LG Chem Aktie

Good afternoon. Welcome to LG Chem's 2026 Q1 Earnings Presentation. I am Hyun-suk Yoon, Head of IR at LG Chem, and I will be moderating today's session. Thank you for taking the time to join this conference call and for your continued interest in LG Chem.

We will begin with a brief overview of our Q1 results for 2026, followed by key highlights presented by our CFO. A Q&A session will follow thereafter. Please note that the presentation will be conducted with simultaneous interpretation, while the Q&A session will be interpreted consecutively. The presentation materials are available for real-time viewing via the webcast and can also be downloaded from our official website.

Let me introduce the LG Chem executives joining us for today's earnings conference call. We are joined by Mr. Dong Seok Cha, Chief Financial Officer; Mr. Cheol-Ho Yang, Head of Management Strategy of Petrochemicals; Mr. Young-Suk Lee, Head of Management Strategy of Advanced Materials; and Ms. Dal-Mi Hwang, Head of Management Strategy of Life Sciences.

Next, I will discuss our Q1 business performance. Page 3,shows our Q1 consolidated revenue and earnings. Due to a change in accounting presentation starting from fiscal year 2026, LG Energy Solutions North American production incentives are now included in revenue. Reflecting this, Q1 revenue recorded KRW 12.247 trillion; operating loss, KRW 50 billion; and net loss of KRW 782 billion and losses persisting from the previous quarter.

Next, I will discuss our Q1 consolidated financial position on Page 4. As of the end of Q1 2026, total assets stood at KRW 105.7 trillion; liability, KRW 57.6 trillion; equity at KRW 48 trillion. The debt-to-equity ratio recorded 119.7%, an increase compared to the previous quarter.

Next, I will discuss performance and outlook by business segment. First, the Petrochemicals segment on Page 5. Q1 revenue recorded KRW 4.472 trillion with an operating profit of KRW 165 billion and an operating margin of 3.7%. The segment turned profitable due to a positive inventory lagging effects from rising feedstocks prices, and one-off income recognition from the refund of European anti-dumping duties.

Next, the Advanced Materials segment. The Q1 revenue recorded KRW 843 billion with an operating loss of KRW 43 billion. Revenue increased quarter-over-quarter due to higher cathode volume and the launch of new semiconductor materials, resulting in a narrowed loss.

Next, the Life Sciences segment. Q1 revenue recorded KRW 313 billion with an operating profit of KRW 34 billion. Despite a revenue decline due to export shipping timing differences compared to the previous quarter, profitability improved following a reduction in R&D and marketing expenses.

Next, Farm Hannong. Q1 revenue recorded KRW 266 billion with an operating profit of KRW 35 billion. Performance improved across both revenue and profitability, driven by increased domestic crop protection sales and a surge in fertilizer prebuying demand triggered by the conflict in the Middle East.

Lastly, LG Energy Solutions. Since detailed results were provided during the LG Energy Solutions earnings call held at 10:00 a.m. today, I will briefly cover the key performance highlights.

Starting from fiscal year 2026, North American E&PC credits are recognized as revenue. On this basis, LG Energy Solutions Q1 revenue reached KRW 6.55 trillion with an operating loss of KRW 208 billion. Revenue increased due to higher ESS shipments and steady cylindrical sales supply to EV customers. However, we recorded an operating loss due to initial ramp-up costs from ESS facility expansion and a deteriorating product mix, following lower pouch cell volumes in North America.

This concludes the presentation of our Q1 results. I will now hand over to our CFO, who will share the outlook moving forward.

Good afternoon. I am Dong Seok Cha, CFO of LG Chem. I would like to express my gratitude to the investors and analysts joining us today for our earnings conference call.

Reviewing our Q1 performance. The conflict in the Middle East has continued to cause high uncertainty across the overall business environment including raw material procurement. In our battery and battery materials business, the recovery of shipments and utilization rates remained limited due to delayed demand recovery in the North American EV market, leading to weakened profitability in Q1.

On the other hand, the Petrochemicals segment saw improved profitability Q-o-Q, driven by positive inventory lagging effects from rising feedstock prices and one-off income recognition from the refund of European anti-dumping duties. Supported by this recovery in Petrochemicals, the consolidated operating loss narrowed significantly compared to the previous quarter.

Regarding the future outlook, we anticipate that market volatility and demand uncertainty will persist in the near term, driven by geopolitical risks in the Middle East and sustained demand softening in the North American EV market. In this environment, we intend to overcome these uncertainties by accelerating our portfolio transition towards high-value, high-margin businesses. We are committed to fundamental structural improvements to build a business model that minimizes exposure to market cycles.

For Petrochemicals, we recognize the need for proactive management and preemptive measures against negative inventory lagging effect driven by fluctuating feedstock prices. Accordingly, we plan to mitigate procurement risks by diversifying naphtha sourcing and focus on defending profitability by enhancing cost competitiveness through optimization of inventory levels, reflecting cost of volatility and productivity gains. Furthermore, we will continue to expand sales of high-value products, including ABS for automobile, SSBR for EVs and semiconductor-grade IPA.

Regarding Battery Materials, we are fully focused on production readiness for new customer volumes expected to scale in the second half. At the same time, in alignment with shifts in the customers' mid- to long-term strategies, we are systematically advancing the development and commercialization of next-generation materials, including high-density LFP for ESS and sodium-ion cathodes.

For electronic materials, we aim to double our revenue from the current KRW 1 trillion level to KRW 2 trillion level by 2030 by expanding into high-value segments, such as AI semiconductor materials and thermally conductive adhesive for ESS. Lastly, for Life Sciences, we plan to solidify our market leadership in core products while strengthening our oncology pipeline by ramping up R&D investment in promising new assets, like the recently introduced promising anti-cancer candidate, FMC-220.

Along with these efforts to strengthen the business competitiveness, we will continue to strengthen positive cash flow and a stable financial foundation in a rapidly changing market environment through disciplined CapEx execution of under KRW 2 trillion annually, portfolio rebalancing and asset monetization to our shareholders and investors.

We remain steadfast in our qualitative transformation and financial stability despite external uncertainties. We are committed to ensuring the structural improvements translate into earnings growth. Also, we will prioritize our long-term corporate value and shareholder returns and strive for sustainable growth in this rapidly changing environment.

Thank you for your continued support and interest.

[Interpreted] [Operator Instructions] The first question Woo-Je Chun from KB Securities.

[Interpreted]

There are three questions that I would like to ask you. The first question is about your first quarter performance. There has been an overall change into the black. So if you could talk about the overall background to that, that would be appreciated for your Petrochemicals business. And if you could also talk about the second quarter profitability outlook. There have been better spreads within the market. So if you could talk about the overall impact since the war has taken place and the overall outlook for each of the different product lines and the impact there, that would be appreciated.

The second question that I would like to ask you is about your cathode business in terms of the guidance going forward. There has been the Ultium-related volume and also the new volume that you have for new customers. So all in all, in terms of shipment, how has been the progress there? And if we were to talk about the shipment outlook for 2026 as a whole, if you could talk about that, that would be appreciated also.

The third question that I would like to ask you is about your material related to various electric goods. I do understand that you have plans to double your top line with regards to larger contributions on the semiconductor side. And then in other areas, if you were to split it down by the different -- line items, how would that actually look like? And in terms of the outlook going forward, what do you expect in terms of your expectations?

[Interpreted] So thank you. Maybe I can address your first question. With regards to the efforts that we had taking from last year in actuality, the company had been engaging in various cost-saving efforts and also efforts to improve the overall portfolio that we had and to restructure it accordingly and rebalance it. So based upon these efforts, even in February, before the current Middle East situation emerged, we actually turned into the black.

However, with regards to the performance in the first quarter and the actual larger impact that we see driving the performance of the first quarter, as the CFO has mentioned, it was due to the one-off factor of having a reversal in terms of the anti-dumping tariffs and also the positive effects that we have seen on inventory due to the recent price changes. In the second quarter, to talk about our outlook there, we think that the current stance will remain valid for the second quarter.

So all the 3 crackers that we have, for 1 cracker, we have suspended the operations of that. So inevitably, we do expect to experience a volume decrease accordingly. However, we do think that the overall dynamics of the positive effects from naphtha prices and also the cost-saving efforts that we have taken will also continue into the second quarter. So we do believe that the second quarter performance will be in line with the first quarter.

And maybe to talk about the outlook for the different product lines that we see with regards to the situation going forward since the Middle East situation has emerged. First, to talk about our NCC. On the NCC side, within the region, we do actually see a significant decrease in overall volume. And therefore, due to the fact that in the Middle East, for the various petrochemical units or complexes that exist, there was a lot of damage that was conducted there. So we don't think that the supply chain difficulties that we currently see is a situation that can be solved in a short period of time.

So as a result, with regards to product spreads, on a Y-o-Y basis, we do think that we will be able to see better spread levels. However -- and on the other side of that, in terms of the overall supply, not only in Korea but in the Eastern Asian region as a whole, we do see more supply rationalization of capacity that is taking place. However, in Korea, specifically, in the second half of the year, there will be some new capacity going online. And also with regards to the large capacity additions that are taking place in China, it does seem to be going ahead according to schedule. So we do think that for the time being, the oversupply situation in this market will continue.

To talk about ABS products. Because the overall material prices have been increasing on a global basis, that has been leading to higher cost levels. And also in terms of the price volatility, we see higher volatility taking place. So as a result of that, determining or looking at what the market direction will be going forward is actually very challenging. However, that have been said, from the company's perspective, we will continue to focus on the high value-added products and try to continue to manage our profitability, focusing on the portfolio that we have created.

In terms of PVC, there is a slightly different situation there. So there is a shortage of intermediate material that is taking place within this market. So from region to region, the overall supply situation may be a bit tight, which is leading to rising prices. However, in China, if you look at the coal-based, carbide-based PVC, the overall utilization there is expanding. So we do think that, that could lead to a quick stabilization of prices going forward.

In the case of HPM and also C3 IPA, in these areas, of course, we do have the continuous high-performance SSBR and other tire-related demand and also the semiconductor-related demand that we continue to see. That is very strong. So as a result of that, we do believe that the overall profitability of these products will remain sound going forward.

So maybe to talk about our guidance for the cathode business. From the second half of this year, we do think that there will be revenue that we will be able to realize related to projects that have been put on hold until that point of time. In addition to that, we also expect that there will be larger volumes that we'll be able to generate from our non-captive customers or non-captive demand. So versus the first half of the year, we do believe that there will be a significant increase in overall volume in the second half.

Particularly if we talk about Q4 and if we look at the overall sales volume versus what we have seen on a per quarter average basis in the past, we do think that the volume will recover to that level. However, versus the initial business plan that we had from the year because of the overall demand volatility that we see in the North American EV market and also the possibility that customers will continue to adjust their inventory at the end of the year. We cannot rule out the possibility that there may be some changes in our performance. So based upon discussions that we have with our customers, we will continue to deal and manage our volume accordingly.

So to maybe address the third question that you have and talk about our growth strategy for the future. First, to talk about the semiconductor-related material, currently, we are focusing this business based upon the substrates and also adhesives, material that is used for memory chips. However, in the case of the substrate-related materials, we are in the process of expanding our applications into the non-memory area, which would be for FC-BGA. And we are not limiting it to only just a chip scale packaging.

In addition to that, in the case of next-generation substrate material, which is glass substrates, we are currently codeveloping products with our customers so that we can create a foundation for future growth in this area. In terms of region, right now, we are planning to drive more business in the Chinese market, which is a high-growth market as of now. And in addition to that, we're also, from a couple of years back, focusing our development capabilities into the areas in which we can actually improve the performance of semiconductors i.e., in terms of the advanced packaging material areas. So for the product, we do think that it would be possible to see revenue being generated from this area in the not too far future.

In addition to semiconductor-related material, we are planning to expand our business into sensor and motor adhesives that is used for electric goods because we do see that in cars, there are more electric components, and also, it seems to be that there's more emphasis on the customer experience within the car. In addition to that, we're also looking at the smartphone business. So not only for the semiconductor and adhesive-related areas. But for these areas, in addition, we are also interested in M&A opportunities so that we can perceive growth and look at opportunities that would be up and above the growth targets that we have for this business.

