SK Innovation Co., Ltd. (A096770) Earnings Call Transcript & Summary

[Interpreted] Good morning. We will now start SK Innovation's earnings conference call. Good morning. I am Chung So-young from the IR team at SK Innovation. Thank you for joining the company's fourth quarter 2024 earnings presentation. I have with me SK Innovation's CFO, Seo Geon-ki; Head of Corporate Finance Planning Office, [ Peh Gi-rak ]; and members of management from each business subsidiary on this call with us today. For the agenda today, CFO Seo Geon-ki will first run through the company-wide business results for the fourth quarter of 2024 followed by presentations from the officers of each business division, after which we will have a Q&A session. Please note that the earnings that we are presenting today have yet to be audited by the external auditor and thus are subject to change upon the review. With that, let me invite CFO Seo Geon-ki to present the fourth quarter performance.

[Interpreted] Good morning. This is Seo Geon-ki, and I am the new CFO of SK Innovation. Allow me by starting to thank you, the shareholders, investors and analysts, for your continued interest in the company. And I will begin with the highlights of the fourth quarter 2024 business performance. First, on November 1 of last year, the merger between SK Innovation and SK E&S was successfully completed, and SK E&S was included in SK Innovation's consolidated financials from the fourth quarter of 2024. We expect the business environment in 2025 to be uncertain, but based on the full energy value chain that has been created and by accelerating synergies, we will continue to strive to become a leading energy company in the global market. Second, SK Earthon last January confirmed oil presence in the Vietnam 15-2/17 Block. The company has 25% ownership in this block and has participated in the exploration since 2019. It is located adjacent to Block 15-1, which represents the second highest cumulative crude oil production historically in Vietnam. And thus, we assess a high potential for development. In addition to the Block 15-2/17 in Vietnam, the company is engaged in a multiple number of exploration and development projects, including the Vietnam 16-2 and Malaysia 427, which we expect to lead to revenue and profit growth in the future. Lastly, at the BOD yesterday, the Board decided on a dividend of KRW 2,000 per share. This dividend will be finalized upon approval from the shareholders at the GSM planned for March. Through this merger with SK E&S, the company has been able to create a stable financial structure, and by strengthening its business competitiveness, we'll continue to enhance shareholder returns in the future. This concludes my overview on the business highlights. Now let me move on to the fourth quarter performance of our business in more detail. To discuss the top line for the fourth quarter, the refinery business revenue declined on the back of weaker oil prices. But upon the merger with SK E&S, its performance was included from November, leading to full company revenue increasing by KRW 1.7487 trillion quarter-over-quarter to KRW 19.4057 trillion. On operating income, contribution from the petrochemical and lubricant business declined, but an improvement in refining margins for the refinery business and the inclusion of SK E&S led to operating profit increasing KRW 583.2 billion quarter-over-quarter to KRW 159.9 billion. On the nonoperating side, due to factors including the strong dollar resulting in FX-related losses, nonoperating income declined KRW 994.3 billion quarter-over-quarter to a loss of KRW 1.3006 trillion. In detail, FX-related losses were KRW 330.8 billion; product derivative losses, KRW 23.7 billion; net interest expenses, KRW 342.5 billion; equity method losses, KRW 185.9 billion; and other expenses, KRW 417.6 billion. Next, let me discuss our financials. As of the fourth quarter of 2024 end, total assets stood at KRW 110.6 trillion. Due to the new factories constructed for the battery business, tangible assets and intangible assets increased KRW 21.6 trillion versus the end of last year. Liabilities were KRW 70.7 trillion, and as CapEx increased, borrowings increased by around KRW 15.7 trillion. The debt-equity ratio was less by 8 percentage point versus the end of 2023 at 177%. Next, we will present the fourth quarter performance by business line. The performance and outlook for each area will be presented by management from the respective businesses. First, the refinery business, SK Energy's Head of Strategy Business Operations, [ Choi Yong-gyu ], will give the presentation.

