Lotte FY17 results: a difficult year

Date : 22 February 2018

South Korean conglomerate, Lotte has released its 2017 annual results. We review how the Group has performed and round-up the latest news and developments.

A challenging year...

Following a new reporting structure (which excludes CVS and Finance which were transferred to holding company in October 2017), Lotte posted a -24.6% decrease in consolidated revenue to KRW18.2 tn, and -30.5% decline in operating profit to KRW530 bn for FY2017. The top-line figures also do not mask the Group's trading performance across its individual lines.

At home, SSSG for department stores and hypermarkets fell -2.8% and -0.7% respectively in 2017. Revenue for the latter declined -12.8% YoY to KRW4.9 tn, but operating profit increased 4.9% to KRW22 bn on a more positive note. Fresh food and processed food categories were the strongest areas of growth. Lotte ended last year with 123 hypermarkets, three more than previous year, and aims to add three more by the end of FY2018. 

Lotte duty free also facing difficulties

Lotte Duty Free, the country's leading duty-free operator, has announced that it will partially pull its business out of Incheon International Airport. Following the THAAD saga, the number of Chinese tourists to Korea nearly halved which led to a sharp fall in sales. Lotte Duty Free has decided to return three of its four licenses, with only the travel retail arm of Lotte Group to maintain its core liquor and tobacco contract.

The stores under the other three licences will remain open for a few more months. The retailer has amounted approx. KRW200 bn in losses from its business since 2016 and projected losses to amount to KRW1.4 tn if it had continued its operations until 2020.

Shin Dong-bin leaves CEO post

Shin Dong-bin, a son of Lotte's founder, has resigned his CEO post at Lotte Holdings, following conviction of bribery and corruption that forced out South Korea’s former President Park Geun-hye from office early last year. He serves a two-and-a half-year jail term, but will remain on the company's board as vice chairman. His Japanese co-CEO, Takayuki Tsukuda, will take charge of the holding company.

Lotte stores remain closed in China

Lotte's ongoing saga in China has been widely covered. Lotte reports 74 hypermarkets saw forced closures and 13 stores voluntarily closed, leaving only 12 stores open. E-Mart has already exited the country, but Lotte has felt the impact more strongly due to its wider presence and network. Revenue from Lotte's hypermarket operations fell -77.6% YoY to KRW255 bn, while SSSG declined -73.8%.

Despite tensions between South Korea and China are beginning to thaw, Lotte has found it difficult to attract potential buyers, after listing its Lotte Mart business for sale in September last year. The retailer still hopes it can complete the sale by end of June this year.

Indonesia and Vietnam more positive

Results for Lotte's overseas hypermarket operations in Indonesia and Vietnam showed signs of promise, with SSSG rising +0.0 and +2.7% respectively. For the two operations combined, revenue fell -0.8% to KRW1.3 tn, but operating profit increased 23.6% to KRW18 bn.

As China continues to offset the performance of the rest of the Group, Lotte will increasingly invest in Indonesia and Vietnam to support and drive growth. The retailer plans to expand its network in Indonesia, targeting four wholesale stores and five retail stores in 2018. It will also look to enhance its online shopping mall, iLotte, launched last October. In Vietnam, Lotte will focus on driving and improving efficiency, with plans to open 12 small-sized stores and one large store in 2018. It will also look to expand B2B exports to neighbouring countries.

The retailer ended 2017 with the same of number of stores as FY2016 in both countries; 44 hypermarkets, two supermarkets and one department store in Indonesia, and 13 hypermarkets and two department stores in Vietnam.

 

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