Kooksoondang Urgently Needs Profitability Improvement, Buys Back Own Shares

[Asia Economy Reporter Hyungsoo Park] The submission deadline for the audit report of the '2019 fiscal year,' which will determine whether traditional liquor manufacturer Kooksoondang will maintain its listing, is approaching. The Korea Exchange designated Kooksoondang as a management item in March last year after it recorded operating losses for four consecutive years. Even after being designated as a management item, Kooksoondang's performance remained sluggish. If Kooksoondang, which recorded operating losses cumulatively through the third quarter of last year, fails to generate large-scale profits in the fourth quarter and turn to a full-year profit, it may be delisted from the market.

According to the Financial Supervisory Service on the 5th, Kooksoondang recorded an operating loss of 4.08429 billion KRW based on separate financial statements for the cumulative third quarter of last year. The Korea Exchange designated Kooksoondang as a management item in March last year after it submitted the audit report for the '2018 fiscal year.' The KOSDAQ market listing regulations stipulate that if a KOSDAQ-listed company records operating losses for four consecutive years based on separate financial statements, it will be designated as a management item, and if it fails to turn a profit the following year, it will be subject to delisting.

Kooksoondang is a traditional liquor manufacturer producing products such as Gangjang Baekseju, Baekseju, Myeongjak series, Yedam, Kooksoondang Rice Makgeolli, Kooksoondang Raw Makgeolli, and Daebak. Its sales were 68.4 billion KRW in 2016, 60.1 billion KRW in 2017, and 52.7 billion KRW in 2018. It failed to release a new product to replace Baekseju, which gained popularity in the early 2000s and became Kooksoondang's most popular product, resulting in an inability to stop the decline in sales.

As the imported liquor market, including wine and beer, rapidly grew, demand for traditional liquor relatively stagnated. In a situation where turning a profit was urgent, Kooksoondang focused its company-wide capabilities on increasing sales of existing main products and attempted to overcome the crisis by launching new products. However, cumulative sales for the third quarter of last year were 37 billion KRW, about 10% less than 41 billion KRW in the same period the previous year. Although sales decreased, selling and administrative expenses remained at similar levels to the previous year, which increased the deficit. The cumulative operating loss for the third quarter of 2018 was 1.5 billion KRW, but it increased to 4.1 billion KRW for the third quarter of last year.

After being designated as a management item, Kooksoondang steadily repurchased its own shares. On the 15th of last month, Kooksoondang announced that it would acquire treasury stock worth 2.1 billion KRW. Last year, it also acquired 700,000 shares of treasury stock. Its financial structure is solid enough to buy back its own shares annually. Although operating performance was poor, investment performance was not bad. Kooksoondang's net asset size reaches 203.5 billion KRW. As of the end of the third quarter of last year, it held more than 30 billion KRW in cash and cash equivalents.

Some in the investment industry point out that despite considerable assets, efforts to improve profitability may be insufficient. Although Kooksoondang claims to overcome the crisis through new product launches, the scale of research and development expenses has remained stagnant for several years.

This content was produced with the assistance of AI translation services.