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Kia Motors turns to Q1 loss on sales, costs

From Automotive News| May 06,2007

SEOUL -- Kia Motors Corp., South Korea's No.2 auto maker, reported a net loss for a third consecutive quarter today, pressured by weaker sales, higher marketing expenses, costlier raw materials and a firmer won.

The 2007 outlook for the affiliate of the country's top carmaker Hyundai Motor Co. has some bright spots with its new Slovakia plant beginning mass production and expected growth in local sales, which carry higher margins.

However, many analysts still expect Kia to face challenges, hit by heavier costs on marketing and raw materials.

"Various costs, including marketing spending, rose and the won was unfavorable," said Song Sang-hoon, an auto analyst at Heungkuk Securities.

"There is a chance Kia may post a net profit from the second quarter thanks to gains on equity valuation, but the overall situation looks difficult."

Kia expects to report a net profit and operating profit in the second quarter as sales are likely to rise, executive vice president Ahn Hee-bong told reporters and analysts.

The company reported a net loss of 30.6 billion won ($33.02 million) in the first quarter ended on March 31, compared to a 38.4 billion won profit a year ago and a 214 million won loss in the previous quarter.

That compared to a consensus forecast for a 1.1 billion won profit in a Reuters poll of eight analysts.

Kia also posted an operating loss of 73.7 billion won, missing a forecast for a 36.5 billion won loss from the Reuters poll. It was the fourth straight quarterly operating loss.

The company reported a 32.2 billion won operating profit a year ago and a 55 billion won loss in the previous quarter.

Kia's recent poor earnings forced investors to be concerned of its cash flow amid heavy spending in overseas expansion.

But officials from Kia and Hyundai have played down such worries. Kia, which has factories in China and Slovakia, is building a $1 billion plant in the United States and adding another one in China.

Ahn said the worries over Kia's cash flow are "excessive" and Kia has enough assets and cash to use in the short term.

Kia has liquidity of about 1 trillion won, a Kia senior official said.

Kia aims to raise sales in Europe by 13.5 percent this year on new models as its Slovakian plant began mass production last December with a capacity of 300,000 units.

However, a strong South Korean won, which rose 4.1 percent against the dollar on average in the first quarter from a year earlier, will keep denting Kia profits as it sells some 80 percent of its vehicles abroad.

On Wednesday, Hyundai posted a fourth straight drop in quarterly operating profit due to weak vehicle sales and a stronger won.

Kia's first-quarter sales fell to 3.85 trillion won, compared to a 4.02 trillion won forecast.

Its sales were 4.39 trillion won a year ago and 5.09 trillion won in the previous quarter.

Kia sold 271,140 vehicles in the first quarter from its local plants, 7.4 percent lower than 292,787 units a year ago.

Kia blamed adjustments in the production line of the Sorento, a sports utility vehicle (SUV), for the fall. It plans to make the HM, its new SUV, for a second-half rollout.

For 2007, Kia is expected to post a net profit of 310.8 billion won, according to a poll of 16 analysts polled by Reuters Estimates, compared to a 39.3 billion won profit last year.

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