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Edited Transcript of 051910.KS earnings conference call or presentation 28-Apr-20 1:00am GMT

Q1 2020 LG Chem Ltd Earnings Call

Seoul Jun 12, 2020 (Thomson StreetEvents) -- Edited Transcript of LG Chem Ltd earnings conference call or presentation Tuesday, April 28, 2020 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dong Seok Cha

LG Chem, Ltd. - Executive VP, CFO & Director

* Hyun-suk Yoon

LG Chem, Ltd. - Head of IR Division

* Lun Cha

LG Chem, Ltd. - Head of Business Strategy

* Young Suk Lee

LG Chem, Ltd. - Head of Business Planning

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Conference Call Participants

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* Hoonsik Min

Crédit Suisse AG, Research Division - Research Analyst

* Rui Hua Ong

JP Morgan Chase & Co, Research Division - Analyst

* Young-chan Baek

KB Securities Co., Ltd., Research Division - Analyst

* Yusik Hwang

NH Investment & Securities Co., Ltd., Research Division - Chemical and Refinery Analyst

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Presentation

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Hyun-suk Yoon, LG Chem, Ltd. - Head of IR Division [1]

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Good morning. This Hyun-suk Yoon, Head of IR at LG Chem. Thank you for taking an interest in LG Chem and joining this call despite your busy schedules. We will now start LG Chem's 2020 First Quarter Earnings Conference Call. We will begin with the introduction of company executives on this call, followed by the 2020 Q1 earnings performance, 2020 Q2 earnings outlook, CFO highlight presentation and the Q&A session. The presentations will be interpreted simultaneously while the Q&A will be interpreted consecutively.

Let's begin today's call with the introduction of the management team. We have CFO, Dong Seok Cha; Cha Lun from Business Strategy; Young Suk Lee from Business Planning; [Ho Lee] from Petrochemicals; [Hong Su Jeung] from Energy Solutions; and [Chong Wook Park] from Advanced Materials.

First, 2020 Q1 P&L. 2020 Q1 sales was KRW 7.1157 trillion, a 4.5% decrease Q-o-Q. With the COVID-19, shipments fell as we made adjustments to our plant operations and downstream industry suspension of their operations. The overall fall in ASPs of petrochem products from lower oil prices also contributed to the decrease. Operating profit was KRW 236.5 billion, and operating margin was 3.3%. Q1 EBITDA was KRW 765 billion, which is 10.8% to sales. Pretax profit was KRW 176 billion, and net income was KRW 36.3 billion.

One little change with how we are showing our earnings numbers due to the suspension of some businesses in Q1. To facilitate comparison to maintain consistency, we have adjusted retroactively the earnings from the suspended businesses from the past earnings based on accounting rules. Therefore, while net income for FY '18 and FY '19 remains unchanged from the past, sales, operating profit, EBITDA and pretax profit exclude the earnings of the suspended businesses. For more detailed accounting-related issues, please refer to our quarterly report, which will be published in mid-May.

Next, our financials. As of the end of Q1 2020, assets was KRW 37.1211 trillion, and liabilities was KRW 19.705 trillion. Borrowings was KRW 11.5537 trillion, an increase of KRW 3.140 trillion. We have issued corporate bonds and new borrowings from overseas such as Europe to preemptively secure liquidity to prepare for the uncertainties. Moreover, exchange rate effect from the Korean won depreciation at the end of the first quarter increased the book value of borrowings by KRW 400 billion. Debt ratio was 113%, and total liabilities to equity was 50%. Financial leverage increased somewhat from the exchange rate fluctuation and preemptive liquidity measures. However, we expect this to peak in the first half and continue to decline from the second half.

Next, earnings and outlook by division. First, Petrochemicals. 2020 Q1 sales was KRW 3.6959 trillion, operating profit was KRW 242.6 billion, and operating margin was 6.6%. Sales and profitability fell from the overall drop trough in ASP and adjustments to the Chinese plant operations due to COVID-19. While naphtha prices fell compared to the second half of 2019, the lagging effect led to the weakening of upstream profitability. However, spread gains in key products for downstream and robust sales of NBL and IPA limited the decline in profitability. In Q2, we expect uncertainties in demand due to the global spread of COVID-19. However, low feedstock prices due to low oil prices will drive the recovery of upstream profitability and maintain solid spread in the downstream business.

