Lg Elec S/Gdr 144A

Good afternoon. My name is Sangbo Shim from Investor Relations. Thank you for joining Elda Electronics Earnings Release Conference Call for the second quarter of 2023. With me are representatives of each business management division, Mr. Lee Kwon Kim from Home Appliance and Air Solutions, Mr. Jung Il Lee from Home Entertainment, Mr. Joo Young Kim from Vehicle Component Solutions, Mr. Dongcheol Lee from Business Solutions. We are also joined by Mr. Sangho Park from Global Business Management Group, Mr. Chung Hyun-bak from Corporate Business Management Division, Mr. Hyung-gyu Lee from Finance Division, and Mr. Hong-soo Lee from Accounting Division. Please note that all statements we will be making today regarding the financial results of the second quarter are subject to change in accordance with the result 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 2023 and the outlook for the third quarter. Then, each division will take turns to deliver its business results and outlook. After that, I will share our ESG activities and achievements. Now, let me start with the consolidated financial results of the second quarter of 2023 and the outlook for the third quarter. Consolidated sales of the second quarter was 20 trillion won, and operating profit was $741.9 billion won. Q2 revenue turned around to record growth year-on-year on the back of expanded sales in vehicle components despite the negative impact from delayed recovery in appliance and TV demand stemming from concerns of a global economic slowdown. Though we continue to see the effects from stabilized logistics and raw material costs and TV profitability significantly improved year-on-year, consolidated operating profit decreased slightly year-on-year due to the additional one-off provision regarding GM-Balt EV recalls. As was disclosed through the earnings released today, the decision was made to additionally reflect a one-time provision for increased material costs entailed during the GM-Balt EV recall period, and we reflected $151.1 billion, 50% of the amount in Q2, in line with the agreed share ratio with LG Energy Solutions. I will now briefly review the second quarter performance of each business. H&A recorded 8 trillion won in sales, 600.1 billion won in operating profit, and 7.5% in profitability. HG recorded 3.1 trillion won in sales, 123.6 billion won in operating profit, and 3.9% in profitability. VS recorded 2.7 trillion won in sales and 61.2 billion won in operating loss. VS recorded 1.3 trillion won in sales, 2.6 billion won in operating profit, and 0.2% 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 second 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 307.8 billion won in net income. Next on cash flow. Q2 cash flow from operating activities was 1.6 trillion won, and cash flow from investment activities was negative 1.4 trillion won. resulting in net cash flow of 160.1 billion won. When reflecting cash flow from financial activities of 267.6 billion won, cash balance at the end of Q2 came to stand at 7.2 trillion won, a 427.7 billion won increase from the previous quarter. Next is the key financial position and indicators for the second quarter of 2023. As of the end of the second quarter, assets stood at 58.2 trillion won, liability at $34.6 trillion won and equity at $23.6 trillion won. In terms of leverage ratios regarding liability to equity, debt to equity, and net debt to equity, we are maintaining a healthy financial condition.

Now, the outlook for the second quarter.

