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[Interpreted]

Good afternoon. This is [ Hwang Young Kyung ], Head of the IR team at Lotte Chemical. I thank everyone for your time and interest in Lotte Chemical and your participation in this conference call.

We will start with a presentation on the company's 2024 Q4 and annual business performance, followed by Q1 2025 outlook, briefing by the CFO and CSO on the main issues and strategic direction, followed by a Q&A session. Please be informed that the presentation will be conducted in simultaneous interpretation and the Q&A in consecutive interpretation.

I will now introduce the executives in attendance. First, from the HQ, Vice President and CSO; CFO, Sung Nak-Seon; and Vice President and CSO, Kim Min-Woo. From Basic Chemical, Vice President, [ Kwak Giseop ], Head of the Strategy Management Division; Vice President, [ Kwon Jo Hung ], Head of the Monomer Division; Vice President, [ Chan Yang Si ], Head of the Polymer Division. From Advanced Materials, we have Executive Vice President, [ Cho Woo Hyun ] from the Corporate Planning Division.

Let me now turn to business results of the year of 2024. Revenue in 2024 was KRW 20.4304 trillion, up 2.4% Y-o-Y. There was operating loss of KRW 894.8 billion. Recovery in petrochemical industry was delayed in 2024 due to global economic slowdown and overcapacity. At the same time, the EV chasm turnaround in subsidiaries and freight cost hike have led to declining profitability ROI across our businesses, including Basic Chemical.

Next is the company's financial performance in Q4 2024. Revenue in Q4 was KRW 4.8961 trillion, down 5.8% Q-o-Q. There was operating loss of KRW 234.8 billion and net loss of KRW 1.1206 trillion. There have been some improvements in Q4. One-off costs from Q3 have been eliminated, leading to lower operating loss Q-o-Q and turnaround to profit in EBITDA. But overall loss widened due to recognition of impairment loss in LOTTE Energy Materials and Basic Chemical businesses.

Next is the company's financial position. Asset at the end of Q4 2024 was KRW 34.6246 trillion, up by KRW 137.6 billion Q-o-Q. Cash and cash equivalents was KRW 3.4757 trillion, down by KRW 146.4 billion Q-o-Q. Liabilities were KRW 14.579 trillion, down KRW 248.8 billion Q-o-Q. Borrowings were KRW 10.4054 trillion, lower by KRW 317.1 billion Q-o-Q. Debt-to-equity ratio stood at 72.7%, up Y-o-Y, but down Q-o-Q, staying at a stable 70% level. Shareholders' equity was KRW 20.456 trillion, up KRW 386.3 billion Q-o-Q.

Next, let me walk you through the business results and outlook by business segment. The sales of Basic Chemicals posted KRW 307.8 billion in the fourth quarter of 2024, and an operating loss of KRW 175 billion was posted, nearing the deficit from the previous quarter. One-time expenses that were reflected in the P&L in previous quarters such as subsidiary maintenance and higher ocean freight rates were eliminated in Q4. Thus, the deficit narrowed compared to the previous quarter. While the uncertainty of the current business environment is expected to continue in the first quarter of 2025, factors such as stronger exchange rates and downward stabilization of feedstock and freight costs are expected to have a positive impact.

Next is Advanced Materials. Under 2024, Q4 sales was KRW 1,094.4 billion and operating profit posted KRW 29.7 billion, representing an operating margin of 2.7%. Due to inventory adjustments in downstream industries as they enter the off season at the year end, sales volume and spreads have contracted, resulting in a slight decrease in profitability Q-o-Q. Although we expect uncertainty in the external environment to continue in Q1 of 2025, we expect sales volumes to gradually increase and profitability to improve quarter-on-quarter.

Next, moving on to LOTTE Fine Chemical. LOTTE Fine Chemical announced its preliminary earnings on February 5. Therefore, in today's presentation, I would like to only briefly discuss the business results. For more detailed information, please refer to LOTTE Fine Chemical's earnings release.

