Samsung SDI Co., Ltd.

[Interpreted] Good morning. I'm Yoontae Kim, Executive Vice President of the Business Management Office of Samsung SDI.

First, thank you for joining today's earnings call. And joining me are CFO, Jong Sung Kim; EVP, Jong-Sung Park for Automotive and ESS Battery; EVP, Hanjae Cho for Small Battery; and VP [indiscernible] Kim for Electronic Materials.

We will provide simultaneous interpretation for the earnings presentation and consecutive interpretation for the Q&A session. Now I will begin Samsung SDI's 2024 Q4 Earnings Call.

First of all, please note that starting with the Q3 results, the profit or loss from discontinued operations is separately stated due to the decision to discontinue the polarizer film business, and today's presentation will also follow suit. I'll start with our Q4 and annual results for 2024.

The Q4 revenue was KRW 3.8 trillion, down 5% Q-o-Q and 29% Y-o-Y due to slowing market demand. The operating profit recorded a deficit of KRW 257 billion.

Including results from discontinued operations, Q4 revenue was KRW 4.5 trillion, and operating profit posted a deficit of [ KRW 243 billion ]. Including profit under the equity method and impairment losses on tangible assets, pretax profit recorded a deficit of KRW 347 billion.

Annual revenue decreased by 23% Y-o-Y to KRW 16.6 trillion, and operating profit fell by 77% Y-o-Y to KRW 363 billion. Including results from discontinued operations, annual revenue was KRW 17.9 trillion with operating profit at KRW 446 billion.

Next is our 2024 4Q financial status. Assets increased by KRW 6.5 trillion to KRW 40.6 trillion due to CapEx and EV batteries.

Liabilities rose by KRW 4.9 trillion to KRW 19.2 trillion, driven by increased debt. R&D expenditure in 2024 was KRW 1.3 trillion, up roughly KRW 200 billion Y-o-Y.

CapEx totaled KRW 6.6 trillion. For key ratios of our financial status, please refer to our earnings presentation slides.

Now each business unit will present Q4 and annual results for 2024. First off, Q4 revenue for the battery business was KRW 3.6 trillion, down 3% Q-o-Q and 29% Y-o-Y.

For EV batteries, demand has slowed due to high interest rates and the reduction of EV subsidies in major countries, leading to inventory adjustments by major customers and a decrease in revenue. For power tool and micromobility batteries, revenue also declined, impacted by the sluggish housing market and weakened consumer purchasing power.

On the other hand, revenue of ESS battery reached a record high due to increased sales of ESS and UPS backed by growing power demand for data centers due to strong AI adoption in the U.S. Operating profit for the battery business in Q4 recorded a deficit of KRW 268 billion, a significant drop Q-o-Q due to lower utilization across all business, except ESS batteries, increased fixed costs from new fab operation and onetime costs such as inventory valuation losses.

Q4 revenue for the Electronic Materials was KRW 190 billion, down 28% Q-o-Q and 31% Y-o-Y. Demand for semiconductor manufacturing materials grew with the increased input of memory semiconductor wafers.

However, sales of display manufacturing materials decreased significantly due to seasonality. Operating profit for the Electronic Materials was KRW 11.6 billion, down 82% Q-o-Q and 83% Y-o-Y.

Taken together for the fiscal year of 2024, annual revenue for the battery was KRW 15.7 trillion with operating profit at KRW 218 billion. Annual revenue for the Electronic Materials was KRW 901 billion with operating profit of KRW 145 billion.

Now let me enumerate our 2024 business highlights. We successfully initiated early operation at the Stellantis joint venture StarPlus Energy in the U.S.

and quickly secured high yield. We also finalized a joint venture agreement with GM laying the foundation for expanding EV business in the U.S.

Furthermore, we secured approval for the U.S. Department of Energy, which helped alleviate financial burdens associated with large-scale investments.

We also strengthened partnerships with key customers. We have successfully secured orders for premium prismatic batteries from major OEMs in Europe and Asia.

Additionally, we are enhancing cooperation with multiple OEMs for 46-phi battery projects. Some of these products are already in the final stages of securing orders.

We expanded partnerships with three major independent power producers, ESS, IPP companies in the U.S. We were the first in entering into all flagship models for our major smartphone customer.

In 2024, we saw a significant advancement in technology. We advanced all solid battery sample stage and expanded the number of customers to five while internalizing key materials.

