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

Q3 2019 LG Electronics Inc Earnings Call

Seoul Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of LG Electronics Inc earnings conference call or presentation Thursday, October 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 third quarter earnings results by LG Electronics. The 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 third quarter earnings results by LG Electronics.

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Unidentified Company Representative, [2]

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

Before we begin, please note that all information regarding our performance and financial measures are prepared in advance, and it is subject to change in the process of final review. 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 third quarter earnings. Consolidated sales for the third quarter of 2019 was KRW 15.7 trillion, and the operating income was KRW 781.4 billion. Despite the sales decline from handset business due to intensified competition, overall sales grew Y-o-Y driven by sales expansion of premium products and high revenue was from Vehicle Component business.

Operating income increased slightly on a Y-o-Y basis, driven by the sustainable high profit [generate] business from Home Appliance, TV and B2B.

As for the trend statement of financial position and cash flow statement, please refer to our presentation material, which is posted on our global website.

Next, I would like to address our third quarter averages and fourth quarter outlook by each division.

First, H&A, Home Appliance & Air Solutions division, achieved sales of KRW 5.3 trillion, which is the highest third quarter revenue ever for the division in LG Electronics history. Revenue grew 10% Y-o-Y, driven by the growth across all overseas regions, such as North America, Europe, Asia and others. Although there was a temporary quality cost impact, operating profit improved Y-o-Y, driven by solid revenue growth, favorable raw material prices and continuous cost reduction activities.

In the fourth quarter, completion of new growth products in Korean market is expected to intensify and uncertainties in the overseas market is expected to increase due to U.S.-China trade war disputes and Iran sanction. Going forward, we will concentrate our capability to generate better profitability while -- by managing financial risk through efficient operation of expenses.

Moving to HE, Home Entertainment division. With the base effect from the last year's weak demand and entrance of the peak season, sales increased Y-o-Y driven by the revenue growth of emerging markets, such as Latin America, Middle East, Africa and others.

Income from margin. Profitability came down Y-o-Y due to the strong U.S. dollar and increased marketing expense from intensified competition. However, margin improved Q-o-Q, driven by peak season sales and cost reduction activities. In the next quarter, demand in major markets, such as Europe, Latin America, is expected to increase. Also, the Premium TV market, such as OLED TV and ULTRA HD TV, is expected to grow continuously during the year-end peak season.

Although the marketing expense is expected to increase due to the intensified competition, LG Electronics aims to achieve our sales growth by actively dealing with peak season demand with internal launch of strategic models mainly from OLED TV, [ULTRA HD] TV and larger screen size premium TV.

In terms of margin, we expect to maintain solid profit structure by actions in managing the work process going forward.

With regard to MC, Mobile Communications division. Third quarter revenue was KRW 1.5 trillion, which is a 25% decrease Y-o-Y due to declining smartphone market and lower sales of LTE premium products as well as the mass-tier products.

Margins growth Q-o-Q are driven by the impact of new 5G product sales and the base effect from one-off cost for relocating our smartphone manufacturing site to Vietnam. In the upcoming quarter, market competition is expected to be intensified due to the seasonal discount of computers and new product lineup and the domestic market demand to weaken from tighter subsidy regulations.

For LG Electronics. We'll expand our revenue by launching new premium products, the new Dual Screen 2 which has better user experience feature.

Next quarter profitability is expected to improve Y-o-Y from continuous growth improvement activities, such as production site relocation. But losses will be widened Q-o-Q from higher marketing expense to support launch of new products and clearance of inventories in this distribution channels.

Next, VCS, Vehicle Component Solutions division. Sales went up 14% Y-o-Y, driven by the sales of new projects in infotainment business, but down 6% Q-o-Q due to the temporary sales decline in major automakers. In terms of profit, operating loss continued due to major automaker sales decline and delay of stabilizing yield of new projects. In the upcoming quarter, due to the effect of prolonged U.S.-China trade disputes, labor strike and restructuring of major automakers, demand in global automobile market is expected to come down. Also, the volatility of demand is expected to grow even more due to the environment policies and the launch plans of electric vehicles by each country.

Under such business conditions, we will concentrate on improving profitability and cost reduction activities in the short-term basis. Going forward, we will closely monitor changes in external environment and automakers policies. We'll also execute adjustment of the business portfolio from a long-term perspective.

As for Business Solutions division, overall sales grew both Q-o-Q and Y-o-Y, driven by continuous growth in premium products from information display business and sales expansion of high -- or power premium product in solar module business. Profit increased Q-o-Q and Y-o-Y, thanks to the increase in sales of strategic products, in the Information Display business and solar module products with enhanced productivity.

In the fourth quarter, information display market is expected to grow continuously, driven by fast migration to larger screen sizes and Ultra HD resolution display along with the growth made by indoor LED display and premium products.

For solar module, we expect the market to grow substantially, led by increasing demand in emerging countries, along with the solid demand from U.S. and Europe. However, competition in terms of power, energy efficiency and price will be intensified. When it comes to performance, both information displays and the solar modules are expected to remain strong.

Finally, regarding fourth quarter of 2019. For the total company, we expect sales and profit to improve Y-o-Y.

That is all for our third quarter results as well as our outlook for the upcoming quarter. Thank you for listening. Operator, we are ready to open Q&A session.

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Operator [3]

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(Operator Instructions)

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Unidentified Company Representative, [4]

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