Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CXDC > SEC Filings for CXDC > Form 10-Q on 12-Nov-2013All Recent SEC Filings

Show all filings for CHINA XD PLASTICS CO LTD

Form 10-Q for CHINA XD PLASTICS CO LTD


12-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 274 certifications from manufacturers in the automobile industry as of September 30, 2013. 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 173 professionals including 14 consultants, of which two consultants are members of Chinese Academy of Engineering, and one consultant 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 78 patents, one of which we have obtained the patent rights and the remaining 77 of which we have applications pending in China as of September 30, 2013.

Our products include seven categories: modified polypropylene (PP), modified engineering plastics, modified polyamides (PA), environmentally-friendly plastics, alloy plastics, polyether ether ketone (PEEK) and modified acrylonitrile butadiene styrene (ABS). The Company's products are primarily used in the production of exterior and interior trim and functional components of more than 24 automobile brands and 80 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, with the Construction of Sichuan Plant underway. As of September 30, 2013, we had approximately 390,000 metric tons of production capacity across 83 automatic production lines utilizing German twin-screw extruding systems, automatic weighing systems and Taiwan conveyer systems, including the newly launched three additional factory buildings with 30 production lines completed the trial-run in December 2012 and further expanded our annual capacity potential by approximately 135,000 metric tons to support our future growth in 2013 and beyond.


Highlights for the three months ended September 30, 2013 include:

? Revenue was $293.1 million, an increase of 79.5% from $163.3 million in the third quarter of 2012

? Gross profit was $65.7 million, an increase of 64.3% from $40.0 million in the third quarter of 2012

? Gross profit margin was 22.4%, compared to 24.5% in the third quarter of 2012

? Net income was $41.1 million, compared to $25.3 million in the third quarter of 2012

? Total volume shipped was 90,479 metric tons, up 46.9% from 61,589 metric tons in the third quarter of 2012

Results of Operations

The following table sets forth, for the periods indicated, statements of income
data in thousands of USD:


(in millions,
except percentage)         Three Months Ended                     Nine Months Ended
                             September 30,          Change          September 30,           Change
                         2013          2012            %          2013          2012          %
Revenues                 293.1         163.3         79.5 %      666.3         431.2        54.5  %
Cost of revenues        (227.4 )      (123.3 )       84.4 %     (534.3 )      (324.7 )      64.6 %
Gross profit              65.7          40.0         64.3 %      132.0         106.5        23.9 %
Total operating                )
expenses                  (9.7          (8.5 )       14.1 %      (26.9 )       (20.4 )      31.9 %
Operating income          55.9          31.5         77.5 %      105.1          86.1        22.1 %
Interest income            1.7           1.4         21.4 %        4.2           3.8        10.5 %
Interest expense          (4.5 )        (1.2 )      275.0 %      (10.8 )        (2.6 )     315.4 %
Income before income
taxes                     54.3          33.4         62.6        101.6          90.1        12.8 %
Income tax expense       (13.2 )        (8.1 )       63.0 %      (25.3 )       (21.5 )      17.7 %
Net income                41.1          25.3         62.5 %       76.3          68.6        11.2 %

Three Months Ended September 30, 2013 compared to three months ended September 30, 2012

Revenues

Revenues were US$293.1 million in the third quarter ended September 30, 2013, an increase of US$129.8 million, or 79.5%, compared to US$163.3 million in the same period of last year, due to approximately 46.9% increase in sales volume and 18.0% increase in the average RMB selling price of our products. 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 additional 30 production lines which commenced production in December 2012, as well as the marketing efforts to develop new customers, in particular those in Eastern and Southwestern China. 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 RMB selling price was due to the shift of product mix towards higher-end products.


