Hee-Yeon Kim - IR Don Kim - CFO Young Kwon Song - SVP, Strategy and Marketing Group Duck Young Kim - Head of Corporate Business Management Division Matthew Kim - Head of Market Intelligence Stephen Ko - Head of TV Marketing.

Lee Sang-un - Yuanta Securities Jerry Tsai - HSBC Securities.

Good morning, welcome to LG Display's Fourth Quarter 2016 Earnings Conference Call. We will begin with a presentation followed by a Q&A session. [Operator Instructions] Before the presentation we will have a three minutes video about our CES exhibition [ph]. Mobile access is limited to watch the video; you may watch it with your computer please.

Now I hand over to the speaker. Ma'am, please begin..

Good morning, thank you for joining LG Display's Q4 2016 earnings conference call. I am Hee Yeon Kim, Head of IR. On behalf of the Company, I would like to thank all of you for joining us this morning.

With us today are our CFO Don Kim of LG Display; Young Kwon Song, SVP of Strategy and Marketing Group; Duck Young Kim, Head of Corporate Business Management Division; Mathew Kim, Head of Market Intelligence and Stephen Ko, Head of TV Marketing.

Today's earning presentation will last around one hour, and we will be providing English and Korean consecutive interpretation. We will begin with the business performance for Q4, 2016 followed by outlook for the future and have a Q&A session. Please refer to our website and attachment to our disclosures for more details regarding Q4 results.

For those of you joining us via the webcast, please refer to the references in the widget on the bottom left corner of your screen. Before we begin the earnings presentation, allow us to show you a short video on our key strategic model which created a buzz during the CES in January. [Audio-Video Presentation].

For those of you who are logged on via the mobile, we will be shortly uploading the link to the video, so please refer to that at your leisure and I would like to also ask that you please refer to the disclaimer. Today’s numbers are based on IFRS standards on a consolidated basis subject to outside auditors review.

It had been prepared for the benefit of all of you. With that, let me invite our CFO, Don Kim for the earnings presentation for the fourth quarter..

Good morning, I am Don Kim CFO of LG Display. I would like to thank our shareholders, analysts and investors for joining LG Displays Q4, 2016 earnings conference call.

In looking back the past full year despite difficulties in ASP declines in the first half of the year with differentiated high value add product mix expansion and rigorous cost savings effort, we continued the profit trend and as we enter the second half of the year underpinned by such efforts and price increases as well as favourable currency movement the extent of profit improvement was quite large.

In terms of different businesses for large sized OLED we solidified the foundation for business expansion in terms of production, customer and products by turning positive EBITDA in the second half we now have the basis to speed our business performance improvement going forward.

Also for small to midsized OLED through a timely GEN 6 investment we have secured a foothold to enable early catch up in response to accelerated growth from small to mid plastic OLED business.

On the LCD side driven by maximized productivity and competitiveness in technology and product we were able to secure profitability through expanding the share of differentiated products keeping our market leadership and competitive advantage. Let me now move on to Q4 earnings results in more detail.

Q4 revenue was up 18% Q-on-Q to KRW7,936 billion, and increases in overall ASP mostly around large sizes in line with the size migration trend and seasonality impact on small to mid sizes. Operating income was up 180% Q-on-Q to KRW904.3 billion.

On the back of overall ASP increase profitability focus product mix around large sized UHD and in touch products and positive currency trends recorded a significant profit above initial expectations. To elaborate on Q4 area shipment and ASP, area shipment recorded 10.77 million square meters.

Although sales was good, supported by high seasonality and supply and demand dynamics were tight due to the company’s capacity constraint area shipment was flat Q-on-Q. Despite some capacity expansions in China, intended to respond to larger sized demand, total capacity declined slightly due to capacity conversion to large sized OLED.

On sustained ASP growth and product mix impact from use, small to mid panels blended ASP was up 16% Q-on-Q. TV and IT segment all trended upwards driven by low inventory and improvement and supply demand from migration to large sizes.

If you now look at the product mix, mobile share was up four percentage points Q-on-Q a new small to medium sized product shipments. TV on the other hand was flat Q-on-Q with higher share of high value added products like UHD and limited area shipment arising from lower capacity as compared against ASP growth.

IT revenue share declined on a relative basis due to profitability focused fab mixed strategy inline with price increases in larger sized panels. In terms of the financials, inventory declined KRW204.2 billion Q-over-Q recording KRW2287.8 billion. As supply demand dynamics remains tight, inventory levels are also low.

We will continue to monitor the market closely and tightly manage the inventory levels. Financial ratios including debt and cash positions continue to be sound as event of 2016 supported by positive market and efficient business management.

