[Foreign Language] 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 2023 Second Quarter Earnings Results by LG Display. This conference will start with a presentation followed by a divisional Q&A session.

[Operator Instructions] Now we shall commence the presentation on the fiscal year 2023 second quarter earnings results by LG Display..

[Foreign Language] 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, CSO; Seung-Min Lim, Senior Vice President of Corporate Planning; Ki Hwan Son, Vice President of Auto Marketing, Jeong Lee, in Charge of Business Intelligence, [indiscernible] in Charge of Large Display Marketing and Seong Gon Kim, in Charge of Medium Display 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 2023. [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] I will start with Q2 business results.

In the midst of intense inventory correction continuing in the downstream industries since last year, especially in TV and IT, panel inventory in the channels has been falling.

With improving inventory soundness across the industry ecosystem, leading to gradual recovery in panel demand, shipment of medium and large panels grew in Q2, led by OLED TV and IT. Revenue in Q2 was KRW 4.739 trillion, up 7% Q-o-Q.

[Foreign Language] There was operating loss of KRW 881 billion, reduced from the previous quarter, following growth in shipments, improved operational efficiency and strong cost savings like cost innovation.

LCD TV panel price keeps trending upward, but its impact on the company's Q2 results was limited with the company continuing with downsizing of LCD TV business as planned. [Foreign Language] Next, on area shipment and ASP per square meter.

Q2 area shipment was up 11% Q-o-Q to 4.72 million square meters on the back of increased shipment of medium- and large-sized panels. ASP per square meter was $803 down 6% Q-o-Q and in line with the previous quarter's guidance from the seasonal decline in mobile shipment.

[Foreign Language] In terms of revenue breakdown by each product segment, TV panels revenue mix was 24%, owing to the Q-o-Q growth in OLED TV panel shipment. IT accounting for 42%, up 4 percentage points Q-o-Q, while mobile and others took up 23%, down by 9 percentage points following the seasonal decline in mobile panel shipments.

Auto business is showing steady growth with its revenue mix remaining unchanged Q-o-Q at 11%. OLED revenue mix was lower Q-o-Q due to seasonal decline for mobile OLED falling 3 percentage points to 42%. [Foreign Language] Next is on the financial position and key metrics. Company's cash and cash equivalent was KRW 3.853 trillion.

Inventory value was KRW 2.62 trillion [ph] resulting from the company's effort to minimize inventory. Key financial ratios were up Q-o-Q, resulting from the strategic financing activities to strengthen liquidity as well as net loss in the quarter. Debt-to-equity ratio was 293% and net debt-to-equity ratio, 143%.

Cash flow in Q2 was KRW 3.853 trillion, almost flat from the previous quarter, with cash inflow from financial activities and cash outflow through investment, balancing out each other. [Foreign Language] Next, on Q3 guidance.

With inventory level moving down across the industrial ecosystem, shipment of medium- and large-sized products is expected to grow again in Q3 following Q2. Area shipment is thus expected to grow by a mid-single digit in Q3. ASP per square meter is expected to increase by high single-digit Q-o-Q, thanks to seasonal growth in mobile panel shipments.

Thank you for your attention. [Foreign Language] Next, CFO, Sunghyun Kim will walk us through the key highlights..

[Foreign Language] Good afternoon. This is the CFO, Sunghyun Kim. Looking back to the first half of the year, actual set sales fell short of expectations with macroeconomic uncertainties persisting and consumer sentiment dampening. But inventory soundness began to improve in Q2 across the ecosystem, leading to actual growth in panel purchase.

It appears that the market is now over the worst, but not yet starting a full recovery backed by real demand. [Foreign Language] Consequently, the company further propped up liquidity through strategic financing activities in Q2 as well for the purpose of upgrading our business structure with our priorities, strengthening our financial structure.

