[Foreign Language] Good afternoon and good morning. This is Brian Heo, in charge of LG Display's IR. On behalf of the company, let me thank all the participants at this conference call.

Today, I'm joined by the CFO, Sunghyun Kim; Hee-Yeon Kim, Senior Vice President of Corporate Strategy Group; Seung Min Lim, Vice President of Corporate Planning; Jeong Yi, in charge of Business Intelligence; Daniel Lee, in charge of Large Display Marketing; Seong Gon Kim, in charge of Medium Display Marketing, and Ki Hwan Son, Vice President of Auto Marketing.

[Foreign Language] The conference call will be conducted in both Korean and English. Please refer to the provisional earnings release today or the IR Events section in the company's website for more details on the financial results of Q2 2022. [Foreign Language] Before we begin the presentation, please take a moment to read the disclaimer.

[Foreign Language] Please note that today's results are based on consolidated IFRS standards prepared for your benefit and have not yet been audited by an outside auditor. [Foreign Language] Let me start off with our business performance in Q2.

Due to COVID-19, there were lockdowns in some of the Chinese production basis, which have also affected the production and shipment of the company's high value and IT products. And as a result, the company's business performance in Q2 has underperformed on the initial guidance. Revenue in Q2 was KRW5.607 trillion, down 13% Q-o-Q and 19% Y-o-Y.

There were shipment disruptions from lockdowns in production bases, soft demand in the downstream and continued fall in LCD panel price. There was operating loss of KRW488 billion. Operating margin in Q2 was minus 9% with EBITDA margin at 12%. There was net loss of KRW382 billion. [Foreign Language] Next is area shipment and ASP trend.

Area shipment in Q2 was 7.85 million square meters, decreasing 4% from the previous quarter. Aside from the impact from Chinese lockdowns, concerns of economic downturn led to slowing demand in the downstream. Set makers, to minimize inventory, reduced their purchase, resulting in less shipment of both large and medium display products.

ASP per square meter was $566, down 14% Q-o-Q. Shipment of POLED smartphones decreased due to seasonality, and LCD panel price continued to decline. [Foreign Language] The company's production capacity in Q2 decreased 5% Q-o-Q, owing to active adjustment in general use LCD production as well as new product development and maintenance.

[Foreign Language] Next is revenue breakdown by product segment. TV panels accounted for 31%, up five percentage points Q-o-Q. Even as LCD panel price continued to decline, shipment of OLED TV panels increased, thanks to its positioning in the high-end TV market.

IT panel took up 35%, down three percentage points Q-o-Q with a significant impact from shipment disruptions resulting from Chinese lockdowns. Mobile and others were 24%, flat Q-o-Q. [Foreign Language] Next is the company's financial position and ratios. The company's cash and cash equivalent was KRW3.669 trillion.

Inventory was KRW4.722 trillion, increasing by KRW492 billion Q-o-Q. The inventory was prepared against shipment disruptions from Chinese lockdowns and to be ready for high-end product shipments in the second half, such as new POLED models.

[Foreign Language] Liabilities to equity ratio was 162% and net debt-to-equity ratio came in at 71%, increasing Q-o-Q. There was increase in borrowing to invest in OLED to preempt the future markets. [Foreign Language] Next is cash flow. The company's cash and cash equivalent at the start of Q2 was KRW4.111 trillion.

It decreased by KRW442 billion and stood at KRW3.669 trillion at the end of Q2. There were investment in OLED, payout of annual dividends for 2021, and net loss in Q2. [Foreign Language] Let me now move on to guidance for Q3 2022. In Q3, area shipment will increase by mid-single digit Q-o-Q.

Shipment of IT panels affected by Chinese lockdowns will recover and shipment of large OLED and POLED smartphones is expected to grow, in response to the seasonal demand. But recovery in Q3 is likely to be limited, due to demand slowdown caused by macro instability and weaker consumer confidence, as well as customers' attempt to minimize inventory.

[Foreign Language] ASP per square meters is also expected to rise to 20% level, thanks to increased shipment of POLED smartphones and wearable products as well as OLED TV panels.

Per product, price is expected to keep declining for IT panels, while for LCD TV panels, the price decline is expected to gradually moderate as panel makers adjust production such as utilization rates. [Foreign Language] Next is presentation by the company's CFO, Sunghyun Kim on operational strategy..

[Foreign Language] Good afternoon shareholders, investors and analysts. This is CFO, Sunghyun Kim. Following the briefing on Q2 business performance, allow me to explain to you the company's operational strategy. [Foreign Language] As the economic downturn looms, consumption is expected to generally slow down except for essential goods.

Set makers and retailers in general are becoming more conservative in their business operations. Assuming that the trend will continue for some time, the company will strengthen risk management, while actively seeking to identify new growth drivers for the future.