Next, Energy Solutions. In Q1, Energy Solutions sales was KRW 2.2609 trillion, and operating loss was KRW 51.8 billion. Energy Solutions sales have also been impacted by the COVID-19 issue and fell by 10% Q-o-Q due to operation suspension in some of its plants and disruption in the customized production. With sales falling below expectation, coupled with the EV that is new line operation, we recorded an operating loss. However, weakening profitability was kept to the minimum through improved yield in the post-planning cost-cutting efforts. In Q2, the COVID-19 impact will be greater with the production suspension in the U.S. It's flat. However, with the increase in shipments for new EV models, greater ESS volume and increase in shipments for EV cylindrical batteries, sales will be higher than the first quarter.

Next, Advanced Materials. In Q1, Advanced Materials sales was KRW 1.1074 trillion, operating profit was KRW 62.1 billion, and operating margin was 5.6%. Downstream display market is in low season. And with the impact of COVID-19, sales fell on quarter, but there have been meaningful improvements in profitability through high degree of business realignments and cost-efficiency measures. We expect sales and profits to decrease Q-o-Q with a wider spread of COVID-19 in Q2. However, we believe there will be tangible benefits from business efficiency gains and cost structure improvements.

Next, Life Sciences and Farm Hannong. In Q1, Life Sciences sales was KRW 159.3 billion, and operating profit was KRW 23.5 billion. Sales slightly increased, exceeding expectations as customers were front-loading some products to prepare for the uncertainties posed by COVID-19. Profitability strengthened also from lower marketing and R&D expenditures. Farm Hannong sales was KRW 221.2 billion, and operating profit was KRW 35 billion. Due to the Korean won's depreciation, profitability weakened slightly Y-o-Y from higher raw material prices for key products. While sales in some Life Sciences products such as aesthetics would be adversely affected, we aim to overcome this through greater sales of our core products. We plan to continue increasing the R&D investment for new drug development. However, the total investment amount could be less than planned due to possible delay in clinical trials. While Farm Hannong may experience supply disruptions for raw materials due to COVID-19, we expect full year earnings to improve by expanding the sales of high value-added products, Terrad’or and specialty fertilizers.

This concludes our earnings presentation. Next, CFO, Dong Seok Cha, will present the highlights of our Q1 earnings performance.

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Dong Seok Cha, LG Chem, Ltd. - Executive VP, CFO & Director [2]

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Shareholders, investors and ladies and gentlemen, good morning. I'm LG Chem's CFO, Dong Seok Cha. Thank you for your keen interest and taking part in LG Chem's conference call despite your busy schedules.

In the first quarter, sales was adversely impacted due to COVID-19, which led to not only the suspension of some of our plant operations but also the suspension of our customers' operations and lower demand. In spite of this, however, we achieved productivity gains, including higher yield for EV batteries and higher internal efficiency from improved business and cost structure of Advanced Materials division. Therefore, LG Chem was able to post profits that exceeded our market expectations. In the second quarter, with the coronavirus spreading globally, including the U.S. and Europe, we anticipate its impact to be greater than Q1, also volatility in the business environment to be at a historic high with the continued sharp drop in oil prices.

In the case of such massive uncertainties, LG Chem plans to prudently overcome this crisis through 3 response strategies: First, we aim to be ever more vigilant and focus on what we can do. While we may not be able to control external factors, we can channel our energy into what we can do internally, such as improving efficiencies and strengthening competencies to overcome the prices and maximize opportunities. As was the case in the first quarter, productivity gains, including improved yields and the new line setup at our Polish plant in the second quarter, are progressing smoothly. And through capacity expansion and productivity gains, we expect to be more stable and shift greater volume in the second quarter. Also, enterprise-wide cost structure improvement activities are in progress. And in particular, operating the SCM system to improve purchasing efficiency and continued cost-cutting initiatives such as vendor localization and diversification are further improving the company's overall efficiency and competitiveness.

