LG Chem, Ltd. (A051910) Earnings Call Transcript & Summary

Good afternoon. We will now start LG Chem's 2020 Fourth Quarter Earnings Conference Call. This is 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 begin with a brief introduction of 2020 Q4 earnings performance, followed by the CFO presentation on LG Chem's 2020 review and 2021 outlook. Then we will present 2020 earnings review and 2021 business strategy by each business division. The presentations will be interpreted simultaneously, while the Q&A will be interpreted consecutively. The material presented during this conference call can be viewed by those with web access. It is also available for download for our -- on our corporate website. Let's begin today's call with the introduction of the management team. We have, first, CFO of LG Chem, Dong Seok Cha; Young Suk Lee from Business Planning; Ho Woo Lee from Petrochemicals; [ Kyung Deok Koh ] from Advanced Materials; [ Hae Sil Park ] from Life Sciences; as well as Seung-se Chang from LG Energy Solutions. First, 2020 annual business performance. Annual sales in 2020 was KRW 30,057.5 billion, a 9.9% increase Y-o-Y, backed by Energy Solutions' growth. Operating profit was KRW 2,353.2 billion. Despite COVID-19, profitability improved through improved profitability of major Petrochem products and profit generation by Energy Solutions. Next page is the 2020 Q4 P&L. 2020 Q4 sales was KRW 8,885.8 billion. Operating profit was KRW 673.6 billion. Pretax profit was KRW 168 billion, and net income was KRW 60.6 billion. One notable item under nonoperating expenses was the full equity conversion in the fourth quarter of convertible bonds issued in 2018. Consequently, while more than KRW 400 billion was recognized as profit from the disposition of own equity in the capital account following the accounting rule, we recognized this amount as a nonoperating loss because even though an actual -- although an actual loss did not occur, we had to treat the convertible bond option valuation loss as a loss in accounting. Also, during the asset revaluation process, we experienced higher nonrecurring factors due to the recognition of some impairment losses and foreign exchange losses from decent appreciation of the Korean won. Please note that these were only losses in accounting and that there wasn't any cash outlay. Next on financials. As of the end of Q4 2020, assets was KRW 41,341 billion. Cash was KRW 3,882 billion. Liabilities was KRW 22,143.4 billion. Borrowings was KRW 10,186 billion. Borrowings decreased by KRW 1,200 billion on quarter due to the CV conversion and et cetera. And net borrowings fell by 8.7 percentage points on quarter to 32.8%. Next, earnings and outlook by division. First, Petrochemicals, 2020 Q2 sales was KRW 3,673.6 billion. Operating profit was KRW 569 billion. While profitability fell on quarter due to the operation suspension of Yeosu NCC and the falling exchange rate, a robust operating profit was achieved through spread expanding from positive demand for key products such as ABS and PVC. For the 2021 outlook, we'll shortly hear from each business division's representatives. Next, Advanced Materials. In Q4, Advanced Materials sales was KRW 1,009.5 billion. Operating profit was KRW 36.7 billion, and operating margin was 3.6%. While sales increased slightly on quarter from greater sales of cathode, profitability fell due to the strong won. Next, Life Sciences. In Q4, Life Sciences sales was KRW 169.6 billion, and operating profit was KRW 7.8 billion. OP margin was 4.6%. Lower sales and profitability were achieved on the back of strong sales of core products including Zemiglo and recovery in YVOIRE sales in China. Next, Energy Solutions, which was split off on December 1, 2020. In Q4, sales was KRW 4,127.9 billion, and operating profit was KRW 115.8 billion. While sales on quarter grew by more than 30% from increased sales to major customers in Europe and the U.S., split-off-related costs and one-off costs such as provisioning for some products such as ESS and EV led to a slight decline in operating margin at 2.8%. Next, Farm Hannong. Q4 sales was KRW 100.3 billion, and operating loss was KRW 12 billion. While seasonality in the second half led to this loss, sales grew and profitability improved Y-o-Y from cost structure improvement for crop protection for the products and sales increases for seed business. And on this note, we will conclude the Q4 earnings presentation and invite CFO, Dong Seok Cha, to present the company's 2020 review and 2021 outlook.

