Specialty Chemical Company China XD Plastics Announces Third Quarter 2018 Financial Results

Author: China XD Plastics Company Limited / 2023-07-23 20:33 / Source: China XD Plastics Company Limited

Specialty Chemical Company China XD Plastics Announces Third Quarter 2018 Financial Results

HARBIN,China,Nov. 9,2018 -- 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 third quarter ended September 30,2018.

Third Quarter 2018 Financial Summary

Revenue was$297.2 million,a decrease of 4.6% YoY

Gross profit was$47.2 million,a decrease of 0.2% YoY

Gross margin of 15.9%,an increase of 70 basis points YoY

Net income was$9.0 million,an decrease of 36.2% YoY

EBITDA was $30.0 million,a decrease of 23.1% YoY

Total volume shipped was 108,832 metric tons,a slightly down 2.7% YoY

"Our third quarter 2018 results were consistent with the unanticipated severe downturn in the auto industry of China,the first year over year drop in 28 years," said Jie Han,Chairman of the Board of Directors and Chief Executive Officer. "In addition,the reduction of duty on imported vehicles by an average of 46% is expected to have profound impact on the entire auto industry in China. Although we applaud the implementation of such supply-side reform by the policy makers for the wellbeing of the long term benefit of China auto industry,it will have short term impact on the auto market as companies throughout the supply chain adjust themselves and adapt to such change. On oversea business development front,we are pleased with our successful trial production at our production base in Dubai and remain optimistic about the prospect of our business expansion overseas,especially after positive results and feedbacks after product trials from customers in various countries and regions overseas."

Third Quarter 2018 Results

Revenues were US$297.2 million in the third quarter ended September 30,2018,a decrease of US$14.2 million,or 4.6%,compared to US$311.4 million in the same period of last year,as a combined results of i) a decrease of 2.7% in sales volume and ii) 2.0% negative impact from exchange rate due to weakening RMB against US dollars partially offset by an increase of 0.1% in the average RMB selling price of our products as compared with those of last year.

According to the China Association of Automobile Manufacturers,Automobile production and sales in China increased by 0.9% and 1.5%,respectively,for the first nine months of 2018 as compared to the same period of 2017,and China auto sales dropped 4.0%,3.8% and 11.6% in this July,August and September,compared to the same periods in 2017. Weakening macroeconomic conditions since the summer of 2018 have deteriorated business conditions. Though the Company has increased growth of 208.9% in South China,and 54.8% in Central China,sales decreased by 7.2% in Southwest China,11.0% in North China,13.6% in Northeast China and 0.2% in East China.

As for the increase of average RMB selling price,it was mainly due to more sales of higher-end products of modified PA66,PA6 in China.

Overseas sales were US$2,104 in the three-month period ended September 30,2018 as compared to US$14.1 million in the same period of the prior year. The Company has tried to develop new customers overseas besides the existing oversea customer. The sales to this oversea customer was suspended due to the accounts receivable balance overdue situation.

Gross profit was US$47.2 million in the third quarter ended September 30,compared to US$47.3 million in the same period of 2017. Our gross margin increased to 15.9% during the third quarter ended September 30,2018 from 15.2% during the same quarter of 2017 primarily due to more sales of higher-end products of 77.4% as compared to 74.9% for the same period of the prior year.

General and administrative (G&A) expenses were US$8.1 million for the quarter ended September 30,2018 compared to US$10.4 million in the same period in 2017,representing a decrease 22.1%,or US$2.3 million. The decrease was primarily due to our approach on optimizing management structure and enhancing efficiency,leading to the decrease of (i) US$2.1 million in salary and welfare; (ii) US$0.6 million in miscellaneous expense,(iii) US$0.1 million in rental expense and partially offset by the increase of (iv) US$0.5 million in stock based compensation.

Research and development (R&D) expenses were US$23.3 million for the third quarter of 2018,compared to US$9.8 million for the same period of 2017,representing an increase of US$13.5 million,or 137.8%. This significant increase was primarily due to (i) elevated R&D activities to meet the new and higher specification requirements from potential customers,especially overseas;and (ii) increased effortsdirected towardsapplications in new electricalequipmentand electronics,alternative energy applications,power devices,aviation equipment and ocean engineering,in addition to other new products primarily foradvancedindustrialized applicationsin the automobile sector and in new verticalssuch as ships,airplanes,high-speed rail,3D printing materials,biodegradable plastics,and medical devices. As of September 30,the number of ongoing research and development projects was211.

