[At a Crossroads] Kumho Electric ① Brickmate Fully Capital-Emptied... 11.3 Billion KRW Investment Completely Lost

Accumulated Large-Scale Losses After Kumho Electric Executives Joined
Future Growth Engine Uncertain... Urgent Need for Financial Restructuring

Brickmate, the main subsidiary of Kumho Electric, a KOSPI-listed company, has fallen into complete capital erosion. As a result, Kumho Electric has fully impaired its investment of 11.3 billion KRW in Brickmate. Since Brickmate was selected by Kumho Electric as a new growth engine, there is growing interest in how it will overcome the challenges ahead.

According to the Financial Supervisory Service's electronic disclosure system on the 21st, Kumho Electric disclosed Brickmate's book value as zero last year. The acquisition cost of 11.3 billion KRW for the 58.26% stake previously held was fully reflected as a loss.

On January 20, 2022, Kumho Electric acquired a 55.02% stake in Brickmate for 9.3 billion KRW, aiming to maximize corporate value through new business discovery and create synergy through business linkage. Subsequently, in November 2022, it participated in a paid-in capital increase worth 2 billion KRW, bringing the total investment to 11.3 billion KRW.

Having become the largest shareholder of Brickmate, Kumho Electric appointed Chairman Jeong Gyu-yong and his son, President Jeong Heon-wook, as inside directors of Brickmate. Vice Chairman Lee Hong-min was appointed as auditor, effectively taking control of management rights.

Brickmate started as a startup IT company outsourcing application development for smartphones and other devices. Its major ongoing projects include ESL control program improvement and integration, 3PL computer system development, game development, and travel web development.

Last year, Brickmate recorded sales of 6.5 billion KRW, an operating loss of 2.9 billion KRW, and a net loss of 3.8 billion KRW. Compared to the previous year, it continued to post operating and net losses, with sales decreasing by 13.2%. The financial statements show a state of complete capital erosion. Total assets stand at 1.4 billion KRW, total liabilities at 5.1 billion KRW, resulting in a negative equity of approximately -3.7 billion KRW. The company is unable to cover its debts with its assets.

Since Kumho Electric acquired Brickmate, the company has posted losses every year. In 2023, it recorded sales of 7.5 billion KRW, an operating loss of 3.2 billion KRW, and a net loss of 3.6 billion KRW. Breaking down the details, out of the 7.5 billion KRW in sales, the cost of goods sold reached 7 billion KRW, making it difficult to generate a margin. Additionally, 3.8 billion KRW was spent on selling and administrative expenses. Among these expenses, salaries amounted to 1.6 billion KRW, and about 900 million KRW was spent on other expenses with unclear usage, resulting in the 3.2 billion KRW operating loss.

Moreover, Brickmate incurred losses of several hundred million KRW by acquiring other corporations. In 2022, Brickmate acquired Primoa for 300 million KRW but resold it last year for 1 million KRW. It also acquired a corporation named Baroboda for 500 million KRW, but its current book value is around 200 million KRW.

As Brickmate continued to post large-scale losses, Kumho Electric began impairing Brickmate's book value starting in 2023. Kumho Electric impaired 6 billion KRW out of the 11.3 billion KRW book value in 2023. Last year, the remaining 5.3 billion KRW was also fully impaired. According to accounting standards, companies assess impairment annually considering the recoverable amount of investments. Ultimately, it was deemed unlikely that the investment amount would be recovered.

Regarding this, a Kumho Electric official stated, "Through Brickmate's restructuring last year, we significantly reduced the number of employees to improve costs," and added, "This year, we plan to deliver results by developing an artificial intelligence (AI) platform that analyzes safety inspection data collected by swarm drones in collaboration with Pablo Aviation."