Good afternoon and good morning. Ladies and gentlemen, I am CFO, Dong Seok Cha. 2020, which was full of events and challenges, has gone, and now we are starting a new year. First, to recap 2020, even amid the global COVID-19 pandemic, LG Chem was able to achieve meaningful performance. Revenue grew 10% Y-o-Y to surpass KRW 30 trillion for the first time. And EBITDA also hit a historic high of KRW 4,600 billion, resulting in both significant top and bottom line growth. This performance is the result of steady investments in new growth drivers such as Energy Solutions. In addition, solid efforts to cut costs and improve efficiency in preparation for uncertainties ahead led to stronger profitability. In addition, the company decided to split off its Energy Solutions business at an Extraordinary Shareholders' Meeting on October 30, and the actual split-off took place on December 1. By creating an independent organization under the name LG Energy Solution, we want to increase our competitiveness and achieve more accelerated growth. To share our view on 2021, since the COVID-19 situation is still great, we expect turbulence in the global economy and challenges in areas including the exchange rate and logistics and all in all representing a tough business environment. The company will strengthen its management of this uncertain internal and external risk and, at the same time, also continue to pursue sustainable growth. This year, the company's target will be to grow around 24% on year to achieve KRW 37 trillion in sales. This includes not only stronger growth from Energy Solutions following the split-off but also growth across all business areas such as Petrochemicals, Advanced Materials and Life Sciences. To this end, the company has selected 4 core business areas which correspond with future trends and is planning to focus on growing these businesses. Of the 4 areas, the first is battery materials, starting with cathodes. We are planning to expand into a wide range of other areas. Second is sustainability-related business areas. We want to become a leader in environmentally friendly solutions such as biodegradable material and recyclable products. Third, in line with the trends for lighter automobiles and vehicle electrification, we want to foster the e-mobility materials business and broaden our business scope into engineering materials and display materials for cars. And lastly is the new global drug development. The company will increase R&D investment further to ensure we can create results in the near future. This year, we'll focus our capabilities and resources in these 4 new growth areas to create a company that can grow to the next level. In addition to nurturing these growth drivers, the company is also planning to focus on what has recently become an irreversible trend, which is sustainability. In 2019, we were the first battery company in Korea to become a member of the RMI, Responsible Minerals Initiative, and commit to responsibly sourcing minerals. And last year, we announced our carbon-neutral growth 2050 strategy, making it the year we committed to full sustainable business operations. This year, the company will focus on designing more detailed execution plans, creating a model and ecosystem for cooperation and further solidifying its position as a leading company in sustainability. Lastly, I would like to discuss 2020 dividends. The company has set dividends for the fiscal year 2020 at KRW 10,000 per common share. The 2020 net profit may seem small versus the robust operating profit, but this is because of an accounting loss, which did not require cash outlays. But they were related to convertible bonds, which were converted into equity. The conversion resulted in a one-off recognition of approximately KRW 420 billion in disposal gains of treasury shares directly captured in the capital account. And this was considered when setting the dividend at KRW 10,000 per share. This year, again, the company is committed to achieving even better performance through growth to ensure we can share the results with our shareholders. We look forward to your support. And we will have officers responsible for our strategy from each business line to present their 2020 review and business outlook for 2021. Thank you.

[Interpreted] We will now present detailed business review and outlook. The presentations will be, first, by Petrochem, followed by Advanced Material, Life Sciences and LG Energy Solution. First, we will invite Ho Lee from Petrochemical business.

Good afternoon. I am Ho Lee, Head of Strategy for Petrochem division. I will first present 2020 performance, followed by 2021 outlook and then to long-term strategic direction. Sales in 2020 fell Y-o-Y due to the spread of COVID-19 and fall in oil prices. After the outbreak, we quickly expanded sales to Southeast Asia and major markets for ABS and NBL products, which fit very well with the new consumption trends, including on-tech home economy and hygiene. And as a result, we were able to grow by 40% and operating profit to the level of KRW 2 trillion. In 2021, we expect demand recovery and fiercer competition with the distribution of COVID-19 vaccines and anticipate a year that promises opportunities and challenges. While there is a new upstream capacity expansion plan, there's also a possibility of a delay in operating the new plant related to the rail maintenance and whatnot. And the U.S. demand recovery is partially going to mitigate the supply burden. Downstream is likely to see demand increasing globally as the world recovers from COVID-19 market condition for PVC and synthetic rubber to improve the recovery in the housing and construction cycle, coupled with the removal of the travel ban and the vaccine distribution. The division plans to proactively view investment opportunities in the mid to long term. First, we want to follow the mega trend, and we want to focus on fostering products that are expected to grow such as NBL, POE and ABS and enter key markets and regions, leveraging our capabilities and competitiveness. Second, seek opportunities to enter emerging markets and build complexes through secure -- by securing the broad base in preparation for the global value chain realignment post COVID-19. Third, based on the regulation of the plastic usage and low carbon, we will focus on fostering new future businesses related to sustainability, actively promote PCR ABS, which recycles used plastic as raw materials; and commercialize various other areas such as focusing on biomaterials and biodegradable plastic materials. This was Petrochem's presentation. Thank you very much.