In terms of the business environment, though consumer sentiment is improving with easing inflation and there are expectations of a soft landing for the global economy, uncertainties continue to exist in the market due to continued monetary tightening measures of major countries and protracted geopolitical risks. We will secure business opportunities by preemptively responding to changes in the market and the competitive landscape and continue to improve our cost structure by making efforts to strengthen our business fundamentals. In terms of Q3 revenue, we will continue to drive growth year on year based on stable growth of vehicle component business and timely response to the TV peak season. We expect operating profit to increase year-on-year on the back of profitability-based business operations including cost structure improvements and efficient spending. Now let's move on to the second quarter results and third quarter outlook by business. We will start with H&A. Let me share the second quarter results of H&A. Revenue recorded a slight decrease year-on-year as weakened global demand for appliances and fierce competition persisted in the market, and the steep growth in B2B sales was somewhat subdued. Operating profit grew year-on-year, despite increased marketing spending to address new product launches and competition in the market, thanks to continuous cost structure improvements, including stable material and logistics costs. Next is the outlook for Q3. The market situation is expected to remain challenging for the time being, as demand is expected to decline, subsequently leading to further intensified competition in the market, and retailers aim to reduce inventory. Amid this environment, we will seek to minimize the impact on revenue by reinforcing our new product lineup and expanding coverage of mass-tier products and by conducting preemptive marketing activities. We plan to secure continued improvement to profitability through stable raw material prices and additional savings in ocean freight charges in the second half. I will share the second quarter results of HE. Sales declined year-on-year. impacted by intensified competition not only in advanced markets but also in growth markets amidst delayed recovery of demand for TVs globally. Despite the impact from sluggish revenue, we recorded profitability growth year-on-year on the back of lower panel prices compared to the previous year and enhanced efficiency in spending, including marketing costs. Let me share the outlook for the third quarter. In the market, though there are some expectations of a pickup in demand, economic uncertainties persist. And along with fiercer competition in the premium product segment, there are concerns of elevated cost burdens due to LCD TV panel price hikes. Accordingly, we will enhance our sales competitiveness for the peak season by strengthening our premium product lineup and launching mass-tier webOS Smart TV. We will preemptively manage risk with sound inventory operations through close corporations with retailers. Moreover, we will continue to improve our profit structure by expanding revenue from webOS platform-based contents and advertisements. Let me share the second quarter results of VS. Sales grew by a large margin year on year thanks to increased production by OEMs with the easing of the automotive semiconductor shortage and stable supply chain management for key components, including semiconductors. Though we recorded operating loss in Q2 due to the one-off provision for GM Bolt EV recalls, apart from the impact from the provision, operating profit continued to be positive, improving both year-on-year and quarter-on-quarter on the back of revenue growth and continuous improvements to our cost structure. Next, the outlook for the third quarter. Uncertainties regarding demand for vehicle components continue to exist in the market, though the automotive chip shortage is easing. However, the transition to electric vehicles is expected to increase steadily. We will maintain top line growth momentum through more new orders based on our product competitiveness and stable supply chain management. We will secure sound profitability with continuous efforts to improve our cost structure. I will share the second quarter results of BS. Sales decreased year-on-year, impacted by a much delayed recovery in global IT demand and slowing demand growth for information display business. Operating profit decreased year-on-year and quarter-on-quarter due to the drop in revenue and increase in marketing cost to address competition in the market. Now let me share the outlook for the third quarter. IT demand continued on a downward path up to the first half of the year amid concerns of a global economic slowdown, but is expected to pick up from the second half. Information display market is projected to maintain a growing trend, though the pace of growth may be slow for the time being. We will secure opportunities for top-line growth by expanding sales of strategic products in PC and monitor and enhancing capabilities to offer differentiated solutions by vertical in information display. We seek to secure profitability with enhanced model mix and cost structure improvements, including material and marketing cost reductions. Last but not least, let me share our ESG activities and achievements. We have established and are driving ESG strategies that can positively impact both the planet and people, and our products and services are delivering sustainable future value to customers. The 2023 OLED EVO, launched last April, requires only 40% of plastic use compared to LCD TVs and has the effect of reducing annual plastic use by approximately 20,000 tons. with substantial application of recycled plastic on the product main body, we expect to achieve a used plastic recycling effect amounting to 3,200 tons yearly. In particular, we have received recognition for the eco-friendly effect across the production, delivery, use and disposal of all models and acquired certifications from Carbon Trust of UK and SGS of Switzerland respectively for three years in a row. We have boosted our functional materials business by utilizing in-house developed glass formation design technology. Our antimicrobial glass powder has antibacterial and antifungal functions to various materials including plastic and has been applied to our refrigerators, washing machines, air conditioners since 2022. We are also expanding our green business through clean technology by developing marine glass that melts in water and can be applied to help restore marine ecosystems. We believe accessibility is an important initiative driven under ESG management and have launched a variety of relevant products and services. Recently, we released a new Kiosk product with much improved accessibility for the digitally challenged. This product offers a visually enhanced mode to show bigger fonts and sharper images and low position mode which places main menu options at the lower part of the screen to enable customers using wheelchairs or of short height to use the product more easily. The Kiosk product and LG Electronics were the first to acquire their certification of public procurement pre-order for intelligent information products in the Kiosk sector from the Ministry of Science and ICT. Our technology also received much recognition externally in our efforts to provide a better life for all and we were named the most sustainable home appliance brand in 2023 GreenBuilder Sustainable Brand Index. GreenBuilder Media is a leading green building and sustainable living media company in the US. We boast global top level energy efficiency with our products listed in all five categories for sustainable washers and dryers named by Consumer Reports, a major authority on consumer products. We will continue to offer innovative customer experience through differentiated products and services that deliver ESG values and see business opportunities in line with ESG management to not only enhance our corporate value, but also drive a better life for all. That brings us to the end of the second quarter earnings release and outlook for the third quarter. We will now take questions. Operator, please commence with the Q&A session.