We started mass production of P6, #1 energy dense premium prismatic battery in the industry and also enhanced the safety and energy density of our new turnkey ESS solution, the new SBB 1.5, which has now entered mass production and supply. We also built a pilot line for LFP large cell.

For major ESG achievements, we received CO2 Footprint verification from Carbon Trust for our two additional products, cylindrical and prismatic cell. We also received platinum validation for Zero Waste to Landfill at all domestic and overseas sites.

Furthermore, our rating improved from A to A+ and 2024 ESG evaluation and ratings conducted by KCGS and we were also listed on Dow Jones Sustainability World Index for the 20th time. Next, the CFO will share 2025 forecast and business strategies.

[Interpreted] Good morning. This is Jong Sung Kim, Head of Business Management Office.

Let's begin with the market forecast by business and strategies for 2025. First is the EV market forecast.

2025, the global EV market is expected to grow 21% Y-o-Y led by the U.S. and Europe overtaking the Chinese market in 2024.

However, macro uncertainty is remain high. In terms of policies, U.S.

stronger against China, and stricter EU carbon regulation present opportunities. However, the potential reduction of EV-related subsidies and tax credit in the U.S., declining consumer purchasing power in the EU may delay the market recovery.

Meanwhile, tighter global cost competition is expected as sales of volume and entry segment EVs and Chinese battery export expand. New battery cell manufacturing companies are likely to suffer due to stressed financial situation caused by delays in mass production.

Next is the ESS market forecast. The U.S.

will lead 14% of market growth due to growing demand for utilities and UPS driven by the expansion of AI data centers. Especially demand for Korean ESS batteries will increase due to China and U.S.

geopolitical tension. As for the small battery market excluding EVs, e2-wheeler such as e-scooter is expected to grow around the India market.

However demand recovery on power tool in e-bikes batteries will be delayed due to housing market slum and weakened consumer purchasing power leading to destocking. In the Electronic Materials market, stable growth is expected for semiconductors, driven by increased demand for high-value AI products.

However, modest growth is expected for display materials, mainly led by Chinese panel manufacturers. Now let's move on to the 2025 business strategies.

As mentioned earlier, we expect a very challenging business environment this year. Under the core principle of select and focus, we aim to set the ground for sustainable growth through three key strategies: expanding sales and awards, heightening technical edge, and reforming fundamentals.

First and foremost, to expand sales and awards will promote optimized and personalized response for each business customers. For EVs, we'll supply for more diverse EV trims and expand U.S.

sales around StarPlus Energy. Also, we'll focus on winning LFP projects for the mid- to long-term growth of volume and entry segment EV market.

For ESS, we'll secure ESS production capacity to the fullest to meet growing demand and maximize sales through the SBB 1.5 and high-value UPS products tailored for AI data centers. For small batteries, we'll expand sales with high-power new products, including power tool and battery backup units and strengthen micromobility competitiveness with differentiated products such as those with extended lifespan.

For Electronic Materials, we will diversify our customer base by promoting our products to new semiconductor and display customers in China. Second, highlight -- heightening technological edge.

For ASB, we will achieve the targeted energy density and complete mass production technology. We'll complete the development of next-generation premium prismatic battery P7 and thrust commercialization based on LFP platform for volumes on EVs by elevating technological readiness.

In small batteries, we'll launch ultra-high power small batteries to secure orders for hybrid EVs and expand sales for outdoor power tool preparing for long-term growth. Lastly, reforming fundamentals.

To reform the fundamentals, we are implementing various initiatives to make profit amid challenging market circumstances. We are improving productivity of key products in Hungary and stabilizing StarPlus Energy through timely setup and ramp up.

We're also enhancing investment efficiency by utilizing old lines and equipment. Furthermore we'll reduce cost by optimizing utilization related resources, diversifying key materials, and simplifying the manufacturing process.

The business environment of 2025 is expected to become more challenging. In times like this we must return to our core values and continuously innovate and challenge ourself.

By doing so we'll fortify our management foundation to gear up for the upcoming [indiscernible]. Thank you.

[Interpreted] To conclude the presentation, I'll discuss 2024 dividend and our shareholder return policy covering 2025 to 2027. We plan to pay out base dividend of KRW 1,000 for common dividend and KRW 1,050 for preferred dividend per share due to a loss in free cash flow in 2024.

With the expiration of the existing shareholder return policy, we have reviewed the policy covering 2025 to 2027. No dividend will be paid for the next 3 years as free cash flow, the resource of dividend is projected to remain negative due to continuous sizable CapEx for mid- to long-term growth.

