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Good morning, and good afternoon. Thank you for joining LG Electronics' earnings release conference call for the first quarter of 2024. This conference call will start with a presentation on the earnings results followed by a Q&A session. [Operator Instructions].I would now like to hand the conference over to the first speaker.
[Interpreted] Good afternoon. I am Chang-Tae Kim, CFO of LG Electronics. Thank you for joining LG Electronics' earnings release conference call for the first quarter of 2024. As of CFO, I will be hosting the earnings release conference calls going forward to describe the current status and prospects of LG Electronics and listen to your comments attentively through active communication with the market.I'm joined by Mr. Sang Ho Park from Global Business Management Group, as well as representatives of each business management division; Mr. I-Kueon Kim from Home Appliance and Air Solution; Mr. Jeong-hee Lee from Home Entertainment; Mr. Ju Yong Kim from Vehicle Components Solutions; Mr. Dong Cheol Lee from Business Solutions. Also present are Mr. Choong-hyun Park from Corporate Business Management Division; Mr. Hong Su Lee from Accounting Division, Mr. Young Kyoon Kim from Finance Division; Ms. Ji-Young Jang from ESG Strategy Planning team; and Mr. [indiscernible] Park from Investor Relations Division.Now Mr. [indiscernible] Park from IR will first present the order of events for the call today, our results in the first quarter and outlook for the second quarter.
[Interpreted] Good afternoon. My name is [indiscernible] Park from Investor Relations. Today, I will outline the overall performance results of the first quarter of 2024 and the outlook for the second quarter. Next, each division will take turns to deliver its business results and outlook. Then, Ms. Jang from ESG Strategy Planning will share our ESG activities and achievements followed by the CFO's comments on the strategic direction for 2024.Please note that all statements we will be making today regarding the financial results of the first quarter are subject to change in accordance with the result of the external review. I would also like to remind you that uncertainties in the market and changes in strategies may cause our results to be different from the outlooks and forward-looking statements made today.Now, let's start with the consolidated financial results of the first quarter of 2024 and the outlook for the second quarter. Consolidated sales of the first quarter was KRW 21.1 trillion and operating profit was KRW 1.3 trillion.Q1 revenue grew year-on-year on the back of stable growth in appliance and TV and increased sales of vehicle components centered around EV components, despite the slowing demand due to contracted consumer sentiment.In terms of operating profit, though marketing spending increased to address competition in the market, and there was some impact from rising LCD panel prices, we recorded stable levels of profitability, thanks to revenue growth effects and enhancements in our portfolio with more focus on high process businesses such as platform service.I will now briefly review the first quarter performance of each business. H&A recorded KRW 8.6 trillion in sales, KRW 940.3 billion in operating profit and 10.9% in profitability. HE recorded KRW 3.5 trillion in sales, KRW 132.2 billion in operating profit and 3.8% in profitability.VS recorded KRW 2.7 trillion in sales, KRW 52 billion in operating profit and 2% in profitability. BS recorded KRW 1.6 trillion in sales, KRW 12.8 billion in operating profit and 0.8% in profitability. Each business will later share its respective business results and outlook in detail.Let's move on to the profit and loss and cash flow of the first quarter. In terms of profit and loss, reflecting financial income and expense, equity method gain and loss, other nonoperating income and expense, corporate income tax and income and loss from discontinued operations, we posted KRW 585.4 billion in net income.Next, on cash flow. Q1 cash flow from operating activities was negative KRW 80.1 billion, and cash flow from investment activities was negative KRW 1.5 trillion. Accordingly, net cash flow was negative KRW 1.53 trillion. When reflecting cash flow from financial activities of KRW 48.3 billion, cash balance at the end of Q1 decreased KRW 1.48 trillion from the previous quarter to stand at KRW 7 trillion.Next is the key financial position and indicators for the first quarter of 2024. As of the end of the first quarter, assets stood at KRW 61.4 trillion, liability at KRW 36.9 trillion and equity at KRW 24.5 trillion.In terms of leverage ratios, regarding liability to equity, debt to equity and net debt to equity, we are maintaining a healthy financial condition.Now the outlook for the second quarter. A difficult business environment is expected to persist due to high interest rates maintained in major countries because of continued inflation, increasing uncertainties in international situations and in stable oil prices stemming from fluctuations in crude oil supply.Amidst this environment, we will pursue qualitative growth by accelerating the shift in portfolio by innovating our business models, and we plan to deploy differentiated market strategies to flexibly respond to changes in demand. Accordingly, in Q2, we expect revenue to grow year-on-year through continued stable growth in appliance, active efforts to address demand