SK Inno, Temporary Shareholders Meeting for Physical Division on September 16
Battery Order Backlog Over 1 Terawatt+α
Expected Mid-3 Trillion KRW Sales This Year... Impact of Increased New Sales Volume
Break-even Point Expected Next Year... Operating Profit Margin in High Single Digits by 2025
[Asia Economy Reporter Hwang Yoon-joo] SK Innovation will split its battery and oil exploration & production (E&P) businesses into independent companies. This formalizes the method and timing of the split just one month after mentioning the business review at the ‘Story Day’ presided over by Kim Jun, President of SK Innovation, last month.
SK Innovation announced on the 4th that it held a board meeting on the 3rd and resolved the agenda to split the battery and E&P businesses to enhance corporate value. After approval at an extraordinary general meeting of shareholders on September 16, the newly established companies, tentatively named ‘SK Battery Co., Ltd.’ and ‘SK E&P Co., Ltd.,’ are scheduled to launch on October 1.
The split method was decided as a simple physical split, where SK Innovation will own 100% of the total issued shares of the new companies. Accordingly, SK Innovation will hold 100% equity in the new companies. Assets and liabilities related to the split businesses will also be transferred to the new companies.
SK Battery will handle medium-to-large batteries for electric vehicles, battery subscription services (BaaS), and energy storage system (ESS) businesses, while SK E&P will conduct oil exploration and production, as well as carbon capture and storage (CCS) businesses. SK Innovation will serve as a holding company responsible for developing an eco-friendly portfolio.
Kim Jong-hoon, Chairman of SK Innovation’s Board, said, "This split is a decision to establish management systems tailored to each business’s characteristics and to proactively strengthen fundamental competitiveness by enhancing expertise. We will foster flexibility to respond more broadly and swiftly to the business environment through investment attraction and business value enhancement by business segment."
SK Innovation expects this split to be a turning point for the battery business to secure competitiveness in the global market. According to SK Innovation’s Q2 management performance announced that day, battery business sales in the first half of this year exceeded the 1 trillion KRW mark for the first time ever. Operating losses in the battery business decreased to 97.9 billion KRW, raising expectations for a turnaround to profitability.
Interest is also focused on the timing of SK Battery’s initial public offering (IPO). SK Innovation stated that the battery business will return to operating profit next year and that operating profit margins will improve rapidly from 2023. This has led to speculation that the IPO could take place as early as the beginning of next year.
Current Order Backlog of 1 Terawatt-hour... Expanding to 500 GWh Annual Production by 2030
The background behind SK Innovation’s sudden decision to physically split its battery business, despite being a latecomer in the battery market, is believed to be supported by a solid order backlog exceeding 1 terawatt-hour (TWh). When converted to sales, this amounts to approximately 130 trillion KRW. SK Innovation aims to make batteries a core pillar of future growth, launching as an independent company in October and aiming to succeed in an IPO as early as next year to boost corporate value.
During the Q2 earnings conference call on the 4th, SK Innovation stated, "Battery business sales this year are expected to reach the mid-30 trillion KRW range. We plan to achieve profitability based on EBITDA this year and surpass the break-even point next year."
In fact, the growth speed of SK Innovation’s battery business is remarkable. Q2 battery business sales increased by about 86% year-on-year to 630.2 billion KRW. Since Q1 2020, sales have steadily increased from 288.8 billion KRW, 338.2 billion KRW (Q2), 486 billion KRW (Q3), 497.2 billion KRW (Q4), to 526.3 billion KRW in Q1 this year. The cumulative sales for the first half of this year surpassed 1 trillion KRW for the first time ever.
The rapid growth of SK Innovation’s battery business is attributed to aggressive preemptive investments securing new volumes. On July 1, at ‘Story Day,’ SK Innovation revealed that the battery business order backlog was ‘1 terawatt + α’ in scale. Recently, by deciding to establish a joint venture with Ford in the U.S., the order volume reportedly reached 1,000 GWh.
Currently, SK Innovation’s battery production capacity is about 40 GWh annually across Korea, the U.S., China, and Hungary, but this figure is frequently changing due to aggressive expansions. SK Innovation plans to expand annual battery production capacity to 85 GWh in 2023, 200 GWh in 2025, and over 500 GWh by 2030. According to SK Innovation’s plan, the battery business will surpass the break-even point next year, and from 2025, operating profit margins are expected to maintain high single digits.
Physical Split as a Foothold for IPO... Expected to Accelerate after Achieving Break-even Next Year
SK Innovation also plans to expand new battery application markets such as energy storage systems (ESS), flying cars, and robots after the split, and accelerate the execution of new growth engines including the BaaS platform business that expands from battery products to services.
Once the new companies launch on October 1, the IPO schedule is expected to accelerate beyond initial market expectations. SK Innovation stated that the battery business will achieve operating profit in 2022 and rapidly improve operating profit margins from 2023, leading to speculation that the IPO could be possible as early as the beginning of next year. The company said, "The purpose of this battery business split decision is to timely execute fundraising plans when the time comes to secure investment funds. Specific methods, timing, and scale of fundraising have not been decided."
SK Innovation also released its Q2 earnings on the same day. Operating profit for Q2 was 506.5 billion KRW, turning profitable compared to the same period last year, and sales increased by 55.9% to 11.1196 trillion KRW. Operating profit for the first half also turned positive at 1.009 trillion KRW. It is the first time in three years since 2018 that the refining division’s operating profit exceeded 1 trillion KRW in the first half. The company explained this was due to record-high performance in the lubricants business and reduced operating losses in the battery business. First-half sales increased by 11.9% year-on-year to 20.3594 trillion KRW. The oil exploration business recorded an operating profit of 3.6 billion KRW, down 7.7 billion KRW from the previous quarter due to decreased sales volume despite rising oil and gas prices.
Kim Jun, President of SK Innovation, said, "The results of SK Innovation’s eco-friendly deep change, which began in 2017, are gradually becoming visible. We will continue strong execution to complete our financial story by growing green businesses such as batteries and materials as new growth pillars while transforming existing businesses into eco-friendly ones."
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