We would like to commence Ecopro's first quarter 2025 earnings conference call. We will first begin with the presentation on first quarter earnings, then move on to business outlook for Q2 and the second half, followed by the Q&A session. We will be providing consecutive interpretation for the presentation, which will be followed by outlook and questions. I will now turn it over to Ecopro.
[Non-English content]
Thank you for joining the company's earnings release today. With me today are Ecopro CFO Park Jae-ha, Kim Soon-joo, Managing Director of Finance and Accounting, Yang Je-heon, Director of Technology and Strategy. From Ecopro Materials, CFO Lee Seong-joon. From Ecopro HN, we have Lee Ju-hyung, the CFO, Park Myeong-guk, Team Leader of Battery Materials, Choi Jin-young, Team Lead of Business Management, and Kim Seung-wook, Team Leader of R&BD Planning. Please note that earnings are yet to be audited by an independent auditor and thus are subject to change upon auditor's review.
[Non-English content]
With that said, let's begin earnings presentation for Q1 of 2025.
[Non-English content]
Good afternoon. I'm Kim Soon-joo, Managing Director of Finance and Accounting Department at Ecopro. Starting this quarter, we've made changes to the way we hold earnings release calls. Ecopro BM will hold their separate earnings release call, and we have grouped together Ecopro Materials, Ecopro HN, and the holdco Ecopro to hold earnings call all together. We hope to be able to provide greater detail in more depth to investors and market participants through this new IR format.
[Non-English content]
Please refer to the earnings material we circulated. Today, we will go through our three listed affiliates of Ecopro companies in order, after which we will take your questions.
[Non-English content]
Keywords which we wish to highlight during today's earnings release is earnings improvement and financial soundness. Q1 2025 consolidated profit of Ecopro was KRW 1.4 billion, reporting a quarterly operating profit turnaround on a consolidated basis, breaking away from the loss-making streak seen during 2024. We expect turnaround trend will continue this year, gradually expanding the size of profit. Second, Q1 2025 consolidated basis cash stands at KRW 857.7 billion for Ecopro. Debt ratio for Ecopro is 97.5%, Ecopro HN is 49.3%, Ecopro Materials 90.3%, which demonstrates stable financial buffer. On this basis, we will actively explore global projects which we deem to be essential for building our competitiveness and carry on with shareholder return policy inclusive of dividend distribution.
[Non-English content]
On page six, I will walk through earnings results from Ecopro Materials. In Q1 of 2025, Ecopro Materials reported revenue of KRW 136.1 billion, which is up 54% QoQ. Driven by growth of both captive and non-captive sales volume, Q1 volume recorded a steep rise of 98% QoQ, and a decline in sales mix of oxide precursors, ASP fell 13%. However, profitability improvement was constrained due to recognition of one-off expenses incurred in relation to responding to new customer requirements. Operating profit hence recorded negative KRW 14.8 billion.
[Non-English content]
During Q2, there will be inclusion of PT Green Eco Nickel of Indonesia as our subsidiary, and thus we expect profit improvements to follow in the second half of the year. By onboarding multiple number of new customers, we look forward to a faster speed of diversification of revenue stream.
[Non-English content]
Page seven is on the financial position. Total asset as of end of Q1 2025 was up 7.7% QoQ, reporting KRW 1,389.4 billion , and total liabilities was up 19% QoQ to KRW 659.4 billion. Equity was down 1% QoQ, reporting KRW 730 billion . in relation to PT Green Eco Nickel acquisition, there was provision of loan and CapEx for Pohang number four campus drove debt ratio to 90% temporarily as of first quarter end. As per our early April disclosure, we improved the financials via capital financing of KRW 389 billion , and by optimizing the inventory asset. Inventory amount as of end of Q1 was down 27% QoQ, reporting KRW 179.3 billion .
[Non-English content]
Next on page eight is Ecopro HN results. Q1 2025 revenue for Ecopro HN was down 57% QoQ to KRW 34.4 billion . QoQ revenue decline was due to downstream industries pushing back on investment timeline and slow seasonality. Thanks to cost savings efforts, operating margin was kept at 10% level, which drove operating profit of KRW 3.4 billion .