recovery in TV and solid sales in vehicle components.We believe profitability will improve year-on-year on the back of operating leverage effects, more contribution in operating profit from high-profit businesses and cost structure stabilization.Now let's move on to the first quarter results and second quarter outlook by business. We will start with H&A. Let me share the first quarter results of H&A. Though recovery of market demand is delayed due to the continued slowdown in the global economy, there are tangible signs of a gradual recovery in emerging markets, amidst which revenue increased year-on-year on the back of our 2-track strategy of launching differentiated products and expanding price coverage as well as expansion of new business areas, including subscription and online businesses.Operating profit decreased year-on-year despite effects from revenue growth, material cost reduction and logistics cost stabilization due to increased marketing spending to address competition in the market.Next is the outlook for Q2. The global demand for appliance is projected to show a gradual growth centered around emerging markets, but competition is expected to intensify with geopolitical instability in the international arena and delayed recovery of demand in advanced markets.[ Amid ] this environment, we seek to continue driving top line growth momentum by proactively responding to changes in the market through growth in B2C with new models in main businesses and expansion of the volume zone, expanded B2B operations centered around HVAC and strengthening of online and subscription businesses. We will improve operating profit year-on-year through efficient resource management and cost improvement efforts.In today's call, I would like to share our views on the annual demand prospects for the appliance market. By sharing our views on the appliance market, we seek to introduce where we think global demand is headed and enhance the market's understanding of our business strategy in addressing these changes in the market.I would like to state that this is an outlook on the combined market demand for refrigerators and washing machines and is not related to projections on our appliance revenue, which involves various factors such as market share and competitive environment by each region.Please note that the actual market situation may be different from this outlook due to various factors, including the macroenvironment. Overall, we expect a shift to gradual growth in the global appliance market in 2024. However, it may take some time for the sluggish consumer sentiment to recover completely. And so, we believe demand pickup will be concentrated mostly in the second half in most regions with limited levels of improvement for the year.We are closely monitoring changes in the market environment by region based on our global sales network and are deploying various customized strategies for each region. Through this, we will not only proactively address potential opportunities and business risks, but also continuously secure stable business performance by maximizing efficiency in resource management.I will share the first quarter results of HE. Revenue increased year-on-year based on expansion of software platform business and top line growth, especially in Europe. Though operating profit turned around to secure stable levels of profitability, it decreased year-on-year due to cost pressures from rising LCD panel prices and increased marketing expenses to drive sales of premium products.Now let me share the outlook for the second quarter. In the market, there are uncertainties such as ongoing global disputes. The demand for OLED TVs is expected to gradually improve from Q2, and overall demand is expected to start picking up from the second half.Accordingly, we aim to secure enhanced revenue and stable profitability by improving product mix based on increased sales of strategic products, including QNED and OLED TV and expanding coverage with new models. We will continue to drive greater contributions in business performance from growth in software platform business.Let me share the first quarter results of VS. Revenue achieved double-digit growth compared to the previous year, thanks to stable growth in in-vehicle infotainment business as well as new OEM business and stronger sales from existing OEMs at LG Magna ePowertrain.Though there were some cost pressure due to increased headcount, especially with R&D recruitments to drive the SDV sector, we continue to secure profitability on the back of program mix improvement as well as operating leverage effects and cost structure stabilization.Next, the outlook for the second quarter. Growth in global demand for automotive and electric vehicles is expected to slow somewhat due to the impact from weakening consumer purchasing power. However, demand for high value-added vehicle components is expected to continue to grow.Accordingly, we will seek top line growth by expanding sales of differentiated products based on awarded business and secure stable basis for profitability by optimizing operations considering market risk and enhancing efficiency in resource management.I will share the first quarter results of BS. Global market demand is showing a gradual recovery and revenue grew year-on-year on the back of new gaming monitor launches and enhanced sales of strategic products such as e-board and LED signage.Operating profit decreased year-on-year due to intense price competition and