Lg Elec S/Gdr 144A

Good afternoon. My name is Wonjae Park from Investor Relations. Thank you for joining our earnings call for the first quarter of 2025. With me are CFO and EVP of LG Electronics, Kyungtae Kim, SVP of HS Company, Lee Kwon Kim, SVP of MS Company, Sangho Park, VP of VS Company, Joo Young Kim, VP of ES Company, Donghun Shin, VP of Corporate Business Management , VP of Accounting , VP of Finance , and Head of ESG Strategy . Here's today's presentation agenda. First, our CFO will outline the overall performance of the first quarter and the second quarter outlook for 2025. Then, I'll present financial highlights of the first quarter. Subsequently, each business will take turns to deliver its results and outlook. After that, we will conclude with an overview of our ESG activities and achievements. Please note that all statements we make today regarding the financial result of the first quarter are subject to change in accordance with the result of the external review. Uncertainties in the market and changes in strategies may cause our results to be different from the outlook and forward-looking statements made today. Now, let us begin with the performance of the first quarter of 2025 and the outlook for the second quarter. Good afternoon. My name is Changtae Kim, CFO of LG Electronics. In Q1, We faced numerous challenges, including a decline in consumer sentiment due to changes in UA trade policies, delays in the recovery of vehicle demand, particularly for EVs, intensified competition, and fluctuations in FX rates. Despite these headwinds, our Q1 revenue saw year-over-year growth, fueled by our ongoing portfolio transformation initiatives that emphasize B2B subscription services and the webOS platform. Operating profit was impacted by a year-over-year increase in logistics cost and rising expenses associated with tariff risks. However, we also benefited from several positive developments, including sales growth, an increased contribution from our HVAC business, and improved profitability in our vehicle component segment. Additionally, our cost-cutting measures helped us maintain a stable level of operating profit. Notably, our HS, VS, and ES companies achieved record-high quarterly sales, with VS and ES, in particular, reporting their highest quarterly operating profits to date. In Q2, we expect that uncertainties in the global economy will persist, driven by tariff risks and related shifts in the global supply chain. These factors may dampen overall consumer sentiment, potentially hindering the recovery of demand in our key businesses. Furthermore, high FX volatility and rising costs could exert additional pressure on our operations. To navigate these challenges, we are closely monitoring the risks associated with changes in U.S. tariff policies. At the same time, we are developing strategies based on various scenarios, including production relocation and optimization, to ensure agility in responding to any changes. In light of concerns over a lagging economy and stagnant demand growth, we aim to strengthen our position in the premium market by introducing products tailored to regions and segments, along with differentiated sales strategies. Additionally, we plan to expand sales of master products targeting the volume zone segment. We will maintain the high growth of our HVAC business and continue to drive growth momentum by transforming our portfolio, emphasizing subscription services and the webOS platform. Finally, to mitigate the effects of FX volatility and rising cost pressures, We will focus on enhancing operational efficiencies to ensure solid growth and stable profitability.

Thank you.