Cost saving initiatives like reducing fixed cost, manpower deployment efficiency and flexible operation of fabs are still ongoing. [Foreign Language] To upgrade our business structure, we will keep increasing the share and performance of contract-based business in the second half, including mobile products.

Contract-based businesses revenue mix is expected to top 40% this year and 50% next year. The target is 70% in the next 2 to 3 years. [Foreign Language] The company will also strengthen the share and business competitiveness of OLED in all categories that cut across all the different sizes of panel.

With improving market awareness of OLED value, its company-wide revenue mix is expected to surpass 50% this year and keep growing thereafter. [Foreign Language] By product category, large OLED business will keep running on the basis of real demand while broadening the customer base and consolidating its market position in the premium TV market.

It will not be bound to the traditional TV market as the product portfolio keeps diversifying into new applications like gaming and transparent. They will also keep implementing cost innovation and improving expense structure efficiency.

[Foreign Language] For mid-sized OLED, the company is steadfastly building up the structure to respond to mass production in the first half of 2024. We will keep strengthening its business capability by preempting the market and ensuring stable operations.

For medium LCD, we will focus on recovering profitability by enabling high-efficiency production system and cost innovation while solidifying our leadership by targeting the premium monitor and laptop markets based on differentiated competitiveness.

[Foreign Language] In small OLED business, we will grow the shipment volume and improve business consistency based on production ramp-up and technological capability.

In auto, we continue to improve business performance on the basis of reliable supply, thanks to dedicated capacity, as well as technology that can provide differentiated value like tandem OLED.

The company will focus on growing our revenue and increasing orders on top of differentiated technological competitiveness and customer relations across OLED and high-end LCD and boost our position as the world's number one.

[Foreign Language] Going into the second half, turnaround to profit as expected in Q4 on anticipation of high panel demand by set makers following the return to healthy inventory levels and growth in contract-based business. But as explained earlier, the market is yet to start full recovery driven by real demand.

The company will keep a close eye on the external environment as we strive toward more meaningful performance by focusing on recovering financial soundness and upgrading the business structure. Thank you very much for your attention. [Foreign Language] That brings us to the end of earnings presentation for Q2 2023. We will now take your questions.

Operator, please commence with the Q&A session..

[Foreign Language] [Operator Instructions] The first question will be provided by Daun Kim [ph] from KB Securities. Please go ahead with your question..

[Foreign Language] Thanks for taking your questions. Now my questions are with regards to OLED as well as the consolidated performance. Now first of all, for the small and midsized OLED last year due to technical issues, the shipments of panels was reduced.

So does the company expect a similar technical issues this year for small and midsized OLED panels? And does the company believe that there would be similar issues that would also reduce the shipment than the initial plan. And my second question is now the company has now been seeing losses for the past 5 quarters straight.

But then in the presentation, it was mentioned that the company is now expecting a turnaround in the fourth quarter of this year.

Then from which business, the biggest contribution will come? So will it be the large OLED or the small to midsized OLED or any other businesses? And what are the reasons or the drivers for such a contribution from that particular business?.

[Foreign Language] Thank you very much for your questions. This is also Brian Hall, in charge of LG Displays IR. Now first of all, let me clarify that we are not able to comment on any situation involving the customer. But then for the second half of the year, based on our expanded mass production capability, the company intends to increase shipments.

And by doing so, we also plan to improve our consolidated earnings..

[Foreign Language] Now this is the CSO responding to your second part of the question. And as the CFO has already explained in his presentation of the highlights, we see that the inventory level is going down across the market. And as a result, we see that the profitability is going to improve on both the large as well as the medium-sized OLED.

[Foreign Language] Now that having said, where we are expecting the biggest momentum to come in the second half is, as Mr. Brian Heo has just explained, is from the capacity increase as well as the increase in the volume of the small-sized panels..

[Foreign Language] The following question will be presented by Hwan Seung Kim from Hana Securities. Please go ahead with your question..