rising component prices as well as investments in new businesses. However, it turned around to be in the [ black ] compared to the previous quarter with expanded sales in IT during the peak season and efficient cost management.Now let me share the outlook for the second quarter. IT demand is expected to maintain similar levels as last year until the second half. And information display market is projected to maintain a growing trend, though the pace of growth may slow somewhat. However, continued growth in demand is expected for gaming monitors and LED signage.We will pursue top-line growth through launch of new IT products aligned to customer needs, including OLED gaming and smart monitors and more business opportunities for B2B products. We will focus on securing profitability through efficient resource management.Last but not least, let me share our ESG activities and achievements. LG Electronics continues to secure market competitiveness by strengthening its eco-friendly appliance line-up based on differentiated technological capabilities. Last March, we launched LG Tromm Objet Collection Wash Combo, an all-in-one washer/dryer that can complete a wash and dry cycle with no need to transfer the load. It is the only washer/dryer in Korea to adopt heat pump technology 100%.In recognition of such technological prowess, LG Electronics was named 2024 Energy Star Partner of the Year-Sustained Excellence by the U.S. Environmental Protection Agency and the U.S. Department of Energy. This marks the 11th time since 2012 that LG has been named Partner of the Year, and the owner recognizes LG's commitment and achievements in protecting the environment, fighting climate change and reducing energy with ENERGY STAR certified products.Moreover, we received the performance award provided by the U.S. Air-conditioning, Heating and [ Refrigerating ] Institute for the [ seventh ] year in a row. The award was bestowed after going through a rigorous evaluation process by the U.S. AHRI, and we received acknowledgment for the technology and quality of our differentiated heat pump solutions in line with decarbonization and electrification trends.Last February, we [ swept ] up first, second and third place for top loaders with top energy efficiency made by the U.S. Consumer Reports and all the products in the rankings were also designated as Green Choice products, which are named based on water and energy efficiency.Meanwhile, we obtained the AI management system certification from the Korean Standards Association in recognition for our data security and ethically responsible AI management practices throughout the entire life cycle of AI-powered home appliances.LG Magna also acquired certification for its vehicle cybersecurity management from TUV Rheinland, a global certification organization. LG Magna is preemptively responding to changes in the mobility sector by establishing a cybersecurity system ahead of automakers requests.These certifications are meaningful in that they indicate we have preemptively secured safety, accountability and transparency related to our technology application. We plan to strengthen our competitive position in the global market and provide differentiated customer experiences based on advanced technology that places people and the environment first.I will now outline our strategic direction in 2024. We have shared our strategy and vision through the vision announcement in July last year and in this year's shareholders meeting. Our vision is to go beyond a stronghold in appliance to transform into a smart life solution company that provides new value and experience to customers across all spaces connected with customers' lives, including home, commercial space, mobility to even virtual space, metaverse.To achieve this vision, we are expanding B2B business, including vehicle components and HVAC, driving business models based on software platform, including webOS for smart TVs in [ earnest ] and advancing into Big Wave areas with high growth potential, such as electric vehicle charging solutions.To share some of the meaningful progress we are seeing so far, B2B sales proportion is taking up more than 30% of sales in Q1 and contributing to stability in our business performance. The software platform business, including advertising and content, continued to record rapid growth based on an enhanced business base and is expected to reach KRW 1 trillion level in annual sales this year.And the electric vehicle charging business is poised to drive business in North America with the new U.S. Texas plant to lead to tangible business results. Such efforts to enhance our portfolio seem to be gaining positive response from the market participants, home and abroad.The recent successful global bond issuance was also a testament to the market's trust in our sound and stable finance structure as well as the high interest and positive reaction from global investors on our various efforts to create mid- to long-term business performance.Going forward, LG Electronics will exert the best of its efforts to improve operation efficiency across all of its business areas, strengthen core technology capabilities, including AI, and achieve a speedy transformation in its portfolio.Thank you. That was it on the first quarter results and second quarter outlook on a consolidated basis and details by each business, along with the strategic direction for 2024.We will now take questions. Operator, please commence with the Q&A session.
