Lg Elec S/Gdr 144A

Good afternoon and welcome to LG Electronics Quarterly Earnings Conference Call. This conference call will begin with a presentation on the earnings results followed by a Q&A session. To ask a question, please press star and 1 on your telephone keypad. Simultaneous English interpretation will be provided for the presentation followed by a consecutive for the Q&A. Now, I would like to 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 third quarter of 2025. 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 ES Company, Donghun Shin, VP of Corporate Business Management, Joong-Yeon Park, VP of Accounting, Hong-Soo Lee, VP of Finance, Young-Joon Kim, and Head of ESG Strategy, Sung-Min Hong. Today's presentation will proceed as follows. Our CFO will begin by presenting our third quarter results, the fourth quarter outlook, and the progress and outcome of our recent IPO for LG Electronics India Limited. I will then present the key financial highlights of the third quarter. Following that, each business will present its individual results and outlook. 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 third quarter are subject to change in accordance with external review. Actual results may differ from today's outlooks and forward-looking statements due to market uncertainties and strategic changes. Now, let us begin with the performance of the third quarter of 2025 and the outlook for the fourth quarter. Good afternoon. I'm Chang-Tae Kim, CFO of LG Electronics. Our consolidated Q3 financial results show sales of $21.87 trillion won and operating profit of $688.9 billion won. Q3 revenue remained at a similar level to last year despite a slowdown in the display business caused by global demand contraction and intensified competition. We continued to achieve qualitative growth driven by our subscription business and online direct sales. Operating profit declined year-over-year due to intensified global competition and a one-off cost increase related to workforce management efficiency improvements. This can be seen as a preemptive move to enhance competitiveness and build a more dynamic organization. U.S. tariff impacts, geopolitical risks, and the resulting contraction in consumer sentiment are likely to persist into Q4. Intensifying competition continues to put pressure on business operations. We are optimizing our production footprint by leveraging our global operations and applying scenario-based strategies to address challenges such as price increases aiming to minimize tariff impacts. Following our successful IPO in India, we will drive sales growth in the high potential global south and strengthen our position in advanced markets through region-specific strategies. We will accelerate the growth of new business models, including subscription services, the webOS platform, and online direct sales, while further expanding automotive electronics, HVAC, and other B2B businesses to drive qualitative sustainable growth. Mid to long-term business fundamentals will be reinforced through proactive measures to build a dynamic organization and a strong commitment to improving our cost structure. I would like to share recent progress and future plans regarding the IPO of our Indian subsidiary. To accelerate our growth in India, a market with robust economic momentum, We listed LGE India Limited on the Indian stock market on October 14th, achieving 54 times over-subscription, the highest fundraising in India's IPO market since 2008. This exceptional local investor demand drove our market capitalization to over 18 trillion won. During the IPO, LGE sold 15% of its headquarters-held shares in the Indian subsidiary to the market. The proceeds, about 1.8 trillion won, were remitted to headquarters after deducting taxes in accordance with Indian tax regulations. Since entering India in 1997, we have built a fully localized business covering production, sales, and service, maintaining the number one share in the home appliance market and strong brand recognition. We believe this IPO will mark a significant milestone towards becoming a true national corporation of India. Through our Make for India reports, we will continue delivering products tailored to local lifestyles. We will also strengthen our localized value chain, including our third manufacturing facility now under construction, under our Make India vision. With Make India Global, we aim to drive sustainable growth and support India's rise on the global stage. Building on these efforts, we will further advance our Global South strategy, enhancing our business and reinforcing our position as a leading global company. I will now briefly review the Q3 2025 performance of the enterprise-wide operations in each business. Our consolidated financial results for Q3 are 21.87 trillion won in sales and 688.9 billion won in operating profit. HS recorded 6.58 trillion won in sales and 365.9 billion won in operating profit. MS recorded 4.65 trillion won in sales and 302.6 billion won in operating loss. BES recorded 2.64 trillion won in sales and 149.6 billion won in operating profit. Lastly, BES recorded 2.16 trillion won in sales and 132.9 billion won in operating profit. Since Q1, we have dedicated a separate focus to B2B and subscription businesses which are core drivers of qualitative growth in our portfolio transformation as mentioned by our CFO. In Q3, B2B IT sales targeting corporate clients declined year-over-year due to weaker demand. However, solid growth in built-in appliances supported overall year-over-year sales growth. The contribution of B2B to total sales also showed a slight improvement compared to last year. In the subscription business, we further strengthened our competitive advantage in the Korean market through differentiated care services, maintaining strong growth momentum of over 30%. Overseas, the subscription business continues to grow steadily, expanding into new markets such as Singapore this year, following Malaysia, Thailand and Taiwan. Although still in its early stages, rapid overseas expansion has increased the contribution of international sales to overall subscription revenue year over year. We remain committed to driving growth by further advancing our portfolio in areas such as B2B and subscription. Moving on to the income statement and cash flow for Q3. Reflecting financial income and expenses, equity method gains and losses, other non-operating items, corporate tax, and discontinued operations, Q3 net income was $461 billion won. Now, let's look at cash flow. Cash flow from operating activities was $1.63 trillion won while cash flow from investing activities was negative 1.76 trillion won resulting in a net cash flow of 694 billion won. When reflecting cash flow from financial activities of negative 311.6 billion won the cash balance