[Interpreted] The next question is from the line of Jin-Myung Lee from Shinhan Securities.

[Interpreted] There are two questions that I would like to ask you. The first question is from last year, the company has gone through various restructuring efforts, specifically related to the Petrochemicals business and also in terms of various cost savings. So how much have you actually been able to achieve in this area?

And the second question that I would like to ask you is about your credit rating. What is the outlook for the credit rating in itself? And how do you plan to manage your credit quality?

[Interpreted] So maybe I can address the first question that you have with regards to the restructuring, how that is going and also the effects that we believe we can generate from that. So in terms of our initial goal of trying to reach a final approval with regards to the restructuring and create a cooperative model, that goal still remains valued. So with our partner company, right now, with regards to the details, it is something that is still being discussed, and we do have negotiations that are ongoing.

Of course, due to the Middle East situation, each of the companies is in an emergency management situation. However, we still want to be able to meet the overall timeline that we have agreed upon between the government, the industries and all of the other stakeholders before the current situation emerged. So right now, each of the companies is doing its best to do so.

With regards to the expected effects that we think will come from the restructuring, of course, for the global oversupply situation, we don't think that through the restructuring alone, we will be able to address and solve this situation. However, if you look at the cooperative model that we're trying to create with our partner, from our side, we will be able to actually enjoy a higher level of feedstock competitiveness based upon a refinery business. And from our partner company side, because they will be able to enjoy the business capabilities that we have in the petrochemical sector, in a short period of time, it would be having the effect of internalizing these type of capabilities.

So as a result of the overall restructuring, we do think that for both companies, this would provide a fundamental stronger structural competitiveness that we would be able to enjoy and that it would be to better synergies. So this is the IRO.

And maybe I can talk about the second question, which was about our credit rating. So if you look at the petrochemical industry as a whole right now, structurally, there is an oversupply situation that is taking place in North America for the EV market. The overall recovery of this market has been a bit slow. Amidst such a situation for our subsidiary, LG Energy Solutions, they have been increasing their overall debt levels because they needed to satisfy some of the CapEx requirements that they have had. So this has put more financial pressure on our overall balance sheet.

So as a result of that, recently, in terms of our global credit ratings and the outlook on our ratings, there has been a downward adjustment of such. To ensure that we are able to maintain our credit rating in a stable manner, the company's basic principle is to maintain its net debt-to-EBITDA multiple at 3.5x or under. And recently, if we look at the funds of KRW 2 trillion plus that have inflowed into the company due to the sales of our noncore businesses and also some of the equity investments that we had made and various other companies, we will be using that first and foremost in terms of priority to repay some of the debt that we have coming due in 2026.

In addition to that, going forward, we are going to continue efforts to manage our cash flow and also our financial profile in a better manner by tightly managing our CapEx execution, continue with portfolio rebalancing and also continue the efforts to better improve our cost structure.

[Interpreted] The next question is from the line of Hyunryul Cho from Samsung Securities.

[Interpreted] There are two questions that I would like to ask you. One is related to the Petrochemicals business and one is related to the Advanced Materials business. The first question about the Petrochemicals business is that for the Yeosu No. 2 and No. 50, there has been a suspension of the operations there. So since that situation on the NCC side and on the downstream product side, if you could talk about the utilization by product, that would be appreciated. And if you could talk about your future operational plans, that is also something that we would like to hear about.

In terms of the Advanced Materials side, I would like to understand better about the cathode business for 2026 as a whole. So since the overall Middle East situation has taken place, what type of impact have you seen in your cathode business? So for example, in terms of the material sourcing, has there been any impact there? And in terms of the demand for the overall demand profile, have you seen any increase in demand? Or have you seen any decrease in demand? Has the demand dynamics changed since the situation?

[Interpreted] So maybe to address your first question. On March 23, we did suspend the No. 2 NCC that we had in Yeosu. And if we look at our average cracker utilization in March, it was an average 60% level. So it was in the 60% range. And since the situation and after the shutdown, of course, in the second quarter, the shutdown does continue. However, if you look at the average cracker utilization of our Daesan and also Yeosu, our No. 1 NCC capacity, right now, we have been able to increase the utilization, also that it has reached the 75% level as of now. So we are trying to more efficiently operate the capacity that we have.

If we look at the downstream product line right now, of course, because there is some uncertainty related to the feedstock sourcing, we are trying to make sure that the overall operation of our factory is in a way in which you can have better efficiencies. So as much as possible, we want to be able to maintain the current level of our utilization. However, within a situation in which feedstock is restricted or limited, right now, amidst this situation, for our domestic customers, even after the war has emerged, we have been increasing the overall portion of our domestic related business.

And this is a continuous stance that we will maintain going forward. So we are continuing efforts to try to ensure that we can provide a stable supply in the domestic market.

And maybe to address the second question that you had with regards to what the impact from the Middle East situation would be on the Advanced Materials business. So if we look at it from a business perspective in terms of the overall structure that we have for the business in itself, in actuality, with the exception of some of our Engineering Materials, in actuality, our business structure is not impacted by the oil price level or with regards to logistical-related costs. So we do believe that from that standpoint, the impact that we will see would be somewhat limited.

To specifically talk about cathodes, even on the cathode side, for most of the raw material that we require, the first thing is done within the Asian region and it is focused there. So there's no impact there. However, that have been said, if oil prices were to remain at a heightened level for a longer period of time, we do believe that, that could actually lead to better demand for EVs. So that would be maybe a possibility that we would hope for going forward.

[Interpreted] The next question is from the line of Hyun-hee Jung from Daiwa Capital Markets.

[Interpreted] There are two questions that I would like to ask you. First is, since the actual GSM has taken place, what type of feedback have you had from investors, specifically relating to the topics that was in some of the shareholder letters that you received, for example, enhancing the overall dialogue between shareholders and your outside directors and also in terms of utilizing and monetizing the stake that you have in LG ES? If you have more detailed plans for the future that you could share with us, that would be appreciated.

The second question that I would like to ask is about your Life Sciences business. What are the details regarding the license out of the anti-cancer drug candidate that you have or endometriosis treatment? And what would be the overall update there?

[Interpreted] Yes. This is the CFO. So maybe I can take this opportunity to once again thank all of the shareholders that have been providing very constructive opportunities and voices in terms of how the company can increase its overall corporate value and also the shareholder value that we have as a company. I do believe that amidst the preparations for the GSM, that this was something that we see, and we would like to thank you for that.

So maybe if we look back at the progress that we have made to date at the company level, of course, for all of the shareholder opinions that we have received, not only the proposal from Palliser Capital, but also from other shareholders. Of course, this has been submitted to the BoD as a BoD agenda item. And therefore, there has been very deep discussions and review of those items in a very specific manner. So as a result of that, there has been a lot of preemptive measures that have been taken to improve the governance structure of the company.

So for example, the BoD Chair has been selected to be an outside director, and there is also the newly established Compensation Committee that we have created. So going forward, we have also committed to our shareholders that we would also enhance the overall communications that we have or the engagement that we have between the BoD and also shareholders and also ensure that we can introduce management KPI that would be linked to shareholder return. So these are elements that we have committed to making happen or are executing within the year. So that will continue going forward.

In addition to that, in terms of the capital allocation from any shares that we may sell, I think that we have shared you the detailed plans that we have in this area going forward. And if we look at the overall shareholder feedback that we have received since the General Shareholder Meeting, I think that, on one hand, we have seen that there has been questions about the detailed plans that we have for the future in terms of the improvement plans that we have announced to improve governance further.

And in addition to that, I also believe that there are a lot of shareholders that are requesting that we come out with more detailed and also a very quick and prompt execution of the portfolio upgrading strategy that we have to enhance the overall mid- to long-term value of the company. So added to that, of course, I do also believe that there's a lot of interest about how we will stabilize our financial profile going forward and enhance our profitability so that we can actually enhance the overall shareholder return.

So since we have made that commitment, I think that there's shareholders that would be interested in terms of when that would actually be possible and what the details would be about our plans going forward. So in that aspect, I do think that we have seen a lot of very good comments. We do clearly understand what the recognition of the market is. So therefore, in terms of the improvement plans that we have on the governance side, we will make sure to reflect the actual intention of the various requests that was made by Palliser.

And at the same time, in terms of the allocation of various resources that would be generated from the monetization of our LGES stake, if you could leave it up to the management team and also the BoD to look at the right timing in disposing the shares within the market in terms of the actual timing of that and also the size that would be appropriate, then I think that, that would enable us to be able to smoothly execute the plan that we have in disposing the stake across the next 5 years.

And if we are able to further improve our EBITDA generation capabilities from our fundamental business, that will enable us to have more room to share the proceeds from the LGES monetization back with our shareholders as a form of shareholder return. So therefore, we will closely communicate with shareholders going forward with the plans that we have. And therefore, once again, I would like to thank you for all of your comments.

[Interpreted] So maybe I can address the second question that you had about the anti-cancer drug candidate materials that we had. So at the beginning of this month, to strengthen our anti-cancer drug portfolio, we acquired the exclusive development and commercialization rights for the areas that would exclude the Greater China area for the FMC-220 from the U.S. Frontier Medicines.

If you look at FMC-220, it is an anti-cancer drug candidate currently awaiting to start Phase I clinical trials. And it is an activator that targets specific mutations of the p53 protein, for which treatment options are limited. So the aim is to restore the function of the p53. We plan to begin our clinical Phase I trials in the U.S. and Korea within this year.

In addition to that, if we talk about our endometriosis treatment, in addition to that, in March of 2026, to strengthen our infertility product portfolio and expand into the women's health sector, we signed an agreement to acquire the exclusive sales rights for Korea and Thailand from Japan's Mochida's endometriosis treatment, which is called Dinagest. And this has been a proven in the Japanese market. So we plan to develop it for Korea purposes and apply for sales approval in 2027.

[Interpreted] We will be getting the last question. The last question is from the line of Sun Jung Lee from Bank of America.

[Interpreted] There are two questions that I would like to ask you. One is with regards to your Advanced Materials business. This is something that you touched upon before, but if you could talk about in more detail about the progress that has been made for the LFP cathodes that are used for ESS purposes in terms of the specification of the cathodes and also in terms of the overall commercialization-related timeline in terms of, for example, mass production and other areas, that would be appreciated.

And the same for sodium-ion batteries, in terms of the areas there, what type of milestones that you have and what would be the overall timeline there going forward, if that could be something that you could share, that would be appreciated.

The second question that I would like to ask you is about your Petrochemicals business. If you could provide an update about your naphtha sourcing, for example, whether you are trying to diversify, you're sourcing -- the various sources through which you actually get your naphtha or if you're trying to look at alternative feedstock, for example, LPG or ethane, the overall overview of what is happening on the feedstock side, that would be appreciated.

[Interpreted] So maybe I can take your first question about Advanced Materials. For the overall LFP that we are developing right now, it would be difficult to talk about the specifics about the specification in itself. However, we have completed the development for high-density LFPs. And right now, we're looking into verify the overall mass production capabilities that we have for this product. So the overall mass production target timeline would be the end of 2027, early 2028 type of time frame.

And right now, we are in discussions with our customers about supply arrangements. So to this end, we are looking into how we are going to source the material that is necessary, how we're going to secure the production capabilities that we need. So all of this is being specified in more detail. And based upon our discussions with our customers, we are going to finalize the overall details of the commercialization and production schedule going forward. So once that is in place, we will make sure to communicate with the market about that.

For the sodium batteries, in terms of the high-power output products, the overall target timeline is the first half of 2028 for the ESS batteries, which require a longer lifespan and also higher capacity. The overall mass production target would be somewhere around 2029, 2030 type of timeline. So right now, we are in the process of doing the pilot line verification.

So I think to talk about your second question about our naphtha sourcing, as mentioned before, we are trying to diversify our overall funding -- not funding, sorry -- the first thing that we have of our raw material to ensure that we have a more stable base. So at one hand, with the government, there are efforts that are in place to try to secure the shipments of naphtha that are required and also to ensure that we can expand the domestic sourcing of the feedstock in itself. And in addition to that, we're trying to also diversify our own material sources outside of the Middle East area.

