SEOUL, May 13 (Korea Bizwire) — SK Innovation Co., South Korea’s refinery-to-battery company, said Thursday it continued to suffer losses in the first quarter despite its strong earnings from its petrochemical business as it reflected hefty settlement costs for a battery suit with its bigger rival LG Energy Solution Ltd.
SK Innovation booked a net loss of 368.1 billion won (US$325.3 million) in the January-March period, narrowing from 1.5 trillion won of loss from the pandemic-driven slump a year earlier.
Its operating profit reached a better-than-expected 502.6 billion won, turning from a loss of 1.8 trillion won a year ago, thanks to the robust performance of its mainstay petrochemical business.
Sales fell 16.4 percent on-year to 9.2 trillion won over the period, the firm said.
Last month, the energy and chemical subsidiary of the nation’s No. 3 conglomerate SK Group reached a 2 trillion-won settlement with LG Energy Solution to end a two-year legal battle over electric vehicle (EV) battery business in the United States.
SK Innovation agreed to pay half in cash to LG Energy through 2022 and pay the rest in royalties starting in 2023, and it reflected 976.3 billion won of the settlement in the first-quarter bottom line, the company said.
The compromise, which came just before the April 11 deadline for the U.S. International Trade Commission’s 10-year import ban on SK Innovation, cleared a stumbling block for SK Innovation’s $2.6 billion project to build a factory in Georgia, which was under construction to supply EV batteries to Ford Motor and Volkswagen starting next year.
Last month, the firm struck a deal to sell its 40 percent stake in SK Lubricants Co. to a Korean private equity fund for 1.1 trillion won to secure funds for its battery business.
“The mainstay petrochemical business is recovering in line with improving business environment from the pandemic-driven slump, and the new growth drivers, such as the battery and material business, keep growing,” SK Innovation CEO Kim Jun said in a statement.
Its petrochemical business posted 416.1 billion won in operating profit in the January-March period, helped by recovery in cracking margins and inventory-related gains in line with rising oil prices.
The average price of Dubai crude, South Korea’s benchmark, stood at $60 per barrel in the first quarter, sharply up from $44.60 in the fourth quarter of 2020, on recovering demand amid the vaccine rollout and supply cuts from Middle Eastern producers.
The refining margin, the key profit yardstick for refiners, rose from $3 per barrel in the last quarter of 2020 to $5.60 in the first quarter, the firm said.
Battery sales jumped 80 percent on-year to 526.3 billion won in the first quarter, but its operating loss widened to 176.7 billion won due to a hike in initial operation costs in its new overseas plants.
SK Innovation, the world’s No. 6 battery maker, said it has bagged 600 gigawatt-hours worth of EV battery orders so far, which are estimated at around 80 trillion won, and expects more orders from major automakers as its settlement with LG Energy has cleared uncertainties over its battery business.
SK Innovation’s clients include Volkswagen and Ford in the U.S., Daimler in Europe and Hyundai Motor and Kia in Asia.
Its new battery production lines in China started operation in the first quarter, and factories in Hungary and the United States are set to roll out batteries when construction is completed in phases in the coming years, the firm said.
SK Innovation said it plans to ramp up its global battery production capacity to 85 GWh in 2023 and over 125 GWh by 2025 to meet growing demand for EV batteries.
Shares in SK Innovation sank 3.19 percent to 258,000 won on the Seoul bourse, underperforming the benchmark KOSPI’s 1.25 percent fall.