SK Innovation, South Korea’s top oil refiner, on Feb. 4 posted its second-best performance to date in 2015 thanks to high refining margins on the back of increased global demand for oil products and reduced inventory losses.
The company posted an operating profit of 1.98 trillion won ($1.62 billion) and net sales of 48.36 trillion won in 2015 turning to recovery after ending the year in the red for the first time in 2014.
Though its sales dropped by around 26.6 percent in 2015 compared to the previous year, its operating profit did a sharp turnaround thanks to improved market conditions, according to the oil refiner.
“The drop in crude oil prices pushed down our sales from the previous year. However, our operating profit improved immensely due to increased global demand for oil products and high refining margins,” SK Innovation said in a regulatory filing.
The oil refiner’s main petroleum business was at the center of its profit turnaround last year, logging an operating profit of 1.3 trillion won thanks to lower inventory valuation losses and strong refining margins.
The firm’s chemicals business posted an operating profit of 431.3 billion won in 2015, up by 20.1 percent compared to 2014, on the back of favorable ethylene, paraxylene and benzene spreads and lower inventory related losses.
Its lubricant oil business logged an operating profit of 295 trillion won, similar to its performance in 2014, while its petroleum development business, directly related to falling oil prices, plunged to 62 billion won.
In line with its positive performance, SK Innovation said it handed out record-high dividends to shareholders in 2015 at 4,800 won per share.
SK Innovation plans to restore key positions lost at the group's chip unit when the company's structure was overhauled.
"SK Innovation plans to create 30 trillion won in sales by 2018," CEO and Vice Chairman Chung Chul-khil said at a workshop with executives at the SK-owned Walker Hill hotel, in southern Seoul, last week. "I urge all company executives and employees to find ‘something new,' in order to generate between 3 trillion won and 5 trillion won in operating profit, annually, to achieve this goal."
He said he would lead the way for the so-called "portfolio transformation" by putting greater focus on faster execution and greater implementation, although he did not give details on how this is to be achieved.
"If SK Innovation is to compete with global leaders in energy and petrochemical industries, it's not satisfactory for us to remain a company with annual operating profit boxed between 1 trillion won and 2 trillion won," he said.
SK Innovation had long been considered the group's key cash-cow, he said. However, this position was taken over by SK Hynix when the semiconductor affiliate emerged as the "only option" to fill the profit void.
SK Innovation was expected to have swung back into the black last year, mostly due to heavy cost cutting.
Chung said that the company will never stop exploring new overseas partners, chances for mergers and acquisitions (M&As) and pushing for portfolio rearrangement.
SK Innovation compares well with SK Telecom, the top local mobile carrier, when it comes to annual operating profit. The pride of the group's energy unit was severely damaged after SK bought then Hynix Semiconductor a few years ago.
Most of the group’s key posts were filled by executives from SK Innovation. SK Group acting chairman Kim Chang-geun was a former SK Innovation executive.
"This is all about pride," an SK official said. "SK Hynix has become the group's most crucial money source. SK Innovation aims to revive the past glory that it enjoyed before, which I believe won't easy."
SK Hynix is expected to report more than 4 trillion won in annual operating profit for last year after posting a 5.11 trillion won operating profit a year earlier. SK Innovation reported a 1.40 trillion won operating profit in 2014. But it swung to an operating loss of 230 billion won — the first such loss in 37 years.
As of last year, SK Hynix's total asset value was more than 20 trillion won, followed by SK Telecom with 16 trillion won and SK Innovation with 11 trillion won, according to Korea Exchange (KRX) data.
"That's why you should be adaptive and have a challenging and ‘can-do' spirit," said the SK Innovation CEO. "Creating sustainable models and corporate sustainability will come only with your readiness to embrace changes."
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