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Specialty Chemical Company China XD Plastics Announces Second Quarter 2019 Financial Results

- Revenue of $463.1 million -

- Net Income of $40.1 million -

- Reiterating Fiscal 2019 Guidance of $1.3-$1.6 Billion in Revenue, $90-$110 Million in Net Income -

HARBIN, China, Aug. 14, 2019 /PRNewswire/ -- China XD Plastics Company Limited (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, 2019.

Second Quarter 2019 Financial Summary

  • Revenue was 463.1 million, an increase of 46.0% YoY and an increase of 53.6% sequentially
  • Gross profit was $65.3 million, an increase of 16.2% YoY, and an increase of 29.8% sequentially
  • Gross margin of 14.1%, a decrease of 360 basis points YoY and 260 basis points sequentially
  • Net income was $40.1 million, an increase of 47.4% YoY and 264.5% sequentially
  • EBITDA was $70.1 million, an increase of 26.7% YoY and 47.3% sequentially
  • Total volume shipped was 106,609 metric tons, an increase of 2.8% YoY and 12.9% sequentially

"We are pleased with our quarterly results with significant top and bottom line growth." said Jie Han, Chairman of the Board of Directors and Chief Executive Officer. "During the first half of this year, we have witnessed weakness in both production and sales of China's auto industry, trending low for 12 consecutive months. Amid the negative growth environment, the small and medium-sized competitors of our industry in China have experienced difficulty to fulfill customers' orders due to reasons such as changing financial conditions and tougher environmental policies. As a result, customers have started redirecting their orders to larger suppliers such as China XD. During the second quarter of 2019, the Company was able to successfully leverage the increasing customer demand and up-sell its high-end products produced with higher-priced raw materials in China, evidenced by our  stable sales growth in all domestic regions.  This makes us well positioned to execute our strategic plan for 2019."   

"We are particularly pleased to see more revenue contributions from our successful trial production at our production base in Dubai, a positive sign in our effort of penetrating international market with our high-end products. The growing sales overseas during the second quarter of 2019 broadened our geographical reach to customers in Europe, Middle East, and other international regions. We will strive to work with global high-quality customers in automotive sector and other new fields."

"We take pride of our achievement in the past and remain confident the long term prospect of our business. Chinese government has recently issued supportive policies toward non-state-owned enterprises. This will drive the success of the Company's expansion strategy in multiple regions and sectors. We will be more fiscally vigilant and responsible and stabilize our capital structure by replacing more short term debts with longer term instruments, among other means, in order to maintain a stable and sound balance sheet and weather potential and unexpected turbulence in the future."

We are committed to completing our industrial project in Heilongjiang base for upgrading existing facilities of 100,000 metric tons capacity of engineering plastics in the fourth quarter of 2019. Together with the production capacity ramp up in Dubai, we remain confident in our ability to make further inroads into more specialized high-end products for various important new markets."

"We believe that our increased production capabilities in Heilongjiang and Dubai, geographical expansion and more diversified customer base both strengthen and augment our core automotive business.  Further, our new development projects, which leverage our technical expertise, could lead to additional new business. We view ourselves as the leader in the polymer composites sector, which will enable us to provide innovative technology solutions for China's modernizing transportation, energy, healthcare and industrial sectors. We reiterate our financial guidance for fiscal 2019 and continue to be excited by our core market positioning and expanded platform for growth," Mr. Han concluded.

Second Quarter 2019 Results

Revenues were US$463.1 million in the second quarter ended June 30, 2019, an increase of US$145.8 million, or 46.0%, compared to US$317.3 million in the same period of last year. This was due to approximately 51.4% increase in the average RMB selling price, and 2.8% increase in sales volume, as compared with those of the same period of last year, and partially offset by 9.5% negative impact from exchange rate due to depreciation of RMB against US dollars.

(i) Domestic market

For the three-month period ended June 30, 2019, revenue from domestic market increased by US$128.3 million due to: i) an increase of 48.3% in the average RMB selling price of our products; ii) an increase of 1.1% in sales volume as compared with those of last year; and partially offset by iii) a depreciation of RMB against US dollars by 9.5%.

According to the China Association of Automobile Manufacturers, automobile production and sales in China decreased by 13.7% and 12.4%, respectively, for the first half year of 2019 as compared to the same period of 2018. The weakening in macroeconomic conditions since summer of 2018 continued to exacerbate auto business environment, but thanks to our positive efforts to expand our customer bases and to meet their new requirements, the Company has increased overall growth in all parts of China. We had sales growth of 118.9% in Northeast China, 16.3% in Central China, 12.1% in Southern China, 11.9% in North China, 8.7% in Southwest China and 4.3% in East China.