In light of this, we'll focus our resources on strengthening our growth engine. Improving business performance and securing future competitiveness, we'll strive to resume dividend payout when we establish the next shareholder return policy.

Next shareholder return policy will be reestablished in 2028 by comprehensively considering business results, free cash flow, and investment plans and et cetera.

[Interpreted] Now we'll move on to the Q&A session which will be provided in Korean followed by consecutive interpreting in English. If you have any questions, please follow the operator's guidance.

[Interpreted] I have one question regarding your fourth quarter results. You mentioned during the presentation that there were some one-offs reflected in Q4.

The size appears to be a bit large. Can you give us some details about the one-off?

And also, what would the profitability be without the one-off?

[Interpreted] This is EVP, Yoontae Kim, of Business Support, and I will answer your question about one-off expenses in Q4. The Q4 one-off expense includes some inventory asset valuation impairment and also some quality-related provisioning.

Even though it's difficult for us to go into the details, without the one-off expense, the EV battery business will be recording a low single-digit percentage profit and company level profit would also be slightly above breakeven.

[Interpreted] I have two questions. The first question is about first quarter and full year 2025 guidance.

During the presentation, you gave us the market outlook and the company's strategy direction. Can you give us a bit more detail about what you expect in terms of company performance?

Second question, the last year, the downstream demand continued to be sluggish. You mentioned that you are expecting continued uncertainty downstream this year, and we are seeing automotive OEMs as well as battery companies adjust their investment plans.

Is SDI also planning any changes to its CapEx plan this year?

[Interpreted] This is CFO, Jong Sung Kim, and I answer your first question. As mentioned as part of the market outlook this year, the EV market is expected to grow, but policy uncertainty is rather high and demand in power tools and micromobility markets continue to remain muted.

Under such circumstances, major customers are focusing on inventory adjustments, and therefore, near-term recovery of business performance remains challenging. However, from the second half of this year, as policy uncertainty is somewhat resolved and inventory adjustments come to an end, we expect to see improvements.

For the ESS and Electronic Materials business, demand is relatively more stable, and we expect growth to continue quarter after quarter except for the seasonally weak Q1. So overall, we expect company level performance to gradually improve from Q2 after bottoming out in Q1.

The business environment once again this year is not easy, but we will focus on minimizing the impact of market slowdown on our performance and patiently laying the foundation for future growth by expanding sales and project awards through close cowork with customers, heightened technology edge and also reformed business fundamentals.

[Interpreted] This is EVP, Heonjoon Kim, and I'll answer your second question, which was about our investment plans this year. SDI is also revisiting its investment plan, taking into account the market situation and is in the process of adjusting its investment plans with an overall conservative stance.

The focus is on improving our investment efficiency, including using existing lines to reduce cost of new line expansions or adjusting the timing of some investments depending on the project and the site. Accordingly, we expect this year's CapEx to decrease than last year.

That said, we plan to execute investments necessary for future growth, including the U.S. JV with GM, all solid batteries, LFP and the 46-phi according to original schedules.

[Interpreted] I have two questions. With the start of inauguration of the Trump government, there is continued policy uncertainty in the U.S.

And I'm wondering what are your plans? Can you give us some updates on the Stellantis joint venture operation this year?

And how much AMPC do you expect? Second question is related with ESS.

The U.S. ESS market is expected to show another year of strong growth driven by increase in power demand, such as AI-related data centers.

Does SDI have plans of increasing its ESS capacity? Also, is it looking into securing local ESS capacity in the U.S.

[Interpreted] This is EVP [indiscernible] Kim of large batteries. I'll answer both of your questions.

The first question regarding the Stellantis joint venture. As mentioned earlier, the Stellantis joint venture actually started operation of its first line last December, which is 2 months ahead of its original schedule.

It successfully executed the quickest ramp-up period in the industry and is in full operation at a quality equal to existing mass production lines. Additional lines will be coming online in steps this year, and we will be focusing on on-time setup and ramp-up to stabilize the plant early on.

Regarding the AMPC, given the various market changes and uncertainties, we are in discussions still with the customer over full year volume. And therefore, it's difficult for us to disclose the specific size at this point.

We will communicate with the market at a later time once customer discussions are completed and specific projections are available. Regarding your second question about our ESS capacity expansion plans and whether we're looking into local U.S.

capacity, leveraging our outstanding safety and differentiated performance, our ESS order book is already corresponding to around 90% of our capacity. And U.S.