[Interpreted] Yes, good morning. This is [ Choi Yong-gyu ], Head of Strategy Operation Division at SK Energy, and let me go over the petroleum business. In the fourth quarter, crude prices showed volatility due to challenges in the global political landscape, but a recovery in refining margins and a strong dollar led to operating profit increasing KRW 595 billion quarter-over-quarter to KRW 342.4 billion. To elaborate a bit more, due to the Israeli-Iran conflict in October, oil prices increased in the beginning of the fourth quarter. But during the quarter, price dampening factors such as Trump's election win and dwindling expectations on China economics stimulation measures mixed with price supporting factors such as the OPEC announcement to extend production cuts resulted in price fluctuation until December. On the product side in early fourth quarter, inventory fell and low refining margins drove refineries to lower utilization, which adjusted supply, leading to much higher product crack levels. But weaker demand for petroleum products driven by China created a slightly weaker market in December. In total, though crude prices were volatile, our recovery in the product market coupled with a weaker won resulted in higher refining margins and inventory gains during the fourth quarter, leading to better operating profit quarter-over-quarter. Next, let me discuss the market outlook for the first quarter. Oil prices tend to be influenced -- may be influenced by uncertainty on Trump 2.0 tariff energy policies, but Russia regulations and strong measures from OPEC to support prices are expected. Thus, oil prices are expected to be at the high $70 range until March. In addition, as economic uncertainties continue, utilization rates are expected to remain conservative, which will somewhat limit production supply, but the seasonal demand is expected to be weak. In support, first quarter refining margins are expected to be flat to maybe slightly weaker than the fourth quarter. However, in light of the high market volatility due to the U.S. tariff policy on Canadian and Mexican oil, the company is planning to flexibly adjust run rates according to refining margin and market outlook and increase the import of heavy -- extra heavy oil to flexibly address market changes. Next, on the petrochemical business, Kim Yong-soo Head of Planning Office from SK geo centric will present.

[Interpreted] This is Kim Yong-soo, Head of Planning Office of SK geo centric, and let me discuss the petrochemical business. Though sales volume increased, spreads for our key aromatic products weakened, leading to an operating loss of KRW 84.2 billion this quarter. Next, let me discuss the 2025 market outlook for our core products. For our aromatics in 2025, there are positive factors such as a decrease in global PX capacity additions and expectations for stronger demand due to new PTA capacity going online. However, also negative factors such as concerns about an economic slowdown in key economies around the globe. So as a result, we expect aromatic spread improvement to be limited. On the olefin side, the supply-demand dynamics within the region had yet to improve, so we expect spread to remain at current levels. Against this unfavorable business backdrop, the petrochemical business will continue to strengthen its business competitiveness while focusing on sustainable profitability, securing its financial profile and securing a competitive edge in terms of cost and quality versus peers. Next, the Head of Corporate Planning and Development Office at SK Enmove, [ Kim Yi-gong ], will go over the fourth quarter lubricants business.

[Interpreted] I'm [ Kim Yi-gong ], Head of Corporate Planning and Development Office of SK Enmove, and I will present on the lubricant business. Given that the fourth quarter is a seasonal off-peak period, the lubricants business saw its margin declined due to weaker sales prices. As a result, they recorded operating profit of KRW 139.5 billion, down by KRW 34.9 billion Q-on-Q. In 2025, although some global capacity expansions are scheduled, steady demand for the Group III products that we focus on is expected to continue. Considering our strong position in the market, we anticipate maintaining stable profitability in 2025. Thank you very much. Next, I invite SK Earthon Head of Planning and Support Office, Kim Kyoung-jun, to present on Q4 E&P business results.

[Interpreted] Good morning. I am Kim Kyoung-jun, Head of Planning and Support at SK Earthon. I will walk you through the E&P business. So despite the decline in oil prices in Q4, the E&P business recorded a solid operating profit of KRW 145.8 billion, up KRW 14.7 billion Q-o-Q, driven by rising exchange rates, higher gas prices and increased sales volume from the Peruvian blocks. In addition, we have recently confirmed the presence of oil in the Vietnam 15-2/17 exploration block in which we are involved and successfully completed test production. This discovery following the successful exploration well in the 16-2 Block in 2023 represents a consecutive exploration success, greatly enhancing the potential of the Cuu Long Basin blocks we hold in Vietnam. We plan to proceed with full-scale development after confirming the results -- reserves through evaluation work such as appraisal well drilling. Next, CFO Kim Kyung Hoon of SK On will present on Q4 battery performance.

