[Foreign Language] Good morning. This is Kim Heeyeon, in charge of LG Display’s IR. On behalf of the company, let me thank all the participants at this conference call.

Today, I am joined by the CFO, DH Suh; Young-Kwon Song, in charge of the strategy and marketing group; I’m Sing-Min, in charge of corporate business management; Matthew Kim of TV marketing; Ki-Joon Jin of mobile marketing; JY Kwon of IT marketing; and Daniel Lee of market intelligence.

The conference call will be conducted for one hour in both Korean and English, starting with a presentation on the financial results of Q2 2019 and the company’s outlook, followed by Q&A. Please refer to the IR presentation documents in the company’s website for more details on the financial results of Q2 2019.

For those joining through the webcast, please refer to the details on the widget on your screen. Before we begin the presentation, please take a moment to read the disclaimer. Please note that today’s results are based on consolidated K-IFRS standards prepared for your benefit and have not yet been audited by an outside auditor.

With that said, we will now start with the presentation on Q2 2019 earnings results. Revenue in Q2 was KRW 5.3534 trillion, down 9% quarter-on-quarter. With growing macro uncertainties, the purchase of set makers and retailers became more conservative, leading to decline in panel prices.

There were also one-off expenses incurred to strengthen capabilities in mobile sector business and to prepare for the future, increasing the operating loss Q-o-Q to KRW 368.7 billion in the second quarter. OP margin was minus 7%, with EBITDA margin of 9%. Income before tax was minus KRW 442.4 billion, and net income minus KRW 550.2 billion.

The large net loss relative to income before tax is owed to the reduction in the deferred tax asset that is to be tax deducted for investment. Next is area shipment and ASP. Area shipment in Q2 was 9.4 million square meters, underperforming our guidance by 1%.

Conservative purchasing across TV and IT clients led to lower-than-expected shipments in large-size products. Blended area ASP was $456, down 14% Q-o-Q. This is due to changes in the product mix from seasonality as well as drop in the TV panel price from the late Q2.

Capacity in Q2 rose 2% Q-o-Q due to normalization of the portion that had been in maintenance and R&D. As for the revenue share in Q2, mobile and other applications share was 19%, down 6 percentage points Q-o-Q due to seasonality for smartphones and wearables. Notebook and tablet share was 22%, and monitors 18%.

Revenue share of TV was 41%, rising 5 percentage points Q-o-Q despite the decline in the panel price because of the rising share of OLED TV. Next is the company’s financial positions and ratios. Inventory at the end of Q2 was KRW 2.5692 trillion. The value fell slightly Q-o-Q. The company plans to manage the inventory and value in a conservative manner.

As for financial ratios, liabilities-to-equity ratio and net debt-to-equity ratio rose slightly Q-o-Q with continued investment with focus on OLED. Financial ratios will gradually improve from the end of this year as we wrap up the mid-to long-term investments.

Cash flow at the end of Q2 was KRW 2.5018 trillion, almost unchanged Q-o-Q due to continued investment in OLED and financing from outside. Next is the company’s guidance for 2019 third quarter. Area shipment in Q3 is expected to grow at a mid-single-digit percentage.

There are demand volatility risks due to macro factors but also some positives such as the operation of the new OLED TV plant and plastic OLED plant and launch of high-end IT products. As for blended area ASP, the drop in panel price is expected to moderate in pace.

Panel price has been falling since late Q2 due to conservative purchasing from retail and set products, but major panel suppliers will be able to shift to conservative operation to preserve profitability.

For the company, we expect around 10% rise in blended ASP coming from the product mix improvements with the shipment of small and medium plastic OLED panels. Next is presentation by the company CFO, Suh Dong-Hee..

Good morning and afternoon to shareholders, investors and analysts from home and abroad. This is LG Display’s CFO, DH Suh. Following the presentation on Q2 financial performance, I will now present a review of the market in Q2, followed by the company strategy. As is commonly known, Q2 was marked by industrial issues as well as macro issues.

