Lg Elec S/Gdr 144A

Good morning and good afternoon. Thank you for joining LG Electronics Earnings Release Conference Call for the first quarter of 2022. 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 Sang-bo Shim from Investor Relations Thank you for joining LD Electronics Earnings Release Conference Call for the first quarter of 2022. With me are representatives of each Business Management Division, Mr. Lee Kwon Kim from Home Appliance and Air Solutions, Mr. Jung Hee Lee from Home Entertainment, Mr. Joo Hyun Kim from Vehicle Component Solutions, Mr. Chung Hyun Park from Business Solutions. We are also joined by Mr. Sang-ho Park from Global Business Management Group, Mr. Hyun Kyu Lee from Finance Division, and Mr. Hong Soo Lee from Accounting Division. Please note that all statements we'll be making today regarding the 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. Today, I will outline the overall performance results of the first quarter of 2022 and the outlook for the second 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 first quarter of 2022 and the outlook for the second quarter. Consolidated sales of the first quarter was $21.1 trillion won and operating profit was $1.9 trillion won. Sales grew 18.5% year-on-year attributable to robust sales in premium appliances revenue growth in VS and recovering B2B demand on the back of easing of COVID-related restrictions across nations and subsequent step up in government and corporate investments. Though affected by non-recurring costs associated with workforce restructuring, operating profit grew year on year with a one-off increase in royalty income in others. Regarding non-recurring income and expense, first on the cost related to workforce restructuring, To secure a future-oriented organization structure and enhance dynamism in the organization, we implemented workforce restructuring activities including early retirement program this quarter. Though I cannot share specifics on the scale, package amount, or impact by business, early retirement package levels were set based on reasonable standards. And like we explained in the preliminary earnings announcement, the gap between the first quarter operating profit of each business and market expectations mostly stem from the impact of this cost. Though such activities entail cost burdens in the short term, we expect it to contribute significantly in strengthening business competitiveness in the mid to long term. Next, to comment on the royalty income that showed a one-off increase this quarter, Though it's not the first time we've recorded royalty income, this quarter we reflected a significant amount of licensing revenue in others as efforts to leverage and monetize our patents since last year bore fruit. I ask for your understanding that we cannot provide details on the counterparty, contract structure, patent type, or income amount due to the confidentiality clause in the agreement. We plan to continue efforts to monetize our patents going forward. I will now briefly review the first quarter performance of each business. H&A recorded $8 trillion won in sales, $447.6 billion won in operating profit, and 5.6% in profitability. H&G recorded $4.1 trillion won in sales, $188.4 billion won in operating profit, and 4.6% in profitability. GS recorded $1.9 trillion won in sales and $6.3 billion won in operating loss. DS recorded 2 trillion won in sales, 37 billion won in operating profit, and 1.8% in profitability. 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 first 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 1.4 trillion won in net income. Next, on cash flow. Cash flow from operating activities of the first quarter was negative 137.7 billion won, and cash flow from investment activities was negative 446.1 billion won. As a result, net cash flow stood at negative 536.4 billion won and when reflecting cash flow from financial activities of 45.9 billion won, net change in cash decreased by 490.5 billion won. After reflecting changes in cash held for sale of 58.4 billion won, cash balance at the end of the first quarter came to stand at 5.6 trillion won. Next is the key financial position and indicators for the first quarter of 2022. As of the end of the first quarter, Assets did at 55.1 trillion won, liability at 33.2 trillion won, and equity at 21.9 trillion won. In terms of leverage ratios, though there was a slight increase in net debt to equity, liability to equity and debt to equity all decreased quarter on quarter and year on year, and we continue to maintain a healthy financial condition. Next is the outlook for the second quarter. In terms of the business environment, Uncertainties are expected to persist with the raw material price hikes due to the prolonged Russia-Ukraine conflict, global inflationary pressures, and delay in easing of global supply chain issues. Amidst this environment, we will maintain growth momentum and leading position in the global market by strengthening regional and product portfolio. We will drive business performance through continuous improvement in cost structure and preemptive risk management. We predict second quarter revenue to grow year on year, on the back of new product