As for the RMB selling price, the increase of 48.3% was mainly due to: i) increased sales of new categories of higher-end products of PA66 and PA6 produced with high-priced raw materials with higher selling price in domestic market; and ii) sales of high-priced work in progress in domestic market during the three-month period ended June 30, 2019.

(ii) Overseas market

For the three-month period ended June 30, 2019, revenues from overseas market was US$17.5 million as compared to US$53,353 of the same period of 2018.

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 the end users in Europe. We are optimistic about the prospect of our business expansion overseas.

Premium products (PA66, PA6, Plastic Alloy, PLA, POM and PPO) in total accounted for 83.6% of revenues from sales of finished goods in the second quarter of 2019, compared to 82.5% for the same period of 2018. The Company continued to shift production mix from traditional lower-end products such as PP to higher-end products such as PA6 and PPO, primarily due to (i) greater growth potential of advanced modified plastics in luxury automobile models in China, (ii) the stronger demand as a result of promotion by the Chinese government for clean energy vehicles and (iii) better quality demand from and consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, Sino-U.S. and Sino-Japanese joint ventures, which manufacturers tend to use more and higher-end modified plastics in quantity per vehicle in China.

The Company also sold high-priced work in progress with discounted price in domestic markets during the three-month period ended June 30, 2019 in order to accelerate inventory turnover and replenish operating funds.

Gross profit was US$65.3 million in the second quarter ended June 30, 2019, compared to US$56.2 million in the same period of 2018, representing an increase of 16.2% or US$9.1 million. Our gross margin decreased to 14.1% during the second quarter ended June 30, 2019 from 17.7% during the same quarter of 2018 primarily due to the adopted discounted-priced strategy on sales of work in progress in the domestic market in order to return capital as compared to that of the prior year.

General and administrative (G&A) expenses were US$5.8 million for the quarter ended June 30, 2019 compared to US$11.3 million in the same period in 2018, representing a decrease of 48.7%, or US$5.5 million. The decrease was primarily due to our approach on optimizing management structure and enhancing efficiency, leading to the decrease of (i) US$2.5 million in share based compensation incurred for external consultancy, (ii) US$2.0 million in salary and welfare, and (iii) US$1.0 million in travelling, transportation and miscellaneous expense.

R&D expenses were US$9.6 million during the quarter ended June 30, 2019 compared with US$5.3 million during the same period in 2018, representing an increase of US$4.3 million, or 81.1%. This significant increase was primarily due to (i) elevated R&D activities to meet the new higher specification requirements from potential customers, especially overseas; and (ii) increased efforts directed towards applications in new electrical equipment and electronics, alternative energy applications, power devices, aviation equipment and ocean engineering, in addition to other new products primarily for advanced industrialized applications in the automobile sector and in new verticals such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, and medical devices.  As of June 30, 2019, the number of ongoing research and development projects was 371.

Operating income was $49.7 million for the second quarter of 2019, compared to $36.0 million for the same period of 2018, representing an increase of $13.7 million, or 38.1%. This increase is primarily due to higher gross profit, lower selling expenses and G&A expenses, partially offset by higher R&D expenses.

Net interest expenses were US$11.6 million for the three-month period ended June 30, 2019, compared to $10.3 million in the same period of 2018, representing an increase of 12.6% or US$1.3 million, primarily due to (i) the increase of interest expense resulting from the average loan interest rate increased to 5.2% for the three-month period ended June 30, 2019 compared to 4.6% of the same period in 2018; (ii) the decrease of average deposit balance in amount of US$221.1 million for the three-month period ended June 30, 2019 compared to US$506.7 million for the same period in prior year; (iii) the decrease of interest income resulting from the average deposit interest rate decreased to 0.8% for the three-month period ended June 30, 2019 compared to 1.1% of the same period in 2018; and partially offset by (iv) the decrease of average short-term and long-term loan balance in amount of US$882.5 million for the three-month period ended June 30, 2019 compared to US$925.0 million for the same period in 2018.

