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Operator: 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 2022 Fourth Quarter Earnings Results by LG Display. This conference will start with a presentation followed by a divisional Q&A session. Now we shall commence the presentation on the fiscal year 2022 fourth quarter earnings results by LG Display.

Brian Heo: 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 am joined by the CFO, Sunghyun Kim; CSO, Hee Yeon Kim; Seung Min Lim, Senior Vice President of Corporate Planning; Jeong Lee, in charge of Business Intelligence; 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. The conference call will be conducted in both Korean and English. Please refer to the provisional earnings release today or the IR Events section of the company’s website for more details on the financial results of Q4 2022. Before we begin the presentation, please take a moment to read the disclaimer.

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. Before we begin the earnings presentation, CFO, Sunghyun Kim will provide a briefing on the company’s main tasks and activities.

Sunghyun Kim: Good morning. This is Sunghyun Kim, CFO of LG Display. Looking back on 2022, we see demand slowdown accelerate in major product groups on the heels of worsening macro environment, resulting in year long inventory correction in downstream industries, softening demand that started in general B2C products, spread to B2B then to high-end product groups as well, which had shown relatively solid demand. The display market continued to face headwinds, with panel prices still on the trend of decline although the pace slowed down. Given the protracted challenges in the market, the company is focusing on recovering financial soundness and future proofing. Upgrading our business structure remains our utmost priority, where we will concentrate our internal capabilities.

Allow me to first brief you on our activities and achievements in recovering our financial soundness. The company is moving ahead of the original timeline to downsize LCD TV business, which has structurally weakened competitiveness. Production in Gen 7 LCD TV fab located in Korea was terminated at the end of last year and the remaining Gen 8 LCD TV fab in China is scheduled to downsize to 50% of its capacity starting this year. Under the assessment that LCD TV business is unlikely to recover competitiveness, we will phase it out while responding to commercial products and the volume agreed with customers. To address the continued soft demand and secure operational flexibility, the company undertook intense production adjustment. The inventory reduction by around KRW1.6 trillion from Q3 affected profitability in Q4, but it placed the company in a better position to flexibly respond to market environment in the first half of this year.

The pre-emptive inventory adjustment in Q4 is expected to reduce costs in Q1 this year. The company plans to keep reducing cost and improving operational efficiency through LCD TV capacity downsizing in China, intense production adjustment in large OLED fabs in Korea, and close monitoring of real demand changes and market inventory. Next is on the progress of the company’s business realignment efforts and future plans. In supply and demand based business, we will enable a more rational operational structure and secure consistent profitability and create value by focusing on high value-add products while responding to market volatility. Not stopping there the company will add a stronger drive to the transition in order based business structure.

We are systematically preparing for projects agreed with customers like the new smartphone lines to be mass produced in the second half of the year and OLED for IT products to be mass produced in the first half of next year. Such order based business took up 30% of our business last year, expected to be in the low 40% this year, and exceed 50% in 2024. We also continue to broaden market creating businesses. The company keeps exploring new markets with our competitive products like gaming and transparent. We will build a stable revenue structure by strengthening the future business portfolio. With market volatility remaining high, sluggish demand for panels is expected to last into the first half of the year. The market situation where panel shipments fall short of actual sales is expected to persist in the first half.

But the panel inventory issue is likely to be mostly addressed in the first half regardless of the real demand for sets, thanks to intense production adjustment across the industry. This will hopefully return the industry-wide inventory to healthy levels in the second half. Having said that, with recovery in real demand remaining uncertain, the company remains focused on large scale cost-cutting, both volume and revenue are expected to decrease in Q1 given its traditional seasonality on top of industry-wide inventory adjustment. The company expects about KRW1 trillion cost reduction in Q1 from the large scale business rationalization underway from Q4 such as active inventory control, LCD TV downsizing and OLED TV production adjustments. In addition, new capacity utilization for smartphones and strong improvement in fundamentals will improve performance quarter-to-quarter and help achieve a turnaround in the second half of the year.

In terms of investment, only the minimum ordinary investment will be made along with the investment in order-based projects already agreed with customers. CapEx for the year will be around KRW3 trillion on a cash-out basis. The last point before we present the Q4 earnings is regarding the increase in Q4 net loss. The company’s mid to large size panel businesses had been accounted as one cash generating unit, but following the decision to phase out the marginal LCD TV business, large OLED business was separated as standalone cash generating unit in Q4. For the separated cash generating unit, asset valuation was reviewed and assessed by an outside organization in accordance with the standards and procedure in place. With soft demand for premium TVs last year due to economic slowdown as well as the downward revision of demand outlook, asset impairment of approximately KRW1.3 trillion was recognized for OLED business to ensure proper accounting.

