LG Display Co., Ltd.

Hello, I would like to thank everyone who attended today's conference. We will now begin the 2nd quarter of the LG Display 2023 performance announcement conference call. This conference call will be held after the announcement of the LG Display, and we will have a Q&A time with everyone who attended. If you have any questions, please press the star button and number 1 on the phone. From now on, there will be a presentation of the LG Display. Good morning and good evening. First of all, thank you all for joining this conference call. And now, we will begin the conference of the fiscal year 2023 second quarter earnings results by LG Display. This conference will start with a presentation followed by a divisional Q&A session. If you have a question, please press star one, that is star and one on your phone during your Q&A. Now, we shall commence the presentation on the fiscal year 2023 second quarter earnings results by LG Display.

Hello, I'm Heo Seok, CEO of LG Display IRC. Thank you for attending this quarter's performance announcement conference call. Today's conference call was attended by CFO Kim Sung-hyun, CSO Kim Hee-yeon, Business Management Manager Lim Seung-min, Auto Marketing Manager Son Ki-hwan, Business Intelligence Manager Lee Ki-young, Major Strategic Marketing Manager Lee Won-jae, and Major Marketing Manager Kim Chang-won.

Good morning. This is Brian Ha in charge of LG Displays IR. On behalf of the company, let me thank all the participants at this conference call. Today, I'm joined by the CFO, Seonghyun Kim, Heeyeon Kim, CSO, Seungmin Im, Senior Vice President of Corporate Planning, Kiwan Son, Vice President of Auto Marketing, Kiyeong Lee, in charge of Business Intelligence, Wonjae Ilbi, in charge of Large Display Marketing, and Changwon Kim, in charge of medium display marketing.

The conference call will be conducted in both Korean and English.

Please refer to the provisional earnings released today or the IR Events section in the company's website for more details on the financial results of Q2 2023. Before we begin the presentation, please take a moment to read the disclaimer.

금일 실적 발표 내용은 국제회계 기준인 IFRS에 따라 연결기준으로 작성된 재무수치로 Please note that today's results are based on consolidated IFRS standards prepared for your benefit and have not yet been audited by an outside auditor. TV and IT products have been the center of high-strength stock adjustment in the entire industry that has continued since last year. Recently, the level of panel stock in the channel is decreasing. Due to the increase in demand for forward-looking panel purchases due to the recovery of stock availability throughout the industrial ecosystem, in the second quarter, the size of the large-scale product group panel drop in the center of OLED TV and IT-type panels has been expanded. As a result, the second quarter sales I will start with Q2 business results.

In the midst of intense inventory correction continuing in the downstream industries since last year, especially in TV and IT, panel inventory in the channels has been falling. With improving inventory soundness across the industry ecosystem leading to gradual recovery in panel demand, Shipment of medium and large panels grew in Q2, led by OLED TV and IT.

Revenue in Q2 was 4.739 trillion won, up 7% QOQ. There was operating loss of 881 billion won reduced from the previous quarter following growth in shipment, improved operational efficiency, and strong cost savings like cost innovation. LCD TV panel price keeps trending upward, but its impact on the company's Q2 results was limited, with the company continuing with downsizing of LCD TV business as planned. Next, on area shipment and ASP per square meter.

Q2 area shipment was up 11% QOQ to 4.72 million square meters, on the back of increased shipment of medium and large size panels. ASP per square meter was $803, down 6% QOQ, and in line with the previous quarter's guidance, from the seasonal decline in mobile shipment.

Next, I would like to talk about the sales ratio for each product. The TV section sales ratio is due to the increase in the number of TV panels in the OLED TV panel, The sales volume of the IT sector recorded 42%, which increased by 4% compared to the previous quarter, and the sales volume of the mobile and other sectors recorded 23%, which decreased by 9% compared to the previous quarter due to the decrease in mobile panel due to seasonal factors. The sales volume of the auto business sector maintained a stable growth rate, and this quarter In terms of revenue breakdown by each product segment, TV panel's revenue mix was 24%, owing to the QOQ growth in OLED TV panel shipments.

IT accounted for 42% of 4 percentage points QOQ, while mobile and others took up 23%, down by 9 percentage points following the seasonal decline in mobile panel shipment. Auto business is showing steady growth with its revenue mix remaining unchanged QOQ at 11%. OLED revenue mix was lower QOQ due to seasonal decline for mobile OLEDs

falling three percentage points to 42 percent.

