LOTTE CHEMICAL Stock

[Interpreted] Good afternoon. I am Young Kyung Hwang, Head of IR at LOTTE Chemical. Thank you for taking the time out of your busy schedules to join us for LOTTE Chemical's earnings conference call. On today's conference call, we will first provide a brief overview of our financial results for the second quarter of 2026. This will be followed by remarks from our CFO on key management issues, after which we will proceed to a Q&A session.

Please note that simultaneous interpretation will be provided during the presentation, while consecutive interpretation will be provided for the Q&A. Today's presentation materials are available for download from our website.

Let me now introduce the executives joining us on today's earnings call. Joining us today are Nak-Seon Sung, CFO; Min-Woo Kim, CSO; Giseop Kwak, Head of the Corporate Planning Division for the Basic Chemicals; Yoon-Seok Kim, Head of Sales; and Kyung-Sun Park, Head of Corporate Planning Division for Advanced Materials.

Next, let me walk you through our business performance for the second quarter. Please turn to Page 2 for our consolidated second quarter financial results. Revenue for the second quarter of 2026 was KRW 5,689.4 billion while operating profit came in at KRW 110.1 billion, posting an improvement Q-o-Q. In Q2, the product spread of key business areas widened, leading to improved profitability over the previous quarter.

EBITDA came in at KRW 458.1 billion. Profit before tax and net income were KRW 242.4 billion and KRW 194.4 billion, respectively. Pretax profit improved significantly over the first quarter due to the increase in gains on equity method valuation on the back of earnings recovery of the major subsidiaries as well as the impacts from the valuation gains on derivatives owing to the changes in the FX rate.

Next is the consolidated financial position. As of the end of the second quarter of 2026, total assets stood at KRW 32.8 trillion, total liabilities at KRW 14.2 trillion and total equity at KRW 18.5 trillion, and the debt-to-equity ratio posted 76.8%, similar to last quarter.

Next is performance outlook by business. First, Basic Chemicals. In Q2 2026, Basic Chemicals' business recorded revenue of KRW 3.9403 trillion, operating profit of KRW 2.3 billion and operating margin of 0.1%. Profitability in Q2 declined Q-o-Q despite improved spreads for key products due to scheduled maintenance and the lagging effect from feedstock price volatility. In Q3, as global demand recovery continues to lag, increased volatility in raw material prices is likely to prolong market uncertainty as well.

Next, Advanced Materials. In Q2 2026, revenue was KRW 1.1551 trillion, operating profit, KRW 132.5 billion and operating margin, 11.5%. Profitability improved significantly Q-o-Q due to wider spreads for key products and the FX effect. In Q3, product spreads are expected to slightly narrow Q-o-Q due to the softening of the spread improvement stemming from rising raw material prices that were captured in Q2. Despite that, based on the high value-add product portfolio, we believe that we will be able to maintain our solid profitability.

Next, LOTTE Fine Chemicals. The details were shared in the earnings release on July 30, so I will only go through the highlights. Revenue in Q2 was KRW 586.3 billion, and operating profit was KRW 61.9 billion with operating profit margin of 10.6%. Results improved Q-o-Q, thanks to higher international prices for major products, increased sales volume and exchange rate effect. In Q3, with upstream industries remaining flat, downward pressure on major products prices is expected to continue, but solid profitability is expected to continue as well.

Last, LOTTE Energy Materials. Again, details were already covered yesterday at the earnings conference call, so I will only run through the highlights. Revenue in Q3 was KRW 194.2 billion, and operating loss was KRW 16.9 billion. Although Q2 sales volume increased, profitability declined as the positive lagging effect reflected in the previous quarter were eliminated. In Q3, sales volume is expected to rise with expanding demand for AI and ESS, and we plan to meet growing customer demand and strengthen our growth foundation through the ramp-up of a new overseas plant.

That concludes the Q2 2026 results presentation. I will now hand over to our CFO, Nak-Seon Sung, who will discuss our results and key management issues.

[ Interpreted ] Good afternoon. This is Nak-Seon Sung, Head of Finance at LOTTE Chemical. I thank the investors and shareholders who joined our Q2 2026 earnings conference call despite your busy schedule.

I will briefly review our financial performance. Geopolitical issues in the Middle East continued to create global supply chain uncertainty this quarter, leading to increased volatility in raw material and product prices and a challenging business environment. In this environment, we optimized operations with a focus on profitability. There was some favorable feedstock lagging effect and based on the feedstock competitiveness of our U.S. ethane cracker business and improved results in Advanced Materials and Fine Chemicals, we maintained profitability on a consolidated basis for a second consecutive quarter. Given that domestic and external volatility is likely to continue, we will further strengthen our ability to respond to market changes and maintain profitability-focused operations.

Despite the difficult environment, we are steadily moving ahead with strategies to reinforce our fundamental competitiveness and build a medium- to long-term growth foundation. First, we are actively participating in the government-led petrochemical industry restructuring to solidify fundamental competitiveness of our Basic Chemicals business. In Daesan, the spin-off procedure was completed in June, and the integrated company with Hyundai Chemical will be launched in September to begin full scale integrated operations.

Yeosu received government approval for its restructuring plan, and we will proceed with splitting off of the Yeosu plant and establishing an integrated operating system with Yeochun NCC. These integrated operations are expected to improve operational efficiency and product portfolio synergy and to gradually strengthen financial soundness through asset and capital structure optimization.

Through the restructuring, we will heighten competitiveness of our Basic Chemicals business, while reducing its relative share and build a more balanced portfolio by fostering high-value businesses in Advanced Materials and Fine Chemicals. For longer-term growth, in Advanced Materials, we are moving ahead with the Yeochun compounding project on schedule to expand functional and high-value businesses, targeting completion and commercial operation within the year. This will help enhance our compounding production capabilities and to continue increasing the share of high-value specialty products such as Super Engineering Plastics.

In Fine Chemicals, we continue to invest in and develop technologies for high-growth, high-value materials like semiconductor and medical-grade materials. We are also expanding capacity for TMAH, a precursor for semiconductor developers to actively respond to growth in the semiconductor materials market. Along with such portfolio upgrade, we are keeping up our work to improve our balance sheet through investment optimization and cash flow focused management. With the completion of our longstanding large investment projects, future investment levels will be managed at a more stable pace, and we expect to run our finances based on the principle of keeping investment within EBITDA. We will consistently maintain selective investment that considers growth and profitability and to keep conservative financial management.

To our investors and shareholders, while uncertainties persist around the petrochemical industry, we remain unwavering in our push to strengthen competitiveness through restructuring, upgrade our portfolio towards higher-value businesses, nurture future growth areas and improve our financial structure. We will continue to respond flexibly to market changes, build a sustainable growth foundation and enhance corporate value. As always, we will do our utmost to meet your expectations and trust. Thank you.

[ Interpreted ] [Operator Instructions] The first question will be provided by YeongSu Shin from Shinyoung Securities.

[ Interpreted ] I have 2 questions. The first is the outlook for the second half. So for the Basic Chemicals and the Advanced Materials, can you give us an outlook for the second half going forward? And my second question has to do with what has been reflected in this quarter. So in terms of the inventory valuation gains and losses, what has been reflected? And also other one-off items that has been reflected, if you can share those information.

[ Interpreted ] So this is Seon-Nak Sung, the CFO. Let me take your question about the outlook for the second half. So in the case of the Basic Chemicals, we believe that the tight supply situation and also the strong prices that we have seen in the first half will be somewhat eased. And also going into the second half, the feedstock prices changes and also the supply of new volumes will have an impact. Also, we will sequentially reflect the changes in the consolidated earnings structure in line with the business restructuring of the domestic industry.

In the case of Advanced Materials, we have been managing our pricing very flexibly and also the spreads have improved. And so this was reflected in the performance. Going into the second half, we believe that the major factors that will be affecting the performance of these businesses will be the recovery of demand of the downstream business, as well as the economic recovery trends. And also, we will be focusing on our strategic customers and also pursue further expansion of our high value-added products.

[ Interpreted ] This is Giseop Kwak, the Head of Corporate Planning for the Basic Chemicals. So let me take your question about the second quarter inventory asset valuation losses and also the one-off losses pertaining to the T&I. In the case of the Basic Chemicals, there were losses related to the valuation of inventory was recognized in the second quarter and the losses came to KRW 100 billion. The main reasons was owing to the impact of the Middle East war. In the second quarter, the naphtha prices rose in the month of April to May and then it sharply decreased in the month of June. And accordingly, the sales prices also fell, and this led to increased losses for the valuation of inventory in the month of June.

In the case of the Malaysian business and our Indonesian business as well, they have business structures that are based on naphtha. And so they are impacted by fluctuations in the feedstock prices. So due to reasons similar to Basic Chemicals in the second quarter, losses -- similar level of losses related to valuation of inventory occurred.

