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.

with a spike in logistics costs. I'm wondering about the impact on the profitability level of H&A companies. And also, I'm wondering what will be your corporate strategy in response to the logistics disruption that is appearing recently? My second question is related to H&A as well. I'd like to understand the proportion of new appliance sales and its trend, and can you forecast the new appliances business down the road by region? ELEC S.GDR 144A It was about our corporate response and strategy with respect to logistics disruption. As you know, the air and sea transportation costs are hitting a record high every day, and that is hampering the profitability of H&A Company.

Recently, as we have been seeing from various institutions, this phenomenon is likely to occur in the first half or second half of next year, 1-2 years.

According to many research firms, it is forecast that the phenomenon will persist until the first half and even up until the second half of next year, and some predict that it will take another 1-2 years more.

If we look at its impact on our top-line revenue, it is decreasing our top-line revenue by 2% on a year-on-year basis.

And in light with this, we are trying to deploy more extra ships in collaboration with global shipping companies so that we can minimize its impact on our supply side. Also, we are trying to curb the spike of logistic cost by optimizing our global supply chain.

In 2022, based on the robust global supply system and logistics network,

In 2022 as well, based on a solid supply chain and logistic network, we are going to make timely decisions and take them into action with speed so that we can minimize the risk on our supply side.

Furthermore, based on a solid partnership with our

Next, I would like to talk about new household sales.

Let me take your question on the proportion of new appliance sales. I would say that the sales of new appliance

has been recording a two-digit level growth every year. So we are seeing the rise of the proportion from 14% in 2018 to around 17% to 18% in 2021. So I will say that the proportion of new appliances sales is increasing within H&A Company.

The health and hygiene of home appliances is an important part of the purchase process.

Amid the COVID-19 pandemic, combined with the trend of state-domic activities, nowadays consumers have easier access to product information. In the hygiene and healthcare functions of our home appliances, have become a critical component or part of their decision-making. If we look at the pattern of this sales by region, we see that this pattern is more pronounced in the advanced markets, North America and Europe. And as the steam is deeply associated with hygiene and healthcare, we believe that we were able to record a high growth with our steam function home appliances such as styler dryer and dishwashers.

In the growth market, the demand for low-price zones is relatively increasing. We are planning to build a brand image that consumers prefer by differentiating the brand investment and customer pain points based on the success cases of the Korean market by increasing the supply and demand of products that have increased the cost-effectiveness of customers so that the company's hygiene and health appliances are essential appliances.

In the emerging markets, on the other hand, we see the demand for those products to continue to go up. We are trying to make those products featuring hygienic and healthcare functions as an essential product for consumers by offering those products at a more affordable price range to increase up our sales furthermore. So also, for the consumer's awareness, we are trying to leverage the successful cases in the Korean market For this end, we are continuing our investment in the brand and we will try to enhance the brand positioning in the market through these efforts.

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

Thank you for your question. There are two questions. First of all, there is a possibility of damage to the business division due to the power shortage in China. How much damage should there be? And secondly, Samsung Electronics is officially making QD OLED TV on the TV lineup next year. Thank you for taking my questions. I have two questions. My first question is about the power crisis in China. Did power shortage in China cause any damage in divisions of LGE?

and, if any, how much is the damage? My second question is for HE. Samsung Electronics officially adopted QD OLED TVs as the next year's TV lineup. What's your position about this move, and what impact do you think it will have on LG's W OLED TV business, and what will be the competition landscape going forward?

First, I'd like to answer the question about China's power supply. Answering your question on power shortage in China and its impact on production subsidiaries in China, we received a request to reduce data and power usage in some locations

including HE Division's production subsidiary in Gwangdong Province from mid-September.

So, we, Elec S, are making great efforts to transfer the weekly production volume to the night production, so that there is no big difference in product production. In addition, in preparation for the potential additional situation, we are actively responding to the emergency response plan, such as strengthening our own development facilities and controlling the use of non-production strategies.

We are responding by converting daytime production to the nighttime without significant disruptions. Moreover, in preparation of any worse situations, we added self-generation facilities and are controlling use of power for non-production purpose based on our emergency response plan.

And through our cooperation with the local government and the power plant, we have secured a system that can be shared with the power plant in advance.

In addition, in close consultation with local governments and energy authorities, we have secured an information sharing system to know power control plans in advance, and we are constantly monitoring any change in power supply status based on the preemptive response system.