Second, there is a greater emphasis on stable cash flow management to prepare for the uncertainties. Primarily, we have already secured a stable cash position through preemptive borrowings and divesting of noncore assets in the first half. In Q1, we issued domestic bonds and borrowed from European banks. And we also secured KRW 700 billion through the green loan contract with KDB in April. Moreover, KRW 400 billion in cash was secured with the sale of noncore assets, including our shares in Beijing Twin Tower. And regarding CapEx, we are reviewing CapEx from its euro base and executing it prudently. While we will proceed on schedule for investments that are essential for the future, we're also downsizing as much as possible for areas that we can postpone or reduce. Thus, we told you that this year's CapEx would be around KRW 6 trillion during the previous earnings call. However, to be more circumspect, we are reducing it to mid-KRW 5 trillion range. We also aim to be more efficient and stable in managing our cash flow through stricter management of our working capital, such as inventories and account receivables.

Finally, based on efficiency gains and stable cash flow, critical investments for the company's future will remain on course. In Petrochemicals, Yeosu's second NCC capacity expansion will progress as planned and ready for operation in the first half of 2021. This will improve the business' competitiveness through feedstock internalization and product differentiation. In Energy Solutions, EV battery capacity expansion is progressing smoothly in line with the growing demand, and R&D investment is continuously being strengthened. In Advanced Materials, we continue to improve its business structure by improving the business portfolio, including OLED materials. And in Life Sciences, we'll continue to expand the pipeline by focusing more on new drug development.

Uncertainties in our external environment have never been greater. Looking back in time, opportunities have always been available in these crisis moments. During the span of more than 7 decades, we grew to become the LG Chem of today through tirelessly changing and innovating when faced with numerous crises. While there may be volatility in the short run, the company's growth opportunity and strategic advantage remain unchanged in the mid- to long term. LG Chem will endeavor to further develop through strict crisis management and efficiency reinforcement. The entire company and employees are committed to do this. Thank you.

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Questions and Answers

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Operator [1]

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[Interpreted] The first, Young-chan Baek from KB Securities.

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Young-chan Baek, KB Securities Co., Ltd., Research Division - Analyst [2]

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[Interpreted] There are 2 questions that I would like to ask you. First, if you look at your Energy Solutions business, it seems to be that in the first quarter that in terms of the profitability, it has improved. And as a result of that, it seems to be very positive. However, going into the second quarter, the question I have is that for your Poland facilities, what would be your overall utilization of those facilities? And how do you think the overall revenue will look like for that?

The second question that I would like to ask you is about the market outlook for PE and PVC. It does seem to be that these 2 markets show different aspects. Going into 2020 for the full year, what would be your overall outlook for these markets?

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Unidentified Company Representative, [3]

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[Interpreted] So maybe I can answer your first question with regards to the Poland facilities, the utilization that we have there, also the yields and the overall outlook that we have for our performance and also talk about the second quarter sales outlook that we have. I am [Hong Su Jeung] from the Energy Solutions business. And first, to talk about the overall performance, I do believe that this is something that we mentioned during our February conference call. But in terms of the specific numbers surrounding our utilization and also the overall yield levels, unfortunately, this is something that we would not be able to share with you. However, what I can say is that for the Poland facility as a whole, we do see an overall improvement in those numbers taking place. And this is something that does continue in terms of the momentum. So if we look at the last stages of the build-out that we have in Poland, the equipment in itself is similar to or the same as the equipment that we have for our existing facilities.

And amidst the situation in which COVID-19 is of course taking place, for some of the customers, there has been some volume adjustments in terms of how much they are taking. So therefore, if we look at the overall utilization on a line-per-line basis, there are some differences that we see. So for some lines, we have decreased the overall utilization of the lines because of the customer volume. However, for other lines, we're actually running at the full utilization that would be possible.

In addition to that, if we talk about the overall yield levels, I would have to say that again, for some lines that -- in terms of the overall utilization are showing lower levels, we do believe that we are engaging in overall changes to the overall facilities and also the processes that we have at the same time. So for the yield, we are in the process of trying to stabilize the overall yield levels as a whole. So if we look into the overall performance of this business, same as we saw in the first quarter going into the second quarter, we do believe that the overall build-out will continue to go very smoothly. At the same time, for the utilization, on a line-per-line basis, there will be some differences per line according to who the customer is, but we think that on the yield side, overall, we should see a normalization in yields.

