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 the presentation of the company's 2026 Q1, followed by a briefing by the CFO on the main business issues, then a Q&A session. Please be informed that the presentation will be conducted in simultaneous interpretation, and the Q&A in consecutive interpretation. The presentation slides can be downloaded from the company's website. I will now introduce the executives in attendance. First, from the HQ, Vice President and CFO, Sung Nak-sun; Vice President and CSO, Kim Min Woo. From Basic Chemicals, Vice President Kwak Giseop, Head of the Strategy Management Division; Vice President Shim Young-Seop, Head of the Monomer Division; Vice President Cheon Yang-Sik, Head of the Polymer Division.
From Advanced Materials, we have Vice President Park Jin-seok from the Corporate Planning Division. Let me now turn to business results of 2026 Q1. Page two, Q1 profit and loss on a consolidated basis. Revenue in Q1 was KRW 4.9905 trillion. With operating profit, the company turned around to operating profit of KRW 73.5 billion, thanks to improved performance in Basic Chemicals. EBITDA was KRW 412.8 billion. Pre-tax income and net income in Q1 were KRW 46.2 billion and KRW 33.5 billion, respectively. Next is page three, the company's financial position on a consolidated basis. Asset at the end of Q1 was KRW 31.9 trillion. Liabilities were KRW 13.8 trillion. Shareholders' equity was KRW 18.1 trillion. Debt-to-equity ratio stood at 76%, improving slightly Q-o-Q. Next, I will explain the performance and outlook by business division. First, please refer to page four, the Basic Chemicals.
In the first quarter of 2026, the Basic Chemicals recorded revenue of KRW 3. 449 trillion, operating profit of KRW 45.5 billion, and an operating profit margin of 1.3%. Amid expanding geopolitical risk in the Middle East region, product selling prices increased, leading to improved spreads. In addition, positive lagging effects resulting from higher raw material prices were also reflected, contributing to the return to profitability. Next is the Advanced Materials division. In the first quarter of 2026, the division recorded sales revenue of KRW 1.023 trillion , operating profit of KRW 61.5 billion, and an OPM of 6.0%. Following customers' year-end inventory adjustments, profitability improved significantly compared to the previous quarter, driven by recovery in the downstream industry demand and increased sales volume. Next is LOTTE Fine Chemical.
As the details were already explained during the earnings release presentation on April 28, I will briefly go over the results. In the first quarter, the company recorded sales revenue of KRW 510.7 billion, operating profit of KRW 32.7 billion, and OPM of 6.4%. Performance improved due to rising international prices of major products and increased sales volumes. Last is LOTTE Energy Materials. As the details were also covered during the earnings conference call held earlier this morning, I will briefly summarize the results. In the first quarter, the company recorded sales revenue of KRW 159.8 billion and an operating loss of KRW 5.0 billion. Despite continued uncertainties in downstream industries, profitability improved as positive lagging effects resulted from higher raw material prices were reflected. This concludes the explanation of the company's first quarter 2026 business results.
Our CFO, Sung Nak-sun, will now provide further details on the results and the key management issues.
Good afternoon. This is Sung Nak-sun, CFO of LOTTE Chemical. I would like to sincerely thank all of you for taking interest in and attending our earnings presentation despite your busy schedules. In the first quarter of this year, uncertainties in business environment increased due to geopolitical risks in the Middle East, and there remained various different views regarding the persistence of the current situation and its subsequent impact. As positive raw material lagging effects were reflected amid feedstock price increases caused by risk in the Middle East region, our first quarter results recorded KRW 5 trillion in revenue and KRW 73.5 billion in operating profit.
With external uncertainties expected to continue going forward, the company has proactively secured feedstock at a level sufficient to maintain stable operations and will continue to actively respond to risk based on flexible operational strategies such as diversification of raw material procurement and inventory optimization. In addition, even under such business conditions, the company is steadily pursuing its mid- to long-term strategy in the direction previously communicated, maintaining and strengthening competitiveness in the Basic Chemicals business while building a more balanced portfolio through expansion of our future growth businesses. First, we are actively participating in the petrochemical restructuring initiatives for domestic industrial complexes currently being promoted by the Korean government. Following government approval, the Daesan business restructuring secured approximately KRW 2.1 trillion in financial support, and after the planned physical spinoff on June 1st, we are targeting the launch of the integrated corporation and commencement of integrated operations in September.
