LG Display Management Discusses Q3 2011 Results - Earnings Call Transcript

LG Display Co Ltd. ( LPL)

Q3 2011 Earnings Call

October 20, 2011 8:00 AM ET

Executives

Hee Yeon Kim – Head, IR

Seong Lee – VP, IT Marketing

Analysts

Brian White – Ticonderoga Securities LLC

Matt Evans – CLSA

Andrew Abrams – Avian Securities LLC

Arthur Lai – Citigroup Global Markets

Olga Levinzon – Barclays Capital

Wamsi Mohan – Bank of Merrill Lynch

DS Kim – UBS Securities

Presentation

Operator

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 Third 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 Third Quarter Earnings Results by LG Display.

Hee Yeon Kim

Welcome to LG Display’s Third Quarter Conference Call. My name is Hee Yeon Kim, Head of the IR Department. 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 the representatives from TV Marketing and IT Marketing. J. S. Park is heading up the TV Marketing Department; Seong Lee is Vice President of IT Marketing Department.

Next slide please. Before we move onto the earnings results, please take a minute to read the disclaimers. I would like to remind everyone that results are based on the consolidated IFRS accounting standards and this is not audited numbers.

Next slide. This conference call will take an hour. Before we go into the Q&A session, please allow me to highlight our third quarter 2011 results, performance highlights, and outlook followed by future management forecast. Moving on to revenue and profits on the next slide. Revenue in the third quarter was KRW6.3 trillion, up 4% quarter-on-quarter. Besides the global economic downturn with higher value-added products such as FPR 3D and Smartbook, panel shipments rose by 9% quarter-on-quarter. However due to the continued uncertainty in the demand outlook, the blended ASP fell more than expected.

In addition, non-recurring loss such as unrealized foreign valuation loss and the reserve for antitrust increased the operational loss to KRW492 billion. The operating margin was minus 8% and EBITDA margin was 7%. After taking out the non-recurring items, the adjusted operating loss was KRW260 billion. Loss before tax was KRW695 billion. Net loss was KRW688 billion.

Looking at our financial positions and ratio, we have KRW2 trillion in cash and cash equivalents. Inventory fell by KRW450 billion to KRW2.4 trillion with active inventory adjustment during the quarter. Utilization ratio and the standard of no more inventory holding period was reduced in order to maintain a healthy inventory level. Our net debt to equity ratio increased to 25% due to slight decrease in cash, which is manageable level.

Moving on slide five, looking at our cash flow. Cash at beginning of the quarter was KRW2.4 trillion. Cash flow from operating activities resulted in cash inflow of KRW867 billion and with active inventory adjustments, cash inflow from working capital was increase by KRW289 billion. Cash flow from investing activities resulted in an outflow of KRW947 billion, and cash flow from financing activities resulted in an outflow of KRW252 billion. As a result, the net change in cash was outflow of KRW332 billion.

Moving to slide six, I would like to go over our performance highlights. Looking at our shipments, it increased by 9% quarter-on-quarter, recording 8.1 million square meters. Blended ASPs fell 5% quarter-on-quarter. With the global economic downturn, the demand uncertainty persisted throughout the channel. This resulted in lower than traditional two digit shipment growth seasonality and deeper panel price fall in third quarter.

Moving onto our product mix on slide seven. In third quarter, the TV segment represents 47% of the revenue, followed by monitor at 19%, notebook at 14%, smartbook at 11%, and mobile and others at 9%. The percentage of revenue for each of the product mix is similar to the last quarter but the smartbook and mobile based on our AH-IPS technology showed the continued increase in portion by one percentage points each.

Moving onto slide eight, and looking at our capacity. Our capacity increased slightly by 3% quarter-on-quarter due to increased working base compared to the previous quarter. Next we turn to our outlook section. In the first quarter, we expect our total shipment to increase by a low-single digit percentage. Demand outlook is still uncertain, however as the panel makers profitability concerns become severer, we expect the price fall to be limited going forward.

Lastly, we turn our attention to the management focus on the next slide. We would like to firstly turn your attention on the issues regarding third quarter results. The posted operating loss stand at KRW492 billion due to the non-recurring items that I mentioned before. The non-recurring items included two parts. First, additional allowance for antitrust reserves as a possibility of product payment has increased. And second, unrealized net borrowing operation loss. With a sharp rise in the exchange rate at the end of the quarter, sectors such as customer architect payments and antitrust allowance based on U.S. dollar were affected and difference for deficit in the income statements. However most of our U.S. dollar debt is long-term debt with three to five year maturity period. And because of that on side, it’s passed over to the utilization gain if one dollar rate would be weaker.

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