Hee Yeon Kim - Head of IR Kyu-young Ko - Head of Market Intelligence Division.

Brian White - Drexel Rob Stone - Cowen & Company Eric Lin - CIMB Eric Smith - Private Capital Partners Jerry Tsai - HSBC.

Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the Fiscal Year 2015 Fourth Quarter Earnings Results by LG Display. This conference will start with a presentation, followed a division of Q&A session. [Operator Instructions].

Now we shall commence the presentation on the fiscal year 2015 fourth quarter earnings results by LG Display..

Welcome to LG Display’s fourth quarter year 2015 conference call. My name is Hee Yeon Kim, Head of IR Division. I would like to welcome everyone to our quarterly earnings conference call. I am joined by our IR staff, as well as representatives from marketing intelligence. Kyu-young Ko is Head of Market Intelligence Division. Next slide, please.

Prior to the earnings announcement, we will have a change of operation on earnings release. Local offsite earnings release prior to this kind of English conference call will be merged together from next quarter.

Thus, you will directly ask questions to our management including our CFO, Head of Corporate Strategy together with the help of LG’s divisions. For more details, we will guide it through the information mail of earnings release in our website later. Before we move on to the earnings results, please take a minute to read the disclaimer.

I would like to remind everyone that results are based on consolidated K-IFRS accounting standards and are unaudited. Next slide, please. We have approximately one hour for this conference call.

During the first part of the call, we would like to highlight our third quarter results performance and fourth quarter outlook, which corresponded to slides available on your website. Afterwards, we will take questions. Please do not hesitate to contact us after the call, if you have further questions. Moving on to revenue and profit on the next slide.

Despite weak sector demand and macroeconomic uncertainties, our revenue in the fourth quarter increased 5% quarter-on-quarter, recording KRW7.5 trillion. It was mainly driven by continuous mix change towards larger size in ultra-high definition TVs and increase of small-to-medium sized panel shipments.

However, due to the price decline across all segments, our operating profit decreased resulting KRW61 billion. Operating margin was 1%. EBITDA margin was 12%. Pre-tax profit was KRW31 billion and net loss was KRW14 billion. That net loss was driven by adjustment of deferred tax assets. Moving on to Slide 5, looking at our financial positions and ratios.

At end of fourth quarter, total asset was KRW22.5 trillion, liabilities KRW9.8 trillion, and equity KRW12.7 trillion. Cash and cash equivalent was KRW2.5 trillion and inventory was reduced to KRW2.3 trillion.

Liability to equity ratio, quarter ratio and net debt to equity ratio all improved respectively 78%, 144% and 30% maintaining a healthy situation. Moving on to Slide 6, looking at our cash flow. Cash at the beginning of fourth quarter was KRW2.6 trillion.

Cash flow from operating activities resulted in cash inflow of KRW750 billion, while cash flow from investing activities resulted in an outflow of KRW730 billion.

With the cash outflow from financing activities add around KRW90 billion, our net cash change was an outflow of KRW70 billion, resulting in cash at the end of the quarter with KRW2.5 trillion. Moving on to Slide 7, I would like to go over our performance highlights. During Q4, our shipment increased 4% recording 10.2 million square meters.

Despite weak sector demand and macroeconomic uncertainties, our area shipment increased due to continued large size trend and increasing ultra-high definition portion in TV area. Also, new product launch in small-to-medium size segment impacted positively in Q4 shipments. As for pricing, decline continued across all segments.

However, our blended ASP per square meter increased 2%, thanks to the new shipments in small and medium size. Moving on to our product mix on Slide 8. Our TV business was 34%, and then mobile 32%, notebook and tablet 19%, the remaining was 15% for the monitor.

Due to new product launch in our medium sized category, the sales portion of mobile segment increased five percentage points quarter-on-quarter resulting in 32%. Moving on to Slide 9 and looking at our capacity, our producible capacity in Q4 was similar to the previous quarter level, resulting in 12.1 million square meters.

Next, we turn to our outlook section. For the first quarter, we expect total area shipment in square meters to decrease by a mid-to-high single-digit percentage, compared to the fourth quarter, due to the seasonal.

As for pricing, although the supply of our products and sizes may vary, the downturn trend in panel prices is expected to slow gradually because the price scrub was weak already and potential increase of panel supply control affected the profitability plunge.

