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 results followed by a Q&A session. If you wish to ask a question, you'll 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 fourth quarter of 2024. With me are CFO and EVP of LG Electronics, Jangtae Kim, SVP of HS Company, Lee Kwon Kim, SVP of MS Company, Sangho Park, VP of VS Company, Joo Yong Kim, VP of former BS Company, Dongchul Lee, VP of Corporate Business Management, Junghyun Park, VP of Accounting, Hongsoo Lee, VP of Finance, Youngkyun Kim, and Head of ESG Strategy, Sungmin Hong. Here's today's presentation agenda. First, our CFO will outline the overall performance of the fourth quarter and the outlook for 2025. Then, I'll present the Q4 results and financial highlights. Subsequently, each business will take turns to deliver its results and outlook. After that, I'll provide a briefing on the organizational redesign of 2025. Finally, we will conclude with an overview of our ESG activities and achievements. Please note that all statements we make today regarding the financial results of the fourth quarter are subject to change in accordance with the final audit results. 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 us begin with the overall performance of the fourth quarter of 2024 and the outlook for 2025. Good afternoon. My name is Changtae Kim, CFO of LG Electronics. 2024 has been a year in which solid growth in sales and stable profit were achieved despite internal and external headwinds. External factors like soaring logistics costs and fluctuating exchange rates have impacted our Q4 and second half profitability. However, despite a global slowdown in demand recovery, we strengthened our market position and maintained sales growth through enhanced product competitiveness and differentiated promotions. In terms of operating profit, the subscription and webOS businesses, which are at the heart of our portfolio transition initiative, contributed to offsetting rising expenses, including fixed and logistics costs. I believe this is vital for improving our business performance and achieving our mid- to long-term goals. As the global economy transitions to a geoeconomic era in 2025, stronger protectionism in major markets like the U.S., concerns over persistent inflation, and delays in rate cuts are likely to heighten uncertainties. Competition is expected to intensify as the demand recovery lags compounded by inflation-triggered cost increases that may work against us. In response to these challenges, responsive measures centered on differentiated customer value are being developed and implemented for crisis management. Firstly, we will secure fundamental competitiveness and continue to invest in future growth areas to identify opportunities that may arise amidst industrial changes. Strategic priorities will be considered in this process and investment efficiency will be maximized through a selective focus. We will deliver sustainable results by realigning our execution strategies to adapt to changes in the market while maintaining consistency in our mid- to long-term direction towards achieving future vision 2030. We will mitigate the negative impact of additional risks such as the shift toward protectionism, the reshaping of the global supply chain, exchange rate fluctuations, and rising cost pressures by optimizing our supply chain, leveraging our production flexibility, and enhancing operational efficiency. By doing so, we aim to enhance our competitive edge across our businesses and turn this crisis into opportunities for solid growth and stable profitability this year. Lastly, we will spare no efforts in maximizing shareholder value based on our business achievements by driving diverse initiatives from our value-up plans announced last year with strong accountability. I'll now briefly review the Q4 performance of the enterprise-wide operations in each business. LGE's consolidated financial results for the fourth quarter of 2024 are $22.76 trillion won in sales and $135.4 billion won in operating profit. H&A recorded $7.41 trillion won in sales and $117.3 billion won in operating loss. HE recorded $4.37 trillion won in sales, $37.3 billion won in operating profit. VS recorded $2.65 trillion won in sales, and 20 billion won in operating loss. Last but not least, BS recorded 1.24 trillion won in sales and 123.1 billion won in operating loss. Let's move on to the profit and loss and cash flow for QFO. 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 713.7 billion won in net loss. Next, on cash flow. Q4 cash flow from operating activities was 1.86 trillion won, and cash flow from investment activities was a negative 1.24 trillion won, resulting in net cash flow of 807.3 billion won. When reflecting cash flow from financial activities of negative 926.6 billion won, cash balance at the end of Q4 came to stand at 7.57 trillion won, a 119.3 billion won decrease from the previous quarter. Next is the key financial position and indicators for the Q4 of 2024. As of the end of Q4, our assets stand at 65.6 trillion won, Liabilities at 40.4 trillion won and equity at 25.2 trillion won. In terms of leverage ratios, specifically 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 the each business for its Q4 result and the outlook for 