In the fourth quarter of 2024, LOTTE Fine Chemical posted sales of KRW 428.6 billion, operating income of KRW 12.2 billion and an operating margin of 2.8%. Despite lower demand as green materials entered their seasonal off season, higher international prices and expanded sales volumes of chlorine and ammonia-based products resulted in improved revenue and profitability Q-o-Q.

Next, I would like to discuss the outlook for the first quarter. In the first quarter, we expect continued sales growth due to the expansion of green material sales and higher international prices for chlorine and ammonia products.

Lastly, LOTTE Energy Materials. LOTTE Energy Materials also held a separate earnings call the day before on February 6, so we will only briefly discuss the company's results in this presentation. In Q4 of 2024, LOTTE Energy Materials posted sales of KRW 186.4 billion and an operating loss KRW 40.1 billion. In the fourth quarter, production and sales volumes decreased due to customer second-half inventory adjustments. In addition, increased fixed costs and one-time expenses due to lower utilization rate widened deficit. While we expect a delayed recovery in EV demand and market uncertainty to continue in Q1 of 2025, we expect a recovery in demand from downstream industries in the second half of the year.

This concludes our fourth quarter 2024 earnings and outlook presentation. And next our CFO, Sung Nak-Seon; and CSO, Kim Min-Woo will discuss Lotte Chemical's key issues and future prospects.

[Interpreted]

Good afternoon. This is the CFO of Lotte Chemical, Sung Nak-Seon. I thank, everyone, for your time and participation in our earnings call.

First, looking back to our Q4 2024 results, illustrates partly improving operating profit despite continued challenges in our business environment as the one-time costs that were recognized in the previous quarter have been eliminated, but the company is still in the loss. And net income widened significantly Y-o-Y, with the recognition of non-operating expenses like impairment loss.

I regret the disappointing news. Particularly in Q4, there was around KRW 1 trillion of impairment loss, mainly reflecting impairment valuation on the goodwill of LOTTE Energy Materials and some tangible assets of the Basic Chemical business in the wake of the recent slowdown in EVs and the chemical industry. For the chemical industry and its market, the increased business uncertainties make it hard to predict the timing of recovery, but we expect that the pressure on supply-demand balance will somewhat ease in 2025 from the past 2 years to 3 years. This will hopefully lead to gradual improvement in corporate earnings.

As was explained in our subsidiary, LOTTE Energy Materials' earnings call yesterday, the EV market is expected to gradually recover from the second half of the year, and we are also stepping up our efforts to improve profitability. I also understand the concerns by investors and capital market stakeholders regarding the company's bond EOD issue. For the bonds subject to EOD, a meeting of bondholders resolved to delete the article for all bond issuances and the court's confirmation in January has eliminated the issue.

The petrochemical industry today is mired in an unprecedented environment, both inside and outside, including global oversupply and delayed demand recovery and the company will actively respond to the tough times by focusing on financial soundness along with our asset-light initiative. To maintain financial soundness, we are stringently managing our investment, conservatively reviewing new investment needs, except for core investment and essential current investment.

In 2025, the company plans to invest KRW 1 trillion less Y-o-Y and to invest within EBITDA. Large-scale investments, coupled with delayed market recovery over the past 2 years to 3 years, resulted in a historically high debt-to-equity ratio for the company, but it remains at the 70% level, which is our operating standard. We are cautiously projecting that on a non-consolidated basis, excluding overseas investment, our borrowings and debt-to-equity ratio could be reduced from 2024. Even on a consolidated basis, if the large-scale LINE Project is finalized by this year, our cash flow could improve more quickly. Needless to say, market recovery is of the utmost importance, but the company is also looking for and strengthening ways to secure additional cash flow, for example, by accelerating asset-light.

Last, let me brief you on the 2024 year-end dividend plan. The company's basic policy for dividend payout ratio is 30% on a non-consolidated basis. We plan for the dividend payout based on a comprehensive set of factors, including not only the dividend payout ratio, but also dividend yield, as such to ensure dividend consistency and enhance shareholder value. We have already implemented dividend payout of KRW 1,001 per share as interim dividend and internally reviewed another KRW 1,001 per share for the year-end dividend as well. The final decision on the proposed dividend payout will be made at the March shareholders' meeting. To our shareholders and investors, we do realize that the business environment will remain challenging in 2025, but we will do our best to meet your expectations by transforming our business portfolio and strengthening our financial position.