And individual ASP decline is expected to slow, but the blended ASP decline would be higher than apples-to-apples price trend for our company, thus driven by small and medium product revenue reduction in first quarter as usual.

Under this kind of low seasonality and weak price trend, we will try to overcome by focusing on profitable product mix based on technology differentiation such as ultra-high definition, advanced in-cell touch technology and in-plane switching panels.

And in OLED, we will strengthen its market leadership by providing customers differentiated value with continuous improvement for OLED market extension and comparative enhancement. That’s overall briefing for our fourth quarter earnings and our highlights. Now, we open up for Q&A session.

We ask that you limit yourself to one question and one follow-up.

Operator, may we have the first question, please?.

[Operator Instructions]. The first question will be provided by Brian White from Drexel. Please go ahead sir..

Yes. I’m wondering if you can talk a little bit about the size of the adjusted deferred tax asset.

What was the dollar number or Korean won number in the fourth quarter? And are you expecting a loss for LG Display in the first quarter?.

Our tax adjustment amount is around KRW10 billion. And also we have another tax adjustment driven by our overseas companies’ dividend payments. So we have to pay related to tax..

So, would that be similar to the, you said KRW10 billion in the fourth quarter, will that be similar in the first quarter?.

In first quarter we don’t expect that kind of impact. And your second question, in first quarter, we already, in the analysts’ first quarter report based on the kind of report. Our first quarter is likely to be loss making but we tried to do our best to make money in first quarter as well.

But for now, actually it’s not that - the confidence level is not been high because market situation is not yet stabilizing. However, but in some areas we start to see that some refining to science of decelerating of the price trend.

And also together with our cost reduction efforts, anyhow we will do our best to try to decelerate this kind of worsening situation..

And finally, the cost down, what do you expect in terms of component costs down in the March quarter? Thank you..

In the March quarter, we are expecting our overall cost reduction including material cost will be around high single-digit..

Okay. Thank you..

The following question will be presented by Rob Stone from Cowen & Company. Please go ahead sir..

Hi. Thanks for taking my questions.

The first one, if your cost down is going to be high single-digits, given your comments about pricing and mix, would you expect gross profit margins to decline further in the March quarter or do you think they may be getting close to a stable level?.

Actually in January already, our panel price went down. So reflecting this kind of impact, our gross profit margin would not be better than first quarter, it would be worse. But the level of worsening ratio we try to be lower than market expectation..

So, gross margins are likely to decline again in March but hopefully not as much as they did from Q3 to Q4.

Is that what you were saying?.

In terms of numbers, market situation is quite fluctuating. So we cannot deliver the specified number or, you need to understand these kinds of situations..

Okay. Let me shift to a different topic then.

On your OLED TV shipments, I wonder if you could comment on the TV panel shipments for the year, so fourth quarter and the year, and if you’re still thinking about roughly 1 million OLED TV panels in 2016?.

Last year our shipment for OLED was around 400,000 units, among them, 50% was sold in Q4. So, it means, at least every quarter our shipment will be over 200,000 units, so all-in-all, this year we are targeting 1 million units based on over 65-inch will be 40% among total shipments..

So 65 inches or greater is 40% of the mix?.

No, 65 and above size will be expected to be 40%, the remaining 60% will be 55..

Okay. Yes, that’s how I understood it, great. And finally, I wanted to ask you about capital expenditures for OLED. I believe you announced additional spending. There was a 6-K of around KRW460 billion for I think converting additional lines in Paju.

Is that number correct, because I saw another story which actually had a higher figure for OLED TV CapEx? So if you could comment on CapEx plans overall for the year and how much of that is for OLED?.

Overall this year CapEx will be in the KRW25 trillion. For now, we don’t have any finalized number. We just only have a forecast number at around KRW25 trillion. Among them OLED 50% or potentially 6% will be in the OLED side. As you already know, our mobile OLED investment that was related to last year for smartphone and automobile.

And that’s along KRW1 trillion. And also we announced two days before another fab conversion from LCD into OLED. That capacity would be 25-K, that’s also slightly below KRW1 trillion. So this kind of TV and mobile investment will be around 50% or 60% among our total CapEx.

But the total CapEx amount will be changeable it’s just a forecast number for now..

Okay.

So just to be sure I heard correctly, the fab conversion for OLED TV, is that an additional 25,000 plates per month in addition to the 34,000 you have now?.