So with that effort, the ultimate goal is to ensure that we can continue the operations of our 2 NCCs without any issues going forward. However, if you look at the current situation in the market, right now, in the petrochemical product side, if you look at the ASP, right now, it's not actually reflecting 100% of the price increases that we have seen on the feedstock area within the market. So therefore, if the feedstock price were to dramatically fall, we do think that there could be a risk of there being inventory-related losses that would be generated as a result of that. So that would be the reverse lagging effect in itself.

So for that effect and for the strategy that we have, as of now, our stance is that we want to ensure that on the supply side, that whether it be for our domestic customers or the key customers that we have elsewhere, we want to ensure that we can secure the supply that they need without any issues and continue to provide them with some stability so that though the current situation is somewhat of a crisis, we can use it as an opportunity to further solidify our position within the market and also enhance the overall trust that we have built with our customer.

[Interpreted] So with this, we would like to wrap up the First Quarter 2026 Earnings Conference Call for LG Chemical. For those of you who have not been able to ask questions or do have follow-up questions, please do not hesitate to contact the IR team. And once again, we would like to thank everyone for taking time out of their busy schedule to be with us here today.

Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

[Interpreted] Good afternoon. We'll now start LG Chem's 2025 Fourth Quarter Earnings Conference Call. This is Hyun-suk Yoon, Head of IR at LG Chem. Thank you for taking interest in LG Chem and taking the time to join us today amidst your busy schedules. We will begin with a brief overview of the 2025 Q4 earnings performance. Then our CFO will review the company's performance in 2025 and outline the strategic direction for 2026. This will be followed by 2026 revenue targets, and each business division's strategy lead will then provide a more detailed overview of performance and outlook. We will conclude with a Q&A session.

Please note that the presentations will be interpreted simultaneously, while the Q&A will be interpreted consecutively. For those with web access, the materials presented during this conference call can be viewed online and are also available for download from our corporate website.

Let's begin today's call with the introduction of the management team. We have CFO, Dong Seok Cha; Cheol-Ho Yang from Petrochemicals; Young-suk Lee from Advanced Materials; and Su-Hee Yoon from Life Sciences.

First, an overview of our financial highlights for the fourth quarter. On Page 3, consolidated Q4 sales and P&L. Q4 sales was KRW 11.197 trillion. We recorded an operating loss of KRW 413 billion, resulting in a return to a loss position and net loss for the period totaled KRW 1.573 trillion.

Turning to Page 4, the company's full year performance for 2025. Full year sales revenue in 2025 declined by approximately 6% year-on-year to KRW 45.900 trillion. Operating profit amounted to KRW 1.181 trillion, an increase year-on-year despite weak market conditions in petrochemicals and battery materials, driven by LG Energy Solutions expanded ESS sales and improvements in product mix.

Next, Page 5, consolidated financial status. As of the end of 2025, assets were around KRW 101 trillion, liabilities were around KRW 54 trillion, and capital was around KRW 47.100 trillion. The debt ratio increased Y-o-Y to 114.5%.

Next, performance and outlook by business division. Page 6, Petrochemicals division. 2025 Q4 Petrochem business sales was KRW 3.947 trillion, and operating loss was KRW 239 billion. Due to margin compression, driven by the release of additional regional capacity and the recognition of one-off costs at overseas operation, a loss was recorded.

Next, Advanced Materials. In Q4, Advanced Materials sales was KRW 725 billion, and operating loss was KRW 50 billion. Due to customer year-end inventory adjustment, shipment volumes of battery materials declined. In addition, seasonal off-peak effects in electronics and engineering materials led to a quarter-on-quarter decline in revenue and profitability.

Next, Life Sciences. In Q4, sales was KRW 356 billion, and operating profit was KRW 16 billion. Due to base effects of the recognition of upfront proceeds from the license out agreements for rare obesity treatment in the previous quarter, sales and operating profit declined.

Next, Farm Hannong. Q4 sales was KRW 185 billion, and operating profit was KRW 14 billion, making a return to profitability. Driven by expanded domestic and overseas sales of crop protection products, both revenue and profitability improved.

Lastly, LG Energy Solutions. This morning, LG Energy Solutions presented their performance in detail during its earnings call. However, we will briefly present its performance here. In Q4, Energy Solutions sales was KRW 6.142 trillion, and operating loss was of KRW 122 billion. Despite an increase in ESS sales volume in North America, a loss was recorded due to product mix deterioration stemming from a decline in EV-related sales in North America as well as initial cost burdens associated to the additional ramp-up in ESS production.

Next, CFO, Dong Seok Cha, will present the 2025 performance review and key focus areas for 2026.

[Interpreted] Good afternoon. I'm Dong Seok Cha, CFO of LG Chem. I'd like to express my sincere appreciation to all shareholders and investors for your great interest and participation in our earnings presentation.

First, looking back at 2025. Amid continued capacity expansion in the petrochemical sector and shifts in eco-friendly policy directions across major countries, it was a year of heightened global uncertainty. Under this backdrop, we exerted company-wide efforts to expand the sales of high value-added and high-margin products as well as to reduce unit costs and fixed cost savings, however, did not achieve meaningful performance achievements.

However, we actively restructured Petrochem's low-margin commodity businesses and divested Water Solutions and aesthetics businesses to upgrade our business portfolio to a certain degree. Furthermore, through selective CapEx based on rigorous economic analysis alongside asset monetization, we have maintained positive cash flow, thereby strengthening our financial soundness.

Looking ahead to 2026, as domestically oriented policy trends expand and geopolitical uncertainties persist, market volatility and competitive intensity across industries are expected to continue to increase, while visibility on demand recovery is likely to remain limited. Against this backdrop, we aim to position 2026 as a critical turning point by accelerating portfolio optimization and focusing on securing future growth engines, thereby solidifying the foundation for a transition to a high value-added industrial structure.

In Petrochemicals. While prioritizing business structure restructuring, we will strengthen the identification of new opportunities in high value-added segments. Over the mid- to long term, we plan to achieve sustained annual growth of high value-added revenue of 20% or more and expand the segment into a core growth business.

In battery materials, shipments to new customers secured last year are expected to ramp up in earnest from 2026, and we anticipate stable volume growth through customer diversification. In addition, in response to weakening downstream demand, we are developing cathode materials for mid- to low-price solution applications. Among these, we are accelerating the development in LFP for ESS, high-voltage mid-nickel and sodium-ion batteries with commercialization targeted for 2027.

In electronics materials, leveraging our proprietary substrate and film materials technologies, including materials for AI semiconductors and e-mobility applications, we plan to explore new items and evaluate various strategic options to expand into high-growth, high-functionality areas.

In Life Sciences, we will continue to strengthen our oncology pipeline, including head and neck cancer treatment, currently in global Phase III trials, as well as a novel renal cancer drug candidate licensed in from U.S.-based HiberCell in November 2025.

Along with efforts to strengthen our business competitiveness, I'd like to share with you our capital allocation plan. Since announcing our plan to raise the company's corporate value last November, we carefully listened to the views from our shareholders and investors. As such, in respect to our plan regarding our shares in LG Energy Solutions, we have disclosed today our detailed mid- to long-term shareholder return policy. For the next 5 years, we will gradually monetize our equity stake in LG Energy Solutions to 70% level, and the proceeds from such sale will be used for growth, financial soundness and shareholder return.

To overcome extreme business volatility and to secure mid- to long-term growth foundation for the foreseeable future, LG Chem will have priority in investing for future growth and maintain sound fiscal stance. Also, out of the funds secured from the sale of LG Energy Solutions shares, 10% is planned for shareholder return. Going forward, with full swing earnings improved in our core businesses and improved competitiveness, we will secure stable funds and based on this, pursue greater payout ratio and flexible fund operation to gradually expand our shareholder return.

Dear shareholders and investors, despite a challenging business environment, we remain fully committed to advancing business restructuring and strengthening future competitiveness to enhance long-term corporate and shareholder value. We appreciate your continued support and interest. Thank you.

[Interpreted] Next, I'll walk you through the 2026 business targets on Page 11, excluding LG Energy Solutions. As disclosed earlier in our forward-looking guidance, the company's revenue target this year on an Energy Solution-excluded basis is approximately KRW 23 trillion. Please note, however, that the actual sales revenue level may vary depending on future operating performance and the overall business environment.

We will then proceed with a more detailed discussion of performance and outlook by each business division. First, from the Petrochemicals division, Cheol-Ho Yang, Head of Business Strategy, will present.

[Interpreted] Good afternoon. I'm Cheol-Ho Yang, Head of Business Strategy from the Petrochemicals division. I will present the 2025 performance review of the Petrochemicals business, followed by the 2026 business outlook and strategic direction.

First, review of 2025. In 2025, amid prolonged market weakness driven by sluggish demand resulting from both internal and external factors as well as severe oversupply originating from China, profitability of major products declined. To overcome this challenging business environment, we pursued a profitability enhancement strategy by improving the efficiency of low-margin businesses, including the Gimcheon SAP operation and by expanding sales of high value-added application products.

Turning to the outlook for 2026. Due to continued domestic new supply and additional capacity expansion centered in China, a favorable market recovery remains difficult to anticipate. However, there are also expectations of supply reduction, particularly among less competitive facilities in regional and European markets. In line with government-led petrochemical industry restructuring, we will focus not only on proactive collaboration with refining companies, including our own internal restructuring initiatives, but also on improving overall divisional profitability through cost reduction efforts and the expansion of new and high value-added businesses. We plan to further enhance our portfolio toward high value-added products by continuing to grow sales of IPA for semiconductors and SSBR for electronic vehicles, while dedicating our efforts to improving profitability through strengthening the competitiveness of our new HVO business. Thank you.

[Interpreted] Next, from the Advanced Materials division, Young-suk Lee, Head of Business Strategy, will present.

[Interpreted] Good afternoon. From the Advanced Materials division, I'm Young-suk Lee, Head of Business Strategy. In 2025, sales was KRW 4.1 trillion, and operating margin was 3.6%. Amid an uncertain business environment driven by volatility in global environmental policies and the U.S.-China trade dispute, both sales and profit declined compared with 2024. The electronics materials and engineering materials businesses maintained solid profitability, supported by expanded sales of high value-added products, including semiconductor materials and e-mobility materials. In contrast, in the battery materials business, our core North American market contracted, leading to a sharp decline in shipment volumes and a return to a loss.

In 2026, the electronic materials and engineering materials businesses will focus on expanding into new high-functionality materials such as AI semiconductor materials and e-mobility materials. Based on these initiatives, profitability is expected to remain solid and broadly in line with the prior year. In battery materials, due to factors such as IRA subsidy and the repeal of carbon regulations, challenging conditions in the North American EV downstream market are expected to persist. However, performance is expected to improve meaningfully starting in the second half of this year, driven by increasing shipment volumes from newly secured orders with Toyota in North America.

Overall, the Advanced Materials division, supported by increased cathode materials volume and earnings improvement, driven by higher metal prices, plans to achieve sales of KRW 4.5 trillion in 2026. Operating margin is also expected to improve year-on-year.

[Interpreted] Next, from Life Science division, the Su-Hee Yoon, Head of Business Strategy, will present.

[Interpreted] Good afternoon. I'm Su-Hee Yoon, Head of Business Strategy from the Life Science division. I will now present the 2025 performance and 2026 outlook for the Life Science division.

In 2025, driven by sales growth of our core products, sales amounted to KRW 1,353.2 billion, representing year-on-year growth of 4%. Also, we secured approximately KRW 54 billion in incremental revenue from the license out of rare obesity treatment. Revenue growth was supported by the continued strengthening of market leadership positions across key products, including Zemiglo and Eutropin product families. Profitability also improved, underpinned by solid sales of high-margin products and ongoing cost efficiency.

Furthermore, in 2025, as part of our strategy to reinforce our pharmaceutical-focused businesses and sharpen portfolio prioritization, we decided to divest the aesthetics business and to terminate early the Phase III clinical trial for [ GA ] program. Through this strategic realignment, we are concentrating resources on core businesses with higher profitability and market growth potential as well as an oncology-focused novel drug development.

