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Announcement:

Moody's comments on Lotte Shopping's Q3 results

Global Credit Research - 24 Nov 2011

Hong Kong, November 24, 2011 -- Moody's Investors Service says that Lotte Shopping Co Ltd's weak operating performance for 3Q 2011 will have no immediate impact on the company's A3 rating and stable outlook.

Lotte Shopping's ex-finance operating income declined by 2.5% YoY in 3Q 2011, mainly due to a weak performance in the department store business, which saw a 7.9% YoY fall in operating income. As a result, its ex-finance operating income during the first nine months of 2011 grew only 6.4%, which was lower than anticipated.

"The weak performance was mainly driven by worsening consumer sentiment and unfavorable weather, as well as increased SG&A expenses. Given that overall macroeconomic conditions are likely to remain lackluster over the near term, earnings growth will likely remain moderate over the next 12-18 months," says Chris Park, a Moody's Vice President and Senior Credit Officer.

"However, the impact of the weaker profitability on its financial leverage is mitigated by lower-than-expected balance sheet debt, in turn, a consequence of smaller capex. As a result, the immediate impact on its rating is limited," says Park.

Retail sales growth has cooled across major retail formats in Korea over recent few quarters, in parallel with moderating economic growth. YoY sales growth in the department store industry slowed to 6.5% in September 2011 from a peak of 15.1% in April, and for hypermarket, it fell to negative 1.1% from 4.6%. The challenging environment, which is expected to persist over the near to medium term, should constrain Lotte Shopping's ability to grow earnings as planned.

Given that financial headroom at the current A3 rating is likely to become thin, Moody's will closely monitor Lotte Shopping's operating performance over the next 1-2 quarters . The rating would come under pressure if it becomes evident that the company's key financial metrics will breach its downward rating drivers, which include debt/EBITDA above 3-3.3x and retained cash flow/net debt below 25-28%.

At the same time, Moody's sees no material impact on Lotte Shopping's earnings from its recent agreement with the Korean Fair Trade Commission to cut the concession rates it charges to small- and medium-sized enterprise (SME) tenants by three to seven percentage points. But, the regulatory risks confronting local retailers will remain a cause for concern.

The principal methodology used in rating Lotte Shopping was the Global Retail Industry Methodology published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Lotte Shopping is the leading retailer in Korea with the country's largest department store and third largest hypermarket network. It is also engaged in retail/non-retail businesses, including credit cards, internet/TV home shopping channels, cinemas, and premium outlet malls.

Chris Park
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's comments on Lotte Shopping's Q3 results
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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