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By Kim Jae-heun
Nongshim, Korea's largest instant noodle producer, was found to have lagged behind its smaller rivals in the second quarter of the year as it failed to effectively deal with soaring raw material and logistics costs as well as higher wages, according to industry officials, Wednesday.
Nongshim's operating profit plunged in the April to June period from a year earlier, while Ottogi and Samyang Food saw their profitability improve, citing aggressive cost-cutting and stronger overseas sales.
According to regulatory filings, Ottogi achieved 789.3 billion won ($602.8 million) in sales and a 47.7 billion won operating profit, up 32 percent and 18 percent, respectively year-on-year. Its net profit rose 13 percent to achieve 30.6 billion won in the same period.
"Both sales of our milk and oil-related products and convenience food have increased overall. The proportion of selling, general and administrative expenses to our sales growth remained similar to the previous year and our efforts to reduce the cost of raw materials to manufacture products had a positive effect on the company's operating profit between April and June," an Ottogi official said.
Samyang Food achieved its biggest quarterly revenue in the second quarter. The food company's sales and operating profit stood at 255.3 billion won and 27.3 billion won, seeing it soar 73 percent and 92 percent respectively, compared to those from the previous year.
Samyang Food's overseas business helped drive the company's unexpected earnings. Its total amount of exports skyrocketed 110 percent to show 183.3 billion won only in the second quarter.
The company's effort to increase the number of countries it exports its popular hot spicy chicken-flavored noodle products ― previously only available in China and Southeast Asian countries ― to the United States, the Middle East and Europe has largely attributed to the increase.
Samyang Food also introduced a new flavor to its bestselling instant noodle that appears to have been a hit with locals, which helped its sales grow too.
"Despite the pressure of food materials rising in cost around the world, we have achieved unprecedented business performance both in domestic and international markets thanks to our strengthened marketing and the exchange rate effect," a Samyang Food official said.
However, Nongshim failed to cut costs which translated into a decreased operating profit.
The food company's operating profit plunged 75.4 percent year-on-year to register 4.3 billion won in the second quarter. Though, its revenue increased 16.7 percent marking 756.2 billion won in the same period.
When looking at Nongshim's domestic operating profit in the second quarter only, it recorded a deficit for the first time in 24 years.
"The unit cost of purchasing raw material has increased due to rising global grain prices and the exchange rate. Despite sales increasing, the company's operating profit decreased due to a sharp rise in costs after the oil price went up," a Nongshim official said.
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