Good morning and good evening. Thank you all for joining the conference call for the Ecopro earnings results. This conference will start with a presentation followed by a Q&A session. If you have a question, please press star and one on your phone during the Q&A. Now we will begin the presentation on Ecopro's third quarter of fiscal year 2026 earnings results.
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Good afternoon. Thank you for joining us at Ecopro earnings call. Today we have here with us Head of Business Management Office, Vice President Jang-hoon Cho, and Head of Finance and IR Office, Vice President Kyunghwan Oh from Ecopro. Director of Management Support Department, Soon-joo Kim, and Team Leader of Business Management Team, Vice President Jin-hyeong Choi, and Team Leader of R&D Planning Team, Principal Manager Seung-Wook Kim from Ecopro HN. Director of Finance Division Jong-cheol Lee and Director of Management Division, Lee Seong-jun, Director of Sales Division from Ecopro Materials. I would like to note that the results that are announced today is subject to change after the audit results from the outside auditor.
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Now we will begin the conference call for Q3 Ecopro earnings results call.
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Good afternoon. I'm Head of Finance and IR Office, Oh Kyunghwan.
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At today's earnings call, I'm going to describe to you the performance of the three subsidiaries of Ecopro, and then we will have a Q&A session.
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Please turn to page four for the performance of Ecopro HN.
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The revenue for Ecopro HN in the third quarter of 2026 stood at KRW 52.8 billion, which is a similar level compared to the previous quarter, but compared to the same period last year, it showed an increase of 86%. In particular, EBIT stood at KRW 11.3 billion, which is a 96.9% increase compared to the previous quarter, and compared to the same period last year, it showed a robust improvement of 386.3%. Addition of new clients and winning new orders is continuously taking place, and the profitability is improved thanks to the improvement in sales mix. We believe the new orders and new project winning will be reflected on the performance results, which will further improve the performance of Ecopro HN.
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Next, let me introduce to you the financial results of Ecopro HN. Please turn to page five.
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The assets as of the end of Q3 2026 stood at KRW 470.5 billion, which is a 3.2% increase compared to the previous quarter. Liabilities stood at KRW 148.3 billion, which is the same as the previous quarter. Equity compared to the previous quarter increased by 3.9% to reach KRW 322.3 billion. Based on the revenue that was earned in Q3, we are able to maintain a solid financial structure. Debt ratio is maintained at a sound level of under 50%.
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Now let's turn to page six for the performance results of Ecopro Materials.
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The revenue for Ecopro Materials in Q3 of 2026 stood at KRW 181.1 billion, which is a similar level as the previous quarter. EBIT stood at KRW 29 billion, which increased a loss to a certain extent, and the overall revenue has dropped due to the product transition on the part of the customers. However, as the GEN utilization rate is slowly improving and as MHP sales is increasing, overall sales is maintained at a similar level compared to the previous quarter.
However, exchange rate and the drop of metal price has had a negative impact on the performance of Ecopro Materials. As a result, profitability has been deteriorated to a certain extent. In Q4, our North American customer sales will begin in earnest, and as GEN utilization becomes normalized, also the price of sulfur, which is the main side material, is showing a healthy drop. We believe that we can expect improvement in our performance.
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Now let me share with you the financial results of Ecopro Materials on page seven.
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Assets as of end of Q3 2026 stood at KRW 2.6541 trillion, which is a 9.2% decline compared to the previous quarter. Liabilities decreased by 8.9% to KRW 1.2986 trillion. Equity decreased by 9.4% to KRW 1.3466 trillion compared to the previous quarter. In the settlement of debts and liabilities regarding the smelters within the IMIP industrial complex in GEN, the liabilities and assets have decreased. Due to the drop in exchange rate in the process of calculating dollar-based assets, GEN-related tangible and intangible asset size has declined compared to the previous quarter. The debt ratio is 96% as of Q3 2026, which is a similar scale compared to the last quarter. Cash and cash equivalents stand at KRW 70 billion.
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Next, on page eight, I'm going to share with you the performance of Ecopro, which is the holding company.
