LG Electronics Stock

Good afternoon, and welcome to LG Electronics' Quarterly Earnings Conference Call. This conference call will begin with a presentation on the earnings results, followed by a Q&A session. [Operator Instructions] Simultaneous English interpretation will be provided for the presentation, followed by consecutive interpretation for the Q&A.

Now I'd like to turn the call over to the first speaker.

Good afternoon. My name is Wonjae Park from Investor Relations. Thank you for joining our earnings call for the second quarter of 2026. With me are Chang-Tae Kim, CFO and EVP of LG Electronics from each company's business management division, Jong-In Yoo from HS; Sang-Ho Park, SVP of MS; Ju-Yong Kim, VP of VS; and Dong-Hoon Shin, VP of ES. From headquarters, Choong Hyun Park, SVP of Corporate Business Management; Young Kyoon Kim, VP of Finance; In Geun Park, Head of Accounting; and Seok-Hyeong Bae, Head of Robotics Sales and Marketing Division.

Today's presentation will proceed as follows. Our CFO will review the Q2 2026 results and Q3 outlook and provide updates on our new growth initiatives and share buyback program. I will then present the second quarter financial highlights. After that, each business will share its individual results and outlook.

Please note that all statements made today regarding the second quarter financial results are subject to change in accordance with external review. Actual results may differ from today's outlooks and forward-looking statements due to market uncertainties and strategic adjustments.

Now let us begin with the Q2 2026 performance review and the Q3 outlook.

Good afternoon. I am Chang-Tae Kim, CFO of LG Electronics. In Q2, consolidated sales reached KRW 23.8 trillion with operating income of KRW 1.57 trillion. Despite subdued consumer sentiment amid ongoing macroeconomic uncertainties and heightened competition, total sales grew year-over-year, driven by strong home appliance sales, a higher sales mix of premium TVs and continued growth in automotive electronics.

Operating income improved year-over-year despite higher logistics costs related to the conflict in the Middle East and rising memory costs. Key drivers include overall sales growth, a higher mix of high value-added products, continued cost structure improvements, enhanced operational efficiency and tariff refunds.

In Q3, escalating geopolitical risks are expected to drive up oil and raw material prices. Softening consumer sentiment driven by inflation in key markets, along with intensified competition is expected to weigh on business operations.

However, resilient demand in emerging markets and rapidly growing AI data center demand are expected to provide growth opportunities. Against this backdrop, we will expand the share of high value-added products through differentiated offerings and strengthen our cost competitiveness through cost structure improvements and enhanced operational efficiency.

In addition, we will leverage our global South strategy to strengthen our presence in high-growth markets and maintain momentum in our core businesses, while driving continued growth in automotive electronics and expanding our B2B portfolio, including chillers and AI data center cooling solutions.

Furthermore, we will strengthen our profitability by expanding our subscription business and online direct sales, along with the webOS platform ecosystem. Now let me briefly provide an update on our new growth drivers, including robotics and AI data center cooling solutions. First, we newly established a robotics business center to accelerate our robotics business with greater speed and agility. This enables us to drive the commercialization of our robotics business end-to-end. By integrating core capabilities across the organization, we expect to strengthen execution and improve operational efficiency.

In addition, we are building Korea's largest robotics data factory, targeting its launch in the second half of this year. At the facility, we are gradually deploying CLOiD, our humanoid robots currently being mass produced for POC validation. This will enable us to secure high-quality training data across diverse domains and accelerate collaboration with domestic and global partners, including the advancement of RFMs, further strengthening our robotics competitiveness. We also made meaningful progress in the commercialization of actuators, a key component of robotics.

The pilot production line has been successfully completed and production of the initial actuators for our humanoid robot is now underway. In the second half, we will pursue business opportunities with potential customers while accelerating mass production in line with order visibility.

Now let me turn to the progress of our AI data center cooling solutions business. We are starting to see tangible results from our efforts to secure overseas orders. Orders exceeded KRW 600 billion in the first half and production is currently underway. We are targeting AI data center project orders worth several trillion won by year-end. This order momentum has been driven by supply chain bottlenecks as existing suppliers struggle to keep pace with rapidly growing demand.

As a result, major industry players are actively seeking new suppliers with strong product competitiveness and reliable supply capabilities. Looking ahead, we remain positive on our order outlook, supported by our strong track record and favorable customer feedback on product quality and on-time delivery. We will continue to expand our domestic and overseas production capacity to support rapidly growing order volumes, ensuring timely execution of our existing order backlog while further enhancing our competitiveness and securing orders from global customers.

We are also seeing tangible progress in securing component qualification certifications from leading global technology companies, including NVIDIA. As announced on NVIDIA's website, certain models of our CDU, a key component of our liquid cooling solutions, have received certification. Additional product certification efforts are also progressing smoothly. And we expect to have positive developments to share in the near future.

Lastly, we have completed the KRW 100 billion share buyback program as part of our ongoing efforts to enhance shareholder value. The share buyback program began earlier this year and was completed ahead of schedule. The repurchased shares will be canceled before year-end. We remain committed to enhancing shareholder value, and we'll continue to pursue initiatives that deliver tangible benefits to our shareholders. Thank you.

I will now briefly review the Q2 2026 performance of enterprise-wide operations in each business. Our consolidated financial results for Q2 were KRW 23.82 trillion in sales and KRW 1.57 trillion in operating income. HS recorded sales of KRW 7.75 trillion and operating income of KRW 685.9 billion, MS recorded sales of KRW 5.11 trillion, and operating income of KRW 219.4 billion. VS recorded sales of KRW 3.25 trillion and operating income of KRW 191.2 billion. Lastly, ES recorded sales of KRW 2.72 trillion and operating income of KRW 235.8 billion.

Next, let me turn to our B2B and subscription businesses. which serve as key drivers of qualitative growth in our portfolio transformation. In Q2, B2B sales grew year-over-year, driven by strong growth in automotive electronics, supported by a solid order backlog along with continued growth in the ID and IT businesses.

In addition, the share of B2B sales in total revenue remained stable, providing a solid foundation for qualitative growth. In Korea, the subscription business maintained its growth momentum, both year-over-year and quarter-over-quarter, further reinforcing its competitive edge through differentiated care services.

The overseas subscription business continues to grow, and we are expanding into new markets, including the Middle East, beyond Malaysia and Thailand. Though still in the early stages of overseas expansion, we will accelerate growth by swiftly establishing necessary business infrastructure in each market. We will continue to improve our performance by further strengthening our portfolio, including our B2B and subscription businesses.

Moving on to the income statement and cash flow for Q2. Reflecting financial income and expenses, equity method gains and losses and nonoperating items, corporate tax and discontinued operations, the Q2 net income was KRW 781.3 billion. Now let's look at cash flow. Cash flow from operating activities was KRW 2.45 trillion while cash flow from investing activities was negative KRW 760.8 billion, resulting in a net cash flow of KRW 1.86 trillion. When reflecting a negative KRW 430.8 billion in cash flow from financing activities, the cash balance at the end of Q2 stood at KRW 10.69 trillion, up KRW 1.43 trillion from the previous quarter.

Key financial positions and indicators for Q2 are as follows. At the end of Q2, assets stood at KRW 73.7 trillion, liabilities at KRW 41.8 trillion and equity at KRW 31.9 trillion. Leverage ratios, including liability to equity, debt to equity and net debt to equity have improved and remain at healthy levels.

Now we will hear from each business regarding its Q2 2026 results and Q3 outlook, beginning with HS.

Here are the Q2 results for the HS business. Sales continue to grow as we proactively addressed market uncertainties through our 2-track strategy, strengthening both premium and entry-level product lineup, while further advancing our portfolio through B2B, online direct sales and subscription businesses.

Operating income improved significantly year-over-year as we enhance operational efficiency through cost structure improvements and supply chain optimization, mitigating certain cost pressures. This was further supported by U.S. tariff refunds.

Looking ahead to Q3, uncertainties in the external business environment are expected to persist. Inflationary pressures in major markets are likely to dampen consumer sentiment, resulting in subdued demand in the short term. In response, we will continue to build on our proven 2 track strategy and portfolio advancement efforts, while strengthening profitability through proactive efforts.

In addition, we will further reinforce our business fundamentals and profitability by expanding our presence in the global South, where demand remains relatively robust. Let's turn to our outlook for the global appliance market demand in 2026. We update this forecast twice a year and by sharing our view. We aim to provide our perspective on global demand trends and corresponding strategies. Please note that this outlook focuses on the year-over-year market demand forecast, not our appliance revenue.

Actual market conditions may differ from this outlook due to various factors such as economic policies on tariffs, interest rates and other variables as well as geopolitical issues. In the global home appliance market, the gradual recovery in demand that began in the second half of last year continued into the first half of 2026. However, demand is expected to weaken significantly in the second half across most regions outside of India and China due to the prolonged Russia-Ukraine war and renewed tensions in the Middle East.

Consequently, global demand for 2026 is expected to grow modestly. In North America, the housing market recovery is expected to remain gradual amid elevated interest rates, resulting in somewhat softer demand for home appliances in the second half. We expect consumer spending to become more polarized with some consumers feeling a greater impact from inflation than others.

Therefore, we are broadening our product coverage by offering differentiated products in the premium segment, while reinforcing our lineup of cost competitive products in the volume segment. We also plan to strengthen our market position in the global South, where demand remains relatively resilient by launching new products tailored to local market needs and designed to enhance local competitiveness.

Through these initiatives, we are positioning the Global South as a new growth engine alongside our traditional core markets. Despite continued macroeconomic uncertainties in 2026, we remain committed to building a more resilient business structure that minimizes the impact of external factors on our business.

Let's now turn to the Q2 results for the MS business. Global TV market demand grew modestly supported by promotional events such as the FIFA World Cup and Amazon Prime Day. Against this backdrop, we delivered strong year-over-year sales growth through a higher mix of premium products, including OLED, QNED and Ultra-large TVs, continued growth in emerging markets and the expansion of webOS platform revenue.

Operating income improved significantly year-over-year, extending the strong momentum from the previous quarter. Key drivers included a higher mix of high value-added products, greater efficiency and competitive spending, enhanced cost competitiveness, reduced fixed cost and ongoing operational efficiency efforts.

Looking ahead to Q3, TV market demand is expected to decline slightly year-over-year, reflecting heightened macroeconomic volatility driven by the prolonged conflict in the Middle East and rising raw material costs, weakened consumer sentiment due to inflation and the pull-forward effect of demand related to major sporting events. We will continue to improve our cost structure and operational efficiency while increasing the proportion of high value-added products in our sales portfolio. Through the continued growth of the webOS platform business, we aim to maintain solid profitability in Q3.

I will now review the Q2 results for the VS business. Sales maintained year-over-year growth, supported by the continued stable growth of the infotainment business. Operating income improved year-over-year, supported by sales growth and ongoing efforts to improve cost and operational efficiency.

Looking ahead to Q3, given continued softness in EV demand and ongoing external uncertainties, global automotive demand is expected to recover gradually in the near term. While market uncertainties may continue to pose risks, we expect to maintain stable sales growth. We will also continue to secure stable profitability through improved cost efficiency and enhanced operational efficiency.

I will now review the Q2 results for the ES business. Despite weak demand in the Korean market amid heightened competition and a slowdown in the construction sector, sales grew slightly year-over-year, driven by increased air conditioner sales in overseas markets. Despite positive factors such as sales growth, profitability declined year-over-year due to higher logistics costs stemming from the conflict in the Middle East, increased competitive spending and higher personnel expenses related to the new growth initiatives.

Looking ahead to Q3, we expect the business environment to remain challenging amid the prolonged conflicts in the Middle East and intensified competition across the market. In response, we will further enhance profitability in Korea through our subscription business and online direct sales while accelerating global growth by expanding revenue from eco-friendly, high efficiency and region-specific products as well as customer-tailored solutions in overseas markets. This brings us to the end of LG Electronics Q2 2026 earnings release and Q3 outlook. We will now take questions.

Operator, please begin the Q&A session.

