SEOUL, Jan. 24 (Xinhua) -- South Korea's top automaker Hyundai Motor saw its operating profit fall in the fourth quarter, despite its record global car sales, as stronger won and provisioning for overstated gas mileage in the U.S. worsened profitability.
Consolidated operating profit, which includes profit from affiliates, declined 11.7 percent from a year earlier to 1.83 trillion won (1.71 billion U.S. dollars) in the three months ended Dec. 31, the company said in an e-mailed statement on Thursday. The reading was down 7.3 percent from three months before.
Revenue increased 10.7 percent to 22.72 trillion won on brisk global auto sales that reached a fresh quarterly high of 1,226,847 vehicles. Net income declined 5.5 percent to 1.89 trillion won as the won's ascent against the U.S. dollar and the Japanese yen aggravated profitability in addition to provisions for the fuel economy scandal in the U.S.
"Profitability deteriorated due to about 350 billion won provisioning for overstated gas mileage in the U.S. and the won's appreciation against the dollar," Eric Choi, an analyst at Shinhan Investment Corp. in Seoul, said in a report before the release.
Shares in Hyundai Motor closed at 208,000 won, down 4.59 percent from the previous session.
WON ASCENT
The South Korean won rallied 7.58 percent versus the greenback in 2012, worsening profitability of Hyundai Motor that depends heavily on the overseas market for sales. The local currency surged almost 20 percent to the Japanese yen, igniting fiercer competition with Japanese rivals.
"The weak yen in addition to the strong won weighed on earnings," Hyundai said in the statement. "Overall earnings kept a growth trend last year, but the pace slowed due to the unfavorable currency rate, the still fragile domestic demand and supply disruption from the prolonged wage negotiation with the labor union."
For the whole year of 2012, Hyundai's net income hit the record high of 9.06 trillion won, rising 11.7 percent from the prior year. Operating profit grew 5.1 percent, with revenue increasing 8.6 percent to 84.47 trillion won.
Global auto sales in 2012 reached 4,410,357 units, up 8.6 percent from a year before. Exports and sales of autos manufactured in overseas plants, which account for over 80 percent of the total sales, expanded 8.3 percent last year. Domestic sales reduced 2.2 percent on weak demand for cars amid the economic slump.
FUEL MILEAGE SCANDAL
Hyundai was estimated to set aside provisions of 300 billion to 400 billion won for the fuel efficiency scandal in the U.S., contributing to the worsening of the fourth-quarter profit.
In early November 2012, the U.S. Environmental Protection Agency (EPA) charged Hyundai and its affiliate Kia motors with overstating fuel mileage of around 900,000 vehicles sold in the U. S. during the 2011-2013 model years.
Following the announcement, Hyundai said it planned to compensate the affected customers for the losses. The compensation will be made very year via debit card based on the fuel price, the actual miles driven and an extra 15 percent premium.
"Restoring a loss of credibility in the companies' claims of better fuel economy than their competitors, which we consider a key driver of their improved business performance amid a climate of higher oil prices and a weak global economy, will take some time," Han Sangyun, an analyst at Standard & Poor's in Hong Kong, said in a report after the scandal happened.
TARGETTING CHINA
Hyundai aimed to raise its market share in emerging economies, especially China, in 2013, setting its global auto sales target at 4.66 million, up 5.7 percent from the reading for 2012. "We will seek to expand our presence in China, the only market expected to sustain its growth trend among major markets," Hyundai said.
China beat the United States in 2009 to become the world's largest auto market. Hyundai's auto sales in China were estimated to increase 38 percent in 2012 from a year before, contributing largely to its revenue growth. Sales in Brazil continued to rise from the second half of last year, helped by the operation of a new Brazil plant.
"Despite the won's fast appreciation against the dollar, Hyundai earnings are expected to improve thanks to the ramp-up of a third China plant and a new Brazil plant as well as the low level of inventories," said Suh Sung-moon, an analyst at Korea Investment & Securities in Seoul.
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