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Consolidated revenue of Ecopro as of Q3 2026 stood at KRW 810.7 billion, which is a small decline compared to the previous quarter. EBIT stood at KRW 11.2 billion, which is a decline compared to the previous quarter. However, the overall performance is maintaining a surplus in this quarter. Compared to the previous quarter, sales in the material related to secondary battery has dropped. However, thanks to the recovery of the smelter utilization rate, sales have been maintained at the same level compared to the previous quarter.
The drop in exchange rate and metal prices have put some pressure on the profitability. In Q4, with the utilization rate of the smelter improving or recovering, and also the drop of the cost is expected to continue. Therefore, we can expect the improved performance as Ecopro HN's performance improves and also the utilization rate of the Hungarian cathode plant increases.
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On page nine, we have the performance of Ecopro's unlisted subsidiaries and holdco. The blue part shows the metal trading and equity method profit, which has shown some decline due to the drop in utilization rate in the Indonesian smelter due to natural disaster. However, the utilization rate has recovered in Q3, and therefore the revenue has increased.
We believe this trend will continue in Q4 as well. In the case of the recycle business, due to the export limitation for black mass in the U.S., and thanks to the policy benefits, the feed is easier to secure, which will help us increase the revenue. The biggest part of the unlisted subsidiary business, which is the lithium business, has experienced a KRW 30 billion drop in revenue due to the line transition of the customers. However, thanks to securing new customers in Q4, we expect an increase in sales.
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Next, I would like to talk about the consolidated financial statement on page 10.
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As of the end of Q3 2026, assets stood at KRW 10.7972 trillion, which is a 5.6% decline compared to the previous quarter. Liabilities stood at KRW 5.9312 trillion, which is a 6.5% decline compared to the previous quarter. Equity dropped by 4% to KRW 4.866 trillion. As the debt repayment of subsidiaries has taken place, cash and cash equivalents and also liabilities, including borrowings, have decreased to a certain extent.
As to the paying of the BNSI investment fund, the cash and cash equivalent assets have experienced some decline as well. However, on a consolidated basis, we still have a rich cash liquidity of KRW 900 billion or more. The subsidiaries' debt ratio is still maintained at a sound level of under 100%. In the case of Ecopro CNG, borrowings have increased temporarily due to preemptive securing of black mass feed. However, as the production and sales of black mass feed-related products become available, the borrowings will be reduced in a very short period of time.
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This concludes the earnings report. Please refer to the appendix for further information.
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This concludes the presentation, and now we would like to move on to the business outlook.
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Good afternoon. I am Cho Jang-hoon, Head of Business Management Office at Ecopro. First, I will briefly review Ecopro Holding Company's third quarter performance and discuss our fourth quarter business outlook.
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In the third quarter, our results were somewhat weaker quarter-on-quarter, reflecting a decline in lithium prices, increased foreign exchange volatility, and lower sales volumes of secondary battery materials and inventory adjustments in downstream markets. Fourth quarter profitability is also expected to remain under near-term pressure due to the reverse lag effect, the timing mismatch in raw material input costs following the third quarter's decline in metal prices, as well as foreign exchange effects. Despite these near-term earnings pressures, we expect substantial top-line growth compared with the third quarter. In particular, utilization rates at the group's major unlisted upstream subsidiaries are expected to recover across the board starting in the fourth quarter.
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Let me first discuss the outlook for our Indonesian nickel smelters. Following remediation of the soil runoff incident caused by heavy rainfall in the IMIP area in mid-February, we have raised smelter utilization, including at GEN, to approximately 80%.
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Meanwhile, our subsidiary, Ecopro BM, successfully completed its rights offering in October. We have secured stable funding for investment in the BNSI smelter. On this basis, we plan to begin commercial production in the second quarter of next year, significantly strengthen group-wide cost competitiveness, and proactively respond to global supply chain regulations.
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Next, the outlook for our major unlisted subsidiaries. Ecopro CNG recently secured a stable large-volume feedstock supply from major North American OEMs and others. We therefore expect full plant utilization and a sharp earnings recovery beginning in the fourth quarter. Although Ecopro Innovation experienced a temporary sales decline last quarter due to a major customer's production line conversion, sales volumes are expected to increase substantially as shipments to new customers ramp up.
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In summary, despite short-term external headwinds, all Ecopro Group companies aim to achieve sound growth from the fourth quarter onward while securing mid-to-long-term growth drivers, including new smelter investments. That concludes my remarks.
