SK Innovation plans to achieve annual cost savings of approximately 600 billion won through the absorption of SK IE Technology (SKIET) and aims for the separator business to turn profitable within two years. The merger comes amid prolonged demand stagnation in the electric vehicle market and intensified competition from Chinese firms, prompting SK Innovation to improve its cost structure and break the cycle of poor performance.
On August 26, SK Innovation held an online meeting to explain the background and future business strategy regarding the announced merger with SKIET.
Following the merger, SK Innovation intends to incorporate SKIET's separator business as a separate division. The company plans to streamline its organization and functions to reduce redundant costs and enhance cost competitiveness. The anticipated cost savings from the merger are estimated to be around 600 billion won annually.
Seo Geon-ki, head of SK Innovation's finance division, stated, "By consolidating organizational functions that arose during independent operations, we can reduce overall costs. Based on SK Innovation's creditworthiness, we also expect to lower interest expenses, leading to an additional improvement of about 600 billion won in EBITDA."
The company has also clarified its profitability improvement goals. SK Innovation aims to achieve EBITDA profitability within two years by combining cost savings from the merger, enhancing research and development capabilities, and expanding into new markets such as separators for energy storage systems (ESS).
SKIET was established in April 2019 as a spin-off from SK Innovation's materials business and was listed on the stock market in May 2021. Since its inception as an independent entity, SKIET has steadily increased its production of separators for electric vehicle lithium-ion batteries. However, the company faced challenges in 2024 due to the electric vehicle market's stagnation.
Decreased orders from major clients and inventory adjustments led to a drop in factory utilization rates, exacerbating losses due to its high fixed cost structure. In fact, SKIET reported consolidated revenues of 261.9 billion won and a net loss of 211.4 billion won last year. Its assets totaled 4.39 trillion won, with liabilities amounting to 1.79 trillion won. In the first quarter of this year, SKIET's factory utilization rate remained around 20%.
Seo added, "If we had not merged, SKIET would have faced increased financial burdens due to additional borrowing and rising financial costs, potentially leading to a situation where capital increases would be unavoidable. We determined that we needed to break the cycle of increasing financial burdens in a market environment that is not improving."
However, concerns have been raised that absorbing the loss-making SKIET could increase SK Innovation's financial burden. The merger will involve the issuance of new shares by SK Innovation, and if losses in the separator business continue, SK Innovation will directly bear those losses.
Another variable is the PRS contract signed during SKIET's capital increase last year. In August 2022, SKIET raised 300 billion won from financial investors (FIs) through a third-party allocation capital increase, and at that time, SK Innovation entered into a PRS contract with the FIs. With SKIET set to dissolve in January 2024 due to the merger, how this contract will be resolved is also a key issue.
SK Innovation stated that the handling of the PRS contract has not yet been finalized and plans to discuss it with the contracting parties. The company also downplayed concerns about potential declines in profitability following the merger, explaining that there would be no significant changes to key financial statements such as consolidated revenues and debt ratios, as SKIET is already a consolidated subsidiary.
* This article has been translated by AI.
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