Ducks Turned into Swans
Four chemical and defense units acquired by Hanwha Group in 2015 – Hanwha Total Petrochemical, Hanwha General Chemical, Hanwha Techwin and Hanwha Systems – have become the growth engines of the group as they have created a synergy with other affiliates.
According to industry sources on May 31, four chemical and defense units acquired by Hanwha from Samsung for 1.9 trillion won (US$1.7 billion) in May 2015 – Hanwha Total Petrochemical, Hanwha General Chemical, Hanwha Techwin and Hanwha Systems – posted 1.91 trillion won (US$1.71 billion) in net profits last year. Considering the fact that their net profits in 2015 stood at 760.6 billion won (US$679.05 million), Hanwha Group earned 2.67 trillion won (US$2.38 billion) for two years, which was enough to cover the acquisition costs and an additional profit of 770 billion won (US$687.38 million). In particular, the net profits earned by the four companies accounted for 66 percent of 2.91 trillion won (US$2.6 billion) of the total net profits from all affiliates from Hanwha Group, including Hanwha S&C. In short, the four units have emerged as a new cash cow of Hanwha Group.
The four companies were considered an ugly duckling in 2014 before the acquisition as they were non-core affiliates of Samsung Group. Their combined operating profits in 2014 were only 202.3 billion won (US$180.66 million), while their net profits were minus 44.6 billion won (US$39.84 million). This was why many market sources said Hanwha Group was taking Samsung’s non-performing affiliates at that time.
However, Hanwha Group chairman Kim Seung-youn has addressed these concerns with his persevere management. An official from the business industry said, “The petrochemical market conditions are favorable now but many market experts worried whether oil refinery companies and chemical companies can even survive back then. The deal wouldn’t have gone through without Kim’s will to strategically promote chemical and defense businesses.”
In fact, Kim has pursued an aggressive M&A strategy whenever the group was in crisis. He also led the acquisition of Hanwha Chemical, formal Hanyang Chemical, and Hanwha Life Insurance, former Daehan Life Insurance, which are now the core businesses in the group. For photovoltaic power business which is promoted by Group as its new growth engine, Kim established Hanwha Q Cells by acquiring and merging Hanwha SolarOne (Solarfun Power Holdings) and Germany’s Q Cells, the world’s biggest solar photovoltaic cell manufacturer, getting results these days. The move coincides with his management philosophy to get stronger in crisis.
Industry watchers think that Hanwha Group has an opportunity for a leap forward with the four units acquired. This is largely due to the fact that the group successfully diversified its business portfolio ranging from its main chemical and defense businesses to solar power, fintech and retail businesses. Kim also announced its new group vision “Quality Growth 2020” in 2010 and set this year as the period of quantum jump. Hanwha Group fell little short of its goal to post 65 trillion won (US$58.03 billion) in sales and 5 trillion won (US$4.46 billion) in operating profits in 2015, but it turned over 56 trillion won (US$49.98 billion) last year, achieving 90 percent of the goal.