HONG KONG: First Tractor Company Ltd, a mainland-based agricultural machinery manufacturer, saw accelerated revenue growth in the first quarter this year, thanks to the central government's strong policy support for the agricultural sector.

Chief Financial Officer Dong Jian-hong said total sales in the first quarter grew 25 percent and growth in the second quarter will likely be in the 20 percent range, supported by strong orders for agricultural machinery.

He fielded questions from the media during a press briefing yesterday in Hong Kong after the company's announcement of its annual results on Monday.

He said First Tractor expects to achieve a "significant" improvement in its profit margin this year after deterioration last year as raw material costs are declining.

The tractor maker reported a 62.3 percent fall in its net profit for 2008 to 68.5 million yuan from 181.8 million yuan in the previous year, due mainly to higher raw material costs and smaller investment gains during the period.

Net profit for the year amounted to 68.5 million yuan, down from 181.8 million yuan in 2007 while earning per share was 0.081 yuan, down from 0.2282 yuan despite an 11.7 percent growth in revenue to 7.9 billion yuan.

Raw material cost increased over 30 percent in 2008, Dong said.

Excluding investment gains, underlying profit actually declined 38.8 percent year-on-year, the company said.

Higher material costs last year took its toll on gross profit margin, which dropped 1.5 percentage points to 10.4 percent in 2008.

However, the company is confident that gross profit margin will improve this year.

"Gross profit margin for this year will likely improve significantly from that of last year as raw material costs are declining," Dong said.

She said gross profit margin could at least recover to the 2007 level, although she stopped short of predicting an actual figure.

Meanwhile, the company also expects faster growth in sales this year, banking on Beijing's strong policy support for the agricultural sector.

Sales in the first quarter this year grew 25 percent year-on-year while sales growth in the second quarter is likely to remain strong at around 20 percent, mainly supported by strong orders for agricultural machinery.

Last year, turnover in agricultural machinery business, which accounted for 70 percent of total revenue, amounted to 5.6 billion yuan, up 14.4 percent from the previous year while operating profit stood at 83.2 million yuan, down 26.4 percent.

Meanwhile, revenue from its construction machinery unit, which accounted for nearly 20 percent of total revenue, rose 1.5 percent to 1.5 billion yuan. However, the unit remained in the red, with an operating loss of 83.2 million yuan, up from 69.7 million yuan loss in 2007.

Liu Wen-ying, executive director of First Tractor, said the company could restructure its construction machinery business in the future, with an aim of disposing some unprofitable business while focusing on products that enjoy a competitive edge.

"We expect to have big moves next year," he said, referring to potential restructuring in its construction machinery operation.

Executive director Yan Lin-jiao said at the same press briefing that loss from this unit could fall this year, helped by declining raw material costs.

Turnover from the engine machinery business, which accounted for nearly 10 percent of total revenue, was 777.2 million yuan, up 13.5 percent while operating profit amounted to 91.9 million yuan, up 2.9 percent.

(HK Edition 04/29/2009 page16)