The unpredictability persisting from the U.S.-China trade conflict appears to be causing set makers and retailers to remain conservative. The company, with the assumption that the trend will continue for a while, we are working on scenario planning. One example is the cash flow in Q2.

Despite the outflow of over KRW 2 trillion in investment cash, we have limited borrowing to around KRW 600 billion through rigorous internal control. For financials, we will keep a cautious cash management stance assuming the worst-case scenario and place priority on innovating the cost structure.

Q3 and the second half of this year will be quite meaningful for the company, although there are still concerns over industrial and macro issues. This is when we will first see the visible outcome of the large-scale investments made over the past three years to break away from the structural LCD oversupply.

First, the OLED plant in Guangzhou, China will go into operation. This will nearly double our production capacity by the end of the year and increase our OLED shipments in the second half of this year by 30% half-on-half and by 40% year-on-year.

In particular, the MMG technology already successfully applied in domestic fabs will be expanded to our Chinese plants to significantly increase the production of ultra large size such as 55 inch and 77 inch. This will answer to the demand for ultra large size in the high-end market and accelerate the pace of OLED becoming the new trend.

As for the product lineup, transparent OLED will be added to the existing wallpaper, Crystal Sound and rollable. Prelaunch market reception is positive. Utilizing the features specific to transparent display, we will try to expand the applications for differentiated OLED products. Second is the full start of mobile plastic OLED.

The new plastic OLED plant in Paju, long in preparation, will go into operations, while Gumi plant will increase supply to multiple clients. It will start contributing to profit in the second half with volume growth.

There are still headwinds in the business and competition environment, but we will consolidate our position in the mobile business by building on the fundamental strengths of LG Display. Third, we will launch the first plastic OLED display for auto.

The plastic OLED fab that have been focused on producing only mobile products will now begin to produce high-end auto products. The company will solidify its dominance in the auto display market through overwhelming and differentiated value propositions such as design, weight and space freedom.

Based on these three output, we will shift our business structure to become the only total solution provider in OLED all the way from ultra large to small. It is under this vision that we will continue with follow-up investment into the 10.5G OLED plant.

Following the investment into backplane already announced in 2017, the BOD yesterday made the decision to invest in the evaporation line. We’ve had extensive validation of the 10.5G equipment and technology, confirming its potential. We plan to lead the expansion of the ultra large and new market based on the cost and production efficiency of 10.5G.

We will further boost our leadership in OLED in linkage with differentiated premium products such as wallpaper, CSO, rollable and transparent OLED. Given that the additional investment in 10.5G was already considered in 2017 along with backplane investment, CapEx for this year and next is not too different from our communication with the market.

It is planned at KRW 8 trillion this year then to be halved for the next two years. Next is LCD business. Oversupply continues to increase even as demand volatility grows. The company plans to engage in multidimensional efforts and rationalization that go beyond adjustment in the utilization rate.

Among the 3 Gen 8 LCD lines that we have in Korea, 1 has already been converted to OLED TV, while another is focused on high end, IT and commercial. For the remaining general LCD line, a number of conversion scenarios are being considered as well as the optimum timing to maximize the future value and improve profitability.

We will thoroughly review the matter and actively communicate with the market as we get close to the final judgment. Last is about the latest issue, Japan’s export regulations.

There are so far no concerns that significantly affect the company, but we are making preparations by ensuring uninterrupted sourcing for the short term and diversifying sourcing channels over the medium term.

Please understand that this is the extent of our communication about this issue at this point given the unpredictability of the situation beyond what is already known. To conclude.

This year will be the time when we begin to complete the large-scale investment that continued from 2017 and also the time when we will be seeing the results of what we have internally worked so hard for, but it is also a time of great uncertainties such as worsening LCD price competition, U.S.-China trade friction and Japan’s export regulation.