Next, I'm going to talk about the impact on the earnings by the T&A (sic) [ T&I ]in the Yeochun NCC. LOTTE Chemical undertook in the first half our scheduled T&1 for the Yeosu plant with the aim of ensuring the reliability of our facilities and long-term safe and stable operation. In order to enhance the efficiency of our measures to respond to the risk arising for -- from the Middle East conflict on our supply chain, compared to our original schedule, we undertook the T&I earlier than the original plan and the feedstock that was secured during the T&I period was utilized in the operation of other facilities, thus maintaining production stability.

Also during the T&I period, we have given prior notice to our customers, and we have engaged in consultations with our customers regarding the reduction in the production volume during this period. And so we have responded in a way that ensured that there was no disruption in the supply of our products to the customers.

During the T&I period, there was a reduction of the production and sales volume and also due to the delay in the schedule for restarting, around KRW 50 billion of one-off losses had occurred.

Going into the second half, with the completion of the turnaround, we are looking forward to positive impact, including increase in the production efficiency. This is all. Thank you.

The following question will be presented by Parsley Ong from JPMorgan.

So can I clarify, earlier you mentioned, I think, KRW 100 billion inventory loss in Basic Chemicals and KRW 200 billion inventory loss in Titan in second quarter. So total KRW 300 billion inventory loss. Then despite that, you got KRW 110 billion OP in 2Q. So can you help me quantify how much was the positive impact from feedstock lag so that we can get a sense of how much of your second quarter earnings was core recurring earnings versus one-off caused by the oil price volatility?

And the second question is now that your Daesan restructuring is completed, if we -- could you just tell us or share with us the expected impact on your OP versus equity method income? For example, if we use the second quarter earnings as an example, then theoretically, going into third quarter, how much would your OP and equity method income change by?

[Interpreted] This is the CFO, Sung Nak-Seon. Let me take your second question first. So the restructuring of the Daesan business is quite significant, not only in terms of enhancing our business competitiveness, but also in improving our financial structure as well. In the case of the restructuring of the Daesan business already in terms of bonds, KRW 1.6 trillion has been completely transferred. In the case of the Yeosu business restructuring as well as we progress with the development process, the borrowings will be transferred. And as such, the financial structure will undergo additional improvement.

As of the end of 2025 on a separate basis, the debt-to-equity ratio stood at mid-60% range. And so when the restructuring is completely completed, we believe that the debt ratio will come down even further. When the business restructuring at the Daesan side is completed in terms of our earnings, we expect that the business portfolio will become more efficient, thus leading to less losses and improvement of our profitability. And also because the share of the Basic Chemicals will go down, our expectation is that the volatility of the earnings owing to market condition change will also be eased.

And finally, compared to the second quarter, the gains and losses on equity method into the third quarter because of the completion of the restructuring of the Daesan plant, we believe this will be improved.

[Interpreted] So this is Kwak Giseop, the Head of Corporate Planning of the Basic Chemicals. So let me take your first question about the inventory as well as the feedstock issues. In the case of Basic Chemicals division as well as Titan, each of the businesses saw the losses on inventory valuation of KRW 100 billion each in Q1.

In the case of the lagging effect, because of the war in the Middle East, in the case of the month of April in the second quarter, there was positive lagging effect. But in the case of May and June, because of the fall in the feedstock prices, the reverse lagging effect occurred. The size of the total reverse lagging effect is at a level that is similar to the losses that we have incurred in terms of the inventory valuation.

[Interpreted] The following question will be presented by Woo-Je from KB Securities.

[Interpreted] I have 2 questions. First has to do with U.S. ECC and MEG. So can you share the status of the operating rates for the second quarter and also the sales price? In the case of the U.S. plant, I understand that you're selling to China. So then because of the geopolitical issues, did you also experience any rise in the freight cost? Or because you're using specialized vessels, there has been no change in terms of the freight cost? That is my first question. And can you also provide an update on the Uzbekistan ECC as well?

And my second question has to do with the fact that after June, with the lifting of the blockade, oil prices have gone down, and this led to reduction of demand by customers. As the -- with the new developments globally, is demand picking up again? So what is your outlook for the month of August?

[Interpreted] So this is Kwak Giseop, the Head of the Corporate Planning for the Basic Chemicals. Let me take your first question. In the case of LC USA, it uses as feedstock ethane that is produced within the United States. So there has been no impact in terms of rising feedstock prices owing to the Iranian war. However, in terms of the products, the LC USA has a high share of products that are sold to the European markets. And in the case of Europe, typically, the share of MEG imports from Middle East is around 30%. Because of the war in the Middle East, there were disruptions in the importing of MEG from Middle East. And so this had an impact in increasing the product prices. So compared to the first quarter, the product spread has increased by more than $100. So there was a positive impact.

In the case of the operating status in the second quarter, cracker MEG are undergoing normal operation at 100%. After the ceasefire in the month of April, because of expectations of stabilizing supply chain, the international prices have fallen. Since then, in the earlier part of July, with the new escalation of the conflict and also the blockade of the Hormuz Strait and additional Red Sea risk, the uncertainty surrounding the supply chain has been reignited, and this has led to a rising international price trend.

However, we do not foresee any steep or sharp increases as we have seen in the earlier stage of the war. And still, the ethane prices within the United States is not seeing any major changes. And so compared to the second quarter, our outlook is that the product spread will drop slightly. However, we do believe that very solid profit generation will be maintained.

And in the case of Uzbekistan, ethane cracker there, based on the stable ethane prices and the stable supply and demand situation, very stable operations are being undertaken and the profit is being generated in a solid manner.

[Interpreted] This is Yoon-Seok Kim, the Head of Sales. So let me take your question about the reescalation of the Iranian war. So regarding this risk, we are responding by making use of the stable naphtha supplies from the domestic market and also using LPG as an alternative feedstock and also utilizing our non-Middle East sources of naphtha supply. So stable operations are being undertaken.

In the case of the inventory levels of the customers, our take is that they have entered into the normalization phase. And if you look at their recent purchasing pattern, they are shifting to a pattern that is focused on the actual underlying demand. If the geopolitical risk emerges again in the third quarter, our understanding or our outlook is that the likelihood of restocking occurring at the level that we have seen in the second quarter will be quite limited. That is all.

[Interpreted] The following question will be presented by Yu-Jin Jeon from iM Securities.

[Interpreted] I have 3 questions. The first question has to do with the inventory levels of China. I understand that their inventory levels for MEG and such minor products have gone down. But leaving aside these minor products, what about the key products like PE, PP, ABS? Do you have an understanding or take on what is the Chinese inventory levels when it comes to these major product lines?

And so can you give us a comparison of the inventory levels before and after the outbreak of war? And also, my understanding is that the price of LPG is actually lower than that of naphtha. So can you share the information regarding the blending percentage of LPG into your feeding system?

And my third question has to do with your borrowings. So in the course of restructuring, you said that KRW 1.6 trillion of borrowings will be transferred. So can you give us an idea of how much net borrowings will be transferred by the end of the year of 2026?

[Interpreted] This is Kwak Giseop, the Head of Corporate Planning of the Basic Chemicals. Let me take your question about the blending ratio for LPG and naphtha. In the case of our company, in order to secure feedstock competitiveness and to enhance the operational flexibility, we are running facilities that enable the feeding of LPG as alternative feedstock.

In case of the second quarter, due to the turnaround of the Yeosu plant, we have input LPG in a limited manner. After the completion of the turnaround when the startup -- restart-up was implemented in the month of July, the LPG blending ratio came to 37% for July.

Going into the second half, based on the feedstock economics and also the facility operating conditions, we intend to flexibly manage and operate our facilities. And when the conditions permit, we intend to expand the blending ratio of LPG. Thank you very much.

[Interpreted] This is [ Min-Soo ]. I'm the Head of Marketing. Let me take your question about the Chinese inventories. In the case of Chinese plants in the month of May and June, many of their crackers actually have undergone turnaround. In the case of the 2 top petrochemical companies, their inventory levels is assessed to be around 600,000 to [ 750,000 ]. So I'm referring to the PE and PP inventory levels. And our outlook is that up until the third quarter, their inventory levels will not be maintained at a high level.

[Interpreted] This is Park Kyung-Sun, Head of the Corporate Planning from the Advanced Materials. Let me take your question about the inventory levels for ABS. Recently, due to the weak demand in the Chinese market, the utilization rate of their plant in the first quarter was 65%. And in the second quarter, it went down to 58%. And currently, their stocking levels has increased by 87% in the second quarter compared to the first quarter.

[Interpreted] So let me take your third question of our estimation of the net borrowings by the end of 2026. As of the end of June, on a consolidated basis, due to the rise of feedstock prices as well as the rise of the product prices and also the impact of the foreign exchange rate compared to the end of 2025, net borrowings have increased. And by the end of this year, our estimation of the net borrowing is that it will be at a level that is similar to the transferred amount for the Daesan restructuring. However, in the case of our company assets in foreign-denominated currency is actually quite large. So the volatility of the FX takes up a large portion. So if we exclude that part, then the net borrowings at the end of the year will be similar to what has been transferred.

