Zuellig Pharma Korea fell to full-scale capital erosion for the second year as its liabilities exceeded assets due to continued losses in 2021.
Complete capital erosion refers to a situation in which the total amount of capital for a company goes below zero as the company's deficit widens, surplus runs out, and erodes the paid-in capital.
According to a report the company submitted to the Financial Supervisory Service, its liabilities stood at 300.6 billion won ($242.9 million) last year, down nearly 34 billion won from 2020. The company's assets also decreased sharply from 333 billion won in 2020 to 286.1 billion won in 2021. As a result, the company's total capital was -14.5 billion won.
Most of the company's liabilities were from trade receivables, money owed to pharmaceutical companies that purchased the company's drugs, amounting to 260.6 billion won at last year-end. The company's cash and cash equivalent deposit was only 5.7 billion won.
Zuellig Pharma Korea fell into capital erosion for the first time in 2020, with a total capital of -500 million won.
The situation worsened last year due to large net losses. Last year, Zuellig Pharma Korea recorded a net loss of 13.4 billion won, up from 2.4 billion won in 2020. Sales also dropped 12.3 percent to 909.9 billion won during the period.
Zuellig Pharma Korea's earnings began to deteriorate in 2017. Sales increased, but the company failed to generate profits for five consecutive years.
With net losses occurring every year, the company's retained earnings ran out, and deficits piled up, causing the debt-to-equity ratio to rise. As a result, Zuellig Pharma Korea's debt-to-equity ratio stood at 1,720 percent in 2016, far exceeding the risk level of 200 percent, and skyrocketed to 30,000 percent in 2019 before falling into full-scale capital erosion in 2020.
As of the end of last year, Zuellig Pharma Korea's loss amounted to 23.2 billion won.
However, because the company is not listed on the Korean stock market, it is not subjected to any direct sanctions for capital erosion.