EcoPro BM Co., Ltd. ($A247540)

We will now begin the EcoPro BM's Q1 2026 Earnings Conference Call. Following the announcement of EcoPro BM's First Quarter Earnings. We will hold a Q&A session. The earnings presentation and Q&A will be conducted with consecutive English interpretation. We will now proceed with EcoPro BM's earnings announcement.

Good morning, and thank you for attending EcoPro BM's earnings call despite your busy schedules. On the call we have Mr. Kim Jang-Woo, CEO of EcoPro BM; Mr. Bang Han-Min, EVP, Strategic Planning; Mr. Kim Chang-Guk, EVP of Sales; [ Mr. Trey Yang, EVP of Sales; ] and Mr. Shin Ho-Sang, VP of Purchasing, and Mr. Gong Bo-Hyun, VP of Development. And please note that the results are subject to changes following audit by outside auditors. Now without further ado, I'd like to begin Q1 2026 EcoPro BM's earnings call.

Good morning. I'm Jin-Woo Ju, Head of the IR team at EcoPro BM. Please refer to the earnings presentation materials that have been distributed in advance. Today's conference call will proceed as follows. We will first provide an overview of the company's performance followed by a Q&A session with the management team. First, I will discuss EcoPro BM's consolidated financial performance on Page 4. In the first quarter of 2026, our consolidated revenue reached KRW 605.4 million, up 22% Q-o-Q. Operating profit recorded KRW 20.9 billion, down by 50% from the previous quarter. Looking at revenue, we saw a 22% Q-o-Q increase, driven by improving EV sales in Europe and steady demand growth in the non-EV sector during the Q1 sector. For reference, the Q1 average selling price rose by 2%, impacted by higher metal prices and higher exchange rates. Regarding operating profit, we recorded KRW 20.9 billion. This result was achieved through increased sales volume and higher ASP in the first quarter despite the higher base effect from KRW 31.8 billion onetime gain in the fourth quarter of last year, which resulted from changes in the useful lives of tangible assets. Moving on to Page 5, I will provide a breakdown of our revenue structure. First, looking at revenue by product category in terms of value, EV-related revenue increased by 24% Q-o-Q driven by a recovery in shipment volumes to Europe during the first quarter. Revenue from power applications grew by 20% in Q1, following increased shipments fueled by AI-related construction expansion and replaced demand for products such as E-Bikes. ESS-related revenue also saw a 4% increase supported by rising demand for data centers and renewable energy. Moving to Page 6, I will discuss our financial position. Looking at the balance sheet on the left, as of the end of Q1 of 2026, total assets reached KRW 5.1854 trillion up 6.3% Q-o-Q. Total liabilities increased by 8.2% to KRW 3.1005 trillion, and total equity rose by 3.4% to KRW 2.0849 trillion. Inventory assets increased by 12% as of the end of Q1, driven by sales delays to North American customers and inventory stockpiling in preparation for mass production at our Hungary plant. Our current ratio slightly decreased from 72% in the previous quarter to 71%. The net debt ratio rose from 96% to 106% due to investment payments for the Hungary plant and an increase in working capital. Moving to Page 7, I will outline our business environment and strategic direction. First, we will strengthen our competitiveness in Europe, a key strategic region by leveraging our Hungary plant, which is scheduled to commence mass production in the first quarter of this year. Specifically, we aim to establish a system for a timely response to customer needs by stabilizing Hungary's mass production early on. At the same time, we will purchase -- we will pursue new customer acquisition within the European market and diversify our product portfolio to include both NCA and NCM lineup. Furthermore, as regional demand for cathode materials is rising due to the impact of European regulatory policy such as TCA and IAA, we plan to review capacity expansion in anticipation of additional orders from new customers. Lastly, we will explore additional revenue streams and enhance our cost competitiveness through new investments in our existing nickel smelting operations in Indonesia. This concludes the presentation of EcoPro BM's Q1 earnings results.

This completes the earnings presentation. Now we will move on to the Q&A session.

