China XD Plastics Announces Second Quarter 2014 Financial Results -- Revenue Growth of 30.7% YoY -- -- Gross Profit Growth of 40.6% YoY -- -- Reiterates Full Year Guidance -- PR Newswire HARBIN, China, Aug. 12, 2014 HARBIN, China, Aug. 12, 2014 /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, 2014. Second Quarter 2014 Financial Highlights: oRevenues were$264.2 million, an increase of 30.7% from$202.2 millionin the second quarter of 2013 oGross profit was$52.3 million, an increase of 40.6% from$37.2 millionin the second quarter of 2013 oGross margin was 19.8%, compared to 18.4% in the second quarter of 2013 oNet income was$19.8 million, compared to$20.8 millionin the second quarter of 2013 oTotal volume shipped was 81,284 metric tons, up 16.3% from 69,915 metric tons in the second quarter of 2013 "We are pleased to again report solid revenue growth and improved profitability this quarter," said Jie Han, Chairman of Board of Director and Chief Executive Officer of China XD. "Growth reflected our leading market share in Northeast China, accelerating penetration of the market in East China and the initiation of sales overseas. Importantly, higher-value products continue to grow in our product mix, enabling a higher average selling price reflected in the fact that revenues grew faster than tonnage volume." Mr. Han continued, "Because of the exciting growth opportunities we see in our markets, we continue to step up our research and development spending.We take pride in being a profitable growth company, but do recognize that directing more gross profit into new product development can help us sustain, or even accelerate, our growth rate in the years to come.We continue to tightly control our selling and general expenses in line with our corporate culture." Second Quarter 2014 Results Revenues for the second quarter of 2014 were $264.2 million, representing a year-over-year increase of 30.7% from $202.2 million in the second quarter of 2013. The increase in revenues was due to approximately 16.3% increase in sales volume and 13.6% increase in the average RMB selling price. Revenues from East China and Northeast China increased by 45.4% and 19.0%, respectively, during the second quarter of 2014 when compared to the second quarter of 2013. Volume growth was achieved due to strong demand from the automotive industry in China, a combination of growing sales volume of high-end automobiles to Chinese consumers, the increased advanced plastics in automotive parts, and the continuing replacement of imported polymer composite materials with domestic supply.The increase of our average selling price was mainlydue to the shift of product mix toward more advanced polymers. During the quarter, the Company sold US$20.0 million to Korean market high-end standardized products. This accounted for 7.6% of total revenues. Gross profit was $52.3 million, up 40.6% from $37.2 million in the second quarter of 2013. Gross margin was 19.8%, compared to 18.4% in the same period of the prior year primarily due to the ongoing mix shift to more advanced products, mainly including modified PA66 and plastic alloys, which grew to 75.3%of our revenues, as compared to 65.1% in the same period of the prior year. Gross margin also benefitted from reduced sales discounts for lower-end products such as modified PP and ABS. General and administrative (G&A) expenses were US$4.5 million in the quarter ended June 30, 2014, compared to US$2.9 million in the same period in 2013, representing an increase of 55.2%, or US$1.6 million. The increase consisted of US$1 million of additional payroll expense resulting from new hires and salary increases, US$0.2 million of additional office and communication expense, and US$0.3 million of new rental costs associated with growth of the business. Research and development ("R&D") expenses were US$13.4 million during the quarter ended June 30, 2014, compared with US$5.8 million during the same period in 2013, an increase of US$7.6 million, or 131.0%, reflectingincreased research and development activities on new products. The expense consisted primarily of consumption of raw materials for various experiments for both automotive and non-automotive applications.As of June 30, 2014, the Company was performing 151 ongoing research and development projects.The consumption of raw materials for these projects accounted for 93% of total R&D expensesfor the quarter. Net interest expense was US$8.2 million for the three-month period ended June 30, 2014, compared to net interest expense of US$1.9 million in the same period of 2013. The increase of net interest expense was due to (i) an increase of US$4.7 million interest expenses resulting from the guaranteed senior notes issued on February 4, 2014 (the "Notes"), (ii) an increase of US$ 3.5 million associated with bank loans used to fund future capacity expansion in Southwest China and Dubai, and (iii) partially offset by the increase of interest income of US$2.0 million