Samsung SDI Co., Ltd.

Good afternoon. I am Yoontae Kim, Executive Vice President of the Business Management Office at 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 Ik Soo Kim for Electronic Materials.

We will provide simultaneous interpretation for the earnings presentation and consecutive interpretation for the Q&A session. Now we'll begin Samsung SDI's 2025 First Quarter Earnings Call.

First off, please note that starting with the 2024 3Q 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 2025 first quarter financial results. The first quarter revenue was KRW 3.2 trillion, down 15% Q-o-Q and 34% Y-o-Y due to slowing market demand.

Operating profit recorded a loss of KRW 434 billion, including results from discontinued operations, IQ first quarter revenue was KRW 3.5 trillion and operating profit posted a loss of KRW 426 billion. Pretax profit recorded a loss of KRW 357 billion, including nonoperating profits, net profit posted a loss of KRW 216 billion.

Next is our financial status at the end of the first quarter. Assets increased to KRW 40.7 trillion, up by KRW 113 billion from the end of 2024 due to CapEx mainly on EV Batteries.

Liabilities rose to KRW 19.2 trillion, up by KRW 143 billion Y-o-Y due to increased debt and accounts payables driven by raw material purchases. CapEx for the first quarter recorded KRW 774 billion.

For detailed financial status, please refer to the appendix. Now I will present the first quarter financial results of each business unit.

First off, the first quarter revenue for the Battery business was KRW 2.98 trillion, down 16% Q-o-Q and 35% Y-o-Y. Operating profit recorded a loss of KRW 452 billion.

The first quarter revenue decreased due to EV and power tool customers destocking and seasonality in ESS, profitability declined due to lower fab utilization rate and higher fixed cost. For the Electronic Materials business, revenue slightly increased and profitability also improved, thanks to enhanced demand centering on OLED materials.

Next, the key business highlights of the first quarter. First, we began full-fledged operation at our U.S.

fab for prismatic batteries. We initiated early operation of the ramp-up at the Stellantis joint venture first line and now are operating at high yields.

Additionally, we broke ground for GM joint venture targeting mass production in 2027. Through this development, we plan to strengthen our prismatic battery supplying capabilities in the U.S.

Furthermore, our high-performance prismatic EV battery was recognized for the world's #1 energy density, fast charging and battery safety among mass produced batteries. We won the President's Prize from the IR52 Jang Young-sil Award affirming our technological capabilities in the industry.

For Cylindrical Batteries, we initiated mass production of 46-phi batteries and plan to expand our supply to EV projects. There is this endeavor -- endeavor will be securing the market advantage by diversifying the product portfolio and strengthening our product competitiveness.

In addition, we expanded applications for cylindrical batteries. We signed an MOU with Hyundai Motor Group and for joint development of specialized robot batteries, while continuing to expand sales of BBU, we're pushing forward with HEV battery projects.

We will also enlarge the market and customer base for small batteries to overcome a slowdown in demand. Next is a market forecast and core strategies for the second quarter.

Market demand is expected to be gradually recovered, but uncertainty from recent policies is increasing demand volatility. In response, we'll closely monitor internal and external developments actively respond to customer demand changes and increased sales by targeting new customers and applications to improve our performance.

For the EV market, demand is recovering centered around Europe as major OEMs reduce inventory levels and as CO2 regulation and EV-friendly policies take effect. However, risk of demand volatility is likely to persist due to uncertain political issues such as tariffs, will actively respond to shifting demand from key European customers while finalizing and securing new high-nickel LFP and 46-phi projects with EU and the U.S.

customers as part of our mid- to long-term growth strategy. Additionally, we'll enjoy the HEV market with cylindrical batteries and prepare upgrade also with battery samples to support future growth.

The ESS market is expected to grow fast due to expansion of renewable energy and AI data centers, particularly in the utilities and UPS market. The Ministry of Trade, Industry and Energy's recent confirmation of the 11th basic plan for power supply and demand is expected to expand opportunities.

We'll expand sales of high safety, high energy density Samsung battery box and strengthen UPS solution offerings in North America and Europe. Also we'll actively participate in domestic electricity grid stabilization products for higher growth.

In the small battery market, power tool demand recovery is likely to be delayed due to the sluggish housing market demand -- housing market caused by high interest rates and high inflation. On the other hand, BBU demand is projected to grow with the expansion of AI data centers.

