Good afternoon. This is Yun-Jae Kim, Vice President of the Business Management Office at Samsung SDI. Before we begin, I would like to thank all of you for attending our conference call. I would like to first introduce our management team attending today's conference call. We have our CFO, Mr. Youngno Kwon, our head of the battery strategic marketing team, Mr. Michael Son, and our head of the electronic material strategic marketing team, Mr. Kyunghoon Kim, are also joining us this afternoon. We will now start the 2018 fourth quarter earnings call. First, regarding fourth quarter results. Q4 revenue was KRW 2,478.6 billion, a 2% decrease Q-on-Q. By this division, battery division revenue was KRW 1,879.3 billion, a 2% decrease Q-on-Q, mainly driven by a decline in ESS and polymer battery sales, despite growth in cylindrical and automotive battery sales.
Electronic materials revenue was KRW 597.2 billion, which is similar to Q3 levels. Operating profit was KRW 248.7 billion, a 3% increase Q-on-Q. Pre-tax profit was KRW 391.2 billion, and net profit was KRW 266 billion. For full year 2018, revenue was KRW 9,158.3 billion, a 44% increase year-on-year. Operating profit recorded KRW 715 billion, as we saw a significant improvement in both our top and bottom line performance. May as well move on to our financial highlights. Assets as of the end of 2018 was KRW 19,349.7 billion. Current assets increased by KRW 156.7 billion Q-on-Q, while non-current assets increased by KRW 767 billion due to an increase in tangible assets from facility investments. Liabilities stood at KRW 7,124.5 billion, increasing by KRW 733.9 billion due to increased borrowings. Shareholders' equity was KRW 12,225.2 billion, an increase of KRW 189.8 billion. Cash and cash equivalents decreased by KRW 226.7 billion due to continued large-scale facility investments.
Next, moving on to Q4 performance by business division and our outlook for 2019. In Q4, mid to large-size battery revenue saw a slight decrease Q-on-Q while maintaining growth trends on a year-on-year basis. There was a ramp-up in sales of new automotive batteries for EVs, while ESS sales also continued positive trends for both domestic utility and commercial applications. In 2019, the automotive battery market demand is estimated to reach 79 gigawatt hours, which is 58% growth year-on-year according to B3. Chinese and European automakers in the EV and PHEV segments are expected to drive overall market growth. That said, we intend to focus on improving profitability given current conditions of the EV battery business, where it is difficult to deliver profit within a short time frame.
In the ESS market, global demand this year is expected to reach 17 GWh , a 40% increase, while Y-on-Y global ESS market growth will be driven by utility usage in Korea, U.S., Europe, and Australia amid the global spread of renewable energy power generation. We at SDI are committed to achieving substantive, sustainable growth, building on the strength of our differentiated technologies and customer trust. Next, moving on to our small-sized battery division. In Q4, small-sized battery revenue was similar to Q3 levels. However, cylindrical battery sales maintained increasing trends on a Y-on-Y basis, thanks to strong power tool and ESS demand, while polymer batteries continued Y-on-Y growth from timely shipments to new premium smartphone models. In 2019, we expect the small-sized battery market demand to reach 9.4 billion cell level, which is 17% growth year-on-year.
Non-IT applications in particular will continue to be a major driver for cylindrical battery demand, and we intend to continue leading high output power tools, garden tools, and vacuum cleaners as we continue to strengthen our market dominance. Meanwhile, the polymer market is expected to see a slight increase in global demand year-on-year amid more diverse IT products adopting polymer batteries. We intend to scale up polymer battery sales with our strong lineup and differentiated products. Next, onto our electronic materials division. Q4 revenue was similar to Q3 levels, achieving solid growth on a year-on-year basis. Semiconductor materials maintained robust growth despite a slowdown in the sector, while display material sales increased significantly thanks to expansion of high-value products and increased sales in the China region. Looking ahead, we project a slowdown in overall demand across the IT industry in 2019.
The memory business cycle may show some weakness in the first half of the year but is expected to improve into the second half as supply and demand regain stability. In light of this outlook, we will strive to maintain our market share among core customers based on quality-driven competitiveness while working to gain a preemptive lead in the next generation market categories through new state-of-the-art materials for semiconductor processing applications. In display, we expect increased production of OLED and large-size LCD panels and will seek to develop and supply new OLED materials and polarizer films on a timely basis, while focusing on boosting profitability by expanding sales to the China region. That is the end of our presentation. We'll now move to the Q&A session, which will be interpreted consecutively. Please follow operating instructions to ask questions, please.