launches and robust sales of premium products. In terms of profitability, we expect the upward cost pressure to continue, but we seek to maintain sound profitability through product mix improvement and enhanced efficiency in operations. We will move on to the first quarter results and second quarter outlook by business. But before that, I would like to state that because of the business transfer to LG Chem, The GM battery pack business and CEM business originally under VS and BS respectively were incorporated into others. We have reflected these changes in performance results from the first quarter of 2022 and past results have also been restated in line with these changes. Now the business results and outlook starting with H&A. Let me share the first quarter results of H&A. sales stood at $8.1 trillion, with a 19% increase year-on-year, driven by growth across overseas markets, including North America. Despite the upside of revenue growth and marketing cost savings, operating profit decreased year-on-year due to rising raw material and logistics costs. Next is the outlook for the second quarter. Raw material and logistics cost burdens are expected to persist, and the Russia-Ukraine conflict, lockdown in major cities of China, and global oil price hikes are projected to pose further risk to business operations. Amidst this environment, armed with our product competitiveness, we will continue efforts to expand sales of premium, large-capacity, and high-efficiency products. We will focus capabilities to secure sound profitability through new product launches, aggressive selling price increases, and spending optimization. I will share the first quarter results of HE. Sales recorded a slight growth year on year, thanks to strong revenue from premium products, despite the overall demand decrease in major regions such as North America and Europe. Though revenue grew and the panel price situation improved, operating profit decreased year-on-year due to increased spending including marketing expenses. Now let me share the outlook for the second quarter. In the market, demand is projected to decrease year-on-year in Russia and advanced markets such as North America and Europe, but we expect demand for premium products to be maintained. Accordingly, We will improve product mix to focus on premium TVs like OLED, QNED, and large size TVs to maintain revenue levels similar to that of the previous year and previous quarter. We will exert efforts to secure profitability with efficient spending including marketing cost. Let me share the first quarter results of CF. Sales grew year on year and quarter on quarter thanks to close cooperation with OEMs on timely production and supply amidst the prolonged supply shortage of automotive semiconductors. Operating loss was reduced quarter-on-quarter on the back of revenue growth. Next, the outlook for the second quarter. Uncertainties in the external market are expected to persist with disruption in auto semiconductor supply, the Russia-Ukraine conflict, and lockdown in major cities of China. We will strengthen business risk management through flexible response to customers and continuous improvement in cost structure. I will share the first quarter results of BS. Though uncertainties remain due to deteriorating macroeconomic factors, sales recorded an increase quarter on quarter and year on year on the back of sustained growth in gaming monitors and grand PCs in information technology business and recovering market demand and expanded sales of digital signage and hotel TV products in information display. Operating income turned around to record profit with significant improvement quarter-on-quarter thanks to growth in revenue but decreased year-on-year due to rising component and logistics costs. Now let me share the outlook for the second quarter. In general, uncertainties still remain in the market and the B2C market with regard to IT products is expected to be stagnant or decline. The B2B market demand is expected to expand and demand for signage and hotel TVs in information display is projected to show continuous growth. In IT, we will actively meet demand for high-end products and the B2B market. And in information display, we will identify new projects in diverse verticals and secure more project wins to maintain growth momentum in sales and secure stable profitability. That brings us to the end of the first quarter earnings release and outlook for the second 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 the star and 1. For cancellation, please press star and 2 on your phone. The first question will be provided by Dongwon Kim from KB Securities. Please go ahead with your question.

Yes, thank you for the question. I have a question for H&A and V.S. The actual income from inflation is decreasing, and there seems to be a concern about the deterioration of demand for endowments. How do you see the global household demand in LG Electronics this year? Please give us your opinion on demand trends and prospects for each region, including major markets such as Korea, North America, Europe, and the Middle East. I have two questions. My first question regards to home appliance and air solution business.