Next, we have [ Kyung Deok Koh ] in charge of business management and strategy from Advanced Materials.

Good afternoon. I am [ Kyung Deok Koh ], in charge of strategy at Advanced Materials. I will first go over the 2020 review. For the Advanced Materials division, I want to briefly highlight our 3 business areas: we have battery materials, including cathodes; and also display materials as well as IT materials for semiconductors; and lastly, engine plastic for automobiles and home electronics. In 2020, demand weakened due to COVID-19 from our downstream industry, restructuring or underperforming business to a fall in sales. However, with the robust growth of the EV battery and OLED market, sales grew by 3.3% to KRW 3.6 trillion. Along with the increase in sales volume, cost structure improved with high yields for our new products for OLED, and profitability improved. Thus, compared to breakeven in 2019, we were able to improve this by 4.5% in 2020. And we have successfully overhauled our business portfolio to be centered around growth application with the sale of the LCD polarizer and laid the foundation for growth with the operation of the new Chinese plant for cathodes. I will now talk about our business outlook for 2021. Our major downstream markets such as batteries, OLED and automobiles are forecasted to achieve solid growth in 2021. In particular, with the steep growth of the EV battery market, we project our division, battery material business, to expand significantly. And backed, too, by strong demand growth for OLED and other IT materials, we expect sales to grow more than 20% Y-o-Y to KRW 4.4 trillion. In order to expand the business opportunity in the rapidly growing battery market, we plan to strengthen our development capabilities in high-nickel, high-capacity products and preemptively invest in capacity expansion for cathodes and actively foster the development of other battery materials, which means that we will continue to make these efforts so that we are able to also have sound development for other battery materials such as anode binder and thermal adhesive. Also, for IT materials and high-functional OLED materials including foldable for engineering plastics and e-mobility and recycled eco-friendly materials to accelerate the transition to high value-add products and build a foundation for robust profitability. I would like to now conclude my presentation. Thank you.

Next, we have [ Hae Sil Park ] from Life Sciences.

I am [ Hae Sil Park ] from Life Sciences. In 2020, Life Sciences made significant results despite the challenges imposed by COVID-19. We quickly adapted to the market by changing our infrastructures by adopting digital marketing in the new on-tech environment. Core products such as Zemiglo for diabetes and Eutropin for growth hormone continued to grow. And Zemiglo in particular improved its profitability and became the first domestic drug to record KRW 100 billion in sales. And for the aesthetic business, the YVOIRE product experienced difficulties in China due to COVID-19, however, maintained its market leadership with the largest market share through the strengthening of digital marketing. Also, R&D's performance led to the commercialization of our polio vaccine. And after the WHO approval on December 21, a deal was signed to supply to UNICEF for 2 years. R&D has been actively utilizing the open innovation and has shown progress with various internal projects carried out over 3 to 4 years. And with this foundation, we were able to continue to make progress. For example, the treatment for obesity, we received rare drug designation by U.S. FDA, and Phase I clinical testing was performed; And the NASH treatment adopted in August 2020 has started the Phase I clinical testing. And some notable achievements were also made in cell therapy research. In 2021, we expect sales to continue growing for our core products, and the growth will be driven in earnest by the polio vaccine that will be exported from the end of Q1, Eupolio sales to increase with the recovery of the Chinese market. And we plan to strengthen our market leadership by entering into the premium market through brand-renewal initiatives and et cetera. In the R&D, there are more -- there will be more number of development projects, and we expect global development to take place in full swing. We increased our investment for global clinical trials; and strengthened new drug portfolio, completing clinical Phase II for gout treatment; and leveraged other areas such as open innovation and AI in new drug development process; and strengthened digital transformation including clinical development, predictive modeling to accelerate our performance. This concludes my presentation. Thank you.

Lastly, we have Seung-se Chang, Head of Business Management Strategy at LG Energy Solution.

