Good afternoon. We will now start LG Chem's first quarter 2024 Earnings Conference Call. This is Hyun-Seok Yoon, head of IR at LG Chem. Thank you for taking interest in LG Chem and joining this call despite your very busy schedules. We will begin with a brief update on 2024 Q1 earnings performance, followed by the CFO's presentation on the earnings highlight. After that, we will close with a Q&A session. The presentation will be interpreted simultaneously, while the Q&A will be interpreted consecutively. The materials presented during this conference call can be viewed by those with the web access. It is also available for download from our corporate website. Let's begin today's call with the introduction of the management team.
We have with us CFO Dong Seok Cha, Jun Ho Lee, in charge of company's business planning, Ho Young Choi from Petrochemicals, Young Seok Lee from Advanced Materials business, and Seon Shin Cho from Life Sciences. Let's begin with the business performance. On page three, consolidated Q1 sales and P&L. First quarter sales was down quarter-over-quarter, reporting KRW 11,609 billion. Operating profit was KRW 265 billion, with OP margin at 2.3%. Next, on page four, consolidated financial status. As of end of Q1 2024, total assets was around KRW 82 trillion, liabilities KRW 38.9 trillion, and shareholders' equity at KRW 43.2 trillion. Debt ratio was 90.2%, with the borrowing ratio marginally up year to date on increase in debt from new issuance of corporate bonds in March. Next, earnings by business division. Page five is Petrochemical division.
Q1 2024 sales for Petrochemicals business was KRW 4,455 billion, operating loss continuing at KRW 31 billion, but the size of the loss narrowed Q-over-Q. Despite raw material cost pressures arising out of geopolitical risks from the Middle East, and on positive lagging effect from NCC and cost-cutting efforts, we were able to bring down losses. Next, Advanced Materials. Q1 2024 Advanced Materials sales was up 20% Q-over-Q, reporting KRW 1,583 billion, while operating profit was KRW 142 billion. Battery materials, whilst in Q4 saw shipment declines on inventory cuts at customers, displayed improvements in both revenue and profit driven by sizable shipment increases in the first quarter. Also, with growing share of value-added products from other businesses, top line and bottom line both improved at the division level. Next is life sciences.
Q1 sales from Life Sciences division was KRW 285 billion, and operating profit came in at KRW 3 billion. On the back of steady sales of flagship products such as diabetes and growth hormone products, sales inched up marginally year-over-year, but an uptrend in R&D spend following global clinical trials, profitability posted somewhat of a dip. Next is Farm Hannong. Q1 Farm Hannong sales was KRW 246 billion, and operating profit was at KRW 35 billion. On fertilizer ASP declines, sales fell year-over-year, while growth in overseas sales and ASP increase from crop protection products drove profitability improvements. Lastly, on Energy Solutions. Although details have been shared during separate earnings presentation last week on the 25th, we will nevertheless present the highlights. In Q1, Energy solution sales was KRW 6,129 billion, operating profit was KRW 157 billion, and OP margin reported 2.6%.
Despite increases in cylindrical sales to strategic customers, subdued downstream demand and decline in metal prices led to quarter-over-quarter decline in sales and profitability. On this note, we will conclude the earnings update, and I will invite CFO Dong Seok Cha to present the company's outlook going forward.
Good afternoon. I'm Dong Seok Cha, CFO of LG Chem. Thank you very much for taking interest in the company's earnings and for joining us despite your busy schedule. First, to begin with the review of the first quarter results, petrochemical business saw difficult industry backdrop continue with declines in metal prices and sluggish growth from the global EV market. Notwithstanding such headwinds, corporate-wide profitability improved versus last quarter, underpinned by the company's crisis management capabilities. Moving on to the outlook going forward.
Due to the geopolitical risk in the Middle East, higher-for-longer interest rate, and concerns around slowing EV demand growth, we project difficult operational backdrop to continue. But we plan to enhance core competitiveness of our business through portfolio rebalancing, pivoting on three main new engines for growth, which we've worked on over the years, whilst continuing on with optimization of operational activities. Driven by these efforts, we expect to see gradual improvement of business performance as we move from one quarter to the next. For the petrochem business, with the production ramp-up of POE, IPA, and other high-margin products, and commencement of North America's ABS compound plant operation in the second quarter, we will be able to broaden regional diversification and achieve a turnaround in profit in the second quarter.
