4Q 2016 Earnings Release - PDF Free Download

SK innovation 4Q 2016 Earnings Release 2017. 2. 3

Disclaimer This presentation contains forward-looking statements with respect to financial conditions, results of operations and business of SK Innovation, and plans and objectives of the management of SK Innovation. Statements that are not historical facts, including statements about SK Innovation s beliefs and expectations, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of SK Innovation to be materially different from any future results or performance expressed or implied by such forward-looking statements. Financial results for 4Q16 are subject to change according to the outside independent auditors review.

Agenda 4Q 2016 Financial Results 4Q 2016 Business Highlights 2017 Business Outlook (Refining/Petrochemical) 2016 Dividend Plan Petrochemical M&A Q&A Appendix

Sales & Operating Profit (Unit: bn KRW) 4Q16 3Q16 QoQ 2016 2015 Sales 10,079.1 9,703.0 +376.1 39,520.5 48,356.3 Operating Profit 849.4 414.9 +434.5 3,228.6 1,979.6 EBITDA 1,120.7 642.4 478.3 4,180.1 2,931.1 Non-Operating Profit 497.8 15.9 513.7 805.0 325.5 Pre-Tax Income 351.6 430.8 79.2 2,423.6 1,654.1 * 2015 financial data reflect reclassified discontinued business operations. 3

Balance Sheet (Unit: bn KRW) 2016 2015 Change from FY 2015 Assets 32,581.6 31,359.8 +1,221.8 - Current assets 14,988.1 12,842.1 +2,146.0 Liabilities 14,276.3 14,313.5 37.2 - Debt 6,569.7 8,174.8 1,605.1 Net Debt 901.3 3,515.2 2,613.9 Shareholders Equity 18,305.3 17,046.3 +1,259.0 - Paid-in Capital 468.6 468.6 - Debt/Equity 78% 84% 6%p 4

Agenda 4Q 2016 Financial Results 4Q 2016 Business Highlights 2017 Business Outlook (Refining/Petrochemical) 2016 Dividend Plan Petrochemical M&A Q&A Appendix

Refining Refining Margins ($/Bbl) 120 100 80 60 Dubai Crude oil Crude price rose as OPEC and Non-OPEC agreed on output cut Dubai 16.3Q: 43.2$/B 16.4Q: 48.3$/B (+5.1$/B) 40 20 0 $22.8 ( 16.1.21) 14.01 14.04 14.07 14.10 15.01 15.04 15.07 15.10 16.01 16.04 16.07 16.10 16.12 ($/Bbl) 25 Refining margin improved on stronger overall product cracks Gasoline Crack 20 15 10 5 0 Diesel Crack 14.01 14.04 14.07 14.10 15.01 15.04 15.07 15.10 16.01 16.04 '16.07 16.10 16.12 Gasoline Crack 16.3Q: 9.0$/B 16.4Q: 12.0$/B (+3.0$/B) Diesel Crack 16.3Q: 11.0$/B 16.4Q: 12.0$/B (+1.0$/B) FO Crack 16.3Q: 6.2$/B 16.4Q: 3.9$/B (+2.3$/B) 6

Refining Performance Analysis (Unit : Bn. KRW) +237.5 73.1 651.7 Operating profit increased on stronger refining margin and inventory gains from higher crude price S GRM +395.4 16.3Q: 5.1$/B 16.4Q: 6.7$/B (+1.6$/B) 91.9 Seasonal demands for middle distillates and rising crude price to support refining margin in Q1 3Q16 OP Margin Inventory Effect Others 4Q16 OP 7

Petrochemical Product Spreads ($/Ton) 1,000 Naph Naph Ethylene-Naph PE-Naph Olefin spreads showed weakness 800 600 PE Ethylene spreads softened with crackers returning from T/A and weaker downstream demands 400 200 Ethylene PE spreads moderately weakened on reduced T/A schedule 0 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 ($/Ton) BZ-Naph PX-Naph Aromatics weakened moderately 600 400 200 BZ PX PX spreads weakened on new start-up schedules BZ spreads widened on strong SM demands from China 0 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 8

