Eternal Trading Stuck on Bicycle... All-Out Effort to Save Scott

The Missing Person in Youngone Trading's Business Report
Bicycle Subsidiary Scott Posts Operating Profit of 60 Billion Won

Youngone Trading Supports Scott with 70% of Net Profit
Audit Report "Scott's Goodwill and Brand Value Are Key Audit Focus"

Youngone Corporation, which operates the outdoor brand The North Face, was hit hard by the sluggish bicycle market last year. Its subsidiary responsible for the bicycle business, SCOTT, saw its operating profit plummet by more than 60% last year. As the global bicycle market stagnated, the operating value of the Australian subsidiary acquired by SCOTT dropped to '0'. Youngone has been pouring funds to support SCOTT, which suffered liquidity damage, increasing its financial burden.

According to the audit report submitted by Youngone on the 2nd, the sales of its subsidiary SCOTT last year amounted to 1.2424 trillion KRW, down about 150 billion KRW from the previous year (1.3975 trillion KRW). During the same period, operating profit shrank from 176.5 billion KRW to 58.7 billion KRW, about one-third of the previous level.

SCOTT accounts for about 36% of Youngone's sales. As SCOTT delivered a poor performance, Youngone's results also declined. Youngone's sales last year were 3.6043 trillion KRW, and operating profit was 637.1 billion KRW, down 8% and 22% respectively from the previous year. Net profit for the period was 533 billion KRW, a decrease of about 200 billion KRW.

SCOTT is a Swiss bicycle company acquired by Youngone in 2015. Youngone, which grew through OEM apparel manufacturing, acquired this business under the leadership of Chairman Sung Ki-hak to expand into new business areas. About 80% of SCOTT's sales come from the European region.

However, due to the global economic downturn last year, bicycle demand sharply declined, causing SCOTT's performance to plunge. SCOTT thrived during the COVID-19 pandemic when bicycle demand surged but has struggled since last year. The goodwill of 'Shepherd Australia,' acquired by SCOTT in 2015 to expand its Australian business (5.2 billion KRW), was fully impaired. This means that although they paid a premium for the goodwill, the expected performance did not materialize.

SCOTT's deteriorated performance is also affecting Youngone's financial structure. On the 29th of last month, Youngone provided a debt guarantee for SCOTT's loan of 170.9 billion KRW (115 million Swiss francs) from HSBC Bank. This is the first time since 2020 that Youngone has issued a debt guarantee. At the end of last year, Youngone also lent money for the first time in about three years. The loan amount was 230.4 billion KRW, with a maturity date of December 27. Youngone explained this was to secure liquidity and improve its financial structure.

Youngone has injected 400 billion KRW in funds to support SCOTT over the past six months. This amount corresponds to 70% of Youngone's net profit earned last year.

Scott Genius 'LT 30'

Because of this, SCOTT is considered a potential risk factor for Youngone. Last year's audit report highlighted the goodwill and brand value of SCOTT and the companies it owns as key audit matters. Notably, the audit report was submitted a week later than scheduled, reportedly because the financial details related to SCOTT were not sufficiently provided to the accounting firm. Seo Jeong-yeon, a researcher at Shin Young Securities, analyzed, "The inventory adjustment cycle and SCOTT's poor performance are clear burdens."

However, Youngone's liquidity remains solid. Cash and cash equivalents, including short-term financial instruments, increased from 1.0846 trillion KRW in 2022 to 1.4 trillion KRW in 2023. The debt ratio stands at 47.64%. A debt ratio below 50% is considered indicative of a financially sound company.

Meanwhile, at the shareholders' meeting held on the 29th of last month, all five proposals submitted by Youngone were approved: ▲approval of the 2023 financial statements ▲dividend resolution (1,300 KRW per common share) ▲appointment of Chairman Sung Ki-hak, Vice Chairman Sung Rae-eun, and Professor Park Kyung-woo of Seoul National University Hospital as inside directors ▲and an increase in the directors' remuneration limit. The remuneration limit for directors, including Chairman Sung Ki-hak and Vice Chairman Sung Rae-eun, increased from 8 billion KRW (for 10 people) to 10 billion KRW (for 7 people).

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