For the sustainability business, mass production will start this quarter for PBAT, which is a biodegradable plastic, and we have decided to enter the eco-friendly bio-nylon business in collaboration together with CJ, nurturing our business one step at a time. On the battery materials business, we accept that there are quite a bit of concern around recent slowdown in EV demand growth. However, in North America, which is the company's core market, demand growth for electric vehicles is quite steep as our customers are launching new models and increasing their shipment, sustaining a solid growth trajectory. We are keeping a close watch over market volatility from many different aspects and will respond accordingly through a disciplined control over inventory and capacity expansion schedules.
Lastly, for life science, we will be booking portions of advance payment as sales and revenue in the second quarter results for orphan drug for obesity, which we licensed out early this year. We will continue to explore strategic partnership opportunities in the domain of metabolic diseases and revamp pipeline strategy that include new anti-cancer drugs so as to place a bigger momentum behind global clinical trial development. Esteemed shareholders and investors, as uncertainty steepens against a macro backdrop, we will have to endure through periods of difficulties. But even in the midst of such hardship, if we can work on developing new growth engine, LG Chem will most certainly be a company that will continue to grow and generate better earnings. We ask for your support and encouragement. Thank you.
Next, we will move on to the Q&A.
To allow more people to ask questions, we ask that you limit your questions to two per person and also press star and one to ask your questions, and press star and two to cancel your request.
Hyunryul Cho from Samsung Securities. Please ask your question.
The first question is from the line of Hyunryul Cho from Samsung Securities. Please go ahead.
네, 안녕하세요. 삼성증권 조현률입니다. 우선 질문 주셔서 감사드립니다. 그러면 크게 두 가지 질문 드리려고 하는데요. 첨단 소재랑 기초 소재 나눠서 질문 드리도록 하겠습니다. 우선 첨단 소재 내에서 양극재 사업의 경우에는 1분기 출하량도 예상보다는 컸던 걸로 보이는데요. 전년 대비 40% 성장이라는 올해 양극재 출하 가이던스에 변화가 있을지 알려주시면 감사하겠습니다. 더불어서 2분기랑 그리고 하반기에 양극재 판가, 판매량, 그리고 수익성에 대한 전망에 대해서 어떻게 되는지 말씀 주시면 감사하겠습니다. 그리고 두 번째 기초 소재인데요. 최근에 중국 이구환신 정책 등 내수 부양 기대감이 있는데, 화학업황의 턴어라운드 시점은 언제쯤으로 보시는지가 궁금하고요. 그리고 수요단에서 변화가 생길 제품군이 현재 있다면 무엇인지 알려주시면 감사하겠습니다. 그리고 마지막으로 아까 CFO님께서 말씀 주셨지만 신규 고부가 제품에 대한 증설의 경우에는 수익성 기여가 어떻게 될지에 대해서도 공유해 주시면 감사하겠습니다. 감사합니다.
Yes, this is Hyunryul Cho from Samsung, and maybe I can ask you two questions. I have two questions, one about the advanced materials business and one about your petrochemicals business. First, the question that I have about the overall advanced materials business. If you look at the cathodes that you have shipped out in the first quarter, it does seem to be that there has been a significant increase. So the question that I would like to ask is that for the year-over-year guidance that you provided of 40%, would there be any change in that? In addition, if we talk about Q2 and also the second half of the year, what would be your expectations in terms of the ASP, sales volume, and overall profitability? The second question that I would like to ask is about your petrochemicals business.
Right now, we do see that in China there is a new policy in place to replace old with new. So for the petrochemicals business, when do you think that there will be a turnaround in this business? In addition to that, we also see that in the demand side, are there any specific product types in which you would actually see a change in demand taking place? And added to that, the CFO did mention during his opening remarks that there are going to be new premium products in which you will have capacity additions. So how would that actually contribute to your profits?