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I am Lee Seong-jun, Director of Management Division. I will discuss Ecopro Materials' business outlook for the fourth quarter of 2026. Ecopro Materials has faced a challenging year due to a combination of external factors, including the Strait of Hormuz situation, the soil runoff incident at our subsidiary Green Eco Nickel, and weak downstream demand. Nevertheless, we're strengthening our precursor customer portfolio by securing new North American customers, and we expect improved performance at Green Eco Nickel as utilization normalizes.
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First, our precursor business. Through the fourth quarter, we expect continued effects from customers' product transition and sluggish North American EV demand. We aim to improve performance gradually by diversifying customers and end markets, and anticipate sales approval for Non-PFE precursors from a new North American customer within this year.
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As mentioned last quarter, China abolished VAT export rebates on secondary battery materials starting this year, weakening the cost competitiveness of Chinese precursor producers. Against this backdrop, supply discussions with European customers are progressing smoothly on the strength of our competitive pricing. We expect our customer portfolio, previously concentrated in North America, to expand into Europe.
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The United States recently restricted exports of black mass, but permits exceptions where materials processed and refined overseas are returned to the United States. This policy change is opening opportunities for black mass tolling through Ecopro's closed-loop system, and we're in discussions with several North American customers. By collaborating with our group affiliates, we'll further strengthen our proprietary closed-loop system and reinforce the foundation of our precursor business.
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Our subsidiary, Green Eco Nickel, has substantially recovered its utilization rate, and it is driving a meaningful rise in MHP sales volume. In terms of profitability, sulfuric acid prices and important auxiliary inputs surged amid the Strait of Hormuz situation and increased costs. Recently, however, sulfur prices have fallen considerably from their peak and are stabilizing at lower levels, supporting expectations for a gradual recovery in profitability.
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Ecopro Materials has had a difficult year. Nevertheless, we're seeing positive signs across several areas, including an expanded customer portfolio, normalized operation at Green Eco Nickel, and new business opportunities. We will do our utmost to translate these developments into gradual performance improvement. Thank you.
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I am Director of Management Support Department, Kim Soon-joo. I will discuss Ecopro HN's business outlook for the fourth quarter of 2026. In the third quarter, we secured meaningful orders, particularly in semiconductor environmental technologies, establishing a foundation for future growth. Revenue recognition from these orders is expected to accelerate in the fourth quarter, and we will focus on winning additional projects as key customers expand investment. Given the seasonal nature of our business, we expect the second half-led revenue growth trend to continue in the fourth quarter.
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By business segment, we had some concerns that year-end inventory adjustments by customers could reduce replacement demand for clean room chemical filters. However, a customer has been shifting existing packaging capacity toward HBM packaging and increasing related investments. Our ESG-linked MCF filters have been selected as the sole solution across the entire process. We therefore expect stable supply volumes in the fourth quarter.
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The greenhouse gas reduction solutions segment is expected to be the main driver of fourth quarter revenue. As this segment accounted for approximately 80% of the order backlog at the end of the third quarter, accelerated revenue recognition from related projects should support fourth quarter growth.
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In October, we attended Micron's Supplier Day and became the first Korean equipment supplier selected among its 11 Strategic Suppliers. This recognizes our technological capabilities and supply capacity. During the event, we discussed medium to long-term cooperation with Micron, laying the groundwork for a stronger partnership. We will also leverage this global reference to identify new customers and expand overseas over the medium to long term.
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In the particulate matter reduction solutions segment, revenue recognition for certain projects was shifted to the fourth quarter following detailed discussions on customer investment schedules. In addition to existing markets such as incineration facilities, we expect tangible results from our expansion into LNG power plants this year, increasing the segment's revenue contribution in the fourth quarter.
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Finally, let me update you on major investments in new businesses. Construction of the production building for our next-generation honeycomb catalyst, a core material for RCS greenhouse gas reduction equipment, has been completed. Trial operations are underway with a target of commercial production in December. This environmentally friendly catalyst achieves approximately 99% perfluorocarbon removal and can be reprocessed after use into a composite thermal storage material. We expect it to support our leading position in the catalyst market.