[Interpreted] Good morning. I am Kim Kyung Hoon, CFO of SK On. Let me walk you through the business of battery for the Q4 2024 and the outlook for 2025. Despite a slight decline in battery selling prices due to destabilization of metal prices, Q4 sales grew modestly as the effects of temporary factors including customer summer vacations in the Q3 subsided. Sales recorded KRW 1.598 trillion, up KRW 167.9 billion or 12% Q-o-Q. Q4 operating profit recorded a loss of KRW 359.4 billion, impacted by the base effect from settlements with customers in the previous quarter and one-off expenses such as inventory valuation losses. AMPC recorded KRW 81.3 billion, up approximately 34% from the previous quarter, driven by the partial easing of battery sales stagnation caused by temporary production halt at customer facilities. Amid concerns over the persistence of ongoing uncertain and unfavorable business environment in 2025, we are taking a conservative approach. With the expected growth in EV sales by key customers compared to the previous year, our company plans to focus on increasing local production and sales in our key North American market. As a result, we expect meaningful improvement in both top and bottom lines compared to 2024. Profitability is expected to be partially affected by ramp-up costs associated with the operation of new plants in North America this year. That said, performance is expected to improve through, first of all, full-scale battery shipments to major customers' new North American OEM plants; second, increased AMPC receipts in connection with such shipments; third, enhanced profitability efforts through cost structure improvements; and fourth, synergies from mergers with SK trading international and SK Enterm. Thank you very much. Next is on the materials. While sales volumes to major customers increased in the materials business, one-off costs such as inventory-related expenses resulted in a slight increase in losses. In 2025, sales are projected to rise gradually driven by expanded sales to existing customers as well as new customer contracts and the start of shipments. Next, Mr. [ Kang Yong-gwon ], Head of Management Planning Office of SK Innovation E&S, will present on Q4 E&S results.

[Interpreted] Good morning. I am [ Kang Yong-gwon ], and I will walk you through SKI E&S' business. A decrease in electricity demand caused by seasonality pushed SMP down compared to the summer peak season in Q3. As a result, SKI E&S' operating profit decreased by KRW 237.4 billion to JPY 114.2 billion Q-o-Q. For reference, the figures have been recalculated based on the merged entity to enhance investor understanding. Sales for November and December 2024 reflected in the consolidated financial statements post merger are KRW 2.3537 trillion with operating profit of KRW 123.4 billion. In 2025, although bearish oil prices and the entry of new power generators are expected to result in a decline in SMP compared to 2024, we aim to generate stable profits through competitive LNG supply, including the timely introduction of the Australia Caldita-Barossa gas fields, which is scheduled for commercial production in the second half of the year. Thank you very much. This concludes the presentation, and we will now move on to the Q&A session.

[Interpreted] Before taking questions, we would like to address some of the questions submitted in advance via our website. We have gathered a variety of questions from investors and analysts regarding this earnings release. And for effective communication, we have selected the most relevant and frequently asked questions in advance, which will be answered through simultaneous English interpretation. Question number one, SK On's 2025 profitability and shipment guidance. With that, I would like to invite SK On's CFO, Kim Kyung Hoon.

[Interpreted] Yes, I'm CFO Kim Kyung Hoon of SK On. As I mentioned earlier, while uncertainty is expected to persist in 2025 with both upside potential and downside risks, we anticipate a meaningful improvement in performance compared to 2024. Global EV demand is expected to face continued delays in growth recovery in the short term, driven by factors such as the inauguration of a second Trump administration, the EU Commission's scaling back of green policies and regulatory easing and major OEMs adjusting the pace of their electrification efforts. That said, the EV demand is expected to grow steadily in the mid- to long term, driven by continued impact of eco-friendly policies such as fuel efficiency regulations in various countries, OEMs' EV lineup expansion and charging infrastructure growth. Major market research firms project that the global passenger EV market will surpass 40 million units by 2030, maintaining solid annual growth over the long term. In 2025, this growth is expected to be driven primarily by North America, and we anticipate increased sales given our North America-focused portfolio. We believe that the revenue is going to grow -- the sales volume is going to grow in double digits.

[Interpreted] Thank you very much. I'll move on to the next question. It has to do with 2025 SKI's CapEx and measures to secure financial soundness. For this, I would like to invite Mr. Seo Geon-ki, SKI's CFO.