양극재 가이던스 관련 답변 드리도록 하겠습니다. 연초 말씀드렸던 양극재 관련 가이던스인 2023년 물량 대비 40% 증가 전망에 대한 변동사항은 없습니다. EV 시장의 일시적인 성장 둔화에도 불구하고 당사는 글로벌리 가장 성장성이 큰 북미 시장 중심의 고객 포트폴리오를 갖고 있고, 다수의 OEM 프로젝트에 공급되고 있어 특정 프로젝트의 수요 변화에 따른 출하량 급락 가능성은 크지 않다고 보여집니다. 그러나 하반기 물량은 EV 판매 동향, 고객사 재고 정책 등에 따라 출하 물량에 대한 변동성이 있어 시장 변화를 지속적으로 모니터링하고 있습니다. 1분기는 2023년 4분기에 고객사 재고 조정으로 인한 기저 효과로 60% 이상의 물량 성장을 달성하였고, 2분기에도 Ultium 2기의 정상 가동, 고객들의 메탈가 저점 활용한 리스타킹 수요 등으로 1분기 대비 20%의 물량 성장을 예상하고 있습니다. 단, 1분기까지 이어진 메탈 가격 하락 영향에 따라 2분기 판가는 약 15% 추가 하락할 것으로 보이며, 1분기 대비 매출 상승폭은 제한적일 것으로 예상됩니다.
양극재의 수익성은 2분기까지는 손익에 부정적인 재고 효과가 발생하기는 하나, 그 효과는 점차 축소될 것으로 보이며, 이에 따라 2분기 이후 양극재 수익성은 1분기 대비 소폭 개선될 것으로 예상됩니다. 다음으로.
So maybe I can address your question about the cathodes guidance. So first of all, if we talk about the guidance, of course, at the beginning of the year, we did share with you an expectation that we would be able to have a year-over-year increase of around 40% versus last year. And on that point, there are no changes. It is true that we actually see a slowdown coming in in the overall EV market in terms of the growth levels. However, if you look at our biggest market, which would be the U.S. market, we do have a strong portfolio of customers in that area. And in addition to that, we have a portfolio that represents a wide variety of OEM customers.
So in actuality, a specific change in the overall demand at a single point would not lead in terms of possibility, we don't believe would lead to a significant decrease in our overall demand volume. To talk about the second half of the year, we do believe that we would have to monitor the trends in the second half of the year in terms of the trends within the overall EV market and also in light of the customer or client stock levels that we have. So we do think that there could be some changes in the shipment according to that situation. And again, we are monitoring the situation closely. In the first quarter, we did see a significant increase in terms of volume versus the fourth quarter of last year, during which a lot of our clients went through an inventory adjustment period.
So as a result, volume grew by around 60%. Going into the second quarter, there will be positive factors that would come into play. So for example, there would be the number two on the Ultium side. And also because of the low metal price, we do think that some of our customers will take use of the opportunity and try to restock. So that will lead to also demand. So on a Q-on-Q basis, we do believe that the growth will be around 20% as a result of that in terms of volume. However, that have been said in terms of prices, again, we do think that the overall moderation in prices is something that we will see continue into the second quarter. So as a result, ASP, if we look at the overall situation, is probably going to be affected by around 15%.
However, we do think that as a result of that versus the first quarter, in terms of the overall revenue, the second quarter in growth would probably or increase would be limited. However, if we talk about the situation in terms of profitability, again, the negative effect that we see from the inventory side will be limited or decreased. And in addition to that, we do think that there will be a better second half as a result of that. So versus the first sorry, not second quarter than that. So as a result, we do think that the second quarter will present a slightly better profitability level than the first quarter.
다음으로 석유화학 부문 시황 전망 말씀드리겠습니다. 석유화학 제품은 2분기부터 계절적 성수기에 진입하였습니다. 특히 중국의 자동차, 가전, 2구 안신 정책 등은 ABS 사업을 중심으로 수요 파급 효과가 기대됩니다. PVC는 중국 중심의 건설 경기 침체 지속 및 중국 내 PVC 공급 과잉으로 수요 기대감은 크지 않으나 최근 중국의 부동산 규제 완화 움직임과 경기 부양책의 파급 효과에 따라 반등도 가능할 것으로 전망합니다. 신규 고부가 분야에서는 1분기 태양광용 POE, 반도체용 C3 IPA의 신규 라인 가동 효과와 더불어 2분기 북미, 인도 ABS 컴파운드 공장 가동에 힘입어 2분기에는 흑자 전환을 기대하고 있습니다. 고수익 제품의 본격적인 수익 기여는 하반기 및 내년부터 점차 증대될 것으로 예상하고 있습니다.
