SK innovation

2Q 2017 Earnings Release

2017. 7. 27
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 Innovations 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 2Q17 are subject to change according to the outside
independent auditors review.
Agenda

2Q 2017 Financial Results

2Q 2017 Business Highlights

FY 2017 Interim Dividend

Q&A

Appendix
Sales & Operating Profit

(Unit: bn KRW) 2Q17 1Q17 QoQ 2016

Sales 10,561.0 11,387.1 826.1 39,520.5

Operating Profit 421.2 1,004.3 583.1 3,228.4

EBITDA 632.3 1,232.9 600.6 4,180.1

Non-Operating
12.0 158.7 146.7 805.0
Profit

Pre-Tax Income 433.2 1,163.0 729.8 2,423.4

3
Balance Sheet

Change from
(Unit: bn KRW) 2017 2Q 2016
FY 2016

Assets 31,969.8 32,581.4 611.6

- Current assets 14,512.9 14,987.7 474.8

Liabilities 13,225.1 14,276.3 1,051.2

- Debt 5,908.4 6,569.7 661.3

Net Debt (945.1) (901.3) (+43.8)

Shareholders
18,744.7 18,305.1 +439.6
Equity

- Paid-in Capital 468.6 468.6 -

Debt/Equity 70.6% 78.0% 7.4%p

4
Agenda

2Q 2017 Financial Results

2Q 2017 Business Highlights

FY 2017 Interim Dividend

Q&A

Appendix
Refining Refining Margins
($/Bbl)

80 Dubai Crude oil

$55.5 Crude price dropped on glut worries,

60 (17.2.3)
despite OPEC output cut extension
40
Dubai Avg.
17.1Q: 53.1$/B 17.2Q: 49.8$/B (3.3$/B)
20 $22.8
(16.1.21)

0
15.1Q 15.2Q 15.3Q 15.4Q 16.1Q 16.2Q 16.3Q 16.4Q 17.1Q 17.2Q

($/Bbl)
Gasoline crack Diesel crack FO Crack Refining margin remained flat on
20

stronger FO crack
15

10 Crack ($/B) 17.1Q 17.2Q

5 Gasoline 12.3 11.5

Diesel 11.8 11.4
0
Fuel Oil 5.1 4.1
(5)

(10)

(15)
15.1Q 15.2Q 15.3Q 15.4Q 16.1Q 16.2Q 16.3Q 16.4Q 17.1Q 17.2Q
6
Refining Performance Analysis
(Unit : Bn. KRW)

Operating profit decreased on

inventory related loss in spite of
453. 9 96.2 solid refining margin

SGRM (Spot Margin)

340.8 17.1Q: 6.4$/B 17.2Q: 6.4$/B (-)

Dubai Price change

17.1Q: 0.9$/B 17.2Q: 4.7$/B

Refining margin to show strength

4.4 12.5
on robust product demands

EM diesel demands to improve on global

economic recovery
1Q17 Inventory 2Q17
Margin Others Limited capacity additions
OP Effect OP

* Include SK IPCs refining business segment

7
7
Petrochemical Product Spreads
($/Ton)
Naphtha Ethylene-Naph PE-Naph
1,000
Olefin spreads showed weakness
800
on arb. inflows and high inventories

Ethylene Spread
600
17.1Q: 722$/ton 17.2Q: 630$/ton
400 PE Spread
17.1Q: 698$/ton 17.2Q: 693$/ton
200

0
15.1Q 15.2Q 15.3Q 15.4Q 16.1Q 16.2Q 16.3Q 16.4Q 17.1Q 17.2Q

($/Ton)

600 Aromatic spreads narrowed on new

BZ-Naph PX-Naph
plant start up and downstream T/A

400
PX Spread
17.1Q: 391$/ton 17.2Q: 370$/ton

BZ Spread
200 17.1Q: 423$/ton 17.2Q: 323$/ton

0
15.1Q 15.2Q 15.3Q 15.4Q 16.1Q 16.2Q 16.3Q 16.4Q 17.1Q 17.2Q
8
Petrochemical Performance Analysis
(Unit : Bn. KRW)

Decrease in operating profit

on narrower product spreads and
454.7 58.4
inventory related loss
18.2
44.4
333.7

Spreads to remain under pressure

on new plant start ups
US ECC start ups scheduled at year-end

PX facilities start ups partially delayed

1Q17
1Q17
Margin
Volume
Others 2Q17
2Q17

OP
OP

* Include SK IPCs petrochemical business segment

9
9
Lubricants Base Oil Spreads

($/Bbl) Spread continued to trend upward on

150SN Gas Oil 150SN-G.O
low crude prices
125

Base oil Spread (150SN Gas Oil)

