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Charlotte So

Brilliance China Automotive Holdings, a Shenyang-based car and minibus maker, narrowed its loss less than expected last year after  sales growth fell short of  its target.

Net loss  shrank to 398.4 million yuan or 10.86 fen per share from 649.6 million yuan or 17.71 fen in 2005.

The  carmaker was expected to announce a loss of 3.5 fen per share,  a Thomson Financial survey shows.

Overall revenue rose 92 per cent to 10.5 billion yuan. No dividend was recommended.

Chairman Wu Xiaoan said the company would return to profit this year on continued strong sales growth.

Brilliance,  benefiting  from the country's booming economy sold 3.8 million cars,  a 37 per cent increase.

The management made a similar pledge  of a turnaround last year, but the story was more concrete this year and this time the company could return  to profit, an analyst said.

However, the potential expansion of a venture with BMW would increase the company's financing needs,  Mr Wu said.

He attributed last year's loss to sales of the  self-developed Zhonghua car falling short of the target.

The  firm posted a 592 per cent jump in sales of Zhonghua cars last year to 62,281 units,  short of the break-even volume of above 70,000. Minibus sales rose 10 per cent.

The company said it  would return to profit this year  by increasing overall sales to 210,000 vehicles, of which 25,000  would be for export. They would consist of 90,000  minibuses and 120,000 Zhonghua sedans.

The company made 128,526 vehicles last year, when operating profit for minibuses and  car components increased to 240 million yuan from 151 million yuan.

The Zhonghua  became profitable in the first quarter as sales rose 130 per cent on buoyant overseas demand, Mr Wu said. Minibus sales increased  14.7 per cent  while  turnover  at the BMW joint venture surged 44 per cent.

The company will invest 800 million yuan this year to remove bottlenecks in production. 'Our production capacity is lagging the demand,' Mr Wu said.

Brilliance is also in talks with BMW to build  a new production line. The venture will increase production 30 per cent to 30,000 BMWs this year, reaching the existing line's capacity limit. Mr Wu  would not disclose  details.

The cost of sales could be cut by 800 million yuan by increasing production volume and implementing stringent cost controls, the firm said.

Zhonghua cars incurred an operating loss of 750 million last year,  down from 943 million yuan in 2005. BMW contributed 106.7 million yuan  to operating profit, compared with 32 million yuan previously.

Price cutting amid fierce competition as well as the below-target production  of Zhonghua dragged  the gross margin down to 5.2 per cent from 9.2 per cent in 2005.

Mr Wu said the gross margin  would improve significantly this year as the product mix shifted to cars from minibuses and the proportion of export sales increased.



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