I'll now briefly review the Q1 performance of the enterprise-wide operations in each business. LG's consolidated financial results for Q1 of 2025 are 22.74 trillion won in sales and 1.26 trillion won in operating profit. HS recorded 6.7 trillion won in sales and 644.6 billion won in operating profit. MS recorded 4.95 trillion won in sales and 4.9 billion won in operating profit. VS recorded 2.84 trillion won in sales and 125.1 billion won in operating profit. Last but not least, ES recorded 3.54 trillion won in sales and 406.7 billion won in operating profit. This marks its first quarterly sales exceeding 3 trillion won and its first operating profit over 400 billion won. In Q1 of 2025, We achieved the highest first quarter sales in our history with operating profit surpassing 1 trillion won for six consecutive years. This notable accomplishment is a result of qualitative growth stemming from our portfolio transition to B2B and subscription services. Allow me to elaborate on the Q1 performance of these segments. In the automotive electronics and HVAC sectors, which are the cornerstones of our B2B operations, we recorded the highest quarterly sales and operating profits to date. VS Company experienced growth driven by robot sales in the IBI business, while ES Company also reported an increase in sales of system ACs and industrial air solutions. As a result, our overall B2B sales continue to grow solidly both quarter-over-quarter and year-over-year. In Korea, our subscription business continues to thrive, achieving over 30% year-over-year increase in sales fueled by the growth in premium and service carership accounts. Although still in its early stages, our international subscription business is expanding its target market Our strategy to broaden the product portfolio is proving effective leading to a significant year-over-year increase. As a result of this rapid growth in overseas markets, the share of overseas sales within our subscription revenue has also risen year-over-year. We remain committed to enhancing our business outcomes by further advancing our portfolio. Let's move on to the profit and loss and cash flow for Q1. 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 875.6 billion won in net income. Next, on cash flow. Q1 cash flow from operating activities was 485.7 billion won, and cash flow from investment activities was negative 988.5 billion won, resulting in net cash flow of negative 347.1 billion won. When reflecting cash flow from financial activities of negative 240.9 billion won, Cash balance at the end of Q1 came to stand at 6.99 trillion won, a 588 billion won decrease from the previous quarter. Next is the key financial position and indicators for the Q1 of 2025. As of the end of Q1, our assets stand at 65.9 trillion won, Liabilities at $39.7 trillion won and equity at $26.2 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 each business for its Q1 results and the outlook for Q2. We'll begin with HS Company. Let me present the Q1 results of the HS business. The global appliance market is undergoing a delayed recovery due to shifts in U.S. tariff policy and ongoing geopolitical challenges. Nevertheless, our business has achieved record high quarterly sales, driven by the launch of market-specific models, a focus on volume zone segments, and the growth in our online and subscription businesses. Despite ongoing cost pressures, particularly in logistics, we have improved our operating profits year-over-year thanks to increased sales, better cost structure, and efficient management of competition costs. Next, I will discuss the outlook for Q2. Changes in U.S. tariff policy are likely to heighten uncertainties in the global economy, which has traditionally depended on distinct roles among trading countries and regions. This shift is expected to intensify competition among companies. In response to these market changes, we plan to launch new products and expand our volume zone lineups while maintaining our premium market position and further developing our online and subscription businesses to sustain sales growth. To mitigate tariff risks, We will optimize our production footprint and enhance cost competitiveness through effective cost-cutting measures. We will also optimize competition costs to ensure our operating profit remains at or above last year's levels. Next is the Q1 result of our media solution business. Sales declined quarter over quarter. as we entered the off-peak season. While our webOS platform business achieved solid growth, declining consumer sentiment negatively impacted hardware sales, resulting in year-over-year declines. Operating profits saw a slight increase quarter-over-quarter due to enhanced cost efficiency. However, It experienced the year-over-year drop as cost pressures, including rising LCD panel prices and increased marketing expenditures to address heightened competition, continued to mount. Now, let's move on to the Q2 outlook. As major markets experience a contraction in consumption, TV demand is expected to remain stagnant, mirroring last year's levels. This raises concerns about intensified competition. Conversely, demand in the IT and ID markets is likely to see slow year-over-year growth as the replacement cycle begins. To achieve meaningful results following our organizational redesign, into MS Company, we are focusing on structural improvements, including enhancing cost competitiveness through synergies among our businesses. We aim to improve our product mix by prioritizing the sales of high-value added products across our divisions. For WebOS, we will maintain our growth momentum through regional expansion, an increase in embedded devices, and strategic