[Foreign Language] Let me first share with you the company's current focus on risk management. We will remain unwavering in our business realignment initiatives, more so now, to reduce volatility and ensure stability in operations.

Under the principle that insufficiently competitive and thus unprofitable businesses will be quickly realigned, we will further accelerate internal decision making and execution. [Foreign Language] One example is LCD TV panels, where differentiation is deemed to be limited.

It is currently being downsized in phases with the goal of discontinuing domestic production of LCD TV panels sometime next year. We will now speed up this process, given the worsening market and competitiveness. [Foreign Language] The company will strengthen operational efficiency to respond to the highly volatile environment.

We are revisiting the optimum capacity for each fab and finalizing how to enhance cost efficiency, such as reducing fixed costs. We will also ratchet up activities for cost innovation and efficiency, as the insecure supply chain and inflationary pressure have driven up volatility in production costs.

[Foreign Language] Next is strengthening inventory management. The company intends to focus more on minimizing inventory, given the uncertainty in market outlook.

There was the specific issue of Chinese lockdowns in Q2, but in the second half, we will focus on recovering the shipment disruptions and proactively and flexibly adjusting production to minimize inventory by the end of the year. [Foreign Language] Last, we will further improve investment efficiency.

While remaining steadfast in investment to upgrade the business structure and secure future competitiveness, we will revisit all adjustable investments, including current investment, to review their size and timing as well as execution speed. Annual CapEx will be adjusted to the level of depreciation and amortization, to secure financial soundness.

We will keep strictly managing investment discipline. Even as uncertainties remain high in the global economy and business environment, the company intends to preemptively control risks, by flexibly responding to changes enabled by stronger internal operation activities.

[Foreign Language] Meanwhile, the company is also actively implementing activities to create unique performance that is unaffected by the market and to discover future growth engines. [Foreign Language] First is to strengthen dominance in the large OLED and IT segments, where the company already has differentiated competitiveness.

OLED TV is showing meaningful performance, growing in actual sales, even when the overall TV market is showing negative growth. We will continue solidifying our market dominance in large OLED, based on our fundamental competitiveness, as large OLED increasingly becomes the mainstream.

[Foreign Language] In IT, even as the market in general is slowing down, IT devices have now positioned themselves as essentials. Due to post-pandemic change in lifestyle. The company will keep consolidating its positioning in the market based on our customer base and competitiveness in high end IT products and generate differentiated performance.

[Foreign Language] Second, the company will actively develop make-to-order business to establish more consistent business operations. As business volatility keeps rising the company is accelerating our push to increase the portion of make-to-order business based on alliance with key customers.

[Foreign Language] In mobile, we plan to ensure profitability with differentiated POLED products and establish the basis for new technology businesses in collaboration with strategic customers. We will also expand our IT product portfolio and solidify high-end leadership through mid-sized OLED, where investment is ongoing.

We will make differentiated preparation for the future based on existing infrastructure and customer basis. [Foreign Language] In auto, the company continues to broaden its market dominance by providing differentiated solutions to global customers with our lineup ranging from OLED to high-end LCD.

We remain global number one in auto display in terms of sales. We will strengthen activities to win contracts from global OEM customers with the goal of exceeding 30% market share in the next three years. [Foreign Language] Third, we will accelerate rollout of market-creating businesses and aggressively explore markets.

We will focus on broadening new businesses to prepare for a differentiated future, where we are already seeing visible results in large OLED. Market-creating businesses include gaming and transparent OLED, as we are actively trying to open up or broaden new markets in life display.

[Foreign Language] Last is preempting future businesses and building the base for business development. Similar to OLED TV and high-end IT, the company plans to broadly utilize our differentiated technologies, to more diverse applications. We will actively open up new display areas and build up competitiveness.

[Foreign Language] Although volatility remains high in today’s business environment, the company will continue to differentiate and create value through preemptive risk management and operational efficiency improvement while preparing for the future and ensuring growth. Thank you very much for your attention..

[Foreign Language] That brings us to the end of earnings presentation for Q2 2022. We will now take questions. Operator, please commence with the Q&A session..

[Foreign Language] [Operator Instructions] The first question will be provided by Won-Suk Chung from Hi Investment Securities. Please go ahead with your questions..

[Foreign Language] I have two questions, one for each – one for LCD and another for OLED. Now, for the LCD, we see that the set makers that utilize LCD display are also seeing demand decline.

So then my question is, what is the company’s plan for the LCD lines? So will they be scrapped or will they be converted to OLED production? And related to this, it appears as if the domestic company’s realignment of the LCD business has been a bit delayed or a bit belated, despite the fact that the LCD market’s sluggishness has already been predicted since COVID-19.