The result was reflected as non-operating expense in Q4, which increased the net loss, but as you would all understand it is the result of accounting adjustment that has nothing to do with cash flow. The company expects positive impact down the road as it reduces our business uncertainties. As the leader in large OLED, the company possesses incomparable competitiveness in premium TV market, where we intend to keep growing our market share. We will keep reading a consistent revenue structure by enabling qualitative growth as we keep strengthening our product and cost competitiveness and accelerate our push to open up new markets like transparent and gaming. Thank you very much for attention.

Brian Heo: Let me now continue with our business performance in Q4. With worsening macro economy in Q4, set demand continued to remain subdued. It was followed by inventory adjustment across downstream industries, the impact of which also spread to high-end products, which had been showing relatively solid trends. Revenue in Q4 went up 8%, Q-o-Q, thanks to shipment of smartphone products. But there was operating loss of KRW876 billion following shipment decrease of IT panels, decline in panel prices and intense production adjustment to reduce inventory. Operating profit margin in Q4 was minus 12%, with EBITDA margin at 3%. There was net loss of KRW2.094 trillion with KRW1.33 trillion of impairment being accounted as non-operating loss.

For the year, revenue in 2022 was KRW26.152 trillion, down 13% Y-o-Y. There was operating loss of KRW2.085 trillion. Operating profit margin was minus 8%. Next is area shipment and ASP trend. Area shipment in Q4 was 7.86 million square meters, increasing 2% from the previous quarter. It was slower than ordinary seasonality due to demand decrease in mid-sized products and structural innovation in large product business. ASP per square meter was $708 going up 5% Q-o-Q. This is owed to the increase in a portion of smartphones and wearables. Next is revenue breakdown by product segment. OLED accounted for 52% in Q4, following the transition to OLED focused business structure. For the year, its portion grew sharply from 32% in 2021 to 40% in 2022.

OLED’s contribution to financial performance is expected to keep growing this year, with its portion of the revenue exceeding 50%. It will be largely driven by growth in smartphone capacity and panel shipments in the second half of the year as well as the continued phase-out of LCD TV business. TV panels accounted for 25% unchanged Q-o-Q. Share of IT panel was 34% falling by 9 percentage points Q-o-Q. There was decrease in panel shipments and decline in panel prices. Portion of mobile and other products was 34%, up by 9 percentage points Q-o-Q on the back of higher shipment of smartphones and wearables. Auto business, which is a new growth engine for the company, has maintained growth, with its portion moving up from 5% in 2021 to 7% in €˜22.

It is expected to keep growing by double-digits this year with its portion continuing to rise. Next is the company’s financial position and ratios. The company’s cash and cash equivalents was KRW3.547 trillion, staying above the KRW3 trillion line. Inventory was KRW2.873 trillion, decreasing by KRW1.644 trillion Q-o-Q as a result of the decision to keep inventory at the minimum and the subsequent strong adjustment in production. As for the main financial ratios, debt to equity ratio was 215% and net debt to equity ratio 101%, both up Q-o-Q. Next is cash flow. The company’s cash and cash equivalent at the start of Q4 was KRW3.264 trillion. It increased by KRW283 billion and stood at KRW3.547 trillion at the end of Q4 with increased cash flow from financial activities.

Last but not least, outlook for Q1. With growing market volatility and demand uncertainty, as well as the company’s execution of LCD exit strategy, area shipment is expected to fall more sharply than in ordinary seasonality. In response to the demand slowdown that will last for some time, the company will keep improving profitability quarter-to-quarter by improving financial soundness and remaining on the path of structural innovation. In addition to KRW1 trillion cost-cutting in Q1, we will strive to achieve a turnaround in the second half by helping recover panel demand and utilizing new smartphone capacity. That completes my briefing. Thank you very much. That brings us to the end of earnings presentation for Q4 2022. We will now take your questions.

Operator, please commence with the Q&A session.

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Operator: The first question will be presented by from KB Securities. Please go ahead with your question.

Unidentified Analyst: Thank you very much for giving me the chance to ask my questions. I have two questions, one each for the company’s financial strategy and the large OLED business. The first is about the company’s financial plan including any potential borrowings following the worsening of the financial performance? And related to that, can you also give us an overview of the CapEx implementation in 2022 and what is the company’s plan for CapEx this year? And next is about the large OLED business strategy and also the exit strategy, so if you could also €“ if the company can also brief us about the large OLED business strategy and also what will be the way for OLED to continue to enhance its premium image over LCD, so what would be the strategy to differentiate OLED from LCD?

Sunghyun Kim: Thank you very much for the question. This is the CFO responding. Now, for a company the €“ fundamentally, the financial strategy would be to keep our earning revenue from our operations. But now given the nature of the industry and also the market situation sometimes that is not conducive, so in such a case and we will try to improve the financial soundness through better cash flow management, which is what we are doing currently. So, as for now, the plan is to accelerate our exit strategy in LCD TV which has been proven to be a marginal business, so as to minimize our potential losses from this business. And we will also keep reducing our investment as well as expenditure and also enhance the efficiency of such costs, so that we will also be able to create the kind of operational structure that will be in line with the current market situation.