[Interpreted] With this, we'd like to conclude the earnings conference call for the second quarter of 2026 for LOTTE Chemical. So if you have any further questions, please contact our IR team. Thank you very much.

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

Good afternoon. This is Young Kyung Hwang, Head of the IR team at LOTTE Chemical. I thank everyone for your time and interest in LOTTE Chemical and your participation in this conference call.

We will start with a presentation on the company's 2026 Q1, followed by a briefing by the CFO on the main business issues, then a Q&A session.

Please be informed that the presentation will be conducted in simultaneous interpretation and the Q&A in consecutive interpretation. The presentation slides can be downloaded from the company's website.

I will now introduce the executives in attendance. First, from the HQ, Vice President and CFO, Nak-Seon Sung; Vice President and CSO, Min-Woo Kim; from Basic Chemical, Vice President, Kwak Giseop, Head of the Strategy Management Division; Vice President, Jo Hyun Kwoun, Head of the Monomer Division; Vice President, Yang-Sik Cheon, Head of the Polymer Division. From Advanced Materials, we have Vice President, Kyung-Sun Park from the Corporate Planning Division.

Let me now turn to business results of '26 Q1. Page 2, Q1 profit and loss on a consolidated basis. Revenue in Q1 was KRW 4.9905 trillion with operating profit. The company turned around to profit -- operating profit of KRW 73.5 trillion (sic) [ billion ], thanks to improved performance in Basic Chemicals. EBITDA was KRW 412.8 billion. Pretax income and net income in Q1 were KRW 46.2 billion and KRW 33.5 billion, respectively.

Next is Page 3, the company's financial position on a consolidated basis. Asset at the end of Q1 was KRW 31.9 trillion. Liabilities were KRW 13.8 trillion. Shareholders' equity was KRW 18.1 trillion. Debt-to-equity ratio stood at 76%, improving slightly Q-o-Q.

Next, I will explain the performance and outlook by business division. First, please refer to Page 4, the Basic Chemicals. In the first quarter of 2026, the Basic Chemicals recorded revenue of KRW 3,449 billion, operating profit of KRW 45.5 billion and an operating profit margin of 1.3%. Amid expanding geopolitical risk in the Middle East region, product selling prices increased, leading to improved spreads. In addition, positive lagging effects resulting from higher raw material prices were also reflected contributing to the return to profitability.

Next is the Advanced Materials division. In the first quarter of 2026, the division recorded sales revenue of KRW 1,023.3 billion, operating profit of KRW 61.5 billion and an OPM of 6.0%. Following customers' year-end inventory adjustments, profitability improved significantly compared to the previous quarter, driven by recovery in the downstream industry demand and increased sales volume.

Next is LOTTE Fine Chemical. As the details were already explained as in the earnings release presentation on April 28, I will briefly go over the results. In the first quarter, the company recorded sales revenue of KRW 510.7 billion, operating profit of KRW 32.7 billion and OPM of 6.4%. Performance improved due to rising international prices of major products and increased sales volumes.

Last is LOTTE Energy Materials. As the details were also covered during the earnings conference call held earlier this morning, I will briefly summarize the results. In the first quarter, the company recorded sales revenue of KRW 159.8 billion and an operating loss of KRW 5.0 billion. Despite continued uncertainties in downstream industries, profitability improved as positive lagging effects resulted from higher raw material prices were reflected.

This concludes the explanation of the company's first quarter 2026 business results. Our CFO, Nak-Seon Sung, will now provide further details on the results and the key management issues.

Good afternoon. This is Nak-Seon Sung, CFO of LOTTE Chemical. I would like to sincerely thank all of you for taking interest in and attending our earnings presentation despite your busy schedules. In the first quarter of this year, uncertainties in business environment increased due to geopolitical risks in the Middle East, and there remained various different views regarding the persistence of the current situation and its subsequent impact.

As positive raw material lagging effects were reflected amid feedstock price increases caused by risk in the Middle East region, our first quarter results recorded KRW 5 trillion in revenue and KRW 73.5 billion in operating profit. With external uncertainties expected to continue going forward, the company has proactively secured feedstock at a level sufficient to maintain stable operations, and we will continue to actively respond to risk based on flexible operational strategies such as diversification of raw material procurement and inventory optimization.

In addition, even under such business conditions, the company is steadily pursuing its mid- to long-term strategy in the direction previously communicated, maintaining and strengthening competitiveness in the basic chemicals business while building a more balanced portfolio through expansion of our future growth businesses.

First, we are actively participating in the petrochemical restructuring initiatives for domestic industrial complexes currently being promoted by the Ukraine (sic) [ South Korean ] government. Following government approval, the Daesan business restructuring secured approximately KRW 2.1 trillion in financial support. And after the planned physical spin-off on June 1, we are targeting the launch of the integrated corporation and commencement of integrated operations in September.

The Yeosu plant -- the Yeosu business restructuring will also proceed in phases through cooperation with the government and partner companies following the submission of the restructuring plan on March 20. Through these restructuring efforts, rather than simply downsizing the basic chemicals business, we aim to pursue high value-added transformation centered on profitability and continuously strengthen business competitiveness by improving operational efficiency in existing businesses based on ongoing investments for future growth.

At the same time, we will continue to expand Functional Materials and high value-added businesses over the mid- to long term, centered on the Advanced Materials business. Based on our global supply chain and the Yulchon compounding project scheduled for completion within the year, we also plan to significantly expand high value-added product lines such as Super EP.

In addition, we will continue to promote investment in technology development and future growth industries such as functional semiconductor materials, food and pharmaceutical materials, AI circuit foils and high-end electrofoils and eco-friendly hydrogen businesses while fostering high value-added growth businesses aligned with changes in the global market. Even amid the prolonged challenging business environment, the company continues to maintain a sound debt ratio in the 70% range, and we expect our financial structure to gradually improve through this restructuring.

Furthermore, under a cash flow-oriented management principle, we'll secure financial stability by conservatively managing investment execution within the scope of EBITDA.

Dear investors and shareholders, although the petrochemical industry is currently facing a highly uncertain business environment, the company is moving forward smoothly with the ongoing Daesan business restructuring. Thanks to your continued interest and support. At the same time, we also -- we were also able to achieve meaningful earnings improvement during this quarter. Going forward, we will continue to do our best to enhance corporate value based on sustainable growth and repay the trust and support that you have shown us. Thank you very much.

[Interpreted] [Operator Instructions] The first question will be provided by YeongSu Shin from Shinyoung Securities.

[Interpreted] I have two. The first is about the naphtha stock as well as the utilization. So the -- what is the number of days of holding of naphtha, both in Korea and also in Malaysia and Indonesia? And also, what is the utilization plan for the second half of the year?

The second question is because of the Middle Eastern war, there are quite a lot of changes and fluctuations in the industry at this time. So what is the company's short-term outlook for this year, 2026? And also what is the longer medium-term outlook up until 2028? Does the company -- when does the company believe that the turnaround to profit can be achieved?

[Interpreted] This is Vice President, Jo Hyun Kwoun from the Basic Chemical division -- Monomer division responding to your question. Now with regards to the naphtha in South Korea as well as from Malaysia and Indonesia, we are getting stable procurement and the procurement continues, meaning that our utilization is seeing no disruptions or problems. And as for additional procurement, when it comes to the domestic supply, then we intend to get the domestic naphtha first, combined with overseas procurement as well.

So again, for the domestic supply, we will be getting the naphtha from inside Korea combined with overseas supply. And then also for our businesses in Indonesia and Malaysia, we would also procure them from nearby regions like Singapore. And as for the utilization plan for the second half of the year, we will keep a close watch over the market movements and try to adjust our utilization according to the market circumstances.

[Interpreted] I'm Kwak Giseop of the Corporate Planning Division responding to the second part of your question. As you would know, in the first quarter, the profitability in Basic Chemical division has improved considerably turning around to profit. I understand that one major factor was the positive inventory lagging effect caused by the Middle Eastern risk. For example, the increase in the major product spread as well as the rise in the naphtha cost.

Now looking ahead to the second quarter, one positive factor may be the continued tight supply of feedstock, but we believe that the performance improvement will continue for the time being. One negativity could be the inverse lagging effect, meaning that the soaring naphtha prices that were caused by the war since February would then be input into production in the second quarter, meaning that this is going to increase the production cost.

And as for the outlook for 2026, please understand that given the fluidity of the Middle Eastern war, it is quite difficult for us to look ahead into the performance of this year. And as the market already knows, the capacity addition continues in China, so the petrochemical industry outlook into '27, '28 is not entirely bright. So the company continues to keep a close watch over the market even after the market normalization and respond according to the changes.

The following question will be presented by Parsley from JPMorgan.

