EcoPro BM Co., Ltd. (A247540) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, and good evening. First of all, thank you all for joining this conference call. Now we will begin the conference of the Fiscal Year 2025 Fourth Quarter Earnings Results by EcoPro BM. This conference will start with a presentation followed by a divisional Q&A season. Now we will begin the conference of the fiscal year 2025 fourth quarter earnings results by EcoPro BM.

Good afternoon. Thank you for participating in this conference call and taking time out of your busy schedule to be with us here today. Today, on this conference call from the company, we do have the CEO, Kim Jang-Woo; the Vice President of Strategic Planning, Bang Han-Min; the vice President of Sales, Kim Chang-Guk; Managing Director of Production, Lee Heyon-Jin; Managing Director of Purchasing [ Shin Ho-sang ]; Managing Director of Development, Gong Bo-hyun; and Managing Director of Technical Sales, Oh Dong-Gu. In addition, please note that the data presented may change upon the audit results of the external auditor. And with that, let us start the first quarter 2025 Earnings Conference Call for EcoPro BM.

So good afternoon. This is Ju Jin-Woo, the Head of the IR team at EcoPro BM. Please refer to the material that we have shared beforehand. For today's conference call, we will present the company's performance. After which, we will have a Q&A session with management. First, let us start with an overview on the consolidated performance of the company. Please turn to Page 4 of the presentation. The company's fourth quarter consolidated revenue totaled KRW 499.2 billion, a decrease of 20% quarter-over-quarter. Operating profit declined 19% Q-o-Q, posting KRW 41 billion. On the top line, fourth quarter shipments to Europe jumped significantly due to the base effect from inventory adjustments customers made in the previous quarter. However, shipments to North America decreased 20% on the back of the end of consumer EV subsidies and a drop in ESS sales. For your reference, in the fourth quarter, ASP increased 7%, driven by higher metal prices and a weaker won against the U.S. dollar. Operating profit recorded KRW 41 billion as we increased the efficiency of research expenses and changed the useful life of certain intangible assets. Now let me go over the revenue breakdown on Page 5. First, to talk about our sales amount in the fourth quarter in terms of the different product types. Key customers in Europe increased their shipments, which led to our EV-related sales increasing 4% quarter-over-quarter. For power tools, there was a decline in the ASP and a surge in replacement demand across the second quarter to third quarter, which led to a fall in the fourth quarter of 16% quarter-over-quarter. On the ESS side, the high base effect of the previous quarter led to a 43% Q-o-Q decrease. But as we expect data center construction and use to grow, we expect sales for ESS and power tools to recover. Next, let me move on to the balance sheet on Page 6. As you can see on the financial statements on the left, as of the fourth quarter end, total assets increased 5% Q-o-Q to KRW 4,854.9 billion and total liabilities grew 6.9% Q-o-Q to KRW 2,846.3 billion. Total shareholders' equity was up by 2.3% to KRW 2,008.6 billion. Inventory increased 19% due to slow sales to North American customers and strategic stockpiling in light of our 2026 production plan. The current ratio was up from 70% in the previous quarter to 73% in the fourth quarter, driven by an increase in cash and cash equivalents and inventory assets. The net debt ratio improved from 102% to 96% as cash and cash and equivalents increased by KRW 213.9 billion quarter-over-quarter. Next, on Page 7, let me go over the business environment and our future direction. First, utilizing the Hungary factory that will start mass production in the first half of this year, we will strengthen our competitiveness in Europe. In more detail, we will aim to achieve an early stabilization of production in Hungary to increase a foundation to address customer requests in a timely manner. In addition, we will target new European customers to further diversify our product lineup. Next, in order to manage the impact of key metal price movements such as nickel and lithium, we will engage -- we will efficiently manage inventory based on a cost linked price mechanism. And in addition, we will strengthen our cost competitiveness by using our nickel smelters in Indonesia. Lastly, in addition to the EV market to deal with the new markets that are emerging for batteries, which are namely robots, autonomous vehicles, urban air mobility and defense, we will shorten the commercial launch schedule that we currently have so that we can commercialize our products as much as possible, in the case for solid-state electrolyte, which is a key material for solid-state batteries. In addition, we will also continue to accelerate the development that we have for next-generation materials, such as solid-state batteries cathodes and also silicon anodes. This wraps up our presentation for the fourth quarter. Thank you very much.