So with that overall backdrop, if we talk about the outlook for the second quarter, first, I think what I can say is that if we look at the first quarter performance versus the fourth quarter of last year, on the top line side, we did see a Q-o-Q 10% decrease. And on the profitability side, it is true that we did -- we were in the red. However, as mentioned before, for the new lines, things are going smoothly. In addition to that, we did have some new lines that were included. And also as a result of that, for the smaller-sized batteries, there was some seasonality. And then the COVID-19 situation hit us all in all, which did dampen our profitability. However, we have seen improvements on the yield levels and we continue with various cost-saving efforts. So as a result of that, we have tried to minimize the losses as much as possible. Going into the second quarter, if we look at the overall revenue side, I would have to say again because COVID-19 continues to be a situation that will continue into the second quarter, we do think that the hit on the revenues could be larger than the first quarter because of that. However, we also see, on a positive note, that the overall new models on the EV battery side continue to increase. ESS volume will continue to increase. And also, the cylinder-type batteries for EVs is something that we see again taking place. So all in all, we do think that there will be a 20% increase. And for the full year of 2020, looking at the overall forecast that we have, we do think that versus the plan that we initially had, there can be some adjustments. However, in terms of the overall growth, this is something that we see continuing throughout the year.

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Unidentified Company Representative, [4]

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[Interpreted] So maybe I can move on to your question about the Petrochemical business. I am [Ho Lee] from Business Strategy for Petrochemicals. First, to talk about the PE market, it is true that the overall crude prices have been in a weak area. So as a result of that, we see PE spreads widening. And on the short-term side, we think that the absolute demand that we see is something that will be very sluggish and this should continue into the second quarter. However, when we talk about our competitiveness within the PE market compared to the North American ECC capacity, NCC is gaining a lot of competitiveness, and this is a trend that we think will continue throughout the year in light of the oil price trend. So as a result of that, we do think that, that will add some robustness for us.

To talk about the PVC market, in the second quarter, again, if we look at our main export markets, for example, India, it is in a lockdown situation and this is something that we do see continuing into the second quarter. So as a result of that, demand for PVC again will be something that will be sluggish. The way that we're planning to deal with this is to have our turnarounds take place in the second quarter. So for the supply side, we want to be able to have some flexibility there. Again, as we have mentioned for PE, PVC, I think it's the same type of dynamic we see taking place. Low crude prices, as a whole, will make our overall SM-based facilities more competitive versus the Chinese facilities that are out there. In addition to that, there are stimulus packages that are being released by various governments. And also, we think that the construction market could see some more action taking place. So as a result of that, we think that, that will be positive for PVC. So PVC, again, for the full year, we think will be a strong market.

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Operator [5]

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[Interpreted] The next question is Yusik Hwang from NH Securities.

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Yusik Hwang, NH Investment & Securities Co., Ltd., Research Division - Chemical and Refinery Analyst [6]

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[Interpreted] There are 2 questions that I would like to ask you. First is that if you look at COVID-19 that is taking place around the world, the progress that we see for the actual epidemic, I do think it's different stages from region to region. So for example, in China, we do see the economy reopening, whereas in the U.S. and Europe, it's still in a shutdown situation. So if we look at your petrochemical products, for example for ABS and other products that you have, and look at the shipments per market around the world, how has that changed? So for example, if we take the shipments at the beginning of the year then look at the first quarter and then right now, we're in mid of the second quarter or so, if we would look at your shipments, 2 different regions around the world, how has that trend changed per different market? That's the first question.

And then the second question is about your EV batteries. I do believe that you mentioned that your EV batteries have declined in terms of the overall revenues. If we were to look at your full year guidance for this business in terms of the top line, the profit margins, also the capacity and the overall volumes in terms of your order book, how -- what would the guidance numbers be like as of the current time?