[Non-English content]
Chemical filter sales are solid. As there were order wins from overseas for greenhouse gas business, we expect to drive an uptrend in the second half. We are also expanding the target market for fine dust business from the current shipbuilding and chemical sectors into power generation. Water treatment business, for which we won large scale orders last year, will continue to see revenue stream from maintenance.
[Non-English content]
Page nine is on the financial position. Total asset as of end of Q1 2025 was down 6% QoQ to KRW 438.8 billion. Total liabilities down 15% QoQ to KRW 144.9 billion, and total equity was down 0.8% to report KRW 293.9 billion . With debt ratio reporting a sound 49%. Since the capital injection made end of last year, the proceeds were used for tangible asset investment amounting to KRW 11.7 billion , and KRW 9 billion was used for repayment of debt. As such, in line with the overall investment timeline, we are efficiently managing our capital.
[Non-English content]
Moving on to page 10 on consolidated results of the holding company, Ecopro. Q1 2025 consolidated revenue for Ecopro was up 24% QoQ , reporting KRW 806.8 billion, with operating profit coming in at KRW 1.4 billion. Driven by sound battery materials backdrop, such as launching of new models by major OEMs and inventory stocking at cell companies, coupled with positive impact from FX and inventory valuations. Operating profit recorded a turnaround in profit on a quarterly basis. In terms of increase in sales from affiliates, cathode was up 36% QoQ, precursors 98%, and conversion to lithium was 238%, demonstrating a pronounced growth. There was reversal of provision for inventory valuation on a consolidated basis, amounting to KRW 78.3 billion.
[Non-English content]
On the back of EV market recovery in Europe and easing impact of slow seasonality on the environment business, we expect top-line uptrend will continue, while underpinned by rise in utilization following an increase in production volume and consolidation of Indonesia project and equity method treatment thereafter. We project profitability to show steady improvements.
[Non-English content]
On page 11 is consolidated financials of the holdco. Total asset as at end of Q1 of 2025 increased 4.1% QoQ to KRW 8 trillion, KRW 468.3 billion. Total liabilities up 8.5% QoQ to KRW 4 trillion, KRW 665.8 billion. Total equity was down 0.9% QoQ, reporting KRW 3 trillion, KRW 802.5 billion with consolidated debt ratio reporting 123%.
[Non-English content]
Debt ratio of subsidiaries are currently around 100% as of Q1 end, maintaining a steady state. For Ecopro HN and Ecopro Innovation, they are 49% and 11% respectively, keeping to a sound level. We project EBITDA to also see improvements following stronger earnings this year, which will lead to higher level of cash liquidity. Each of Ecopro affiliate companies have secured resources for CapEx by making reasonable adjustments to speed of investment, and have worked to optimize their inventory assets, pushing down consolidated inventory by around 11% QoQ. You can see that we are continuously working to operate our assets efficiently.
[Non-English content]
On page 12, I will run through the results from our other businesses. Non-listed affiliates of Ecopro also showed an uptrend in revenue and operating profit in Q1 of 2025. While the holdco continues to book equity method gains from the QMB project in Indonesia, we expect to realize profit from additional projects such as from Meiming and ESG projects. Recycling business reported record high production last March, driving up utilization and yield. While lithium business had additional new customer wins in the first quarter as we continue to diversify sales outlets.
[Non-English content]
Since last year, despite difficult business environment, all of Ecopro affiliates focus their effort on fortifying their respective fundamental competitive strengths through customer and product diversification and cost savings, and we will also place greater effort behind shareholder value enhancement.
[Non-English content]
This ends the earnings presentation. We now move on to the business outlook for second quarter and second half of 2025.
[Non-English content]
Yes. Hello. I am Park Jae-ha, CFO of Ecopro. I will first run through the second quarter outlook for the holding company and battery material subsidiaries, then move on to materials and HN business outlook. As mentioned, we turned operating profit positive on a consolidated basis in the first quarter. Customers depleted their inventory and on new customer wins, we saw steep rise in sales of cathodes, precursors, and lithium. Metal prices and ASP stabilized, followed by reversal of provisioning for inventory for the battery materials business unit. Thanks to our internal cost innovation efforts and favorable FX movement, we were able to make the turnaround to profit in five quarters.
