[Funding] KC Cottrell Faces Profitability Decline Due to Raw Material Price Increase

Deterioration of Financial Structure After Large Net Loss in 2020
Raising Funds for Raw Material Purchases and Debt Repayment Through Rights Offering

[Asia Economy Reporter Hyungsoo Park] KC Cottrell, a supplier and operator of air environment equipment, has launched a capital increase through paid-in capital to improve its financial structure. Profitability is deteriorating due to rising raw material prices, and interest expenses are also increasing due to rising interest rates. The funds raised will be used to repay short-term borrowings and purchase raw materials.

According to the Financial Supervisory Service's electronic disclosure system on the 19th, KC Cottrell is promoting a paid-in capital increase by allocating 0.937 new shares per one existing share. The record date for new share allocation is the 16th of next month. The planned issue price per share is 1,930 KRW, and it is expected to raise a total of 32.8 billion KRW. Korean Investment & Securities will underwrite unsubscribed shares after subscription by existing shareholders and public offering. The underwriting fee is 15.0%.

KC Cottrell supplies dust treatment equipment and gas treatment equipment that reduce various air pollutants. It installs and operates reduction facilities for coal-fired power plants, steel mills, cement, and petrochemical companies. It also provides technical consulting services.

Of the funds raised through the paid-in capital increase, 22.8 billion KRW will be used as operating funds, and 10 billion KRW will be used to repay short-term borrowings from Hana Bank. KC Cottrell has secured orders for environmental equipment maintenance work at a Taiwanese thermal power plant and environmental equipment projects for Dangjin Thermal Power Units 1 to 4. The raised funds have been allocated to purchase raw materials for these projects.

KC Cottrell's debt ratio worsened from 335.6% in 2019 to 2,183.57% in 2020. This was due to an operating loss of 44.6 billion KRW and a net loss of 63.9 billion KRW in 2020. In a large-scale project participated under joint performance conditions, a subcontractor went bankrupt, and flooding damage occurred in August 2020. With overlapping adverse factors, the execution budget surged. In a South African project, the consortium partner entered court receivership, causing cost rates to soar and construction periods to extend. The company recorded a large deficit by reflecting delay compensation due to construction delays as other losses.

In 2021, KC Cottrell turned to profit with an operating profit of 4.6 billion KRW and a net profit of 12 billion KRW compared to the previous year. This was due to the reversal of 17.3 billion KRW from construction loss provisions previously recognized as expenses. In the first half of this year, sales amounted to 196.7 billion KRW, operating profit was 1.5 billion KRW, and net loss was 12.4 billion KRW. Sales increased by 38.4% compared to the same period last year, but operating profit decreased by 35.6%. As prices of major raw materials such as iron ore and nickel rose, the operating profit margin fell from 1.62% in the first half of last year to 0.75% in the first half of this year. A derivative loss of about 14.8 billion KRW was recognized due to currency forward contracts, resulting in a net loss. The debt ratio improved to 773.3% in the first half of this year compared to 2020 but remains at a high level.

Korean Investment & Securities explained that as of the end of the first half of this year, KC Cottrell's total assets amounted to 329.9 billion KRW, of which liabilities accounted for 292.1 billion KRW, attributing this to the large net loss recorded in 2020. Although 26.5 billion KRW was raised through a paid-in capital increase last year, the deficit reached 31.6 billion KRW due to net losses recognized in the first half of this year. They advised that investment decisions should consider the high debt ratio and the rise in construction material prices due to global supply chain instability and supply-demand imbalances.

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