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Title SK InnovatioN Reports 3rd Quarter 2017 Earnings Date 2017-11-02
Contents * Cumulative sales of KRW 33.707 trillion; operating profit KRW 2.3891 trillion for 3Q 2017
* Consolidated sales and operating profit reached KRW 11.7589 trillion and KRW 963.6 billion, respectively, with excellent results from chemical and lubricant businesses


※ Figures inclided in this press release have not completed external audit, and thus may be subject to change.


SK Innovation has revealed that it has raised KRW 33.707 trillion in terms of consolidated sales and KRW 2.3891 trillion of operating profit for the third quarter of 2017, reaching almost the same levelas the previous year’s third quarter, which itself represented the company’s highest performance to date.

In terms of chemical and lubricant businesses, the consolidated sales and operating profit for the third quarter represent the company’s most successful performance to date. Chemical and lubricant businesses have played important parts in the recent strength of SK Innovation. Perhaps reflecting this fact, the two business areas together made up for 62% of the cumulative operating profit in the third quarter of 2017. The “deep change” of SK Innovation, or its bid to transition from an oil company to a specialist in energy and chemical, has paid off in a most pleasing manner for the company.

Its chemical division, having restructured itself with a strong focus on high-value chemical products, returned the efforts with a cumulative operating profit of KRW 1.1143 trillion, cementing itself as the most lucrative area of the company’s business portfolio. The lubricant industry also managed to reach its highest performance since 2011, with an operating profit of KRW 359.2 billion.

Despite the setbacks caused by the in global oil prices during the second quarter, the oil business managed to pick up the pace once again, generating KRW 992.8 billion in cumulative operating profit. The renewal of cost competitiveness from the diversification of the sources, including the introduction of crude oil from the United States, and the optimization of operating structure are cited as the enabling factors of this performance.

Oil exploration and production benefited from the increase in global oil prices, recording a greater level of cumulative operating profit in the third quarter than the previous year’s annual operating profit.

If the improvements in oil business profits, represented by the plans to build the new VRDS (vacuum residue desulfurization) announced yesterday, and the stabilization of lube oil supply are taken into account, SK Innovation’s growth potential seems to be much greater than the present picture.

The chemical business, in particular, has accumulated a strong basis for the future, with the acquisition of Dow’s EAA (ethylene acrylic acid) and PVDC (polyvinylidene chloride) businesses and the recent streamlining of its global partner, Wutan Petrochemical.
The stable performance of SK Incheon Petrochem, which recorded its highest performance last year, is also expected to contribute to the profits generated by the chemical business.

■ Performance by business, 3Q 2017

The overall consolidated sales and operating profit from SK Innovation during the 3Q 2017 reached KRW 11.7589 trillion and KRW 963.6 billion, respectively. This represents an increase of KRW 2.599 trillion (+21.2%) and KRW 548.7 billion (+132.2%) from the previous year’s third quarter.

Oil business recorded KRW 8.4285 trillion in sales and KRW 526.4 billion in profit. The sharp increase in operating profit was attributable to the improvements in refinement profit margin, spurred on by strong global oil prices and the reduction of inventory. The oil industry is also expected to perform well in the fourth quarter, a high season for oil consumption.

Chemical business recorded KRW 326 billion KRW in operating profit. The increase in internal polyethylene supply and the increased operation of Reliance Industries’ facilities in India forecasted in a slight decrease in performance from the previous quarter, but a strong performance nevertheless showed the resilience of the chemical business. The chemical business is expected to continue its strong performance with robust demand from the Chinese market.

The lubricant business recorded KRW 144.1 billion in operating profit. The increase in what was already a strong performance can be attributed to the increases in the sales price of the products. This quarter represents the fourth consecutive quarter of continuous growth in performance for the lubricant business, despite the potential damages arising from the spike in production prices, and the subsequent decreases in lube oil spread. The lubricant business is expected to put up a strong performance in the fourth quarter as well with the delays in the activation of new facilities, despite the off-season decrease in demand.

Oil exploration and production business recorded KRW 44.7 billion in operating profit, an increase of KRW 9.5 billion from the previous quarter, with increases in global oil prices and sales. The average production within the third quarter reached 55,000 barrels per day, representing an increase of 2,000 barrel from the previous quarter.

I/E materials business recorded sales of KRW 94.2 billion and operating profit of KRW 23.5 billion in a steady trend of growth, with expectations of future growth driven by the expansion of the global IT and EV markets.
Once the LiBS production facilities 10 and 11 are completed during the earlier half of 2018, the I/E materials business will be capable of producing 330 million
per year.