[At a Crossroads] Autec to Cut 60 Employees... Responsibility of Chairman Kang Sunghee in Question

Autec Suffers from Owner Family's Expedient Succession and Pursuit of Private Interests
Profitability to Be Improved Through Workforce Reduction... Owner's Responsibility in the Spotlight

KOSDAQ-listed company Autec has announced plans to lay off around 60 employees as part of its normalization strategy. This move effectively shifts the burden of the company's financial troubles onto its employees. Meanwhile, Kang Sunghee, chairman of Autec, who has reportedly benefited from high salaries and logistics-related expenses, has not proposed any measures to take responsibility, which is expected to spark controversy.

According to the Financial Supervisory Service's electronic disclosure system on May 2, Autec stated in its securities registration statement, "To improve profitability, we plan to reduce the average monthly workforce, including production workers at our affiliate Autec Carrier, by about 60 people." Considering that Autec Carrier had 403 employees at the end of last year, this means approximately 15% of the workforce will be laid off.

The company also announced, "Starting this year, we will discontinue the home appliance business, which incurs high storage costs, reducing our logistics warehouse space by about 8,500 pyeong, and we plan to save approximately 4 billion KRW in costs and improve inventory turnover efficiency." It added, "At the same time, we will expand our system business, which has lower storage costs, to pursue external growth."

However, Autec did not present any measures to resolve transactions with Chairman Kang's family companies, which have been identified as a cause of the group's poor performance, nor did it address the issue of transparent management. The company also did not comment on Chairman Kang's high salary.

Recently, Autec Group has been criticized for poor performance allegedly caused by Chairman Kang's expedient succession practices and pursuit of personal interests. In fact, Autec reportedly increased its inventory excessively based on management decisions, leading to large-scale logistics expenses, most of which ultimately flowed to Chairman Kang's family companies.

More specifically, Autec Carrier, the manufacturer of 'Carrier Air Conditioner' and the group’s largest revenue contributor, began to see a sharp decline in performance starting in 2020.

Autec Carrier posted an operating profit of 27.4 billion KRW in 2019, but this dropped to 400 million KRW in 2020. The company continued to underperform in 2021 with an operating profit of 1 billion KRW, and in 2022, it recorded a massive operating loss of 23.1 billion KRW. The company has remained in the red through last year.

One of the main reasons for Autec Carrier’s declining performance is the sharp increase in logistics costs. Since 2020, Autec Carrier has drastically reduced its factory operating rate. The factory utilization rate, which was 85% in 2019, fell to around 57% in 2020. The rate continued to drop each year, reaching about 43% last year.

In contrast to the declining factory utilization rate, Autec Carrier’s inventory assets increased sharply. Inventory, which stood at around 100 billion KRW in 2018, rose to about 160 billion KRW in 2020. It is analyzed that the company increased inventory by purchasing products such as Carrier Air Conditioner from subcontractors rather than manufacturing them directly. As a result, logistics costs, including warehouse storage fees, surged.

The company responsible for Autec Carrier’s logistics is FDCIS. FDCIS was a subsidiary of Autec until 2017, but since 2018, its largest shareholder has been SH Global. SH Global is a family company in which Chairman Kang holds a 20% stake, and his two sons, Kang Shinwook, executive director at Autec, and Kang Shinhyung, managing director at Autec, each hold 40%. Since Chairman Kang’s family company became the largest shareholder of FDCIS, logistics costs for group companies such as Autec Carrier have soared.

Moreover, Chairman Kang has received annual salaries amounting to several hundred million KRW even as Autec Group as a whole has recorded losses.

In response, an Autec official stated, "The plan to reduce 60 employees at Autec Carrier includes natural attrition last year and this year, as well as employees reaching retirement age next year. Some adjustments have been made to improve the company's profit margins." The official added, "Chairman Kang's salary is determined and executed as a lump sum by the board of directors, and since this is a matter of personal information, we cannot disclose details beyond what is publicly reported."

The official continued, "The company is considering various measures to enhance shareholder value, and in this rights offering, Chairman Kang and other major shareholders plan to participate 100% in their allotted shares."

Meanwhile, Autec is conducting a shareholder-allotted rights offering worth 18.3 billion KRW. Of this, 12 billion KRW will be used to improve the financial structure of its subsidiary CRK. CRK plans to use the funds received from Autec to repay loans taken out to acquire FDCIS redeemable preferred shares. In effect, this means that Autec shareholders' money is being funneled to FDCIS.