[Interpreted] So for the first question, could you give us some numbers on the first quarter one-off? For example, you mentioned the raw material impact or inventory gain. How much was that -- could you quantify that number in first quarter? Or maybe break down the profit between January, February and March?

And then for the second question, I think the outlook for naphtha cracking margins is or outlook for chemicals is gradually getting better following industry consolidation. So could you just give us a status update on your Yeosu and Daesan restructuring? How much effective capacity LOTTE had before and then after? So what is your long-term aim in terms of how much capacity you plan to have after all this restructuring is done?

[Interpreted] This is the CFO, Nak-Seon Sung responding to the first part of the question about the gain from the inventory valuation loss reversal as well as the one-off costs. Now first of all, in the first quarter, the reversal in the inventory valuation was in the amount of around KRW 50 billion, thanks to the rise in the naphtha prices as well as the rise in prices of polymer and monomer products. As for others, there were no other major one-off gains that occurred in the first quarter.

[Interpreted] This is Kwak Giseop from the Corporate Planning division. And I would like to respond to your question about the lagging effect of the feedstock.

As you would know, since the Middle Eastern war, there has been positive lagging effect because of the rise in the naphtha prices in the amount of about KRW 250 billion for the feedstock.

[Interpreted] This is Min-Woo Kim of the CSO responding to your question about the business alignment and particularly about the ethylene production before and after the realignment.

Now given the 1.1 million tons that we currently have at Daesan plant and the 900,000 tons that we have at the Hyundai Chemical plant, so then based on this cracking capacity at this time and assuming that we will be having 50% share, that will leave about 1 million tons at Daesan plant. And then for Yeosu, we currently own 1.23 million tons YNCC owns 2.3 million tons and assuming the company's share of 1/3 (sic) [ 1/2 ], that will leave 1.1 million tons for us.

But now here, I would like to explain one caveat. Now, for both the Yeosu and Daesan, the assumption is that the petrochemical industry for the next 2 to 3 years is going to really suffer. So we are assuming efficiency to be gained from an integrated operation.

So then for the Daesan plant, out of the two naphtha cracking facilities, so out of the two NCCs, one is -- one would yield less efficiency from integrated operation. And then in Yeosu, out of the four NCCs, two would have less efficiency coming from integrated operations. Our plan is that after the business realignment is completed, then it is likely that we will be shutting down these less efficient NCCs. So of course, it would largely depend on the market circumstances. But during the period of the business realignment, then the NCC capacity that we would be running would be less than it used to be.

But also at the same time, for the NCCs that would be temporarily shut down, given the -- so depending on the market improvement, it is also likely that they can be reopened within the next 3 years or so. But again, after the business alignment for both the Daesan and Yeosu, our share will fall below 50%, meaning that they will be excluded from the consolidated financial statements like the profit and loss statement and the balance sheet.

The following question will be presented by Yu-Jin Jeon from iM Securities.

[Interpreted] I also have two questions. Now first, it was explained earlier that starting in the second quarter, the higher price naphtha will be input. So does that mean that now there will be inverse lagging effect to be applied, meaning that is there a likelihood that the company will turn to loss again after the second quarter. So I would just like to seek your guidance on the performance outlook.

And then the second question is about the ethylene. So since the Middle Eastern crisis, then what does the company foresee in terms of the global ethylene capacity increase? So will there be any changes in this?

[Interpreted] This is Kwak Giseop from the Corporate Planning Division responding to the first part of your question.

Now given the high fluidity in the market today, it would be very difficult to predict when the inverse lagging effect is going to occur. So to this day, we see that the product prices have gone up since the beginning of the war and also the prices of the finished products have also gone up. At the same time, the spread has improved.

And now if the prices for the products and the raw materials were to fall, then yes, it is likely that some inverse lagging effect will occur. But at the same time, if it is gradually drawn out until the end of the year, then we believe that the impact coming from it is not likely to be large. And given that right now, there is a little improvement in the supply-demand situation, so we will be very closely watching the market circumstances.

[Interpreted] This is Yang-Sik Cheon is from the Polymer division. Now, I'll respond to the second part of the question.

Now since the outbreak of the war in the Middle East, of course, how much the ethylene or PET and PTA production has fallen is different by country and regions. But then in the case of Korea, the utilization rate has fallen by about 15%, whereas in China, it has fallen by about 10%.

Similarly, in Southeast Asia as well as the Southwest Asia, the supply has fallen by about 10%. And in the Middle East, in the early April, there were some attacks by Iran on the surrounding countries, including Saudi Arabia. So the facilities that have been attacked, about 60% to 70% of them have been shut down and supply has yet to go back to normal.

Now where supply has fallen in the Middle East and in Asia because of the situation in the Middle East, now it is being made up for by the ethane cracker in the U.S., where the utilization rate has gone up by more than 15%, 30%. And also in the other regions, we see that the inventory continues to fall since April. So unless the Middle Eastern supply goes back to normal in May, then the tight supply is likely to continue.

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

Thank you very much. That concludes the earnings release conference call by LOTTE Chemical for 2026 Q1. If you have any further comments or questions, then please contact the IR team. Thank you very much for your participation.

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

Good afternoon. This is Young Kyung Hwang, Head of IR at LOTTE Chemical. We would like to thank everyone for joining today's conference call and for your continued interest in LOTTE Chemical despite your busy schedules.

Today's conference call will proceed as follows. First, we'll provide a brief overview of our fourth quarter results. Afterwards, our CFO will discuss key management issues. Finally, we will have a Q&A session.

Please note that the presentation will be conducted with simultaneous interpretation, while the Q&A session will be conducted with consecutive interpretation. The presentation materials for today's call are available for download in our website.

Let me now introduce the senior management members from LOTTE Chemical who are joining us today. Joining us today is Nak-Seon Sun, our CFO; Min-Woo Kim, the CSO; Giseop Kwak, Head of Corporate Planning Division of the Basic Chemicals; and Kwoun Jo Hyun, Head of the Monomer Division; and Yang-Sik Cheon, Head of the Polymer Division; Kyung-Sun Park, Head of Corporate Planning Division of the Advanced Materials.

First, let me walk you through our full year 2025 financial results. For 2025, sales decreased by 7.1% year-on-year to KRW 18,483 billion, and we recorded an operating loss of KRW 943.6 billion. With the delay in the recovery of the petrochemical industrial owing to the slowdown in demand for EVs, losses by LOTTE Energy Materials have grown over last year. However, the performance of the Advanced Materials business and the LOTTE Fine Chemical improved and the company-wide profitability was not significantly different from last year's level.

We will now move on to our consolidated financial results for the fourth quarter of 2025. Fourth quarter sales amounted to KRW 4,709.9 billion, while operating loss totaled KRW 433.9 billion. Due to product price declines associated with seasonal off-peak demand and the impact of the initial ramp-up of LCI operations, a wider loss compared to previous quarter was posted. EBITDA recorded a loss of KRW 69.5 billion, while loss before tax and net loss amounted to KRW 1,736.3 billion and KRW 1,609 billion, respectively, owing to the Q4 asset impairment losses.

On to our financial position on a consolidated basis. As of the end of the fourth quarter, assets are approximately KRW 31 trillion; liability, KRW 13 trillion and shareholder equity, KRW 18 trillion with debt-to-equity ratio of 76.4%. Next on to business results and outlook by division.

First, Basic Chemicals. Fourth quarter sales recorded KRW 3,343.1 billion, and operating loss was KRW 395.7 billion. Profitability declined from the start-up of LCI commercial operations and the start of the seasonal off-peak period toward the year-end. While external uncertainties are expected to persist, profitability is projected to improve quarter-on-quarter, supported by a gradual recovery in demand following the end of the off-season and enhanced operational stability.

Advanced Materials fourth quarter sales were KRW 929.5 billion; operating profit, KRW 22.1 billion with operating margin of 2.4%. Sales volumes declined due to the onset of the seasonal off-peak period and year-end inventory adjustments by customers leading to a quarter-on-quarter decline in profitability. In the first quarter, we expect performance to see gradual improvement quarter-on-quarter, supported by winddown of the year-end inventory adjustment season and a recovery in downstream demand.

Next, LOTTE Fine Chemical. As this was already covered in today's preliminary earnings disclosure, today, I will briefly hit on the highlights only. Fourth quarter sales were KRW 439.1 billion; operating income, KRW 19.3 billion with OP margin of 4.4%. Amid weakness in downstream demand, sales volume decreased and profitability declined quarter-on-quarter. We expect demand to remain soft for the time being, and first quarter profitability is expected to largely be flat in the first quarter.

Lastly, LOTTE Energy Materials. Since this was also covered in detail during the conference call yesterday, I will just briefly highlight the key points. Fourth quarter sales recorded KRW 170.9 billion; operating loss, KRW 33.8 billion. Despite stagnant demand in the global EV market, profitability improved quarter-on-quarter from diversification of the portfolio into applications such as ESS and PCB foils. In the first quarter, we will continue to seek further diversification of our product portfolio, which we expect to drive improvement in performance.