[Interpreted] [Operator Instructions] The first question will be provided by Kangho Park from Daishin Securities.

[Interpreted] First of all, I would like to deliver my congratulatory message to you on your good performance under harsh conditions nowadays. I have brought 2 questions today. First on the corporate-wide operations, and second one on HS.

There have been recent news articles about the NVIDIA CEO visiting the Twin Towers and meeting with the management of your affiliate. That said, I would like to know more about your ongoing collaboration with NVIDIA, specifically. What are the specific areas and current stages of collaboration that have been materialized so far? And what does the future road map look like?

Also, is there any possibility of a collaboration similar to the NVIDIA and Unitree case or potential participation in the platform ecosystem?

For HS, with the SCFI trending upward, are you seeing requests from carriers for higher freight rates? Also, to what extent are you able to control your logistics cost? And what is your outlook for logistics costs in the second half of the year?

[Interpreted] Thank you for your question. The CFO will address the first question regarding collaboration with NVIDIA and HS will respond to the second question regarding logistic costs.

[Interpreted] I would like to address your question regarding the current status of our collaboration with NVIDIA. First of all, in the robotic sector, we are pursuing a joint project aimed at combining LG's robot hardware technology and manufacturing capabilities with NVIDIA's physical AI technology stack. This involves testing robots for manufacturing sites from the proof-of-concept stage all the way to actual application.

We are also collaborating on building a data robot factory, advancing robot foundation models and developing simulation and certification platforms.

Furthermore, in the AI factory sector, we are pursuing the integration of NVIDIA's AI data center platform with our infrastructure solutions. We are also collaborating on the development of advanced high-density cooling technologies, which are regarded as a key challenge for next-generation AI data centers. Recently, we achieved a meaningful milestone as certain models of our CDU, a core cooling component for AI data centers obtained NVIDIA certification.

In the mobility sector, specific and direct collaboration between the engineering teams of both companies have begun for the development of the AI DV platform. Currently, practical work is underway, such as reviewing next-generation, high-performance computing platform technologies and setting up a development environment.

Facing a major market inflection point known as Physical AI, both LG and NVIDIA share the understanding that collaboration is necessary across various areas based on our respective core competencies. From this perspective, we believe that a strategic partnership at the platform ecosystem level can certainly be considered in the future.

[Interpreted] Let me answer your question on logistics costs for the second half of the year. The SCFI has been trending upward, driven by geopolitical tensions in the Middle East and increased cargo demand from China.

During our freight negotiations for the second half of the year, carriers requested rate increases resulting in higher base ocean freight rates compared to the first half of the year. However, with additional vessel capacity expected to enter the market and global shipping demand likely to moderate after the peak season, we will continue to renegotiate terms with carriers by leveraging our large-scale volume and long-standing relationships.

In parallel, we are working to improve freight conditions through further negotiations while optimizing inland transportation, trucking and warehouse operations, all of which are aimed at minimizing the impact of higher logistics costs.

In summary, although the SCFI has risen since February due to geopolitical disruptions and increased cargo volumes from certain regions, we expect ocean freight rates to peak in the third quarter. From the fourth quarter, easing market conditions and the full impact of our renegotiation efforts should drive rates back toward prior year levels. We are proactively managing logistic costs within a controllable range, and we expect logistic cost pressures to gradually ease as we approach the latter half of the year.

[Interpreted] Next question, please.

[Interpreted] The following question will be presented by Jongbae Kim from Hyundai Motor Securities.

[Interpreted] I have 2 questions as well. And they both address the robotics market, which has garnered quite a lot of interest in the market these days. For the first question, we understand that you are accelerating the commercialization of robotic actuators. Could you provide an update on the progress of commercialization efforts, including production line setup, as well as your outlook for the future sales and profitability within the scope that can be disclosed?

And for the second question, we believe the newly established robotics business center will play a key role in overseeing commercialization efforts. Could you elaborate on how collaboration is structured among relevant companies, including your company, Bear Robotics, Robostar and other LG affiliates like yes, Display? Also, how do you define your target position within the robotics value chain over the long term?

[Interpreted] Yes. Thank you for your question. For the question on the actuators, it will be answered by HS and for the Robotics business center, it will be answered by our Robotics sales market division.

[Interpreted] Let me provide an update on the progress of our actuator business. As previously noted by our CFO, we completed the actuator pilot line at our Changwon site during the first half. And are now focused on validating manufacturability and ensuring quality stability through initial production. We are also investing in automation as well as additional infrastructure to support stable quality.

In parallel, we are actively engaged in joint development and broader strategic collaborations with start-ups as well as leading robotic companies in Korea, Europe and North America. However, we ask for your understanding that we are unable to disclose specific partners at this time.

We are accelerating the establishment of our business foundation by expanding both our product portfolio and production capabilities. Leveraging these early commercialization capabilities, we aim to grow the actuator business into a meaningful contributor to the company's overall financial performance.

[Interpreted] On the partnership front, we signed an MOU with Ubots in June to expand our technology and business collaboration and are currently discussing additional forms of collaboration to further strengthen our market responsiveness.

Our ultimate goal in robotics is to become a provider of customized Physical AI solutions by not only developing and manufacturing robots and key components, but also integrating data platforms, AI agents and robot operating systems. In achieving these goals, the newly established robotics business center has been tasked with overseeing the entire robotics value chain from identifying business opportunities and building supply chains to manufacturing and sales, while consolidating company's core robotic capabilities.

The robotics business centers, leading not only the integration of capabilities across our subsidiaries and portfolio companies, but also broader collaboration across LG affiliates and external partners. In particular, under the One LG initiative, we are driving business expansion by leveraging group-wide capabilities, including EXAONE from LG AI Research, software platform expertise from LG CNS, vision and robotic hand technologies from LG Innotek and battery technologies from LG Energy Solutions to create tangible synergies across the Physical AI value chain.

Generally, we are advancing collaboration discussions not only with global technology leaders, including NVIDIA, but also with competitive Chinese robotic companies. As these discussions are still ongoing with our partners, we will provide further updates once details are finalized and mutually agreed upon. Thank you.

[Interpreted] Next question, please.

[Interpreted] The following question will be presented by Jay Hyun Kwon from JPMorgan.

[Interpreted] I have 2 questions. First is on corporate-wide operations. I understand that following the court ruling that found certain U.S. tariff measures unlawful, LGE has also received refunds of tariffs previously paid. Could you share to the extent possible, whether all refund procedures have been completed? And including the tariff refunds received, the approximate amount of onetime gains recognized in the second quarter?

For my second question, could you highlight on the progress of LG Magna, especially with regards to growth in global customers. The operating status of key manufacturing facilities in Mexico and Hungary and the strategies in place to address market volatility.

[Interpreted] Thank you for your question today. The question regarding tariffs will be addressed by IR. And the second one regarding LG Magna will be addressed by VS.

I would like to answer your question on the tariff and onetime gains. With respect to the portions of the previous U.S. tariff policy that were ruled unlawful by the U.S. Supreme Court, we proceeded with the refund process for tariffs previously paid in accordance with guidance provided by the U.S. government.

As the refund process progressed smoothly, LG Electronics received a full amount eligible for refund during the second quarter. Including the tariff refunds, the overall earnings impact from onetime gains recognized in the second quarter, net of onetime expenses was approximately KRW 300 billion.

While we remain concerned that uncertainty related to tariff issues may continue for some time, we will continue to pursue structural improvements aimed at minimizing business volatility arising from such external factors through measures such as supply chain optimization leveraging or -- and leveraging our global production network and flexible price policies.

[Interpreted] Let me answer your question on LG Magna. We have been actively diversifying our revenue base beyond North America through active order winning efforts with leading OEMs in Europe, Asia and Korea, building on last year's momentum, we secured meaningful multiple EV powertrain projects from leading European and Asian OEMs in the first half of this year.

We are also pursuing additional orders in higher value product segments in the second half, further diversifying our regional exposure and supporting sustainable growth.

As for our global production footprint, the Mexico plant has achieved stable operations following its ramp-up since opening in September 2023. It now contributes more than 40% of total sales, with its impact on overall business performance continuing to grow. The Hungary plant is a key hub supporting European OEMs localization efforts and is progressing as planned towards mass production in January 2027. We are also securing new orders through our Eastern European footprint to ensure strong utilization from the outset.

To address recent demand volatility, including the impact of higher oil prices, we are closely monitoring regional end customer-specific trends while considering various external factors such as green vehicle incentives and year-end sales promotions. Rather than depending on short-term factors, we will continue to drive stable growth through disciplined supply chain management and a flexible response to the underlying end market demand. Thank you.

[Interpreted] Next question, please.

[Interpreted] The following question will be presented by Sunyoung Kou from Yuanta Securities.

[Interpreted] I also have two questions. One for ES and the other for MS. For ES, I know that there are high expectations for the AI data centers. So for these data centers, which regions are your primary targets for the data center cooling business? And what progress are you making in securing customers. I know that you are specifically focused in North America, but do you have any other areas in mind?

And about the MS question, I believe that the MS company delivered a significant year-over-year improvement in performance by recording an operating profit in the first half of this year. Could you please explain the key factors behind this improvement? In addition, please share your outlook for profit and loss in the second half and full year 2026 as well as whether this profitability trend is sustainable over the mid- to long term.

[Interpreted] Thank you for your question. As you have designated your question for the respective divisions and the companies, I think those respective leaders or the heads could answer the question.

[Interpreted] Let me answer your question on ES. We see North America as the primary strategic market for our AI data center going business. As AI infrastructure investments accelerate, annual new data center IT capacity is expected to expand from 25 gigawatts in 2026 to 70 gigawatts by 2031, and more than 60% of this capacity is projected to be deployed in North America. AI infrastructure investment is being driven primarily by big tech companies.

Accordingly, we are expanding our customer reach across hyperscalers, colocation providers and key channel partners while growing project wins through our integrated cooling solutions portfolio, that includes chillers, liquid cooling components and related solutions. In Asia, where demand is growing rapidly, we are expanding our customer base by leveraging our proven track record in One LG AI data center projects. We are also enhancing our supply competitiveness through our production facilities in Korea and China.

Leveraging these capabilities, we are expanding our presence in Asia by targeting AI data center projects from global big tech customers and regional allocation providers.

We will continue to expand strategic partnerships with key customers in North America while broadening our customer base in Asia through our One LG track record and manufacturing capabilities, This will further enhance our competitiveness in the global AI data center cooling market. Through these efforts, we are targeting several trillion won in new orders this year.

Over the mid- to long term, we will accelerate order and revenue growth by securing customer certifications, expanding our presence in global supply chains, and scaling production capacity, including through a buildup of overseas manufacturing operations. Thank you.

[Interpreted] Let me answer your second question on MS. In the first half of the year, operating profit improved significantly year-over-year, driven by a higher proportion of premium products, enhanced pricing management and improved performance from overseas operations, particularly in North America.

In addition, we achieved a mid-single-digit operating margin through continued cost reduction initiatives and disciplined management of fixed expenses.

In the second half of the year, macroeconomic volatility is expected to increase amid the prolonged conflict in the Middle East, while rising raw material costs, including memory components are likely to add to cost pressures. To mitigate these impacts, LG Electronics will focus on refining our pricing strategy, securing strategic inventory and optimizing specifications to minimize the effects of rising memory prices while continuing our cost efficiency initiatives.

Based on these efforts, we expect a significant year-over-year improvement in P&L, and a meaningful level of full year operating profit.

Over the mid- to long term, we're pursuing a strategy built on 2 pillars: enhancing short-term profitability and securing future growth drivers. To strengthen profitability, we're continuously improving cost competitiveness and operational efficiency to reinforce the fundamentals of our business structure.

To secure future growth drivers, we will strengthen our premium leadership through differentiated product lineups and investments in R&D for key future technologies. At the same time, we aim to accelerate the growth of the webOS platform business through global partnerships and the expansion of an AI and data-driven ecosystem. Through these efforts, we intend to maintain a stable profitability trend even in a highly volatile market environment.

[Interpreted] Next question, please.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions].

