S-OIL’s overall management goal is to maximize its corporate value through capital efficiencies and the optimization of its financial structure. To do this, we establish financial measurements with goals set at an appropriate level to ensure that our financial structure is optimized in terms of both capital efficiency and financial soundness. These measurements include ROCE (Return On Capital Employed), EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), Debt-Equity-Ratio, Current Ratio, Debt/EBITDA, and RCF (Retained Cash Flow)/Debt, which represents a company’s ability to repay its loans from the proceeds of its business activities and is carefully watched by credit rating agencies. Besides these measurements, we have benchmarked financial indicators in terms of profitability, efficiency, and stability, and develop other financial measurements that assess the financial situation of the company through gap analyses of its goals and its actual achievements.

A company should be able to raise sufficient capital in any situation. The ability to finance capital in a timely manner is important, particularly when instability exist in the financial market as it does now. S-OIL has maintained a high credit rating by communicating frequently with credit rating agencies and managing the core measurements used to determine credit ratings. It also maintains a close relationship with prominent domestic and overseas banks to ensure access to a sufficient and stable line of credit. Meanwhile, in January 2015, Saudi Aramco, S-OIL’s largest shareholder, bought up all Hanjin Energy’s shares in S-OIL. It has made S-OIL more strategically significant for Saudi Aramco, and also makes Saudi Aramco more likely to support S-OIL financially going forward, which, as a result, has helped us maintain an industry-leading credit rating.

It is of great importance to establish an efficient capital structure in order for a company to achieve sustainability in the business environment where uncertainties abound. Efficient capital structure should be supported by financial soundness. To this end, S-OIL has identified key financial indices and monitors them round-the-clock. Furthermore, the Company endeavors to manage key indicators with an impact on credit rating. S-OIL maintains stable credit ratings through good communications with credit rating agencies despite a negative outlook on the overall oil refining industry. It allows us to secure competitive funding conditions when raising working capital and investments, thereby solidifying an effective capital structure.

To maximize corporate value, economic resources created through efficient capital structure should be effectively distributed. S-OIL ensures an optimal distribution of economic resources into profitable investment options by evaluating the appropriate level of hurdle rate, the criteria for investment feasibility studies, based on Weighted Average Cost of Capital (WACC) of the Company every month. This enables us to maximize corporate value as we channel corporate resources into high-yield investments, exceeding shareholder and creditor demand. In addition, S-OIL seeks to efficiently manage corporate resources through systematic budget management and execution to align resources distribution to the Company’s long-term goals, while striving to maximize corporate value by preventing waste of resources through transparent budget execution and monitoring process. Furthermore, despite the unprecedented performance deterioration in 2014, everyone in S-OIL had done all they could, to not harm the interests of shareholders and other stakeholders by taking austerity measures as required and implementing company-wide profit improvement programs.

S-OIL has endeavored to come up with an optimal capital financing plan for the RUC&ODC project, the biggest since its foundation. For example, the Company thoroughly examined and compared not just the traditional way of raising capital in financial markets at home and abroad but also new and innovative measures. We also closely consulted with our major shareholder Saudi Aramco with regard to the influence which the financing for a new major project may have on the Company’s financial stability. Through this process, we were able to devise an optimal plan to raise capital, obtaining the approval for investment in the BOD meeting held in September 2015. And then, we designated the state-run Korea Development Bank as the main agent for capital financing and concluded a syndicated loan agreement, while staging proactive IR activities for financial institutions to showcase the feasibility of the project and our sustainability. As a result, despite tough conditions in the financial market, we succeed in attracting a major participation of domestic and foreign financial institutions, concluding the syndicated loan agreement of KRW 2.1 trillion with 9 financial institutes in December 2015. This agreement is all the more meaningful in that the capital was raised as part of the “business investment promotion program” run by the Government, which has recognized our contribution to the national economy and job creation with our major facility investment. In another effort to secure financial flexibility for the project period, S-OIL issued corporate bonds of KRW 400 billion at a low interest rate while signing a financial agreement valued at KRW 600 billion with four domestic and foreign banks. By capitalizing on capital raised by an optimal plan and cash flows generated by the favorable business environment, S-OIL will push ahead with the largest facility investment project in its history without setbacks.

S-OIL’s liabilities and debts in foreign currencies, including accounts payables due to crude oil imports, bankers’ usance financing, and accounts receivable from product exports, are continually exposed to foreign exchange rate risks. Since 60% of our production volume is exported in US dollars, while 40% is sold in Korean won (based on the current international price with the application of the exchange rate), the company’s income is also influenced by the exchange rate. To minimize risk from fluctuating exchange rate, we endeavor to manage our foreign exchange position (i.e., liabilities in foreign currencies minus assets in foreign currencies) at an optimal level, making sure that the foreign exchange profits and losses from our foreign currency liabilities and the impact of the exchange rate on our operating income will balance each other out. We use currency forwarding contracts but all derivatives trades must be made within the limits of the loss amounts and quantities set by the BOD’s regulations. Trading in derivatives for the purpose of bargaining requires approval from the BOD. We will increase our monitoring of foreign exchange markets to minimize risks arising from fluctuations in currency exchanges and augment our financial stability by improving the management of our liabilities in foreign currencies