EcoPro BM Co Ltd

KOSDAQ:247540

Earnings Call Analysis

Current Performance Overview

Ecopro Group's Q3 2024 results reflect a challenging environment for the company, particularly in its battery materials segment. Ecopro BM reported a significant 36% decline in consolidated revenue quarter-over-quarter, bringing it to KRW 521.9 billion, accompanied by an operating loss of KRW 41.2 billion. This downturn is attributed to sluggish demand in the electric vehicle (EV) sector and a drop in lithium hydroxide prices, which fell from $12.8 per kilogram at Q2's end to $9.8 by Q3's close.

Inventory and Pricing Challenges

Ecopro experienced a substantial inventory valuation loss of KRW 18.8 billion, mainly due to declining exchange rates and metal prices. The total assets as of Q3 2024 decreased by 3.6%, resulting in KRW 4.152 trillion. The CFO indicated that current market conditions are pressing, with a projected continuation of inventory adjustments through Q4. While inventory management is targeted at improving the financial bottom line, short-term pressures persist.

Operating Segments Breakdown

A closer look at the individual units shows Ecopro Materials facing a revenue decrease of 1.2% to KRW 65.9 billion, with an operating loss of KRW 38.5 billion. The precursor sales were also adversely affected by falling international nickel prices, down from $18.4 to approximately $16.3 per kilogram. Efforts are underway to boost sales for external customers, with hopes that improving nickel prices and increased utilization will bolster profitability in the coming quarters.

Guidance and Future Expectations

Despite Q3's difficulties, there are expectations of gradual improvements in the next year, particularly for non-captive sales volume which is anticipated to rise significantly. Ecopro's management expects that by the first half of 2025, as utilization levels return to normal, profitability can recover, aided by new customer operations. Notably, they project that the non-captive sales percentage may reach or exceed 50% by then.

Outlook for Q4 and 2025

Looking forward to Q4 2024, Ecopro anticipates that the backdrop of inventory depletion will limit recovery in customer shipments. However, a slow sales increase is projected due to the onboarding of new customers starting from Q3's end. For 2025, growth is expected as OEMs deplete existing EV inventory, indicating that sales volumes should recover to levels akin to 2023.

Strategic Initiatives and Market Position

Ecopro is focusing its marketing efforts on securing multiple new customers while minimizing concentration risk on existing ones. The company’s proactive approach includes leveraging its unique position as the only Korean producer meeting specific regulatory requirements in the U.S. market. This strategic positioning, along with plans for a substantial capacity addition through their Indonesian entities, highlights the anticipated future growth potential amid current challenges.

Financial Health and Investment Plans

Ecopro's financial leverage has increased, with total liabilities up 0.5% to KRW 4.290 trillion. Despite these pressures, the company plans to issue hybrid securities worth KRW 336 billion to improve its equity capital structure. Investments are set to be refocused, lowering total CapEx from an initial projection of KRW 1.5 trillion to around KRW 1 trillion for 2024 due to operational adjustments.

Concluding Thoughts

Summarizing the Q3 earnings call, Ecopro's immediate outlook appears challenging, yet several strategic initiatives and anticipated market recoveries suggest potential for improvement. Investors should remain attentive to the evolving product landscape, inventory management practices, and global commodity price fluctuations as these factors will play critical roles in shaping the company's trajectory moving forward.

Earnings Call Transcript 2024-Q3

[Unknown Attendee]

Good morning. Thank you very much for joining us this morning. So we will start with the presentation on third quarter earnings, followed by the second half outlook and then the Q&A. We will provide simultaneous interpretation for the presentation, then switch to consecutive for business outlook and the Q&A. I will now turn it over to Ecopro.

[Unknown Executive]

Good morning. Thank you for joining the company's earnings call today. Once again, thank you very much for joining the company's earnings call today despite your busy schedules.

Apologies to our participants. We are experiencing some technical problems, but that's been solved. So we would now like to begin. So once again, good morning. Thank you for joining the company's earnings call today. I have with me today from Ecopro, CFO, Park, Jae Ha; Kim Soon-Ju, Managing Director of Finance and Accounting; Chang [indiscernible], Managing Director of Global Resources Department.

From Ecopro BM, CFO, Kim, Jang-Woo; Development Team 2 Leader, [ Choi Yoon Young ]; from EcoPro Materials, [ Choo Byun-un ]; Business Management Team leader, Park [ Byeong ]; and Procurement and Sales Leader and Ecopro HN [ Jun, Hyung ], CFO; and [ Choi Jin-young ], Business Management Team Leader.