Another part of the plan is to minimize our inventory and the working capital. And in order to do that, and by doing so, we will be able to minimize our cash flow expenditure. And some of our recent actions for example determination of the production in the Gen 7 LCD fab, as well as the downsizing of production in Gen 8 LCD fab in China. So, these actions are not just about downsizing production, it also entails reducing expenditure or reducing the cost. And by doing so, we intend to reduce costs by about KRW1 trillion in the first quarter of this year as has been explained earlier by better managing our working capital and improving the efficiency of our cost structure. And now about the CapEx, I did explain about the principles earlier in the briefing and that is that for last year and this year we will be maintaining the minimum ordinary investment, so as to that will be necessary to maintain the production facilities and also maintain the investment for the order-based businesses for which demand and revenue are pretty much fixed.

And also on a cash-out basis last year, it was KRW5.2 trillion which was a bit higher than expected. So for last year on a cash-out basis, it was KRW5.2 trillion which was a bit higher than expected. But then so what this means is that this actually is in line with our principle of transitioning more towards the order-based business. So, we have accelerated our investment timeline for some of the order-based business and this also means that the achievement of revenue or the accrual of the revenue will also be pulled up. So, this means that the revenue to occur this year and the year afterwards will also be put up as well. So when we look at the cash flow across the next few years, then we will see that the investment expenditure will not go up.

And about the funding, so there are some concerns about potential shortage of funds due to our investment plan as well as the current performance. But then regarding that, I would like to assure the investors and the shareholders that there is no cause for concern as we are making the €“ we are making preparation and also implementing the preparation with regard to different aspects as well. Now, when it comes to investment or the operations of our business, then there are ways in the market that are available aside from borrowing or aside from using our own funds to do so. So when it comes to cash management, once again I would like to reassure the shareholders and investors that you do not have to worry about them, because we will be making the best use of the other means and ways that are available in the market.

Unidentified Company Representative: This is in charge of Large Display Marketing responding to your question about the OLED plan for 2023. In terms of the shipment, shipment of OLED is expected to be similar in 2023 Y-o-Y. But now in the high-end market, the demand keeps changing. And also given that it is not clear when there is going to be recovery in the demand, we will keep closely monitoring the market and try to continue to differentiate OLED in the high-end TV market, so that we will be able to increase our market share from the current high 20% level to over 30%. And with the goal of improving the healthy level €“ improving the inventory level in the €“ among the distributors and the set customers, we will be adjusting our production and also trying to reduce the fixed costs in line with the trends in the actual demand.

And about the business strategy for large OLED, now in terms of the infrastructure, we have already achieved the economy of scale in large OLED based on which we can compete in the high end market, meaning that that is 10 million units. So, we have already achieved the economy of scale. And we also see more opportunities still arising in terms of new markets as well as new customers. So, we will continue to strengthen our competitiveness and improve profitability, strengthen our competitiveness and strengthen our structure, so that we will also be able to see profitability from the existing market as well. And another positive aspect is the fact that we are also seeing visible results come out of our market creating businesses like gaming and transparent OLED.

So, these are the new markets that go beyond the existing TV market, as the current TV market continues to remain subdued. So, in short, although demand in the downstream industries remains slow mostly due to the macroeconomic situation, this is the business segments where there are still potential and many opportunities. So, we will continue to strengthen our cost innovation and also strengthen the OLED specific competitiveness so that we will be able to keep growing this market as well as the business. And there was also a question about the differentiation of the product especially between OLED versus LCD. But given the fact that my answer has become quite long winded, I would like to wait for another opportunity to give you more details.

Thank you. We will take the next question.

Operator: The next question will be presented by from KIWOOM Securities. Please go ahead with your question.

Unidentified Analyst: Thank you. I also have two questions. Now, first is about the LCD TV exist strategy and the company explained earlier how the company has accelerated the execution of this exist strategy. So, I believe that as a result of this, it will place the company in a different position from the peers in terms of financial performance. So, if you could give us a guidance on the financial performance for the first quarter as well as for the year. And the second question is about the specific business plan. Since the company also discussed the market creating businesses as well as the plan to strengthen the future business portfolio, so if the company can provide more details about the business plan. Thank you.

Unidentified Company Representative: Now first, about the outlook for the year and there is a clear response to this and it is low in the first half and high in the second half. And now, we all know that the macro economy continues to struggle. So, then this means that demand is likely to remain slow into the first half of the year. And then also the situation that we had been seeing since last year where the purchase of panels fell short of the actual sales of sets, we believe that this phenomenon is likely to continue into the first half of the year as inventory adjustment continues. Now, given this environment then the one of the options given to the company is to go into large scale cost cutting. And that is what we have been doing.

