SEOUL, Feb. 7 (Korea Bizwire) — SK Innovation Co. said Tuesday it plans to spend 7 trillion won (US$5.58 billion) in capital spending this year to shore up its loss-making battery business and aims to achieve a turnaround by next year.
The amount earmarked for SK On Co. makes up the substantial portion of the 10 trillion won it set aside in capital expenditures for 2023, the South Korean energy company said.
The remaining 3 trillion won will be used in other green energy segments, such as plastic recycling.
“We’ll focus on growth and profitability both this year, primarily enhancing the productivity at global (manufacturing) sites and purchasing competitiveness (for raw materials), and adjusting selling prices with original equipment manufacturers,” SK On CFO Kim Kyung-hoon said in an earnings call.
Improving the yields will be the top priority, and various plans will be implemented during the operations at the manufacturing facilities in order to stabilize the yields, Kim said.
SK Innovation hived off SK On in 2021 to bolster the electric vehicle (EV) battery manufacturing business in an aggressive expansion into the industry amid the burgeoning EV demand.
SK On has remained in the red due to big spending for overseas plants and other costs. Unstable yields have also been cited as a key factor that the company has to overcome.
Two SK On plants began operations in the U.S. state of Georgia last year. It is building three mega EV battery plants in America in a $11.4 billion joint venture with Ford Motor Co.
SK On’s fourth-quarter operating loss widened to 256.6 billion won from 134.6 billion won three months earlier. For all of 2022, it booked an operating loss of 991.2 billion won, while sales reached a record 7.6 trillion won.
Kim said SK On expects to turn to a profit in 2024, as existing factories will be more stabilized and cost-cutting efforts will materialize.
SK On also estimated the new U.S. law on giving tax credits for EVs assembled in North America will create some 4 trillion won worth of benefits for the company.
For 2022, SK Innovation, the refinery unit of SK Group, posted a record high profit on the back of a rise in oil prices and strong petrochemical demand.
The operating profit reached 3.99 trillion won, more than doubling from the previous year’s 1.74 trillion won. Annual sales rose 66.6 percent to a record 78.05 trillion won.
Net income grew by more than fourfold to 1.99 trillion won in the same period.
“The year-on-year performance improved significantly thanks to the rise in oil prices that continued until the first half of last year and widening refining margins due to the increased demand for petroleum products,” SK Innovation said in a release.
Refining margins, a key gauge of profitability, are linked to international oil prices. Higher crude prices mean greater margins, or the difference between the total value of petroleum products and the cost of crude and related services.
The petroleum segment generated 3.4 trillion won in operating profit, with 52.6 trillion won in sales for 2022. The operating income from the chemical business stood at 127.1 billion won and the sales came to 11.26 trillion won.
SK Innovation said it expects the petrochemical demand will remain solid this year as China is likely to take measures to revive the domestic demand and ease COVID-19 border restrictions.
The company also gave a rosy outlook for the battery sector, as the ramp-up will continue at its manufacturing facilities overseas to meet the surging demand from global automakers amid the electrification trend.
In the fourth quarter of 2022, the company’s operating loss widened to 683.3 billion won from 62.2 billion won a year earlier, due largely to inventory losses caused by a fall in oil prices in the latter half of the year that narrowed the margins.
It suffered a net loss of 386.8 billion won, swinging to the red from a net profit of 151.4 billion won the previous year.
Sales rose 39.5 percent to 19.13 trillion won in the three-month period.
Shares in SK Innovation fell 4.86 percent to 162,600 won on the main Seoul bourse Tuesday, underperforming the broader KOSPI’s 0.55 percent gain. The earnings results were released before the market closed.