The first question will be presented by Dongwon Kim from KB Securities.

Yes, thank you for the opportunity to ask a question. I would like to ask a question to VS and PS. First of all, please tell us about the current status of the new stock market in the first half of the year and the outlook for the annual stock market. I am also curious about how you see the possibility of achieving 100 trillion won in the stock market this year. Thank you for taking my questions. I have two questions, and my first question is about vehicle solutions.

Can you share your new order intake of first half and your projections on order backlog of the overall year? Do you think you can achieve the target of 100 trillion KRW this year? And also, it would be appreciated if you can share the breakdown of your backlog and the increasing trend of each category. My second question is about BS. What is your profitability estimation for the third quarter and the whole year? Do you see a momentum of profitability improvement in the second half?

Yes, I will answer the VS headquarters. The company currently has more than 80 trillion won in water-fuel storage money, and we expect it to reach 100 trillion won by the end of this year. Currently, if I tell you the proportion of water-fuel storage products, the infotainment product is 60% and the electric vehicle parts and the lamp business are about 40%. In the future, we expect the company's water-fuel storage money to continue to increase when we consider the speed of the car and the trend of electrification.

Let me answer your question about vehicle solutions. LG Electronics' order backlog amounts to over 80 trillion KRW at the moment and is expected to reach close to 100 trillion KRW at the end of 2023. In detail, infotainment accounts for 60% of total order, while other items, including EV components and lamps, account for approximately 40%. We are expecting continuous and rapid growth on our order backlog amount considering the accelerating transition to electric propulsion. Thank you.

Next, I would like to answer the question from the BS Department. The IT business is going to secure market position by actively responding to the demand for B2B projects in the Korean PC market as well as the online business activities and the sales growth strategy centered by OLED Gaming Monitor. Let me answer your second question regarding business solution.

Our plan for IT business is to deploy sales growth strategy with OLED gaming monitor, grow online business, and tap into B2B project opportunities in the Korean PC market to secure a strong market position. Our first half sales dwindled due to factors like negative growth in the market, but we are working on to achieve year-over-year growth in the second half.

Elec S & Gdr 144A The ID business is actively exploring business opportunities in major verticals such as companies, retail, and hotels, and is planning to grow sales through the creation of various demand areas such as education, broadcasting, and VP.

For information display, we plan to actively identify business opportunities in main verticals including corporate, retail, and hotel, and create diverse demands in education, broadcasting, and virtual production to expand sales growth.

Elec S & Gdr 144A

For robot business, we have grown its size until the second quarter, focusing on service delivery robots by cooperating with major partners in Korea. And starting from the third quarter, we will prepare to enter the overseas market.

For EV charging business,

Next question, please.

The next question will be presented by Kang Ho-bak from Daesin Securities. Yes, thank you for the opportunity to ask a question. I will ask two questions about H&A and VES.

First of all, it is about H&A. In the second half of this year, it seems that there has been continued uncertainty about the recovery of the global consumer economy. We have continuously mentioned S.Gdr 144A S.Gdr 144A S.Gdr 144A S.Gdr 144A S.Gdr 144A Thank you for taking my questions. I have two questions, one on home appliance and air solution, the second one on vehicle solution.

To start with my first question, I believe that the global consumption is showing a slow recovery and it will continue in the second half. As you have mentioned, LG Electronics has been well implementing strategies to bring differentiation to premium lineups and to expand the volume zone target customer. Based on your strategy, do you think you can witness year-on-year revenue growth in the second half or do you have any new strategies to drive growth? My second question is about vehicle solutions. As you just covered, you are expecting your order backlog to increase from 80 trillion KRW to 100 trillion KRW by year-end. As your order backlog hikes like this, it seems to be necessary for you to expand production capacity. Do you have any plans to make huge investments in 2023 or 2024? Thank you. First, I will answer H&A.

Let me answer your question in regards to H&A. Along with the polarizing consumption trend, we would like to continue focusing on premium line of differentiation and targeting the volume zone.

Throughout such strategy, we expect our revenue to show a turnaround to the rising curve in the second half.

