Good afternoon, everyone. Thank you for joining SKIET's earnings conference call. After SKIET presents their business earnings, we will have a Q&A session. For those of you who wish to ask a question, please press star and number one on your phone. From now on, we will start the 2024 Q3 earnings presentation for SK IE Technology. Good afternoon. I am Che He, leader of SK IE Technology's Treasury and IR team. Thank you for attending SKIET's 2024 third quarter earnings call. Today, we will first present the business results of 2024 Q3, and then proceed to Q&A session. We will now start the earnings presentation for 2024 Q3. Please note that today's numbers have yet to be audited by an outside auditor. Based on the audit results, the content may be subject to change. Now, I will turn the call over to CFO Taek-seung Oh, for the presentation.
Good afternoon. I am Taek-seung Oh, CFO of SK IE Technology. Welcome, everyone, to SKIET's 2024 third quarter earnings conference call. To address any questions you may have, we also have other members and executives of the relevant teams with me on this call. First, let me explain the business performance of Q3. To begin with, please note that the earnings numbers for Q3 2023 have been revised to recognize the FCW business as profit from discontinued operations after the discontinuance of the FCW business in Q1 2024, and thus differ from the previously disclosed numbers. This quarter's revenue stands at KRW 50.8 billion, down KRW 10.8 billion QOQ, due to a drop in product sales for some key customers.
Accordingly, gross profit fell KRW 14.6 billion QOQ, and operating profit is down KRW 14.3 billion QOQ, reporting an operating loss of KRW 73 billion. Next, I will go over the financial position. As of end of 2024 Q3, assets stands at KRW 4,056.9 billion, down KRW 26.9 billion from end of last year. Liabilities is KRW 1,713.6 billion, up KRW 41.4 billion from end of last year. Net debt is KRW 1,195.1 billion, up KRW 335.5 billion from end of last year, following CapEx execution for the completion of Poland phase III-IV build-out.
As the recent uncertainty in the business environment persists, SKIET is pushing forward to secure financial soundness that is sustainable mid to long term. We are working to reduce our operation budget, and as part of that effort, we are reviewing the liquidation of Chungju capacity, where currently operation is suspended, and non-core assets, such as equipment and IP of the FCW business, which we decided to discontinue, as we explained in the last earnings conference. We are currently in discussions with potential buyers. Once the talks are finalized, we will share the news through market disclosures. Next, I will go over the earnings details for our 2024 Q3 results. LIBS sales volume in Q3 recorded 62 million square meters, down approximately 10% QOQ, while revenue stands at KRW 50.8 billion.
Revenue dropped because while the volume for EV applications was similar to last quarter, the volume for IT applications fell due to sluggish demand of our key customers. The uncertainty of downstream demand continues into Q4, but volume is expected to gradually pick up, including the shipment to a North America customer that began in July this year. Also, we are currently talking to multiple potential customers about the supply of EV LFP and new form factor batteries, as well as separators for ESS. We believe that we will soon be able to finalize discussions with some, some of them, and look forward to starting shipment. Given such developments, SKIET is working towards a rebound in performance, driven by a meaningful sales increase from new customers and new projects of existing customers in 2025.
While the recent uncertainty in the downstream industry is very high, we are strongly committed to the recovery in sales volume. Next, I will cover profitability. Operating profit for Q3 posted a loss of KRW 73 billion, down KRW 14.3 billion QOQ. Despite partial profitability improvements from savings and operation expenses, as noted earlier, profitability declined due to lower volume to major customers, fixed cost burdens from continued low utilization rate, and inventory loss stemming from our destocking strategy. There will be some recovery in utilization rate in Q4, following shipment for a new project, but uncertainty will still persist, including continued downswing in the downstream industry. Furthermore, SKIET's annual inventory asset level is above average year levels due to the slow downstream demand that started from last year, Q4.
