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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 for our Fiscal Year 2023 First Quarter Earnings Results by LG Display. This conference will start with a presentation, followed by additional Q&A session. Now we shall commence the presentation on the Fiscal Year 2023 First Quarter Earnings Results by LG Display.

Brian Heo: Good afternoon. This is Brian Heo, In-Charge of IR at LG Display. On behalf of the company, I would like to thank all the participants for joining this conference call. Today, I’m joined by the CFO, Sunghyun Kim; CSO, Hee-Yeon Kim; Senior Vice President of Corporate Planning, Seung-Min Lim; Vice President of Auto Marketing, Eric Ki Hwan Son; and In-Charge of Business Intelligence; , In-Charge of Large Display Marketing; and Seong Gon Kim, In-Charge of Medium Display Marketing. The conference call will be conducted in both Korean and English. Please refer to the provisional earnings released today, or the IR Events section of the company’s website for more details on the financial results of Q1 2023. Also, before we begin the presentation, please take a moment to read the disclaimer.

Please also 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. I will first start with Q1 business results. In the midst of sluggish demand for TV and IT products and inventory corrections continuing in the downstream industries, there were added impacts from slow seasonality and the company’s downsizing of its LCD TV business, which all drove Q1 revenue down 40% Q-on-Q and 32% year-over-year, reporting KRW 4,411 billion. Meanwhile, underpinned by preemptive inventory downsizing since Q4, we continue to rationalize large panel business, undertook intense cost savings, introducing cost innovations, thanks to which we were able to narrow the fluctuations in profit and reported operating loss of KRW 1,098 billion.

Next on area shipment and ASP per square meter; first quarter area shipment was down 46% Q-on-Q, reporting 4.24 million square meters on the back of muted downstream demand and seasonal shipment declines across all product segments, as well as downsizing of the company’s LCD TV business with the closure of domestic LCD TV fab end of last year. Typically, ASP per square meter follows a downward trajectory during the first quarter, as mobile demand seasonally declined during this period. But this quarter, on a lower LCD TV mix whose ASP is the lowest, ASP per square meter actually increased 20% Q-on-Q, reporting $850. In terms of the revenue breakdown by each product segment, on the back of downsizing of the LCD TV business, revenue mix of the TV panel was down six percentage points Q-on-Q, reporting 19%, while IT panel mix reported a relative increase, recording 38%.

Driven by seasonality and ensuing decline in panel shipments, mobile and other products saw their revenue mix dip by two percentage points Q-over-Q to 32%. Auto business continued to show steady top line growth, reporting mid-20% revenue growth year-over-year with its revenue mix at 11% this quarter. OLED revenue mix was lower Q-on-Q due to seasonal declines for large and mobile OLEDs, but on a year-over-year basis, driven by sustained efforts towards business structure upgrades, OLED revenue mix was up 13 percentage points, reporting 45%. Next is on the financial position and key metrics; company’s cash and cash equivalent was KRW 3,894 billion, maintaining above the mid-KRW 3 trillion level. While on the back of active inventory management to keep it at the minimum level, Q1 inventory was flat Q-over-Q at KRW 2,811 billion.

Key financial ratios were up Q-on-Q on rise in debt, with debt-to-equity ratio of 248% and net debt-to-equity ratio at 126%. In terms of cash flow, opening cash balance was KRW 3,547 billion, and with increase in cash inflow from financial activities, there was an increase of KRW 347 billion Q-over-Q, reporting ending balance of KRW 3,894 billion. Next on Q2 guidance; although market volatilities and uncertainties persist, we expect pickup in seasonal demand following the launch of new models from each product segment in the second quarter, driving Q-over-Q shipment growth for large and mid-sized panels. As such, area shipment is expected to rise by around 10% Q-on-Q. On seasonal declines in mobile panel shipment, ASP per square meter is expected to fall mid-single digit on a Q-over-Q basis.

Next, our CFO, Sunghyun Kim will walk through key highlights.

