Lg Elec S/Gdr 144A

Good afternoon. My name is Wonjae Park from Investor Relations. Thank you for joining our earnings call for the second quarter of 2026. With me are Sangtae Kim, CFO and EVP of LG Electronics from each company's business management division, Jongin Yoo from HS, Sangho Park, SVP of MS, Jiyong Kim, VP of VS, and Donghun Shin, VP of ES. from Headquarters, Jiwon Park, SVP of Corporate Business Management, Youngkyun Kim, VP of Finance, Ingeun Park, Head of Accounting, and Seokkyung Pae, Head of Robotics, Sales, and Marketing Division. Today's presentation will proceed as follows. Our CFO will review the Q2 2026 results in Q3 Outlook and provide updates on our new growth initiatives and share buyback program. I will then present the second quarter financial highlights. After that, each business will share its individual results and outlook. Please note that all statements made today regarding the second quarter financial results are subject to change in accordance with external review. Actual results may differ from today's outlook, and forward-looking statements due to market uncertainties and strategic adjustments. Now, let us begin with the Q2 2026 performance review and the Q3 outlook. Good afternoon. I am Changse Kim, CFO of LG Electronics. In Q2, consolidated sales reached 23.8 trillion won with operating income of 1.57 trillion won. Despite subdued consumer sentiment amid ongoing macroeconomic uncertainties and heightened competition, total sales grew year over year, driven by strong home appliance sales, a higher sales mix of premium TVs, and continued growth in automotive electronics. Operating income improved year-over-year despite higher logistics costs related to the conflict in the Middle East and rising memory costs. Key drivers include overall sales growth, a higher mix of high-value added products, continued cost structure improvements, enhanced operational efficiency, and tariff refunds. In Q3, escalating geopolitical risks are expected to drive up oil and raw material prices. Softening consumer sentiment driven by inflation in key markets along with intensified competition is expected to weigh on business operations. However, resilient demand in emerging markets and rapidly growing AI data center demand are expected to provide growth opportunities. Against this backdrop, we will expand the share of high-value added products through differentiated offerings and strengthen our cost competitiveness through cost structure improvements and enhanced operational efficiency. In addition, we will leverage our Global South strategy to strengthen our presence in high-growth markets and maintain momentum in our core businesses while driving continued growth in automotive electronics and expanding our B2B portfolio, including chillers and AI data center cooling solutions. Furthermore, we will strengthen our profitability by expanding our subscription business and online direct sales along with the webOS platform ecosystem. Now, let me briefly provide an update on our new growth drivers, including robotics and AI data center cooling solutions. First, we newly established a robotics business center to accelerate our robotics business with greater speed and agility. This enables us to drive the commercialization of our robotics business end-to-end by integrating core capabilities across the organization We expect to strengthen execution and improve operational efficiency. In addition, we are building Korea's largest robotics data factory, targeting its launch in the second half of this year. At the facility, we are gradually deploying CLOID, our humanoid robots, currently being mass produced for POC validation. This will enable us to secure high quality training data across diverse domains and accelerate collaboration with domestic and global partners, including the advancement of RFMs, further strengthening our robotics competitiveness. We also made meaningful progress in the commercialization of actuators, a key component of robotics. The pilot production line has been successfully completed and production of the initial actuators for our humanoid robot is now underway. In the second half, we will pursue business opportunities with potential customers while accelerating mass production in line with order visibility. Now let me turn to the progress of our AI data center cooling solutions business. We are starting to see tangible results from our efforts to secure overseas orders. Orders exceeded 600 billion won in the first half and production is currently underway. We are targeting AI data center project orders worth several trillion won by year end. This order momentum has been driven by supply chain bottlenecks as existing suppliers struggle to keep pace with rapidly growing demand. As a result, major industry players are actively seeking new suppliers with strong product competitiveness and reliable supply capabilities. Looking ahead, we remain positive on our order outlook, supported by our strong track record and favorable