AUDIO-VISUAL distributor Wo Kee Hong (Holdings) not only faces the continuous yen appreciation, but also slower growth in the demand for its products. The strong yen has been a great concern for the distributor which sources most of its products from Japan. It is predicted the yen will continue to fire in the long term. Last year, the strong yen ate into the company's profit margin by two per cent. Concerted efforts have been made to avoid the impact of spiralling yen in past years. The company looks determined to improve its profit margin. Instead of directly buying products from Japan and then selling in China, the company has begun to manufacture and distribute on the mainland. Sun Hung Kai Research analyst Harry Lo said the company still had to find highly expensive Japanese currency to purchase spare parts for its air-conditioners from Japan. 'We have to see if the company has the ability to transfer its cost on to the consumers,' he said. Whether or not increases in product price can offset the rising costs due to a higher yen remains unanswered, but it has been widely expected that any price increases would fall short of the value lost through yen appreciation. The Hong Kong market, which generates nearly 50 per cent of the company's turnover, is seeing slower growth as a result of a sluggish retail market hit by high interest rates. The China market is similar. The austerity programme continues to slow market demand. In a nutshell, the company's short-term outlook is not promising. The unfavourable conditions were reflected in last year's performance. There was a two per cent rise in net profit to $255.62 million, against double-digit growth over the previous years. As long as the yen appreciates, the economic situation in China sees no turnaround and the local retail market remains sluggish, the leading audio-visual distributor will continue to be under great pressure.