LG Display Co., Ltd. - Form 6-K Summary (Q3 2018)
Business Context and Reporting Period
This Form 6-K reports the quarterly results for LG Display Co., Ltd. for the nine-month period ended September 30, 2018. The company is a global leader in the research, development, and manufacture of display panels, utilizing TFT-LCD and OLED technologies. Operations are conducted through a single reporting segment with manufacturing facilities in Korea (Paju, Gumi) and China (Guangzhou), alongside sales subsidiaries globally.
Key Financial Metrics (Consolidated K-IFRS)
| Metric | 9 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2017 |
|---|---|---|
| Revenue | W 17,389 billion | W 27,790 billion |
| Operating Profit (Loss) | (W 186 billion) | W 2,462 billion |
| Net Profit (Loss) | (W 332 billion) | W 1,937 billion |
| Net Loss Attributable to Owners | (W 353 billion) | W 1,803 billion |
| Earnings Per Share (Basic) | (W 988) | W 5,038 |
| Total Assets | W 32,120 billion | W 29,160 billion |
| Total Liabilities | W 17,428 billion | W 14,178 billion |
| Net Cash Provided by Operating Activities | W 3,712 billion | W 5,122 billion |
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased by approximately 37.4% year-over-year, dropping from W 27.79 trillion to W 17.39 trillion. This decline is attributed to a continued decrease in average selling prices (ASP) of LCD panels and a shift in product mix.
- Profitability Reversal: The company swung from a significant operating profit of W 2.46 trillion in the prior year to an operating loss of W 186 billion. The net loss attributable to owners was W 353 billion, compared to a profit of W 1.80 trillion in the same period of 2017.
- ASP Trends: The average selling price of LCD panels per square meter decreased by approximately 0.2% in Q3 2018 compared to Q2 2018, continuing a downward trend observed throughout the year (down from W 608/m² in Q1 2017 to W 500/m² in Q3 2018).
- Balance Sheet: Total assets increased by roughly 10% to W 32.12 trillion, driven by capital expenditures in property, plant, and equipment (PP&E), which rose to W 20.13 trillion. Total liabilities increased to W 17.43 trillion.
Guidance, Outlook, and Risks
- Strategic Focus: Management is focusing on securing profitability through differentiated products, specifically transitioning into the OLED business. Key initiatives include expanding premium OLED and UHD products for televisions and increasing the proportion of high-resolution, wide-screen products in the IT sector.
- Investment Plan: The company plans to continue capital expenditures in 2018 to invest in new OLED and oxide technologies and to respond to demand for large-sized panels. In 2017, total capital expenditures were W 6.6 trillion.
- Market Risks: The display industry is highly cyclical and sensitive to supply/demand imbalances. The company faces pressure from structural oversupply in the LCD industry, particularly from Chinese manufacturers, and continued declines in ASPs. Margins are at risk if prices decrease faster than cost reduction measures can be implemented.
- Foreign Exchange: Sales are primarily denominated in U.S. dollars, while costs are in Won and Yen. The company uses derivative contracts (swaps and forwards) to manage currency risk but recognized a loss of W 4.58 billion on foreign exchange derivatives in the first nine months of 2018.
- Regulatory & Safety: The company has faced fines and corrective orders related to industrial safety, waste management, and labor standards in 2017 and 2018. It is actively strengthening safety management standards and training.
Key Facts for Investor Verification
- Customer Concentration: Two customers ("A" and "B") each accounted for more than 10% of sales in Q3 2018. The top ten customers comprised 76% of total sales revenue for the nine-month period.
- Related Party Transactions: Significant transactions exist with LG Electronics (the largest shareholder, owning 37.9%) and other LG Group affiliates. Sales to LG Electronics and its subsidiaries totaled W 2.21 trillion for the nine-month period.
- Debt Structure: As of September 30, 2018, the company held significant borrowings, including W 2.30 trillion in Won-denominated long-term borrowings and W 1.62 trillion in foreign currency-denominated borrowings. Bonds outstanding totaled W 1.75 trillion.
- R&D Expenditure: Total R&D-related expenditures were W 1.57 trillion (9.0% of revenue) for the nine-month period, reflecting continued investment in technology despite the loss.
- Accounting Changes: The company adopted new K-IFRS standards (No. 1109, 1115, and 2122) effective January 1, 2018. The adoption of K-IFRS 1115 (Revenue) resulted in the recognition of a refund liability and a right to recover returned goods, though it had no impact on the opening balance of retained earnings.