So with this, we would like to wrap up our presentation and now start the Q&A session.

[Operator Instructions] The first question will be presented by [indiscernible] Securities.

This is [indiscernible]. There are two questions that I would like to ask you. First is, you did talk about your performance, I do think that in terms of the overall direction going forward and the outlook, this is something that you have touched upon. But in terms of the actual performance, how do you think that, that will evolve next year? The second question that I would like to ask you is that during the presentation, you did mention that for some of the tangible assets, you have changed the useful life. If you could explain this in more detail, that would be appreciated. And in addition to that, how would the depreciation cost in 2025 and 2026, what would that look like? If you could explain that, that also would be helpful.

So maybe I can address your first question about how we see our overall performance evolving this year. This is the CEO of the company. Kim Jang-Woo. Before I go specifically into how we think about things, maybe I can just briefly touch upon how market the sees things. And if you look at the key research and market institutions right now and the reports that they have actually released recently. For 2026 and the global EV market for growth, I think that the overall estimate is that it will grow approximately around 20%. And in particular, in light of the changes that are taking place with regards to emission gas regulations, in the European EV market, the overall forecast is that the market will grow at a pace of around 20% -- 25%. However, in the case of the North American EV market, since overall subsidies that were given at the government level to consumers have come to an end, we do think that the growth aspects there will be a bit more limited. So if we talk about the performance of the company in line with this backdrop, although there are uncertainties in the North American market, we do think that for Europe and our key customers there on a Y-o-Y basis, there will be the base effect due to the inventory adjustments that have taken place. In addition to that, in the European market, the consumer subsidies are also going to be reinstated. So as a whole, we do think that our overall growth in terms of our sales volume for the year will be at around 30%. To talk about profitability, as our overall sales volume does increase, we do think that, that will offset some of the fixed costs that we have. In addition to that, as our productivity improves, there will be cost savings that we will be able to enjoy. So as a result, we do expect that on the operating profit line, we will be able to have solid performance. Thank you.

So maybe I can address the second question that you had in terms of the useful life for our tangible assets and the size of our depreciation. This is the VP from Strategy, Bang Han-Min. So the reason why we adjusted the useful life this time around or changed it was because if you actually look at the number of years that we're using the various production facilities that we have on site, we have confirmed that it was longer than the useful life that we were quoting. So therefore, we had actually looked into what the industry average is, and as a result of that, based upon the standards that are provided on K-IFRS for tangible assets, we made the determination to change our standards. So as a result of that, for facilities and various equipment, the useful life was changed from 10 to 15 years. And for various structures and buildings, it was changed from 20 to 40 years. So as we have changed the useful life, we think that if we look at 2025 depreciation, that will be around KRW 70 billion. And versus the -- what we have had previously, it would be around KRW 40 billion lower. In 2026 in the first half of the year, we are planning to start the Hungary factory. So for 2026, total depreciation, we do expect will end up at around KRW 100 billion. In 2026, in the first half, as mentioned before, because our Hungary factory will be going online, around that point of time, we do expect that our overall costs will increase. However, at the HQ level through a task force that we have created, we will try to early stabilize the Hungary factory's production and also ensure that the line operation is optimized.

The following question will be presented by Lee Chang Min from KB Securities.

This is Lee Chang Min from KB Securities. There are 2 questions that I have the first question is that BOSK has come to an end. And as a result of that, what would the overall impact be in terms of your sales volume and also the way going forward? The second question also is about your Hungary factory. You did say that it would be up and coming in the first half of the year. So what is the production schedule by line? And how do you think the overall production volume will look like on a year-to-year basis?