Operating income was US$13.0 million for the third quarter of 2018,compared to US$26.2 million for the same period of 2017,representing a decrease of US$13.2 million,or 50.4%. This decrease is primarily due to higher selling expenses and R&D expenses,and partially offset by lower G&A expenses.

Net interest expenses were US$13.1 million for the third quarter of 2018,compared to $9.0 million in the same quarter of 2017,representing an increase of 45.6% or US$4.1 million,primarily due to (i) the increase of interest expense due to the increase of average short-term and long-term loan balance in the amount of US$936.2 million for the three-month period ended September 30,2018 compared to US$808.3 million of the same period in 2017; which is partially offset by the decrease of interest expense resulting from the average loan interest rate decreased to 4.01% for the three-month period ended September 30,2018 compared to 4.57% of the same period in 2017; (ii) the decrease of interest income resulting from the average interest rate decreased to 1.0% for the three-month period ended September 30,2018 compared to 1.5% of the same period in 2017; (iii) the decrease of average deposit balance in the amount of US$240.8 million for the three-month period ended September 30,2018 compared to US$503.1 million for the same period in 2017.

Income tax income was US$3.5 million for the third quarter of 2018,representing an effective income tax rate ofnegative 65.1%,compared to income tax expense of US$3.1 million in the same period of 2017,representing an effective income tax rate of 17.8%. 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 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,and (ii) the increase 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 ended September 30,2018 differs from the PRC statutory income tax rate of 25% primarily due to Sichuan Xinda's preferential income tax rate and R&D 75% additional deduction of the major PRC operating entities.

Net income was US$9.0 million for the third quarter of 2018,compared to US$14.1 million for the same period of 2017,representing a decrease of US$5.1 million,or 36.2%. Basic and diluted earnings per share for the three-month period ended September 30,2018 were both US$0.13,compared to US$0.21 per basic and diluted share for the same period of 2017. 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 49.6 million shares for basic and diluted earnings per share in the prior year period.

Earnings before interest,tax,depreciation and amortization (EBITDA) was US$30.0 million for the third quarter of 2018,compared to US$39.0 million for the same period of 2017,representing a decrease of US$9.0 million,or 23.1%. 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 September 30,the Company had US$394.7 million in the total amount of cash and cash equivalents,restricted cash and time deposits,a decrease of US$213.4 million or 35.1% as compared to US$608.1 million as of December 31,2017. As of September 30,working capital was negative US$185.8 million (current assets minus current liabilities) and the current ratio (current assets divided by current liabilities) was 0.9,as compared to the current ratio of 1.0 as of December 31,2017. Stockholders' equity as of September 30,2018 was US$733.2 million,an increase of US$20.4 million or 2.9% as compared to US$712.8 million as of December 31,2017.

Inventories increased by 34.4% as compared to the end of fiscal year 2017 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 15.8% or US$22.8 million as compared to the end of fiscal year 2017 mainly due to the increase in advances to suppliers. Prepayments to equipment supplier and construction suppliers increased by 178.1% or US$339.4 million as compared to the end of fiscal year 2017 because (i) HLJ Xinda Group prepaid to purchase equipment for the industrial project with 300,000 metric tons capacity of biological based composite material and upgrading existing 100,000 metric tons of engineering plastics facilities and (ii) Sichuan Xinda prepaid to purchase equipment with 300,000 metric tons capacity of bio-composite materials. The aggregate short-term and long-term bank loans decreased by 7.9% as compared to the end of fiscal year 2017 due to the loan repayments. We define the manageable debt level as the sum of aggregate short-term and long-term loans,and notes payable over total assets.

Recent Development

On October 31,the Company's subsidiary,HLJ Xinda Group,signed a deleveraging investment framework agreement (the "Agreement") with CCB Financial Asset Investment Co.,Ltd. ("CCB Financial"),and China Construction Bank Heilongjiang Branch ("CCB HLJ"),both of which are wholy owned subsidiaries of China Construction Bank ("CCB"). Pursuant to the agreement,CCB Financial and CCB HLJ are planning to provide estimated RMB2 billion (approximately US$289 million) capital to Xinda Group and or its affiliated entities in debt,equity or other forms,mainly to repay Xinda Group's interest bearing loans,to facilitate the Company to diversify and develop its business and to improve corporate management,subject to the parties entering into one or more definitive agreements. The definitive agreements will be subject to satisfactory due diligence by CCB Financial and CCB HLJ,business arrangement,legal viability,and completion and satisfaction of other standard and customary conditions. The Company will make its best effort to assist CCB Financial and CCB HLJ but does not provide timing estimate or make promise of signing of any definitive agreement.

