Lg Elec S/Gdr 144A

Good afternoon. My name is Sangbo Shim from Investor Relations. Thank you for joining LG Electronics Earnings Release Conference Call for the first quarter of 2021. With me are representatives of business management division of each business. Mr. Lee Gwang Kim from Home Appliance and Air Solution, Mr. Jung Yi Lee from Home Entertainment, Mr. Dong Myung Seo from Mobile Communications, Mr. Joo Young Kim from Vehicle Component Solutions, Mr. Chung Hyun Park from Business Solutions. We are also joined by Mr. Sangho Park from Corporate Business Management Division, Mr. Hyunggyu Lee from Finance Division, and Mr. Hongsoo Lee from Accounting Division. Please be noted that all statements we will be making today regarding our financial results of the first 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. Like you may have heard through media reports, there were some positive changes to our credit ratings provided by global agencies. The top three global credit rating agencies, Moody's, S&P, and Fitch, raised their credit rating or outlook on LG Electronics this year. This can be interpreted to reflect the positive assessment on the direction of our business strategy, such as reinforcing our market position in appliance and TV businesses, discontinuing the mobile business, and strengthening growth momentum in the vehicle component business through the joint venture with Magna. We believe the upgrade of our credit rating or outlook by credible credit rating agencies will have a positive effect in attracting investors going forward. and we plan to continue to actively communicate with the market regarding our business and its direction. Today, I will outline the overall performance results of the first quarter of 2021 and the outlook for the second quarter. After that, each division will take turns to deliver its business results and outlook. Before we get started, I would like to state that as a result of an organization reshuffling to maximize synergy effects among B2B businesses, the robot business originally under others was incorporated into BS. Accordingly, this change is reflected in BS results from our first quarter earnings release, and past performance results have also been restated to reflect this organization change. Now let me start with the consolidated financial results of the first quarter of 2021 and the outlook for the second quarter. Consolidated sales of the first quarter was $18.8 trillion won and operating profit was $1.5 trillion won. Sales grew 28% year-on-year driven by increased sales of premium appliances in H&A significant sales expansion of OLED and NanoCell TVs in HE and a solid upward sales trend in VS. Despite the impact from recurring COVID-19 outbreaks, operating profit was greatly improved year on year thanks to continuous growth of premium product sales in the appliance and TV businesses and enhanced profitability attributable to sales growth in VS. I will now briefly review the first quarter performance of each business. H&A recorded 6.7 trillion won in sales, 919.9 billion won in operating profit, and 13.7% in profitability. AG recorded 4 trillion won in sales, 403.8 billion won in operating profit, and 10.1% in profitability. MC recorded 998.7 billion won in sales and 280.1 billion won in operating loss. VS recorded 1.9 trillion won in sales and 700 million won in operating loss. VS recorded 1.9 trillion won in sales, 134 billion won in operating profit, and 7.2% 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 first 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 1.2 trillion won. Next, on cash flow. Cash flow from operating activities of the first quarter was 1.3 trillion won. and cash flow from investment activities was negative 682.8 billion won. As a result, net cash flow amounted to 703.4 billion won and when reflecting cash flow from financial activities of negative 293.8 billion won, cash balance at the end of the first quarter increased by 409.7 billion won quarter and quarter to stand at 6.3 trillion won. Next is the key financial position and indicators for the first quarter of 2021. As of the end of the first quarter, our assets stood at 50.5 trillion won, liability at 31.6 trillion won, and equity at 18.9 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 the second quarter. In terms of the macro environment, along with the slow recovery in the real economy with sluggish employment and increase of household and corporate debts, economic growth levels are expected to differ by country depending on economic stimulus packages, progress in COVID-19 vaccination, and capabilities in dealing with the coronavirus pandemic. Amidst this environment, we will maintain our competitive edge in the market by expanding our market position in main businesses and increasing investment in strategic businesses. We will also achieve a stable profit structure by preemptively saving costs in the face of upward cost trends and efficiently managing resources. Through these efforts, we will build a sound business foundation, enabling us to pursue growth despite the COVID-19 pandemic. We expect sales to grow significantly in the second quarter year on year, affected by strong sales in appliance and TV with recovering demand