AmorePacific revamps governance ahead of FTC regulation

The country’s leading cosmetics firm AmorePacific is reshuffling its group governance ahead of a scheduled regulation change by the Korea Fair Trade Commission (KFTC).

The revision to the Fair Trade Act passed by the National Assembly last year allows the antitrust overseer to ban companies from outsourcing original equipment manufacturer (OEM) production to any of their subsidiaries in which they have at least a 20 percent shareholding. The new rule applies to both listed and unlisted affiliates.

AmorePacific decided to absorb its unlisted affiliate Aestura during a board meeting, Monday. The subsidiary will then be subordinate to the main company and the new regulation will not be applicable, regardless of the share ownership percentage.

AmorePacific used to outsource most of its OEM production to Aestura, which was established in 1982 and specializes in manufacturing cosmeceutical items. It also supplies OEM items for AmorePacific’s functional health foods.

Aestura was incorporated into AmorePacific after the cosmetics giant purchased 100 percent of its shares in 2013. From the following year to 2019, the amount of internal trading has more than doubled to record 81.7 billion won from 36 billion won. The percentage of Aestura’s sales coming from AmorePacific’s outsourcing also increased from 45.5 percent to 73.5 percent in the same period. Last year, the ratio declined slightly to show 67.6 percent but it is still in the 70 percent range.

AmorePacific owns many of its subsidiaries with over 50 percent of shares. Plus, AmorePacific is also planning to acquire a 100 percent stake in its manufacturer Cosvision.

Cosvision was founded in August 2006 and incorporated as an affiliate of AmorePacific when it purchased a 100 percent stake in 2011. Cosvision also depends for most of its sales on internal transactions with AmorePacific. In 2019, its revenue was 175.8 billion won, solely from working with the parent company.

In March, AmorePacific sold 60 percent of its affiliate Pacificglas to the French firm Verescence in order to avoid FTC regulation. Pacificglas manufactures cosmetics containers and 75.5 percent of its sales last year depended on AmorePacific.

AmorePacific said its governance reshuffle is not a countermeasure

to prepare for the antitrust overseer regulatory change. “The merger and selloff of our affiliates are decisions made for our business management and they have nothing to do with the FTC,” an AmorePacific official said.