In the fab, we have 34,000 and we will add 25,000 more in terms of..

And that comes online in the first half of 2017?.

Maybe, second half of 2017 in terms of the ramp up..

Okay. Thank you very much for taking my questions..

Currently there are no participants with questions. [Operator Instructions]. The following question will be presented by Brian White from Drexel. Please go ahead sir..

Yes, just a couple of questions around the TV market.

Number one, what are we expecting, what are you expecting in terms of unit growth for TVs on the Chinese New Year? And what are you modeling for global TV unit growth in 2016?.

Okay, Chinese TV sales could be okay, but this time is such a seasonal and then demand looks like it does have before and after the specific season. So that means this time it’s the people then absolutely New Year there was some promotion we expect. So it is okay.

So, globally, and then I think this year the TV sales and then growth rate will get in the low single-digit because it’s an area then gross rate will be done mid single, over mid-single..

Units you think will be up low single-digits?.

Yes..

Okay.

And on the March quarter just on smartphones, when we look at your various businesses here, what type of decline should we expect quarter-on-quarter in the March quarter for smartphones? Is this an average decline for smartphones in the March quarter or greater than average?.

For us, the March quarter seasonality will follow the usual pattern. For us, we have new business model such as AIT business. So thanks to this kind of AIT portion increase, our March quarter revenue reduction will be similar or better than the seasonality..

Okay. And when we think about the year, will - do you think your business in smartphones will grow in 2016 or not grow? And I’m talking about your mobile business specifically, the way you break out mobile.

Will that business grow for LG Display in 2016 or will it not grow?.

Yes, we will talk in two ways. In terms of unit shipments, it will be a flattish decline but in terms of revenue, we are expecting we have a high potential here in year 2016 that’s because of our AIT portion really fit significantly.

Last year, our AIT portion was around 50%, this year we are expecting most of our customers will adapt AIT products since AIT revenue itself is much higher than individual mobile business..

Okay.

And finally, capacity utilization in the fourth quarter, what was your capacity utilization? And what are you projecting for the first quarter?.

In case of utilization ratio is, actually it was high 90%. In the first quarter it is expect mid-90%. But however, if we look at the number of production, it is clearly different in first quarter. In terms of our capacity itself, it looks similar in first quarter than Q4.

However, our OLED capacity is around high single-digit percentage level, but it was low to mid single-digit percentage in Q4. It means capacity will drop in first quarter. And then our size mix to the bigger screen will also reduce our shipment production for the TV.

So, all-in-all, although there is utilization ratio deduction would not be that big but final output or production will be double-digit decline in first quarter..

Okay.

And if you look at TV inventories right now, TV panel inventories, where are they in the industry? Are they higher than average, what is the, how many weeks of TV panel inventory do you think is out there?.

TV panel inventory itself is not much higher, a little bit higher than its normal one so, at the moment not serious in that situation..

Okay.

And how about TV inventory itself? The full product, the full product of a television what’s the inventory situation look like there?.

Okay, Major TV maker like LG and then Chinese and then big player then inventory level is quite okay. That means it’s a bit higher than the normal one but that one is varying than normal situation because we’re now preparing new products, replace in the retailer. So that is quite okay..

Quite okay, okay, great. Thank you..

The following question will be presented by Rob Stone from Cowen & Company. Please go ahead sir..

Hi. My follow-up question was with respect to costs below the gross profit line.

Given that you’ll have a volume decline in the first quarter and additional pressure on margins, can you comment on the level of operating expenses, sort of absolute level of operating expenses that you expect in Q1, might that be reduced from the amount of operating expenses in Q4? Do you have room to lower expenses?.

That’s a good point. Right now we try to do our every effort to absolute number of that kind of operating expense in first quarter. So, finally, we hope it will reduce sequentially..

Okay.

And a question with respect to OLED TV shipments, and I know this is not entirely up to LG Display since you pass the panels on to LG Electronics or other TV makers, but do you have a sense of the demand situation for OLED TV? We, to the extent we were able to check with retailers here in the United States, felt like the TVs that were there were selling through very quickly and perhaps if there had been more product available that would have sold as well.

If you could comment from your marketing point of view on the level of consumer interest in your OLED TVs and whether, if you’d been able to produce more, you probably would have sold those through as well?.

