Good morning. I am Jae-yoon Lee, IR Project Leader at SK Innovation. Thank you for taking the time to join us today on this 2022 Q3 earnings call. Today's presentation has yet to be reviewed by our external auditor, thus the results may be subject to change based on such review. With that, let me hand it over to CFO Kim Yang-seob for the presentation. Good morning.
I am Kim Yang-seob, CFO of SK Innovation. First, let me start by thanking our shareholders and investors for your continued interest in the company. On the call with me today are executives from SK Innovation and its major subsidiaries who will answer your questions during the Q&A. Now let me start the presentation on SK Innovation's 2022 Q3 highlights.
First, SK Innovation's battery subsidiary, SK On, posted the highest quarterly top-line results with the quarterly EBITDA in the black thanks to the increased sales volume from the new plant stabilization in the U.S. and Europe, and successfully passing on the higher raw material prices to its ASPs. In the remaining fourth quarter and 2023, sales volume is to increase from the new plant operation of the U.S. number two plant and Yancheng plant phase two. Furthermore, SK Lubricants realized an operating profit of KRW 336 billion in Q3, which is the highest operating profit for a quarter since the company's inception. SK Lubricants has been focused on developing the premium Group III base oil, which has a high growth potential due to global environmental regulations and through its proprietary technology to produce base oil using UCO.
It is firmly maintaining the global number one place in premium base oil production capacity. With such technological prowess and robust ASPs due to global supply shortage, the company has been able to achieve the highest ever operating profit. Lastly, SK Innovation has recently announced a new vision named All Time Net Zero in commemoration of its 60th anniversary. Taking one step further from the previously announced 2050 net zero target, with this vision, the company aims to offset all the carbon emitted since its inception by 2062, the year of the company's centennial. Backed by innovation that goes beyond its limits, it shows SK Innovation's strong commitment to become a greater driving force that moves the world also in the future. This was an overview of SK Innovation's 2022 Q3 highlights. I will share additional comments as I go through each section of the detailed earnings performance.
Now, let me discuss the Q3 business performance. I will start with the third quarter full company performance, including sales and operating profit. On sales backed by the improved CDU utilization and ramp up of the new battery plants, sales was KRW 22,753.4 billion, a QOQ increase of KRW 2,848.1 billion. On operating profit, despite lubricants base oil business posting the highest ever operating profits and battery business, businesses improved profitability due to the fall in oil prices and refining margins, operating profit was KRW 703.9 billion or QOQ decrease of KRW 1,625.3 billion. On operating profit, larger FX related losses with a greater depreciation of the won and an increase in the interest expense due to the increased borrowings.
Non-operating loss was KRW 400.4 billion or QOQ increase of KRW 81.3 billion. In detail, the non-operating losses were comprised of FX related losses of KRW 279.6 billion, derivative gains of KRW 25.6 billion, net interest expenses 122.3 billion, equity method loss of KRW 2.7 billion, and other losses of KRW 21.5 billion. Next, the balance sheet. As of Q3 end, due to increased inventories and trade receivables driven by an increase in crude and refining product prices and also due to an increase in tangible and intangible assets from investment expenditures, total assets increased by KRW 11,246.2 billion- KRW 67,791.1 billion.
On the back of an increase in trade payables driven by crude prices and an increase in borrowings, liabilities increased by KRW 13,871.7 billion- KRW 43,795.9 billion compared to the end of 2021, and debt to equity ratio was 183%. In addition, net debt increased by KRW 5,430 billion- KRW 13,842.9 billion as facility investments grew for battery capacity additions. Now, let me dive into the Q3 performance of each business line.
While oil prices and refining margins fell due to the stronger tightening around the world and China's announcement on large scale export quotas in trading, the greater sales of high margin products leveraging highly volatile market environment and profits generated from bunkering trading using the blending economics of low-end distillates have offset the profit decline, thus refining operating profit, refinery's operating profit decreased by KRW 1,912.6 billion QoQ to KRW 316.5 billion. Q3 inventory related losses, including LCM, was two hundred and sixty-seven point one billion won.