[Interpreted] If there is no further questions, we will continue -- conclude our second quarter earnings conference call here. Should you have any additional questions, please feel free to contact our IR team, and we'll be happy to assist you. Thank you for your participation today.

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

Good afternoon, and welcome to LG Electronics' quarterly earnings conference call. [Operator Instructions] Simultaneous English interpretation will be provided for the presentation followed by consecutive interpretation for the Q&A.

Now I'd like to turn the call over to the first speaker.

Good afternoon. My name is Wonjae Park from Investor Relations. Thank you for joining our earnings call for the first quarter of 2026.

With me are Chang-Tae Kim, CFO and EVP of LG Electronics. From each company's business management division, Jong-In Yoo from HS; Sang-Ho Park, SVP of MS; Ju-Yong Kim, VP of VS; and Dong-Hoon Shin, VP of ES. From headquarters, Jihwan Park, SVP of Corporate Business Management; Young-Kyoon Kim, VP of Finance; In-Geun Park, Head of Accounting; Sung-Min Hong, Head of ESG Office; and Jiho Song, Head of Global Trade Customs.

Today's presentation will proceed as follows: our CFO will review the Q1 2026 results and Q2 outlook, followed by an overview of our new growth businesses and the progress on our share buyback program. I will then present the first quarter financial highlights. After that, each business will share its individual results and outlook. Lastly, the Head of the ESG office will present the results of our ESG activities.

Please note that all statements made today regarding the first quarter financial results are subject to change in accordance with external review. Actual results may differ from today's outlooks and forward-looking statements due to market uncertainties and strategic adjustments.

Now let us begin with the Q1 2026 performance review and the Q2 outlook.

Good afternoon. I'm Chang-Tae Kim, CFO of LG Electronics. Here are our Q1 financial results. Our consolidated sales reached KRW 23.7 trillion with operating income of KRW 1.67 trillion. Despite sluggish consumer sentiment amid geopolitical risks, including the Middle East conflict and intensified competition, total sales grew year-over-year driven by the peak appliance season, higher TV demand from major sporting events, back-to-school demand for PCs and stable order volumes in automotive electronics.

Operating income improved year-over-year despite uncertainties stemming from geopolitical risks and rising raw material prices, driven by overall sales growth expansion in high value-added segments and ongoing cost control efforts. In particular, HS and VS companies achieved a record high quarterly sales, with VS also obtaining record high operating income during the same period.

Oil price fluctuations and raw material cost increases, driven by ongoing geopolitical risks, along with global demand shifts stemming from supply chain disruptions are pressuring the business in Q2. To address these challenges, we will conduct a thorough analysis of demand changes and establish region-specific strategies for our main businesses, while securing growth momentum through our Global South strategy. Production will be stabilized and cost competitiveness strengthened by securing advanced inventories and using a cost-efficient manufacturing ecosystem. Leveraging our bargaining power as a major shipper, we plan to enhance shipping line efficiency to minimize the impact of rising logistics costs.

I would like to take a moment to outline the progress of our new growth businesses, including robots, robotic components and AI data center cooling solutions. CLOiD our humanoid robot business is on track to begin production for POC validation this year. Collaboration with leading technology companies, including NVIDIA, to advance the development of a foundational robot model, is accelerating. The POC validation will commence within the first half of this year, gradually expanding into industrial and home segments. We will explore the potential of industrial humanoid robots by leveraging our robot technologies and process daily learning. Drawing on our understanding of the home environment and the strength we've gained from our appliance business, we aim to lay the foundation for commercializing home robots by 2028.

Business for actuators, a key robotic component, is preparing to begin initial mass production in the first half of the year. Collaboration with major companies and academia is accelerating to develop and internalize reduction gear technology. Leveraging our competitive competitiveness in lightweight, high vacancy, high-torque motor technology gained through the annual production of over 45 million motors, we are pursuing rapid product development and establishing a production base, while aiming to secure a product lineup that meets both internal demand and diverse customer needs.

We are also seeing meaningful progress in AI data center cooling solutions. Certification of key products such as chillers and CDUs, targeting key partners, including global big tech companies is well on track, and I believe we'll be able to deliver good news in the near future. Technology and product development for immersion cooling and next-generation solution is also accelerating. We are expanding collaborations with major players to develop comprehensive solutions, including cooling management software and power management systems.

Lastly, I would like to share the progress of the share buyback program which began earlier this year and aims to enhance corporate value. Last November, we announced an additional shareholder return plan totaling KRW 200 billion by 2027. As part of this plan, in February, the Board resolved to repurchase treasury shares worth KRW 100 billion and canceled them by the end of September. Since then, about 60% of the purchase has been completed. We will continue to proceed with the remaining share repurchases at a swift pace to clearly demonstrate our commitment to enhancing shareholder value.

I'll now briefly review the Q1 2026 performance of enterprise-wide operations in each business. Our consolidated financial results for Q1 were KRW 23.72 trillion in sales and KRW 1.67 trillion in operating income. HS recorded sales of KRW 6.94 trillion and operating income of KRW 569.7 billion. MS recorded sales of KRW 5.16 trillion and operating income of KRW 371.8 billion. VS recorded sales of KRW 3.64 trillion and operating income of KRW 211.6 billion. Lastly, ES recorded sales of KRW 2.82 trillion and operating income of KRW 248.5 billion.

Moving on, the next focus is on B2B and subscription businesses, which serve as key drivers of qualitative growth in our portfolio transformation. In Q1, B2B sales grew year-over-year and quarter-over-quarter, driven by stable orders in automotive electronics. The B2B sales proportion of total sales remains steady, supporting qualitative growth.

For the subscription business, double-digit year-over-year sales growth continues in the Korean market, supported by a strong competitive edge through differentiated care services. The overseas subscription business continues to grow, expanding into regions like the Middle East, beyond Malaysia and Thailand. So still early, its share of overall sales shows a year-over-year increase due to rapid overseas expansion. We will continue to enhance our business outcomes by continuously advancing our business portfolio, including both B2B and subscription businesses.

Moving on to the income statement and cash flow for Q1. Reflecting financial income and expenses, equity method gains and losses, other nonoperating items, corporate tax and discontinued operations, the Q1 net income was KRW 1.51 trillion.

Now let's look at cash flow. Cash flow from operating activities was KRW 1.1 trillion, while cash flow from investing activities was negative KRW 1.17 trillion, resulting in a net cash flow of negative KRW 188.1 billion. When reflecting a negative KRW 326.3 billion in cash flow from financing activities, the cash balance at the end of Q1 stood at KRW 8.63 trillion, down KRW 138.2 billion from the previous quarter.

Key financial position and indicators for Q1 are as follows. At the end of Q1, assets stood at KRW 71.2 trillion, liabilities at KRW 40.7 trillion and equity at KRW 30.5 trillion. Leverage ratios, including liability to equity, debt to equity and net debt to equity have improved and remained at healthy levels.

Now we will hear from each business company regarding its Q1 2026 results and Q2 outlook. Beginning with HS.

Here are the Q1 results for HS business. Despite a delayed recovery in consumer sentiment due to the Middle East conflict and inflation concerns in the U.S., our sales grew year-over-year, supported by a strengthened Two-Track strategy, targeting the peak season, and by the expansion of our online and subscription businesses. Profitability also achieved solid result despite the impact of material price increases in U.S. tariffs, supported by improvements from sales growth, expansion of high-margin businesses like subscriptions and ongoing cost reduction efforts.

Looking ahead to Q2, the ongoing macroeconomic uncertainties, including potential changes in U.S. tariffs, delays in interest rate cuts and possible inflationary effects from the Middle East conflict, are likely to hinder demand recovery. In response, we aim to sustain sales growth momentum by further strengthening product lineups within our proven Two-Track strategies, accelerating growth in B2B online and subscription businesses, and focusing on expanding our presence in global south markets. We will address rising raw materials and logistics costs by optimizing the supply chain. Profitability will be secured by enhancing cost competitive competitiveness through the manufacturing cost structure improvement initiative, which has been actively pursued since early this year.

Let's now turn to the Q1 results for the Media Solutions business. Sales decreased quarter-over-quarter, mainly due to the off-peak season, but year-over-year growth was achieved, driven by higher premium TV sales, PC growth from back to school demand and expanded webOS platform sales. Operating income turned positive, driven by a higher share of high value-added product sales, continued fixed cost reductions and efficient management of competitive cost, resulting in both quarter-over-quarter and year-over-year improvement.

Next is our outlook for the second quarter. If the conflict in the Middle East persists, macroeconomic volatility will rise due to inflation and higher oil prices likely hindering demand recovery. Additionally, a sustained strong dollar and rising memory prices are further increasing costs. In response, we will aim to achieve sales equal to or exceed those of the previous year by strengthening our market position through premium products, timely introduction of new offerings and leveraging major sporting events. Additionally, operational efficiency will be further enhanced to minimize the impact of rising cost pressures on our profitability.

I will now review the VS Company's Q1 results. Despite external factors, including concerns about slowing EV demand, sales grew both quarter-over-quarter and year-over-year, supported by sustained stable sales momentum from orders on hand. Operating income also improved both quarter-over-quarter and year-over-year, driven by the leverage effect of sales expansion, product mix improvement focused on high value-added products and cost structure innovation.

Let me now move on to the Q2 outlook. Given the ongoing uncertainties in the market, the recovery of global automotive demand is likely to remain limited for some time. Accordingly, we respond to market changes by ramping up mass production for new products and restructuring our portfolio to focus on high value-added products. We will continue to pursue profitable growth through strategic collaboration and improved cost efficiency.

I will now review the ES Company's Q1 results. Sales declined year-over-year mainly due to sluggish demand from a shrinking construction market domestically and abroad, along with constrained consumer sentiment or majoring uncertainties like U.S. turf and the Middle East conflict. In terms of operating income, profitability decreased year-over-year as intensified market competition led to lower sales and higher competition costs, while higher oil prices from the war in the Middle East pushed the logistics cost and component prices.

Let me now move on to the Q2 outlook. Consumer sentiment is likely to decline due to rising energy costs and a decrease in real household income. We will pursue year-over-year sales growth in overseas markets by introducing recent specific new products and expanding the solution business. Additionally, by managing resources efficiently, we will minimize cost pressures resulting from rising competition and new hires in growth areas.

Finally, I would like to highlight our ESG activities and achievements. LG is widely recognized for its competitiveness in highly efficient HVAC solutions. We received the performance award from ASHRAE from the ninth consecutive year. Our residential integrated heat pumps and commercial HVAC solutions also won 8 awards at MCE 2026 Europe's largest HVAC exhibition. We are accelerating our Asia tailored business initiatives by hosting LG HVAC CONNECT 2026, inviting 15 major Asian partners and securing orders to supply cooling solutions to food chains in the Philippines and Thailand.

LGE is expanding our differentiated product and service offerings. For 6 consecutive years, LGE has been ranked the most trusted home appliance brand in 8 key categories, including refrigerators by Consumer Report, a leading U.S. consumer media outlet. At CSUN AT 2026, we showcased accessibility technologies, including voice-controlled appliances linked with ThinQ ON and new kiosks featuring adjustable height and tactile pads, which were well received by attendees.

Finally, we are enhancing trust in the capital market. By appointing outside directors as Board Chairpersons, we strengthened Board independence and transparency, advancing corporate governance. We earned an AA rating from MSCI ESG and were named industry leader in the top 1% in S&P Global's CSA for 3 consecutive years.

Moving forward, we will continue to expand ESG management through industry-leading AI-driven solutions, differentiated products and services and enhanced trust in the capital markets.

This brings us to the end of LG Electronics' Q1 2026 earnings release and Q2 outlook. We will now take questions.

Operator, please begin the Q&A session.

[Operator Instructions] The first question will be provided by Simon Woo from Bank of America.

I have brought 2 questions and -- before moving on to the question, I would like to deliver my congratulatory message for your good performance despite the difficult situation.

My first question goes to ES, and this is about the data center cooling center. Taking a look at the recent performance, I believe that I would like to know more about the order backlog and your revenue target and the lead time from order intake to actual sales.