Accordingly, we are choosing to exhaust our inventory first as we flexibly respond to demand. SKIET is aiming to increase volume driven by recovery and demand of our key customers and higher utilization rate from ramp up in sales to new customers. At the same time, we are proactively improving other levers of profitability, such as savings in fixed costs, such as repair and utility expenses, by increasing operational efficiency and diversifying our raw material sourcing options. Lastly, I would like to discuss the implications of U.S. policy changes on SKIET. The U.S. presidential election will take place starting tomorrow night, Korea time, and the outcome will be clear around November 6th. Our company is analyzing the impacts related to the concerns on the potential outcome of the U.S. presidential election from different perspectives.
Overall, we anticipate that the North American EV market will continue to present a favorable environment for us in the broader context. U.S. green policies will likely continue mid to long term, and an extreme scenario where the whole IRA is repealed is not realistically likely. As per the different scenario analysis on the potential policy changes in the U.S., our company is designing response strategies to each of them. Regardless of shifts in U.S. policy, we believe that investment in North America will be necessary. However, we will carefully assess the specifics of North American investment, such as investment site, scale, and timeline, depending on the results of the presidential election. We will then determine and subsequently execute the best North America expansion option.
Furthermore, depending on the situation, we will be flexible in our response to a changing downstream environment by establishing various measures, such as a phased build out of capacity. This ends the earnings presentation of 2024 Q3, and we will now go on to the Q&A session. Before you ask a question, please state your name and affiliation.
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. The first question will be provided by Min Joo from NH Investment & Securities. Please go ahead with your question.
Hello, this is Min Joo from NH. Thank you for taking my questions. I have two questions. First, I would like a detailed update on your customer diversification strategy. How is that going? Secondly, I would also like to understand the sales outlook for 2025 for the North America customer that you signed on, and also SKIET's share in the project of that North America customer. Thank you very much.
Hello, this is Kim Jongyeon, Head of Marketing. Let me speak to our customer diversification strategy. So for our key existing customers, we are strengthening our relationship with them and working in various ways to expand the orders that we get from them. Now, on the new potential customers, we are engaging with multiple potential customers, and there are largely two fronts to this. The first customer group is Europe, the second customer group is Chinese customers. Now, first on Chinese customers, we recently received a CBP ruling, and now as a result, the Chinese battery makers are not only looking for, Chinese separator companies, they are turning their interest to non-Chinese, outside China companies to get the supply. So we are getting a lot of contact and engagement from Chinese customers.
All in all, there are multifaceted efforts ongoing on our customer diversification strategy and efforts, and we will soon be ready, I think, with an LOI.
국내 고객사 중에 그 국내의 배터리 업체 중 한 업체와는 유럽향과 미국향 공급을 위한 현지 생산 공장을 지난주 초에 사전 점검을 완료해서 아마 내년에는 관련해서 공급 관련된 계약이 진행될 것으로 기대하고 있습니다.
With a domestic battery company, we have done the pre-audit and pre-assessment of the production capacity for both Europe and U.S. So I think we'll be able to have a supply agreement with them in place next year.
추가 두 번째 질문하신, 북미 고객사향 2025년 전망인데요. 제가 지난주에 북미 기존 계약된 고객사 방문 요청으로 방문을 했습니다. 지난 1년간에 걸친 양산 기술을 성공해서, 실제 양산 제품이 7월 이후부터 계속 출하 중에 있고, 지금 현재까지 특이한 사항은 없는 것으로 나오고 있습니다.
So on the new North American customer and the outlook for this customer for 2025, we at the request of this customer, I visited them last week, and the technology, which took one year to complete for this customer, has now been finalized and completed, and the shipment, based on this new development, has been taking place since July. And when I visited, I confirmed that there were no special call outs or any issues.
특히 그 고객사에서 지금 순조롭게 램프업이, 램프업이 진행되고 있어서 지금 핵심 그 협의 내용은 물량 공급 갈, 증대 관련된 논의 차 방문을 했었고요. 지금 이십오 년의 생산 조건을 스피드업 통해서 생산량 증대를 위한 일정을 협의하고 왔습니다.