Petrochemical Performance Analysis (Unit : Bn. KRW) 215.4 + 3.7 27.6 Decrease in operating profit on planned turnarounds and one-off expenses 15.2 176.3 Turnaround : September ~ October Ethylene (670KTA), Propylene (345KTA) Favorable spreads to continue on strong downstream demands 3Q16 OP Margin Volume Others 4Q16 OP Ethylene : Healthy downstream demands and turnarounds expected within region PX : Robust PTA and Polyester demands 9

Lubricants Base Oil Spreads ($/Bbl) 100 Despite stable supply and demand, base oil spreads narrowed on rising crude prices, 150SN 75 Gas Oil 150SN - Gas Oil 16.3Q: 25.2$/B 16.4Q: 19.5$/B 50 25 150SN Gas Oil Spreads expected to gradually recover on tight supply and demand 0 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Lubricants Performance Analysis (Unit : Bn. KRW) 117.0 44.6 Operating profit decreased on narrowed margin from rising crude price +16.5 2.5 86.4 Continue to improve profitability through maximizing sales and global optimization 3Q16 Margin Volume Others 4Q16 OP OP

E&P Business (Unit : Bn KRW, 1000 BOE/D) 3Q16 4Q16 Sales 139.7 150.5 Average daily production 61 62 - Peru 88 32 32 - Peru 56 21 21 - Vietnam15-1 5 6 - SK E&P America 3 3 Despite sales increase from higher crude and gas prices, Operating profit decreased slightly due to operating and depreciation expenses Oil Portion (%) 34% 34% Operating Profit (Q-o-Q) (Unit: Bn KRW) Impairment loss incurred non-operating expenses +10.8 16.3 : 314.1 Bn KRW 36.6 2.3 28.8 3Q16 OP Sales Change Cost Effect Others 4Q16 OP 12

I/E Materials Business (Unit : Bn. KRW) EBIDTA 매출액 Revenue 800 Profit decreased on temporary 600 400 262 566 598 614 311 326 655 341 492 sales drop 16. 4Q Revenue 49.2 billion won QoQ 25% 16. 4Q EBITDA 16.4 billion won 200 176 QoQ 48% 0 4Q15 1Q16 2Q16 3Q16 4Q16 (Bn. KRW) 2015 2016 증감 Revenue 208.2 236.0 +13% EBITDA 83.2 114.2 +37% I/E Business to continue its growth on higher demands from expanding global EV market 13

Agenda 4Q 2016 Financial Results 4Q 2016 Business Highlights 2017 Business Outlook (Refining/Petrochemical) 2016 Dividend Plan Petrochemical M&A Q&A Appendix

2017 Business Outlook Refining [Unit: Mil. b/d] 2.5 2 1.5 1 0.5 0 Capacity additions vs. Demand growth Net Capacity Additions Demand Growth 2015 2016 2017(E) 2018(E) Sound refining margin to continue on healthy demands and limited capacity additions [Diesel] Higher regional demands to outweigh concerns over Chinese exports [Gasoline] Crack Outlook [Unit: $/Bbl] To remain flat on higher US inventory level, despite resilient demand growth Diesel Crack Gasoline Crack 25 Range('12~'16) '16 년 '17 년 Avg.(E) 25 Range('12~'16) '16 년 '17 년 Avg.(E) 15 15 5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (Source : IEA, Company Est.) 15

2017 Business Outlook Petrochemical 10,000 8,000 (Unit : KTA) Ethylene Supply & Demand (Global / Net) Naptha CTO/MTO US Ethane Demand Growth 200% 150% Price Trends of Feedstocks Ethane Coal Naphtha Ethylene spread to show moderate adjustments on delays and cancellations of scheduled capacity additions 6,000 4,000 100% Possibilities of delays/cancellations from Chinese CTO/MTO 2,000 50% Full impact from US ECCs in 2018 0 2016 2017 2018 2019 0% 2014-01-032014 2015-01-03 20152016-01-03 2016 5,000 4,000 (Unit : KTA) PX Supply & Demand (Global / Net) Capacity Addition Demand Growth 2,000 (Unit : KTA) PX Supply & Demand (China / Net) Capacity Addition Demand Growth Despite start-ups of large facilities, robust PX spreads to continue on strong demands 3,000 Strong polyester demands (YoY 5%) 2,000 1,000 Chinese self-sufficiency to stay below 50% 1,000-2016 2017 2018 2019 0 2016 2017 2018 2019 (Source : IHS) 16