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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. [Non-English content ] The first question will be provided by Seung-h oon Han from Deutsche Securities. Please go ahead, sir.
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Yes. This is Han Seung -hoon from Deutsche Securities. I would like to first congratulate you on achieving good results, and I have two questions for you. First, there are concerns of a slowdown in the global economy and also the U.S., and there are some reasons for concern that there may be a slowdown in IT demand as well. What is your overall business outlook for 2019 at Samsung SDI? By division, what kind of improvement are you anticipating in terms of the actual areas of business? Second, I'd like to hear more about your CapEx plans for 2019 in terms of the size and also how you intend to secure the necessary funding.
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Y es, this is the CFO, Youngno Kwon. I would like to answer that question on our business plan for 2019. As you did mention, we do think that the business environment for 2019 may be very difficult given the ongoing trade dispute between the U.S. and China, and concerns over a slowdown in the global economy. As far as the battery business is concerned, we are continuing to see robust demand, particularly coming from the automotive space. For electronic materials as well, we are seeing a lot of demand coming from the wider Chinese region, and we intend to tap into that demand quite aggressively.
We want to carry on our business objective from last year, and we believe we will be on good track to achieve both top-line growth and improved profitability in 2019. To break it down further by business area, for automotive batteries, this is a market that is forecast to grow by more than 50% year-on-year. We want to ramp up our supply of new products with improved energy density to improve our profitability for that segment. For ESS batteries, this is also an area where we expect high growth, especially from the overseas markets. We will diversify our sales mix into the high-growth overseas markets to carry on last year's growth trends.
For small-sized batteries, we want to take advantage of our dominant leadership in the cylindrical battery space in terms of our technological leadership and product portfolio, and aggressively maximize our sales in the high-output market and also maximize sales for new form factors as well. Lastly, for electronic materials, we want to diversify more into the Greater China market and be aggressive about new product development to achieve the double goal of improved sales and also improved profitability.
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In terms of our CapEx plan for 2019, we do plan on doing facilities investments this year, particularly for investments into the mid to large size batteries and cylindrical batteries at a scale similar to that of last year. Because we will continue to have large scale investments, up to this year anyhow, we do intend to do some outside funding. However, starting next year, we believe that the internal cash flows will be sufficient to cover the CapEx funding needs, and we do not foresee any difficulties in terms of securing funding for these investments.
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The following question will be presented by Woo-Hyung Cho from HSBC. Please go ahead, sir.
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Yes, this is Woo -Hyung Cho from HSBC Securities. Thank you for giving me the opportunity to ask my two questions. The first question has to do with the small size batteries. What kind of impact do you think this will have on your polymer battery business? What is your strategy in terms of responding to that potential impact? For your large size batteries, there has been recent media coverage suggesting that local automotive battery players have been increasing the battery prices. Could you elaborate on the background to any pricing increase? Will this impact your timeframe in terms of turning to profit? Can this have a negative impact in terms of promoting growth in the electric vehicle market?
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Yes, this is Michael Son from the Battery Strategic Marketing team. Let me first answer your question on the small size batteries, the polymer business outlook. In 2018, we were able to achieve very significant growth in polymer battery sales, driven primarily by application in the premium phones. There was an improvement in the profitability as well. In 2019, we do think that the premium phone market demand may become flat or more stagnant, which is why we intend to move into the mid to low-end smartphone market to grow our presence in that market going forward. Although as I mentioned, demand may be flattish, we will continue to defend ourselves and maintain our current dominant market share amongst our existing premium phone clients while also moving into, again, the mid to low-end smartphone space.
For polymer batteries, there are forecasts that suggest that there will be consistent growth in demand for use in Bluetooth headphones or smartwatches and other wearable devices. We will continue to expand our relevant product lineup so that we can achieve, again, both sales and also earnings improvements.
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Next, you asked about the change in pricing, how that may impact the turnaround period, and how if the automotive battery prices continue to go up, potentially might that have a negative impact on the EV industry overall. In terms of what led to the pricing increase, it was in part to reflect the rising material prices, it was also in part the result of our efforts to improve profitability. In terms of the turnaround to profit, although in the short term it may be difficult to expect the automotive battery segment on a standalone basis to turn to profit right away, we do think that through proactive cost-cutting efforts and also efforts to raise prices, we will be able to improve profitability significantly compared to the prior year.
