Improving Performance Based on the Medium-Term Management Plan and Securing Support from Financial Institutions

「W-SCOPE CHUNGJU PLANT CO., LTD. (WCP) listed its shares on the KOSDAQ market, Korea's securities market, on 30 September 2022. Of the KRW432,000 million raised, approximately ¥1,000 million before tax came from our company's secondary offering of shares.」

「Since the fourth quarter of the previous fiscal year, our group has continued to expand sales, particularly to customers with which we have entered into long-term supply agreements, while optimizing production and working to generate sustainable profits. As a result, net sales for the six months ended the second quarter of the current fiscal year were ¥20,198 million, operating profit was ¥2,755 million and ordinary profit was ¥3,517 million. Accordingly, as of the date of submission of this quarterly securities report, we believe that the likelihood of achieving positive operating profit and positive cash flow from operating activities for the current fiscal year is high.」

「To resolve these events or circumstances, our group has increased sales by expanding shipments of high-end automotive batteries and other products under long-term supply volume agreements with customers. In addition, by operating WCP's newly established large-scale coating line, we shifted products previously manufactured by WSK to production on WCP's new line, switched the product categories manufactured, optimized production and promoted cost reductions. As a result, WSK has reported operating profit since the fourth quarter of the previous fiscal year. Since that quarter, our group has continued to work to generate sustainable profits by expanding sales, particularly to customers with which we have entered into long-term supply agreements, while optimizing production. As a result, net sales for the first quarter of the current fiscal year were ¥8,899 million, operating profit was ¥439 million and ordinary profit was ¥542 million. Accordingly, as of the date of submission of this quarterly securities report, we believe that the likelihood of achieving positive operating profit and positive cash flow from operating activities for the current fiscal year is high. In terms of funding, we plan to cover our working capital needs while using funds from WSK.」

「We plan to raise ¥200 million from financial institutions in February 2022 and cover our working capital needs while using funds from WSK, which has returned to operating profitability from the fourth quarter.」

「To resolve these events or circumstances, our company plans to raise funds through borrowings and other means. At WSK, products previously manufactured by WSK will be shifted to production on WCP's newly established large-scale coating line, and product categories will be switched accordingly. We will optimize production, promote cost reductions and work toward profitability. In terms of funding, WSK is considering borrowings from financial institutions secured by equipment and other assets.」

「In terms of funding, during the second quarter of the current fiscal year, we issued 9,000 thousand new shares through an overseas offering on 13 April 2021 and raised ¥6,052 million. With respect to long-term borrowings subject to financial covenant breaches, we entered into agreements with each financial institution to amend the repayment terms and other conditions, and provided part of the funds raised through the overseas offering of new shares as collateral to the financial institutions. As a result, at the end of the second quarter of the current fiscal year, the balance of long-term borrowings subject to financial covenant breaches, excluding borrowings secured by collateral, was ¥4,814 million.」

「On 13 April 2021, the Company issued 9,000 thousand new shares through an overseas offering and raised ¥6,052 million.」

「To secure funds for the repayment of long-term borrowings from financial institutions, we raised ¥500 million in February 2021 through the issuance of the first series of unsecured bonds with guarantees to Macquarie Principal Asia Pte Ltd. In March 2021, we entered into a loan agreement with Taihei Financial Service Co., Ltd. and raised ¥500 million. In addition, at a Board of Directors meeting held on 29 March 2021, we resolved to issue new shares through an overseas offering, with 9,000 thousand shares to be issued on the payment date of 13 April 2021 to raise funds.」

「To resolve this situation, our group is working to increase earnings by expanding shipments of high-end automotive batteries and other products under long-term supply volume agreements previously concluded with customers, and by beginning production and sales of EV separators for new customers in the third quarter. On the cost side, we continue to pursue cost reductions through higher utilization of manufacturing lines and improved yields, with the aim of returning to profitability from the fourth quarter onward.」

「In terms of funding, during the second quarter of the current fiscal year, we entered into amendment agreements with each financial institution concerning borrowings subject to financial covenants and other conditions. We obtained agreement from all financial institutions and other lenders not to exercise their right to demand the loss of the benefit of time arising from covenant breaches at the end of the previous fiscal year, on the conditions that our two Korean subsidiaries, W-SCOPE KOREA CO.,LTD. and W-SCOPE CHUNGJU PLANT CO., LTD., provide guarantees, repayment terms are revised, and collateral is provided.」

「For borrowings subject to financial covenants and other conditions, we have obtained agreement from all financial institutions and other lenders not to exercise their right to demand the loss of the benefit of time arising from covenant breaches at the end of the previous fiscal year, on the conditions that our two Korean subsidiaries, W-SCOPE KOREA CO.,LTD. and W-SCOPE CHUNGJU PLANT CO., LTD., provide guarantees, repayment terms are revised, and collateral is provided. We are currently proceeding with the execution of memoranda of understanding and other procedures relating to these conditions.」

「To resolve this situation, the group is working toward a return to profitability next fiscal year through increased shipments for high-end automotive batteries and other products based on previously concluded long-term supply-volume agreements with customers, as well as cost reductions resulting from higher production-line operating rates. On the funding side, we explained the business plan for next fiscal year and beyond to each financial institution and other party. As a result, we obtained agreements from all financial institutions and others to waive the exercise of their right to demand the loss of the benefit of time, subject to the provision of guarantees by the two Korean subsidiaries, W-SCOPE KOREA CO., LTD. and W-SCOPE CHUNGJU PLANT CO., LTD., for our borrowings, and the fulfillment of conditions for revising the repayment terms of our borrowings and establishing collateral.」

「To resolve this situation, the group is firmly working toward a return to profitability next fiscal year through increased shipments for new EV projects based on previously concluded long-term supply-volume agreements with customers, cost reductions resulting from higher production-line operating rates and other measures. On the funding side, we are maintaining a framework for continued support through close communication with financial institutions holding existing loan balances, while pursuing specific discussions with multiple financial institutions and others regarding financing to steadily implement the medium-term management plan.」

「From the third quarter onward, in addition to working to generate operating profit through increased shipments for new EV projects based on previously concluded long-term supply-volume agreements with customers and cost reductions resulting from higher production-line operating rates, we will maintain a framework for continued support through close communication with financial institutions holding existing loan balances. We are also engaged in specific discussions with multiple financial institutions and others regarding financing to steadily implement the medium-term management plan.」

「If the financial covenants apply, we will lose the benefit of time under the loan agreements. To resolve this situation, we have explained the circumstances to each financial institution and have already obtained agreements from all financial institutions to waive application of the financial covenants.」

「We have already reached agreements with some financial institutions to waive the covenants. We continue to work to obtain the understanding of the other financial institutions regarding our earnings plan, capital investment plan and other matters, and believe that we will be able to secure a sufficient support framework for the future.」

「To resolve this situation, we will explain to each financial institution the medium-term management plan disclosed on 9 August 2018 and work to obtain their understanding of our earnings plan, capital investment plan and other matters. We believe this will enable us to secure a sufficient support framework for the future.」