Paint companies struggling due to the downturn in the construction industry are liquidating their overseas subsidiaries. With domestic construction sites halted and small and medium-sized construction firms facing a wave of closures, they are reorganizing overseas operations that have failed to generate revenue.
Paint companies are striving to reduce their reliance on construction, but establishing new revenue models is a slow process.
According to reports from ChosunBiz on the 19th, A General Construction based in Ulsan recently received a court decision to dissolve its bankruptcy. Initially, the court had declared bankruptcy for A General Construction, but due to its low assets, it could not bear the expenses required to proceed with bankruptcy proceedings and decided to terminate the process. With the dissolution of the bankruptcy proceedings, repayment of debts has also been halted.
It is not just an issue for A General Construction. Mid-sized construction firms such as Shin Dong-A Construction and SAMBU Construction, along with small construction companies operating in various regions, are collapsing. As of last month, the number of reported closures among general construction companies was 376, an increase of 39 cases (11.6%) from the same period last year (337 cases). This translates to three companies shutting down each day.
The crisis facing small and mid-sized construction firms is directly impacting the paint industry. The domestic paint industry relies on construction projects for 50-70% of its revenue.
KCC reported second-quarter revenue of 1.07 trillion won and an operating profit of 140.4 billion won, representing declines of 4.1% and 0.1%, respectively, compared to the same period last year.
Samhwa Paints recorded an operating profit of 8.1 billion won for the second quarter this year, a decrease of 34.5% compared to the same period last year.
Noroo Paint & Coatings also reported second-quarter consolidated revenue of 224.4 billion won and an operating profit of 14 billion won, marking declines of 2.3% and 24.6%, respectively, from the same period last year.
As performance continues to decline year after year, paint companies are even liquidating local subsidiaries that they had used as footholds for overseas expansion. Noroo Paint & Coatings liquidated its Noroo Milan Design Studio, which was established to participate in an exhibition in Milan, Italy, back in February.
This subsidiary, established under the leadership of Han Won-seok, the vice president of Noroo Paint & Coatings, in 2018, participated in the "Hongcheol Wonderland" exhibition at the "2024 Milan Design Week" last year. However, the subsidiary has never turned a profit since its inception, and with poor domestic performance, the decision was ultimately made to withdraw from the local market.
Samhwa Paints also completed its liquidation process after reclaiming its capital in the first half of this year. The firm had established a subsidiary in South India with the goal of actively entering the overseas automotive coatings market in 2019.
The city where the subsidiary was established, Chennai, is located in Tamil Nadu, southern India, and has long served as a port hub connecting Europe and Asia. The plan was to sell coatings for automotive interiors and exteriors. However, after incurring losses year after year and failing to establish its business, the company decided to close the subsidiary.
Paint companies are ramping up their diversification strategies to improve performance. Samhwa Paints launched a new automotive repair paint this month. Last year, the company invested resources into the development of advanced materials used in manufacturing processes, such as those for secondary batteries.
Noroo Paint & Coatings also unveiled 13 types of materials for secondary batteries and three types of hydrogen energy materials last year. These products attracted attention for their functionality in reducing the risk of battery fires. In the first quarter of this year, the company invested 4.7 billion won in research and development, focusing on establishing new revenue models.
The sluggish overseas business and the deterioration of domestic performance are intensifying competition within the industry. Recently, KCC secured more than 7% equity in its competitor Noroo Holdings. Noroo Holdings is a holding company that oversees core affiliates such as Noroo Paint & Coatings and Noroo Auto Coating. While KCC explained its purchase as being for "general investment purposes," the industry's perspective differs.
An industry official analyzed that "with the revision of the Commercial Act allowing shareholders of listed companies to participate in the appointment of audit committee members if they hold more than 3% equity, there is a movement to secure a channel for influencing corporate operations through the appointment of audit committee members rather than mere investment."
He added, "Although the new projects of each company have not yet yielded results, the reliance on construction projects, which accounts for more than half of existing revenue, is significant, and there remains a need to continuously challenge themselves given the limited new product markets."