LG Electronics Inc. (A066570) Earnings Call Transcript & Summary

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 fourth quarter earnings results by LG Electronics. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2019 fourth quarter earnings results by LG Electronics.

Welcome to LG Electronics' Fourth Quarter 2019 Conference Call. This is [ Dustin Lee ], the Team Leader of IR Communications. Thank you for joining us today. 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 audit. All forward-looking statements may be different from those expressed or implied by change in the future market environment or business strategy. Now we will start our fourth quarter earnings. Consolidated sales for the fourth quarter 2019 was KRW 16.1 trillion, and operating income was KRW 101.8 billion. Despite the sales decline from handset business, overall sales grew year-on-year, driven by the expansion of premium product revenue from Home Appliance & Air Solution division and high revenue growth from Business Solutions division. In terms of operating profit, despite the loss from handset business due to revenue decline and marketing expense increase, overall profit slightly increased year-on-year, driven by stable profit generated from Home Appliance and improved performance of Business Solutions division. As for detailed 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 first quarter results and 2020 outlook by each division. First, H&A, Home Appliance & Air Solution division, achieved sales of KRW 4.6 trillion, which is the highest fourth quarter revenue for the division in LG history. Revenue grew 7% year-on-year driven by the growth across all overseas regions, although there was an increase in marketing expense due to holiday peak season. Operating profit improved year-on-year, driven by the solid revenue growth, favorable low material price and continuous cost reduction activities. In 2020, while competition among appliance set makers are expected to intensify, international political instability and uncertainty in the overseas market is expected to grow even more. Going forward, we will focus on strengthening business portfolio by expanding sales of premium and new growth products to maintain stable profitability by efficient managing of the resources and continuous improvement of our cost structure. Moving on to HE, Home Entertainment division, marked similar year-on-year revenue, driven by the incremental portion of premium products and higher quarter-on-quarter product sales increased in most regions, thanks to year-end peak season. In terms of margin, profitability came down year-on-year because of the increased marketing expense and sales price decline from intensified competition. This year, overall TV demand is expected to stagnate from intensified competition. However, premium TV market demand such as OLED TV and UHD TV is expected to grow continuously as Electronic aims to realize sales growth led by OLED TV, large screen size premium TV and NanoCell TV. We will maintain a solid profit structure through efficient operation of the resources and cost reduction activities. With regard to MC, Mobile Communications division, revenue was down quarter-on-quarter and year-on-year due to the slow sales in overseas market, with sales decrease in mass-tier products in the North American region. Profitability was down because of increased marketing expense for new model launching and year-end inventory clearance expense. This year, premium product demand in developed market is expected to grow, driven by the actual ramp-up of 5G market and launch of new form factor smartphones. However, market competition is expected to intensify in mass-tier segment due to the aggressive pricing strategy among each set makers. As for LG Electronics, in terms of 5G smartphone, we will launch both mass-premium and mass-tier products in order to secure the coming demand. From middle to low-end product, we will secure competitive edge by adopting key specification of the products based on consumer perspective and proactively utilize ODM products to expand sales in order to improve cost competitiveness. Next, VS, Vehicle Component Solutions division. Sales went down 3% year-on-year due to temporary sales decline from auto OEMs but revenue increased quarter-on-quarter driven by the EV component sales expansion, despite the sluggish demand of auto components in infotainment business. In terms of profit, operating loss continued due to depressed cost structure, mainly from stabilizing the new product mass production. This year, overall auto market is expected to be stagnant from the impact of low market demand in main areas such as North America and Europe. In terms of EV component market, volatility of demand is expected to grow even more due to the existence of both positive and negative factors, such as strong environment regulation enforced in Europe and the phaseout of a subsidy for eco-friendly vehicle in China. Under such business conditions, LG will finalize the ongoing adjustment of long-term business portfolio and we will internalize the core component and enhance software capability to strengthen product competitiveness. As for Business Solutions division, overall sales grew year-on-year driven by continuous growth in premium products such as LED signage from Information Display business and sales expansion of solar module business, driven by expansion of the high-power premium product in household market. Profit increased year-on-year, thanks to the growth in sales of strategic products in Information Display business and sales expansion of solar module products with enhanced power performance and productivity. This year, information display market is expected to grow continuously, driven by growth mainly from indoor LED display and premium products. For solar module, we expect the market to grow continuously because of expansion of the stable installation and increase in household demand from the developed countries based on favorable energy policies. Yet competition in terms of power performance and price is expected to intensify. In terms of financial performance, both Information Displays and solar module are expected to remain strong. Therefore, in the first quarter of 2020 for the total company, we anticipate sales to grow quarter-on-quarter and maintain stable profitability. This is all for our fourth quarter results as well as our outlook for the upcoming quarter. Thank you for listening. Operator, we are now ready to open the Q&A session.

[Operator Instructions]

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