because of increase of time deposits. Operating income for the second quarter of 2014 was $34.3 million, or 13.0% of revenues, an increase of 20.4% over operating income from $28.5 million, or 14.1% of revenues in the same period a year ago. Net income for the second quarter of 2014 was $19.8 million, compared to a net income of $20.8 million for the same period of the prior year. Basic and diluted earnings per share were both $0.30, when compared to last year's results, which was at $0.32, respectively. Basic average numbers of shares used in computation of basic and diluted earnings per share for the three months ended June 30, 2014 were 48.8 million, compared to 47.8 million in the same period of the prior year. EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) for the second quarter of 2014 was $41.8 million, an increase of 14.2% from EBITDA of $36.6 million in the same period of the prior year. 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, 2014, China XD Plastics had $132.8 million in cash and cash equivalents, $376.1 million in time deposits with commercial banks, $576.8 million in working capital (current assets minus current liabilities) and a current ratio (current assets divided by current liabilities) of 2.5. Stockholders' equity as of June 30, 2014 was $442.4 million, compared to $412.3 million as of December 31, 2013. Restricted cash increased by 47.4% as a result of short-term bank deposits that are pledged as collateral for letter of credit and bills payable relating to purchase of raw materials. Inventories increased by 57.3% during the quarter as the Company purchased raw materials in anticipation of growing sales.Other non-current assets increased by 1,418.8% due to prepayments for equipment to be purchased for the Dubai plant. The Company paid down short-term loans as it utilized more long-term bank loans to support upcoming capacity expansion in Southwest China and Dubai. As a result, short-term loans decreased by 41.5% while long-term bank loans increased by US$162.4 million.Bills payable increased by 52.0% due to purchases from our domestic raw material suppliers. As of June 30, 2014, notes payable was US$148.5 million due to the issuance of US$150 million, 11.75% guaranteed senior notes due in 2019, net of discount. Business Outlook and Guidance Based on the Company's strong performance during the quarter and positive outlook for growing customer demand in the second half of the year, the Company reiterates its revenue guidance for 2014. The Company expects full-year sales to range between $950 million and $1.05 billion and net income to range between $100 million to $120 million. This forecast is based on constant exchange rates and the anticipated interest expense associated with both its long and short-term debt, and reflects the Company's current and preliminary view, which is subject to change. Conference Call China XD Plastics' management will host a conference call at 8:30 a.m. ET on Tuesday, August 12, 2014, to discuss its second quarter 2014 financial results. The conference call may be accessed by calling +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 2535066. A recording of the conference call will be available through August 19, 2014, by calling +1 (866) 846-0868 (for callers in the U.S.) and entering pass code 2535066. 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 24 automobile brands manufactured in China, including without limitation, AUDI, BMW, Toyota, Buick, Mazda, and VW Passat, Golf, and Jetta. 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, 2014, 300 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 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 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; legal and regulatory risks; the Company's ability to execute its growth strategy and the effectiveness of its increased research and development spending; 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) US Phone: +1 (212) 747-1118 Email: email@example.com ICR Mr. Gary Dvorchak, CFA Gary Dvorchak, CFA Senior Vice President US Phone: +1 (310) 954-1123 China Phone: +86 138 1079 1408 Email:Gary.Dvorchak@icrinc.com CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS June 30,2014 December31,2013 US$ US$ ASSETS Current assets: Cash and cash equivalents 132,855,600 95,545,904 Restricted cash 20,184,964 13,708,971 Time deposits 376,078,406 281,343,641 Accounts receivable, net 191,208,084 282,320,819 Amounts due fromrelated parties 8,060 225,752 Inventories 227,951,407 144,885,688 Prepaid expenses and other current assets 12,205,803 8,418,143 Total current assets 960,492,324 826,448,918 Property, plant and equipment, net 240,571,261 233,841,735 Land use rights, net 12,027,228 12,457,001 Other non-current assets 48,624,793 3,158,974 Total assets 1,261,715,606 1,075,906,628 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCKS AND STOCKHOLDERS' EQUITY Current liabilities: Short-term loans, including current 184,092,299 