Regarding the outlook for refining margins in Q4, while we expect to maintain the Q3 level due to ongoing concerns of global recession, the move to impose stronger sanctions against Russia from intensifying Russia-Ukraine war and greater demand as we enter into the winter season, we expect refining margins to gradually recover. Next, petrochemical business. Petrochemical operating profit increased by KRW 32.3 billion QOQ to KRW 108.3 billion. Despite the inventory-related losses from weaker naphtha prices, operating profit increased in quarter, driven by margins improving from modest PX spread and higher FX, as well as lower fixed costs and by-product sales. Let me now go over the outlook by product. For PE and PP, while the possibility of weak demand for final consumer goods persists, we expect spreads to gradually improve as regional crackers cut back on production from falling utilization economics.
Meanwhile, for PX, we expect spread to tighten due to the increased supply of the new Chinese PX capacity in the fourth quarter. Nevertheless, we forecast that the spread tightening to be limited with the possibility of greater PX demand from the operation of the new PTA capacity. Next, Q3 lubricants business. Lubricants recorded the highest ever operating profit for a quarter at KRW 336 billion. Despite the lower cost from falling oil prices with the tight global supply and demand balance, robust ASPs were maintained and consequently, improved spread. Thus, operating profit increased by KRW 80.8 billion on quarter to KRW 336 billion. In Q4, spread is projected to stay stable and flat despite falling seasonal demand, which puts downward pressure on sales prices since UCO output relatively retreats due o diesel supply instability from the Russia-Ukraine war issue. Next, E&P business.
E&P operating profit decreased by KRW 5.7 billion QoQ to KRW 160.5 billion due to the decline in the sales volume despite lower costs. On the following slide, I will discuss the battery business. In Q3, battery sales increased by KRW 906.2 billion QoQ to KRW 2,194.2 billion with increased sales volume from the stabilization of the new plants in the U.S. and Europe and higher ASPs from rising raw material prices. Operating losses were KRW 134.6 billion through cost pass-through negotiation from rising raw material prices. Profitability improved significantly and EBITDA was in the black for the first time at KRW 9.4 billion.
In 2023, including Q4, top line growth is projected to be sustained with the ramp up of new capacities, including US plant number 2 and Yancheng plant phase 2, and efforts to improve the bottom line will continue via sales price negotiations with OEMs. Please refer to the appendix for the detailed capacity expansion plan by region. Next, SK IE materials. The consolidated losses of the SK IE materials business increased by KRW 14 billion QoQ to KRW 27 billion as product mix changes hurt sales and one-off expenses rose. In Q4, we anticipate that profitability is going to gradually improve with sales growth. Next, I would like to present the company's net zero strategy.
SK Innovation's ultimate target for net zero is to realize All-Time Net Zero by coming up with a solution for not only the present and future carbon emission, but also to offset the carbon emitted by the company for the past six decades. From 2019- 2022, for three years, we reduced around 2.03 billion ton of carbon emission based on Scope 1 and 2, which is a 16% volume reduction compared to the base year of 2019. Also, as mentioned during our Q2 earnings call, SK Innovation plans to achieve the Scope 1 and 2 net zero target before 2050. For this end, we'll actively implement our plans to improve process efficiency, transition to eco-friendly fuel, optimize operating facility and equipment, and introduce renewable energy.
In Scope 3, we have a target to reduce emission intensity by more than 90% by 2050 through the net zero portfolio, including innovating our business model and portfolio. We will contribute to reducing carbon by more than 100 million tons through the expansion of global carbon reduction initiatives based on the expansion of eco-friendly and low carbon products and business. In the end, in 2062, which will mark the company's centennial, will contribute to the global carbon reduction efforts by a further 48 billion tons, which represents the total amount of emissions since the company's inception. This vision will only be possible if the carbon to green strategy proceeds without any disruption. The vision represents SK Innovation's strong commitment to be an even greater driving force to move the world as also in the future through innovation that goes beyond its limitations.
Thank you.
This is the end of our presentation, and we will now move to the Q&A session. We will have consecutive interpretation for the Q&A.
Before we actually start the Q&A session, for two weeks before we actually started the earnings conference call in advance, we actually had asked for questions to be submitted. Before we actually start the Q&A session, we will actually start to address the questions that have already been received. For the first question that we received, it was related to the future guidance for the battery business, and we will have the representatives from SK On to address this question.
This is Jin Sun-mi, the Head of the Battery Strategy and Planning Office at SK On, and maybe I can address your first question.
