LG Display Co., Ltd. - 2011 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, 2011. 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 plants in China, Poland, and Mexico.
Key Financial Metrics (Year Ended Dec 31, 2011)
| Metric | 2011 (Won) | 2011 (US$) | 2010 (Won) |
|---|---|---|---|
| Revenue | 24,291 billion | 20,968 million | 25,512 billion |
| Cost of Sales | 23,081 billion | 19,923 million | 21,781 billion |
| Gross Profit | 1,210 billion | 1,044 million | 3,731 billion |
| Operating Loss | (924) billion | (798) million | 1,310 billion (Income) |
| Net Loss | (788) billion | (680) million | 1,159 billion (Income) |
| EBITDA | 2,727 billion | 2,354 million | 4,236 billion |
| Cash & Equivalents | 1,518 billion | 1,310 million | 1,631 billion |
| Total Debt (Long-term + Current) | 4,617 billion | 3,985 million | 4,644 billion |
| Capital Expenditures | 4,063 billion | 3,507 million | 4,942 billion |
Margins (2011): Gross Margin: 5.0%; Operating Margin: (3.8)%; Net Margin: (3.2%).
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 4.8% to Won 24.291 trillion, driven by a 20.7% drop in average selling prices (ASP) for television panels and a 9.4% drop for desktop monitors. This was partially offset by a 29.2% increase in unit sales for notebook computer panels.
- Profitability Reversal: The company swung from a net profit of Won 1.159 trillion in 2010 to a net loss of Won 788 billion in 2011. Gross margin collapsed from 14.6% to 5.0%.
- Primary Drivers of Loss:
- Industry Overcapacity: Excess supply in the TFT-LCD industry relative to demand led to severe downward price pressure.
- Currency Impact: The appreciation of the Korean Won against the U.S. dollar (from an average of 1,158.7 in 2010 to 1,105.2 in 2011) reduced revenue when translated to Won, as 95.8% of sales are denominated in USD.
- Fixed Costs: High depreciation expenses (Won 3.651 trillion) from new facilities (P83, P98) and reduced capacity utilization rates increased the cost per panel.
- Product Mix Shift: Revenue from "Mobile and Other Applications" grew 61.3% due to higher ASPs for smartphone and tablet panels, though unit volume in this category declined 8.5%.
Guidance, Outlook, and Risks
- Outlook: Management noted a modest increase in industry demand since late 2011 due to channel inventory replenishment but cautioned that this does not guarantee a sustained recovery. The company plans to adjust utilization rates to meet demand.
- Capital Expenditures: LG Display expects 2012 capital expenditures to be approximately Won 4 trillion, primarily for the construction of the P98 eighth-generation facility (mass production expected Q2 2012) and a new facility in Guangzhou, China.
- Technology Transition: The company is aggressively pursuing OLED technology, having commenced mass production of OLED panels for mobile applications in September 2011. Mass production of large-sized OLED panels for televisions is targeted for the second half of 2012.
- Legal Contingencies: Significant risks remain regarding ongoing antitrust investigations and class-action lawsuits in the U.S., EU, Korea, and other jurisdictions. The company has recognized provisions of Won 222.7 billion as of Dec 31, 2011, but actual liabilities could differ materially.
- Dividends: No cash dividend was declared for the fiscal year 2011 at the shareholders' meeting held on March 9, 2012.
Key Facts for Investor Verification
- Customer Concentration: The top 10 end-brand customers accounted for 70.9% of 2011 sales. LG Electronics (largest shareholder) and Apple were the only two customers contributing 10% or more individually.
- Liquidity Position: Current liabilities (Won 9.911 trillion) exceeded current assets (Won 7.858 trillion) by Won 2.053 trillion. Investors should verify the company's ability to service debt and fund operations given the net loss and negative working capital.
- Antitrust Exposure: Verify the status of the European Commission fine (€215 million) and the U.S. Department of Justice settlement (US$400 million), as well as ongoing class-action settlements which are subject to court approval.
- Capacity Utilization: Confirm current utilization rates of the P83 and P98 facilities, as low utilization significantly impacts gross margins in this capital-intensive industry.
- Exchange Rate Sensitivity: Monitor the Won/USD exchange rate, as a strong Won continues to negatively impact reported revenue and margins.