Hyundai posts profit drop

Hyundai Motor's sedans are assembled at a factory of the carmaker in Asan, about 100 km (62 miles) south of Seoul.

Hyundai Motor's sedans are assembled at a factory of the carmaker in Asan, about 100 km (62 miles) south of Seoul.

Published Jan 24, 2013

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Seoul - Hyundai Motor Co, ranked fifth in global sales with affiliate Kia Motors, posted a surprise quarterly profit drop as a stronger Korean won dented its overseas earnings, sending its shares falling the most in three weeks.

The won rose almost 8 percent against the dollar last year, its biggest gain since 2009, cutting the value of Hyundai's overseas revenue in local currency terms and hurting the carmaker's price competitiveness abroad. To make matters worse, the yen eased by 11 percent, handing Hyundai's competitive edge back to its Japanese rivals.

The profit decline came even as Hyundai Motor sold a record 1.23 million vehicles in the fourth quarter. The company, which have enjoyed years of strong growth by offering stylish, yet affordable models such as the Sonata and Elantra, will face pressure to unroll new models to revive growth and lean even more on the China market - the sole bright spot on the horizon.

“With the yen seen weakening further, while the won is set to keep rising, Hyundai's ability to overcome worsening external factors will be put to the test this year,” said Lim Hyung-geun, a fund manager at GS Asset Management.

“With no major new cars planned this year, it'll be very challenging year for Hyundai,” Lim said, adding that he has already offloaded some of his Hyundai Motor shares. “It's not yet a true global leader like Samsung Electronics which can resiliently overcome adverse currency moves.”

Hyundai Motor's Chief Financial Officer Lee Won-hee warned that the won's gains will accelerate in the second half, but said their effects will be limited as the company counters the impact of the strengthening currency by moving more production overseas.

The company's profit was also hit after Hyundai set aside 240 billion won ($225.10 million) to cover the cost of compensating customers for overstated fuel-economy claims on some cars sold recently in the United States and Canada, Lee told reporters after the earnings announcement on Thursday.

Hyundai and affiliate Kia said they would help drivers pay for the additional fuel costs. Analysts projected provisions of about 300 billion won to 400 billion won.

Shares in Hyundai Motor extended their losses on Thursday after the disappointing results, ending 4.6 percent lower, versus the wider market's 0.8 percent fall.

 

FIRST DROP SINCE 2011

Hyundai posted a 1.89 trillion won ($1.77 billion) net profit for October-December, missing a consensus forecast of 2.15 trillion won in a Reuters poll of 15 analysts.

The decline, down 6 percent from 2 trillion won a year earlier, was the first profit fall since Hyundai Motor switched accounting rules in 2011.

Hyundai aims to increase its US sales by 4.4 percent this year, while its Europe sales would fall 6.5 percent, CFO Lee said.

By contrast, its Europe sales grew 10.2 percent last year while US sales increased 8.9 percent.

Hyundai's China sales are forecast to rise 13.3 percent, Lee said. That compares with last year's 12 percent growth.

Hyundai, led by founding family member Chung Mong-koo, boosted sales in China after opening a new plant in the world's biggest auto market as Japanese rivals reeled from anti-Japanese sentiment.

“Global economic weakness will continue this year,” Lee said, forecasting a prolonged downturn in the United States and Europe and slowing growth in China and other emerging markets.

Hyundai aims to increase global sales by 6 percent to 4.66 million vehicles this year, boosted by new plants in China and Brazil.

That volume increase would be the slowest since 2007 but would still surpass the overall industry's projected 3 percent rise and rival Toyota Motor Corp's 2.2 percent growth plan. - Reuters

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