Nashinpyung, Lotte Cultureworks Credit Outlook 'Negative'

"40% Sales Decline Compared to Previous Year if Audience Numbers Drop for 6 Consecutive Months"

[Image source=Yonhap News]

[Asia Economy Reporter Jonggil Lee] NICE Credit Rating downgraded the long-term credit rating outlook of Lotte Cultureworks, which operates Lotte Cinema and Lotte Entertainment, from 'Stable' to 'Negative' on the 28th. This is due to the expectation of poor business performance caused by the impact of the novel coronavirus disease (COVID-19).

Lotte Cultureworks' domestic sales in the first quarter were 92.5 billion KRW, a 50.6% decrease compared to the previous year. Consolidated sales including overseas subsidiaries (including China) also dropped by 51.5% to 103.1 billion KRW. Considering that the spread of COVID-19 accelerated in Korea at the end of February and in Vietnam and Indonesia in mid-March, the contraction in second-quarter sales could further expand. NICE Credit Rating analyzed, "Assuming the decline in audience numbers continues for six months, sales this year are estimated to decrease by about 40% compared to the previous year."

The company showed stable operating profitability until 2018, but the newly consolidated Vietnamese subsidiary recorded a large operating loss (32 billion KRW) last year, significantly worsening operating profitability. Due to the impact of COVID-19, sales have decreased and the burden of fixed costs for theaters (rent, labor costs, management fees) has increased, so a decline in operating profitability is expected in the short to medium term.

NICE Credit Rating predicted, "The consolidation of overseas subsidiaries with inferior financial conditions and operating profitability has lowered overall financial stability, and downward pressure on credit ratings is expected to increase in the future." As of the end of last year, Lotte Cultureworks' consolidated debt ratio was 195.6%, and net debt dependence was 49.8%. If the COVID-19 situation continues for the next six months, the total debt to EBITDA ratio is estimated to deteriorate from 4.0 times at the end of 2019 to over 6.0 times by the end of this year.

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