[Non-English content]
Although the size of profit turnaround is not big, we believe it is meaningful signal to the end of long-winded slump. All of us here at the company are of one mind as we endeavor to gradually grow the size of quarterly profit and make sure that that is not just a one-off temporary improvement.
[Non-English content]
Going forward, we expect there will be recovery in volume from battery materials affiliates and the slow seasonality of the environment business will dissipate. This year, European EV market is expected to grow at around 15%, and we will gradually see the impact from new model releases from these OEMs. We also expect power tool sales volume to double versus last year, and order size from current customers therefore will increase, and with new customer wins, we expect cathodes annual sales to increase by around 40% versus last year.
[Non-English content]
For the lithium business, in Q1, we secured domestic cell company as new customer, and we expect about 20% QoQ sales volume increase in Q2. We also expect to onboard overseas OEM and domestic cell companies in the second half of the year, and this will enable diversification of our customer base, moving away from high dependence on small number of customers, which is part of the process for business structural enhancement, eventually lowering customers concentration risk.
[Non-English content]
We are also implementing new strategies in order to enhance corporate competitiveness. There are four projects actually ongoing, one of which is investment into nickel smelter in Indonesia, which is actually a key pillar behind producing cathodes at lowest global pricing. We have QMB and Meiming Project under stable operations. PT Green Eco Nickel Project, whose acquisition will soon be completed through Ecopro Materials, and also through the ESG project, where we will be acquiring 10% stake in Q2, will help us secure 30,000 tons per year off-take volume in the second quarter. Through these efforts, we will enhance cost competitiveness of ternary cathode materials and drive equity method gains of the hold co and contribute to trading business of metal materials.
[Non-English content]
We also expect profit size to gradually grow moving into the second half of the year through spreading of fixed cost enabled by higher production and sales, and through cost savings following process improvements and write back of provisions for inventory asset. As such, on top line expansion and enhanced cost competitiveness, we will be equipped with fundamental strength to overcome headwinds from the external environment. Thank you.
[Non-English content]
I am Lee Seong-joon from Ecopro Materials. I will provide an outlook for the Materials business. First, if you look at precursor sales, it had shown marginal recovery up to first half, but we expect sales volume to rise on the back of higher share of non-captive customers as we head into the second half of the year. Under such low first half and high second half sales trend, we expect annual non-captive sales mix to reach above 50%. We are also expected to win about two to three new customers before the end of the year.
[Non-English content]
In terms of the bottom line acquisition of PT Green Eco Nickel is ongoing as planned. We are going through administrative procedure to acquire the stake. As announced early this year, we will complete the acquisition by the second quarter and gain majority shareholder status of this entity. Through the acquisition of Green Eco Nickel, consolidated profit is expected to improve KRW 100 billion annually. Even for this year, tens of billions KRW of positive consolidated profit impact is expected.
[Non-English content]
Lastly, our plan is to complete the development of the next generation high voltage mid nickel precursor before the end of the year, so that we can penetrate into the low to mid end of the market, and we will collaborate with a new partner. To replace the co-precipitation method, which generates wastewater during the precursor production process, we are working on a separate process technology. This year, we expect Ecopro Materials to win customers, strengthen profitability, and develop future technologies and make advancements in all aspects. Thank you.
Ecopro HN. [Non-English content]
Hello, I am Choi Jin-young, Team Leader of Business Management at Ecopro HN. I will briefly run through the outlook for Q2 of 2025. Q1 usually is a slow season for our environment business, and as we enter into Q2, we will start to see orders come through. Chemical filter business enjoys stable replacement demand and with growing HBM demand from domestic semiconductor sector, which is leading to higher market share of new products, we expect top line to uptrend. For the greenhouse gas business, we are in the process of executing MOUs with local EPC companies in the U.S., Asia, and Europe. Based on global references we've been able to successfully secure, we are negotiating specific terms of the agreement, and we believe we can win new orders before the end of the first half.