We will accelerate our shift in business portfolio around OLED and double-down on our internal innovation to overcome domestic and external challenges. We will try to communicate better performance to the market through painstaking efforts of all members of the company. Thank you..

That brings us to the end of earnings presentation for Q2 2019. We will now take questions. Operator, please commence with the Q&A session..

[Foreign Language] [Operator Instructions] [Foreign Language] The first question will be provided by Dongwon Kim from KB Securities. Please go ahead sir..

Hai I’m Dongwon Kim from KB securities. I have two questions. Now first is about your plan to issues about $600 million worth of CBs. So is the purpose of this issuance for the investments of – into P10? And related question to that is for the P10 CapEx across the next 10 years.

Will this be solely borne by LG Display, or will there be a strategic client – or strategic partner who would also share in the CapEx? And the second question is about the MMG technology application to the Guangzhou plant.

So do you also have a plan to apply the MMG technology to the Paju plant as well? And also, I understand that the application of the MMG technology to Guangzhou has been delayed compared to the expectation.

What do you see as the biggest technological hurdle in applying MMG?.

So that was how I understood your question. And again here no such decision has been made, but then as I have explained earlier, we plan to make the investment within our EBITDA level. At this time, we believe that LG Display will be able to bear the CapEx into the 10.5G.

Having said that, I must also add that for the OLED it is not just TV that – where it is applicable. So we are also looking for clients with various applicability. And in the course of broadening the applicability, if there is an opportunity for collaboration in a strategic relationship, then we would always be open to such opportunity.

So if anything – if there is anything that occurs that is more specific, then we will always actively communicate with the market. And regarding your second question, about the MMG. And you said that you have been informed that there has been delay in applying the MMG technology to the Guangzhou plant.

Well, as far as I understand now, there have been no specific problems with the application of MMG at the Guangzhou plant. So right now, they are – so they have pretty much completed the setup of the equipment, so they are getting ready for volume production. And once the volume production starts, then so will the MMG technology application.

And then as for whether there are any hurdles in applying MMG to 10.5G, now it’s just the technological hurdles regarding the 10.5G itself. So we do not see MMG itself as any particular bottleneck..

[Foreign Language] The next question will be provided by Won Suk Chung from HI Investment & Securities. Please go ahead with your question..

I also have two questions. The first is Samsung Electronics recently has had a very aggressive discount in the North American market with its 2 LED. And now this is also causing some concerns in the market over the OLED TV camp, for example, the LG Electronics and Sony, for the impacts on their profitability.

Now the target for next year is 7 million units, but then now this year, there are some talks of the set makers possibly decreasing the orders and the shipments for the OLED TV.

So will this also have an impact on the LG Display’s OLED shipment? And is – the plan for 7 million units for next year, is it still valid? And the second question is, now with the worsening price competition with the LCD, then this probably means that LG Display would have to improve its cost competitiveness so that it will be able to reduce the pricing, to begin with.

So in relation to this, when do you believe that the 10.5G will go into operation? And also, when do you believe that – the second line that has been announced today, when do you believe that this will also go into operations?.

Now I’m in charge of TV marketing. And with regards to your first question now, let’s first take a look at some data. So excluding the North American region, then the growth in the months of January to May this year has been about 30%. So globally our growth in sales have been about 30%.

And that is, perhaps with the North American region, it is a bit lower, but still there has been growth of about 30% in other regions. And this figure is roughly similar to our plan and our expectation.

So even if there have been downward adjustments of the pricing of the – to the OLED as well as the LCD TV, we see that there has been quite a limited impact on the OLED TV pricing.

So – and this is because of the expectations for the high-end products coming from the consumers and the fact that we have been able to meet such demand for high-end products. And for the – so this is what we will continue to do.

So we will continue to broaden our product lineup so that we will be able to increase the value of OLED in the high-end TV market. And let me also say one saying in Korean, and that is a cat growing bigger does not make it a tiger. So we intend to stay our course, and our plan is 7 million units for next year.

