Lg Elec S/Gdr 144A

Good afternoon. Welcome to LG Electronics Quarterly Earnings Conference Call. This conference call will start with a presentation on the earnings result followed by a Q&A session. If you wish to ask a question, you will need to press star and 1 on your telephone. English translation will be provided for this call simultaneously for the presentation and consecutively for the Q&A session. I'll now turn the call over to the first speaker. Good afternoon. My name is Wonjae Park from Investor Relations. Thank you for joining our earnings call for the second quarter of 2024. With me are CFO and EVP of LG Electronics, Jangtae Kim, SVP of Global Business Management Group, Sangho Park, VP of Home Appliance and Air Solutions, Lee Kwon Kim, VP of Home Entertainment, Jeonghee Lee, VP of Vehicle Components Solutions, Joo Yong Kim, VP of Business Solution, Dongchul Lee, VP of Corporate Business Management Division, Chunghyun Park, VP of Accounting Division, Hongsoo Lee, Head of Finance Division, Youngyoon Kim, and Head of ESG Strategy, Seongmin Hong. Today's presentation agenda will cover four areas. First, our CFO will outline the overall performance results of the second quarter, outlook for the third quarter, mid- to long-term direction and dividend policy. Then, I will present financial highlights. Subsequently, each division will take turns to deliver its business results and outlook. And finally, we will conclude with an overview of ESG activities and achievements. Please note that all statements we'll be making today regarding the financial results of the second quarter are subject to change in accordance with the results of the external review. Uncertainties in the market and changes in strategies may cause our results to be different from the outlooks and forward-looking statements made today. Now let me start with the consolidated financial results of the second quarter of 2024 and the outlook for the third quarter. Good afternoon. My name is Changtae Kim, CFO of LG Electronics. Q2 revenue grew year-over-year on the back of qualitative growth in core business, including home appliance, TV, and IT, and incubating business, including webOS, despite sluggish demand in the EV market. Operating profit made a significant increase year-over-year despite price increase in components including LCD panels thanks to the sales leverage effect and expended contribution of highly profitable B2B business. In terms of the business environment, difficulties are expected to continue in the second half of the year as delays in interest rate cuts slows down the demand for key products and uncertainties in freight rate persist. However, we plan to post the year-over-year growth on the back of continued growth in home appliance and TV and a sales recovery of auto parts business. For operating profit, despite a possible increase in logistics cost, We plan to maintain a solid profitability level through optimization of global operation. In mid to long run, we intend to maintain a balanced qualitative growth in both core and incubating business, transform business models, expand domains, and innovate business method to build a more future-oriented portfolio. We will further strengthen the market position of home appliance, TV, and other main business while broadening B2B portion including HVAC and automotive electronics. Our efforts in expanding business model will be continued as evidence in our recent acquisition of ATHEM, a smart home platform provider. At the same time, we will further innovate the way we do business as we speed up the pace to enter overseas markets with subscription business and increase direct sales online. Next, regard dividend policy and payouts. Based on the principle of enhancing shareholder value, our shareholder return is determined within the dividend income, considering future strategic investment, financial structure, and business environment. Over the three-year period from the fiscal year of 2024 to 2026, distributable profit will be no less than 25% of net profit based on the profit attributable to owners of the parent in the consolidated financial statements, excluding one of non-recurring profit. We plan to provide a minimum of 1,001 a year per common share which will be paid out twice per annum in the first and second half of the year. The semi-annual dividend for 2024 was confirmed at $501 per share for both common and preferred stock through a Board resolution on July 24. To enhance predictability for investors, the dividend record date and expected payout per share were announced on June 18 prior to the first half semi-annual dividend record date. The semi-annual dividend will be paid to shareholders on August 13 in accordance with Article 165-12 of the Financial Services and Capital Markets Act. Now, I will turn the call over to investor relations. I will now briefly review the second quarter performance of each business. H&A recorded 8.8 trillion won in sales, 694.4 billion won in operating profit, and 7.9% in profitability. H&E recorded 3.6 trillion won in sales, 97 billion won in operating profit, and 2.7% in profitability. VES recorded 2.6 trillion won in sales, 81.7 billion won in operating profits and 3% in profitability. Last but not least, BS recorded 1.4 trillion won in sales and 5.9 billion won in operating loss. Let's move on to the profit and loss and cash flow of the second quarter. 