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| CXDC > SEC Filings for CXDC > Form 10-Q on 10-Aug-2012 | All Recent SEC Filings |
10-Aug-2012
Quarterly Report
We make forward-looking statements in this report, in other materials we file with the Securities and Exchange Commission (the "SEC") or otherwise release to the public, and on our website. In addition, our senior management might make forward-looking statements orally to analysts, investors, the media and others. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings) and demand for our products and services, and other statements of our plans, beliefs, or expectations, including the statements contained in this Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operation," regarding our future plans, strategies and expectations are forward-looking statements. In some cases these statements are identifiable through the use of words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would" and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and in Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). You are cautioned not to place undue reliance on these forward-looking statements because these forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Thus, our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in: economic conditions generally and the automotive modified plastics market specifically, legislative or regulatory changes that affect our business, including changes in regulation, the availability of working capital, the introduction of competing products, and other risk factors described herein. These risks and uncertainties, together with the other risks described from time-to-time in reports and documents that we filed with the SEC should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Overview
China XD Plastics Company Limited ("China XD", "we", and the "Company", and "us" or "our" shall be interpreted accordingly) is one of the leading specialty chemical companies engaged in the research, development, manufacture and sale of modified plastics primarily for automotive applications in China. Through our wholly-owned operating subsidiaries in China, we develop modified plastics using our proprietary technology, manufacture and sell our products primarily for use in the fabrication of automobile parts and components. We have received 227 certifications from manufacturers in the automobile industry as of June 30, 2012. We are the only company certified as a National Enterprise Technology Center in modified plastics industry in Heilongjiang province. Our Research and Development (the "R&D") team consists of 96 professionals and 15 consultants, including two consultants who are members of Chinese Academy of Engineering, and one consultant who is the former chief scientist of Specialty Plastics Engineering Institute of Jilin University. As a result of the integration of our academic and technological expertise, we have a portfolio of 43 patents, one of which we have obtained the patent rights and the remaining 42 of which we have applications pending in China as of June 30, 2012.
Our products include seven categories: polypropylene (PP), acrylonitrile butadiene styrene (ABS), modified engineering plastics, polyamides (PA or nylon), environment-friendly plastics, specialty engineering plastics and polyether ether ketone (PEEK). The Company's products are primarily used in the production of exterior and interior trim and functional components of more than 20 automobile brands and 70 automobile models manufactured in China, including Audi, Volkswagen, BMW, GM Mazda, Toyota, Cherry, Geely and Hafei new energy vehicles. Our research center is dedicated to the research and development of modified plastics, and benefits from its cooperation with well-known scientists from prestigious universities in China. We operate three manufacturing bases in Harbin, Heilongjiang in the PRC. As of June 30, 2012, we had approximately 255,000 metric tons of production capacity across 58 automatic production lines utilizing German twin-screw extruding systems, automatic weighing systems and Taiwan conveyer systems. In addition, there are three additional workshops which are currently under construction in our third production base and expected to be completed in the second half of 2012 and which could support our production capacity expansion beyond 2012.
Highlights for the three months ended June 30, 2012 include:
· Revenue was $144.7 million, an increase of 64.0% from $88.2 million in the second quarter of 2011
· Gross profit was $35.3 million, an increase of 60.0% from $22.0 million in the second quarter of 2011
· Gross profit margin was 24.4%, compared to 25.0% in the second quarter of 2011
· Net income was $22.8 million, compared to $14.4 million in the second quarter of 2011
· Total volume shipped was 53,866 metric tons, up 48.1% from 36,367 metric tons in the second quarter of 2011
Results of Operations
The following table sets forth, for the periods indicated, statements of income
data in millions of US$:
(in millions,
except percentage) Three Months Ended Six Months Ended
June 30, Change June 30, Change
2012 2011 % 2012 2011 %
Revenues 144.7 88.2 64.0 % 267.8 164.3 63.0 %
Cost of revenues (109.4) (66.2) 65.4 % (201.3) (123.7) 62.7 %
Gross profit 35.3 22.0 60.0 % 66.5 40.6 64.0 %
Total operating expenses (7.7) (4.9) 53.6 % (12.6) (8.9) 41.6 %
Operating income 27.6 17.1 61.8 % 53.9 31.7 70.3 %
Income before income
taxes 29.6 18.9 57.1 % 56.8 33.7 68.7 %
Income tax expense (6.8) (4.5) 53.2 % (13.5) (7.4) 82.4 %
Net income 22.8 14.438 58.4 % 43.3 26.3 64.9 %
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Three Months Ended June 30, 2012 compared to three months ended June 30, 2011
Revenues
Revenues were US$144.7 million in the second quarter ended June 30, 2012, an increase of US$56.5 million, or 64.0%, compared to US$88.2 million in the same period of last year, due to approximately 48.1% increase in sales volume and 11.5% increase in the average selling price of our products on a constant dollar basis. The increase of sales volume was driven by the strong demand of modified plastics in the PRC market and higher penetration of our business in our existing markets supported by our newly installed twenty production lines in December 2011, as well as the marketing efforts to develop new customers. Such increase in demand was driven by increasing demand for middle and high-end automobiles by Chinese consumers, continuing substitution of imported modified plastics by domestic suppliers, as well as the increase of plastic content on the per-vehicle-basis in China. The increase of average selling price was due to the shift of product mix towards higher-end products as well as higher raw material prices that we have been able to effectively pass through to our customers.