Thank you very much.

[Interpreted]

Good afternoon. I am Kim Min-Woo, the CSO of Lotte Chemical. I'd like to thank our investors for your interest and participation in our earnings call. I'm going to focus my remarks on the basic strategy that we're driving, direction that we're going and the key challenges and tasks. We are continuing to pursue the 2 strategic directions of business portfolio transformation and financial strength enhancement without any major changes. However, the business environment, including market conditions, our cash flows and the execution status of targeted tasks are unfortunately falling short of our plans or are being delayed. In response to these conditions, we are revising existing tasks, identifying new ones and revising and supplementing details such as prioritizing tasks and changing the timing of execution.

First of all, we would like to take a conservative view of the business environment outlook and prepare for the worst. There do exist factors that could lead to a return to profitability in the longer term, such as the troughs seen in the petrochemical industry's 3-plus year down cycle, fewer new projects and higher investment cost due to inflation. However, it's hard to ignore the structural changes that have set the industry apart from past recoveries, including changes in China, which is a major export market for us, fluctuating logistics costs associated with offshore exports and excess capacity due to industry-wide low operation rates. The nature of the petrochemical industry is such that recovery in performance is highly dependent on key market indicators such as spreads. However, we strive to ensure that we have the structural competitiveness and efficiency to withstand a slow or gradual market recovery.

And now moving on to the topic of transforming our business portfolio. The strategic direction to reduce the proportion of petrochemicals in the overall business portfolio has not changed, and we are exploring various ways to do so, such as selling management control of overseas assets and attracting investment through partial equity sales. However, due to the uncertainty of the market outlook, we are not able to sell some assets easily. So, we are simultaneously pursuing methods such as PRS to secure deadline for future sales and achieve the effect of asset sales. The Pakistan subsidiary has recently made progress in discussions with a potential buyer and expects to conclude in the near future, and we will communicate with the market when the uncertainty is removed.

As an efficiency plan that can be implemented independently, we have suspended operations of LC Titan's #1 NCC, liquidated LUSR and stopped operations of a domestic PET plant and are also creating a collaboration structure with domestic company. Given the depth of the current down cycle and the uncertainty around the timing of the recovery, we recognize that we need to make structural changes to drive additional efficiencies and competitiveness, not just asset sales to reduce the share of certain businesses in our portfolio. We are exploring a number of possibilities, and we will continue to work to deliver results as soon as possible.

Advancing our business portfolio is predicated on further portfolio expansion while reducing the weight of the petrochemicals business. However, given the continued weakness in the petrochemical sector, which is the main source of our investment funds, the uncertainty of the timing of the recovery and the recent developments in the global economy, we do not believe it is the right time to actively pursue investments. For the time being, we are not seriously considering further expansion of our business areas, but in our established non-commoditized business areas such as Advanced Materials compound, LOTTE Energy Materials, copper foil and fine chemicals, green materials business. We can make basic investments to strengthen our competitive position after careful consideration. We plan to do so by carefully examining the trends in the electrical vehicle ecosystem represented by chasm, the reorganization of the global supply chain following from 2.0 and the profitability prospects of the businesses to be invested in.

Finally, from a business operational perspective, we want to focus on innovation activities, not only at Lotte Chemical, but also across the entire Lotte Chemical entities, including domestic and overseas subsidiaries. We have established innovation organizations at all of our affiliates, and we're focusing on identifying and implementing tasks that are specific to each company. We will manage these activities to achieve the targeted results as they are essential for improving profitability in the short term and securing competitiveness by improving fundamental operational efficiency.

We recognize that our efforts to improve profitability through asset-light CapEx management and executing on our innovation agenda will need to pay off in order to achieve another key objective, that of financial strength enhancement. We are deeply disappointed that we have not met the expectations of our investors, including our continued underperformance. And we are committed to delivering on our initiatives this year to ensure that we remain inherently competitive and enhance our enterprise value. We ask for your continued interest and support.