Please also note that the earnings are yet to be audited by an independent auditor and, hence, are subject to change upon the review. With that said, we would like to now begin with the presentation of the earnings for the third quarter of 2024.

[Soon-Ju Kim, executive]

Good morning. I am Kim, Soon-Ju, Managing Director of Finance and Accounting Department at Ecopro. Please take a look at the earnings material, which we've previously shared. We will begin today with performance highlights of 4 Ecopro Group companies followed by a Q&A.

Let's begin on Page 5, consolidated P&L of Ecopro BM. Ecopro BM's third quarter 2024 consolidated revenue was down 36% on quarter to KRW 521.9 billion, with operating loss of KRW 41.2 billion. On the back of slowing demand for EV and Power Tools, revenue fell Q-over-Q. And on decline in $1 exchange rate and metal prices, we booked KRW 18.8 billion of inventory valuation loss which had a negative impact on profit.

Lithium hydroxide price, which was $12.8 per kilo end of Q2 fell to $9.8 end of the third quarter, with $1 exchange rate falling to KRW 1,319.61 per dollar dealt a blow to this quarter's earnings. We expect meaningful level of earnings rebound to be delayed in the face of client inventory adjustment in Q4, while higher utilization and reversals of inventory loss will work as positive levers. Also against stronger emission control for EVs in Europe and ramping up of new customer factories in North America in 2025, we project rebound in sales volume in Q1 of '25.

Next on Page 6 is revenue structure and financial status. Despite the fact that total cathode sales volume in Q3 fell 35% versus last quarter, cathode for ESS increased 81% on quarter, powering the growth in sales volume. Moving on to financial status statement. On the right, total asset as at end of Q3 2024 was down 3.6% Q-over-Q, reporting KRW 4,152.4 billion. Total liability was down 2.1% Q-over-Q to KRW 2,597.5 billion and equity fell 5.9% Q-over-Q to KRW 1,555 billion.

Thanks to efforts to reduce inventory asset, inventory asset as of end of Q3 was KRW 680.2 billion, down 9.1% Q-over-Q. That ratio inched up marginally Q-over-Q to 167% due to increases in borrowing. But we expect there to be significant improvement in financial position as of the fourth quarter end, following the issuance of KRW 336 billion of hybrid securities that can be counted towards equity capital.

Next, Page 7 is P&L for EcoPro Materials. Q3 2024 revenue for EcoPro Materials was down 1.2% Q-over-Q, coming in at KRW 65.9 billion with operating loss of negative KRW 38.5 billion. In Q3, we saw captive sales inch up slightly following shipment to new customers. But in terms of bottom line, decline in international nickel price and narrowing spread margin between selling price and material cost coupled with falling exchange rate. There was KRW 15.2 billion of inventory valuation loss, dealing a blow to profitability.

Just to note, nickel price used to be $18.4 per kilo end of Q2, but it fell to around $16.3 as of the end of the third quarter. In Q4 2024, we expect higher precursor sales to external customers, and we believe that this will drive earnings improvement and have positive impact on profitability. Also, volatilities of international nickel price is expected to ease and an increase in sales volume. There will be less fixed cost burden, underpinning bottom line improvement.

Page 8 is revenue structure and financial position. Q3 precursor sales was up 21% on quarter, while ASP fell 1.5%. On the right-hand side, you see financial statement showing total assets, as of third quarter end, increasing 0.5% Q-over-Q to KRW 1,119.9 billion. Total liability increased to 13% Q-over-Q to KRW 390.8 billion, with total equity decreasing 5% on quarter, reporting KRW 729.1 billion. We are in the process of making CapEx investment into #4 campus in Pohang City, responded to demand from multiple number of new customers, result of which increased borrowings leading to a rise in debt ratio by 45% Q-over-Q, reporting 54%.

Page 9 is Ecopro HN's P&L update. Revenue for Ecopro HN in Q3 24 was up 20% on quarter, reporting KRW 56.1 billion, with operating profit increasing 58% Q-over-Q to KRW 5.7 billion, and OP margin came in at 10%. Driven by solid growth from the chemical filter and water treatment business, top line revenue trended upwards, while changes to the revenue mix helped OP margin to regain 10% level. We project revenue uptrend to expand as we enter into Q4, which is the start of the peak season. Also, with the completion of construction of [ Cho-pyeong ] Industrial Complex, we will be able to start production of prototypes for our new businesses.