[Foreign Language] [Operator Instructions] [Foreign Language] The first question will be presented by [ Simon Woo ] from Bank of America.
[Interpreted] First of all, I congratulate on your good performance. I have 2 questions. First, for Home and Appliance business. So we see the gaining momentum in AI for the tech industry. So for the home appliances, what is your AI strategy? And what is it that sets you apart from others? Can you also add color on how you predict the market?My second question regards business solution business -- Vehicle Solutions business, excuse me. What is your take on EV market demand and its prospects? In the perspective of investors, it seems like the market growth rate is dwindling, and this is becoming a point for concern. So what kind of responsive measures do you have in LGE's business perspective?
[Interpreted] I will first address your question on AI strategy from Home and Appliance. In 2011, we launched our WiFi-enabled home appliances. In 2017, our AI-based ThinQ lineup and in January 2022 our UP appliances, where new features are upgraded whenever desired by customers. Such footprints show how we were ahead of others in delivering AI-powered home appliances.During this year CES, we have redefined the term artificial intelligence as affectionate intelligence as part of our commitment to better serve our users and to provide exceptional customer experience rooted in deeper understanding of customers. The AI we have go beyond just artificial intelligence to delivering a wide range of services that customers can actually enjoy.In order to have such affectionate intelligent solutions not only be embedded in certain premium products, but across all of our appliances, we are designing and building an ecosystem of on-device AI chips and OS-based platforms to have them incorporated into our smart homes. LG Electronics have developed proprietary on-device AI chips and OS for home appliances in realizing affectionate intelligence at home. Development of upgraded AI chips for home appliances are underway since last year, and we plan to move forward with diversifying our lineup of AI chips to be employed in our affectionate intelligence products.Experts of each product domain are currently analyzing data of various products, customers and environment to step up in AI modeling of our affectionate intelligence. And therefore, customer needs, even those that go unnoticed by customers themselves, are being addressed. Furthermore, Gen AI-based voice recognition will be deployed in our AI hub and voice-enabled appliances to further sharpen customer experience.
[Interpreted] Let me answer your second question regarding Vehicle Solution business. The growth speed of EV demand has slowed down slightly, but the market is expected to maintain its growth momentum, thanks to EV tax credit in the U.S., carbon emission cap in Europe and the expansion of charging infrastructure. In mid to long run, we expect growth rate to be in 20% level.In order to secure competitiveness in EV driving module market, where high growth is expected, we aim to secure technology leadership in ePowertrains integrated modules by maximizing joint venture effect, strengthen product competitiveness by establishing production system for drive units and IPGM and expand our customer pool of global OEMs by tapping into Magna's customer network which runs across diverse sectors. By doing so, we aim to grow sales faster than the growth speed of market demand.Next question, please.
[Interpreted] The following question will be presented by Sang Uk Kim from Daiwa Securities.
[Interpreted] I have 2 questions, one for Vehicle Solution and the other for Business Solution. First for Vehicle Solution. What is your revenue and profitability estimation of Vehicle component Solutions business in 2024? Can you break it down by business?My second question regards Business Solution. As mentioned by CFO earlier, the EV charging is becoming a major part of your business. Can you share with us how much EV charging ticks up from the sales -- the overall sales of Business Solution and its direction of growth? Demand is slowing down and subsidies on EVs are decreasing. Is this market change taking its toll on your pursuit of new business?
