Lg Elec S/Gdr 144A

Good morning and good afternoon. Thank you for joining LG Electronics Earnings Release Conference Call for the second quarter of 2021. 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 Sangbo Shim from Investor Relations. Thank you for joining LG Electronics Earnings Release Conference Call for the second quarter of 2021. With me are representatives of business management division of each business, Mr. Lee Gong Kim from Home Appliance and Air Solutions, Mr. Jung Yi Lee from Home Entertainment, Mr. Ju Yong Kim from Vehicle Component Solutions, Mr. Chung Hyun Park from Business Solutions, We are also joined by Mr. Sang-ho Park from Corporate Business Management Division, Mr. Hyung-kyu Lee from Finance Division, and Mr. Hong-soo Lee from Accounting Division. Please be noted that all statements we will be making today regarding our financial results of the second 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. Today, I will outline the overall performance results of the second quarter of 2021 and the outlook for the third quarter. After that, each division will take turns to deliver its business results and outlook. Now let me start with the consolidated financial results of the second quarter of 2021 and the outlook for the third quarter. Consolidated sales of the second quarter was 17.1 trillion won and operating profit was 1.1 trillion won. Sales grew 48% year on year, driven by strong sales of premium appliances in HNA, expanded sales of OLED TVs in HE, and revenue growth in BS attributable to the demand recovery in the automotive market. Operating profit showed significant improvement year on year thanks to increased sales from premium products in the appliance and TV businesses and efficient resource management. I will now briefly review the second quarter performance of each business. HNA recorded $6.8 trillion won in sales, $653.6 billion won in operating profit, and 9.6% in profitability. HE recorded $4 trillion won in sales, $333.5 billion won in operating profit, and 8.2% in profitability. GS recorded $1.9 trillion won in sales, and $103.2 billion won in operating loss. ES recorded 1.7 trillion won in sales, 61.7 billion won in operating profit, and 3.7% in profitability. All MC-related profitability was reflected in income and loss from discontinued operations. Further details by business will be covered in later slides. Let's move on to the profit and loss and cash flow of the second 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 negative 113.6 billion won. Next, on cash flow. Cash flow from operating activities of the second quarter was 366.6 billion won and cash flow from investment activities was negative 483.5 billion won. As a result, net cash flow amounted to negative 94.4 billion won and when reflecting cash flow from financial activities of negative 22.8 billion won, cash balance at the end of the second quarter decreased by 117.2 billion won quarter on quarter to stand at 6.2 trillion won. Next is the key financial position and indicators for the second quarter of 2021. As of the end of the second quarter, our assets did at 50.6 trillion won, liability at 31.7 trillion won, and equity at 18.9 trillion won. All leverage ratios, liability to equity, debt to equity, and net debt to equity were maintained at stable levels. Next is the outlook for the third quarter. In terms of the macro environment, along with expectations for recovery in the global economy in the second half, on the back of progress in COVID-19 vaccinations, there are uncertainties stemming from the spread of the virus variant and a possible shift in the monetary policy. Amidst this environment, we will mitigate potential risks by increasing sales through expanded market coverage in main businesses and accelerated growth in new growth businesses. as well as by continuously improving cost structures and responding preemptively in operations. We expect sales to maintain a sound upward trend in the third quarter year-on-year affected by continued demand for premium appliances and TVs and incremental growth in the vehicle component business. Profitability is projected to be maintained at stable levels through efficient resource and supply chain management though there are concerns regarding the rise in logistics costs and raw material prices. Now let's move on to the second quarter results and outlook by business. First is H&A. Let me share the second quarter results of H&A. Sales stood at 6.8 trillion won with a 32% increase year-on-year driven by growth in overseas markets. Operating profit improved year on year thanks to sales growth in overseas markets and efficient resource management. Next is the outlook for the third quarter. Intensified competition and cost pressures from raw material price hikes and increased logistics costs are expected to remain in the market. Amidst this environment, we expect to maintain our sales growth momentum year on year by strengthening product competitiveness and proactively enhancing sales by region and product. We will focus our capabilities to achieve similar profitability levels as the same period of the previous year by saving costs and optimizing operations. I will share the second quarter results of HE Sales increased by a large margin year-on-year thanks to the recovering demand in the global TV market and expanded product sales of OLED TVs. Despite the continued rise of LCD TV panel prices, operating profit grew significantly year-on-year driven by operating leverage effects and improved product mix focusing on premium products. Now, let me share the outlook for the third quarter. In the market, with the progress in COVID-19 vaccination, demand for products related to the entertainment at home is expected to be stagnant, but premium product demand is projected to continue its upward trajectory. We will maintain sound profitability by improving product mix with a focus on premium TVs and expanding sales though we expect some cost pressure due to the continuous panel price hike. Let me share the second quarter results of ES. Sales grew year on year, driven by increased volumes from major projects on the back of the demand recovery in the global automotive market and increased sales of electric vehicle components. Profitability improved significantly year on year, with revenue growth from the increased demand for vehicle components, but decreased quarter on quarter with the temporary spike in cost due to the semiconductor supply shortage. For the third quarter outlook, the automotive semiconductor supply shortage is expected to persist for a considerable period of time, but as major semiconductor manufacturers take action regarding the shortage, the supply situation is projected to stabilize in the second half. We will focus our capabilities on securing major components by strengthening global supply chain management and will continuously improve profitability by maximizing sales and continuing cost-saving activities. I will share the second quarter results of BS. Sales grew year-on-year on the back of expanded sales of high-end large screen and gaming monitors and grand PCs. and the gradual recovery in the demand for information display products. Operating profit decreased quarter on quarter and year on year due to rising prices of major components such as LCD panels and solar wafers. Now, the outlook for the third quarter. A gradual recovery of demand is expected in the B2B business with expanded infrastructure investments by major economies on the back of the resumption of economic activities. But risks related to rising prices of major components such as LCD panels and supply shortage for some semiconductors are expected to continue. We expect sales to grow quarter on quarter and year on year with the demand recovery in the B2B market, but improvements in profitability may be limited due to the impact from continuing price increase of major components. We will focus on securing profitability through proactive cost reduction activities. That brings us to the end of the second quarter earnings release and the outlook for the third quarter. We will now take questions. Operator, please commence with the Q&A session.