Lotte Construction Nearly Doubles Last Year's Full-Year Operating Profit in 3 Quarters; Urban Renewal Orders Top KRW 4 Trillion

Cumulative cost-of-sales ratio at 89.5%
PF contingent liabilities reduced by KRW 850 billion
Debt-to-equity ratio improved to 166%

Lotte Construction has reduced its project financing (PF) contingent liabilities by about KRW 850 billion since the start of this year and, in just the first three quarters, earned nearly twice its full-year operating profit for last year. Profitability improved as the company selectively secured profitable projects and lowered its cost ratio to the 80% range.

Lotte Construction said on the 14th that its operating profit for the first three quarters of this year rose 126% year on year to KRW 207.7 billion. In just three quarters, it earned nearly twice its full-year operating profit of KRW 105.4 billion last year. Revenue for the period was KRW 4.7565 trillion, down 18.5% from KRW 5.8372 trillion in the same period a year earlier. The company avoided aggressive bidding and focused on projects with secured profitability, resulting in a smaller overall revenue base but higher earnings.

Lotte Construction said, "Improvements to our company-wide cost structure, selective bidding focused on quality project sites, and close on-site process management have worked together to improve costs, particularly in our housing business."

Lotte Engineering & Construction's headquarters in Seocho-gu, Seoul. Yonhap News Agency

Revenue in the third quarter was KRW 1.4761 trillion, and operating profit was KRW 34.9 billion. These figures were down 29.3% and 31.7%, respectively, from the same period a year earlier. However, gross profit, calculated by subtracting costs from third-quarter revenue, rose 6.8% to KRW 178.6 billion from KRW 167.1 billion a year earlier. Quarterly operating profit temporarily declined as bad debt expenses, which are recorded in advance for receivables unlikely to be recovered, rose to KRW 52.3 billion in the third quarter this year from KRW 34.6 billion in the same quarter last year. Net profit for the third quarter also jumped 232.8% year on year to KRW 9.6 billion from KRW 2.9 billion.

The near-doubling of operating profit for the first three quarters despite lower revenue reflects a reduction in cost pressures. The cost-of-sales ratio is the share of revenue accounted for by costs such as construction and materials. The cumulative cost-of-sales ratio for the first three quarters of this year was 89.5%, down 4.1 percentage points from 93.6% in the same period a year earlier. Although rebar prices rose 11.2% and ready-mixed concrete prices rose 4.3% from the end of last year, the company offset these cost increases as high-cost projects from previous years were completed in stages, construction cost increases were reflected, and subcontracting and procurement were managed together. Cumulative gross profit in the company's main building and housing business rose 57.5% to KRW 444.3 billion from KRW 282 billion in the same period a year earlier.

The company has also eased the financial burden that had been weighing on it. Its PF contingent liabilities, based on outstanding loan balances and representing potential debt that a contractor may have to assume if a developer cannot repay its loans, fell to KRW 2.3078 trillion at the end of the third quarter this year. The figure has declined each year, from KRW 4.8 trillion in 2023 to KRW 3.6 trillion in 2024 and KRW 3.1538 trillion at the end of last year. The company plans to reduce it to around KRW 2.1 trillion by the end of this year.

Lotte Construction's Project Financing (PF) Contingent Liabilities by Year. Lotte Construction

In January, the company raised capital by issuing KRW 350 billion worth of hybrid securities (perpetual bonds), which are treated as equity for accounting purposes. Its debt-to-equity ratio consequently fell 20.4 percentage points, from 186.7% at the end of last year to 166.3% at the end of the third quarter. Over the same period, cash and cash equivalents rose 73.1%, from KRW 636.9 billion to KRW 1.1024 trillion, strengthening its cash liquidity.

Project Charlotte, a fund previously used to manage PF guarantee liabilities together, also refinanced its loans. In the process, the fund was renamed Elle Renaissance, and its outstanding loan balance was reduced by KRW 210 billion, from KRW 1.1 trillion to around KRW 890 billion. The maturity was also extended from March 2027 to May 2028, a delay of one year and two months, easing the burden of short-term repayments.

Uncollected construction receivables, or construction payments not yet received, with a book value of KRW 2.357 trillion, are expected to decline starting next year. Major housing projects are nearing completion, and more than 20 complexes are scheduled for completion and occupancy next year, bringing in a large volume of final payments. Unbilled construction work, for which work has been completed but the amount has not yet been invoiced to clients, fell 18% to KRW 896.9 billion at the end of the third quarter from KRW 1.0942 trillion at the end of last year.

With its financial capacity recovering, the company has also replenished its order backlog. Its cumulative orders for urban renewal projects this year totaled KRW 4.011 trillion, surpassing last year's full-year total of KRW 3.3668 trillion. It won a series of major projects in Seoul, including the redevelopment of District 4 in the Seongsu Strategic Redevelopment Zone in Seongdong-gu (KRW 1.3492 trillion), the redevelopment of Geumho District 21 in Seongdong-gu (KRW 624.2 billion), the reconstruction of Garak Geukdong Apartment in Songpa-gu (KRW 484 billion), and the reconstruction of Dogok Woosung Apartment in Gangnam-gu (KRW 400.2 billion). At the end of the third quarter, its total order backlog stood at KRW 40.2307 trillion, equivalent to about five years of work based on last year's revenue of KRW 7.9099 trillion.

A Lotte Construction official said, "Our efforts to reshape the company by focusing on operating projects profitably are delivering tangible results. Building on our strategy of winning quality projects, we plan to accelerate efforts to secure future growth drivers, including integrated development projects in collaboration with our affiliates."

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