Soundness, profitability worsen amid economic slump

By Kim Tong-hyung

Weak demand for personal computers derailed Samsung Electronics’ attempts at closing its semiconductor gap with Intel. The financial turmoil also kicked Korean Air and its corporate brethren in the teeth by putting a squeeze on global trade.

The technology and transportation sectors particularly stand out in a dismal 2011 for Korea Inc., which experienced a pullback in growth, profitability and financial stability, a Bank of Korea (BOK) study said Monday.

While large firms, which make up much of the country’s export engine, could at least claim they finished last year in a better way than they started it, they have to be concerned that the pace in exports has been slowing again in recent months on worsening global conditions.

The BOK’s report was based on financial figures of some 1,660 companies it saw as representatives of the country’s main industries.

Collectively, the firms saw their annual growth in revenue drop to 14.1 percent in 2011 from 16.9 percent in the preceding year. Their rate of operating profit in sales declined from 7.4 to 5.4 percent over the span, representing the lowest level since the BOK began keeping related data in 2003.

There was also a visible increase in the number of companies struggling to service debt, said Kim Yeong-han, director of the central bank’s economic statistics division. Nearly 29 percent of the surveyed firms failed to produce operating profits large enough to cover their debt interest payments, rising more than 6 points from 2010’s 22.6 percent.

``It seems that the semiconductor sector and transportation and logistics industry had enough weight to pull the overall business sector down. The semiconductor sector in particular saw revenue decline 4 percent last year. Declining trade volumes and the rise in the prices of raw materials ate into the profits of firms in other sectors,’’ Kim said.

``While it obviously wasn’t a good year for Korean firms, I wouldn’t say it was a bad year, considering the severity of problems like the European sovereign debt crisis.’’

Kim said the bank’s report could be a reliable indicator for the conditions facing large firms, but not small- to medium-sized businesses. While the companies surveyed by the BOK account for a small number among the 400,000 or so firms registered here, they represented more than 45 percent of the entire business revenue in 2010.

Although the bank declined to reveal the names of the companies analyzed in the report, it did reveal that 1,114 were manufactures and the remaining 549 firms were in the services, construction, gas and electricity, fisheries and mining businesses.

The Korean economy expanded 3.6 percent last year, slowing down from a 6.2 percent growth in 2010, with sluggishness in major markets like Europe, North America and China badly exposing the country as a one-trick export pony.

The BOK expects the economy to expand more slowly than anticipated this year, recently cutting its growth forecast from 3.7 to 3.5 percent, citing high fuel prices and weak consumer spending.

The growth in private consumption was forecast at 2.8 percent, down from the previous 3.2 percent prediction. Exports, which account for about half of the economy, are likely to grow 4.8 percent this year, a slower pace than the bank’s December projection of 5 percent.

Official figures have pointed to a sharp decline in the country’s trade surplus during March, confirming that dismal global conditions are hitting exporters in the back of their heads.

The air continues to escape from private consumption as well as consumers finding their spending capabilities crippled by historic levels of personal indebtedness, persistently high inflation and unemployment. At around one quadrillion won, the country’s household debt mountain now matches an entire year’s GDP.

In the manufacturing sector, every area aside of automotives experienced a slip in profitability last year, the BOK said. Korean carmakers like Hyundai and Kia have been successfully exploiting the softened competition during the downturn, with their affordable, fuel-efficient vehicles becoming more attractive to increasingly cost-conscious drivers. The auto industry’s ratio of operating profit to sales was measured at 8.2 percent last year.

Profitability was down across the shipbuilding, machinery, electronics and textiles sectors. Petrochemical makers, however, saw their revenue increase significantly last year as they were able to pass on the higher costs to consumers both in the domestic and export markets in an environment of increasing oil prices. In the non-manufacturing sector, companies in construction, gas and electricity, and services were hit hardest.