ESS demand is expected to remain strong, driven by expansion of the AI industry and also renewable energy. We are working on increasing our capacity by at least 20% by enhancing the efficiency of our production lines and also converting EV battery lines for ESS.

In addition to more capacity, we will focus on promotion of our SBB 1.5 with greater safety and energy density and the launch of the new SBB 2.0, which features large capacity LFP cells and major performance upgrades to drive new orders. On the UPS side, we will focus on further increasing our market share in the high power output market, where we already have more than 80% market share by offering stronger high-end solutions based on our unparalleled high-power output and long cycle life technology specialized for AI data centers.

We're currently studying local production options to meet mid- to long-term demand, and we will share details with the market when they become available.

[Interpreted] I have two questions. First of all, with the weak demand coming from power tools and micromobility, it appears that the cylindrical battery business performance would also be negatively affected.

I would like to hear some details about your strategy for the cylindrical battery business this year. Second question is about your Electronic Materials business.

Can you give us a bit more detail for full year market outlook and your strategy for the Electronic Materials business by product?

[Interpreted] This is Hanjae Cho of the Small Battery business unit. I'll answer your first question.

With the delay in the recovery of the U.S. housing market and also European e-bike-related budget cuts, the demand for power tools and micromobility has remained sluggish and customers are continuing their inventory adjustments.

Therefore, the situation is not easy, but we will launch new high-power batteries to expand sales in power tools and actively take on the battery backup unit, the BBU market, where demand is growing with the increase of data centers. We will also increase our presence in the recently growing e2-wheeler market with differentiating products featuring longer cycle life.

For mid- to long-term growth, we plan to launch the new ultra-high power products to supply to outdoor power equipment projects and hybrid EV projects. The 46-phi, which starts mass production in Q1 will offer better quick charging and cycle life performance and will be used to win new EV projects to build mid- to long-term growth momentum.

[Interpreted] This is Ik-Su Kim, VP of the Electronic Materials business, and I will answer your second question. The semiconductor materials market is expected to see steady growth as strong AI demand drives memory bit shipments this year, leading to increased wafer input.

That said, concerns still remain about a potential scenario where Chinese chip makers increase their legacy chip production, leading to oversupply and inventory buildup of mobile and PC semiconductors and eventually production adjustments by major chip makers. We plan to strengthen our DRAM and NAND metal slurry lineup to increase sales to key Korean customers and to increase high heat conductive EMC using our core ingredient technology, including filler and catalysts necessary for achieving high thermal conductivity.

For SOD and [ CI-SCR ], we're looking to increase sales to new customers, including Chinese customers. The display materials market is expected to grow slightly Y-o-Y, mainly around the OLED panel makers.

The QD display market is expected to maintain growth momentum, mainly around gaming monitors. We plan to use our new G or green-host product, which improves panel life and efficiency to get designed in on new platforms of major Korean and overseas customers and also increase sales by expanding sales to Chinese IT and automotive applications.

This year, the Electronic Materials business expects to achieve quality growth despite high uncertainty, and we will focus on maximizing our business performance by getting our new products designed in on time and following through with solid quality.

[Interpreted] Before we end the call, we will take one question that we have collected online prior to this conference call. The question that we will address will be about LFP battery.

The question is that there's continuing growth of LFP battery demand coming from both EV and ESS markets. Can we hear some updates on SDI's LFP preparation?

This question will be answered by EVP Jong-Sung Park of the Large battery business.

[Interpreted] SDI is a latecomer to LFP batteries, but we have already completed a platform that differentiates us from competitors. We are currently in commercialization of LFP with offerings specific to EV and ESS markets, respectively.

For EV batteries, our LFP battery is differentiated from existing products in terms of higher energy density and cycle life by leveraging our prismatic form factor, material and electrode technology. We are discussing 2027 mass production projects with key customers, and we are also preparing a system for local supply to meet needs of key customers.

For ESS, we're developed -- we have already developed one of the industry's largest capacity LFP cell in the second half of last year, and we plan to complete proofing of production process and mass production feasibility this year with the aim of starting mass production of the LFP-based SBB 2.0 with better cost competitiveness and capacity from the first half of next year for global supply. Our proprietary technology and global production operation know-how will be actively leveraged to quickly expand our position in the market.

[Interpreted] Thank you for all of the opinions that have been submitted, and we always value and reference the opinions of our investors in our business decisions. That completes our earnings conference call.

If you have any additional questions, please forward them to our IR team. Thank you very much.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]