Strike, strong currency hurt Hyundai

Hyundai Motor, South Korea's largest carmaker, said second-quarter profit fell more than expected as a stronger won eroded the value of overseas sales and a strike curbed output of Avante compacts and other models.

Net income fell 37 per cent to 387.3 billion won ($642 million) in the three months ended June 30, compared with 613.2 billion won a year earlier, Hyundai said yesterday.

Sales rose 0.8 per cent to 7 trillion won.

Hyundai lost 1.3 trillion won of production during the quarter, as the company suffered the second-worst strike in its history. The arrest of chairman Chung Mong Koo in April on bribery and embezzlement charges delayed talks to end the stoppages.

The stronger won also hurt earnings by reducing the repatriated value of the company's exports.

"The worst seems to be over after the company went through strikes and the arrest of its chairman," said Kim Yung Min, at Korea Investment Trust Management in Seoul. "There are expectations that second half earnings will be better."

Hyundai shares rose as much as 2.5 per cent to 79,000 won, the highest intraday price in more than a month. The stock has dropped 20 per cent this year, making it the eighth-worst performer among 50 top companies traded on the key Kospi index.

Kia Motors, a unit of Hyundai, said its profit fell for a second straight quarter because of the stronger won.

The average value of the won against the US dollar was 5.7 per cent higher during the quarter than a year earlier, according to Bloomberg data.

Hyundai's operating profit, or revenue minus the cost of goods sold and administrative expenses, fell 11 per cent to 409.1 billion won. Its operating profit margin was 5.8 per cent, compared with 4.9 per cent in the first quarter.

"Things are starting to look better for Hyundai Motor because its operating profit margins have been improving in recent quarters," said Kang Sang Min, an analyst at Tong Yang Merchant Bank in Seoul, which has a "buy" recommendation on the carmaker's shares. "They've made efforts to increase sales of expensive models and raised vehicle prices."

The drop in profit at Hyundai contrasts with higher profits for Toyota, Nissan and Honda, all of which benefited from a decline in the value of the yen against the US dollar.

Hyundai's South Korean plants resumed operations after it offered workers a raise of 5.1 per cent in base pay. The stoppages, which started on June 26, caused the company to lose production of 93,882 vehicles.

The strike cost Hyundai more than twice the amount it lost in a similar dispute last year.

Chung was arrested on April 28 and imprisoned until June 28, when he was granted bail for health reasons.

Chung, who returned to work on on July 14, is on trial for allegedly misusing 400 billion won of Hyundai money and embezzling 120 billion won to set up a slush fund.

- BLOOMBERG