Hankook & Company is focusing on securing financial soundness while pushing for a chemical merger with Hanon Systems, an automotive air conditioning parts company acquired early this year. This is due to worsening performance and increased financial burden at Hanon Systems due to the electric vehicle chasm and facility investment.
According to the industry on the 26th, Hankook & Company is accelerating organizational integration with Hanon Systems. Since the beginning of this month, about 150 employees from Hanon Systems' Seoul office have been commuting to the headquarters building of Hankook & Company in Pangyo, and various measures are being discussed to promote interaction among members.
The two companies plan to integrate various infrastructures such as organizational culture, human resources, strategy, and finance, but the biggest concern is financial management. There is an internal atmosphere suggesting that the financial risks of Hanon Systems are larger than expected. The main business, Hankook Tire, has recorded a high operating profit margin of over 10%.
Last year, Hanon Systems recorded an operating profit of 134.3 billion won, a 52.6% decrease from the previous year. In the fourth quarter of last year, it turned to a loss. The net profit for the year was a loss of 334.4 billion won. This is a result of restructuring, poor electric vehicle market conditions, facility investment, and research and development (R&D) expenses.
For several years, Hanon Systems has increased investment to produce core components for electric vehicles, such as heat pumps and electric compressors, but the factory utilization rate remains low due to the impact of the chasm. Hanon Systems is building new factories in Georgia and Tennessee, investing $40 million (about 57.2 billion won) and $170 million (about 243.3 billion won), respectively. In Ontario, Canada, it is also establishing North America's first electric compressor plant aimed at launching operations in the first half of this year. The investment scale is 155 million Canadian dollars (about 155.7 billion won). The operating profit margin, which was 6% in 2019, fell to the 2% range in 2023 and dropped to the 1% range (1.3%) last year due to increased investment costs.
Hanon Systems received approximately 600 billion won from Hankook & Company through paid-in capital increases in December last year; however, there are concerns that financial uncertainties still exist. Despite the increase in capital due to the paid-in capital increase improving the reliance on borrowing funds and the liability ratio, the amount of net borrowing funds slightly decreased from 33.553 trillion won at the end of 2023 to 32.113 trillion won at the end of last year.
Hanon Systems expects its profitability to improve this year due to exchange rates, expense reductions, and operational efficiency enhancements. The organizational restructuring centered on completed car brands implemented in January to strengthen customer response is expected to lead to actual results from the second half of the year, while synergies between the two companies are anticipated to achieve a stable financial structure within 2 to 3 years.