Lg Elec S/Gdr 144A

Good morning and good afternoon. Thank you for joining LG Electronics Earnings Release conference call for the fourth quarter of 2020. This conference call will start with a presentation on the earnings results followed by a Q&A session at which time if you wish to ask a question, you will need to press star and 1 on your telephone. I would now like to hand the conference over to the first speaker. Good afternoon. My name is Sang Bo Shim from Investor Relations. Thank you for joining LG Electronics Earnings Release Conference Call for the fourth quarter of 2020. With me are representatives of business management division of each business, Mr. Lee Gong Kim from Home Appliance and Air Solutions, Mr. Jung Hee Lee from Home Entertainment, Mr. Dong Myung Seo from Mobile Communications, Mr. Jin Yong Pae from Vehicle Component Solutions, Mr. Chung Hyun Park from Business Solutions, We are also joined by Mr. Hongsoo Lee from Accounting Division, Mr. Sangwoo Park from Corporate Business Management Division, and Mr. Hyunggyu Lee from Finance Division. Please be noted that all statements we will be making today regarding our financial results of the fourth quarter are subject to change in accordance with the results of the external review. I would also like to remind you that uncertainties in the market and changes in strategies may cause our results to be different from the outlooks and forward-looking statements made today. First, I will outline the overall performance results of the fourth quarter of 2020 and the outlook for year 2021 and the first quarter of 2021. After that, each division will take turns to deliver its business results and outlook. Let me start with the consolidated financial results of the fourth quarter of 2020 and the outlook for year 2021 and the first quarter. Consolidated sales of the fourth quarter was $18.8 trillion won and operating income was $650.2 billion won. Sales grew 17% year-on-year, driven by increased sales from premium products and new appliance categories in H&A, expanded product sales of OLED TVs in HE, and significant growth in sales in VS. Despite the impact from COVID-19, operating income was greatly improved year on year thanks to better profitability based on increased sales of premium products in the appliance and TV businesses and from online channels and sales growth in the vehicle component business on the back of the recovery of global demand. I will now briefly review the fourth quarter performance of each business. H&A recorded $5.5 trillion in sales, $299.6 billion in operating income, and 5.4% in profitability. H&E recorded $4.3 trillion in sales, $204.5 billion in operating income, and 4.8% in profitability. MC recorded 1.4 trillion won in sales and 248.5 billion won in operating loss. GS recorded 1.9 trillion won in sales and 2 billion won in operating loss. GS recorded 1.5 trillion won in sales, 70.3 billion won in operating income, and 4.7% in profitability. Further details by business will be covered in later slides. Let's move on to the profit and loss and cash flow of the fourth quarter. In terms of profit and loss, our net income, reflecting financial income and expense, equity method gain and loss, other non-operating income and expense, and corporate income tax, posted 262.3 billion won. Cash flow from operating activities of the fourth quarter was 1.5 trillion won, and cash flow from investment activities was negative 1.2 trillion won. As a result, net cash flow amounted to 187.9 billion won and when reflecting cash flow from financial activities of negative 814.6 billion won, cash balance at the end of the fourth quarter decreased by 626.7 billion won quarter on quarter to stand at 5.9 trillion won. Next is the key financial position and indicators for the fourth quarter of 2020. As of the end of the fourth quarter, our assets stood at 48.2 trillion won, liability at 30.7 trillion won, and equity at 17.5 trillion won. All leverage ratios, liability to equity, debt to equity, and net debt to equity decreased quarter on quarter, maintaining a healthy financial condition. Next is the outlook for year 2021 and the first quarter of 2021. In terms of the macro environment, there are concerns of polarization by industry in the global market with the recurring COVID-19 outbreaks and slow recovery of the real economy. However, there are also expectations that the global economy will be quick to normalize based on the economic stimulus packages of governments including the U.S. and the effect of COVID-19 vaccination. This year, we will seek to widely apply core technologies such as AI, 5G, IoT, and mobility to all business areas. In particular, in the home appliance and TV businesses, we will actively expand sales of appliances with hygienic and space design features and OLED TVs. At the same time, we will continuously respond to the market demand for products in line with the new normal. Aligned with this direction, we will continue along the path of profitable growth in 2021, and our first quarter sales, excluding LG Inateck, is expected to record a significant growth year-on-year. We expect to maintain stable profitability based on strong sales from home appliance and TV businesses. Now, let's move on to the fourth quarter results and outlook by business. First is H&A. Let me share the fourth quarter results of H&A. Sales recorded a double-digit growth in both Korea and overseas, standing at 5.5 trillion won with a 20% growth year-on-year. In terms of profit, operating profit improved year-on-year, driven by sales growth across all regions and cost