[Foreign Language] Thank you very much. I also have two questions. They are pertaining to investment and EBITDA. Now first, about the annual investment, the company's guidance was somewhere in mid to high KRW 3 trillion level for the year.

Now having gone through quite a lot of changes in the circumstances, I wonder whether the number remains unchanged? Or is there - are there any changes to the number for the annual investment? And then also what would be the expected investment for the years 2023 as well as 2024? And also, what would be the company's guidance for EBITDA? And then the second part of the question is also about investment, particularly in the OLED IT.

So I understand that the company is now investing in the OLED IT Gen 6. So if the company can provide us an update regarding that investment.

And then now with the company's clients in North America, what would be the plan for the IT investment for Gen 8?.

[Foreign Language] Thank you. This is the CFO responding to your question. Now yes, the company has given the guidance of mid to high KRW 3 trillion level for the annual investment. And currently, investment is underway where the investment is necessary within the guidance range.

But of course, at the same time, we are conducting efforts in parallel to improve the efficiency of the investment as well as spending. [Foreign Language] And as the investors would be aware in this industry, investment is implemented over a long period after pre-orders.

And that means that it is not easy to flexibly adjust the investment amount given the circumstances. [Foreign Language] And there was also a question about expected investments for next year.

Now of course, the business plan for next year is yet to be finalized, but then perhaps I can share with you some of the, let's say, some of the findings of the review that we have had so far regarding our investment plan.

So for next year, perhaps - so our thinking now is that there can be some meaningful reduction from the mid- to high-level KRW 3 trillion level of investment of this year. [Foreign Language] And also, as the company has already disclosed the investment into IT OLED Gen 6 is currently underway, and this will continue into the first half of next year.

And there was also another question about investment - potential investment in Gen 8. And of course, this is related to a customer and also for ourselves, what we look into.

So what - some of the factors that we consider are the technological development, as well as the progress being made and also whether there is development in the demand from the market that is sufficient to contribute to the company's profitability. So there are a host of factors that we consider before we make the decision about investments.

So we will do so again this time in due time after considering all the different factors..

[Foreign Language] The following question will be presented by Simon Wu from Bank of America. Please go ahead with your question..

[Foreign Language] Thank you very much. Now there was a mention about turnaround to profit in the fourth quarter.

And just thinking about this simply then we see panel price rising, I believe only in LCD TV and not in others, and I am trying to better understand the rationale behind the expectation of turnaround in Q4 and especially because the company appears to have done most of the cost reductions that it can.

And of course, there is going to be some volume increase in the second half compared to the first half, but still, I'm not sure whether that would be sufficient to move the company from almost a KRW 1 trillion loss in one quarter to almost zero next. So again, I'm trying to better understand the rationale.

So I would like to ask for further elaboration. And then the second question is now I see that there has been a steady increase in borrowing. So what would be the company's interest expense in the second quarter? That would be helpful for us to calculate the financial cost over the year..

[Foreign Language] This is the CFO speaking. And the question was about the interest expense or the financial expense for the second quarter. But I know that you're simply going to multiply that number by four. So I would just like to go right ahead and give you the annual number, which is expected to be at low to mid KRW 600 billion..

[Foreign Language] And this is the CSO, and I would like to comment about the turnaround - expected turnaround in Q4. And as was explained earlier, our small panels, they account for about 20%. And over the next two quarters, there is an expected increase by 10 percentage points each quarter.

And because that the small panel, as you would know, has very high seasonality and there's also the new fab that we are operating. [Foreign Language] And another factor is the midsized IT, which has taken up the biggest share out of our revenue in Q2. Now of course, the price for TV is moving up.

But then compared to that, it is true that for the midsized IT, there is not such a big movement. But it appears as if the price for midsize IT is also bottoming out, and we have been seeing a slight increase, and we believe that, that is also going to contribute to profitability..

The following question will be presented by Junghoon Chang from Samsung Securities. Please go ahead with your question..

