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currency strength, weak global demand hit Hyundai’s Q2 profit

Hyundai Kia Motor Cars Headquarters, Seoul, Korea - currency strength, weak global demand hit Hyundai's Q2 profit

Hyundai said its net profit for the second quarter fell the most since the first quarter of last year, as the automaker was hit by the local currency’s sharp gain versus the dollar. The automaker warned that it expects a tough second half as the South Korean won remains strong and global demand growth weakens.

Hyundai reported a 2.24 trillion won ($2.18 billion) net profit for the second quarter on Thursday, down nearly 7 percent from a year earlier.

Higher U.S. discounts offered to entice customers also overshadowed a quarter when vehicle sales in China and at home remained robust, the automaker said.

The fall is the biggest since Hyundai’s net profit slumped 16 percent in the first three months of 2103, squeezed by massive U.S. recalls and labor disputes in South Korea.

“We do not have a positive outlook for the exchange rate in the second half,” Chief Financial Officer Lee Won-hee said in a conference call after the company released its results.

The won’s value jumped by 13 percent against the dollar in the second quarter compared with a year before, its biggest year-on-year climb since the second quarter of 2011. That saps overseas earnings when converted back into the local currency.

Lee said Hyundai will seek to cut costs, boost the portion of high-margin premium cars, and increase local parts sourcing to help reduce currency exposure.

Hyundai’s overseas output helped to cushion currency woes and the company said it will now consider adding further production capacity overseas.

“We plan to expand capacity continuously in markets where there is demand,” Lee said, an effective reversal of previous strategy for Hyundai, which has broadly steered clear of building new factories over the past couple of years.

Lee said he expected global auto demand growth to slow in the second half from the first half because of the phase-out of economic stimulus measures in the United States. Demand in emerging markets except for China will decline, while markets in the United States and Europe will improve, he said.

Another factor cutting into profit was growth in financing packages offered to lure U.S. car buyers. Incentives, soaked up by Hyundai, hit their highest level in more than four years as the automaker offered discounts to reduce an inventory of the aging Sonata sedan ahead of the rollout of the model’s new version, according to Edmunds.com.

“The 2015 Sonatas are just hitting (U.S.) showrooms so we can expect that incentive spending will be curbed,” Edmunds.com analyst Jeremy Acevedo said before the earnings were released.