[Why&Next] Food Companies Investigated for Collusion Post Losses Last Year... Over 1 Trillion Won in Fines Preemptively Reflected

CJ CheilJedang: 240.1 Billion Won, Samyang Corporation: 411.5 Billion Won
Confirmed and Estimated Fines Reflected in Last Year’s Financial Statements

While the Korea Fair Trade Commission (KFTC) is in the process of imposing sanctions on food companies investigated for price collusion involving sugar, flour, and starch syrup, it was found that these companies reflected more than 1 trillion won in anticipated fines in their financial results for last year. Unlike the sugar fine, which has been finalized at around 400 billion won, the fines related to flour and starch syrup were conservatively estimated. If these are finalized in the first half of this year, the companies' profitability is expected to deteriorate further.

According to the electronic disclosure system on the 26th, food companies investigated by the KFTC for price collusion involving three products since last year have disclosed a total of approximately 1.04 trillion won in fines and estimated fines in their business reports. The KFTC has been investigating a total of 10 companies—including three sugar refiners, seven flour millers, and four starch syrup manufacturers—for alleged price collusion in sugar, flour, and starch syrup, from last year through early this month. Among these, the sugar investigation resulted in a finalized corrective order and fine last month, while the fines for flour and starch syrup are still under review after the investigation concluded. Eight out of the 10 companies have disclosed their reports, and six of them reflected the fines as other provisions.

CJ CheilJedang, considered the 'big brother' of the food industry, recorded 240.1 billion won under 'current other provisions' in last year's business report. This includes the 138.3 billion won fine imposed by the KFTC on March 12 for collusion in sugar transactions between companies. Initially, the KFTC had imposed a fine of 150.6 billion won on CJ CheilJedang, but the amount was reduced to 138.3 billion won after adjustments in the sales subject to collusion.

Of the current other provisions, 101.8 billion won, excluding the finalized fine, was preemptively reflected as an estimated fine for flour and starch syrup, which were investigated last month and this month. A CJ CheilJedang representative explained, "As the matter is still ongoing, it is difficult to accurately estimate the amount of the fines, so please note that the remaining amount, excluding sugar, does not represent the full expected fines." Since the amount transferred to provisions is classified as non-operating expense, CJ CheilJedang reported a separate operating profit of 185.6 billion won last year, but ended up with a net loss of 589.6 billion won.

Among the 10 companies, Samyang Corporation reflected the largest amount of fines in its financial statements. Samyang Corporation received a finalized fine of 130.2 billion won for sugar price collusion and was also investigated for flour and starch syrup. The company reported a total of 452 billion won in KFTC-related fines as current accrued expenses and current other provisions in its business report, a tenfold increase compared to the previous year (45.1 billion won). Considering the characteristics of the accounting items, it can be interpreted that the finalized sugar collusion fine of 130.2 billion won was classified as accrued expenses, while the estimated fines for flour and starch syrup, which are under review, were reflected as other provisions. Samyang Corporation's current other provisions increased from zero in 2024 to 281.3 billion won last year.

Due to the unexpectedly large fines, Samyang Corporation recorded an operating profit of 111.7 billion won (consolidated basis) last year but could not avoid a net loss of 302.4 billion won (consolidated basis). After the fines were imposed, on March 19, Samyang Corporation decided to take out a short-term loan of 200 billion won to secure operating funds. The company explained, "The amount reflected may change depending on the KFTC's final decision."

Daesang, which was investigated for collusion in starch syrup pricing, reported 375.3 billion won under 'other provisions.' The company stated, "We are under investigation by the KFTC for unfair collective actions and have recognized an estimated fine as provisions." Daesang recorded consolidated sales of 4.4013 trillion won and operating profit of 169.3 billion won last year, but ended up posting a net loss of 303.1 billion won due to the impact of the provisions.

Daehan Sugar also recorded the KFTC fine of 127.4 billion won as other provisions. As a result, Daehan Sugar's operating profit last year more than doubled year-on-year to 47.8 billion won, but the company still posted a net loss of 52.1 billion won. Daehan Flour Mills and Sajo DongA One, which were investigated for flour price collusion, recorded 94.4 billion won and 167.3 billion won, respectively, as other provisions, explaining that "the estimated fines related to the KFTC investigation have been recognized as provisions."

In contrast, Hantap and Daesun Flour Mills, which were also investigated for flour price collusion, stated in their reports, "Since the KFTC's decision is pending, it is impossible to predict the outcome, including whether fines will be imposed," and "It is currently not possible to reasonably estimate the impact on financial status and business performance, as this will depend on the results of future investigations and trials."

The food companies that reflected estimated fines appear to have done so based on the KFTC's review reports. At the end of last month, the KFTC sent review reports regarding collusion allegations to seven flour millers, and at the beginning of this month to four starch syrup manufacturers.

The KFTC determined that the seven flour companies repeatedly colluded to fix flour sales prices and allocate supply quantities over a six-year period from November 2019 to October last year. The affected sales from this collusion are estimated at approximately 5.8 trillion won. Regarding starch syrup, the KFTC believes that four companies repeatedly and systematically colluded to fix sales prices over a seven-and-a-half-year period from May 2018 to October last year, resulting in sales of 6.2 trillion won.

Fines can be imposed up to 20% of the relevant sales. The seven flour companies may face fines of up to 1.16 trillion won, while the four starch syrup companies could face up to 1.24 trillion won. In the case of sugar, 15% of sales was imposed as a fine. The KFTC plans to impose sanctions related to flour and starch syrup collusion in the first half of this year.

As a result, annual results for this year are also expected to be inevitably impacted. An industry official stated, "KFTC fines tend to decrease somewhat after several procedures are completed following their initial imposition," but added, "This time, however, the investigation was swift and the amounts are not small, so it is inevitable that companies will suffer significant damage."

This content was produced with the assistance of AI translation services.