Guangzhou Automobile Changfeng Obtains

　　Guangzhou Automobile Changfeng (600991) announced that Guangzhou Automobile Group and Changfeng Group would lend no more than 180 million yuan and 150 million yuan respectively to Guangzhou Automobile Changfeng which will obtain more than 330 million yuan of liquidity, according to the 21st Century Business Herald. For the first time a clear financing plan emerges since Guangzhou Automobile took over Changfeng on May 21, 2009.

　　Some reports said that Guangzhou Automobile and Changfeng were eager to inject capitals into Guangzhou Automobile Changfeng since the net profit of Guangzhou Automobile Changfeng in 2009 fell by nearly 80%. It is necessary to inject external "blood" to help Guangzhou Automobile Changfeng "stop the bleeding".

　　According to Guangzhou Automobile Changfeng's annual report released on April 2, the company sold 34,279 vehicle units in 2009, up 27.83% over the previous year. The operating income was 4.879 billion yuan with an increase of 3.62% and the net profit totaled 28.1697 million yuan, down 79.89%. Earnings for per share slid to 0.05 yuan, with a significant drop of 81.48%. The annual vehicle sales of Guangzhou Automobile Changfeng went up, whereas the net profit dropped.

　　Guangzhou Automobile Changfeng pointed out that several factors resulted in a sharp decline of net profit. During the fiscal year the gross margin of products dropped and advertising and transportation costs increased. What's worse, government reduced subsidies. Guangzhou Automobile Changfeng developed a new product named Cheetah CS7 and introduced it to the market. The advertising cost increased by 75.33 million yuan for the promotion of brand and new products. The transportation cost for vehicles went up by 25.24 million yuan due to the expanding sales. The sales of products with higher margin gross dropped, which led to a 4.28% decline for the company's gross profit margin of main business. From 2009 onwards Guangzhou Automobile Changfeng was unable to enjoy the preferential value-added tax policies for third-line enterprises. During the past year the government subsidies for Guangzhou Automobile Changfeng were reduced by 49.29 million yuan.

　　According to the announcement released on April 2, Guangzhou Automobile Changfeng, Motor Co., Ltd. plans to borrow no more than 180 million yuan from Guangzhou Automobile Group Co., Ltd. via bank. The period lasts for six months and the capitals will be mainly used to supply liquidity funds which are necessary for the production and management. In addition, Guangzhou Automobile Changfeng plans to borrow no more than 150 million yuan from Changfeng (Group) Co. with a six-month period. Guangzhou Automobile Changfeng will use the funds to supplement the liquidity capitals used in the company's operation. Guangzhou Automobile Changfeng will meet the funding requirements for the business development and ensure the completion of company's business objectives.

　　The transaction will help Guangzhou Automobile Changfeng meet the funding requirements for the business development and provide financial security for the company's production and operation. In addition, the deal will help the automaker ensure the completion of company's business objectives and reduce financing costs and lower financial cost. Meanwhile, the company's financing system will be expanded, which is consistent with the interest of Guangzhou Automobile Changfeng and all the shareholders.

　　In 2009, Guangzhou Automobile Changfeng sold nearly 34,300 units entire vehicles, up 27.83% compared with the same period of last year. However, there was a sharp drop in net profit for Changfeng, which mainly due to decline of product gross margin during the current period, and shrinking of advertising fees, finished vehicle transportation costs increase and the reduction of government subsidies. In 2010, Guangzhou Automobile Changfeng plans to manufacture and sell 46, 000 units vehicles while pursuing 50,000 units, and make sales revenue reach 5.757 billion yuan. It is estimated that main business cost is 4.414 billion yuan, the main business tax and additional is 476 million yuan, operating cost is 305 million yuan, management cost is 328 million yuan, financial cost is 134 million yuan and total investment in technological transformation and assets is expected to 166 million yuan.

　　Guangzhou Automobile Changfeng has no plan to conduct a cash dividend allocation and capitalizing of common reserves in order to use retained profit as additional working capital temporarily. After the news that Guangzhou Automobile Group’s injection of Guangzhou Automobile Changfeng was revealed, Changfeng stock surged that day, and eventually closed at 10.02 yuan, up 6.26% during that day.(Translator: Qinghua/Hanxin&Wade)

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