Income tax expense was $2.6 million for the second quarter of 2019, representing an effective income tax rate of 6.2%, compared to income tax expense of $5.5 million in the same period of 2018, representing an effective income tax rate of 16.8%. The significant decrease of effective income tax rate was primarily due to (i) the increase of additional deduction of R&D expenses resulted from the increase of R&D expenses incurred and the new policy issued by China's tax authority in September 2018 to increase the R&D expenses additional deduction rate from 50% to 75% for PRC entities, effective from January 1, 2018 to December 31, 2020, (ii) the decrease of continuous operating losses occurred in overseas subsidiaries such as Dubai Xinda and Xinda Holding (HK). The effective income tax rate for the three-month period ended June 30, 2019 differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda's preferential income tax rate, the reversal of the unrecognized tax benefits accrued in year 2013 and 75% additional deduction of R&D expenses of the major PRC operating entities.

Net income was $40.1 million for the second quarter of 2019, compared to $27.2 million for the same period of 2018, representing an increase of $12.9 million, or 47.4%. Basic and diluted earnings per share for the three-month period ended June 30, 2019 were $0.60, compared to $0.41 per basic and diluted share for the same period of 2018.  The average number of shares used in the computation of basic and diluted earnings per share in the current quarter was 50.9 million compared to 50.3 million shares for basic and diluted earnings per share in the prior year period.

Earnings before interest, tax, depreciation and amortization (EBITDA) were $70.1 million for the second quarter of 2019, compared to $55.3 million for the same period of 2018, representing an increase of $14.8 million, or 26.8%.  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, 2019, the Company had $506.9 million in the total amount of cash, cash equivalents and restricted cash, an increase of $139.9 million or 38.1% as compared to $367.0 million as of December 31, 2018.  As of the June 30, 2019, working capital was $35.2 million (current assets minus current liabilities) and the current ratio (current assets divided by current liabilities) was 1.0, as compared to the current ratio of 0.9 as of December 31, 2018. Stockholders' equity as of June 30, 2019 was $798.0 million, an increase of $49.1 million or 6.6% as compared to $748.9 million as of December 31, 2018.

Cash, cash equivalents and restricted cash increased by 38.1% or US$139.9 million due to the increase of net cash provided by financing activities and operating activities. Inventories increased by 18.4% as a result of more purchases of the raw materials and the Company's strategy to stock up the finished goods for the upcoming orders. Prepaid expenses and other current assets increased by 19.7% or US$26.0 million because (i) HLJ Xinda Group has reclassified US$15.8 million of long-term prepayments to Green River to receivables due from Shanghai sales; (ii) advances to suppliers for purchasing raw materials and receivables from Hong Kong Grand Royal Trading Co., Ltd. increased by US$24.3 million and partially offset by (iii) consideration for sales of Shanghai Sales decreased by US$7.3 million; (iv) other prepaid expenses mainly including  miscellaneous service fee and staff advance, and value added taxes receivables decreased by US$6.8 million. The aggregate short-term and long-term bank loans increased by 10.6% due to using the line of credits to support operating and investing activities in HLJ Xinda Group and Sichuan Xinda. We define the manageable debt level as the sum of aggregate short-term and long-term loans over total assets.

Financial Guidance and Business Outlook 

In light of the current changing macroeconomic environment in China, Chinese auto industry market still showing certain decline though narrower, the Company will continue to adopt the policy of eliminating inventories and ensuring capital safety during the second half year of 2019. With the completion of Heilongjiang base for upgrading existing facilities, and the successful trial run in Dubai resulting in new production capacity to be added, our expansion into new markets overseas, diversified customer base and escalation of sales categories, the Company reiterates its financial guidance for fiscal 2019 to range $1.3 and $1.6 billion in revenue, net income to range between $90 and $110 million. It also assumes the average exchange rate of the US dollar to RMB at 7.0. This financial guidance reflects the Company's current view of its business outlook for fiscal 2019 and is subject to revision based on changing market conditions at any time.

Conference Call

China XD Plastics' senior management will host a conference call at 9:00 am Eastern Time on Wednesday, August 14, 2019, to discuss its second quarter 2019 financial results.  The conference call can be accessed by dialing +1- 845-675- 0437 (for callers in the U.S.), +86-4006- 208-038 (for Mainland China callers) or +852- 3018-6771 (for Hong Kong callers) and entering passcode 2594868.

A recording of the conference call will be available through August 22, 2019, by calling +1-855-452-5696 (for callers in the U.S.) and entering pass code 2594868.