structure improvement. Next is the outlook for year 2021 and the first quarter. In 2021, there are growing expectations of a market recovery and an economic upturn with the start of the COVID-19 vaccination. The business risks are expected to be higher than ever with market uncertainties from unfavorable foreign exchange rates, raw material prices, and logistics prices. Amidst this environment, in terms of sales, we expect to continuously maintain growth year-on-year by strengthening our market position in main businesses and expanding our incubating and strategic businesses. We will also focus our efforts to create stable profitability similar to the levels of the previous year through efficient resource management and cost-saving activities. In the first quarter, we expect sales growth to continue year-on-year for all overseas regions and like the previous year, we seek to maintain stable profitability. I will share the fourth quarter results of HE. Sales increased year-on-year thanks to the growth in advanced markets such as North America and Europe. LCD panel prices increased significantly due to the supply shortage, but operating profit improved year-on-year, driven by the increased sales proportion of premium products and efficient resource management. Now let me share the outlook for year 2021 and the first quarter. In the market, global TV demand is expected to continue its growth with more people spending time at home due to the non-face-to-face trend brought on by COVID-19. Accordingly, we plan to maintain revenue growth and profitability by expanding sales of premium products such as OLED, NanoCell, and large-size TVs. In the first quarter of 2021, though there is upward pressure on cost Due to the supply shortage of LCD TV panels, we seek to maintain sound profitability based on sales increase in advanced markets such as North America and Europe and efficient resource management. Let me share the fourth quarter results of MC. In terms of sales, mass-tier products maintain solid sales. There were some disruptions in supply due to the 4G chipset shortage, and premium products recorded sluggish sales compared to expectations, leading to sales recording a decrease of 9% quarter-on-quarter and a growth of 5% year-on-year. In terms of profit, fixed costs were reduced by enhancing efficiency of production sites and increasing the ODM business proportion. but with the sluggish sales of premium products, profitability decreased quarter on quarter. Now the outlook for year 2021 and beyond. With the 5G market taking off in earnest, the global demand for smartphones is expected to recover to pre-COVID-19 levels, but competition in the market is expected to intensify. We plan to closely review the direction of the business by objectively considering our current and future competitiveness. We will share our business direction once it is determined. Let me share the fourth quarter results of VF. Sales increased year-on-year and quarter-on-quarter driven by the recovery of demand in key automotive markets such as North America and Europe and expanded sales from new projects. As for profit, operating loss was reduced year-on-year and quarter-on-quarter thanks to the sales increase with the recovery of market demand in the second half and cost reduction activities. For the outlook, we have missed the recovery in the global automotive market We expect fierce competition in connected and electric vehicle markets, which are projected to record high growth. We will maximize sales by actively responding to the recovery in the market and strengthen our business competitiveness through reinforcement of infotainment software capabilities and early stabilization of the electric vehicle component JV with Magna. I will share the fourth quarter results of BS. Sales increased year on year, driven by sales growth in IT products related to the continued demand from the non-face-to-face lifestyle of remote working and online learning. Operating profit fell year-on-year due to the increase of major component prices and global logistics costs. Now the outlook for year 2021. The demand for IT products related to the contact-free trend is expected to continue. And in information display, we expect a gradual recovery of demand in the second half. For solar business, demand is expected to pick up with the increased targets for renewable energy and implementation of supporting policies in major markets such as the US and Europe. In this market environment, we will exert efforts to enhance sales and improve profitability by actively responding to the expanded demand related to the non-face-to-face trend in the IT business, focusing on verticals such as education and corporate information display, and reinforcing product competitiveness such as power features in solar. That brings us to the end of the fourth quarter earnings release and the outlook for year 2021 and the first quarter. We will now take questions. Operator, please commence with the Q&A session.

The first question will be presented by Ji-San Kim from Kium Securities. Please go ahead with your question.

Thank you for your question. There are two questions. The first question is about the MC business. If the MC business is able to withdraw, there is a concern that the future business may be in danger, such as IoT, robots, autonomous vehicles, etc. Are there any ways to respond to this? The second question is related to the HE business. I have two questions, first for mobile business and second for home entertainment. First, mobile business. If you decide to withdraw from the smartphone market,