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 September 30,
                                         2013                         2012
                                                                                        Change
                                                                                          in         Change in
                                 Amount          %            Amount           %        Amount           %
Modified Polypropylene (PP)          76.2      26.0 %             80.1       49.0 %       (3.9 )        (4.9 )%

Engineering Plastics                 74.5      25.4 %             32.9       20.1 %       41.6         126.4 %

Modified Polyamide (PA)              49.8      17.0 %             12.9        7.9 %       36.9         286.0 %

Environment Friendly Plastics        42.3      14.5 %             18.4       11.3 %       23.9         129.9  %

Alloy Plastics                       41.4      14.1 %             10.5        6.5 %       30.9         294.3 %

Modified Acrylonitrile
Butadiene Styrene (ABS)               8.0       2.7 %              6.9        4.2 %        1.1          15.9 %

   Sub-total                        292.2      99.7 %            161.7       99.0 %      130.5          80.7 %

After-sales Service                   0.5       0.2 %              1.6        1.0 %       (1.1 )       (68.8 )%
Overseas trading                      0.4       0.1 %                -          - %        0.4             - %

Total Revenues                      293.1       100 %            163.3        100 %      129.8          79.5 %

The reduction of after-sales service fee was due to the discounts given to our distributors as part of our marketing strategy to further penetrate our less-developed markets, especially in East China and Southwest China.

The following table summarizes the breakdown of metric tons (MT) by product mix:

                                                       Sales Volume
(in MTs, except percentage)               For the Three Months Ended September 30,
                                            2013                           2012
                                                                                              Change in        Change in
                                     MT               %              MT              %            MT                %
Modified Polypropylene (PP)          36,617         40.5 %           38,469        62.6 %         (1,852 )         (4.8 )%

Engineering Plastics                 13,430         14.8 %            6,661        10.8 %          6,769          101.6 %

Modified Polyamide (PA)               9,795         10.8 %            2,737         4.4 %          7,058          257.9 %

Environment Friendly Plastics        18,012         19.9 %            8,140        13.2 %          9,872          121.3 %

Alloy Plastics                        9,948         11.0 %            2,972         4.8 %          6,976          234.7 %

Modified Acrylonitrile
Butadiene Styrene (ABS)               2,677          3.0 %            2,610         4.2 %             67            2.6 %

Total sales volume                   90,479          100 %           61,589         100 %         28,890           46.9 %

The Company has shifted product mix from traditional Modified Polypropylene (PP) to higher-end products such as Modified Polyamide (PA), alloy plastics, Environmental Friendly Plastics, and Engineering 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, U.S. and Japanese joint ventures, which tend to use more and higher-end modified plastics in quantity per vehicle in China.


Gross Profit and Gross Profit Margin

Three-Month Period Ended September 30, Change (in millions, except percentage) 2013 2012 Amount % Gross Profit $ 65.7 $ 40.0 $ 25.7 64.3% Gross Profit Margin 22.4% 24.5% (2.1)%

Gross profit was US$65.7 million in the third quarter ended September 30, 2013 compared to US$40.0 million in the same period of 2012, representing an increase of 64.3%. Our gross margin decreased to 22.4% in the second quarter ended September 30, 2013 from 24.5% during the same quarter of 2012.

The decrease of gross profit margin was primarily due to:

(i) The decrease of gross profit margin was primarily due to an average 6.5% discount on the listed prices for the three month period ended September 30, 2013 to distributors as part of our marketing initiatives to increase our market share in Eastern China and Southwestern China. The discount is primarily aimed at further expanding into the Eastern China and Southwestern China market. As a result, revenues contribution from Eastern China and Southwest China grew to 32.4% and 3.2% of our total sales during the three-month period ended September 30 30, 2013 compared to 22.8% and nil in the same period of 2012, respectively. We plan to maintain such discount rate for the rest of 2013.

(ii) The decrease of gross profit margin was also due to increase in shipping expenses to US$4.5 million in the three months ended September 30, 2013 from US$0.3 million in the three months ended September 30, 2012. We started bearing the shipping expenses, which is a part of our marketing tactic to grow market shares since the first quarter of 2013. Such arrangement is expected to continue in the future.