A live webcast and replay of the conference call will be available on the investor relations page of the Company's website at http://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 31 automobile brands manufactured in China, including without limitation, Audi, Mercedes Benz, BMW, Toyota, Buick, Chevrolet, Mazda, Volvo, Ford, Citroen, Jinbei and VW Passat, Golf, Jetta, etc. 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,  2019, 497 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://chinaxd.irpass.com/, 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 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, the prospects of the Company's Harbin facility, and its penetration into Northeast China; and its penetration into Southwest China; the Company's projections of its revenues for performance in fiscal 2019.   These forward-looking statements can be identified by terminology such as "will," "expect," "project," "anticipate," "forecast," "plan," "believe," "estimate" and similar statements. Forward-looking statements involve inherent risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the Company and the industry. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, the global economic uncertainty could further impair the automotive industry and limit demand for our products; fluctuations in automotive sales and production could have a material adverse effect on our results of operations and liquidity; our financial performance may be affected by the prospect of our Dubai facility and the associated expansion into Middle East, Europe and other parts of Asia; the withdrawal of preferential government policies and the tightening control over the Chinese automotive industry and automobile purchase restrictions imposed in certain major cities may limit market demand for our products; the slowing of Chinese automotive industry's growth; the concentration of our distributors, customers and suppliers; 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. 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.

- Financial Tables Follow -

The following table shows a reconciliation of cash, cash equivalents and restricted cash on the condensed consolidated balance sheets to that presented in the above condensed consolidated statements of cash flows.

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS




June 30,



December 31,




2019



2018




US$



US$


ASSETS







Current assets:







Cash and cash equivalents



194,763,132




41,301,817


Restricted cash



312,109,750




325,690,023


Accounts receivable, net of allowance for doubtful accounts



113,277,495




294,688,288


Amounts due from a related party



278,370




-


Inventories



734,184,823




620,033,195


Prepaid expenses and other current assets



158,318,331




132,218,528


 Total current assets



1,512,931,901




1,413,931,851


Property, plant and equipment, net



824,360,375




775,941,280


Land use rights, net



29,439,676




29,796,795


Long-term prepayments to equipment and construction suppliers



448,633,091




530,636,319


Operating lease right-of-use assets, net



15,760,841




-


Other non-current assets



3,153,997




3,212,986


 Total assets



2,834,279,881




2,753,519,231











LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY


Current liabilities:









Short-term bank loans, including current portion of long-term bank loans



678,586,573




729,666,920


Bills payable



576,257,873




618,166,453


Accounts payable



115,275,006




84,958,469


Amounts due to related parties



20,072,759




18,365,738


Income taxes payable



18,314,186




15,975,367


Operating lease liabilities, current



1,888,376




-


Accrued expenses and other current liabilities



67,303,357




126,926,898


 Total current liabilities



1,477,698,130




1,594,059,845


Long-term bank loans, excluding current portion



252,503,403




111,808,244


Deferred income



97,121,826




99,583,477


Operating lease liabilities, non-current



14,588,111




-


Other non-current liabilities



96,824,770




101,573,772


 Total liabilities



1,938,736,240




1,907,025,338











Redeemable Series D convertible preferred stock (redemption amount of
US$300,791,600 and US$280,650,800 as of June 30, 2019 and  December 31, 2018,
respectively)



97,576,465




97,576,465


Stockholders' equity:









Series B preferred stock



100




100


Common stock, US$0.0001 par value, 500,000,000 shares authorized, 50,969,841 shares
issued, 50,948,841 shares outstanding as of  June 30, 2019 and December 31, 2018,
respectively



5,097




5,097


Treasury stock, 21,000 shares at cost



(92,694)




(92,694)


Additional paid-in capital



86,633,582




86,633,582


Retained earnings



768,195,922




717,103,890


Accumulated other comprehensive loss



(56,774,831)




(54,732,547)


 Total stockholders' equity



797,967,176




748,917,428


Commitments and contingencies



-




-


 Total liabilities, redeemable convertible preferred stock and stockholders' equity



2,834,279,881




2,753,519,231


 

 

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)




Three-Month Period Ended
June 30,



Six-Month Period Ended
June 30,




2019



2018



2019



2018




US$



US$



US$



US$















Revenues



463,073,880




317,329,520




764,539,887




627,782,553


Cost of revenues



(397,813,194)




(261,175,654)




(648,949,533)




(517,761,231)


 Gross profit



65,260,686




56,153,866




115,590,354




110,021,322



















Selling expenses



(247,410)




(3,562,711)




(525,230)




(4,613,720)


