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Q1 sales up, but strong won hits profits

June 14,2007
Korea’s major companies saw their sales rise in the first quarter of the year, but their profitability eroded slightly. A strong won hit income earned overseas in dollars when it was converted back to won, cutting into profits.
According to the Bank of Korea’s survey of 1,506 major listed companies here, including 1,032 manufacturers, average sales rose 7.4 percent from a year earlier, accelerating from 6.9 percent growth in the fourth quarter of last year. Average sales of manufacturers alone also climbed 7.5 percent, far faster than the 6.1 percent growth posted a year earlier.
The surveyed companies’ average operating margin, which shows how much a company makes on each dollar of sales after paying for production and operation costs, inched up to 6.9 percent in the first quarter, from 6.3 percent three months earlier. This means companies earned an average of 69 won (7 cents) out of each 1,000 won of sales they made.
However, the core measure of the firms’ profitability showed a somewhat bleaker picture. The surveyed businesses’ pre-tax net profit margin, pre-tax net profit divided by sales, slid to 7.9 percent for the first three months of this year, down from 8.7 percent a year earlier.
“The pre-tax net profit margin fell because of losses when foreign currency-denominated incomes were converted back to won,” the Bank of Korea said in a statement.
Korean currency gained nearly 9 percent against the U.S. dollar last year, meaning Korean exporters see their foreign-earned incomes shrink when converted back to won. Exports account for nearly two-fifths of the nation’s $887 billion economy.
Shipbuilders like Hyundai Heavy Industries saw both sales and profitability rise as their average pre-tax profit margin surged from 1.4 percent to 9.7 percent due to expanding sales and price hikes. But electronics makers like Samsung Electronics saw profitability fall from 10.1 percent to 5.1 percent, partly because of an industry glut that pushed down prices.


By Jung Ha-won Staff Writer [hawon@joongang.co.kr]



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