Regarding the question about HE,

The question was about the launch of a QD OLED TV in next year by Samsung Electronics and the competition, the Outlook. And there are, of course, the concerns about the new product launch with the adoption of a QD OLED by the competitor, especially about the intense competition.

However, the other positive aspect is that in terms of the expansion of the OLED ecosystem,

However, we think there is a positive aspect because it can expand the OLED ecosystem.

As a response strategy, we want to solidify our image as a leader in OLED TV that we have built for the past 10 years.

and also we will lead the OLED technology so that the customers can experience as intrinsic value such as a picture quality and form factors.

We will continue to strengthen the product line-up at the highest level in the industry next year and respond to a variety of needs of customers, and we will continue to strengthen our influence as an OLED TV manufacturer that leads the market in the future.

And we will continue to maximize our capability as a top OLED TV manufacturer by strengthening the premium line-up and meeting the customer needs so that we think we will be able to continue to lead the market.

That's all. Next question, please.

Next question, please. The next question is from Mr. Kim from Kiwoom. The next question will be presented by Ji-San Kim from Kiwoom Securities. Please go ahead with your question.

Thank you for the question. There are two questions. The first question is about the VS business. I am curious about the impact of the shortage of supply issues for vehicle semiconductors on the performance. If there was no big impact, I am also curious about the reason. The second question is about the BS business. Recently, there has been a lot of discussion I'd like to pose two questions.

My first question is on VS. I'm wondering about the impact of the short supply of automotive semiconductor and especially its impact on your performance. If you think the impact was not big, I'd like to understand the reason why. My second question is on VS. Recently, we see that there is a fierce competition in the solar module industry due to the emergence of the Chinese makers. So I'd like to understand your corporate strategy to enhance your profitability.

We believe that the risk of the

shortage of automotive semiconductor is not a temporary phenomenon, but is likely to persist for quite some time.

In particular,

Due to the supply chain issues in Southeast Asia, burdened by the resurgence of COVID-19, the shortage rather deteriorated in the third quarter, and as it is forecast to drag on further into the fourth quarter, we are keeping a close eye on the market situation.

The company is also affected by the shutdown of customer factories due to the influence of other tier 1 companies, and is affected by certain parts such as the price of parts.

also we received some impact due to the shutdown measures of tier 1 suppliers and increase of automotive component prices however we collaborated with suppliers OEM and we also pulled in some of the automotive semiconductors in France and also we applied dual sourcing in order to minimize its impact on our supply side.

Yes, that's all.

Yes, I will answer the question related to the solar module business. This year, the price of polysilicon at the top of the solar module business value chain has increased by 4 times compared to last year. Let me take your question on solar business.

This year, the price of polysilicon on top of the value chain for solar module business has increased by fourfold on a year-on-year basis. With a spike on raw material prices, the cost level deteriorated, which hamper the profitability of most of the module makers.

As you well know, JASA has been running the business based on high-performance and high-efficiency products. JASA has a high-performance and high-efficiency product development capacity through LG Brand and sales capacity and high-performance and high-efficiency product development capacity in the global market, which is our strong point.

As you know, we've been running our business centering around high output, high efficient products. We will be leveraging our LG brand and global sales capability. Also, through our development capability for high efficiency, high output products, We will continue to expand sales opportunities in the residential market and advanced countries, showing a clear preference for high-output products. At the same time, we will strive to raise profitability by improving cost level and output of our products. We'll move on to the next question, please.

The next question will be presented by SK Kim from Daiwa Capital Market. Please go ahead with your question.

Yes, thank you for the question. I have two questions on the VS side. The first is, the market expectations for the power plant business were quite high. As semiconductor supply issues and costs continue to occur, is increasing. As you just mentioned, the semiconductor-related issue will continue for a long time, and it seems that it will be difficult to turn around in the fourth quarter. I would like to ask for your opinion on the direction of the change in the perspective of performance, including the point at which we can turn around the business in the future. The second is about GM Bolt charging. Thank you for the opportunity to speak.

I have two questions, and both go to the VS division. And the first one is about the VS automotive electronics business. The market expectations have been high about the automotive electronics business of the VS. However, the involved material costs are increasing, and there has been a shortage of semiconductors worsening the outlook for the performance of the VS division. And the semiconductor issue will continue until the fourth quarter, raising the concern about the turnaround target of the VS. So what's your outlook for the performance, and what's your opinion about the current situation? My second question is about the provision for the recall cost. According to the disclosure, the provision has been set aside for the recall cost. However, the provision amount seems greater than the actual need. So, is there a possibility that you will reverse the provision later?