So now we will pass the mic to our CFO to take us through key highlights.

Yes. Good afternoon. This is the CFO. My name is Nak-Seon Sung of LOTTE Chemical Corp. I'd like to thank everyone for taking the time out of your busy schedules to attend our earnings call.

First, we regret to report fourth quarter results do fall short of investors' expectations. The fourth quarter performance reflected our entry into the weak off-peak season as well as initial impact from the commercial operation of LCI. In addition, recognition of impairment loss on goodwill and assets led to a wider operating loss compared to the previous quarter. However, we would like to emphasize that recognition of these nonoperating expenses were unavoidable measures taken to preemptively manage risks in preparation for an uncertain market environment ahead.

Looking back on 2025, despite challenging business conditions, we nonetheless steadily executed on key initiatives aimed at transforming our business structure and strengthening competitiveness. First, in line with the government-led restructuring of the domestic petrochem industry across industrial complexes, we have established a business reorganization plan centered on the Daesan plant and have been making speedy progress towards rationalization of the domestic commodity petrochem business. Also, we continue to make efforts to optimize utilization rate and improve operational efficiency across our existing plant sites.

At the same time, we have fully divested noncore assets, including in Pakistan and the rubber business in Malaysia as well, as well as other nonoperating assets to secure added liquidity. We also continue to work towards building a foundation for future growth to address the structural limitations of our existing business. To respond to growing demand in Southeast Asia, the Indonesian petrochem complex was successfully completed and commenced operations in the fourth quarter. Construction is underway in the Yulchon area to build the largest functional compounding plant in Korea with capacity of 500,000 tons.

We're also preparing to expand our eco-friendly energy business through operation of hydrogen power plants and hydrogen distribution centers utilizing byproduct hydrogen. Although the business environment in 2026 is expected to remain quite challenging, we aim to accelerate our ongoing structural transformation of business to deliver visible results.

Our strategy will focus on 2 key pillars: reducing exposure to the commodity petrochemical business and building the foundation for future growth. First, we will make every effort to successfully complete the ongoing Daesan business restructuring project within this year. At the same time, we will strengthen our competitiveness in high value-added products such as functional materials as well as in eco-friendly energy business domain as well. Leveraging the Yulchon compounding plant, which is scheduled for completion this year as a hub, we plan to expand our portfolio of high value-added products such as Super EP. In addition, we have been expanding to various materials businesses through our subsidiaries, which is expected to help gain momentum and contribute to the diversification of our portfolio.

In battery materials, the U.S. cathode foil plant to address North American EV demand is nearing completion, and we plan to gradually expand our lineup of copper -- functional copper foil products, including PCB foil for AI applications. Our subsidiaries are scheduled to continue phase capacity expansions for semiconductor process materials and green materials for food and pharmaceutical end markets. We're also expanding our hydrogen energy business in line with the global clean energy transition. Following the 20-megawatt scale hydrogen fuel cell power plant launched last year, an additional 60-megawatt plant is scheduled to commence operations this year.

From a financial perspective, we will continue to strengthen our financial soundness by maintaining a conservative cash flow-based operating approach. Despite delayed recovery in our industry over the past year -- several years, we have maintained a sound debt ratio in the 70% range. In particular, with completion of the LINE project, we expect enhanced financial stability and CapEx discipline and future investments will be limited within EBITDA levels.

Finally, regarding shareholder returns, the company aims for a dividend payout ratio of 30% on a separate net income basis and are mindful of both dividend stability and yield as we seek to enhance shareholder value. Accordingly, following an interim dividend of KRW 500 per share, we have internally reviewed a year-end dividend also of KRW 500 per share. The final proposed dividend will be confirmed at the shareholders' meeting in March.

Dear investors and shareholders, while another challenging year likely lies ahead, we are strongly committed to continuing structural improvements to strengthen our future competitiveness beyond the short-term. Through these efforts, we aim to build solid profitability and growth capacity so that we are well positioned to deliver results and pay back our investors for your interest and support going forward. Thank you very much.

[Interpreted] [Operator Instructions] The first question will be provided by Parsley Ong from JPMorgan.

This is Parsley. So my first question is on the very large impairment loss in fourth quarter. Could you give us some details on which chemical asset that relates to? And would that just be the Daesan cracker or some other crackers? So if we proceed with further restructuring, would we expect another round of impairments when the plant shuts down or is it -- is everything already booked in? And also, could you give us an update on your other restructuring potential initiatives? So that's the first question.

The second question is you mentioned earlier that you might be expanding PCB foil for AI applications. Could you give us a sense of the capacity CapEx timing and the grade of PCB foil you're expecting? Is it like HVLP3 or 4? So how would the margins and prices compare versus your existing copper foil product?

[Interpreted] This is Nak-Seon Sung, the CFO. So as to the impairment loss-related question, so the amount is similar to last year at KRW 1 trillion. Half of that is related to goodwill and half of that is related to the impairment of assets.

So as of yet, we are still discussing with the accounting firm about the final amount of the impairment loss. When the final number comes out, we will be sure to share it with through our IR team.

And also with regards to your second question, with regards to the recent impairment loss, this has nothing to do with and is unrelated to the cracker shutdown that is carried out in connection to the business restructuring.

[Interpreted] This is Min Kim, I'm the CSO. Let me take your second question. So for further details, it will be better if you inquire through the LOTTE Energy Materials. But since you have asked your question, let me briefly give you an overview of this latter.

So aside from the EV application, the application for the copper foil is, first of all, the ESS. And secondly, the PCB foils for AI applications for which growth is actually taking place at a very rapid pace.

In the case of the ESS applications, broadly speaking, it's probably similar to the general battery foil. So in terms of margins, there's not much difference with the EV applications.

In terms of the copper foils, overall, they are also suffering from oversupply. So in terms of supplying to the battery companies, we're not yet realizing any significant profitability. However, in tandem with the growth of the ESS applications, we do believe that as the utilization rates are recovered, margins will also rise in the second half of the year.

In terms of the PCB foils for AI applications, there is a very limited number of copper foil suppliers that have been approved by the customers and are able to provide the supply. And so we are looking forward to high margins. But for more specific details, I think you need to inquire to the LOTTE Energy Materials.

With regards to CapEx, so for LOTTE Energy Materials for Malaysia, the ESS applications are leveraging the very low-priced electricity cost locally. And for the PCB foils, we are planning to transition the facility in the Iksan in order to have it become a dedicated facility for producing PCB foils.

In case of the Malaysian plant, because of the current level of utilization rate, we do have surplus capacity. So we do not view that any additional capacity expansion is required there.

The facility in Iksan to produce the PCB foils, we do need to add the facility for back-end processing. However, the front-end processing facility can be used as it is. So we are able to engage in competitive CapEx expansion with regards to the Iksan facility.

[Interpreted] The following question will be presented by Woo-Je Chun from KB Securities.

[Interpreted] With regards to the sectors such as aerospace, aviation and robot, which has very great growth potential. Do you have any high value-added products that fits and is suitable to be applied to these sectors? And what level of commercialization have you reached regarding the product? That is my first question.

My second question has to do with your restructuring efforts. So as the restructuring takes place in the second half of the year, which loss-making products do you believe will undergo additional reduction in terms of production? And what are the results that you are anticipating in terms of the level of improvement of portfolio product mix? And also, I do believe that in order to maintain the minimum level of utilization rate for your plants, there would have been those contracts through which you have sold your products at a very low price domestically. So what is the share of these products that have had contracts at a discounted price compared to the international prices?

[Interpreted] This is Min-Woo Kim, I'm the CSO. Let me answer your second question first. So you asked a question about the level of production decline for the loss-making products in accordance with the business restructuring initiatives at the Daesan complex. But with regards to this question, we intend to take a flexible response depending on the market situation of each individual product at the time when we will have to adjust the utilization rates of these plants.

However, given the product profitability trend of the recent years, the EVA has been profitable to a certain extent, but some grades of the HDPE and PP products were not as profitable.

In the case of the polymer products, it's not just a single grade that we produce. We produce multiple grades of the polymer products. And so some are profitable, some are loss-making grades. And so going forward, we will reduce the overall production volume of this product category and focus more on those more profitable and products with higher margins.

And also part of your question pertains to what percentage of the products that are sold domestically are sold at a discount compared to the international prices. And basically speaking, the domestic prices are not sold at a discount compared to the international prices.

And because of the reason that the domestic market is more profitable compared to the international markets, most of our peers have been focusing on the domestic markets over the years. So the premium is less here in this market. However, we cannot deny that compared to the international markets, it is easier to post profitability in the Korean domestic markets.

And with regards to the improvement of the portfolio product mix, I think I can speak about this topic in probably 2 ways.