in the global market and increased sales in the vehicle component business. Accordingly, profit is projected to improve year on year. Now let's move on to the first quarter results and outlook by business. First is H&A. Let me share the first quarter results of H&A sales recorded 6.7 trillion won with a 24% growth year-on-year driven by growth in various markets such as Korea, North America, and Europe. In terms of profit, operating profit improved significantly year-on-year thanks to sales growth across all regions, increased sales in new appliance categories, and the continuous growth of our rental business. Next is the outlook for the second quarter. There are growing expectations of recovery in market demand, but business risks are expected to remain high with intensified competition and unfavorable foreign exchange rates, raw material prices, and logistics costs. Amidst this environment, in terms of sales, we expect to maintain an ongoing growth trend year-on-year by strengthening our competitiveness in main businesses and expanding overseas sales in our new appliance categories. We will focus our capabilities on achieving profitability similar to or above the levels of the previous year by optimizing operations. I will share the first quarter results of HE. Sales increased by a large margin year-on-year thanks to the recovering demand in North America and Europe and expanded product sales of OLED and NanoCell TVs. Despite the sharp increase of LCD panel prices, operating profit grew year-on-year, driven by an improved product mix focusing on premium products and efficient cost spending. Now let me share the outlook for the second quarter. In the market, TV demand is expected to continue its upward trend centered around premium products with growing demand for entertainment at home and the increase of high-definition video content. In line with the market trends, we expect to secure significant growth in revenue and stable profitability driven by expanded sales of premium TVs such as OLED, NanoCell, and large size TVs. Let me share the first quarter results of MC. Sales did at similar levels to the same period last year as new models were not launched and operations centered around existing models. Sales decreased 28% quarter on quarter. in terms of profit, resource input was minimized as we reviewed the possible close of business, but profitability was undermined year on year with the reduced sales of premium products and decreased selling price as sales were focused on existing models. Now, our plans for MC going forward. We announced the close of our mobile phone business on April 5th. Accordingly, We expect to end all sales activities by the end of July. However, our mobile phones will be available for purchase even after July until such a time when all inventory held by sellers are sold. Currently, we are following up on the decision to discontinue the business with plans in place regarding the redeployment of personnel, liquidation of tangible and intangible assets, compensation for business partners and suppliers, and service support for customers. We will disclose the profitability related to discontinued operations occurring with the close of the business in the second quarter results showing a breakdown between operating profit and loss from continuing and discontinued operations. Let me share the first quarter results of EF. Sales increased year on year driven by the rising demand in key automotive markets such as North America and Europe and expanded volumes with new projects starting mass production. As for profit, operating loss was reduced year on year thanks to the sales increase on the back of recovering demand for vehicle components and efficient resource management. For the second quarter outlook, market uncertainties are expected to grow due to the continued COVID-19 pandemic and the supply shortage of components such as automotive semiconductors. We will maximize sales by actively responding to the recovery in the automotive market and continue to enhance profitability with ongoing cost-saving activities and focused efforts in global supply chain management for the stable supply of components. I will share the first quarter results of BS. Sales increased 23% quarter-on-quarter and 9% year-on-year, driven by sales growth in IT products such as Monitor and PC related to the continued demand from the non-face-to-face lifestyle of remote working and online learning. Operating profit improved quarter-on-quarter on the back of expanded sales of strategic products despite the increase in major component prices and global logistics costs. Now the outlook for the second quarter. 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 But there are also risks related to the LCD panel price increase and component supply. We will exert efforts to enhance sales and improve profitability across our business areas by strengthening sales in premium products in the IT business, focusing on developing differentiated products and solutions by vertical in information display, and continuously reinforcing power and efficiency features in SOLA. That brings us to the end of the first quarter earnings release and the outlook for the second quarter. We will now take questions.