We'll focus on expanding sales of high-power batteries produced in non-Chinese fabs to mitigate the tariff impacts targeting power tool and BBU. For IT applications, we aim to maximize sales and profitability through first in strategy for our major customers' flagship smartphones scheduled to be launched in the second half.

In the Electronic Materials market, wafer input of major customers will increase, thanks to heightened demand for high-value AI chips. For OLED, material demand will remain strong, supported by increased panel production in preparation for new smartphone launches in the second half.

In response, we will expand sales of high-value products such as semiconductor patterning materials, SOH, SOD, slurry and foldable OLED materials. For sustainable growth, we will also enter into new semiconductor material markets and pursue product approvals for next-generation OLED platforms.

Although uncertainties in the business environment still remain high in the second quarter, with the first quarter expected to mark the bottom, we see signs of improvement as inventory slowing, utilization rate is recovering and cost saving effects are materializing. Even in challenging conditions, we'll continue pursuing opportunities to expand sales while steadily preparing for future markets.

Now we'll move on to the Q&A session, which will be provided in Korean followed by consecutive interpreting in English. [Operator Instructions]

[Interpreted] In your presentation, you outlined the market conditions and key strategies for the second quarter. Could you provide a more detailed performance also for each business segment?

[Interpreted] Thank you for your question. This is Jong Sung Kim, the CFO of the company.

As previously discussed, due to the increased volatility associated with tariffs, the Q2 performance may not need initial expectations. However, we anticipate a substantial improvement compared to the first quarter by business unit for EV batteries.

While demand volatility in North America may be high due to the impact of tariffs, we expect a gradual recovery in demand in Europe, driven by EV-friendly policies, which should lead to an increase in our sales. ESS may also be affected by tariffs.

But with the expansion of renewable energy and increase in power demand driven by AI growth, gross sales of SBB and UPS are expected to continue. As a result, we anticipate overall revenue growth for mid- to large-sized batteries compared to the previous quarter, along with a meaningful improvement in profitability.

Although the demand for power tools and micromobility batteries is expected to make a further recovery in the second half of the year, we expect significant loss reduction in Q2 compared to the previous quarter, thanks to the reduced customer inventory levels and strengthened promotion along with increased sales from a new application, namely BBU. Following the seasonal slowdown in Q1, sales of semiconductor materials are expected to increase, along with rising sales of OLED materials for new smartphones launching in the second half of the year.

As a result, we anticipate revenue growth and improved profit margin in Q2. From a company-wide perspective, we will focus on steadily improving our performance from what we recognize as the bottom point in Q1.

Given the ongoing macroeconomic uncertainties, we will closely monitor market development and maintain strong collaboration with our customers to respond effectively. Thank you.

[Interpreted] I have 2 questions. First question is that the uncertainty surrounding the cash policies of the Trump administration continues, what is the impact on the company?

And how do you view the outlook moving forward? And the second question is, at the beginning of March, Europe announced an action plan that includes a revision of the CO2 emission regulations for EV and a policy for supporting EV, how will this action plan affect SDI's business?

[Interpreted] I will answer the first question. My name is Yoontae Kim.

I'm the EVP of the Business Management Office. The unpredictability of U.S.

tariff policy makes it challenging to accurately assess their full impact. However, they are expected to place both direct and indirect pressure on the company's performance.

Let me delve into details for each product. First, for EV batteries.

This production is done locally in the U.S., the direct impact of tariffs is limited. However, this many battery materials and components are imported from overseas, cost burdens are expected to increase.

EVs produced in Mexico and Canada by our customers may also be subject to tariffs which could lead to higher vehicle prices and a potential decrease in demand. This a large portion of our ESS batteries are sold in the U.S.

have manufactured abroad and exported to the market, they are inevitably subject to tariffs. We will work closely with our customers to respond appropriately to this situation.

For small-sized batteries, there is a large proportion of our major customers' production is outside the U.S. A negative impact is anticipated.

Furthermore, if the tariff issue becomes prolonged, it could lead to an overall increase in product prices, which may potentially dampen demand across the board, as uncertainties surrounding tariff policies is expected to persist for the time being, we will closely monitor developments and work with our customers to devise appropriate countermeasures aiming to minimize the impact of tariffs.

