Sky E&M, Can It Escape Losses for 4 Consecutive Years? [Listed Company at a Crossroads]

Operating Profit Turned Positive in Q3 This Year
Promoting Merger with Chorokbaem Food Farm... Expecting External Growth
Secured 20 Billion Won Investment from Vident

[Asia Economy Reporter Hyungsoo Park] Sky E&M, which has recorded operating losses for three consecutive years, has actively pursued mergers and acquisitions (M&A) to improve its performance.

According to the Financial Supervisory Service's electronic disclosure system on the 30th, Sky E&M recorded an operating loss of 1.07 billion KRW on a separate basis for the cumulative third quarter (July 2021 to March 2022) of this year. The loss decreased compared to 5.48 billion KRW in the same period last year. During the same period, sales increased by 49.4% to 21.9 billion KRW.

The third quarter (January to March 2022) performance improved significantly. In the third quarter, sales reached 11.69 billion KRW, and operating profit was 1.37 billion KRW. Sales increased by 230.2% compared to the same period last year, and operating profit turned positive. If the fourth quarter achieves results at the third quarter level, it is possible to achieve operating profit on a separate financial statement basis for this fiscal year.

Sky E&M had previously recorded operating losses on a separate basis for three consecutive fiscal years since 2019. It changed to a June fiscal year-end corporation in June 2019, completing the 13th fiscal year from January to June 2019. It recorded operating losses in the 14th fiscal year (July 2019 to June 2020) and the 15th fiscal year (July 2020 to June 2021), resulting in three consecutive years of deficits.

If it records a separate basis deficit in the 16th fiscal year (July 2021 to June 2022), it will meet the criteria for inclusion in the management item due to four consecutive years of operating losses. Previously, Sky E&M was designated as a management item after submitting the audit report for the 15th fiscal year. The pre-tax continuing business loss exceeded 50% of equity capital. The external auditor, Yegyo Jiseong Accounting Corporation, explained that Sky E&M recognized an operating loss of 8.7 billion KRW and a net loss of 25.9 billion KRW, resulting in accumulated deficits of 103.6 billion KRW. As of the end of June last year, current liabilities exceeded current assets by 1.1 billion KRW.

Sky E&M, which succeeded in turning to profitability in the third quarter through structural improvement, is expected to accelerate its performance improvement. The largest shareholder, Chorokbaem Media, participated in Sky E&M's paid-in capital increase along with Chorokbaem Healthcare. Sky E&M raised 40 billion KRW to acquire Chorokbaem Food Farm. The shortfall was paid through convertible bonds. Chorokbaem Food Farm achieved sales of 55.6 billion KRW and net profit of 1.3 billion KRW last year. It is in the process of merging with Sky E&M.

Sky E&M also issued 20 billion KRW worth of convertible bonds (CB) last month to Chorokbaem Metacommerce New Technology Association No. 3. The funds raised will be used to acquire securities of other companies. The largest investor in Chorokbaem Metacommerce New Technology Association No. 3 is Vidente. The convertible bond maturity interest rate is 2.0%, and conversion rights can be exercised from June 8 next year. The conversion price is 3,116 KRW. Upon conversion, the number of shares issued will be 6,418,485 shares (19.03%).

Chorokbaem Group and Vidente are cooperating in virtual assets, live commerce, and non-fungible token (NFT) businesses. Considering the capital raised from Vidente and the fact that it is a metacommerce new technology association, it is expected that Sky E&M's entertainment business division will pursue new businesses that can create synergy.

This content was produced with the assistance of AI translation services.