Last updated: July 25, 2013 1:19 pm

Output from new factory in China helps Hyundai Motor

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Hyundai Motor exceeded its revenue target in the second quarter helped by output from its new factory in China, but earnings were pulled down by persistent labour problems at its South Korean operations.

Shares in the company – which together with its affiliate Kia Motors ranks as the world’s fifth-biggest car group by sales – rose 0.45 per cent in Seoul on Thursday after it announced net profit for the period of Won2.5tn. This was a 1 per cent year-on-year fall, but slightly ahead of most analysts’ forecasts.

“Overall there were no surprises,” said Angela Hong, an analyst at Nomura, saying that investors had expected a fall in profit after partial walkouts at Hyundai’s South Korean plants, where it has also moved from three daily shifts to two under union pressure.

Despite this, Hyundai recorded second-quarter revenue of Won23.2tn – a 5.7 per cent annual increase, only slightly below the pace of growth in the first quarter. In January, Hyundai had warned investors to prepare for revenue growth this year of just 4 per cent – the lowest figure for a decade – as a result of economic stress in foreign markets, and the company’s slowing of capacity expansion to focus on quality.

Behind the solid revenue increase lay a varied set of regional performances: Chinese unit retail sales grew 32 per cent year-on-year, but the US figure expanded only marginally, and there was a fall of 9 per cent in the EU.

Sales also fell slightly in South Korea, where long-running labour disputes continue to disrupt operations. Last year, Hyundai’s costliest strike yet meant lost production worth Won1.7tn, and it lost a similar amount from a partial walkout by weekend workers earlier this year.

More recently, Hyundai has come under pressure to give permanent positions to thousands of contract workers employed at its South Korean plants. Its offer to do so for 3,500 of the 6,800 subcontractors has not resolved the argument. On Saturday, 82 people were injured in a three-hour clash between union activists and workers at Hyundai’s factory in Ulsan, the company said.

“The extent of the labour disruption in the third quarter will be key for the earnings,” Ms Hong said. “But it’s pretty difficult to forecast.”

Production losses in South Korea were mitigated by the opening last year of a third factory in China, raising its production capacity in the country from 600,000 to 1m units a year. This helped Hyundai to achieve annual unit retail sales growth of 32 per cent in China, although sales slipped by 3 per cent from the first quarter.

Hyundai’s performance in China was also boosted by market share gains against Japanese rivals, who have suffered the effects of anti-Japanese sentiment driven largely by tensions over islands claimed by both countries.

Nissan Motor, which reported second-quarter results after the market closed on Thursday, said its sales in China slipped by 15 per cent from the same period of last year. The company said it plans to boost growth in its largest market by launching five new models, including the luxury Teana sedan which went on sale in March. It is forecasting sales of 1.25m units in the country in the fiscal year to March 2014, up from 1.18m last year.

“We’re positive about the future [in China], especially from the second quarter onwards. Hopefully things will normalise by the fourth quarter”, said Nissan.

Despite the problems in China, Nissan’s net income rose by an annual 14 per cent to Y82bn ($820m), beating analysts’ estimates of Y75bn. Demand was driven by the US, where aggressive discounts and pent-up demand pushed up unit sales by a fifth from a year earlier.

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