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Title SK Innovation Reports Record High Financial Results, ... Date 2017-02-03
Contents

 

SK Innovation Reports Record High Financial Results,
Largely Supported by Its Chemical and Lubricants Business

 

 

  • SK Innovation reported revenue of KRW 39.5205 trillion with an operating profit of 3.2286 trillion in 2016; earning an operating profit of more than KRW 3 trillion for the first time in its history

  • As a result of business structure innovation, operating profit of KRW 2 trillion is the best ever in the non-refining business such as chemicals and lubricants
    * Classified the performance SK Incheon Petrochem and SK Trading International as non-refining business

  • The result of reinforcing business structure focused on non-refining business and partnership with global companies

  • SK Innovation’s credit rating was upgraded, earning positive recognition from the market

  • The company has decided to provide a record-high dividend of KRW 6,400 by strictly following its payout policy for shareholders

 

 

 

 

The 4th quarter results of 2016 in this report have not been completely reviewed by an outside auditor, and therefore the results are subject to change during an accounting review

 

On Feb 3 SK Innovation (www.SKinnovation.com), announced its record high 2016 consolidated financial results, reporting revenue of KRW 39.5202 trillion with an operating profit of KRW 3.2286 trillion.

 

The company also became Korea’s first energy, petrochemical provider with reported operating profits of more than KRW 3 trillion.

 

In 2016, oil prices averaged $41 a barrel, which was the lowest price since 2004. This resulted in the energy provider’s lowest revenue since 2009 (KRW 39 trillion), but it still posted a record high operating profit and an operating profit ratio of 8% (its highest since 2004). This figure is the highest ever, and it is interpreted that SK Innovation and its business subsidiaries have begun to show full-fledged achievements in business structure innovation.

 

SK Innovation’s record high financial results are largely attributed to its chemical and lubricants businesses. SK Chemical, a chemical subsidiary and SK Incheon Petrochemical’s operating profit turned out to be the highest level ever, at KRW918.7 billion and KRW374.5billion. SK Lubricants, SK Trading International and E&P Business also recorded solid performance, with the operating profit of the non-refining business reaching 2 trillion won.

 

Since 2011, the energy company has made strategic investments of more than KRW 4 trillion in its chemical and lubricants businesses, including refurbishment of SK Incheon Petrochem and the establishment of Ulsan Aromatic Corporation, China-Korea Petrochemical, and ILBOC in Spain. These investments paid off by making the company the world’s 6th largest PX producer and its largest producer of high quality base oil. For the past 5 years, the company has decided to diversify their profit structure through investments in petrochemicals and lubricants business.

 

In particular, partnership with global companies under the leadership of SK Group Chairman Chey Tae-won has resulted in a tangible outcome, leaving the competition behind in terms of financial results. These partnerships include the foundation of China-Korea Petrochemical, the joint venture formed by SK Global Chemical and China Petroleum & Chemical Corp. (Sinopec), Ulsan Aromatic Corporation, the joint venture between SK Global Chemical and Japan’s JX Energy, and ILBOC, the joint venture created by SK Lubricants and Repsol.

 

SK Innovation’s CEO & President Kim Jun said, “We have continuously delivered impressive results based on our balanced business portfolio, and strengthened our fundamentals to achieve a corporate value of KRW 30 trillion.” He also added, “We recently acquired the EAA (Ethylene Acrylic Acid) business from Dow Chemical. EAA is a high value-added business. This acquisition was part of our efforts to reinvent our business structure by forming partnerships with companies around the world and through M&A, in the chemical, petroleum development and battery businesses.”

 

SK Innovation also announced its plan to invest approximately KRW 3 trillion in 2017 and to recruit 1,200 employees over the next 5 years, both of which will contribute to its business expansion.

 

S&P recently rated the energy company BBB+ (stable), which is the highest credit rating in the company’s history, based on its solid financial policies and steady cash flow. This record-breaking credit rating suggests that the market recognizes the effect of the energy provider’s reinvention of its profit structure and improvement of its financial structure through its diversification into the petrochemical, lubricants, petroleum exploration and production, and electric vehicle battery businesses.

 

SK Innovation also declared a 2016 dividend of KRW 6,400 as a result of the record high financial results. This decision was made based on its payout policy for shareholders. The 2016 dividend consists of a basic dividend of KRW 4,800, up 50% from previous years, and a one-time special dividend of KRW 1,600 (which compensates for the lack of dividends in 2014), and makes a total dividend payout of KRW 596.5 billion.