The Yeosu business restructure will also proceed in phases through cooperation with the government and partner companies following the submission of the restructuring plan on March 20th. Through these restructuring efforts, rather than simply downsizing the Basic Chemicals business, we aim to pursue high value-added transformation centered on profitability and continuously strengthen business competitiveness by improving operation efficiency in existing businesses based on ongoing investments for future growth. At the same time, we will continue to expand functional materials and high value- added businesses over the mid- to long-term, centered on the Advanced Materials business. Based on our global supply chain and the Yeocheon compounding project scheduled for completion within the year, we also plan to significantly expand high value- added product lines such as Super EP.
In addition, we will continue to promote investment in technology development in future growth industries such as functional thermal conductor materials, food and pharmaceutical materials, AI circuit foils, and high-end elecfoils and eco-friendly hydrogen businesses, while fostering high value- added growth businesses aligned with changes in the global market. Even amid the prolonged challenging business environment, the company continues to maintain a sound debt ratio in the 70% range, and we expect our financial structure to gradually improve through this restructuring. Furthermore, under a cash flow-oriented management principle, we will secure financial stability by conservatively managing investment execution within the scope of EBITDA . Dear investors and shareholders, although the petrochemical industry is currently facing a highly uncertain business environment, the company is moving forward smoothly with the ongoing debt and business restructuring, thanks to your continued interest and support.
At the same time, we were also able to achieve meaningful earnings improvement during this quarter. Going forward, we will continue to do our best to enhance corporate value based on sustainable growth and repay the trust and support that you have shown us. Thank you very much.
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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. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant. The first question will be provided by Hong-ju Shin from Shinyoung Securities. Please go ahead with your question.
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Thank you very much for taking my question. I have two. The first is about the naphtha stock as well as the utilization. So what is the number of days of holding of naphtha, both in Korea and also in Malaysia and Indonesia? And also, what is the utilization plan for the second half of the year? The second question is, because of the Middle Eastern war, there are quite a lot of changes and fluctuations in the industry at this time. So what is the company's short-term outlook for this year, 2026? And also what is the longer medium-term outlook up until 2028? When does the company believe that the turnaround to profit can be achieved?
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This is Vice President Shim Young-Seop from the Basic Chemicals, M onomer Division, responding to your question. Now, with regards to the naphtha inside Korea as well as from Malaysia and Indonesia, we are getting stable procurement and the procurement continues, meaning that our utilization is seeing no disruptions or problems. As for additional procurement, when it comes to the domestic supply, then we intend to get the domestic naphtha first, combined with overseas procurement as well. Again, for the domestic supply, we will be getting the naphtha from inside Korea combined with overseas supply. Also for our businesses in Indonesia and Malaysia, we would also procure them from nearby regions like Singapore.
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As for the utilization plan for the second half of the year, we will keep a close watch over the market movements and try to adjust our utilization according to the market circumstances.
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I'm Kwak Giseop of the Corporate Planning Division responding to the second part of your question.
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As you would know, in the first quarter, the profitability in Basic Chemicals division has improved considerably, turning around to profit.
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I understand that one major factor was the positive inventory lagging effect caused by the Middle Eastern risk. For example, the increase in the major product spread as well as the rise in the naphtha cost.
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Looking ahead to the second quarter, one positive factor may be the continued tight supply of feedstock, but we believe that the performance improvement will continue for the time being.
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One negativity could be the inverse lagging effect, meaning that the soaring naphtha prices that were caused by the war since February would then be input into production in the second quarter, meaning that this is going to increase the production cost.
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As for the outlook for 2026, please understand that given the fluidity of the Middle Eastern war, it is quite difficult for us to look ahead into the performance of this year.
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As the market already knows, the capacity addition continues in China, so the petrochemical industry outlook into 2027, 2028 is not entirely bright.
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The company continues to keep a close watch over the market even after the market normalization and respond according to the changes.
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The following question will be presented by Parsley Ong from JP Morgan. Please go ahead with your question.
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Thank you for the chance to ask question. For the first question, could you give us some numbers on the first quarter one-off? For example, you mentioned a raw material that impact inventory gain. How much was that? Could you quantify that number in first quarter? Or maybe break down the profit between January, February and March. For the second question, I think, the outlook for naphtha cracking margins or outlook for chemicals is gradually getting better following industry consolidation. Could you just give us a status update on your Yeosu and Daesan restructuring? How much effective capacity LOTTE had before and then after? What is your long term aim in terms of how much capacity you plan to have after all this restructuring is done? Thank you.
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This is the CFO, Sung Nak-sun, responding to the first part of the question about the gain from the inventory valuation loss reversal, as well as the one-off cost.