As mentioned during the earnings conference call last quarter, we did talk about how we want to improve our profitability towards the second half of the year, and I do believe that in the third quarter we have shown you somewhat of the tangible results that we have been able to achieve. From the beginning of last year to the beginning of this year for the factory, the U.S. factory number one and the Hungary factory number two, which did start commercial operations through various improvement activities to uplift the overall productivity, we have been able to stabilize the overall yield and utilization of this capacity.
With regards to various elements that have increased costs, which would include the overall metal price increases that we have seen, through discussions to adjust the overall sales price with our OEMs, we have engaged in various efforts. For the fourth quarter of the year, in order to ensure that we are able to achieve our overall business targets, we will continue with regards to the efforts that we have made up until the third quarter. In the third quarter, on a QOQ basis, as you have been able to see, we did see a significant improvement in our overall profitability, and we have been able to achieve and go into the black on an EBITDA basis.
However, that has been said, due to the geopolitical situations that exist within the European area, there has been an increase in overall utility prices and also on the exchange rate side, we do see a very strong dollar persisting. These economic environments do lead to unfavorable conditions. Going into the fourth quarter, this of course will be an overall burden in our improvement activities on the profitability side. However, towards the end of the year, we will try to continue to enhance our overall purchase efficiency and also have various discussions on the sales price to be able to cut our overall operating costs.
Also engage in other forms of activities on a more active basis to improve our profitability, to ensure that we can meet the overall business target that we have for the year. This will be the focus of our efforts. Maybe to talk about our outlook for 2023. Since 2017, for the past couple of years, on the SK On level, we have been able to increase the top line each year. But we have been able to double the top line growth that we have seen for each year.
In 2023, again, we do believe that as we increase the overall production volumes from the existing commercial operations that we have, and in addition to that, as we do ramp up our new factories, which would be the number 2 factory in the U.S. and also the number 2 factory for SK On, we do think that we will be able to continue with the current growth that we see in terms of our overall revenues. Maybe to talk a bit about our profitability outlook for next year. Based upon the stronger negotiation power that we have as we see more growth in the EV market and also in terms of general battery demand, we will try to engage in more active negotiations with our customers to improve our overall profitability.
In addition to that, not only for the metals that go into the cathodes, but also for other metals like aluminum and also copper, we will try to increase the scope of materials that go into the pass through bucket. For various cost increasing factors, for example, which would include labor cost and also utilities cost, we are trying to make efforts to try to pass this through to the sales cost. As we did this year in 2023, again, we do believe that the results of such efforts will be something that we will be able to see.
In addition, based upon the commercial production experience that we have been able to gain from our global sites, including Hungary, China, and the US, we will try to shorten the ramp up period for new factories that are built and also try to continue to make efforts to cut our overall purchasing costs and our operational costs, so that we can continuously improve our operating profit.
Thank you.
The second question is about the funding plans for SK On, and we will have the finance team from SK Innovation address this question.
This is the CFO, Kim Yang-seob, and maybe I can address your question about the funding plans for SK On.
Due to the recent uncertainties that we have seen within the financial market environment, I do understand that from our investor side, there is a lot of attention and interest on the resource plans for SK On. However, that having been said, with regards to SK On's global capacity expansion and also in securing the resources that would be required to do this, regardless of what the current financial market environment is, this overall process is going very smoothly. If you look at the scope of projects that we have that are currently under construction, it would be the number two factory in the U.S., the number three factory in Hungary, the Yancheng factory, and also the U.S. BlueOval SK investment.
To take them one by one, in the case of the number two factory in the U.S., we are planning to start commercial operations in the first quarter of next year. As a result of that, we do believe that the necessity of any large scale additional CapEx would be very limited. In the case of the number three factory for Hungary, we did do a capital increase of around $900 million in July of last July. And in addition to that, in October, we also closed a financing, a local borrowing of around $2 billion. As a result of that, we have secured the lion's share of resources that is required to complete the construction for the number three factory.
In the case of the Yancheng factory, for the future CapEx requirements that we would have for this capacity, we are preparing to try to arrange debt financing. The largest investment that we would need to do would be the U.S. BlueOval SK investment. If we look at that entity, more of the total amount required, around 50% or more, will be actually financed through debt. That is the target under which we are currently preparing. For the remaining equity portion, that also would be shared 50-50 between Ford and ourselves. As a result of that, of the total investment that is required, our portion would fall to 25% or below. This amount also is something that we would contribute in installments over time.
