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Edited Transcript of 066570.KS earnings conference call or presentation 31-Jul-19 12:00am GMT

Q2 2019 LG Electronics Inc Earnings Call

Seoul Aug 21, 2019 (Thomson StreetEvents) -- Edited Transcript of LG Electronics Inc earnings conference call or presentation Wednesday, July 31, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Presentation

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Operator [1]

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Good morning, and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2019 second quarter earnings results by LG Electronics. This conference will start with a presentation followed by a divisional Q&A session. (Operator Instructions)

Now we shall commence the presentation on the fiscal year 2019 second quarter earnings results by LG Electronics.

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Unidentified Company Representative, [2]

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Hello. Welcome to LG Electronics Second Quarter 2019 Conference Call. This is [Ka Shin], Head of IR Communication. Thank you for joining us today.

Before we begin, please note that all information regarding our performance and our financial results were prepared in advance, and it is subject to change in the process of final review. All forward-looking statements may be different from those expressed or implied by the changes in the future market environment or business strategy.

Now we will start with our second quarter earnings. Consolidated sales for the second quarter of 2019 was KRW 15.6 trillion and the operating income was KRW 600

(technical difficulty)

Hello. Let me start again. Before we begin, please note that all information regarding our performance and financial results were prepared in advance and it is subject to change in the process of final review. All forward-looking statements may be different from those expressed or implied by the changes in the future market -- future environment and business strategy.

Now we will start with our second quarter earnings. Consolidated sales for the second quarter of 2019 was KRW 15.6 trillion and the operating income was KRW 652.3 billion. Despite the sales decline from TV and handset business due to intensified competition, overall sales grew both Q-o-Q and Y-o-Y driven by sales growth in Home Appliance and Vehicle Component and Energy business.

In terms of operating income, Home Appliance continuously generate high profit but overall declined Q-o-Q and Y-o-Y due to intense competition in TV market and losses widened from Mobile business. As for the declined statement of financial position and cash flow statement, please refer to our presentation material, which is posted on our global website.

Next, I'd like to address our second quarter results and third quarter outlook by each division. First, H&A, Home Appliance & Air Solution, division achieved sales of KRW 6.1 trillion, which is the highest quarterly revenue for the division in LG history. Revenue grew 16% Y-o-Y driven by continuous high growth in Korean market and growth across all regions such as North America, Europe, Middle East, Africa and others. Profitability was 11.8%, which is a record high second quarter profitability driven by solid revenue growth, increased sales of air conditioners and new growth products and continuous improvement in our cost structure.

In the third quarter, it is expected that the trend of sustainable demand for the vehicles product in Korea market will continue, but the complexity and uncertainties of business environment will still remain high. Going forward, we expect to maintain stable profitability by maximizing sales of our premium and new growth products, enhancing our cost structure and executing efficient allocation of resources based on profitability.

Moving to HE, Home Entertainment, division. This declined Y-o-Y due to weaker demand in regions such as Europe and Latin America where major sporting events was absent compared to the same period of the last year. In terms of margin, profitability came down Y-o-Y and Q-o-Q due to increased marketing spend from intensified competition as well as the impact of the unfavorable FX movement. In the next quarter, although the overall market demand is expected to remain flat Y-o-Y, premium product demand such as OLED TV and UHD TV are expected to maintain the growth trend. For LG Electronics, we will maintain revenue growth by expanding sales of premium products and secure solid profit structure by improving cost competitiveness and efficient operational or marketing resources.

We go to MC, Mobile Communications, division. Although 7% Q-o-Q increase of sales driven by the launch of a new 5G model, sales came down Y-o-Y due to the stagnant demand in the smartphone market and intense competition. Loss amount widened as a result of higher marketing investment to support the launch of new flagship models and additional costs related to relocating smartphone production to Vietnam. In the upcoming quarter, 5G network commercializing in North America and Korea will continue to take place. And promotion activities among smartphone makers are expected to strengthen in order to gain the Asian market dominance. As for LG Electronics, the introduction of competitive mass-tier smartphones and growing demand for 5G products will contribute to the performance of Mobile Communications division Q-o-Q.

Next, VS (sic) [VC], Vehicle Components Solutions, division. Sales went up 63% Y-o-Y driven by the sales of new projects in infotainment business, increased demand in major automobile companies in electric vehicle components business and effects from the consolidation of the ZKW. In terms of profit, initial production expenditures related to the ramp-up of new projects and delays in setting up manufacturing of new applications such as our center information displays, CID, resulted in a lower profitability. In the upcoming quarter due to the effects of U.S.-China trade dispute and restructuring of major automobile companies, demand in global automotive market is expected to slow down.

Also, volatility of demand is expected to grow even more due to the electric vehicle related policies by each country and car OEMs. Under such business conditions, we are closely monitoring the changes in external environment and regional and auto OEMs' policies to examine adjustment of the business portfolio from a long-term point of view. In the short-term basis, we will focus on stable supply of the components to major car OEMs and ensure cost reduction activities going forward.

As for Business Solution division. Overall sales grew both Q-o-Q and Y-o-Y driven by greater demand for LED and OLED commercial display products and solar panels in Europe and the United States. Profit increased driven by the growth of the premium product sales in Information Display business and expansion of the sales and improved productivity in solar module business.

In the third quarter, information display market is expected to grow continuously driven by LED and premium products and also solar module market demand is expected to maintain strong on the back of regional subsidy policies. In terms of performance, both information displays and solar modules are expected to remain strong. With that, in the fourth quarter of 2019, for the total company, we expect sales to grow Y-o-Y and maintain stable profitability.

That's all for our second quarter results as well as our outlook for the upcoming quarter. Thanks for listening. Operator, we are now ready to open the Q&A session.

Okay. If there is no question, I'd like to end this conference call. Again, I'd like to thank you for joining our conference for today. If you have any questions, please contact our IR team. Thank you.