So this is the Vice President of Sales, Kim Chang-Guk, and maybe I can address your first question about the overall impact on our sales. From the liquidation of the BOSK and how we are going to deal with this going forward. So as you already have seen in various press reports, there has been an agreement between SK On and Ford to end the JV that they have established in the U.S. And in addition to that, Ford, for some of the EV models that they have, has also decided to suspend production for that. So as a result, we do think that it is inevitable that our EV-related volume in North America, including that, that would be shipped to Ford cannot help but be decreased. However, that have been said, as we had expected initially that the U.S. government would actually abolish or maybe decrease some of the support that they were providing for EVs. With regards to the EV battery demand in North America, we actually did forecast initially that it would actually decrease significantly versus our initial expectations. So even before the announcement, we have preemptively adjusted some of the sales targets that we have set for the North American EV market in light of this volatility. So in the Hungary factory, as mentioned, we will be starting operation. And as a result, for European EV business, we are planning to expand that business. And for the ESS-related business areas, which are showing very solid growth recently, we are also securing more volume there. In addition to that, on the power application side, we are expanding our business there also. So we will try to offset the impact from the sluggish business in the North American EV market and therefore, continue to grow this year again. So we do think that we will be able to grow this year once again.

So this is the MD of production, Lee Hyeon-Jin, and maybe I can address the second question that you had about our Hungary factory. If you look at our Hungary factory in terms of the total per year capacity, it represents around 54,000 tons. And if you look at the actual significance of this factory, it would be the first cathode production factory in Europe built by a Korean player. So we do think that it will play a critical role in us making more inroads into the European market. Specifically, if you look at the location of this factory, it is located in the Central European area, which is in very close proximity to the key OEMs and also battery cell producers. So therefore, we do think that in terms of the logistics cost and also supply chain management areas that there will be an increase in efficiency that we will enjoy. So therefore, we do believe it will contribute for us to expand our market share in the European market. So for the Hungary factory in itself from the second quarter of 2026, we will start the line operations one by one. And for the yearly production volume, of course, this will be dependent upon any changes in demand that our customers may represent. But just very generally, we think that for this year, the overall production will be around 10,000 tons. And for next year, maybe around 20,000 to 30,000 tons. In particular, in the EU in itself, because of the policy to build out supply chain, excluding China, we do think that over the mid- to long term, the volume in the Hungary factory will continue to grow. And as a result of that, we will try to continue to improve the productivity per line and also continue to enhance our overall production competitiveness.

The following question will be presented by Ju Minwoo from NH Investment Securities.

This is Ju Minwoo. I have 2 questions that I would like to ask you. First is that for the development that you have for various solid-state battery related material, how is that progressing? And in terms of your LMR material development and maybe mass production plans, if you could talk to that, that would be appreciated. The second question I have is about your LFP-related business plans. What would that look like and what investments would be required going forward?