Sunghyun Kim: Good afternoon. This is CFO, Sunghyun Kim. Looking back over the first quarter, difficult market backdrop continued as last year’s macro uncertainties persisted, while inflation squeezed down on consumption, which drove muted demand for display panels, with inventory corrections continuing in the downstream industries. In particular, sluggish demand for high-end products was more pronounced versus what was seen previously for general B2C products, and as the company downsized its LCD TV business as part of the strategy to advance its business structure, shipment and revenue declined by somewhat of a large margin, compared to previous years. To respond to such business environment, the company has engaged in preemptive inventory cuts, rationalized the operation of large panel business, and actively and intensely reduced and innovated our cost base, in order to narrow the extent of fluctuation in profit.

Under continuing slump of the downstream industry, market dynamic had been such that panel shipment has been weaker, below actual set sales for around one full-year now, making it difficult to predict the exact timing of recovery or normalization of sell-through demand. Accordingly, the company is focusing on recovery of its financial soundness and upgrading to advanced business structure in order to pull forward its execution capabilities. First, to strengthen our liquidity position, in Q1, we entered into a strategic financing arrangement with LGE. Through this arrangement, we were able to expand business cooperation, while at the same time strengthen stability in operating our funds in the face of uncertain external environment. The funds raised will be used to bolster financial strength, develop products and technologies to strengthen our OLED business, and to further advance company’s business structure, such as through driving market-creating businesses, including transparent and gaming OLED applications.

Also, throughout the first half, we plan to tap into multiple financing options to further strengthen our liquidity position and build up an agile financial structure to flexibly respond to challenging environment. This will push up some of our financial ratios, but after the start of the second half on gradual earnings improvement, we will enhance financial metrics in stages. In terms of upgrading the business structure, by growing the contribution from order-based business, where volume and price can be managed favorably based upon close collaboration with our customers, we plan to focus our capabilities on future-proofing and bolstering competitiveness towards differentiation. Share of order-based business increased to early 40% this year and our target is to reach 70% in two to three years’ time.

High value-added mobile products, slated for additional mass production this year will see increase in shipments, while we will solidify Global #1 positioning by securing orders and growing revenue from displays for automobile applications. For the mid-sized OLEDs, including OLED for tablet PCs where investment is currently ongoing, we plan to thoroughly prepare for supply and mass production in 2024, underpinned by technology leadership. For the supply and demand-based business where market volatilities are high, we are focusing on high value-add segments. For large OLEDs, we are broadening the lineup of differentiated products, underpinned by stronger fundamental competitiveness in i.e. brightness and power consumption and through cost innovations, we plan to solidify our Premium TV market positioning and accelerate market-creating businesses, which includes transparent and gaming OLED applications.

For the order-based business where volume and price are more favorable, as we can engage in close collaboration with customers, we will continue to grow its share and focus our capabilities on future-proofing and bolstering our competitive edge. Market uncertainties and volatilities still run high, and although demand is muted and inventory adjustment continues in the downstream, driven by intense cost-saving efforts, we expect Q2 profit to marginally improve versus the first quarter. As we bottom out in the first half following recovery of inventory levels and soundness, thereof, across the overall ecosystem of the industry, in the second half of the year we will see rise in demand for panels and with increase in shipment for mobile products and positive performance from the order-based businesses, we plan to achieve a turnaround in profit in the second half of the year and drive earnings improvement on a full-year basis.

Notwithstanding unprecedented weakness in the market, by advancing the business structure that will form the basis for steady earnings going forward and stronger financial soundness, we commit to do our utmost to overcome this difficult situation with speed and drive meaningful results. Thank you.

Brian Heo: This brings us to the end of the earnings presentation for Q1 2023. We will now go into questions. Operator, please commence with the Q&A session.