If those results come or become visible, we do think that that should speed up the time to turning around to profit. In the mid to longer term, you asked about how, instead of falling, if automotive battery prices actually go up or there's a delay in the reduction in the prices, how potentially that may have a negative impact on the EV industry overall. Because battery prices do account for a big portion of the EV, it is certainly one of the important factors. For the global automotive OEMs, because of the CO2 regulations, they're in a position where they will have to increase electric vehicle shipments and the supply of the technology. In the short term, we do not think that the increase in pricing will have an immediate major impact on demand.
Looking more towards the longer or mid-term, we do think that the battery players should be working in cooperation with the automotive OEMs and work toward technological advancement and cost-saving measures to try to achieve a more optimal battery price.
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The following question will be presented by Sung -kyu Kim from Daiwa Securities. Please go ahead, sir.
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Yes, this is Kim Sung-k yu from Daiwa Securities. Thank you for giving me the chance to ask my question. I also would like to congratulate you on your solid results. I have two questions, one on small-sized batteries and another on your electronic materials business. First, I want to hear more about your company's view on the cylindrical EV battery business and also the Non-IT application cylindrical battery outlook. What is the current status of EV players that already currently adopt cylindrical batteries in their vehicles? Overall, what is SDI's business plan for EV cylindrical battery business? Regarding the electronic materials, there are wide views that the semiconductor market will see a slowdown in demand this year.
If the semiconductor companies do reduce their capacity expansions this year, what kind of an impact do you think this will have on the sales of your main semi material products, and how do you think this will have a bearing on your growth?
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Yes, this is Michael Son, I will also be taking this question. You asked about our business outlook for the small non-IT application battery business and our plan for the cylindrical EV battery business as well. For this year, the cylindrical battery market is expected to grow by around 20%, if not more. As you mentioned, we do also think that non-IT applications will be the main driver for that growth and demand. We think that there will be most notable increase in demand from power tool applications, E-bike, EV, or ESS.
For cylindrical EV, we actually are seeing several Chinese EV startups and also some global players also increasingly adopt more of the cylindrical batteries in their EV platforms. More are now joining in the development of the cylindrical EVs and also the sales. We think that this kind of adoption rate will continue to expand going forward. We want to take advantage of our validated leadership in the high output market and also our strong position in the high capacity cylindrical battery market as well to continuously reinforce our dominance in the EV market going forward.
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Yes, this is Kyungh oon Kim from the Electronic Materials Strategic Marketing Team. Let me take your question on our outlook for the semi materials business. You asked about how the potential slowdown in the memory sector may impact our product sales and our growth potential.
Well, as the market is expecting, we also do think that in the first half of the year, there may be a bit of a weakness in the memory cycle. However, we think that demand should start to recover into the second half of the year. In terms of our semiconductor material sales, potentially there may be a bit of a slowdown in sales growth in the first half of the year, but we will continue to defend our sales through various initiatives and efforts. For example, we are continuing to work on upgrading quality, that, of course, raises the value add of our products and then allows us to apply higher pricing. We will defend our market share and try to prevent a slowdown in our sales through these types of efforts.
We also are strengthening our sales from non-captive customers, and those results are actually already translating into good performance, and they will allow us to fulfill, we think, our stated goals.
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The following question will be presented by Jeong -Hoon Jang from Samsung Securities. Please go ahead.
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Yes, this is Jeong -Hoon Jang from Samsung Securities. Thank you for giving me the chance to speak. I have two questions on mid to large size batteries. I think you mentioned that in terms of your growth outlook for the mid to large size battery in the battery market, you have a higher outlook for the automotive battery business over ESS. The proportion of automotive battery sales as a percentage of total sales mix, I think, is forecast to go up. My question is in terms of the improved profitability that you are seeking to achieve in your mid to large size batteries.
If you were to identify some attribution, could we distinguish how much of the impact would be coming from the change in the sales mix versus how much of improvement in profitability, how much of that will come from an increase in sales revenue or scale? Attribution again from mix versus scale. Second, regarding ESS. In 2019 versus 2018, what kind of changes have you been observing in terms of domestic demand and also overseas demand for ESS solutions? Also, are there any differences in the margins of domestic ESS projects or solutions versus overseas?