Yes. This is Gong Bo-hyun. I am the Managing Director in charge of development. So maybe I can talk about our solid-state material development progress that we have been made. So if we look at the key material that is required for solid-state batteries, one of them would be solid electrolyte. So from a few years before, we have actually launched our development on sulfide-based solid-state batteries to create solid electrolyte. And we do have our own internal proprietary process that we have developed. And we do have a pilot plant that is in operation right now that represents the capacity of 400,000 tons per year. So for the solid electrolyte that we are able to produce, right now, it has been supplied to key battery manufacturers, and we have completed the QA process. Right now, we're at a stage in which we are designing the mass production lines. And according to how customer demand evolves, we will start the construction on these production lines. So as of now, the estimated time line that we would have would be sometime around 2027. So in addition to the electrolytes, we're also looking at the cathodes that would be used for solid-state batteries. They are one of the few companies around the globe that is able to produce both the solid electrolyte and also the cathodes that would be needed. In particular, in the area of the cathodes, for solid-state battery cathode, the tertiary high nickel cathodes are also essential. So therefore, for our company, we're able to apply the technology that we have in a wide variety of high nickel cathode production so that we can actually develop the most optimized cathode that would be used for a sulfide-based, solid-state electrolyte. So this will enable us to lead the market in the solid-state battery materials area. Next to talk about LMR cathodes. Right now, for LMR cathodes, we have finished the development on a pilot scale. And right now, we are -- we have also completed the performance verification that is required by our key customers. So right now, we are in a process in which we're receiving QA from our customers for the mass production type samples. Once we are able to confirm orders from our customers, to ensure that we are in a position to convert to mass production when necessary, we are going to use the existing production lines that we have for our existing tertiary batteries to optimize the production and also to increase the overall production efficiencies. At the same time, to ensure that we can confirm the overall product reliability that is necessary, we are building a framework to ensure the quality of the mass production that we need so that we can be prepared to meet the demands of the market in a timely manner.

So this is the Vice President of Strategy, Bang Han-Min. Maybe I can address the second question that you had, which was about LFP cathodes, the business plan and also the investments going forward. So in line with the rapidly growing demand that we see within the market, we are currently reviewing the business of LFP catalysts for ESS products in North America. So as you are probably aware, in Ochang right now, for the first in Korea, we do have a mass production scale, 4,000-ton capacity, which would enable us to produce the fourth generation products. And in addition to that, on the third generation side for precursor-free LFPs, this is also something that is in development so that we would be able to be in a state in which we would be able to have a supply chain that would be not necessary to depend upon China. So completely China-free, should we say. So based upon this, we are currently in discussions with multiple customers. So in the case that the discussions that we have ongoing come to more detailed fruition, then I do think that we are trying to prepare ourselves to ensure that we can start mass production as necessary. So internally, we are looking at the details right now in terms of the location, the schedule, the size, method and the overall cost of CapEx that we would like to invest. However, that has been said, in light of the recent surge that we have seen in lithium prices and also due to the fact that on the external side, we do think that the policy-related volatility, it can be very large. In terms of any investments going forward, we would thoroughly review the risks to look at the pros and cons. And if we do come to a determination, then of course, we would make sure to communicate to the market as that comes available.

The following question will be presented by [indiscernible] from Shinhan Investment Securities.

There are 2 questions that I would like to ask. Your first is that if you look at the metal prices recently, lithium has been surging. So how has that been impacting your overall ASP? And in addition to that, what type of metal sourcing policy do you have? That would be the first. And on the second side, right now in terms of your mass production, I do think that there are new orders that you have in Europe that you are servicing. So with regards to that, what is the overall situation?

So this is in Shin Ho-sang from Purchasing, and maybe I can address the first question, which was about the lithium price trends that we see, the impact of that and our overall purchasing strategy. First, on the lithium side, because there are all concerns that some of the production, the companies that are producing lithium may decrease their overall production volume and also because there's an increase in demand. There has been some concern about the outlook going forward. And as a result of that, if you look at how prices have been trending, in the previous quarter, it was at an average around $10, then it moved to around $20. Now it's back down at around $17. On the nickel side, also, the Indonesian government has also decreased their production quarter for quota for nickel. And as a result of that, in the previous quarter, it went from $15 to $18, and now it's down to $17. So for the time being, we do think that this type of up and down will continue in terms of prices. So if you look at our situation, any changes that there are in the metal prices in itself are reflected into our customer sales price. So therefore, that -- there is a cost pass-through that we enjoy in terms of our pricing system. As a result of that, if there is an increase in the metal price, there will be a direct impact on our sales price. However, if you look at the profit, there is a time lag that there would be in terms of how the impact is incorporated. But at the end of the day, the overall impact would be limited. And this also works in the flip side when metal prices go down. So due to this impact, at the company level recently in an environment in which metal prices are changing, shift move back and forth, we do continue to closely communicate with our customers and also look at ways to best manage our inventory.