So maybe to address your second question with regards to our expectations for the petrochemical business, going into the second quarter, it will actually be a seasonally high season for the petrochemical business as a whole. And added to that, specifically for China, there will be a transfer or transition from old to new in terms of electronic goods and also cars. So as a result of that, we do think that that will have a positive influence or effect on the ABS market. For PVCs, we do think that because of the sluggish overall or recession that is taking place in the construction economy in China, and added to that on the PV side of the general oversupply situation, that overall demand expectations are not high.
However, because the real estate market is going into a deregulation and there are other factors that are taking place as a positive momentum, we do think that there could be a recovery that could be enjoyed. For the new premium products that we have, for example, for specifically the solar panel POEs or the C3 IPA products that are used for semiconductors, we do think that for that point and added to that, in also the North American area and also in India, there's the ABS compounds that will go into full production or full ramp-up. We do think that that and all will expand our overall premium product business. We do think that that leads to expectations that we may turn into the black for the second quarter.
In addition to that, we do think that the contribution from these premium products is something that will continue and become stronger in the second half of the year and also next year.
네, 다음 질문 받도록 하겠습니다. 다음으로 질문해 주실 분은 Macquarie증권의 Sunwoo Lee 님입니다. 질문 부탁드립니다.
The next question is from the line of Sunwoo Lee from Macquarie. Please go ahead.
investments in cells and materials. I am curious if there are any changes in LG Chem's cathode materials investment schedule. Second, regarding CAPEX and funding. I am curious if there will be changes in this year's CAPEX plan, if there are priorities in CAPEX execution. Specifically, through borrowing or sale of non-core businesses, sale of LG Energy Solution stake, etc., what methods do you plan to raise funds. And if you can share whether there are any changes in the recent strategy regarding the utilization of LG Energy Solution stake. Thank you.
Thank you for the opportunity to ask questions. There are two questions that I would like to ask you. As the overall demand in the EV market is becoming slower, if you look at some companies in terms of sales and also overall parts that are necessary, investment has become a bit more conservative in terms of the general stance. So the question that I would like to ask you is that for your cathodes business, is there any change in the CAPEX plans that you have or investment plans? The second question that I actually would like to ask you is about your overall company-level CAPEX and also funding plans. So for the CAPEX for this year, is there any change there? And in terms of the priority for areas that you would invest in, would there be changes that are taking place there?
In addition, in the way that you would fund your CAPEX, between raising debt, maybe selling some of your non-core assets, and also utilizing the LGES stake that you have, what type of options would you be actually looking at to utilize? And specifically about the LGES share that you have or ownership, is there any change in the strategic approach that you have towards that stake?
양극재 투자 관련 답변 드리도록 하겠습니다. 당사는 고객사와 협의된 수주 물량과 계약에 기반하여 상대적으로 보수적인 CAPEX 계획을 수립하고 있어 중장기 CAPEX 계획의 변경은 고려하지 않고 있습니다. 그러나 하이브리드, PHEV 영향과 캐즘 등으로 인한 단기적인 BEV의 수요 조정 전망에 따라 고객사의 연도별 전지 소재 수요 물량이 조정되고 있어 증설 타이밍은 고객사와 협의하여 유연하게 조정 예정입니다.
So to address your first question, if we look at the CAPEX plans that we have and have established, of course, it is based upon the overall volume and the contracts that we have outstanding with our customers. So as a result of that, we do believe that it is reflecting a very conservative stance. And as a result of that, over the mid to long term, we don't have any plans that we believe require changes. However, that have been said, we do think that there can be some adjustments taking place on the demand side related to PHEV, also hybrid, and also because of the current market chasms that we see taking place. So as a result of that, if we look at the customer level in terms of the per-year demand that they have, we actually believe that there could be some adjustments there.
In terms of new capacity additions and for the timing of executing those plans, we do think that there will be some flexibility that we will have to exercise.