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The pilot-scale production line for semiconductor back-end process materials began trial operation in October. We're preparing for equivalence testing within this year. Next year, we will prepare for material approval by the end customer, an IDM semiconductor manufacturer, and proceed with preparations for commercial supply. Thank you.
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This concludes the presentation on our business outlook. Now we're going to move on to the Q&A session. Before we receive questions real-time, we're going to address some of the questions that were submitted in advance.
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First question is what are the prospects for acquiring new customers? Ecopro HN will be answering this question.
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I am Team Leader of R&D Planning Team, Kim Seung-Wook. Since securing Micron as a major new customer, we have focused on establishing a stable supply system for this customer rather than expanding the customer base in the near term. In particular, we're building a global reference through supply experience and operating results at overseas fabs. At the same time, our R&D efforts continue to prepare for future growth, including developing compact product lines and expanding applicable processes to address diverse customer needs.
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Regarding compact products, the semiconductor market continues to expand and upgrade processes not only through new fab construction, but also at existing operating fabs. Existing fabs often have densely installed equipment and limited space for additional process gas abatement systems. Demand is therefore increasing for highly efficient compact systems that fit constrained spaces.
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To meet this demand, we're developing compact process gas abatement systems optimized for the limited installation space in existing fabs. We completed domestic equipment fabrication in the third quarter of 2026 and are now refining the system and optimizing performance. We plan to conduct on-site validation with an overseas semiconductor manufacturer in the first quarter of 2027, establish technical reliability, and expand into existing fab expansion and retrofit markets.
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Regarding process expansion, semiconductor CVD processes emit various gases. Some produce particulates and fluorinated gases during treatment, causing equipment corrosion and making it difficult to use energy-efficient catalytic abatement systems. To address this, we're developing particulate abatement equipment and corrosion-resistant catalysts and integrating them into a CVD process abatement system.
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In 2028, we plan to conduct on-site evaluations under actual process conditions at an overseas semiconductor manufacturer. This will validate technical performance and stability, extend our business beyond etching processes into CVD, and further strengthen competitiveness in process gas abatement materials and equipment. That concludes my answer.
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Next is the second question submitted in advance. It is a question regarding liquidity position related to participation in BM's rights offering and Indonesian investment. Ecopro will be taking this question.
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I am Head of Finance and IR Office at Ecopro. I understand there are concerns about holding company liquidity following payments for the rights offering and investment expenditures. Let me address these concerns.
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On a standalone basis, cash and cash equivalents declined from approximately KRW 604.8 billion at the end of the second quarter to KRW 392.2 billion at the end of the third quarter, mainly due to the disbursement of approximately $ 185 million in August for investment in the BNSI smelter in Indonesia. In October, we paid for Ecopro BM's rights offering and exercised a call option on the remaining perpetual exchangeable bonds, temporarily tightening the standalone cash balance.
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However, part of the $ 185 million paid in August included a loan advanced on behalf of BM, which is scheduled to be recovered in stages beginning in the fourth quarter. The BNSI investment SPV is also progressing smoothly with external investor fundraising and its own borrowings, so we expect limited additional funding requirements from the holding company.
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Despite these substantial investments, the holding company's financial soundness has actually improved. Its standalone debt-to-equity ratio fell sharply from approximately 86% last quarter to 73% in the third quarter. With Indonesian smelter utilization recovering and cash generation from the holding company's own business increasing, financial and liquidity risks remain limited. This concludes my answer.
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Last question. How do recent U.S. black mass export controls and tighter European regulations affect our recycling business? Again, Ecopro will be taking this question.
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I am Jo Jang-hoon, Head of Business Management Office, and I will take this question. The United States and Europe increasingly regard critical battery minerals as national security assets and are tightening controls on their transfer to countries of concern, including China. In the U.S., the Department of Commerce Bureau of Industry and Security introduced measures in August restricting overseas shipments of black mass. However, the United States has far less downstream processing infrastructure for high-purity recovery of valuable metals than it has battery waste pre-processing capacity.
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Accordingly, an export exception applies when refined outputs are brought back into North America. Ecopro CNG has actively used this regulatory environment to secure a stable, large-volume feedstock supply from a major North American OEM. Beyond securing raw materials, we're actively pursuing closed-loop packages with multiple customers, working with group subsidiaries in lithium, precursors, and cathode materials to provide an integrated supply of materials made from recycled minerals.
