[At a Crossroads for Listed Companies] Internal Restructuring Complete... Only Performance Improvement Remains for 'Inno Instrument' This Year

[Asia Economy Reporter Hyunseok Yoo] Inno Instrument recorded a deficit on an individual basis last year, marking its third consecutive year of losses. For KOSDAQ-listed companies, recording losses for four consecutive years results in being classified as a management item, making this year a critical period. Inno Instrument, which stabilized internally last year through cost reduction and a paid-in capital increase, expects performance improvement this year due to the resumption of global 5G investments.

According to the Financial Supervisory Service's electronic disclosure system DART on the 21st, Inno Instrument recorded individual sales of 6.4 billion KRW and an operating loss of 1 billion KRW last year. This marks three consecutive years of losses. KOSDAQ-listed companies are classified as management items if they continue to record losses for four consecutive years on an individual basis.

Sales declined sharply, decreasing by 66.97% compared to the previous year. The scale of operating losses remained similar to last year. However, there was a significant reduction in expenses. Selling and administrative expenses (S&A expenses) decreased from 8.8 billion KRW in 2019 to 2.9 billion KRW last year. A company official stated, "The establishment of a Malaysian subsidiary at the end of 2019 led to the transfer of the optical connector production line, which was previously produced domestically, resulting in a sales decrease," and added, "The reduction in operating loss was due to cost savings and fixed cost reductions through the establishment of the production subsidiary and management efficiency."

Additionally, the debt ratio improved. The individual and consolidated debt ratios, which were 109.3% and 186.2% respectively in 2019, decreased to 5.2% and 45.3%. The decrease in the debt ratio is attributed to the early redemption of convertible bonds (CB). Inno Instrument conducted a paid-in capital increase through a rights offering and forfeited shares public offering worth 34.3 billion KRW last year. Of this, 30 billion KRW was used to redeem the third series CB issued in 2018 worth 30 billion KRW, and the remaining 3.5 billion KRW was used to repay borrowings.

On a consolidated basis, the company turned a profit. Last year, it recorded sales of 42 billion KRW and an operating profit of 3.1 billion KRW. Although sales decreased by 3.35%, operating profit turned positive. Consolidated sales in 2019 and last year were at similar levels. Consequently, sales by product were also similar to those in 2019. Last year, the optical fusion splicer accounted for 88% of total sales, amounting to 37.3 billion KRW. Other products recorded 2.6 billion KRW (6.1%), cutters 1.9 billion KRW (4.4%), and optical fiber measuring instruments 0.3 billion KRW (0.7%).

Despite sales being similar to the previous year, the turnaround to operating profit is believed to be influenced by improvements in S&A expenses and cost of sales. Cost of sales decreased from 25.7 billion KRW in 2019 to 18.2 billion KRW, and S&A expenses also decreased from 34.3 billion KRW to 20.8 billion KRW. The company explained in a disclosure, "Operating profit increased due to management innovations such as global sales growth, financial structure improvement, and fixed cost reduction through restructuring."

Inno Instrument was established in 2007. It mainly produces the 'optical fiber fusion splicer,' equipment used for connecting optical cables. It localized the optical fiber fusion splicer, an optical communication device monopolized by major Japanese companies. An optical fusion splicer is equipment that fuses and bonds optical fibers to connect and extend them. The company supplies products to over 90 countries worldwide, including China, the United States, and Europe. It entered the KOSDAQ market in 2017 through a merger with NH Special Purpose Acquisition Company No.5.

With internal stabilization achieved, the company now only needs to improve its performance. Inno Instrument expects performance improvement prospects depending on global telecommunications infrastructure investments. The company is focusing on the North American market this year, as U.S. President Joe Biden announced large-scale broadband network modernization and infrastructure investments upon taking office.

A company official emphasized, "Investment delays caused by the postponement of 5G frequency allocations (bidding) in various countries are expected to recover this year," and added, "Although wired communication infrastructure that was on hold in certain countries may vary depending on each country's environment, noticeable sales increases are expected in China, Europe (the UK, Italy), and North America (the United States)."

Furthermore, the company expects concrete results from new products. A company official said, "Next-generation optical splicer products incorporating location-based services, which we have been ambitiously preparing, have been sequentially released since the end of last year and are being supplied to global telecommunications companies," and added, "Products incubated since 2018 as part of business diversification are scheduled to be launched and yield concrete results."

He continued, "Since the end of last year, we have started supplying NB IoT-based door lock products to major Chinese telecommunications companies, discovering and expanding niche markets in related fields," and emphasized, "Mass production systems for secondary battery industry measuring instruments (PA, BT) have been established, and performance verification is underway with leading global automotive companies."