[Interpreted] Yes, I would like to address the question. First, to prepare for external uncertainties, we aim to maintain a prudent investment policy that allows for flexible responses through close monitoring of market conditions. Our planned CapEx for this year is approximately KRW 6 trillion with KRW 3.5 trillion allocated to the battery business, KRW 1 trillion to E&S and around KRW 1.5 trillion for other businesses, combining routine and strategic investments at a level similar to last year. Due to the merger with E&S, an additional KRW 1 trillion in CapEx has been added this year. Nevertheless, the total CapEx has significantly decreased compared to last year. Once SK On's North America joint ventures with Ford and Hyundai Motor are completed as scheduled this year, CapEx is expected to continue to decline going forward. Next, I will discuss our approach to managing the company's financial structure. First, in 2024, we achieved tangible results through various self-help measures, including the merger with SK E&S. As a result, global credit rating agency S&P upgraded our credit rating from non-investment grade to investment grade. Nevertheless, the downturn in the battery market has led to an increased fixed cost burden and reduced AMPC benefits. Additionally, declining refining margins have weakened operating cash flow from existing businesses. And large-scale investments for future growth over the past 4 years have, to some extent, impacted the stability of our financial structure. In 2025, the significant CapEx outlay is expected to be completed with the upcoming completion of the North America Ford joint venture and Hyundai Motor joint venture. From this year onward, we expect the financial pressure to ease as EBITDA from initial investments starts to be generated and merger synergies come into effect. Furthermore, the management team, including the Board of Directors, is aligned in recognizing the need for ongoing efforts to improve the company's financial structure. In 2025, as we execute our portfolio rebalancing, we will explore a range of options to enhance corporate value and secure financial stability. We will continue to do our utmost to maintain our investment-grade rating from global credit rating agencies and manage a stable financial structure.

[Interpreted] Thank you very much. Next, we will move on to the live questions. Consecutive interpretation is going to be provided for Q&A. So please be mindful of that. [Operator Instructions]

[Foreign Language] [Operator Instructions] The first question will be presented by Jae Sung Yoon from Hana Securities.

[Foreign Language] [Interpreted] Yes. There are 2 questions that I would like to ask you. First is about your refinery business. If you look at your competitors, some of them have recently started to import oil from Canada to actually lower cost. So in the case of our company, how are we going to move going forward? In terms of your imports of crude, do you have any plans to diversify? Or what measures are you taking to actually cut on costs? The second question that I would like to ask is on SK Earthon. In the case of the China 17/03 Block, it does seem to be that you mentioned that the third quarter of last year would be the peak. So in terms of the direction going forward, how should we look at production?

[Foreign Language] [Interpreted] So this is the Head of the Strategy Operation Division at SKE. So maybe I can address your question. With regards to our plans and the first question that you have asked, in terms of our sourcing, in terms of the Middle East oil that we have, of course, there are long-term contracts in place to provide us a stable basis for our sourcing. If we look at it by various crude type, according to the market changes that take place, in order to ensure that we are able to secure the maximum level of margins, we have created a feedstock portfolio. And we continue to put an effort to try to diversify our out-of-the-region supply lines. So if we look at the first quarter of '25, if we look at the overall level of crude that we import from the U.S., it's around 20%. And in addition to that, as opportunities arise, we may also explore the opportunity to import from Canada. So going forward, according to how the crude premium changes for U.S. and also Canada oil, we would look into the economics and to check what would be more feasible to determine our future plans.

[Foreign Language] [Interpreted] So this is Kim Yong-soo from SK Earthon. And maybe I can address your second question. In the case of the China 17/03 Block, as in the second quarter of 2024, we actually completed the drilling for 13 production wells. And since then, in terms of the daily production volume, we are at a historic -- we are at a maximum level. So if we look at the current production volume, it is at around 25,000 barrels per day. However, we do see a moderation of that level that is taking place naturally. So of course, we are putting in efforts to try to maintain the level of production. As an effort in that area, we are trying to adjust the production volume by each of the production wells and also make sure that we optimize these overall levels. And in addition to that, this year, we are also going to drill additional production wells. So in addition to the additional production wells that we will be drilling this year, based upon the overall data that we receive from those efforts, we will continue to look into, if necessary, drilling additional production wells after 2026. Thank you.

