(30 August 2011, Hong Kong) Wuling Motors Holdings Limited (“Wuling Motors” or “the Group”, Stock code: 305), a leading commercial-type mini-vehicle engines and components manufacturer and a qualified enterprise for manufacturing electrical truck in China, as well as one of the Top 500 Chinese enterprises selected by Fortune magazine, today announced its interim results for the six months ended 30 June 2011(“the Reporting Period”).
During the Reporting Period, the Group recorded a total revenue of approximately RMB5,230 million, representing a slightly drop of 6.8% as compared to the corresponding period in 2010. Gross profit decreased by 19.8% to approximately RMB427 million, which was mainly attributable to the combined adverse effects of a lower business volume and increasing production costs during the period. An exceptional loss of approximately RMB6.45 million derived from the fair value adjustments of the convertible notes issued by the Group was recorded for the six months ended 30 June 2011. However, as a non-cash item, such loss will have no material adverse effect on the operating cashflow of the Group. Taking into account the fair value adjustments, the Group’s net profit and profit attributable to the owners of the Company were adjusted to approximately RMB64.13 million and approximately RMB22.09 million respectively. Both basic and diluted earnings per share were RMB2.02 cents. On the basis of the exclusion of the fair value adjustments, the Group’s net profit for the period and profit attributable to the owners of the Company were RMB70.58 million and RMB28.54 million respectively. The Board recommends the payment of an interim dividend of HK1 cent per share (equivalent to RMB 0.83 cent) for the period ended 30 June 2011, which is the first dividend payment since the Group’s transformation to the automobile sector.
Mr. Sun Shaoli, Chairman of Wuling Motors, said, “The automobile industry in China was in a challenging state in the first half of 2011, during which the total number of motor vehicles sold only increased slightly by 1.4 % to 9,300,000 units. This growth was at its lowest in three years. In response, the Group implemented quality service-oriented programs and technical re-engineering plans to further strengthen our product quality standard and technical capability so as to stay competitive in the industry. In addition, on 27 June 2011, the Group officially adopted its new company name “Wuling Motors Holdings Limited”, which was formerly known as “Dragon Hill Wuling Automobile Holdings Limited”. We believe the name change will help to create a new corporate identity and image to the Group. At the same time, it also demonstrates Liuzhou Wuling’s confidence in and support to the Group, which is instrumental to our long-term business growth.”
Business Review
Engines and Parts – Liuzhou Wuling Liuji Motors Company Limited (“Wuling Liuji”)
The engines and parts division continued to be the major contributor to the Group’s operating profits for the Reporting Period. Turnover (based on external sales) of the engines and parts division was approximately RMB1,721 million. Operating profits for the period reached approximately RMB99.48 million, representing an increase of 12.2% as compared to same period of last year.
During the Reporting Period, a stagnant market condition affected the business volume, where total sales volume by Wuling Liuji was maintained at the level of 400,000 units, in which approximately 80% of which was sold to SAIC-GM-Wuling Automobile Co., Limited (“SGMW”), while the remaining 20% was supplied to other motor vehicle manufacturers including FAW Haima, Gonow Auto, Ziyang Nanjun Auto and Beiqi Foton. Meanwhile, sales of other products such as agricultural machinery products remained stable during the period.
Since new production facilities for the nonferrous metallic parts of the engine’s cylinder commenced operation in 2008 and new foundry facilities of cylinder block and cylinder head started operation in the first half of 2011, this division’s operating margin improved to 5.8% when compared with 4.9% recorded in the corresponding period last year. On the other hand, a substantial reduction of research and development expenses during this period had also benefited the operating results of the division.
Automotive Components –Liuzhou Wuling Motors United Development Limited (“Wuling United”)
During the first half of 2011, the automotive components division undertaken by Wuling United, which was the key supplier that provided a majority portion of the key automotive components to SGMW, recorded a slightly decrease in its business. Turnover (based on external sales) of the automotive components division for the Reporting Period was approximately RMB2,554 million, representing a decrease of 5.4% as compared to the corresponding period last year. Operating profit for the respective period was approximately RMB23.17 million, representing a decrease of 20.2%.
This division’s total sales volume was approximately 600,000 units/sets during the Reporting Period, representing a slight drop of 6.3% as compared to the corresponding period last year, of which sales to SGMW continued to account for over 90% of the total turnover in this division. Operating margin maintained at a relatively low level as affected by the combined adverse impacts from a lower business volume and increasing production costs during the period. However, gradual improvement in the operation of the Qingdao facilities due to the installation of additional plant and machinery together with the implementation of a series of upgrading and consolidation programs had effectively promoted operation stability and enhanced operation efficiency. Despite the undesirable impact from the general market environment in the first half of 2011, this division maintained its vigorous business activities, which brought positive contribution to the performance of the Group.
