[The Curtain Rises on Second-Generation Management] ② FNCO Emerges as Key to F&F Succession... Unconventional Investments Draw Attention

8.4 Billion Won Invested in Cryptocurrency... 5.8 Billion Won Recovered
FNCO: The Lever for F&F Group Succession
Succession Stalled... FNCO's Cosmetics Growth
F&F Bets on China Market: Future Challenges?

FNCO, which has emerged as the key vehicle for succession within fashion company F&F, is drawing attention for its active investment activities. FNCO is a company in which Kim Seungbeom, Executive Director and Head of Digital Division at F&F and the eldest son of F&F Chairman Kim Changsoo, holds an 88.96% stake along with others. Kim Seungbeom also serves as CEO. The fashion industry widely expects that succession will be carried out by transferring Chairman Kim's F&F shares to FNCO, which is owned by Kim Seungbeom.

According to the Financial Supervisory Service's electronic disclosure system on May 8, FNCO disposed of all 67.85 bitcoins and 200.34 ether last year, recording a profit of 4.5 billion won in its financial statements. The acquisition price for the bitcoins was about 4 billion won, or 58.4 million won per bitcoin.

Discovery Expedition, Freshvent Rashguard Collection with cooling fabric featuring Yoonjung Go and Wooseok Byun. Provided by F&F.

8.4 Billion Won Invested in Cryptocurrency... 5.8 Billion Won Recovered

According to FNCO's disclosure based on the GOPAX crypto exchange, the highest price per bitcoin last year was 159 million won, and the lowest was 50.55 million won. Bitcoin entered a bull market ahead of the halving event in April last year, and then surged further after Donald Trump was elected President of the United States. FNCO appears to have sold its bitcoins when the price recovered to its acquisition level.

The company first invested in cryptocurrency in 2021, when bitcoin prices soared due to liquidity released by countries during the COVID-19 pandemic. At that time, it acquired about 8.4 billion won worth of cryptocurrency and disposed of 1.3 billion won worth in the same year. However, as cryptocurrency prices plummeted from the end of 2021 in what became known as the "crypto winter," it recognized an impairment loss of 900 million won that year, and the impairment grew to 3 billion won in 2022. As the crypto market recovered the following year, it reversed 2.8 billion won in impairment losses.

As of the end of last year, FNCO's cryptocurrency holdings included ▲ Ethereum (759.49 coins) ▲ Creditcoin (56,395.19 coins) ▲ Chainlink (8,774.75 coins) ▲ EOS (122,666.09 coins). Among these, Creditcoin and EOS had a cumulative impairment loss of about 940 million won reflected in the accounts.

FNCO: The Lever for F&F Group Succession

FNCO is considered the core of F&F Group's succession plan. The prevailing view in the industry is that F&F Group is preparing for succession by utilizing the unlisted FNCO. Currently, FNCO holds a 4.84% stake in F&F Holdings and has been gradually acquiring Chairman Kim's shares through after-hours block trades since 2023. In June 2022, Kim Seungbeom secured 2,619,449 shares of F&F, representing a 6.7% stake.

F&F was the first in Korea to lead a licensing business that manufactures products using intellectual property (IP) such as Major League Baseball (MLB) and the global non-fiction channel Discovery. Its operating margin exceeds 25%, far above the fashion industry average of 5-10%. Its major fashion brands include MLB, MLB Kids, Discovery Expedition, Duvetica, Sergio Tacchini, and the beauty brand Banila Co.

The roots of F&F trace back to Samsung Publishing, well known for "Pinkfong." Chairman Kim is the second son of Samsung Publishing founder Kim Bonggyu. After working at Samsung Publishing, he established F&F in 1992 and entered the fashion business, growing the company by importing and selling women's brands such as Benetton and Sisley in Korea. During the 1997 financial crisis, F&F's business declined, leading to a merger with Samsung Publishing and a name change to NSF. However, in 2002, the company was spun off again as F&F through a corporate split. From that point, Chairman Kim shifted focus from importing foreign brands to developing a licensing business in Korea.

In May 2021, F&F Group transitioned to a holding company structure through a corporate split. It was divided into F&F Holdings and F&F (the operating company), creating a structure of F&F Holdings → F&F → subsidiaries (F&F Enter, Sergio Tacchini, F&F China, F&F Ho Chi Minh, etc.). F&F Holdings owns 33.98% of F&F, followed by Chairman Kim (23%), National Pension Service (7.31%), and VIP Asset Management (6.65%).