Yes, I will answer that question. Elec S & Gdr 144A Elec S & Gdr 144A

We have been responding to the situation. However, it was an unavoidable situation because it was the impact on the production disruption at the top Tier 1 vendors and OEM side.

In regards to the profit turnaround of the VS business next year, the risk of automotive component demand reduction is expected to continue until the first quarter of the next year or even the second quarter of next year. The facilities still remain in the global automotive market, but we will minimize sales disruptions through close cooperation with OEM,

and the diversified supply chain. Moreover, in terms of profitability, we will make concerted efforts to achieve meaningful outcome in 2022 by focusing on improving the profit and loss structure through continued cost-saving activities.

Answering your question on the possibility of the recall, the provision, the reversal, Gm is a plan to recall about 140,000 Bolt EVs manufactured and sold from 2016 to the first half of 2021.

The total amount of provision was calculated using the most reasonable estimation based on the recall method agreed between the three companies and what has been identified so far.

In addition, the share price of the two companies was applied in the current situation, and the final share price will be decided later according to the standard of the two companies.

In addition, LGE and LGChem evenly split the recall cost to book the provisioned expenses, and the final cost sharing ratio will be later decided depending on the liabilities of LGE and LGChem. Therefore, please understand that it's difficult to tell you about the possibility of the reversal of the pre-set provision just based on the assumptions.

Yes, that's all.

Next question, please. The next question will be presented by Sungryul Kwon from DB Financial Investment. Please go ahead with your question.

Yes, thank you. I have two questions for H. The first is that OLED TV sales are good this year, so I think it will be possible to make 4 million this year, but I am very curious about the sales and goals of OLED TV sales in 2021 and 2022. If you achieve sales and goals like this, The first question is how much the sales volume of OLED TVs can be within the H business. The second is that the price of LCD panels is very steep. In this way, as the price of LCD TVs compared to OLED TVs is restored, I think that it can affect the sales and profitability of OLED TVs. I'm curious about what kind of burden or how it affects this.

I have two questions. Both questions are on HE. First, this year you've recorded such a solid performance with your TV product. I think that with this performance, you'll be able to achieve 4 million units of sales this year. So I'm wondering how you forecast this year, 2021, and next year in terms of the sales of OLED TVs. If you meet the target of sales, I'm wondering what will be the proportion of OLED TV sales out of the total TV revenue? My second question is also on HE. We see the price level of LCD TVs is going down very rapidly. I think compared to OLED TV, with this price decrease, the LCD TV will be able to recover its price competitiveness in the market. I'm wondering about the impact of this trend on the sales and profitability of your OLED business. So, can you share your corporate opinion on this?

Yes, I have a question about the sales of the first OLED TV of HB. I will answer the question. In 2021, our OLED TV sales will be based on the current standard of the third quarter.

Let me take your first question on HE, in particular regarding the forecast of OLED TV sales. Looking at the performance of OLED TV sales in the third quarter of this year, we are meeting the plan for OLED TV sales 100%.

However, due to global economic uncertainty and COVID-19,

However, looking into the fourth quarter, there is a concern or the risk of the slowdown of TB demand globally because of the uncertainty in the global economy and expansion of living with COVID-19 schemes. However, we think that there will be no difficulty in achieving our target of meeting 4 million units of sales that we set up early this year, which is double the target of the previous year.

If this is the case, we forecast the proportion of OLED TV sales to be around 32%, showing 24% of growth on a year-on-year basis.

Regarding the target for the next year with our OLED TV, we haven't finalized our target yet, and we are working on the planning and simulation to set up the target for the next year.

However, if we analyze the change in TV set and panel market environment and customer demand, we can see that the increase in demand in the premium market has led to an additional increase in the number of OLED TVs.

However, if we do a close analysis on the TV market trend, both for TV sets and panels and consumer needs, we forecast that the demand for premium products will continue to go up. So, in line with this, we are going to continue to increase the proportion of our OLED TV sales down the road.

Next, I will answer the second question. According to the decrease in the price of LCD panels,

So I'll take your second question. It was on the impact of decrease of LCD TV prices on the profitability and top line revenue of OLED TVs. Based on our understanding on the market dynamics, we understand that the competitor has given a price discount mainly to the mini OLED TVs these days.

