Lg Elec S/Gdr 144A

Good morning and good afternoon. Thank you for joining Elda Electronics Earnings Release Conference Call for the third 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 N1 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 third quarter of 2021. With me are representatives of business management division of each business, Mr. Lee Kwon Kim from Home Appliance and Air Solution, Mr. Jung Il Lee from Home Entertainment, Mr. Joo Young Kim from Vehicle Component Solutions, Mr. Joong Hyun Park from Business Solutions. We are also joined by Mr. Sangho Park from Corporate Business Management Division, Mr. Hyungjoo Lee from Finance Division and Mr. Hongsoo Lee from Accounting Division. Please note that all statements we will be making today regarding our financial results of the third 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 third quarter of 2021 and the outlook for the fourth 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 third quarter of 2021 and the outlook for the fourth quarter. Consolidated sales of the third quarter was 18.8 trillion won, and operating profit was 540.7 billion won. Sales grew 22% year-on-year, driven by increased sales of premium and new appliances in HNA and strong sales of OLED TVs in HE. Though operating profit was affected by the provision for GM-Balt recalls, we achieved sound performance in profitability by offsetting the impact from rising costs through steady growth in overseas markets and higher sales proportion of premium products. I will now briefly review the third quarter performance of each business. H&A recorded 7.1 trillion won in sales, 505.4 billion won in operating profit and 7.2% in profitability. H&A recorded 4.2 trillion won in sales, 208.3 billion won in operating profit and 5% in profitability. VS recorded 1.7 trillion won in sales and 537.6 billion won in operating loss. VS recorded 1.7 trillion won in sales and 12.3 billion won in operating loss. Each business will later share its respective business results and outlook in detail. Let's move on to the profit and loss and cash flow of the third quarter. In terms of profit and loss, Reflecting financial income and expense, equity method gain and loss, other non-operating income and expense, corporate income tax, and income and loss from discontinued operations, we posted 516.5 billion won in net income. Next, on cash flow. Cash flow from operating activities of the third quarter was 568.1 billion won, and cash flow from investment activities was negative 907.3 billion won. As a result, net cash flow amounted to negative 185.5 billion won, and when reflecting cash flow from financial activities of 630.3 billion won, net change in cash increased by 444.8 billion won from the previous quarter. After reflecting changes in cash classified as helper sales of negative 11.3 billion won, cash balance at the end of the third quarter came to stand at 6.6 trillion won. Next is the key financial position and indicators for the third quarter of 2021. As of the end of the third quarter, our assets stood at 54.6 trillion won, liability at 34.3 trillion won, and equity at 20.3 trillion won. All leverage ratios, liability to equity, debt to equity, and net debt to equity decreased quarter on quarter and year on year, continuing to maintain a healthy financial condition. Next is the outlook for the fourth quarter. In terms of the macro environment, Recovery in the real economy is expected on the back of COVID-19 vaccinations and the plan to coexist with the coronavirus, but there are also uncertainties stemming from raw material and component price hikes, monetary policy normalization, and the threat of global inflation. Amidst this environment, we will focus on expanding sales of premium products through differentiated marketing activities and respond preemptively to market volatilities by continuously improving cost structures and proactively managing risk. We expect our fourth quarter revenue to grow quarter-on-quarter and year-on-year with increased sales of premium appliances and TVs and recovery in the B2B business. In terms of profitability, there are risks regarding raw material and logistics costs, but we will secure stable profitability through better product mix and efficient spending. Now let's move on to the third quarter results and outlook by business. First is H&A. Let me share the third quarter results of H&A. Sales stood at 7.1 trillion won with a 15% increase year-on-year, driven by growth in overseas markets such as North America, Europe, and Latin America. Despite the upside of revenue growth and marketing cost savings, operating profit decreased year-on-year due to increased raw material prices and logistics and labor cost hikes. Next is the outlook for the fourth quarter. The growth in global demand is projected to slow down, but the situation is expected to unfold differently for each region and segment. The burden from raw material price hikes and increased logistics costs are expected to persist. Amidst this environment, we will actively enhance sales efforts armed with our strong product competitiveness to maintain a double-digit growth in revenue. and also increase selling price and optimize cost to maintain stable profitability. I will share the third quarter results of HE. Sales grew year on year thanks to robust product sales of OLED TVs on the back of rising demand for premium products. We maintained sound profitability by offsetting the high LCD TV panel price burden with effects from increased OLED TV sales and efficient resource management. Now let me share the outlook for the fourth quarter. In the market, global TV demand is projected to decrease slightly year-on-year as people spend less time at home with the progress in COVID-19 vaccination. We expect marketing spending to increase to respond to the intensifying competition in the TV market, but we will maintain revenue growth and secure solid profitability by improving product mix with a focus on premium products. Let me share the third quarter results of VS. Despite the decrease of vehicle production in the market due to the supply shortage of automotive semiconductors, sales grew year-on-year thanks to increased volumes from new projects and revenue growth of electric vehicle components. Profitability showed a temporary decrease as the provision for GM vault recalls was reflected. For the fourth quarter outlet, with the spread of the COVID-19 Delta variant, the supply shortage of auto semiconductors is expected to persist, leading to a consequent shutdown of major OEM plants. This, in turn, may lead to a decrease in demand for vehicle components. We expect the continued supply issue of automotive semiconductors and subsequent risk of disruption in auto production to have an impact on profitability, lowering the probability of achieving a turnaround in the fourth quarter. I will share the third quarter results of BS. Sales grew 14% year-on-year on the back of expanded sales of information display products with the recovery in the B2B market and sound revenue growth in IT business. Operating profit declined year-on-year due to rising prices of major components such as LCD panels and wafers and the impact from increased global logistics costs. Now the outlook for the fourth quarter. There are both opportunities and risks in the market. Demand for IT products, including gaming monitors, is expected to remain strong in line with non-face-to-face trends, and the B2B market is projected to show a gradual recovery in demand, but there may be impact from the semiconductor shortage and increased prices of major components like LCD panels. Amidst this environment, we expect sales to grow quarter-on-quarter and year-on-year, with the seasonality effect in IT business and the recovering demand in the B2B market. The improvements in profitability are projected to be limited due to the continuing cost increase and intensifying competition. We seek to secure momentum in enhancing profitability by improving product mix and strengthening cost competitiveness. That brings us to the end of the third quarter earnings release and the outlook for the fourth quarter. We will now take questions. Operator, please commence with the Q&A session.

Now, Q&A session will begin. Please press star and 1 if you have any questions. Questions will be taken according to the order you have pressed, star and number 1. For cancellation, please press star and 2 on your phone. The first question will be presented by Dongwon Kim from KB Securities. Please go ahead with your question.

Yes, thank you for the question. I have two questions for H&A. I'd like to pose two questions on H&A.