LG Display (LPL) Q2 2012 Earnings Call July 26, 2012 08:00 AM ET Executives Hee Yeon Kim - Head, IR J. S. Park – Head, TV Marketing Department Analysts Brian White - Topeka Capital Market Andrew Abrams – Avian Securities Sheng Hong - Topeka Capital Market Dan Malcolm - Viking Jerry Tsai - HSBC Securities Matt Evans - CLSA Toni Sacconaghi - Sanford C. Bernstein Securities D.S. Kim - UBS Securities Jonathan Hwang - KDB Daewoo Securities Presentation Operator
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Next slide please. This conference call will take an hour. Before we go into the Q&A session, please allow me to highlight our Q2 results, performance highlight and outlook.Moving on to the revenue and profits on the next slide, during second quarter the demand in Europe and China turned out should be weaker than accepted due to macro-economic situation which resulted in some of the set makers down for the order adjustment. In addition, LG Display strategically cut back supplying the low profitability products. Due to these factors, the shipment increases in second quarter turned out to be lower than expectation. However, since we managed to increase the portion of a high end premium products such as tablet and FPR 3D in sales. We recorded a high to quarterly revenue in the second quarter at KRW 6.9 trillion up to a percent quarter-on-quarter. Our profitability improved in second quarter mainly due to the increased sales of high end premium products. So operating loss was significantly reduced to KRW 26 billion. If we excluded the provision for the anti-trust lawsuit from our operating line in second quarter. We would have been turned out to be profitable. Operating profit margin was minus 0.4% while we recorded EBITDA margin of 15%, income before tax was negative KRW 78 billion and net income was negative KRW 112 billion. Moving on to slide four, looking at our financial positions and ratios. Cash and cash equivalent rose by KRW 262 billion to KRW 2.7 trillion. Inventory increased by KRW 371 billion to KRW 2.6 trillion. It is mainly due to our customers sound right (ph) order adjustment at the end of second quarter. Effected by the macroeconomic situation. In addition the product mix improvement with more high end premiums product portion also affected the inventory in March.
Although our inventory is within the range of manageable level, we are planning to lower the inventory continuously. That level decreased by KRW 497 billion to KRW 4.8 trillion. Net debt decreased KRW 759 billion and thus net debt to equity ratio faired by 8 percentage point quarter-on-quarter recording 21%.Moving on to slide five, looking at our cash flow. Cash at the beginning of the quarter was KRW 2.4 trillion, cash flow from operating activities resulted in cash inflow of KRW 1.8 trillion. Cash flow from investing activities resulted in an outflow of KRW 1 trillion and cash flow from finance activities resulted in an outflow of KRW 530 billion. As a result the net changing cash was inflow of KRW 260 billion. Moving on to slide six, I would like to go over our performance and highlights. During second quarter, our shipment increased by 6% to 8.6 million square meter but ASP per square meter increased by 5% to $701. The rise in the price reflect the increased portion of a high end premium products in sales. Moving on to our product mix on slide seven. The TV segment represents 49% of our revenue followed by the monitors at 70%, notebook at 14%; tablet is at 10% and mobile applications at 10%. In case of tablet segment we managed to supply the new model in full-scale in second quarter so it was increased to 10% from 5% in first quarter. Moving on to slide eight, and looking at our capacity. Our producible capacity increased by 10% to 11.2 million square meters since second quarter. This reflected recover of some capacity in second quarter which was lost in first quarter. During first quarter we temporarily allocated some capacity for the development of differentiated high end products and new models and completion of developing these products. Most of these capacity was recovered in second quarter. In addition, the start of P98 production in June also affected the increase of capacity.
Next we turn to our outlook section, we expect a seasonal demand in third quarter but due to the uncertain macroeconomic situation, the degree of seasonal demand increases remain to be seen. Due to the panel makers profitability focus the strategy, utilization adjustment is expected to be continued. Thus we expect a controlled balance situation in supply demand in third quarter.Read the rest of this transcript for free on seekingalpha.com