Brilliance China Automotive Holdings has reported a return to profitability at the net income level in the first six months of 2010. Assisted by the December 2009 disposal of the loss-making Zhonghua sedan business to Huachen, Brilliance reported H1 2010 net earnings attributable to equity holders of Yuan 509.5m (US$74.8m), a Yuan 895.5m turnaround from the loss of Yuan 386.0m reported in H1 2009.
The company's revenue in the January-June 2010 period was Yuan 5,119.4m, versus a restated Yuan 2,775.5m in the same period of 2009, an 84.4% increase. This increase in revenue was primarily due to an increase in unit sales of Shenyang Automotive's minibuses during the period, as well as component sales to Huachen which have been accounted for as part of the group's revenue starting 1 January 2010 following the Zhonghua disposal.
Shenyang Automotive sold 48,688 minibuses in the first half of 2010, representing a 35.7% increase from the 35,873 units sold during the same period in 2009. Of the 2010 total sold, 39,152 were mid-price minibuses, representing a 30.9% increase from 29,914 units sold during the first six months of 2009. Unit sales of what are described as deluxe minibuses increased by 60.0%, from 5,959 units in the first half of 2009 to 9,536 units in the corresponding period in 2010.
The gross profit margin from continuing operations decreased to 11.8% in H1 2010 (Yuan 602.4m) from 14.2% (Yuan 394.4m) in the same period in 2009. The drop in margin was primarily caused by the sale of Zhonghua components to Huachen after the disposal of the Zhonghua sedan business, when such transactions were eliminated upon consolidation previously. The lower margin for these component sales led to a lower overall gross margin for the group in the first half of 2010.
A key driver of improved profitability in H1 2010 came from the group's share of operating results of associates and jointly controlled entities, which increased by 202.4% from Yuan 123.0m in the first half of 2009 to Yuan 371.9m in H1 2010. This was primarily attributable to an increased contribution by BMW Brilliance, the group's 50% indirectly-owned jointly controlled entity, in the first half of 2010.
Net profit contributed to the group by BMW Brilliance increased by 147.1% from Yuan 116.1m in H1 2009 to Yuan 286.9m in H1 2010. The joint venture achieved sales of 32,594 BMWs in H1 2010, an increase of 57.0% as compared to 20,758 BMW in the same period in 2009. The increased net profit contributed to the group in H1 2010 reflected this increase in units sold and the achievement of cost reductions from local suppliers during the period.
Brilliance China's pre-tax profit from continuing operations increased by 280.7% from Yuan 174.5m in H1 2009 to Yuan 664.3m in H1 2010. The net profit attributable to equity holders of the company was Yuan 509.5m in H1 2010, versus a loss of Yuan 386.0m in the same period in 2009.
With regard to the outlook, Brilliance China noted that it expected the minibus business, with its established track record and strong brand recognition, to continue as a stable profit contributor to the group. The company will continue to work on improving product quality while at the same time developing new product variations and new models (such as the new H2L) based on existing platforms. The goal is to increase sales and market share, and reduce costs via further streamlining of the operation. In addition, the group noted it will continue to evaluate operational and strategic alternatives for the minibus business, primarily through teaming up with existing and global strategic partners to strengthen R&D and product development capabilities, so as to maintain competitiveness and the leading position in this market segment.
Regarding BMW Brilliance, the company said that in addition to a major capacity expansion plan which will bring production capability up to 300,000 units in the next few years, it is also reviewing a long range strategic plan to take into account developments in the global markets, and to assess product strategy so as to lay a strong foundation for the joint venture's future development. Current plans include new models and potential exports, domestic production of engines, and local development and production of 'new energy' BMW vehicles.