Good afternoon. I am Seung-se Chang from LG Energy Solution. I am Head of Strategy. In 2020, the global pandemic led to a slowdown in EV demand and supply due to the production line shutdown for our customers in the first half. There was an overall slowdown, however, in the second half with greater subsidies. Our customers' EV sales volume in the U.S. and Europe increased. We had diversified our portfolio with increased shipments for EV pouch and cylindrical batteries to grow our sales compared to 2019 to show a growth of 50%. We also moved into black, and profitability improved in a meaningful way with yield stabilization and productivity gains at our overseas entity and higher sales helping to drive down fixed costs. This year with major countries including the U.S. announcing the strengthening of environmental policies, we expect EV market to grow even faster and ESS market to also expand with the transition to renewable energy sources led by large-scale power grids. And our key automobile OEMs this year have been launching and will be launching more viable EVs. And we also see the sales volume for existing EV lineup continue to sell very well. And as a result, for the company's sales, we believe that in 2021, we can actually grow by more than 50% Y-o-Y. Moreover, we want to move from just delivering batteries. We want to make sure that we are able to successfully transition into the platform business so that we provide various services such as assessing the residual value of the batteries and also providing management technology as well. This will help us to continue to diversify our value chain and continue to develop next-generation batteries. This concludes my presentation. Thank you very much.

We'd like to now conclude the presentation time and continue on with the Q&A session. [Operator Instructions]

[Interpreted] So the first question will be asked by Hana -- Yoon Jae Sung from Hana Investment.

[Interpreted] There are 2 questions that I would like to ask you. The first question is about the fourth quarter. You did mention during the presentation that you had set aside some reserves or provisions related to your ESS business and your EV battery business. How much was actually reflected into your costs? And in addition to what has already been recognized, do you have any plans to recognize further? The second question I would like to ask is about your Petrochemical business. You did mention during your presentation that you're interested into expanding into other areas, which would include biodegradable material and also material based upon recycled plastics or recycled products. I can see that in cases, for example, there are companies in Norway that have a recyclable technology, and I think that the way that they're pursuing their business is by joint ventures with companies like ExxonMobil. So for the company and the future direction that you are heading in, are you going to develop your own proprietary technology and try to develop this business further? Or would you be interested in collaborating with other companies, for example, in the form of a joint venture? If you could elaborate a bit about what your direction is for the future, that would be appreciated.

[Interpreted] So maybe I can take the first question that you have. If we look at the situation in the fourth quarter, we did have a recall related to some of the ESSs that were used for residential purposes. And also, we had a recall that we had conducted for some cars related to the Kona fire that we had seen for the EV batteries. So for both of these recall activities, this was done in collaboration with our clients. And right now, we are conducting an open investigation with an open mind about all the possible causes and investigating into the reasons behind these events. However, we have tried to do recalibration or we have tried to reconstruct the fires themselves, and we have not been able to clearly identify what the reason for these events have been as of yet. However, in the case of the ESS and also in the case of the EV batteries, we did try to preemptively conduct a consumer recall because we did recognize that, that would be something that would be necessary. At LG Energy Solution, due to the overall split-off and also because we do use an accrual accounting method, in the fourth quarter, we have set aside a certain level of provisioning. But please understand that as of this time, it would be difficult to disclose the actual amount. Though we have not been able to identify the clear reasons behind the events that have taken place, we have been conducting a recall, as mentioned before. And if we look at the current progress, I could cautiously say that we do believe that the necessity for new or additional provisions going forward would be limited. In addition to that, on provisioning in principle, according to the bylaws of the company, we do have a practice of setting aside a certain percentage of sales as provisions for the future. And this is a policy that we will be maintaining going forward.

[Interpreted] So maybe I can address the second question that you had with regards to our sustainability business. In the area of biodegradable products and also products that use recycling technology, this is an area in which, for a very long time, we have been accumulated our own proprietary technology. So we do have an advanced level of technology within the company. And I do believe a good example of that would be the PCR ABSs that you have seen this year. So this type of eco-friendly plastic is an area that we want to continue to grow. And as a result of that, we do think that through fostering this business this year, we can actually accumulate significant revenues within the hundreds of billions of areas. However, not only in terms of expanding on the revenue side, but we also want to source the right material for this bio business. And in that area, establishing an ecosystem to support this business would be very important. In that area, we do think that there is a need to cooperate with the leading companies in the areas. So whether it be joint development or whether it be cooperation of other forms, we are open to various types of partnerships. And this is something that we are already engaging other parties with and are in discussions about. So on the feedstock side, we do think that there are opportunities for cooperation.

