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

2016-11-09 21:30
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HARBIN, China, Nov. 9, 2016 /PRNewswire/ --

- Revenue of $332 million, up 38.8% YoY -
- Net Income of $20 million, up 236.7% YoY -
- Reiterates Fiscal 2016 Guidance of Revenue between $1.0 - $1.1 billion and Net Income between $100 - $110 million -

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, 2016.

Third Quarter 2016 Financial Highlights

  • Revenue was $331.8 million, an increase of 38.8% YoY
  • Gross profit was $69.6 million, an increase of 137.5% YoY
  • Gross margin of 21.0%, an increase of 870 basis points YoY
  • Net income was $20.2 million, an increase of 236.7% YoY
  • EBITDA was $46.1 million, an increase of 71.4% YoY
  • Total volume shipped was 108,633 metric tons, up 33.0% YoY
  • Book value per share was $9.54 as of the end of the third quarter 2016

"We are pleased by the financial results of the third quarter which benefited from a continued improvement in macroeconomic conditions in the auto industry, our increased production capacity and an escalation in international sales," 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 by 14.7% for the first nine months of 2016 as compared to first nine months of 2015. An improvement in macroeconomic conditions through the first nine months of 2016 has resulted in improved business conditions and eased pricing pressures which have resulted in stronger company profit margins."

Mr. Han continued, "Key elements of our growth plan include elevating the sales of our high-end products, optimizing our increased production capacity, and increasing our overseas sales in order to reduce our concentration in the Chinese market. We are beginning to see the results of this strategy as we increased overseas sales significantly from the overseas market in the third quarter as compared to the same period last year. As anticipated, the steady recovery in operating conditions coupled with the focused execution of our strategic plan has resulted in a marked improvement in key financial metrics such as sales volume, average selling price and profitability margins."

"The commissioning of our Sichuan campus in the current quarter is an important milestone as it will ultimately add 300,000 metric tons of annual production to our domestic capacity, for a total domestic capacity of 690,000 metric tons. The Sichuan facility substantially expands the footprint of our auto business in China and while we expect that automotive applications will continue to be our core business, the new facility includes precision equipment which will enable us to diversify our product platform into such high-growth verticals as ships, high-speed rail, airplanes, bio-degradable materials, medical-grade materials and food packaging which will propel the company's growth."

"Our Sichuan plant has been designed with the highest production specifications with state-of-the-art equipment and extends our geographical reach beyond our established Northeast base in Harbin as the China's Southwest is rapidly becoming an important economic region. We anticipate having production capacity of 60,000 metric tons as operational by year-end 2016," continued Mr. Han.

"In addition to our new Sichuan campus, our manufacturing facility in Dubai will also extend our specialized high-tech products into important new markets. We are planning to complete Phase 2 of our build-out by the end of this year which will constitute installing an additional 14,000 metric tons of annual production capacity, bringing total production capacity in Dubai to 16,500 metric tons. The Dubai facility will target high-end products for the overseas market and will ultimately enable more active inroads into the markets of Europe, the Middle East and other international regions."

"We view our ability to innovate combined with our utilization of state-of-the art equipment as a technical and competitive edge in the marketplace. China XD is committed to creating value for all of our stakeholders through our commitment and dedication to our customers. We remain confident in our business model and anticipate that our expansion in Sichuan and the completion of our Dubai plant this year will result in improved market positioning, a diversified base of customers, higher-end sales and an expansion into new verticals. We anticipate that the year's steady improvement in our sector will continue into 2017 and we reiterate our current financial guidance at this time," Mr. Han concluded.

Third Quarter 2016 Results

Revenues were $331.8 million in the third quarter ended September 30, 2016, an increase of $92.7 million or 38.8% compared to $239.1 million in the same period of last year. This was due to a 33.0% increase in sales volume and a 10.0% increase in the average RMB selling price of our products, offset somewhat by a 6.0% negative impact from the exchange rate due to a weakening RMB against the US dollar. Overseas sales was $37.0 million in the third quarter of 2016 compared to $7.3 million in the same period of 2015 due to sales overseas.

