Enginetech saved by its smartsEnginetech, founded in 1999, is a company that manufactures engines and power generators, in particular those that use gas.
The company had an especially strong presence in remodeling gasoline or diesel engines to liquefied petroleum gas (LPG) engines and collected 20 billion won ($18.8 million) in sales in 2010. But with competition from other small companies increasing, its revenue from LPG engine remodeling were cut to one-fourth in 2011.
For the past three years, this company couldn’t make a net profit and even reached a point when it couldn’t pay its employees’ salaries, following 15 billion won worth of debt maturity. The worsened financial situation meant the company couldn’t secure new projects, making it difficult to escape from the slump.
However, what saves the life of SMEs is the technology they have. Fortunately, Enginetech had various patents and a good reputation in engine remodeling technology, and it was also a nationally-certified engine testing company.
Though the company was suffering a temporary liquidity crunch and changes in the market, the executives were not afraid of restructuring. After the plan was successfully executed, Enginetech slowly recovered its business.
The advisers focused on enhancing the company’s financial health. Enginetech first had to postpone the debt maturity date through so-called “fast track” financing, and selling assets and cutting employees was inevitable to reduce costs.
The restructuring also pushed Enginetech to focus on its competitive advantages and diversify away from its LPG engine remodeling business. The company started to concentrate on gas heat pumps (GHPs) and biogas-powered generators. It also acquired a green technology certificate from the Ministry of Environment on remodeling the fuel injection systems of compressed natural gas (CNG) engines and generating power from biogas engines.
An improved website and promotional public relations efforts have also been helpful in attracting new buyers. It is important that the company lets business partners know what kind of technology it has.
Receiving investment from the Korea Business Angels Association was also a boost for the company. Drawing this kind of investment leads to attention from other institutional investors and now financial institutions are considering a debt-to-equity swap.
This year, the company has secured a stable source of revenue. Its GHP business has LG Electronics as a buyer, while it is expected to sell more biogas-powered generators since the government is strengthening regulations on food waste.
This year, the company is expected to collect 14 billion won of revenue, which is about 25 percent higher than last year, and should return to the black. I expect that Enginetech’s technology, which is more developed than that of other SMEs, will allow the company to continue to improve its profitability.
By JO SANG-KYUN Consultant at the Center for Large and Small Business Cooperation of the Federation of Korean Industries.