So I wonder what the specific reasons or causes are, for this lack of flexibility in the LCD line operations. And the second question is about OLED. Now, the – overall, the demand for TV continues to fall, and also we see that the LCD panel prices are also declining. So this does not bode well for the OLED TV market in general either.

So what is the company’s plan for shipment for the remainder of the year?.

[Foreign Language] This is Hee-Yeon Kim, Senior Vice President of Corporate Strategy Group responding to your question about the operation of LCD lines. [Foreign Language] Now, because of the lesser competitiveness, the LCD TVs fab capacity has been – gradually been reduced since 2019.

But we have been utilizing the existing capacity to the fullest extent possible to respond to the demand arising during the pandemic period. [Foreign Language] And now, for the domestic LCD business, where the competitiveness is weak, the business will be downsized and we are planning for an earlier exit.

So where we are aligned with the customers and we will begin to discontinue production and we will be reducing our capacity into the first half of next year. [Foreign Language] But for the LCD TV fab in China where we do have cost competitiveness, we will keep converting them to the more competitive products, like IT or commercial.

[Foreign Language] Now, in the Korean P7 fab, the capacity is 150,000 and we will be reducing 60,000 in the second half of the year and another 30,000 in the first half of next year.

The Chinese fab, we have 200,000 capacity, and of this, 10% has already been converted to IT, and the remaining 170,000, they will be converted, as I explained earlier, to either commercial or IT, whichever is more – whichever has bigger competitive edge. So by the second half of next year, about 40% of the TV capacity would have been reduced.

[Foreign Language] And aside from the TV capacity, the IT capacity, for which we have about 200,000, so the IT capacity will remain depending – so based on the cost competitiveness, as well as the product competitiveness..

[Foreign Language] Next, this is Daniel Lee in terms of Large Display Marketing, responding to your question about the OLED shipment and the plan for the remainder of this year. [Foreign Language] As has been duly noted by the questioner, the display market in general is struggling.

So for the TV market, there was negative growth of 24% in 2021 and another negative growth of 10% in the first half of this year.

[Foreign Language] But in the first half of this year, what we have seen is, despite the challenges, the OLED TV, the actual sales of OLED TV has increased by about mid 20% Y-o-Y, and we believe that this is quite a meaningful performance that has been achieved, in cooperation with our customers.

[Foreign Language] And now in the second half of the year, now, unlike the market in general, we still expect the actual sales of OLED TV to continue to grow. Having said that, because of the economic downturn, as well as the sluggish demand in the downstream, we believe that the overall sales are also going to slow down, compared to the first half.

So it is projected to be in the mid-teen percent. [Foreign Language] So because of the difficulties, the retailers as well as set makers have been quite conservative in their inventory management.

So the company will keep monitoring the market situation, and will run our own operations and inventory, according – based on the assumption that the downside risks are going to materialize. And so overall, the shipment Y-o-Y is going to grow slightly. [Foreign Language].

The following question will be presented by SK Kim from Daiwa Capital Market. Please go ahead with your questions..

[Foreign Language] I also have two questions. First question is about the OLED. Now, as the CFO has also pointed out earlier, now the company is quite strong in terms of technology in IT and automotive. And then also, there are the OLED, new MI devices. So the company appears to be strong in terms of technology for new applications.

So, if you could elaborate a bit further on your technological advantage compared to other players. So for example, what are the differentiating factors and what is the extent of the technological gap with other players? And the second question is about the LCD outlook.

So up until July, it appeared as if the LCD TV price decline had slowed down, but more recently, we see that the pace of decline has picked up again.

So based on the latest developments then, what is the company's view regarding the market outlook in the second half, as well as the price trend for LCD in the second half?.

[Foreign Language] This is Ki Hwan Son, Vice President of Auto Marketing responding to your question about the OLED technology. [Foreign Language] Now, for the automotive OLED, because of the nature it is very important for this product to withstand extreme environment and conditions.

And because of this LG Display has been developing long living OLED and also the tandem OLED technology. So we have been developing the tandem OLED devices since 2015, and as a result in 2019, we were able to launch the tandem OLED for automotive application.

And now this type of tandem OLED technology this can also be applied to IT products because of thanks to its high brightness as well as longevity. And it is also a good in terms of low power consumption. So this means that they would also be good for latest technologies like MI.

So we believe that the technology that we have developed for automotive purposes are also appropriate for it as well. .

This is Jeong Yi, in-charge of Business Intelligence, and I would like to respond to your question about the second half market outlook, as well as the LCD price trend.

Now, first of all, about demand for in the second half, because of the sluggish actual sales for the set makers, their inventory level at the end of the second quarter ranged from four weeks to seven weeks, meaning that they have an excessive level of inventory.