My second question is for the corporate as a whole regarding the tariff refunds. It has been reported that the U.S. authorities began procedures to refund previously paid duties and interest. So the first question is, is LG eligible for these tariff-free funds? And if so, what is the expected refund amounts and timing?

The first question on ES Company's data center business will be addressed by the Head of ES Business Management division. And we have been receiving a lot of questions regarding tariffs. We have the Head of Global Trade Customs Department, Mr. Song Jiho with us today, and he will answer the second question on tariff refunds.

First, let me answer your question about the data center. Please understand that I cannot disclose detailed figures regarding order size, contract terms or specific timing of sales of individual customers due to confidentiality obligations. However, our order intake tripled year-on-year in 2025, and our chiller business revenue target of KRW 1 trillion is expected to be achieved ahead of schedule, demonstrating steady growth even though the business is still in its early stages.

Unlike conventional HVAC, the data center cooling business is a market with limited access that requires multiple upfront qualification steps, including customer approvals, compliance with technical specifications and formal vendor registration. Currently, we are rapidly moving through these preliminary stages and are in the process of establishing a foundation for full-scale order intake and revenue generation starting in 2026. The lead time from order intake to delivery is approximately 6 months for standard chillers and 9 months for customized equipment for large data centers. We're also working to further shorten lead times by internalizing key components and leveraging standardized design platforms.

In the mid- to long term, we are fostering our business with air cooled chillers and liquid cooling as our 2 main pillars. Based on internal estimates, the addressable market size for the chiller business is projected to expand from $1.6 billion in 2026 to $12.7 billion by 2030.

To answer your second question regarding tariff refunds. As LGE has paid import tariffs in the U.S., we believe that we fall within the scope of entities eligible for such refunds, and are proceeding with the related procedures in line with guidance from the U.S. government authorities. We ask for your understanding as we are not able to provide a definitive estimate of the expected refund amount or timing.

Based on the information disclosed today, the refund process is expected to proceed as follows: First, the tariff payer submits a refund application. Second, the local customs authority conducts an eligibility review based on the supporting documents. And third, the eligible amount is refunded together with applicable interest.

We expect the overall process to take some time. According to the U.S. Customs and Border Protection website, a valid refund claim is expected to be paid within 60 to 90 days after acceptance. However, in cases requiring more detailed review, additional time may be required for processing. We will communicate further with the market in due course, should there be any definitive developments.

Next question, please.

The following question will be presented by Sung Kyu Kim from Daiwa Securities.

I have brought 2 questions, and those are about HS and MS. To begin, what is the proportion of logistics in the region directly affected by the conflict in the Middle East? And to what extent have logistic costs risen? Additionally, if high oil prices persist, to what extent do you anticipate the impact of rising ocean freight rates?

My second question is for the MS company. It seems as though MS' first quarter profitability is sound, and I understand that LGE has been making rigorous efforts to improve its fundamentals at a corporate level. However, given the ongoing headwinds in the business environment, how likely is a turnaround at MS company this year? In addition, could you elaborate on how LGE's cost efficiency initiatives are being developed and executed to support this turnaround?

The first question on logistics costs will be addressed by the Head of HS Business Management Division. And the second question on MS Company's performance improvements will be addressed by the Head of MS Business Management Division.

Let me answer your question about the impact stemming from logistic costs. Shipments to the Middle East account for approximately 5% of our total maritime cargo volume, which is not a significant proportion. For the shipments to the Middle East, shipping companies are imposing war risk surcharges. Therefore, we are expanding our capacity to handle locally sourced goods, including those from our local manufacturing plants. Also, we are optimizing logistics by increasing the volume of shipments with the lowest cost carriers and exploring the use of alternative routes.

For shipments to Europe that pass through waters near the Middle East, we do not face any direct impact on our shipment as we have been using the Cape of Good Hope route. However, in case existing ships that previously used the Middle East route are forced to switch to alternative routes, this could lead to an increase in overall transit times and demurrage charges as well as constraints on global courier's capacity management.

Although total maritime logistic costs are expected to increase by more than 10% compared to previous estimates due to fuel and water risk surcharges, our annual base contracts with shipping lines this year have improved compared to last year. And through proactive measures such as strengthening negotiations on surcharges and optimizing maritime cargo operations, we aim to keep actual logistic costs within manageable limits.

To answer your second question regarding MS Company, in 2025, MS Company sales declined, primarily due to sluggish demand growth in key product categories such as TVs as well as intensifying competition among industry players. Despite various initiatives to improve profitability, including operational efficiency improvements through organizational integration synergies, the rollout of smart manufacturing lines at overseas production sites and material cost reductions, competition intensified across both premium and entry-level segments. As a result, higher competitive costs and declining selling prices weighed on profitability, leading to an operating loss.

In 2026, we expect demand to improve, supported by major global sporting events such as the World Cup. However, if the conflict in the Middle East is prolonged, a sharp rise in oil prices and elevated inflation could increase macroeconomic volatility and pose downside risks to a demand recovery. In addition, a sustained strong U.S. dollar and rising memory prices are placing pressure on our cost structure.

Against this backdrop, MS will focus on enhancing customer value and expanding sales by leveraging strong brand recognition built on differentiated product leadership. At the same time, we plan to establish a cost structure that enables us to compete effectively with Chinese brands by actively leveraging manufacturing ecosystems in cost-efficient countries. Furthermore, with profitability as our top priority, we will continue to strengthen our cost structure through rigorous operational efficiency measures, building on the fixed cost reduction efforts implemented last year.

In addition, we will further continue to strengthen the competitiveness of MS Company's strategic growth businesses, including the webOS platform and B2B operations. By creating virtuous synergies across devices and platforms as well as between our B2C and B2B businesses, we aim to reinforce market leadership and enhance profitability. And so through the mentioned efforts, we aim to achieve year-on-year revenue growth and a turnaround to profitability in 2026.

Next question, please.

The following question will be presented by Peter Lee from Citigroup.

This is Sei Cheol Lee from Citi. I have brought 2 questions. And my first one is about tariffs and the second one is about production.

To begin with, the Trump administration has announced that it will impose a 25% tariff on finished products, including steel and aluminum. What percentage of your products are subject to this measure? And to what extent do you anticipate the impact? Also, do you have any plans to mitigate this impact? I would like to also ask if this will affect your previously communicated production strategy as well?

And my second question is on the production of Mexico and Hungary plant. What is the current production status following the expansion of LG Magna's plants in Mexico and Hungary? And how the production facilities in Korea and China will be utilized going forward?

The first question on steel and aluminum tariffs will be addressed by the Head of HS Business Management division as they are the most heavily impacted by these tariffs. And the second question on LG Magna will be addressed by the Head of VS Business Management division.

Let me answer your question about the tariff-related one. The Trump administration announced a change in its tariff policy. The previous structure, which combines country-specific reciprocal tariffs with a 50% tariff on steel raw materials, has been replaced by a 25% tariff on finished products including those containing steel and aluminum. As part of this change, Mexico, which had previously been exempt from tariffs under the USMCA, has been removed from the list of exempted countries. As a result, we expect the tariff burden to increase compared to the previous situation. However, this impact is not limited to LG Electronics as local brands that manufacture in Mexico and sell into the U.S. market are facing the same conditions.

Looking ahead, discussions on tariffs for products manufactured in Mexico are expected among USMCA member countries, United States, Mexico and Canada, that there have been no finalized decisions so far. We have already established diverse production sites and supply structures for the North American market and are operating our logistics accordingly. As a result, even if the policy is implemented, we expect any additional impact on our overall performance to be limited.

Furthermore, LG Electronics have extensive experience in responding to changes in the tariff and trade environment. While there may be some short-term cost volatility, we believe we possess the systems and capacity in place to manage these fluctuations effectively. To mitigate any additional tariff impact, we are continuously reviewing and implementing various measures, including the flexible management of product mix and pricing strategies, the optimization of supply chain operations and the flexible use of regional production and procurement options. In particular, we plan to review and respond to adjustments in production volumes by region, including operations at regional production sites, in line with global supply flexibility and future tariff trends.

Moving forward, we will continue to comprehensively consider market and competitive conditions and closely monitor changes in the trade environment, striving to achieve sound business performance based on our position as the market leader and our product leadership.

Let me answer your question on LG Magna production. LG Magna's Mexico plant has seen a steady increase in both utilization rates and revenue contribution since mass production began in September 2023. In addition, as a U.S. bound project for an Asian OEM is scheduled to enter mass production in 2026, we expect utilization to continue to improve going forward. LG Magna's Hungarian subsidiary is scheduled to begin mass production at the end of 2026 and steadily ramp up production in 2027 with additional new projects currently in preparation.

Korea is being reorganized as a production hub for Asian customers, while the Chinese subsidiary is planned to operate as a best cost country production hub, leveraging local SEM and manufacturing competitiveness.

Next question, please.

The following question will be presented by Yeon-mi Kim from DAOL Investment & Securities.

This is Yeon-mi Kim from DAOL Securities. I have 2 questions, one for the corporate and second for the MS Company.

My first question for the corporate is it was reported that a key NVIDIA executive visited LG Electronics headquarters yesterday. Could you provide more details on the discussions and the potential for further strengthening collaboration between the 2 companies?

My second question is for the MS Company. Could you elaborate on how the recent -- the recent supply constraints for the semiconductor and rising prices are affecting the MS Company's product lines, including TVs, monitors and PCs? And outline LGE's response to these challenges.

The first question on NVIDIA will be addressed by the Head of Investor Relations division. And the second question on semiconductor supply and rising prices will be addressed by the Head of MS Business Management Division.

First, regarding your question on NVIDIA. I can say that LG is highly invested in AI. We view AI not as a stand-alone technology, but as a critical infrastructure that underpins industries in everyday life. In this context, AI serves as a core enabler for meaningfully enhancing customer experiences across a wide range of environments, including home, mobility and commercial settings.

In line with the evolution of AI, we are expanding our traditional collaboration with NVIDIA into a more strategic partnership and physical AI. Recent discussions cover potential cooperation across areas, including robotics, AI data centers and mobility. By bringing together LGE's hardware manufacturing capabilities across multiple verticals, its long-established and continuously expanding data assets and NVIDIA's leadership in AI technology, the discussions cover not only short-term business collaboration opportunities, but also forward-looking joint R&D initiatives, including the development of shared references to support future growth. In robotics, both companies agreed to explore broad ecosystem-wide and strategic cooperation with mutual expectations for meaningful synergies.

We appreciate your understanding as we are unable to disclose specific details at this time.

To answer your question on how the semiconductor supply constraints and rising prices are affecting the MS Company, driven by the rapid increase in AI server demand, the semiconductor market continues to face tight supply conditions and rising prices, which are affecting our TV, monitor and PC products. The market appears to have entered a super cycle beyond earlier expectations, and the supply constraints are likely to persist for an extended period.

Against this backdrop, securing a stable supply through close collaboration with key memory manufacturers remains critical. To mitigate supply side risks, MS is rolling out a broad set of supply chain stabilization measures, including supply MOUs with key partners, supplier diversification and component multi-sourcing and the buildup of advanced inventory through collaboration with suppliers.

To briefly summarize the impact and our response by product categories: For TVs, memory content is relatively low compared to PCs and therefore, the impact from supply shortages and price increases remains limited. We are responding by further expanding cost-reduction initiatives, leveraging manufacturing ecosystems in cost-efficient countries to enhance price competitiveness and continuing to improve production efficiency.

For monitors, apart from certain smart monitor models, the impact from memory-driven price increases is minimal.

For PCs, which have relatively high memory content, the industry is facing significant cost pressure. As a result, price increases of approximately 15% to 20% have already been implemented. Should the sharp rise in memory prices persist, additional price adjustments may become unavoidable.

In conclusion, as we look ahead, we plan to secure profitability through additional cost reduction efforts, specification optimization and portfolio adjustments with a greater focus on premium products, while closely monitoring market conditions and implementing an optimal pricing strategy.

This concludes LG Electronics' Earnings Call for the first quarter of 2026. We are facing many uncertainties in the business market. However, we are seeing tangible results in various sectors as we have prepared before hand. We ask for your continued and unwavering support.