Page 10 is the revenue structure and financial position. Looking at each segment, revenue from chemical filter business was KRW 13.7 billion, and water treatment revenue was KRW 27.8 billion, attesting to robust demand. And construction progress rate of greenhouse gas and fine particles business increased versus last quarter, driving overall top-line growth across business segments. Statement on the financial status show total asset as of third quarter ended '24 was up 17% Q-over-Q, reporting KRW 267.1 billion, and total liability was up 29% Q-over-Q to KRW 150.1 billion and total equity increased 4.6% Q-over-Q to KRW 117 billion. Due to increase in borrowings for CapEx required for [ Cho-pyeong ] Industrial Complex, debt ratio increased to 128.3%, but we are planning on financing through capital injection, which is expected to improve company's financial position.

Next on Page 11 is Ecopro, The Holding Company's consolidated P&L. Ecopro's Q3 '24 consolidated revenue was down 31% Q-over-Q to KRW 594.3 billion, and operating profit came in at minus KRW 108.8 billion. Battery materials business saw a decline in sales volume, which drove revenue down and the continuing lithium price declined. KRW 34.4 billion of inventory valuation loss was booked, which eroded profitability. Nevertheless, we are seeing steady profit stream from global resource investment made by the holding company on a sustained basis.

For the QMB project, for instance, there was KRW 5.4 billion of equity method gain in Q3. Also, Ecopro completed investment into 3 projects this year through which we were able to secure Nickel, sufficient for producing 400,000 EV vehicles per year. In Q4, for the lithium and recycling business, we expect there will be additional provisioning for inventory valuation, which means we will need a little more time before we see improvements in battery materials business environment. The Ecopro Group will expand nickel smelting business, which crystallizes our innovation strategy and will carry forward with integrated cathode business and kick start the Indonesian project so as to proactively cater to market environment. Our management team will share a more detailed plan during next week's upcoming at Eco Friendly Day.

Next is Page 12, consolidated financial update for Ecopro. Total assets end of Q3 declined 2% on quarter, reporting KRW 7,536.3 billion. Total liabilities was up 0.5% on quarter to KRW 4,290.5 billion, while total equity fell 5.2% on quarter to KRW 3,245.7 billion. That ratio inched up marginally to 132.2%. On the back of continuing overseas investments to secure critical minerals and CapEx for capacity addition, cash and cash equivalents decreased somewhat, while following inventory rationalization across the entire group companies, total inventory level declined 6.9% Q-over-Q. Borrowings across group companies are around KRW 3.3 trillion with leverage dependence rising to 35%, but we expect to recapitalize in Q4, which will in turn improve financial metrics as of the end of the year.

[Jae Ha Park, executive]

The fourth quarter business outlook. So before we go into the Q&A session, I would like to talk about the fourth quarter outlook and also the outlook for thereafter. So this is the CFO of Ecopro Park, Jae Ha. First, to talk about our cathodes business. Because on the downstream side, there are inventory adjustments that our customers are now facing, that does lead to a very challenging market situation. In the fourth quarter, we also believe that it would be difficult to expect any meaningful increase in the overall volume. However, that being said, for the secondary battery market as a whole, we do believe that it is clear that the growth trajectory would be in place over the longer period of time. So therefore, we do think that within the next year, we will be able to see a gradually -- a gradual recovery taking place within the market.

To talk about the precursor business, because of the volume decrease that we have seen in cathodes, of course, that is impact our precursor business. And we are trying to address the limitations of internal captive demand. So as a result of that, we're currently in discussions with customers in Korea and abroad. And we do believe that this will result, in the near future, to a significant increase in non-captive volume. So we do believe that the effects of those discussions will start to take place from the fourth quarter.

In addition to the cathode and precursor business, in the third quarter, there was also a bit sluggishness in the performance of our lithium and also recycling businesses. In a backdrop where the metal prices continue to fall, we do have high-priced inventory that has been accumulated, which has led to continuous losses. In the case that the metal prices do not recover in the fourth quarter, we do believe that there is a possibility that we could have significant inventory-related valuation losses that we incur. However, in terms of our internal competitiveness, we do think that there are positive signs that are showing.

For the lithium conversion business that EcoPro Innovation is engaged upon, we currently have 2 factories that are running as of now. For, factory #1, right now, the utilization is 90% plus, which represents a full utilization situation. And in the case of factory #2, it is in a ramp-up period as of now. However, if we are able to apply the know-how that have accumulated from the operations of factory #1, we do think that we will be able to increase the utilization in the near future. And if we add on the recycled lithium solvent solutions as input, we do believe that, that will strengthen our overall cost competitiveness.