[Interpreted] So now we will take the next question. The next question will be asked by Mr. Yusik Hwang from NH Securities.

[Interpreted] There are 2 questions that I would like to ask you. First is about your battery business, if you could provide an overall guidance for 2021 in terms of the top line, the operating profit margin and also what you believe your total capacity will be as of the end of the year. And on the capacity side, if you could break that down between the pouch-type batteries and also the cylinder-type batteries, that would be appreciated. The second question that I would like to ask you is about your Life Science business. I do believe that you had mentioned that you are going to produce polio vaccinations. And that does show that on the vaccination side, you do have production capabilities. So the first question I would like to ask you in relation to that is that for a COVID-19 vaccination, do you believe and how much do you think there would be of a possibility that you would be able to produce such vaccinations? And secondly, if you talk about your pipeline for the future with regards to the various drugs that are under development, for that one that are the most progressed in terms of your clinical trials, could you recap that once again and introduce it to us?

[Interpreted] So maybe I can take the first question that you asked, which was about our overall performance expectations and the capacity as of the end of the year. I do think that maybe it will be helpful for you -- for me to talk about our expectations for the first quarter and then talk about the expectations for the full year. So for the first quarter, in actuality, even though there is some seasonality, we do think that because there has been an expansion of EVs sold by the major OEMs and other such factors, if we look at the quarterly sales, that we will be able to maintain the overall growth momentum. And because we will see continuous production stabilization in our overseas production plants and because utilization will continue to grow, we do think that there will be a cost-savings effect on the fixed costs, which will add to the overall profitability of this business. However, we do recognize that there are external factors such as the FX rate that need to be taken into consideration. If we look at the picture for the full year, we think that, of course, there will continue to be a continuous launch of new EV models within the market and also more environmentally friendly policies adopted by various countries around the world. So as a result of that, as mentioned during the presentation, we do think that on top line side, around 50% revenue growth would be possible. And in terms of the overall profitability side, recognizing that the overall exchange rate in terms of the Korean won could continue and there is a risk that it could continue to strengthen, we do think that because of the factors that we mentioned before, including being able to reach an economy of sale -- of scale that on the operating profit margin that a mid-single-digit level would be possible. And in terms of the absolute amount of operating profit, a KRW 1 trillion type of number is something that we can target for the year. To talk about capacity, I think that you did request that we break down capacity between our pouch-type and also our cylinder-type products. But if we look at what the total capacity was as of the end of last year, it stood at 120 gigawatt hours together. And our expectation for this year at the end of the year would be at 155 gigawatt hours. So that would be an additional 35 gigawatt hours. And if we look at the breakdown, it would be difficult to share the actual breakdown with you. But within the 35-gigawatt hours that we will be adding on this year, we think a larger portion would be dedicated to the cylinder-type batteries.

[Interpreted] So to answer your question about the overall situation, first, addressing the COVID-19 vaccine production possibilities, I think that for a COVID vaccine, there would be 2 different forms of production that would be possible: one would be in the API; and one would be for the finished good. For the API in itself, the vaccines that are currently being discussed would be a composition of various different types of routines. So in actuality, we do think that it would be possible to produce, if necessary. And then for the finished good types, this is a filling process. So in actuality, for this, it would be an area in which we do have capacity available, and we do think that there would be a possibility for us to produce. Right now, we have been designated as a producer from the COVAX side. So as a result, we are in discussions with various companies about the possibility of production. Next, to talk about the overall pipeline for the future, if we include our preclinical trials and then -- projects and then up to the Phase II clinical trials that are in discussion, so all together, we have 21 projects that are currently running. For the ones that are most advanced, there would be the ones that are in the Phase III clinical trials, and we have 3 in total. So the first one would be a biosimilar product that is related to diabetes. And then there are 2 products that are related to new drug development. One is for gout, and one is for -- to deal with the large intestine and [ colitis ]. So these are 2 that are ongoing. And for the clinical trials, these are being conducted currently in the U.S. In addition to that, we also have clinical trials that are in Phase I. One would be an anti-obesity orphan drug that has received Orphan Drug Designation by the U.S. FDA. And then there is also a drug that is going to deal with nonalcoholic fatty livers. And in addition to that, we also have 3 other projects that are related to various types of anticancer treatments that are in our pipeline that we also believe will do well.