[Operator Instructions] The first question will be provided by [indiscernible] Investment & Securities.

I am Cateno, DFC Securities, and thank you for giving me the opportunity to ask you questions. Today, I have 2 questions. Two questions. First has to do with second quarter performance outlook and revisions to annual guidance, if there is any. And the second question has to do with the operation schedule for the Hungary plant and expected profitability.

I am Jang-Woo Kim, CEO of EcoPro BM. I will take your first question on the second quarter performance outlook and potential revisions to annual guidance. As noted in the earlier results presentation, our Q1 revenue increased by approximately 20% Q-o-Q, driven by increased shipments to major customers and the effects of new vehicle launches. According to the battery market forecast, the European EV market is projected to grow by around 20% Y-o-Y in 2026. And this growth trend is expected to persist beyond 2027. Regarding the Q2 outlook, while risks regarding the slowdown in the North American market still remains, we anticipate a clear growth trend in the European EV market. Furthermore, considering the ramp-up effects from our Hungary plant, we expect a solid growth to continue through the second quarter and beyond. So all-in-all, our existing annual guidance still remains the same. In terms of profitability, we expect to consistently increase our quarterly operating profit by leveraging fixed cost absorption through increased volumes, and achieving cost reductions through enhanced production line efficiency.

I am Han-min Bang, EVP of Strategic Planning, and I will provide an update on the operational time line and earnings outlook for our Hungary plant. The Hungary plant is scheduled to commence operations in sequence, one production lined in May 2026 followed by a second line in September. We estimate 2026 production volume at approximately 10,000 tonnes with expectations to scale up to 30,000 tonnes in 2027, which is 3x. From a mid- to long-term perspective, as was mentioned earlier, we anticipate a consistent increase in volumes from our Hungary subsidiary as the necessity for local sourcing in Europe grows due to regulatory frameworks, such as the TCA and IAA. In terms of profitability, in the first year operation, the Hungarian subsidiary will see limited production volumes while facing fixed cost burdens such as depreciation and labor costs. In the second half of this year, we plan to pursue a turnaround to profitability by establishing early on a stabilized mass production system improving line operational efficiency as well as implementing additional cost reductions.

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

Thank you very much for the opportunity to ask questions. I also have 2 questions. And the first one has to do with the impact of the recent change in administration in Hungary, what sort of impact do you expect from this government change? And the second question has to do with the new orders. Please update us with the status of new orders in Europe and other regions, including CATL.

Thank you very much. And I am Jang-Woo Kim, the CEO of the company, and I will address the potential impact of the change of administration in Hungary. As was reported in the media, the general elections held on April 12 resulted in the transition of government from the ruling party, which had actively attracted investments to foster the battery industry to the opposition. And as a result, we anticipate a further tightening of environmental standards and labor regulations. Now that said, I believe that when it comes to automobiles and automobile battery and materials sector, I think that they are very important for Hungarian manufacturing industry as well since they can help enhance economic growth and also employment. That said, I believe that although the new government will work on the tightened environmental regulations and labor regulations, the business profitability and business performance will also be very important for the new government. Now I would like to also note that we are still in a transitional phase following the change in government. And so we will closely monitor the new administration policy direction. And we are committed to ensuring seamless plant operations by strictly complying with local laws and regulations.

I am Chang-Guk Kim, EVP of Sales, and I will provide an update on our progress regarding new orders. Starting with the EV segment, we are focused on securing new contracts under our strategy of diversifying both products and customers in our core high nickel product lineup. We have recently achieved success in securing new orders for the European and North American market. And also besides high nickel, we are currently undergoing product evaluations and discussions with domestic and international battery manufacturers as well as global OEMs to secure orders for our high-voltage mid-nickel product. We expect to see some tangible results within this year. Also, as was mentioned before, leveraging our Hungary plant, which is scheduled to commence operations in the first half of the year, we are in talks with major customers regarding high nickel projects for the steady growing European EV markets. And of them for 2 or 3 projects, we're currently engaged in detailed discussions regarding supply schedules and other specifics. And we look forward to sharing with you some positive results. Beyond the EV market, we are actively pursuing new ESS contracts and expanding volumes across various power applications, including power tools, micromobility and robotics to bolster our growth momentum.

