2021 Q4 Consolidated Preliminary Earnings Announcement and Conference Call
Battery Segment Reports 683.1 Billion KRW Operating Loss
"One-time Initial Operation Costs at US and Hungary Plants Impact Results"
"Significant Investment Costs, but Dividend Suspension Proposal Rejected to Enhance Shareholder Trust... Will Reassess and Announce Afterwards"
[Asia Economy Reporter Moon Chaeseok] SK Innovation posted an operating profit of KRW 1.7656 trillion last year, driven by strong performance in its lubricants business, which recorded the highest operating profit ever. This marks a turnaround from an operating loss of KRW 2.4203 trillion the previous year.
On the 28th, SK Innovation announced that its consolidated sales for last year were preliminarily estimated at KRW 46.8429 trillion, with an operating profit of KRW 1.7656 trillion. Sales increased by 35.6% year-on-year, and operating profit turned positive. Performance by business segment was as follows: petroleum sales of KRW 29.5971 trillion with an operating profit of KRW 1.1616 trillion; chemicals sales of KRW 9.5433 trillion with KRW 161.6 billion operating profit; lubricants sales of KRW 3.3509 trillion with KRW 960.9 billion operating profit; oil development sales of KRW 881.7 billion with KRW 328.6 billion operating profit; battery sales of KRW 3.0398 trillion with an operating loss of KRW 683.1 billion; and materials sales of KRW 343.8 billion with KRW 81.0 billion operating profit.
In the core battery business, sales reached KRW 3.0398 trillion, approximately a 90% increase from the previous year's annual sales of KRW 1.6102 trillion. The company explained that this was largely due to increased sales volume from overseas battery plants such as the Chinese Yancheng and Huizhou factories, which began commercial operations in the first half of last year. They also noted that with the start of operations at the U.S. Plant 1 and Hungary Plant 2 from the first quarter, sales volumes to customers such as Ford and Volkswagen are expected to increase significantly.
Kim Jun, Vice Chairman of SK Innovation, plans to accelerate efforts to expand profitability in key businesses this year. The company aims to nearly double its global battery production capacity from around 40GWh to 77GWh by the end of the year. This goal is considered achievable by combining the production capacities of the U.S. plant (9.8GWh), Hungary plant (10GWh), and the Chinese Yancheng Plant 2, which began construction early last year. The U.S. Georgia Plant 2 is scheduled to start commercial operations in the first quarter of next year, while the Chinese Yancheng Plant 3 and Hungary Plant 3 are expected to begin commercial operations in 2024. The BlueOvalSK plant, a joint venture (JV) with Ford, is planned to start construction in the second quarter with a target of commercial operation in 2025.
A company official forecasted, "Battery sales for this year are expected to reach the KRW 6 trillion range." However, due to temporary initial costs at overseas plants in the fourth quarter, the battery segment recorded a loss of KRW 309.8 billion, resulting in an annual operating loss of KRW 683.1 billion. The fourth-quarter operating loss was KRW 47.3 billion, a reduction compared to KRW 198.7 billion in the same period last year. Quarterly sales and net profit were KRW 13.7213 trillion and KRW 163.4 billion, respectively.
Vice Chairman Kim said, "Although last year's performance was somewhat below market expectations due to volatility in the business environment and market conditions, SK Innovation will more strongly pursue its 'Carbon to Green' (eco-friendly transition) strategy to achieve 'Net Zero' (carbon neutrality) without fail," adding, "We will draw a 'Big Picture' for a 'Big Rip' (greater harvest)."
Last year's no-dividend policy for shareholders will be reconsidered from scratch and decided again. The company announced this during a conference call for the fourth-quarter earnings release. SK Innovation stated, "Although we succeeded in turning to a profit last year amid an unfavorable business environment, we proposed a no-dividend agenda for the 2021 fiscal year to the board, judging that responding to large-scale investment expenditures expected for growth businesses this year is more urgent than dividend payments." However, "After intense discussions, the board rejected the no-dividend agenda." They added, "The board rejected the no-dividend agenda considering the need to enhance trust with shareholders who supported the company and the status of competitors."
Some in the industry expect the company to implement shareholder dividends after this 'reconsideration from scratch.' SK Innovation skipped dividends due to poor performance two years ago and spun off its battery and oil development businesses last year. This has caused considerable shareholder backlash. Since the company amended its articles of incorporation to allow shareholder profit distribution through shares or other methods besides cash, there is speculation that dividends might be paid in stock rather than cash. SK Innovation said, "We will inform again once confirmed."
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