So, in order to reduce the inventory burden, last year we had reduced the inventory level by about KRW1.6 trillion across one quarter. So, we believe that that is going to provide us with the positive benefits in the first quarter of this year. In addition to that, we also have taken actions to downsize or reduce production of the large size business. And we are also cutting costs by rationalizing our business structure. So, all-in-all, I believe that in terms of the innovation or the rationalization of our business, and also reducing of the inventory, this will bring about a cost cutting benefit of about KRW1 trillion in the first quarter. So, at the end of this process, what we are expecting is to see revenue growth start in the second quarter and the loss shrinking.

And as a result, we hope to see the beginning of a turnaround in the second half of the year.

Hee Yeon Kim: Now, this is the CSO, Hee Yeon Kim speaking about our business plan. And so I would like to explain our business plan based on the three businesses gaming monitors, and transparent OLED and sound solutions. Based on our competitive large OLED, we are trying to target the new business segment which is the high end gaming monitor where the customers are willing to pay more. So, we are currently in discussions with around eight to nine customers. And our plan is to go into mass production within the year. And second for the transparent OLED, we are currently targeting the key vertical customers who can see the importance of these products for retail and construction purposes. Now for the transparent product, unlike others, this is not something that we can address as standalone products.

It’s more appropriate as a solution product. So, that is why it is important for us to build the right ecosystem and that is why we are currently discussing with and also cooperating with the important key vertical partners. By doing so, we hope to keep building up the ecosystem and see and achieve visible progress and outcome within the year. Next is about the sound solution. Now, usually speakers would require space to be installed. But unlike the traditional products, we have come up with the film type sound solutions that will take up less space and this is the solution that also won the Innovation Award at the CES. And we believe that there is a particular value to be gained in applications where the space is limited, in other words, automotive.

So, the automotive sector is where we are going to concentrate with our film type sound solution. It can be provided together with OLED or as I mentioned earlier in automotive or vehicles where the space is limited.

Brian Heo: Thank you. We will take one last question.

Operator: The last question will be presented by from Bank of America. Please go ahead with your question.

Unidentified Analyst: Now, I also have two questions. And first of all, thank you very much for the presentation. Now, it appears as if the company’s trajectory is headed towards Gen 6 OLED. But even in this business demand, it is not probably easy to come by. Because first of all, there are competitors and also there is BOE. And also, the tablet prices remain lower than smartphones. Now, given the current environment, then what is the rationale for the company to believe that the company will be able to have €“ we will be able to drive sales in discussions with the clients for the high priced OLED products? And the second question is about the recent press reports about the micro OLED and that there have been reports about how the micro OLED is likely to replace a small OLED in the near future. And of course, that is probably in 2 years to 3 years time, but what does the company see in terms of the possibility of the Gen 6 OLED panel being replaced by micro OLED?

Hee Yeon Kim: Thank you. This is a CSO, Hee Yeon Kim and I will be responding to both questions. Second question first, about the press reports on micro OLED, I do not believe that the company is in the position to respond to this particular question. By having said that, in any market, there are always alternative technologies. And for the TV market as well, there are both OLED and micro LED. And I believe that there is a market size to accommodate both and the company has been responding to a decent development quite effectively. Likewise, there are different technological options available in the mobile sector as well. So, the company has been making preparation for different types of technology and when there is business case to be made and business visibility and if there are any visible potential within negotiations with the customers then, of course, we will move ahead with this.

So, allow me to complete my response to this question by providing you with this, let’s say a fundamental response. And as pointed out we will keep a closely monitoring the changes in the market and respond accordingly. Next is about the question on IT OLED. Now, this is the segment where we need to maintain not only the short-term perspective, but also the mid to long-term perspective because it involves not only tablets, but also monitors and notebooks as well. Now, in terms of the Monitors segment, we will also start targeting the gaming monitors, which is a premium market where the customers are willing to pay more. So, this is the segment that we will start targeting and tablet is part of that. And looking at the mobile case, we see that the BOE’s market share is now about 30% in the high end segment.

Of course, there had been concerns of the premium price and also concerns about the potential scalability. But then I believe that there has been value up from the set makers side. And we believe that that is how we were able to increase the penetration. And we believe that the same developments could occur in the Tablet segment as well. But at the same time, as the questioner had rightly pointed out, the high end payment of value in tablet monitors or notebooks would be lower than for the smartphones and also the use cases might be limited still. So, we would be looking into the different factors and the circumstances and tried to come up with rational prospects for penetration rate and then also set our business plan and strategy accordingly.

Brian Heo: If there are no further questions, we will now close Q4 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.