GS Group Makes
Its Operation Solid
GS Construction grows strong with its big stride in overseas market
GS Group has made soft landing since its separation from LG Group about a year and half ago with all of its 47 affiliates ranked the 7th in terms of assets in the country, except government-invested and privatized government companies. The group has been making progress in its business without being boisterous, consolidating its operations quietly.
The group's consolidated sales amounted to 23 trillion won with net profit of 1.1 trillion won, showing that it has found the right rack to grow since its parting from LG Group. The group's core business areas are built around oil refining and energy (GS Caltex), retail (GS Homeshopping, GS Retail) and construction (GS Construction).
GS Caltex recorded the sale of 11.5 trillion won in the Jan.-Sept. period last year with operating profit amounting to 605.5 billion won. GS Homeshopping expected to see its sales go down since its name change from LG Homeshopping last year, but its sales expanded and GS Retail, too, expanded its sales by 9 percent, despite the sluggish domestic business trend last year. GS Construction expanded its sales to 4.2 trillion won during the three quarters last year, with its overseas orders registering 593.4 billion won, tops in the industry.
The new business group plunked down some 100 billion won to expand its image including new name plates for 3,400 service stations for oil and gas across the country. GS officials said that the country knows the GS Group due to sustained ads and public relations work. In a survey conducted by the group, 99 percent of consumers around the country knew GS Group.
This doesn't mean that the group is without its problems. The most difficult one is that GS Caltex, a joint venture oil refinery with Caltex Oil of the United States, takes up 80 percent of its total assets, a too heavy dependence on the oil refinery, which is a cash-cow for the group, both a blessing and curse. There is an indication that the oil refining business will enter a sluggish period, and the group is too dependent on the oil refinery.
Woori Securities officials said that there are two ways for the group to go; be independent and solidify its businesses by itself or merge with other strong partners to seek new growth engines. The distribution business has its limits for growth, and the oil refinery may have to seek mergers to disperse its risk burdens. GS affiliates have very good financials free from debts. GS Caltex has very good credit ratings with BBB+ given by Standard and Poor's, the highest among domestic oil refineries.
The business community thinks that the advantage for GS affiliates is that they have low debt ratios and therefore, are very easy to borrow funds to the extent that it would be able to raise 1.5 trillion won in funds easily including its large cash holdings. The market shows a great attention to the group's moves in the M & A market. But GS is very cautious. A GS Holdings official said that the group will be devoted to its business operations in the next two years to build up its business bases and doesn't plan to enter the M & A market to search for new growth engines for the group.
Another GS affiliate whose business has been growing rapidly is GS Construction, which has become strong enough to contest the top ranking position in the industry with Hyundai Construction. Until the third quarter last year, GS Construction was ahead of its rival in overseas construction projects, with its total projects secured overseas totaling 593.4 billion won, up 103 percent from the same period last year. Hyundai saw its overseas projects skid to 514.9 billion won from 1.75 trillion won, down more than half from the same period last year.
GS Construction had its overseas projects account for 14 percent of its total sales, up 3.6 percent from the previous year, while Hyundai's overseas sales fell from 31 percent of its total sales to 17 percent last year. If the trend continued during the rest of the year, GS Construction would have a very good chance to surpass its rival and become the top company in the industry.
GS Construction made a stride in the race to secure overseas construction projects in the Middle East from 2003. An official of the company said the company has been making progress in not only winning orders, but also profit margins from those orders, which improved to 9 percent from 3 to 4 percent of sales. nw

GS Holding Chairman Hur Chang-soo