China Auto Corporation (CAC) has spent the past few years caught between a rock and a hard place - several hard places, in fact.
Between divesting non-core businesses, suffering currency losses and enduring the aftershocks of a car industry in turmoil, the group’s income statements have been dealt a world of pain.
Late last year, the automotive tooling firm made an announcement warning of increased financial risks of non-payment, a week after carmaker Opel in Germany asked the German government for assistance.
CAC had been especially vulnerable because more than 80 per cent of the group’s tooling business had come from the European automotive sector.
By the time the group released its FY 2008 results in February, the group had suffered a $15.2 million loss against a profit of $1.8 million for the preceding year.
Apart from being hit by the global financial crisis, the group also saw a portion of the red-ink trailing back to its interests in Europe - costs were being billed in yuan, but revenue was booked in euro and when the euro depreciated against the yuan, CAC got clamped between the rock and the hard place.
Between currency risks in Europe and the crumbling of the automobile market in the US, CAC surely found that it had few other places to go.
It is little wonder then that by the time Q2 results rolled around this year, the group had decided to put the brakes on expanding its tooling and injection moulding manufacturing facilities. Instead, it shifted its gaze seawards.
On Monday, CAC announced that it was increasing its stake in Neftech Pte Ltd - a shipping fuel technology company - from 4.9 per cent to 23.9 per cent by issuing 475 million ordinary CAC shares at nine cents apiece to Neftech shareholders. Part of this stake came from CAC’s executive chairman Quek Sim Pin, who had earlier (based on information from CAC’s second-quarter results) acquired a 5 per cent stake in Neftech for $1 million.
Neftech supplies the shipping industry with technology that helps vessels cut fuel consumption and carbon emissions.
While it might be premature to conjecture that CAC might be jumping ship from the automotive tooling industry as it were, it certainly has got one foot in the shipping fuel boat.
From the outset, much of the deal on Monday makes sense. Neftech promises a steady stream of income from its deal with APL - a unit of Neptune Orient Lines (NOL) - and its appointment of Singapore Shipping Corporation to market its equipment to 10 shipping lines.
According to Neftech’s executive chairman, Victor Levin, Neftech is eyeing US$1 billion in annual revenue within five years - certainly not chump change.
But from where CAC stands, though, it is worth asking if this is - as Yogi Berra would say - deja vu all over again.
The shipping industry has proven to be as tumultuous as the car industry in recent times. Last month, NOL reported a record half-year loss of US$391 million and topline revenue for Singapore Shipping Corporation fell 7.3 per cent for the full year ended March 31.
Shifting focus from the automotive to the shipping industry seems akin to jumping from the pan into, well, another pan.
Even if leaner times compel shipping firms to use the cost-reducing products from Neftech, the prospect of a smaller shipping pie overall might be cause for concern.
While it can be argued that the shipping industry is set to recover, the same can be said of the automobile industry. Last year, before it all fell apart for the car companies, CAC had triumphantly announced a 25 million euro (S$51.6 million) deal that would see it supplying air vents to Audi of Germany for their A4 cars.
Despite the gloom shrouding the automobile industry, Audi has since gone on to increase market share in Western Europe and the US. In China, the brand has been making a string of record-breaking monthly sales figures this year.
Whether or not this curtailing of expansion in the tooling sector is premature or even ill-advised remains to be seen. What CAC deems to be its core business in the future also appears unclear, with this focus on fuel shipping technology.
For a cautionary tale on dabbling in areas outside its core business, it need only look at its own books two years ago, when the group divested most of its interests in Acma Engineering & Construction Group Limited. The reason provided then was that ‘the business of AEC is not the core business of the group’.
How well shareholders will take to a move that will add 475 million ordinary shares to CAC’s existing share capital is also up in the air.
It will also have to brace itself for a further dilution in stock price within the next 12 months, if CAC exercises its option to increase its stake in Neftech and issues another 1,225 million ordinary shares.
With the group’s counter closing half a cent lower in trading yesterday, perhaps shareholders remain uncertain about whether CAC’s future will be smooth sailing or a rough ride.
The $ I put in ACMA (or CAC) is one of the most disastrous and foolish investment I have ever made.
The directors / management of CAC (formerly ACMA) are still the same bunch of incompetent buffoons who exposed the ACMA company to extreme business risks and mismanaged shareholder funds and destroyed shareholder value in all kinds of diverse business including operating fast food franchise in Russia and copy-catting Amazon (i.e. ACMA book) etc etc.
They should be ashamed of their disastrous record of poor business risk management and bad strategy and do the decent thing to resign their directorship!
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Smooth sailing or rough ride for CAC?