Operator, please commence with the Q&A session. The first question will be presented by Kang Ho-bak from Daesin Securities. Please go ahead with your question.

Thank you for the opportunity to ask a question. Congratulations on your good performance in the first quarter. I have two questions. One is about MC and the other is about HE. The MC business department will be closed at the end of July. I think the costs related to the personnel and development expenses that the MC had will be transferred to other departments. If you can share how these costs increase in other business departments, please comment. I have

Two questions, one for MC business and the other for home entertainment business. With the withdrawal of mobile business at the end of July, we believe that the expenses related to human resources and R&D and others are likely to be transferred to other businesses. Can you share with us the estimation of the size of that expense? My second question is about home entertainment business. In the first quarter, the LCD panel price was quite high, and we believe that this trend will continue to be sustained into the second quarter. So can you give us your estimation of the profitability regarding these changes? And also, we believe that the sales percentage of OLED TV is increasing in your business. Can you give us the estimation of the trend of the percentage of LCD TV and OLED TV sales?

I will give you the answer. Please understand that it is difficult to accurately estimate the cost size at this point in time.

Let me give answers to your first question regarding mobile communication business. Please understand that I cannot share with you the exact estimation of cost structure at the current moment. Our principle is to make sure that each individual can get reassigned to the divisions they prefer. And in order to secure our future business value of LG Group and competitiveness of the business, we plan to reassign resources to different affiliates or different divisions within LGE. By doing so, we will be able to maintain job security.

The cost amount will be determined based on how many resources will be transferred to each business.

But the reassignment hasn't been completed yet, so we cannot share with you any specific amount. However, we do believe that the cost amount is not going to be too big to burden the financial structure of each business.

H.A. I will answer H.A. Let me answer from home entertainment side. Due to the coronavirus pandemic,

We are seeing a rise of trend called home economy. And accordingly, demand for LCD, demand for display product is rising rapidly. And as a result, we have seen a rapid increase of LCD panel price.

In this regard, the company expanded the sales of OLED, NanoCell, and ultra-large TVs

To respond to this risk, we plan to maximize our sales of OLED TVs, NanoCell TVs, and large-screen TVs, just as we have done in the first quarter. By doing so, we'll be able to maintain a stable profitability in the second quarter.

Regarding your second question of the sales percentage of OLED TV, unfortunately, I cannot share with you specific numbers.

However, to give a rough idea, we are seeing 10-8% point of increase year-on-year, and the percentage of OLED TV sales continues to increase.

Next question, please. The next question will be presented by Dongwon Kim from KB Securities. Please go ahead with your question.

Yes, thank you for the question. I have a question for HE and the VX headquarters. Please give your opinion on this year's OLED TV output. If possible, please give your opinion on marketing and product strategy to lead the OLED TV market in the future. Next, according to the establishment of LG Magna JV,

Thank you for taking my questions. I have two questions, first on HE and second on VS. I'd like to ask about the shipment volume of OLED TV and your projections with regard to profitability in order to I would like to answer the questions from the HEE headquarters.

The first question is about the output of OLED TV. As we have already noticed several times, we are currently pushing with a goal of more than twice the previous year. The first quarter is also achieving an extra for the plan, and the second quarter is also expected to be at the level of the plan, so the annual output is expected to be twice the previous year.

Let me answer your first question on HE. As mentioned several times earlier, our target for this year is double that of last year. And our shipment volume in Q1 has exceeded our plan. And it's also looking to work out smoothly in second quarter as well. So once again, our target for this year is double that of last year.

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And in order to achieve our goal to make OLED TV a popular choice for general consumers, we are going to continue with our marketing investment. In particular, in terms of operating our models, we are going to diversify by dividing into different segments, good, better, and best. And we are also going to expand the coverage up to 41 inch.

Let me answer your second question on JV with Magna.