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First of all, in the first quarter, the reversal in the inventory valuation was in the amount of around KRW 50 billion, thanks to the rise in the naphtha prices as well as the rise in prices of polymer and monomer products.
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As for others, there were no other major one-off gains that occurred in the first quarter.
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This is Kwak Giseop from the Corporate Planning Division, and I would like to respond to your question about the lagging effects of the feedstock.
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As you would know, since the Middle Eastern war, there has been positive lagging effect because of the rise in the naphtha prices in the amount of about KRW 250 billion for the feedstock.
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This is Kim Min Woo of the CSO responding to your question about the business alignment, particularly about the ethylene production before and after the realignment.
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Given the 1.1 million tons that we currently have at Daesan plant and the 900,000 tons that we have at the Hyundai Chemical plant, and b ased on the cracking capacity at this time, assuming that we will be having 50% share, that will leave about 1 million tons at Daesan plant.
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For Yeosu, we currently own 1.23 million tons. YNCC owns 2.3 million tons. Assuming the company share of one-third, that will leave 1.1 million tons for us.
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But now, here, I would like to explain one caveat. For both the Yeosu and Daesan, the assumption is that the petrochemical industry for the next two to three years is going to really suffer. So we are assuming efficiency to be gained from an integrated operation.
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Then for the Daesan plant, out of the two naphtha cracking facilities, so out of the two NCCs, one would yield less efficiency from integrated operation. And in Yeosu, out of the four NCCs, two would have less efficiency coming from the integrated operation. Our plan is that after the business realignment is completed, then it is likely that we will be shutting down these less efficient NCCs.
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Of course, it would largely depend on the market circumstances, but during the period of the business realignment, then the NCC capacity that we would be running would be less than it used to be.
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But also at the same time, for the NCCs that would be temporarily shut down, depending on the market improvement, it is also likely that they can be reopened within the next three years or so.
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But again, after the business alignment for both the Daesan and Yeosu, our share will fall below 50%, meaning that they will be excluded from the consolidated financial statements like the profit and loss statement and the balance sheet.
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The following question will be presented by Yujin Jeon from iM Securities. Please go ahead with your question.
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I also have two questions. First, it was explained earlier that starting in the second quarter, the higher price naphtha will be input. Does that mean that now there will be inverse lagging effect to be applied? Meaning that, is there a likelihood that the company will turn to loss again after the second quarter? So I would just like to seek your guidance on the performance outlook. The second question is about the ethylene. Since the Middle Eastern crisis, what does the company foresee in terms of the global ethylene capacity increase? Will there be any changes in this?
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Thank you. This is Kwak Giseop from the Corporate Planning Division responding to the first part of your question.
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Now, given the high fluidity in the market today, it would be very difficult to predict when the inverse lagging effect is going to occur.
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To this day, we see that the product prices have gone up since the beginning of the war. Also the prices of the finished products have gone up. At the same time, the spread has improved.
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Now, if the prices for the products and the raw materials were to fall, then yes, it is likely that some inverse lagging effect will occur. At the same time, if it is gradually drawn out until the end of the year, then we believe that the impact coming from it is not likely to be large. Given that right now there is little improvement in the supply-demand situation, we will be very closely watching the market circumstances.
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This is Cheon Yang-Sik from the Polymer Division.
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Now, respond to the second part of your question.
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Since the outbreak of the war in the Middle East, of course, how much the ethylene or PE and PP production has fallen is different by country and regions. But in the case of Korea, the utilization rate has fallen by about 15%, whereas in China it has fallen by about 10%.
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Similarly, in Southeast Asia as well as Southwest Asia, the supply has fallen by about 10%.
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In the Middle East, in early April, there were some attacks by Iran on the surrounding countries, including Saudi Arabia. So the facilities that had been attacked, about 60%-70% of them have been shut down and supply has yet to go back to normal.
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Now, where supply has fallen in the Middle East and in Asia because of the situation in the Middle East, it is being made up for by the ethane cracker in the U.S. where the utilization rate has gone up by more than 15%, 30%.
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Also, in the other regions, we see that the inventory continues to fall since April. So unless the Middle Eastern supply goes back to normal in May, then the tight supply is likely to continue.
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Currently, there are no participants with questions. Please press star and one to give your question.
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Thank you very much. That concludes the earnings release conference call by LOTTE Chemical for 2026 Q1. If you have any further comments or questions, then please contact the IR team. Thank you very much for your participation.