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Yes, this is Michael Son. Let me answer both of those questions. I think the first question was asking whether we think we are able to improve the profitability of our automotive battery business. Well, in 2018, our assessment is that it was the ESS business that led sales growth for the mid to large size battery business. In 2019, we think it will be the automotive battery business that will be serving this kind of important role. This year, we are forecasting that there will be significant growth in automotive battery sales and the portion of new high energy density products will increase. Also, like last year, this year we'll continue to reflect the previous increase in raw material prices in our current pricing. Overall, on balance, this will help improve the profitability of the automotive battery business itself.
In turn, this will contribute to improved sales growth for the overall mid to large size battery business and also help us achieve better profitability.
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Let me take your question on ESS. You asked about the split in our ESS business between domestic versus global. You asked whether there were any differences in the profitability or margins between the two. Well, first, as we already mentioned this year, we think that the ESS market will reach 17 GWh scale, which would be about 40% year-on-year growth. Of that, we think that the domestic market will account for about 1/3 . Last year, in 2018, domestic demand accounted for as much as 1/2 of total global demand. Therefore, we had to allocate a great deal of our effort and time to addressing the domestic customer needs, and consequently, the share of domestic sales increased significantly.
In 2019, we are expecting that domestic demand will become a little more stable or stagnant, whereas global demand from the U.S. or European countries is expected to increase primarily around ESS or utility applications as more players look to do renewable integration or supplement their aged power grids. Our company, SDI, has accumulated the number one installation track record in the industry, which is validation of our product competitiveness. Through cooperation with global SI partners, we are working to continue to expand our global market share. Last year, yes, our sales mix was heavily concentrated on the domestic market. We think that this will be significantly improved going forward. In terms of pricing or profitability, there are no major differences between overseas projects or domestic projects.
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The last question will be presented by Jeong-Woo Ko from NH Investment & Securities. Please go ahead, sir.
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Yes, this is Jeong-Woo Ko from NH Investment & Securities. Thank you. I'd like to ask questions about your electronic materials and displays. First of all, I'd like to hear about the company forecast on your polarizer films business. There are some who are quite concerned that the Chinese market is slowing down. In particular, the Chinese LCD sector is slowing down. Samsung Display or Samsung is reportedly converting some of their LCD lines to QD-OLED, which may then limit sales for SDI. Can you address those concerns and how will these developments impact your polarizer business? Second question has to do with OLED, the materials for OLED. We are hearing that Samsung Display may be moving to expand their overseas accounts. Can you give us some color on how you may stand to benefit from those movements in terms of OLED materials?
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Yes, this is Kyunghoon Kim. Let me take that question. You asked how, because of the slowdown of the Chinese economy, that may lead to a slowdown in the Chinese LCD sector, how will that impact our polarizer business? You talked about possible line conversion by Samsung Display toward QD-OLED, and what kind of impact you foresee from that. There were initially some expectations that this year the LCD panel market may slow down. If you look at major players like CSOT, they've actually been expanding their 10.5-generation capacity, and they are actually running their lines at full capacity. Many are aggressively producing large-size TV panels. Into the first half of 2019, it's not just SDI, but the polarizer market overall, we think will be driven by strong demand overall.
Even if Samsung Display does convert over to QD-OLED, because we have already transitioned significantly so that portion of business from the greater China market is now higher as a percentage, we do not foresee a major impact from that. We intend to continue to expand our non-captive business this year as well. In terms of the growth of our polarizer business, we think growth will be similar to last year levels, if not greater.
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The other question was how we stand to benefit from SDC's expansion of global accounts and what kind of growth outlook we have for OLED materials. Yes, Samsung Display has continued to expand into the overseas markets and has now been building more overseas accounts. We stand to benefit shared growth in our OLED material business in line with their expansion. If you look at Chinese players like BOE or Tianma, we have already worked on getting material approval from these players up to now, and many of these companies are ramping up their OLED production this year. We think that we will be in a good position to benefit from this market growth coming out of China in terms of OLED material sales. We are looking forward to an expansion in OLED material sales, primarily from the wider Chinese markets.
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Thank you. We'll now conclude our earnings call for fourth quarter 2018 for Samsung SDI. Please contact our IR team for any further questions. Thank you.