LG Display Co., Ltd. - 2013 Annual Report (Form 20-F) Summary
Business Context and Reporting Period
This filing is the Annual Report on Form 20-F for LG Display Co., Ltd., a leading global manufacturer of thin-film transistor liquid crystal display (TFT-LCD) and organic light-emitting diode (OLED) panels. The report covers the fiscal year ended December 31, 2013. The company's financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). LG Display operates fabrication facilities primarily in Korea, with module assembly plants in China, Poland, and Mexico.
Key Financial Metrics (Year Ended Dec 31, 2013)
| Metric | 2013 (KRW Billion) | 2013 (USD Million) | 2012 (KRW Billion) |
|---|---|---|---|
| Revenue | 27,033 | 25,618 | 29,430 |
| Cost of Sales | (23,525) | (22,293) | (26,425) |
| Gross Profit | 3,508 | 3,324 | 3,005 |
| Gross Margin | 13.0% | 13.0% | 10.2% |
| Profit for the Period (Net Income) | 419 | 397 | 237 |
| Net Margin | 1.5% | 1.5% | 0.8% |
| EBITDA | 4,784 | 4,534 | 5,087 |
| Capital Expenditures | 3,473 | 3,291 | 3,972 |
| Net Cash from Operating Activities | 3,585 | 3,397 | 4,570 |
| Total Assets | 21,715 | 20,578 | 24,456 |
| Total Liabilities | 10,918 | 10,346 | 14,215 |
| Total Equity | 10,797 | 10,232 | 10,240 |
Note: USD conversions are based on the exchange rate of KRW 1,055.25 = USD 1.00 as of December 31, 2013.
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 8.1% to KRW 27.0 trillion, driven by lower average selling prices (ASPs) and reduced unit sales in television and notebook computer panels. This was attributed to industry overcapacity and customer inventory adjustments following the expiration of a Chinese government rebate program for energy-efficient TVs.
- Profitability Improvement: Despite lower revenue, Net Profit increased 76.8% to KRW 419 billion. Gross margin expanded from 10.2% to 13.0% due to a significant decrease in cost of sales (down 11.0%), driven by lower raw material costs (partly due to a weaker Japanese Yen) and reduced depreciation expenses.
- Product Mix Shifts:
- Televisions: Revenue fell 12.7% due to ASP declines, though sales of large-sized panels (>42 inches) increased.
- Notebook Computers: Revenue dropped 23.1% as consumer demand shifted toward tablets.
- Tablets: Revenue decreased 3.7% despite a 12.9% increase in unit sales, as ASPs fell 14.8%.
- Mobile/Other: Revenue grew 4.9% driven by higher ASPs for smartphone panels with advanced technologies.
- Liquidity Position: The company moved from net current liabilities in 2012 to net current assets of KRW 943 billion in 2013, primarily due to reduced payables associated with construction projects and lower raw material purchases.
Guidance, Outlook, and Risks
- Capital Expenditure Outlook: LG Display expects 2014 capital expenditures to be similar to 2013 (approx. KRW 3.5 trillion). Funds will target the construction of an eighth-generation facility in Guangzhou, China, and the expansion of OLED and LTPS (Low Temperature Polycrystalline Silicon) production lines.
- Technology Strategy: Management is aggressively shifting focus toward OLED technology (both flexible plastic for mobile and large-sized for TVs) and LTPS backplanes to counteract price erosion in mature TFT-LCD products. Mass production of new OLED lines is targeted for the second half of 2014.
- Key Risks:
- Industry Cyclicality: The display panel industry faces recurring overcapacity, leading to downward pricing pressure.
- Customer Concentration: The top 10 end-brand customers accounted for 76% of sales in 2013. LG Electronics alone accounted for 22.9% of sales.
- Legal Proceedings: Ongoing antitrust investigations and class-action lawsuits in the U.S., Europe, and other jurisdictions regarding price-fixing in the TFT-LCD industry. While many settlements have been reached, some proceedings remain pending.
- Geopolitical Risk: Tensions on the Korean peninsula and potential disruptions in the supply chain due to natural disasters or political instability.
Investor Verification Checklist
- Antitrust Liabilities: Verify the status of remaining antitrust litigation (e.g., in Brazil, Japan, and specific U.S. state attorney general actions) and the adequacy of current legal provisions (KRW 157 billion recorded as of Dec 31, 2013).
- OLED Ramp-up: Monitor the timeline and yield rates for the new large-sized OLED production lines in the P8 facility and the Guangzhou facility, as these are critical to future margin expansion.
- Customer Concentration: Assess the stability of the relationship with LG Electronics (22.9% of sales) and the impact of any potential shifts in their sourcing strategies.
- Exchange Rate Sensitivity: Evaluate the impact of KRW/USD and KRW/JPY fluctuations, as sales are primarily USD-denominated while a significant portion of raw materials (15.5%) and equipment costs are denominated in JPY and KRW.
- Inventory Levels: Review inventory write-down risks, as the company recorded KRW 211 billion in inventory write-downs in 2013, a 55% increase from the prior year.