Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- SK Innovation Co Ltd (XKRX:096770, Financial) reported robust E&P mining production despite weaker refining margins.
- The company expects a recovery in refining margins in the third quarter due to seasonal demand and tighter supply dynamics.
- SK Innovation Co Ltd (XKRX:096770) is focusing on improving its fundamental competitiveness through cost-saving efforts and operational improvements.
- The planned merger with SK E&S is expected to generate significant synergies, potentially adding KRW2.2 trillion in EBITDA by 2030.
- The company is actively expanding its customer and product portfolio, particularly in the EV battery market, to diversify its revenue streams.
Negative Points
- SK Innovation Co Ltd (XKRX:096770) reported a revenue decline of KRW56 billion quarter-over-quarter, primarily due to lower sales volume in the battery business.
- Operating profit fell by KRW670.5 billion, resulting in a loss of KRW45.8 billion for the quarter.
- The battery business faced significant challenges, including lower utilization rates and increased fixed costs, leading to an operating loss of KRW460.1 billion.
- The company’s debt-to-equity ratio remains high at 161%, indicating financial leverage concerns.
- Non-operating losses were substantial, amounting to KRW481.8 billion, driven by FX translation losses and derivative losses.
Q & A Highlights
Q: Why is SK Innovation using book value instead of market value to calculate the merger ratio?
A: Jin Won Kim, CFO: The decision to use book value over market value was made because the market value is significantly lower than the book value. This approach was deemed the best solution after thorough discussions with management and the Board of Directors, considering the positions of all relevant counterparties.
Q: What progress has been made on discussions related to SK E&S or CPS?
A: Jin Won Kim, CFO: Discussions with KPI are ongoing. SK E&S's Board of Directors has approved the establishment of a NewCo to manage the 7 city gas subsidiaries, and the guaranteed IRR for cash redemption has been adjusted to 9.9%. The final decision on cash or incurred redemption will be made by the company.
Q: What impact will the merger have on SK Innovation's credit ratings, and what measures are being taken to counter any potential impact?
A: Jin Won Kim, CFO: The merger is expected to positively impact SK Innovation's credit ratings by expanding business size and portfolio, reducing cash flow volatility, and improving financial stability. S&P has already adjusted the company's rating outlook to BB CreditWatch positive, indicating a potential upgrade.
Q: Can you provide an update on SK Enmove's emission cooling projects and technology?
A: Ho Joon Hug, SK Enmove: The company is focusing on data center applications in the short term and EV batteries and ESS systems in the mid-to-long term. Efforts include developing high flash point products, securing partnerships, and engaging in proof-of-concept studies. A brand advertisement campaign has been launched to enhance public understanding.
Q: What is the current utilization rate for SK On's battery business, and how will it be adjusted based on downstream demand?
A: Hyung-jo Yoon, VP Battery Planning: Utilization rates have been lower due to sluggish OEM demand but are expected to recover in the second half of 2024. The company is focusing on efficient line management, improving production capabilities, and achieving high yield levels across all factories.
Q: What is the outlook for the refining business, particularly for gasoline and middle distillates?
A: Unidentified Company Representative: Gasoline demand underperformed in the first half, leading to high inventory levels. However, demand has improved in July, and a rebound is expected in the second half. Middle distillates have shown solid margins due to increased transportation demand and lower inventory levels.
Q: How is SK Innovation adapting its strategy in response to the slower growth in the global EV market?
A: Unidentified Company Representative: The company is focusing on operational improvements, diversifying its product portfolio, and expanding its customer base. Efforts include improving cost structure, strengthening production competitiveness, and engaging in strategic collaborations with key customers.
Q: How is SK Innovation responding to Ford's changes in its EV strategy?
A: Unidentified Company Representative: SK Innovation is closely monitoring Ford's strategy and maintaining close discussions to flexibly adjust plans. The company is focusing on long-range performance vehicles like the F-150 and transit models, which are expected to continue showing stable demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