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Unidentified Company Representative, [7]

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[Interpreted] So maybe I can address your first question about the Petrochemical business. If we look at the products, products that go into tires or automobiles are the areas in which we do see a larger influence taking place. So for example, for ABS and also synthetic rubbers, we do think that the overall market will continue to be weak. In addition, if we look at it by region, it is true that in Europe and also North America right now, it's still in a lockdown situation. So if we look at the [total and PO] market, it is dampened because of that. In addition to that, we did mention before that for PVC, because of the India lockdown situation, we do believe that demand will continue to be weak there. And therefore, for the Europe and for the capacity that caters to Europe and also the North American markets, we do think that there will have to be some adjustments in the capacity in the second quarter.

For the PVC capacity that we have, as mentioned, the way that we want to be more flexible is by having our turnaround take place earlier than scheduled. So that is something that will take place. However, in terms of the overall market demand, we do believe that in the general scope that we will see an around 20% decrease in terms of that number. Of course, there's a lot of changes that can take place surrounding that number because of how the situation takes place going forward. So for example, if we look at China, China can be one of the bigger drivers. So for the ABS product, for China, in actuality, February was a low point. So that was the bottom for there. And if we look at the situation since then, it has been gradually recovering. So right now, we're at 80% utilization and also sales.

So as mentioned, for the overall situation, we will have to see how things normalize. And in addition to that, we also see there is some demand areas that are related to the COVID-19 situation. So for example, for latex and also for MBPP, these are areas in which we see stronger demand. So we do think that flexibility is required to overcome the current situation.

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Unidentified Company Representative, [8]

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[Interpreted] Maybe to move on to the second question about our EV battery business and talk about what the regional differences look like and, in addition to that, for the yearly guidance in terms of the top line, profitability and capacity. First, to talk about the first quarter, it is true that for some of our facilities in China and in the U.S., we did have some periods during which they were not running in the first quarter. In addition to that, for our clients, some of our clients had shut down their facilities. So all in all, this had led to a lower revenue level. Going into the second quarter, again, if we look at the U.S. for the U.S. facility, starting at the end of March, for 6 weeks, that facility will be shut down. However, in Korea and China, we are seeing that there is normalization taking place in the businesses there. So we think that for the capacity that we have in those locations, it will be running at normal rates. So from region to region, we do see some differences and variances taking place.

For the yearly guidance numbers, first talking about our revenue numbers, as mentioned before, we actually see that for the overall revenue growth, this is a trend that we do not see haltering. However, for the absolute number, I think that in our previous conference call, we had mentioned an overall number of KRW 15 trillion for the year. Inevitably, because of the current developments, we do think that it will be lower by around 10% to 15% versus that number. And because the top line will be a lower number in terms of profitability, I think that, that will also need to be adjusted. So previously, we had talked about a mid-single-digit number. That would probably be more like a low single-digit number. However, as the CFO had mentioned during his highlights, in terms of our preparations for the future for investment and capacity build-out, that is an area in which we do not intend to slow down. So plants will go ahead according to what our initial schedule was. So for that setup, that should go according to our normal schedule.

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Operator [9]

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[Interpreted] The next question is [Tae Sung Yun] from Hana Investment.

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Unidentified Analyst, [10]

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[Interpreted] The first question that I would like to ask you is about your Advanced Materials business. Looking at the revenue numbers and also profitability, it seems that your historic numbers have been modified. Is this due to accounting changes? And if so, what type of changes were reflected? In addition, I think that in terms of the strong performance for this quarter, one of the reasons that you have mentioned is that for your cost, you have been able to achieve higher cost efficiency. Could you talk about a bit more detail about what this cost efficiency actually represents?

The second question I have is about your overall EV battery business. There have been news reports about Tesla making more traction in building their own in-house batteries or newer in-house batteries. So is there any information that you have been sharing within the company about that development? And with regards to that customer, what type of risks do you believe this new battery would represent versus the opportunity that it would have for the company?

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Hyun-suk Yoon, LG Chem, Ltd. - Head of IR Division [11]

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[Interpreted] So maybe I can address your first question. I am Yoon Hyun-suk from the IR department, and this is with regards to the accounting changes that have taken place. The main reason for this is because we have a discontinued business. So in the case that there is a discontinued business for the company, what we try to do is that we want to make sure that with historic data, you can make an apples-to-apples comparison. So for the past 2 years' data, we do adjust for the discontinued business to be taken out of our past performance. So we have discontinued the glass substrate business, and that is the reason why for 2018 and 2019 numbers that this business has been taken out of that -- of the historic numbers in terms of the revenue and also the operating profit. So this was retrospectively applied to those years. However, if you look at the net income level, those numbers remain the same. But on the top line side, for example, if you look at FY 2019, that would represent a decrease of around KRW 110 billion. So for the more details about what adjustments actually have taken place, we do believe that after our overall auditing process is completed, then in the mid of May, we'll have an annual report available for you in which the details would be laid out for your reference.