For the recycling business, having a stable supply of feed is very important. And if you look at the recent market situation, because there are a lot of new players entering into the market, competition is increasing and that is making feed -- securing feed are more difficult. However, in the case of EcoPro CnG, we are not in such a situation. So we do think that this provides us with a step advantage versus our peers.

However, because there is inventory that we have secured in the past as metal prices continue to fall, in the short term, we do think that this will have a negative impact on our performance. In September, we were able to reach, in terms of our overall production, the highest level within the year. So the overall productivity of our lines is improving. And we are also increasing and beefing up our capacity to be able to process a wide variety of different feed. So as the market does recover, we do think that this will lead to a gradual improvement in our profits.

Lastly, at the whole core level, of course, we continue to exert our efforts to be able to secure nickel at a more affordable price. So right now, for the 3 refinery projects that we have in Indonesia, the overall investment has been completed there. So if we look at the equity method gains that are being generated from this location on a per quarter basis, it's approximately KRW 5 billion. And we do believe that this is an amount that will increase going forward. In addition, by integrating the full value chain from the nickel refining to the cathode production we do think that we have an innovative strategy in place to strengthen our competitiveness. So with regards to the detail of such strategy, I do believe that we will be able to elaborate a bit more during the Eco Friendly Day event that we have on November 8.

So next, maybe I can talk about our 4Q outlook and 2025 business outlook for Ecopro BM. As you are aware, because the overall recovery in the EV market is a bit sluggish in the fourth quarter, we do think, on a Q-o-Q basis, that it will be a bit difficult to expect an increase in the overall -- a meaningful increase in sales volume. However, for 2025, we do think that for the key OEMs, they will be able to deplete some of the EV inventory that they have carried forward. And as the overall rates continue to decline, we think that, that will lead to a recovery in consumer purchasing capabilities, and there will also be new cars that will be launched within the market. So as a result, in 2025, we do think that the overall sales volume will recover to a similar level to 2023.

[Unknown Executive]

So maybe I can discuss the outlook for EcoPro Materials. In the fourth quarter of this year, because the impact of inventory being depleted at our affiliates is continuing, we do think that a recovery in the shipments for captive customers will be limited. However, from the third quarter, we have been able to start shipments for new customers. So a result of that on a Q-o-Q basis, we think that 4Q will represent an increase in overall sales volume. In terms of profitability, as our overall utilization improves will decrease our fixed cost burden. So -- and added to that, if we look at nickel and key metal prices, there will be less volatility, so we do think that profitability in some certain areas should recover.

In addition, to talk about the outlook for 2025. As of the current time, I do think that we are a bit cautious. However, for '25, if we look at various critical minerals, including cathodes, there will be the FEOC regulations that will be applied. So we do think that this will lead stronger non-Chinese precursor demand in the U.S. and a steep increase in this area. So as a result of that, for the company, we do think that, focus on the U.S. market, we will be able to experience a large increase in precursor sales volume. And in addition to the new customers that we have been able to secure this year, we do think that our non-captive sales will increase.

For the company right now, we are actively trying to address various IRA-related regulations. And in addition to that, we are focusing on developing next-generation products, which would include software-based precursors and also the high-voltage [ medium ] nickel precursors. So we are trying to secure various new customers within these areas. Across the next 2 to 3 years, we will continue to focus on acquiring new customers and also increasing our overall non-captive portion of business so that we can further stabilize our business operations and also create more growth drivers for the future.

[Unknown Executive]

So this is Business Management Team Leader of Ecopro HN [ Choi, Jin Yung ], and maybe talk about our outlook. If you look at the third quarter on a Q-o-Q basis versus the second quarter, we were not able to see a meaningful rebound. However, from the second half of last year, in the semiconductor side, there has been production cuts that are taking place. And sluggish chemicals and the overall steel market has been sluggish also, which led to a reduction in our overall performance in the second quarter. So in Q3, we do think that we were able to see somewhat of a gradual recovery taking place in terms of investment sentiment, and that led to an increase in our overall top line. In addition, if we look at the fourth quarter, we are entering into a seasonally high season. So we do think that the percentage of completion of construction will expand going forward, which will lead to more stable revenue trends for the fourth quarter.

Next, if we talk about 2025. For 2025, we do think that our overall sales and marketing activities will be focusing on our existing environment business and added to that, our new business areas be the battery and semiconductor materials business. First, to talk about our environment business. Versus the past, I do think that we will be developing new items that can cover a wider range of downstream industries. So we are currently focusing on creating a base that would enable us to enjoy stable order sizes.