Thank you very much.

[Interpreted] [Operator Instructions]

[Interpreted]

The first question will be provided by Parsley Ong from JPMorgan.

I think people were already expecting the operating profit to be a little sluggish, but could you kind of elaborate a bit on net profit? Were there some one-offs in fourth quarter? Maybe give us the breakdown on your non-operating profit? And then what is your outlook going forward? How much of that do you expect to recur? How much of it was just a one-off impairment or effect from FX?

The second question is on your first half or your outlook on the company for first half 2025? Which division do you expect to see more of a margin improvement in?

[Interpreted]

This is the CFO Sung Nak-Seon responding to your -- the first part of your question. Yes, the net income was -- it was around KRW 1.8 trillion in loss. And as for the one-off costs in Q4, yes, there was largely impairment loss from the LOTTE Energy Materials and also the Basic Chemicals. So here, the asset impairment was around -- in the amount of around KRW 1 trillion. And you also asked whether they could recur again. And if I may also respond to that, given that we have conservatively evaluated the market this year, we do not believe that there is going to be significant additional impairment. So if the market were to be remaining similar to -- in this year as to last year, then we believe that the -- any additional impairment is going to be insignificant or not occurring at all.

[Interpreted]

This is Kwak Giseop, Vice President, Kwak Giseop from the Corporate Planning Division. I would respond to the second part of your question.

We see that the petrochemical industry recently is struggling still because of the oversupply and also sluggish demand coming from the global downturn. So, I would say that it hit the trough in Q3 2024. Then -- since then, it has bottomed out into Q4 of 2024. And we expect that there would be continuous gradual improvement throughout the first quarter and the second quarter of this year. But instead of seeing a dramatic pickup in the environment and also instead of seeing dramatic improvement in the spread, it's likely that we would also feel the effect from the lowered feedstock cost and also the effect from the freight cost as well as the exchange rate.

Combined with them, if there is also effectiveness from the economic stimulus policies of China, then there might be some pickup in the demand, which would then continue to drive improvement in the first and the second quarters of this year. Particularly for the Advanced Materials, we expect performance improvement in the first quarter of this year Q-o-Q.

[Interpreted]

The following question will be presented by Lee Jin-myung from Shinhan Investment & Securities.

[Interpreted]

My questions are three-fold. First, we hear a lot of plans about facilities shutdowns or facilities build-out. So, my first part of the question is the plans for the facility shutdown or capacity increase for -- by each main product.

And second is we also hear a lot about asset-light initiative. And what are some of the things that would come into visibility within this year? If there's anything that you can share with us, that would be appreciated.

And the third part of the question is about the CapEx for this year and next. And so based on this, what is going to be the company's financial plan?

[Interpreted]

This is Kwon Jo Hung from the Monomer Division of Basic Chemical, and I would respond to the first part of your question about the facilities ramp-up or shutdown.

Now, my response will be mainly on ethylene. Now, coming to this year as well, the ramp-up and build-out in China will continue, which will continue to drive supply. There were some new ramp-up in 2023, 2024, but the utilization has been delayed for part of them. So, there was the volume that was delayed due to the delay in the utilization. And then there's also going to be the new ramp-up this year. So combining those 2, then the ethylene supply for this year is going to be 9 million tons.

By region, there is going to be the volume coming out of LOTTE Chemical Indonesia, as well as the 5 complexes from China, supplying the type of volume that I mentioned earlier. Now in contrast to this, when we look at other regions like Europe, China and Japan, then we see that some of the smaller, less competitive crackers being scrapped. There have been 2 last year, and there will be 3 this year. And then going into next year and the year after that, there is likely to be additionally 2 more to be shut down. [Interpreted]

This is Vice President, Chan Yang Si, from the Polymer Division of Basic Chemical. Now, for polymer in 2025, we are expecting around 4% growth in demand. But depending on the market circumstances, we see that the new capacity or utilization is being delayed and also there is rationalization of the capacity in some other regions like Japan. So, we do see that the demand and supply balance is improving compared to 2 years to 3 years ago. But still, the overcapacity in China continues, which is likely to keep the utilization rate at a relatively low 80% level.