In addition, at the SK On level, we currently are trying to attract a long-term, financial investor. Versus the original plan that we have, this overall process is taking a bit longer than we had expected. However, negotiations are still in progress. However, in terms of the specific timing and what the actual deal size would be, because this has not been determined, please understand that we cannot share any of the details as of the current time.
In short, as mentioned, on the SK On level, in order to ensure continuous growth of this business, in terms of the resources that is required to fuel that growth, even though the current market situation in terms of the financial markets has been a bit stable, this process in itself has been going ahead without any issues. Thank you. The last question that we have as part of the pre-submitted questions would be with regards to our petchem business, and it would be about our waste plastic efforts that would be being made, and this will be addressed by SK Geo Centric.
This is Hong Ha-seok, the Head of Corporate Planning Office at SK Geo Centric, and maybe I can address the question that you had about our waste plastic recycling efforts. SK Geo Centric under the vision of quote, "Green to better life," is trying to create a plastic circular economy that would enable us to secure the material of waste plastic and also produce various material that would be produced on a recycled basis. Having a plastic and carbon zero is the overall target that we're trying to achieve. To this end, using the overall technology and know-how of SK Innovation, we currently are trying to develop our own proprietary technology in this area.
In addition to that, through various cooperations with global partners that have the three main chemical recycle technology that we are targeting, we do have various cooperative efforts ongoing. To talk about what those three chemical recycle technologies would be, it is PP solvent extraction technology, PET depolymerization technology, and pyrolysis technology. In order to ensure that we can increase the overall operational efficiencies of the facilities that we have, currently the plan is to create a recycle cluster in our Ulsan complex, so all three plants would be sitting on one site. As a result of that, the overall plan is to start operations in 2025.
In addition to this, recycling cluster that we are going to create, in order to ensure that we are successfully operating, this capacity, we are in the process of trying to secure, the waste plastic feedstock that would be required, so that we would be able to have sufficient, input, for this cluster. Starting with, the recycling cluster that we built in Korea, together with our partner which has the chemical recycling technology, we are also planning to expand this, recycling business, for waste plastic to other global sites that would be located in the likes of Europe, China, Japan, or Southeast Asia. This is something that we are trying to, create in terms of the detailed projects for the future.
Through the IR team, we will continue to communicate the various progress that we make on this end. Thank you very much.
With this, we would like to wrap up the questions that we have submitted and received in advance, and we will now start the Q&A session. Before you ask your question, please state your name and affiliation. Also to enable and to ensure that we give as many opportunities as possible, please limit your questions to two per person. Now Q&A session will begin. Please press star one. That is star and one if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two. That is star and two on your phone.
The first question will be presented by Jae-Sung Yoon from Hana Securities. Please go ahead with your question.
Thank you for the opportunity to ask questions. There are two questions that I would like to ask you. First is that for your overall battery business in terms of battery materials and also including these overall battery materials, I do know that two of the affiliates that you have in the case of the separators and also the copper foil, it is something that you are sourcing internally. However, if we look at other parts that go into the battery, for example, for the cathodes that are required or maybe for some of the other materials, for example the minerals, in terms of the plans there, do you have any plans to maybe in-source those functions as well?
The second question that I would like to ask you is about SK On's funding plan. You did talk about what the funding plan is. Could you actually talk about what type of capacity this funding would be supported in terms of the detailed numbers for next year? Added to that, if you look at the overall cash flow generation capabilities at the SK Innovation level, it does seem to be very healthy as of the current time. Would there be any possibility of utilizing the cash flow that is being generated at SKI for SK On?
This is Yu Jin-suk, the Head of Battery Business and Strategy Office at SK On, and maybe I can address your first question.
As there is an increasing emphasis in terms of the importance of the supply chain at the SK On level, we are continuously exploring various options that we would have to ensure that we have sourcing security and also are able to source at a competitive level, and also in terms of the recent developments that have been taking place and opportunities that are presented with the IRA going into effect. First, you talked about our cathodes. In the case of cathodes right now, we do have a JV in process in China with BTR and then also in the North American region. We also have JVs on that side with the likes of Ford and EcoPro BM.
