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ShengdaTech Inc. News

ShengdaTech, Inc. Announces Record Fourth Quarter and Full Year 2007 Results

TAIAN, Shandong, China, March 17 Xinhua-PRNewswire-FirstCall — ShengdaTech Inc. (Nasdaq: SDTH), a leading manufacturer of nano precipitated calcium carbonate (NPCC) and coal-based chemical products manufacturer in the People's Republic of China ("PRC"), today reported financial results for the fourth quarter and year ended December 31, 2007.

Fourth Quarter 2007 Highlights

— Record revenue increased 23.5% year-over-year to $28.6 million

— Gross margin increased 2.7 percentage points year-over-year to 35.8%

— Net income increased 26.5% year-over-year to $7.8 million, or $0.14 per diluted share

Full Year 2007 Highlights

— Record revenue increased 38.6% to $100.7 million; exceeding guidance of $96 million to $98 million

— NPCC revenue increased 112.3%; contributed 46.4% to total revenue

— Record net income increased 54.2% to $27.0 million, or $0.50 per diluted share; exceeding guidance of $23.0 million to $24.4 million

ShengdaTech's record revenue for the fourth quarter of 2007 is primarily attributed to the new NPCC lines added in July 2007 reaching full capacity in November 2007, resulting in 130,000 total metric tons of capacity in production. The NPCC segment contributed 48.2% of total revenue for the quarter and the chemical segment contributed the remaining 51.8% of total revenue compared to 40.5% and 59.5%, respectively, in the same period a year ago.

"We are pleased to report our third consecutive quarter of revenue and net income growth which is due to continued strong market demand for our NPCC products," Mr. Xiangzhi Chen, President and CEO of ShengdaTech, commented. "In the fourth quarter of 2007, we added 13 new customers including five tire manufacturers, three PVC producers, three latex producers, a paint manufacturer and a paper manufacturer. In addition, our new NPCC lines, with a total of 40,000 metric tons of capacity, reached full operating capacity this quarter."

Revenue from NPCC products increased 46.9% to $13.8 million in the fourth quarter of 2007 from $9.4 million in the fourth quarter of 2006. The increase in year-over-year revenue was due to the addition of 40,000 metric tons of NPCC capacity in July 2007 which reached full capacity in November 2007. Total volume of NPCC sold during the fourth quarter of 2007 was 35,680 metric tons. NPCC for use in tires represented the majority of the NPCC sales at 43.4% of total NPCC revenue. Sales of NPCC for use in PVC and latex experienced the strongest growth in the fourth quarter, up 8.6% and 20.7%, respectively, from the third quarter of 2007. PVC and latex represented 39.0% and 9.9%, respectively, of total NPCC revenue. NPCC used in printing ink, paint, and paper represented the balance of 7.7% of NPCC revenue.

Revenue from chemical products increased 7.5% to $14.8 million in the fourth quarter 2007 from $13.8 million in the comparable quarter in 2006. Sales of liquid ammonia and methanol increased 9.8% and 8.3%, respectively, from the third quarter of 2007 as a result of stronger market demand and an increase in market price. Liquid ammonia and methanol represented 38.4% and 19.5%, respectively, of the chemical segment's revenue. Sales of ammonia bicarbonate declined 6.3% from the third quarter of 2007, as the fourth quarter is the seasonally slowest quarter for agriculture, and subsequently chemical fertilizer use in northern China. Ammonia bicarbonate represented 25.4% of the chemical segment's revenue and melamine contributed the balance of 16.6% of sales during the quarter.

Gross profit for the fourth quarter of 2007 was $10.3 million, up 33.6% from $7.7 million in the fourth quarter 2006. Gross margin for the quarter was 35.8% compared to 33.1% for the same period in 2006. The chemical segment benefited from strong pricing for liquid ammonia, methanol, and melamine in the quarter resulting in gross margin of 29.5%, up 3.3 percentage points from 26.2% in the same period in 2006. Gross margin for the NPCC segment was 42.6% in the fourth quarter compared to gross margin of 43.3% in the same quarter last year. The slight decline of gross margin was due to a combination of increased depreciation expense, cost of coal used in the manufacturing process and transportation cost of raw materials.

Selling expenses for the fourth quarter of 2007 were $0.5 million, or 1.8% of revenue, unchanged from $0.5 million, or 2.2% of revenue, in fourth quarter 2006. General and administrative (G&A) expenses were $1.3 million or 4.6% of revenue, compared to $0.9 million, or 3.8% of revenue, in the same period last year. The increase in G&A expense was mainly attributed to expenses associated with reaching compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and other public company costs.

Operating income for the fourth quarter of 2007 was $8.4 million, up 34.2% from $6.3 million in the same period a year ago. Operating margin was 29.5% compared to 27.1% in the fourth quarter of 2006.

Net income for the fourth quarter of 2007 increased 26.5% to $7.8 million from $6.1 million in the same period a year ago. Fully diluted earnings per share for the fourth quarter 2007 were $0.14, compared to $0.11 the same period last year.

