Specialty Chemical Company China XD Plastics Announces Second Quarter 2016 Financial Results

HARBIN, China, Aug. 5, 2016 /PRNewswire/ -- China XD Plastics Company Limited (NASDAQ: CXDC) ("China XD Plastics" or the "Company"), one of China's leading specialty chemical companies engaged in the development, manufacture and sale of polymer composite materials primarily for automotive applications, today announced its financial results for the second quarter ended June 30, 2016.

Second Quarter 2016 Financial Highlights

• Revenue was $277.1 million, an increase of 4.4% YoY and 28.9% sequentially
• Gross profit was $60.3 million, an increase of 17.1% YoY and 73.3% sequentially
• Gross margin of 21.8% increased 240 basis points YoY and 560 basis points sequentially
• Net income was $33.3 million, an increase of 30.6% YoY and 192.1% sequentially
• Total volume shipped was 89,403 metric tons, up 5.4% YoY and 16.5% sequentially

"We are pleased with the financial results of the second quarter as they are consistent with our expectations of a steady recovery throughout China's automotive supply chain," said Jie Han, Chairman of the Board of Directors and Chief Executive Officer. "According to the China Association of Automobile Manufacturers, the number of automobiles manufactured in China increased 10.5% in June 2016 compared to the same month in 2015. We are particularly pleased to see this improvement coincide with our progress in expanding our market into new growth frontiers, such as the South and Central China regions, in addition to our continued and steady business development in Southwest and East China."

Mr. Han continued, "As a follow-up to our announced product testing trials and a pilot trial with new customers outside of China, as expected, commercial orders of higher-end products including specialty plastic alloy from the overseas market were received and the products were delivered in the second quarter of 2016. Both the improvement in macroeconomic conditions and our overseas new customer efforts have contributed to the improvement of our operational performance and key financial performance metrics such as sales volume, average selling price and gross and net margin."

"As previously announced, we held a commissioning ceremony at our Sichuan manufacturing facility on July 7th, 2016, an important milestone in our corporate development. Our plant has been designed with the highest production specifications with state-of-the-art equipment to facilitate product deployment into new growth verticals while maintaining the highest standards in quality control and batch consistency," continued Mr. Han. "The new facility extends our geographical reach beyond our established Northeast base as the Southwest region is rapidly becoming an important economic driver in China. In addition, the new campus will diversify our product platform into additional high-growth verticals such as ships, high-speed rail, airplanes, bio-degradable materials, medical-grade materials and food packaging. We anticipate 60,000 metric tons contribution of production capacity in the second half of this year at the new facility."

"In addition to our new Sichuan campus, our new facility in Dubai also extends our specialized high-tech products into an important new market. This highly specialized facility will ultimately enable more active inroads into the markets of Europe, the Middle East and other international regions."

"China XD continues to value our deep working relationships with our customers and is committed to create lasting value to customers, employees and shareholders with our culture of hard work and innovation, which we believe differentiates us from our competitors. We expect that our expansion into Southwest and Central China and our Dubai presence will strengthen our leadership position as we penetrate new markets. As evidenced by the current quarter's results, we anticipate benefiting from a continued recovery throughout the Chinese automotive supply chain and look forward to additional progress in both our domestic and international business and reiterate our fiscal 2016 financial guidance," Mr. Han concluded.

Second Quarter 2016 Results

Revenues were $277.1 million in the second quarter ended June 30, 2016, an increase of $11.7 million or 4.4% compared to $265.4 million in the same period of last year. This was due to a 5.4% increase in sales volume and 4.0% increase in the average RMB selling price of our products, offset somewhat by a 4.5% negative impact from the exchange rate due to a weakening RMB against the US dollar.

Premium products (PA66, PA6, Plastic Alloy, PLA, POM and PPO) in total accounted for 80.6% of revenues, compared to 78.5% in the prior year period. The Company continued to shift its production mix from traditional polymer materials to higher-end products due to (i) the 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 from end consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, and U.S. and Japanese joint ventures, which manufacturers tend to use more and higher-end modified plastics in quantity per vehicle in China.

Gross profit was $60.3 million in the second quarter ended June 30, 2016 compared to $51.5 million in the same period of 2015, representing an increase of $8.8 million or 17.1%. Gross margin increased to 21.8% during the quarter ended June 30, 2016 from 19.4% during the same quarter of 2015 primarily due to a greater contribution from higher-margin products sold overseas.

