Mounting pricing pressure from downstream and plunging oil prices have dampened China XD Plastics Co. Ltd.'s performance, pushing it to diversify into other end markets and overseas.
The Harbin, China-based automotive compounder reported a 20.2 percent sales decline, a 36.4 percent drop in gross profit and a 37.7 percent decrease of net income in the fourth quarter on a year-on-year basis.
The lackluster quarter dragged the full year results to a less-than-robust 5.6 percent sales growth to $1.1 billion and a 9.8 percent decline of net income to $120.7 million.
The gross profit margin, while still comparing quite favorably to other Chinese compounders, shaved off 130 basis points to 20 percent.
"In 2014, vehicle sales in China grew by their lowest rate in over 20 years, pressuring auto makers and their suppliers to reduce costs up and down the supply chain,” Chairman and CEO Han Jie said in a statement. In response, XD offered lower-cost formulations of nylon compounds, which delivered lower margins.
The falling oil prices didn't help lift the compounder's margin. Instead, the company had to face falling market prices of some of its products while the feedstock materials had been procured at a higher unit cost before the oil price slump.
XD's focus on the booming Chinese auto industry has enabled its rapid growth in recent years, but the company is now trying to diversify into other end markets as well as overseas customers.
“Benefiting from tax exemption, abundance of raw materials and logistics from our Dubai subsidiary, we increased sales to more customers outside of China and offered higher-margin products for automotive, high-end, appliances and electronics,” Han said.
In fact, 12.6 percent of 2014 sales were generated from outside of China.
Its new Dubai facility, slated to come on stream in the first half of 2015, is expected to expand the company's reach into the Middle East, Europe and other parts of Asia.
The company also said the Sichuan facility will become operational in the first of 2016.
In addition to its traditional auto business, the company said it has added electronics, high-speed rail, 3-D printing and biodegrable plastics to its product portfolio, and expect to generate more revenue from these sectors.
With the business challenges carry over into this year, the company projected continued sales decrease to between $960 million and $1.06 billion for fiscal 2015. Net income is projected to range between $100 million to $120 million.