The market size of the EV component business that the JV is targeting is expected to grow from 10 trillion won in 2020 to 35% of CAGR by 2025. The revenue growth of the JV is expected to be over 50% of compound annual growth rate by 2025, higher growth rate than the market.

The JV will formally start in the second half of this year, but because of the nature of the vehicle component business, we need to consider the lead time from winning the business to mass production.

So we expect the JV-related synergies to be created after 2024. Next question, please.

The next question will be presented by Sungryul Kwon from DV Financial Investments.

Please go ahead with your question.

Yes, congratulations on your good performance. I have a question for MC and BS. MC is a communication patent. I'm curious about how the IP that MC has can be used specifically in other business departments. So, if it can be used in future businesses, I would like to ask you to explain in detail what kind of synergy this can produce. Secondly, it's BS. Elec S & Gdr 144A Elec S & Gdr 144A

I have two questions, one for mobile business and the other for business solutions. First, mobile communications business. I believe that MC business holds a lot of communication-related patents and IPs. How are you going to use them in other businesses? And if you believe that you'll be able to use these assets for future businesses, what kind of synergy are you expecting? Can you elaborate on them? My second question regards business solution business. With the introduction of vaccines, many are hoping to see the coronavirus pandemic subside in the second half. And I see business enjoyed strong demand during the COVID-19 because of the stay-at-home trend. If the COVID-19 subsides in the second half and the demand for IT products falls in the second half, what kind of countermeasures do you have for these kinds of risks? And what is your estimation for the market changes?

First, I'd like to answer the first question. I think the question is from the Business Administration and the Future Business Department. Let me answer your first question regarding how the IP patents are going to be used for other businesses. Well, internally, our plan is to use these

core IPs and assets, especially in the smart home appliance and new products using IoT.

The core IPs and assets of our cell phones are the core technology of vehicle connectivity, which has recently become a hot topic, so we plan to apply it to the development of most of the entertainment products such as display radio and IPC, as well as telematics of our VS Business Department.

For the key IP assets of the MC business, these are the key technologies that can be used for vehicle connectivity. So, for our vehicle solution business, these assets will be used for telemedicine and infotainment business.

And for the second, future business, we are currently in the process of MC business. Regarding creating a new business strategy with this asset, please understand that I cannot share with you specific information since we are in the process of building a new business model.

And currently, we don't have any specific plans regarding having a new business model only based on these patents. But once we get specific ideas, we'll be able to share with you the relevant information.

Next, we will answer questions related to IT. Let me answer your questions regarding IT products. According to Market Research Institute, the overall monitor market of 2021 is expected to grow by 9%

year-on-year, and gaming monitor a whopping 43%.

For the overall monitor market of 2022, the market expects the overall monitor market to be quite similar to that of 2021, and gaming monitor

is expected to grow by around 10%.

COVID-19 has brought massive change to lifestyles

Working from home and remote learning are not just a temporary phenomenon. They are a new normal. So we believe that the demand for IT product will continue to grow. And accordingly, our estimation is in line with that of the market.

Our department focuses on gaming monitor sales, which is expected to grow significantly, as well as high-resolution, large-screen premium,

The business solution will focus on the sales of gaming monitor, which is expected to grow in the second half, and at the same time, seek new business opportunities in high resolution, large screen premium, and business monitors.

Next question, please. The next question will be presented by Nicola Godoa from UBS. Please go ahead with your question.

Thank you. Good afternoon. First question is going back to the demand for both appliances and TVs. Obviously, very strong here today. How sustainable do you believe that demand is as countries move to post-COVID restrictions and competition for disposable income wallet share versus other consumer discretionary services like travel actually start to go up from here? And certainly going back to profitability for the TV business, we talked about LCD Thank you for the question. There are two questions.