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

Unidentified Analyst: Thank you for taking my question. I have several questions relating to your large panel business, as well as to mid — related to your mid-to-small-sized panel business. First, can you provide some color as to how things are going with regards to your plan to sell off your plant and fab in Guangzhou and Paju? If you could also provide a little more color on the entire LCD TV fab exit roadmap, that will also be quite helpful. And according to the press coverage, would like to understand what your assessment is with regards to the likelihood of your success, vis-a-vis the large panel OLED and acquiring of new customers compared to your past endeavors? And also, would that mean that we can expect to see some improvement on your profitability on your white OLED business going forward?

And second question relates to your P-OLED business. Your profitability has not been all that great and also the amount of sold volume was quite low at — below by about 40 million. Would like to understand whether you see that going forward as we enter into the second half of the year, we will see improvement in profitability in a meaningful manner, as well as improvement in volume. Another question relates to your tablet OLED business for next year. What is your assessment as to your positioning on your key customers vis-a-vis your competitors? And can we look forward to profitability improvement from this business as well?

Sunghyun Kim: Yes, I will respond to the first question on our LCD exit planning. As you are already aware, we closed down our domestic LCD fab end of last year, and we are currently running our China 8th Generation fab at about 50%. We have downsized the running of that China fab. Now with regards to the LCD TV fab, we are looking at various different aspects to come up with ways to meaningfully utilize the LCD TV fab, and at this point, we are carrying out with initiatives to sell off our domestic Gen 7 TV fab. And with regards to other fabs, we are at this point tapping into various different options that could help us maximize the profit of the company by looking at potentially transitioning it or migrating it for different use case, or through selling it off, or maybe engaging in strategic partnerships.

Unidentified CompanyRepresentative: Hello. I am In-Charge of Large Display Marketing. Before I provide you with an answer, I hope that you could appreciate and understand that it will be difficult for us to provide you with any specific information that relates to our customers. The company as we speak is really endeavoring to bring improvements with regards to our overall customer relationship and the overall dynamics of the structure. We will very actively engage in collaborations with any customer who we deem we could create mutual synergies and who really appreciate and understand the value of OLED. At the same time, we are at this point continuously strengthening our other businesses, including gaming and transparent OLED applications that fully utilizes the strength of the OLED technology, so that we may further bolster our business portfolio in the future.

Now, if you look at the recent macro environment, the volatilities are running high and we have seen market really significantly dampen. And if you look at the sluggishness in the market demand, what we experienced in the high-end market, including the OLED TV, is much weaker compared to what we previously explained in our general purpose B2C products. So under this backdrop, we have seen, during the first quarter, in terms of the OLED panel shipment, really perform weaker compared to the actual set sales or sell-through, due to the fact that there has been the inventory adjustment in our set customers, as well as from the channel, as well as influenced by the slow seasonality. On the other hand, from our major customer, GE, we have seen through preemptive inventory adjustment, as well as cost efficiency efforts, we have seen significant improvements in terms of our performance for the Q1.

And going into Q2, we expect to see a gradual improvement in terms of the volume, as well as in terms of our market position. So based off of this assessment, our positive expectations going forward for the large OLED market still stands, it is still valid, and despite the difficult situation by utilizing and leveraging our competitive edge that we have in the OLED business, we will continue to strengthen our positioning in the high-end TV market.

Sunghyun Kim: Yes. This is the CFO. I will respond to your question about the volume growth for smartphones. Now, if you look at our company’s smartphone capacity based on Generation 6, our capacity is 30,000, and this year we’ll be adding 15,000 more. And we expect to see that our volume growth will be aligned with such capacity additions.

Seong Gon Kim: Hello, I’m Seong Gon Kim, In-Charge of Medium Display Marketing. I will respond to your question about tablet OLED. As we start to enter into the OLED tablet segment in the first half of the year 2024, we are expecting to have a share of about 50% in our strategic customer in the OLED tablet segment. And in terms of the overall OLED tablet market, we are seeking to have more than 60% positioning. Now, as we enter into this tablet OLED business, we are looking forward to two areas of improvement in terms of profitability and narrowing the volatilities of earnings performance. Now, because the panel price is 2x higher compared to the LCD price, we are looking forward to the higher levels of revenue growth. And also, secondly, compared to smartphones, tablets have a much lesser seasonal volatility across the first half and the second half of the year, hence we believe or we hope to see a reduced extensive volatility experience in the first half of the year.