원래 CAPEX 계획의 변동 여부 질의를 해 주셨는데요. 저희들이 올해는 연초에 한 4조 원가량의 투자 집행을 좀 계획을 하고 있었습니다. 그러나 시황이나 수요 성장세의 변화, 앞서 말한 여러 가지 어떤 매크로 불확실성, 그런 것들이 지금 지속되고 있는 상황이어서 보다 하여간 그 투자는 좀 신중하게 집행해 나갈 예정입니다. 가급적이면 연초에 계획했던 4조를 초과하지 않도록 그렇게 좀 관리해 나갈 예정이고요. 투자 우선순위는 늘 말씀드렸다시피 3대 신성장 동력을 우선적으로 투자를 하고 그 부분에 집중하는 것은 변함이 없고요. 하여간 좀 전체적으로는 우리가 다만 전지 소재 쪽의 어떤 스케줄 조정이나 앞단의 OEM들이나 어떤 배터리 업체들의 그런 투자 일정 조정, 그런 것에 발맞추어 일정 부분은 조정이 가능한 부분도 있으리라고 판단하고 있습니다. 그리고 자금 조달 면에서 말씀을 드리면 일단 기본적으로 당사의 영업 창출 능력이 조금은 과거에 비해서는 좀 현저하게 낮아진 현 상황입니다. 그래서 차입을 통해서 일정 부분은 자금을 조달하여야 하는데요. 3월에 원화 사채 발행을 통해 일단 1조 원은 선제적으로 확보를 하였습니다.
이러한 외부 차입 이외에도 우리 작년에 IT 필름 사업을 매각하고 진단 사업을 매각한 것과 같이 하여간 비핵심의 어떤 자산 매각, 이런 것들은 지속적으로 추진할 거고요. 내부 캐시플로우 창출을 극대화하기 위해서 원가 절감 활동이나 운전 자본 최적화 활동 등 이런 활동도 지속 추진하여 재무 건전성을 지속적으로 확보해 나갈 예정입니다. 마지막으로 에너지 솔루션 지분 활용에 대해서 전략 변화에 대해서 물으셨는데요. 에너지 솔루션 지분을 활용 가능한 자산임은 이미 여러 차례 말씀을 드렸었고, 그런데 구체적인 어떤 추가적인 어떤 계획이나 전략적 변화는 아직까지 없습니다.
So maybe I can take the second question about our CAPEX plans and also the way that we would fund that CAPEX going forward. So first of all, to talk about our CAPEX plans for the year, in the beginning of the year, we did share with you that for this year, our overall CAPEX plan would be around KRW 4 trillion. However, if we look at the current market backdrop, also the overall changes that we see and how the demand is growing, and also the uncertainties that continue to persist on the macroeconomic side, we do think that we need to be a bit more cautious in the way that we execute our investments going forward.
As much as possible, the overall stance for this year is to manage CAPEX so that it does not exceed the KRW 4 trillion level that we have budgeted for the year. In terms of priority of where to invest, I think that what we have continued to communicate and what we have always said is that we would focus on, in terms of priority, the three main growth areas that we have identified. On that stance, there is no change. However, from an overall perspective or a big picture perspective, I do think that for the investments that are going to take place and the timing of investments for the battery materials business, we do think that on the OEM side and on our battery producer side, there can be some changes in their CAPEX plans.
So as those timings are adjusted, then I do think that there may be some areas in which we would have to adjust accordingly to how the developments take place. To talk about funding, I think that the basic principle here is that if you look at our operating cash flow generation capabilities versus what we had in the past, it is true that right now it represents a much lower level. So we will be raising some debt to finance our overall needs. In March, we did do a KRW 1 trillion bond issuance, and that preemptively secured some of the funding that we required. And in addition to that, as like we had sold our IT film business and also our diagnosis business, if there are non-core assets that we have identified, we will continue to sell those assets accordingly.
In terms of our internal cash flow generation capabilities to maximize that as much as possible, we will continue to cut and try to achieve cost savings and also optimize our working capital so that we can secure a sound financial position. I think that the last point that you asked about was with our intentions, if we have any change in stance towards how we use LGES and the stake that we have. I think that there we have always said that the LGES ownership is an asset that we do believe that we can utilize. However, in terms of any detailed plans or in terms of the strategy, as of now, there is no change there.
다음 질문 받도록 하겠습니다. 다음으로 질문해 주실 분은 신한투자증권의 이진명 님입니다. 질문 부탁드립니다.
The next question is from the line of Jinmyung Lee from Shinhan Securities. Please go ahead.
네, 질문 기회 주셔서 감사합니다. 총 두 가지 질문 있고요. 첫 번째 질문은 희귀 비만 치료제 라이센스 사업 선급금 관련해서 2분기 수익 인식 규모가 어떻게 되는지 궁금하고, 향후 전반적으로 파이프라인 전략 방향 어떻게 잡고 가시는지 궁금합니다. 두 번째 질문은 석유화학 사업 재편 관련해서 여쭤볼 게 있는데, NCC 매각이라든가 재분배 검토라든가 혹시 관련해서 현재 진행 상황이나 향후 운영 방향 어떻게 되시는지 공유해 주시면 감사하겠습니다.