So financially speaking, as we are participating in the restructuring of the Daesan Industrial Complex, the plan is that we will take 50% of the stake.

As you are well aware, when that happens, that means we become deconsolidated from the LOTTE Chemical books. And so the entire Daesan portfolio will be deconsolidated from LOTTE Chemical.

However, we do still hold -- we will still be holding 50% of the stake of the JV. And so if you look at the actual impact in terms of the portfolio mix changes, when you assume that when the crackers of the 2 companies, the utilization rate is maintained at 80% to 85%, when one of that is shut down, the reduced volume will be equivalent to the amount that is shut down by a single cracker.

[Interpreted] So my name is Kyung-Sun Park. I'm from the Advanced Materials. Let me take your first question.

At the Advanced Materials business, we were mostly focused on the PC business of -- ABS for the home appliances and mobility. So internally in the process of reviewing the next-generation promising businesses for the future.

And those sectors that we believe will be highly promising businesses in the future are, firstly, aerospace, robot, 6G, data center and energy.

As we are seeing the emergence of manifold physical AI in the market, we are developing at the Advanced Materials business level materials that can be applied to these areas.

And most of the materials that will be applied for the next-generation promising business areas have the characteristics of high strength, light weight, replacing metals and are able to discharge the heat of the batteries.

And so what we are doing right now is we're looking at different EP materials, looking at the Super EPs, the general EPs and looking at the matches with different industrial applications. So in the case of the high-end products, we have [ PP, ] SEP and PPS products.

And we have actually already started development in conjunction with the domestic large company. And for some of the products, we have already finished testing and have started commercial production of these products. So when the time is right for us to share more information about these high-end Super EPs, we'll be sure to share this information through our IR team.

[Interpreted] The following question will be presented by Hyunryul Cho from Samsung Securities.

[Interpreted] So I have 2 questions. So in the case of China, they're planning on increasing their consumption tax on naphtha and also reducing the rebates on the value-added tax. Would this have a meaningful impact on the potential recovery of the market situation in Asian region? That's my first question.

And my second question has to do with the LEP compounding plant. So I understand that you're planning on operating this plant by the second half of the year. When this plant is ramped up and goes into operation, what is the expected annual sales and the profitability?

[Interpreted] So with regards -- my name is [indiscernible]. Let me take your first question about the consumption tax in China. So there has not been as of yet an official announcement regarding the naphtha consumption tax. But we understand that the general policy direction of China is that they will be engaging in the full implementation of the consumption tax on naphtha and then afterwards, transition toward rebates.

So the impact of this measure is that in the short-term, this will lead to an increase in the demand for imports in China. However, because utilization rates will be reduced in the long-term, the impact will be limited.

And we also believe that this will lead to higher cost burdens for the petrochemical companies of China. And so the competitiveness of some of the products will decline, leading to an advantage and benefit for the Korean crackers products.

[Interpreted] So this is Yang-Sik Cheon from the Polymer division. Let me take your question about the value-added tax and the rebate.

The recent Chinese government announcement to reduce or suspend altogether the rebates for certain products in order to curtail the intense competition for lower-priced products and also to alleviate the oversupply situation. With regards to the products that impact us is the -- those products with solar applications and battery materials.

And the characteristics of these products is that China has the absolute dominant market share in the world with regards to these 2 products. In the case of the materials for the solar application, they have 90% of the market. For battery materials, they take [ 80% ] of the global market.

And with regards to these products ahead of the rebate reduction, there is push out exports that are increasing. And in the case of the solar application, the measure for which has been decided to take place in April, we are seeing an increase in the import volumes.

However, given past patterns, whenever we have these push export volumes increase afterwards, there is a steep decline in prices. So in the long-term, the impact will be quite minimal.

[Interpreted] So this is Kyung-Sun Park from the Advanced Materials business unit. Let me take your second question.

First, let me briefly explain about the compound complex in Yulchon. So we are a dedicated facility for the global functional materials. And in order to enhance the competitiveness of these compounding products, we are building this large single factory for this product in Korea.

Currently, a total of 11 production lines are in operation. Newly instituted 5 production lines have started operating in October of last year and transferred production lines, 6 of these lines have started operation in January of 2026.

By the year-end, we intend to operate 23 lines in total. And also by the second half of the year, the annual capacity of this compounding complex will come to 500,000 tons.

The annual sales volume of our Advanced Materials products come to 1.4 million tons a year, and we are actually planning the sales of high value-added compounding products at 1 million tons per year.

So by the year-end, when all 23 production lines are completed at the Yulchon site, the annual capacity will come to 500,000 tons, which is 50% of the entire compounding volume.

So in terms of sales, our anticipation is about KRW 2 trillion and for OPM, 5% to 10%. In the case of the Yulchon plant, we are providing high functional materials for the IT business as well as the mobility business and also, we're engaged in producing the Super E Plastic products as well. So this is a facility that will be dedicated to high value-added specialty products.

[Interpreted] The following question will be presented by Jae Sung Yoon from Hana Securities.

[Interpreted] My first question has to do with the LINE project. So there has been substantial losses that was posted in the fourth quarter. How much exactly was the initial cost that went into the ramp-up of this project? And what is the current utilization rate and also the current sales figures? And once the initial ramp-up expenses come down, by when do you believe that the performance will turn meaningfully positive? That is my first question.

And my second question has to do with your products that is less subject to the global capacity add-on volumes hitting the market in 2026 and 2027.

[Interpreted] So I'm Giseop Kwak. I'm Head of the Corporate Planning Division of the Basic Chemicals business unit. Let me take your first question.

In the case of LCI, it started commercial operation on the 15 of October 2025. So in the initial phase of the commercial production, there was impact of the fixed cost. And also this was coupled with the weak market conditions of the Southeast Asian region in the fourth quarter. And so this led to losses.

So it's difficult to specify the accurate figures for the initial expense, but coupled with the cost of the pilot production as well as the fixed cost, this had a burden on the initial performance of this plant.

So most of the crackers in the Southeast Asian region are running at a utilization rate of 75% to 90% and the utilization rate of LCI is not much different.

So once the plant operates at a stabilized manner and as we enhance the efficiency of the production and as the profitability of the domestic sales go up, we will be turning in the meaningful performances going forward.

[Interpreted] So this is Yang-Sik Cheon from the Polymer division. Let me take your question about the capacity add-ons. This year, the expected capacity add-on volumes is: for PP, 6 million tons; HDPE, 5 million tons, and LDPE, 3.5 million tons.

Next year, we believe the volumes will be largely similar, maybe a slight reduction from this year.

If you look at the capacity add-ons that are going on currently globally compared to the demand, although it differs slightly by the product, it's about 6% to 10% of the overall demand.

So normally, we anticipate about 4% to 5% growth in the demand for our products. So there is capacity add-ons going on that exceeds the demand levels.

However, among the planned capacity add-ons, some of them is scheduled to be postponed. And so we believe that overall, the supply will be slightly exceeding the demand levels.

[Interpreted] With this, we would like to conclude the 2025 Fourth Quarter LOTTE Chemical's Earnings Presentation. If you have any further inquiries, please direct those inquiries to the IR team. Thank you very much for your participation.

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

Good afternoon. I am [ Young Kyung Hwang ], Head of IR at LOTTE Chemical, hosting today's earnings call. We would like to thank you all for taking the time out of your busy schedules to participate in this conference call.

Today's conference call will begin with a brief overview of our third quarter results, followed by our CFO discussing key management issues and earnings release related matters. Finally, we'll have time for questions-and-answers.

Please note that the presentation will be simultaneously interpreted, and the Q&A will be consecutively interpreted. You can also download today's presentation from our website.

Now I would like to begin by introducing our executives participating in today's conference call. Today's conference call is attended by Nak-Seon Sung, CFO; and Min-Woo Kim, CSO; and [ Kwak Giseop ], Head of Basic Chemicals Corporate Planning Division; and [ Jo Hyun Kwoun ], Head of Monomer Division; and [ Yang-Sik Cheon ], Head of Polymer Division; and Woo-Hyun Cho, Head of Advanced Materials Corporate Planning Division.

Let me walk you through our operating results on a consolidated basis for the third quarter of 2025. First, Page 2, profit and losses. Q3 revenue was KRW 4,786.1 billion, and operating loss came to KRW 132.6 billion. The loss narrowed over the second quarter due to the elimination of one-off expenses, including the turnaround that were reflected in the previous quarter and wider product spreads as feedstock prices stabilized.

Loss before tax and net loss were KRW 245.6 billion, and EBITDA was KRW 167 billion. With removal of the impact of the PRS valuation, which have been reflected last quarter, both the pretax and net profit improved Q-o-Q.

Next, Page 3, financial results on a consolidated basis. As of the end of Q3, assets came to KRW 33 trillion, liabilities of KRW 14 trillion, capital KRW 19 trillion and debt-to-equity ratio is 75.7%.