at the end of Q3 stood at 7.95 trillion won a 382.4 billion won increase from the previous quarter. Key financial position and indicators for Q3 2025 are as follows. At the end of Q3, assets stand at 67.2 trillion won, liabilities at 40.3 trillion won, and equity at 26.9 trillion won. Leverage ratios including liability to equity, debt to equity, and net debt to equity remain at healthy levels. Now, we will hear from each business company regarding its Q3 results and Q4 outlook, beginning with HS. Here are the Q3 results for the HS business. Global appliance market sentiment was slow to recover due to tariffs, a weaker outlook for rate cuts, and geopolitical risks in Europe and the Middle East. Nevertheless, we achieved year-over-year growth through our two-track strategy targeting both premium and volume segments and expanding online and subscription businesses. Operating income remained on par with last year despite the full impact of U.S. tariff changes supported by sales improvement initiatives such as increased sales volume and price adjustments along with cost-cutting measures through site optimization, manufacturing cost reductions, and improved cost efficiency. Looking ahead to the fourth quarter, recovery in global appliance market demand remains uncertain, with ongoing challenges further intensifying competition. In response, we will work to sustain sales growth momentum by continuing our two-track strategy, accelerating the growth of incubating products, and enhancing our portfolio through qualitative growth in B2B, online, and subscription businesses. To mitigate the impact of US tariff policies, we aim to improve year-over-year profitability by implementing scenario-based measures optimizing our cost structure and reducing fixed cost. Let's now turn to the Q3 results for our MS Business. Sales rose quarter over quarter in preparation for the peak season. fell year-over-year due to stagnant demand for TVs and other hardware, as well as intensified competition. Operating income declined both quarterly and annually, impacted by higher competition-related costs and a one-off voluntary retirement expense aimed at fostering a virtuous workforce cycle. Our outlook for the fourth quarter is as follows. Demand stagnation is expected to persist as consumer sentiment weakens amid macroeconomic uncertainties, including rising protectionism and unclear timing and scope of interest rate cuts. To address these challenges, we will focus on improving profitability, through enhanced operational efficiency while sustaining growth momentum via expansion of the webOS platform and implementation of our Global South strategy. I will now review the Q3 results of VS Company. Despite sluggish sales in Europe, sales conversion from our stable order backlog allowed us to sustain year-over-year growth momentum. Operating profit improved both quarter-over-quarter and year-over-year, driven by operational cost optimization and proactive cost improvement initiatives. Here is our outlook for the fourth quarter. Global market demand is expected to contract or remain stagnant, except in China, due to changes in EV subsidy policies in the U.S. In response, despite significant shifts in the external environment and rising macroeconomic uncertainties, we will work to secure stable profitability by continuously improving our product mix and cost structure while further enhancing operational efficiencies. Let me outline the Q3 results of ES Company. Despite lower overseas sales from uncertainties, like tariff impacts and rising geopolitical tensions, and weak consumer sentiment, overall sales rose slightly year-over-year, driven by our successful capture of peak season demand for residential ACs and dehumidifiers in Korea, along with increased subscription and online direct sales. Profitability decreased year-over-year as higher sales deductions and increased labor costs from hiring for key businesses to offset the positive impact of solid domestic sales and improve the material costs. Next is our outlook for the fourth quarter. The Korean market is forecast to shrink facing headwinds from seasonal demand slowdown, reduced government support, and a downturn in the construction market. In overseas markets, uncertainties are likely to persist primarily due to U.S. tariff policies. In response, we will aim to sustain growth momentum by accelerating portfolio transformation toward subscription business and online direct sales, while expanding our overseas presence with new domestic models and locally tailored products. For profitability, we will closely monitor developments in U.S. tariff policies and continue to strengthen our cost competitiveness. Finally, let's turn to our ESG activities and achievements. Our HVAC solutions are gaining recognition for their sustainability. Tuff Rhineland verified that our system AC unit reduced CO2 emissions by 14.85 kg per unit through a physical foaming process that decreases plastic consumption. Furthermore, our BEMS at the Pulmuone Institute of Technology was recognized by the Korea Energy Agency for achieving an average annual energy saving of 8.4% over three years becoming the first system to receive a validity period extension under the BEMS installation certification. We are also enhancing the competitiveness of our high-efficiency AI-powered appliances. We have signed an exclusive contract with Century Communities, a major U.S. homebuilder, constructing over 10,000 homes annually to supply newly-built homes with our high-efficiency AI-powered appliances through 2029. LG won awards for 13 of the 45 green products of the year, the most for any company, from the Korea Green Purchasing Network and its partners, marking our record-breaking 16th consecutive year of being honored. Lastly, we are broadening our range of products and services to ensure accessibility for all. We launched the LG Easy TV for Seniors, featuring an easy-to-use home screen and video calls and medication reminders. Additionally, our Easy Home Appliance Project, an employee volunteer program, will partner with 20 welfare centers nationwide to help customers with disabilities confidently use our products. LGE remains committed to achieving sustainable technological competitiveness and building trust through products and services that serve everyone. This brings us to the end of LG Electronics' third quarter earnings release and the fourth quarter 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 1, that is star and 1 if you have any questions. Questions will be taken according to the order you have pressed the number star 1. For cancellation please press star 2, that is star and 2 on your phone. The first question will be provided by Peter Lee from Citigroup. Please go ahead with your question.

If you can hear me, we welcome your questions.