Fine dust abatement business will see expanded investment into the power generation sector in line with the National Power Supply Plan, and we are working hard at sales as we speak. In terms of new business, we started to supply dopant to the captive market in Q1 as per the plan. We plan to complete testing of non-captive volume in the second quarter, and full-fledged supply will start in the second half. Pilot production of SAGAR will be complete during Q2, and we will be ready for supply in the second half. We are currently running product evaluation on the SAGAR together with our non-captive customers. For the semiconductor business, we've been supplying materials for HBM and packaging to our domestic customers. We expect growth will come from second half of 2026, coinciding with the increase in market share of our end customers.
We finished development work on material for semiconductor processes, and two items are currently under evaluation for customer approval in the second half. There are admittedly uncertainties like the tariff policy of the U.S. and its downstream impact, and we look forward to sustained growth backed by launching of new business items and stronger competitiveness of our current businesses. Thank you.
[Foreign language] Now Q&A session will begin. Please press star three, that is star and three, if you have any questions. Questions will be taken according to the order you have pressed star three. For cancellation, please press star four, that is star and four on your phone. The first question will be presented by Choi Yoo Jin from Mirae Asset Securities. Please go ahead.
[Non-English content]
Thank you for taking my question. I have two questions that I would like to ask. I am Choi Yoo Jin from Mirae Asset Securities. My first question relates to what you believe is going to be the impact to your group of companies coming out of the impact from the U.S. tariff policy. My second question regards CATL's recent announcement of its focus on the SIB batteries. I would like to understand what Ecopro's perspective and view is on these SIBs, and also what your market response would be like.
[Non-English content]
Thank you. Responding to your first question. I am Park Jae-ha from Ecopro. I am the CFO. As you would appreciate, there still exists a lot of uncertainties with regards to the U.S. government's tariff policy direction. So it's actually quite difficult for us to arrive at one specific conclusion. In that sense, I would like to just share with you as to what the high level impact would be like. If you first look at our environmental business, which includes the chemical filter and greenhouse gas business, they are mostly construction businesses, which means that we have high exposure to domestic market, and the sales that actually goes to the U.S. market is quite minimal. So the impact from tariff is not going to be big.
[Non-English content]
In terms of cathode, basically the share of U.S. bound cathodes from our perspective is not that large. It's only around 10%. We are not yet exposed to any pricing related pressures from our customers. As you know, in early April, the reciprocal tariff basically was put on pause for 90 days up until early July. So up until the time the policy is confirmed or finalized, we may actually be seeing some increases in terms of preemptive demand. Also as to whether cathode is going to be deemed as automobile components and parts, still that is undetermined. Automakers in the United States, I understand, have demanded that the tariff on auto parts be repealed. So there still exists a lot of uncertainties.
[Non-English content]
Now, if you look at tariff from our precursor and lithium business, including the captive market, basically we sell mostly to domestic cathode companies, and we do not have any volume that gets directly exported to the U.S. market. Having said that, these minerals are actually subject to the IRA and Non-FEOC requirement. So if we think about our prospective customers in the United States, there may end up being some indirect impact. Thank you.
[Non-English content]
Hello. I am Yang Je-heon. I am Director of Ecopro's Technology and Strategy. Responding to your question on sodium ion batteries, the SIB batteries. Let's take a look at what was announced by CATL most recently on the SIB batteries. If you look at the sodium ion batteries that CATL is talking about, the lineup is divided into EV propulsion and vehicle starter.
[Non-English content]
First, taking a look at the EV propulsion sodium battery that actually competes with LFP, and it uses layered cathode materials. Basically in sodium battery cathode, on a relative basis, the capacity is higher. For the vehicle starter, SIB sodium batteries, the target is to eventually replace the lead acid battery. It basically uses iron as the metal material in order to reinforce the safety profile as well as to improve on the cost base. CATL announced some of the properties and characteristics of their sodium cell, and the information that they shared, especially on the low temperature properties of withstanding negative 40 degrees and also the outcome of the safety test, I believe is meaningful. But if you look at their driving range of 520 km, considering the criteria upon which China calculates the driving range, I think that the figure is a bit overblown.