In line with the overall objectives that we talked about before to ensure sourcing security and also cost competitiveness, we are reviewing these cathodes JVs to ensure that we are able to satisfy and reach these goals. In the case of critical minerals, the overall approach that we are using is to ensure that we have sourcing security. We are engaging in long-term supply contracts and also trying to make equity investments into material providers so that we can have an offtake agreement with them. At the end of the day, we do want to ensure that we remain cost competitive and also are able to secure the sourcing security that is required.
Recently we have signed an MOU with an Australian company, and that would be based upon the conditional agreements that we have agreed upon. We will do a more detailed review of this opportunity, and once we have more tangible results, we will communicate such through our IR team. This is the CFO, Kim Yang-seob, and maybe I can address your second question
[Foreign language]
I do believe that the first part of your question asked about the overall CapEx levels for SK On. Right now, for 2023 business plan, including the CapEx that is required. This is a process that is ongoing as of the current time. As a result of that, we aren't in a position in which we would be able to share any guidance. However, that have been said, once the business plan has been finalized, and we do believe that that would be sometime in the beginning of next year. We will make sure to communicate that with you.
[Foreign language] Cash Flow .[Foreign language]
In addition to that, you did ask the question about whether there would be the possibility of using the cash flow generated from our existing business to fuel, you know, the requirements that we have at the SK On level. I do take this to be a question that you are asking in light of the recent uncertainties that we have seen or instabilities that have been persistent within the financial markets and also the overall delay in securing our long term investor for SK On.
[Foreign language]
In relation to this situation, of course, SK Innovation as the shareholder for SK On continues to monitor the changes that are taking place within the financial market and also the overall funding dynamics at the SK On side very closely. We continue to think about the various opportunities or methods that we may be able to engage upon. As of now, we don't have any definitive plans, but if any decisions are made, then we will make sure to share that with you through market disclosures.
[Foreign language] JP Morgan의 Parsley Ong [Foreign language]. The next question will be provided by Parsley Ong from JP Morgan. Please go ahead with your question.
Hi, this is Parsley Ong from JP Morgan. Thank you for the chance to ask question. My first question is on the IRA. What impact do you expect to get from the Inflation Reduction Act, and how much benefit do you expect from the manufacturing tax credit? Do you see potential for Hyundai to get an exemption to receive the $7,500 credit? Or do we have to wait until the North America fund is complete? The second question is on FX impact. In your presentation, you mentioned that there was an FX headwind for the SK On in third quarter. Could you share with us how much was the FX impact on the OP side? Going forward, how are you expecting your FX exposure to change over time?
Because some of your peers, like LG, actually have a positive FX benefit from U.S. dollar strength. What is the situation for SK On? Thank you.
[Foreign language] . So maybe I can take your first question. This is Yu Jin Suk, the Head of the Battery Business Strategy Office at SK On. [Foreign language] . So with regards to your first question, as you are aware, since the IRA is going into effect, I do think that in short, for battery manufacturers, we will be able to benefit from this overall legislation.
However, because the details have not been determined yet in terms of what level of economics we would be able to enjoy is something that we would not be able to discuss as of the current time.[Foreign language] . That having been said. I think that at a macro level, we can talk about what the benefits the IRA is believed to bring to the table. First, I do think that it would have the effect of limiting the entrance of Chinese players within the U.S. market.
Second, for overall demand in the U.S. market, we do think it will have an uplifting effect. The third is that for investments that are made into the U.S., it does improve the overall economics of such an investment. [Foreign language] . In more detail, at the SK On level, as you are aware, we already have capacity in the U.S., so we are able to immediately address the demand that we see there. Secondly, we are engaging in capacity expansion plans.
That in that area, we do think that would be an advantage for us. Thirdly, even before the IRA went into effect, we were in the process of building out a local supply chain within the U.S. Since this is a preparation that we embarked upon a bit earlier on, as a result of that, we do think that we will have the advantage in that area.[Foreign language] watching[Foreign language] . I think that the second question that you asked is that, for HMC, whether they would be eligible for the benefits under the IRA.