General and Administrative Expenses

                                          Three-Month Period Ended September 30,                    Change
(in millions, except percentage)             2013                         2012              Amount            %
General and Administrative Expenses   $              4.4           $              3.0     $       1.4          46.7%
as a percentage of revenues                         1.5%                         1.8%                         (0.3)%

General and administrative (G&A) expenses were US$4.4 million in the third quarter ended September 30, 2013 compared to US$3.0 million in the same period in 2012, representing an increase of 46.7%, or US$1.4 million, primarily due to the increase of share based compensation, taxation, office and traveling and transportation expense with the business expansion. On a percentage basis, G&A expenses in the third quarter of 2013 decreased to 1.5% of revenues from 1.8% in the second quarter of 2012.

Research and Development Expenses

                                        Three-Month Period Ended September 30,                   Change
(in millions, except percentage)           2013                         2012              Amount           %
Research and Development Expenses   $              5.1           $              5.5     $    (0.4)         (7.3)%
as a percentage of revenues                       1.7%                         3.4%                        (1.7)%

Research and development ("R&D") expenses were US$5.1 million during the quarter ended September 30, 2013 compared with US$5.5 million during the same period in 2012, a decrease of US$0.4 million, or 7.3%. The decrease of our R&D expenses during this quarter was due to decreased expenses associated with the early conclusion of some research and development experiments after our R&D strategic review and we recalibrated our R&D efforts to target more longer-term but higher-end applications in fields such as aerospace, high-speed train, biological and medical. During the quarter ended September 30, 2013, the Company successfully launched 11new automobile manufacturers certified products ("AMCP"), which increased its total number of AMCP to 274. As of September 30, 2013, the Company had 75 products in the process of being certified by automotive and non-automotive manufacturers.

We expect to complete and realize economic benefits on approximately 25% 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 and medical devices.


Operating Income

Total operating income was US$55.9 million in the third quarter ended September
30, 2013 compared to US$31.5 million in the same period of 2012, representing an
increase of 77.8% or US$24.5 million. This increase is primarily due to higher
gross profit, partially offset by higher G&A expenses.

Interest Income (Expenses)

                                        Three-Month Ended September 30,                    Change
(in millions, except percentage)         2013                     2012            Amount            %
Interest Income                    $             1.7         $           1.4     $     0.3            21.4%
Interest Expenses                              (4.5)                   (1.2)         (3.3)           275.0%
Net Interest Income (Expenses)     $           (2.8)         $           0.2     $   (3.0)       (1,500.0)%
as a percentage of revenues                   (1.0)%                    0.1%                         (1.1)%

Net interest expense was US$2.8 million for the three-month period ended September 30, 2013, compared to net interest income of US$0.2 million in the same period of 2012, primarily due to increase of short-term loans to meet the need of our future capacity expansion in Southwest China. The average loan balance for the three months ended September 30, 2013 was US$63.6 million as compared to US$12.6 million as of that of the prior year, leading to US$3.3 million more interest expense.

Income Taxes

                                       Three-Month Period Ended September 30,                    Change
(in millions, except percentage)          2013                         2012              Amount             %
Income before Income Taxes         $              54.3           $           33.4      $      20.9           62.6%
Income Tax Expense                               (13.2 )                     (8.1 )           (5.1 )         63.0%
Effective income tax rate                        24.4%                      24.3%                             0.1%

The effective income tax rates for the three-month periods ended September 30, 2013 and 2012 were 24.4% and 24.3%, respectively. The effective income tax rate for the three-month period ended September 30, 2013 differs from the PRC statutory income tax rate of 25% primarily due to the tax rate different for Sichuan Xinda and partially offsetting by the increase of valuation allowance against deferred income tax assets.

Our PRC subsidiaries have US$280.5 million of cash and cash equivalents, restricted cash and time deposits as of September 30, 2013, which is planned to be indefinitely 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$41.1 million in the third quarter of 2013 compared to net income of US$25.3 million in the same quarter of 2012.

Nine Months Ended September 30, 2013 compared to nine months ended September 30, 2012

Revenues

Revenues were US$666.3 million for the nine months ended September 30, 2013, an increase of US$235.1 million, or 54.5%, compared to US$431.2 million in the same period of last year, due to approximately 37.4% increase in sales volume and 9.5% increase in the average RMB selling price of our products. 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 additional 30 production lines which commenced production in December 2012, as well as the marketing efforts to develop new customers, in particular those in Eastern and Southwestern China. 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 RMB selling price was due to the shift of product mix towards higher-end products.