To ramp up on the customer side is going very smoothly. So the purpose of my visit was to discuss an increase in sales volume to them, and we are discussing ways to speed up the 2025 timeline I went there to discuss the timeline specifics for that.
그 비중을 말씀을 질문하셨는데, 저희도 현재 그 핵심 고객사들 위주로 상당한 물량을 이제 납품 중에 있긴 하지만, 지금 그 북미향은 현재 그 저희들이 기계약된 고객사 위주로, 공급을 하고 있어서, 거의 저희 지금 진행하고 있는 포션에 상당한 부분을 북미향으로 전용하려고 준비 중에 있다고 보시면 될 것 같습니다.
And you also asked about the share, the wallet share. And with our key customers, we do have already pretty large share with our key customers, but on the North American side, for the customers that we have signed on, we are planning to turn sizable volume to this new North America customer.
마지막, 마지막으로, 그, 지금 저희들이 북미에 기계약된 고객사, 핵심 고객사와 거래되고 있는 그 차종이 한 종으로 되어 있는데요 이번 그 방문을 통해서 그 26년부터는 타 차종으로도 확대 적용하는 부분에 대해서도 협의를 하고 왔습니다. 이상입니다.
Lastly, I would like to say for the North America customer that we signed on, currently, we are only supplying battery separators for one of their models. But through this visit, we discussed ways to expand this to other models from 2026.
다음으로 질문해 주실 분은 KB증권의 이창민 님입니다.
The following question will be presented by Changmin Lee from KB Securities. Please go ahead with your question.
네, 질문해 주셔서 감사합니다. 저는 세 가지 질문을 드리고 싶은데요. 첫 번째는 이제 저희 콘콜 때 항상 말씀해 주시는 사이트별 가동률, 부탁드리고요. 두 번째는 이제 가능하실지 모르겠는데, 자분기랑 이제 내년에 판매량 전망을 혹시 어느 정도 보고 계신지 가이던스 있으시면 좀 부탁드리겠습니다. 마지막으로는 이제 저희 주요 고객의 그런 수요 동향이 혹시 좀 파악되는 게 있으시면은 관련해서 자분기랑 내년에 좀 어떻게 보시는지 업데이트 부탁드리겠습니다. 감사합니다.
Hello, this is Changmin from KB. Thank you for taking my questions. I have three questions. First, is the utilization rate by size, by site. And secondly, if possible, could you speak to the volume outlook and provide some guidance for Q4 and 2025? And thirdly is, I would like your opinion and also your insights on the demand trend that you're observing among your key customers for Q4 and 2025.
네, 먼저 그 사이트별 가동량을 말씀드리겠습니다. 뭐, 전반적으로 어, 지속적으로 그 저희가 원단 가동률에 대해서 말씀을 드리고 있는데요. 뭐, 상반기 대비해서 크게 늘어나거나 하진 않고, 다소 좀 가동률은 떨어져 있는 상황입니다만 전반적으로 한 이십에서 삼십 퍼센트 정도 가동률을 유지하고 있습니다.
So first, on your question on utilization rate by size, by site, we have been disclosing utilization rate based on base film basis. Compared to the first half and the second half, we did not see a big increase in utilization rate. Overall, the utilization rate is still around 20%-30%.
예, 두 번째 질문 주신 그 내년도 판매량 전망에 대해서 질문 주셨는데요. 그 내년도 판매량은 현재 저희가 뭐, 경영 계획을 수립하고 있고, 또 금년도보다는 상당히 증가한 물량으로 예상을 하고 있습니다만, 아직까지 그 전방 산업의 불확실성이 크고, 또 고객사나 저희나 그 운영 방안에 대해서 아직 그 최종적으로 확정이 안 됐기 때문에, 이 부분은 저, 다음 실적 발표 때 좀 더 구체적으로 말씀드릴 수...
On your second question, regarding volume guidance for 2025, we are in the phases of establishing a business plan for next year, and we believe that there will be much bigger volume in 2025 compared to 2024. However, there still is downstream demand uncertainty, and also on our customer side, they are developing their own plans yet, and this is not finalized. I believe we'll be able to give you more specifics in our next earnings presentation. 17. Thirdly, I will take your question on, on the customer trends that we have been observing. There are three parts that I would like to discuss with you. One is the captive customer size, second is our North America customer, and third are the domestic major customers.
