SK Innovation Incurs 1.2169 Trillion Won Valuation Loss on Price Return Swap

SK Innovation announced in a regulatory filing that it recognized over 1.2 trillion won in derivative losses due to the impact of the fair value assessment related to its price return swap contracts.

According to the Financial Supervisory Service's electronic disclosure system, SK Innovation stated that it incurred a loss of 1.21692865 trillion won from cumulative derivative transactions in the second quarter of this year. This is equivalent to 3.34% of its equity capital of 36.39149574 trillion won, based on the consolidated financial statements at the end of last year.

The primary cause of this loss is the result of evaluating the price return swap contracts at fair value in accordance with the Korean International Financial Reporting Standards (K-IFRS).

The detailed breakdown of cumulative derivative losses for the first half of the year was tallied at approximately 12.4 billion won in derivative transaction gains, 13.7 billion won in derivative valuation gains, 10.1 billion won in derivative transaction losses, and 1.2329 trillion won in derivative valuation losses.

SK Innovation explained that this was recognized as an accounting non-operating loss due to the fair value assessment, that it is mostly an unrealized valuation loss, and that there is no actual cash outflow.

The large-scale derivative valuation loss also took a direct toll on the company's net income.

According to the preliminary second-quarter results disclosed on the same day, SK Innovation recorded a revenue of 29.1572 trillion won and an operating profit of 3.4873 trillion won in the second quarter, successfully turning a profit compared to the same period last year. It is a strong performance, with the cumulative operating profit for the first half alone reaching 5.6495 trillion won.

However, as the 1.2 trillion won range price return swap valuation loss was reflected as a non-operating loss, the net income for the second quarter plummeted by 91.8% to 73.5 billion won, compared to 896.1 billion won in the previous quarter.