Luoyang Glass in the red with $208m in losses

PUBLISHED : Saturday, 25 April, 1998, 12:00am
UPDATED : Saturday, 25 April, 1998, 12:00am

Battered by sharply reduced product prices and oversupply, H share Luoyang Glass Co plunged into the red last year with net losses of 223.44 million yuan (about HK$208 million).

The float glass maker saw its losses balloon in the second half, against its interim losses of 45.11 million yuan.

'I was shocked by the massive losses in the second half,' president and general manager Guo Xiaohuan said.

He blamed excessive supply and plunging prices for the disastrous result - the second H share to post net losses for last year after China Shipping Development Co.

'We had initially insisted on not cutting prices. But we were forced to follow to avoid inventories, as the prices kept falling all the time,' he said.

Last year, the mainland's glass production exceeded 168 million cases, but demand was only for 140 million cases, causing the average selling price for each case to drop 24.2 per cent. The price has tumbled 97.32 per cent since 1994 when the company listed.

Mr Guo said Luoyang Glass' profitability was also hit by an increase in expenses as it borrowed more money for expansion after exhausting listing proceeds.

At the end of last year, it had debts of 1.3 billion yuan, an increase of about 300 million yuan.

Net losses for last year compared with net gain of 21.61 million yuan. Sales were down 1.1 per cent to 593.19 million yuan. Losses per share were 31.9 fen against earnings per share of 3.1 fen. No final dividend was proposed.

Mr Guo said the state planned to announce the 'price law' in May in order to stop price-cutting competition among glass manufacturers.

Under the proposed law, a selling price will be set based on an average production cost of the industry, plus a profit margin.

Manufacturers who break the law by selling products below costs will have to compensate for the losses of their rivals.

Financial controller Ren Puxian said the company's average production cost was 52 yuan a case last year and would fall to between 47 and 49 yuan this year, which he said was lower than some of its competitors.

He expected the imposed margin would be between 8 to 10 per cent.

Mr Guo said the company's target was to trim losses this year.

'The company definitely lost money in the first quarter, but the losses were getting smaller in March than in February,' he said, adding that prices had bottomed out in the first three months.

This year, its glass production will reach 10.72 million cases, compared with 9.4 million cases and sales of 9.28 million cases last year.