However, if we consider the factors of external factors such as anti-battery risk, water cost, and other external factors led by China's panel manufacturers,

However, looking at various external factors such as the LCD panel supply led by the Chinese panel makers, short supply of semiconductor components, and increase in logistics costs, we believe that it won't be easy to give that much price discount to the LCD TVs.

Given that there will be some impact on

Thank you.

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

Yes, good afternoon. Thanks for taking my questions. Going back to semi-supply constraints, you talked about automotive, but what has been the overall impact across all of your businesses. How are you managing this? Has it gotten better or worse as well for the course of 2021? And what has been the impact on revenues and margins? So that's both revenues and margins here, not just revenues. And certainly on appliances, you also talked about the impact of logistic costs going up. but what has been the impact of material price increases on appliances margins in the last quarter in Q3 2021 and what could we expect to see going forward? Thank you.

Thank you for the question. I have two questions. The first question is about semiconductor supply restrictions. In the previous question, Elec S & Gdr 144A Elec S Elec S & Gdr 144A Regarding the semi-conductor shortage issue, my answer can be divided into the TV business and the automotive component business.

First of all, I think it is the most worrisome part of the market when it comes to vehicle semiconductors. In the case of the company, there was no major issue at the moment, except for some cost-effectiveness of semiconductor supply that is needed for product production. However, the T01 supply chain is now in the shortage of semiconductors,

I think this question raises a concern mainly about the automotive semiconductor shortage. The insourcing of semiconductors required for our products, we don't have significant issues except for some impact on the price increase. However, as other Tier 1 vendors suffer many Semiconductor shortage and problems in supplying components has resulted in intermittent production disruptions in major OEMs.

As I mentioned earlier, we have been affected by the shutdown of the customer factories, such as the reduction of the demand for cars and the increase in the price of parts. However, in the case of Elec S, we have been able to respond to the demand As for the impact on our performance, we have been affected to some degree by the supply disruption of OEM because our demand on our side has decreased

And also, there have been some price hikes of a component. However, our diversified supply chain management system enables us to fulfill customer orders on time. So therefore, once this issue is resolved, because we are ready to fulfill customers' orders in a prompt manner, we anticipate that we can achieve more meaningful growth down the road.

As for the TV business, as a market leader in the industry, we have a procuring power

and deep trust and partnership with suppliers. So with that, we have been managing an appropriate level of inventory, and by doing so, we have minimized the impact on our business by securing the DDIC and SOC and other components.

H&A 답변드리겠습니다. As for the raw material cost and the impact on H&A's business in 2021,

We will say that the impact on our annual sale for this year will be 2.5% to 3% and these estimations include the outlook for the fourth quarter.

The main raw materials, steel, resin, and copper, all have increased impact rates per quarter, and the remaining quarters have also increased impact rates compared to the previous year. It is seen to have a consistent effect on profitability.

Our major raw materials such as steel, the resin, and the copper have seen a price increase on every quarter, and this trend will continue even in the fourth quarter. So for H&A's business, it is serving as a factor in worsening our profitability outlook.

In 2022, the price of raw materials will continue to rise depending on the supply and demand. In 2021, raw material supply and demand imbalance will continue, and also we expect that especially the steel price will increase steeply.

under these circumstances along with globally integrated negotiations we are minimizing need for raising product prices by the fostering the key makers in each region adopting diversified sourcing and they optimize SEM and the other many others

Elec S & Gdr 144A

In addition, as the macroeconomic factors and external factors, especially China, have suddenly increased, we are focusing our organizational capabilities on proactively responding to current price hikes and offsetting risk from unstable supply through timely inter-regional sourcing and price forecasting.

Next question, please.

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

Yes, thank you for the question. What I want to ask is that there were quite a lot of changes in the rate of interest per quarter in the past few years. But recently, Elec S & Gdr 144A is already verified. Even if the profit is good in the first half of the year, in the second half of the year, the business model that can make as much profit as in the first half of the year is already being formed by TV and H&A. Thank you for explaining. The second is ESG these days. There are a lot of policies that minimize various emissions. Regarding this, of course, I'd like to pose two questions. My first question is on HNA and HE.

If you look at the operating income on a quarterly basis, you used to show a great fluctuation for many, many years so far in terms of TV and home employment businesses. However, looking at the fourth quarter, the performance of the fourth quarter is decreasing more slowly than what has been happening in the past. Can you explain the reason why behind this phenomenon? And also, I'm wondering if there will be any risk of showing a high performance, solid performance in the first half and then showing a decrease of the performance in the second half once again like the past. Or you have already established a stable business model with TV and HNA products showing even performances between the first half and the latter half. And my second question is on BS. Recently, many agencies or governments are announcing their ESG or emission-related policies. As you have already explained about your solar business, I'm wondering and I'd like to understand the overall progress of your renewable energy business-related strategy and ongoing project in line with this trend.