So on the separator volume, it will fall likely short of last year's volume on a YOY basis, and up until next year, where we will see the tangible fruits of our customer diversification efforts, it is true that our dependence on our captive customer will remain high. From Q4 onwards, we are seeing signals that the demand will recover. So from next year onwards, compared to this year, there will be, I think, a huge uplift in volume to our captive customer. I think for the North America customer, my previous answer would suffice. And on the major domestic customer front, we have two major customers, domestically, and with both of them, we are talking about the supply of sizable volume.
Now, with one of them, one of the talks has progressed quite a bit and they have visited our BMP, our Poland facility, and did the due diligence on production. Once the assessment on quality is finished, and if we proceed to 4M Step, then I believe we'll be able to start shipping in the second half of next year, 2025. After the CBP ruling in August, it has become clear that retaliatory tariffs may be levied if coating is done overseas on Chinese-produced base films. After this ruling came out, Korean battery companies became more interested in engaging in talks with us on the supply of base films. I believe we'll be able to see some visible results and fruits from these talks within November on volume and any specific supply details.
The following question will be presented by Taekyung Yoon from Bank of America Securities. Please go ahead with your question.
Hello, thank you for taking my questions. I have two questions. Now, it seems that your profitability is hurting because of the fixed cost pressure that came from the low utilization rate, because you needed to exhaust your on-hand inventory first. I would like to understand the current inventory level that you have, and compared to Q3 and Q4, what would the utilization rate largely look like? And when do you think there will be a meaningful rebound in utilization rate? My second question pertains to the robust demand that you said you anticipate for North America in 2025. Now, in line with such developments on the horizon, when do you start? When will you start the operation of Poland phase II?
Yeah. Now, on the current inventory level, I cannot give you a specific number, but it is about twofold or threefold of the appropriate level of inventory we deem fit. It was because the demand this year has been very low, and we are managing our inventory in connection with the inventory stockpiled at our customer site. And up until the end of this year, we will continue to decrease our stock. SKIET's inventory level is closely related to the inventory level of our customers, and this is also in turn linked to the sales volume that they will ship, that they will sell. So we have intelligence that on our customer side, their inventory on SKIET's products has gone down quite a bit, so the situation around inventory will clear up late 2024 or early 2025.
So we believe we'll be able to see a recovery in demand and also accordingly, a recovery in our situation, inventory situation in the first half of next year. On the go live timing for phase two of Poland, it will differ depending on some, maybe some potential IRA changes that are to come after the U.S. presidential election. But what we gather from the talks that our marketing department had in the U.S., it seems that there is a positive atmosphere in the U.S. and there are a lot of requests asking for volume to be supplied from Europe to the U.S. So it is my cautious anticipation that we will be able to start the operations of our Poland facilities mid-next year.
The following question will be presented by Park Yushin from HSBC. Please go ahead with your question.
안녕하세요. HSBC, Park Yushin. 질문 감사합니다. 저 몇 가지, 네, 여러 가지 질문이 있는데요. 첫 번째로 일단 저희 재고 관련돼서 혹시 연말에 재고 관련, 좀 일회성 평가 비용 발생 여부 있는지 좀 확인 부탁드리고요. 두 번째로는 이제 여기서도 어떻게 보면 이어지긴 하는데, 현재 공급 과잉인 상태에서 저희 평가 압력이 조금 상당할 것 같은데, 향후 평가 전망 어떻게 봐야 되는지, 업데이트 부탁드립니다. 그리고 CapEx 관련돼서도 좀 질문이 있는데요. 저희 혹시 올해 집행된 CapEx 그리고 집행 예정인 금액, 그리고 내년, CapEx 예정 금액 업데이트 부탁드리고, 마지막으로 저희 혹시, 미국 진출에 대해서 아까 컨콜 때, 대선 여부 상관없이 진행 계획이라고 하셨는데, 혹시 관련된 타임라인 좀 구체적으로 공유 가능하시면, 업데이트 부탁드리겠습니다. 감사합니다.