With the goal of launching global innovative drugs, key oncology pipelines are currently progressing through clinical development, including Phase III trial for the head and neck cancer treatment, Phase Ib and II trial for hematologic cancer treatment and Phase I trial for immuno-oncology therapy.

Looking ahead to 2026, we expect 6% Y-o-Y revenue growth driven by strengthened market position of major domestic products in diabetes, growth hormone and infertility, expanded overseas sales and the normalization of boosting business. Building on our stable business growth, the division will continue to invest in global innovative drug development and strengthening of its product portfolio, thereby being a solid foundation for its evolution into a global pharmaceutical company.

This concludes the overview of the division. Thank you.

[Interpreted] This concludes our presentation, and we'll now proceed to the Q&A session.

[Interpreted] [Operator Instructions] The first question is from the line of Yu-Jin Jeon from iM Securities.

[Interpreted] There are 2 questions that I would like to ask you. First is with regards to your Advanced Materials business. If you look at Page 13 of the presentation, I do believe that you are talking about a 10% increase in the top line in terms of the overall guidance for the year. So in light of that, could you discuss what your overall expectations would be in terms of the shipment volumes for the cathodes that you have? And also, I do believe that there would be some impact from the decrease on the GM side. So if that is something that you could mention together, that would be appreciated.

The second question that I have is about your Petrochemicals business. I do believe that you have submitted your overall plans for restructuring going forward. And this is also mentioned in the presentation. So with regards to the restructuring efforts that are going on at the Ulsan and also Yeosu and also Daesan Complex, how is that progress going? And in terms of the timing, when do you believe -- or if you could talk about the schedule, that would be appreciated also.

[Interpreted] So maybe I can talk about the first question that you have asked with regards to our overall cathode volume in terms of shipments going forward. I do think that in 2026, because of the base effect that we have seen and also because of new customers going forward, we do expect that there will be an increase in our overall volume. So for the full year, I think that the overall growth that we're expecting would be around 40%.

In addition to that, if you look at the first half of the year, some of our customers will actually be suspending some of their operations. So we do think that there would be some adjustments in the overall volume because of that. However, with regard to the -- and as a result, if we look at the growth on the actual shipment side, there may be some limitations. However, going towards the second half of the year, we actually do believe that the situation will improve. And as a result of that, we do think that the overall trend will represent a lower first half and higher second half of the year.

[Interpreted] So maybe I can go on to the second question that you have with regards to our overall plans going forward. As you have mentioned, we have submitted the overall plans for our restructuring. And from the end of the year, there is cooperation that we're trying to achieve with various refineries. So this is something in terms of plans that we have already submitted to the government. In terms of the actual time line going forward, this is something that is still under discussion with our partner company and also with the government in itself. So therefore, with regards to the details about that and also the discussion going forward or the process going forward, that is something that we still need to discuss.

However, that has been said, in terms of the actual scope of what we're looking at right now, both the Yeosu and also Daesan plant are part of the overall discussions. However, in terms of when there would be a shutdown and what is being done, that's also included, of course, in those plans. However, as mentioned before, for the actual execution timing, that is still a discussion that we are having with our various partners. So once we have more concrete ideas about the time line itself, we will make sure to discuss that with you.

[Interpreted] The next question is from the line of [indiscernible] from Shinhan Securities.

[Interpreted] There are 2 questions that I would like to ask you. First, with regards to your Advanced Materials business, I do think that what I would be interested in is with regards to the cathode business that you have. The EV market right now is in a slowdown. And therefore, I would like to know if there is any change to the plans that you have to build out your cathode capacity in Tennessee. In addition to that, if you look at the EV order book recently, there has been some cancellations that we have heard about. So it does seem to be that the overall demand is a bit lackluster. So for this situation, how is the company planning to deal with this going forward?

The second question that I would like to ask is about your Petrochemical business. What I would be interested in hearing about would be the key outlook for the market in terms of the main products that you have. In addition to that, in terms of the turnaround in the market, when do you actually believe that, that would be possible?

[Interpreted] So maybe I can address your question first about the overall Tennessee plant that we have. Right now, in North America for Tennessee, the overall plans that we have are going ahead smoothly without any issues. However, with regards to the specific timing of when we will start the operations of the plant, it's still something that is not determined yet.

In addition to that, in terms of the overall ramp-up of full operations after we initially start the commercial production, this is something that we are looking at to be flexible about in line with the overall stance that the OEMs have towards the market going forward. So with regards to more detail, I do think that this is something that we can share with you when the adjustments are actually made and when we have more color on this. However, that have been said, under the existing conditions that we have already agreed with, with regards to the OEMs for supply going forward, I do think that our efforts will be focusing on minimizing our losses as much as possible.

[Interpreted] So maybe I can take on the second question that you asked about our Petrochemical business and the overall outlook that we had for the year. First, to talk about the industry as a whole because there continues to be new additions that are coming in from Southeast Asia or Northeast Asia actually. And in addition to that, we actually believe because of that situation that it would be difficult to see an overall full recovery within the market. So it would be -- the recovery would be somewhat limited.

However, we are going to continue to focus our efforts on high value-added and also higher-end price products that we have so that we can increase our overall sales and also optimize the overall line operations that we have. So by optimizing the line operations, we will continue to try to save on our costs to improve the overall profitability.

So maybe to elaborate in a bit more detail about some of the products that we have. First, starting with ABS. If you look at the ABS market, right now, in 2026, we do believe that the oversupply situation will continue in China. And also, there is somewhat of a concern about -- or some challenging environments that we do see in terms of the overall global recovery in demand taking place. However, in the U.S. and EU, we are maintaining sales in high-margin products. And as a result of that, we are strengthening our overall portfolio to focus on more of the high value-added products. So as a result of that, we are trying to solidify the profitability or the margins that we're able to achieve.

Secondly, to talk about the HPM market, I think that on the downstream side, focused on SUV-related HPM, we do see that for the larger inches and also high-performance tires, there continues to be a revival of demand in that area. So accordingly, for the high-performance SSBR demand, we do think that this is something that will continue to be very strong. And as a result of that, we do believe that we will be able to maintain a high level of profitability from this business.

For the C3 IPA, right now, because of the AI-focused semiconductor, very strong market that is out there, the overall IPA for semiconductor purposes in terms of the demand is still very solid. Therefore, we want to fully utilize or fully leverage the opportunity that we have presented to maximize the profitability here as much as possible.

And lastly, to talk about PVC. PVC in terms of the overall performance has been a bit sluggish, and we do think that this is a situation in terms of the demand weakness that will continue going forward. However, that have been said at the beginning of this year, there has been some changes that are taking place, such as in China, the VAT refunds have been abolished. And then on the India side, also the ADD measures were somewhat withdrawn. So we do think that uncertainty will continue to increase going forward. As a result of that, we're currently monitoring the situation very closely and trying to look at the sales opportunities that we have within such a market backdrop.

[Interpreted] The next question is from the line of Hyunryul Cho from Samsung Securities.

[Interpreted] Yes. There are 2 questions that I would like to ask you. First is about the overall investment plan of the company. And the second would be with regards to the Advanced Materials cathodes business. First, in terms of investments, if we look at 2026, what would be the CapEx and maybe also the CapEx for the next 2 to 3 years in terms of your plans going forward? And in light with -- of that CapEx plan, are there any plans to raise any financing?

The second plan -- or a question that I would like to ask you is about the mid- to low-end solutions that you have, specifically for cathodes. I do believe that you mentioned somewhat about the LFP cathodes that you are planning to develop going forward. What is that development, like today? And when do you think you would be in a position to commercially produce such cathodes. In addition to that, outside of the LFP area, are there any other technologies that you are developing for the mid- to low end and solutions there? And if so, what is the time line there that you are looking at?

[Interpreted] So maybe I can address the first question about our CapEx plan for this year and also with regards to any financing that we have planned, in relation to that. So maybe just to talk about the overall CapEx-related stance that we have on a full company basis. As mentioned before, because the downstream market right now is somewhat sluggish, we do think that there are -- and in addition to that, because there are various uncertainties within the business environment, we do think that at this time, it's very critical for us to maintain our financial soundness and also be able to be cash flow positive. So as a result, for the overall company CapEx that we have for this year, the overall plan is to be very strict in terms -- and prudent in terms of the management of that so that we can invest within the available resources that we have for investment.

So in 2025, if you look at our CapEx, we ended the year with KRW 2.9 trillion that we executed. And if you look at the main areas where this was used, it was for the Tennessee factory and also for the build-out of the HVO factory in terms of the capacity there. For 2026, the overall plan would be that we do believe that there will be a peak out in the CapEx that is required in Tennessee. So therefore, the overall plan that we have budgeted is a CapEx of around KRW 1.7 trillion for the year.

Going forward, for the next 2 to 3 years, we also believe that, as mentioned, our priority would first be on having and maintaining strong cash flow. In addition to that, strengthening our overall financial soundness. So as of now, the overall plan is on a per year basis to maintain a CapEx that would be less than KRW 2 trillion. And in terms of the funding for that, for the overall CapEx size, we do think that by utilizing the EBITDA generation capabilities that we currently have and other available resources, that for this year, that we would not have any additional requirement to raise funding.

[Interpreted] So maybe we can talk about our overall time line for LFP cathode development and what our plans are going forward. So on the LFP cathode side right now, we are trying to build out an overall technology or supply capabilities that would enable us to build, or not depend upon, our Chinese-related materials. So as of now, the overall focus is to ensure that we are able to provide products that provide high density and also other very strong features.

So with regards to the ESS-related cathodes that we would require on the LFP side, the overall plan for commercialization would be within the 2027 guideline or the 2027 goal. So right now, we do believe that under that overall target, we're trying to ensure that we minimize the CapEx that is required for that by seeing if the existing lines that we have in place can be utilized.

In addition to that, on the mid- to low-end side, we also have solutions that we are providing and that we are trying to develop. For example, we're trying to develop manganese-rich LMRs. In addition to that, we're looking at high-voltage mid-nickel products and also sodium batteries that would be for the future. So of those different products in the case of the LMRs for the mangan-rich side. And also for the high-voltage mid-nickel products and the LFP products, the overall target for commercialization would be for 2027.

In addition, in the case of EV or ESS-related technology, that would support higher voltages and also longer life of materials. The commercialization that we're looking at would be for 2029.

[Interpreted] The next question is from the line of Woo-Je Chun from KB Securities.

[Interpreted] There are 2 questions that I would like to ask you. First, if you look at Page 15 of the presentation on the nonoperating side, it does seem to be that there was a significant loss that you generated there. Were there any specific issues that related -- that are related to? That would be the first question.

And the second is with regards to the Life Science business. For that business up until maybe 2030, in terms of horizon, what would be the new product development pipeline that you're looking at? And with regards to any clinical trials that are ongoing, if you could provide an update for that, that would also be appreciated.

[Interpreted] So maybe I can address the first question with regards to the loss on the nonoperating side and what the conditions were that led to such situation. So if you look at the fourth quarter of 2025, in terms of -- on a consolidated basis, we did see a nonoperating loss of around KRW 2 trillion. If we look at the drivers behind that, first, on the Petrochemical side and also in terms of the EV and also EV battery and battery materials side, we actually did do a reassessment of our forecasting for these key businesses. So some of the adjustment is related to that. And also, we have made some strategic directional shifts. So that was also incorporated, which has led to an overall impairment of tangible and intangible assets of around KRW 1.9 trillion.

So in the case of our Petrochemical business, some of the more commodity type products that we have, have been experiencing a low profit margin for a very long period of time. So accordingly, we have taken preemptive measures to adjust some of the utilization of that accordingly or preemptively. And on the separator side, if you look at our key customers, which are located in the North American market, the overall backdrop there has deteriorated and also the overall competition for prices and the overall -- oversupply drag that is within the market has deepened. So in light of that downstream situation, we also recognized some impairment losses there. the.

[Interpreted] So maybe to take your second question about our new drug development pipeline. In terms of the projects that we have ongoing right now, there are 5 different projects. First, with regards to the new drug material that is currently being developed by AVEO, the overall plan is that for this, we do want to achieve approval in the U.S. by 2030 and also be able to see a launch of that product.

