‘TS Shampoo’ TS Trillion Accelerates Deterioration Due to Increasing Debt... Son Heung-min Also Ends Contract②[Listed Companies at a Crossroads]

[Asia Economy Reporter Jang Hyowon] TS Trillion, the seller of ‘TS Shampoo,’ announced that it will increase its short-term borrowings. Despite having debt exceeding seven times its equity capital as of the first quarter of this year, the company plans to further increase its debt. At the same time, it appears to be reducing expenses by ending its model contract with soccer player Son Heung-min.

According to the Financial Supervisory Service’s electronic disclosure on the 25th, TS Trillion announced the day before that it decided to increase short-term borrowings by 2.5 billion KRW. This amount is about 16.8% of its equity capital of 14.9 billion KRW. The short-term borrowings are loans from financial institutions, increasing from 20.4 billion KRW before borrowing to 22.9 billion KRW after borrowing.

The company stated the purpose of the borrowing as “securing liquidity funds due to rising prices of raw materials and others.” As of the end of the first quarter, TS Trillion’s cash and cash equivalents stood at approximately 470 million KRW. It is presumed that securing cash for company operations was necessary.

This increase in borrowings is expected to further worsen TS Trillion’s financial structure. As of the end of the first quarter, TS Trillion’s consolidated total assets were 68.7 billion KRW, and total liabilities were 60.9 billion KRW. If the increased borrowings are simple liquidity funds rather than refinancing funds, total liabilities will rise to 63.4 billion KRW.

In this case, the debt ratio is also analyzed to have exceeded 800%. As of the end of the first quarter, TS Trillion’s debt ratio was 779.4%. Adding the increased borrowings, it is calculated to be 811.4%. Until the end of last year, the debt ratio was around 340%, but it surged to more than double in just about six months.

The rapid increase in the debt ratio is due to continuous deficits eroding equity while debt keeps increasing. Before TS Trillion’s listing at the end of 2020, the debt ratio was only in the 100% range.

However, in the first year after listing, last year, the company recorded an operating loss of 7.6 billion KRW, marking a large-scale deficit. This was because sales dropped by about 20%, while the cost of goods sold increased and selling and administrative expenses barely decreased. Selling and administrative expenses accounted for more than half of sales.

Accordingly, total liabilities also surged from 20.6 billion KRW in 2020 to 50.6 billion KRW last year. In particular, short-term borrowings increased from 4.8 billion KRW to 20.2 billion KRW, increasing repayment burdens. Short-term borrowings are loans that must be repaid within one year.

As debt continues to increase, interest expenses are also becoming a burden. In the first quarter of this year, TS Trillion spent 500 million KRW on interest expenses, a 378.6% increase compared to the previous quarter. This amount is about one-third of the total interest expenses for last year, spent in just one quarter. Interest expenses also increased by 270% compared to the previous year last year.

With market interest rates continuing to rise recently, there are concerns that the burden of interest expenses may increase further. In fact, Jang Ki-young, CEO of TS Trillion, had the interest rate on a 1 billion KRW loan secured by his 3,802,282 shares changed from 4.5% to 4.7% at the end of last month.

As the financial structure deteriorates, the model contract with soccer player Son Heung-min was also terminated last month. TS Trillion had employed Son Heung-min and G-Dragon as models for TS Shampoo, and singer Hyeri as a mask model. The company spent 10.9 billion KRW on advertising and promotion expenses last year alone, using more than 20% of total sales on advertising. It has already spent 3.9 billion KRW on advertising in the first quarter of this year.

The company did not respond to inquiries regarding this matter.