China XD Plastics Announces Third Quarter 2015 Financial Results

HARBIN, China, Nov 9, 2015 /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 third quarter ended September 30, 2015.

Third Quarter 2015 Financial Highlights    

• Revenues were $239.1 million, a decrease of 24.3% YoY
• Gross profit was $29.3 million, a decrease of 55.2% YoY
• Gross profit margin was 12.3%, compared to 20.7% in the third quarter of 2014
• Net income was $6.0 million, compared to $43.2 million in the third quarter of 2014
• Total volume shipped was 81,663 metric tons, down 14.2% from 95,204 metric tons in the third quarter of 2014

"We experienced a challenging first nine months of 2015 amidst slowing conditions in China's domestic automotive market," said Jie Han, Chairman and Chief Executive Officer. "Vehicle sales in China grew by only 0.31% in the first nine months of 2015, the slowest rate in 24 years due to the economic slowdown in the world's largest car market. Further, both automakers and auto parts manufacturers in China experienced pricing pressure beginning in 2014, which has continued to the present. The unusual volatility of the Chinese stock market since June 2015 has also had a negative impact on consumer sentiment and the growth in demand."

"As a result of the slowdown in our sector and the resulting contraction in demand and pricing pressure, plastic fabricators have been seeking newer products utilizing lower cost raw materials and more cost-efficient formulations. Since early 2014, the Company has developed such cost-efficient new products and started to market higher-end products to customers overseas. As previously announced, the Company has experienced a delay in its payment collection with respect to a South Korean customer. To better manage its financial risk, the Company implemented a ceasing supply to the customer. While the customer has continued its payment, the ceasing supply is and will still be in place until all outstanding balance has been paid. With mutual agreement on pricing and specifications of products reached, the Company will resume shipping products to this customer only after all of the outstanding balance is collected as contractually agreed.  

Our expansion plans in Southwest China affords us closer proximity to certain key customers and higher margin manufacturers. Despite the recent rainy season, the Sichuan facility construction is on schedule and expected to complete trial run by mid-2016. We are seeing increasing demand for our products from this region, since Southwest China is rapidly becoming a major auto-making hub and a center for high speed rail, shipping and aviation. While we expect automotive applications to continue to be our core business, the new facility will include precision equipment that will facilitate product deployment into additional high growth verticals."

"Our new facility in Dubai contains an array of specialized high margin products and serves as a gateway to the Middle East and Europe. The majority of the ground construction is expected to be completed by the end of 2015."

"We work with our upstream customers in the earliest phases of the development process which leads to long-term customer relationships.  Our current product emphasis is on environmentally friendly, light-weighted, and bio-degradable new materials for new applications in high-speed rail, ships, and airplanes, further reducing our reliance on the auto sector.  We believe that it is our customer relationships as well as our pursuit of new and improved products using advanced technologies that enables us to maintain our premier market positioning. We are confident that our culture of innovation will enable us to leverage our expertise and succeed in new markets and adapt to changing industry conditions in the periods ahead," concluded Chairman and Chief Executive Officer Jie Han.

Third Quarter 2015 Results

Revenues for the third quarter of 2015 were $239.1 million, representing a year-over-year decrease of 24.3% from $315.7 million in the same period of 2014. The year-over-year decrease was primarily due to a 14.2% decrease in sales volume and a 9.8% decrease in the average RMB selling price of our products. The decrease of sales volume was mainly due to us ceasing supply to our Republic of Korea ("ROK") customer while the decline of the average RMB selling price was caused primarily by pricing pressure on our products in our domestic market amid a slowdown in China's economy and resultant weakness in the auto industry.

Gross profit was $29.3 million in the third quarter ended September 30, 2015 compared to $65.4 million in the same period of 2014, representing a decrease of 55.2%. Our gross margin decreased to 12.3% during the quarter ended September 30, 2015 from 20.7% during the same quarter of 2014 primarily due to pricing pressure resulting from the slowdown of the auto industry in China, the increase of depreciation expenses as the production facility in Dubai was put into operation, and ceasing supply to our ROK customer to which sales has higher gross margin. Our average RMB selling price decreased by 9.8% for the quarter ended September 30, 2015 as compared to the same period in the prior year.

General and administrative expenses were $5.8 million in the third quarter of 2015 compared to $5.4 million in the same period of 2014, representing an increase of 7.4%, or $0.4 million. This increase is primarily due to the increase of (i) $0.5 million of salary and benefit due to the increase in the number of management staff; (ii) $0.4 million of travel expenses in connection with our business expansion; and (iii) $0.5 million of other miscellaneous expenses; this was partially offset by (iv) $1.0 million decrease of non-income taxation expense.

Research and development (R&D) expenses were $5.8 million during the quarter ended September 30, 2015 compared to $5.1 million during the same period in 2014, an increase of $0.7 million, or 13.7%. This reflects the Company's efforts to adjust its R&D activities to focus on new products for industrialized applications, augmenting our auto sector focus to include other advanced fields such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, medical devices and other sectors. As of September 30, 2015, we had 198 ongoing research and development projects as compared to 144 in the second quarter of 2015.

Operating income was $17.3 million in the third quarter ended September 30, 2015, compared to $54.7 million in the same period of 2014, representing a decrease of 68.4%, or $37.4 million. The decrease is primarily due to lower gross profit, higher R&D expenses and general and administrative expenses.

