LG Display Co., Ltd. Q4 FY2025 Earnings Call

Good afternoon. This is Suk Heo, Leader of the LG Display IR team. Thank you for joining our fourth quarter 2025 earnings conference call. Joining us today are CFO, Kim Sung-Hyun; Vice President, Choi Hyun-Chul, in charge of Business Control and Management; Vice President, Kim Kyu Dong, in charge of Finance and Risk Management; Lee Ki-Yong, in charge of Business Intelligence; Vice President, Kim Yong Duck, in charge of Large Display Planning and Management; and Ahn Yoo-shin, in charge of Medium Display Planning and Management, Park Sang-woo, in charge of Small Display Planning and Management and Son Ki Hwan, Head of Auto Marketing. Today's conference call will be conducted in both Korean and English. For detailed performance-related materials, please refer to our disclosure or the Investor Relations section of the company website. Please refer to the disclaimer before we begin the presentation. Please be informed that the financial figures presented in today's earnings release are consolidated figures prepared in accordance with International Financial Reporting Standards. These figures have not yet been audited by an external auditor and are provided for the convenience of our investors. I will now report on the company's business performance in Q4 2025. Shipment of panels for TVs and notebook PCs in Q4 remained solid, but there were some changes to the mix in some small and medium OLED products that lessened the usual seasonality. As a result, revenue rose slightly Q-o-Q to KRW 7.2008 trillion. Operating profit declined Q-o-Q to KRW 168.5 billion. It is owed to lower shipments of certain small and medium OLED models Q-o-Q together with one-off costs related to strengthening the company's profit structure and future competitiveness. As noted in last quarter's earnings call, for the purpose of raising the efficiency of manpower structure, costs associated with voluntary retirement program for domestic and overseas employees exceeded KRW 90 billion. In addition, the fourth quarter included incentive payments as rewards to employees for achieving the company's first annual turnaround in 4 years, and as motivation to further bolster the company's competitiveness. Cost for activities such as reducing low-margin products and inventory rationalization were also included in Q4 results, which were part of the initiative to adjust the company's business and product portfolio. It was intended to strengthen our profit structure and operational efficiency. Operating performance in Q4, excluding these one-off costs, expanded both Q-o-Q and Y-o-Y, demonstrating continued improvement in our business fundamentals and profitability. There was a net loss of KRW 351.2 billion down Q-o-Q, primarily due to foreign currency translation loss stemming from the higher year-end exchange rate. EBITDA in Q4 was KRW 1.162 trillion, with an EBITDA margin of 16%. Next is shipment area and ASP trends. What we are seeing recently is that panel shipments by product have diverged from traditional seasonality, reflecting instead the downstream conditions, customers' inventory levels and strategic panel buying trends, as well as differences in customer and/or product strategies among panel suppliers, particularly for the company, as we maintain a profitability-focused product portfolio; the shipment of low-margin midsized LCD models continues to shrink. Specifically in Q4, shipment area for TV and notebook PC panels grew quarter-on-quarter, while shipment for monitor and tablet panels declined. As a result, despite the strong seasonality, total shipment area rose modestly Q-o-Q to 4.0 million square meters. ASP per square meter was $1,297, down 5% quarter-on-quarter, largely because shipment of certain small and midsized OLED models were concentrated in Q3. Although it fell Q-o-Q, it is up 49% year-on-year, reflecting continued progress in upgrading the business structure towards OLED and supporting expectations at the high level will be maintained going forward. Next is revenue share by product group. Overall revenue share remained largely unchanged from Q3. First, mobile and others accounted for 40% of revenue, up 1 percentage point Q-o-Q, mainly due to shifts in the product mix. IT revenue share remained almost unchanged at 36%, down 1 percentage point Q-o-Q, reflecting the deferring shipments across product categories, as described earlier. The TV share out of revenue rose slightly by 1 percentage point as shipments of white OLED panels for TV and monitor increased. Auto revenue share rose to 7%, down 1 percentage point Q-o-Q. OLED products accounted for 65% of total revenue in Q4, unchanged Q-o-Q and up 5 percentage points Y-o-Y. Year-to-date, OLED share rose to 61% from 55% last year, up 6 percentage points. The continued upgrade towards an OLED-centered business structure is steadily broadening and strengthening our growth and profitability base. Next is our financial position and key indicators. Cash and cash equivalents at quarter end were KRW 1.573 trillion, largely unchanged Q-o-Q. As we wind down nonstrategic businesses such as LCD TV and improve operating efficiency, the level of required operating capital has remained lower than in the past. Inventory at quarter end declined Y-o-Y to KRW 2.546 trillion, reflecting progress from our efficiency improvement efforts. Total debt decreased by KRW 1.886 trillion from the end of 2024 to KRW 12.664 trillion. And net debt fell by KRW 1.437 trillion Y-o-Y to KRW 11.0910 trillion. The debt-to-equity ratio improved to 243% and net debt-to-equity ratio to 141%, lower by 20 percentage points and 10 percentage points, respectively, Q-o-Q and lower by 64 percentage points and 14 percentage points Y-o-Y, further strengthening our financial soundness. I will now move on to guidance for Q1. Shipment area is expected to fall across all categories in Q1 due to seasonality. While ASP per square meter is also expected to fall slightly Q-o-Q, it will be tempered compared to the same quarters in the past due to the strong and sustained upgrade to the OLED-centric business structure. Total shipment area is projected to decrease by low 20% level from the previous quarter and ASP per square meter to decline by mid-single-digit percent. Notably, ASP per square meter is expected to remain above the $1,200 line even through the seasonalities of Q1, up by more than 50% Y-o-Y. I will now hand over to our CFO, Kim Sung-Hyun.