Premium products (PA66, PA6, Plastic Alloy, PLA, POM and PPO) in total accounted for 82.8% of revenues, compared to 77.6% 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 $69.6 million in the third quarter ended September 30, 2016, compared to $29.3 million in the same period of 2015, an increase of $40.3 million or 137.5%. Gross margin increased to 21.0% during the quarter ended September 30, 2016 from 12.3% 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 $8.4 million in the quarter ended September 30, 2016, compared to $5.8 million in the same period of 2015, an increase of $2.6 million or 44.8%. This increase was primarily due to the increases in salary due to the increase in the number of management and general staffs from supporting departments, and expenses associated with the commissioning ceremony in the current quarter of its new Sichuan manufacturing facility and rental expenses.

Research and development (R&D) expenses were $7.9 million in the quarter ended September 30, 2016 compared with $5.8 million during the same period in 2015, an increase of $2.1 million or 36.2%. This increase reflected our enhanced efforts in research and development 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 September 30, 2016, we were engaged in 196 ongoing R&D projects.

Total operating income was $53.1 million in the third quarter ended September 30, 2016 compared to $17.3 million in the same period of 2015, an increase of $35.8 million or 206.9%. This increase is primarily due to a higher gross margin, partially offset by the higher general and administrative and research and development expenses.

Net interest expense was $9.7 million in the three-month period ended September 30, 2016, compared to net interest expense of $8.3 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 to 1.4% for the three month period ended September 30, 2016 compared to 2.5% for the same period of 2015, which was partially offset by an increase in the average deposit balance in the amount of $355.8 million for the three months ended September 30, 2016 compared to $306.8 million for the same period of 2015; and (ii) the increase of interest expense which was caused by the increase of short-term and long-term loans in the amount of $666.3 million for the three months ended September 30, 2016 as compared to $368.0 million of prior year, which was partially offset by the decrease of the average interest rate to 4.5% for the three months ended September 30, 2016 as compared to 5.2% for the three months ended September 30, 2015.

Loss on debt extinguishment resulted in a charge of $19.0 million as the Company fully redeemed all of its $150 million principal amount 11.75% guaranteed senior notes due 2019 plus the applicable premium and unpaid interest up to the redemption date of August 29, 2016.

The effective income tax rate for the three-month periods ended September 30, 2016 and 2015 was 20.8% and 35.5%, respectively. The decrease in the current quarter was primarily due to the increase of $17.4 million profits generated in tax-exempted Dubai Composites for the three-month ended September 30, 2016 as compared to the same quarter of 2015. This was partially offset by a $19.0 million loss on the Company's redemption of its $150 million principal amount 11.75% guaranteed senior notes due 2019 in the third quarter which is exempted from income taxes. The effective income tax rate for the three-month period ended September 30, 2016 differs from the PRC statutory income tax rate of 25% primarily due to the preferential tax rate of Sichuan Xinda, the effect of tax rate differential on entities not subject to PRC income tax, super deduction of R&D expense and partially offset by the effect of non-deductible expenses.

Net income was $20.2 million in the third quarter ended September 30, 2016, compared to $6.0 million for the same period of 2015, an increase of $14.2 million or 236.7%. Basic and diluted earnings per share were $0.31, compared to $0.09 per basic and diluted share in the third quarter of 2015.

The average number of shares used in the computation of basic and diluted earnings per share for the three months ended September 30, 2016 was 49.5 million compared to 49.3 million in the prior year period.

Earnings before interest, tax, depreciation and amortization (EBITDA) was $46.1 million for the third quarter of 2016 compared to EBITDA of $26.9 million in the same period of 2015, representing an increase of $19.2 million or 71.4%. 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, 2016, the Company had $100.1 million in cash and cash equivalents, $130.4 million in time deposits with commercial banks, $151.3 million in working capital (current assets minus current liabilities) and a current ratio (current assets divided by current liabilities) of 1.17. Stockholders' equity as of September 30, 2016 was $625.1 million, an increase of 8.1% as compared to $578.0 million as of December 31, 2015.

Inventories increased by 40.9% 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 for increasing demand from the Sichuan plant. Property, plant and equipment net increased by 43.3% from fiscal year end 2015 due to the delivery of equipment at Dubai Xinda at the beginning of 2016.