Next is on the financial position and key metrics. Company's cash and cash equivalent was 3.853 trillion won. Inventory value was 2.682 trillion won resulting from the company's effort to minimize inventory. Key financial ratios were up QOQ resulting from the strategic financing activities to strengthen liquidity as well as net loss in the quarter. Debt-to-equity ratio was 293%, and net debt-to-equity ratio 143%. The cash flow in Q2 was 3.853 trillion won, almost flat from the previous quarter, with cash inflow from financial activities and cash outflow through investment balancing out each other.

Next on Q3 guidance, with inventory level moving down across the industrial ecosystem,

Shipment of medium and large-sized products is expected to grow again in Q3 following Q2. Area shipment is thus expected to grow by a mid-single digit in Q3. ASP per square meter is expected to increase by a high single-digit QOQ thanks to seasonal growth in mobile panel shipment.

Thank you for your attention.

Next, CFO Sung Hyun Kim will walk us through the key highlights. Good afternoon.

This is the CFO, Sung Hyun Kim. Looking back to the first half of the year, actual set sales fell short of expectations with macroeconomic uncertainties persisting and consumer sentiment dampening. But inventory soundness began to improve in Q2 across the ecosystem, leading to actual growth in panel purchase.

It appears that the market is now over the worst, but not yet starting a full recovery backed by real demand.

Consequently, the company further propped up liquidity through strategic financing activities in Q2 as well for the purpose of upgrading our business structure with our priorities strengthening our financial structure. Cost-saving initiatives like reducing fixed costs manpower deployment efficiency, and flexible operation of fabs are still ongoing.

In the field of high-end infrastructure, we expect to continue to increase the business performance and the business performance of water-based businesses such as mobile products in the second half of the year. The net sales of water-based businesses will increase by 40% this year and will expand by more than 50% next year. In the next 2-3 years,

To upgrade our business structure, we will keep increasing the share and performance of contract-based business in the second half, including mobile products. Contract-based businesses' revenue mix is expected to top 40% this year and 50% next year. The target is 70% in the next two to three years.

The company will also strengthen the share and business competitiveness of OLED in all categories that cut across all the different sizes of panel.

With improving market awareness of OLED value, its company-wide revenue mix is expected to surpass 50% this year and keep growing thereafter.

With improving market awareness of OLED value, its company-wide revenue mix By product category, large OLED business will keep running on the basis of real demand while broadening the customer base and consolidating its market position in the premium TV market.

It will not be bound to the traditional TV market, as the product portfolio keeps diversifying into new applications like gaming and transparent. It will also keep implementing cost innovation and improving expense structure efficiency.

Joong-Yong OLED is firmly building a system for the first half of 2024 for mass production, and it will continue to develop a system for mass production For mid-sized OLED, the company is steadfastly building up the structure to respond to mass production in the first half of 2024.

We will keep strengthening its business capability by preempting the market and ensuring stable operations. For a medium LCD, we will focus on recovering profitability by enabling high-efficiency production system and cost innovation, while solidifying our leadership by targeting the premium monitor and laptop markets based on differentiated competitiveness.

The small OLED business will expand the size of the drop by accumulating technology capabilities and increasing the stability of the business. And in the auto business, we are continuously increasing the performance of the business based on the stable supply capabilities of the technology that can provide the value of Tandem OLED and the stable supply capabilities of the dedicated KEPA. At the moment, we are working on the development of a high-end LCD In small OLED business, we will grow the shipment volume and improve business consistency based on production ramp-up and technological capability.

In auto, we continue to improve business performance on the basis of reliable supply thanks to dedicated capacity. as well as technology that can provide differentiated value like Tandem OLED. The company will focus on growing our revenue and increasing orders on top of differentiated technological competitiveness and customer relations across OLED and high-end LCD and boost our position as the world's number one.

In the second half of the year, we are looking forward to an increase in the demand for panels according to the recovery of supply and efficiency of the set company, and an increase in the demand for mobile products, Going into the second half,

turn around to profit as expected in Q4 on anticipation of high panel demand by set makers following the return to healthy inventory levels and growth in contract-based business. But as explained earlier, the market is yet to start full recovery driven by real demand. The company will keep a close eye on the external environment as we strive toward more meaningful performance by focusing on recovering financial soundness and upgrading the business structure.

Thank you very much for your attention.

That brings us to the end of earnings presentation for Q2 2023. We will now take your questions.

Operator, please commence with the Q&A session. Now training session will begin. Please press star 1, that is star and 1 if you have any questions. Questions will be taken according to the order you press the number star 1. For cancellation, please press star 2, that is star and 2 on your phone. In order to allow as many training chances as possible within the restricted time, we would appreciate only two questions per each participant. The first question will be provided by Dongwon Kim from KB Securities. Please go ahead with your questions.