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

This is [ Trevor Yang ] from [indiscernible] Securities. And I would like to also thank the management for the opportunity to ask questions. Earlier, there was a comment about EcoPro BM's strategy to diversify customers and also product. And I have 2 questions that is relevant to product diversification. First of all, I would like to know the status of solid-state battery and LMR material development as a company. And second of all, any changes to the investment decision regarding the LFP Cathode business.

Thank you. I am Bo-Hyun Gong, VP of R&D, and I will update you on the development status of our solid-state battery and LMR materials. First, regarding solid-state battery materials. The core component is the solid electrolyte. We began developing sulfide-based solid electrolyte 4 years ago and have secured proprietary process technology. We're currently operating a pilot plant with an annual capacity of 40 tonnes, and our products have already completed quality validations with major battery structures. We are currently reviewing pilot production with leading customers with the earliest mass production expected in 2027. The design for the mass production line is complete, and we plan to commence construction in alignment with customer demand. We are also developing cathode materials, specifically for solid-state batteries. We are one of the few material providers globally capable of developing and producing both solid electrolytes and cathode materials. Building on our expertise in NCM high nickel cathodes, we are developing specialized cathode materials optimized for sulfide-based solid electrolyte to lead the market. Next, I will discuss the development status of our LMR cathode materials. Our LMR Cathodes are undergoing continuous cell-level validation with major customers, and we have now entered the stage of securing material stability and reproducibility through iterative testing. As a result, we are moving beyond the simple development management to establish a more concrete quality control system predicated on mass production. Furthermore, as market interest in LMR materials expand, we're seeing an increase in evaluation requests from our customers in not just North America, but from many global OEMs. To address this, we're concurrently developing a diversified range of new products optimized for specific customer performance requirements. On the manufacturing side, we are optimizing process conditions to utilize existing NCM production lines to continue to make preliminary preparations to ensure a seamless transition to mass production within a short time frame once customer orders are finalized.

I am Han-Min Bang, EVP of Strategic Planning, and I will address your second question regarding our LFP cathode business. While we have been reviewing until recently, the LFP investments to meet the rapidly growing demand in the North American business market, we are currently revisiting these plans. This decision is based on several factors, including policy-related variables in the North American ESS market, for example, the PSE and NACR regulations as part of the OBBBA Act as well as high prices and also increasing lithium prices. Nevertheless, our preparations to supply multiple customers through our existing 4,000-tonne fourth-generation product lines are proceeding without disruption. As we gain further clarity on policies and continue to monitor market conditions, we will actively communicate with the market should any changes occur in our future investment plans.

The following question will be presented by Jin Su Jeong from Heungkuk Securities.

This is Jin Su Jeong from Heungkuk Securities. And I have 2 questions. First has to do with policies, as was mentioned earlier, as was mentioned early March this year, the IAA at or the build for IAA was proposed in Europe. And if you look at the details of the proposed act, it requires local sourcing for battery and cathode materials. So my question is, do you see any changes in local supply discussions since the proposal of the EU Industrial Accelerator Act. And my second question has to do with the Hungarian plant that you plan to commence operations in the second half of this year. Now you mentioned that they will come online in phases of the first and second line. And we believe that according to that schedule, in 3 years' time, there will be a shortage in production capacity. So I'd like to ask whether you have a plan to expand your production lines in Hungary and what your investment and also financing plans are?