For further questions, please contact the IR team. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

[Interpreted] Good afternoon, and welcome to LG Electronics Quarterly Earnings Conference Call. This conference call will begin with a presentation on the earnings results, followed by a Q&A session. [Operator Instructions]. Simultaneous English interpretation will be provided for the presentation, followed by consecutive for the Q&A.

Now I would like to turn the call over to the first speaker.

[Interpreted] Good afternoon. My name is Wonjae Park from Investor Relations. Thank you for joining our earnings call for the fourth quarter of 2025. With me are Chang-Tae Kim, CFO and EVP of LG Electronics; from each company's business management division, Jong-In Yoo from HS; Sang-Ho Park, SVP of MS; Ju Yong Kim, VP of VS; and Dong-Hoon Shin, VP of ES. From headquarters, Jihwan Park, SVP of Corporate Business Management; Young Kyoon Kim, VP of Finance; and [ In-Geun Park ], VP of Accounting.

Today's presentation will proceed as follows: Our CFO will review the 2025 results, 2026 outlook and provide updates on our robotics business and credit rating upgrades. I will then present the fourth quarter financial highlights. After that, each business will share its individual results and outlook. An overview of our ESG activities will be included in the upcoming first and third quarter earnings releases.

Please note that all statements made today regarding the fourth quarter financial results are subject to change in accordance with external review. Actual results may differ from today's outlooks and forward-looking statements due to market uncertainties and strategic adjustments.

Now let us begin with the performance review for 2025 and the outlook for 2026.

[Interpreted] Good afternoon. I'm Chang-Tae Kim, CFO of LG Electronics. Despite sluggish global consumption amid rising protectionism and geopolitical risks, LGE achieved sales growth in 2025, driven by the expansion of our core businesses in emerging markets, our Two-Track strategy targeting both premium and mass-tier segments and continued growth in automotive electronics and HVAC businesses.

In home appliances, we mitigated cost pressures, including U.S. tariffs through global production optimization and efficient operations. In automotive electronics, we achieved meaningful profitability improvements through higher sales of high value-added products and enhanced operating enhanced operational efficiency.

To tackle profitability challenges in our display business amid weak demand and rising competition, we strengthened cost structures and built a foundation for fundamental cost competitiveness. Growth in new areas, smart factory, subscription services and webOS platform accelerated, further boosting overall profitability.

Persisting uncertainties in the global economy and a delayed demand recovery, coupled with cost pressures from tariffs and component prices, are expected to weigh on operations. At the same time, rising investment in AI and robotics driven by advances in AI technologies is expected to create new opportunities.

In response, we will strengthen our market presence by securing sales growth momentum in our core business through the Global South strategy and region-specific initiatives. We will continue pursuing qualitative growth by expanding subscription services, the webOS platform and other new business models along with B2B areas, including automotive electronics and HVAC. To gain a competitive edge in the evolving AI-centered ecosystem, we will focus on pursuing investment and growth opportunities in AI-driven smart factories, AI data center cooling solutions, robotics and other future growth areas. At the same time, by adopting AX in the way we work, we will redirect our focus towards higher-value tasks, enhancing speed and execution.

Let me briefly highlight our robotics business, which is drawing stronger market interest. LG has long accumulated technological know-how in industrial robots for smart factories as well as in motors, actuators and autonomous driving for commercial robots across various services. Leveraging our deep understanding of customers, we are advancing smart appliances through AI, introducing the concept of AI home solution.

Our vision for Home Appliances, "zero labor home," is built upon our expertise and extensive experience. At CES, LGE unveiled LG CLOiD, a household robot aiming to dramatically reduce household chores. What truly differentiates our vision for home robots from other humanoids is our deep understanding of the home as a living space. Our extensive and diverse ecosystem of smart home appliances and the rich lifestyle data accumulated through this platform.

Our home robot will not simply remain as humanoid devices, limited to individual operations. Through mutual interaction among customers, appliances and robots, we aim to embody our vision of offering home robot solutions that address customers' key needs in the most efficient way possible. In addition, we continue to expand the features and ecosystem of our home robot solutions. We are building a comprehensive robotic ecosystem that spans industrial, commercial and home robots. By leveraging partnerships with leading global companies, we plan to secure technological capabilities and explore new business opportunities.

Lastly, I would like to share some news about our corporate credit rating. Recently, Moody's, one of the world's leading credit rating agencies, announced an upgrade of LG Electronics' credit rating from Baa2 to Baa1. This marks the highest rating our company has ever received from Moody's. I believe this achievement reflects our long-standing efforts to transform our business portfolio, our ability to overcome challenging external conditions through differentiated competitiveness and strong execution and the market's objective recognition of our solid financial management capabilities, which have consistently supported our strategic initiatives. As a member of the management team, I'm pleased to share this encouraging news. We expect this credit rating upgrade to have a positive impact across our business operations going forward.

We will continue to enhance trust in our company by delivering strong results through disciplined execution and by maintaining stable and efficient business operations.

[Interpreted] I will now briefly review the Q4 2025 performance of enterprise-wide operations and each business. Our consolidated financial results for Q4 were KRW 23.85 trillion in sales and KRW 109 billion in operating loss. HS recorded KRW 6.25 trillion in sales and KRW 171.1 billion in operating loss. MS recorded KRW 5.43 trillion in sales and KRW 261.5 billion in operating loss. VS recorded KRW 2.79 trillion in sales and KRW 158.1 billion in operating profit. Lastly, ES recorded KRW 1.45 trillion in sales and KRW 142.8 billion in operating loss.

Moving on. The next focus is on B2B and subscription businesses, which is served as key drivers of qualitative growth in our portfolio transformation. Sales of automotive electronics increased in Q4, supported by a stable order backlog. However, overall B2B sales slightly declined year-over-year due to a decrease in HVAC sales driven by weakened consumer sentiment and the off-peak season in the second half. Despite this, the contribution of the B2B business to total sales continues to grow qualitatively, maintaining a stable performance level.

Turning to the subscription business. Our Korean operations further strengthened their competitive edge through differentiated care services, maintaining strong double-digit sales growth year-over-year. Overseas, following successful entries into Malaysia, Thailand and Taiwan, we recently launched in Singapore, further broadening our global subscription footprint. Although still in its early stage, the accelerated expansion of our overseas subscription business is steadily increasing its contribution to overall subscription sales year-over-year.

We will continue to enhance our performance by advancing our business portfolio, including both B2B and subscription businesses.

Moving on to the income statement and cash flow for Q4. Reflecting financial income and expenses, equity method gains and losses, other nonoperating items, corporate tax and discontinued operations, the Q4 net loss was KRW 725.9 billion.

Now let's look at cash flow. Cash flow from operating activities was KRW 612.5 billion, while cash flow from investing activities was negative KRW 1.13 trillion, resulting in a net cash flow of negative KRW 342.7 billion. When reflecting cash flow from financial activities of KRW 1.15 trillion, the cash balance at the end of Q4 stood at KRW 8.76 trillion, a KRW 811.7 billion increase from the previous quarter.

Key financial positions and indicators for Q4 2025 are as follows: At the end of Q4, assets stood at KRW 68.6 trillion, liabilities at KRW 40.1 trillion and equity at KRW 28.5 trillion. Leverage ratios, including liability to equity, debt to equity and net debt to equity have improved, remaining at healthy levels.

Now we will hear from each business company regarding its Q4 2025 results and 2026 outlook, beginning with HS.

[Interpreted] Here are the Q4 results for the HS business. A recovery in consumer sentiment has been delayed due to U.S. tariff, inflation and geopolitical uncertainties. Despite the ongoing intense competition, we achieved year-over-year sales growth through our Two-Track strategy targeting both premium and mass-tier segments as well as the accelerated growth of our B2B, online and subscription businesses.

Operating income declined Y-o-Y, despite measures to address U.S. tariffs, such as expanding local production and adjusting sales prices and improvement in cost structure, including marketing efficiency. The decline mainly reflected one-off costs from a voluntary buyout program for healthy workforce renewal.

Looking ahead to 2026. Although expectations are rising with the adoption of stimulus policies in major markets and the potential for rate cuts, global demand for appliances is expected to remain close to last year's level amid ongoing geopolitical inflation and FX uncertainties. Demand for AI-based smart and premium appliances is likely to grow with advancing technology and rising consumer interest alongside continued expansion in service integrated markets such as subscriptions.

Accordingly, we will drive sales growth through our portfolio strategy, including the Two-Track approach, B2B, online and subscription businesses, while expanding AI products and focusing on emerging markets, particularly the Global South. We are optimizing our production footprint and leveraging the ecosystems of cost-efficient countries to boost manufacturing and logistic competitiveness, thereby securing profitability comparable to last year.

Let's turn to the outlook for the global appliance market demand in 2026. We update this forecast twice a year. And by sharing our views, we aim to provide our perspective on global demand trends and corresponding strategies. Please note that this outlook focuses on the year-over-year market demand forecast, not our appliance revenue. Actual market conditions may differ from this outlook due to various factors such as economic policies on tariffs, interest rates and other variables as well as geopolitical issues.

The global appliance market is expected to see a gradual recovery from the second half of 2025 through the first half of 2026, albeit at a limited scale. Considering base effects and uncertainties such as FX fluctuations, demand in the second half is likely to show slight negative year-over-year growth, resulting in an overall level similar to the previous year.

By region, in North America, overall demand is forecasted to slow slightly, mainly due to inflation and a delayed recovery in the housing market as the impact of tariffs began to take effect. At the same time, consumption is expected to become increasingly polarized. Accordingly, we plan to respond flexibly by strengthening our premium presence and expanding mass-tier coverage through enhanced cost competitiveness.

In the Global South, where we are driving growth to diversify our regional portfolio, we expect to see a slight uptick in demand. We aim to further accelerate our Global South strategy by launching new, more competitive lineups, including region-specific models, so that this market can establish itself as another key pillar of growth for LGE.

Various uncertainties, including macroeconomic factors, are expected to persist through 2026. We will pursue solid performance through well-established strategies built on our global market experience and through close cooperation with our trading partners.

[Interpreted] Let's now turn to the Q4 results for our Media Solutions business. Sales rose quarter-over-quarter with the peak season, especially for TVs and in North America and Europe but fell year-over-year due to a delayed recovery in consumer sentiment and stronger competition. Operating profit improved quarter-over-quarter on higher sales and cost improvement but fell year-over-year due to price reductions and competition-related costs.

Our outlook for 2026 is as follows: Sporting events such as the Winter Olympics and the World Cup are expected to boost demand, but overall growth will likely stay flat as economic uncertainty and rising component costs, such as for memory, are reflected in product prices. We will drive sales by enhancing product competitiveness through greater customer value while improving profitability by achieving cost competitiveness comparable to Chinese players and increasing operational efficiency. We also plan to create new demand by strengthening our competitiveness in the webOS platform and B2B business, thereby leading the market.

[Interpreted] I will now review the Q4 result of the VS company. Despite slower EV sales triggered by suspended U.S. subsidies, sales rose both quarter-over-quarter and year-over-year as backlog orders were smoothly converted into sales. Operating profit also improved quarter-over-quarter and year-over-year, driven by sales growth and cost structure improvements.

Regarding our 2026 outlook, global automotive demand is expected to remain stagnant amid macroeconomic volatility from weak EV demand, changing regulations and tariff issues. We will continue expanding sales through new projects and mass production while strengthening OEM partnerships with an improved product mix and optimizing operational cost to maintain solid profitability.

[Interpreted] Let me outline the Q4 result of the ES company. Sales declined year-over-year, both in Korea and overseas, impacted by the off-peak season in the second half and weakened consumer sentiment amidst persistent macroeconomic uncertainties. Operating profit also decreased year-over-year due to lower sales from seasonal effects, higher competition-related costs, one-off expenses from the buyout program and increased labor costs from core business hires.