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Europe also strictly controls exports of black mass outside the region through waste shipment rules and other measures. From 2031, implementation of European Battery Regulation is expected to require batteries to contain recycled minerals such as nickel, lithium, and cobalt. We believe tighter regulations in the United States and Europe will create significant opportunities for our group, which has both distinctive downstream processing technology and a closed-loop ecosystem. Thank you.
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Now, this concludes the pre-submitted question and answer session, and now we will take questions live.
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Now Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone.
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The first question will be provided by Jin-soo Park from Shinyoung Securities. Please go ahead with your question.
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I have two questions regarding materials. First off, I heard that you have a plan to expand your facilities for the investment of precursor. I would like to know more details about that. And secondly, I would like to know about the current situation of your new customers and new orders.
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I am Lee Jong-cheol from Ecopro Materials. On September 30th, we have changed the completion date for facility investment on Campus IV.
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This decision reflects the current demand conditions among our downstream customers. Utilization is currently low due to weakness in downstream markets. However, considering future demand from customers with whom we're in discussion, expansion of Campus IV will eventually be necessary. In the near term, we will focus on restoring profitability by maximizing existing capacity while proceeding with the expansion plan to support future growth.
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I am Executive Director of Sales at Ecopro Materials. Let me also answer the question. As mentioned earlier, precursor sales to a new North American customer are scheduled to begin in the fourth quarter of this year. We expect annual sales volumes to increase as demand for existing products grows and the range of supplied products expands.
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North American EV sales have been declining, but the base effect associated with the termination of EV subsidies is coming to an end. We expect demand for Non-PFE products to increase substantially if EV sales recover. We have a competitive edge in this area and are discussing supply with multiple customers.
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In cooperation with our Ecopro BM affiliates, we have also secured a customer for high-voltage mid-nickel products. As discussed in an earlier earnings call, high-voltage mid-nickel is expected to play an important role in mass-market EV models. We're collaborating with multiple companies beyond our group affiliates and expect this to become a key next-generation product.
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Finally, we're actively discussing product testing and supply with European cathode material producers. The abolition of China's VAT export rebates on secondary battery materials has significantly improved our price competitiveness against Chinese precursors. We're in active discussions with European-based cathode producers and expect some tangible results next year.
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Although Ecopro Materials is facing difficult conditions, our strengths are generating product supply requests from multiple customers. As the customer base expands and orders translate into sales, we expect volumes to increase gradually. Thank you.
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Due to time constraint, we will be able to entertain one last question.
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The last question will be presented by Jang Park from Daishin Securities. Please go ahead with your question.
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I have two questions. How much revenue has been recognized from Micron Singapore and Idaho orders? What backlog remains for Q4 and 2027? Can 2026 revenue guidance be achieved? That was my first question. My second question is, what is the margin difference between overseas projects involving intermediaries and direct domestic sales? How much will overseas office establishment costs affect the second half SG&A?
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I am the Team Leader of Business Management Team at Ecopro HN. Of the new Micron orders disclosed this year, KRW 93.6 billion relates to Singapore and KRW 19.8 billion relates to Idaho, United States, totaling KRW 113.4 billion. As of the end of the third quarter, approximately 13% of project revenue has been recognized based on construction progress. We expect a further 19% of construction progress in the fourth quarter, with roughly 70% of the orders carried forward into the 2027 backlog.
We're also discussing additional orders with the customer for the fourth quarter, including orders below the disclosure threshold and maintenance orders associated with each project. We expect the Micron backlog to grow over the medium to long term as new orders continue to be added rather than simply being depleted. As these orders are now converting into revenue in earnest, we believe we can achieve our guidance of approximately 50% revenue growth over last year.
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I will answer the second question. Some overseas Micron orders are placed through intermediaries. However, Micron and our company negotiate technical specifications and pricing directly, and orders are then placed by fab construction contractors based on the terms agreed between us. Therefore, the use of an intermediary does not affect margins. Profitability can differ depending on the scope of supply, which may include upstream and downstream treatment equipment, in addition to our highly differentiated core RCS equipment. This was my answer.
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This concludes the earnings call. Once again, thank you very much for participating.