Next, let's talk about our new businesses in 2025. We do think that it will be a year during which -- for the battery materials business, we will be able to see a full-fledged recognition in terms of our overall top line. So first, we will be starting with captive demand for [ doping ] and saggers. And then during the second half of the year, we are going to expand our overall sales to non-captive customers. In addition, for electrolyte additives as we are completing various tests and discussions with our non-captive customers, we do think that sales there will start to also materialize.

In the case of semiconductor-related materials, in 2025, we're not planning any large growth in terms of sales, but we do think that it will be a meaningful first year in making a start in this business. So right now, we are receiving line evaluations from our customers, and we do think that the volume will gradually expand going forward. This ends the overall forecast. Thank you.

[Dong-Che Lee, executive]

So with this, we will wrap up our overall outlook for the fourth quarter and thereafter. And now we will start the Q&A session.

[Operator]

[Operator Instructions] The first question will be provided by [indiscernible] from IBK Securities.

[Unknown Analyst]

There are 2 questions that I would like to ask you. The first question I would like to address to the parent and also for the Holdco and also Ecopro BM. If you look at the third there have been inventory valuation losses that you have seen. Do you believe that these losses are something that will continue into the fourth quarter and also 2025? And if so, how many quarters consecutively going forward, do you think that this will continue? The second question is something that I would like to ask Ecopro BM. You did announce plans to transfer over or move to the KOSPI market. Could you please provide us with an update with regards to those plans?

[Jae Ha Park, executive]

[Interpreted] Yes. Maybe I can address your first question. This is the CFO of Ecopro, and maybe I can talk about the inventory valuation from a consolidated basis at the Holdco level. So during the second quarter conference call, I do think that I quoted the outlook that -- [ Flash Market ], a market survey institution for metal prices had provided, which was that the overall market after the second quarter in terms of lithium hydroxide prices would see a gradual or a slight recovery going forward. However, different from that overall outlook, if you look at the market in itself, it did continue to decline. So if you look at the prices of lithium hydroxide as of the end of the third quarter, it actually reached the yearly bottom price, which is around $9.8 per kilogram.

And if we look at our downstream customers, as the overall recovery on that side is low, if you look at lithium in terms of where, on a relative basis, the inventory turnover is a bit slow, and also the raw material for recycling, the overall price decline that we see in the area is actually taking place at a slower pace. So as a result of that, at the end of the year, we do think that it would be inevitable for us to -- for us not to set aside additional reserves for inventory valuation of a significant amount. So if we look at EcoPro Innovation and CnG, at the end of this year, as we did last year, we will use the most conservative metal prices to actually set aside these provisions.

In addition, on a consolidated basis at the end of the year, there -- we do expect there to be a reversal in provisions at the Ecopro BM and materials level. However, we do think that it will not be sufficient to offset the valuation losses that we will see at EcoPro Innovation and CnG. So for next year, in terms of our overall production volume, we do think that there will be a recovery in that and that will lead to us using up more of the high-priced inventory. So for this year, since we will be setting aside our valuation provisions using very conservative methods, we do think that next year, that will lead to significant reversals that we will be able to experience.

Internally, we are in a process right now in which we are setting aside our business plan for next year. And as the overall inventory levels that we have are larger, of course, the value changes that we see according to the changes in metal prices will be larger. So this is having a negative impact in our overall capital management. So for next year, we do want to be more proactive in terms of having a more efficient -- a higher level of efficiency in terms of our inventory management.

[Kim Jang-woo, executive]

So this is the CFO of Ecopro BM, Kim Jang-woo, and maybe I can talk about our inventory valuation losses. As we mentioned during the presentation, in the third quarter, as the U.S. fed did cut rates by 0.5 points in September. And because there are expectations about future rate cuts going forward, if you look at end of the quarter exchange rate between the Korean won and U.S. dollar, the won went to the low 1,300 levels versus the dollar. And in addition to that, if we look at the lithium prices as of the end of September on a Q-o-Q basis, it also fell by 23%.

So all in all, this led us recognizing inventory valuation losses of around KRW 18.8 billion. However, since then, if you look at the exchange rate, the won has strengthened again to the upper or higher levels of 1,300 versus the dollar, and the metal prices also have stopped declining and are showing stable going forward. So in the fourth quarter, we do think that there will be a reversal of inventory valuation reserves.