So right now, with regards to the head and neck cancer patients that we have, we are seeing a clinical Phase III trial that is ongoing. And for blood cancer, in 2025, there was a clinical trial Ib that we have launched. And right now, the target there was to -- is to have an accelerated approval.

In addition, in 2024, we did actually export the technology to the U.S. Rhythm -- the U.S. company, Rhythm, with regards to the rare obesity treatment. And therefore, right now, we have completed the clinical trial Phase II. And this year, we will actually be launching a Phase III global clinical trial. So we do expect that by 2030, we would be able to receive approval in the U.S. market.

In addition to that, in the Chinese market, with regards to China's Innovent company, we did have a gout treatment that was licensed out. And therefore, this year, we are planning to start the Phase III clinical trial in China related to that.

[Interpreted] The next question is from the line of Hyun-hee Jung from Daiwa Capital Markets.

[Interpreted] There are 2 questions that I would like to ask. First is, in China, with regards to the anti-involution policies that the government is actually adopting right now. If you look at the detailed policies, there's also the government abolishing VAT-related returns or refunds and also levying various consumption taxes on naphtha prices. So how are these details affecting the company? Are we benefiting from that? Or what would be the impact?

And the second question that I would like to ask is about your overall outlook for metal prices this year. Recently, we have seen a surge in lithium prices. So how is that impacting the bottom line that we have for our cathodes?

[Interpreted] So with regards to the first question that you asked in terms of the impact that we would have, if you look at the overall motivation behind why the government is introducing this anti-involution policy, it is to limit the local companies in China from engaging in various cut through, should we see an unnecessary type of competition. So as a result of that, it is trying to cut back on the benefits that is being provided and strengthen also the overall regulations so that for the companies that are not able to survive that they would be outed from the market.

So over the mid- to longer term, we do think that there will be a benefit that we would be able to see from that because the overall impact would be that, that will drive down the overall supply. However, in the short term, we actually believe that it can lead to a situation in which the overall competition dynamics within the region would actually strengthen or heat up.

So with regards to, for example, the VAT refund that has been provided for PVC exports, there would be an abolishment of that overall VAT refund. However, the way that it impacts the overall carbide-based PVC and ethylene-based PVC is a bit different. So in the past, the carbide-based PVCs actually saw double the amount of VAT refunds that they have been able to enjoy than the ethylene-based PVCs. So as these refunds would be abolished, then that would mean that the overall price difference between the 2 would decrease. And we have also seen as a result of that, the overall international prices increasing accordingly.

However, right now, the full VAT abolishment is not overall being executed yet. So until the actual regulation goes into effect, we do think that there could be a lot of supply that is pushed out within the market. So we're closely monitoring such situation and trying to flexibly deal with the overall market, that is -- the market dynamics as takes place.

In addition to that, the government is also saying that it will levy a consumption tax on naphtha. So if that is to happen, then I do think that for the Chinese players, some of the players would see a deterioration in their overall cost structure. So therefore, that would mean that, right now, in terms of the Korean players and ourselves, with regards to the product, the overall prices that we see and the gap in actuality, there could be a decrease in the price gap in itself. However, for this policy, the specifics are not something that the government has yet decided upon. So until they come out with a more detailed plan, we do continue to monitor the situation, and we will be flexible in terms of our stance accordingly.

[Interpreted] So to talk about metal prices, if you look at the recent developments that we have seen for lithium, what is taking place is that there is an increasing demand related to the ESS market being more robust. In addition to that, some of the projects have been suspended or also pushed back. So that is a factor that is taking place. In addition to that, for lithium, there has been expectations released by various institutions that there will be a shortage in 2026. And also the Chinese VAT refund is being abolished. So there is stronger demand that we see in China.

So all of this has been driving the current surge in prices that we have seen within the lithium market. However, we do not believe that this short-term surge is something that can be sustained going forward. So going into Q2, we do think that in terms of the overall trends, the amount of increases that we see in lithium prices, we do expect to be somewhat more limited.

In addition to that, if we look at the impact of the recent surge of lithium prices on our overall performance, there is somewhat of a positive lagging effect that we do enjoy. So we do think that it will contribute for us to enjoy stronger profitability in the first half.

[Interpreted] We will be getting the last question. The last question is from the line of Jin-Myung Lee from Shinhan Securities.

[Interpreted] The question that I would actually like to ask is, before I think that -- it's only one question that I actually have and what it would actually be is that for the LG Energy Solutions stake, you did say that there would be resources that you would be able to secure going forward and that this would be something that you would be able to invest into future projects that you would have for growth. So if you could elaborate a bit more about what those projects would actually be. And in addition to that, there is around 10% that you have allocated for total shareholder return. If you could actually talk about the reason for that? And also if there is a possibility that, that would be less in the future?

[Interpreted] So maybe I can talk about why we have allocated around 10% of the LGES-related resources to total shareholder return. If you look at the current situation that the company is in, with regards to the EBITDA generation capabilities that we have had, recently, we actually have seen a decline in those capabilities. And as a result of that, on our credit rating, there has been a weakening of that position also. We do think that for now, there is a need to be able to defend the credit rating that we enjoy. So that is why within the scope that we have available for total shareholder return within this position, we think that, that would be within the 10% that we have already allocated.

However, that have been said, going forward, if our EBITDA generation capabilities would recover, then the overall plan would be to use that stronger EBITDA generation capabilities to cover the day-to-day investments that we need to make. And then for any resources that we are able to generate utilizing the LGES stake, we do think that a higher amount could be allocated for TSR.

[Interpreted] In addition to talk about the future growth items that we would be looking at to utilize the resources in, I think that basically, the stance that we have in terms of putting top priority on the 4 growth drivers for the future that we have identified in terms of our stance there, there's no change. So that is something that we want to maintain. However, added to that, in the market right now, we do see very explosive growth taking place with regards to EV material, e-mobility-related material and also some of the semiconductor material-related markets such as adhesives.

So if there is an opportunity that arises, then I do think that if possible, we would like to look at, and we do think that it would be necessary for us to pursue investments in this area, which may include inorganic investments.

[Interpreted] So thank you very much. With this, we would like to wrap up the fourth quarter earnings conference call for LG Chem. In addition to that, if there are any questions that you still have or any questions that you need to follow-up upon, please do not hesitate to contact our IR team. And we would like to thank you once again for participating in today's call.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

[Interpreted] Good afternoon. We will now start LG Chem's 2025 Third Quarter Earnings Conference Call. This is Hyun-suk Yoon, Head of IR at LG Chem. Thank you for taking an interest in LG Chem and taking the time to join us today amidst your busy schedules.

We will begin with the brief overview of the 2025 Q3 earnings performance, followed by the CFO presentation highlighting key developments. Following the presentation, we will open the floor to questions. Please note that presentations will be interpreted simultaneously, while the Q&A session will be interpreted consecutively. For those with web access, materials presented during this conference call can be viewed online and are also available for download from our corporate website.

Let's begin today's call with the introduction of the management team. We have CFO, Dong Seok Cha; Cheol-Ho Yang from Petrochemicals; [ Jung-eun Seok ] from Advanced Materials; and Soonshin Cho from Life Science.

First, an overview of our financial highlights for the quarter. On Page 3, consolidated Q3 sales and P&L. Q3 sales was KRW 11.196 trillion. Operating profit was KRW 680 billion, and operating margin was improved to 6.1% from the previous quarter. Net income was KRW 447 billion, marking a turnaround to profit.

Next, Page 4, consolidated financial status. As of the end of Q3 2025, assets were around KRW 98.50 trillion, liabilities were around KRW 52.2 trillion, and capital was around KRW 46.2 billion. The debt ratio recorded a slight increase Y-o-Y to 113%.

Next, performance and outlook by business division. Page 5, Petrochemicals division. 2025 Q3, Petrochem business sales was KRW 4.461 trillion and operating profit was KRW 29 billion. Improved spreads from lower raw material prices and cost reduction efforts drove the turnaround to profit.

Next, Advanced Materials. In Q3, Advanced Materials sales was KRW 838 billion. Operating profit was KRW 7 billion, and OP margin was 0.9%. Due to customers' conservative inventory management following the expiration of U.S. EV purchase subsidies, shipment volumes of battery materials declined, leading to lower sales and profitability compared to the previous quarter.

Next, Life Sciences. In Q3, sales was KRW 375 billion, and operating profit was KRW 101 billion, driven by the receipt of the remaining upfront payment from the out-licensing agreement for a rare obesity treatment, both sales and operating profit increased.

Next, Farm Hannong. Q3 sales was KRW 102 billion, and operating loss was KRW 20 billion, marking a turnaround to a deficit. Sales declined due to inventory adjustments by overseas customers. Lastly, LG Energy Solutions. On October 30, LG Energy Solutions presented their performance in detail during the earnings call. However, we'll briefly present its performance here. In Q3, Energy Solutions sales was KRW 5.7 trillion, operating profit was KRW 601 billion and OP margin was 10.5%. Although demand for EVs remained weak due to factors such as the expiration of U.S. EV purchase subsidies, profitability improved quarter-on-quarter; thanks to increased shipments for North American ESS and new small-sized products as well as ongoing cost reduction efforts.

This concludes Q3 earnings presentation. Next, CFO, Dong Seok Cha, will present the future outlook.

[Interpreted] Good afternoon. I'm Dong Seok Cha, CFO of LG Chem. I'd like to express my sincere appreciation to all shareholders and investors for your great interest and participation in our earnings presentation. Let me begin with a review of our third quarter performance.

Petrochemicals division returned to profitability supported by cost reductions stemming from lower feedstock prices. In Life Sciences division, the recognition of remaining upfront revenue from the out-licensing of the rare obesity treatment, along with Energy Solutions improved performance contributed to enhance overall profitability. Despite rapid changes in the industry landscape, we generated improved earnings through growth across our diverse portfolio, one of our key strengths and through company-wide cost reduction efforts throughout the entire value chain.

Due to weak global demand amid the easing of U.S. environmental regulations and continued geopolitical uncertainties between the U.S. and China, the business environment remains challenging. We expect it will take some time before the impact of this demand contraction to fully subside. In the meantime, we will continue to accelerate the shift toward a high-value, high-profit business portfolio while also pursuing new growth opportunities and optimizing operations to navigate through these difficult times.

In Petrochemicals business, we will actively participate in the restructuring initiatives aimed at strengthening the competitiveness of Korea's petrochemical industry to alleviate oversupply within the sector. In addition, including high-performance SSBR, automotive ABS and ultra-high polymer PVC by expanding our portfolio of high value-added application products and diversifying our sales regions, we plan to accelerate the shift toward high value-added petrochemical products.

Meanwhile, Korea's first eco-friendly bio-oil facility, the Daesan HVO plant is progressing as scheduled toward completion and commercialization in 2027. Through technological innovation and commercialization in the eco friendly fuel and bio-based raw material sectors, we aim to further strengthen our global leadership and competitiveness.

In Advanced Materials business, driven by the termination of EV subsidies and conservative inventory management by our customers, we expect the decline in demand to continue for some time. Starting next year, we plan to begin new cathode material shipments for Toyota and successfully finalize ongoing new order contracts, thereby securing growth momentum for the cathode materials business by 2026. Meanwhile, due to factors such as tariff and IRA policy changes and China's export control announcements, external volatility remains high, heightening the need to establish a non-China supply chain.

In September, we adjusted the Chinese ownership structure of our Gumi joint venture, which produces cathode materials for the North American market. And by leveraging the precursor production capacity secured through Korea Precursor Co. Ltd, we plan to further strengthen supply stability. In addition, by improving product maturity and accelerating mass production readiness for mid- to low-priced solutions, we will diversify our product portfolio and proactively secure new business opportunities.

Within the core Electronics and Engineering Materials segments of our Advanced Materials business, we are also actively expanding into new areas such as semiconductor materials for AI and e-mobility applications, leveraging our accumulative film technology expertise. We have completed the development of a liquid PID for high-performance AI semiconductors and to become the world's first company to commercialize photopolymer film, a key material for next-generation vehicle displays, we signed a supply agreement with Germany site.