partnerships. These initiatives will serve as a foundation for enhancing our sales and profitability. Let me outline the Q1 results of Viya's company. Thanks to our sales expansion toward OEMs in Europe and an increase in sales driven by a stable order backlog, We achieved the highest quarterly sales to date, maintaining growth both quarter-over-quarter and year-over-year. In terms of operating profit, we reached the highest quarterly figure to date, reflecting improvement in both sales and product mix, with gains observed quarter-over-quarter and year-over-year. Now let's move on to the Q2 outlook. Demand for vehicles is expected to remain stagnant, due to macroeconomic uncertainties stemming from US tariff risks and sluggish EV demand. In response, we will sustain our sales momentum based on a healthy order backlog and optimize our operations while improving the efficiency of resource management to establish a solid foundation for profitability. As a newly established company, I would like to briefly introduce the history, competitiveness, and business strategy of ES Company before discussing our Q1 performance and outlook for Q2. We began our journey in 1990 by producing residual ACs. In 2000, we expanded into commercial spaces, serving small and medium-sized buildings and schools. By 2010, we further brought on our focus to industrial and power generation sectors, catering to large factories and nuclear power plants. Since 2020, we have evolved our business model beyond product sales to include subscription services and AI-driven data center heat management solutions. This impressive growth can be attributed to our three key competitive advantages. First, we manufacture core HVAC components, including highly efficient inverters Compressors, heat exchangers, fan and motors are recognized for their superior performance. Second, to ensure optimized supply across regions, we have established 12 global production sites, which allows us to respond swiftly to changes in politics, geopolitical issues, or logistics challenges. Third, our advanced AI air solution designed for customer care, facilitates pleasant and energy efficient autonomous operation. Leveraging these strengths, ES Company is committed to accelerating the growth of our B2B business. Finally, we aim to maintain market leadership by leveraging our product excellence in the residential segment, which is our flagship area, While expediting growth in the overseas commercial market with region-specific products, in the industrial and power generation sector, we plan to speed up the development of new growth engines to outpace market growth. Now, let me present our Q1 results. Sales grew notably in emerging markets like Asia, India and Latin America driven by our expanded price coverage of wall-mounted models. The successful launch of residential ACs and new air purifiers in Korea also contributed to our record quarterly sales. Although we faced challenges from rising raw material costs, higher marketing expenses, and other fixed costs impacting profitability, We still reached our highest quarterly operating profits to date, fueled by double-digit sales growth and resulting in a year-over-year improvement. Next, I'll discuss the outlook for Q2. We anticipate that rising uncertainties in the global trading environment, a decline in consumer sentiment, and stagnant demand may adversely affect our business conditions. In response, We will strive to sustain growth by promoting new residential ACs in Korea and enhancing our online sales initiatives. In overseas markets, we plan to closely monitor tariff issues to optimize our production and supply chain, while also focusing on growing our B2B project orders for commercial ACs in emerging markets to effectively mitigate risks. through these initiatives. We aim to achieve year-over-year growth in sales and further improve our operating profits. Last but not least, our ESG activities and achievements. LGE is widely recognized for its sustainable products and brand competitiveness. For six consecutive years, we have been recognized as one of the most reliable home appliance brand in the annual consumer reports rankings. Our dedication to resource circulation is exemplified by our eight TV models, which have received the e-cycle excellent product certification for three consecutive years from e-cycle governance. We are also leading initiatives aimed at introducing products that enhance quality of life and improving service accessibility for all. We are the first global appliance company to participate in CSUN Ed 2025, showcasing our accessibility solutions, including the Comfort Kit, high-deductible kiosk with tactile keypads, and LG ThinQ apps that allows users to control appliances with voice commands. We signed an MOU with the Korea Intellectual Property Office to jointly explore ideas for enhancing accessibility in home appliances. Our efforts in these initiatives have been widely recognized. In the 2024 S&P Global Corporate Sustainability Assessment, we scored 77, the highest in the home appliance and leisure goods industry, and were recognized in the top 1% of the Sustainability Yearbook 2025 for two consecutive years. ZMR, we received a platinum rating from EcoVadis, awarded to the top 1% of companies in sustainable assessment. As a smart life solution company, we are dedicated to driving sustainable growth and enhancing competitiveness through sustainable technologies and initiatives that improve the quality of life for all. This brings us to the end of LG Electronics' first quarter earnings release and the second quarter outlook for 2025. We will now take questions. Operator, please commence with the Q&A session.