In terms of the vehicle starter SIB, they have mentioned that they will be using it for FAW trucks, but they have not yet specified as to which customer application the EV propulsion sodium battery will be used for.
[Non-English content]
Now, looking at what impact this would have and implication it would have for Ecopro and the players in the similar sector. If you compare sodium batteries to LFPs, basically it does have cost competitiveness if you just purely look at the cathode, but at the cell level, you cannot say that it is more cost competitive compared to LFP because you have to also include the electrolytes and the anodes as well. You also need to have an electrolyte that is dedicated for use for sodium batteries, and you also have to develop hard carbon anodes as well. SIB at this point does not have that economy of scale. At our company, we have been developing SIB cathodes since two years ago, and we also have secured coating and doping materials and technologies which are unique to us.
[Non-English content]
It is because of that very reason that we have been chosen to lead the national project on battery cathode materials. We are at this point playing a very important role in leading the SIB, the sodium battery cell business related project. We have also started developing SIB cells together with domestic battery companies, and soon we are looking forward to gaining some tangible results. The SIBs that we are developing at our company is basically the cathode is based on the layered structure, which means that as a transition metal, it uses nickel. So we can also look forward to synergies coming off us together with the Indonesian nickel business.
[Non-English content]
All in all, it is true that compared to China, Korea, in terms of sodium batteries, maybe relatively a later comer. However, we already have the sodium battery related cathode technology under our belt, and it also requires time for SIB to actually catch up with LFP's different aspects, such as cost and securing of the value chain. So we believe that we have ample opportunity to actually create the value chain for sodium cathode as well as some critical materials that is required in making that cell.
[Non-English content]
Next question, please.
[Foreign language] The following question will be present by [Non-English content] from NH Investment & Securities. Please go ahead.
[Non-English content]
Thank you for taking my question. I have two questions related to your materials business and one on your HN business. Could you first provide us an update as to what your new customer wins are like for your material business? Why are we seeing a weak profitability from this business? That is the second question. The third question on HN business is, can you share with us what your new business endeavors are looking like?
[Non-English content]
I am CFO Lee Seong-joon from Ecopro Materials. Responding to your question about the update on our new customer wins. Starting two years ago, in order for us to secure growth engine, we have been very actively doing sales activities against our external customers, and we are starting to see visible results come through starting this year. Also recently because of the hard-handed China policy that is been implemented by the U.S., we as a company can actually enjoy unrivaled positioning as a precursor company as we are decoupled with China.
[Non-English content]
It is under this backup that we are currently running sample tests with multiple number of partners, and we believe that we will be able to onboard at least two to three new customers within the year and commence the sales.
[Non-English content]
Responding to the question on why we are reporting a muted profit, that is at Ecopro Materials. Basically, the development-related cost that was captured this quarter can be considered as one-off factor. We see that the nickel prices are also quite steady as nickel is the key raw material for developing and manufacturing the precursors. We believe that additional inventory valuation loss seems quite unlikely at this point. But the reason why we see such muted profit figures is because of high level of fixed costs that we need to bear due to low utilization.
[Non-English content]
As we are in this low first half and high second half trend, we believe that come the fourth quarter, utilization is going to regain its normal level. Also at the same time, before the end of the second quarter, we're going to be including PT Green Eco Nickel to our consolidation, which is going to significantly improve our consolidated profit.
[Non-English content]
I am Myeong-guk Park, Team Leader of Battery Materials at Ecopro HN, providing you an update as to our new battery materials business. First, looking at the dopant for cathode, we are supplying 10- 20 tons to our affiliate Ecopro BM. In terms of the additional grade, we are at this point going through 4M approval process at our end customer, and we believe that this is going to be completed within the first half of the year. In the second half, we are going to see volume growth by about twofold, and we will be able to achieve break-even point earlier than expected. Also we've developed nano alumina and nano titanium oxide, which is currently under evaluation for customer application. In 2026, we're going to diversify the items that we provide so that we could drive up profitability.
