Lotte feels force of recession

South Korea’s largest confectionery company Lotte Confectionery’s stock has been impacted due to delayed profitability recovery with the weak Korean won (KRW) and poor performance of its overseas investments, according to the company’s latest financial report.

In 2008, the company spent 190 billion won (€107m) in cash to acquire Belgian chocolatier Guylian and made other overseas investments. But due to the global recession, the investment failed to bring in the expected return.

The report states, “We expect Lotte Confectionery’s operating performance to improve from the second quarter of 2009 as its material costs burden should lighten going forward with stable raw and complementary materials prices and currency appreciation in relation to the US dollar.”

Among domestic raw materials, sugar is expected to rise 14.1% year on year but wheat flour should drop 6.3%. In the case of imported dairy products, Lotte Confectionery’s biggest raw material, the price is expected to plummet after the summer when won appreciation will be reflected in prices.

Sales should still continue to grow 6-7% in 2009 thanks to product category expansion and a high base of comparison from price rises last year. Weather conditions will be critical as ice cream that made up 30.2% of last year’s sales despite lower volume sales due to a price increase.

The report comes just weeks after Lotte founder Takeo Shigemitsu resigned as president of the company to take up the position as chairman. Lotte has appointed Takayuki Tsukuda, former Royal Hotel chairman, as its new president.

Shigemitsu, 86, had led Lotte for 61 years since its establishment in 1948. The company started out making chewing gum.