Kumho Tires Enjoying 2nd Quarter in the Black

Following a less than optimal 2009 Kumho Tires has achieved positive results for the second consecutive quarter of this year. The South Korean manufacturer’s revenue increased 34 per cent year-on-year during the second quarter of 2010 to KRW 628.1 billion (£336.1 million), with operating profit reaching KRW 66.9 billion (£35.8 million) and an operating profit margin of 10.7 per cent. Net profit for the three months to June 30 was KRW 53.9 billion (£28.8 million), contrasting with a loss of KRW 113.2 billion a year earlier.

Since entering into a work-out in January 2010, Kumho Tires returned into the black in the first quarter of the current fiscal year and has maintained its surpluses by recording a double-digit operating profit margin in the most recently completed quarter. The company reports its debt ratio has fallen below 300 per cent, the level before the work-out and an amount it says signals the results of its efforts for successful management normalisation. Kumho states these positive business results can be attributed to revenue growth from the normal operation of its domestic and overseas plants plus high seasonal demands, as well as the reduction of costs resulting from labour management agreements.

During the second quarter Kumho Tires recorded a plant operation rate of about 95 per cent, which it says is the normal level. The Company also recorded domestic sales growth and overseas sales growth of four and seven per cent respectively. Notably, North American tyre sales grew by 51 per cent, driving revenue growth. Kumho says it has also recovered its price competitiveness, which had been a chronic problem, by reducing the cost of sales compared to revenue growth.

Significantly, Kumho Tires says the company’s financial structure has been rapidly stabilised as its borrowings fell through debt-to-equity swap and debt adjustments as part of its efforts to normalise management. The company swapped KRW 380 billion of borrowings for equity, generating a gain on exemption of debt of KRW 58.7 billion. Borrowings fell by 40 per cent year-on-year and 21 per cent quarter-on-quarter in the second quarter, reducing the debt ratio to the above-mentioned 300 per cent.

“The financial structure is rapidly improving, as we have successfully realised the management normalisation plan, and our competitiveness in sales and production is being recovered more quickly than had been expected,” said Kumho Tires’ executive director of Finance Ju-Wan Hong. “We can see the direct effects of our plan to improve competitiveness mainly in salary adjustment and productivity improvement, and we also expect recovery in the domestic market and continuing overseas demand.”