In general, we want to expand product competitiveness, price coverage, and promotion, marketing, and supply capacity to optimize our strategies for each region. In the case of the Korean market, we want to expand our strategy to optimize our strategies

In addition, we would like to enhance competitiveness, expand price coverage, and strengthen promotion, marketing, and supply so that we can provide optimized strategy per region. To add more colors on our regional strategy, in Korea, we plan to strengthen lineup in the volume zone per channels to continue online revenue growth and to expand into the rental business area to intensify future growth momentum.

And in the North American market in the overseas region, we would like to develop an active competitive response by using the new products that have secured the original competitiveness, and in the case of the European market, we would like to develop an active competitive response by using the new products

In North American market, we would like to focus on seasonal promotions compared to our competitors, especially focusing on new models that are equipped with cost competitiveness. Last but not least, we will utilize flexible production site management in the European market to fully leverage our competitiveness seeking for revenue growth and productivity enhancement. Thank you.

Yes, I will answer the VS headquarters. The party is planning to continue to expand production area investment for increasing supply and demand response and production response per district. In the case of smart business, a new production area in Mexico for response to North America is being established, and expansion investment in Vietnam and Poland, which are currently running, is also scheduled. LG Magna is scheduled to operate a Mexican factory for response to North America in addition to Korea and China. I would like to answer your question about vehicle solutions.

In order to cope with hiking order backlog and regional production, we are planning to make continuous investments in production site expansion. Adding more colors, our smart business is currently establishing new production site in Mexico to deal with North American markets and has plans to make investment in our existing production sites in Vietnam and Poland. Touching upon LG Magne, other than the existing plant in Korea and China, the company will soon start operating its Mexico plant to cover North American market. Continuous investment will be made and new plant is under establishment to deal with the European market. Thank you.

Next question please.

The next question is from J.P. Morgan. The next question will be presented by Jung Joon Park from J.P. Morgan.

Yes, thank you for the question. There are two questions. First, you mentioned the overall background of the three-minute period. I would like to know how the sales and profitability guidance are done for each business. And if possible, I would appreciate it if you could provide some related information. Thank you for taking my questions. I have two questions. One for corporate-wide

and the other for vehicle solution business. First question regards the corporate wide operation. What is your full year and third quarter guidance on corporate wide sales and profitability? Can you break it down by the businesses? My second question regards business vehicle solution. It seems like LG Magna will have has the biggest growth momentum in the vehicle solution business. When do you believe that LG Magna will make a turnaround to be in the black? Could you give us some details on it?

Yes, I will answer the previous part of the question. First of all, in the first half of the year, there was an impact of home appliances and TV demand recovery delays due to global economic downturn, but through the high growth of major B2B products including vehicle parts,

Let me answer your first question regarding corporate wide operation. Despite negative impact from a delay in demand recovery for appliances and TVs triggered by global economic downturn, we were able to minimize a drop in sales in the first half thanks to the high growth recorded by major B2B businesses, including vehicle components.

In terms of profitability, there was a meaningful contribution from B2B products and non-hardware products with high profitability, and we were able to manage efficient marketing costs in the first half of this year with the effort of healthy distribution and distribution from the second half of last year. In addition, there was a positive improvement in the cost of logistics and raw materials as well as the stability of the price of raw materials and raw materials through the work of Warren Task.

Also in terms of profits, highly profitable B2B and non-hardware business made meaningful contribution. Thanks to our efforts in enhancing the soundness of inventory held by distribution channels, which we adopted since the second half of last year, we were able to efficiently manage our marketing expenses for the first half of this year. We have conducted activities including war room tasks to improve our business fundamentals. Stable logistics and raw material prices also played in our favor, and we were able to improve our expense structure.

And in the second half of the year, we will focus on sales and profitability in the third quarter. Sales will be promoted through stable growth in the automotive parts business, and growth through the replacement of TV and water purifiers. We will focus on sales and profitability in the second half of the year,

Regarding the sales and profitability for the second half, if I may focus on the third quarter, we aim to grow sales through stable expansion of vehicle component business and timely response to peak seasons for TVs. We will run our business focusing on profitability, and continue to improve cost structure and efficiency in expense management so that we can achieve growth in annual sales and create stable profitability. Thank you.

Yes, I will answer the question from the V.S.

Department. As a result of the previous smooth and healthy supply and demand activities, we expect to see a continuous growth in sales and product products, and a positive impact on profitability. Let me answer your question in regards to vehicle solutions. As a result of various activities to win contract during the past several years,

Next question please. Next question, please.

The next question will be presented by Simon Wu from Bank of America. Yes, thank you for the question. The first question is related to H&A.