Product Mix

The following table summarizes the breakdown of revenues by product mix in
millions of US$:

(in millions,                                         Revenues
except percentage)                     For the Nine Months Ended September 30,
                                           2013                       2012
                                                                                      Change in   Change in
                                  Amount             %         Amount          %       Amount         %
Modified Polypropylene (PP)          194.5           29.2%        216.1       50.2%      (21.6)     (10.0)%

Engineering Plastics                 161.2           24.2%         83.5       19.4%        77.7       93.1%

Modified Polyamide (PA)              118.3           17.8%         36.1        8.4%        82.2      227.7%

Environment Friendly Plastics         99.6           14.9%         43.2       10.0%        56.4      130.6%

Alloy Plastics                        68.5           10.3%         29.9        6.9%        38.6      129.1%

Modified Acrylonitrile
Butadiene Styrene (ABS)               22.3            3.3%         16.6        3.8%         5.7       34.3%

   Sub-total                         664.4           99.7%        425.4       98.7%       239.0       56.2%

After-sales Service                    1.5            0.2%          5.8        1.3%       (4.3)     (74.1)%
Overseas Trading                       0.4            0.1%            -           -         0.4          -%
Total Revenues                       666.3            100%        431.2        100%       235.1       54.5%

The reduction of after-sales service fee was due to the discounts given to our distributors as part of our marketing strategy to further penetrate our less-developed markets, especially in East China and Southwest China.


The following table summarizes the breakdown of metric tons (MT) by product mix:

                                                     Sales Volume
(in MTs, except percentage)             For the Nine Months Ended September 30,
                                           2013                          2012
                                                                                         Change in   Change in
                                     MT              %              MT            %          MT          %
Modified Polypropylene (PP)          95,826         43.3%          103,817       64.4%     (7,991)      (7.7)%

Engineering Plastics                 31,082         14.0%           16,587       10.3%      14,495       87.4%

Modified Polyamide (PA)              24,139         10.9%            7,486        4.6%      16,653      222.5%

Environment Friendly
Plastics                             44,266         20.0%           18,890       11.7%      25,376      134.3%

Alloy Plastics                       18,430          8.3%            8,360        5.2%      10,070      120.5%

Modified Acrylonitrile
Butadiene Styrene (ABS)               7,797          3.5%            6,150        3.8%       1,647       26.8%

Total sales volume                  221,540          100%          161,290        100%      60,250       37.4%

The Company shifted product mix from traditional Modified Polypropylene (PP) to higher-end products such as Modified Polyamide (PA) , Environmental Friendly Plastics, alloy plastics , and Engineering 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 Profit Margin

Nine Months Ended September 30, Change (in millions, except percentage) 2013 2012 Amount % Gross Profit $ 132.0 $ 106.5 $ 25.5 23.9% Gross Profit Margin 19.8% 24.7% (4.9)%

Gross profit was US$132.0 million for the nine months ended September 30, 2013 compared to US$106.5 million in the same period of 2012, representing an increase of 23.9%. Our gross margin decreased to 19.8% during the nine months ended September 30, 2013 from 24.7% during the same period of 2012.

The decrease of gross profit margin was primarily due to:

(i) The decrease of gross profit margin was primarily due to an average 6.4% discount on the listed prices for the nine-month period ended September 30, 2013 to distributors as part of our marketing initiatives to increase our market share in Eastern China and Southwestern China. The discount is primarily aimed at further expanding into the Eastern China and Southwestern China market. As a result, revenues contribution from Eastern China and Southwestern China grew to 31.0% and 2.9% of our total sales during the nine-month period ended September 30, 2013 compared to 21.4% and nil in the same period of 2012, respectively. We plan to maintain such discount rate for the rest of 2013.

. . .

  Add CXDC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CXDC - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.