My first question is that the demand for home appliances and TVs is increasing. How much do you think the demand for home appliances and TVs is going to increase? Due to the easing of COVID-19, it seems that consumers are more likely to spend their savings on travel or other purposes. Nevertheless, I wonder how the demand for home appliances and TVs is going to increase. My second question is related to LCD panels. According to the rise of LCD panels, OLED panels are also rising. Please answer how you think this phenomenon will affect the OLED TV business. I will answer about HLA first.

I will first answer on H&A. The pent-up demand which was unleashed

And even if the COVID-19 situation ends, the demand for hygiene and health care will continue to grow. And even after the COVID subsides, we believe that the demand for appliances with hygienic and healthcare-related features will continue to go up.

The company is continuing to grow in terms of new appliances, sanitary and steam appliances, as well as rental businesses. We will continue to develop products

based on our strong growth in the areas of new category of appliances and appliances with hygienic and steam functions and with our rental business We are going to continue to be the leader of the market as we are today based on our core technology and differentiated products.

Also, through the successful launching of premium products, we are actively using additional purchasing opportunities, and at the same time, we are strengthening the marketing activities based on customers,

Also, through the successful launch of premium products, we are going to capture opportunities for expanded sales. And we are also going to strengthen our marketing activities for online sales, thereby achieving stable profitability.

Regarding the demand in the second half, we expect the demand to slow down compared to the first half of this year. According to market research reports, the growth in the second half of 2021

will fall by 8% to 10% year-on-year, and this is because of the widespread vaccinations which will lead to the normalization of the economy.

Now I will answer

Your second question regarding LCD prices leading to price rise leading to OLED price rise.

OLED TV는 LCD TV 대비 지속적인 프리미엄 가치를 유지해 나갈 예정으로 있으며 For OLED, we are going to continue to maintain its premium value compared to LCD.

또한 소비가 초대형 And we also expect the shift in consumption into large size and premium products.

So as mentioned before, we are going to be able to achieve our target

of OLED shipment.

Next question, please. The next question will be presented by J.J. Park from J.P. Morgan. Please go ahead with your question.

Yes, thank you for the question. There are two questions. Before VSDB, There may be a basic question, but what is the relationship between the bank log and the sales? As far as I know, the current bank log is about 60 trillion won, and infotainment is the largest, and then there is a lamp and a powertrain. As you can see from the company, the position of the powertrain is increasing. The second question is about the balance sheet. Personally, I was surprised to see that the net debt for the past year I have two questions. First, regards vehicle solution business. This may be two

basic of a question, but I was wondering about the correlation between the backlog and sales. To my understanding, your current backlog stands at around 60 trillion won. Infotainment takes up the biggest chunk, followed by LEMP and powertrain. What I heard is that the percentage of powertrain in the backlog is currently growing. Are you seeing any kind of change in the relations between the backlog and sales as you are shifting from the backlog concentrated on infotainment? My second question regards the corporate wide operation on the balance sheet numbers. When I look at the numbers, it looks like you have succeeded in reducing your net debt by 2.3 trillion won. I believe it was quite fast for you to reduce this amount of debt in a very short period of time. So, I was wondering if you have adopted special measures to make this possible for the past year.

Yes, I will tell you about this. Let me answer your questions regarding vehicle solution business. Unfortunately, I cannot disclose specific numbers here, but as you mentioned, by the end of 2021, we believe our backlog will achieve 60 trillion won level. When you look at the rough breakdown of the current backlog by product, infotainment takes up about half in the backlog, and the rest consists of EV components and lamps. There is a relationship between the backlog and the sales. As I mentioned earlier, sales will occur in the future, according to the sales portion. As you know, there is a trend that takes 2.5 to 7 years from the first week to the development, and from the development to the sales, so we expect sales to take place according to this.

Regarding your questions of the correlation between backlog and sales, the sales will unfold as we have described in the previous sessions. And as you may well know, it takes about 2.5 to 5 years between winning a contract, development, and development to mass production. So it's going to take that amount of years for the sales to be realized as numbers.

