LG Display Co., Ltd. - Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, filed on March 4, 2021, submits the audited separate financial statements for LG Display Co., Ltd. for the fiscal year ended December 31, 2020. The company is a global manufacturer of Thin Film Transistor Liquid Crystal Display (TFT-LCD) and Organic Light Emitting Diode (OLED) panels. The financial statements were audited by Samjong Accounting Corporation (KPMG), which issued an unqualified opinion on both the financial statements and the company's internal control over financial reporting.
Key Financial Metrics (FY 2020)
| Metric | FY 2020 (Won) | FY 2019 (Won) |
|---|---|---|
| Revenues | 22,799,273,000,000 | 21,658,329,000,000 |
| Operating Income (Loss) | (812,979,000,000) | (1,784,245,000,000) |
| Net Income (Loss) | (513,262,000,000) | (2,639,893,000,000) |
| Total Assets | 26,705,202,000,000 | 27,382,680,000,000 |
| Total Liabilities | 16,441,967,000,000 | 16,716,588,000,000 |
| Shareholders' Equity | 10,263,235,000,000 | 10,666,093,000,000 |
| Net Cash from Operating Activities | 1,311,814,000,000 | 1,792,225,000,000 |
| Net Cash from Investing Activities | (868,017,000,000) | (3,436,655,000,000) |
| Net Cash from Financing Activities | (328,944,000,000) | 2,276,392,000,000 |
Note: All figures are in millions of Korean Won (W) unless otherwise specified. The filing text does not provide explicit margin percentages; however, the operating loss improved significantly year-over-year.
Material Changes vs. Prior Period
- Profitability Improvement: While the company reported a net loss for the second consecutive year, the loss narrowed significantly from W2.64 trillion in 2019 to W0.51 trillion in 2020. Operating loss similarly improved from W1.78 trillion to W0.81 trillion.
- Revenue Growth: Total revenue increased by approximately 5.3% year-over-year, driven by sales of display panels.
- Impairment Reduction: A major factor in the improved bottom line was a drastic reduction in impairment losses. In 2019, the company recognized W1.14 trillion in impairment on property, plant, and equipment and W0.24 trillion on intangible assets. In 2020, these figures dropped to W0.01 trillion and W0.08 trillion, respectively.
- Capital Expenditure: Cash used in investing activities decreased substantially from W3.44 trillion in 2019 to W0.87 trillion in 2020, indicating a slowdown in capital deployment compared to the prior year.
- Deferred Tax Assets: The company recognized previously unrecognized deferred tax assets related to tax credit carryforwards due to amendments in tax laws, resulting in a significant tax benefit.
Outlook, Risks, and Contingencies
- Key Audit Matters: The auditor highlighted the impairment test for the Display Cash Generating Unit (CGU) and the assessment of deferred tax assets as key audit matters due to the significant management judgment involved in forecasting future cash flows and taxable income.
- Legal Proceedings:
- Anti-trust Litigation: The company faces "follow-on" damages claims in the EU regarding alleged competition law violations. The company cannot reliably estimate the timing or amount of potential outflows.
- Patent Litigation: Solas OLED Ltd. filed patent infringement actions in the US, Germany, and China. The company reached an agreement with the plaintiff in December 2020, and lawsuits are expected to be withdrawn in early 2021.
- Financial Risks: The company is exposed to currency risk (primarily USD and JPY), interest rate risk, and credit risk. It utilizes cross-currency interest rate swaps to hedge currency and interest rate risks associated with foreign borrowings.
- Related Party Transactions: Significant transactions occur with subsidiaries and LG Electronics Inc. (which holds a 37.9% stake). Sales to related parties totaled W21.99 trillion in 2020.
Investor Verification Checklist
- Impairment Assumptions: Verify the reasonableness of the discount rate (7.0%) and terminal growth rate (1.0%) used in the Display CGU impairment test, as minor changes could materially impact results.
- Deferred Tax Realization: Assess the feasibility of the company's plan to generate sufficient future taxable income to utilize the recognized deferred tax assets and tax credit carryforwards.
- Legal Exposure: Monitor the status of the EU anti-trust litigation and the finalization of the Solas OLED settlement to ensure no unexpected liabilities arise.
- Currency Hedging: Review the effectiveness of the company's hedging strategies given the volatility in foreign exchange rates (USD/KRW, JPY/KRW) which significantly impacts non-operating income/expense.
- Capital Allocation: Analyze the shift in capital expenditure trends and the company's ability to maintain liquidity given the reduction in operating cash flow compared to 2019.