[Foreign Language] The next question will be presented by [ Hung-jun Shin ] from Shinyoung Securities.

[Foreign Language] [Interpreted] I am [ Shin Hung-jun ] from Shinyoung Securities, and I have 3 questions I'd like to ask you. They concern refinery, battery and also E&S business. First of all, the refinery-related question is this. I would like to learn about the impact of Trump's reelection in the refining industry, especially what will be the effect on Korean refineries due to tariffs and oil products from Canada and Mexico. And my second question regarding Battery is this. With the election of President Trump, how will this change IRA going forward? What is the company's outlook on consumer tax benefits and the potential evolution of AMPC? And finally, concerning E&S, what is the impact of the recent rise in natural gas prices on E&S performance?

[Foreign Language] [Interpreted] Yes, I am [ Choi Yong-gyu ], Head of Strategy Operation Division from SKE. And I'd like to address your first question regarding the impact of Trump's reelection on the refinery industry. I'm sure that you were able to also monitor the market situation a day after the Trump reelection. And to tell you the truth, the United States is not in a situation to completely replace the Canadian oil. So I believe that some of the Canadian oil is going to reach Asia, and this is also the case for Mexican oil. So for us, this opens up the opportunity to procure oil at a cheaper price, which is quite beneficial for us. I also believe that this going to work positively for margin as well. U.S. refineries could partially reduce their utilization rate. And also, consumer product prices could also increase, and product petroleum prices could also increase. And therefore, I believe that margins for us could also increase.

[Foreign Language] [Interpreted] I am [ Chon-young Uk ], Head of Financial Support Office from SK On. I'd like to take your second question. With regard to your second question on battery, since President Trump's inauguration on January 20, there has been some signs to limit IRA subsidies through Executive Orders such as Unleashing American Energy. However, many experts believe that instead of a complete repeal, the IRA is most likely going to be partially scaled back or adjusted, for example, like Section 30D. We also shared a similar view with our market stakeholders. And of course, I think that there can be some impacts on consumer tax deductions that could be abolished. And this could, in turn, affect the demand for EVs. However, if you look at the competitiveness of the EVs that are marketed in the market, which is very important, some of our customers where we supply our battery, even though they did not receive subsidies, their sales was faring quite well. So not having the subsidy doesn't really serve as a detrimental factor for the overall performance. And on the AMPC front, we believe that this is also closely connected to U.S. employment as well. So I don't think that it's going to be an easy decision to simply abolish it. That said, I believe that these issues need to be considered in a broader context alongside different tariff policies and other U.S. policies against China. And we believe that the uncertainties could persist down the road. And so we will fully utilize the group's U.S. government relations resources to closely monitor policy shifts and also actively respond to minimize any negative impact on the company. We will also continue our communication efforts with our customers so that we can come up with effective response measures. Next, I would like to take the third question, which had to do with the impact of the recent rise in natural gas prices on E&S performance. The recent rise in natural gas spot market prices has led to an increase in the cost of power plants using LNG as a fuel. However, this is reflected in the electricity wholesale price, which is SMP, which contributes to increased revenue. So the direct impact on the power generation business is not significant. Also, more than 70% of the E&S sourcing volumes are composed of long-term contracts linked to oil prices or the Henry Hub index. So fluctuations in spot gas prices do not have a significant impact. However, during periods with high proportion of spot cargo imports or when spot market prices fluctuate sharply, there may be temporary disparity between the cost of procurement and the sales price, which would impact short-term profits. As the largest LNG operator in Korea SKI E&S leverages a sourcing portfolio of over 6 million tons consisting of both long and short-term contracts to carry out various optimization activities aimed at mitigating profit and loss volatility in response to market conditions. In particular, starting from Q3 of this year, the commercial production of 1.3 million tons annually from the cost competitive Australian Caldita-Barossa gas fields is expected to begin. And as the share of volatile spot volume decreases and LNG volumes with strong cost competitiveness are added, overall import cost competitiveness is expected to improve.

[Foreign Language] The next question will be presented by Young Kwang Choi from NH Investments and Securities.