In the case of 2025, for the outlook of metal prices, of course, there is a lot of uncertainty related to that. However, if you look at key mining companies like SQM and Albemarle recently, as there has been an oversupply situation in lithium, they have suspended some of their investment plans for assets Australia and Chile. So in addition to the overall decline in market prices, because these type of companies have actually decided to suspend their mining investments, we do think that the overall fall in lithium prices going forward will be somewhat limited. In addition to that, as a result, we do think that any additional losses on inventory, because of valuation, in terms of the overall risk, will also be very small.

And maybe I can move on to your second question about us moving to the KOSPI market. This is the CFO of Ecopro BM, Kim Jang-woo, again. At the beginning of the year, we did disclose our overall plans to change exchanges. However, this was somewhat delayed inevitably because of the merger with EcoPro Global and also because of the recent transaction that we did to issue a perpetual bond.

However, that have been said, the overall perpetual bond in terms of the issuance itself was completed on October 29. And as a result of that, we are planning to submit the documents for the move within November. So the overall target is to complete the move to the KOSPI market within the first quarter next year. And right now, we are going through that process. So if we have any update [ related ] to these initiatives, we will make sure to share it through future disclosures.

[Operator]

The following question will be provided by [indiscernible] from [ N.A. Securities ]. Please go ahead, sir.

[Unknown Analyst]

I have 2 questions related to Ecopro BM that I would like to ask, the first is that in terms of new orders that you have received recently, if there's any progress that you can share on that side, that would be appreciated. And the second is that you have pushed back some of the new lines that you were planning to run. So in addition to that, over the mid- to long term, if you could share us with an updated capacity plan, that would be appreciated.

[Kim Jang-woo, executive]

So maybe I can address your questions. This is the CFO of Ecopro BM, Kim Jang-woo. So first, to talk about our new order plans going forward. Not only to deal with the recent sluggishness within the market, but also to try to decrease any risk that we may have from concentration on any one customer. We are trying to focus our marketing activities and winning new projects from our existing customers and also developing new customers.

So of course, there are various discussions that are ongoing, but due to the nondisclosure agreements that we have with our customers, it would be difficult for us to delve into the details. What we can say is that we are, right now, in close discussions with our customers around 2 to 3 different parties, to be able to gain more orders, 2 OEMs and we do think that we will be able to come up with positive results in the near future.

In addition to maybe delve into a more -- a bit more detail about the marketing activities that we have ongoing in Europe. Right now, on the ground in Europe, we are in the process of building out capacity for a new cathodes factory. So in the case of our locally produced European cathodes, using the competitive edge that we have, we are, right now, focusing on trying to win new orders.

Due to the European CRMA, in addition to that, the trade cooperation agreement between the EU and U.K. and also the high tariff levels that will be levied on Chinese-related EVs, the key OEMs and battery producers in Europe are looking for Europe localized European battery parts and also materials, which include cathodes. So as a result of that, using the overall new capacity that we have at our Hungary factory, we are going to actively try to address this local demand.

[Operator]

The following question will be provided by [indiscernible] from MERITZ Securities.

[Unknown Analyst]

I actually have 2 questions that I would like to ask about Ecopro HN. First is that in September, you did disclose that you would be deciding to do a rights offering for the company. So if you could elaborate a bit about the background to that rights offering decision? How you are going to use the proceeds of the offering? And also maybe elaborate a bit about how that ties into the overall [ Cho-pyeong ] Industrial Complex that you are building out.

The second question that I have about the company is that if we were to talk about the future direction and also maybe guidance for the greenhouse gas mitigation and also fine particles reduction business of the company, that would be appreciated.

[Unknown Executive]

So maybe I can address the first question that you have about the background to our rights offering and how we're going to use the proceeds. This is from Ecopro HN, the Business Management Team Leader, [indiscernible]. So as you have mentioned, we did decide to do a rights offering as of September 4. And if you look at the purpose of why we want to do this, it would be to secure the CapEx that is required for various facility investments that we need to expand our new businesses and also strengthen the existing businesses that we have.

So to maybe break down the overall use of proceeds in terms of the plans that we have, based upon the first issuance price that we have presented, we do think that of the proceeds, around KRW 90 billion would be used build out production lines for our new products, which would be the electrolyte additives and also for the very semiconductor materials. KRW 60 billion would be to build out additional capacity for production lines that are used for our greenhouse gas catalysts and also chemical filters. KRW 20 billion would be used for other R&D equipment investments. And then around KRW 67 billion would be used for operating capital purposes such as purchasing the key raw material that we require.