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 operation, we posted 629.5 billion won in net income. Next, on cash flow. Q2 cash flow from operating activities was 2.6 trillion won, and cash flow from investment activities was negative 866 billion won. resulting in net cash flow of 1.2 trillion won. When reflecting cash flow from financial activities of 308 billion won, cash balance at the end of Q2 came to stand at 8.5 trillion won, a 1.5 trillion won increase from the previous quarter. Next is the key financial position and indicators for the third quarter of 2024. As of the end of the second quarter, assets stands at 63.1 trillion won, liability at 37.9 trillion won, and equity at 25.2 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 let's turn the call over to each business for its second quarter result and third quarter outlook. We will begin with H&A. Let me share second quarter results of H&A. Sales has been polarized, with developed markets experiencing a gradual recovery amid global economic uncertainties, while emerging markets are seeing strong growth. We achieved revenue growth year over year by strengthening promotion, expanding price coverage, and producing positive results in new domains, such as subscription and online. Operating profit improved year over year by successfully managing increased overhead including market competition cost and fixed cost through revenue growth and cost saving measures like material cost reduction. Next is the outlook for Q3. Weak demand in the U.S. and dwindling recovery in Europe is likely to persist. On the other hand, continuous growth is expected in emerging markets, especially in India, Asia, and Latin America. However, given the uncertainties of demand recovery in advanced markets and the spread of geopolitical risks, competition in major markets is anticipated to intensify. In response, we will drive B2C sales growth by responding to the market changes ahead of time with new products, stronger promotions, and expanded volume zone strategies. We'll also move away from the typical seasonality by broadening the contribution of B2B, focusing on HVAC, and enhancing online and subscription business. Moreover, we'll secure operating profit similar to or higher than that of the last year by cutting costs based on our manufacturing prowess and enhancing operation to address the risk of rising ocean freight rates. Next is our view on the annual demand prospect for the global home appliance market. In the previous earnings call, we started sharing our perspective on the demand of the global appliance market, and we will continue to update the outlook twice a year. Please note that this section of the presentation regards market demand focusing on refrigerators and washing machines and is not related to the projections of our appliance business. Diverse factors may cause the market to be different from the outlooks made in this section. We stand with the previous outlook of limited level of growth for annual market demand. But there are some changes made in terms of timing and region. We expected to see a gradual demand recovery in the second half after demand contraction in the first half in the previous call. Demand for the first half has fared better than our projection, while the recovery in the second half is likely to be slower than expected. To elaborate, Exchange rates remained stable in the first half in emerging countries, especially in Latin America, Middle East, and India, and consumption improved in oil-producing countries due to rising oil prices. However, in the second half, macroeconomic drivers of demand are likely to lose momentum as we see delays in interest rates cut and a drop in new horn construction. By region, Emerging markets including Latin America, Middle East, Africa, and India are expected to continue to grow, while recovery in the advanced markets including North America and Europe fails to meet the market expectation. As consumers are continuing to trade down, seeking less expensive alternatives, we expect the overall average selling price to decrease. difficulties of the market are likely to persist for the remainder of the year. By preemptively responding to demand changes with the adoption of two-track strategy and by driving sales in emerging markets, we aim to continue to produce solid results as we head in the challenging years of post-pandemic era. Next is second quarter result of home entertainment business. By tapping into The momentum of growing demand for TVs in Europe, in line with the upcoming mega sports events, we were able to increase hardware sales, including OLED TVs. At the same time, web-based advertisement and content business continued to grow, driving up sales significantly year over year. For operating profit, although an increase in sales work in our favor, operating profit decreased slightly year-over-year due to the rising cost pushed up by LCD panels. Let's move on to the third quarter outlook. The overall market demand for TV is expected to improve slightly year-over-year, while OLED TV is expected to post higher growth compared to the market. Accordingly, we aim to continue to grow top line and secure profitability by improving the product mix of premium products such as OLED and QNED TVs and by broadening the ecosystem of webOS platform by offering free upgrade on mass tier products. Next is second quarter result of the vehicle component solution. Despite demand stagnation of the EV market, we were able to grow sales slightly year over year on the back of an increased demand for