Yes, thank you for the question. I will ask a question related to OLED and the performance of the previous company. In the case of medium-sized OLEDs last year, it is known that the number of panel production cars has decreased due to technical problems. I wonder if there is a possibility of a decrease in the number of panel production cars due to technical issues like last year. Second, our company is currently in the process of 5-month continuous shutdowns. You mentioned the 4-month black market. When you divide it into major, medium, and car-based businesses, which businesses do you think will be able to withstand the black market? And what are the reasons? Thank you.

That's all. Yes, I'm Hoseok from IRC.

Thank you for taking your questions. Now, my questions are with regards to OLED as well as the consolidated performance. Now, first of all, for the small and mid-sized OLED, last year, due to technical issues, the shipment of panels was reduced. So does the company expect similar technical issues this year for small and mid-sized OLED panels? And does the company believe that there would be similar issues that would also reduce the shipment than the initial plan? And my second question is, now the company has now been seeing losses for the past five quarters straight. But then in the presentation, it was mentioned that the company is now expecting a turnaround in the fourth quarter of this year. Then from which business the biggest contribution will come? So will it be the large OLED or the small to midsize OLED or any other businesses? And And what are the reasons or the drivers for such a contribution from that particular business?

Yes, I will answer the first question first. I am Heo Seok, the director of IR. Please understand that the content related to customers cannot be mentioned in detail first. The content that our party can tell you now is based on the expanded Yangsan Kepa from the second half of this year, we expect a drop in sales compared to last year, Based on this, we have a plan to improve the military performance.

That's all. Thank you very much for your questions. This is Ho Seok, Brian Ho, in charge of LGD Space IR. Now, first of all, let me clarify that we are not able to comment on any situation involving the customer. But then for the second half of the year, based on our expanded mass production capability, The company intend to increase shipment and by doing so we also plan to improve our consolidated earnings.

This is the CSO responding to your second part of the question.

And as the CFO has already explained in his presentation of the highlights, we see that the inventory level is going down across the market. And as a result, we see that the profitability is going to improve on both the large as well as the medium-sized OLED.

Nevertheless, the biggest part of the momentum of the performance improvement in the second half of the year is, as Heo Seok-ah, the IRC, said, the KPI growth rate and

Now, that having said, where we are expecting the biggest momentum to come in the second half is, as Mr. Brian Howell has just explained, is from the capacity increase as well as the increase in the volume of the small size panels.

The next question is from Kim Hyun-soo of Hana Securities. The following question will be presented by Hyun-soo Kim from Hana Securities. Please go ahead with your question.

Hello. Thank you for the question. I'm Kim Hyun-soo of Hana Securities. I have two questions. First, I would like to ask about investment and EBITDA. Regarding the investment amount, the existing guidance was about 3 trillion won. I wonder if there are any major changes in the process of going through various situations. Also, I would like to ask you to tell us how much it will be compared to next year's estimated investment amount and EBITDA. Thank you very much. I also have two questions.

They are pertaining to investment and EBITDA. Now, first, about the annual investment, the company's guidance was somewhere in mid to high $3.1 trillion level for the year. Now, having gone through quite a lot of changes in the circumstances, I wonder whether the number remains unchanged or are there any changes to the number for the annual investment. And then also... What would be the expected investment for the year 2023 as well as 2024? And also what would be the company's guidance for EBITDA? And then the second part of the question is also about investment, particularly in the OLED IT. So I understand that the company is now investing in the OLED IT Gen 6. So if the company can provide us an update regarding that investment. And then now with the company's client in North America, What would be the plan for the IT investment for Gen 8?

Yes, hello. This is CFO. We have said that the existing guidance for this year's annual investment amount is 3 trillion won in the second half. Currently, we do not have the basic content that we should invest in the guidance streamer, Thank you.

This is the CFO responding to your question. Now, yes, the company has given the guidance of mid to high $3 trillion level for the annual investment. And currently, investment is underway where the investment is necessary within the guidance range. But of course, at the same time, we are conducting efforts in parallel to improve the efficiency of the investment as well as spending.

As investors know very well, investment-related situations in our industry are pre-selected, and depending on that, it takes a long period of time.

And as the investors would be aware, in this industry, investment is implemented over a long period after pre-orders.

And that means that it is not easy to flexibly adjust the investment amount given the circumstances. And there was also a question about expected investment for next year.

Now, of course, the business plan for next year is yet to be finalized, but then perhaps I can share with you some of the, let's say, some of the findings of the review that we have had so far regarding our investment plan. So for next year, perhaps, so our thinking now is that there can be some meaningful reduction from the mid to high level 3 trillion won level of investment of this year.