customer feedback on product quality and on time delivery. We will continue to expand our domestic and overseas production capacity to support rapidly growing order volumes, ensuring timely execution of our existing order backlog, while further enhancing our competitiveness in securing orders from global customers. We are also seeing tangible progress in securing component qualification certifications from leading global technology companies, including NVIDIA. As announced on NVIDIA's website, certain models of our CDU, a key component of our liquid cooling solutions, have received certification. Additional product certification efforts are also progressing smoothly, and we expect to have positive developments to share in the near future. Lastly, We have completed the 100 billion won share buyback program as part of our ongoing efforts to enhance shareholder value. The share buyback program began earlier this year and was completed ahead of schedule. The repurchase shares will be canceled before year end. We remain committed to enhancing shareholder value and will continue to pursue initiatives that deliver tangible benefits to our shareholders. Thank you. I will now briefly review the Q2 2026 performance of enterprise-wide operations in each business. Our consolidated financial results for Q2 were 23.82 trillion won in sales and 1.57 trillion won in operating income. HS recorded sales of 7.75 trillion won and operating income of 685.9 billion won. MS recorded sales of 5.11 trillion won and operating income of 219.4 billion won. VS recorded sales of 3.25 trillion won and operating income of 191.2 billion won. Lastly, ES recorded sales of 2.72 trillion won and operating income of 235.8 billion won. Next, let me turn to our B2B and subscription businesses which serve as key drivers of qualitative growth in our portfolio transformation. In Q2, B2B sales grew year over year, driven by strong growth in automotive electronics, supported by a solid order backlog, along with continued growth in the ID and IT businesses. In addition, the share of B2B sales and total revenue remained stable, providing a solid foundation for qualitative growth. In Korea, the subscription business maintained its growth momentum both year-over-year and quarter-over-quarter, further reinforcing its competitive edge through differentiated care services. The overseas subscription business continues to grow, and we are expanding into new markets, including the Middle East, beyond Malaysia and Thailand. Though still in the early stages of overseas expansion, we will accelerate growth by swiftly establishing necessary business infrastructure in each market. We will continue to improve our performance by further strengthening our portfolio, including our B2B and subscription businesses. Moving on to the income statement and cash flow for Q2. Reflecting financial income and expenses, equity method gains and losses, and non-operating items, corporate tax, and discontinued operations. The Q2 net income was 781.3 billion won. Now let's look at cash flow. Cash flow from operating activities was 2.45 trillion won, while cash flow from investing activities was negative 760.8 billion won, resulting in a net cash flow of 1.86 trillion won. When reflecting a negative 430.8 billion won in cash flow from financing activities, the cash balance at the end of Q2 stood at 10.69 trillion won, up 1.43 trillion won from the previous quarter. Key financial positions and indicators for Q2 are as follows. At the end of Q2, assets stood at 73.7 trillion won, liabilities at 41.8 trillion won, and equity at 31.9 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 regarding its Q2 2026 results and Q3 outlook, beginning with HS. Here are the Q2 results for the HS business. Sales continued to grow as we proactively addressed market uncertainties through our two-track strategy, strengthening both premium and entry-level product lineups, while further advancing our portfolio through B2B, online direct sales, and subscription businesses. Operating income improved significantly year over year as we enhanced operational efficiency through cost structure improvements and supply chain optimization, mitigating certain cost pressures. This was further supported by U.S. tariff refunds. Looking ahead to Q3, uncertainties in the external business environment are expected to persist. Inflationary pressures in major markets are likely to dampen consumer sentiment resulting in subdued demand in the short term. In response, we will continue to build on our proven two-track strategy and portfolio advancement efforts while strengthening profitability through proactive efforts. In addition, we will further reinforce our business fundamentals and profitability by expanding our presence in the Global South where demand remains relatively robust. Let's turn to our outlook for the global appliance market demand in 2026. We update this forecast twice a year and by sharing our view, we aim to provide our perspective on global demand trends