Lg Elec S/Gdr 144A

Good afternoon. My name is Won Jae-bak from Investor Relations. Thank you for joining our earnings call for the first quarter of 2026. With me are Chang-Tae Kim, CFO and EVP of LG Electronics from each company's business management division, Jong-In New from HS, Sang-Ho Park, SVP of MS, Joo-Young Kim, VP of VS, and Dong-Woon Shin, VP of ES. From Headquarters, Jiwan Park, SVP of Corporate Business Management, Youngkyun Kim, VP of Finance, Ingeun Park, Head of Accounting, Sungmin Hong, Head of ESG Office, and Jiho Song, Head of Global Trade Customs. Today's presentation will proceed as follows. Our CFO will review the Q1, 2026 results in Q2 outlook, followed by an overview of our new growth businesses and the progress on our share buyback program. I will then present the first quarter financial highlights. After that, each business will share its individual results and outlook. Lastly, the head of the ESG office will present the results of our ESG activities. Please note that all statements made today regarding the first quarter financial results 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 adjustments. Now, let us begin with the Q1 2026 performance review and the Q2 outlook. Good afternoon. I'm Chang-Tae Kim, CFO of LG Electronics. Here are our Q1 financial results. Our consolidated sales reached 23.7 trillion won with operating income of 1.67 trillion won. Despite sluggish consumer sentiment amid geopolitical risks, including the Middle East conflict and intensified competition, Total sales grew year over year, driven by the peak appliance season, higher TV demand from major sporting events, back-to-school demand for PCs, and stable order volumes in automotive electronics. Operating income improved year over year, despite uncertainties stemming from geopolitical risks and rising raw material prices, driven by overall sales growth expansion in high-value added segments, and ongoing cost control efforts. In particular, HS and VS companies achieved record high quarterly sales, with VS also attaining record high operating income during the same period. Oil price fluctuations and raw material cost increases driven by ongoing geopolitical risks along with global demand shifts stemming from supply chain disruptions are pressuring the business in Q2. To address these challenges, we will conduct a thorough analysis of demand changes and establish region-specific strategies for our main businesses while securing growth momentum through our Global South strategy. Production will be stabilized and cost competitiveness strengthened by securing advanced inventories and using a cost-efficient manufacturing ecosystem. Leveraging our bargaining power as a major shipper, we plan to enhance shipping line efficiency to minimize the impact of rising logistics costs. I would like to take a moment to outline the progress of our new growth businesses including home robots, robotic components, and AI data center cooling solutions. Chloid, our humanoid robot business, is on track to begin production for POC validation this year. Collaboration with leading technology companies including NVIDIA, to advance the development of a foundational robot model is accelerating. The POC validation will commence within the first half of this year, gradually expanding into industrial and home segments. We will explore the potential of industrial humanoid robots by leveraging our robot technologies and process data learning. Drawing on our understanding of the home environment, and the strength we've gained from our appliance business, we aim to lay the foundation for commercializing home robots by 2028. Business for actuators, a key robotic component, is preparing to begin initial mass production in the first half of the year. Collaboration with major companies and academia is accelerating to develop and internalize reduction gear technology. Leveraging our competitiveness in lightweight, high efficiency, high torque motor technology gained through the annual production of over 45 million motors, we are pursuing rapid product development and establishing a production base while aiming to secure a product lineup that meets both internal demand and diverse customer needs. We are also seeing meaningful progress in AI data center cooling solutions. Certification of key products such as chillers and CDUs targeting key partners including global big tech companies is well on track, and I believe we'll be able to deliver good news in the near future. Technology and product development for immersion cooling, a next generation solution, is also accelerating. We are expanding collaborations with major players to develop comprehensive solutions, including cooling management software and power management systems. Lastly, I would like to share the progress of the Share Buy Back program, which began earlier this year and aims to enhance corporate value. Last November, we announced an additional shareholder return plan totaling $200 billion won by 2027. As part of this plan, in February, the Board resolved to repurchase Treasury shares worth $100 billion won and cancel them by the end of September. Since then, about 50% of the purchase has been completed. We will continue to proceed with the remaining share repurchases at a swift pace to clearly demonstrate our commitment to enhancing shareholder value. I'll now briefly review the Q1, 2026 performance of enterprise-wide operations in each business. Our consolidated financial results for Q1 were 23.72 trillion won in sales and 1.67 trillion won in operating income. HSE recorded sales of $6.94 trillion won and operating income of $569.7 billion won. MS recorded sales of $5.16 trillion won and operating income of $371.8 billion won. ES recorded sales of $3.64 trillion won and operating income of $211.6 billion won. Lastly, ES recorded sales of $2.82 trillion won and operating income of $248.5 billion won. Moving on, the next focus is on B2B and subscription businesses, which serve as key drivers of qualitative growth in our portfolio transformation. In Q1, B2B sales grew year-over-year and quarter-over-quarter, driven by stable orders in automotive electronics. The B2B sales proportion of total sales remains steady, supporting qualitative growth. For the subscription business, double-digit year-over-year sales growth continues in the Korean market, supported by a strong competitive edge through differentiated care services. The overseas subscription business continues to grow, expanding into regions like the Middle East, beyond Malaysia, and Thailand. Though still early, its share of overall sales shows a year-over-year increase due to rapid overseas expansion. We will continue to enhance our business outcomes by continuously advancing our business portfolio including both B2B and subscription businesses. Moving on to the income statement and cash flow for Q1. Reflecting financial income and expenses, equity method gains and losses, other non-operating items, corporate tax, and discontinued operations, the