And what we're looking at is the possibility of technology development and And also, as the company has already disclosed, the investment into IT OLED Gen 6 is currently underway.

And this will continue into the first half of next year. And there was also another question about investment, potential investment in Gen 8. And of course, this is related to a customer and also for ourselves, what we look into. So some of the factors that we consider are the technological development as well as the progress being made. and also whether there is development in the demand from the market that is sufficient to contribute to the company's profitability. So there are a host of factors that we consider before we make the decision about investment. So we will do so again this time, in due time, after considering all the different factors.

Yes, we will take the next question.

The next question is from Simon Woo of Bank of America. The following question will be presented by Simon Woo from Bank of America. Please go ahead with your question.

Thank you for the question. This is Woo Dong-jae. In the first question, you commented on the black-and-white transition in the fourth quarter. Simply put, the panel price is rising in the LCD TV sector, I think it doesn't go up on the other side. So, based on that logic, I wonder if you can achieve a black market in the fourth quarter. That's the question. Especially now, I think you've already reduced a lot of costs as much as we can reduce. And now, the amount will increase in the second half of the year, of course, compared to the first half, but will it be due to that that we have to be close to 1 trillion in this quarter? I want to understand the logic of it. That's the first question. The second question is, I'm sorry, but the difference in income is still increasing. If you tell us how much the interest rate has increased in the current two-minute period, I think it will help us to look at the annual financial cost trend. Thank you.

Thank you very much. Now, there was a mention about turnaround to profit in the fourth quarter. And just thinking about this simply, then we see panel price rising, I believe only in LCD TV and not in others. Then I am trying to better understand the rationale behind the expectation of turnaround in Q4. and especially because the company appears to have done most of the cost reductions that it can. And, of course, there is going to be some volume increase in the second half compared to the first half, but still I'm not sure whether that would be sufficient to move the company from almost a $1 trillion loss in one quarter to almost zero next. So, again, I'm trying to better understand the rationale, so I would like to ask for further elaborations. And then the second question is, now I see that there has been steady increase in borrowing. So what would be the company's interest expense in the second quarter? That would be helpful for us to calculate the financial cost over the year.

Thank you. This is the CFO speaking, and the question was about the interest expense or the financial expense for the second quarter.

But I know that you're simply going to multiply that number by four. So I would just like to go right ahead and give you the annual number, which is expected to be at low to mid 600 billion won.

Yes, I will tell you about the actual price change. As I said earlier, our small business sales are expected to increase by 20% in the second quarter and 10% in the third quarter and fourth quarter. As you know, small business has a very big seasonality and we are expecting the effect of that because we are running a new PEP this time.

And this is the CSO, and I would like to comment about the turnaround, expected turnaround in Q4. And as was explained earlier, our small panels, they account for about 20%. And over the next two quarters, there is an expected increase by 10 percentage points each quarter. And because the small panel, as you would know, has very high seasonality, and there's also the new FAB that we are operating on.

In addition, in the case of a medium-sized IT business that occupies the largest sales volume in the second quarter of its own company, there is no current movement compared to the price of TV, but there is a appearance that some small prices are rising. I think this will also help improve the performance in the second half of the year.

And another factor is the mid-sized IT, which has taken up the biggest share out of our revenue in Q2. Now, of course, the price for TV is moving up, but then compared to that, it is true that for the mid-sized IT, there is not such a big movement. But it appears as if the price for midsize IT is also bottoming out, and we have been seeing slight increase, and we believe that that is also going to contribute to profitability.

The following question will be presented by Jeonghun Jang from Samsung Securities. Please go ahead with your question.

Thank you for the question. I have two questions. First of all, the CFO talked about the 4th quarter black market transition, and he talked about the improvement of the 3rd quarter. I think there is no guide, but are these parts considering the drop in the mobile sector? Also, considering the current market situation, I would like to ask you to explain whether the guide is difficult in the part that goes beyond the third quarter and BEP. Secondly, the part about the new customers of large white OLEDs has already come out in the media, but there is only a guide for the possibility of starting. If you can highlight this part, please let me know. Next year, it will be a little early in general, but it will be before the 4th quarter, but I would like to ask you to explain how much volume you are targeting and how much you are looking at it. Thank you.