and corresponding strategies. Please note that this outlook focuses on the year-over-year market demand forecast, not our appliance revenue. Actual market conditions may differ from this outlook due to various factors. such as economic policies on tariffs, interest rates, and other variables, as well as geopolitical issues. In the global home appliance market, the gradual recovery in demand that began in the second half of last year continued into the first half of 2026. However, demand is expected to weaken significantly in the second half across most regions outside of India and China due to the prolonged Russia-Ukraine war and renewed tensions in the Middle East. Consequently, global demand for 2026 is expected to grow modestly. In North America, the housing market recovery is expected to remain gradual amid elevated interest rates resulting in somewhat softer demand for home appliances in the second half. We expect consumer spending to become more polarized with some consumers feeling a greater impact from inflation than others. Therefore, we are broadening our product coverage by offering differentiated products in the premium segment while reinforcing our lineup of cost-competitive products in the volume segment. We also plan to strengthen our market position in the Global South where demand remains relatively resilient by launching new products tailored to local market needs and designed to enhance local competitiveness. Through these initiatives, we are positioning the Global South as a new growth engine alongside our traditional core markets. Despite continued macroeconomic uncertainties in 2026, we remain committed to building a more resilient business structure that minimizes the impact of external factors on our business. Let's now turn to the Q2 results for the MS Business. Global TV market demand grew modestly, supported by promotional events such as the FIFA World Cup and Amazon Prime Day. Against this backdrop, we delivered strong year-over-year sales growth through a higher mix of premium products, including OLED, QNED, and ultra-large TVs, continued growth in emerging markets, and the expansion of WebOS platform revenue. Operating income improved significantly year-over-year, extending the strong momentum from the previous quarter. Key drivers included a higher mix of high-value added products, greater efficiency and competitive spending, enhanced cost competitiveness, reduced fixed costs, and ongoing operational efficiency efforts. Looking ahead to Q3, TV market demand is expected to decline slightly year-over-year reflecting heightened macroeconomic volatility driven by the prolonged conflicts in the Middle East and rising raw material costs, weakened consumer sentiment due to inflation, and the pull-forward effect of demand related to major sporting events. We will continue to improve our cost structure and operational efficiency while increasing the proportion of high-value added products in our sales portfolio. Through the continued growth of the webOS platform business, we aim to maintain solid profitability in Q3. I will now review the Q2 results for the VS business. Sales maintained year-over-year growth supported by the continued stable growth of the infotainment business. Operating income improved year-over-year supported by sales growth and ongoing efforts to improve cost and operational efficiency. Looking ahead to Q3, given continued softness and EV demand and ongoing external uncertainties, Global automotive demand is expected to recover gradually in the near term. While market uncertainties may continue to pose risks, we expect to maintain stable sales growth. We will also continue to secure stable profitability through improved cost efficiency and enhanced operational efficiency. I will now review the Q2 results for the ES business. Despite weak demand in the Korean market amid heightened competition and a slowdown in the construction sector, sales grew slightly year-over-year driven by increased air conditioner sales in overseas markets. Despite positive factors such as sales growth, profitability declined year-over-year due to higher logistics costs stemming from the conflict in the Middle East, increased competitive spending, and higher personnel expenses related to the new growth initiatives. Looking ahead to Q3. We expect the business environment to remain challenging amid the prolonged conflict in the Middle East and intensified competition across the market. In response, we will further enhance profitability in Korea through our subscription business and online direct sales, while accelerating global growth by expanding revenue from eco-friendly, high-efficiency and region-specific products, as well as customer-tailored solutions in overseas markets. This brings us to the end of LG Electronics Q2 2026 Earnings Release and Q3 Outlook. We will now take questions. Operator, please begin 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 Kango Park from Daishin Securities. Please go ahead with your question.