[Non-English content]
Now, in terms of the SAGAR for cathode, we completed the development for SAGAR for high nickel cathode, basically extending the lifespan by 1.5x- 2x . We're currently working with four cathode companies domestically under the target of gaining the approval in the second half of the year. So we're going through evaluation, and we project that mass production will start in Q4 of 2025. By providing custom design that cater to the needs of each of the customers, we're taking full preparation to make sure that we expand on the mass production volume.
[Non-English content]
For two items of electrolyte additive, basically we completed sample evaluation at three companies. At this point we are undergoing mass production evaluation, and we believe that we will be able to start to supply in the second half of the year. Market contraction that arises from the Chasm in the market could actually work towards our benefit as we have cost competitiveness. Basically, the phosphate additive method that we proprietarily developed as a synthesis method, if we are able to make that into a mass production grade, we will be able to compete with the Chinese manufacturers in terms of pricing. We believe that this is an opportunity for us to capture the opportunities that actually generate out of the shift in the materials supply chain. We will really focus on the project so that we can make this into a success.
[Non-English content]
We are also working under an objective of reducing the material cost by 30% by additionally developing LFP F additive and LiDFOB additives based upon our proprietary synthesis method, and that development is slated to be complete before the end of the year. In terms of battery materials business, we are going to focus on receiving customer approval and certification as much as possible so that we can nimbly respond to customer requests and their requirements in the era of post-Chasm.
[Non-English content]
For semiconductor materials, we have been mass producing polyimide for packaging, centering on HBMs, and we are continuously developing and expanding the range of products that we can offer. At the end customer, because of the slowness in terms of their HBM business, the product expansion and portfolio expansion on our side has been delayed, but we expect that it will start to grow starting from 2026. Supported by such organic and inorganic synthesis technologies that we have, we will continue to discover different items so that we can bring them to commercialization.
[Non-English content]
Due to time constraint, we will be taking the final question.
[Foreign language] The following question will be presented by Park Jin-soo from Shinyoung Securities. Please go ahead.
[Non-English content]
Thank you for taking my question. I am Park Jin-soo from Shinyoung Securities. One question to Ecopro Materials and one to HN. Can you provide us with any color on whether there is any change to your capacity addition plans? For HN, what are your CapEx related updates that you could share with us? Would you be needing funding? If so, how would you go about financing for it?
This is CFO Lee Seong-joon, updating you on the CapEx. Basically, our plan to secure 255,000 ton production capacity for precursors by 2030 stays intact. However, we are clearly aware that the demand from the downstream market has been slowing, so we are closely looking into moderating the speed of investment.
We will consider the overall aspects, including the investment that we will be making into Indonesia, and if there is any change to our CapEx plans, we will make disclosures and communicate to you.
I am Choi Jin-young from Ecopro HN, the business management team. We expect CapEx for our business to be above KRW 60 billion, and in the second half of the year, we are going to implement full-fledged CapEx on honeycomb catalyst production line. Our customers are working towards carbon neutrality by 2050, and they are demanding from us more efficient conditions with regards to the greenhouse gas abatement facilities. In order to respond to such requirement from our customers, we have completed the development of highly efficient honeycomb catalyst, and we plan on setting up the production line before the end of the year and start supplying to our customers in the second half of 2026.
In terms of the electrolyte, the phosphate additive, basically we have completed the development of a manufacturing process that is going to give us 30%-50% lower material cost compared to Chinese and our domestic competitors. In order to better utilize the opportunities that will arise from the shift in the global battery supply chain and also the demand in the market, we are at this point considering making investment into our Cheongju business complex, the capacity in the amount of 550 ton production capacity. Our goal is to complete that by first half of 2026 and receive customer certification or approval by early 2027 so that we may go into mass production. Also, we are additionally developing a low cost-base process technology that can really compete with China. We are developing the F additive for LFP and DFOB additive.
These investments and efforts are going to help us with the commercialization that will follow. After the funding that we-