SK Innovation Battery Business Achieves Record High Sales and Minimal Losses

Battery Business Quarterly Record High Sales of 3.6 Trillion KRW
Operating Loss Rate at Historic Low of -3.5%

Oil Business Operating Loss of 411.2 Billion KRW
Chemical Business Operating Profit of 170.2 Billion KRW

"Gradual Improvement After Refining Margin Bottom
Full Recovery Expected in Second Half"

Vice Chairman Kim Jun of SK Innovation is presiding over the '16th Annual General Meeting of Shareholders of SK Innovation' held on March 30 this year at the SUPEX Hall in the SK Seorin Building, Seorin-dong, Jongno-gu, Seoul. From the left in the photo are Kim Yang-seop, Head of Finance at SK Innovation; Kim Jun, Vice Chairman of SK Innovation; Ji Dong-seop, President of SK On; and Na Kyung-su, President of SK Geocentric, answering shareholders' questions during the 'Dialogue with Shareholders' session. Photo by SK Innovation

SK Innovation's battery business division (SK On) recorded its highest quarterly sales ever along with the lowest operating loss rate in history (-3.5%), signaling an imminent turnaround to profitability.

On the 28th, SK Innovation announced its Q2 results for this year, reporting sales of KRW 18.7272 trillion and an operating loss of KRW 106.8 billion. Compared to the same period last year, sales fell by 5.9%, and operating profit shifted to a loss from KRW 2.3292 trillion. Compared to the previous quarter, sales and operating profit decreased by KRW 415.7 billion and KRW 481.8 billion, respectively. Last year, oil refiners posted exceptional results due to the surge in international oil prices and high refining margins caused by the Russia-Ukraine war.

SK Innovation stated, "The oil business was affected by falling oil prices and refining margins amid concerns of economic slowdown in Q2," but added, "The chemical business maintained a robust aromatic market centered on paraxylene (PX), and the battery business minimized losses thanks to improved yield rates at new plants and the effect of the Advanced Manufacturing Production Credit (AMPC) under the U.S. Inflation Reduction Act (IRA)."

Lowest Operating Loss Rate in History -3.5%... Battery Profit Turnaround Imminent

The battery business showed remarkable progress. Since its spin-off and launch in Q4 2021, SK On achieved its highest quarterly sales ever (KRW 3.6961 trillion). Operating loss was KRW 131.5 billion, reduced by about KRW 210 billion compared to the previous quarter. The operating loss rate gradually decreased from -29.4% at launch to around -3.5% in Q2 this year. EBITDA (earnings before interest, taxes, depreciation, and amortization) turned positive again at KRW 72.5 billion, following a KRW 9.4 billion profit in Q3 last year.

SK Innovation said, "The battery business achieved sales growth of 12% compared to the previous quarter (KRW 3.3053 trillion) and 187% compared to the same period last year (KRW 1.288 trillion) due to productivity improvements and increased customer demand," adding, "Sales in the first half of this year reached KRW 7 trillion, a significant increase from KRW 2.5 trillion in the first half of last year." The inclusion of AMPC benefits (KRW 167 billion) in the first half improved operating profit, and further profit improvements are expected in the second half due to increased sales volume and expanded AMPC benefits. SK On is sequentially operating overseas base plants, mainly in North America, stabilizing process yields by sequentially operating plants 1 and 2 in Georgia, USA, since last year.

Regarding the oil business, SK Innovation stated, "With expectations of easing U.S. monetary tightening and a strong peak travel season, a favorable business environment is expected from both demand and supply perspectives, leading to improvements throughout the second half."

Looking at performance by business segment, the oil business recorded an operating loss of KRW 411.2 billion, down KRW 686 billion from the previous quarter due to falling refining margins amid economic slowdown concerns. The chemical business achieved an operating profit of KRW 170.2 billion, up KRW 61.3 billion from the previous quarter, despite inventory-related losses from naphtha price declines and reduced byproduct sales such as hydrogen, thanks to a robust PX-centered market. The lubricant business improved margins due to cost reductions from falling oil prices, posting an operating profit of KRW 259.9 billion, up KRW 700 million from the previous quarter. The oil development business recorded an operating profit of KRW 68.2 billion, down KRW 45.3 billion from the previous quarter due to falling oil and gas prices despite increased sales. The materials business recorded an operating loss of KRW 100 million, narrowing its deficit by KRW 3.9 billion from the previous quarter due to sales volume increases from major customers.

Source=SK Innovation

U.S. Monetary Tightening Easing & Battery New Plant Stabilization... SK Innovation Expects Profitability Improvement in Second Half

The outlook for the oil business in the second half anticipates a gradual rise in refining margins due to expected easing of U.S. monetary tightening, the arrival of the driving season, recovery in travel demand boosting demand for petroleum products such as gasoline and jet fuel, and improved supply-demand conditions from the Asian region's regular maintenance season.

In the chemical business, polyethylene (PE) and polypropylene (PP) are expected to see gradual improvement despite ongoing supply-side burdens and delayed demand recovery, influenced by demand during China's National Day holiday (October). PX is expected to maintain a stable spread (margin) due to increased supply from the restart of large PX facilities in China. The lubricant business expects a price decline due to eased base oil supply following the completion of maintenance in Asia, but robust spreads are likely to be maintained due to the driving season and increased demand from China's reopening.

The battery business is expected to continue its sales growth and profitability improvement trend due to early stabilization of new plants and increased sales from customers. Particularly, AMPC benefits are expected to increase significantly in the second half compared to the first half, leading to further profit improvements. The materials business is also expected to see gradual profit improvement due to increased sales of separators.

Continued Investment in Future Energy such as Ammonia and Bioenergy

SK Innovation also revealed the background and market outlook for commercialization in new business areas related to future energy investments. In its recently released ESG report, SK Innovation announced a mid-term strategy to invest KRW 1.079 trillion in future energy technologies and businesses by 2026.

SK Innovation is investing in companies with promising future energy technologies, including Amoji (ammonia-based hydrogen fuel cells), Fulcrum BioEnergy (synthetic crude oil production through waste gasification), and Airrain (specializing in gas separation membranes). Additionally, it plans to continue further investments and joint research and development in the future energy sector using funds raised through a recent rights offering.

SK Innovation stated, "We will continue efforts to enhance corporate value through strengthening our green portfolio, including batteries, and transforming existing petrochemical businesses into eco-friendly business models."

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