And because of the high inventory level, the set makers will continue to adjust their purchasing of panels into the third quarter of the year. And as a result of this there is likely to be a bigger decline in the purchase of panels, more so than the decline in the actual sales of the set products.

And that is also the reason why the panel makers have started to adjust their utilization rate in the second quarter and such as adjustment is likely to become broader in the third quarter.

So against this backdrop, then looking toward the price trend in the second half, it appears as if the price decline is likely to continue into the third quarter, but then now in the fourth quarter as a result of the supply adjustment, the price trend is likely to at least partially stabilize..

[Foreign Language] The following question will be presented by Han-Soo Kim, Hana Securities. Please go ahead with your question..

[Foreign Language] I have one question on the LCD IT. Another question on OLED TV. Now, first about the LCD IT business, it's assumed that the profitability in the second quarter would have deteriorated.

So what was the extent of the profitability decline in the second quarter versus the first quarter? And also if you could – if the company could also give us a guidance on the IT profitability in the second half of the year. And the second question is about the OLED TV and that the company was in negotiation with a new customer, domestic customer.

So is there anything that the company can share with us at that point regarding the negotiation? And also regarding the OLED TV, is there any update on potential ramp-up?.

[Foreign Language] This is Seong Gon Kim, in charge of Medium Display Marketing, and I would like to give you a response regarding the IT market, as well as the profitability and profitability outlook.

[Foreign Language] Now, as has been mentioned several times by other speakers already, the IT market is now in a downturn, and because of this, demand for most of the products, including monitors and notebooks is also declining.

And that is why we also see that overall in the market, there also is quite a high level of inventory, and this also translated into lesser purchasing of panels as well.

[Foreign Language] So we see that overall the market is struggling and slowing down, but then now, as you would also know, the company is mostly engaged in the high-end segment where the volatility is less.

So in the – between the first quarter and the second quarter, compared to the overall decline in the IT market in general, I would say that the company's profitability impact has been lesser than the average market level.

[Foreign Language] And then in terms of the outlook for the next quarter and on, now although the other players are adjusting their utilization rate, which is also going to affect the overall demand and supply dynamics, the company will keep focusing on the high-end segment to generate consistent performance..

[Foreign Language] Now, this is the CFO. And the questioner asked for an update on the negotiation in the OLED business. Now, as you would also know, the company has been focusing on solidifying the position of OLED panels in the market, to make it a norm in the market. And I would say that the company has been making strides in that direction so far.

And in this process, a new potential customer expressed intent to use our panels and the market also became aware of it. So negotiations have been underway. But now at this time, there is nothing in progress.

[Foreign Language] And down the road, we will be cooperating with any potential customers to create synergy effects, as long as they recognize the value of OLED and are willing to work together to create new markets..

[Foreign Language] The next question will be presented by Junghoon Chang from Samsung Securities. Please go ahead with your questions..

[Foreign Language] Now, in terms of the inventory, it became higher in the second quarter and in the presentation, it was explained that this was a preemptive preparation for the demand to come in the future. So I would just like to ask for further clarification of the higher inventory level.

So was this the result of a deliberate buildup in the inventory per plan or is it also at least partially due to the changes in the end demand? And another question is, now in the financial statement, it seems as if the short-term borrowings has increased significantly to about KRW6 trillion level.

So I would imagine that it was probably due to investments, so the company probably needed some financing for investment, but if you could give us some explanation about the increase in the short-term borrowings?.

[Foreign Language] This is Seung Min Lim, Vice President of Corporate Planning and I would like to respond to your question about the higher inventory level. [Foreign Language] Now, for the inventory increase, now a considerable part of the increase is owed to our plan, to respond to the higher demand for POLED in the second half.

And then another part of it is, because of the lockdown in Shanghai, and as a result, the inability to produce IT modules. So we also have built up the panels to make up for the shortfall from the first half of the year. [Foreign Language] But in terms of the specific inventory level, we will be running it according to strict planning.

So in the second half, according to the sales situation and changes in the demand, we plan to normalize the inventory level..

[Foreign Language] And this is the CFO and you – the questioner also asked about the increase in the short-term borrowings. But I must clarify that this is not the type of short-term borrowings that you would know or it's probably not the same kind of short-term borrowings in – under the conventional definition.

Now, on one hand, the long-term borrowing is not acceptable in the market these days and also the interest rate for long-term borrowings has gone up considerably.

And the case that you have mentioned, that is actually where we set up credit line based on mutual agreement, and then we would draw – we would continue to roll over in the form of short-term borrowings. So that is why I said that it is different from the type of short-term borrowing that we know.

And also because of the – but then also because of the higher inventory level, for example, the materials costs or other costs, probably would become certain costs. So that probably has partially affected our borrowing level as well..

[Foreign Language] It appears as if there are no further questions. And we will now close Q2 2022 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..