Yes, thank you for the opportunity to ask questions. There are two questions that I would like to ask you. First is with regards to your rare obesity treatment, there were some advance payments that you recognized in the second quarter. How much would that be? And in terms of your pipeline strategy going forward, if you could elaborate a bit about that, that would be appreciated. Secondly, with regards to revamping your petrochemical business, for the NCC asset that you have, would there be a possible sale or maybe JV that you would be reviewing? And if there is anything that is in process right now or in terms of the overall future operating direction that you can share with us, that would be appreciated.
희귀 비만 치료제 라이센스 사업 마일스톤 관련 실적 영향과 파이프라인 전략 방향에 대해서 답변드리겠습니다. 지난 1월에 계약 체결한 희귀 비만 치료제 라이센스 사업 계약의 선급금과 마일스톤 금액은 $305 million 달러 규모이고, 매출에 따른 로열티는 별도 수령합니다. 그중 선급금은 $100 million 달러이며, 회계 규정에 따라 선급금 일부인 $60 million 달러가 금년 2분기에 수익 인식되어 2분기 실적에 긍정적인 영향을 줄 것이라고 예상하고 있습니다. 잔여 선급금 $40 million 달러는 내년에 반영될 예정이고, 그 외 개발 상업화 마일스톤의 경우 향후 과제 진척에 따라 순차적으로 수령 예정입니다. 본부는 핵심 질환 영역에서 자체 개발 및 도입을 통해 지속적으로 파이프라인을 확대할 계획이며, 과제의 특성에 따라 투자 효율화 및 성공 확률 제고 측면에서 파트너십과 자체 개발을 탄력적으로 운영할 계획입니다.
So yes, maybe I can address the first question from the life sciences business, which was with regards to the overall advance payment that took place as we licensed out our rare obesity drug and also what the pipeline strategy going forward would be. First of all, if we look at the license out agreement that we had for the rare obesity drug that was actually signed in January of this year, if we look at the overall advance payment plus the milestone payment in total, that would represent $305 million. So in addition to that, as sales are generated, of course, there will be a separate royalty that we will be able to enjoy.
Of the overall advance payment, $100 million, which is the advance payment of the total amount, according to our overall accounting policy, part of that $100 million advance payment, so specifically $60 million, is what was recognized as profits during the second quarter, and that has a positive overall effect on our second quarter performance. For the remaining $40 million in advance payment that is left over, that will be reflected into next year's performance. In addition to that, for the development and also commercialization milestone payments, this is something that we will be receiving consecutively as the various projects make more progress. So for the life sciences businesses, we are going to continue to build out our pipeline based upon our own development and also introducing various treatments in the core areas that we are looking at.
As a result of the characteristics of the projects that we have ongoing, we will decide whether it would be better to develop in-house or have partnerships in terms of the investment efficiency and also increasing the possibility of success and have a flexible manner in terms of how we operate the overall situation.
석유화학 부문의 구조 조정 관련된 질문 답변드리겠습니다. 이전에도 말씀드렸다시피 아직 확정된 바는 없습니다. 하지만 매각보다는 향후에 당사 다운스트림 사업들의 경쟁력 강화를 위해서 코스트와 원료가 경쟁력 확보를 위한 JV 등 다양한 전략적 옵션은 지속 검토 중에 있습니다.
To talk about your second question, which was revamping our overall petrochemicals business, right now nothing has been determined yet. However, right now the way that we're looking at the situation is that rather than an outright disposal, we do think that in order to strengthen our overall downstream competitiveness, we would like to explore different opportunities that we have, such as having a JV to be able to cut our costs and also secure more competitiveness in sourcing the overall material that we need.
다음 질문 받도록 하겠습니다. 다음으로 질문해 주실 분은 JPMorgan의 Parsley Ong입니다. 질문 부탁드립니다.
The next question is from the line of Parsley Ong from JPMorgan. Please go ahead.
