Denway Motors blames stronger yuan for 4.5pc drop in earnings

PUBLISHED : Thursday, 03 April, 2008, 12:00am
UPDATED : Thursday, 03 April, 2008, 12:00am

Denway Motors, the Hong Kong-listed subsidiary of Guangzhou Automotive Industry Corp, has posted a 4.5 per cent fall in net annual profit to 2.17 billion yuan (HK$2.41 billion) blaming the strengthening yuan, which ate into profit margins.

The company said fierce competition and delays in launching new models also contributed to the lower profit.

Sales rose 4.1 per cent to 862.6 million yuan in the period, and the company has declared a final dividend of 6 fen a share.

'If the [profit] calculation is based on Hong Kong dollars, our profitability would have been flat,' said a company source who asked not to be identified, referring to the yuan's appreciation against the Hong Kong dollar.

The company said it sold 295,299 vehicles in the fast-growing car market last year, up 13.5 per cent from the year before.

A total of 8.8 million vehicles were sold in the mainland last year, up 22 per cent from 2006.

Denway said it would cut costs this year to boost competitiveness.

The company said it expected total sales to reach 340,000 units this year, driven by higher sales of Honda's new Accord, Odyssey and Fit models. Honda is Denway's partner in a 50-50 joint venture, Guangzhou Honda.

Guangzhou Automotive, is co-operating with Honda to build own-brand models and also makes hybrids with both Honda and Japan's biggest carmaker, Toyota, with which it also has a relationship.

'We plan to sell higher-priced cars this year which will certainly lift profitability,' the source said.

'But the high technology tax concession will be cut. The tax will rise to 18 per cent from a benefit of 10 per cent previously,' the source added.

Denway faced intense competition last year from Toyota's Camry model, which is made by the joint venture partner of its parent. Toyota has sold Camry models in the mainland since last year.

Analysts expected higher sales and net profits to recover this year due to the launch of two new Honda models, the Accord and the Fit.

Denway has planned to enlarge its distribution network to boost sales since last year when it reported a slim net income growth of only 0.4 per cent in the first half.

Denway owns 49 per cent of its parent, Guangzhou Automotive.

Unlucky combination

Competition and delays contributed to the decline in profits

Denway sold 295,299 vehicles last year, an annual growth of: 13.5%