2025. We will begin with H&A. Let me present the Q4 results of the H&A business. Despite the delayed recovery of global home appliance demand, we have maintained growth through the acceleration of our subscription business and differentiated promotions in Korea. Additionally, strong sales of new models in North America and our leadership in premium products in emerging countries have contributed to year-over-year growth. Operating profit has remained at a similar level year over year, despite the unfavorable environment, including rising logistics costs, thanks to sales growth and reduced marketing expenditure. Next, I'll discuss the annual outlook for the year 2025. The recovery in the Korean market is expected to be delayed due to internal and external variables. Growth in the overseas market is anticipated to MARA 2024, but changes in U.S. trade policies may heighten uncertainties in global trade, which has traditionally relied on distinct roles among trading countries and regions. Our goal is to drive sales by introducing products tailored to regional needs and powered by AI, and expanding our volume zone segments, realizing to sustain sales momentum by growing our online and subscription businesses, Furthermore, we will maintain operating profit at or above last year's levels by optimizing productivity to reduce manufacturing and logistics costs while strategically managing competition-related expenditures. Next, I would like to share our views on the demand for the global home appliance market in 2025. Beginning with the first quarter earnings release in 2024, we have been sharing our annual demand forecast to enhance the market understanding of the global home appliance sector. We update this forecast twice a year in the first and second half. By sharing our views, we aim to outline where we believe global demand is headed and help the market understand our responsive strategies. Please note that the data presented in this section reflect an outlook on combined market demand for refrigerators and washing machines, not predictions of our appliance revenue affected by various factors including regional market share and the competition. Actual market conditions may differ from this outlook due to various factors including the macroeconomic environment. Overall, we anticipate gradual growth in the global home appliance market in 2025, with a strong improvement in the second half than in the first across most regions. However, increased protectionism and universal tariff plans likely to be endorsed by the second Trump administration may impact the global supply chain, concerns around inflation, and a slowing pace of interest rate cuts will further complicate uncertainties necessitating our continuous and thorough monitoring of the market. In response, we have optimized our global production footprint and are implementing various strategies tailored to regional needs. To address macroeconomic uncertainties and potential demand changes, both in terms of quantity and quality, we will employ our two-track strategy to respond to bipolarizing demand. Additionally, we will pursue opportunities in emerging and untapped markets to maintain our track record of solid business results achieved despite the challenges posed by the endemic. Next is the Q4 results of home entertainment business. Sales grew quarter over quarter as we effectively responded to peak season demand. The figures also show a rising trend year over year driven by higher sales, especially in Europe, MEA, and Asia, along with the expansion of our webOS-based advertising and content businesses. Operating profit declined quarter over quarter primarily due to increased marketing investment during the peak season. However, thanks to the high profitability of the webOS business and rising sales of OLED TVs, operating profit improved year-over-year. Now, let's turn our attention to the annual outlook for the year 2025. Zero economic uncertainties in the global market persist, compounded by risk such as a strong dollar and rising protectionism. Market demand is projected to drop slightly year over year in the first half, with a gradual recovery expected in the second half, resulting in an annual level comparable to that of last year. In response, We aim to drive sales by focusing on premium products, including OLED TVs and QNED, while offering differentiated customer experiences through advanced AI features. Additionally, we will continue to grow webOS sales and profitability by investing in content for better usability strengthening our capabilities in advertising and expanding partnerships. Next, we will review the Q4 result of the Vehicle Component Solutions business. Despite some delays in sales realization due to stagnant demand for EVs, we sustained growth momentum in sales both quarter over quarter and year over year, supported by a stable order backlog. Operating profit experienced a slight year-over-year decline due to higher investment in development, driven by the rise in the number of awarded projects as well as R&D for SDVs. Now, let's turn our attention to the outlook for the year 2025. Demand for automobiles is likely to decline slightly year-over-year due to risks such as changes in U.S. tariff policies. While demand for EVs is projected