Johnson Electric under pressure from rising wages, increased plant cost

Electronic component manufacturer Johnson Electric reported record profit for the financial year to the end of March after sales in all major markets rose but the firm is forecasting a decline in its gross profit margin for the coming year due to aggressive investment in new plant and rising labour costs on the mainland.

"We are opening new plants in Serbia, Mexico and India in order to meet customer demand," said chairman and chief executive Patrick Wang Shui-chung. "It is always most difficult during the start-up period as everything costs money."

Wang said the company was also facing headwinds from the sharp rise in labour costs on the mainland. "Inflation in China has been rising by a two-digit number each year over the past few years and we expect this year [inflation] will be serious as well," he said, adding that the company needed to combat rising costs by enhancing automation.

"So we think the gross profit margin this year will not be as good as the last financial year, though we are optimistic about the growth of our business," Wang said.

For the past financial year, gross margin gained 1.5 percentage points to 29.5 per cent. Net profit rose 9 per cent to US$208 million and total sales increased 2 per cent to US$2.1 billion.

The increase in sales "reflected the combination of strong demand from automotive customers, lower sales to industrial customers" and foreign exchange rate movements, the company said in a filing with the Hong Kong stock exchange.