SK Inno Reports Operating Profit of 1.9 Trillion KRW Last Year, Down 51% YoY... Plans to Cancel 790 Billion KRW of Treasury Shares

Sales of 77.2 Trillion Won... Battery Sales Increase by 70%
Large-scale Orders Expected to Boost Mid-to-Long-Term Operating Rate and Profitability

SK Innovation recorded an operating profit of 1.9039 trillion KRW last year, showing a decline of about 51% compared to the previous year's (2022) record-high operating profit of 3.9173 trillion KRW. SK Innovation achieved its highest-ever sales in the battery business and decided to cancel all treasury shares to enhance shareholder value.

Battery Business Achieves Record-High Sales... Operating Loss Also Reduced

On the 6th, SK Innovation announced its Q4 earnings for last year, reporting annual sales of 77.2885 trillion KRW and an operating profit of 1.9039 trillion KRW. Compared to the previous year, sales decreased by 768.4 billion KRW and operating profit by 2.0134 trillion KRW. Last year's annual performance by business segment was as follows: ▲ Petroleum business 47.5506 trillion KRW · 810.9 billion KRW (sales · operating profit respectively) ▲ Chemical business 10.7442 trillion KRW · 516.5 billion KRW ▲ Lubricant business 4.6928 trillion KRW · 997.8 billion KRW ▲ Petroleum development business 1.1261 trillion KRW · 368.3 billion KRW ▲ Battery business 12.8972 trillion KRW · -581.8 billion KRW ▲ Material business 192.8 billion KRW · 11 billion KRW.

SK Innovation explained, "The battery business recorded annual sales of 12.8972 trillion KRW last year, an increase of about 70% compared to the previous year, marking the highest sales ever. In particular, thanks to expanded orders from existing and new customers, the order backlog at the end of last year exceeded 400 trillion KRW, which is expected to increase mid- to long-term utilization rates and profitability."

Additionally, SK Innovation decided to cancel all treasury shares within the scope of distributable profits by board resolution instead of cash and in-kind dividends for the last fiscal year. The total number of shares canceled was 4,919,974, with a book value of 793.6 billion KRW. This exceeds the previously announced dividend payout ratio of 30%, representing a shareholder return policy. Including dividends and treasury share cancellations based on last year's performance, the shareholder return rate was 319%. SK Innovation plans to continue efforts to enhance shareholder value in the future.

In Q4 of last year, performance declined due to external factors such as weak refining margins and falling metal prices. Q4 sales were 19.5293 trillion KRW, and operating profit was 72.6 billion KRW. Compared to the previous quarter, sales and operating profit decreased by 359.8 billion KRW and 1.4905 trillion KRW, respectively. Compared to the same quarter last year, sales increased by 392.6 billion KRW, and operating profit turned positive. Q4 performance by business segment was as follows: ▲ Petroleum business 12.878 trillion KRW · -165.2 billion KRW (sales · operating profit respectively) ▲ Chemical business 2.452 trillion KRW · 400 million KRW ▲ Lubricant business 1.0942 trillion KRW · 217 billion KRW ▲ Petroleum development business 310 billion KRW · 107.1 billion KRW ▲ Battery business 2.7231 trillion KRW · -18.6 billion KRW ▲ Material business 50 billion KRW · 11.6 billion KRW.

Last Year’s Weak Refining Margins and Metal Prices... Possibility of Reversal This Year

In particular, the petroleum business turned to a loss compared to the previous quarter due to weak refining margins and inventory-related losses caused by falling oil prices. The chemical business saw a decrease in operating profit compared to the previous quarter due to margin declines from reduced product spreads and volume decreases caused by scheduled maintenance. The lubricant business maintained steady demand despite the seasonal off-season but experienced a decrease in operating profit compared to the previous quarter due to inventory effects from falling oil prices. The petroleum development business increased sales and operating profit compared to the previous quarter as sales volume rose with the start of operations at China’s '17/03 block' despite falling oil prices.

The battery business achieved improved profitability by minimizing operating loss rates through enhanced competitiveness via global site yield improvements and overall productivity improvements at overseas subsidiaries, as well as cost reductions from corporate expense cuts, despite the lagging effect caused by falling metal prices. The material business increased operating profit compared to the previous quarter due to cost improvement effects such as reduced production costs and incentives reflected in the Chinese subsidiary. The lagging effect refers to the time lag in raw material input, indicating periods when margins shrink or losses are expected.

This year, the petroleum business outlook expects refining margins to strengthen due to possible additional production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC major oil-producing countries (OPEC+), as well as China's economic stimulus measures. The chemical business anticipates gradual improvement in paraxylene (PX) spreads supported by continued high utilization rates of large-scale Chinese facilities and recovery in gasoline blending demand. The lubricant business expects gradual spread improvement after the winter off-season ends. The petroleum development business expects growth in scale and profits due to increased crude oil production from China’s 17/03 block.

The battery business aims to improve its structure by focusing on profitability, with full-scale growth centered in the U.S. expected from the second half of the year. It plans to sustain growth through new site operations and increased shipments, targeting significant profitability improvements through cost competitiveness and expense reductions. The material business will continue to strengthen mid- to long-term competitiveness by diversifying its customer portfolio despite uncertain demand forecasts in the upstream industry.

Kim Jin-won, Chief Financial Officer of SK Innovation, said, "Despite high external uncertainties, we will closely monitor market conditions and continue to generate profits under a stable financial structure. Through this, we will do our best to continuously enhance corporate value."

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