to experience a modest increase compared to last year, the overall level is expected to be weaker than earlier forecast. Despite the negative impact of stagnant EV demand, we will strive to stabilize profitability by maintaining sales volume supported by a healthy level of order backlog, improving our product mix, and optimizing operational expenses. Let me present the Q4 results of BS Company. In the IT business, despite efforts to boost sales, especially in gaming monitors during the year-end peak season, revenue declined year-over-year due to intensified competition. Conversely, the IT business saw year-over-year revenue growth fueled by increased sales of strategic and incubating products, as well as the fine-pitch LED series. Operating profit also declined year-over-year, impacted by lower selling prices, resulting from intensified competition, along with rising logistics costs and raw material prices. Looking ahead to the full year of 2025, market conditions suggest slight growth in monitor demand for the IT business compared to last year. The demand for PCs is expected to experience an uptick fueled by the widespread adoption of AI and anticipated enterprise PC replacements as Windows 10 reaches its end of life. For the IT business, demand for LED signage and hotel TV is also expected to grow. Against this backdrop, for monitors, we will focus on selling high-value added products, such as gaming and medical monitors. For PCs, We will cater to the premium market with AI-featured products like the Gram Pro while boosting sales with new budget-friendly offerings. In the IT business, we aim to enhance the value chain of our existing operations to grow sales and enhance profitability. To facilitate our transition into a smart life solution company that connects and enhances customer experience across various living spaces, we are redesigning our business structure in line with our portfolio strategy to enhance synergy among businesses and improve future competitiveness. We have redesigned our organizations into solution companies that offer comprehensive customer experiences and we aligned various levels within them to improve operational efficiency and ensure future growth. HNA Company has been renamed HS Company to provide solutions that enable new and valuable experiences across diverse spaces. The air solution business from HNA has been separated to operate as a standalone entity called ES Company with the aim of growing the HVAC business to reach the top tier category. Considering that HE Company aims to provide the best entertainment experience to customers through diverse media devices, it has been renamed MS Media Entertainment Company, integrating IT and ID businesses from BS Company to create synergy across the entire display value chain. Additionally, V.S. Company has been rebranded as Vehicle Solutions Company to highlight its commitment to delivering solutions across the entire automotive ecosystem, moving beyond just applying components. The organizational changes will be reflected in the earnings release starting from the first quarter of 2025. Last but not least are ESG activities and achievements. LGE is widely recognized for its sustainable technologies and products, having been named the most sustainable brand in the U.S. for HVAC solutions and appliances by the Green Builder Sustainable Brand Index, published annually by Green Builder Media, a leading North American eco-friendly construction media outlet. We have also been designated as a Laboratory of Excellence for three consecutive years by the Environmental Resource Association for our analytical capabilities and reliability. In addition, we are acknowledged for various initiatives aimed at improving the quality of life for everyone. We launched six new comfort kit products designed to simplify the use of home appliances. Furthermore, we were named one of the Best Employer for Engineers by Forbes, and our Indian subsidiary was recognized as a great place to work for two consecutive years by GPTW. We also received the Minister of Employment and Labor Award for promoting public-private partnerships, reflecting our 13 years of support for social enterprises. Our ESG activities have garnered recognition, achieving the highest score in our industry group in the S&P Global CSA in 2024 and securing inclusion in the Dow Jones Sustainability World Index for 13 consecutive years. Additionally, we received an A rating for our fourth consecutive years in the 2024 ESG evaluation by the Korea Institute of Corporate Governance and Sustainability. As a smart light solution company, we will continue to strengthen our competitiveness in sustainable products and services along with our various initiatives aimed at improving the quality of life for all. This brings us to the end of the fourth quarter earnings release and outlook for 2025. 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 your question. I would like to start with a few questions about the military and HNA. First of all, as the Trump administration's tariffs policy and the normal environment change, the risks that you expect from LG Electronics Thank you for taking my question. I have two questions, one for the company and one for H&A. My first question goes for the company.