Hello, this is Park Yushin from HSBC. Thank you for taking my questions. I have several questions. First is on the year-end inventory. Would there be any one-off costs that will be incurred related to the inventory that we can expect? And currently, in the oversupply situation, I believe there is huge downward pressure in terms of ASP. Could you provide an ASP outlook? And thirdly, on the CapEx, I would like to understand the amount of CapEx that has been executed so far year to date this year and what is remaining, and also the CapEx outlook for next year as well. Lastly, on expansion into North America, you said this will be an initiative that will be executed regardless of the U.S. presidential election outcome. And could you provide some specifics around the timeline for this? Thank you.
...네, 먼저 일본 그 재고 관련된 일회성 비용 발생 가능성에 대해서 말씀드리겠습니다. 저희가 기본적으로 그 재고에 대해서는 매 분기 말, 분기별로 평가를 하고, 그에 따른 뭐 적합한 평가라든지, 뭐 불량 제품들에 대해서 처리를 하고 있습니다만, 뭐 사분기 같은 경우는 특히 그 연말과 관련해서 재고뿐만이 아니라 저희 다른 자산들에 대해서도 사실 그 건전성 평가를 계속 실시를 하고 있습니다. 그 부분에 대해서는 적극적으로 물량에 대해서 좀 저희가 일회성 비용을 인식을 하고 있고요. 특히 사분기 같은 경우에는 이런 부분들이 정기적으로 상당량 발생할 것으로 예상이 됩니다.
First, on the one-off expense related to inventory in Q4 at the end of this year. So, every quarter, at the end of every quarter, we do assess our inventory and try to identify obsolete goods or defective goods and inventory. And in Q4, at the end of this year, not only for inventory, but for other assets, we will carry out the systematic evaluation, where we assess the assets that we have. So there will be various cost items that will be recognized on a one-off basis at the end of this year. So to your question, yes, there will be some cost expenses that will be incurred on a one-time basis in Q4.
두 번째 질문, 공급 과잉에 따른 그 평가 압력이 상당하다는 부분인데요. 맞습니다. 지난 1년간 그 많은 중국 업체들과 경쟁을 하는 동안 상당한 그 공급 과잉에 따른 평가 압력이 있었고요. 최근에 보면 이제 거의 최저, 거의 바닥에 왔다라고 할 정도로 상당히 많이 낮아진 부분은 맞습니다. 그래서 더 이상 낮아지는 부분은 없어지고요. 최근에 유럽이랑 북미, 특히 그 대선에 따라서 아마 차이가 좀 많이 날 것 같은데, 유럽은 아직도 조금 그 공급 과잉에 따른 평가 압력이 좀 있고요. 북미는 반대로 조금 그 대선에 따라서 평가는 좀 더 높아지는 트렌드로 가지 않을까라고 예상하고 있습니다.
On your second question about ASP coming from ASP downward pressure coming from oversupply. Yes, you are correct. For the past one year, there has been fierce competition between us and Chinese players, and this has resulted in oversupply, which has put downward pressure on ASP. Recently, I think that this ASP drop has bottomed out. I don't think there is a lower point beneath the current level. Now, on EU and North America side, I think situations will differ depending on the presidential election outcome. But on the EU side, Europe side, there is still oversupply. But in the North American market, I think we can expect a slight uplift in ASP after the presidential election.
네, 다음으로는 그 CapEx에 대해서 답변드리겠습니다. 금년도하고 내년도에 그 주로 남아있는 전략 투자는 아시다시피 폴란드 Phase 3, 4 투자가 남아 있고요. 나머지는 일반적인 경상 투자는 기존 공장에 대해서 뭐 연간 100억-200억 정도 투자비가 발생을 합니다. 근데 그 금년도 2024년에 Phase 3, 4에 예정되어 있는 CapEx 금액은 한 2000억대 중반 정도 집행이 될 것으로 예상을 하고 있고요. 2025년에 잔액은 2024년 금액 대비해서 한 40%-45% 정도만 집행이 되면, 저희가 현재 짓고 있는 CapEx, 전략 CapEx에 대해서는 집행이 다 완료되는 것으로 보시면 될 것 같습니다.
