Is the Company Running Well?... The North Face Shareholders' Meeting 'Business Report Disappearance Incident'

Youngwon Trading Annual General Meeting on 29th... Audit Report Also Not Submitted
Expected to Approve Increase in Director Compensation Limit
"Concerns Growing Over Subsidiary Scott's Defective Inventory"

Youngone Trading, which operates the outdoor fashion brand 'The North Face,' has been confirmed to have failed to submit its business report and audit report ahead of the regular shareholders' meeting scheduled for the 29th. The holding company, Youngone Trading Holdings, is in the same situation. Youngone Trading shareholders are facing growing anxiety as they approach the shareholders' meeting without having been able to review the company's business performance from last year.

According to the Financial Supervisory Service's electronic disclosure system on the 28th, Youngone Trading announced on the 21st that it would extend the deadline for submitting the business report until the 8th of next month due to a delay in submitting the audit report. The Capital Markets Act sets the deadline for submitting business reports as April 1, but this extension adds five more business days. Youngone Trading explained, "Regarding the audit for the 2023 fiscal year, the external auditor's audit procedures have not been completed because sufficient audit evidence for issuing an audit opinion was not received from overseas subsidiaries."

Accordingly, it is expected that the approval of financial statements and the resolution on dividends will be difficult to process at the company's shareholders' meeting held on the morning of the 29th at Youngone Trading's headquarters in Jung-gu, Seoul. According to the amended Commercial Act of 2021, listed companies must submit audit reports and business reports received from external auditors at least one week before the shareholders' meeting. Youngone Trading's submission deadline was the 22nd.

At this shareholders' meeting, Youngone Trading has put forward agenda items including ▲approval of the 2023 financial statements ▲resolution on dividends (1,300 KRW per common share) ▲appointment of Chairman Sung Gi-hak and Vice Chairman Sung Rae-eun as inside directors, as well as other director appointments and an increase in the director remuneration limit. If the shareholders' meeting is held without the audit report, the meeting will proceed with all agenda items except the financial statements, and once these reports are prepared, an adjourned or reconvened shareholders' meeting must be held.

The Korea Exchange designates companies that miss the business report submission deadline as management targets, and if the report is not submitted within 10 days thereafter, the company becomes subject to delisting.

Because of this, concerns are rising among Youngone Trading shareholders. A delay in submitting the audit report is often interpreted as the company experiencing accounting issues. Typically, companies that delay submitting audit reports have received negative audit opinions such as qualified, adverse, or disclaimer of opinion. Youngone Trading's stock price has fallen more than 8% since the 21st.

The accounting industry also pointed out that the delay in submitting Youngone Trading's audit report is unusual. Samil Accounting Corporation, which has been conducting the external audit for Youngone Trading for over 10 years, is the auditor. An accounting industry official said, "Just as smoke does not come from a chimney without fire, the fact that a major accounting firm has not received sufficient audit evidence indicates there is something wrong with the financial statements."

In the distribution industry, the delay in Youngone Trading's audit is attributed to poor inventory at its overseas subsidiary Scott. Scott is a company focused on the bicycle business, and after the COVID-19 endemic (periodic outbreak of infectious diseases), demand in the bicycle market declined, worsening liquidity and affecting the parent company. According to Youngone Trading's third-quarter report, Scott's inventory assets amount to 1.2 trillion KRW. Its cash flow is also poor, and it is borrowing money from Youngone Trading. Park Hyun-jin, a researcher at Shinhan Investment Corp., said, "Sufficient audit evidence for forming an audit opinion has not been received from the overseas subsidiary," adding, "It is necessary to wait and see until details related to Scott emerge."

Meanwhile, Youngone Trading plans to approve an agenda item at this shareholders' meeting to increase the director remuneration limit from 8 billion KRW (for 10 directors) to 10 billion KRW (for 7 directors).