Succession Stalled... FNCO's Cosmetics Growth

Both Kim Seungbeom, the eldest son, and Kim Taeyoung, the second son, work at F&F Group. Kim Seungbeom is the head of the core Digital Division at F&F and CEO of FNCO, while Taeyoung is head of Integrated Marketing (Duvetica, Sergio Tacchini, Supra) and MLB Marketing at F&F. However, with Chairman Kim, born in 1961 and now 64 years old, still actively managing the company, the succession process is not progressing quickly.

Furthermore, some predict that the succession method may change, considering that FNCO is not only acquiring shares in the holding company but also actively expanding its own business.

In fact, FNCO operates the brand "Banila Co," well known for its "Clean It Zero Cleansing Balm." It also operated the cosmetics company Kus H&B, but decided to close it and completed liquidation last year. Kus H&B launched the brand "Kus" in 2020, reinterpreting Korean beauty with natural ingredients, and promoted it with actresses Moon Sori and Jeon Yeo Been.

FNCO is expanding its business overseas with subsidiaries in Shanghai and the United States. Last year, annual sales reached 194.6 billion won, up 27% from the previous year. Sales have increased each year: 117 billion won in 2021, 118.5 billion won in 2022, and 153 billion won in 2023. Last year's operating profit was 27 billion won, up 24% from the previous year.

The company is also active in investments beyond cryptocurrency. FNCO currently holds 400 million won (book value) in beneficiary certificates (Smilegate Next Commerce No.2 Fund). Last year, it also profited from selling shares in Genius, which operates the "Ppeum Clinic" dermatology and plastic surgery chain. FNCO acquired Genius shares and convertible bonds for about 4 billion won in 2021, and the estimated disposal amount as of last year was about 17.4 billion won.

F&F Bets on China Market: Future Challenges?

However, F&F's core business performance has been sluggish. Last year, due to weak domestic demand and weather effects, sales (1.8969 trillion won) and operating profit (405.7 billion won) fell by 4% and 18%, respectively. In the first quarter of this year, F&F recorded sales of 505.6 billion won and operating profit of 123.6 billion won, down 0.3% and 5% year-on-year, respectively.

F&F is highly exposed to the Chinese market. As of last year, China accounted for 45% of its sales. However, sales in China also declined last year due to sluggish consumption. The MLB brand's growth rate dropped to a single digit of 5% last year. This year, MLB's target growth rate is in the 7% range.

This year, F&F's core business is to establish Discovery in the Chinese market. Having secured additional distribution rights in 11 Asian countries including China last year, the company plans to focus on overseas expansion. As of this month, Discovery has eight stores in China and plans to open 100 stores by the end of the year. It also plans to expand step by step into Hong Kong, Macau, and Taiwan. Lee Jinhyup, a researcher at Hanwha Investment & Securities, said, "The fact that the outdoor apparel market is emerging in China is a positive factor," adding, "The growth rate of the Chinese outdoor apparel market is estimated at 24% this year."

Through these efforts, F&F aims to maintain a double-digit annual growth rate through 2027. MLB is preparing to enter the Indian and Middle Eastern markets. In the domestic market, Duvetica will be positioned as a luxury brand, while Sergio Tacchini aims to grow sales in Korea and North America.

F&F Gangnam New Headquarters. Provided by F&F.

However, F&F's acquisition of the golf brand "TaylorMade," a bet to become a global fashion company, continues to face challenges. In 2021, F&F participated as a strategic investor by investing 558 billion won in two funds managed by Centroid PEF for the purpose of acquiring TaylorMade. At the time of the acquisition, F&F secured the right of first refusal and prior consent on major management matters, but Centroid is reportedly pursuing a sale to companies in China, the Middle East, and other regions without considering these rights.

Meanwhile, F&F recently relocated its headquarters from Yeoksam to the Teheran-ro area in Gangnam, bringing together F&F Group companies in one place. The company plans to use the new headquarters as a hub to actively support its brands' overseas businesses. Chairman Kim stated, "Although the global economy is turbulent this year as we move into our new headquarters, it is precisely during such uncertain times that great changes occur in the world. Let's ride the winds of this great change from our new workspace and embark on an even faster and more remarkable journey."