Third, I'll take your question on CapEx. Now for 2024 and 2025, the key initiatives that require CapEx will be the Phase 3-4 build out in Poland and other existing current projects, which require about KRW 10 billion-KRW 20 billion. Now, in 2024 as a whole, we expect a CapEx execution of about the mid-200 billion KRW, and in 2025, 40%-45% of the CapEx executed in 2024 will be needed to, for us to push forward with the strategic CapEx initiatives that we have planned out.
네, 다음은 그 마지막으로 그 미국 진출 타임라인에 대해서 말씀드리겠습니다. 앞서 말씀드린 대로, 저희가 전략 투자하는 CapEx가 2024년에 KRW 1,200억 중반 정도, 그다음에 2025년에 KRW 1,000억 정도이기 때문에 그 이후로는 사실 그 저희가 진행하고 있는 CapEx 투자는 없습니다. 그래서 계획상으로는 북미 진출의 CapEx가 그 다음에 이제 전략 투자로 예상을 하고 있는 상황이고요.
On the expansion timeline into North America. As I've told you, for strategic investment, our CapEx will be about KRW 200 billion, mid KRW 200 billion in 2024, and about KRW 100 billion in 2025. After that, we don't have any major CapEx initiatives planned. The next major initiative will be our expansion into North America as part of our strategic investment.
북미 시장은 아시다시피, 성장성이나 정책 역량 등으로 저희에게 상당히 그 가능성이 높은 주요 시장으로 저희가 여기고 있습니다만, 반면에 또 높은 투자비와 현재 정책 리스크 등이 상존해 있는 시장이기 때문에, 많은 고객들이 지금 저희하고 얘기는 하고 있습니다만, 그들도 올해 말까지 어떤 특별한 확답을 주기는 어려운 상황으로 이해를 하고 있습니다. 그래서 당사도 이런 부분을 내년 상반기까지는 시장의 변화를 지켜본 다음에 의사결정을 해야 되지 않을까라고 보고 있는 상황입니다.
On North America, of course, this market has huge growth potential and has some policy advantages, which is why this market will be a market of opportunity for SK IE Technology. But at the same time, it requires higher CapEx and also there is policy risk... and from the uncertainties in policy changes. So while we are talking with many multiple customers, these customers also have difficulty in giving us a certain commitment or firm answer by until the end of this year. So I believe we'll have to monitor the situation up until the first half of 2025 before we make a decision then.
Under the overarching premise that our sustainability, profitability has to be sustainable, irrespective of the IRA, we are reviewing various options that include US, Canada and Mexico. But there will be, I think, a huge sway in policies depending on the outcome of the presidential election in the US. So we, we are not only contemplating profitability, but we are also looking at the specific region and site. And after the US election, depending on customer demands and how they will respond to the IRA, I think will determine how much capacity we will plan on in North America, and also when we will make the entry into the North American market. So we will consider these various options, and we are doing scenario planning on each of these options, and we will reach a decision in the first half of 2025.
Hi, this is Lee Byung-In from Business Strategy. Now, if candidate Harris gets elected as a new president, we will build our coating lines first, depending on the exact demand that we assess from North America. In this case, we'll be able to utilize the base lines from Europe and Korea, depending on the customer needs. If Trump gets reelected, then I think there will still be a part of the IRA that is left effective. But even if the IRA is repealed altogether, there is this retaliatory tariff that is another key factor. In such cases, we'll be still able to utilize our Europe and Korean capacity as well. So depending on the election result and also the according policy changes to come, we are factoring in various options and scenarios for both Europe, Korea, and U.S.
We will utilize all these parts together as we make the final decision and execution.
We will now close SKI...