Next, on the business results and outlook for each of our major business segments. Page 4, Basic Chemicals. Q3 revenue was KRW 3.383 billion and an operating loss of KRW 125.5 billion. Due to the termination of the turnaround at the Tencent plant and subsidiaries, one-off expenses were removed and spreads improved due to the downward stabilization of feedstock prices. Although feedstock prices are expected to remain stable in Q4, global demand is expected to remain weak due to external uncertainties and slowdown of the global economy.

Next is Advanced Materials. Q3 revenues posted KRW 1,022.2 billion, operating income posted KRW 557.5 billion, and operating income ratio recorded 5.6%. Despite demand slowdown in downstream industries and conservative inventory management, we were able to maintain solid profitability through sales of high value-added products. In Q4, we expect sales volume to slightly decrease due to entering off peak season and from TA impact.

Next is LOTTE Fine Chemica. Since we explained the detailed results during our November 6 earnings call, I will briefly mention the major highlights. Q3 revenues posted KRW 443.4 billion. Operating income posted KRW 27.6 billion. Operating income ratio recorded 6.2% and profitability greatly improved Q-o-Q.

With the increase of sales prices of ECH and other chlorine-based products and reflection of TA completion effect, profitability improved. In Q4, although downstream industry demand is expected to remain flat, we expect to have a stable profit flow through high value-added product based sales expansion.

Last is LOTTE Energy Materials. LOTTE Energy Materials was explained in detail during the November 10th conference call. So I will briefly go over the overview today. Q3 revenue posted KRW 143.7 billion and operating losses posted KRW 34.3 billion. Despite efforts to adjust inventory levels and to improve productivity, losses continued due to customers' inventory adjustments.

In Q4, we expect to see strong raw material prices and downstream industry uncertainties continue, but through product portfolio diversification, we will continuously pursue sales expansion.

With this, we will conclude 2025 Q3 earnings presentation, and I will invite our CFO, Nak-Seon Sung, to give a more detailed explanation.

Greetings, everyone. I am Nak-Seon Sung, CFO of Lotte Chemical. Thank you for taking time out of your busy schedules to attend today's earnings presentation.

To elaborate on Q3 business results, despite ongoing internal and external challenges with the absence of TA cost, which was reflected in the previous quarter, performance improved. However, with ongoing weakness in global demand and continuous macroeconomic uncertainties, it is expected to take some time before supply-demand imbalance in the petrochemical industry eases.

Despite this challenging environment, we have continued to pursue structural improvements to our business fundamentals with a particular focus on strengthening competitiveness through business portfolio transformation.

First, with regard to improving efficiency in the commodity petrochemical sector, we are actively participating in the government-led restructuring initiative of the domestic petrochemical industry. Unlike previous restructuring efforts, this initiative aims to create a more resilient business structure capable of maintaining competitiveness even in a downturn by fostering synergies among companies and ensuring stable operations.

As previously announced, we are working closely with our partners to optimize the utilization of assets within the Daesan Industrial Complex and progress has been relatively swift compared to other discussions under the government's industry restructuring framework.

However, as certain details have not yet to be finalized, it is difficult to share specific information at this stage. Once the direction becomes more concrete, we will promptly communicate the details to the market through official disclosures.

We will do our utmost to ensure that this initiative not only enhances the competitiveness of our commodity petrochemical business, but also contributes to the structural efficiency of Korea's petrochemical industry as a whole.

In parallel, the divestment of noncore assets is also steadily progressing. Regarding the Pakistan PT business, following the signing of the sale contract in February this year, the transaction is expected to be completed, and we have also decided to transfer the Hecellose manufacturing facility asset in the Yeosu factories to LOTTE Fine Chemical, which has been operating it under contract.

In addition, we have decided to sell a portion of our stake in LOTTE GS Chemical, which is our consolidated subsidiary to our partner company. And these series of noncore asset divestment is expected to strengthen LOTTE Chemical's financial stability by reducing the proportion of community assets, securing cash liquidity and improving key financial metrics through a decrease in consolidated debt.

Along with efforts to enhance operational efficiency in our domestic business, we're pursuing business structure optimization overseas, particularly in Southeast Asia. As a part of these efforts, the Indonesia LINE project that commenced construction in 2022 was completed in May this year and began commercial production in October.

Given the current market conditions, achieving the initially expected level of profitability will be challenging. But as new facilities operate with greater efficiency than before, profitability is expected to gradually improve once market conditions recover. Through this project, we have strengthened our business foundation in the Southeast Asian market, where supply is limited, but growth potential is high. And this shift is serving as an opportunity to restructure our commodity petrochemical business traditionally centered in oversupplied Northeast Asia toward high-growth markets.

In addition, although specific details have not yet been finalized, we are continuous discussions on various initiatives, including attracting investors for Southeast Asian commodity petrochemical assets. And as these efforts progress together, we expect to further accelerate the optimization of our business structure in Southeast Asia.

The completion of LINE project is also significant in that it marks the conclusion of large-scale investment phase that had weighed down on our financial metrics. With this, we expect a reduction in CapEx burden and an improvement in cash flow. And from next year onward, we will prioritize financial soundness by adhering to our principle of maintaining investments within EBITDA.

Beyond improving efficiency in our commodity petrochemical business, we are also steadily advancing the sophistication of our overall business portfolio. Construction of a new compounding plant aimed at expanding our functional compound business is underway in the Yulchon Industrial Complex in Yeosu with completion targeted for the second half of next year.

In addition to the hydrogen fuel cell power generation project that began commercial operations in the first half of the year -- in the first half of the year, LOTE Air Liquid Energy's hydrogen distribution center held its completion ceremony yesterday and is now in full operation. Through these initiatives, we are accelerating our entry into the hydrogen energy sector and we will continue our efforts to secure future growth engines aligned with the global transition toward clean energy.

Dear investors, the petrochemical industry continues to face a challenging market environment and external business conditions remain highly uncertain. However, as mentioned earlier, we view this period not merely as a time for short-term response measures, but as an opportunity for structural transformation, and we will do our utmost to emerge from this challenge with stronger competitiveness that meets our investors' expectations. We sincerely ask for your continued support and encouragement. Thank you very much.

[Interpreted] [Operator Instructions] Currently, there are no participants with questions. [Operator Instructions] The first question will be provided by Hyunryul Cho from Samsung Securities.

[Interpreted] So looking at the sales or revenue of LC Titan, it seems that the LINE projects -- some of the LINE has already started operation and for your ethylene and also for PE, some of it will be supplied to the Indonesia and also for PP as well. But it also appears that there are some remaining monomers as well. You did say that the profitability will not be up to expectations, but that it will nevertheless be at a fair or sound level. Do you believe that the operating losses of LC Titan will come down significantly in the fourth quarter? That is my first question.

And with regards to my second question, it pertains to Daesan. So based on the media reports, we have been able to confirm that a plan has been submitted, and you also mentioned that synergies is to be generated. But unless there is any changes in the feedstock just by negotiating on the facilities itself does not appear to lead to significant synergies effect. Do you have any plans to change your feedstock? And also, is there any hidden synergies that we are not aware of? If there is, can you share what those are?

[Interpreted] I am [ Kwak Giseop ]. I'm the Head of the Basic Chemicals Corporate Planning Division. Let me take your first question. Currently, the utilization rate of LCI is at around 80% level. And of the ethylene that is produced here, 450,000 tonnes is being provided to LCT. So 50% of the production volume is being supplied to LCT and the remaining is sold externally.

We have been supplying to the pipeline of LCT, and previously, we have been supplying through the maritime vessels. And so, now we will be able to save on the freight cost, and this will lead to a moderate contribution in reducing the operating losses for Titan.

[Interpreted] My name is Min-Woo Kim. I'm the CSO. Let me take your second question. Yes. As you have already mentioned, just by combining 2 NCCs and naphtha crackers with the same feedstock, would it lead to any significant synergies? I do understand that is the speculation held by many. So however, this assessment does apply when the naphtha cracker shows 100% utilization rate or utilization rate at the design level.

In the case of our plants and the plants of our HDC, given the design requirements of naphtha crackers and also the characteristic of these facilities, there is something called turndown ratio below, which, as I showed, the utilization rate cannot be lowered any further.

So when we are determining the utilization rate, we would have to consider the turn -- turndown ratio, the production cost of the ethylene and the balancing ratio and also the profitability of the downstream units.

Despite this being so, and despite the fact there are a number of products that are unprofitable that is being produced by our subsidiary downstream plant. So in a typical situation, because of the multiple factors that we have to consider, including the burden of the fixed cost of these plant facilities, normally, this would call for a plant shutdown. However, at the current phase, we are incurring losses. But despite bearing such losses, we are continuing to operate the plants.

So we do have 2 naphtha crackers located here domestically, one is in Yeosu and one is in Daesan. We have divided sites because of that reason that we have not been here to [indiscernible] create much synergy. That is true.