high value added components of infotainment and ADAS. While there was some cost pressure from upfront investment in R&D for SDV and awarded projects, we were able to continue to secure profitability through improved project mix leverage effects of revenue growth and activities to stabilize the cost structure. Now let me turn to the outlook of the third quarter. Market uncertainties, including slowdown in EV demand, are likely to persist. However, demand for high-value-added auto parts is projected to exhibit an upward trend. In this environment, we expect to see a continuous growth in sales and improvement in project mix as awarded projects start to launch products. We aim to secure stable profitability by optimizing our operation and improving the cost structure. Let me present the second quarter result of the business solution. Revenue grew year over year on the back of increased sales centering on strategic products like gaming monitors, eBoard and eLED signage, and winning large PC volumes from B2B partners. Operating profit recorded a loss despite an increase in sales as the business environment worsened with a rise in exchange rates, logistics cost, and component price, and as we increased investment in new businesses, including EV charger. I'll now move on to the third quarter outlook. Demand for IT and information display is expected to grow year over year, but the overall level will be similar to that of the second quarter. However, when broken down into product level, gaming monitors and LED signage are likely to continue to grow in the third quarter. Against this backdrop, We aim to grow revenue year-over-year by focusing on sales of high-value-added strategic products, enhancing online sales, and putting more effort in winning B2B projects. At the same time, we will enhance the efficiency of resource operation to improve profitability and manage growing investment in new business. Last but not least, our ESG activities and achievements. LG Electronics continues to strengthen competitiveness with sustainable products and technologies. This year, OLED EVO TVs received certification on CO2 measurement and reduction from the Carbon Trust, environmentally evaluated mark from SGS for four consecutive years, and recycled content certification from Intertac for two years in a row. Last December, our pulp molding packaging received Minister's Prize from the Ministry of Trade, Industry, and Energy. Last December, industry's first molded pulp that can handle more than 20 kilograms was developed and applied in packaging air purifiers, and the packaging is now being applied to 30 to 50 kilograms. Our plan is to replace plastic packaging with molded pulp by developing pulp packaging that can handle more than 70 kilograms. We are supporting 15 suppliers in consultation to help them reduce carbon emissions, and we plan to continue to increase the number. In April, LGE signed a business agreement with the National Rehabilitation Center to develop technologies that can improve accessibility of home appliance products and provide better customer experience to people with disabilities, older adults, and children. Last June, our world's first traffic safety smartphone solution, Softv2x, passed ICT Sandbox. With the Seoul Metropolitan Government and Sejong City, we plan to deploy the solution to verify its service effectiveness. We believe that the solution will lower and prevent risks of traffic accidents by being integrated into vehicles and various connected micro-mobility such as e-scooters and e-bikes. We are also actively engaged in ESG campaigns. Between last May and June, we conducted better return campaigns with Korea Environment Corporation and E-Cycle Governance collecting waste batteries of cordless vacuum cleaners from homes for recycling. Last April, celebrating Earth Day, we unveiled Endangered Species series on Times Square billboard in New York City. The campaign will highlight four endangered species throughout the year, beginning with snow leopard to raise an awareness on climate change and importance of biodiversity. We also became the first Korean company to be certified by the National Wildlife Federation as our pollinator garden built in North American campus was recognized as a wildlife habitat. Pollinator garden is designed to be a sanctuary for bees, butterflies, and other pollinators whose population is in decline. Elderly Tonics will continue with these activities to create a better life for all stakeholders. That brings us to the end of the second quarter earnings release and outlook for the third quarter. We'll 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. This is Simon Wu from Bank of America. The first question will be provided by Simon Wu from Bank of America. Please go ahead with your question.

Thank you for the opportunity to ask the question. My name is Dong Jae Wu. First of all, congratulations on your good performance. There are two questions. The first is about web OS. Elec S & Gdr 144A Next, the second question is about the current status of H&A's home appliances subscribers, refrigerator, washing machine, dishwasher, and so on. I think there will be a variety of sales values for each product. Also, how to create more profitability through this new innovation, and of course, not only in Korea, Thank you for taking my question. First of all, congratulations on such a good quarter. I have two questions. The first question on the HE division and the second on the H&A division.