The following table summarizes the breakdown of revenues by product mix in millions of US$:
(in millions, Revenues
except percentage) For the Three Months Ended June 30,
2012 2011
Change
in Change in
Amount % Amount % Amount %
Modified Polypropylene (PP) 71.6 49.4 % 48.8 55.4 % 22.8 46.7 %
Engineering Plastics 25.9 17.9 % 13.5 15.3 % 12.4 91.4 %
Modified Polyamide (PA) 12.2 8.5 % 5.9 6.7 % 6.3 106.1 %
Alloy Plastics 12.9 8.9 % 5.6 6.3 % 7.3 132.3 %
Environment Friendly Plastics 15.2 10.5 % 5.3 6.0 % 9.9 185.7 %
Modified Acrylonitrile
Butadiene Styrene (ABS) 4.8 3.3 % 4.9 5.6 % (0.1 ) (3.2 )%
Sub-total 142.6 98.5 % 84.0 95.3 % 58.6 69.6 %
After-sales Service 2.1 1.5 % 4.2 4.7 % (2.1 ) (49.2 )%
Total Revenues 144.7 100 % 88.2 100 % 56.5 64.0 %
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The following table summarizes the breakdown of metric tons (MT) by product mix:
Sales Volume
(in MTs, except percentage) For the Three Months Ended June 30,
2012 2011
Change in Change in
MT % MT % MT %
Modified Polypropylene (PP) 34,354 63.7 % 26,089 71.7 % 8,265 31.7 %
Engineering Plastics 5,121 9.5 % 2,870 7.9 % 2,251 78.4 %
Polyamide (PA) 2,536 4.7 % 1,415 3.9 % 1,121 79.2 %
Alloy Plastics 3,495 6.5 % 1,841 5.1 % 1,654 89.9 %
Environment Friendly Plastics 6,600 12.3 % 2,410 6.6 % 4,190 173.9 %
Modified Acrylonitrile
Butadiene Styrene (ABS) 1,760 3.3 % 1,742 4.8 % 18 1.0 %
Total sales volume 53,866 100 % 36,367 100 % 17,499 48.1 %
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The Company has shifted product mix from traditional Modified Polypropylene (PP)
to higher-end products such as Environmental Friendly Plastics, Engineering
Plastics, Polyamide (PA) and Alloy Plastics, primarily due to (i) the increasing
demand of advanced modified plastics in luxury automobile models in China, (ii)
the stronger demand promoted by Chinese government for clean energy vehicles and
(iii) stronger sales of higher-end cars made by automotive manufacturers from
China and Germany, US and Japanese joint ventures, which tend to use more and
higher-end modified plastics in quantity per vehicle in China.
Gross Profit and Gross Margin
Three Months Ended June 30, Change
(in millions, except percentage) 2012 2011 Amount %
Gross Profit $ 35.3 $ 22.0 $ 13.3 60.0 %
Gross Margin 24.4 % 25.0 % (0.6) %
|
Gross profit was US$35.3 million in the second quarter ended June 30, 2012 compared to US$22.0 million in the same period of 2011, representing an increase of 60.0%. Our gross margin decreased to 24.4% in the second quarter ended June 30, 2012 from 25.0% during the same quarter of 2011. The decrease was mainly attributed to increase of the price of raw materials, increase of depreciation, and increase of production related payroll expenses this year, partially offset by our efforts in developing and selling more higher value-added automotive modified plastics towards high-end products as a percentage of total sales in the second quarter ended June 30, 2012.
General and Administrative Expenses
Three Months Ended June 30, Change
(in millions, except percentage) 2012 2011 Amount %
General and Administrative Expenses $ 3.0 $ 1.7 $ 1.3 77.8 %
as a percentage of revenues 2.1 % 1.9 % 0.2 %
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General and administrative (G&A) expenses were US$3.0 million in the second quarter ended June 30, 2012 compared to US$1.7 million in the same period in 2011, representing an increase of 77.8%, or US$1.3 million. This increase is primarily due to increase of payroll resulting from raised average salary and increased headcount in the three-month period ended June 30, 2012. On a percentage basis, G&A expenses in the second quarter of 2012 increased to 2.1% of revenues from 1.9% in the same period of 2011.