General and administrative (G&A) expenses was $6.6 million in the quarter ended June 30, 2016, which was stable as compared to $6.6 million in the same period in 2015.

Research and development (R&D) expenses were $5.9 million in the quarter ended June 30, 2016 compared with $6.7 million during the same period in 2015, a decrease of $0.8 million or 11.9%. This decrease reflects our improved efficiency in managing our R&D projects and our efforts to adjust our R&D activities on new products primarily for industrialized applications from automotive to other advanced fields such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics and medical devices. As of June 30, 2016, we were engaged in 187 ongoing R&D projects.

Total operating income was $47.4 million in the second quarter ended June 30, 2016 compared to $37.8 million in the same period of 2015, representing an increase of $9.6 million or 25.4%. This increase is primarily due to a higher gross margin and lower research and developed expenses, with stable general and administrative expenses.

Net interest expense was $9.0 million for the three-month period ended June 30, 2016, compared to net interest expense of $8.5 million in the same period of 2015, primarily due to (i) the decrease of interest income which was caused by the decrease of the average interest rate of 2.4% for the three month period ended June 30, 2016 as compared to 3.1% for the same period of 2015, partially offset by the increase of average deposit balance in the amount of $409.6 million for the three months ended June 30, 2016 compared to $344.5 million for the same period of 2015; and partially offset by (ii) the decrease in interest expense which was caused by the decrease of the average interest rate of 5.2% for the three months ended June 30, 2016 as compared to 5.3% for the three months ended June 30, 2015, partially offset by the increase in short-term and long-term loans in the amount of $496.6 million for the three months ended June 30, 2016 as compared to $409.9 million of prior year.

The effective income tax rate for the three-month periods ended June 30, 2016 and 2015 was 13.6% and 14.7%, respectively. The decrease was primarily due to Heilongjiang Xinda Group's R&D expense super deduction, partially offset by the effect of the tax rate differential on entities not subject to PRC income tax, the effect of non-deductible expenses and the increase of valuation allowances against deferred income tax assets of certain subsidiaries, which were at a cumulative loss position. The effective income tax rate for the three-month period ended June 30, 2016 differs from the PRC statutory income tax rate of 25% primarily due to the effect of tax rate differential on entities not subject to PRC income tax and the super deduction of R&D expense which was partially offset by the effect of non-deductible expenses.

Net income was $33.3 million in the quarter ended June 30, 2016, compared to $25.5 million for the same period of the prior year, representing an increase of $7.8 million or 30.6%. Basic and diluted earnings per share were $0.51, compared to $0.39 per basic and diluted share in the second quarter of 2015. 

The average number of shares used in the computation of basic and diluted earnings per share for the three months ended June 30, 2016 was $49.4 million, compared to 49.2 million in the prior year period.

Earnings before interest, tax, depreciation and amortization (EBITDA) was $56.4 million for the second quarter of 2016, compared to EBITDA of $47.8 million in the same period of 2015, representing an increase of $8.6 million or 18.0%. 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, 2016, the Company had $58.0 million in cash and cash equivalents, $282.5 million in time deposits with commercial banks, $187.1 million in working capital (current assets minus current liabilities) and a current ratio (current assets divided by current liabilities) of 1.21, after giving effect to the announced redemption of its $150 million 11.75% guaranteed senior notes due 2019 on August 29, 2016. Stockholders' equity as of June 30, 2016 was $609.7 million, compared to $578.0 million as of December 31, 2015.

Inventories increased by 43.2% from fiscal year end 2015 as a result of more purchases made by the Company to take advantage of the lower purchase price of the raw materials and our strategy to stock up on inventory and prepare for the opening of Sichuan plant.

The aggregate short-term and long-term bank loans increased by 28.6% from fiscal year end 2015 as the result of utilization of existing lines of credit. We believe our current debt level is manageable. We define the manageable debt level as the sum of aggregate short-term and long-term loans, and notes payable over total assets. As of June 30, 2016, due to the announced redemption of the 11.75% guaranteed senior notes due 2019, notes payable within one-year was $146.2 million, net of discount.

Recent Events

On July 8, 2016, the Company announced that it held a commissioning ceremony on July 7, 2016 at its new Sichuan manufacturing facility. Over 700 participants attended the event which showcased the new fully automated facility. The Sichuan campus will diversify the Company's product platform into additional high-growth verticals such as ships, high-speed rail, airplanes, bio-degradable materials, medical-grade materials and food packaging. The plant has been designed at state-of-the-art production specifications so as to maintain the highest and most consistent standards in quality control and batch consistency.

