[Q&A] Shin Hak-cheol, Vice Chairman of LG Chem, "Reviewing M&A and JV Across All Businesses Including Battery Materials"

LG Chem Holds 10 Trillion KRW Investment Meeting in ESG Sector
10 Trillion KRW Investment by 2025 in Eco-friendly, Battery Materials, and New Drug Fields

[Asia Economy Reporter Hwang Yoon-joo] LG Chem will invest 10 trillion KRW by 2025 to expand its eco-friendly materials and secondary battery materials (battery materials) business. The goal is to transform its business portfolio based on ESG (environment, society, and governance). The plan includes not only facility expansion and increased R&D but also actively pursuing mergers and acquisitions (M&A), joint ventures (JV), and strategic investments in external companies to become the world's largest comprehensive battery materials company.

On the 14th, Shin Hak-cheol, Vice Chairman of LG Chem, stated at an online press conference, "We are considering mergers and acquisitions (M&A) and joint ventures (JV) across all business areas, including battery materials."

Below is the full Q&A session following the investment plan announcement.

- Total sales and investment

▲ If the plan proceeds as scheduled, more than two-thirds of the total cumulative investment will be directed toward new growth engines. We will also actively pursue global expansion to strengthen the competitiveness of existing businesses.

- What is the ratio of domestic to overseas investment out of the 10 trillion KRW investment?

▲ About 60% will be domestic investment. Domestic investments include the Gumi cathode material plant, new drug development, and increased production capacity of solar POE. Overseas investments focus on securing production bases for battery materials centered on cathode materials.

- Please provide detailed explanation of the cathode material expansion plan.

▲ The Gumi cathode material plant will break ground in December this year. Cathode material sales are expected to grow by more than 70% compared to last year. The plan is to increase production from 40,000 tons in 2020 to 260,000 tons in 2026, more than sevenfold. Overseas investments, including expanding production bases in Europe and the U.S., are also actively being considered. In the cathode material field, we plan to lead the world in technologies beyond high-nickel.

- Please share specific progress regarding entry into the separator business.

▲ Our goal is to become a battery solution company, and separators are part of that. We are seriously considering entering the separator business to expand the battery materials business. Specific details cannot be disclosed. We are reviewing various measures to expand the portfolio of battery material solutions and strengthen business competitiveness.

- Are there plans to supply battery material products to other companies?

▲ We will prioritize supplying LG Energy Solution but are pursuing strategies to diversify the supply chain. Global market entry is also under consideration. The global battery industry is rapidly growing. However, no single company holds more than 40% of the global market share. There are still many opportunities and unlimited potential for LG Chem to target the market.

- Please share the timing of LG Energy Solution's IPO and its impact on LG Chem's stock price. Also, what are the plans to enhance shareholder value?

▲ The IPO process is progressing quickly. It is expected to be possible within this year at the earliest. Even after the IPO, LG Chem will hold more than 70% to 80% of LG Energy Solution's shares. Often, the market value is re-evaluated during an IPO, which can increase the value of the shares.

- There are concerns about oversupply in the petrochemical sector. What is the outlook for the petrochemical field?

▲ We have been aware of the trend for several years and have prepared strategically. LG Chem's strength lies in a sophisticated portfolio including untact, hygiene, and home economy sectors. Packaging materials, medical gloves, home appliance materials, and solar and electric vehicle materials that align with sustainability are promising future areas. Focusing on these sectors to provide customer-tailored downstream applications is the greatest competitiveness of LG Chem's petrochemical division. We believe that through product portfolio sophistication, we can stably generate profits amid external changes.

- Please explain the progress of new drug development.

▲ The most advanced treatment is for gout. The Phase 2 clinical trial results in the U.S. show safety and differentiated new drug development potential. We have opened a research corporation in Boston, U.S., and will begin Phase 3 clinical trials early next year centered there. The goal is to obtain sales approval in the U.S. and global markets after 2027.

- Which area will see M&A and JV investments first?

▲ We are reviewing all business areas including battery materials. We are also considering other flexible business models and will share immediately if any decisions are made.

- What about safety and accident prevention measures?

▲ Even accidents with near-zero probability can occur. To prevent this, we have been promoting Project 'Magnolia' for 1 year and 6 months. We are proactively preventing safety accidents and aiming for zero major accidents through safety and environmental investments. We also aim to have immediate response capabilities in case of accidents. This year, 400 billion KRW will be invested in environment and safety, the largest investment ever. Using digital transformation (DT) and artificial intelligence (AI), accident prevention and response are the main focus. Under the CEO's supervision, LG Chem is implementing safety management with unprecedented intensity, including setting technical standards and precise diagnostics.

- If material investments are strengthened, can electric vehicle companies reduce their dependence on China? Also, how will carbon emissions be addressed in the material production process?

▲ According to the carbon neutrality plan by 2050, we have announced that RE100 will be achieved in all production processes. This also applies to our major suppliers. Although dependence on China for metals and cathode materials is increasing, production bases are expanding to the U.S., Europe, and Korea. We are strategically collaborating with many of the world's leading mines and smelters. Our strategy is to diversify and globalize supply to enable the most competitive metal sourcing.

- What will be the scale of new hiring going forward?

▲ Investing 10 trillion KRW will lead to company growth. Naturally, quality jobs will be created. We will continuously strive to create quality jobs in domestic R&D and production fields in line with company growth.

- What is the current status and future outlook of all-solid-state battery development?

▲ Research and development have been ongoing for several years not only on all-solid-state batteries but also on post-lithium-ion batteries. When all-solid-state batteries become commercialized, demand for materials to enhance performance such as conductors and binders for cathodes and anodes will continue. LG Chem is emerging as a comprehensive battery material maker, including cathode materials. Even after commercialization of all-solid-state batteries, various types of battery materials are expected to be researched, developed, or commercialized by LG Chem.

- To expand the eco-friendly materials market, product prices must be lowered. What is the level of price reduction for LG Chem's eco-friendly products?

▲ There is strong demand for eco-friendly materials not only from consumers but also from client companies. The market size will continue to expand. The price of eco-friendly products ultimately depends on how much premium can be obtained when commercializing eco-friendly materials. Some markets cannot accept premiums, but there are markets willing to accept premiums of over 50%. Eco-friendly materials represent a blue ocean market if cost reduction is successful. Especially, a comprehensive chemical company like LG Chem has unlimited potential.

- Please explain in detail the roadmap for securing the 10 trillion KRW investment funds.

▲ Before LG Energy Solution's spin-off, LG Chem invested a significant portion of operating profit into the battery business. With the IPO, LG Energy Solution's investments will be made independently. Accordingly, LG Chem's investment capacity based on the petrochemical business has greatly expanded. A significant portion of the investment can already be secured through business operations alone. The recently issued green bonds attracted investment funds 7 to 8 times the expected amount. Also, since LG Chem holds 70% to 80% of shares after LG Energy Solution's spin-off, an annual investment of about 2 trillion KRW and 10 trillion KRW over five years is not a big issue.

- Are there plans to enter the hydrogen business?

▲ Producing hydrogen directly is not our business. However, among the hydrogen value chain including production, transportation, delivery, and storage, there is an important part related to material solutions. We believe LG Chem's material technology can contribute significantly here. From a value chain perspective, the material solution area is being closely reviewed.

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