Good afternoon and evening to everyone. I am Kim Sung-Hyun, the CFO. Thank you very much for joining today's conference call. Looking back to last year's performance, our most significant achievement was delivering a meaningful scale of turnaround after 4 years, improving profitability by more than KRW 1 trillion Y-o-Y, thanks to the hard work and dedication of all our members. Despite elevated external uncertainty and volatility in global markets, we continue to expand OLED revenue share and persisted with intensive structural improvements. As a result, we reduced our loss by roughly KRW 2 trillion in 2024 versus '23 and further improved results by about KRW 1 trillion in 2025. OLED share out of revenue reached a record high of 61% for the year. It was only 32% when we began business structure upgrade in 2020 and rose to 44% in 2022, then again to 55% in 2024. We believe that we are moving much closer to the complete solidification of our OLED-centric business structure, having terminated the large LCD business with the sell-off of Guangzhou LCD plants in 2025. Allow me to explain the one-off cost in Q4. There were explanations and guidance for costs related to the voluntary retirement program provided at last year's October earnings call. The actual cost incurred, roughly KRW 90 billion, is largely in line with the guidance. These costs include, besides workforce rationalization to strengthen our business fundamentals, local workforce adjustment costs that were incurred while trying to improve our overseas production strategies to proactively address changes in trade and tariff environment, as well as customers' production strategies. The financial impact from the voluntary retirement cost is unchanged from what we described at last quarter. The one-off costs will be offset from about 18 months after implementation and will contribute positively to future results. In addition, as mentioned as part of the Q4 performance briefing, incentive payments tied to last year's business performance were also reflected. It is to recognize our members' role in achieving the first annual turnaround in 4 years and to motivate them further going forward. The incentive is intended to further support our ability to shift towards a technology-centric company by focusing more on improving our fundamentals, building a sustainable profit structure, and better achieving our future goals. Last item is the cost associated with strengthening profitability and improving operating efficiency. It will enable the company to boost future profitability and broader push to improve operational efficiency, such as reducing low-margin products or consolidating inventory and is expected to strengthen business performance overall. The total nonrecurring cost impact in Q4 was in the high KRW 300 billion range, which is the result of the company's activities and work to strengthen our profit structure and future competitiveness. Excluding these items, Q4 operating profit was roughly mid KRW 500 billion, exceeding market expectations. It is an improvement Q-o-Q and Y-o-Y underscoring continued improvement in our business fundamentals and profit structure. Looking ahead, we expect external uncertainty and product level volatility in the downstream market to persist this year. While numerous factors persist in our business environment, like macroeconomic-driven real demand, changes in the trade environment, and supply chain stability, we will remain focused on stabilizing our business performance by growing our OLED business and driving cost innovation and operational efficiency activities. Next, let me briefly remark on our plan and strategy by business. For small mobile we will expand panel shipment, leveraging differentiated technological leadership and strengthened customer partnerships to enhance business performance and stability. At the same time, we will systematically execute R&D and new technology investments to grow our future opportunities. For medium-sized OLED, we will respond to high-end market demand across product segments by leveraging our technological leadership and mass production experience. We will also respond proactively to shifting market demand and customer requests by more efficiently utilizing existing infrastructure. As to the demand for OLED conversion by product, which is expected to grow, we will carefully assess market size and conversion pace to enhance competitiveness in ways that will differentiate us. For IT LCD, as reflected in recent quarterly shipment trends and results, we are keeping our focus on B2B and differentiated high-end LCD while continuing to reduce low-margin products. It is leading to meaningful profitability improvement every year. We will intensify execution of what is already underway to achieve the possibility for a turnaround this year. For large panels, we will solidify our leadership in the premium market through our differentiated and diversified TV and gaming OLED panel lineup on the back of growing recognition of white OLED's competitiveness and close collaboration with strategic customers. We will expand business results and pursue rigorous cost improvement to maintain stable operations. And for automotive, we will sustain our competitive advantage and create customer value based on our market leadership and differentiated product and technology portfolio. Finally, on investment. We maintained a CapEx policy focused on investments in our future readiness and structural upgrade. After investment optimization activities, CapEx in 2025 was completed at mid KRW 1 trillion. In 2026, CapEx is expected at KRW 2 trillion level, up Y-o-Y. This includes execution of the planned investment to enhance OLED technological competitiveness and investment to strengthen the OLED business and future readiness. For any new investment decision, we will communicate with the market without delay. This completes our report on Q4 business performance and review of 2025. Thank you very much.