Looking ahead to 2026. Korea market demand is expected to decline amid weak consumer sentiment and stagnation in the construction sector, while overseas demand, especially for premium products, is set to grow with stricter environmental regulations and rising preference for high-efficiency smart products. We will boost sales by launching price competitive strategic models and new products in core businesses while accelerating online sales. For the incubating segment, we will address new demand and regulatory changes with high-efficiency B2B solutions like data center chillers and heat pumps using eco-friendly refrigerants.

[Interpreted] This brings us to the end of LG Electronics' fourth quarter earnings release and the 2026 outlook. We will now take questions. Operator, please commence with the Q&A session.

[Interpreted] [Operator Instructions] The first question will be provided by Kangho Park from Daishin Securities.

[Interpreted] I am Kangho Park from Daishin Securities. My first question is for the company as a whole. And my second question is for the HS company. My first question for the company is, LGE announced plans for a share buyback yesterday. Could you provide further details and outline the company's plans going forward?

And my second question goes for HS. We believe that tariffs still hold great importance this year and uncertainties continue to loom in the landscape. Can you share the status on your local production in the United States and Mexico, whether you have any plans to add more capacities in the coming future?

[Interpreted] The first question regarding the share buyback program will be answered by our CFO. And the second question regarding HS business division's production site will be answered by the Head of HS Business Management division.

[Interpreted] Let me answer your first question on our share buyback program. LGE places significant importance on shareholder returns and the enhancement of shareholder value. As disclosed in our corporate value plan announced on November 28, 2025, we outlined the following shareholder return initiatives: First, we plan to proceed with the cancellation of our remaining treasury shares, subject to approval at the upcoming Annual General Shareholders' Meeting scheduled for March 2026. Second, we plan to implement additional shareholder returns totaling KRW 200 billion over the next 2 years.

In addition, as announced yesterday through the disclosure on the decision to enter into a trust agreement for the acquisition of treasury shares, we plan to repurchase KRW 100 billion worth of treasury shares between February and September of this year. This repurchase represents the first phase of the total KRW 200 billion shareholder return plan.

Going forward, we will continue to take proactive steps to further enhance shareholder value, including follow-up actions on the previously announced shareholder return plan.

[Interpreted] Let me answer your question on HS. With the start of operations of our Mexicali plant in Mexico since October 2025, we have 3 local production sites serving the North American market, including our site in Tennessee, U.S. and in Monterrey, Mexico. We intend on expanding the share of local production through increased capacity drawn from greater productivity. We cannot provide the details, but we believe the share of local production will reach levels up to 60% by 2026, facilitated by the additional plant and enhanced productivity. Thank you.

[Interpreted] Next question, please.

[Interpreted] The following question will be presented by Bo Young Choi from Kyobo Securities.

[Interpreted] I also have 2 questions, one for MS and the other for ES. For MS, I believe that the TV industry still faces a challenging environment. What is the sales and profitability outlook for MS in 2026? Will you be able to turn a profit?

My second question is for the ES business division. AI is one of the hot topics in the world today. And I'm curious to know how are the chiller business and data center cooling solutions currently performing? And what is the outlook for 2026 and the mid- to long term?

[Interpreted] Yes. Thank you for your question. For your question on TV and MS performance, it will be answered by the Head of MS Business Management division. And for the chiller, it will be answered by the Head of ES Business Management division.

[Interpreted] Let me answer your question on MS. Sales in 2025 declined with heightened competition and dampened growth in demand for key products such as TV. For our margins, we drove greater operational efficiency through synergy across the integrated division in 2024 and added smart lines and overseas production sites and reduced raw material costs. These efforts, however, were offset by heightened competition in not only the premium but also mass-tier lineups, leading to greater competition cost and lower selling price and ultimately operating loss.

Major sporting events such as the Winter Olympics and the World Cup in 2026 may push up demand, but with headwinds such as ongoing macro uncertainty and rising prices, including memory chips, downsides on demand persist as well. Accordingly, market demand is projected to climb slightly Y-o-Y or stay at levels seen last year. For sales, the answer on demand, I hope, will answer the question.

We will increase our sales through stronger product advantage that stems from enhanced customer value. We will improve our margin with a cost advantage, coupled with greater efficiency across all of our operations. In addition, we will continue to build on our Level S and B2B business to create new demand and lead in the area. But uncertainty remains from geoeconomic shifts and the market is prone to greater competition and rising chip prices. Hence, it is difficult to comment on whether we will be able to turn a profit by the end of the year. Thank you.

[Interpreted] Now let me answer your second question for the ES business division on the chiller business status and projections. In 2025, the chiller business faced an overall challenging environment amid continued uncertainty in the global business landscape. Factors such as the implementation of U.S. tariff policies, escalating U.S.-China tensions and geopolitical risks in the Middle East and Europe led to a broad decline in investments across the global industry. In addition, the revision of Korea's Energy Use Rationalization Act had a negative impact on the chiller business as well. Despite these headwinds, orders for data centers increased threefold year-over-year.

In 2026, we expect a substantial increase in sales, driven by a full-scale expansion of new orders, previously secured overseas data center chiller projects and the expansion of high-efficiency inverter scroll products. Leveraging our One LG capabilities, we also plan to further strengthen our data center solution offerings. Furthermore, the chiller business, including data centers, remains on track toward its KRW 1 trillion total sales target by 2027. Over the mid- to long term, we aim to achieve sustained growth in both sales and profitability. Thank you.

[Interpreted] Next question, please.

[Interpreted] The following question will be presented by Sang-Jin Park from Korea Investment & Securities.

[Interpreted] I also have 2 questions, one for HS and the other for MS. For HS, your subscription business has gone through impressive expansion in 2025. Can you highlight your annual performance for 2025, including the details on sales and profit contribution as well as your direction for 2026?

And my second question goes for MS. Prices of raw materials, including memory chips and metal, are on the rise. How are you responding to this? I believe your PC and TVs are especially prone to the rise in memory prices. How will you address this?

[Interpreted] For your question on subscription, I know it involves a lot of other businesses, but it will be answered by the Head of HS Business Management division. And for our memory price rises, it will be answered by the Head of MS Business Management division.

[Interpreted] Let me answer your question on your subscription. As you have mentioned, our subscription business did undergo impressive growth, both home and abroad in 2025. With competition in the domestic market evolving to focus on subscriptions, we were able to sustain a stable growth trajectory by increasing our lineup of large white goods while identifying potential products and delivering better care services. As a result, our sales exceeded KRW 2 trillion, positioning us strongly in the market.

We see business expanding overseas as well, especially in Asia with the growth momentum is strong. Drawing on the infrastructures we have in Malaysia and Thailand, we have expanded the business to include Taiwan and Singapore, and sales have thus grown beyond 40% since last year.

In 2026, with greater offerings, especially of large white goods and addition of sales channels beyond our best shops, we will continue to drive sales growth. We will also build on our business prowess with greater improvements and efforts made across our customer touch points spanning sales, delivery, installation and care services and laying the groundwork to capture new customer base and mid- to long-term growth. We will continue to diversify our portfolios, not only through subscriptions, but also by identifying various business models such as B2B subscriptions.

[Interpreted] Let me answer your question -- second question. On the back of the surge in demand for AI servers, memory makers have rapidly reallocated their capacity to servers, resulting in supply shortage and price spikes. An unprecedented memory super cycle has begun, which will weigh on supply over long term. This prompts us to proactively seek closer ties with our memory partners and ensuring stability in supply and across the supply chain.

In detail, our strategies involve the signing of supply MOUs with key partners, supplier diversification, dual sourcing and closer cooperation with suppliers for stockpiling to ensure overall stability across our supply chain. But it will be hard to dismiss the rise in cost, and the pressure is especially high among memory-intensive products. We will, therefore, mitigate the impacts on our margins through partial price raise, additional cost reductions, optimizing our specifications and modifying our portfolio to be centered on premium products. Thank you.

[Interpreted] Next question, please.

[Interpreted] The following question will be presented by Junseo Park from Mirae Asset Securities.

[Interpreted] I have 2 questions, one for the logistics and the second for the VS business division. For the first question, what were the logistics costs in the fourth quarter of 2025? And what is the logistics cost outlook for 2026? And how is LGE going to manage through its strategies?

My second question for the VS business division is, recently, the business division has seen a stable profitability throughout the quarter. And how does the LGE look at this throughout the quarter? And also, what is the VS business division's mid- to long-term target profitability?

[Interpreted] The first question regarding logistics costs will be answered by the Head of Investor Relations division. And the second question on the VS business division's profitability, which is also one of the things that we're very proud of, will be answered by the Head of VS Business Management division.

Let me walk you through the fourth quarter 2025 logistics cost. Logistics costs in the fourth quarter of 2025 increased slightly year-over-year, largely attributable to higher warehousing and trucking expenses driven by inventory replenishment to meet order demand from major U.S. retail partners.

For 2026, following the results of the 2026 ocean freight bidding process, completed in December 2025, we expect ocean freight rates to decline compared to the prior year. However, cost pressures related to trucking and warehousing are expected to persist in 2026, reflecting rising labor costs and inflation across major global markets. In response, we have continued to launch tasks and initiatives to enhance logistics efficiency across our subsidiaries with a particular focus on the U.S. to further improve profitability.

[Interpreted] Let me also answer your second question regarding the VS business division's profitability management and the mid- to long-term target profitability. While heightened macroeconomic volatility driven by a prolonged EV chasm, the rollback of environmental policies and ongoing tariff issues continues to pose challenges, we are strengthening our monitoring efforts and deepening collaboration with global OEMs to build an agile operating framework that allows us to flexibly respond to changing market conditions.

Through continued improvement in our product mix and ongoing optimization of operating expenses, we remain committed to securing solid profitability over the long term. As EV demand gradually recovers, we expect sales growth to be supported by a solid order backlog. Over the mid- to long term, our goal is to achieve profitability approaching high single-digit levels. Thank you.

[Interpreted] Next question, please.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions] Currently, there are no participants with questions. We will wait for a second until there is another question.

[Interpreted] This is Friday afternoon. We will end our earnings call here. This brings us to the end of LG Electronics earnings release conference call for the fourth quarter of 2025. We're very happy to give out good news regarding shareholder returns and our raise of credit rating. If you have any further questions, please contact the IR team. Thank you.

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

[Interpreted] Good afternoon, and welcome to LG Electronics Quarterly Earnings Conference Call. This conference call will begin with a presentation on the earnings results, followed by a Q&A session.[Operator Instructions].

Now I would like to turn the call over to the first speaker.

[Interpreted] Good afternoon. My name is Wonjae Park from Investor Relations. Thank you for joining our earnings call for the third quarter of 2025. With me are CFO and EVP of LG Electronics, Chang-Tae Kim; SVP of HS Company, I-kueon Kim; SVP of MS Company, Sang-Ho Park, VP of VS Company Jin-Yong Kim, VP of ES Company, Jaesung Lee; VP of Corporate Business Management, Jung Hyun Park; VP of Accounting, Hong Su Lee, VP of Finance, Chang-Tae Kim; and Head of ESG Strategy, Hong Sung-min.

Today's presentation will proceed as follows. Our CFO will begin by presenting our third-quarter results, the fourth-quarter outlook, and the progress and outcome of our recent IPO for LG Electronics India Limited. I will then present the key financial highlights of the third quarter. Following that, each business will present its individual results and outlook. Finally, we will conclude with an overview of our ESG activities and achievements.

Please note that all statements we make today regarding the financial results of the third quarter are subject to change in accordance with external review. Actual results may differ from today's outlooks and forward-looking statements due to market uncertainties and strategic changes. Now let us begin with the performance of the third quarter of 2025 and the outlook for the fourth quarter.

[Interpreted] Good afternoon. I'm Chang-Tae Kim, CFO of LG Electronics. Our consolidated Q3 financial results show sales of KRW 21.87 trillion and operating profit of KRW 688.9 billion. Q3 revenue remained at a similar level to last year despite a slowdown in the display business caused by global demand contraction and intensified competition. We continued to achieve qualitative growth driven by our subscription business and online direct sales.