Net interest expense was $8.3 million for the three-month period ended September 30, 2015, compared to net interest expense of $8.8 million in the same period of 2014, primarily due to (i) the decrease in the average loan interest rate to that of 5.2% for the three months ended September 30, 2015 compared to 5.5% for the three months ended September 30, 2014, and (ii) the decrease of average balance of short-term and long-term loans in the amount of $368.0 million for the three months ended September 30, 2015 compared to $431.0 million of the prior year.

The effective income tax rate for the three-month periods ended September 30, 2015 and 2014 was 35.5% and 9.5%, respectively. The increase of effective income tax rate was mainly due to (i) lowered profit contribution from AL Composites, an income tax exempt subsidiary, to 27.3% during the three-month period ended September 30, 2015, compared to 73.6% a year ago, and (ii) the income tax effect of an increase of US$2.3 million non-deductible expenses.

Net income was $6.0 million for the third quarter of 2015 compared to $43.2 million for the same period of 2014, representing a decrease of $37.2 million or 86.1%. Basic and diluted earnings per share for the third quarter of 2015 were both $0.09 compared to $0.66 per basic share and $0.62 per diluted share in the third quarter of 2014. 

The average number of shares used in the computation of basic and diluted earnings per share for the three months ended September 30, 2015 were both 49.3 million compared to 49.1 million and 49.3 million in the prior year period.

EBITDA was $26.9 million for the third quarter of 2015, a decrease of 58.2% from EBITDA of $64.3 million in the prior year period. 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, 2015, the Company had $51.1 million in cash and cash equivalents, $44.2 million in restricted cash, $192.3 million in time deposits with commercial banks, $342.5 million in working capital and a current ratio of 1.6 times. The Company's stockholders' equity was $566.4 million as of September 30, 2015 as compared to $525.4 million as of December 31, 2014.

Inventories were $293.2 million as of the third quarter of 2015, an increase of 17.4% compared with that of December 31, 2014.  This was attributable to (i) the opportunistic purchase of lower cost raw materials due to decreased crude oil prices following the end of 2014, and (ii) the strategy to stock additional inventory so as to enable the timely shipping of products to customers in farther locations such as Southwest China, South China and Central China.

The Company's aggregate short-term bank loans, long-term bank loans and notes payable increased by 25.1% in the third quarter of 2015 compared with that of December 31, 2014 as we further utilized our existing lines of credit within the constraints of maintaining a manageable debt level. We define a manageable debt level as the aggregate sum of short-term bank loans, long-term bank loans and notes payable over total assets. Accounts payable and bills payable increased by 36.1% as a result of more purchases made by the Company because of the lower purchase price of the raw materials and its strategy to stock up inventory.  As of September 30, 2015, notes payable was $148.8 million relating to the 11.75% guaranteed senior notes due in 2019, net of discount.

Business Outlook and Guidance

The deceleration of China's economy and its contractionary effect on its domestic auto industry has increased pricing and sales pressure on China's auto industry's upstream suppliers. In particular, plastic fabricators are seeking new products that utilize lower cost raw materials and more cost-efficient formulations. As previously disclosed, we instituted the ceasing supply to the ROK customer. The combination of these factors resulted in a 14.2% contraction of our sales volume to 81,663 metric tons from 95,204 metric tons in the year-ago quarter.  Despite this contraction in customer demand from overseas, the pricing of the majority of our existing products has remained relatively stable.  However, our newly launched products have a relatively lower average selling price which has lowered our total average selling price in response to reduced customer demand.

While the market environment for the automobile sector will likely be challenging for the rest of 2015, we expect sales and profit in the last quarter of 2015 to improve sequentially with greater contribution from domestic businesses due to the newly issued auto sales tax reduction by the government and our proactive pricing tactics and cost management procedures. In anticipation of the coming 2016, the Company has adapted to changing market dynamics by better allocating our current production capacity, reducing concentration in the China's auto market, and diversifying our product portfolio to include new higher-end verticals.

Despite the slowdown in China's economy and its auto supply chain, the change in our overseas product mix and the delay in our payment collection with respect to one of our South Korean customers, and due to our strong customer relationships, strategic market positioning and visibility into current and new business, we reiterate our September guidance and expect full-year 2015 sales to be in the $900 million to $1 billion range, and expect net income to be in the $80 million to $100 million range. This financial forecast reflects the Company's business outlook for the remainder of fiscal 2015. It makes certain assumptions about the impact of crude oil prices on polymer composite materials for the remainder of 2015 and makes assumptions about exchange rates and interest expense associated with both its long and short-term debt. 

Conference Call

China XD Plastics' management will host a conference call on November 9, 2015 at 8:30 am (U.S. Eastern Time) / 9:30 pm (China Standard Time) to discuss the third quarter financial results. The earnings conference call can be accessed by calling +1-855-298-3404 (for callers in the U.S.), +86-4001-200-539 (for Mainland China callers), +852-5808-3202 (for Hong Kong callers) or +65 3157 9230 (for Singapore callers) and entering the pass code 3889316.

A recording of the conference call will be available through November 16, 2015, by calling +1-866-846-0868 (for callers in the U.S.) and entering the pass code 3889316.

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, one of China's leading specialty chemical companies, 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 27 automobile brands manufactured in China, including without limitation, AUDI, BMW, Volkswagen, Buick, 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, 2015, 350 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 http://www.chinaxd.net.

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 2015; 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's financial guidance is subject to revision based on changing market conditions at any time. 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) 
US Phone: +1 (212) 747-1118 
Email: cxdc-ir@chinaxd.net

Grayling
Vivian Chen
Managing Director
Email: vivian.chen@grayling.com

-Financial Tables Follow-

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SOURCE China XD Plastics Company Limited