This completes our presentation of business highlights for Q4 2025. We will now take your questions. Operator, please commence the Q&A session.

Congratulations on achieving a turnaround for the first time in four years. I have two broad questions about the company. Firstly, in 2025, the company sold off its LCD business in China and continued upgrading its operations, increasing the share of OLED in total revenue. This has improved business performance and profitability. Looking ahead, it seems the share of OLED will continue growing, which is expected to drive up revenue. My question is about the company's outlook for each business and the expected performance for this year. Additionally, to address the negative perception of LG Display, it would be important to end the trend of losses in the first half of the year. Can we anticipate a better trend in the first half of this year? My second question pertains to the company's focus over the past few years on improving financial soundness through better cost efficiency, lower facilities, reduced inventory levels, and enhanced operational efficiency. Looking towards 2026 and from a mid- to long-term perspective, what will be the company's new strategic priorities or tasks going forward? Specifically, for the CFO, what will your priorities be or what key elements will shape your action plan?

Thank you for the question. It's quite specific and seems to already contain some answers. I’d like to share my response based on my interpretation of your inquiries. Thus far, we've been working to upgrade our business structure and improve operational efficiency, and while the results are not 100% satisfactory, we have made progress. However, this doesn't mean we can stop our efforts from the past few years; we need to continue with new tasks and phases. In the mid to long term, it's crucial for the company to keep growing and maintain profitability each quarter. To support these points, there are some additional aspects we need to consider. An important theme for the company today is to transition into a technology-centric organization. Yet, looking ahead to 2026, the external environment remains full of uncertainties. Therefore, our ultimate goal is to become a normalized and competitive company. After navigating some tough times in recent years, I believe the company has become somewhat atypical, which has affected our competitiveness. We experienced capital losses that hindered our ability to pay dividends and incurred substantial losses up until two years ago, leading us to seek a capital increase from shareholders. Last year, we were profitable, but not across all businesses. It's essential to finalize a business structure that ensures profitability in every area and rebuild trust in the market. This requires reestablishing operations both within and across the company. We have no choice but to continue upgrading our business structure and improving operational efficiency. While our efforts must persist, the focus has shifted slightly; it's no longer just about survival but about enhancing our competitiveness in technology, costs, products, and operational efficiency. Once we achieve these goals, I believe we can reclaim our status as a market leader. Completing this process will allow us to normalize our operations, regain market trust, and foster a positive relationship with our shareholders. I apologize for being lengthy, but this is a task I have set for myself.

I have two questions. First, regarding mobile OLED, could you share the shipment numbers for smartphone panels from last year and your target for this year? Additionally, with the changes in product launch cycles from customers and considering competitors' technological readiness, what opportunities does the company see? My second question is about the company as a whole. With the tariffs from last year and the current trends in memory semiconductors, what is the company's perspective on how this will impact the performance across different business segments, and what responses are being considered?

Looking back at our smartphone business performance in 2025, the first half saw significant growth in panel shipments, reducing the seasonal differences between the first and second halves. In the second half, although actual demand fluctuated by model, our diverse product portfolio allowed us to meet our annual panel shipment target of approximately 70 million units as planned. Normally, panel shipments increase from the third quarter to the fourth quarter, but last year was notable as shipments were mainly concentrated in the third quarter. Our smartphone business continues to show stable results due to improved capabilities in technology, production, and operations. This year, we aim to narrow the gap between the first and second halves while exceeding last year's panel shipment growth. While I cannot share specifics about our customers, it is clear that our capabilities in smartphone panel development and production are well-established and recognized, allowing us to meet a wide range of technical requirements. By effectively leveraging our existing production infrastructure, we can respond quickly and flexibly to rising demand and new technological advancements, leading to further success. Regarding the impact from memory semiconductors, there are mainly two effects. First, an increase in memory prices could lead to higher display pricing, which might raise overall set prices and potentially dampen demand. Additionally, rising component prices could pressure customers to request lower panel prices. That said, the current impact on our company is limited, though the volatility remains high. We are closely monitoring demand changes and trends and will address any potential impacts accordingly. Thank you.