Because this is a customer of our company, I do not believe it would be appropriate for us to talk on their behalf. That having been said, because it is a key customer for us, we are watching the progress very closely.[Foreign language]
Maybe to elaborate a bit further in terms of to be eligible for such benefits under the IRA, it is essential that there is an assembly line that is present within the U.S. However, we do understand that at a country-to-country level there are ongoing discussions and also negotiations to try to address this issue. We would actually have to see what the result of those discussions are in terms of the way going forward. Secondly, at the HMC level, I do understand that there are various interests of trying to deal with it early on with the requirements. There are ongoing discussions that are taking place on that side for local content.
I do think that at the end of the day, there will be a way for them to benefit from the current package. [Foreign language] . The following question will be presented by Nikhil Bhandari from Goldman Sachs.
[Foreign language] Korean won, US dollar, Euro [Foreign language] Maybe before we go to the question from Goldman Sachs, if we could address the second question that was asked by the previous investor or analyst first, which would be the FX related question. This is Jin Sun-mi from SK On, and maybe I can address that question, and then we can go on to the question from Goldman Sachs.
Right now, if we look at the overall impact of the FX in terms of our operations, if we look at the various currencies in which our purchases and also revenue is based upon, there would be Korean won, US dollars and also euros. As a result of this overall mix, it would be difficult for us to share in detail about how the different currencies and the FX rate for those currencies would have an impact on the overall operations. However, that have been said, what we can say is that, for the US dollar, if the US dollar is strong, it is not an advantage for our operations. To look into the reason why that is the situation of the customers that we have.
One of our key customers, and also a customer that has a significant contribution, would be HMC, KMC, which would be Hyundai Motor and Kia Motors. If you look at the sales that we have to Hyundai Motor and Kia Motors, a significant portion of that is Korean won based. As a result of that, we're not able to benefit from the strong dollar situation. However, we do think that this exposure may change going forward. The reason for that is, as you are aware, we do believe that going forward, there will be a larger portion of our business coming from the likes of Ford, Daimler and also Volkswagen. As a result of that, we do think that the US dollar based revenue will continue to increase.
As a result of that, we do think that that will neutralize the overall exposure that we have. As a result of that, we do think that the impact of the FX rate going forward will be less than it is today. The following question will be presented by Nikhil Bhandari from Goldman Sachs. Please go ahead with your question.
Yes. Thank you. Thank you so much again for the opportunity. This is Nikhil Bhandari from Goldman Sachs. My first question is on working capital. It seems like since end of last year, the accounts receivable and inventory has increased by about KRW 8 trillion, but the accounts payable has increased by only KRW 4.5 trillion. For a big increase in your net debt by KRW 5 trillion, the major contributor seems to be higher working capital. Can you comment about why is that the case and the trends going forward in the working capital? Would increasing revenue of battery business be a drag on the cash flows in the next few quarters? That's my first question.
Second question is on the two battery plants that are ramping up. You talked about yields normalizing. Can we talk more about where we are in terms of yields, and when do we expect a full normalization to 80%-90% yield level by which quarter? And how would that impact further on your QoQ profitability? Are we still guiding for a break-even OP margin in the fourth quarter or will that take longer because of the gradual yield normalization of the two plants? Thank you.
Yes.
This is the CFO, Yang-seob Kim, and maybe I can address the first question that you asked.
To address your question about the working capital situation, as you have mentioned, we have seen a significant increase in our working capital. If you look into the reasons for that, as you expect, it has been that versus the situation at the end of last year. If we look at the overall crude oil price trends this year, there has been a significant rise there. Also with regards to the exchange rate, there has been a weak won situation. As a result of that, our overall working capital requirements have increased.
In addition to that, at the battery business level, not only on the FX rate side, but in addition to that, if we look at the overall material prices, because we have seen an increase in capacity in the likes of the U.S. and also Hungary for new factories that are ramping up, there has been an overall increase in the level that we need. To talk about our expectations for the future, of course, it would be difficult to share specific numbers with you. But I do believe that what we can say is that as of the current time, the view that we have is that for oil prices, we do think that further increase in prices would be limited.
On the weaker one, also, we do think that further movement is something that would be somewhat limited. As a result of that, we think the possibility of working capital increasing because of these factors would also be limited. However, on the battery business side, as we continue to expand our capacity for these operations, we do think that that could have an overall effect of increasing the working capital requirements that we have. As a result of that, if our working capital were to increase, we do think that there is a possibility that our overall borrowings would also increase. However, for the battery business, we have turned into the black on EBITDA level for those operations, and we do believe that the profitability going forward will continue to improve.