Actually, few days ago we made an announcement of our, another glass addition for the OLED with 25,000. That’s driven by our stronger confidence from the market side for the OLED. Actually after releasing 65-inch and ultra-definition OLED into the market in Q4 last year, distributors’ reaction and response, was significantly changed.

So right now demand for the segmentation was increasingly high. So, the situation would be more favorable us that’s why we made our pick announcement for additional fab addition for the OLED panel, converting from the LCD into OLED. So, right now it’s just starting stage with new facility ramped up in Q4 last year.

So the volume scale will continuously increase every quarter. But anyway, order trend is higher than our actual shipments..

So demand is strong. That’s good. Thank you..

The following question will be provided by Eric Lin from CLSA. Please go ahead, sir..

Hi. Good morning. This is Eric from CIMB. Yes, I just have some questions to follow-up. First one is on the OLED.

Would you clarify that the KRW1 trillion CapEx for mobile is for Gen 6 or Gen 8, and what will be the capacity and the ramp-up schedule?.

That was already announced last year second half. That was E5 facility to support flexible mobile and order. The capacity will be 7.5-K based on Gen 6 there..

Okay.

And the conversion you just mentioned, which is another KRW1 trillion for 25-K, that is for Gen 8, right?.

Yes, Gen 8..

Okay.

Hee Yeon, can you remind me when will be the mass production schedule for the mobile line, the Gen 6 line?.

That’s second half year 2017..

I see. I see. Okay. My next question is on the UD.

What would be the penetration ratio you would expect for this year and what was last year?.

Okay. I will explain by two things. One this is the global UHD market penetration is 2014 was just 4% to 5% in the U.S. penetrate in the market, last year 14% penetration, this year will be in the 24% penetration. Our and then, our company’s UHD feed portion low single - low-teen, high-teen to low-teen is higher than that one in the market..

That’s low teens, higher than….

No, no, our industry’s UHD portion is high single and low-teens, higher than the low-end market proportion of UHD..

I see. I see.

So that is the RGBW, right?.

I think we have a mixed one, RGBW and then we call this M+ 60% is almost it’s potentially there..

M+ 60%..

Yes, yes, okay..

Can you give us some idea about the price gap right now, I mean, the M+ to RBGW, and the UD to full-HD, in terms of panel price?.

I think its high-end model is 1.3 times, mid and low end model is just 1.1 to 1.2 times..

So, I guess, should we assume that maybe in a year or two the UD will be the majority of 55-inch plus TV market?.

At the moment its 65-inch market is almost over 70% market already concentrated on UD, 55-inch is over 50% in this year..

So let me go back to OLED a little bit.

And the OLED TV panel you plan to ship, are they full-HD or UD this year?.

In case of ultra-high definition is expected to be over 60%..

So the OLED panel, the 1 million OLED panel, 50% will be UD? Am I right?.

So, it’s over 90%..

90%, 90%, okay.

And what was last year?.

Last year, it was around 40%. 40% for Q4..

Hee Yeon, it is 40, four-zero, right?.

Yes..

Okay.

My last question is what would be the capacity increase this year over last year for LG Display?.

Capacity increase?.

Yes..

In terms of capacity increase, it might be similar although we have LCD capacity reduction into OLED side it’s a deduction that should be compensated by China facility. So overall capacity will be similar, however, the location for the LCD side will be slightly below than last year..

I see. Thank you so much. That’s all from me..

The following question will be given by Eric Smith from Private Capital Partners. Please go ahead..

Thank you for taking my questions.

First, have you made any final decisions concerning the size and capacity of the P10 fab? And also, could you talk about whether you have any plans to bring OLED into the laptop or monitor display market?.

In case of P10 the specification was not finalized yet, we just built first to catch up the market trend better than the industry. So the size is not fixed yet. But anyways, we will target bigger screen on that fab.

And mobile IT OLED now there are lots of discussions about that, however, we will focus more on the TV and mobile segmentation first because of the limited capacity. And then if there is a stronger market demand for the IT OLED products, we will consider about that.

However, for the time being, because of the limited capacity, our full concentration should be TV and mobile..

I have some comments. So, OLED for IT products from China that means it’s IT market also have some higher market potential is a good signal. But I think we think that is IT product will be in the soft buy and then IT will actually doesn’t not at the moment. That is our trick.

And so, if it has any sort of demand in OLED IT product, we can do some prepare..

Thank you..

The next question will be given by Brian White from Drexel. Please go ahead sir..