Financial Guidance and Business Outlook

Since the beginning of this third quarter,China auto market has experienced an unexpected and unprecedent turn with both numbers of car produced and sold plummeted. The results from China Auto Industry Association came drastically below its early expectation. China auto sales dropped 4%,compared to the same periods in 2017. It has a ripple effect and impact throughout China auto supply chain,including the Company. In light of the foregoing changing market condition and the macro economic environment in China,the Company is reiterating the updated and previously disclosed financial guidance for fiscal 2018 to range between $1 and $1.2 billion in revenue and net income to range between $70 and $80 million. It assumes the average exchange rate of the US dollar to RMB at 6.9. This financial guidance reflects the Company's current view of its business outlook for fiscal 2018 and is subject to revision based on changing market conditions at any time.

The Company's Dubai production base has completed trial production successfully and official commencement is scheduled on November 11,2018 with 11.25 thousand metric tons annual capacity in 2019. Dubai Xinda primarily offers long chain nylon alloy and other high-end engineering plastics and has developed and completed product trials with a number of customers overseas from Spain,Italy,UAE,Malaysia,and India etc.

Conference Call

China XD Plastics' senior management will host a conference call at 9:00 am Eastern Time on Friday,November 9th,to discuss its third quarter 2018 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 9078388.

A recording of the conference call will be available through November 16th,by calling +1-855-452-5696 (for callers in the U.S.) and entering pass code 9078388.

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 September 30,476 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 prospects of the Company's Dubai facility,and the associated expansion into Middle East,Europe and other parts of Asia; the prospects of the Company's Sichuan facility,and its penetration into Southwest China; the prospects of the Company's Harbin facility,and its penetration into Northeast China; the Company's projections of its revenues for performance in fiscal 2018. 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 which could further impair the automotive industry and limit demand for our products; fluctuations in automotive sales and production which could have a material adverse effect on our results of operations and liquidity; our financial performance which 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,the tightening control over the Chinese automotive industry,automobile purchase restrictions imposed in certain major cities which 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.

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

December 31,

2018

2017

US$

ASSETS

Current assets:

Cash and cash equivalents

51,539,593

190,392,211

Restricted cash

335,915,478

129,699,454

Time deposits

7,268,287

288,023,017

Accounts receivable,net of allowance for doubtful accounts

173,278,607

298,868,984

Inventories

566,810,166

421,736,682

Prepaid expenses and other current assets

167,109,645

144,326,151

Total current assets

1,301,921,776

1,473,046,499

Property,plant and equipment,net

787,330,204

835,561,739

Land use rights,net

29,881,029

31,943,652

Long-term prepayments to equipment and construction suppliers

529,973,047

190,627,514

Other non-current assets

777,392

12,924,279

Total assets

2,649,883,448

2,544,103,683

LIABILITIES,REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Current liabilities:

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

692,120,072

775,396,929

Bills payable

626,322,828

252,768,510

Accounts payable

26,535,220

227,993,140

Amounts due to related parties

14,256,429

Income taxes payable

11,495,721

17,710,217

Accrued expenses and other current liabilities

116,926,581

138,605,509

Total current liabilities

1,487,656,851

1,412,474,305

Long-term bank loans,excluding current portion

127,253,750

114,208,319

Deferred income

100,571,327

99,168,276

Other non-current liabilities

103,629,677

107,898,318

Total liabilities

1,819,111,605

1,733,749,218

Redeemable Series D convertible preferred stock (redemption amount of

US$270,936,200 and US$244,044,200 as of September 30,2018 and

December 31,2017,respectively)

97,576,465

97,465

Stockholders' equity:

Series B preferred stock

100

Common stock,US$0.0001 par value,500,000,000 shares authorized,

50,469,841 shares and 49,748,731 shares issued,50,448,841 shares and

49,727,731 shares outstanding as of September 30,2018 and December 31,

2017,respectively

5,047

4,975

Treasury stock,21,000 shares at cost

(92,694)

Additional paid-in capital

86,429,980

83,159,893

Retained earnings

704,079,389

648,790,469

Accumulated other comprehensive loss

(57,226,444)

(19,084,743)

Total stockholders' equity

733,195,378

712,778,000

Commitments and contingencies

Total liabilities,redeemable convertible preferred stock and equity

2,683

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three-Month Period Ended

September 30,

Nine-Month Period Ended

September 30,

2018

2017

2018

2017

US$

Revenues

297,224,740

311,418,943

925,007,293

862,814,803

Cost of revenues

(249,997,804)

(264,099,790)

(767,759,035)

(717,614,278)

Gross profit

47,936

47,319,153

157,248,258

145,200,525

Selling expenses

(2,741,156)

(858,739)

(7,354,876)

(2,082,889)

General and administrative expenses

(8,117,769)

(10,403,187)

(28,341,545)

(26,440)

Research and development expenses

(23,342,321)

(9,857,475)

(33,680,855)

(25,255,497)

Total operating expenses

(34,201,246)

(21,119,401)

(69,377,276)

(53,639,826)

Operating income

13,025,690

26,199,752

87,870,982

91,560,699

Interest income

264,838

1,894,747

3,607,136

4,028,299

Interest expense

(13,393,886)

(10,892,112)

(37,562,666)

(32,865,939)

Foreign currency exchange gains (losses)

4,387,166

(2,372,361)

6,064,328

(4,719,423)

Losses on foreign currency option contracts

(584,724)

(520,981)

(584,724)

Government grant

1,145,703

2,955,045

4,001,746

5,498

Total non-operating expense,net

(7,596,179)

(8,999,405)

(24,410,437)

(28,723,289)

Income before income taxes

5,511

17,347

63,460,545

62,837,410

Income tax benefit (expense)

3,430

(3,063,889)

(8,171,625)

(10,735,971)

Net income

8,964,941

14,136,458

55,288,920

52,101,439

Earnings per common share:

Basic and diluted

0.13

0.21

0.83

0.79

Net Income

8,439

Other comprehensive income (losses)

Foreign currency translation adjustment,net of nilincome taxes

(28,497,101)

15,887,423

(38,141,701)

33,557,087

Total Comprehensive income (losses)

(19,532,160)

30,881

17,147,219

85,658,526

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine-Month Period Ended

September 30,

2018

2017

US$

Cash flows from operating activities:

Net cash provided by operating activities

115,513,922

144,871,143

Cash flows from investing activities:

Proceeds from maturity of time deposits

517,686,072

249,029,754

Purchase of time deposits

(236,428,396)

(396,036,693)

Purchase ofland use rights

(3,203,611)

Purchase of and deposits for property,plant and equipment

(430,839,423)

(338,711,968)

Refund of deposit from equipment suppliers

121,464,390

122,463

Deposits for acquisition of equity

(3,640,688)

Refund of deposits for acquisition of equity

15,577,880

Government grant related to the construction of Sichuan plant

10,324,859

7,207,612

Net cash used in investing activities

(5,855,306)

(359,443)

Cash flows from financing activities:

Proceeds from bank borrowings

719,994,473

571,361

Repayments of bank borrowings

(757,018,030)

(450,252,497)

Investment received in advance from a related party

75,567,512

Refund of investment received in advance from a related party

(75,512)

Proceeds from interest-free advances from related parties

14,429

Net cash (used in) provided byfinancing activities

(22,767,128)

120,888,864

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

(19,528,082)

9,096

Net increase (decrease)in cash,cash equivalents and restricted cash

67,363,406

(84,340)

Cash,cash equivalents and restricted cash at beginning of period

320,091,665

271,575,847

Cash,cash equivalents and restricted cash at end of period

387,455,071

187,320,507

Supplemental disclosure of cash flow information:

Interest paid,net of capitalized interest

35,067,228

28,035,022

Income taxes paid

16,866,842

9,098,388

Non-cash investing activities:

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

5,825,800

6,851,777

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.

September 30,

2018

2017

US$

Cash and cash equivalents

51,593

46,025

Restricted cash

335,478

140,553,482

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

387,507