[Foreign Language] Now the first question, yes, the CFO commented on a possible turnaround in Q4. And I think for Q3, it was just about improvement. So no specific guidance as far as I understood.

Then I wonder whether this is incorporating the possibility of delay in mobile shipments in the second half? Or is it regardless of that, meaning that it is just in consideration of the overall market circumstances and that the company believes that it will be difficult to go over the BP in the third quarter.

And the second question is now, yes, there have been press reports about a new customer in the large IT OLED and - but then the company's guidance was simply about the possibility of starting a new partnership. So if there could be some further highlights regarding this, then it would be appreciated.

And then now based on this, then of course, the business plan, I'm sure has not been finalized, but then now what would be the company's expectation of the volume for next year?.

[Foreign Language] This is the CFO speaking. And the question was about the potential turnaround in Q4 and improvement in Q3. Now overall, it is clear that there is improvement in Q3.

And then the questioner also asked about whether the mobile shipment delay is reflected in this projection or whether it is simply based on the rise in LCD prices in the market? [Foreign Language] Now for mobile shipment delay, I must clarify that the company has never commented on it.

But in principle, regarding the market volatility or the company's inside operations, in principle, we always remain conservative. So for the Q3, what we are expecting is that there is going to be a faster improvement in Q3 than what we have seen between Q1 and Q2. And then that improvement is going to accelerate in Q4 to achieve a turnaround.

[Foreign Language] And also, you asked about a new customer in large size, but please understand that the - given the nature of our business, our industry, we are not in the position to comment on anything related to the customer. And that is the set makers position.

So please understand, and that also means that there are no highlights for me to present to you at this time. And there was another question about the potential volume next year. And again, there is nothing for me to comment on at this time..

[Foreign Language] The final question will be presented by Jonna Kim [ph] from Meritz Securities. Please go ahead with your question..

[Foreign Language] Now of course, the demand remains uncertain in many categories. But then now in TV as well, I mean the demand is uncertain, but then now thanks to some correction in supply, the pricing for TV continues to rise. But then we do not see such conviction in IT.

So for the mid- to long term, what we believe to have almost a certain growth in demand is the auto display category. And so that is what the market tends to believe and I believe that the company also has a similar expectation.

Then for the medium term, what would be the potential orders received for auto business? And also what is the company's plan for the auto orders to be received for this year and next year? So - and also, what would be the revenue to be recognized in this business again for this year and next.

So if such information can be shared with us, and that would be much helpful..

[Foreign Language] This is Ki Hwan Son, Vice President of Auto Market. I'm responding to your question. Now up to the second quarter for the OLED orders received for it has been KRW 4 trillion, and we believe that the orders will - so the orders continue to grow.

So we are currently continuing to upwardly adjust the expected orders for next year and the year after that. [Foreign Language] And as for the order backlog, it is currently KRW 20 trillion, and it is going to be helpful in achieving consistent growth in revenue. And we believe that there is going to be an annual growth by mid 10% until 2027.

[Foreign Language] If there is one last question, then we would like to entertain one more..

[Foreign Language] The final question will be presented by Tiantian Huang [ph] from JPMorgan Securities. Please go ahead with your question..

[Foreign Language] I have one question, and that is about the Chinese - about the company's LCD fab business in Guangzhou, China.

So what would be the timing of the sell-off and also about the tangible asset disposal? So regarding the LCD fab in Guangzhou, China, is there any update that can be shared with us? And in relation to that, when does the company believe that such update can be provided officially in the market?.

[Foreign Language] And I do realize that there are a lot of speculations in the market regarding the LCD fab in Guangzhou, but what is for certain now is that about half of it is still running. And in terms of the asset rationalization or so we are trying to rationalize the use of the assets, but then nothing is determined yet.

So regarding this, there is really no progress for me to share with the market..

[Foreign Language] Thank you very much. That concludes the LG Display 2023 second quarter earnings results conference call. Thank you. And if there are any additional comments or questions, then please contact the IR team..