[Interpreted] This is Jong-Sung Park, the EVP for Automotive and ESS Battery business. And I will be answering your second question related to Europe's action plan and its impact on Samsung SDI's business.

The European Commission President has made a strengthening the competitiveness of the automotive industry as one of the key objectives of her mandate. And on 5th of March, an action plan was announced, outlining the future direction of policy support.

According to the plan, while CO2 emission regulations have been partially relaxed, various measures will be introduced to stimulate the demand for EVs. Similar to AMPC of the U.S., EU is also considering introduction of battery production incentives to protect its domestic industries.

In addition, Germany, the largest market in Europe, announced new policies on April 9, to expand tax incentives for EV purchases and to boost infrastructure development. As a result, a similar initiative incurs EV adoption are expected to spread across Europe.

Although the growth of EV demand in Europe had previously slowed, recent signs point to a potential rebound. Supportive government policies are expected to accelerate the recovery in EV demand.

Given our company's relatively high exposure to the European market, we anticipate a positive impact on our performance. We will actively seek to maximize the benefit of these favorable policies through enhancing the efficiency of production line operations and other measures.

Thank you.

[Interpreted] I also have 2 questions that I would like to ask. The first question is that the sales of Stellantis, new EVs in Q1 were weaker than expected, has there been any change in the sales outlook for Stellantis joint venture?

And the second question is this one. While competitors are scaling back CapEx in response to market demand changes, SDI appears to be taking more aggressive approach by continuing to invest and even carrying out a capital increase.

Given the historically conservative investments then, must there been a shift in your investment approach?

[Interpreted] I will answer your first question. This is Jong-Sung Park, the EVP of the Automotive and ESS Battery business.

Amid recent uncertainties related to U.S. tariffs, our customers have temporarily suspended operations at their factories in Mexico and Canada.

Consequently, we expect significant demand volatility in the near term. We are working closely with our customers.

We reassess this year's sales outlook and explore appropriate countermeasures. In addition to the current models we are supplying, we will work closely with our customers to expand sales to our other model lines and to develop efficient line operation strategies for various scenarios in order to improve utilization rates.

Thank you.

[Interpreted] This is EVP Yoontae Kim, of the Business Management Office. I will be answering your second question related to CapEx and investment spend.

The EV Battery business typically takes 2 to 3 years from the start of investment to mass production. Therefore, investments should be driven by mid- to long-term market and demand forecast rather than short-term market trends.

We believe that expanding production basis, diversifying chemistries and form factors and securing future technologies are key factors for sustainable mid- to long-term growth. To this end, we plan to pursue joint ventures with GM and invest in LFP batteries, 46-phi and all solid-state battery technologies.

This capital increase is being proactively undertaken to ensure the secure execution of our long-term investment plans. We will move forward without delays, positioning ourselves for a stronger rebound when market demand fully recovers.

Thank you.

[Interpreted] I also have 2 questions. The first question is that the capital increase plan includes investment for expansion in Hungary.

So what is the rationale for pursuing further expansion despite the current low utilization rate at the facility? And the second question is that earlier you've mentioned plans to drive a recovery in the Small Battery segment through entry into new applications, could you please elaborate on these plans in more detail?

[Interpreted] Thank you for your question. I will be answering your first question related to the investment in Hungary.

This is EVP, Jong-Sung Park from Automotive and ESS Battery. The impact of chasm that began in the second half of 2023 persists and the current utilization rate in Hungary remains relatively low.

However, as previously mentioned, investments in the Battery business should be approached with a long-term perspective, guided not by present demand, but by projections over a minimum horizon of 2 to 3 years. The investment in the Hungary factory will focus not only on increasing capacity for the current main product, prismatic high-nickel batteries, but also on adding production lines for new products, including LFP and 46-phi batteries.

This expansion is designed to position the company to meet market demand starting in 2027, 2028. In parallel, efforts are being made to enhance investment efficiency by renovating and converting existing lines and facilities, which helps to reduce the cost associated with expanding new lines.

[Interpreted] This is Hanjae Cho, from Small Battery business. I will be answering your question related to cylindrical battery.