Research and Development Expenses
Three Months Ended June 30, Change
(in millions, except percentage) 2012 2011 Amount %
Research and Development Expenses $ 4.6 $ 3.0 $ 1.6 51.5 %
as a percentage of revenues 3.2 % 3.5 % (0.3) %
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Research and development ("R&D") expenses were US$4.6 million during the quarter ended June 30, 2012 compared with US$3.0 million during the same period in 2011, an increase of US$1.6 million, or 51.5%, reflecting increased research and development activities on new products in order to obtain product certifications for automotive applications from automobile manufacturers as well as other non-automotive applications.
As of June 30, 2012, the number of ongoing research and development projects is
113. We expect to complete and realize economic benefits on approximately 30% of
the projects in the near term. The remaining projects are expected to be carried
out for a longer period. The majority of the projects are in the field of
modified plastics in automotive applications and the rest are in advanced fields
such as ships, airplanes, high-speed rail, medical devices, etc.
Operating Income
Total operating income was US$27.6 million in the quarter ended June 30, 2012 compared to US$17.1 million in the same period of 2011, representing an increase of 61.8% or US$10.5 million. This increase is primarily due to higher gross profit, partially offset by higher G&A and R&D expenses.
Other Income (Expense)
Interest Income (Expenses)
Three Months Ended June 30, Change
(in millions, except percentage) 2012 2011 Amount %
Interest Income $ 1.4 $ - $ 1.4 N/A
Interest Expenses (0.9) (0.5) (0.4) 96.0 %
Net Interest Income (Expenses) $ 0.5 $ (0.5) $ 1.0 (212.5) %
as a percentage of revenues 0.3 % (0.5) % 0.8 %
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Net interest income was US$0.5 million in the quarter ended June 30, 2012, compared to net interest expenses of US$0.5 million in the same period of 2011, primarily due to US$1.4 million interest income generated from time deposits in the second quarter of 2012.
Change in Fair Value of Warrants Liabilities
Three Months Ended June 30, Change
(in millions, except percentage) 2012 2011 Amount %
Change in Fair Value of Warrants
Liabilities $ 1.5 $ 2.2 $ (0.7) (29.2) %
as a percentage of revenues 1.0 % 2.5 % (1.5) %
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Change in fair value of warrants liabilities was a gain of US$1.5 million in the quarter ended June 30, 2012, compared to a gain of US$2.2 million in the same period of 2011, primarily due to the change of fair value of warrants driven by the fluctuation of our stock price in respective periods. On a percentage basis, change in fair value of warrants liabilities in the second quarter of 2012 decreased to 1.0% of revenues from 2.5% in the second quarter of 2011.
Income Taxes
Three Months Ended June 30, Change
(in millions, except percentage) 2012 2011 Amount %
Income before Income Taxes $ 29.6 $ 18.9 $ 10.7 57.1 %
Income Tax Expense (6.8) (4.5) (2.3) 53.2 %
Effective income tax rate 23.2 % 23.8 % (0.6) %
|
The effective income tax rates for the three-month periods ended June 30, 2012 and 2011 were 23.2% and 23.8%, respectively. The effective income tax rate for the three-month period ended June 30, 2012 differs from the PRC statutory income tax rate of 25% primarily due to the additional 50% deduction against taxable income for certain research and development expenses incurred by our research centers.
Our PRC subsidiaries have US$161.0 million of cash and cash equivalents and restricted cash as of June 30, 2012, which is planned to be permanently reinvested in the PRC. The distributions from our PRC subsidiaries are subject to the U.S. federal income tax at 34%, less any applicable foreign tax credits. Due to our policy of indefinitely reinvesting our earnings in our PRC business, we have not provided for deferred income tax liabilities on undistributed earnings of our PRC subsidiaries.
Net Income
As a result of the above factors, we had a net income of US$22.8 million in the second quarter of 2012, compared to net income of US$14.4 million in the same quarter of 2011.
Six Months Ended June 30, 2012 compared to six months ended June 30, 2011
Revenues
Revenues were US$267.8 million for the six months ended June 30, 2012, an increase of US$103.5 million, or 63.0%, compared to US$164.3 million in the same period of last year, due to approximately 40.6% increase in sales volume and 15.1% increase in the average selling price of our products on a constant dollar basis. The increase of sales volume was driven by the strong demand of modified plastics in the PRC market and higher penetration of our business in our existing markets supported by our newly installed twenty production lines in December 2011, as well as the marketing efforts to develop new customers. Such increase in demand was driven by increasing demand for middle and high-end automobiles by Chinese consumers, continuing substitution of imported modified plastics by domestic suppliers, as well as the increase of plastic content on the per-vehicle-basis in China. The increase of average selling price was due to the shift of product mix towards higher-end products as well as higher raw material prices that we have been able to effectively pass through to our customers.