The U.S. market is becoming strategically important. This is the first question. The second is that the TV market is still in a bad situation, but we will continue to improve Thank you for taking my questions. I have two questions and my first question is about H&A.

I believe that the American market is becoming more important in terms of your strategy, and can you share your production capacity in the United States and market share in the country? And as the American market is projected to become bigger, do you have any additional plans to expand production in the United States? And my second question is about home entertainment. I believe the overall TV market does not seem to be that promising. I do see some room for enhancement by making some enhancements in your product mix. I would like to ask for your definition on premium TVs and your revenue proportion, especially about the sales and yearly target of your OLED TV models. Thank you.

HNA 먼저 답변 드리겠습니다. 당사는 미국 내 Tennessee 지역의 세탁기 공장을 운영하고 있습니다. Let me answer your question about H&A. LG Electronics has a production site in Tennessee, United States producing washing machines.

The capacity of the site is approximately 1.2 million washing machines and 600,000 dryers per year. And this amount accounts for 30% of the washing machine revenue in the United States.

In the U.S. business, the safeguarding tax burden and the burden of logistics have increased the supply of water. However, in the situation where such restrictions have been eased,

To elaborate more on the United States business, the country has been posing safeguard tariffs on products produced overseas, and the logistic costs have been a burden. Therefore, we've been raising proportion of products made in the United States. However, we're currently making some adjustments in volume and country of origin, as many of the limits have been eased at the moment.

Elec S & Gdr 144A Elec S & Gdr 144A

At a time when protectionism is growing and supply flexibilities such as managing geopolitical risk are becoming more and more important, the importance of having a production hub in the region is getting bigger. We would like to secure and fully utilize production competitiveness with our light-house factories and secure premium line-up volume for the sake of competitiveness enhancements and would like to continuously review producing additional items other than washing machines in the mid-to-long-term. Thank you.

Next, I would like to answer your question. Let me answer your questions regarding home entertainment business.

The demand for TV in 2023 continues to dwindle as consumer sentiment is hit by rising interest rates and protracted inflation. Customers are now more sensitive to prices and tend to trade down with their purchases, leading to a trend of negative growth in premium TV demand.

The company continues to develop its premium TV growth strategy

We are pursuing qualitative growth in the TV business by continuing to deploy premium TV growth strategy with OLED and accelerating changes in business fundamentals to be more software-centric.

Our strategy is to first strengthen our upper hand in the premium market

by providing values unique to LG TVs and expanding customer experience. Second, strengthen content and service competitiveness. And third, speed up growth of platform business by differentiating WebOS experience.

This year, not only OLED Evo, which has improved brightness, but also wireless OLED TVs that enhance customer convenience, Luminance was upgraded for OLED EVO this year. User convenience is enhanced for wireless OLED TVs, and we have combined the NanoCell

and Quantum Dot technologies for QNED TVs. On top of that, lifestyle screen that can provide new experience to users tailored to their lifestyle and liking will be added to diversify our product lineup. By doing so, we aim to increase sales to drive demand and increase market share in the premium segment.

Elec S & Gdr 144A Elec S & Gdr 144A

We will continue to boost sales of premium products with OLED TVs and make sure to obtain sales figures that enable us to keep our competitive edge as a brand where OLED TV originates and as a brand that ranked number one for 10 consecutive years. The sales percentage of our premium products rose year over year despite negative growth in the overall premium market, which indicates that our product mix has been improved. Thank you.

Next question, please.

The next question will be presented by Jisan Kim from Kium Securities. Thank you for the opportunity to ask a question. I will ask two questions. The first question is about the VES project.

You said that the LG Magna Mexico factory is about to be opened. Do you have any plans to provide additional evidence in the near future? Thank you for taking my questions. I have two questions and my first question is about vehicle solutions.

I believe that LG Magna Mexico plant will start its operation soon. Do you have any plans to expand the plant in the near future, like next year? And will orders from other car makers other than GM covered by this Mexico plant? My second question is about business solutions. As you've mentioned, the LG Electronics is ongoing EV charging businesses. and how are your EV charging and robot business unfolding, and it will be appreciated if you can open your strategies and future estimations. Thank you.

Yes, I will answer the question from the V.S. headquarters. LG Magna Mexico's new factory is scheduled to start the production of motor products from September of this year, and a sustainable expansion investment is planned to respond to the North American region of OEMs in the future. To be more specific, Let me answer your question about VS. LG Magnus' new plant in Mexico will start producing motors from September 2023.