General and administrative expenses



(5,764,593)




(11,348,767)




(14,539,978)




(20,223,776)


Research and development expenses



(9,551,721)




(5,288,636)




(19,613,907)




(10,338,534)


 Total operating expenses



(15,563,724)




(20,200,114)




(34,679,115)




(35,176,030)



















 Operating income



49,696,962




35,953,752




80,911,239




74,845,292



















Interest income



454,357




1,029,675




890,136




3,342,298


Interest expense



(12,059,242)




(11,274,575)




(29,559,519)




(24,168,780)


Foreign currency exchange gains



3,050,612




5,632,970




909,747




1,677,162


Losses on foreign currency option contracts



-




-




-




(520,981)


Gains on disposal of a subsidiary



-




-




518,491




-


Government grant



1,611,216




1,378,484




3,706,153




2,856,043


 Total non-operating expense, net



(6,943,057)




(3,233,446)




(23,534,992)




(16,814,258)



















 Income before income taxes



42,753,905




32,720,306




57,376,247




58,031,034



















Income tax expense



(2,642,588)




(5,496,228)




(6,284,215)




(11,707,055)



















 Net income



40,111,317




27,224,078




51,092,032




46,323,979



















Earnings per common share:

















Basic and diluted



0.60




0.41




0.76




0.70



















Net Income



40,111,317




27,224,078




51,092,032




46,323,979



















Other comprehensive income (loss)

















Foreign currency translation adjustment, net of nil
income taxes



(16,713,085)




(39,306,010)




(2,042,284)




(9,644,600)



















 Comprehensive income (loss)



23,398,232




(12,081,932)




49,049,748




36,679,379


 

 

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS




Six-Month Period Ended June 30,




2019



2018




US$



US$


Cash flows from operating activities:







Net cash provided by operating activities



92,864,032




152,600,917




















Cash flows from investing activities:









Proceeds from maturity of time deposits



-




388,105,630


Purchase of time deposits



-




(210,380,884)


Purchase of and deposits for property, plant and equipment



(52,396,204)




(334,739,673)


Refund of deposit from an equipment supplier



-




60,054,417


Deposits for acquisition of equity



-




(3,640,688)


Government grants related to the construction projects



-




10,558,608


Proceeds from sales of a subsidiary



7,376,807




-


Cash disposed for sales of a subsidiary



(3,202)




-


Net cash used in investing activities



(45,022,599)




(90,042,590)











Cash flows from financing activities:









Proceeds from bank borrowings



1,400,043,299




470,494,396


Repayments of bank borrowings



(1,307,643,944)




(587,236,484)


Investment received in advance from a related party



-




75,567,512


Proceeds from interest-free advances from related parties



67,389,859




-


Repayments of interest-free advances from related parties



(65,152,460)




-


Net cash provided by (used in) financing activities



94,636,754




(41,174,576)











Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted
cash



(2,597,145)




(5,499,604)


Net increase in cash, cash equivalents and restricted cash



139,881,042




15,884,147











Cash, cash equivalents and restricted cash at beginning of period



366,991,840




320,091,665


Cash, cash equivalents and restricted cash at end of period



506,872,882




335,975,812











Supplemental disclosure of cash flow information:









Interest paid, net of capitalized interest



29,586,602




23,267,235


Income taxes paid



6,067,051




12,906,780


Non-cash investing and financing activities:









Accrual for purchase of equipment and construction included in accrued expenses and other
current liabilities



1,721,729




6,057,014



The following table shows a reconciliation of cash, cash equivalents and restricted cash on the condensed
consolidated balance sheets to that presented in the above condensed consolidated statements of cash
flows.




June 30,




2019



2018




US$



US$


Cash and cash equivalents



194,763,132




72,721,460


Restricted cash



312,109,750




263,254,352


Total cash, cash equivalents, and restricted cash shown in the
statement of cash flows



506,872,882




335,975,812


 

 

CHINA XD PLASTICS COMPANY LIMITED


Reconciliation of Net Income to EBITDA

(Amounts expressed in United States Dollars)



Three-Month Period Ended


June 30,


2019

2018




Net income -GAAP

$                                 40,111,317

$                   27,224,078

Interest expense

12,059,242

11,274,575

Provision for income taxes

2,642,588

5,496,228

Depreciation and amortization expense

15,143,020

11,348,832

Amortization of  operating lease right-of-use
assets

157,806

-

EBITDA

70,113,973

55,343,713

 

Cision

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