On August 22, 2016, a wholly owned subsidiary of the Company, Xinda Holding (HK) Company Limited, entered into an agreement for a loan facility in an aggregate amount of $180 million with a consortium of banks and financial institutions led by Standard Chartered Bank (Hong Kong) Limited. Pursuant to the agreement, the proceeds of the loan facility shall be applied primarily to the previously approved redemption of the $150 million principal amount 11.75% guaranteed senior notes due 2019 (the "Senior Notes"). On August 29, 2016, the Company fully redeemed the Senior Notes. The aggregate amount paid was $166.6 million consisting of $150 million of principal, the applicable premium of $15.4 million and accrued and unpaid interest of $1.2 million to the redemption date. This resulted in a one-time non-operating charge of $19.0 million as a loss on debt extinguishment in the third quarter of 2016.

The aggregate short-term and long-term bank loans increased by 34.2% from fiscal year end 2015 as the result of utilization of existing lines of credit, among which proceeds of $180 million bank loans with a consortium of banks and financial institutions were used to redeem the Senior Notes. 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. 

On June 28, 2016, AL Composite Materials FZE ("AL Composites"), a subsidiary of the Company, signed a purchase agreement pertaining to approximately 20,206 square meters of property, and on September 21, 2016, AL Composites signed a second purchase agreement pertaining to approximately 22,324 square meters of property. Both properties are located in JAFZA (the Jebel Ali Free Economic Zone) in Dubai, UAE. The properties include a warehouse and an office building.

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.

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 the continued 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 started production in the second half of 2016. It also assumes a relatively 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 view of its business outlook for the remainder of fiscal 2016 and is subject to revision based on changing market conditions at any time. The Company currently plans to provide financial guidance for fiscal 2017 later this year.

Conference Call

China XD Plastics' management will host a conference call at 9:00 a.m. ET on Wednesday, November 9, 2016, to discuss its third quarter 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 2323876.

A recording of the conference call will be available through November 16, 2016, by calling +1 (866) 846-0868 (for callers in the U.S.) and entering pass code 2323876.

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 September 30, 2016, 390 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: Citigate Dewe Rogerson

Ms. Vivian Chen, Managing Director
US: +1 (347) 481-3711
Email: Vivian.chen@citigatedr.com

- Financial Tables Follow -

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS










September 30,

2016



December 31,

2015




US$



US$


ASSETS







Current assets:







Cash and cash equivalents



100,144,999




119,928,485


Restricted cash



70,490,099




50,852,327


Time deposits



130,432,178




237,626,806


Accounts receivable, net



272,762,337




234,542,739


Amounts due from a related party



-




244,836


Inventories



415,254,822




294,665,195


Prepaid expenses and other current assets



38,697,013




15,675,848


    Total current assets



1,027,781,448




953,536,236


Property, plant and equipment, net



819,285,111




571,746,507


Land use rights, net



23,527,451




24,506,837


Prepayments to equipment and construction suppliers



85,252,121




183,226,006


Other non-current assets



12,509,168




18,966,622


    Total assets



1,968,355,299




1,751,982,208




















LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY


Current liabilities:









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



466,402,042




284,339,089


Bills payable



61,916,200




33,522,287


Accounts payable



181,189,344




257,417,000


Amounts due to related parties



310,167




8,439


Income taxes payable



3,315,801




6,881,946


Accrued expenses and other current liabilities



163,318,425




140,988,712


  Total current liabilities



876,451,979




723,157,473


Long-term bank loans, excluding current portion



254,901,192




107,481,709


Notes payable



-




145,634,996


Deferred income



71,171,033




62,039,050


Other non-current liabilities



43,120,367




38,046,917


    Total liabilities



1,245,644,571




1,076,360,145











Redeemable Series D convertible preferred stock (redemption amount of US$197,775,400 and US$184,461,800 as of September 30, 2016 and December 31, 2015)



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, 49,577,541 shares and 49,344,284 shares issued, 49,556,541 shares and 49,323,284 shares outstanding as of September  30, 2016 and December 31, 2015, respectively



4,956




4,933


Treasury stock, 21,000 shares at cost



(92,694)




(92,694)


Additional paid-in capital



82,585,871




81,919,932


Retained earnings



580,445,916




515,555,985


Accumulated other comprehensive loss



(37,809,886)




(19,342,658)


    Total stockholders' equity



625,134,263




578,045,598


Commitments and contingencies



-




-


    Total liabilities, redeemable convertible preferred stock and stockholders' equity



1,968,355,299




1,751,982,208


 