As it is estimated that the plan to cover North America's demands stemming from OEM companies, including GM, we have plans to make investments to expand the site. If I may add some more, the company will first concentrate on mass production of parts for GM's new EV platform order project. However, other than covering growing orders from North American automakers, other than GM, We are also expecting to expand our customers to Asian carmakers that are targeting EV sales in the North American market. Thank you.

I would like to explain more about the electric car charging project and the robot project. The electric car charging project focuses on manufacturing, global operation capacity, maintenance and maintenance service infrastructure and response capacity, vertical sales and quality capacity, Let me elaborate on your question regarding EV charging and robot business.

Compared to other EV charging manufacturers, LG Electronics is competitive in terms of our capabilities in manufacturing, global operation, service infrastructure for maintenance, repair, and customer service, vertical sales, and quality. By tapping into technology and product capabilities of our existing business and cooperating with sister companies or partners, We plan to prepare differentiated solutions, including new form factors and services.

The electric car charging business market is expected to grow rapidly due to the expansion of electric car supply, expansion of support funds, and legislation on the installation of chargers. At the beginning, the electric car charging business is expected to enter the market as an EV charger business that provides stable quality by utilizing the strengths of the manufacturing industry. EV charging market is expected to grow rapidly.

As more EVs are running on the roads, government subsidies are increasing, and laws mandating the installation of EV chargers are introduced. In the beginning, We would like to enter the market as a provider of EV charger that offers stable quality based on our strength in manufacturing. And mid to long run, we would like to expand our business to become an EV charging solution provider that offers diverse and differentiated solutions.

Next, the robot business focuses on delivery logistics. Until the second quarter, the robot business For robot business, we are currently focusing on delivery and logistics. Until the second quarter of this year, we have grown the business, focusing on shelf-type delivery robots

by cooperating with domestic partners. Starting from the third quarter, we will secure additional sales channels to strengthen sales basis and enter the overseas market for further growth.

The company believes that the introduction of the logistics robot will continue to grow as the automatic transfer of logistics continues to grow. In order to enter the logistics robot market, we will continue to develop the logistics robot

As the needs for logistics automation grow, we believe more companies will start to adopt logistics robots. To enter the market, we will secure diverse lineups and solutions to create new business opportunities for rapid growth. Thank you.

Next question, please. The next question will be presented by Sungkyu Kim from Daiwa Securities.

Yes, hello. Thank you for the question. I also have a question for H&A and VS. Regarding H&A, in the first half of the year, I know that the growth rate of AWHP is particularly high. Do you expect this growth rate to continue in the second half of the year? And I would like to ask you to focus on North America and Europe, which are the largest demand areas. And secondly, in relation to VS, these car manufacturers There seems to be a trend to automatically verticalize the production of electronic parts. In this case, what are the advantages of our company compared to supply companies that are verticalized? And what is the possibility of this verticalization?

Thank you for taking my questions. I have two questions, and my first question is about H&A. I understand that system air conditioners, especially AWHP or air-to-water heat pumps, showed a remarkable growth in the first half. Do you think such growth will continue in the second half? And please share your projections of the largest markets, North America and Europe. My second question is about VS. I see some automakers search for more virtual integration in producing their vehicle components. And what do you think your competitive edge is compared to companies who belong to this virtual integration? It will be appreciated if you can also elaborate on your projections in regards to the possibility of vertical integration trend becoming stronger in the industry.

HNA 먼저 답변 드리겠습니다. I would like to answer your question in regards to HNA.

As you just covered, SAC Business has shown an outstanding growth in the first half, especially in European AWHP products. Since 2021, we are witnessing huge revenue growth of AWHP, especially in the European market. In addition, in the first half of this year, the revenue growth remained higher than the estimated early market growth rate.

With the characteristics of the product, As this product is eco-friendly and highly energy efficient,

We understand that there are variables that can lead to short-term demand drop as a result of stabilized gas price and changes in subsidy policies in countries. However, we project that our business growth will continue accordingly to the strong Inflation Reduction Act in the United States and European Green Deal.

In order to advance market governance, aggressive investment by major companies in the market is taking place. Major market players are making aggressive investments in order to take the lead in the market.

In the second half, it will be difficult to reach remarkable growth as the first half because the heating season will start and competition will be even fiercer. However, we will compete in the second half market based on new product and aggressive marketing investments. Thank you.