So as you can see, most of the funds that would be raised are going to be invested into and focused in the new business items that we would be conducting at the [ Cho-pyeong ] Industrial Complex. So to elaborate a bit about what is going on at the [ Cho-pyeong ] Industrial Complex, as of end October, right now, most of the finishing work has been completed, and the production building construction in itself is also completed. So we have received the approval for construction completion.

And in November, in itself, we do think that the overall project will reach final completion. In the fourth quarter, for some of items that we are currently thinking of, through the mass production equipment that has already been installed, we will start to produce the samples that are required. And as the sample testing at our customers is completed, we will go into full production.

So on the [ doping ] side right now, all these facilities have been installed. And right now, we are in test production. So with the customers, we currently are providing finished goods and going through an evaluation process. So once approval is provided in the fourth quarter, we do think that we will be able to start to generate sales in the first quarter of next year. Because we do have 2 types of products that have no FEOC related risks, we do think that in the second half of 2025, we will be able to expand our non-captive business. So right now, we are in contact with key cathode producers.

In the case of NCA RHK saggers, the facilities, again, have all been installed as of now. And according to the various unit processes that we have, right now, we're in the tech running phase and also doing dummies tests. So this process has been completed. At the end of the year, we are planning to go through a product certification process with our various customers. So on the saggers side, not only for NCA-RHK saggers, but we are also currently reviewing the development of NCM-RHK saggers. So for the expanded [ roles ], we do think that we can start the sales of that from the second half of 2025. And that would, not only be for captive volume, but also including non-captive customers. So again, we are in contact with key cathode producers for this product.

So in the case of electrolyte additives right now, we do have 4 different products that are in development. And this is something that we will start to commercialize one by one, from the end of 2024 to 2026. So of those 4, 2 currently have been completed in terms of the development itself. And we do think that we will be able to produce prototype products that are small facilities in Ochang that was completed in September. And in terms of the production in itself, right now, we're in the process of stabilizing that process. So we are planning to supply to customers from the first half of next year. And according to that schedule, we are currently discussing sample testing and audits.

So for the third additive that we have right now, it is in the pilot test. And once we have secured the results from the first half of 2025, we are planning to start the ground breaking for mass production facilities within the [ Cho-pyeong ] Industrial Complex. And from the second half of next year, once that facility is completed, then we do think that in 2026, we will be able to commercialize the product.

And for the last and fourth additive, this is something that the company is in a proprietary development process for. And we do think that this will be very cost competitive once completed. So we have completed the patent registration in September. So based upon that, we're planning to do the scale up in 2025 and as a result of the scale up, we will determine when we will go ahead with the commercialization. So in addition to these products that we have, we also have an LFP national-sponsored project that is ongoing. And we are also planning to develop the various [ dopings ] or additives that will be used for these LFPs.

So for the semiconductor materials business, right now, we are developing front-end and back-end process material. And we are trying to complete and have completed the full value chain to supply to IDMs. So based upon the identified customers that we have within this value chain for each of the different material types, we are waiting for the approvals for various samples that we have set for evaluation at the customer level. And to try to accelerate the commercialization of these products as fast as possible, we are planning to -- we are preparing some small production lines, and we are trying to commercialize them one by one from next year. Thank you.

And maybe to move on to the second question about our greenhouse gas mitigation and also fine particle reduction businesses. The reason for the sluggish performance recently was because in the first half of this year, if we look at our key customers, which would be the semiconductor companies, also the steel and chemical manufacturing companies, the downstream market in itself did see less investments taking place in terms of the overall sentiment. And for that reason, some of the orders were delayed and some of the construction, in itself, was also delayed.

However, from the second half of this year, we do see that there is some recovering sentiment for investments by these downstream industries. So we do think that added to that, for next year, in the fine particles reduction business in itself, we also think that there will be orders that we will be able to see from power generation companies, not only traditional steel and chemical manufacturers. So the overall downstream market in itself will become larger. So based upon the overall performance that we have seen this year, for next year, for these 2 businesses, we also believe that we will be able to win orders from overseas clients. So that should create a more stable base performance next year.

[Kim Jang-woo, executive]

So before we move on to the next question, I do think that, that were-- there was a part of a previous question that was not addressed, which was related to the CAM9 overall construction delay and also our mid- to long-term CapEx plans at Ecopro BM. Maybe I can address that first, and then we can move on to the next question.

So this is the CFO of Ecopro BM, Kim Jang-woo. In May of last year, because we did expect worse demand from our customers, we did make the decision to build out a new factory, which would be CAM9. However, versus the initial plan that we had which was to complete the overall construction by the end of this year, the overall sluggishness in the EV market in itself has led to us to decide to push back the completion of this facility to 2026. So as a result of that, we had made a disclosure accordingly.

