[Edaily Marketin Reporter LEE GEON-EOM ] YoulchonChemical(008730)has expressed its commitment to expanding its pouch battery business—a new growth engine—but finds itself in an awkward position as its core indicator, export performance, has plummeted. On top of this, observers point out that its profit structure is being severely shaken as even its cash cow—the packaging business—and its reliable source of captive orders from Nongshim are declining. With its shrinking cash generation capacity compounded by the burden of large-scale capital investments, the uncertainty surrounding YoulchonChemical appears to be deepening.

According to the Financial Supervisory Service’s electronic disclosure system on the 6th, YoulchonChemical listed “battery pouches” as a revenue item for the first time in the “Business Details” section of its first-quarter report this year. This marks the first time the company has separated this new growth engine—which had previously been mentioned only in the business description—from the revenue category previously lumped together under “Other Electronic Materials.” This move is interpreted as a sign that the company is shifting its focus toward the rechargeable battery materials business.

YoulchonChemical has been investing in the development and mass production of materials such as aluminum pouch films for rechargeable batteries since 2021, targeting the rapidly expanding electric vehicle market. This is the result of applying the know-how accumulated in the food packaging business to rechargeable battery aluminum pouches.

Although YoulchonChemical is promoting its rechargeable battery pouch business in this way, it has yet to produce tangible results. On the contrary, it is assessed that the company’s persistent losses are exacerbating its financial burden. Looking specifically at exports from the electronic materials division in the first quarter of this year, they totaled 31.7 billion won, an 11.4% decrease from the 35.8 billion won recorded in the same period last year. As the slowdown in electric vehicle demand drags on, the new business—which had been the focus of market expectations—appears to be holding the company back.

What is even more critical is that the company’s existing cash cow—which should serve as its mainstay—is also crumbling. As sales from its core business, which the company had relied on, have faltered, YoulchonChemical’s overall profitability metrics have also plummeted. YoulchonChemical’s consolidated operating profit for the first quarter was 561.37 million won, a sharp 94.5% drop from the 10.2 billion won recorded in the same period last year.

A breakdown by division reveals an even more complex situation. The packaging division, the company’s cash cow, posted an operating profit of 8.8 billion won, maintaining a profit level similar to that of the same period last year (9.1 billion won). The problem lies with the electronics materials division, a new business venture. The electronics materials division shifted from a profit of 6.8 billion won in the same period last year to a loss of 2.5 billion won in the first quarter of this year.

In addition, a loss of 5.7 billion won was recorded under the “Common Division and Others” category, which covers corporate overhead costs and adjustments for interdepartmental transactions. Ultimately, most of the profit generated by the packaging division was eroded by the electronics materials division’s shift to a loss and the loss in the common division, causing total operating profit to shrink to the 500 million won range.

The decline in captive volume, which had previously served as a safety net, also dealt a significant blow. Total revenue from transactions with related parties fell from 51.4 billion won in the same period last year to 49.1 billion won. Sales to Nongshim, a key client, decreased by approximately 6.3%, from 38.3 billion won to 35.9 billion won.

As a result, cash flow also slowed. With 16.4 billion won in cash tied up in working capital—including inventory buildup—both cash flow from operating activities and free cash flow (FCF) recorded net outflows. YoulchonChemical’s cash flow from operating activities and FCF for the first quarter of this year stood at minus (-) 6.5 billion won and minus (-) 8.7 billion won, respectively.

A negative FCF indicates that the company cannot cover even the essential costs of maintaining operations and funding investments with the cash generated from its core business alone. For YoulchonChemical, which must continue making large-scale capital investments to expand into new businesses, the deterioration in free cash flow will inevitably lead to an increase in external borrowing, acting as a trigger that exacerbates its financial burden.

In fact, YoulchonChemical’s reliance on external financing to cover its cash shortfall is placing a significant strain on its financial soundness. As of the end of the first quarter of this year, YoulchonChemical’s total debt (including lease liabilities) stood at approximately 284 billion won. The debt-to-asset ratio—the proportion of debt relative to total assets—has soared to 41.8%. Generally, an appropriate debt-to-asset ratio is considered to be 30% or less. Given this, observers point out that the company’s debt burden is currently quite excessive.

The actual debt burden, after deducting cash on hand, is even greater. YoulchonChemical’s net debt—calculated by subtracting cash and cash equivalents—stood at 267.4 billion won as of the end of the first quarter of this year. The net debt ratio—which represents the ratio of net debt to total capital (287.7 billion won)—stands at 92.9%. Given that the credit rating industry generally considers a net debt ratio of 50% to be appropriate, YoulchonChemical is exceeding this level by nearly double.

Regarding this, a representative of YoulchonChemical explained, “We plan to improve profitability in our new rechargeable battery pouch business through cost-efficiency measures,” adding, “Overall sales are showing a growth trend.”

The official added, “The decline in captive sales reflects the impact of the overall slump in domestic consumption,” and noted, “We expect performance to gradually improve starting in the second quarter.”