On June 30, 2016, the Company announced to redeem all of the 11.75% guaranteed senior notes due on February 4, 2019 (the "Notes") outstanding on August 29, 2016 (the "Redemption Date") at a redemption price equal to 100% of the principal amount of the Notes plus the Applicable Premium (as defined in the Indenture) as of the Redemption Date (the "Redemption Price") plus accrued and unpaid interest up to (but not including) the Redemption Date. The Notes have an assessable principal amount of $150,000,000 and an estimated carrying amount of $146,432,000 as of August 29, 2016. The redemption amount on the Redemption Date is estimated to be approximately $165,285,000 and accrued and unpaid interest up to (but not including) the Redemption Date equal to approximately $1,224,000. A loss upon extinguishment of the Notes in the amount of $18,853,000 representing the difference between the redemption amount and the net carrying amount of the Notes, is to be recognized in the statement of comprehensive income in the quarter ended September 30, 2016. 

Business Outlook and Guidance

The Company reiterates its financial guidance for fiscal 2016 with revenue to range between $1.0 billion and $1.1 billion and net income to range between $100.0 million to $110.0 million. This is based on the anticipation of a steady recovery throughout the Chinese automotive supply chain, the Company's belief in its ability to secure new customers and a stabilization of crude oil pricing and its impact on polymer composite materials in 2016. This forecast also assumes contributions from the Sichuan plant, which will start production in the second half of 2016.  It also assumes a stable exchange rate of the US dollar to RMB and excludes certain non-cash and non-operational items. This financial guidance reflects the Company's preliminary view of its business outlook for fiscal 2016 and is subject to revision based on changing market conditions at any time.

Conference Call

China XD Plastics' management will host a conference call at 9:00 a.m. ET on Friday, August 5, 2016, to discuss its second quarter of 2016 financial results. The conference call can be accessed by dialing +1 (855) 298-3404 (for callers in the U.S.), +86-4001-200-539 (for Mainland China callers) or +852 5808 3202 (for Hong Kong callers) and entering pass code 9290615.

A recording of the conference call will be available through August 13, 2016, by calling +1 (866) 846-0868 (for callers in the U.S.) and entering pass code 9290615.

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

About China XD Plastics Company Limited

China XD Plastics Company Limited, through its wholly-owned subsidiaries, develops, manufactures and sells polymer composites materials, primarily for automotive applications. The Company's products are used in the exterior and interior trim and in the functional components of 28 automobile brands manufactured in China, including without limitation, Audi, Mercedes Benz, BMW, Buick, Chevrolet, VW Passat, Golf and Jetta, Mazda, and Toyota. The Company's wholly-owned research center is dedicated to the research and development of polymer composites materials and benefits from its cooperation with well-known scientists from prestigious universities in China. As of June 30, 2016, 369 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://www.chinaxd.net, 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 volatility of the Company's operating results and financial condition; the Company's ability to raise additional capital to finance the Company's activities; the Company's and its subsidiaries' ability to fully perform all of their obligations under the guaranteed senior notes transaction and other contractual obligations applicable to them; the effectiveness, profitability, and the marketability of its the ongoing mix shift to more advanced products; the prospect of the Company's Dubai facility, and the associated expansion into Middle East, Europe and other parts of Asia; the prospect of the Company's Southwest China facility, and its penetration into Southwest China; the impact of volatile crude oil prices on the Company's efforts to diversify its product offers; market for plastic resins; legal and regulatory risks; the Company's projections of its revenues for performance in fiscal in 2016; the Company's ability to execute its growth strategy and the effectiveness of its marketing strategy; the future trading of the common stock of the Company; the Company's ability to operate as a public company; the period of time for which its current liquidity will enable the Company to fund its operations; general economic and business conditions; the volatility of the Company's operating results and financial condition; the Company's ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed in the Company's filings with the Securities and Exchange Commission and available on its website at http://www.sec.gov. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the Company and the industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.

Contacts:

China XD Plastics
Mr. Taylor Zhang, CFO (New York)
Phone: +1 (212) 747-1118
Email: cxdc@chinaxd.net

Investor Relations: Grayling Communications Inc.
Ms. Vivian Chen, Managing Director
US: +1 (347) 481-3711
Email: Vivian.chen@grayling.com

- Financial Tables Follow -