150SN 17.1Q: 23.8 $/Bbl 17.2Q: 34.2$/Bbl
100

75
Gas Oil

50
150SN Gas Oil
Expect strong base oil spread
25 driven by solid base oil demand

0
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

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Lubricants Performance Analysis
(Unit : Bn. KRW)

Sales volume increased by higher

sales prices and improved margin
+49.0 +2.8 26.5

120.2

94.9

Expect high profitability on sales

volume increase and stable market
dynamics
1Q17 2Q17

1Q17 Margin Volume Others 2Q17
OP OP

11
E&P Business
(Unit : Bn KRW, 1000 BOE/D) 1Q17 2Q17

Sales 176.5 135.5

Operating profit decreased QoQ
Average daily production 54 53
due to oil price and sales volume
- Peru 88 27 27 declines
- Peru 56 18 17

- Vietnam15-1 6 6

- SK E&P America 3 3

Oil Portion (%) 38% 37%

Operating Profit (Q-o-Q) (Unit : Bn KRW)

Key Indicator 17.1Q 17.2Q

57.3
Brent ($/B) 53.8 49.8
41.0
WTI ($/B) 51.8 48.2
+18.1 +0.8 35.2 HH ($/mmbtu) 3.0 3.1

1Q17 Sales Change Cost Effect Others 2Q17

12
12
I/E Materials Business*
(Unit : Bn. KRW)

Increased sales for a wider range of

new smartphones and stronger
+14.1 2.1 battery demand in China led to
4.3 stronger sales

19.4 17.2Q Revenue : 79.1 Bn KRW (+18.5 Bn

KRW)

11.7

Expect stronger demand for larger

capacity batteries for IT equipment,
and rapid growth in the EV market.
1Q17 Sales Expense Others 2Q17
OP Change OP By 2020, forecast CAGR 28%

* Excluding Battery business earnings

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Agenda

2Q 2017 Financial Results

2Q 2017 Business Highlights

FY 2017 Interim Dividend

Q&A

Appendix
FY 2017 Interim Dividend

[Unit : KRW]
7,000

6,000 FY 2017 Interim Dividend

5,000
1,600 Won/Share
4,000
(for both common and preferred stocks)

Record Date : June 30, 2017

3,000
Payment Date : August 25, 2017
2,000 No
Dividend

1,000

0
2013 2014 2015 2016 2017

(Unit : KRW) 2013 2014 2015 2016 2017 Enhancing shareholder value
through stable and sound dividend
Interim - - - - 1,600
policy
Annual 3,200 - 4,800 6,400 TBD

Total DPS 3,200 - 4,800 6,400

Total Divdiend
(Bn. KRW)
298.3 - 447.4 596.5
15
Agenda

2Q 2017 Financial Results

2Q 2017 Business Highlights

FY 2017 Interim Dividend

Q&A

Appendix
Agenda

2Q 2017 Financial Results

2Q 2017 Business Highlights

FY 2017 Interim Dividend

Q&A

Appendix
Appendix

1. Business Performance

2. Utilization Rate Petroleum/Petrochemical Plants

1. Business Performance (excluding intercompany transactions)

(Unit: Bn KRW) Refining Petchem Lube E&P Others 17. 2Q

Sales 7,387.6 2,164.2 756.8 135.5 116.9 10,561.0

Operating Profit 12.5 333.7 120.2 35.2 80.4 421.2

Non-operating
7.6 34.9 4.7 2.2 12.8 12.0
profit

Pre-tax Income 4.9 368.6 115.5 37.4 93.2 433.2

* Refining: SKE, SKTI, SKIPC-Refining / Petchem : SKGC, SKIPC-Petchem

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2. Utilization Rate Petroleum/Petrochemical Plants
Petroleum Plant

2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

CDU 70% 77% 83% 83% 84% 89% 85% 90% 84% 85% 83% 91% 81%

Ulsan 80% 84% 89% 90% 86% 93% 86% 92% 85% 91% 91% 94% 79%

Incheon 39% 60% 66% 67% 78% 77% 81% 83% 81% 67% 58% 82% 89%

HOU 92% 99% 100% 83% 81% 100% 100% 91% 98% 100% 100% 92% 98%

#1 RFCC 54% 81% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99% 64%

#2 RFCC 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 58% 100% 100%

Petrochemical Plant

2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

NCC 100% 100% 100% 100% 100% 100% 100% 100% 100% 86% 75% 99% 100%

PE 100% 100% 100% 100% 99% 100% 100% 98% 98% 84% 72% 97% 98%

PP 100% 100% 100% 100% 100% 100% 100% 100% 100% 86% 78% 100% 100%

PX 100% 100% 100% 100% 100% 100% 100% 100% 89% 100% 90% 100% 83%

20