Operating profit declined year-over-year due to intensified global competition and a one-off cost increase related to workforce management efficiency improvement. This can be seen as a preemptive move to enhance competitiveness and build a more dynamic organization.

U.S. tariff impacts, geopolitical risks, and the resulting contraction in consumer sentiment are likely to persist into Q4. Intensifying competition continues to put pressure on business operations. We are optimizing our production footprint by leveraging our global operations and applying scenario-based strategies to address challenges such as price increases, aiming to minimize tariff impacts.

Following our successful IPO in India, we will drive sales growth in the high-potential global South and strengthen our position in advanced markets through region-specific strategies. We will accelerate the growth of new business models, including subscription services, the webOS platform, and online direct sales, while further expanding automotive electronics, HVAC, and other B2B businesses to drive qualitative, sustainable growth.

Mid- to long-term business fundamentals will be reinforced through proactive measures to build a dynamic organization and a strong commitment to improving our cost structure. I would like to share recent progress and future plans regarding the IPO of our Indian subsidiary.

To accelerate our growth in India, a market with robust economic momentum, we listed LGE India Limited on the Indian Stock Market on October 14, achieving 54x oversubscription, the highest fundraising in India's IPO market since 2008. This exceptional local investor demand drove our market capitalization to over KRW 18 trillion. During the IPO, LGE sold 15% of its headquarters-held shares in the Indian subsidiary to the market. The proceeds, about KRW 1.8 trillion were remitted to headquarters after deducting taxes in accordance with Indian tax regulations.

Since entering India in 1997, we have built a fully localized business covering production, sales, and service, maintaining the #1 share in the home appliance market and strong brand recognition. We believe this IPO will mark a significant milestone towards becoming a true national corporation of India.

Through our Make for India reports, we will continue delivering products tailored to local lifestyles. We will also strengthen our localized value chain, including our third manufacturing facility now under construction, under our Make in India vision. With Make India Global, we aim to drive sustainable growth and support India's rise on the global stage. Building on these efforts, we will further advance our global South strategy, enhancing our business and reinforcing our position as a leading global company.

I will now briefly review the Q3 2025 performance of enterprise-wide operations in each business.

Our consolidated financial results for Q3 are KRW 21.87 trillion in sales and KRW 688.9 billion in operating profit. HS recorded KRW 6.58 trillion in sales and KRW 365.9 billion in operating profit. HS recorded KRW 6.85 trillion in sales and KRW 302.6 billion in operating loss. VS recorded KRW 2.64 trillion in sales and KRW 149.6 billion in operating profit. Lastly, VS recorded KRW 2.16 trillion in sales and KRW 132.9 billion in operating profit.

Since Q1, we have dedicated a separate focus to B2B and subscription businesses, which are core drivers of qualitative growth in our portfolio transformation, as mentioned by our CFO. In Q3, B2B IT sales targeting corporate clients declined year-over-year due to weaker demand. However, solid growth in built-in appliances supported overall year-over-year sales growth. The contribution of B2B to total sales also showed a slight improvement compared to last year.

In the subscription business, we further strengthened our competitive advantage in the Korean market through differentiated care services, maintaining strong growth momentum of over 30%. Overseas, the subscription business continues to grow steadily, expanding into new markets such as Singapore this year, following Malaysia, Thailand, and Taiwan. Although still in its early stages, rapid overseas expansion has increased the contribution of international sales to overall subscription revenue year-over-year. We remain committed to driving growth by further advancing our portfolio in areas such as B2B and subscription.

Moving on to the income statement and cash flow for Q3. Reflecting financial income and expenses, equity method gains and losses, other non-operating items, corporate tax, and discontinued operations, Q3 net income was KRW 461 billion. Now let's look at cash flow. Cash flow from operating activities was KRW 1.63 trillion, while cash flow from investing activities was negative KRW -1.76 trillion, resulting in a net cash flow of KRW 694 billion. When reflecting cash flow from financial activities of negative KRW -311.6 billion, the cash balance at the end of Q3 stood at KRW 7.95 trillion, a KRW 382.4 billion increase from the previous quarter.

Key financial position and indicators for Q3 2025 are as follows: At the end of Q3, assets stand at KRW 67.2 trillion, liabilities at KRW 40.3 trillion, and equity at KRW 26.9 trillion. Leverage ratios, including liability to equity, debt to equity, and net debt to equity, remain at healthy levels. Now we will hear from each business company regarding its Q3 results and Q4 outlook, beginning with HS.

Here are the Q3 results for the HS business. Global appliance market sentiment was slow to recover due to tariff, a weaker outlook for rate cuts, and geopolitical risks in Europe and the Middle East. Nevertheless, we achieved year-over-year growth through our 2-track strategy targeting both premium and volume segments and expanding online and subscription businesses. Operating income remained on par with last year despite the full impact of U.S. tariff changes, supported by sales improvement initiatives such as increased sales volume and price adjustments, along with cost-cutting measures through site optimization, manufacturing cost reductions, and improved cost efficiency.

Looking ahead to the fourth quarter, recovery in global appliance market demand remains uncertain with ongoing challenges further intensifying competition. In response, we will work to sustain sales growth momentum by continuing our 2-track strategy, accelerating the growth of incubating products, and enhancing our portfolio through qualitative growth in B2B, online, and subscription businesses.

To mitigate the impact of U.S. tariff policies, we aim to improve year-over-year profitability by implementing scenario-based measures, optimizing our cost structure, and reducing fixed costs.

Let's now turn to the Q3 results for our MS business. Sales rose quarter-over-quarter in preparation for the peak season but fell year-over-year due to stagnant demand for TVs and other hardware, as well as intensified competition. Operating income declined both quarterly and annually, impacted by higher competition-related costs and a one-off voluntary retirement expense aimed at fostering a virtuous workforce cycle.

Our outlook for the fourth quarter is as follows: Demand stagnation is expected to persist as consumer sentiment weakens amid macroeconomic uncertainties, including rising protectionism and unclear timing and scope of interest rate cuts. To address these challenges, we will focus on improving profitability through enhanced operational efficiency while sustaining growth momentum via expansion of the webOS platform and implementation of our global South strategy.

I will now review the Q3 results of VS company. Despite sluggish sales in Europe, sales conversion from our stable order backlog allowed us to sustain year-over-year growth momentum. Operating profit improved both quarter-over-quarter and year-over-year, driven by operational cost optimization and proactive cost improvement initiatives. Here is our outlook for the fourth quarter. Global market demand is expected to contract or remain stagnant, except in China, due to changes in EV subsidy policies in the U.S. In response, despite significant shifts in the external environment and rising macroeconomic uncertainties, we will work to secure stable profitability by continuously improving our product mix and cost structure while further enhancing operational efficiencies.

Let me outline the Q3 results of ES Company. Despite lower overseas sales from uncertainties like tariff impacts and rising geopolitical tensions, and weak consumer sentiment, overall sales rose slightly year-over-year, driven by our successful capture of peak season demand for residential ACs and dehumidifiers in Korea, along with increased subscription and online direct sales. Profitability decreased year-over-year as higher sales deductions and increased labor costs from hiring for key businesses offset the positive impact of solid domestic sales and improved material costs.

Next is our outlook for the fourth quarter. The Korea market is forecast to shrink, facing headwinds from seasonal demand slowdown, reduced government support, and a downturn in the construction market. In overseas markets, uncertainties are likely to persist, primarily due to U.S. tariff policies. In response, we will aim to sustain growth momentum by accelerating portfolio transformation towards subscription business and online direct sales while expanding our overseas presence with new domestic models and locally tailored products. For profitability, we will closely monitor developments in U.S. tariff policies and continue to strengthen our cost competitiveness.

Finally, let's turn to our ESG activities and achievements. Our HVAC solutions are gaining recognition for their sustainability. TÃœV Rheinland verified that our system AC units reduced CO2 emissions by 14.85 kilograms per unit through a physical foaming process that decreases plastic consumption. Furthermore, our BEMS at the Pan Institute of Technology was recognized by the Korea Energy Agency for achieving an average annual energy saving of 8.4% over 3 years, becoming the first system to receive a validity period extension under the BEMS installation certification.

We are also enhancing the competitiveness of our high-efficiency AI-powered appliances. We have signed an exclusive contract with Century Communities, a major U.S. homebuilder constructing over 10,000 homes annually, to supply newly built homes with our high-efficiency AI-powered appliances through 2029.

LGE won awards for 13 of the 45 green products of the year, the most for any company, from the Green Korea Green Purchasing Network and its partners, marking our record-breaking 16th consecutive year of being honored. Lastly, we are broadening our range of products and services to ensure accessibility for all. We launched the LG Easy TV for seniors, featuring an easy-to-use home screen in video calls and medication reminders. Additionally, our Easy Home Appliance project, an employee volunteer program, will partner with 20 welfare centers nationwide to help customers with disabilities confidently use our products.

LGE remains committed to achieving sustainable technological competitiveness and building trust through products and services that serves everyone. This brings us to the end of LG Electronics' third-quarter earnings release and the fourth quarter outlook for 2025. We will now take questions. Operator, please commence with the Q&A session.

[Interpreted] [Operator Instructions]

The first question will be provided by Peter Lee from Citigroup.

[Interpreted] I have 2 questions, one for the company as a whole and one for MS.

First of all, I would like to congratulate you on the successful listing of your Indian subsidiary. I would like to ask, how do you plan on using the funds from secondary sale of your stakes in the Indian subsidiary?

And my second question is on MS. I understand that you have seen a growth in webOS-based platform business. However, at the circumstances when hardware competitiveness is becoming weaker, do you believe that your software competitiveness would also follow this trend? I would like to ask the countermeasures of your company.

[Interpreted] Thank you for your question. With regards to your IPO question, it will be answered by our CFO for the MS. It will be answered by the MS company. Thank you.

[Interpreted] On how we intend on using the proceeds from the listing, various options, including funding our mid- to long-term growth engines and building on our existing business are being reviewed, and we are bearing in mind our commitment to raising our corporate and shareholders' value.

We have been proactive in identifying inorganic growth opportunities across our key business portfolios, including HVACs. And this year, we have harvested actual results as exemplified by our acquisition of the Norwegian company, OSO.

We recognize the importance of being equipped with the relevant capabilities across our growth trajectory and making fast headway, which is why we will take more proactive and bolder steps with our investments, drawing on the added capital. In addition, we also deem it necessary to invest in streamlining the operations of our key business as well as our overall cost structure. And finally, enhancing our shareholders' values also stands as an important consideration.

Decisions on how much capital we will allocate will be made upon keen review in light of our current cash flow, and we will ensure to communicate with the market as soon as details have been decided. Thank you.

[Interpreted] Your question in regards to WebOS platform will be covered by MS. While overall TV demand has remained stagnant, intensified competition among manufacturers has led to a year-on-year decline in our TV sales this year. However, in the webOS platform market, despite the increasingly competitive environment, LG Electronics have added 70 million units to our installed base over the past 3 years, reaching 260 million units as of 2025, expanding our ecosystem.

On the back of this growth, our revenue has increased by more than 60% year-on-year, surpassing KRW 1 trillion by the end of 2024, while maintaining a solid double-digit operating profit margin.

To strengthen the inherent competitiveness of our platform business, WebOS, we firstly aim to boost hardware sales to expand the installed base of our webOS platform. At the same time, we're also pursuing to convert the existing LD Smart TV owners but who are not users of webOS services into active users.

In addition, through the webOS hub business that expands the application of webOS to TVs from other brands, we are also working to broaden the base of webOS platform users and secure a larger business scale. We plan to more than double the current volume by year 2030, and the expanded base will serve as a foundation to accelerate growth in advertisement and content revenue.

Beyond the TV segment, we plan to extend the webOS ecosystem into smart monitors, digital signage, mobility, and others, thereby enlarging our business base. And from a development standpoint, we're working hard to build an ecosystem where various devices are seamlessly connected and work together.

Last but not least, in the advertising market where the competition is becoming fiercer, we plan to leverage our usability data and develop new products to protect our CPM rates while strengthening our sales capabilities and fill rates in key markets.

