LG Display Co Ltd. ( LPL)

Q2 2011 Earnings Call

July 21, 2011 8:00 AM ET


Hee Yeon Kim – Head-Investor Relations


Nicolas Gaudois – UBS Securities Pte Ltd.

C. J. Muse – Barclays Capital, Inc.

Brian Park – Tong Yang Securities

Andrew Abrams – Avian Securities LLC

Brian White – Ticonderoga Securities LLC

Jeffrey Toder – RBS Asia Ltd.

Arthur Lai – Citigroup Global Markets Taiwan Ltd.

Dan Malkoun – Viking Global Investors LP

Steven Goulden – Tamamasa



Good morning and good evening. First of all, thank you all for joining this conference call, and now I’ll begin the conference of the Fiscal Year 2011 Second Quarter Earnings Results by LG Display. This conference will start with a presentation followed by a division and Q&A session. (Operator Instructions)

Now, we shall commence the presentation on the Fiscal Year 2011 Second Quarter Earnings Results by LG Display.

Hee Yeon Kim

Welcome to the LG Display Second Quarter Year 2011 Earnings Conference Call. I’m Hee Yeon Kim, Head of IR Department of LG Display. On behalf of LG Display, I would like to welcome everyone to our global quarterly earnings conference call.

I am joined by our IR staff, as well as representatives from TV Marketing and IT Marketing. J. S. Park is the Head of TV Marketing; Seong Lee is Vice President of IT Marketing Department.

Next slide please. Before we move on to the earnings results, please take a minute to read the disclaimer. I would like to remind everyone that results are based on the consolidated IFRS accounting standards and are unaudited. Next slide.

This conference call will take about one hour. Before we go on to the Q&A session, please allow me to highlight our second quarter results, performance highlights, followed by future management forecast.

Moving on to the revenue and profits on the next slide. Revenue in the second quarter was KRW6 trillion, up 13% quarter-on-quarter. This is due to 11% quarter-on-quarter increase in panel shipment and branded ASP increase driven by product mix improvement.

We aimed turning profit on second quarter, however, volatile order change and lower than expected panel price movement resulted in operating loss of KRW48 billion, operating margin of minus 1%, and EBITDA margin of 14%. Income before tax was KRW51 billion minus. Net income was KRW21 billion due to deferred tax asset.

Moving on to the slide number 4, looking at our financial position and ratio as of June 30, we had KRW2.4 trillion in cash and cash equivalents. Inventory increased to KRW2.8 trillion, 13% quarter-on-quarter increase. Despite the mid-80% utilization rate in second quarter, due to uncertain demand and changing panel orders, the actual inventory level increased. Our net debt to equity ratio increased to 21% from previous quarter with decrease in cash sheet, which is still at a manageable level.

Moving onto the slide 5, looking at our cash flow, cash at beginning of the quarter was KRW3 trillion. Cash flow from operating activities resulted in cash inflow of KRW513 billion. Cash flow from investing activities, cash outflow of KRW1 trillion, and cash flow from financing activities resulted in an outflow of KRW143 billion. As a result, the change in cash sheet outflow of KRW648 billion.

Moving to slide 6, I would like to go over our key performance index. Looking at our shipments based on area and ASP, our area shipment increased 11% sequentially, recording 7.5 million square meters. ASP based on LCD model price also increased to $743, with a 6% rate quarter-on-quarter increase. This is mainly due to a shift to our higher value-added products such as FPR 3D high-end monitors and smartbook, smartphone based on our AH-IPS technology.

Moving on to our product mix on slide 7, you will see that during second quarter the TV segment is 48% of our total revenue, followed by monitors at 20%, notebook at 14%, smartbook 10%, and mobile and others at 8%. Smartbook with the employed AH-IPS technology showed the increase – a rising increase in portion.

Moving on to slide 8, and looking at our capacity, with our third 10A ready for a full-scale production, our capacity increased by 5% quarter-on-quarter to 11.2 million square meters.

Next I would like to update you on the coverage of our FPR 3D TV panels continuing from previous quarter. If you look at the chart, in China FPR 3D has shown effective pace to growth in a very short space of time, from 5% 3D TV market penetration in January. (inaudible) and currently showing nearly 60% of Chinese 3D TV market share. However, in the U.S. and Europe the penetration of FPR 3D TV has been slower. The inventory of shutter glass type 3D has been persistent in the retail, in addition to lower than expected TV demand in second quarter. As the clearance of shutter glass inventory is nearly complete, we expect FPR 3D TV market penetration to speed up in second half of the year and show ten double-digit in Q4.

Lastly, we turn our attention to our management focus on the next slide. As uncertainties over the market demand persist in the third quarter, rather than giving you misleading forecast in items of our company, we would like to highlight our future management focus. We believe sharing our management thoughts and plans are more valuable to investors under these vague and uncertain circumstances.

Hope you understand. Firstly, as of this day we’ll speed up the efforts, differentiated products, and business structure – portion of higher valuated products such as FPR 3D, as mentioned in previous slide, high-end monitors, smartbook, and smartphones will increase continuously. AH-IPS panel, which has proven to be the high performance panel compared to OLED in small to mid-sizes, has been received well by our customers. With a wider customer base and increase in market share, we are expecting improvement in our revenue. We expect such differentiation strategy will lead to an advantageous market position in (inaudible) total solution and OLED TV next year.

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