Full Year 2007 Results

Revenue for the full year 2007 increased 38.6% to a record $100.7 million, compared to $72.6 million in 2006. The NPCC segment generated 46.4% of revenue, or $46.7 million in 2007, up 112.3% from $22.0 million in 2006. The chemical segment generated the remaining 53.6% of revenue, or $53.9 million, up 6.6% from $50.6 million in 2006. Gross profit was $34.6 million, up 61.7% from $21.4 million for the full year 2006. Gross margin was 34.3% in 2007 compared to 29.4% in 2006. Operating income was $29.6 million, up 69.1% from $17.5 million in 2006. Operating margin was 29.4% in 2007 compared to 24.1% in 2006. Net income increased 54.2% to $27.0 million from $17.5 million in 2006. Fully diluted earnings per share for 2007 were $0.50 compared to $0.34 for the full year of 2006.

Financial Condition

As of December 31, 2007, ShengdaTech had $26.4 million in cash and cash equivalents, $43.8 million in working capital and no long-term debt. Net cash provided by operating activities for the year was $13.8 million, including the impact of $17.7 million advanced to suppliers for equipment for the 60,000 MT NPCC lines. Shareholders' equity stood at $89.1 million, up from $57.1 million at year end 2006.

Recent Events

On January 2, 2008, ShengdaTech announced it developed a new NPCC application for use in surface coating for top-grade color ink jet paper.

On January 31, 2008, the Company began trading on The NASDAQ Global Select Market.

On February 27, 2008, ShengdaTech announced it successfully developed a new NPCC product for use in polyethylene ("PE") plastic products.

Business Outlook

ShengdaTech is in the process of completing the test runs on its three new stainless steel NPCC lines in Xianyang City, Shanxi Province. Each line has 20,000 metric tons production capacity and is expected to ramp up to full capacity by August 2008. The stainless steel lines have a production life of 30 years compared to 10 years for carbon steal lines. In addition, the stainless steel ensures the purity of the NPCC particles enabling the Company to target higher-end markets and international manufacturers. The Company has been successful in developing and commercializing new applications of NPCC for paper and polyethylene manufacturing, and is working on developing new NPCC applications in a variety of markets such as asphalt, automobile paint and silicone-adhesives.

ShengdaTech continues to evaluate acquisition opportunities in the chemical segment and to actively explore potential sites in Shandong Province for its next phases of NPCC expansion. The Company expects 2008 revenue and net income to be in the range of $132 - $134 million and $33 - $35 million, respectively, for fully diluted earnings per share of $0.62 - $0.65.

"The opportunities for growth in our NPCC and chemical businesses remain robust. We will continue growing our NPCC business by expanding capacity, developing new higher-end NPCC applications and increasing exports," commented Mr. Chen. "We are aggressively evaluating acquisition candidates in the chemical business and exploring potential sites in Shandong Province for the next phases of NPCC expansion. We are optimistic that we will be successful in finding a location that will meet the capacity requirements of our strategic plan."

Conference Call

ShengdaTech will host a conference call at 9:00 a.m. EST on Monday, March 17, 2008, to discuss the 2007 fourth quarter and year end financial results. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 888-419-5570. International callers should dial 617-896-9871. The pass code for the call is 57786686. If you are unable to participate in the call at this time, a replay will be available on Monday, March 17, 2008 at 11:00 a.m. EST through Monday March 31, 2008. To access the replay, dial 888-286-8010, international callers should dial 617-801-6888. The conference pass code is 92199623. This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.shengdatechinc.com . Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.

About ShengdaTech, Inc.

ShengdaTech, Inc. ("The Company") is engaged in the business of manufacturing, marketing and selling a variety of nano precipitated calcium carbonate ("NPCC") products and coal-based chemicals for use in various applications. The Company converts limestone into NPCC using its proprietary technology. The unique chemical and physical attributes make NPCC a valuable ingredient in tires, paints, polyvinyl chloride ("PVC") building materials and other products. It enhances the durability of many products by increased strength, heat resistance, and dimension stabilization. The Company is also engaged in the manufacture and sale of coal-based chemical products namely ammonium bicarbonate, liquid ammonia, melamine and methanol. The Company markets and sells its coal-based products mainly for chemical fertilizers and raw materials in the production of organic and inorganic chemical products, including formaldehyde and pesticides.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release and oral statements made by ShengdaTech on its conference call in relation to this release, constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding the Company's ability to prepare for growth, the Company's planned manufacturing capacity expansion in 2008 and predictions and guidance relating to the Company's future financial performance. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs but they involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, which may include, but are not limited to, such factors as unanticipated changes in product demand especially in the tire industry, changes in composition of tires, pricing and demand trends for the Company's chemical products, changes to government regulations, risk associated with operation of the Company's new manufacturing facility, risk associated with large scale implementation of the new NPCC manufacturing process, the ability to attract new customers, ability to increase its product's applications, ability of its customers to sell products, cost of raw material, downturns in the Chinese economy, and other information detailed from time to time in the Company's filings and future filings with the United States Securities and Exchange Commission. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements made herein speak only as of the date of this press release and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.