In terms of cash flow, there was KRW241.2 billion increase Q-on-Q with cash at the end of quarter coming in at KRW2722.4 billion. Let me now move onto 2017 and the first quarter market outlook. We expect supply will continue to be tight in 2017 with sustained trend towards larger sizes and the impact from industry restructuring fully coming through.

Also uncertainties in the global macro environment will be a critical factor influencing demand and currency movement. Under the favourable supply and demand backdrop through differentiated technologies and product deployment we will continue to generate profit whilst we closely watch and respond to movement in market and the set makers.

Moving onto Q1 guidance with OLED production line conversion, R&D into new products and lower number of operational day’s capacity decline is expected to be in the mid single digit leading to a comparable level of decline in the area shipment. Also, with increase in the sale of large panels, shipment decline is expected to be greater.

The upward trend in panel ASP is expected to continue in the first quarter. Usually Q1 is a slow season but TV sales were strong at the year end and demand continues to be strong on very low industry inventory. We don’t see any sizeable capacity increases coming through from the industry and supply is expected to decline driven by size migrations.

We therefore project ASP growth to continue for the time being. This year’s CapEx is expected to be around mid to upper 5 trillion in size. On top of large size OLED conversion, various investments will be made to realign the business to better prepare for the future such as investing into Gen 6 plastic OLED.

We plan to closely review investment priorities according to time horizons and implement such plans in consideration of the company’s financial position in a reasonable, efficient and flexible manner. Lastly, let me elaborate on our corporate strategy.

As a leading display company, we will continue to expand on the distinguishing values of OLED and LCD respectively and further upgrade our business structure, in particular in order to bolster OLED competitiveness by business divisions have been integrated into three divisions of TV, IT and Mobile.

Upto 2016, OLED business was operated with a focus on technology so as to identify and discover customer value. But we plan to shift that emphasis on delivery and expansion of customer value thereby use resources more efficiently and enhance synergies and strengthen fast execution capabilities.

For large sized OLED we would further bolster differentiations in terms of design and multi function conversions above and beyond picture quality. At the CES early this year, we introduced crystal sound OLED and wallpaper which are singular product in terms of picture quality, design and sound integration.

We plan to build upon the product portfolio that maximizes the positives and unique characteristics of OLED so as to expand the OLED camp. For the small to mid OLED we will leverage existing technology and manufacturing to know how the company has built to bring success to stable mass production of E5 Gen 6 plastic OLED.

We will also endeavour to generate synergies across technologies by bringing our experience in large sized OLED to other business portfolios including mobile and auto business. For the LCD business we will expand on our uniqueness to respond to differentiation needs for the set products and to expand their consumer’s value offerings.

Based on our differentiated technologies such as IPS, M-plus, in-TOUCH among others we plan to develop singular products and with continued cost savings efforts we will do our utmost to make the LCD business trend different from that of the overall market trend. Thank you. That brings us to the end of the earnings presentation for Q4, 2016.

We will now take questions. Operator, please commence with the Q&A session..

We will now begin our Q&A session. [Operator instructions]. Our first question is from Rob Stone at Cowen and Company. Please ask your question..

Hi, thank you for taking my question. I wonder if you could provide a little more color on your expectations for OLED, TV production this year. I believe with size adding to substrate charge you expect to improve your throughput, so where do you see your TV capacity going in 2017? Thank you..

I am the CFO; let me respond to that question. In the second half of 2017, there will be around 60,000 60K capacity will be secured. So that will be about two fold on an year-over-year basis increase leading to the volume of about 1.5 million to 1.8 million units. Moving onto your question about the yield.

If you look out for the large sized OLED TVs we are well on track according to our internal plans. In all the models, we have already achieved the more than 80%, we have achieved the 80% which is the so called golden yield percentage.

If you look at the LCD business it took us 10 years to reach the golden yield level at 80% before OLED in light of the fact that we were able to achieve the golden level in two years it is quite meaningful..

Our next question is from Nicolas Gaudois at UBS. Please ask your question..

Yes, Nicolas Gaudois wasn’t able to join, so I would like to ask the question from UBS.

Could you give us a breakdown of your 2016 CapEx into LCD wide OLED and OGB OLED and also for 2017; can you give us a same three breakdowns for LCDW OLED and RGB OLED?.

And this year for responding to your question. For the 2016 out of the total CapEx OLED accounts for around 50% as opposed to LCD and for 2017 according to our plan OLED investment a portion will be around 70%..

[Operator Instructions] Our next question again from Rob Stone at Cowen and Company..

Hi, thank you. I had a follow up question on the income statement.

I wonder if you could comment on below the operating income you seem to have a sizeable other income this time rather than other expense, can you provide some detail?.

