At around 8:50 a.m. on the 16th, black corporate vehicles with dark tinted windows and light green license plates were arriving one after another at the main gate of the LOTTE Human Resources Development Center in Osan, Gyeonggi Province. Access for outsiders was restricted.
The LOTTE Group began a two-day, one-night second half VCM (formerly the executive meeting) at the LOTTE Human Resources Development Center in Osan, Gyeonggi Province, around 10 a.m. on that day. About 80 people, including Chairman Shin Dong-bin and his son Shin Yu-yeol, head of future growth (vice president), gathered to review the management performance of each subsidiary in the first half of the year and to share management policies for achieving goals in the second half.
The LOTTE subsidiary VCM was held twice a year, in the first and second halves. Traditionally, it was conducted for one day each at the LOTTE World Tower in Songpa District, Seoul. This time, unusually, it was expanded to one night and two days, and the location was changed. Amid rising speculation about a crisis surrounding the LOTTE Group, evaluations suggest that Chairman Shin's serious awareness of the situation is reflected in this decision.
The specific agenda for this VCM has not been disclosed. However, it is customary for the general representatives of institutional sectors such as food, retail, and chemicals to present their sector-specific business strategies during the second half VCM.
In the chemicals sector, discussions are expected to be held regarding the restructuring of LOTTE Chemical, which was once considered the LOTTE Group's 'cash cow.' LOTTE Chemical's accumulated operating losses reached 2.131 trillion won from 2022 to the first quarter of this year. There is a prevailing outlook that it will record losses exceeding 100 billion won in the second quarter of this year.
In the retail sector, strengthening the core competitive power of its subsidiary LOTTE Shopping remains a challenge. LOTTE Mart recorded first-quarter sales of 1.0184 trillion won and operating profits of 6.7 billion won, down 3.4% and 73.5% respectively compared to the same period last year. LOTTE Super also saw its sales and operating profits decrease by 7.2% and 73.3%, respectively. As LOTTE Shopping's struggles continued, Chairman Shin returned as an internal director after five years during the shareholder meeting held in March.
The situation for food sector subsidiaries is similar. LOTTE Chilsung Beverage reported first-quarter sales of 910.3 billion won and operating profits of 25 billion won. These figures reflect a decrease of 2.8% and 31.9%, respectively, compared to the same period last year. LOTTE Wellfood recorded first-quarter sales of 975.1 billion won and operating profits of 16.4 billion won. Although sales increased by 2.5% compared to the same period last year, operating profits decreased by 56.1%, worsening profitability.
Credit rating agencies have collectively downgraded the credit ratings of major subsidiaries of the LOTTE Group in the first half of this year. Korea Ratings recently lowered LOTTE Chemical's corporate credit rating from 'AA (negative)' to 'AA- (stable).' The rating for LOTTE Corporation's unsecured bonds was also lowered from 'AA- (negative)' to 'A+ (stable).'
Korea Credit Ratings also downgraded LOTTE Chemical's unsecured bond credit rating from 'AA (negative)' to 'AA- (stable).' The unsecured bond ratings for LOTTE Corporation, LOTTE Property, and LOTTE Capital were adjusted from 'AA- (negative)' to 'A+ (stable),' while the short-term credit ratings were revised from 'A1' to 'A2+.' LOTTE Rental was also adjusted from 'AA- (negative)' to 'A+ (stable),' with short-term ratings moved from 'A1' to 'A2+.'
Since the liquidity crisis rumors emerged in November of last year, the LOTTE Group has been undertaking rigorous reforms. Non-core assets have been aggressively sold off, and business restructuring has also commenced.
Last year, the LOTTE Group sold 56.2% of its equity in its top-ranked car rental subsidiary, LOTTE Rental, for about 1.6 trillion won, and liquidated LOTTE Healthcare (digital healthcare division), which had once been considered one of the group's four major future growth pillars, after three years.
This year, LOTTE Chemical also sold its stake in a subsidiary in Pakistan for about 97.9 billion won to a local company. Korea Seven, the operator of the convenience store Seven-Eleven, sold its cash machine (ATM) division for about 60 billion won. LOTTE Wellfood also sold a bakery plant in Jeungpyeong, Chungbuk, citing asset efficiency.
Staff reductions aimed at organizational streamlining are also being carried out. At the end of last year, LOTTE replaced 21 CEOs (about 36%) of its group subsidiaries in a regular executive reshuffle and retired 22% of all executives. In particular, the chemicals sector, which had experienced severe performance decline, underwent significant reforms, replacing 10 out of 13 CEOs in its subsidiaries.
In addition, last year, LOTTE ON, LOTTE Duty Free, and Seven-Eleven conducted voluntary retirement programs. LOTTE Wellfood also initiated its first voluntary retirement program in April this year.
Shin Dong-bin, chairman of LOTTE, noted in his New Year's address this year, "The economic situation will be more difficult than ever due to expanding uncertainties and the prolonged downturn of the domestic market" and stressed, "Without innovation, we may face a larger crisis."
In the first half VCM held in January of this year, he said, "We must remember that now is the last opportunity to lead change, and we must turn the crisis into an opportunity for innovation."