So this is Oh Dong-gu, the Managing Director in terms of Technical Sales, and maybe I can address the new orders that we see and the evolution of that. So in the past, if you look at our customer portfolio, it is true that there was a high concentration. However, now we are based upon a strategy in which we want to diversify our overall product portfolio. And thus, we are making efforts to try to attract new customers with more customized to our products. So from product to product, of course, if we go in a bit more detail. For the existing key products that we have, which would be the high nickel products. Right now in the North America and European market, we have been able to win some new orders. In addition to that, outside of the high nickel area, for the new high-voltage mid-nickel products in North America and also in Europe, with a wide variety of cell producers and overall global OEMs, there are various new order projects that are ongoing. So as mentioned before, we do have the Hungary factory going online this year. And because it does have various benefits in terms of the proximity to our customer base, right now in Europe, we are actively in discussions with a multiple number of cell producers and also global OEMs. So within the year, we do expect that we will have around 2 to 3 projects that we will be able to see some tangible results in. And we do expect to be selective as the cathode producers for such projects. Going forward for the next 2 to 3 years in the North American and European market within the EV market and also. Within the global OEMs, there are some momentum of new car-related platforms changing. In addition to that, in the ESS area, because AI data centers are increasingly growing, we do think that there will also be some new order momentum that we will be able to see there. So thus, we do expect there are big opportunities that we can look forward to in increasing our order book.

So due to the time constraint, we will take one last question.

The following question will be presented by Chang Jung Hoon, Samsung Securities.

This is Samsung Securities. I think that a lot of the questions that were asked have already been -- that I had actually wanted to ask, have already been addressed so there are 2 other questions that maybe I can ask you about. First is that if we were to look at 2026 and look at the global capacity that you have on a Y-o-Y basis, what would that actually look like? In addition to that, when you talk about your global capacity, does that include LFP capacity? That's the first question. And the second question that you have is that for the solid-state battery-related material that you are currently developing, I do understand that initially the target application with electric vehicles. However, if you look at the situation now, I do think that there is some interest in the humanoid area and also urban air mobility related devices. So if that is the area in which the material needs to apply, does that change your development concept at all? Or would there be any changes there? How does that work?

So if we were to talk about the total capacity that we currently have right now in our Pohang site in Korea, we have the CAM5 line, which is 3 lines. And then we have the CAM5 N which is 2 lines. the CAM8 to -- 6 to 8, which is 7 lines. And in addition to that, as we had mentioned during the presentation, we have plans to open up our Hungary site. That would represent 3 lines. So in total, if you look at the total capacity for this year, including Hungary, that would be 15 lines in total. LFP is not included in this number. However, if we were to include LFP, which is not fully mass production level yet, but more semi mass production level should we say, that would be around 4,000 tons in addition to that.

So maybe I can address the second question that you asked, which would be that it's the material that we're currently developing or which initially started with in terms of application, EVs for solid-state batteries. If that is applied to humanoid or UAMs, does that makes any change in the development in itself? For that, we have actually not engaged in any discussions with our customers about changing the applications for which the material would be actually used. However, that has been said. As far as we understand, even if the material is used for solid-state batteries for humanoid or UAM purposes, it would still require a very high output and also high capacity for the battery in itself. So therefore, I don't think that there would be any changes to the solid electrolyte that needs to be developed. Rather, on the cathode side, because we do need to support the overall larger battery volume and also in terms of the output, we do think that high nickel applications may be necessary and high nickel cathode would be required. However, that also is an area that we can actually satisfy so whether it be for EV purposes or whether it be for non-EV purposes, I think that we do have the capabilities to address each of the areas as they come.

So with this, we would like to wrap up our earnings conference call. For all of you who are on the call today, thank you for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]