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Unidentified Company Representative, [12]

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[Interpreted] And maybe I can add on to the question you asked about what type of cost efficiency activities we had engaged upon. I am [Park Chong Wook] from Advanced Materials business. So in the first quarter, one of the activities that we engaged upon is that we looked at the number of SKUs or SKUs that we had, and we identified those that were low efficient and we tried to rationalize some of that. So there was some restructuring in the number of SKUs. And in addition to that, for areas in which we saw excess cost, so we had an F cost activity or program that we had run within the company to also cut costs there. So this is an effort that we will continue into the second quarter so that we, on an overall structural standpoint, can increase the competitiveness of our business.

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Unidentified Company Representative, [13]

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[Interpreted] And maybe I can talk about the second question about Tesla and the in-house battery development that they are planning. This is [Hong Su Jeung] from the Energy Solutions business. First, I would have to start with saying that it is very difficult for us to give specific comments about specific customer in the past. I would have to say please understand our position in that area. So about your question, what we can say is that for the overall EV battery business, as the overall market demand continues to increase within the market space, we do see that there are companies that are trying to develop their own batteries in this area. So this development is something that we continue to monitor very closely and we do have our own market intelligence but -- and this is where -- so this is something that we do pay a lot of attention to.

And I think that from the company's perspective, what we can say is that the battery business for us is a business that we have been engaged upon for the past 2 to 3 decades. So we do have our own fundamental and proprietary technology. We do have a lot of technology that we have for processes, and we have accumulated significant know-how and expertise across this period of time. So I think that in terms of the chemistry of our batteries, we do have a point of difference, whether it be for how the longevity of the batteries in terms of the distance traveled, whether it be for the charging side or whether it be for the fast charging, overall characteristics. I do think that on all of these different points, there are points of differentiation that we have been able to achieve. And as a result of that, that is why we continue to supply very strongly within the market space. In addition to that, on the processing side or on the manufacturing side, in addition, we also have automation and also a lot of production efficiencies that we have been able to achieve in terms of increasing our productivity. And needless to say, this is an effort that will continue to happen going forward. So in the future, we do believe that the market and also our customers will recognize the difference in -- the differentiation -- the difference in value that we continue to provide to them.

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Operator [14]

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[Interpreted] This next question is Parsley Ong from JPMorgan.

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Rui Hua Ong, JP Morgan Chase & Co, Research Division - Analyst [15]

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This is Parsley from JPMorgan. I have 2 questions regarding your EV batteries division. First question is China recently extended the EV battery subsidy policy for 2 years. What impact do you think this will have on your business? For example, are there any models that LG Chem supplies in China which are expected to receive EV battery subsidy? And overall, are you seeing a lot of pressure from OEMs to renegotiate contracts or lower the pricing? And just now you mentioned that you expect Energy Solutions OP margin of low single digit, but specifically, what is your OP margin outlook for EV batteries in second quarter, second half and over the next 3 years?

Second question is with regard to your capacity expansion plan. You mentioned just now that you're cutting your 2020 CapEx. Could you -- is this from your China EV batteries division? And could you just give us an update on your capacity expansion plans, including your Geely joint venture? (foreign language)

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Unidentified Company Representative, [16]

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[Interpreted] So maybe I can take your questions one by one. Maybe I can address first your question about what the impact should be with China's announcements to extend their subsidies by 2 years. The second part I will talk about would be the overall profitability guidance for the second quarter and the second half. And lastly, maybe I can take your question about what our capacity expansion plans would be for China and in general.