Now in terms of the non-operating line item there was a significant impact coming from the FX movement due to the weak Won there was an impact on AR the account receivables and also in terms of deposits and the borrowings that denominated in foreign currency there was some valuation related impact from the foreign currency denominated assets all leading up to the impact of non-operating income..

Our next question is from [Indiscernible] please ask your question..

Yes just got a couple.

One clarification, I didn’t hear the area shipment guided for the first quarter, could you repeat that please?.

Yes certainly let me repeat that. For the first quarter guidance for area shipment, our number is a mid single digit decline.

Okay. Great..

Now, the main drivers behind the declined in capacity is actually three factors. The first factor is decline in the number of operational days. Number two, is decline in capacity due to the OLED conversion. And number three also decline in capacity due to the R&D into new product..

Okay, great.

And when you look 2017, when you think about the LCD industry what type of area growth do you expect from the industry, and then what type of capacity growth you expect from the LCD industry?.

I am [Indiscernible] from the MI, Market Intelligence Division. On the demand side, due to the migration to larges for TV in terms of the area of growth we expected to be around 5%.

In terms of capacity there are some companies who will be increasing the capacity to a certain extent, however due to the overall restructuring in the industry we think that growth is going to be limited at around 2%..

Great. Thank you..

Our next question is from Nicolas Gaudois at UBS. Please ask your question. [Operator Instructions]. Our next question is from Rob Stone at Cowen and Company..

Hi. You mentioned in your prepared remarks working on the ramp-up of the first Gen 6 flexible OLED capacity [Indiscernible].

Could you comment on what that might have as a revenue impact this year or when do you expect E5 just start contributing to revenue?.

And the CFO responding to your question, as you are aware in terms of our Gen 6 POLED E5 facilities it’s in the process, its being setup and being constructed. So it is scheduled to go into mass production in the third quarter of 2017, so I believe that revenue would be generated after that point in time..

Our next question is from UBS. Please ask your question..

Thank you. I have a follow-up question.

After your E5 do you have any additional plans of converting from LTPS LCD to OLED, if so when is the timing and what is the size?.

I am the CFO. As you are aware that the new facility for Gen 6 E5 has to do with the conversion from the existing LTPS capacity. If there is requirement for additional capacity, basically we will plan based on the premise that there will be additional conversion of LTPS capacity.

Now, having said that, we will fully consider the existing demand, as well as supply and demand dynamics in the market and to go about it in a step by step manner and be wise in terms of the conversion..

Our next question is from Lee Sang-un at Yuanta Securities. Please ask your question..

Starting the end of last year and also beginning of this year we see the Chinese companies like BOE and CSOT talking about Gen 10 investment and 10.5 investment, and I think their investment looking towards 2019.

I would like to understand what LG Display’s view is when you look at these Chinese players movement? And also in terms of these ultra high size -- large size LCDs above 10.5 Gen what is LGD's views and how are you going to respond to such movement? Concerning that the LCD supply is quite tight and to the fact that you converting OLED there would be some shortage in the supply for the LCD, do you have any investment plans to compensate for that decline in LCD supply?.

I am the CFO. I will respond to your question about LG Display's response to the Chinese companies at capacity addition and also I understand your question has to do with our investment plans in two fabs above 10 Generation. I think it is quite clear that the competition in the large size market is going to become fiercer as we go into the future.

In terms of our company if you look at the ultra large sizes above 60-inch as well as high resolution products like UHD 8K, we have a product competitiveness and based on which we are continuously going to expand on our differentiating product with which we would compete in the market.

Especially, as you would know our Company’s mid to long term strategy has to do with conversion to OLED, so before the Chinese players ramp-up the higher generation facilities we will expand our OLED share in the market so that we can structurally differentiate ourselves and establish ourselves with this new industry.

Going forwards from a mid to long-term horizon, if you were to look at the TV market, in terms of the unit growth, the growth is expected to be quite low, but in terms of area we expect growth.

Now looking into the future in light of the fact that the large sizes 60 inch market is going to expand and also there will be continuous demand increases for 4K and 8K, there would be some need to add on certain capacity. We are very prudent and we’re viewing this aspect.

Now based on 8.5 generation, we have a high level of perfection in terms of our technology and productivity on the OLED and the LCD side.

However, above Generation 10 there we do have the strength of being able to respond to ultra large sizes based on our fabs, but there are many other aspects that needs to be very thoroughly considered in terms of technology [Audio Gap] is OLED.

Based on that premise, we will be coming to some sort of a decision-making within the first half of this year in terms of the mass production timing, the consumer need, as well as other important aspect..

Our next question is from Jung [ph] Lee at Samsung Securities. Please ask your question..

I would like to ask two questions on your OLED TV size. Considering the fact that the OLED TV panel price is still quite high, I think it has difficulty entering into the so-called mass TV market.

