■ KRW 46.8429 trillion for annual sales and KRW 1.7656 trillion for operating profit in 2021

– Along with the increase of the oil price, significant improvements in the profit margin of petrochemicals/lubricants contributed to the turnaround of operational profit

■ For the first time, the battery business broke through the KRW trillion ceiling in quarterly sales, annual sales hit KRW 3 trillion and expected to reach KRW 6 trillion in 2022

– Due to a sharp increase in new clients’ supply, production capacity has been raised to 77GWh, based on the year-end.

■ “In the midst of changes in the management environment, SK Innovation will strongly push ahead with the Carbon to Green Strategy to accomplish Net Zero and draw a big picture,” said Kim Jun, Vice Chairman & CEO of SK Innovation.

SK Innovation has announced its annual performance on the 28th that it has successfully made a turnaround of its operating profit in 2021. Despite the global pandemic, core businesses have recovered thanks to high demand for oil products, etc., leading to annual sales of KRW 46.8429 trillion and operating profit of KRW 1.7656 trillion.

In the last quarter of 2021, SK Innovation revenue hit KRW 13.7213 trillion, an increase by KRW 1.2569 trillion from the previous quarter led by the QoQ increase in the oil and oil product price and a favorable turn in sales volume of EV battery. However in Q4, SK Innovation recorded an operating loss of KRW 47.4 billion due to the effect of the lower of cost and one-off costs.

Meanwhile, on January 4 this year, the disposal contract of the Peruvian Blocks 88/56 was revoked. Reflecting the operating profit and loss from the discontinued operation into its profit and loss, the operating profits for 2020 and 2021 have increased by KRW 148.5 billion and KRW 287.8 billion, respectively.

■ 2021 Annual Performance

Annual performance of each business is as follows: Refining business: sales KRW 29.5971 trillion, operating profit KRW 1.1616 trillion / Petrochem business: sales KRW 9.5433 trillion, operating profit KRW 161.6 billion / Lubricants business: sales KRW 3.3509 trillion, operating profit 960.9 billion / E&P business: sales KRW 881.7 billion, operating profit 328.6 billion / Battery business: sales KRW 3.398 trillion, operating loss KRW 683.1 billion / Materials business: sales KRW 343.8 billion, operating profit KRW 81 billion.

SK Innovation’s battery business has demonstrated a big leap in its growth as it achieved annual sales of KRW 3.398 trillion, increased by 90% YoY (KRW 1.6102 trillion annual sales in 2020). The increase in overseas battery plants’ sales volume, such as those of Yancheng and Huizhou, China, that began operating in the first half of last year, led to a huge increase in sales.

It is anticipated that the battery business will achieve a KRW 6-trillion range in its annual sales this year as it says, “Once Plant 1 in the U.S. and Plant 2 in Hungary start operating in the first quarter of this year, the sales volume to clients such as Ford, Volkswagen, etc., will sharply increase.”

The battery business’ global battery production capacity is expected to be drastically boosted to 77GWh from the previous 40GWh by the end of this year by adding the production capacity of 9.8GWh and 10GWh of plants each in the U.S. and Hungary, which will commence commercial operation this year, and of Plant 2 in Yancheng, China, breaking ground early last year. In addition, the battery business is planning to secure the global battery production capacity of 88GWh by 2023 and 220GWh by 2025.

Plant 2 in Georgia, the U.S., will start commercial production in the first quarter of 2023, and Plant 3 in Yancheng, China, and Plant 3 in Hungary are planning to start their commercial operation in 2024. The battery production plant BlueOvalSK, the joint venture company with Ford, is aiming to begin commercial production from 2025 as it begins to break ground in the second quarter of this year.

For the materials business, as the Lithium-ion Battery Separator (LiBS) plant in Poland, which started its commercial operation in the fourth quarter of the last year, and the new plant in China are going to be under full commercial operation, it is anticipated that they will lead to improvements in operating profit and sales of this year. In terms of production capacity, the materials business plans to expand its overseas facilities to increase the production capacity from 1.53 billion m² by the end of this year to 2.08 billion m² in 2023 and to 4.02 billion m² in 2025.

■ 2021 Q4 Performance

The 2021 Q4 performance of SK Innovation’s each business subsidiaries is as follows: Refining business: sales KRW 8.598 trillion, operating profit KRW 221.8 billion / Petrochem business: sales KRW 2.5743 trillion, operating loss KRW 209 billion / Lubricants business: sales KRW 1.0397 trillion, operating profit KRW 268 billion / E&P business: sales KRW 346.9 billion, operating profit KRW 111.9 billion / Battery business: sales KRW 1.0665 trillion, operating loss KRW 309.8 billion / Materials business: sales KRW 71.2 billion, operating loss KRW 32.2 billion.

Despite the improved market condition due to the increase in the profit margin of its products, kerosene, diesel, etc., and in the oil price, the refining business recorded a QoQ decrease in operating profit due to the increase of one-off costs, etc. Petrochem business recorded operating loss as there was a decrease in Aromatic spread and an increase in variable costs. Even though there was a growth in sales volume, the lubricants business suffered a decrease in profit margin, which led to a slight decrease in its QoQ operating profit. But, in general, it recorded a satisfactory operating profit. E&P business has seen growth in its QoQ operating profit as there was a rise in sales volume and oil and gas prices.

Battery business recorded a bigger loss in its operating profit and loss due to SG&A costs, including fixed costs that occurred from the initial operation of global production plants, which are about to start mass production, R&D costs, one-off payroll costs, etc. For materials business, due to the influence of semiconductor supply and early operating cost for the new plant in Poland, it recorded operating loss by a small margin.

While SK Innovation has successfully made the turnaround to profit-making despite an unfavorable management environment under the prolonged global pandemic situation, after considering large-scale investment costs for growing businesses this year and financial structure, the company has introduced an item for non-dividend to the board of directors. The board, however, made a decision that there is room for reassessment on the matter after discussing a need for improvement in shareholder reliability and in shareholder value through shareholder return, and it turned down the item. SK Innovation has announced that it will reflect the board of directors’ opinions and decisions and review the 2021 dividend-return plan from square one, and it is going to make an announcement through a public notice as soon as the plan is finalized.

“Last year, SK Innovation underperformed unlike the market prospect due to the management environment and volatility in market conditions,” said Kim Jun, Vice Chairman & CEO of SK Innovation. He added, “Despite these changes, SK Innovation will strongly push ahead with the Carbon to Green strategy to accomplish Net Zero and draw a big picture for the Big Reap.”

[Attached]

1. SK Innovation quarterly earnings (based on K-IFRS) 

(Unit: KRW hundred million)

2. 2021 annual earnings by business (based on K-IFRS)

(Unit: KRW hundred million)

(*) Refining: SKE, SKTI, SKIPC refining business/ petrochemical: SKGC, SKIPC petrochemical business

(**) E&P business, and staff expenses included