Geely Reports Cost Reductions Drove Profit Higher Ahead of Volvo Takeover

Geely Automobile Holdings Ltd., the Chinese automaker whose parent company is buying Volvo Cars from Ford Motor Co., said profit rose on higher car demand and on increased stakes in its operating units.

Net income for the year ended Dec. 31 rose to 1.18 billion yuan ($173 million), or 0.17 yuan a share, from 879 million yuan, or 0.14 yuan, a year earlier, Geely said in a Hong Kong Stock Exchange statement today. Sales more than tripled to 14.1 billion yuan from 4.29 billion yuan.

The carmaker boosted vehicle sales 48 percent last year as China’s government introduced subsidies for small cars, helping the nation’s auto demand surpass the U.S. for the first time. Cost controls may buffer Geely’s earnings against the impact of slower sales growth this year, said Vivien Chan, an analyst at SinoPac Securities Asia Ltd. in Hong Kong.

“Automakers need to focus on cost control and introduction of new models to preserve margins this year, with demand growing more slowly,” Chan said. “Cost control is Geely’s forte.”

Geely got government approval to take over five of its operating units in July 2008, and 2009 was the first full earnings year reflecting the expanded business.

Zhejiang Geely Holding Co. agreed to pay $1.8 billion for Volvo Cars on March 29, marking the biggest overseas acquisition by a Chinese automaker, after Ford abandoned attempts to make a profit from selling European premium-brand vehicles.

Volvo Investment

The Geely group plans to invest $900 million in the unprofitable Swedish automaker as it works on a turnaround, the Chinese carmaker said last month. Geely is seeking to boost profit by offering more expensive models at home and selling 50 percent of its cars overseas by 2015.

Chairman Li Shufu said March 30 that Geely has raised about $2.7 billion to fund the Volvo purchase and operations, half of it from overseas. Geely aims to complete the acquisition in the third quarter.

The company is also considering whether to take control of Magnanese Bronze Holdings Plc, the maker of London’s black cabs, Lawrence Ang, a Hong Kong-based executive director of Geely, said last month. Geely may increase its stake in the company to 51 percent from 19.9 percent by buying new shares at 70 pence apiece, Mark Fryer, finance director of the Coventry, England- based company, said on March 18.

Manganese, which makes taxis and parts in a Shanghai venture with Geely, will spearhead the Chinese automaker’s plans to sell its own saloon cars in the U.K. and Europe, Fryer said.

Volvo plans to produce 390,000 cars this year, compared with 330,000 in 2009, according to CEO Stephen Odell. The unit’s pretax loss narrowed to $934 million last year from $1.7 billion in 2008, Ford said on Jan. 28. Volvo’s last annual pretax profit was $377 million in 2005.

For Related News and Information: Top transport news: TRNT <GO> China auto news: TNI CHINA AUT <GO> China auto sales: CNVSPSGR <Index> HCP M <GO>

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