[Interpreted] Let me answer your first question regarding vehicle solution. Uncertainties in the business, including dwindling demand for vehicles, is likely to persist into this year. Despite the expected difficulties, we aim to post high growth compared to market average by continuously increasing new order intake, and we believe we will be able to make a solid growth in revenue for this year based on the existing orders. Revenue will be impacted by the slowing demand of the global automotive market in the short run. However, we expect to continue to enjoy year-over-year growth, driven by the pushed up sales of EV components as new projects are entering the mass production phases and existing projects are increasing order volumes.In terms of profitability, we expect the figures to improve primarily on the back of the increase in sales volume. In addition, years of our efforts in enhancing internal sales capacity is paying off, improving projects and product mix, which we believe will work as a tailwind for the business. Moreover, we will improve cost structure across the whole operation, including SEM and also the production efficiency to further enhance profitability on top of the effect we enjoy from the increased volume.I'll now answer your second question regarding EV charging business. Our EV charging business is still at its early stage. Please excuse us for not being able to share specifics at this point. To briefly talk about the growth direction of EV charging business, we have a goal to grow the business to KRW 1 trillion level in size in a short period of time.The production facility was built in Texas late last year, and we have received UL certification, which is highly trusted in the U.S., proving our prowess in product stability and manufacturing technology. Dedicated sales team is organized to secure new customers, and we plan to spare no efforts in maintenance too. We will keep expanding the business to overseas markets, including Europe and Asia one by one.In terms of operation, LGE would like to support stable operation of customers by providing ways to reduce maintenance costs, remote control solutions to increase operation rate and advertisement solutions that can generate additional stream of revenue.We are currently developing diverse solutions that can address end users' pain points, such as difficulties in finding a charging station, long wait, heavy cables, cumbersome payment system and failures occurring during charging. By securing differentiated solutions beyond charger hardware, we aim to become a charging solution provider in mid to long run.Sales growth of EV market is dwindling as early adopters' strong initial demand has faded into the background. Consumer sentiment is thwarted by high interest rates. Subsidies are shrinking and the lack of charging infrastructure is showing no visible signs of improvement. Market, however, sees it as a temporary phenomenon and EV sales volume is believed to continue to rise in mid to long run. Charging business is also expected to grow continuously as decreasing demand for EVs results in part from the lack of charging stations.Next question, please.
[Interpreted] The following question will be presented by Kangho Park from Daishin Securities.
[Interpreted] I have 2 questions, one for corporate-wide operation and the other for Home Entertainment. First, corporate-wide operation. LGE issued dollar-denominated public bond in April and this was the first global bond deal in 17 years. What is the back story?My second question is for Home Entertainment business. So starting this year there has been a lot of importance and growth mentioned for the webOS business. Could you elaborate on the webOS profit model and the proportion and profit rate for each path [ of ] model, respectively?
[Interpreted] The question regarding global bond issuance will be answered by CFO. Let me answer your questions regarding the corporate-wide operation and the issuance of dollar-denominated bonds. We have maintained funding competitiveness based on diverse sources in domestic and international capital market. When borrowing from abroad, we have raised capital mostly through banks and private placements. But at the same time, we have been keeping our eyes on the public dollar bond market to enhance our competitiveness.Federal Reserve's decision to adopt tightening policy has caused the U.S. dollar to strengthen and high interest rates in the U.S. to persist. And it became clear that raising capital from dollar-denominated public bond is better than borrowing from banks and private placements. We also noticed that many foreign investors are getting increasingly interested in LGE, thanks to our solid business results and financial stability. Taking this as an opportunity, we decided to issue a global public bond in April.
[Interpreted] We were faced with many difficulties in issuing bonds as the market gave up hopes on seeing lower rates in the U.S. and conflict in the Middle East worsened. However, by communicating closely with global investors, we received orders from 339 investors. The highest number marked in the order book was $9.4 billion, and we were able to successfully issue bonds worth $800 million in total, including a sustainability bond worth $300 million. According to the media report, this transaction is well received by the market as an evidence of our strong position and reputation in the global capital market.
[Interpreted] Let me answer your question on webOS. Our webOS platform business profits from 3 models. Though it is difficult to share on exact numbers for each profit model, our CTV-based ads make up the largest share, where customers get to enjoy for free high-quality entertainment content via about 3,000 [ LG ] channels. Customer analysis is done at the same time to have tailored ads delivered. Such tailored advertisements make it possible for ad agents to deliver high-quality ads that match the targeted audience, while at the same time customers can be provided without that appeal to their taste.Another major positive model will be the Content business, where we strategically partner on those leading content players to deliver good content. Following smartphones, TVs have become platforms for consumers to enjoy content, including OTT services. We are actively navigating to ride on this opportunity and further expanding the business.Last but not least, by selling module parts to other TV set makers for webOS operation, we not only raised profit, but also expand the ecosystem through webOS-based alliances. Profitability currently stands high above our TV hardware sales, and we look forward to greater contribution towards profitability on the back of incremental platform sales. To maintain the growth trajectory of our webOS business, we will be committed to various efforts, including, but not limited to stronger strategic partnerships.Next question, please.