[Foreign Language] [Interpreted] There are 2 questions that I would like to ask you. First, in the case of the Tango gas fields that you have, I do understand that the contracts are coming to an end. So when would that take place? And what impact do you believe that it will have? In addition to that, in the case of the Caldita-Barossa fields that you have, I think that you mentioned that production would start during the third quarter. However, if you look at the IR material that has been distributed, I think that it's mentioned that fourth quarter would be the timing. So what is the right timing for that production? And how do you think that, that will have an impact on your profitability for this business? The second question that I would like to ask you is about the refinery area. If you look at the situation since the end of last year, in China, for the Chinese teapot refineries, it does seem to be that there is restructuring taking place for some of the refineries actually closing down. So as a result of that, what would be the impact on our business and also the impact on the domestic refineries in general?

[Foreign Language] [Interpreted] So yes, maybe I can address your first question, which was about when the contract ends for the Tango gas field and when we will actually start production for the Caldita-Barossa gas field. First, to talk about the situation with regards to the Tango gas field and also supply contract that we have in Indonesia. This is a long-term supply contract that we have had. And initially, the contract was to end within 2026. However, if you look at the past situation, because of issues such as various production facility issues that the gas field had experienced in the past, there was some supply volume that we were not able to receive. So as a result of that, that is something that will be forthcoming in terms of supply. So as a result, for 2026, we do think that the overall cargo volume will be the level that we have seen in average on other years. However, that has been said, for the contract period after 2026, we are currently in discussions with the seller about detailed supply timing for cargo, also in terms of the size and when we will actually see an end to the contract. In addition to that, even if the overall Tango volume of around 500,000 tons per year in terms of contract does come to an end, we will be able to replace that with a supply that is coming forth from the Caldita-Barossa gas field, which is, in terms of our sourcing, the most cost-competitive source that we would have and also, in terms of volume, represents twice of that, which would -- of the Tango gas contract, which is in total 1.3 million tons. So that would be the size of the Caldita-Barossa. So in actuality, we actually believe that the impact on our profitability would be limited. And lastly, in terms of the timing of the Caldita-Barossa production and when that will take place, officially speaking, for the full-fledged production, it will start in the fourth quarter. However, in terms of the production for the pilot test that we need and also the initial operations, that will be starting in the third quarter. So officially, fourth quarter would be the right timing.

[Foreign Language] [Interpreted] Yes. This is the Head of Strategy and Operational Division at SK Energy, and maybe I can address your second question. So as you are aware, even before U.S. sanctions were being discussed, in terms of the Chinese teapot refineries, they were ongoing restructuring. However, that having been said, from last year in terms of the decrease in the overall tax returns that were provided for exports and also because of the stronger measures that we're taking against the Chinese ports, if we look at the teapot refinery economics, it has worsened significantly. So that having been said, if you look at the situation though, on the refinery side for the Chinese teapot refineries, there is restructuring ongoing. However, if we look at capacity additions from non-teapot refineries in China, that is still some something that is going on. So at the end of the day, if we look at the overall situation, we think that the impact of the teapot refinery restructuring in terms of regional market dynamics would be limited. However, for our teapot refinery specifically, we do think that the pace of restructuring will be accelerated going forward.

[Foreign Language] The next question will be presented by Young Suk Shin from Morgan Stanley.

[Foreign Language] [Interpreted] I have 2 questions pertaining to your battery business. First of all, as you mentioned earlier, I believe that there still are some uncertainties with regard to U.S. policies. But could you elaborate on your battery business market outlook in 2025 in the U.S., especially the customers' dynamics in the U.S.? And second battery-related question is SK On's key expansion project, the starting date and the scale that you have in mind.

