SK Innovation's Operating Profit Last Year 1.2693 Trillion KRW... 39.6% Decrease YoY (Comprehensive)

[Asia Economy Reporter Park So-yeon] SK Innovation announced on the 31st that its consolidated operating profit for last year was tentatively estimated at 1.2693 trillion KRW, a 39.6% decrease compared to the previous year.

Sales amounted to 49.8765 trillion KRW, down 8% from the previous year. Net profit was 65.8 billion KRW, a 96.1% decrease.

Operating profit in the fourth quarter was 122.4 billion KRW, turning to a profit compared to an operating loss of 285.5 billion KRW in the same period last year.

SK Innovation explained that recording such operating profit amid the overall downturn in the petroleum and chemical industries was due to the stable support from the portfolio of chemical and lubricant businesses, which have been strongly promoted so far.

However, in the fourth quarter, non-operating losses of 547.5 billion KRW, including 288.8 billion KRW from impairment of oil development business blocks, occurred, resulting in a total pre-tax loss of 425 billion KRW.

In the fourth quarter of last year, the petroleum business recorded sales of 8.4631 trillion KRW and operating profit of 111.4 billion KRW. Although refining margins were weak due to declines in diesel and fuel oil crack spreads, inventory valuation gains increased as oil prices rose, increasing operating profit by 45.5 billion KRW compared to the previous quarter. SK Innovation expects profitability to improve this year as the global economy recovers and the International Maritime Organization’s ‘IMO2020’ regulation limiting sulfur content in ship fuels increases diesel demand.

The chemical business recorded sales of 2.1632 trillion KRW and operating profit of 7.3 billion KRW in the fourth quarter. Operating profit decreased by 186.3 billion KRW compared to the previous quarter due to reduced demand from the global economic downturn, which lowered spreads on olefin and aromatic products, and increased supply from new facility operations. Although margin weakness is expected to continue for some time this year, significant PTA facility expansions are planned, which is expected to increase PX demand.

The lubricant business posted sales of 699.8 billion KRW and operating profit of 86.9 billion KRW in the fourth quarter, similar to 89.9 billion KRW in the previous quarter. SK Innovation expects profitability to improve this year as environmental regulations tighten, increasing demand for high-quality Group Ⅲ base oils.

The oil development business recorded sales of 165.2 billion KRW and operating profit of 41.2 billion KRW in the fourth quarter. Operating profit decreased by 7.3 billion KRW compared to the previous quarter due to increased operating costs in Peru’s Blocks 88 and 56. In particular, asset impairments were recognized in non-operating income and expenses due to declines in crude oil and gas prices.

The battery business posted an operating loss of 112.4 billion KRW in the fourth quarter due to increased sample costs for deliveries and research and development expenses. Additionally, inventory valuation losses increased, widening the loss by 69.7 billion KRW compared to the previous quarter. SK Innovation has actively continued facility investments, completing factories in China and Hungary at the end of last year and constructing additional factories in the United States and Hungary to meet increasing order volumes.

The materials business recorded operating profit of 23.4 billion KRW, a decrease of 2 billion KRW compared to the previous quarter due to costs related to regular maintenance. Investment in lithium-ion battery separator (LiBS) production facilities continues aggressively. In the fourth quarter of last year, two new lines at the Jeungpyeong plant began mass production, increasing annual production capacity from 360 million m2 to 530 million m2. In the third quarter of this year, a new production facility with a capacity of 340 million m2 is expected to start mass production in China. As a result, production capacity will significantly increase to 870 million m2, improving sales and profitability.

Despite the deterioration in refining margins in the petroleum business and product spread declines in the chemical business throughout 2019, SK Innovation built a stable business portfolio by recording operating profits of about 700 billion KRW in the chemical business and about 300 billion KRW in the lubricant business, achieving operating profits in the trillion KRW range.

The petroleum business recorded sales of 35.8167 trillion KRW and operating profit of 450.3 billion KRW due to the continued deterioration of refining margins since the second half of 2018. The chemical business posted sales of 9.5425 trillion KRW and operating profit of 705.7 billion KRW; the lubricant business recorded sales of 2.8778 trillion KRW and operating profit of 293.9 billion KRW; and the oil development business posted sales of 668.7 billion KRW and operating profit of 196.1 billion KRW.

The battery business, a newly focused growth area, recorded an operating loss of 309.1 billion KRW, slightly improved from the 317.5 billion KRW operating loss in 2018, despite factory expansions and increased research and development due to new orders. The materials business achieved operating profit of 106.6 billion KRW, an increase of 19.6 billion KRW (+22.5%) compared to the previous year.

Meanwhile, despite the deterioration in business performance, SK Innovation decided to enhance shareholder value by paying dividends and repurchasing treasury shares. First, a year-end dividend of 1,400 KRW per share will be paid. Including the interim dividend of 1,600 KRW per share paid in July last year, the total annual dividend amounts to 3,000 KRW. Additionally, by early May, the company plans to acquire 4,628,000 treasury shares, equivalent to 5% of issued shares, spending about 578.5 billion KRW.

Kim Jun, SK Innovation’s CEO, said, "Despite the worst management environment, we are strongly implementing deep changes, strengthening the company’s business and financial structure," adding, "This year, based on the strengthened structure, we will not only overcome difficulties but also turn these challenges into a new growth catalyst."

This content was produced with the assistance of AI translation services.