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