So within the same Daesan site, we have looked into ways in which we can overcome this problem. We have made a lot of studies and reducing the production of ethylene and propylene, these basic oils. So if the market situation calls for, that means that we can shut down one naphtha cracker.

And our internal review assessment has shown that in keeping with the ethylene balance, if we operate those downstream subsidiary plants depending on their profitability, then we are able to reduce a substantial amount of losses and actually enhance our profitability by several hundreds of billions of Korean won.

So the crux of the discussion at present is to overcome the limitation in optimizing the individual company's operational assets. And so that is the key to the discussion that is underway in Daesan. And this is very effective when the market situation is difficult. So the focus right now is to reduce the losses as much as possible.

And so this effect will be reduced as the market situation recovers and the utilization rate goes up. But still, this will remain a valid option in order to enhance the effectiveness within the same industrial complex. That is all.

[Interpreted] The following question will be presented by Parsley Ong from JPMorgan.

So earlier on in the call, you mentioned that you have done several noncore asset sales, including, I think, PET sales, Hecellose asset sales, so on and so forth. Could you give us some color on how much cash inflow do you expect from that and when?

And then you also mentioned that you think CapEx has peaked now that the Indonesia LINE project is completed. So could you give us an update on your 2026, '27, '28 CapEx outlook? Is there any change to, I think, previously market expectations was close to maybe KRW 1.5 trillion or something. So any update there?

The second question is, congratulations on your narrowing of the operating loss in the third quarter. And I think market is pretty encouraged by the restructuring effort. Are there any divisions, where you expect a weaker earnings outlook in fourth quarter and first half 2026? And I think you mentioned earlier that you're expecting the Indonesia LINE project to be loss-making initially. How much of a loss are you expecting? Would it be better than the Korean plant? And if it's loss-making, why not delay the plant start-up time until it's profitable?

[Interpreted] So I am Nak-Seon Sung, I'm the CFO. Let me take your first question. So about the noncore asset sales that I have mentioned during my message previously, that was referring to the sales of LCPL and the sales amount was KRW 15 million, and the amount will be received within this week.

Now let me touch upon the CapEx guidance. Now with regards to the CapEx, so our overall investment principle is to make the future investments within the EBITDA levels. So aside from those investment that is necessary for safety and environmental reasons, leaving aside these critical essential investments, all of the future investments will be made -- the decisions will be made solely on the profitability. That is all.

[Interpreted] So I am Kwak Giseop. I am the Head of the Basic Chemicals Corporate Planning Division. Let me touch upon the market situation outlook for the fourth quarter as well as the first half of 2026.

So for the Basic Chemicals, due to the expectations of increased production from OPEC countries and also from increased supplies from other regions of the American and the European naphtha, we do believe that stable supply prices will be maintained. But as we near the end of the year due to several different factors, we do believe that weak sales prices can be expected.

However, due to our proactive efforts to restructure our business structure and also due to our initiatives to improve our profitability, we do believe that we will be able to significantly reduce our losses going forward.

And also for your information, in the case of Advanced Materials and Fine Chemicals due to the expanded sales of high value-added specialty products, we are expecting very solid profitability coming from these segments.

Next, let me talk about the LINE project. Because there seems to be a lot of interest in the market about this LINE project, let me go into more detail about this. So in the case of LCI, mechanical completion has been undertaken in the month of March of this year. And starting from May of this year, we have undertaken pilot production as well as stabilization phase and starting from actually 15th of October, we have transitioned to commercial production and the current utilization rate stands at 80%.

So LCI is located within the Indonesian petrochemical industry, and this is an industry that is showing a CAGR growth rate of 5% annually. But in terms of the ethylene, the domestic self sufficiency rate stands at only 40%. So this is a market that is characterized by shortage of supply. And in the case of our company, by operating this plant, we intend to secure a strong foothold for mid- to long-term growth within this demand-centered market.

In terms of profitability, although we are making efforts to increase the sales volume and also identify new customers because of the weak market situation of the overall petrochemical industry and also given the fact that we are still in the early phases of stabilization, we do believe that any meaningful contribution to the performance in the short term will be quite limited.

However, in the case of the LINE project, it is a strategic investment made in order to strengthen our presence within the Southeast Asian market, which has high growth potential. And once the plant operation is stabilized and after we have secured a stable foothold within the domestic market, we are expecting that there will be gradual improvement of profitability going forward.

At present, we are stabilizing our supply chain through entering into long-term contracts for monomer and polymer products. And after the operational stability has been secured, we will be expanding the input of LPG feedstock and diversify our feedstock so that we can also strengthen our cost competitiveness as well.

We've also been continuously improving our profitability by identifying new local customers as well as expanding the production and sales of high value-added and strategic partners -- products.

[Interpreted] The following question will be presented by Hyun-Do Shin from Shinyoung Securities.

[Interpreted] My first question has to do with your outlook for the petrochemical industry next year. And my second question has to do with the assets for sale. So in addition to the assets that have already been sold, are there any other noncore assets that you are planning to dispose of as well?

[Interpreted] Thank you very much for your question. My name is [ Kwoun Jo Hyun ]. I'm the Head of the Monomer Division. Let me take your first question.

So in the case of this year, the global NCC utilization rate was maintained at around 84%. But in the case of this year, we are seeing continuous new capacity add-on volume hitting the market. And also, there are new capacity from China that is expected to come online this December.

And in addition, globally, there will be an additional 10 million tonne that will come live on stream globally next year. And from this volume, 70% is concentrated in Northeast Asia. Because of these new capacity add-on volumes coming online next year, we do believe that the global naphtha crackers utilization rate will come down from the present 84%.

Because of these factors, we do believe it will be difficult to raise the utilization rate in the short term. And it is only starting from 2028 when the new capacity add-on volumes will actually become smaller than the demand, then we do believe we can expect an improvement of the market situation.

[Interpreted] So this is the CSO, Min-Woo Kim. Let me take your second question. So actually, I do believe that the market is very well aware that we have raised some funds from the market through the product called PRS, and that is premised on the assumption that we will be selling some of our assets. However, this is actually closer to selling our invested stakes, raising investment funds through selling some of our shareholdings, but not selling our management control.

So in this respect, with regards to LCI, which was the unit that was responsible for the Indonesian LINE project, there is a potential investor, who has shown an -- expressed an interest in LCI. So discussion is underway, but nothing concrete has, as of yet come out. So we are not in a stage, where we can disclose anything to the market.

And with regards to your question as to whether there are any plans to sell noncore assets in the future that entails management control, I don't think this is something that can be disclosed through our earnings release presentation. We -- if among the several different options that we are looking into, anything becomes concrete, we will share them with you on a separate basis. Thank you very much.

[Interpreted] The following question will be presented by Woo-Je Chun from KB Securities.

[Interpreted] So I have 2 questions. First, although I'm sure you're not in a position to fully disclose much details about this, with regards to the restructuring that is planned for next year, if the restructuring takes place, because of the difficulties in securing raw materials for the Advanced Materials, do you believe this will lead to a decline in your utilization rate of your plants? That is my first question.

And my second question has to do with LOTTE Energy Materials. Among your specialty products or high value-added products, do you foresee any substantial increase in the sales of these high value-added specialty products going into semiconductors and other advanced applications going forward?

[Interpreted] So I am Woo-Hyun Cho. I am the Head of the Advanced Materials Corporate Planning Division. Let me take your first question.

In the case of Advanced Materials, we do procure some of our raw materials from Basic Chemical division, but also we are procuring our raw materials from the other companies within the industrial complexes as well as from overseas. So we do not believe that there will be any significant impact on our utilization rate.

[Interpreted] So I am [ Yang-Sik Cheon ]. I am the Head of the Polymer division. Let me take your second question.

So from the Basic Chemicals products, those that have a high contribution to the overall sales and profit are as follows: there are high value-added products, separators, and there are those products that goes into battery materials and also products that go into the medical applications. Those are it.

[Interpreted] So I am Woo-Hyun Cho, Head of the Advanced Materials Corporate Planning Division. So in the case of Advanced Materials, if we look at our high value-added products in the case of the PCE, we have high heat tolerant and also combustion tolerant products. Those are very profitable.

In case of the [ INEOS ] products, we do also have products that show very high tolerance to heat and high temperature and these show very high profitability as well.

[Interpreted] So I am Nak-Seon Sung, the CFO. Let me add to that. So we have a JV called Hantok Chemicals, which is a JV that we have formed together with Tokuyama. And a key product that is produced by this JV is a clean product that are used for semiconductor applications, and this is also a very profitable product.

At present, we are building a new plant in the Suntec region. And once the construction of this plant is completed and goes into operation, the sales and operating profit will expand significantly. That is all.

[Interpreted] With this, we would like to close LOTE Chemical 2025 Q3 Conference Call. If you have not been able to answer -- ask your questions or you have any additional comments to make, please contact our IR team. Thank you very much for attending despite your busy schedule.

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