So on one hand, we do expect continued overcapacity and also uncertainties in the global demand, especially under Trump 2.0. But on the other hand, we are also expecting drop in the freight cost and also there would be effect from the exchange rate. And also from China, there is likely to be a pickup in the domestic demand are all factors, which should also lead to gradual improvement in the spread.

[Interpreted]

This is the CSO, Kim Min-Woo responding to your question about asset-light. Now, as was explained during the presentation, the LCPL, our Pakistan production company, now we are nearing the sell-off of this company because we have made some meaningful progress with the counterpart. And thinking about the meaning or the purpose of the asset-light, I will say that there are largely 2 objectives. First is to reduce the portion of the petrochemical business out of our entire business portfolio. And second is to utilize the proceeds from the rationalization to improve our financial soundness.

And given that we are not seeing some ready results or quick results from some of our asset-light initiatives, we are also considering such mechanisms as the PRS. We have already signed an agreement -- we have already signed the PRS agreement regarding the MEG production company in the U.S. And also, we are looking for the same mechanism for the LCI, which is the Indonesia Line -- LCI, which is the Indonesia LINE project.

So particularly for the LINE project, we are still in discussion regarding investment attraction at a smaller scale than we had expected. And we are -- so in addition to that, we are also additionally considering a PRS for the shares that were up for sell-off. And last, about our domestic assets, there have been no specific discussions or reviews yet. But given the current market situation and the government policy direction, then we do believe that there would be some discussions about what we are going to do about the domestic petrochemical capacity.

[Interpreted]

This is the CFO, Sung Nak-Seon, responding to the third part of your question. The investment in 2025 would be around KRW 1.4 trillion, which would be about KRW 400 billion less than we had initially planned. And in terms of our guidance about our financial position, then there is the principle that I have been communicating with the investors and with the market for some time now, and that is to keep our investment within the EBITDA level. And as for our borrowings on a consolidated basis, our target for borrowings by the end of 2025 is around KRW 10 trillion, which is largely unchanged from last year. And we also intend to reduce the real borrowings by about KRW 200 billion.

[Interpreted]

The following question will be presented by [ Kim Yangtae ] from BNK Investment & Securities.

[Interpreted]

I have 2. The first is about the ethylene net capacity increase. So what is -- can you give us an update about the net capacity increase for ethylene planned for '25 and 2026? And the second part of the question is, now the company also is engaging in various secondary battery materials business in North America. But now under the Trump administration and with the policy uncertainties that come with it, what would be the implications on the company's secondary battery material business, if any? Perhaps though -- will there be any impact on the timeline or the CapEx?

[Interpreted]

Thank you very much. This is Vice President, Kwon Jo Hung, from the Monomer Division of Basic Chemical. I will respond to the first part of your question about the ethylene net capacity increase.

As of -- so for the year 2025, the ethylene supply is going to be about 8.7 million tons. So, this is roughly similar to the 9 million tons that was mentioned earlier. And in line with this, along with the capacity increase downstream, the demand is going to be about 8.8 million tons. Now compared to this, in 2026, there is likely to be about 10 million tons of capacity increase for ethylene in 2026. On the other hand, demand that so far that we have identified would be around 7 million tons. So, there is likely to be oversupply.

[Interpreted]

This is the CSO, Kim Min-Woo, and I will respond to the second part of your question. Now to make the long story short, our battery material business in North America, the plan for our battery business -- battery material business in North America remains unchanged. Now for Lotte Chemical, either directly or indirectly, what we are -- the businesses that we are planning are aluminum foil and copper foil. And as was mentioned earlier, for the additional businesses, having, let's say, aggressive expansion or aggressive investment at this time is not planned. And as for the aluminum foil production facility in the U.S., which is a joint venture with LOTTE Aluminum, which is also a subsidiary of ours, so for this, we have recently completed the mechanical construction.

