'Native' Golf Brand Volvik, Disclaimer of Opinion Due to COVID-19 Impact

[Asia Economy Reporter Hyungsoo Park] Domestic golf ball manufacturer Volvik failed to receive an audit opinion as its export routes were blocked due to the impact of COVID-19.

According to the Financial Supervisory Service's electronic disclosure system on the 24th, Volvik, a KONEX-listed company, submitted an audit report to the Korea Exchange in which Anjin Accounting Corporation refused to provide an audit opinion for the 2020 fiscal year.

Anjin Accounting Corporation explained that as of the end of 2020, Volvik had current assets of KRW 49,391 million and current liabilities of KRW 50,041 million, with current liabilities exceeding current assets. They judged that there exists a significant uncertainty that raises substantial doubt about the company's ability to continue as a going concern. The continuation as a going concern depends on financial improvement through increased sales and securing liquidity.

Volvik recorded sales of KRW 37,817 million, operating loss of KRW 2,057 million, and net loss of KRW 3,265 million last year. Sales decreased by about 11% compared to the previous year. The scale of operating loss and net loss decreased compared to the previous year. Volvik, which holds the second highest market share in the domestic golf ball market after Titleist, was hit hard by the COVID-19 pandemic last year. Exports were sluggish as COVID-19 rapidly spread in major export countries such as the United States and Europe. Border closures and movement restrictions in major countries caused disruptions. Exports to the U.S. decreased from KRW 8.3 billion in 2019 to KRW 3.9 billion. Total overseas sales were KRW 6.4 billion, down 43.6% from the previous year.

Despite the decrease in sales, the reduction in losses was due to cost control. Advertising expenses were reduced from KRW 7.7 billion in 2019 to KRW 3.5 billion. Selling, general and administrative expenses decreased from KRW 20.7 billion to KRW 15.1 billion by cutting sales promotion expenses, entertainment expenses, travel expenses, and overseas market development costs.

Volvik is known as a major spender in the golf equipment industry. Marketing and sponsorship costs are relatively high compared to sales volume. Volvik sponsors about 200 junior and professional golf players. Since 2010, it has continuously sponsored the U.S. Ladies Professional Golf Association (LPGA) Tour.

Volvik, which completed its second factory in Eumseong, Chungbuk in 2019, was more confident than ever about growth in 2020. As the popularity of colored golf balls increased and orders grew, it made large-scale expansion investments. Golf ball production capacity increased by 50%, from 2 million dozen to 3 million dozen annually. Although the expansion effect was expected, COVID-19 spread worldwide and sales rather decreased.

To find a breakthrough, Volvik started producing masks. Utilizing spare space in its first factory in Eumseong, Chungbuk, it installed mask production facilities and began full-scale production in July last year. Leveraging the Volvik brand awareness and overseas sales network, it actively pursued exports, but sales have not increased as rapidly as expected.

Volvik also expanded its product range to golf clubs and badminton equipment. It plans to lead external growth by entering the golf club market, which has a higher average selling price and a larger market than golf balls. It launched high-rebound drivers, woods, and utilities. Volvik also plans to target the badminton market with colored shuttlecocks, just as it sparked a color ball craze in the golf market. However, the delay in new product launches did not significantly affect last year's performance.

The Korea Exchange announced that if Volvik does not submit a confirmation letter from the same auditor regarding the resolution of the reasons by the 14th of next month, it will be subject to delisting under the KONEX market listing regulations.