Yes, that's all. Yes, I will answer the financial department. The company continues to work hard to create a cash flow by securing business profitability and improving driving capital. This improved cash flow will be used for investment in short-term income reduction, long-term growth power recovery,

Let me answer from corporate-wide operation side. We are working hard to create cash flow based on profitable business operation and securing working capitals. The cash flow that we have improved through these activities will be used to reduce debt level and making investment for our mid to long-term business and securing business driving engines. By doing so, we'll be able to improve financial index and enhance shareholder returns.

Next question, please. The next question will be presented by Sungkyu Kim from Daiwa Capital Market.

Please go ahead with your question.

It seems that the performance of the first quarter was relatively strong. I'm a little worried that there will be some influence from the second quarter. But in the mode, I think you said that it is expected to secure stable profitability in the second quarter. I don't know if there is any real influence on this semiconductor. And the goal of the year I would like to ask if it is possible to turn around or turn around in the second half of the year. The second question is a question related to OLED TV. OLED TV sales are very good in the first quarter, and OLED panel sales are increasing a lot this year, so I think the OLED market will be very large. I think this is good for us. Accordingly, the entry of competitors is also expected. In particular, there is a rumor that domestic competitors and large competitors will be able to enter the OLED market from next year. I think there will be a tendency for the market to grow in the short term that the OLED market will expand. In the medium term, there will be a tendency for competition to worsen, Thank you for taking my questions. I have two questions, one for VS and one for HE. My first question relates to the current semiconductor supply shortage issue. Because of the shortage issue,

It caused disruption to OEM production. So even though your performance was good in the first quarter, I believe it will have a negative impact on your second quarter performance. But you mentioned earlier that you will be able to achieve stable profitability in the second quarter as well. So do you really believe that the current supply shortage issue will have no impact on your profitability in the second quarter? Will you be able to achieve your goal of making a turnaround in the second half? And my second question is related to OLED. Your first quarter results of OLED sales were very good, and the market is growing, which is good news for us. But at the same time, with the growing market size, competitors are looking to enter the market, and there is a rumor that our competitor could be entering the OLED market. In the medium to long term, there are concerns that the competition in the OLED market could intensify. So what do you think about the competition dynamics in the OLED market and what are your countermeasures?

Let me answer your first question on the supply issue.

The current supply shortage issue is not temporary and it's expected to persist for quite some time.

In the first quarter, we were able to minimize risk through supply improvement activities with key customers and suppliers.

However, starting from the second quarter, we expect to see some risk with some channels.

We are going to do our utmost to pull in shortage components by closely working with our customers and suppliers.

At the same time, we are also planning to dual-source shortage materials to minimize risk. However, the cost associated with this is expected to go up.

The supply shortage issue in the first half is increasing the revenue risk.

and this problem is expected to persist for quite some time. However, through effective global supply chain management, we expect to achieve the revenue target for this year.

On the P&L side, in spite of the semiconductor supply shortage issue

We expect to achieve our goal to make a turnaround in the second half of this year through cost-improvement and efficient resource allocation.

Yes, that's all.

Thank you.

Yes, I will tell you from the HR department. As you have already asked, the expansion of the OLED market As you mentioned, the OLED market is growing and it will continue with its growth. And with our competition entering the market, it will further increase the size of the market.

And in terms of expanding the landscape of OLED, it's welcome news.

In terms of expanding the landscape of OLED, it's welcome news. In terms of expanding the landscape of OLED, it's welcome news. In terms of expanding the landscape of OLED, it's welcome news. In terms of expanding the landscape of OLED, it's welcome news.

And regarding the competition in the market, as a leader in the OLED market, we have absolute market dominance, and that is our big competitive advantage.

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And based on this market dominance, we are going to further differentiate our products to expand our fandom, and that will help us maintain our competitive advantage in the market. And starting from this year, we are going to expand our investments in marketing. In doing so, we will be able to build closer relationship with customers and strengthen our brand image.

