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Listed companies’ problem: Turnover high, but profit low
The 2010’s finance reports of listed companies showed that they obtained an impressive turnover growth of trillions of dong, but their profits were modest.
Bao Viet (BVH), one of the last companies to release business results for 2010, has announced that it got a turnover of 1.260 trillion dong, a sharp increase of 33 percent in comparison with 2009. However, the group’s pretax profit was modest at 887 billion dong, increasingly very slightly by one percent over the previous fiscal year.
At the shareholders’ meeting, Hoa Phat’s (HPG) board of management on March 31 reported that the net sales of the group in 2010 reached 14,300 billion dong, an increase of six trillion dong over 2009. However, if considering pretax and post tax profits, the group’s growth rates after 12 months were just 3.6 and 8.3 percent, respectively, much lower than the turnover growth rate of 75 percent.
It was a surprise to many investors that though the net sales of the Refrigeration Engineering Enterprise (REE), one of the veteran listed companies, increased sharply by 600 billion dong (50 percent) over 2009, the pretax profit of the enterprise only reached 467 billion dong, a decrease of nearly 20 billion dong over the previous year.
The trend evident from the 140 finance reports released on both the Hanoi’s and HCM City’s bourses is that while the turnover increased sharply, the profit decreased or did not increase accordingly. Besides BVH, HPG or REE, many other blue-chips like SSI or POM also saw their pretax profit decrease. Meanwhile, NTL’s turnover increased by 38 percent, while the profit increased by only 10 percent.
Explaining the modest profit in 2010, Nguyen Thi Phuc Lam, General Director of Bao Viet Group, said that the insurance sector has special characteristics: insurers have to provision at high proportions, and they cannot get profit in the first phase when they expand the network. However, Lam admitted that one of the most important factors that hindered the group’s ability to make more profit was the increasing input expenses in the context of high inflation. Lam said that this was also a problem that other enterprises faced in 2010.
Agreeing with Lam, Nguyen Thi Mai Thanh, General Director of REE, said that the input expenses, especially the bank loan interest rate increases are burdening enterprises.
“In 2009, enterprises once met a lot of difficulties in the economic downturn. However, in that year, the government’s demand stimulus package with the four percent interest rate subsidy helped the capital costs of enterprises decrease. Meanwhile, the capital costs increased dramatically in 2010, thus posing big difficulties for enterprises,” said Nguyen Bang Tam, Deputy Chair of Listed Enterprises’ Club.
According to Tam, the enterprises with higher ratios of lent capital on equity capital would have to bear bigger influences from the interest rate changes. If the ratio is 1:1 (Enterprises have 50 percent of capital needed and have to borrow the other 50 percent), and enterprises have to borrow money at the interest rate of 20 percent, the capital costs would increase by 10 percent. However, enterprises did not dare to raise sale prices because they feared they might lose customers. “As a result, the profit of enterprises decreased considerably,” Tam said. Tam is now Chair of Binh Thanh Import-Export Company.
Also according to Tam, very few enterprises have the ratio at 1”1. “A lot of enterprises have been relying on bank loans. They only have one dong in capital, while they borrow 4-5 dong from banks. As such, the bigger the sales the enterprises get, the bigger influences they have to bear,” he concluded.
Deputy Chair of Bien Hoa Sugar Company Nguyen Ba Chu also said that under the current conditions, very few enterprises can have a ratio of return on equity (ROE) at 20 percent. “Only the enterprises which can control their capital sources and predict the exact market prices can make a profit,” Chu said.
Tuyet Ngan
vietnamnet
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