Brian Heo: . We will take the next question, please.

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

Junghoon Chang: Thank you for taking my question. I’m from Samsung Securities. So during the presentation, CFO mentioned that you are looking to increase the revenue mix from the order-based business from 40% to above 70% going forward into the future. Would like to ask for more color with regards to this is that, in the first half of the year I see that your Auto Application business accounts for 11% of the total mix. Then can we expect to see this increase to 40% at the end of the year and what will be the key driver that will enable that? And also if you are seeking to expand your Auto Display business and also expand your order-based business, I would assume that your customers would want to have — would want to confirm the level of capacity that you can provide them. Would like to hence understand what your business management plans are with regards to capacity management?

Sunghyun Kim: Yes, hi. This is Sunghyun Kim, I’m the CFO. I will respond to your question. When we say order-based business, we are not just referring to the Auto business. The concept of order-based business is comp is, I guess is opposite to what we are used to in the display industry, whereby the display industry has usually been based off of supply and demand dynamics based upon the growth of the market. What the companies usually did was build out capacity, add capacity before the actual orders come in, and there has been significant market fluctuation that, hence, the companies were exposed to. So the order-based business is a concept that is in opposite to this demand and supply-based dynamic. Now in that sense, the order-based businesses, basically under this mechanism, the volume of the business is managed based upon the agreement or contracts, as well as communications with the customers.

So it provides one with a clearer visibility and stability, as compared to the demand and supply-based business. Now so based upon that definition, this order-based business will include tablet, mobile phone, watch and auto applications. And auto, as you’ve correctly mentioned, it’s mix will be around 10%, whereas everything else will account for around 30%. So Auto business, in terms of its order backlog and business visibility, it is very high and quite clear, and with regards to how the Auto business will play out going forward, I will turn it over to Mr. Son from Auto Marketing to respond to that question.

Eric Ki Hwan Son: Yes, I’m Ki Hwan Son from Auto Marketing. Now responding first to the overall growth trend in terms of the top-line revenue and order backlog for Auto business, allow me to speak on that first. Now, Auto business, as of the first quarter, we actually reported above KRW 3 trillion in the orders booked, and on a YTD basis in terms of the order backlog, this is a 20% growth when compared to end of 2021, a 70% growth. And so for the Auto business, the revenue for year 2023, in three years’ time we expect to see about a twofold growth going forward, going above the KRW 2 trillion. In three years’ time — within three years’ time, excuse me.

Brian Heo: Next question, please.

Operator: The next question will be presented by Won-suk Chung from HI Investments and Securities. Please go ahead with your question.

Won-suk Chung: Yes. With regards to your long-term horizon approach, you talked about the auto display. But at the end of last year, you started to reduce and phase out your LCD TV capacity. And the fact that the panel prices started to pick up in Q1, of course, didn’t really influence your earnings that much, because of your downsizing of the LCD TV business. It seems you lost — significantly loss-making businesses are OLED TV and your IT business. And with regards to improving the earnings, that seems to be quite necessary at this point. And from the investors’ perspective and as you mentioned during the presentation, you are looking forward to a turnaround in profit in the second half of the year, but would that mean that we would just have to wait for an improvement in the overall market demand or even if the demand recovery is delayed and push back to next year, can we still expect a profit turnaround driven by your cost-savings efforts or maybe potentially a human restructuring of your headcount?