Product Mix
The following table summarizes the breakdown of revenues by product mix in
millions of US$:
(in millions, Revenues
except percentage) For the Six Months Ended June 30,
2012 2011
Change in Change in
Amount % Amount % Amount %
Modified
Polypropylene (PP) 136.0 50.8 % 95.6 58.2 % 40.4 42.2 %
Engineering Plastics 50.7 18.9 % 23.9 14.5 % 26.8 112.4 %
Polyamide (PA) 23.2 8.7 % 10.4 6.3 % 12.8 123.9 %
Alloy Plastics 19.4 7.2 % 9.1 5.6 % 10.3 111.7 %
Environment Friendly
Plastics 24.8 9.3 % 10.6 6.4 % 14.2 134.9 %
Modified
Acrylonitrile
Butadiene Styrene
(ABS) 9.6 3.6 % 7.9 4.8 % 1.7 21.8 %
Sub-total 263.7 98.5 % 157.5 95.8 % 106.2 67.4 %
After-sales Service 4.1 1.5 % 6.8 4.2 % (2.7 ) (39.6 )%
Total Revenues 267.8 100 % 164.3 100 % 103.5 63.0 %
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The following table summarizes the breakdown of metric tons (MT) by product mix:
Sales Volume
(in MTs, except
percentage) For the Six Months Ended June 30,
2012 2011
Change in Change in
MT % MT % MT %
Modified
Polypropylene (PP) 65,348 65.5 % 52,286 73.7 % 13,062 25.0 %
Engineering Plastics 9,926 10.0 % 5,315 7.5 % 4,611 86.8 %
Polyamide (PA) 4,749 4.8 % 2,602 3.7 % 2,147 82.5 %
Alloy Plastics 5,388 5.4 % 3,141 4.4 % 2,247 71.5 %
Environment Friendly
Plastics 10,750 10.7 % 4,661 6.6 % 6,089 130.6 %
Modified
Acrylonitrile
Butadiene Styrene
(ABS) 3,540 3.6 % 2,920 4.1 % 620 21.2 %
Total sales volume 99,701 100 % 70,925 100 % 28,776 40.6 %
|
The Company has shifted product mix from traditional Modified Polypropylene (PP)
to higher-end products such as Environmental Friendly Plastics, Engineering
Plastics, Polyamide (PA) and Alloy Plastics, primarily due to (i) the increasing
demand of advanced modified plastics in luxury automobile models in China, (ii)
the stronger demand promoted by Chinese government for clean energy vehicles and
(iii) stronger sales of higher-end cars made by automotive manufacturers from
China and Germany, US and Japanese joint ventures, which tend to use more and
higher-end modified plastics in quantity per vehicle in China.
Gross Profit and Gross Margin
Six Months Ended
June 30, Change
(in millions, except percentage) 2012 2011 Amount %
|
Gross profit was US$66.5 million for the six months ended June 30, 2012 compared to US$40.6 million in the same period of 2011, representing an increase of 64.0%. Our gross margin increased to 24.8% during the six months ended June 30, 2012 from 24.7% during the period of 2011. The increase was mainly attributed to the higher proportion of sales of our high-end products as a percentage of total sales in the six months ended June 30, 2012 as a result of our efforts in developing and selling more higher value-added automotive modified plastics.
General and Administrative Expenses
Six Months Ended
June 30, Change
(in millions, except percentage) 2012 2011 Amount %
General and Administrative Expenses $ 5.4 $ 3.1 $ 2.3 70.9 %
as a percentage of revenues 2.0 % 1.9 % 0.1 %
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General and administrative (G&A) expenses were US$5.4 million for the six months ended June 30, 2012 compared to US$3.1 million in the same period in 2011, representing an increase of 70.9%, or US$2.3 million. This increase is primarily due to increase of payroll resulting from raised average salary and increased headcount. On a percentage basis, G&A expenses for the six months ended June 30, 2012 increased to 2.0% of revenues from 1.9% in the same period of 2011.
Research and Development Expenses
Six Months Ended
June 30, Change
(in millions, except percentage) 2012 2011 Amount %
Research and Development Expenses $ 7.1 $ 5.3 $ 1.8 32.6 %
as a percentage of revenues 2.6 % 3.2 % (0.6) %
|
Research and development ("R&D") expenses were US$ 7.1 million for the six months ended June 30, 2012 compared with US$5.3 million during the same period in 2011, an increase of US$ 1.8 million, or 32.6%, reflecting increased R&D . . .
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