Continued Reduction of Fixed Costs Through Subsidiary Mergers
Sales Decline Due to Decrease in Internal Advertising Volume
As Lotte Group has strengthened its liquidity management policy, Daehong Communications has taken a direct hit. Daehong Communications, which has been in charge of the group's advertising, has seen a significant reduction in orders from affiliates, prompting the company to undertake intensive efforts to improve its financial structure.
According to the retail industry on January 16, Daehong Communications' sales up to the third quarter of last year amounted to 205.7 billion won, down from 211.6 billion won in the third quarter of the previous year. During this period, net loss increased from 1.8 billion won to 5.5 billion won. Since 2023, both sales and profitability have continued to decline.
Generally, advertising agencies affiliated with large conglomerates maintain stable performance based on internal advertising orders from the group. However, as the group as a whole has tightened cost controls, internal advertising spending has decreased, further straining the profit structure. Lotte Holdings owns a 68.7% stake in Daehong Communications. Lotte Group has faced liquidity concerns in recent years, as its core affiliate Lotte Chemical continues to post poor results, and the recovery of its distribution sector has been delayed due to a slowdown in consumer spending.
In fact, a look at Daehong Communications' related-party transactions shows that advertising revenue from Lotte affiliates decreased from 147.6 billion won in 2023 to 129.9 billion won in 2024. Revenue from transactions with affiliates represents the compensation Daehong Communications receives for providing advertising and marketing services to group companies. The decrease in this figure indicates that the overall scale of internal advertising spending within the group has shrunk.
The decrease in accounts receivable from related-party transactions is also noteworthy. As of the end of 2024, accounts receivable from affiliates stood at 438.6 billion won, down from approximately 600 billion won at the end of the previous year. This decline is interpreted as being mainly due to a reduction in new accounts receivable as the overall volume of advertising spending decreased, rather than an increase in collections. Last year, purchases from related parties amounted to only about 8.9 billion won.
The deterioration in profitability has also led to a reduction in dividends. Daehong Communications' dividend per share fell from 980,000 won in 2023 to 324,000 won in 2024, and total dividends decreased from 4 billion won to 1.4 billion won. As a result, the dividend cash secured by Lotte Holdings, the largest shareholder, is also believed to have dropped significantly.
For this reason, Daehong Communications recently relocated the office of Spoon, its wholly owned subsidiary (formerly Mhub), to the vicinity of Seoul Station, where Daehong Communications' headquarters is also located. Spoon is a subsidiary responsible for digital content production and media solutions. In June of last year, after Kim Deokhee, CEO of Daehong Communications, also became CEO of Spoon, the company integrated the offices.
Daehong Communications has been gradually implementing measures to improve its financial structure. In 2023, it merged the digital advertising company Mobizap Media with Spoon, and last year, it also carried out restructuring by merging the digital marketing firm Stick Interactive into Spoon. Both Mobizap Media and Stick Interactive were recording losses at the time of the mergers. Mobizap Media posted an operating loss of 260 million won up to the point of the merger in April 2023, while Stick Interactive recorded an operating loss of 260 million won in the first half of 2024.
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