[Interpreted] Ladies and gentlemen, welcome to LG Display’s Third Quarter of 2017 Earnings Release Conference Call. We will begin with the presentation, followed by a Q&A session. Throughout the call, all participants will be in listen-only mode. [Operator Instructions]. Now we will start the presentation. I hand over to the speaker. Ma’am, please begin.

[Foreign Language] [Interpreted] Good morning. Thank you very much for joining LG Display’s third quarter 2017 earnings conference call. I’m Heeyeon Kim, Head of IR. With us today are our CFO, Sang Don Kim of LG Display; DuckYong Kim, Head of Corporate Business Management Division; Matthew Kim, Head of Market Intelligence; JY Kwon, Head of IT Marketing; and KY Jin, Head of Mobile Marketing. Today’s earnings presentation will last around one hour in both Korean and English. There will be a presentation on the company’s financial performance for the third quarter of 2017, as well as market outlook, which will be followed by a Q&A. Please refer to our website and attachment to our disclosures for more details regarding Q3 results. For those of you joining us via the webcast, please refer to the references in the widget on the bottom-left corner. Before we begin the presentation, please take a moment to read the disclaimer. Also, please note that today’s results are based on consolidated K-IFRS standards prepared for your benefit and have not yet been audited by an outside auditor. With that said, our CFO, Sang Don Kim, will now start with the presentations on the third quarter 2017 earnings results.

[Foreign Language] [Interpreted] Good morning. I’m Don-Sang Kim, CFO of LG Display. I would like to thank the shareholders, analysts and investors for joining LG Display’s Q3 2017 earnings conference call. In looking back this third quarter with TV set price increases driven by previous panel price increase, display market saw a slower than expected sellthroughs in the regions, such as North America, Europe and China, which are the areas with larger average sizes. This has led to slower than expected size migration with downward trend in large panel ASP. Despite such backdrop, large OLED TV segment saw increase in shipment from additional E42 capacity entering full-fledged mass production from Q3. And as seen from E5 2017, 13 companies have adopted OLED TVs with new premium products, such as Wallpaper and CSO gaining positive reception, attesting to differentiation against LCD TVs, which led to a customer diversification and rising volume for OLED TV. Also, for the small to medium POLED business, there were smooth supplies for new models from E2 line. And progress for E5 line, which started mass production in Q3 is ongoing as planned in time for product launches end of the year. We plan to stabilize Gen 6 POLED production yield and secure technological competitiveness from E5 line and do our utmost in building the basis for full-fledged expansion of small to mid POLED business. Now let’s move on to Q3 earnings results. Driven by higher OLED TV penetration and other efforts and solidifying the premium positioning, as well as rise in small to mid mobile product shipment on high seasonality, Q3 revenue was up 5% Q-on-Q to KRW 6,973.1 billion. With selling price declines around large panels, operating income fell 27% Q-on-Q, coming in at KRW 586 billion. Moving on to Q3 area shipment and ASP,…

That brings us to the end of earnings presentation for Q3 2017. We will now take questions. Operator, please commence with the Q&A session.

[Foreign Language] We’ll now begin our Q&A session. [Operator Instructions] Our first question is from Samsung Security. Please ask your question.

[Foreign Language] [Interpreted] I would like to pose one question with the – and you’ve talked about how the mobile mix has actually changed despite the decline in the large LCD – as declines in large LCD, the blended ASP had actually moved up. So with respect to the migration from LCD to OLED, we’ve – our concern at the market that the mobile panel share could actually go down. So could you provide some color as to what would happen in 2018 in light of your ability to respond to OLED demand? And also how much of a change will we have to expect in the share of the mobile panel out of your entire product mix? And would that have any impact on your blended ASP? If you cannot disclose any specific figures, I would actually appreciate, at least, an overall directional guidance?

[Foreign Language] [Interpreted] Now as you are well aware, we are currently in the process of migrating from LCD panels to plastic OLED. And we expect revenues related to OLED to start to generate once the investment actually is complete in year 2019. Now if you look at the Mobile LCD panel share of our – based on our company-wide figures, it’s about 30%. Now starting this year, we expect the POLED panel sales to start to really just gradually increase and take off. And by next year, we think that it will either be flat, or there will a slight growth. Now just to add on what I have previously said, as you know, we have a phased approach in the setup and the construction of the POLED fab. So we expect PO revenue to start to grow gradually starting next year.

[Foreign Language] Our next question is from Simon Wu at BoA. Please ask your question.