By JOYCE HOOI
07 October 2009
China Auto Corporation (CAC) has spent the past few years caught between a rock and a hard place - several hard places, in fact.
Between divesting non-core businesses, suffering currency losses and enduring the aftershocks of a car industry in turmoil, the group’s income statements have been dealt a world of pain.
Late last year, the automotive tooling firm made an announcement warning of increased financial risks of non-payment, a week after carmaker Opel in Germany asked the German government for assistance.
CAC had been especially vulnerable because more than 80 per cent of the group’s tooling business had come from the European automotive sector.
By the time the group released its FY 2008 results in February, the group had suffered a $15.2 million loss against a profit of $1.8 million for the preceding year.
Apart from being hit by the global financial crisis, the group also saw a portion of the red-ink trailing back to its interests in Europe - costs were being billed in yuan, but revenue was booked in euro and when the euro depreciated against the yuan, CAC got clamped between the rock and the hard place.
Between currency risks in Europe and the crumbling of the automobile market in the US, CAC surely found that it had few other places to go.
It is little wonder then that by the time Q2 results rolled around this year, the group had decided to put the brakes on expanding its tooling and injection moulding manufacturing facilities. Instead, it shifted its gaze seawards.
On Monday, CAC announced that it was increasing its stake in Neftech Pte Ltd - a shipping fuel technology company - from 4.9 per cent to 23.9 per cent by issuing 475 million ordinary CAC shares at nine cents apiece to Neftech shareholders. Part of this stake came from CAC’s executive chairman Quek Sim Pin, who had earlier (based on information from CAC’s second-quarter results) acquired a 5 per cent stake in Neftech for $1 million.
Neftech supplies the shipping industry with technology that helps vessels cut fuel consumption and carbon emissions.
While it might be premature to conjecture that CAC might be jumping ship from the automotive tooling industry as it were, it certainly has got one foot in the shipping fuel boat.
From the outset, much of the deal on Monday makes sense. Neftech promises a steady stream of income from its deal with APL - a unit of Neptune Orient Lines (NOL) - and its appointment of Singapore Shipping Corporation to market its equipment to 10 shipping lines.
According to Neftech’s executive chairman, Victor Levin, Neftech is eyeing US$1 billion in annual revenue within five years - certainly not chump change.
But from where CAC stands, though, it is worth asking if this is - as Yogi Berra would say - deja vu all over again.
The shipping industry has proven to be as tumultuous as the car industry in recent times. Last month, NOL reported a record half-year loss of US$391 million and topline revenue for Singapore Shipping Corporation fell 7.3 per cent for the full year ended March 31.
Shifting focus from the automotive to the shipping industry seems akin to jumping from the pan into, well, another pan.
Even if leaner times compel shipping firms to use the cost-reducing products from Neftech, the prospect of a smaller shipping pie overall might be cause for concern.
While it can be argued that the shipping industry is set to recover, the same can be said of the automobile industry. Last year, before it all fell apart for the car companies, CAC had triumphantly announced a 25 million euro (S$51.6 million) deal that would see it supplying air vents to Audi of Germany for their A4 cars.
Despite the gloom shrouding the automobile industry, Audi has since gone on to increase market share in Western Europe and the US. In China, the brand has been making a string of record-breaking monthly sales figures this year.
Whether or not this curtailing of expansion in the tooling sector is premature or even ill-advised remains to be seen. What CAC deems to be its core business in the future also appears unclear, with this focus on fuel shipping technology.
For a cautionary tale on dabbling in areas outside its core business, it need only look at its own books two years ago, when the group divested most of its interests in Acma Engineering & Construction Group Limited. The reason provided then was that ‘the business of AEC is not the core business of the group’.
How well shareholders will take to a move that will add 475 million ordinary shares to CAC’s existing share capital is also up in the air.
It will also have to brace itself for a further dilution in stock price within the next 12 months, if CAC exercises its option to increase its stake in Neftech and issues another 1,225 million ordinary shares.
With the group’s counter closing half a cent lower in trading yesterday, perhaps shareholders remain uncertain about whether CAC’s future will be smooth sailing or a rough ride.
The $ I put in ACMA (or CAC) is one of the most disastrous and foolish investment I have ever made.
The directors / management of CAC (formerly ACMA) are still the same bunch of incompetent buffoons who exposed the ACMA company to extreme business risks and mismanaged shareholder funds and destroyed shareholder value in all kinds of diverse business including operating fast food franchise in Russia and copy-catting Amazon (i.e. ACMA book) etc etc.
They should be ashamed of their disastrous record of poor business risk management and bad strategy and do the decent thing to resign their directorship!
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