As a result of that, for the overall debt that would be required for the future, we don't think that the level would be of a level of concern. We will continue to monitor our profitability trends and also the working capital requirements very tightly, and ensure that at a full company level that the debt level, that the net debt level, is maintained and tightly managed at a manageable level for the company. Maybe I can address your second question. This is Jin Sun-mi, the Head of the Battery Strategy and Planning Office at SK On.
As of the end of 2021 in terms of our operations, and if we look at what has been ramped up since then, it would be the SKBA number 1 factory, which is in the U.S. and also our number 2 factory in Hungary. In the beginning of those site operations, because of COVID-19, it was very difficult to hire people and, as a result of that made it very difficult for us to stabilize the operations early on. As a result of that, we have taken the move of trying to dispatch people to these global sites and also providing more engineering support at the HQ level. As a result of that, the operations there have somewhat stabilized.
Within the year, the overall target is that we want to have the productivity of these sites to match that of the existing capacity that we have at other sites. If we look at the overall operations of SK On number two plant, which went into operations in the third and fourth quarter of 2022, we have been able to utilize the know-how in terms of manpower management and also operations, commercial operations, that we have had from the existing plant. As a result of that, from the beginning, the productivity here has been very healthy. For SK Battery America number two, we think that we will be able to utilize the overall experience that we have gained in operating SK number...
SK Battery America number one, to leverage the operations and ramp it up quickly there. In terms of the overall profitability of this business, we do believe that improving the yield is a very important element. As a result of that, for the management of this business as a whole, we do to put priority on improving the overall yield levels. And we do think that with these efforts, as they take fruition, we will be able to show you what the results are on a per quarter basis through better performance. Due to the time constraint, I think that we have time for one last person to ask questions.
The last question will be presented by Lee Jin-myung from Shinhan Investment & Securities. Please go ahead with your question.
Thank you for the opportunity to ask questions. I would like to ask questions about your lubricants and also refining business. The first question that I would like to ask is about the lubricants business. You have reached and been able to achieve the highest per quarter performance that you have in the history of this business. If we were to look at the expectations for the fourth quarter and also into next year, what would that actually look like? The second question that I would like to ask you is about the overall utilization that you have for your refinery business and also your petrochemical business. In the third quarter, as the overall refinery and also petrochemical facility utilization increased, I do think that that led to an overall increase in the sales volume.
For the utilization going forward, what is your plans there? Yes, maybe I can address your first question about the lubricants business. This is Heo Jung-wook, the Head of Corporate Planning Office at SKL. To address your question, as the CFO did mention when he talked about the third quarter highlights, the main reason why we were able to achieve the highest level in terms of our operating profit, on a quarter basis was because on the cost side, we did see a fall in the overall oil price. At the same time, because we did see very healthy demand take place at the ASP level, we were able to maintain the price levels accordingly.
That enabled us to enjoy very healthy margins thus resulting to the overall performance that we were able to achieve. In terms of the fourth quarter going forward, on the demand side, relatively speaking, we do think that the trends as of the current time are remaining solid. On the cost side, there is some uncertainty about the movement of oil prices and also refinery products as a whole. We do think that for the UCO part of the business, which would be relevant to us, we do see some tightness and also the supply demand dynamics there continue to be very tight and are maintaining such a situation.
As a result of that, we do think that, in terms of the margin levels, that we will be able to maintain healthy margins. To talk about our plans for 2023, maybe just very briefly. Of course, we continue to see the demand within the market, but we are also very mindful of the fact that there can be a global recession or also volatility within the market space. As a result of that, we are currently reviewing various scenarios for operations according to the changes that may take place within the environment. We are planning to manage our overall utilization levels in a very flexible manner to meet the market situation. Maybe I can address your second question.
This is Shin Moon-kwan, the Performance Management Team Leader at SK Energy. If we look at the overall utilization for 2022 as a whole, to take advantage of the overall high margin market environment, we did run our utilization at a high level. As a result of that, utilization in the third quarter was at around 90%. However, going into the fourth quarter, we do have some turnarounds planned and maintenance planned for some of the key facilities that we have. As a result of that, we do think the utilization on a QOQ basis will drop to the low 80% levels.