In addition, through efficient content investment, we aim to grow monthly active users and viewing time, driving the continued growth of our platform business.

[Interpreted] The following question will be presented by [ Minkyo Kim ] from Hana Securities.

[Interpreted] I also have 2 questions, one for the company as a whole and one for VS. For the company, there were press reports on the corporate-wide voluntary buyouts offered in quarters 3 and 4. What were the costs incurred from these voluntary buyouts?

And my second question is on VS. Despite the uncertainties in macro economy, I believe that your performance remained very well. I would like to listen to your projections on the second half and next year.

[Interpreted] I think the question on the voluntary buyouts will be answered by the IR division, and the one on VS by VS Company.

So starting with the voluntary buyout question. As part of our efforts in fueling our mid- to long-term competitive edge and reshaping our workforce, we have started to offer voluntary buyouts as of quarter 3 for MS and certain other divisions and as of quarter 4 across the entire company.

Cost involved for the voluntary buyout offer during quarter 3 stood at KRW 100 billion. But for quarter 4, it is difficult to provide the numbers as we are still in the process of accepting the resignations. And we ask for your understanding in this regard. The recent buyouts may weigh on our short-term costs, but we expect it to serve as a positive turnaround starting next year in streamlining our fixed cost over mid- to long term and revitalizing our organization.

I would like to answer your question about VS. Despite various uncertainties, we are seeing a solid sales growth and steady profitability improvements continue, driven by EV mix enhancements and profitability structure initiatives that help us overcome the effects of EV. Sales–wise, we have continuous growth momentum supported by rising orders from European OEMs and a stable order backlog. However, in Q4, we expect the potential headwinds from factors such as stagnant EV demand and discontinuation of U.S. EV subsidies, which may lead to temporary adjustments in OEM shipment volumes.

To address these challenges, we are preparing strategies such as expanding ATX sales, establishing an operating system that enables us to respond flexibly to market conditions through continuous monitoring and forecasting of risks of prolonged EV demand slowdown.

For the recent changes in U.S. tariff policies are creating uncertainties that affect not only us, but also global OEMs and Tier 1 suppliers. In other words, the changes are not a risk unique to our company. However, we would like to work closely with our customers, aiming to reduce the overall risk and keeping our own risk to a minimum.

As for operating profit, there may be some quarterly profitability fluctuation due to macroeconomic uncertainties affecting sales and increased future R&D costs related to SUV. However, we aim to maintain solid profitability well beyond 2026 through enhancing our operation structure from a breakthrough perspective, such as making continuous improvements in product mix, strengthening collaboration with OEMs, and optimizing operating costs. Thank you.

[Interpreted] The following question will be presented by Jong Wook Lee from Samsung Securities.

[Interpreted] I have brought 2 questions. And my first one is on HS. Could you walk us through how U.S. tariffs, including mutual tariffs and those on steel-related products have affected your costs in Q3? It will be also appreciated if you can add more color on adjustments on your average selling prices and the following impact on demand.

And also, please share any additional response measures you're currently pursuing, if any. My second question goes to ES. What is the trajectory like for your growth strategy on chillers and cooling solutions for data centers? 

[Interpreted] The first question on U.S. tariff will be covered by HS Business Management division. And the second one about chiller business will be covered by ES. 

This is your answer. This is the answer on your question about HS. As expected, the impact from tariff imposition began to materialize in earnest from Q3. The effects of our proactive countermeasures have also been expanding. Corporate-wide, the impact from tariffs reached KRW 600 billion. However, we have successfully managed to hedge a significant portion of the tariff impact through initiatives such as production site optimization, price increases, and improvements in our cost structure.

In the U.S. market, according to shipment data released by Association of Home Appliance Manufacturers, Cumulative shipments in the U.S. home appliance market grew by 0.1% in Q3, maintaining last year's level. However, considering the advanced purchases made by distributors before the tariffs took effect, it is difficult to view this as genuine market demand growth. 

On the other hand, thanks to new product launches and the efficient execution of our sales programs, our cumulative growth in Q3 rose by 2.2%, outperforming overall market demand.

Selling price strategies are under review, considering multiple perspectives, such as a slight upward trend in the industry detected in Q3 and the ongoing competitive promotional activities during key seasonal periods. By working closely with our distributors, we are maintaining our U.S. market share through prudent yet effective operations. In the second half, we are witnessing greater tariff impact than the first one. Nevertheless, we will overcome the circumstances through additional countermeasures, particularly cost reduction activities centered on production site optimization. 

We are expanding supply from our U.S. and Mexico production sites. And for washing machines, we have added a new production facility in Mexico, starting in October, securing greater flexibility in responding to tariffs. Thank you. 

Let me answer your question on chillers. We provide a diverse lineup of best-in-class chillers ranging from our turbochillers serving large capacities to scroll chillers suitable for mid- to small loads. We are driving the momentum of our growth as we evolve from being a product-only provider to delivering services like maintenance. We are able to provide highly efficient and eco-friendly cooling solutions with the development of our proprietary magnetic bearing compressors and high-capacity inverters, both of which are core technologies. 

Drawing on these solutions compared to 2024 and 2025, we expect to achieve 17% growth in our orders, which includes major global projects, and we continue to ramp up the orders. 

This year, we expect bookings in data centers to triple compared to 2024, which will continue to gain traction moving forward. Orders for large-scale projects have already been made in North America, which continue to be added. In Asia, together with LG CNS and LG Energy Solutions under the One LG solution strategy, we have successfully been selected to provide a cooling solution to spin our mouth. 

In the Middle East, our chillers are currently being supplied to an 800-megawatt hyperscale data center, while an MOU has been signed with Saudi Do, which will pave way for greater opportunities in the Middle East. 

For liquid immersion cooling, we were able to position our capabilities in AI thermal management, a step further as we partnered with the U.S. GRC to enhance our tech CS. Furthermore, we plan on hiring workforce across multiple functions from R&D, engineering, and sales as part of our commitment to build on our technology and well respond to the global market. 

In assisting data centers to address high heat loads driven by AI servers, we have developed our direct-to-chip cooling solutions, the coolant distribution unit, which will be ready for commercialization by the end of the year. The partnership we have underway with the global tech player, Microsoft, has proven the technology of our CDU, which will pave the way for greater business opportunities in the data center cooling business. And proactive collaboration is also being sought after with leading players, including AWS and NVIDIA.

Integrating our high-efficiency chillers with data center cooling solutions as a new business model, we will advance ourselves to providing cooling solutions encompassing the entire value chain from system integration and operation to services. This commitment will guide us in driving our chiller business to becoming a KRW 1 trillion unicorn business within the next 2 years. Thank you. 

[Interpreted] The following question will be presented by Hyun Ji Cho from DB Securities. 

[Interpreted] I also have 2 questions, one for the company as a whole and one for HS. For the company, you have emphasized the importance of your qualitative growth areas. Can you share on the progress and your future cadence? And my second question is on HS. Interest in the robotics industry, including humanoids, has been steadily growing. I would like to know the current status of customer acquisition of your robotics business, and also your future business strategy as well. Additionally, could you share your plans for further M&A or a road map for business expansion? 

[Interpreted] Thank you for your questions. Your question on qualitative growth will be answered by our corporate business management, while for the Robotics business, it will be answered by HS. 

Let me answer your question on qualitative growth areas. Though uncertainties remain across the business landscape, we are committed to reshaping our business structure with the transformation of our portfolios, and we have reaped actual results in qualitative areas, including B2B, non-hardware, and D2C that post huge growth potential as well as opportunities to improve our profitability. Our qualitative growth areas contributes to 45% of our entire sales, while profitability continues to gain upward momentum. Let me provide you with the details. 

As a start, our B2B sales have already surpassed 35% of the company's entire sales, positioning the business as a key area. Of our B2B, automotive electronics have sustained a stable order backlog, standing at KRW 100 trillion realized with better product mix and growing customer pipeline against the stagnant demand. 

For smart factories, one of our future growth engines, we expect our sales from orders to surpass that of our 2025 target as we extended our customer base of group affiliates to encompass external clients. Going forward, we will scale the business to unlock KRW 1 trillion in sales within the next couple of years, drawn from business overseas as well as orders in verticals for semiconductors, biologics, and heavy industries equipment. 

For HVAC, we have seen continued momentum in our orders for large-scale projects driven by our proactive entry into the global market. Currently, in the limelight, chiller bookings for data centers have surpassed this year's target, expected to jump threefold from last year, supported by orders from large-scale data centers across key regions, including the Middle East, North America, and Asia. 

We are also generating meaningful results in subscription and direct online sales, both qualitative businesses stemming from innovations in our original business models. The fast transition to subscriptions across our products and channels in Korea has delivered, as of the third quarter this year, sales growth at high 20% Y-o-Y and an account growth of mid-10% Y-o-Y. Starting with Malaysia, which recorded as of third quarter this year, more than 50% sales growth Y-o-Y. We are fast expanding our footprint further to Thailand, Taiwan, and Singapore. 

For non-hardware, our webOS runs not only in 260 million of our own smart TVs, but is available in more than 10 million of our partner smart TVs, demonstrating the growth of our platform base and overall ecosystem. Fast extending our footprint from North America to encompass other regions such as Europe and Asia, we will drive the momentum of our sales growth with a better selection of content and services while scaling the contribution of our profitability. 

Our commitment to seek sustainable qualitative growth are not just empty words, but one bearing tangible outcomes. And we will continue to focus our resources where needed to well-position these business areas in fueling our future growth. Thank you. 

Your question about robotics business will be covered by HS. Recently, humanoid-related technologies have been making rapid advances, particularly in China and the United States. In China, hardware companies offering humanoids with strong price competitiveness are being introduced, while in the U.S., major big tech players are focusing on securing RSM technologies that can enable diverse and precise motion control. 

In line with these developments, we are exploring solutions that can dramatically reduce household labor and are concentrating our efforts on related technology research. To accelerate our capabilities, we are actively collaborating with external partners and discussing potential cooperation in the humanoid business with leading big tech companies. We are even open to actively considering investment opportunities in case there are partners that can help us secure technology and commercialize our solutions. 

Ultimately, our goal is to expand our business in the home domain. However, given the many variables in this area, we are prioritizing the enhancement and stabilization of robot functions through trials in more structured environments and scenarios before entering the home market directly. We continue to seek and prepare for opportunities that align with this direction, and we expect to share related updates with you in the near future. Thank you. 

[Interpreted] The following question will be presented by Eoyeon Hwang from Nomura Financial Investment. 

[Interpreted] According to press today, I've heard that there will be a collaboration underway between NVIDIA and LG Electronics. Could you provide the details? 

Yes, I understand that there are many companies that would seek collaboration with NVIDIA, and LG Electronics is one of them. So if I could elaborate in detail, leveraging the diverse AI platforms delivered by NVIDIA, we are pushing the momentum in raising our POS in robotics. We are developing proprietary physical AI models drawing on NVIDIA's humanized model, Isaac GR00T. 

Both companies understand that physical AI is at the center of ensuring high-quality data as well as a diverse training environment, and we intend on enhancing the cooperation on generating training data as well as the training of reinforced learning robots. The data that we are accumulating across various areas, from the home, automotive electronics, industry, and the commercial area, will be leveraged to build on our data for physical AI. 

So you've also heard of our chillers as well. Our cooperation can also reap synergy in our data center solutions, our future growth engine. Our CDU, a core technology in liquid immersive cooling, is currently being verified by NVIDIA. 

We understand that currently, NVIDIA is a leader in AI business, and we believe that with a strategic partnership underway, we LG Electronics will also be able to lead the innovations in future technology and future growth. Thank you. 

[Interpreted] Currently, there are no participants with questions.  [Operator Instructions]

[Interpreted] I think we are out of time at the moment. So this brings to the end of the earnings call for our third quarter performance. And I think there were a lot of questions asked today. If you look at our performance for this year, I believe that there were many difficulties considering the uncertainties in the environment, including the voluntary buyouts that we have currently offered. But then be rest assured that starting next year, we will be committed to delivering our goals and our targets. So we will appreciate it if you could support us throughout our journey. Thank you.