314,682,620 portion of long-term bank loans Bills payable 38,904,378 25,604,176 Accounts payable 130,504,697 122,457,396 Amounts due to a related party 54,710 - Income taxes payable 7,224,484 18,631,698 Warrant liability 2,132,146 1,063,401 Accrued expenses and other current 20,813,116 55,893,004 liabilities Total current liabilities 383,725,830 538,332,295 Long-term bank loans, excluding current 162,365,723 - portion Notes payable 148,491,833 - Income taxes payable 9,054,968 8,224,057 Deferred income tax liabilities 18,035,495 19,428,706 Total liabilities 721,673,849 565,985,058 Redeemable Series D convertible preferred 97,576,465 97,576,465 stock Stockholders' equity: Series B preferred stock 100 100 Common stock, US$0.0001 par value, 500,000,000 shares authorized, 49,140,906 shares and 47,896,133 shares issued, 4,913 4,789 49,119,906 shares and 47,875,133 shares outstanding as ofJune 30, 2014 and December 31, 2013, respectively Treasury stock, 21,000 shares at cost (92,694) (92,694) Additional paid-in capital 77,471,214 76,341,659 Retained earnings 352,880,048 311,047,337 Accumulated other comprehensive income 12,201,711 25,043,914 Total stockholders' equity 442,465,292 412,345,105 Commitments and contingencies - - Total liabilities, redeemable convertible preferred stocks and 1,261,715,606 1,075,906,628 stockholders' equity CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three-Month Period Ended Six-Month Period Ended June 30, June 30, 2014 2013 2014 2013 US$ US$ US$ US$ Revenues 264,208,995 202,150,358 487,789,670 373,117,929 Cost of revenues (211,909,052) (164,965,762) (388,841,389) (306,777,202) Gross profit 52,299,943 37,184,596 98,948,281 66,340,727 Selling expenses (135,625) (47,218) (257,953) (109,992) General and administrative expenses (4,553,144) (2,855,659) (8,349,508) (6,339,574) Research and development expenses (13,355,881) (5,775,769) (21,986,615) (10,786,688) Total operating expenses (18,044,650) (8,678,646) (30,594,076) (17,236,254) Operating income 34,255,293 28,505,950 68,354,205 49,104,473 Interest income 3,454,649 1,470,113 6,490,014 2,539,717 Interest expense (11,614,261) (3,374,738) (20,194,238) (6,310,724) Foreign currency exchange gains (losses) 406,479 877,423 (72,711) 1,366,616 Losses on foreign currency forward contracts (934,765) - (934,765) - Change in fair value of warrants liability (906,006) 400,007 (1,068,745) 420,331 Government grant 12,974 1,172 1,324,213 210,091 Total non-operating expense, net (9,580,930) (626,023) (14,456,232) (1,773,969) Income before income taxes 24,674,363 27,879,927 53,897,973 47,330,504 Income tax expense (4,837,703) (7,073,314) (12,065,262) (12,073,036) Net income 19,836,660 20,806,613 41,832,711 35,257,468 Earnings per common share: Basic and diluted 0.30 0.32 0.64 0.55 Net Income 19,836,660 20,806,613 41,832,711 35,257,468 Other comprehensive income (loss) Foreign currency translation adjustment, net of nil income taxes 1,346,532 3,758,011 (12,842,203) 4,639,287 Comprehensive income 21,183,192 24,564,624 28,990,508 39,896,755 CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six-Month Period Ended June 30, 2014 2013 US$ US$ Cash flows from operating activities: Net cash provided by operating activities 61,291,114 38,925,612 Cash flows from investing activities: Proceeds from maturity of time deposits 259,984,756 56,618,325 Purchase of time deposits (362,130,254) (182,063,524) Purchases of property, plant and equipment (86,442,465) (13,419,444) Net cash used in investing activities (188,587,963) (138,864,643) Cash flows from financing activities: Proceeds from bank borrowings 422,150,363 226,906,170 Repayments of bank borrowings (383,003,049) (146,861,566) Release of restricted cash 3,243,383 1,629,354 Placement of restricted cash as collateral (20,595,485) (888,846) for bank borrowings Proceeds from the exercise of Series A 596,740 investor warrants Proceeds from issuance of the Notes 148,396,175 - Payment of issuance costs of the Notes (3,970,357) - Net cash provided byfinancing activities 166,817,770 80,785,112 Effect of foreign currency exchange rate (2,211,225) 1,343,214 changes on cash and cash equivalents Net increase (decrease) in cash and cash 37,309,696 (17,810,705) equivalents Cash and cash equivalents at beginning of 95,545,904 83,822,602 period Cash and cash equivalents at end of period 132,855,600 66,011,897 Supplemental disclosure of cash flow information: Interest paid 12,985,268 4,476,797 Income taxes paid 23,029,798 11,108,922 CHINA XD PLASTICS COMPANY LIMITED Reconciliation of Net Income to EBITDA (Amounts expressed in United States dollars) Three Months Period Ended June 30 2014 2013 Net income $19,836,660 $20,806,613 Interest expense 11,614,261 3,374,738 Income tax expense 4,837,703 7,073,314 Depreciation and amortization expense 5,549,705 5,348,440 EBITDA 41,838,329 36,603,105 SOURCE China XD Plastics Company Limited Website: http://www.chinaxd.net
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