Corporate bottom lines undermined

By Kim Tae-gyu

Domestic demand-oriented companies usually post a rise in profits in the spring when people started to open up their wallets for travel and entertainment, but that is not the case this year due to the tragedy of the sunken ferry Sewol.

According to FNGuide, a financial data provider, major companies in such sectors as telecommunications, pharmaceuticals, distribution, beverages and banking are expected to suffer a setback in the three months to June.

Since the Sewol accident took place on April 16, many people have reduced consumption. FNGuide found that 45 out of 86 corporations surveyed cut their earnings projections.

The outstanding example is KT, the country’s No. 1 fixed-line telecom operator and second-largest player in the mobile market. A month earlier, it was supposed to rack up more than 300 billion won in operating profit for the second quarter.

However, the carrier is now likely to remain in the red for the April-June period.

“When the suspension on our business was lifted last month, we originally planned to carry out a big promotion to boost our sales and profits. But we could not because of the Sewol incident,” a KT official said.

The bulk of KT’s revenue comes from the domestic market.

Also hard hit were LG Household & Healthcare, Hotel Shilla, SK Broadband and Chong Kun Dang Pharmaceuticals, which faced double-digit downward adjustments in their earnings guidance.

Most department stores and discount chains also experienced a similar situation.

“Motorists typically buy new vehicles in spring to visit tourist attractions. So we expect healthy sales when the weather gets warm. However, we do not see the spring benefit at all this year,” an official at a Seoul-based showroom said.

In this climate, some analysts are concerned about deflationary pressure on Asia’s No. 4 economy caused by the reduction in domestic consumption.

This prompted the Park Geun-hye administration to hold an emergency meeting of late to opt to frontload expenditure by an additional 7.8 trillion won during the second quarter to underpin the slumping economy.

It also decided to help tourism, transportation and lodging businesses, which are suffering a lack of effective demand after the Sewol catastrophe. The 6,825-ton ferry capsized off Korea’s southwestern coast and more than 300 have been confirmed dead or listed as missing.

The headache for policymakers is that exporters are also struggling as the Korean won has sharply appreciated against the dollar, which has weakened their price competitiveness in world markets.

The won-dollar exchange rate went down by more than 5 percent in less than three weeks to fluctuate in the vicinity of 1,025 won.