Hi, congratulations on the good result. Very encouraging to see improvements in advanced materials and chemical earnings. So I have two questions. First question is on Korea Value- up. LG Chem's Korea discount has widened a lot. Could you share what are LG Chem's plans to increase shareholder value related to the Value- up Program recently announced by the government? Second question is the FEOC clause will be applied to critical minerals starting from 01/01/ 2025. So what is LG Chem's preparation status, and where do you think are the major bottlenecks for the industry? What benefits do you think LG Chem can get if you meet the requirements? And if you have any examples of IRA compliant versus non-compliant battery component or critical minerals pricing, that will be appreciated as well.
네, 질문해 주셔서 감사드립니다. 그리고 질문을 드리기 전에 지금 석화 쪽과 그다음에 실질적으로 첨단 소재 쪽 모두 굉장히 개선된 실적을 보여주셨는데요. 이 부분에 대해서 축하의 말씀을 드립니다. 첫 번째 제가 여쭤보고 싶은 질문은 최근에 회사의 어떤 지주사로서의 디스카운트 수준을 보게 되면 좀 많은 폭으로 늘어난 것 같습니다. 그리고 정부 차원에서는 밸류업 프로그램을 지금 진행 중에 있는데요. 회사 차원에서 이런 밸류업 프로그램과 맞물려서 주주 가치 제고를 위해서 어떤 계획들을 갖고 계시는지에 대해서 알고 싶습니다. 두 번째 질문은 핵심 광물과 관련돼서 FEOC 적용이 2025년 1월 1일부터 지금 도입이 될 예정에 있습니다. 그래서 회사의 지금 이에 대한 대응이라든지 준비 상황이 어떤지에 대해서 알고 싶고요. 그다음에 산업적으로 봤었을 때 어떤 부분들이 병목으로서 작용을 할 수 있다고 생각하시는지 좀 궁금합니다. 그래서 만약에 회사가 이미 확보한 적격 광물이라든지 이런 부분들이 있다면 어떤 부분에 있어서의 수혜가 가능한지가 좀 궁금하고요.
그리고 실질적으로 적격 광물이라든지 적격 배터리 소재, 그리고 비적격 광물, 비적격 배터리 소재의 가격대를 저희가 만약에 비교를 해본다면 혹시 어느 정도 수준의 차이가 나는지에 대해서 말씀해 주실 수 있다면 도움이 많이 될 것 같습니다?
먼저 주주 가치 제고 관련해서 좀 말씀을 드리겠습니다. 당사는 어쨌든 기본적으로 성장을 통하여 기업의 본질 가치를 증대시키는 것이 주주 가치를 증대시키는 가장 지속 가능한 방법이자 지표라 그렇게 보고 있습니다. 이에 저희 회사는 당분간은 인적, 재무적 역량을 3대 신성장 동력 육성에 집중하고 있으며, 이에 따라 향후 3년간의 어떤 배당 정책도 발표한 바가 있습니다. 물론 이러한 집중은 지금은 어떤 투자가 필요한 시기이지만 일정 부분 그 부분이 성장을 통해서 한 단계 더 높은 기업 가치를 창출할 수 해내는 그런 시기가 곧 도래할 거라고 보고 있고, 그로 인해서 주주 가치도 자연스럽게 같이 상승할 걸로 그렇게 기대하고 있습니다. 다만 상반기 중에 금융 당국의 세부 지침이 발표될 텐데요. 그 지침에 어쨌든 맞추어서 당사가 추진할 수 있는 그런 방안이 어떤 것이 있는지 그런 것에 대해서도 검토를 해나가도록 그렇게 노력하겠습니다.
So to address your first question about our intentions under the value up program, I think that we have also always said as a basic stance that we have is that we do believe that fundamentally the best way to enhance our overall value would be through growth. So we actually believe that over the longer term that that is the best way and the best approach to having sustainable growth and continuous enhancement in shareholder value. So for the company, for the time being, we do think that the focus of how we will use our resources in terms of human resources and also in terms of the financial capabilities that we have to try to grow and invest into our top three growth drivers for the future.
In addition to that, we have already announced what our plans are for the next three years in terms of dividend payouts. For the time being, as we do concentrate and focus on this period of time in which investments will be needed, we do think that that will be the focus for now. As time passes, we do think that there is growth that we will be able to achieve in this area, and that will enable us to be a company that has an overall firm value that would be one step higher than what we have as of the current time. That, at the end of the day, we do think, believe that that actually contributes to enhancing the overall shareholder value.
