Korean firms’ profits are up, but sales are generally flat

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Korean firms’ profits are up, but sales are generally flat

Published: 18 May. 2016, 20:45

The revenue of manufacturers in Korea was flat in the first quarter, but profit increased nearly 14 percent year on year.

Analysts say this is a sign that companies successfully cut costs to respond to a tepid economy. But they can’t find growth.

According to consolidated financial statements of 519 manufacturing companies listed on the Kospi released by the Korea Exchange on Tuesday, operating profit in the first three months jumped 13.94 percent year on year to total 30.22 trillion won ($25.38 billion). Net profit rose 19.41 percent to 22.84 trillion won. Operating return on sales also increased 0.9 percentage points to 7.52 percent.

But the revenue of manufacturers, which totaled 401.73 trillion won, was virtually flat compared to a year before, edging up a mere 0.24 percent. If Samsung Electronics, the largest company by market capitalization, was excluded from the list, revenue would have declined 0.48 percent year on year.

Companies have improved profitability through retrenchments of staff, exchange rate benefits and production cost reductions resulting from a fall in international oil prices.

“As Korean companies continue their belt-tightening, they have seen profits grow, while their businesses actually stood still in terms of growth,” a Korea Exchange official said. “There are some positive signs, as several companies saw growth in both revenue and profits.”

The energy, intermediary materials, consumer products and IT sectors showed solid earnings as expected, and refineries, cosmetics and machinery recorded better-than-expected earnings in the first quarter, according to Yuanta Securities.

Financial companies also saw profit gains. The operating profit of 49 financial companies listed on the Kospi soared 28.4 percent year on year in the first quarter, and net profit increased 24 percent. The banking industry saw a whopping 57 percent jump in profit, as performance in the first quarter of 2015 was sluggish.

Companies listed on the nation’s secondary Kosdaq market strengthened in both revenue and operating profit. Sales at 676 companies listed on the tech-heavy stock index - those who end their financial years in December - increased 4.28 percent year on year to 31.76 trillion won, while operating profit grew 2.55 percent to 1.71 trillion won, and net profit grew 1.9 percent to 1.28 trillion won.

BY PARK JIN-SEOK [kim.jeehee@joongang.co.kr]