Annual Report 2007 - Hmdatalink.com hm datalink

Management Discussion and AnalysisBudgeted capital expenditures of the Group’soperating associates amount to about RMB1 billionin 2008, including the funding for the research anddevelopment of new vehicle models, new enginesand gearboxes, the expansion of Ningbo plant andLinhai plant, the construction of Linhai engine plant,and the upgrading of Phase 1 of Shanghai plantfor the production of taxi vehicles by Shanghai LTI.The Group plans to fund the capital expenditureswith the operational cashflow from the operatingassociates and bank borrowings.Automobile parts manufacturing –Zhejiang Fulin Guorun AutomobileParts & Components Co. Ltd.Zhejiang Fulin is principally engaged in themanufacturing and sales of brake system and electricpower steering (“EPS”) for sedans. The majority ofthe Zhejiang Fulin’s sales go to the Group’s operatingassociates, which source brake system and EPS fromZhejiang Fulin to be used on their lower-end models.Zhejiang Fulin recorded a 8% growth in revenuesto HK$137 million in 2007 helped by increasedsales of both brake system and EPS to the Group’soperating associates. In particular, the electric powersteering specifically designed for the “Free Cruiser”models experienced significant increase in demandhelped by the strong growth in the sales of “FreeCruiser”. Profit margin, however, was affected byrising prices of key raw materials like pig iron. As aresult, Zhejiang Fulin’s net profit was onlymaintained at previous year’s level atHK$12 million.In order to alleviate the impact on rising raw materialprices, which have a more severe impact on low-endproducts like the brake system than EPS, ZhejiangFulin plans to further expand the sales of EPS bylaunching a new generation of EPS designed for the“Geely Kingkong” models in 2008. Zhejiang Fulinalso plans to start the production of other higher-endproducts like Burst Monitoring and Braking System(“BMBS”) in 2008, hoping to further improve itsprofitability. To support the development of thesenew products and to prepare for the subsequentinvestment in new production facilities for thesenew products, the Group decided to expand theregistered capital of Zhejiang Fulin from RMB20million to RMB120 million by injecting RMB100million of new capital into Zhejiang Fulin at the endof 2007. The Board believes that Zhejiang Fulin willbe in a much better position to grow with a biggercapital base and the new products in the pipeline.GEELY AUTOMOBILE HOLDINGS LIMITED16ANNUAL REPORT 2 0 0 7