However, that having been said, we do understand that within the first half of this year, the financial authorities will be coming out with more detailed guidelines around the corporate value up program that they are looking at. So in light with that announcement, if there are initiatives that we can also take on, then we will try to review that as much as possible.
핵심 광물 준비 현황 관련 답변드리도록 하겠습니다. 니켈 밸류 체인인 전구체의 경우 올해 말 고려은행과의 합작법인이 정상 가동되고, IRA 적격 전구체 구매 계약 체결 등이 진행되고 있으며, 이 외에도 적격 전구체 확보를 위한 다양한 프로젝트들이 검토되고 있습니다. 단지 니켈 생산의 절반 이상을 차지하는 인도네시아와 미국의 광물 협정 체결이 원가 경쟁력을 보유한 적격 니켈 확보의 핵심이라고 보고, 양국 간 논의 사항을 지속적으로 모니터링하고 있습니다. 리튬의 경우에도 IRA 적격 리튬 구매 계약 체결과 함께 미국 FTA 국가에서 생산된 정광을 활용한 다수의 리튬 컨버전 플랜트 투자 건에 대한 검토가 이루어지고 있습니다. 리튬 컨버전 플랜트 투자는 당사 수요 시점에 맞춰 인허가 등의 일정을 단축하는 것이 중요하다고 판단됩니다. 메탈의 IRA 적격 여부에 따라 메탈 구매 가격, 즉 설페이트 프리미엄 등에 일부 차이가 있으며, 공급업체와 공급가에 대한 협의를 진행 중에 있습니다. IRA 적격 메탈 확보의 베네핏은 양극재의 수주 물량 확대에 있습니다.
그러나 공급사의 분리막 등 적격 배터리 소재 확보 규모 등에 따라 보조금 수혜 대상 차종의 변동성이 큰 만큼 고객사와 협의하여 IRA 적격 메탈 확보에 과부족이 없도록 적격 메탈 확보를 진행할 예정입니다.
To address your second question about the overall materials that we are requiring and what the overall process is in terms of having qualified materials and parts that we need. So I think that first to talk about precursors. With regards to the JV that we have with KEMCO, that is going ahead according to schedule. So we do think that we will be in a position to go into production as of the end of the year. And in addition to that, we are also discussing with other parties in trying to secure the overall supply that we need in terms of qualifiable precursors for the overall needs that we want to satisfy.
However, that having been said, we do think that because 50% of the nickel that would be regarded as qualifiable nickel is actually located in Indonesia, we would have to see how the overall developments between Indonesia and U.S. take place with regards to negotiation about the minerals agreement. So if that does come into play, we do think that that would be something that would be very important. So we will continue to monitor that situation on the precursor side. And then if we talk about the lithium side, for lithium, of course, in order to source lithium that is qualified under the IRA, we are right now in the process of signing purchase agreements with various parties.
In addition to that, we are trying to use lithium concentrate that is produced by U.S. FTA partner countries and also reviewing the possibility of investing into conversion plants accordingly that would utilize this type of concentrate. However, in terms of the actual timing of when we would make the investment, we do think that a critical point there is with regards to when we actually see the demand. And once we do see that, we think that shortening the overall licensing time that is required for the plant is something that would be very important. So for the IRA metal pricing levels, of course, for the purchase price for qualified metal, there is a sulfate premium that is also required. And in addition to that, prices are determined upon how negotiations go with the suppliers.
So the benefits that we're able to reap would depend upon the overall increase in demand that we see in terms of overall cathodes. But that's not only driven by the overall metals but also in terms of whether there can be other qualified parts such as separators that would be secured because that determines the overall level of tax credits that one can receive at the end of the day. So these all different factors all need to be taken into consideration. So what we are trying to do is to make sure that there is not a shortage of qualifiable metal that we can utilize to be prepared for such a situation so that we can maximize the benefits as much as possible.
이것으로 LG화학 2024년 1분기 실적 발표 컨퍼런스콜을 모두 마치겠습니다. 추가적인 문의사항 있으신 분은 언제든지 IR 팀으로 연락해 주시기 바랍니다. 바쁘신 가운데에서도 참석해 주신 투자자 여러분들께 감사의 말씀을 드립니다. 감사합니다.
With this, we would like to wrap up the conference call for the Q1 2024 earnings performance of LG Chem. If you do have any follow-up questions or additional questions, please do not hesitate to contact the IR team. We would like to once again thank everyone who has been on this call.