[Foreign Language] [Interpreted] Thank you. I’m from Merrill Lynch. I would like to first thank you for a great performance. I guess, on an EBITDA basis over the past one, two, and three quarters, we’ve seen actually your profit increase despite the fact that the depreciation has gone up and your operating profit had actually declined. But on a EBITDA level, I think, the – I think your performance was quite good, so thank you for that. So moving on to my question, when you look at the OLED TV recently, we saw some article coverage on the burning effect that people have witnessed on your OLED TVs. We’d like to understand what your view is with respect to this issue? And secondly, we’d like to understand what your capacity management status is currently at in terms of your glass capacity? And are things going well in terms of production execution and capacity execution to go over that KRW 2 million mark?

[Foreign Language] [Interpreted] To answer your first question, I think in the market, there has been some intentional creation of noise regarding this issue. But we believe what’s most important is the decision and the judgment of our customers. Our performance would arise out of the positions and decisions of the customers. And we at our company are exerting our utmost endeavors to satisfy what the customers want. At OLED panel, basically, adopt a totally different platform compared to existing LCDs. We have high confidence in our OLED platform and we are once again exerting our best of the efforts. In terms of the large-size OLED TV panel capacity in 2017, we’re expected to sell around 1.7 million this year in terms of capacity. As I’ve mentioned previously, the number of customers who have adopted the large-size OLED panel have – is at 13, the 13 customers have adopted OLED. So we see a very strong increasing trend in terms of the demand. And we see by next year in terms of the volume, we’re looking at about 2.5 million to 2.8 million.

[Foreign Language] Our next question is from Nicolas Gaudois at UBS. Please ask your question.

Yes, good morning. Thanks for taking my question. First one and then I have a follow-up afterwards. Just to continue on OLED TV panel production. So with the volumes you just confirmed for this year, and for next year, the indications you gave, which if anything is a little bit higher than your product target. Could you comment on profitability last quarter for the OLED TV panel business? And how you see the timing to reach EBITDA break-even at some point hopefully by next year? And as – my follow-up question is relates to mobile LCD. We’ve had a lot of anxiety in the market about the volumes in Q3 and Q4. Maybe if you could qualitatively talk about how you compare your outlook for mobile LCD going into Q4 versus what you expected one or two months ago? Thank you.

[Foreign Language]

[Foreign Language] [Interpreted] So I understand your first question to relate to profitability for our large OLED TV panels. Now the company’s view is that, we are on track as according to the guidance that we have previously communicated. In 2017, when it comes to the large OLED TV panels, we are making EBITDA in the black on a monthly basis. In terms of the customer demand, it is quite strong. And if you look at our yield and also different production indicators, they are improving. So we expect profitability to improve as we go forward. And we are at this point devising our business plan internally with a target of turning profit on the operating profit level by the second-half of next year. I think, in terms of the mobile LCD, we’re seeing some press coverages relating to some uncertainties relating at – or to the customers, the TAM-related matter. Because the demand from the customers are quite robust, our focused activities are providing with ample support. And we are fully prepared to adjust the capacities for mobile LCD in line with the speed of penetration of plastic OLED.

[Foreign Language] Our next question is from Daishin Securities. Please ask your question.

[Foreign Language] [Interpreted] Thank you for giving me the opportunity to ask questions. In terms of your Q3 net profit, the figure was actually better than the market consensus. Were there any particular points that we need to note on a non-operating side or the corporate income tax line item? Second question is, in 2018, in order for your free cash flow to stabilize, I believe at the corporate-wide level, you need to keep your cost of goods sold within the company below 90% level. In light of the fact that, your Q3 depreciation has increased and also the fixed cost therefore had increased. What are your plans to manage your cost in the coming years?

[Foreign Language] [Interpreted] Responding to first question, there are no particular items to note. For the second question, I need to break down the answer to OLED and LCD. If you look at the large-sized OLED TV, basically, we are in the process of scaling the economic size in order to secure profitability. Now as you have pointed out, in order to reduce the material cost and overhead cost and thereby increase profitability, one of the ways to achieve that is to set up OLED TV fab in China. And underpinned by our previous experiences, we want to enhance the efficiencies of our lines and attain economy of scale by expanding the ecosystem when it comes to the material sourcings and material-related costs, thereby really enhancing cost efficiency and cost competitiveness. Now on the LCD side, our experience is very broad-based. And in terms of operational excellence, I believe LG Display is at its best in the industry. One of the key characteristics of LG Display is its flexible production management, operational management. Once again, we will do our utmost to maintain our cost competitiveness through various different activities.

[Foreign Language] Our next question is from Korea Investment. Please ask your question.

[Foreign Language] [Interpreted] I would like to ask two questions. The CFO has previously mentioned that there has been some heightened uncertainties around mobile LCD demand, and the company is preparing to convert LTPS LCD capacity to OLED. But can you provide a little more color as to when this will happen? When can we foresee that move from LCD to OLED conversion in the capacity? And also for OLED TV, I understand that your customers, the companies that actually sell the TVs are enjoying quite good profitability, and the market reception for such product is also very good. So you would obviously then think that the panel suppliers would have the bargaining power when it comes to price setting. So what is your outlook for OLED TV panel prices for the fourth quarter and for next year?