I am [ Ho-Sang Shin ], VP of Procurement, and I will address the impact following the proposal of the European IAA bill. Now as was mentioned, this past March, the European Union announced the draft of the Industrial Accelerator Act. And this legislative proposal serves as an industrial protection measure designed to rebuild manufacturing competitiveness within the European Union and reduced dependency on foreign sources, particularly China. Regarding the battery sector, the bill aims to mandate the use of regionally sourced key components, including sales, BMS and cathode materials. The proposed IAA alongside with the TCA also CRA that was introduced in advance, now we believe that they serve as a mid- to long-term catalyst for promoting the use of regionally sourced cathode materials in Europe. And currently, we are in discussion with our customers to respond to those. We see a significant increase in procurement interest for cathode materials supplied through our Hungarian subsidiary and we are continuously monitoring the specific regulatory implications as the legislation evolves and will maintain active communication with the market through our IR team.

I am Jang-Woo Kim, the CEO of the company, and I will take the second part of your question with regard to additional investment plans in Europe and capital management strategy for existing debt. Now we have successfully completed our 54,000 tonne capacity plant in Hungary and are preparing for mass production in order to cover the demand in Europe, as was mentioned earlier. And to meet the expanding global OEM volumes newly secured by our customers, we plan to implement additional production line expansion. However, we are reviewing these expansions in alignment with committed order volumes to ensure economic viability and high utilization rates. Now regarding debt management, the put option for these convertible bonds issued in 2023 is set to expire this July. We are currently in discussions with our investors to reach a mutually beneficial solution such as extending the maturity or refunding the issuance. In addition, we plan to leverage our available liquidity of KRW 500 billion and execute early redemption of the perpetual bond issued in 2024 worth about KRW 330 billion beginning the second half of 2026. To support the aforementioned potential investments in Hungary and debt repayments, we are focused on maximizing internal cash flow generation while simultaneously exploring various new financing options such as borrowings. We will continue to implement a flexible and stable capital management strategy by closely monitoring business environment and financial market trends. We will communicate further with the market once specific details are finalized.

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

My name is Chang Jung Hoon from Samsung Securities. And I also have 2 questions for you. First of all, I understand that the high nickel cathode materials that you've been supplying to a particular customer now has a reduced capacity and also utilization rates at the moment. So I would like to ask, if possible, if you can share the plans for utilizing the production lines for high nickel cathode materials. Now my second question has to do with the Hungary plant. You explained earlier you plan to have them online in the 2 phases. Now not the existing customers for -- but for to supply to new customers, do you have to add additional production lines? Or can you use the existing lines?

Thank you very much for your questions. I am Bang Han-Min, responsible for Corporate Strategy at EcoPro BM, and I will take your your first question about the reduced capacity and utilization rates for high nickel cathode materials. Now I believe that this is an issue not just for EcoPro BM, but for all cathode material suppliers in Korea. Now for the capacity to increase the market conditions in North America and Asia also has to improve. And without the market improvements, I believe that number wise and numerically, it's really difficult to have an uptick. Now that said, we have our Hungary plant coming online pretty soon in Europe and in line with the shipments from our Hungarian plant, we also plan to ship a certain proportion of the cathode materials from our Pohang plant. And we believe that, that will have some tangible effect in the 2026 and 2027 in terms of our capacity and utilization rates. And on top of that, not just the existing customers and large customers that is, we will also target smaller potential customers and also start-ups by active sales so that we can bring up our utilization rate. I would like to also take your second question regarding the potential expansion of our Hungarian plant and increased investments thereon. Now as well as explained before, we can in line with new orders, we view the further expansion of our Hungarian plant. Now I believe that not just the -- for the investment sake, but it's going to be very important to guarantee a certain level of utilization rates and also economic viability. So currently, our plant 1 in Hungary has 3 lines. And as we pursue plant #2, it's going to be probably on the same site. And with regard to the number of lines, we'll have to see depending on the potential volumes that we end up attracting it could be 2 or it can be 3. Now with regard to plant #1, we have certain lessons learned with regard to regulations and also various issues. So if we were to build a second plant in Hungary, we believe that we can do it in a much more efficient and speedy fashion.

This concludes our conference call. Thank you very much for your attendance today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]