At what speed do you think that OLED TV panel price is going to fall? And at what premium do you think it would be able to enter into the mass market? Your second question is the crystal sound OLED panel, I think the initial reaction from the customers have been quite positive, also to what level of the premium can you enjoy in the segment and how big of a market size do you foresee or so?.

As I mentioned before with additional capabilities for the OLED the approximate capacity that we will secure would be 60k and if you were convert that to number of units, it’s only about 1.5 million or 18 million units.

So, compared to the total TV market its still a very small portion and I do not believe that it is appropriate to compare this OLED price to LCD price. Last year with our focused marketing effort we were able to secure a significant amount of market share in the premium zone of the OLED TV, I believe that was quite meaningful.

And also on top of that based on the strategic number of customers of one or two you are able to see expansion of the customer base and I think therefore it had proven that OLED TV is by far the most important aspect in the premium TV segment.

So as a panel maker rather than making overly simplified comparison of OLED TV panel price to LCD, we will continuously focus on our efforts to maximize the great properties of that OLED had as we had showcased during the CES event in terms of picture quality, designed and sound integration that is basically our strategic direction.

I think same goes for the CSO that we have showcase during the CES event, CSO is by far the most effective product that we can immediately implement the key characteristics that OLED has.

So in light of the positive response we’re getting from our customers as well as the positive perception we will continue to their efforts to further upgrade ourselves..

I’m from Head of TV Marketing. My name is Stephen Ko. On top of what our CFO has said let me just elaborate one more thing. The market that we are targeting with OLED is not the LCD market. We are targeting our OLED against the high-end premium segment.

For example in the North American market, the 65 inch which is about $3000 in price, the so-called ultra high-end segment in the fourth quarter our OLED had accounted for more than 80%, so in the premium market we have a significant wielding in terms of market share.

And not just on the conventional TV side but if you look at some other TV application starting this year we are planning to really expand our coverage into signage other medical and other industrial related application. So we will be focussing on expanding the scalability of the OLED on the industrial and the B2B side..

Our next question is from [Indiscernible] at TSBC Securities. Please ask your question..

Okay, thank you for taking my question. This is my question regarding the OLED TV capacity. You mentioned that in the second half this year we will reach 60K capacity per months. I like to get some idea how much LCD capacity do you have to convert away to achieve that kind of capacity level.

And also along the same line that I like to know that approximately how many panels [Indiscernible] 1.5 to 1.8 I like to get some idea the – of our panels, I’d like to get some idea of the sizes you are referring to.

And also maybe, sorry just one more about the capacity that you – I believe that in the fourth quarter you have some capacity shutdown due to this purpose and when will you expect more shutdown in 1Q or even first half of this year about to achieve more OLED peak capacity? That’s it..

I’m the CFO. When you are converting LCD capacity to OLED basically 41K LCD is going to be converted to 26K OLED. So basically that is the ratio when you think about LCD capacity conversion into OLED capacity. Responding to your second question, the OLED sizes, the panel sizes that you’ve asked on the new capacity they comprise of 55 inch, 65 and 77.

Just to give you some more color, in terms of the sizes above 65 inch for 2016 it was 30%. So that includes 65 and 77. For 2017 we expect that ratio to be 40%..

Our next question is from Kim [Indiscernible] at Daiwa. Please ask your question..

I have a question on your CSO technology. I understand that the market response was very positive. But I heard from the other booths that in terms of the ownership of the technology the patent aspect is not yet very clear cut. Does the LG display have the ownership of the patent relating to CSO or would there be some third party license issues.

Can you clarify this issue?.

I’m the CFO. The whole technology around crystal sound OLED panel this is something that can only be implemented base off of OLED not on LCD. Basically attaching on exciter on the speaker side on the OLED panel and enabling the control of the sound on all of the four quadrant is a unique technology that LG Display owns.

Basically our CSO, crystal sound OLED partner the set [ph] Company who was our strategic partner, what they do is that they create a more abundant sound based on their sound control and based on their algorithms.

Now the existing set makers on this technology they had to struggle with how they were going to process and deal with the speaker side on the TV set. But as a panel maker we were able to provide a panel where the sound is integrated, so we therefore were able to provide a solution to these set makers.

So I believe that this is a product that is a win win for both the panel maker as well as the set company we were able to provide the customer value offering that the set makers have really wanted and this is a technology that can only be implemented faceoff of OLED..

Thank you. That brings us to the end of the Q4, 2016 LG Displays earnings presentation. If you have any additional questions, please do contact our IR team and also if you have any questions around the videos that we had shown regarding the CES event, please also contact us. Thank you very much..

Closing the conference we kindly ask you to fill out the survey if you are connected to online webcast. Thank you all for attending. You may disconnect now..