Currency hedges trim profit for Goodbaby International

PUBLISHED : Tuesday, 21 August, 2012, 12:00am
UPDATED : Tuesday, 21 August, 2012, 3:56am

Goodbaby International said net profit fell 12.2 per cent to HK$100.7 million during the first six months of the year because of losses in hedges on the yuan-US dollar exchange rate.

But the mainland manufacturer of baby strollers and car seats said the situation had stabilised and should not affect results for the rest of the year.

Goodbaby said the HK$11.3 million in losses incurred by their forward currency contracts was not a result of "gambling", but a necessary move to maintain stability in costs and profit margins.

"We pay for our supplies in yuan and receive our income in US dollars," group chief financial officer Liu Tongyou said. "As there are fluctuations in the exchange rate of the two currencies, it is necessary for us to hedge against the risks."

The HK$114 million worth of forward currency derivatives would have brought gains to the company if the yuan had appreciated, Liu said. But the yuan has fallen 1 per cent against the US dollar since the start of the year and strategists expect it to fall further or at least remain flat. The earlier announcement of disappointing Chinese economic data renewed pressure on Beijing to further weaken the currency to encourage exports.

But Liu said the impairment of HK$11.3 million Goodbaby made in the first half should be enough to settle any losses incurred by the derivatives in the second half, adding it would not buy more contracts at this stage.

Goodbaby shares closed 10.33 per cent higher at HK$2.03 yesterday, although still less than half the initial public offering price of HK$4.90 when it listed in Hong Kong in 2010.

Chief executive Song Zhenghuan said overall sales - which rose 17.3 per cent in the first half, should show much more year-on-year growth for the full year.