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,




2016



2015



2016



2015




US$



US$



US$



US$















Revenues



331,847,567




239,101,063




824,017,387




726,440,200


Cost of revenues



(262,206,936)




(209,776,434)




(659,218,624)




(596,980,399)


    Gross profit



69,640,631




29,324,629




164,798,763




129,459,801



















Selling expenses



(338,466)




(356,417)




(1,005,640)




(1,091,278)


General and administrative expenses          



(8,369,224)




(5,763,886)




(20,034,920)




(17,320,676)


Research and development expenses



(7,864,732)




(5,831,192)




(18,681,018)




(18,304,365)


    Total operating expenses



(16,572,422)




(11,951,495)




(39,721,578)




(36,716,319)



















    Operating income



53,068,209




17,373,134




125,077,185




92,743,482



















Interest income



1,242,484




1,956,630




4,472,475




6,850,992


Interest expense



(10,870,903)




(10,323,671)




(32,403,784)




(31,991,319)


Foreign currency exchange gains (losses)



(14,902)




(1,261,404)




356,672




(1,026,809)



















Loss on debt extinguishment



(18,963,834)




-




(18,963,834)




-


Gains on foreign currency forward contracts



-




-




-




657,390


Government grant



1,011,870




1,547,381




1,438,589




1,552,195


    Total non-operating expense, net



(27,595,285)




(8,081,064)




(45,099,882)




(23,957,551)



















    Income before income taxes



25,472,924




9,292,070




79,977,303




68,785,931



















Income tax expense



(5,296,118)




(3,257,572)




(15,087,372)




(11,868,804)



















    Net income



20,176,806




6,034,498




64,889,931




56,917,127



















Earnings per common share:

















Basic and diluted



0.31




0.09




0.98




0.87



















Net Income



20,176,806




6,034,498




64,889,931




56,917,127



















Other comprehensive loss

















Foreign currency translation adjustment, net of nil income taxes



(4,953,926)




(15,730,269)




(18,467,228)




(16,511,990)



















Comprehensive income



15,222,880




(9,695,771)




46,422,703




40,405,137


 

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS




Nine-Month Period Ended

September 30,




2016



2015




US$



US$


Cash flows from operating activities:







Net cash provided by (used in) operating activities



(145,259,464)




1,388,960











Cash flows from investing activities:









Proceeds from maturity of time deposits



389,418,762




346,827,273


Purchase of time deposits



(286,739,987)




(306,089,846)


Purchase of  land use rights



-




(13,888,542)


Purchase of and deposits for property, plant and equipment



(140,826,457)




(130,141,806)


Government grant related to the construction of Sichuan plant



10,117,282




1,632,986


Net cash used in investing activities



(28,030,400)




(101,659,935)











Cash flows from financing activities:









Proceeds from bank borrowings



762,880,805




422,179,682


Repayments of bank borrowings



(424,933,705)




(280,822,310)


Redemption of notes payable



(165,366,000)




-


Release of restricted cash as collateral for bank borrowings



46,891,495




-


Placement of restricted cash as collateral for bank borrowings



(64,058,775)




(33,270,497)


Net cash provided by financing activities



155,413,820




108,086,875











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



(1,907,442)




(2,176,382)


Net increase (decrease) in cash and cash equivalents



(19,783,486)




5,639,518











Cash and cash equivalents at beginning of period



119,928,485




45,456,612


Cash and cash equivalents at end of period



100,144,999




51,096,130











Supplemental disclosure of cash flow information:









Interest paid, net of capitalized interest



37,645,235




35,698,872


Income taxes paid



14,880,461




7,378,544


Non-cash investing and financing activities:









Government grant related to construction in the form of repayment of bank loan on behalf of the Company by the government



-




31,421,155


Government grant related to the construction of Sichuan plant in the form of restricted cash



-




7,879,497


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



97,201,202




4,020,089


 



CHINA XD PLASTICS COMPANY LIMITED

Reconciliation of Net Income to EBITDA



Three Months Ended


September 30


2016

2015




Net Income

$20,176,806

$6,034,498

Interest Expense

10,870,903

10,323,671

Income Tax Expense

5,296,118

3,257,572

Depreciation and amortization expense

9,710,638

7,330,498

EBITDA

$46,054,465

$26,946,239

Source: China XD Plastics Company Limited

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