So to talk about our mid- to long-term capacity overall plans, the initial capacity expansion plans that we had was to reach 710,000 tonnes by 2027. However, right now, we are reviewing moderating down our capacity addition -- the speed of capacity additions that we are achieving. And also, as you have seen recently in the news, we also have made the decision to establish an Indonesia entity for integrated cathode operations. So we do think that there would be changes that we would see in our mid- to long-term capacity strategy accordingly. But for the details of that, I do think that it is something that we can share with you during our Eco Friendly Day event on November 8.

In addition, in terms of our CapEx for this year, initially, we had come out with a CapEx budget of KRW 1.5 trillion for the year. However, as mentioned, we are trying to moderate some of our investment pace, including CAM9, so as a result, we think that for the full year, our final CapEx will end up at around KRW 1 trillion level.

[Unknown Executive]

So due to the time constraint, I think that we have time for one last person.

[Operator]

The following question will be provided by [ Ita Minh ] from KB Securities.

[Unknown Analyst]

There are 2 questions that I would like to ask related to EcoPro Materials. The first question is that for new customers, in terms of securing new customers, what type of progress has been made? And in terms of next year, what do you think your percentage of non-captive customers will be? The second question that I would like to ask is about your third quarter profitability. It does seem to be a bit sluggish. When do you think there will be a normalization in this trend?

[Unknown Executive]

So maybe I can address your first question. This is the Purchase and Sales Managing Director; Park, [ Byung-hun ] from EcoPro Materials. If we look at the beginning of this year around March, we did sign a supply agreement, a mid- to long-term supply agreement with a U.S. OEM. And then from the third quarter of this year, we also started shipments to an additional new customer. So for this year, we have been able to add on new customers to our overall portfolio. For until 2026, focusing on the IRA compliant precursors that we have, we do think that we will be able to secure new orders from a wide variety of additional customers.

And with the U.S. elections upcoming, if you look at the U.S. OEMs and the interpretation of the FEOC regulations, I do think that they are showing a very conservative stance towards that. So as of the current time, the overall request that we receive a lot is to make sure that the overall China content within the overall value chain is less than 25%. So as a company, which is the only producer in Korea, for precursors that is able to satisfy this condition, we're trying to utilize the current market position that we have to be able to put in place an IRA-compliant value chain that satisfies our customer needs and can also develop next-generation products and focus on the marketing of that.

So within this backdrop from next year, we do think that we will be able to see a larger volume of shipment to non-captive customers. So as a result of that, we do think that the percentage of our non-captive sales will reach 50% or be above that. For this year, because the EV market was in a [ chasm ] phase and because metal prices were falling, that led to a very challenging market situation. However, from next year, by expanding our noncaptive sales, we do think that there will be a significant increase in shipments that we will be able to enjoy. And by acquiring new additional customers, of course, this is an effort that we will continue going forward.

[Unknown Executive]

So this is [ Choi Byoungwook ] in terms of the Business Management Team Leader at EcoPro Materials. And maybe I can talk about the sluggish 3Q performance in terms of our profitability. If you look at nickel prices, which is the key material behind our precursors. In the third quarter, on a Q-o-Q basis, the overall price levels dropped by 12%. And as a result of that, if you look at the inventory valuation losses that we incurred, it was KRW 15.2 billion.

In the fourth quarter, we do think that there will be a reversal of some of that amount. And in addition to that, we will be -- there was additional -- we do think that there will be a reversal in that amount. However, in addition to that, from other new customers that we have, we are trying to develop new products and also -- there's a -- related to that. And also there is a burden in terms of our cost because of the low realization that we have. So all in all, the losses were KRW 38.5 billion in total.

If we look at the utilization, we think that with this quarter being the bottom, we will see a recovery going forward. And as a result of that, our profitability should gradually improve also. So in terms of when we think our profitability will be back to normal, it would be the time in which our utilization levels are back to normal. So that would be when our overall noncaptive sales volume is -- has increased, which would be the first half of next year.

So we are trying to also make efforts decrease the overall volatility of our overall -- our margin structure. So gradually, we are making plans to delve into the materials sales business for nickel sulfate and also expand more into the upstream side. For the details of that, I do think that this is something that we can share with you during our Eco Friendly Day next week.

[Operator]

So with that, we would like to wrap up our conference call for this quarter. For all of you who have participated. Thank you very much.

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