A DRAMATIC increase in tax has eaten into earnings of China's Luoyang Glass Co, resulting in a four per cent fall in profit to 253.25 million yuan (about HK$232.23 million) last year. The result contrasted with the company's forecast of 242 million yuan in its listing prospectus. Chairman Guo Xiaohuan yesterday attributed the profit drop to the increases in taxes after its listing on the Hong Kong Stock Exchange last July. Under China's policy of enterprise income tax, Luoyang was charged at a tax rate of 33 per cent, compared with less than eight per cent in 1993. In terms of pre-tax earnings, the state-owned enterprise achieved an outstanding 44 per cent growth to 387.39 million yuan. This was against 269.02 million yuan previously. Mr Guo said the rise was due to a drop in the costs of raw materials and more efficient management. Heavy oil, which accounted for about 21 per cent of total costs, decreased last year to about 700 yuan per tonne from more than 800 yuan a tonne in 1993. He did not expect the heavy oil price to move above its 1994 level this year. Mr Guo expressed confidence that the company could control its costs. After transfers to reserves and owners' equity, profit attributable to shareholders was 149.79 million yuan. Turnover rose modestly by 20.17 per cent to 944.2 milion yuan. 'The year 1994 is very significant for the company, as our product quality and production capacity are at a record high,' he said. Last year, Luoyang produced 371,250 tonnes of float glass, up 20 per cent over the previous corresponding period. Luoyang is China's largest producer of float glass, contributing 17 per cent of total mainland production. Earnings per share on a weighted average basis were down 26.55 per cent to 0.484 yuan from 0.659 yuan. The final dividend was 0.074 yuan per share. Jennie Wong, corporate finance manager of China Development Finance, which is Luoyang's sponsor, admitted that the Chinese company suffered a foreign exchange loss last year. This was due to the yuan's appreciation against the Hong Kong dollar proceeds raised from the flotation. She could not provide a figure on the loss. Apart from the H share flotation last July, Luoyang proposed to issue not more than 50 million yuan worth of A shares. These were scheduled to be issued 15 months after the initial listing. Mr Guo said the issue was subject to state approval. Another H share company, Yizheng Chemical Fibre, recently called off its A share flotation plan and issued additional H shares in Hong Kong. Mr Guo said: 'If the A share issue is not approved, it will not affect the company development in the next two years.' Instead, the company would take bank loans or issue bonds in China, he said. Mr Guo said China's construction and motor vehicle industries would continue to create strong demand for glass products. 'The state has announced plans to spend more than 100 billion yuan between 1995 and 1997 to implement the Home Refurbishment Scheme,' he said. 'At the same time, it also has outlined the construction of a number of private car production lines. These developments will support growth in the group's processed glass business.' In addition to the Chinese market, which accounts for about 90 per cent of turnover, Luoyang will focus on expanding the overseas market, which was expected to contribute not less than 10 per cent of company turnover this year, against the previous five to eight per cent. The company has offices in Australia, Vietnam, Cambodia and South Africa.