By Park Jae-hyuk
A recall of toothpastes containing toxic chemicals cut into the net profits of both AmorePacific Group (Amore G) and its main subsidiary AmorePacific in the third quarter, the company said Tuesday.
According to Korea’s top cosmetics maker, AmorePacific’s net income during the cited period reached 117.1 billion won ($102.6 million), a 17.7 percent drop year-on-year. Amore G marked 151.4 billion won for the same quarter, down 0.4 percent.
“The drop was because the results reflected a recall of toothpastes costing 35 billion won, which includes the expected loss in the fourth quarter,” an AmorePacific official told The Korea Times. “As the recall is still ongoing, we are yet to confirm whether there will be any additional losses in the fourth quarter.”
This was the first drop in AmorePacific’s quarterly net earnings since the first quarter of 2013, the official said.
Following a government order in late September, the firm has recalled 11 types of its Median toothpastes that contain methylisothiazolinone (MIT) and chloromethylisothiazolinone (CMIT), chemicals connected to more than 100 deaths in a recent humidifier sterilizer scandal.
The Ministry of Food and Drug Safety announced the chemicals are not harmful when used in toothpastes, but consumers demanded refunds and some filed lawsuits against the company.
Data released Monday by Korea Consumer Agency showed that consumer consulting on toothpastes in September rose 4,606.3 percent month-on-month and 7,430 percent year-on-year. Among 753 inquiries, 388 were about refunds, exchanges and quality, the data said.
Both sales and operating profits of Amore G and AmorePacific increased, however, as toothpaste sales cover only 1 percent of the company’s total revenue and it posted more earnings in overseas cosmetics markets.
Sales of the holding company reached 1.6 trillion won, a 22.9 percent rise from a year earlier, and operating profits marked 219.7 billion won, a 16.7 percent rise. The subsidiary reached 1.4 trillion won in sales, a 23 percent increase year-on-year, and marked 167.5 billion won in operating profits, a 2 percent increase.
Still, AmorePacific’s operating profit this quarter is below the market’s initial expectation which was about 200 billion won.
Meanwhile, LG Household & Healthcare, the No. 2 player, showed overall growth in sales and operating profit, as well as net profit, according to its third-quarter results announced last week. The firm’s net profit rose 41.2 percent year-on-year, operating profit 28.4 percent and sales 12.7 percent.
Some industry officials see that LG benefited from the toxic toothpaste scandal, but the firm is reluctant to admit it, saying the correlation between the scandal and LG’s good fortune is uncertain.