[Interpreted] The following question will be presented by Dongwon Kim from KB Securities.
[Interpreted] I have 2 questions, one for corporate-wide operation and the other for Home Appliance business. First question, what is your projection of the business for 2024? Which businesses are likely to enjoy noticeable growth and which will face difficulties?My second question is for Home Appliances. Can you share on how you project profitability to be in light of raw material and logistic costs?
[Interpreted] Let me first answer your question regarding business projection. Although difficulties in business environment, such as uncertainties in the global economy is likely to persist, LGE aims to proactively respond to these external developments on the back of improved business portfolio, which we have been driving for several years.Gradual recovery of demand is expected from the second half in Home Appliance and TV, which are our main businesses. Along with introducing new innovative products, we will continue with strategies that are aligned with demand changes and market dynamics, such as targeting volumes on segment. And by expanding sales and profit contribution of new business models, including subscription, HVAC and webOS-based platform services, we aim to achieve year-over-year growth in revenue and profitability.For automotive electronics, despite concerns over the possibility of slowdown in EV demand growth, we expect to maintain a high level of growth in revenue and secure stable profitability by continuing to increase awarded orders on the back of expanded customer pool of OEMs in EV component business and by pushing up sales and improving mix of infotainment products, which are leading the global competition. New business such as EV charging, which is getting ready to start off, is also expected to produce meaningful results.Regarding the rise in LCD -- in terms of risk management, including cost structure, stability in raw material prices and overall cost is likely to continue. However, we are keeping close eyes on the possibility of an increase in logistics costs triggered by geopolitical risks, such as conflict in the Middle East.Regarding the rise in LCD panel price, which started to pick up last year, we are in search of solutions that can minimize its impact on profitability. We will minimize these risks by enhancing efficiency of global supply chain and optimizing production system to improve its flexibility and by strengthening cooperation with sales channels to prevent additional execution of marketing budget to deal with excessive inventory held by distribution.Let me answer your question on raw materials and logistics costs. To begin with raw material costs, despite China's fiscal stimulus in the first quarter of 2024, persisting weak demand and delays in economic recovery in major countries have led to limited growth in raw material demand. But at the same time, elevated cost [indiscernible] due to high oil prices and energy costs have weighed on our company's purchase price.Raw material prices, however, have improved slightly Q-on-Q this first quarter on the back of negotiations based on global volumes through reselection of strategic distributors by region since last year, along with optimal sourcing to overcome the impacts from logistics and trade barriers such as protectionism.In the second quarter of 2024, rising oil prices from escalating Iran-Israel tensions have led to ups in petrochemical prices, while cost and production at Chinese copper smelters have driven up copper prices. As part of the broader effort to minimize effects of rising purchase price, we will diversify and expand on low-cost Chinese vendors to match price and negotiate additional volumes.For logistic costs, as of first quarter of 2024, shipping rates increased somewhat due to impacts in the Red Sea, but we minimize the effects on our profit through successful contract renewals as well as timely response at our global sites. Fortunately, as of April, [ vessel ] space availability has started to improve and carriers' requests for additional rates is on the decline.Furthermore, trucking rates borne by global sales subsidiaries are trending down Y-o-Y. Hence, in second quarter, marginal improvements Q-on-Q is expected. Accordingly, we believe the effects of raw material and logistic costs on our profit will not be as pronounced. What would the offset are possible rises in raw material price by declining logistic cost.Next question, please.
[Interpreted] Currently, there are no participants with questions. [Operator Instructions].
[Interpreted] Are there any more questions?
[Interpreted] Once again, currently, there are no participants with questions. We will wait for a second until there is another question.
[Interpreted] I believe there are no more additional questions. So that brings us to the end of LG Electronics' First Quarter 2024 Conference Call. LG Electronics will be committed to improving shareholder value, and please keep a watch on our activities. If you have any further questions, please contact our IR team for further details. Thank you.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]