[Foreign Language] [Interpreted] Responding to your first question. As I said before, when it comes to the LTPS capacity conversion, we are prepared to nimbly and very quickly respond to any changes that we may witness on our customers or in the market. But at this point in time, the company’s priority and its resources are highly focused on the successful setup of the – the phased setup of our plastic OLED fab to make that we don’t go through any trial and errors, we are focusing greatly our resources on POLED. Now when it comes to the OLED TV panel prices and its potential trends going forward, we do not think that it is going to mimic the trend that we have seen in LCD panel prices. We’re going to position OLED panel as a new device, a new lifestyle type of a product. So it would not be following the trend of LCD panel prices. And therefore, we believe that that would be a way to actually maintain price bargaining power. If you look at products like CSO and Wallpaper, these are products that would develop – it will be developed and has been developed and it provides the customer with the high customer value. So basically, our roadmap is to maintain our negotiating power vis-à-vis the price through such approaches. So this year, the OLED panel volume is only around KRW 1.7 million. But our objective is by 2020 to go over KRW 6.5 million like, thereby achieving economy of scale. We will follow by this roadmap and we have set for ourselves in order to further reinforce the profitability that we can enjoy from OLED TV panels.

[Foreign Language] Our next question is from Rob Stone at Cowen and Company. Please ask your question.

Hi, I have two questions, please. One, if you could comment, given the strength in the OLED business and somewhat a weaker LCD TV demand. Number one, how much do you expect OLED TV to contribute to your overall sales in 2017? My second question is, with respect to operating expenses, it was impressive to see that your revenues increased in Q3, but you managed to lower operating expenses. Could you comment on the directional trend for operating expenses in Q4, please? Thank you.

[Foreign Language]

[Foreign Language] [Interpreted] Now responding to your first question, in 2017, on a full-year basis, if you look at the contribution of OLED large panels and small panels to our corporate-wide revenue, it stands at around 10%. Come next year 2018, we expect the OLED to account for around 20% of the revenue mix. This is as according to the business budget and plan that we have set. In Q4, responding to your second question, we think that the ASP decline will to somewhat continue in the fourth quarter. Now because of that, there may be a slight increase of a percentage of cost as against the revenue, a slight increase. But we are going to endeavor our best in order to make sure that the absolute size of the cost either remain flat or decline. Having said that, because of the news top of the fab, we think that there will be slight increase in the depreciation. Just for your information, in Q4, we think the depreciation increase will be around KRW 40 billion.

[Foreign Language] Our next question is from Arete Research. Please ask your question.

[Foreign Language] [Interpreted] If you turn to Slide 8 and if you look at cash flow, there is a change in working capital, which amounts to KRW 650 billion. I think, the size is quite significant, and on a year-over-year basis this is about five times higher. Could you explain as to what this is?

[Foreign Language] [Interpreted] So in Q3, you’re correct, there has been an increase in the working capital and others line item. This actually includes typical payable expenses, as well as some of the unearned revenue or prepayment that we receive from the customers.

[Foreign Language] Our next question is from NH Investment. Please ask your question.

[Foreign Language] [Interpreted] Thank you. I would like to ask one question. I think there is a strong demand for 18 to 9 LCD panel business, the mobile panel business. And there are also plans being announced by Chinese panel makers that they will enter into mass production in the second-half of the year. So can you give us some color as to what percentage of this 18 to 9 LCD panel actually accounts for it based on either your revenue or your total shipment amount. And also in light of the POLED conversion, what would be your outlook for this product group next year?

[Foreign Language] [Interpreted] Yes, I’m KY Jin. I’m the Head of Mobile Marketing. If you look at the overall market, the market is moving towards the 18 to 9, or 18.5 or 18.7 to 9 market, and we see a very strong demand coming from the Chinese companies. Looking at our company alone, basically, more than 50% of the share is this – by this 18 to 9 panels, and the overall market direction is towards that as well.

[Foreign Language] Our next question is from SCMR. Please ask your question.

[Foreign Language] Thank you for taking my question. Two questions. First, there has been some question about government influence in Korea on approving your China fab. Would you expect this to slow the progress down, or is this pretty standard practice? And second, can you give us some – an update on the mix – size mix on your OLED TVs and on yields for each size? Thank you.

[Foreign Language]

[Foreign Language] [Interpreted] First, to respond to your initial question relating to China’s OLED TV plant, we are in the process of acquiring government approval. We at the company were fully aware of the concern that the government has expressed, and we are in the process of persuading and explaining to them. And at this point, we are waiting for the government approval. Responding to your second question on OLED TV size mix, if you look at panel sizes of 55-inch, it account for 65%. And for 65 inches and above, the size mix share is 35%. In terms of the yield in all the size categories, we are showing a significantly high yield. We’ve also past the so-called golden yield. Please understand, I won’t be able to disclose the specific yields for individual inches.