[Interpreted] So the next questions will come from Dong Jin Kang from HMC Securities.

[Interpreted] Yes. There are 2 areas in which I would to like to ask you a question about. One is with regards to your Advanced Materials business. All in all, right now, you are producing various cathodes, and I do think that you have capacity on hand. If you could share with us what your current capacity is and what's your capacity in terms of expansion plans would be, that is also something that we would appreciate. And also in terms of how much of that is being consumed internally is also something that we would be interested in hearing about. And if we go outside of the cathodes that you are producing, what other types of flagship material would be representative within the company? And of those, how much are actually being sold to those outside of LG Energy Solutions, so to third parties? The second question I would like to ask you is about your ITC litigation. What is your outlook for the litigation in itself? And in addition to that, what would be the overall process after the decision has been made?

[Interpreted] So maybe I could take your question about our Advanced Materials business. First, in terms of the capacity that we have for the cathodes in total, if we look at capacity as of the end of last year, it would be around 40,000 tons. And according to our plans, the build-out would be until 2025 to 170,000 tons. So it would be 4x that of the current capacity. If we look at how much is doing -- been doing -- is being done in-house, it would be around -- about less than 30%. And then if we talk about other material outside of cathodes that we are producing, we do have anode binders, we have thermal conductive adhesives, and we also have electrolyte additives that are being produced. In addition to these materials, we continue to look at and explore opportunities for other materials that may have high potential. However, this is something that is still in the early stages. So for this business, we want to continue to be able to add on to the growth momentum and also strengthen our overall customer lineup. So this is an area that we will continue to focus on growth on. And outside of Energy Solutions right now, we do not have a customer base, so that would be our one client as of today. However, this is an area that we do want to expand in going down the road, so it is something that we are currently reviewing.

[Interpreted] And maybe I can address your second question about the ongoing ITC litigations. Right now, there are 2 different litigations that are ongoing: one is the one that is being directly seen by the ITC; and the other would be a civil suit that we have also filed. So to talk about them one by one. For the first ITC litigation, the initial decision for this was to be provided on October 5. However, it has been delayed 3 times. And the current schedule is a decision by February 10. So because of the COVID-19 situation and the overall schedules of the court, there has been a delay in the overall process. However, if we look at the recent development for other ITC-related cases that were filed before us, a lot of the final decisions have been forthcoming. So we do believe that for our case, again, that February 10 will be the date on which the final ruling will be given. If the final ruling does file, though there are default judgment that was provided before, then this would be a recognition of the facts related to the use and the selling of trade secrets. So we do believe that, that is significant. In addition, if the ITC does recognize that there has been an infringement on our trade secrets, then for any products for which these trade secrets were misappropriated, then there would be a ban on imports to the U.S. In addition to that, there is also the second case, which is currently pending at the Delaware courts. Right now, that is related to compensation of damages, and we do think that this is a process that will be restarted once the ITC final decision has been made and the process there has finished. And we do think that the Delaware courts will be significantly influenced by the final rulings of the ITC. And the Delaware courts in themselves, they would be ruling on the overall size of compensation for damages. And at that time, the underlying regulation would be the DTSA in the U.S. According to the DTSA, the damaged compensation not only covers the actual losses but any unjust enrichments, exemplary damages and also legal costs. So as a result of that, we do think that, that could represent a significant amount. If we look at another case that was related to trade secrets from Motorola relating to prior employees, according to the DTSA, the damages -- the compensation awarded not only covered the actual damages but also represented a 200% exemplary damage compensation. So as a result of that, that would be the situation. And prior to any judgments made on either cases, we would like to emphasize that we do not exclude any possibility -- we do not exclude the possibility of reaching an agreement. So therefore, to do so, we continue to engage with our full faith and good efforts.

[Interpreted] So being mindful of the time allocated for this conference call, I think that we do have time for one last question, and that would be from Young-chan Baek from KB Securities.

[Interpreted] There are 2 that I would like to ask you. One is if you look at the situation in China, there have been LFP battery shipments that have been taking place, and I do think that you may have some thoughts about the situation. So what is the strategy to deal with this overall situation? And what do you think about the technology? And if you have any updates on that side, that would be appreciated. In addition, the second question that I would like to ask you is about your new NCC that will be going online in March. If you could provide the overall size of the capacity and also in terms of the guidance for that facility, that would be appreciated. And in addition to that, I do believe that this NCC probably has some very strong points as a new facility. So if you could share those, that would also be appreciated.