As mentioned earlier in the presentation, the key -- the new applications include BBU, hybrid EVs and robots. First, for BBU, which is experiencing rapid demand growth due to the increase in AI data centers, it already accounts for nearly 10% of our cylindrical battery sales.

Given the importance of a high power in this segment, we anticipate continued growth in demand for our cylindrical batteries with excellent high-power capability. While pouch batteries have traditionally been used in hybrid EVs, growing interest is now shifting towards cylindrical batteries, thanks to recent advancements in their high power, high capacity performance and enhance the safety features.

We are currently in discussion with multiple customers and aim to secure orders within the first half of this year to ensure mid- to long-term demand. We are stepping up our efforts in relation to robots.

In February, we signed an MOU with Hyundai Motor Group to jointly develop batteries designed specifically for robots. Moving forward, we plan to build a strong growth foundation by forming additional partnerships.

While maintaining our leadership in existing Small Battery applications, we are actively preparing to enter new ones with the goal of quickly restoring our growth potential in the near future.

[Interpreted] First question is that ESS saw significant growth last year. Do you expect this growth trend to continue this year?

And what is the forecast for annual performance this year? And my second question is that in contrast to the underperforming factory business, the Electronic Materials business has maintained a stable performance, what strategies are being pursued to further drive sales growth in this segment?

[Interpreted] Thank you for your question. I will be answering your first question related to the sales forecast related to ESS.

Once again, this is Jong-Sung Park, EVP from Business Management Office. The ESS market is expected to experience rapid growth through 2025, primarily in the U.S.

market driven by the expansion of renewable energy and increasing power demand from AI. This trend is expected to continue for the foreseeable future.

In line with these prospects and leveraging the competitive advantages of Samsung Battery Box, which excels in safety and high energy density. We have already secured orders for approximately 90% of our planned ESS battery production capacity for this year.

To meet growing demand, we are optimizing production efficiency and converting EV line, which will result in a 20% increase in capacity compared to last year. As a result, we anticipate continuous quarterly revenue growth, an annual revenue growth rate exceeding 20% compared to last year.

However, given that helps may create challenges by impacting demand and driving price increases, we are committed to collaborating closely with our customers to minimize any potential impact. In addition, we are exploring various options for securing on ESS battery production base in the U.S.

This will enable us to respond more effectively to the rapidly increasing demand in the U.S. market.

[Interpreted] This is Ik Soo Kim, VP responsible for strategy and the electronic materials business. And I will be answering your second question related to strategies to expand sales of Electronic Materials.

Since the divestment of polarizer film business, the Electronic Materials business division has been focusing on semiconductor and OLED materials to secure growth engine. In particular, we are solidifying our market share within existing customers based on differentiated technology and product reliability while placing strong emphasis on customer diversification to drive continued sales growth.

Let me elaborate on each key material. For semiconductor materials, as AI adoption expands, the increase in advanced fine patterning processes is driving off the usage of materials particularly in patterning and polishing materials, where we are actively pursuing sales growth.

To support this, we are responding in a timely manner to next-generation node transition at major semiconductor customers, while also strengthening promotional activities for both domestic and international clients. As OLED technology sees increasing adoption in IT devices like tablets and monitors and with major domestic and global customers investing in 8.6 generation OLED line alongside the growing foldable display market, significant growth is anticipated.

In response, we are working to strengthen our product competitiveness by establishing an early presence in our customers' next-generation platform market. To support this, we are broadening our OLED deposition materials portfolio and developing next-generation OLED color conversion materials with a focus on driving growth through high value-added products.

Thank you.

[Interpreted] As previously shared, we are working on key tasks necessary for mass production, such as expanding cell capacity, stabilizing manufacturing processes and establishing material supply chain in order to meet our target of mass production were all solid-state batteries by 2027. Additionally, some investments in the domestic mother line are planned to take place this year.

While our all solid-state batteries are primarily being developed for EVs, we also see potential for their application in emerging markets such as robots and UAM, which increasingly demand not only high volumetric energy density, but also gravimetric volume. We are currently in discussions with potential customers and plan to further expand business opportunities by diversifying applications in the future.

[Interpreted] Thank you for the answer. We want to thank all our investors for their questions and valued opinion.

We will take them into consideration when making our future business decisions. This is the end of Q1 2025 earnings call.

If you have any questions, please contact our IR team. Thank you.

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