Yes, that's all.

Next question please. The next question will be presented by Dongjae Woo from Bank of America. Please go ahead with your question.

Thank you for the question. I also have a question related to automobiles, the VS business. You said that in 2020, the time is said to be 10 trillion won. And you said that this shows a 35% cutoff until 2029, and we are 50%. I'm sorry, but in 2020, the sales of the business department that can be part of JD was about 5 trillion won. Please tell me again. I have a question regarding vehicle solution business.

You mentioned about your estimation of how the business will grow with the SAV operation. You mentioned about 50% growth in CAGR, and rough calculation gives me this idea that it means that your sales will jump by several folds. So by the time we reach 2025, Do you believe that you will be able to reach 5% to 10% of sales and OI with your JV operation? And can you elaborate on how this is going to be realized?

Yes, I will answer that question. According to the sales standard of JV, it is more than 2 billion won in 2020. And as I mentioned earlier, Let me answer your question. Regarding the sales amount related to the daily,

it was over $200 billion in 2020. Unfortunately, I cannot specify the sales figure for 2024 or 2025, but we are pretty sure that we'll be able to achieve more than 50% of CAGR. In terms of the profitability, based on the current forecast, according to our current level of backlog. By 2025, we believe that we will be able to achieve an average profitability level of Tier 1 companies.

You may continue with your questions.

Thank you. The last question is, since we are still lacking in semiconductor supply, we discussed a lot about whether it would affect our business. The first conclusion is that the VS project has no impact and you achieve your goal as expected. It will be a break-even in the second half of the year. I understand it like this. I would like to ask again if it is right. Regarding that, most of the things that the industry is lacking now are analog chips, chips from 8-inch wafers. Because of these chips, the TV side, which is making a lot of money right now, The Home and Entertainment Department, as the Vice President said, is it possible to minimize the impact by taking good risk management? And is the Home Appliance Department not that much of an influence on the home? For some reason, I think it's a situation where I can be worried enough. So, from the perspective of the H&A Department and the H&A Department,

Let me continue with my question. Today, many expressed their concerns about the business impact the semiconductor supply crunch can have to LGE. According to the answers that I heard today, vehicle solution company is expecting to see a very small influence and your original goal of making a turnaround in the second half remains unchanged. And despite this risk, you mentioned that you'll be able to meet the target without big issues. So could you clarify this to make sure that my understanding is on track? And if Your business hasn't been impacted a lot and will not be impacted by this supply crunch of semiconductors. Do you believe that it will be the same for the TV business and home appliance business? Currently in the market, we are suffering from, many industries are suffering from the shortage of mainly 8-inch wafer chips. And this is a quite worrisome situation for the overall, for a lot of industries. So I'd like to ask HE and H&A business perspective regarding this risk and its impact to the business.

Yes, I'd like to briefly talk about this. The most concerning part for us is whether or not we can achieve the BEP in the second half of the VEPS. As the VEPS management said, in the second half of the VEPS, Let me answer your questions first in the corporate wide perspective. I believe that there are some concerns regarding whether

vehicle solution business will be able to make a turnaround in the second half of this year. As mentioned in the beginning, we believe that there will be no big issue in making a turnaround in the second half. We don't know whether that will be in the third quarter or the fourth quarter. We should wait and see how things unfold, but our target of going into the black this year remains unchanged.

Let me answer your other questions regarding semiconductor supply crunch. I believe that there are concerns over our home appliance business

And when it comes to TVs, many people are concerned about DDI chips.

For our TV business, the main concern, I believe, would be on DDI chip. But we already hold quite appropriate level of inventory, and we are having a close cooperation with suppliers.

So there is nothing to worry about the negative impact of the chip to the TV business.

And in terms of cars, as I mentioned earlier, in the second quarter, there will be a slight impact on the production and supply of certain OEMs, but in the short term, we are cooperating with OEMs to prevent defects or deficiencies, and we are making efforts to secure strategic parts stock.