SHENGDATECH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Three Months For the Years Ended Ended December 31, December 31, 2007 2006 2007 2006 (unaudited) (unaudited) Net Revenue: Chemical $14,828,065 $13,792,226 $53,933,120 $50,592,217 Nano-material 13,795,137 9,389,676 46,721,673 22,007,814 Total Net Revenue 28,623,202 23,181,902 100,654,793 72,600,031 Cost of Revenue: Chemical 10,448,041 10,178,837 39,282,251 37,924,593 Nano-material 7,915,655 5,326,269 26,812,587 13,297,976 Total cost of revenue 18,363,696 15,505,106 66,094,838 51,222,569 Gross Profit: Chemical 4,380,024 3,613,389 14,650,869 12,667,624 Nano-material 5,879,482 4,063,407 19,909,086 8,709,838 Total Gross Profit 10,259,506 7,676,796 34,559,955 21,377,462 Operating expenses Sales & Marketing 495,032 508,805 1,771,168 1,260,647 General & administrative 1,328,920 882,967 3,232,911 2,641,474 Total operating expenses 1,823,952 1,391,772 5,004,079 3,902,121 Income from operations 8,435,554 6,285,024 29,555,876 17,475,341 Non-operating income (expense) -12,094 -199,159 -12,094 -89,068 Interest Income 71,318 62,476 274,203 140,375 Income before provision for income taxes 8,494,778 6,148,341 29,817,985 17,526,648 Provision for tax 715,209 — 2,787,640 — Net Income $7,779,569 $6,148,341 $27,030,345 $17,526,648 Basic and Diluted Earnings Per Share $0.14 $0.11 $0.50 $0.34 Basic Weighted - Average Shares Outstanding 54,143,920 54,095,103 54,107,408 51,900,641 Diluted Weighted - Average Shares Outstanding 54,193,667 54,257,388 54,188,410 52,022,801 SHENGDATECH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, 2007 2006 ASSETS Current Assets Cash and cash equivalents $26,366,568 $34,684,142 Trade accounts receivable, less allowance for doubtful accounts of $0 7,889,001 5,588,676 Other receivables 13,962 157,352 Advances to suppliers 19,436,544 872,289 Inventory 1,955,384 2,151,612 Receivable from related parties 1,712 1,601 Total Current Assets 55,663,171 43,455,672 Property and Equipment, net of accumulated depreciation of $6,126,393 and 3,674,605, respectively 45,156,739 23,573,680 Land use rights, net of accumulated amortization of $1,031 and $0, respectively 124,028 — TOTAL ASSETS $100,943,938 $67,029,352 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Trade accounts payable $5,296,530 $2,957,413 Other payables and accrued expenses 3,276,473 2,235,758 Income and other taxes payable 2,303,402 1,237,180 Advances from customers — 119,923 Payable to related parties 1,064,348 3,349,814 Total Current Liabilities 11,940,753 9,900,088 Shareholders' Equity Preferred stock - $0.00001 par value; 10,000,000 shares authorized; no shares outstanding — — Common stock - $0.00001 par value; 100,000,000 shares authorized; 54,202,036 and 54,095,103 shares outstanding, respectively 541 540 Additional paid-in capital 21,616,469 21,824,121 Statutory reserves 5,642,419 3,301,379 Retained earnings 54,877,045 30,187,740 Accumulated other comprehensive income 6,866,711 1,815,484 Total Shareholders' Equity 89,003,185 57,129,264 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $100,943,938 $67,029,352 SHENGDATECH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2007 2006 Cash Flows from Operating Activities: Net income $27,030,345 $17,526,648 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,128,980 1,031,387 Loss on disposal of property, plant and equipment 1,845 16,377 Compensation paid with warrants — 153,619 Changes in assets and liabilities: Accounts receivable (1,839,452) (1,635,713) Other receivables 144,500 4,040,220 Advances to suppliers (17,767,908) (588,722) Inventory 330,614 (611,842) Trade accounts payable 2,306,124 1,468,602 Other payables and accrued expenses 606,185 230,538 Income and other taxes payable 942,034 (85,055) Advances from customers (123,077) 117,453 Net Cash provided by Operating Activities 13,760,190 21,663,512 Cash Flows from Investing Activities: Purchase of property and equipment (19,090,018) (15,365,898) Construction in progress (2,206,133) (92,020) Purchase of land use rights (120,083) — Net Cash used in Investing Activities (21,416,234) (15,457,918) Cash Flows from Financing Activities: Proceeds from issuance of common stock — 13,969,714 Changes in related party receivable / payable (2,415,904) 3,882,177 Distribution to shareholder (207,651) (971,496) Other non-trade receivables — — Net Cash (used in) provided by Financing Activities (2,623,555) 16,880,395 Effect of Exchange Rate Changes in Cash 1,962,025 848,853 Net Change in Cash (8,317,574) 23,934,842 Cash and Cash Equivalents at Beginning of Period 34,684,142 10,749,300 Cash and Cash Equivalents at End of Period $26,366,568 $34,684,142 For more information, please contact: Crocker Coulson, President Leslie Richardson, Financial Writer CCG Elite Investor Relations Tel: +1-646-213-1915 Email: crocker.coulson@ccgir.com

SOURCE ShengdaTech Inc.

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