■ QoQ decrease in operating profit due to the drop in oil prices and refining margin, affected by concern about the global economic recession

– Operating profit of the refining business had a QoQ decrease by KRW 1.9126 trillion, caused by the drop in oil prices and refining margin, while the petrochemical business recorded increased operating profit backed by solid performance in the paraxylene spread, etc.

– The lubricants business accomplished its highest-ever quarterly operating profit, KRW 336 billion, and E&P recorded a decrease in its operating profit by a small margin due to the decreased sales volume

– The battery business recorded its all-time high quarterly sales of KRW 2.1942 trillion and improved profitability, while the materials business saw increased operating loss due to fluctuations in sales volume by product

■ Kim Yang-seob, Head of Finance Division Group of SK Innovation, said, “Amidst the highly volatile market environment, we strive to achieve steady and stable earnings and continue to make investments in green businesses”

On November 3 (local time), SK Innovation announced in its Q3 2022 earnings report that it accomplished sales of KRW 22.7534 trillion and operating profit of KRW 703.9 billion. The company achieved a YoY increase in sales by KRW 10.285 trillion and in operating profit by KRW 35.2 billion. In terms of QoQ financial results, the company’s sales increased by KRW 2.8481 trillion despite the decrease in operating profit by KRW 1.6253 trillion.

SK Innovation explained, “The lubricants business achieved an all-time high quarterly operating profit, and the battery business saw improved profitability. However, concern about the global economic recession led to decreased oil prices and refining margin, and this resulted in a decrease in the operating profit by a considerable margin.” He added, “On the other hand, what’s promising is that the sales had a QoQ increase by the refining business’s increased CDU operation rate and the improved production capacity of the battery business’s new production plants. Moreover, we expect to see a recovery in the refining margin due to the changing state of international affairs, such as the Russia-Ukraine War, and increased demand in heating oil for the upcoming winter.”

For the pre-tax income, SK Innovation recorded KRW 303.5 billion as non-operating loss of KRW 400.4 billion occurred by the increased loss related to the higher exchange rate, further bolstered by the strong dollar trend, and increased interest costs from the debt.

In addition, the net debt recorded KRW 13.8429 trillion, which is a KRW 5.43 trillion increase compared to the end of the last year, due to the facility investment for expanding the battery business.

When delving into details of performances by business area, the refining business achieved operating profit of KRW 316.5 billion, a QoQ decrease by KRW 1.9126 trillion due to the decreased oil prices and refining margin, which were affected by the global trend of the reinforced retrenchment and China’s announcement on a large-scale oil products export quota. However, in terms of trading, by taking advantage of the highly volatile market condition, the refining business minimized its margin of decrease in profit by increasing sales of products with a high profit margin and expanding profit-generating opportunities in the bunker fuel market by utilizing economic feasibility of heavy oil blending.

The petrochemical business recorded operating profit of KRW 108.3 billion, a QoQ increase by KRW 32.3 billion. Although the decrease in the naphtha price led to a loss related to inventory, the solid paraxylene (PX) spread and increased exchange rate led to improved profit margin and, consequently, the increase in the operating profit.

The lubricants business achieved the highest-ever quarterly operating profit of KRW 336 billion, a QoQ increase by KRW 80.8 billion. Although there was a drop in the production cost followed by the decreased oil prices, the business achieved an improved spread by maintaining a steady selling price of products due to a tight global supply-and-demand balance.

The E&P business recorded operating profit of KRW 160.5 billion, a QoQ decrease by 5.7 billion due to the decreased sales volume despite its reduced cost of goods sold.

In terms of the battery business, it recorded sales of KRW 2.1942 trillion, a QoQ increase by KRW 906.2 billion. The business achieved an increased sales volume as the operation of its new production plants in the US and Europe is on track, along with increased selling prices of products that reflected the increased raw material prices. For its operating profits and losses, its profitability was improved significantly through the selling price adjustment to reflect the increased raw material prices. This led to the improved profitability with an operating loss of KRW 134.6 billion. In particular, the battery business’s EBITDA, which indicates the company’s capabilities to generate cash profit, recorded KRW 9.4 billion, and it was the business’s first quarter turning it in the black. In 2023, including Q4 2022, it is expected that the battery business will maintain its growth in sales through the improved production capacity of new production plants, such as Plant No. 2 in the US and Plant No. 2 in Yancheng, China, and continue to improve the profitability through the selling price adjustment.

Despite recording a sales volume similar to that of the previous quarter, decreased sales following fluctuations in sales volume of products by type and increased one-off costs led the material business to have operating loss of KRW 27 billion.

Kim Yang-seob, Head of Finance Division Group of SK Innovation, said, “Amidst the highly volatile market environment, we strive to achieve steady and stable earnings through the expanded operation of our advanced facilities and optimization in business operation.” He added, “To achieve SK Innovation’s new vision, ‘All Time Net Zero,’ we will continue to make investments for accelerating the company’s green transformation.”

[Attached]

(*) Refining: SKE, SKTI, SKIPC refining business/ petrochem: SKGC, SKIPC petrochemical business
(**) Materials : Based on consolidated financial statements of SK Innovation, which removed internal transactions of SK Innovation affiliates.