 

[2016 Financial Performance]

 

The company’s petroleum business recorded revenues of KRW 28.3698 trillion and operating profits of KRW 1.9393 trillion. The revenue ped KRW 6.9299 trillion (19.6%) but the operating profit increased KRW 640.2 billion year-on-year. Also the company strengthens the fundamental competitiveness by diversifying sources of crude oil supply and optimizing plant operations.

 

SK Incheon Petrochemical posted a record high operating profit of KRW 374.5 billion. The company invested KRW 1.6 trillion in 2014 to build a paraxylene production facility with a capacity of 1.3 million tons. By upgrading these facilities, the company innovates business structure from petroleum company to energy and petrochemical company.

 

SK Innovation’s chemical business’s operating profit increased KRW 487.7 billion or 113.2% to KRW 918.7 trillion, which is a record high, thanks to a strong spread for major products including ethylene and paraxylene throughout the year, the result of preemptive investments and solid spreads for benzene in the fourth quarter.

 

SK Lubricants posted an operating profit of KRW 468.5 billion, a year-on-year increase of KRW 173.8 billion or 59%, due to strong spread for base oil based on a reliable supply, contributing to the record results of the non-refining business.

 

The petroleum exploration and production business recorded operating profits of KRW 105.2 billion, (KRW 43.2 billion or 69.7% up from the previous year) by efficient operation despite lower oil prices.

 

SK Innovation is also expecting positive financial results in 2017 on account of continuously strong refining margins supported by stronger demand for petroleum products and maintenance of a solid spread for petrochemical products.

 

[Financial Results for Q4 2016]

 

Revenue for the 4th quarter was up 3.9% or KRW 376.1 billion quarter-on-quarter to KRW 10.791 trillion thanks to higher product prices as a result of increased oil prices. The operating profit in the 4th quarter increased KRW 434.5 billion to KRW 849.4 billion due to increased operating profits in the petroleum business backed by strong refining margins and profits from inventory.

 

The operating profit of the petroleum business stood at KRW 651.7 billion, up by KRW 559.8 billion quarter-on-quarter. This increase was largely due to the upward trend in oil prices following agreement by members and non-members of OPEC to reduce oil production, and improved refining margins supported by strong demand for all products. An official from SK Innovation said, “Refining margins are forecast to be strong in 2017 as well, thanks to increased demand and limited expansion of global refining facilities”

 

The chemical business posted an operating profit of KRW 176.3 billion, down by KRW 39.1 billion quarter-on-quarter. The decrease resulted from a reduction in sales volume due to routine maintenance of olefin and polymer as well as recognition of one-time costs on the books at the end of the year.

 

The operating profit of the lubricants business fell by KRW 30.6 billion to KRW 86.4 billion quarter-on-quarter despite increased sales due to weak spread for base oil and one-time costs at the end of the year. SK Innovation plans to keep stable record by sales and optimizing its global operations.

 

Revenue of the petroleum development business increased quarter-on-quarter as oil and natural.

 

[Attachment]

1. SK Innovation’s Annual Performance (based on K-IFRS) (Unit: KRW hundred million)

 

2016

2015

2014

2013

2012

2011

Revenue

395,205

483,563

658,607

660,393

733,300

683,712

Operating Profit

32,286

19,796

1,828

14,063

16,994

29,595

 

2. SK Innovation’s Quarterly Performance (based on K-IFRS) (Unit: KRW hundred million)

 

Q4 2015

Q3 2016

Q4 2016

YoY

QoQ

Revenue

108,679

97,030

100,791

22.0%

3.9%

Operating Profit

3,066

4,149

8,494

177.0%

104.7%

 

3. 2016 Business Performance * (based on K-IFRS) (Unit: KRW hundred million)

 

Petroleum**

Chemicals

Lubricants

Exploration & Production

Other

Total

Revenue

283,698

76,865

25,358

5,305

3,979

395,205

Operating Profit

19,393

9,187

4,685

1,052

2,031

32,286

* Excluding internal deals by subsidiaries

** Including annual profit and loss of SK Trade International and SK Incheon Petrochemical

 

4. Q4 Business Performance * (based on K-IFRS) (Unit: KRW hundred million)

 

Petroleum

Chemicals

Lubricants

Exploration & Production

Other

Total

Revenue

72,561

19,395

6,613

1,505

717

100,791

Operating Profit

6,517

1,763

864

288

938

8,494