LG Household sinking into deeper trouble

LG Household & Health Care headquarters in Seoul / Courtesy of LG H&H

Cosmetics maker suspected of violating disclosure rules

LG H&H Vice Chairman and CEO Cha Suk-yong / Korea Times file

By Park Jae-hyuk

LG Household & Health Care, which has been struggling with slowing demand for Korean cosmetic products in China, has run into more trouble as it was found to have leaked its fourth-quarter earnings to securities analysts without giving any prior notice to the financial authorities or its shareholders.

Earlier last week, at least seven local analysts published reports expressing skepticism about LG H&H, based on information they received Jan. 7 from the company’s investor relations team.

The reports dragged down the KOSPI-listed firm’s stock price sharply by 13 percent to 921,000 won ($773) on Jan. 10. This was the first time in four years for its stock price to fall below 1 million won.

Although the analysts differed slightly in their expectations about LG H&H’s fourth-quarter earnings, most of them attributed their skepticism to poor sales at duty free shops, stemming mainly from the company’s refusal to accept the request from Chinese small traders to offer steep discount prices for its cosmetics.

The Korea Exchange (KRX) said Monday that the bourse operator started an investigation into LG H&H to find out whether or not the company violated fair disclosure regulations.

According to the KRX, listed companies generally give prior notification before announcing their earnings. If they want to disclose their earnings forecasts, they must notify the KRX of the information in advance.

“If a listed firm gives such information to only a small number of people, this can be basically regarded as a violation of fair disclosure regulations,” a KRX spokesman said.

The KRX will decide whether or not to designate LG H&H as a company that made an unfaithful disclosure, once the bourse operator finishes figuring out how the company distributed the information on its earnings to the market.

LG H&H said it did not provide securities analysts with guidance for its entire sales or operating profit for the fourth quarter of last year.

“We just let the analysts covering our company know the fact that our duty free channels hardly generated earnings in December, because of our company’s price policies,” an LG H&H executive in charge of investor relations said in a regulatory filing submitted a few hours after the KRX’s investigation was reported in the media.

One of the analysts, who published reports on LG H&H, denied any insider trading using the information, as some market participants mentioned an analyst who had been fined 10 million won for tipping off fund managers in 2013 that CJ ENM had notified securities analysts of the fact that it would post significantly lower-than-expected earnings for the third quarter of that year.

“Without mentioning its sales or operating profit, LG H&H just called us to notify that the market consensus differs from its actual earnings,” the analyst said on condition of anonymity. “We officially made comments through our reports, unlike the analysts involved in the CJ ENM case, who called fund managers without publishing reports.”

Despite the explanations, investors dumped their shares in LG H&H, maintaining their distrust in the company. As a result, LG H&H’s stock price fell 1.75 percent to 957,000 won during Monday’s trading session.