In Life Sciences business, including AVEO's ongoing global Phase III clinical trial for head and neck cancer, we will accelerate the development of our existing oncology programs to strengthen our in-house R&D capabilities. Also, by evaluating the introduction of promising external anticancer candidates, we will continue to enhance the competitiveness of our oncology drug pipeline. Lastly, through proactive portfolio optimization, including the divestment of our Water Solutions and Aesthetic businesses and by partially selling our stake in Energy Solutions via PRS issuance, we aim to further improve our financial soundness.

With disciplined investment execution, we plan to maintain positive cash flow for a second consecutive year. Dear shareholders and investors, even amid a macroeconomic environment filled with persistent uncertainties, we will continue striving to strengthen the fundamentals and competitiveness of our existing businesses, explore new growth opportunities for the future and enhance our financial structure. Through these efforts, we aim to turn today's rapidly changing and challenging business landscape into an opportunity for future growth. We sincerely ask for your continued support and interest.

[Interpreted] Thank you. This concludes our presentation, and we will now proceed to the Q&A session.

[Interpreted] [Operator Instructions] The first question is from the line of Dong Jin Kang from Hyundai Motor Securities.

[Interpreted] This is Kang Dong Jin from Hyundai Motor Securities. There are two questions that I would like to ask you. The first question is related to your Petrochemicals business. I would like to know what the company's view is for the fourth quarter and 2026 in total with regards to the market outlook. And in addition to that, in more detail, if there are any products in which you believe that the overall market backdrop will be positive for, that would -- explanations about that would be appreciated.

The second question that I would like to ask you would be about battery material. We understand that from China, some battery material exports are being restricted. So what impact is that having, if any, on the company's business? And with regards to the precursors specifically, what efforts are being made to ensure that the dependency in China is decreasing?

[Interpreted] Yes. Maybe I can take your first question related to the petrochemical outlook for the fourth quarter and also with regards to what we believe the market will be like in 2026 in total. First of all, if we look at the overall third quarter, because the overall material prices decreased in terms of feedstock and also we were able to depend upon our ASP, our overall spreads have improved, which have led to better profitability for the quarter in Q3, and that led to the turnaround to the black for our overall performance.

If we look at the fourth quarter, we do believe that the overall global demand situation in terms of demand being lackluster will continue. And also, we do think that there will be continuous negative situations that will be taking place within the environment. Added to that, because for our Daesan capacity, we will be going into a turnaround. So as a result of that, we do think that the overall ASP and also our profitability will drop during this period of time. However, we will continue to take efforts to try to defend our profitability as much as possible by improving our overall ASP and engaging in various cost-saving efforts.

If we talk about our outlook for 2026, because in 2026, we do think that the new additions will continue in the North part and also East part of Asia. And added to that, we -- and for that reason, we do think that a significant improvement in the overall backdrop would be a bit difficult. However, on the company side, we will try to continue to improve our purchase unit price, engage in cost savings activity and also focus more on high value-added products, and also expand our overall revenues in the European and also U.S. markets. So in short, we will continue to put in efforts to try to improve our overall profitability.

For specific product lines, I think that rather than talking about products that we do believe will represent a positive situation in 2026, I think that overall, there will continue to be lackluster demand and over -- and also continue to be an oversupply situation. However, in the higher value-added products that are used for specific applications, I do think that on a relative basis, we will see somewhat of a better dynamic. So for example, on the AI side for AI semiconductors, there is some highly pure IPAs that will be used. In addition to that, for EVs and SUVs, which adopt more high-performance tires, we do think that SSBRs will be something that will benefit from that. And then on the overall recharging cables, there is also the high molecular weight PVCs that will be applied in these areas. So that should be areas in which there should be a better market situation.

[Interpreted] So maybe to address the second question that you had with regards to battery materials. So on this side, as you are aware, on October 30, there was a summit meeting between China and the U.S. And as a result of that, there was some mention that the export controls on rare earth minerals would be deferred. But we still believe that if we look at the dynamics between the two countries that there are still uncertainties. So as a result of that, we do think that on the supply chain side, there continues to be a risk that we would perceive.

In addition to that, at the customer level, we do think that there will be a continuous need to try to decrease their dependency for their value chain. First of all, if we look at the supply chain management for precursors ex-China, this is something that we will continue to try to strengthen to ensure that we are addressing the overall policy uncertainties that may arise. And in addition to that, we have secured some capacity for precursors in Korea, which we will be using for the ex-China precursor demand that we are looking at.

In addition to that, to ensure that going forward, we have a more stable supply chain in place, we are planning to strengthen our cooperation with the local precursor companies. In addition to that, we are also going to utilize metal recycling technology to see whether a cost saving would be possible. And also, we are in the process of confirming and validated the own technology that we have in this area, which we do believe will be effective in managing the supply chain going forward.

[Interpreted] The next question is from the line of Hyunryul Cho from Samsung Securities.

[Interpreted] I have a question about the Advanced Materials business and also your Petrochemicals business. The first question that I would like to ask you is about your cathodes performance in terms of the overall sales volume for the third quarter and also the outlook for the fourth quarter and 2026 in terms of guidance. If there is anything that you can share, that would be appreciated. In addition to that, for any new orders that you have won, what would be the size and also the timing of that is something that I would like to ask.

Secondly, on the Petrochemicals business. Right now, there is a government-led restructuring that is taking place within the industry. So what would be the current status of those efforts that are being -- that are taking place? That's the first question. And then added to that, at the company level, excluding the amount that would be required for your downstream operations, for some of your ethylene supply that you have, do you have any plans to actually cut back on the capacity on that side?

[Interpreted] So for the Advanced Materials business, maybe I can take your first question about the cathodes third quarter actual performance and the outlook for the fourth quarter and 2026. Because of tariff-related issues and also the end of IRA-related subsidies, if we look at the U.S. EV market, it does seem to be that the market is contracting. And as a result, for the U.S. OEMs, they are operating their inventory at conservative levels. So as a result of that, if you look at the third quarter shipments in terms of volume, there has been a significant decrease in that overall amount. And we do believe that it would be very difficult for the overall trends in the market to improve within the year.

In 2026, because of factors, including the absence of IRA-related subsidies, also various regulations on carbon are being taken away. So for the U.S. EV market, we do think that it may be difficult for there to be an improvement. However, from the company level, for the existing projects that we have won, specifically in North America, the batteries -- the supply that we will be providing for Toyota batteries will start to actually be shipped out. And also, we will continue to engage in winning new orders from new customers. So as a result of that, we do think that on a Y-o-Y basis in 2026, we will be able to experience a significant increase in the amount of shipment volume that we see.

For the actual specifics about how much that volume would represent and the overall guidance for 2026, I do think that we can provide the details more specifically when we have the earnings conference call for 4Q. However, to ensure that we do secure the overall top line and also profitability for our cathodes business, we are going to try to create a product portfolio that is well diversified and aligned with our customer needs and also represent the quality competitiveness that is needed. So there will be continuous efforts to try to broaden our new customer base and also secure the overall stable volume that is necessary for this business. So with that, the various improvements in our productivity and cost-saving efforts will continue.

[Interpreted] Maybe I can address your second question about the overall Petrochemicals business, specifically about the update or the current status on the restructuring that is taking place or the restructuring-related discussions that are taking place. And also secondly, the possibility of whether we would cut back on any of our capacity. First of all, I think that right now, what we can say is that from the company level, of course, we are fully aligned with the government's overall policy direction and overall intention to try to strengthen the competitiveness of the local and domestic petrochemical industry.

So as an industry leader, we are deeply communicating with the government. And also to overcome this crisis, we are in a process in which we are fully cooperating with the efforts that are being made. So based upon this, with the local petrochemical companies and refineries in Korea, we are trying to define and look at various models of cooperation that would be possible. And we are very actively discussing various measures or options, which would provide synergies for both sides. So we do think that through these initiatives, we will be able to strengthen our purchasing competitiveness for various feedstock and also cut back on our costs. And in addition to that, in this process, we do think that there would be a possible situation under which we would be able to cut back on some of the facilities that we have.

In addition to that, if you look at the past progress that we have made, preemptively, we have restructured some of our capacity. So to date, that represents around KRW 1.4 trillion in a production decrease. So in the Korean market, we have taken our own efforts to try to contribute to alleviate the oversupply situation that exists. So going forward, based upon more efforts that we will be making to fundamentally improve our overall profit base and also including that the options that we will be looking at would be cost savings and a wide other variety of options, which are currently being reviewed.

[Interpreted] The next question is from the line of Tim Bush from UBS.

My first question is, what are the CapEx plans by major investment item from '25 through '27? And my second question is on customer preference for low-priced products. What are the company's countermeasures and the expected time line for commercialization of mid- to low-end products? And what is the company's production strategy for ESS cathode materials?

[Interpreted] So maybe I can address the first question that you asked about our CapEx for the next 2 to 3 years. If we look at our CapEx for 2025, as we had initially planned or budgeted at the beginning of the year, we do expect that the CapEx for the full year will be similar to our budget at the upper end of KRW 2 trillion. So if we look at the specific areas in which this CapEx was executed, a lot of it went into the U.S. Tennessee cathode capacity, also the HVO factory and also ABS-related repositioning. So mostly, the items would be for various capacity expansions and also reconstructuring that we had conducted.

For the next 2 to 3 years, we do think that on the U.S. Tennessee cathode factory, the actual CapEx in itself has peaked out in 2025. So from 2026, we do think that the overall amount of CapEx that will be required would be at a much lower level. So as you are probably aware, in the petrochemical industry and also the Advanced Materials business, specifically for battery materials, there is somewhat of a sluggish downstream situation, which has weakened our overall capability to generate cash. In addition to that, in the business environment, uncertainties continue to increase. And also the financial conditions are somewhat more challenging.

So in light of that fact, we are trying to focus and to put top priority on the three main growth drivers that we have identified for our investments going forward. So we're trying to refine the investment items and trying to optimize the amount of resources that we allocate. So those would be the focus of our efforts.

[Interpreted] So maybe I can address your second question about the efforts that we are -- that are being made right now. In order to secure the cost competitiveness that we need, we are focusing on LFP and also more mainstream segments right now. So for example, LMR and high-voltage mid-nickel and LFP. So there is a wide variety of technology that is currently being developed.

First, if we look at the high-voltage mid-nickel products right now for -- with new processing technology for precursors, we have been able to secure a capability to create products that will be on par with our competition. So -- and in addition to that, we are focusing on improving our cost competitiveness further so that we would be able to launch products at around 2027. So that is the current plan that we have.

With regards to LMR, which recently a lot of the market attention has been focused upon, we are developing products right now for 4.35 voltages. So we have -- we are in the process of securing the mass production technology that is needed for this product. And the next stage or Phase 2 would be for 4.5 voltage products. So we are trying to differentiate our products and also secure right now in creating a supply chain that would not be dependent upon China. So starting with the 4.35 voltages in 2028, we will be supplying to North American OEMs.

In the case of LFP, which are usually applied for ESS, right now, we are developing technology for both EV and ESS use. However, if we were to apply the same processing technology that is used by the Chinese players, we do believe that it would be difficult to secure the profitability that is required. So right now, what we're focusing on is trying to use material that would not depend upon China and also try to verify some technology that would apply new processing technology. So by doing that, we are going to try to secure the cost competitiveness or cost saving effects that are required. And by doing that, we do think that for the LFP side, we can actually iron out the details as necessary.

In addition to that, for ESS purposes, we are looking at SIB, or sodium-ion battery cathodes also as a low-cost solution for next-generation batteries. So this is something that we are actively reviewing.

[Interpreted] The next question is from the line of Jin-Myung Lee from Shinhan Securities.

[Interpreted] There are two questions that I would like to ask you. The first question is that recently, the company has used some of its LG Energy Solution shares to sell the shares through a PRS structure. So the question that I would like to ask is that is the company interested in selling down further in terms of its stake? And for the proceeds of the recent transaction, where is it planning to use those proceeds?

The second question that I would like to ask about is in terms of your cathode for cylindrical batteries. Right now for the new 2170 cathodes and also for the 46 series, what is the overall development in terms of the current process or progress?