Notwithstanding the current unfavourable market condition, the Group believes in the competitiveness of its key customer, SGMW, as supported by the success of its existing products and the launch of new car models, which will continue to provide strong support to the operation of the Group’s automotive components and accessories division in the second half of 2011. The Group will implement its capacity expansion and business diversification programs in a cautious manner so as to strengthen its competitiveness in the PRC automobile industry.
Specialized Vehicles – Liuzhou Wuling Specialized Vehicles Manufacturing Company Limited (“Wuling Specialized Vehicles”)
Turnover (based on external sales) of the specialized vehicles division was approximately RMB719.3 million, representing a slight decrease of 8.9 % as compared to the corresponding period last year. Operating profit for the respective period was approximately RMB13.60 million, representing a decrease of 13.8% as compared to the corresponding period last year, which was attributable to the stagnant market sentiment and the cessation of the government subsidy programs. The Group sold a total of approximately 19,000 specialized vehicles during the Reporting Period. Its main products comprised mainly multi-purpose mini-vans, redecorated vans and mini-container wagons, etc.
Nevertheless, the specialized vehicles division continued to launch new models in expanding its product range over the period which included the introduction and promotion of various new energy electrical vehicles.
The Group is prudent on the business outlook of the specialized vehicles division for the second half of 2011 and the year ahead. However, the Group remains confident in the long term growth potential of this business division. Benefiting from an effective cost control program in production and management, the Group will take a proactive stance to consolidate its existing business while exploring opportunities to boost the growth of this business division in both domestic and overseas markets, thereby enhancing its profitability and contribution to the Group.
Trading and Supply Services – Liuzhou Wuling Motors Industrial Company Limited (“Wuling Industrial”)
Turnover (based on external sales) of the trading and supply services division for the six months ended 30 June 2011 was approximately RMB2,348 million, representing a decrease of 27.8% compared to the corresponding period last year. Inter-segment sales which was primarily contributed by the sales to Wuling United and Wuling Specialized Vehicles was approximately RMB651.2 million. Operating profit for the respective period was RMB9.67 million. This division’s results was affected by an increase in expenses due to the implementation of expansion and consolidation programmes, such as the establishment of an integrated technical centre and a sales office, as well as the recruitment of quality technical and management team, which aimed to boost business growth and enhancing operational efficiency. However, the trading and supply services undertaken by Wuling Industrial continued to provide a steady cash flow to the Group.
Interim Dividend
Considering the business and financial performance of the Group, the Board has declared the payment of an interim dividend of HK1 cent (equivalent to approximately RMB0.83 cent) per ordinary share for the six months ended 30 June 2011. This is the first dividend declared by the Group since its transformation to the automobile sector.
The Board believes that having a clear and stable dividend policy is an important strategy for a listed company. The Group will establish its dividend policy by the end of this year.
Strategies for Future Growth
The Group is optimistic about the long-term growth of the PRC automobile industry and believes that challenges and opportunities always coexist in businesses. To respond to challenges and opportunities in the automobile industry, the Group has formulated a series of effective strategies:
- Technical re-engineering: Implementing specialized programs for the Group’s engines and parts division through establishment of new production plant for the parts of the engine’s cylinder, which not only serves as a vertical integration process for existing products, but can also better serve the needs of its customers including SGMW.
- Business expansion: Aims to establish cooperation with other car manufacturers in the PRC so as to facilitate the growth and diversification of the Group’s business.
- Capacity expansion: Expanding production capacity of the Group’s automotive components and specialized vehicles divisions through the acquisition and expansion of production facilities in Qingdao last year, and also the investment in industrial lands in Liuzhou, which aims to increase productivity and capacity in response to increasing demands from both existing and new customers
- Emphasis on technological research and innovation: Strengthening new product development with market-oriented approaches. The Group will develop various new models of specialized vehicles for its expansion in both domestic and overseas markets, which aims to increase its overall profitability.
- Enhancement of operational efficiency: Improving and upgrading operating systems to achieve better efficiency and cost control, which will strengthen the Group’s relationship with its customers and its competitiveness in the industry.
Outlook
Looking ahead, Mr. Sun Shaoli said, “The Group remains optimistic on the business outlook. Despite the challenging business environment as anticipated for the second half of 2011 resulting from the cessation of certain stimulus programs for vehicles consumption and the inflationary pressures in the Chinese economy, the Group firmly believes that China will maintain its position as the world’s largest automobile market and expects that the PRC economy will continue to achieve impressive growth in the coming years. With well-defined strategies and expansion plans, management is confident that we will continue to enjoy remarkable long-term growth in the PRC automobile industry. Backed by the continuous support of Liuzhou Wuling, our controlling shareholder and business partner, as well as our customers, we are very optimistic about the Group’s prospects and believe that the Group will achieve better results and returns for its shareholders in the future.”