For our vehicle solution business, as mentioned before, we might see some disruptions, not that big, but some disruptions in terms of production and provision to some of the OEMs in the second quarter. However, we are closely cooperating with major OEMs and also we are working hard to secure appropriate level of stockpiles. So we believe that the negative impact will be minimized. The semiconductor issue in the automotive industry is a big concern for the global players. So in the second half, we are doing a lot of activities so that we can relieve the impact from this shortage. And in the long run, we are improving our supply chain so that we can soften any kind of blow from the supply issues.

Next question, please. The next question will be presented by Jonguk Lee from Samsung Securities. Please go ahead with your question.

Thank you for the question. There are two questions in the H&A department. First, the sales channels of rental businesses and online sales are changing. Currently, the sales of rental businesses and online sales Elec S & Gdr 144A

Thank you for taking my questions. I have two questions on H&A. My first question relates to your rental and online business. With diversifying rental and online business, what is the revenue contribution of the rental and online business in your company? And can you share with us your projections with regards to your plan to expand the sales? And my second question relates to your overseas manufacturing plant. There was a media release that LG built a manufacturing plant in Tennessee, the United States. What are the benefits and some downside of investing in building overseas manufacturing plant? And do you have any plans to expand into different product categories besides washing machines?

I will first answer on rental and online channels.

With our rental business, in the first quarter, the business grew by 30% and we are achieving a strong double-digit profitability. And the revenue contribution of rental business in the company is constantly growing. However, with the widespread availability of water purifiers and air purifiers, the competition in the domestic market is expected to intensify.

Related to water purifiers and air purifiers, we are planning to expand customer options

such as long-term contract. And we are also looking to expand into new category of products such as dishwashers in order to create new demand.

E.J. Online channel에 대해서 말씀 좀 드리겠습니다. 먼저 결론적으로 온라인의 매출 비중은 한 11%에서 12% 정도 되고요. 매출 중요도가 높은 국가 내에서 그 중심으로 당사의 온라인 전략을 지금 추진하고 있습니다.

Now, let me talk about the online channel. We are focusing our efforts in the countries where the revenue contribution is more important than other regions.

I will introduce two strategies. First,

By strengthening our e-commerce activities with core distribution channels, we are improving our relationship with them.

Second is our strategy to operate an online brand shop.

In doing so, we are expanding customers and membership, and by offering tailored services to customers, we are increasing the number of loyal customers and thereby expanding our fandom.

With this change management centered around customers, we are going to continue to improve our online sales activities. Next, I would like to talk about the shape guard related to the Tennessee factory. The company is operating the washing machine factory of the Tennessee factory in the U.S. until now. However, one of the tasks is to provide the main customers with supply visibility through the stabilization of the current operational factory. I can tell you that this is the source of competitiveness that is differentiated only by the first party.

I will answer on your second question about the safeguard with overseas plants. Our washing machine manufacturing plant in the United States is being operated very smoothly. The challenge that we are facing is to first achieve stabilization with the operation of our manufacturing plant. and our top priority at the moment is to provide supply visibility to our key customers. I believe that is the basis of our competitiveness.

As you mentioned, there is a risk factor factor of safeguarding, product expansion, and threats. According to the Biden administration's additional and specific actions, we believe that we can respond to them sufficiently.

And regarding the safeguard and cost pressure issue, we are able to move in line with the Biden administration's policy. And if we monitor the changes in Biden administration's policy, we will be able to respond to policy changes in a timely manner. And at the moment, there is no critical issue.

Even if we have to expand our facilities by expanding production lines,

and even if there are new regulations or environmental changes, we have the on-time response system ready by adding or expanding lines in our Tennessee manufacturing plant.

So the bottom line is at the moment we don't have any

plans to make any critical changes to our production site. Thank you.

That brings us to the end of LG Electronics Earnings Release Conference Call for the first quarter of 2021.

For further questions, please contact the IR team. Thank you.