[Interpreted] Yes. Maybe I can address the first question that you have asked. So on October 1, the company did provide a disclosure that it was planning to sell 5.75 billion shares of LG Energy Solution. And at the same time, it would engage in a PRS contract with the buyer as a result of -- as part of the transaction. So on November 3, we are planning to sign the agreement. And once the transaction goes through, we do believe that we will be able to immediately receive approximately KRW 2 trillion in proceeds.

If we look at the purpose of where we will be using the overall proceeds, first, it will be to try to improve our overall financial position and financial soundness. And some of it will also be used for future growth. So investments in that area is one of the planned areas that we have. However, that have been said, in terms of the shareholder return, if you look at our regular principle or the general principle that we have for our dividend policy, any nonrecurring profits are actually excluded from the pool, from the resources that would be dividended out. However, this time around, in light of the shareholder value enhancement efforts that we would like to make, we are looking into the possibility of using some of the proceeds to actually provide to our shareholders.

In addition to that, you also asked about whether we had any plans to utilize the LG Energy Solutions stake that we had in more detail. I think that as we have always said, we do believe that to expand our future competitiveness and also enhance our shareholder value, we do believe that this is an asset that can be used at any time. However, that have been said, we will continue to review various options that are available to us. But as of the current time, we don't have any additional plans or we don't have any decisions that we have made as of the current time. So once there are decisions that are made, we will make sure to communicate to the market.

[Interpreted] So to address your second question about the cylindrical cathodes for the new 2170s and also the 46 series, I think that what we can say is that because this is related to a project with a specific customer, of course, it would be difficult for us to provide any details. But what we can say is that for the new 2170 upgrade, we are developing a product right now, and we are planning to enter into the market in the second half of 2026. In addition to that, for the next-generation 46 series cylindrical high-nickel products, the overall target would be first in. And we are in the process of evaluating the samples with an overall objective of trying to develop and meet the SOP in 2028.

[Interpreted] The last question is from the line of Yu-Jin Jeon from iM Securities.

[Interpreted] There are two questions that I would like to ask you. First, related to the Petrochemical business. Not only in Korea, but also in China, we do understand there are discussions about restructuring for their industry that are taking place. So if there are any impacts that you would see by product line from the Chinese restructuring, please share your view with us. The second question that I have is that if you look at your Advanced Materials business, it does seem to be that for electronics-related materials that there is a gradual growth that we are experiencing in this business. So for semiconductors and OLED products, what would be the long-term business views and plans that the company has?

[Interpreted] So to address your first question about how the Chinese restructuring would have an impact for our specific product lines, I think that for that, what we can say is that in July, the Chinese government did come out with a restructuring policy. However, if you look at the purpose or intention behind this, this is to try to refrain from entering into too much competition and also to alleviate such situation so that there can be more qualitative growth that takes place within the industry. So it's more like a guideline as we understand. Therefore, with regards to regulations and specific penalties for people that do not comply, there is nothing that is available yet. So as a result of that, we do not believe that this guideline will lead to any decreases in the capacity over the short term.

However, that have been said, if we do look at the relatively older aged and older capacity that does exist, of course, from product line to product line, it may differ in terms of the overall size. But we do think that in general, it would be around 10% to 20% of the capacity available. But even under a scenario in which this capacity may be shut down, we would also factor -- we would have to also consider the new additions that are taking place and also the possibility of existing facilities using -- being used at higher run rates on the flip side of that. So all in all, if we take these factors into consideration, we do think that the impact would be somewhat limited.

That have been said, in the automobile areas for consumer electronics and also semiconductors, Chinese influence in the global market is something that is increasing. And as a result of that, for the more premium or high-end product, there is continuous demand growth that we are seeing. So therefore, we do want to utilize the opportunities that China presents for the wide variety of high-end products that we have and high value-added products that we have. So that would be the intention that we have going forward.

[Interpreted] So maybe I can address the second question that you had with regards to our electronics-related materials. So at the company level right now, if you look at the semiconductor materials for AI purposes and also the mobility-related materials, across the board for these highly functional new type of materials, we do think that these will experience high growth going forward. So we do want to expand our business presence here. And by doing so, we want to strengthen the overall soundness of the portfolio that we have in the Advanced Materials side.

So first to talk about semiconductor materials. For the existing CCL that we have and also the film material and the overall technology expertise that we enjoy in this area, we are in the process of developing advanced packaging material that is required for [ morely ] high-performance semiconductors. In addition, with the global leading customers by having various development cooperation and collaboration, we do want to expand the overall products that we would have in the semiconductor material side for AI purposes. Because the AI semiconductor market will be growing going forward, in line with that, of course, we do think that there will continue to be new needs that the customers will have. So therefore, in these next-generation products, we will try to be more present with more activities that we would be able to enjoy.

On the mobility side, based upon the technology know-how that we have for films and adhesives, we are currently planning mass production in 2026 film with adjustable transparency for vehicles sunroofs. And in addition to that, we are also pursuing new inroads into electronic -- vehicle electronics-related adhesive materials. Lastly, on the OLED materials side, right now, we are trying to expand our presence with global key customers so that we can utilize the opportunity in this area to generate higher profitability.

[Interpreted] Thank you very much. With this, we would like to wrap up the earnings conference call for the third quarter of 2025 for LG Chemical. For those of you who have not had an opportunity to ask a question or may have additional questions, please do not hesitate to contact our IR team. And once again, we would like to thank everyone for taking time out of your busy schedule to participate in today's call. Thank you very much.

[Audio Gap]

[Interpreted] Next, Life Sciences. In Q2, the segment recorded a revenue of KRW 337 billion and operating profit of KRW 25 billion, moving back into the black. Strong sales of key products such as vaccines, oncology and autoimmune disease treatments contributed to improved profitability.

Next, Farm Hannong. In Q2, Farm Hannong recorded revenue of KRW 242 billion and operating profit of KRW 13 billion. While sales of crop protection products and seeds have remained solid, profitability declined slightly compared to the same period last year due to increased raw material costs.

Finally, LG Energy Solutions. As we provided detailed information during the earnings briefing held on July 25, I will keep this presentation brief. In Q2, Energy Solutions recorded revenue of KRW 5.56 trillion, operating profit of KRW 492 billion with an OP margin of 8.8%. While revenue declined slightly due to customers' ongoing conservative inventory policies, profitability improved Q-o-Q, thanks to product mix enhancements and ongoing cost reduction efforts.

Operating profit, excluding North American production incentives, also turned to positive territory. This concludes the presentation of our Q2 results. I will now hand over to our CFO, Dong Seok Cha, who will share the outlook moving forward.

[Interpreted] Good afternoon. I'm Dong Seok Cha, CFO of LG Chem. Thank you all for taking the time out of your busy schedules to join our earnings presentation today.

First of all, allow me to begin with a review of our Q2 performance. Modest improvement in overall profitability, largely attributable to the earnings recovery of our subsidiary, LG Energy Solution, the business environment remains difficult and has weakened due to the ongoing U.S. tariff dispute and heightened geopolitical tensions in the Middle East. In addition, customer inventory policies have remained cautious ahead of the anticipated early termination of EV subsidies.

Looking ahead, while the volatility from the U.S. OBBB Act and reciprocal tariff policies appears to be subsiding as they are now finalized, we expect the resulting demand slowdown to take time to recover. We will continue to strengthen competitiveness through business optimization and focus on high-value, high-margin areas to enhance corporate value while reinforcing and optimizing operations to navigate these current challenges.

In the Petrochemicals business, the finalization of U.S. reciprocal tariff rates has eased uncertainties and partially relieved cautious market sentiment. While improved supply-demand dynamics are anticipated in the second half, supported by potential additional stimulus and production cut policies from the Chinese government, the overall demand weakness caused by strengthened U.S. tariff barriers is expected to persist.

The company aims to aim for gradual profitability improvement by minimizing tariff impact through expanding its high-value portfolio, including automotive ABS, modified SSBR and C3 IPA and diversifying sales regions by accelerating portfolio restructuring and implementing rigorous cost-cutting initiatives. Meanwhile, the country's first eco-friendly bio oil plant capable of producing sustainable aviation fuel and biodiesel and naphtha has commenced construction as planned and is scheduled for completion in 2027.

Through technological innovation and commercialization in eco-friendly fuels and bio-based materials, the company aims to further strengthen its global leadership and competitiveness. In the Advanced Materials business, battery material sales volume growth is expected to be limited in the near term due to continued conservative inventory management by customers ahead of the EV subsidy phaseout as well as the impact of high U.S. tariffs on steel, aluminum and copper, which will lead to higher vehicle prices and reduced demand.

In response to the increasing importance of local presence in North America and securing non-China supply chains, we are actively pursuing additional new orders by leveraging the local supply advantage from our first cathode materials plant in Tennessee, scheduled for mass production next year, along with the competitiveness of our non-China value chain and differentiated technology.

We anticipate 2026 to be a pivotal year marked by substantial volume growth fueled by the diversification of our customer portfolio developed over the past 3 years, including the ramp-up of cathode material shipments to Toyota beginning next year. Meanwhile, we are accelerating mass production preparations for mid- to low-price solutions and diversifying our portfolio to proactively secure new business opportunities.

At the same time, we'll rigorously manage operations by improving utilization rates and reducing fixed costs to ensure profitability. In addition to battery materials, we will focus on nurturing core businesses such as electronic materials and engineering materials with an emphasis on new growth areas like semiconductor and mobility materials. We plan to continuously expand growth momentum by targeting materials with high entry barriers that offers greater profitability.

Lastly, in the Life Sciences business, R&D investments continue to accelerate the development of existing oncology projects, including Phase III head and neck cancer trials, immuno-oncology and Phase I cancer cachexia studies and to introduce promising new oncology candidates to strengthen the pipeline. At the same time, there is an increasing emphasis on enhancing gate reviews to improve drug approval success rates and ensure efficient resource management.

Following our diagnostic business in 2023, we have also decided to sell the aesthetics business based on a favorable valuation offer from the market. Going forward, we plan to continue our portfolio rebalancing to further strengthen our capabilities and resources in the oncology field. For example, regarding the rare obesity treatment licensed out last year, positive results from the partner's Phase II clinical trial were recently announced, raising expectations for stable milestone and royalty income in the future.

We will continue to pursue such strategic options and partnership opportunities going forward. Dear shareholders, amid unprecedented market volatility and a challenging macro environment, we remain committed to actively optimizing our portfolio. We see this as an opportunity to accelerate transformation toward high-growth, high-profit businesses.

In addition, we will enhance flexibility across investment and operations to adapt to internal and external business changes and demand volatility and improve management efficiency to minimize earnings fluctuations while maintaining positive cash flow and strengthening financial soundness. Also, we will strive to continuously strengthen our leading and differentiated technological capabilities to sustain robust mid- to long-term growth. We sincerely appreciate your ongoing support. Thank you.

Next, we will have a Q&A session.

[Interpreted] [Operator Instructions] The first question is from the line of Jin-Myung Lee from Shinhan Securities.

[Interpreted] I have two questions. One question for the Advanced Materials. Second question for Life Sciences each. First, regarding your cathode material business, can you give us a more detailed breakdown of your second quarter results and share with us your outlook for third quarter as well as full year outlook? We are noticing that there has been -- the tax-related subsidies will be coming sunset from Q4. And do you think that, that will have an impact on your cathode material business? And how do you plan to respond?

My second question regards the Life Sciences business. You've actually -- you've announced today that you will be selling the aesthetic business. I want to hear a bit more detail and background about that deal to sell. And also, what are your plans of using the proceeds from that sale? And do you have additional plans for M&As going forward in your Life Sciences business?

[Interpreted] To answer your first question regarding the cathode material. First, to give you a bit more detail about Q2 results. During Q2, our North American GM shipments maintained steady levels. However, overall, there was dampened purchasing sentiment given the volatility around policies, including the tariffs. Also, there were some inventory adjustment movements and also phasing out of existing models supplied to the European customers.