Q1 net income was 1.51 trillion won. Now let's look at cash flow. Cash flow from operating activities was 1.1 trillion won, while cash flow from investing activities was negative 1.17 trillion won, resulting in a net cash flow of negative 188.1 billion won when reflecting a negative 326.3 billion won in cash flow from financing activities. The cash balance at the end of Q1 stood at 8.63 trillion won down 138.2 billion won from the previous quarter. Key financial positions and indicators for Q1 are as follows. At the end of Q1, assets stood at 71.2 trillion won, liabilities at 40.7 trillion won, and equity at 30.5 trillion won. Leverage ratios, including liability to equity, debt to equity, and net debt to equity, have improved and remain at healthy levels. Now we will hear from each business company regarding its Q1 2026 results and Q2 outlook. Here are the Q1 results for HS Business. Despite a delayed recovery in consumer sentiment due to the Middle East conflict and inflation concerns in the U.S., our sales grew year-over-year supported by a strengthened two-track strategy targeting the peak season and by the expansion of our online and subscription businesses. Profitability also achieved solid result despite the impact of material price increases in U.S. tariffs supported by improvements from sales growth, expansion of high margin businesses like subscriptions, and ongoing cost reduction efforts. Looking ahead to Q2, the ongoing macroeconomic uncertainties including potential changes in U.S. tariffs, delays in interest rate cuts, and possibly inflationary effects from the Middle East conflict are likely to hinder demand recovery. In response, we aim to sustain sales growth momentum by further strengthening product lineups within our proven two-track strategies, accelerating growth in B2B, online, and subscription businesses, and focusing on expanding our presence in global south markets. We will address rising raw materials and logistics costs by optimizing the supply chain. Profitability will be secured by enhancing cost competitive competitiveness through the manufacturing cost structure improvement initiative, which has been actively pursued since early this year. Let's now turn to the Q1 results for the media solution business. Sales decreased quarter over quarter, mainly due to the off-peak season, but year-over-year growth was achieved driven by higher premium TV sales, PC growth from back to school demand, and expanded webOS platform sales. Operating income turned positive, driven by a higher share of high value added product sales, continued fixed cost reductions, and efficient management of competitive cost, resulting in both quarter-over-quarter and year-over-year improvements. Next is our outlook for the second quarter. If the conflict in the Middle East persists, macroeconomic volatility will rise due to inflation and higher oil prices, likely hindering demand recovery. Additionally, a sustained strong dollar and rising memory prices are further increasing costs. In response, we will aim to achieve sales equal to or exceed those of the previous year by strengthening our market position through premium products, timely introduction of new offerings, and leveraging major sporting events. Additionally, operational efficiency will be further enhanced to minimize the impact of rising cost pressures on our profitability. I will now review the VS Company's Q1 results. Despite external factors, including concerns about slowing EV demands, sales grew both quarter-over-quarter and year-over-year, supported by sustained, stable sales momentum from orders on hand. Operating income also improved both quarter-over-quarter and year-over-year, driven by the leverage effect of sales expansion, product mix improvement focused on high-value added products, and cost structure innovation. Let me now move on to the Q2 outlook. Given the ongoing uncertainties in the market, the recovery of global automotive demand is likely to remain limited for some time. Accordingly, we'll respond to market changes by ramping up mass production for new products and restructuring our portfolio to focus on high-value-added products. We will continue to pursue profitable growth through strategic collaboration and improved cost efficiency. I will now review the ES Company's Q1 results. Sales declined year-over-year mainly due to sluggish demand from a shrinking construction market domestically and abroad, along with constrained consumer sentiment amid rising uncertainties like U.S. turf and the Middle East conflict. In terms of operating income, profitability decreased year-over-year as intensified market competition led to lower sales and higher competition costs, while higher oil prices from the war in the Middle East pushed up logistics costs and component prices. Let me now move on to the Q2 outlook. Consumer sentiment is likely to decline due to rising energy costs and a decrease in real household income. We will pursue year-over-year sales growth in overseas markets by introducing region-specific new products and expanding the solution business. Additionally, by managing resources efficiently, we will minimize cost pressures resulting from rising competition and new hires in growth areas. Finally, I would like to highlight our ESG activities and achievements. LG is widely recognized for its competitiveness in highly efficient HVAC solutions. We received the Performance Award from ASHRAE for the ninth consecutive year. Our residential integrated heat pumps and commercial HVAC solutions also won eight awards at MCE2026, Europe's largest HVAC exhibition. We are accelerating our Asia-tailored business initiatives by hosting LG HVAC Connect 2026, inviting 15 major Asian partners, and securing orders to supply cooling solutions to food chains in the Philippines and Thailand. LGE is expanding our differentiated product and service offerings For six consecutive years, LGE has been ranked the most trusted home appliance brand in eight key categories, including refrigerators, by Consumer Report, a leading U.S. consumer media outlet. At CSUN AT2026, we showcased accessibility technologies, including voice-controlled appliances linked with DingQ On and new kiosks featuring adjustable height and tactile pads which were well received by attendees. Finally, we are enhancing trust in the capital market. By appointing outside directors as board chairpersons, we strengthened board independence and transparency, advancing corporate governance. We earned an AA rating from MSCI's ESG and were named industry leader in the top 1% in S&P Global's CSA for three consecutive years. Moving forward, we will continue to expand ESG management through industry-leading AI-driven solutions, differentiated products and services, and enhanced trust in the capital markets. This brings us to the end of LG Electronics Q1 2026 Earnings Release and Q2 Outlook. We will now take questions. Operator, please begin the Q&A session.

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