Now, the first question, yes, the CFO commented on a possible turnaround in Q4, and I think for Q3 it was just about improvement, so no specific guidance as far as I understood. Then I wonder whether this is incorporating the possibility of delay in mobile shipment in the second half, or is it regardless of that, meaning that it is just in consideration of the overall market circumstances, and that the company believes that it will be difficult to go over the BP in the third quarter. And the second question is now, yes, there have been press reports about a new customer in the large IT OLED, but then the company's guidance was simply about the possibility of starting a new partnership. So if there could be some further highlights regarding this, then it would be appreciated. And then now, based on this, then, of course, the business plan, I'm sure, has not been finalized. But then now, what would be the company's expectation of the volume for next year?

Yes, it's CFO. I told you about the 4th quarter change and the 3rd quarter improvement. Overall, the three-minute period is definitely improved. However, the people who mentioned it a little while ago asked if it was because of mobile dispatch support or because of the price of LCDs in the market situation.

This is the CFO speaking, and the question was about the potential turnaround in Q4 and improvement in Q3. Now, overall, it is clear that there is improvement in Q3. And then the questioner also asked about whether the mobile shipment delay is reflected in this projection or whether it is simply based on the rise in LCD prices in the market.

uh mobile uh I must clarify that the company has never commented on it.

But in principle, regarding the market volatility or the company's inside operations, in principle, we always remain conservative. So for the Q3, what we are expecting is that there is going to be a faster improvement in Q3 than what we have seen between Q1 and Q2. And then that improvement is going to accelerate in Q4 to...

achieve a turnaround? And also you asked about a new customer in large size.

But please understand that given the nature of our business, our industry, we are not in the position to comment on anything related to the customer. And that is, you know, the set maker's position. So please understand. And that also means that there are no highlights for me to present to you at this time. And there was another question about the potential volume next year. And again, there is nothing for me to comment on at this time.

The final question will be presented by Sonu Kim from Merit Securities.

Please go ahead with your question. Although the demand is uncertain, the price is rising due to the self-sustaining effect of supply. However, in terms of IT, we are still not sure in the medium and long term. In the midst of these concerns, we are seeing that the demand will definitely increase for the auto display in the medium and long term. I think the company will look forward to it a lot. In the medium term, we are curious about how the water supply of the auto side is going. Of course, demand remains uncertain in many categories.

But then now in TV as well, I mean, the demand is uncertain, but then now thanks to some correction in supply, the pricing for TV continues to rise. But then we do not see such conviction in IT. So for the mid to long term, what we believe to have almost a certain growth in demand is the auto display category. And so that is what the market tends to believe. And I believe that the company also has a similar expectation. Then for the medium term, what would be the potential orders received for auto business? And also what is the company's plan for the auto orders to be received for this year and next year? And also what would be the revenue to be recognized in this business again for this year and next

So if such information can be shared with us, then that would be much helpful. This is Kyu Hwansun, Vice President of Auto Marketing, responding to your question.

Now, up to the second quarter for the OLED orders received, it has been 4 trillion won. And we believe that the orders will, so the orders continue to grow. So we are currently continuing to upwardly adjust the expected orders for next year and the year after that.

Yes, Sujo is currently recording about 20 trillion won.

As for the order backlog, it is currently 20 trillion won, and it is going to be helpful in achieving consistent growth in revenue. And we believe that there is going to be an annual growth by mid-10% until 2027.

If there is one last question, then we would like to entertain one more.

마지막으로 질문해 주실 분은 JP Morgan 증권의 권재현 님입니다. The final question will be presented by Jaehyun Kwon from JP Morgan Securities. Please go ahead with your question.

네, 안녕하세요. JP Morgan 증권 권재현입니다. 질문 주셔서 감사합니다. 저 하나만 있는데요. 혹시 중국 광저우 LCD FAB 사업 관련해서 이 사업 FAB의 매각 시점, Also, we would appreciate it if you could share some updates on the existing plans that we mentioned before regarding the current use of real estate movement. Also, we would appreciate it if you could share with us the time when we can officially know when the update will start.

I have one question and that is about the Chinese about the company's LCD fab business in Guangzhou China so what would be the timing of the sell-off and also about the tangible asset disposal so regarding the LCD fab in Guangzhou China is there any update that can be shared with us and in relation to that when does the company believe that such update can be provided officially and

in the market.

I do realize that there are a lot of speculations in the market regarding the LCDFAB in Guangzhou, but what is for certain now is that about half of it is still running. And in terms of the asset rationalization, we are trying to rationalize the use of the assets, but then Nothing is determined yet.

So regarding this, there is really no progress for me to share with the market.

Thank you very much. That concludes the LG Display 2023 Second Quarter Earnings Results Conference Call. Thank you, and if there are any additional comments or questions, then please contact the IR team.