Agenda 4Q 2016 Financial Results 4Q 2016 Business Highlights 2017 Business Outlook (Refining/Petrochemical) 2016 Dividend Plan Petrochemical M&A Q&A Appendix

2016 Dividend Plan Unit : KRW 2011 2012 2013 2014 2015 2016 Ordinary 2,500 3,200 3,200-3,200 4,800 Extra 300 - - - 1,600 1,600 Total DPS 2,800 3,200 3,200-4,800 6,400 Total Dividends 261.0 bn 298.3 bn 298.3 bn - 447.4 bn 596.5 bn 6,400 4,800 Extra 1,600 2,800 Extra 300 3,200 3,200 No Dividend Extra 1,600 2011 2012 2013 2014 2015 2016 18

Agenda 4Q 2016 Financial Results 4Q 2016 Business Highlights 2017 Business Outlook (Refining/Petrochemical) 2016 Dividend Plan Petrochemical M&A Q&A Appendix

Petrochemical M&A Dow Chemical s EAA Business Overview Target : Dow Chemical EAA Business EAA (Ethylene Acrylic Acid) Premium packaging adhesive (Adhesive Copolymer) - EAA production facilities (US Texas, Spain) Aseptic Packaging Laminated Tube - EAA/Ionomer technologies, trademarks, etc. - Beverage, Meat - Tooth paste, Cosmetic Strategic Direction Acquiring technologies and products to enter high value-added packaging market EAA Global Market Size 1 2 Downstream portfolio expansion Acquisition ultra high-pressure and high acidity technologies 3 Marketing synergy with existing products Others 26.0 KTA Japan 10.7 KTA China 16.0 KTA EAA : 143 KTA (2016) [Source : CMR, 2016(F)] North America 52.2 KTA Europe 37.6 KTA Global Market Size 143 KTA (2016) 2~3% annual growth (7% in China) Dow Chemical is one of the dominant players in market.

Agenda 4Q 2016 Financial Results 4Q 2016 Business Highlights 2017 Business Outlook (Refining/Petrochemical) 2016 Dividend Plan Petrochemical M&A Q&A Appendix

Appendix 1. Business Performance 2. Utilization Rate Petroleum/Petrochemical Plants

1. Business Performance (excluding intercompany transactions) (Unit: Bn KRW) SK Innovation SK Energy* SK Global Chemical SK Lubricants 4Q Total Sales 222.2 7,256.1 1,939.5 661.3 10,079.1 Operating Profit 65.0 651.7 176.3 86.4 849.4 Non-operating profit 387.5 142.6 33.1 0.8 497.8 Pre-tax Income 452.5 509.1 209.4 85.6 351.6 * SK Energy (including SKTI and SKIPC quarterly results) 24

2. Utilization Rate Petroleum/Petrochemical Plants Petroleum Plant 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 CDU 76% 70% 77% 83% 83% 84% 89% 85% 90% 84% 84% 83% Ulsan 89% 80% 84% 89% 90% 86% 93% 86% 92% 85% 85% 91% Incheon 37% 39% 60% 66% 67% 78% 77% 81% 83% 81% 81% 58% HOU 92% 92% 99% 100% 83% 81% 100% 100% 91% 98% 98% 100% #1 RFCC 100% 54% 81% 100% 100% 100% 100% 100% 100% 100% 100% 100% #2 RFCC 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 58% Petrochemical Plant 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 NCC 100% 100% 100% 100% 100% 100% 100% 100% 92% 100% 83% 95% PE 100% 100% 100% 100% 100% 99% 100% 100% 98% 98% 84% 72% PP 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 86% 78% PX 100% 100% 100% 100% 100% 100% 100% 100% 100% 89% 100% 90% 25