So overall, in Q2, we saw a considerable decrease in shipments on a Q-o-Q basis. In terms of Q2 ASP, the ASP also decreased around 10% on a Q-o-Q basis, mainly driven by fall in exchange rate and metal prices. So combined in Q2, we recorded a loss. Regarding Q3 outlook, with the sunset of the IRA subsidies approaching, the American OEMs are continuing to maintain conservative inventory policies. And we also are seeing that North American new projects are being postponed in terms of mass production.

So overall, we think that in Q3, shipment decrease on a Q-o-Q basis would be inevitable. On a full year basis, to share you the outlook as well as our response strategy, looking at 2025 on a full year basis, we think that a negative growth contraction of the cathode business is inevitable given the weakened EV demand in the U.S., which is being caused by the phasing out of the subsidies as well as lifting of fuel efficiency regulations and also tariffs being imposed on vehicles.

In terms of ASP, we will have to wait and see a bit more how the metal prices and exchange rates turn out in the second half. But in terms of shipments, it is -- the major OEM customers are starting to pace down their production. And so we are even open to a possibility of a considerable level of shipment decreases on a Y-o-Y basis.

So given all of that, in 2025 full year basis, we do expect our profitability to worsen. But that said, looking towards next year, 2026, we are planning to ship to Toyota. And also, we're planning to have new customer acquisitions. And with that, we are looking forward to a turnaround in both volume growth and also profitability.

I'll answer the second question regarding the sales of our aesthetic business and also whether we have additional plans for M&A. As you know, we have been focusing on our 3 new growth engines. And in order to further promote the growth around these 3 pillars, we have been revisiting and reshuffling our portfolio, especially around areas that we consider to have less synergy with our mainstay businesses.

That's why the Life Sciences division has been focusing on the domestic and Asian businesses around pharmaceuticals as well as the development of new cancer treatments on a global basis. And that is the background of why we decided to sell the aesthetic business. The aesthetic business itself is -- has quite strong growth potential, for example, in aesthetics, beauty as well as anti-aging. However, in order to tap that growth potential, very active investments were necessary.

And we believe that by handing over the business to a buyer that is willing to make those investments, both the seller, both the business and the buyer would be able to benefit from that. The proceeds from the sale are going to be used in further improving our financial soundness, for example, being used to pay down our borrowings or used to fund our investments. And of course, once the cash in timing arrives, we will be able to share a bit more detail on how we plan to use the proceeds.

You've also asked whether we have additional M&A plans. And regarding that -- of course, our focus is on onboarding and acquiring additional cancer treatment-related promising material projects that are preferably in late clinical phase, which would be able to generate strategic synergy with the pipeline that we have acquired through the AVEO deal.

Currently, though, we do not have any additional M&A plans finalized yet, but we believe that by using our open innovation system to further accelerate our internal project development capabilities, we will be able to develop ourselves into a global pharmaceutical power. Also, in addition to the cancer treatments, we will also be focusing on similar cases -- cases similar to the licensing out of the hypothalamic obesity project that will help us make more efficient use of our R&D resources.

[Interpreted] The next question is from the line of Dong Cheol Shin from CLSA Securities.

[Interpreted] Yes, I have 2 questions. First question goes to your petrochemical business. Can you give us your outlook for your petrochemical business in the second half? And also, can you break down the current market situation by different products? Also in that line, recently, China has been making some announcements that they're looking to reduce their production and restructure some of the industries, including their petrochemical upstream.

Do you think that this is already having an impact on the market? Is it affecting market situations? And do you think this movement in China may have an impact? Is it possible that it would have an impact on the second half? My second question is for the Advanced Materials business. This ties in with the mass tier cathode material development.

We all know that the IRA subsidies are being phased out. This will probably increase need for lower-cost battery material. In that sense, can you give us an update on your mass tier or mid-priced cathode material development status? Also, we are hearing that Energy Solution, EnSol, is planning to do an LFP-based ESS -- with that in mind, can you give us an update on your LFP development process?

[Interpreted] To answer your first question about the Petrochemical business, the current market situation. Yes, with the U.S.-Korea reciprocal tariff decisions made, some of the political uncertainty has been resolved. However, there are tariffs being imposed and that will overall keep the demand dampened, we expect. Therefore, I think it's difficult at this point to expect a rapid improvement in market situations of any specific product.

That said, we will be responding to this by focusing on our synthetic rubber products that are for tire applications, the high-end ABS products, expanding that, also improving the utilization of our Malaysian MBL plant and also improving the profitability of our ABS compound facility in North America and India. We think that by focusing on these activities, our goal is to deliver better profitability in the second half versus first half.

You've also asked about China, the so-called anti-involution policy, which was announced, that is the so-called restructuring policy. But when we look into some of the announcements, there still is quite a brief period that is allowed for the closing down of the facilities. There's also a possibility that instead of the facilities being completely closed down and scrapped, there actually may be additional reinvestments in facilities.

So given that uncertainty yet and also on top of that, considering that there are even large-scale new projects going on in China, I think that it's difficult to expect an improvement in the demand-supply situation in the near term. So our position is that we will take a conservative stance regarding improvement in external market situation and focus on our own capabilities to improve the structural competitiveness of our own businesses and also continue to focus on shifting our portfolio more towards the high end.

To answer your second question about the lower-cost battery material development. As you know, we are currently preparing various mid- to low-cost cathode material technology, including our new precursor technology, the LPF technology as well as the LMR, high-voltage mid-nickel and LFP, which targets the mass segment. You've asked about the LFP. And in the case of LFP, we are developing both targeting EV and ESS applications. And we will be deciding when to enter the business through discussions with customers on new projects.

In our LFP development for the EV applications, our focus is on high-density LFP that will deliver longer drivable range than existing LFP and also differentiated material that applies our own proprietary chemistry. We are currently going through customer eval based on the equipment facilities that we completed last year on a pilot basis. For the ESS, our LFP development focuses on long life that will be able to support repeated charging and discharging over a long period of time.

We are currently in discussion with multiple customers about product supply, customers wanting to divert away from China in terms of their value chain. And we will be sharing the details once they are determined through discussions on various conditions that would meet the customer needs.

[Interpreted] The next question is from the line of Parsley Ong from JPMorgan.

Hi, this is Parsley. So my first question is a follow-up on chemicals. Could you give us an update on LG Chem's current status in upstream restructuring efforts, including the NCC operations? And recently, the Korean government has been considering restructuring support measures for the chemicals industry. So could you walk us through the various scenarios?

And what do these measures mean for LG Chem in terms of potential impact and the likelihood of benefiting from the Korean government supported policies? The second question is in connection with the recent amendment to the Korea Commercial Act, which, as you know, is aimed at strengthening shareholder rights, does LG Chem have any plans to enhance shareholder returns, for example, dividend buyback or even utilizing your stake in LG?

[Interpreted] To answer your first question about our upstream restructuring. As you know, LG Chem from 2 years ago has been downsizing its intermediate business, which is the commodity intermediate business, which is in an oversupply of around KRW 1.4 trillion. While we downsized our capacity, we started to source the intermediates from Korean -- other Korean petrochemical companies and thereby contributing to the alleviation of the oversupply within Korea.

When we look at the government, we've talked with the government on several occasions, our understanding of the government's restructuring for the petrochemical industry is twofold. One is to resolve the overcapacity that there is on the upstream side. And also second fold is to focus on converting the downstream to more high-end products. And by doing that, the government aims to create a more sustainable petrochemical industry in Korea.

So when you consider what the government is focusing on and what we have been doing, our strategic direction is in well sync with the Korean government's policy. We currently have several strategic options to further enhance the competitiveness of our upstream, and we will be pursuing that at quite a speedy pace.

And also, we will continue -- we have communicated on several occasions with the government on what exactly would be the desirable shape of the Korean petrochemical industry as a whole to ensure sustainability. And we will continue to closely communicate with the Korean government so that we are able to shift the Korean petrochemical industry in a more sound and healthy direction. And we will be then able to learn more detail about the specific government support policies and whether we are in a good place to benefit.

To answer your second question about the shareholder return, regardless of the amendment to the commercial code and regardless of the dividends paid or paid not by our subsidiary, we have been maintaining a dividend policy of a certain payout ratio based on our consolidated net profit. And we have been exerting our best in order to maximize our dividends within a scope that does not impact our financial structure and our efforts to provide maximum dividend within that range will continue going forward.

You've asked about the LG Energy Solutions, EnSol holding that we have. And as we have repeatedly said before, our understanding, our perception of our Energy Solutions shares is that it is a strategic resource for LG Chem to use to fuel its continuous sustainable growth. That said, currently, the downstream industries are facing quite a challenging situation overall, and this even strengthens -- increases the need for us to make investments to shift the company towards more of a high-growth, high profitability business structure.

And therefore, we will be using not only the Energy Solutions shares, but other assets that we have at the right time. And currently, we are very actively studying the best way of using the EnSol shares and other assets at the right time to support our sustainable growth. In terms of specific execution of those plans, we are facing a difficult EV industry situation.

And there are also, as I know, some technical complications, for example, requiring some prior public disclosures before actually going through with the process, and these do pose some challenges. But that said, the -- we will be using it to enhance the enterprise value of LG Chem, considering the cash flow situation and market situation. And once we have the detailed plan and timings ready, we will immediately communicate that with the market.

[Interpreted] The last question is from the line of [indiscernible] from [indiscernible] Securities.

[Interpreted] I have 2 questions. The first question is for the Advanced Materials division about the PFE regulations under the IRA 45X. What is your understanding? And how are you planning to respond from the Advanced Materials division's perspective? Second question goes to both the Petrochem and Advanced Materials. The reciprocal tariffs have been decided. From both divisions, what do you think will be the business impact? And how do you plan to respond?

[Interpreted] To answer your first question about the Advanced Materials understanding and response to the IRA PFE regulation. The IRA 45X is designed to gradually increase the restriction on Chinese company content share on a year-by-year basis. So it's a gradual increase. That said, it is definitely a stronger PFE regulation than before, and this is expected to further increase the importance of companies to secure less Chinese supply chain in order to qualify for AMPC.

We are, therefore, currently under plans -- we are currently working on an optimization plan for our SCM operation for cathode material that will be in line with the requirements. For example, we are currently very actively considering adjusting the equity ownership of a Chinese company in our Gumi JV plant that produces cathode materials for North America. We will share the details once this adjustment -- the final details of it is determined.

Even though there's still a bit of room for interpretation on what is the exact scope of the supply chain that will be used to calculate the direct material cost being sourced from China and other entities of concern, we are, at this point, taking a conservative position, and we're using the entire supply chain, and we plan to revisit our entire sourcing as well as production location strategy with a preference on non-Chinese material.

And to answer your second question about the impact of the reciprocal tariffs, if I answer first on behalf of the Advanced Materials business, as you know, the Korea-U.S. reciprocal tariff rate was decided as 15%, which is around 10 percentage points less than the original 25% that people had expected. But that said, even at 15% reciprocal tariff rates, we think that it is inevitable there will be an import cost increase factor on cathode material supplied from Korea to the U.S.

That said, if we look at the mid- to long term, this may actually create a business environment that is favorable for companies with U.S. local cathode capacity. We do have in plan our first U.S. cathode plant in Tennessee, which will become available from next year, and we plan to use this strategically as much as possible to actively capture demand of customers who are looking for local supply. And also, we think that considering the impact of the tariffs, we will also be able to meet that supply with the cost competitiveness.

And to answer that second question about the reciprocal tariffs from the Petrochem business side, I think the negative impact of the reciprocal tariff, one, would be that there will be a decrease in demand. Second is that we would be put in a less competitive position versus companies within the U.S. That said, there are products such as ABS or synthetic rubber that is a net import from the U.S. perspective.

They have to be imported. These are areas that we have a differentiated competitiveness. And so we think that actually, as the supply chain reshuffles among this tariff situation, there will be opportunities for us to tap. Also, we have the newly operated North American ABS compound facility. We also have the U.S. local sales organization, which has become much more local.

And these are things that we will actively leverage to defend our profitability as much as possible. And at the same time, we will be looking towards markets outside the U.S. so that we would be able to also take advantage of shifting our portfolio to non-U.S. areas to further defend and improve our profitability.

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[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]