[Foreign Language] Our next question is from Samsung Security. Please ask your question.

[Foreign Language] [Interpreted] I would like to ask two questions. First, regarding the recent press articles that we’ve seen, I think, I would like to ask for more clarification on your OLED investment plans. The fact that you will be investing KRW 15 trillion within the year for 6 – Gen 6 up to 60K capacity. I think there has been some different messages that is being announced to the public. So could you make clarifications on your OLED investment plan? Second question, people are saying that China could actually advance its mass production schedule of 10.5G. What impact would that have towards the market? And what countermeasures do you have?

[Foreign Language] [Interpreted] I think there has been some misunderstanding, let me clarify. As you know, we’ve communicated our investment plan back in July and there are no changes to that plan we’ve communicated. Starting 2017, for four years to come, including 2018, 2019 and 2020, our new expansions, we will be investing KRW 20 trillion. KRW 10 trillion will go to large-sized OLED panels and the other KRW 10 trillion will go to POLED panels. For your information, we are expecting around KRW 7 trillion of CapEx in year 2017. Responding to your second question, I understand your question to be the impact on LGD coming from the 10.5G ramp up of Chinese companies. Actually that is one of the reasons why we’re also very quickly rushing to migrating to the large-sized OLED and plastic OLED business. For the LCD business, we will continue to have a focus on profitability and really focus on the high-end products that are truly differentiating.

[Foreign Language] [Interpreted] I’m Matthew Kim from Market Intelligence, you asked about the potential impact on supply and demand dynamics. Even if Chinese companies 10.5 generation production is actually advanced in terms of its schedule, the panel price trend and its impact on the set price, if you look at next year’s demand, on the ultra large-size demand, there could be a significant uplift. So even – so in terms of the negative or bad impact on market supply and demand dynamics, we think that that will be minimized. Let me make one correction to the previous answer we provided regarding 18 to 9 platform. The market is projected to be around 20%. LGD’s share of 18 to 9 is around 50%.

[Foreign Language] Our next question is from Daishin Security. Please ask your question.

[Foreign Language] [Interpreted] I have a follow-up question on your OLED TV panels, the new products like the Wallpaper and CSO. I understand, the company had engaged in very active marketing against investors and your customers. And if the share of such premium products actually increased, that will have great contribution to your large-size OLED profitability. I think for this year, the percentage of such premium products would be quite minimal, but next year, based on the number of shipments, how much share would these types of products actually have?

[Foreign Language] [Interpreted] As you’ve correctly mentioned, we’ve seen some very positive customer reception on Wallpaper and CSO product, so the company also has high expectations for these product groups. We believe that by next year out of the OLED panels, Wallpapers and CSOs will probably account for around 30%

[Foreign Language] Our next question is from KB Securities. Please ask your question.

[Foreign Language] [Interpreted] My question relates to your mid to long-term strategy on OLED TV. Currently, the main product is 55-inch when it comes to the OLED TVs, but with the China companies starting – scheduled to operate their 10.5 generation fab, we think that the 65-inch market will start to really take off. So under this backdrop, what is the size mix strategy of the company? And in terms of the definition, we think the high definition upgrade will take place from 4K to 8K. That will obviously bring down production efficiency for the Gen 8 facilities. So what are your strategies in terms of size and definition?

[Foreign Language] [Interpreted] I think, I can answer this question in – with three points. Number one, in order to deal with the potential change in the size mix, LG Display has its own unique technology called MMG, based on which, you could actually cut the mother glass into different pieces of inches. So as we communicated in previous months, we are in the process of really preparing for the technology, as well as the process technologies to be fully equipped to be able to produce the 10G OLEDs. And also in terms of verifying the technologies, the oxide-based backplane technology compared to amorphous silicon technology is much more advantageous in terms of the driving speed. So we believe that we really want to be able to verify this technology for the 8K and be able to adopt this technology. So let me sum that up by saying that in preparing for 10G OLED TV, one of the essential technologies are currently being verified, which is the oxide technology. Our plan is that we want to actually adopt the oxide technology, because the speed at which the plane – the speed at which the panel is going to be driven is going to be much faster compared to LCD 8K, and it’s a more advanced technology. And also, the Gen 10 is not based on half cuts, but it’s based on mother glass. So it’s much more superior in terms of production and also in terms of different characteristics.

[Foreign Language] [Interpreted] Due to the time constraint, we would like to close the earnings presentation. I’m going to turn it over to the operator, so that you may close the event.

[Foreign Language] If there are no more questions, we’ll close the Q&A session.

[Foreign Language] [Interpreted] Once again, thank you very much for joining us today. Please do contact us at the IR team for any additional questions. Thank you very much.