Kumho Reports 2Q Sales of £241 million

Kumho’s second quarter sales amounted to 429 billion won (£241.094 million), lower than the 469 billion won figure that was widely expected. At the same time operating profit of 14 billion won (£7.868 million) was said to be similarly disappointing compared with market estimates of 40 billion won. Operating profit fell by 70.5 per cent year-on-year and 45.2 per cent quarter-on-quarter.

Explanations for the poor performance can be found in the global distribution of Kumho’s sales. The stagnant US market accounts for 23 per cent of Kumho’s global unit sales. And as many distribution companies are aiming to de-stock, replacement tyre sales have fallen 4.6 per cent year-on-year in the first half of 2006 following a 2.3 per cent increase year-on-year in 2005. In addition the value of Kumho’s sales was hit by the depreciation of the Korean won against the US dollar.

According to the company, around 40 per cent of Kumho’s US sales are of UHP tyres, which have been under price pressure since 2005. On top of this raw material costs are reported to have increased 25 per cent.

Of course these negative factors have been affecting all tyre manufacturers recently, but there are company specific reasons for the performance decline as well. According to a Deutsche Bank report on the subject, Kumho makes merchandizing profits from tyres made by its Chinese subsidiaries. However, the volume from the Chinese plant fell 25.9 per cent quarter-on-quarter in the second quarter as the Chinese plant had to meet the rising demand in its local market.