Yes, I will answer the question from the V.S. Department. The vertical integration of car companies creates a great synergy in the future, but it makes it difficult to distribute dangerously in the future, Let me answer your question in regards to vehicle solutions.

The vertical integration of automakers make great synergy when the economy is thriving. However, it hinders risk dispersion during economic slumps. In case car makers' performance is down, such consequences may cascade down to suppliers' performances. Additionally, under vertical integration, suppliers tend to have close relations with automakers from the planning phase. Therefore, there are risks of technical intelligence leak. This limits suppliers in expanding their business scope to other carmakers if they are not equipped with superior technology. Therefore, many suppliers heavily rely their revenue on the carmaker with a vertically integrated business model.

However, unlike other public-owned companies, the company's V.S.S. is able to trade with various OEMs without any restrictions, and is free from unfair actions such as technical deviations.

However, LGVS is different from many supplier companies in the market. We are free to have transactions with multiple OEM companies without any constraints, free from unfair trade practices such as price cut and technology leak. To add more, from the technology development perspective, we have a competitive edge in the global market as we can combine different types of technology and bring further growth. Thank you.

Next question, please.

The next question will be presented by Loco Kim from Hana Securities.

Yes, hello. I'm Kim Rok-ho. The first question is on the financial side. After the two-digit increase in the sales rate in the first quarter, the sales rate in the second quarter has fallen by 7%. In the second half, you mentioned earlier that it is possible to grow compared to last year, but the demand is now a bit stagnant and I think the competition will worsen, so I would like to ask if it is possible to secure profitability through price and cost control in this situation. If there is a level of profitability that can be maintained, I would appreciate it if you could mention specific areas or things like this. The second is a question about the TV market itself. As you have briefly reviewed the first half of the year, the first half was good for any part of the market, region, or segment, and in the second half,

I have two questions, and my first question is about home appliances and air solution. I believe the double digit of operating profit in the first quarter was achieved thanks to cost reduction rather than demand recovery, and you have witnessed your second quarter operating profit marking the teens. At a time when demand is expected to remain sluggish and competition to become fiercer in the second half, do you think LG can secure profitability by managing costs and expenditures? It will be appreciated if you can give us some spectrum or figures on the profitability level that you expect. My second question is about home entertainment. This is about the TV market. What is your take on the market in the first half as a whole by region and by segments? Please share with us your projection for the second half. I would like to answer your question about H&A. As you just mentioned, due to continuing demand, slump, off-season, and future competition, there is a need of greater spending in marketing. Thus, securing profitability level as the first quarter seems to be not easily reachable.

We will continue the stable operation of raw materials collection and actively implement price optimization using demand reduction environmental situations. In terms of logistics, we are looking forward to additional logistics improvements according to the additional logistics improvement based on the additional logistics improvement based on the additional logistics improvement based on the additional logistics improvement based on the additional logistics improvement.

However, as a result of continuing stable operation on raw material supply and additional bidding on sea transportation, we project enhancement in material cost and logistic cost. We will continue our corporate-wide war room task activities in the second half and build up a business structure where we can secure profitability based on efficient resource management. Thank you.

And fundamentally, we would like to strengthen our ability to produce better products based on intelligence factories and also would like to secure profitability based on supply flexibility. Thank you.

. . . . . Let me answer your question regarding HE business. As I have touched upon before, we continue to see a year-over-year negative growth in the first half

due to the possibility of continued global economic downturn and a drop in consumer sentiment in Europe triggered by protracted Russia-Ukraine conflict. Demand for TVs in the first half posted negative 2% growth year over year, according to the market research institutes. Demand in premium market for products over $1,000 continue to dwindle. The demand recovery in the mass-tier market is not that big, and it's maintaining a level similar to that of the last year.

In terms of products, the demand for OLED TVs and LCD TVs in the first half of the year has gone up, and the demand for markets across the region, except for North America and South America, has gone up, especially in the European market.

Both OLED and LCD TVs posted negative growth in demand for the first half. All regions, except North America and Latin America, saw negative growth in demand, and Europe had the biggest fall.

In the case of Europe, in the second half of the year, there was a decrease in consumption due to inflation, but due to the overall maintenance of furniture and TV replacement cycle, Overall, small-scale demand recovery is expected. That's all. There seems to be no more questions.

That brings us to the end of LG Electronics' earnings release conference call for the second quarter of 2023. For further questions, please contact the IR team. Thank you.