[Interpreted] So maybe I can address your first question about the LFP chemistry, what our assessment is and how we want to deal with this issue going forward. I do believe that this is a topic that I had mentioned in previous earnings conference calls, but maybe just to voice our opinion once again. For our LFP chemistry in itself, I think that in the EV market, that for the expansion and adoption of this chemistry, I think that it will be limited to a certain extent. And the reason for that would be that if you look at the performance or if you look at the weight, there are disadvantages that LFP does represent. And of course, the cost is the huge upside or benefit that this chemistry represents. So as a result of that, I do think that it would be possible to gain some inroads in the low-cost or ultra-low-cost EV areas. But again, for performance reasons and for weight issues, I think that it would be limited overall. Maybe to talk about them one by one. First, talking about the overall performance, I think that for performance, you could talk about it in terms of the energy output and also in terms of the low-temperature output that we have. First, when you compare LFP to NCM, for the energy density in itself, it's very low. And not only is the energy density in itself low, but if you try to create an open-circuit voltage curve, you can see that the curve is very flat. So what that actually means is that through the BMS that you will have for the car, it would be very difficult to measure the remaining energy that the battery actually has. So as a result of that, that makes it very challenging to actually measure the distance traveled or the possible distance traveled for that battery. In addition to that, in the production process, it's also highly sensitive to overall humidity standards. So as a result, you actually have to have the right facilities that support the humidity control measures that are required for you to have a good quality battery. And I also understand recently that in China, with regards to the low-temperature output, that there were issues there, so that would be another factor. Again, because of the cost benefits, it can be appealing in some areas. But because of the weight issues and the performance issues that I just mentioned before, again, I think that adoption will be limited.

[Interpreted] And to address the second part of your question about how we want to deal with this situation going forward, I think that there are 3 different initiatives or areas that I could address. First is the chemistry in itself. So for LFP batteries that could be used for EV purposes, this is not an area in which we actually had commercial development or production take place. However, we have tried it for other types of applications. So commercial production is something that we have tried out. And we think that going forward, we will continue our R&D efforts to develop non-ECM-type chemistries which would include LFP for EV vehicles. So this is something that we want to continue upon. And we want to continue to research and develop various forms of low-cost chemistry. So this is an effort that we will -- we have done in the past and we will continue going forward. The second is for our module business, which is a business in which we are highly present. I think that for module assembly, the cost competitiveness there is also a factor that we want to look at. So for modules, we are looking at various forms of low-cost designs that would be possible, and that's another area. And the third area is, in addition to the chemistry and the design itself, we also see that on the battery production side, that there may be ways to lower the cost in the production process. So in types -- in forms of the electrodes that are required or maybe the cell assembly, there can be new processes that are adopted to increase the quality of the overall product and, at the same time, enjoy a cost benefit. So those are the 3 ways that we want to continue to gear up it to deal with the situation.

[Interpreted] So maybe if I could address your second question about our NCC facilities, this is something in terms of which the process going forward is continuing on schedule without any issues. And the initial plan, different from what you have mentioned, was actually to start going online in the first half of next year. So that is -- well, our expectations would be as of the current time. If we talk about the benefits or the strength of the new facilities, different -- we are utilizing the existing infrastructure that is present in Yeosu. So as a result, if we look at the per-ton basic materials that would be required for the overall facilities, in actuality, the additional investments required would be somewhat similar to what a revamp would actually represent rather than a new build-out. So in that area, we do think that the overall cost competitiveness is much stronger. And in addition to that, on the feedstock side, we also have a very flexible feedstock structure in place, so we can utilize various forms of feedstock that include LPG. So that is also another benefit. And in terms of the output there in the areas that we want to continue to internally source some material for, for which would be SAP, ABS and our NB latex business, that is also something that would be possible. So we do believe that it does provide a very good alternative, and it also enhances our overall business competitiveness in the more value-added or primary product areas.

[Interpreted] So once again, as mentioned before, I think that due to the time, we will have to wrap up our earnings conference call here. I would like to thank everyone who participated. I do know that there is -- there are people who had wanted to ask a question but have not been able to do so, so please do not hesitate to contact our IR team about that, and we will follow up. So once again, thank you for everyone who participated on the call today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]