Wanxiang Qianchao Co., Ltd. FY2007

Business Highlights

Highlights for FY2007

(in million yuan) FY2007 FY2006 Rate of increase (decrease)(%) Factors
Sales 4,232.51 3,581.59 18.2 - Sales increased as a result of the Company changing its business operations by supplying products to OEMs and creating products designed for medium- and luxury-class vehicles.
Operating profit 434.02 298.04 45.6 Profit increased as a result of the following factors:
- The company's making more higher margin products
- The Company's investing more in plants and equipment
Ordinary profit 478.88 306.38 56.3
Net profit 385.18 229.27 68.0

- In recent years, the Company has been working on localizing production and modularizing products to strengthen its OEM business. As a result of the Company starting to supply products from its new plants that were built near major automakers' facilities, sales of chassis products significantly increased. Sales also grew steadily at both the Driveline System Division and Bearing Division, which won OEM agreements from new customers.

Chassis Systems

- In February 2007, the Company's Hainan Branch began supplying front suspension cross member assemblies, a new product, to FAW Haima Motor in limited supply. In order to increase the volume of chassis system parts it supplies to FAW Haima Motor, the Company conducted joint development activities on technology with the automaker and completed a new production line in September 2006. Supply from the new line started on December 4 the same year.

Driveline Systems
- The Company passed on-site inspections by Ford and became a 1st grade supplier of the automaker. The company will supply 3-shaft axles used in Ford's off-road series with 5.6 liter engines. The number of product items the Company provides to Ford has steadily grown since 1999, when it first won a driveshaft contract from the automaker.

- In Jan. 2007, Qianchao Bearing Co., Ltd. has won a three-year contract to supply bearings for all types of heavy-duty vehicles, including trucks and buses, built by Daewoo Motor of Korea. Since August 2004, when the bearing supplier first made contact with the carmaker, it delivered a number of samples to win business. After conducting a 200,000 km durability test, it started supplying its products on a small scale to Daewoo in 2005. Qianchao Bearing supplied the Korean automaker with 10,000 sets of bearings between January and November the next year; then it supplied 20,000 sets in December the same year alone. (From a press release by the company on Jan. 5)

- In January 2007, Qianchao Bearing Co., Ltd. passed the Korea-based Hyundai Motor's supplier qualification screening. After having completed bench tests, its engines are undergoing on-road testing.

- In February 2007, Qianchao Bearing Co., Ltd. passed a supplier qualification screening conducted by SKF's representatives in Germany, Singapore, and China. Some of Qianchao Bearing's products are already included under SKF's procurement network, but because Qianchao Bearing intends to expand its business, it had SKF conduct the screening.

- In February 2007, Qianchao Bearing Co., Ltd. passed ZF Car Chassis Technology's supplier qualification screening and product quality testing, and is thus qualified to supply products to ZF's global operations.

Wheel Hubs
- In July 2007, Zhejiang Wanxiang Jinggong Co., Ltd. started producing wheel hub units with ABS sensors.

- In April 2007, Hubei Wanxiang Auto Parts Co., Ltd. consolidated all of its lines producing brake valves, moving them to its new plant in Jinping Industrial Park, Shishou City. With its lines operating at full capacity, the plant will be able to manufacture 1 million sets of wipers, 1.2 million micro motors, and 1.2 million brake valves a year.

Investment Activities

Capital Investment Projects (as of Dec. 2007)
Project Planned amount of investment (in million yuan) Investment made in 2007 (in million yuan) Actual Spending by 2007 as a percent of planned amount of investment
Constructing additional facility to manufacture constant velocity drive shaft assemblies 1,943.7 216.1 11.1%
Constructing additional facility to manufacture wheel hub units used in passenger vehicles 1,807.8 22.5 1.3%
Constructing additional facility to manufacture precision bearings (annual production volume: 64 million sets) 480.3 19.7 6.2%
Establishing additional facility to manufacture high-performance drive shafts (annual production volume: 600,000 sets) 166.0 11.8 47.6%
Establishing additional facility to make third-generation wheel hubs with ABS sensors 158.3 19.0 134.5%
Constructing new plant in Henan Province 115.4 1.2 11.3%
Constructing additional facility to make universal joints (annual production volume: 20 million sets) and differential assemblies 118.0 6.3 5.6%
Constructing new plant at Zhejiang Wanxiang System Co., Ltd., Liuzhou Factory 10.0 7.4 86.5%
Constructing new plant at Hubei Wanxiang Auto Parts Co., Ltd. 39.8 14.6 109.2%

New projects
- In October 2007, the Company decided to increase its capital by issuing A-class shares. Plans are to spend 1,943.72 million yuan to make drive shaft assemblies with constant velocity joints, and the remaining 1,807.66 million yuan for constructing production facilities at its subsidiary, Zhejiang Wanxiang Jinggong Co., Ltd., to manufacture wheel hub units. If the company is unable to increase enough capital, it will use its existing resources to cover the shortfall to complete these projects.