Growing Lean and Mean

SK Group comes out of economic crisis stronger than ever to focus on future growth areas

SK Group says that its affiliates have come out of the economic crisis stronger, solidifying their business structures to build bases for their sustainable growth. A number of its key affiliates such as SK Energy and SK Telecom failed to achieve their operational targets in the first half of the year, but their operations have been made more "lean and mean" to stand up against any crisis they may face in the future, industry sources said.
SK Group will make pre-emptive investments in the areas of new and recycled energy production and other new growth areas along with the expansion of its overseas operations to secure sustainable growth bases, ever ready for any crisis, group officials said.
SK Energy suffered from reduced demand for its products and a decline in profit from its petroleum refining division, as Q2 sales and operating profit fell substantially. The company's Q2 sales plummeted 26 percent to 8.928 trillion won with operating profit falling 67 percent to 117.6 billion won, while net profit rose 16 percent YoY to 301.4 billion won due largely to the rising value of the Korean won against the U.S. dollar.
A main reason for SK Energy's setback in Q2 can be traced to the sluggish oil business. The sector saw an operating loss of 68.3 billion won for the first time since Q4 in 2006. But its chemical sector recorded the largest quarterly sales in the company's history with 2.54 trillion won in sales thanks to a boom in the chemical product market in China with exports of chemical products coming to around 2 trillion won in the quarter alone or 1.77 million tons.
SK Energy officials said the margin for oil refining fell, but increased exports of chemical products where facility investments have been continuous and the oil exploration business overseas have been a great success for the company in Q2.
SK Telecom's Q2 sales, in the meantime, increased 4.7 percent YoY to 3.679 trillion won with an operating profit of 553.4 billion won, up 3.8 percent YoY. The wireless Internet sector's sales hit 671.2 billion won, an increase of 11.8 percent YoY, due to more new subscribers, and the company said second half sales are likely to increase on the strength of investments to improve the quality of communication, which came to 667.4 billion won, up 10 percent YoY.
Company officials said the second quarter saw competition heat up, but they expect it will be stable in the second half as they try to expand the use of smart phones and boost fees through various charges for data in an effort to secure new growth engines.
SK Group's strategy in the first half centered on survival and securing futuristic competitive power. Chairman Chey Tae-won issued a statement to all employees that the myth that a big horse never dies is not true, calling on all of them to do their best for the survival of the group. From the second half of last year, every affiliate of the group has made a survival plan every two months, taking into account the environment that it faced so they can cope with any contingencies.
Under the catchphrase that crisis is an opportunity, the group focused on hiring talented people and expanding investments in R&D in the first half. The group continued to increase its annual investment at the rate of 1 trillion won per year since 2003 with the investments in R&D for this year rising to 1.3 trillion won, an increase of 20 percent from 2008. This is in line with the group's strategy to foster futuristic growth engines in the areas of green technology and information technology, in which the group plans to plunk down a total of 5.7 trillion won in R&D activities alone by 2012.
The group has picked seven major areas as its futuristic growth engines: clean coal energy, Ocean bio-energy, solar energy, making CO2 resources, hydrogen batteries and u-eco-city.
SK Energy also will continue to seek growth through the exploration of natural resources overseas by solidifying its overseas bases for its sustainable growth, in addition to the green growth area at home.
The company plans to expand its operations and increase its investments in such key world regions as South America, Southeast Asia and countries around the Caspian Sea. nw

Chairman Chey Tae-won of SK Group.