SK Inno Achieves Record High Sales of 78 Trillion KRW Last Year... Q4 Returns to Loss (Update)

Decline in Oil Prices Shrinks Refining Margins and Inventory Losses
Battery Business Achieves Quarterly Record Sales of 2.8 Trillion Won

SK Innovation achieved its highest annual performance last year, driven by the expansion of its battery and materials businesses. However, the fourth quarter turned to a loss due to a decline in refining margins caused by falling oil prices.

On the 7th, SK Innovation announced through its earnings report that it achieved annual sales of KRW 78.0569 trillion and an operating profit of KRW 3.9989 trillion for 2022. Compared to the previous year, sales increased by KRW 31.2035 trillion and operating profit by KRW 2.2572 trillion, marking an all-time high.

Refining margin improvement due to rising oil prices in the first half... Loss in Q4 due to oil price decline in the second half

In the fourth quarter of 2022, sales amounted to KRW 19.1367 trillion, with an operating loss of KRW 683.3 billion. Compared to the previous quarter, sales decreased by KRW 3.6167 trillion, and operating profit turned to a loss. Compared to the same period last year, sales increased by KRW 5.415 trillion, but operating loss widened to KRW 621 billion.

SK Innovation explained, "Despite the operating loss in Q4 2022 due to inventory losses from falling oil prices and shrinking refining margins, we achieved the highest annual operating profit. The annual performance significantly improved compared to the previous year, thanks to refining margin improvements driven by rising oil prices and increased demand for petroleum products until the first half, especially a substantial increase in petroleum product export volumes."

Last year, petroleum products rose three ranks to second place among the country's major export items. SK Innovation's petroleum product export volume last year was 140 million barrels, a 37.7% increase compared to the previous year. Including overseas subsidiaries' sales, SK Innovation's exports in petroleum, chemical, lubricants, battery, and battery materials businesses accounted for 72% of total sales last year.

This year’s market conditions are expected to be highly volatile due to mixed concerns about economic recession and expectations for China's reopening. However, international oil prices and refining margins are forecasted to remain high due to structural supply shortages caused by geopolitical issues. The battery business is expected to benefit up to approximately KRW 4 trillion from 2023 to 2025 once detailed implementation rules related to the Inflation Reduction Act (IRA) are announced.

Looking at SK Innovation's annual performance by business last year: ▲Petroleum business sales of KRW 52.5817 trillion, operating profit of KRW 3.3911 trillion ▲Chemical business sales of KRW 11.0269 trillion, operating profit of KRW 127.1 billion ▲Lubricants business sales of KRW 4.9815 trillion, operating profit of KRW 1.0712 trillion ▲Petroleum development business sales of KRW 1.5264 trillion, operating profit of KRW 641.5 billion ▲Battery business sales of KRW 7.6177 trillion, operating loss of KRW 991.2 billion ▲Materials business sales of KRW 235.1 billion, operating loss of KRW 48 billion.

The refining and chemical market in 2023 is expected to remain robust due to the easing of COVID-19 in China and recovery of domestic real demand. In particular, refining margins are expected to stay high as supply constraints are compounded by the EU's sanctions on Russian petroleum products and OPEC+'s continued production cuts. The chemical business is expected to see improved polyethylene (PE) and polypropylene (PP) spreads due to demand recovery following China's easing of lockdown policies, while the lubricants business is expected to maintain solid spreads amid tight base oil supply caused by sanctions on Russia.

Battery business achieves highest quarterly sales... Sales growth expected to continue with ramp-up of overseas new plants

The battery business is expected to maintain steep sales growth this year through the ramp-up of new overseas plants. Additionally, it plans to continuously improve profitability based on negotiation power driven by the expansion of the electric vehicle market and increased battery demand. The materials business also aims to enhance profitability through sales expansion and securing cost competitiveness.

In the fourth quarter of last year, each business recorded the following: ▲Petroleum business sales of KRW 12.1538 trillion, operating loss of KRW 661.2 billion ▲Chemical business sales of KRW 2.4159 trillion, operating loss of KRW 88.4 billion ▲Lubricants business sales of KRW 1.296 trillion, operating profit of KRW 268.4 billion ▲Petroleum development business sales of KRW 327.9 billion, operating profit of KRW 116.6 billion ▲Battery business sales of KRW 2.8756 trillion, operating loss of KRW 256.6 billion ▲Materials business sales of KRW 42.5 billion, operating loss of KRW 4.9 billion.

The petroleum business turned to a loss compared to the previous quarter due to inventory-related losses caused by falling oil prices but reduced the decline in profits by expanding overseas sales of high-margin products amid volatile market conditions. The chemical business turned to a loss due to margin declines from weak aromatic spreads and increased fixed costs, while the lubricants business saw a decrease in operating profit compared to the previous quarter due to seasonal off-season sales declines. The petroleum development business's operating profit decreased compared to the previous quarter due to falling oil and gas prices despite increased sales volume.

The battery business achieved its highest quarterly sales due to increased sales volume from new plant operations, but operating loss widened compared to the previous quarter due to increased fixed costs from expanded production at overseas new plants. The materials business improved operating profit compared to the previous quarter thanks to increased sales of products to major customers.

Meanwhile, SK Innovation decided to implement a year-end dividend for 2022 with a payout ratio of about 30%, adhering to its mid-term dividend policy. Considering the uncertain management environment and large-scale investment expenditures in 2023, it plans to conduct a stock dividend using treasury shares, with the final decision on dividends to be made at the shareholders' meeting.

Kim Yang-seop, Chief Financial Officer of SK Innovation, said, "Despite the high volatility this year, we will continue to generate profits through operational optimization under a stable financial structure. To leap forward as an eco-friendly energy & materials company, we will steadily proceed with clean energy production for the transition to an electrified society and the development and investment of an eco-friendly portfolio centered on the circular economy."

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