So to talk about first the subsidy issue, as you have mentioned, China has made the determination to extend the subsidies for 2 years. And we do think that if we look at what the impact will be on the market, it is true that recently, EV demand has slightly dipped in China. However, over the mid- to long term, we do think that it will continuously grow. And we think that the recent announcements by the Chinese government will be a positive influence on the overall market. So as has already been announced, some cars that do use our batteries have been included in the list of eligible models for the subsidies. So we think that with that, in addition, for the overall foreign OEMs, the regulation towards them or the overall attitude that the Chinese government has had in the past is easing. So I think that, that in itself will represent more opportunities for our company going forward, so not only for the models that have been included in the list recently but over the mid- to long term. For China as a whole, we will continue to try to expand our business opportunities within this market.

And maybe to move on to the second question, which would be about the overall margins in the second quarter and second half and the guidance for that. For the second quarter, as we said, for the top line, we do think that there will be an increase. If we look at the impact of COVID-19 specifically, we do think that, that will have a larger influence in the second quarter than it has had in the first quarter. So though in the second quarter we do think that there will be an improvement in our margin levels, we do think that the level of that will be limited. However, again, across the 3 different areas in our battery business, we do think that shipments will continue to increase. And added to that, we will see yield improvements in factories such as Poland. So as a result, we think that the second quarter margins will be better than the first quarter. Going into the second half of the year, as mentioned, our initial margin guidance was in the mid-single-digit. And now we're looking at the lower single-digit type of numbers. And I think that, that represents that we will see -- that we expect there to be a gradual improvement in the overall margin levels on a quarter-to-quarter basis throughout the year. So i.e., what that means is that we think that the second quarter, though slight, will represent a better quarter than the first. And then in the third quarter and fourth quarter gradually, we think that overall profitability will improve throughout the year so that at the end of the year, we get to the low single-digit number that we talked about before.

So to -- just the last part of the question, which was about our capacity expansion plan, focusing on China. In the short term, because of the COVID-19 situation, for our China overall capacity situation, there was some slight delays that we had experienced because of COVID-19 but we don't believe that, that will lead to an overall delay. So as of the end of the year, as mentioned before, we do plan to stand at 100 gigawatt-hours for this year and then at 120 gigawatt-hours for next year. So for those capacity plans, there are no changes on a full year basis. And in China, we not only have the capacity expansions that we have in the Nanjing area, but we also have a JV that we have formed with Geely. For that schedule in itself also, there shall -- there are no big changes that we are expecting to the commercial production plant.

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Operator [17]

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[Interpreted] Last question is Hoonsik Min from Credit Suisse.

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Hoonsik Min, Crédit Suisse AG, Research Division - Research Analyst [18]

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[Interpreted] There are 2 questions that I would like to ask you. First is that for the second half of the year, what are your funding plans? Do you have any additional plans to raise more funding during the second half of the year? And in addition to that, you are in the process of selling your polarizers business. Could you provide an update of that sale?

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Young Suk Lee, LG Chem, Ltd. - Head of Business Planning [19]

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[Interpreted] So this is Young Suk Lee from the Business Planning Department. Maybe I can address this question. If we talk about the first quarter, as mentioned before, we did raise around KRW 2.7 trillion in debt in the first quarter. And then in April, we did raise an additional KRW 700 billion. So as of the end of April, we stand at KRW 3.4 trillion for this year. In addition to that, we also sold some noncore assets. And through that sale, there was around KRW 400 billion in addition that we were able to generate. In the second quarter, we do have maturities that will be coming due. That represents around KRW 600 billion. So for the second half of the year, the plan is to refinance that outstanding amount, and that would be the plans that we have for this year.

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Lun Cha, LG Chem, Ltd. - Head of Business Strategy [20]

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[Interpreted] So this is Lun Cha on from Business Strategy. For the polarizer business, we are in discussions with multiple parties as of this time for strategic alternatives going forward. Please understand because this is an ongoing process that we cannot share the details with you.

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Unidentified Company Representative, [21]

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[Interpreted] So with this, we would like to wrap up our earnings conference call for the first quarter of 2020. We do know that due to the time, not everyone had the opportunity to ask questions. So if you have not received an opportunity or if you have any additional questions, please do not hesitate to contact the IR team. And once again, for all of you who are -- who participated, thank you very much.

[Portions of this transcript that are marked Interpreted were spoken by an interpreter present on the live call.]