And given the current pricing level and the situation being within our planning, we believe that we will be able to meet the target for next year as well..

And then this is the CFO answering the second question. Now in 2017, when we had first made the decision to invest into the backplane, at that time, we had announced 30,000. And in the follow-up investment we are now planning for 45,000 fab.

And the reason why we have planned for the 45,000 fab is, after extensive review, we have come to the conclusion that this is the size that would give us the best investment efficiency. And as has been already disclosed, we will try to complete the 45,000 by the early 2020. And in the meantime, of course, we can operate the 30,000.

And when this will be specifically, now of course, we do have our internal planning, but because of the volatility of the situation, it would not be appropriate for me to give you a conclusive timing at this point. But I can tell you that it is not too different from our initial planning.

And we will share with you more details as they are defined at a later date..

[Foreign Language] The next question will be provided by Jong Woo Yoo from Korea Investment & Securities. Please go ahead sir..

Now I also have two questions, and first is about the LCD panel price. We see that the TV panel price has continued to fall since June, and so we believe that this is also worsening the profitability for the company.

And of course, the CFO mentioned earlier that you are thinking of how to – the strategy of LCD fab operation, but then we’ve been hearing pretty much the same thing over the past two years, that you are reviewing and considering the strategy for the LCD fab operation.

In the meantime, the panel price has continued to fall along with profitability, we assume, so when do you believe – so what timing – or what kind of environment would trigger you to make the final decision? So if you could give us an – give us some explanation about the kind of environment that will allow you to make the final decision.

And the second question is now about your plastic OLED production line. Can you share with us the operation plan for the plastic OLED production lines for the second half of this year? So there are two lines in E6, so how do you plan to operate these two lines in the second half? So maybe you can explain by application or by client..

And then now the – now first, about the first question. So I understand that even as the LCD price is falling – so how do we intend to operate the fab? And you also mentioned that we have been only reviewing the options without taking any actions for the past two years.

Now in terms of how to operate a fab, I believe that from the business standpoint it is quite simple. So it’s about whether it would be profitable or not for the company. And what we have been basically doing is observing the cash flow that is expected for the future.

And I believe that, so far, no final decisions have been made because there were no situation that warranted a dramatic restructuring of the fab, so far. Then the question is will it be the same down the road. Probably not, so we would, of course, have to closely observe the cash flow.

And if it does fall to the negative, then we would have to take a closer look into the fabs that are not so profitable, but then we have to keep in mind that a decision on one fab would also affect other fabs. So when the time comes for us to take a look at the fabs again, then we would have to take a close look across most of the fabs.

And of course, the criteria is quite clear, and it is about the cash flow. And your second question, about the plastic OLED line operation. As you would know, yes, we have the plastic OLED production lines in Gumi and Paju.

The plant in Gumi, it is producing for mobile and auto products and also, as has been largely reported in the newspapers, for IT foldable products. And for Paju, so far, the plan is to focus on mobile. So of course, the plant in Gumi is in operation already.

And as I have mentioned in my presentation earlier, we – the Gumi plant would be increasing its production for multiple clients, for multiple strategic clients, down the road, so it would have to increase its production down the road.

And then for Paju, which is about to go into operation, it seems as if the expectation or the assumption is that all of the 30,000 will go into operation, but then we would first have to prepare all the lines and then start going into operation with the lines that secured credibility or the reliability.

So we would only have to start with the reliable ones. So that is how we intend to start the operation for the Paju production line..

[Foreign Language] The next question will be provided by Nicolas Gaudois from UBS. Please go ahead sir..

Yes. Good afternoon, thanks for taking my question. Earlier on, you alluded that you – in terms of adjustments for LCD large-panel Gen 8.5 you could – well, that could include the capacity utilization rates adjustments.