[Technical difficulty] about how you view the capacity coming online from some of the big China panel makers? And my second question is, we talked about costs down, but I didn’t understand what you are expecting from the last pricing in terms of declines in the March quarter. Thank you..

In case of individual material costs, we cannot mention about that. But overall cost reduction including the major portion of the material side, it would be high single-digit in first quarter.

And also, we cannot hear about your first question related China capacity? Can you ask again the first part?.

Yes. I’m just trying to ask about, there is a lot of capacity coming online out of the China panel makers, like a BOE, and I’m curious how much more capacity do you expect to come online in 2016 and how that’s impacting the industry.

So I think some of the companies I think, have ramped some capacity in 2015, but it seems to me that there’s more coming on in 2016. So if you could share your thoughts on that. Thank you..

As you know well, we added one new factory in last year Q3 last quarter, they will and they will try land, those and the new path. But considering those factories, we expect that they still focus on resolve into market. We are focusing our efforts in production level is 65% to 70%. So, clearly the total capacity increase compared to 2015.

But we think that was more focused on high-end model. We can differentiate our product with our competitor..

Okay. So focus on the high-end panels, great. Thank you..

The following question will be presented by Jerry Tsai from HSBC. Please go ahead, sir..

Hi. Thank you for taking my question. Let’s go back to the new OLED announcement that was made yesterday. Couple of quick questions, first, how much LCD capacity are you converting for this 25-K, 26-K of OLED capacity? That’s my first question..

Yes, 50-K will be required to support the 25-K OLED capacity?.

So is this 50-K being taken out as we speak or are you going to be taken out like in the later quarter?.

It will be taken out maybe at the end of this year..

Okay.

So this 50-K of LCD capacity will still be, will still produce throughout 2016 until 4Q?.

Maybe, maybe only third quarter or middle of third quarter..

Okay. Okay. That’s helpful.

Also, I wonder, if you spent KRW460 billion on a 26-K capacity, what exactly are you spending on? I mean, are you spending, part of it is going toward the conversion of the amount of silicon to oxide and then part of it will be going towards the OLED equipment? Is that how we should think about?.

Unfortunately for now, we have detailed specified numbers related to the cumulative side. Total amount is only for the silicon switching to oxide, is of course KRW460 billion together with the addition for the OLED material, that’s around KRW900 billion..

So in other words, the difference will be invested in next year.

Basically all OLED equipment investment will be included in the 2017 CapEx?.

It will be included this year partially and also major portion will be, partially and also partially next year. It will be spread out..

So can we make a conclusion that you will be spending almost close to $1 billion on a 25-K, 26-K of large-size OLED capacity.

And if that’s the case, do you think that cost can come down in the future as the scale increases?.

We are sequentially, in first phase we had 26-K our CapEx was over KRW1 trillion, but now another 25-K is quite below KRW1 trillion. So, every step-forwarding we continue to reduce our equipment cost, our CapEx amount, and also together with yield equipment and material cost enhancement, we will reduce our cost going forward meaningfully..

Okay.

Just want to check, the first 25-K versus the second 25-K, how much was the cost came down approximately in percentage terms?.

It was around 30%..

30%.

And hopefully you will come down more in the future?.

Definitely..

Okay. Thank you so much. Very helpful..

The following question will be given by Rob Stone from Cowen & Company. Please go ahead, sir..

Hi. I apologize if you already mentioned this, but I didn’t quite catch it.

Could you comment on how much did OLED account for out of your total revenues in 2015 for the year and in Q4?.

And our full TV sales, the sales portion is around mid-30%, among our TV sales, it was around low to mid single-digit in Q4. And it is expected to be mid-to-high single-digit into Q1..

So that’s, of the 30% that’s TVs, high-single percent is OLED or high-single in terms of overall level?.

High-single digit..

So that would be around 3% of total revenue then?.

Yes, total revenue..

Okay. Thank you..

Currently there are no participants with questions. [Operator Instructions]..

Operator, if there are no questions, we would want to end the conference call now. And in the presentation, in OLED section, we had mistake for the guidance. Shipment guidance in first quarter is not mid-to-high single-digit it will be actually high single-digit, that’s our mis-presentation.

And finally, on behalf of LG Display, we thank you for participating in our Q4 earnings conference call. Should you have further questions, please contact either myself or my colleagues. Thank you..