In 2018 and 2019, the profitability of the first half and second half was 7 to 3. Recently, there has been an impact of the pent-up, but when looking at the forecast for the past 20 years and 21 years, the profitability of the second half was a little bit small in the first half of the second half of the second year,

The trend for the past four years, including 2021, especially looking at the two years, 2018 and 2019, the profitability ratio was around 7 to 3 between first half and the second half. Maybe it's driven up by the pent-up impact caused by COVID-19. For the past two years, recent two years, 2020 and 2021, the performance was around 6 to 4, first half and second half. So, we are seeing a gradual improvement of profitability in the second half.

As you know, H&A's headquarters usually pay more attention to the second half of the year than the first half of the year. And due to the important seasonal factors of the air-conditioning business,

As you are already aware, most of the promotional seasons, including the United States, are concentrated in the second half or, in particular, fourth quarter, which is driving up the cost of that period. And also, we are impacted by the seasonality related to the AC business. So that's the reason why we have the structure of showing a lower profitability in the second half compared to that of the first half.

As I mentioned, the slight improvement in the last two years has had a phantom effect, but we have been improving the portfolio for the improvement of the return on investment in the second half, and we think that these activities have resulted in these results due to efficient cost implementation and other activities.

Of course, there were some impacts coming from the pent-up demand in improving our performance in the second half for the past two years. However, we internally made continuous efforts to improve the profitability in the second half, and also we strive to execute our expenses in a more efficient manner. As of yet, we couldn't overcome this pattern of showing a lower performance in the second half fully. However, compared to the past, we were able to make this gradual small but important improvement showing better performance in the second half. So, with this gradual improvement, I believe that this pattern of showing a lower preferability in the SECOND F will continue to persist for the time being.

Yes, that's all. Next, we will answer questions related to renewable energy.

Let me take your question regarding new renewable energy.

As you said, as the importance of ESG increases, there is a need for renewable energy

As ESG grows in importance, major countries are expanding their green policies to tackle climate change. In light of this trend, the demand for new renewable energy is forecast to grow continuously. Regarding your question about the progress of new projects, please understand that it is difficult to share specifics. But I'd like to say we're keeping a close watch on additional business opportunities arising in the energy business ecosystem.

For example, we are reviewing a solution as to how we can offer an optimized solution for efficient power consumption at home. Next question please.

Currently, there are no participants with questions. Please press Start 1, Start N1 to give your question. The next question will be presented by Dongjae Woo from Bank of America. Please go ahead with your question.

Thank you for the question again. I have one question. I'm on the VX side. In the past few months, sales have been stagnant at less than 2 trillion won, and you have mentioned various reasons such as the lack of parts in the customer base. I would like to check it again with a big picture. It's already October, but let's check again to see how much our backlog is 60 trillion won. Thank you.

I have one question about the VS business. When we look at the quarterly sales performance of the VS, it's hovering around or under 2 trillion won. And the VS division explained many reasons, including the component shortage and the disruption on the customer side. And can you, again, provide a high-level overview about your business situation? In regards to the order backlog, as of October, is it about 60 trillion won? And when can you make a turnaround in profit by the recording over 2 trillion won and even 3 trillion won in the sales? So I'm wondering when will be the inflection point of a profit, and can we expect that it's going to be the third quarter 2022? and also out of its backlog is 60 trillion won. What is the portion of EEV's related component business?

Answering your questions on the order backlog,

As we communicated, the order backlog of 2021 is over 6 trillion won and is continuously rising.

If you look at the proportions, out of all the backlogs, the infotainment

accounts for 60%, and the remaining part is the LG Magna-related EV component and the ZKW LEMP product. Considering the high growth potential of the EV industry, we believe that the backlog from the EV component-related business will increase with the LG Magna JV participation.

As you know, the current state of sales is due to a decrease in the production of cars due to the lack of semiconductor supply.

And as you mentioned, the sales have been stagnant because the semiconductor shortage caused by the disruption in the OEM plants.

However, when we see the trend of an order backlog, once this semiconductor issue is resolved,

We can say that we can start to achieve a meaningful outcome.

Yes, that's all.

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