For this year, we would focus mostly on qualification or approval and so forth, and the commercial production is set to begin sometime next year. So, that means that the -- most of the investment has been completed. So, barring any additional investment needs, there will be no major changes to the CapEx plan. And also the copper foil investment that is being done by LOTTE Aluminum, now that is mostly in the Malaysia. So then for the longer term, if the Malaysian capacity is filled, then we might also consider additional capacity increase. But then again, in this case, that is going to be mostly for Europe, not the North American or the U.S. market. And for further details, I would like to refer you to the LEM.

[Interpreted]

The following question will be presented by [ Too no Jae ] from KB Securities.

[Interpreted]

I also have 2 questions. Now it was mentioned earlier that the company looks toward about 4% demand growth for polymer in 2025. Then can you also give us a geographic breakdown? In other words, which geography is going to see the biggest increase in polymer demand? And second is, are there any product groups or products that are showing higher than 4% growth? In other words, what are some of the products that are showing better margins?

And the second question is now I do realize that the company must be keeping the investment to the minimum as well as the R&D. So given the current circumstances, what is the company's top priority in terms of the R&D? And also especially for plastic recycling R&D, is there any update that the company can share with us?

[Interpreted]

This is Vice President, Chan Yang Si, of the Polymer Division of Basic Chemical. I would respond to the first part of your question about polymer demand. So the 4%, that is PE and PP combined. For PE, it is going to be a bit lower than 4%. It would be around 3.7%, whereas PP would be higher than 4% at 4.5%. And in terms of geography globally, that would have the biggest growth potential, we see North America and Asia. Countries like Korea and Japan are showing growth by around 1%, 2%. And markets like China recently are growing at 4% to 5%, whereas in Europe, especially in some parts of Europe, we are seeing negative growth. And other regions like Africa and Latin America, they are also showing high growth at 4%, 5%.

Next is about the polymer products with better margins. Now for the company, the products with higher margins are LED and EV and LDPE. And for others like HDPE, LDPE and PP, now the margins tend to differ depending on the purpose.

[Interpreted]

If I may repeat the second part of my question, then it was about what would be the most important part of the company's R&D efforts at this time. And then also for the investment going into '26, '27, '28, then what would be the most important areas?

[Interpreted]

This is Vice President, Kwak Giseop, from the Corporate Planning Division of Basic Chemical. I would respond to the question about R&D. Basically, there is no change to the R&D investment. Now having said that, in terms of green or environment, we see that the market is opening up later than we had expected. So when it comes to our R&D resources input, then we are also being flexible with regards to green or also about strengthening of the existing products. And when it comes to the R&D on green products, then one is about using cracked naphtha for recycling purposes and also to utilize pyrolyzed oil, in other words, to directly refine the pyrolyzed oil for productification. And also R&D continues on green polymer and CR PET, but then we are also pacing the R&D in accordance with the circumstances of the market as well as other conditions.

[Interpreted]

The following question will be presented by [ Seung-Yeon Seo ] from Shinyoung Securities.

[Interpreted]

Now my question is only one. So, there have been the announcement by China about the economic stimulus policies and also the old-for-new initiative, I believe, that has also been around for some time. So, are there any changes in the market condition that the company is experiencing or perceiving?

[Interpreted]

This is Vice President, Chan Yang Si, from the Polymer Division of Basic Chemical. Now when it comes to China stimulus policies, it appears to be difficult for them to roll out the kind of stimulus policies that they did in the aftermath of the global financial crisis of 2008. But since the second half of last year, the Chinese government has cut rates and also increased their fiscal spending, which have had the effect of improving their economy for 6 months in a row. Now the Chinese government for the year 2025, their top priority as proclaimed so far is to stimulate domestic demand. And we do believe that the specific direction would be announced at the time of the 2 sessions in March. And we will also keep our sale policy flexibly in accordance with the Chinese government's policies.

[Interpreted]

This concludes the Lotte Chemical's earnings release conference call for the fourth quarter of 2024. Thank you very much for your participation. If you have any further questions, then please refer them to the IR team. We will see you again at the first quarter 2025 earnings release conference call. Thank you.

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