They are also twofold. First, as was mentioned earlier, the rise in the memory semiconductor price could also bring some questions about the company's profitability. And so my question regarding the company's profitability is that now about the IT set, now it appears that the outlook for the downstream market for the IT set demand appears to be conservative. So what is the company's outlook for the IT business? And also what would be the possibility of seeing a turnaround? And a related second question is, now the competition appears to be investing or going into mass production with the 8.6 gen plant, but the company at this time appears to have no such plans. Then wouldn't that place the company at a disadvantage when it comes to customers' allocation? And also, what is the outlook for the IT PC OLED for this year?

For this year, the company's midsized business focused on upgrading our customer structure around global high-end clients throughout 2025, while actively reducing low-margin products. At the same time, we sustained rigorous cost innovation activities, generating meaningful improvement in profitability Y-o-Y. We anticipate this trend to continue into 2026. Now given the rising component prices driven by semiconductors, supply chain disruptions and lingering uncertainties in the broader external environment, full recovery in the market remains uncertain even in 2026, but we will strive to achieve differentiated results and profitability and future proofing. We will stick to our 2-track strategy with LCD focusing on profitability with high-end LCD and with OLED responding to new demand and preparing for new markets with Tandem OLED-based differentiated products. We are closely monitoring the potential for OLED market expansion in IT. So we are closely monitoring the OLED market expansion in IT, but there is still insufficient visibility into demand to justify an 8.6 gen investment decision, and external uncertainties remain high, that could also affect demand. So for now, the company intends to monitor market conditions before making investment decisions. In the tablet OLED market that continues to open up, we have solidified our leading position based on the differentiated competitiveness of Tandem OLED technology at our 6 gen OLED fab. Monitor OLED is actively responding to the growing demand for high-end applications like gaming by leveraging our 8th Gen OLED fab. For notebook PC OLED, we are monitoring the OLED market size and the pace of demand shifting from LCD to OLED, maximizing existing infrastructure while developing future-ready technologies and mass production capabilities to retain a cost advantage even in competitive situations.

My question is with regards to the large OLED. Now thanks to the cost improvement as well as lower depreciation and amortization cost, it appears as if the profitability has been improving since the second half of the year. So then what is going to be the outlook for the TV and monitor OLED this year? And so based on the higher demand for the TV and monitor OLED as well as the lower depreciation and appreciation — depreciation and amortization, does the company expect the profitability to continue to improve this year? And then also, the next question is now for the TV set companies, they are continuing to see sluggish differentiation and also worsening profitability. So there may also be some pressure to lower the price, but then what would be the company's response and also what would be the company's strategy down the road to continue to secure profitability in the large panel business?

This is Kim Yong Duck, in charge of Large Display Planning and Management. Now our large panel business, despite the external uncertainties and market volatility, achieved the intended panel shipment of approximately mid-6 million level in 2025, growing nearly 8% Y-o-Y. Now the white OLED for both TVs and monitors is recognized by the market and customers for their differentiated value compared to LCD. And that is why I believe that we were able to maintain such business. Now coming into this year, we see that the uncertainty remains and also the market growth potential still remains a bit limited, but the high-end market that we are targeting with OLED maintains a 10% share of the overall market. So then in 2026, based on this projection, we plan to continue strengthening our W OLED, the white OLED lineup for TV and monitors based on partnerships with global strategic partners. And on the back of such partnership, the target for panel shipment in 2026 is set at just over 7 million to grow by around 10% Y-o-Y. And for the mid to long term, OLED TV is expected to maintain unwavering leadership in the market while expanding our performance. Especially for OLED monitors, it is also expected to see continued steep growth compared to other businesses. So we will continue to effectively respond to market trends and also reach an optimal production share between TVs and monitors to continue to expand our business performance. And again, for the short term, this year, there is some positivity expected from some sporting events. But at the same time, some side effects are also expected, especially coming from the supply-demand situation of components, especially semiconductors. So for the company, as we look ahead to continued market growth, our priority lies in securing stability in our production as well as supply. Now for our large panel business, we expect the competition to continue to intensify, and it is incumbent upon us to continue to strengthen our technology and also differentiate our products so that we can keep expanding our business performance. So to that end, we will continue to work closely with our customers in close partnership to make sure that we can bring about win-win to all the companies involved with improved profitability. So we will continue to discuss our strategy to that end with our customers.

Thank you very much, and that concludes LG Display's Q4 2025 Earnings Conference Call. We thank everyone for joining us today. Should you have any additional questions, please contact the IR team. Thank you. Statements in English on this transcript were spoken by an interpreter present on the live call.