Could you tell us if you have started or are planning to adjust utilization rates for Gen 8.5 LCD specifically currently and, if so, by how much going forward? And secondly, could you clarify a little bit what you said on the ramp-up for RGB OLED when you talk about reliable operations or lines? So could you be more specific on how you’re going to use your 30,000 sheets a month of capacity gently going forward between smartphones, wearables and automotive going forward? Thank you..

Now in response to your first question, about the utilization rate adjustment for the LCD Gen 8.5 plant. Now of course, we would have to keep observing the demand that is to come. So if there is no demand, then we shouldn’t be producing and simply piling up the inventory.

So yes, we have also done some utilization rate adjustments in order to also adjust our inventory level.

And what we have done so far is to let the equipment sit idle for one or two days, but then the question now is whether this type of utilization rate adjustment would be enough to counter the current LCD price drop as well as the worsening of the competition in the LCD market. So that is the question that we are grappling at this point.

And so this means that we would have to consider various options, including possibly suspending the line operations if it is needed. And regarding your second question, about the reliability of the lines and how do we know whether certain lines are reliable or not.

Now let me first explain that for any production facility or production line it is a combination of different component equipment, so then we would have to first check whether the – each component equipment is going to operate to the purpose and whether the quality and the yield would also be met up to our expectations.

So we have an internal process that checks such reliability. And where we have not completed the checking of such reliability or whether – or where the liens do not fulfill our reliability standards, then we would not be starting the operation of such lines..

[Foreign Language] The last question will be provided by SK Kim from Daiwa Capital Market. Please go ahead, with your question..

I also have two questions. Now first is about the Paju, so the additional. So your decision to make additional investment into the P10 in Paju. So I’m just wondering about the rationale behind the decision making for the additional investment. So now you are preparing for the 10.5G OLED TV panel.

And when you – when the company initially made the announcement for the investment in 2017, at that time, there were some mentions of technological bottlenecks or technological hurdles for 10.5G.

So do you now believe that such technological bottlenecks have been removed or eased? And then related to that is now there are also talks of your competitor entering the OLED TV market.

So is it also a move to keep the competition in check, or do you see this as a new opportunity? And the second question is, now as the market demand remains uncertain, LG Display is making investment into OLED TV and plastic OLED at the same time, which means that there is a sizable cost burden on the company.

And you have already explained that the CapEx – so with the decision on the additional investment, this will not change your CapEx for this year or next. So this means that the investment that was originally planned for other areas would be reduced.

Or does this mean that this would be reflected after 2021, meaning that there is going to be a significant increase in the CapEx from 2021 and on?.

Now this Song Young-Kwon, in charge of strategy, responding to your question. Now regarding the 10.5G, our technology, technological direction is basically white OLED. And regarding the 10.5G, we have been making quite a lot of extensive preparation for the backplane oxide since 2017.

And what we are preparing now for 10.5G is for the evaporation equipment. So we are preparing the evaporation equipment for the 10.5G, and we have made the decision for the additional investment because we are convinced of the potential of the technology.

And it’s not just on the basis of technological potential that we have made the decision on the additional investment for 10.5G, but it was also with an eye toward the long-term portfolio strategy. So what I mean by portfolio strategy is that because of the scalability of OLED.

So when it comes to the size – the transparent and also rollable products, we believe that for the 10.5G this would be the optimum size to support such scalability. And that is why we have made the decision this time..

And this is the CFO again responding to your question about CapEx. And your question was about the fact that we are making investment into both the 8.5G and 10.5G at the same time and about the impact on our CapEx planning, but then let me reiterate that this had been part of our original planning.

And so you also asked that – whether the additional investment into the 10.5G will come at the expense of other investment, but then as you would know, most of the major investments for the year have been completed already and what we have left are – is just a bit of the current investments.

And then for the investment into the 10.5G, this is for us to consolidate our leadership in the large-size OLED. So let me once again reaffirm that this – we are moving along as planned originally..

[Foreign Language] We will now close Q2 2019 earnings conference call. Thank you once again for joining us today. Please do contact us at the IR team for any additional questions. Thank you..