maybe your capacity expansion and CapEx. Obviously, in your 10-K, you had around $230 million of cash on hand, but you also have commitments near the end of the fourth quarter for your Sichuan expansion. So can you just discuss about Sichuan delaying some of those projects to make sure you go through 2020 with the healthier balance sheet. We know the company has a lot of debt already. So I'm very concerned about investing massively in the year of 2020. And maybe can just comment on maybe the cash burn that you expect this year? Or do you expect maybe positive cash flow? -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [25] -------------------------------------------------------------------------------- Okay. Sure. Let me also translate your question. (foreign language) -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [26] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [27] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [28] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [29] -------------------------------------------------------------------------------- So first of all, Chairman Han want to thank you for your suggestion. And we will do that in the following quarter when we release our results regarding the description of PPE materials. Secondly, for CapEx this year, we'll monitor our cash position, our cash flow as well as potential additional financing when we're proceeding with our CapEx. So we will conduct our CapEx carefully. -------------------------------------------------------------------------------- Unidentified Analyst, [30] -------------------------------------------------------------------------------- Okay. And maybe just a final comment on the offer. I know you guys can't comment on it. But I mean I think a lot of minority shareholders share the, let's say, the stress over the pricing, but also appreciate what Chairman Han has done with his family's support over the last year and supporting the company with liquidity. And we hope that when it comes -- if it comes down through a vote, that like the last offer, you'll allow minority shareholders to vote on the proposal without using his majority stake, obviously, on the offer. And that's it for me today. -------------------------------------------------------------------------------- Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [31] -------------------------------------------------------------------------------- All right. Thank you. (foreign language) -------------------------------------------------------------------------------- Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [32] -------------------------------------------------------------------------------- (foreign language) -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- (Operator Instructions) As there are no further questions, I will now hand the conference back to Shaojie Wen for closing remark. Shaojie, please. -------------------------------------------------------------------------------- Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [34] -------------------------------------------------------------------------------- On behalf of China XD Plastics, we want to thank you for your interest and participation in this call. If you would like to speak with us further, please call either myself or Taylor in the U.S. office. The contact numbers for all of us are list at end of the press release. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]