[Foreign Language] [Interpreted] Yes, I am [ Chon-young Uk ], Head of Financial Support Office of SK On. I would like to take your first question. Yes. You have rightly mentioned that with the inauguration of Trump's second administration, there is a growing uncertainty in the market for battery. Now if the tariffs increase, I believe that there will be some risks associated with it. Back in 2024, if you look at the market outlook, we obviously had, every quarter, our debt outlook. And those outlook showed a downward trend. However, going forward, this year, 2025 and also in 2026 and 2027, we believe that yearly growth rate will be sustained, although the scale of the -- or the speed of the growth is going to be rolled back a little. That said, although there are some policy uncertainties in the U.S. market, I believe that market growth will continue on long term. And I think that it's also important to note the OEMs' competitive dynamics in 2024. There were some frontrunners when it comes to EV like Tesla, and there were other EV OEMs and their initial EV models, as they aged, became less popular. But -- and also coupled with that, there were some new EV launch delays, and that led to eventual sales decrease. And if you look at late-comers like Ford and GM, although it was below market expectations, I think that their sales did increase. And if you look at -- so the traditional OEMs and also star players, I believe that their new lineup could give some sustainability in the battery business. And if you look at Hyundai Motor and Kia motor where we supply our battery, they also expect to have new lineup, for example, IONIQ 9 this year. And they are also planning to expand local production in the U.S., which will eventually lead to increased sales and help to cement their position in the market. And we also have our customer Ford, and E-Transit and Puma gen 2 is expected to be launched this year, which we believe will lead to increased EV sales.

[Foreign Language] [Interpreted] Thank you. I am [ Ahn Gun ], Head of Planning Office from SK On, and I'd like to address the second question. In 2025, the Kentucky plant #1, 1 of the 3 BlueOval SK, the joint venture with Ford in the U.S., is expected to begin operations. The BlueOval SK Kentucky plant #1 is a facility with a total production capacity of 37 gigawatt per hour. And some lines are expected to begin SOP sequentially starting from June 2025. Meanwhile, of the 3 BlueOval SK plants, the Tennessee plant with a total capacity of 45 gigawatt per hour was initially set to begin SOP in 2025. We are reassessing the optimal SOP timing considering market conditions. And as of today, our expectation is that the operations will begin in the second half of 2026. We will optimize production line operations year-round considering customer demand and EV market trends based on the experience and capabilities gained from large-scale plants. Like SK Battery America in the U.S., we aim to minimize the ramp-up time for new plants and also minimize our relevant costs.

[Foreign Language] The last question will be presented by Yu-Jin Jeon from iM Securities.

[Foreign Language] [Interpreted] Yes. There are 3 questions that I would like to ask you. This year, we do understand that for SK Enmove, you are preparing an IPO. So what would be the IPO schedule? And what is the mid- to long-term view for this business that the company has? The second question I would like to ask is about your petrochemical business. We do know that the overall market drop is -- or market situation is challenging. So with regards to the strategy going forward, what is the company currently thinking about? And the third question is about the refinery business. If you look at the operating profit for the refinery business this quarter, it represented around KRW 340 billion. Of that, how much would be the inventory-related gains?

[Foreign Language] [Interpreted] Yes, maybe I can take the first question. This is [ Peh Gi-rak ], the Head of Corporate Finance Planning Office at SKI. With regards to the IPO, of course, we are currently looking at various possibilities as of the current time. However, as of now, it would be difficult to give you a definitive answer because we are looking at various factors, including the overall structure, the market situation and also the level of IPO that we want to actually do. So over the mid- to long term, in terms of the view for the company, I do think that the performance that we foresee would be similar to that of last year. And in addition to that, if the IPO were to go ahead, we do believe that it would be a very successful deal.

[Foreign Language] [Interpreted] So yes, this is Kim Yong-soo, Head of Planning Office at SK geo centric, and maybe I can take your second question. So with regards to the company's overall stance, of course, right now, for the time being, we would be focused on very essential investments that are needed and also a very active OI activity. In addition to that, we would be focused on sustainable profit generations and also securing a sound financial structure. In addition, we are also actively engaging in portfolio rebalancing initiatives. Also as a result of that, we want to discard of obsolete assets that we have or low profit-generating assets. And over the mid- to long term, to ensure that we're able to secure the future growth drivers that are necessary for the business, we do want to engage in a portfolio revamp that would be focusing on the high value-added downstream side.

[Foreign Language] [Interpreted] So this is the overall Head of Strategy Operation Division for SK Energy, and maybe I can address your last question. If we look at the inventory-related losses that we had in the third quarter of 2024, that represented KRW 435.2 billion. In the fourth quarter, we had a gain of KRW 90.1 billion. So if you look at the difference quarter-over-quarter, that would represent KRW 525.3 billion.

[Foreign Language] [Interpreted] So with this, we will wrap up the Q&A session for the fourth quarter of 2024 SK Innovation's Earnings Conference Call. Once again, we would like to thank all of the participants here today. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]