Hee-Yeon Kim: Thank you very much for that good question. I will respond as a CSO to your question. Now, in such a large scale equipment-based industry such as that of a display industry, when there are three factors that are all coming into play, including macro uncertainties, adjustment of the inventory, as well as a muted sell-through demand, I have to admit it is extremely difficult and not easy to predict earnings improvement going forward. Now, we are however looking forward to a turnaround next year in turning around into profit, driven by one of the — one driver, which is industry-based and three very corporate-specific drivers. Now, regarding the industry factor, we do admit that it will be quite difficult to expect a recovery that is significantly driven by improved or a rebound in the actual end user demand, in light of the macro situation that we foresee next year.

However, it’s been about one year since the industry had undergone a significant inventory correction phase and there has been a significant adjustment in the inventory levels and also in terms of the gap or the difference between the panel demand, as well as the sell-through demand. And so, we believe that inventory adjustment in the channel had been taken — had taken place quite extensively. So although, very minor, we are seeing positive signals, where there is an inventory restocking demand that is starting to pick up. Now typically, the market dynamic is such that the set inventory and channel inventory and sales, usually is at a higher level compared to the panel sales. But over the past year, it was quite unusual where the panel volume or the panel sales was much weaker compared to the set sales.

And I think as we go into the second half of the year, we will see normalization of this market dynamic, whereby the panel volume or the sales volume will find its alignment with the actual set sales. And also there are three specific reasons from the company’s perspective. First is the 15,000 capacity for mobile fab coming online, which is going to drive up the volume by about 50%, and that will be the biggest contributor behind a turnaround in profit. And early next year, we will also start to see our tablet fab come online, and as a result, we will be able to see the revenues to around KRW 2 trillion level on an yearly basis. And that will also make contributions to next year’s earnings performance. And at the same time, our order backlog for Auto business is also growing.

And, as was mentioned previously, we will be able to drive up this business from KRW 2 trillion to KRW 3 trillion by next year.

Brian Heo: We will now take the final question.

Operator: The last question will be presented by Dong-Jun Kim from Shinyoung Securities. Please go ahead with your question.

Unidentified Analyst: Thank you. I would like to ask two questions. First has to do with your Auto Electrical business, Display business, you talked about the order backlog. Would like to get some color on what your assessment is in terms of short to mid to long-term profitability. Second question is on your OLED business, your competitor — your domestic competitor has announced a new investment into a bigger sheet or bigger — higher generation investment for OLED. What is your take on this and what is your direction going forward?

Eric Ki Hwan Son: Yes. Hello. I will respond to your question about the Auto business. I am Ki Hwan Son from Auto Marketing. Now, for the Auto business, rather than looking at short-term profitability, what’s more important is to look at the profitability off of the order backlog. That is considered more important. Now looking at the auto backlog, basically, our profitability is on high single-digit, and we will of course, manage our order in a steady manner, so that up until the time that they actually accrue revenue.

Seong Gon Kim: Yes, I am Seong Gon Kim, In Charge of Medium Display Marketing. Now, before tackling your question on OLED investment, allow me to just provide our market outlook and the company’s strategy on IT OLED. Now, from a mid to long-term perspective within the IT Products segment, depending on the level of acceptance — consumer acceptance that is, for each of the product segment, OLED penetration we believe is going to be quite different for different products and for customers. So as mentioned briefly just some moment ago, through the tablet OLED fab, we will be maximizing our mass production efficiency and supported by our proven experience in mass production, we will be able to further bolster our technological leadership.

And also against our global customers, we will be testing the economics of the OLED market by taking our white OLED-based monitor as well as notebook panels, which we supply and which has the Tandem OLED technology applied. We will do this to — we will take these products to test the OLED market, or test the feasibility of our capabilities and will build out the high-end IT product portfolio supported by the OLED. So in light of all of these aspects, our decision for investment will consider the IT OLED market size, the speed of growth, as well as our financial strength and the amount of available investment capital. All of those aspects will be thoroughly considered in making the investment decision.

Brian Heo: Well, with that, we will now close the first quarter 2023 earnings conference call. Thank you very much for joining us today. And please contact the IR team if you have any further questions. Thank you.