Business Context and Reporting Period
Company: LG Display Co., Ltd.
Filing Type: Form 6-K (Quarterly Report)
Reporting Period: January 1, 2011 to March 31, 2011 (Q1 2011)
Business Overview: LG Display is a leading manufacturer of TFT-LCD and OLED panels. The company operates production facilities in Paju and Gumi, Korea, with subsidiaries in the US, Europe, and Asia. The LCD business is the primary reporting segment, with OLED, TV, and monitor businesses representing a small portion of assets and revenues.
Key Financial Metrics (Consolidated K-IFRS)
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenue | 5,365.5 billion Won | 5,876.3 billion Won |
| Gross Profit | 232.9 billion Won | 1,236.7 billion Won |
| Operating Profit (Loss) | (239.2) billion Won | 789.4 billion Won |
| Net Profit (Loss) | (115.4) billion Won | 648.6 billion Won |
| EPS (Basic) | (322) Won | 1,814 Won |
| Total Assets | 24,325.4 billion Won | 23,857.7 billion Won (Dec 31, 2010) |
| Total Liabilities | 13,570.8 billion Won | 12,796.7 billion Won (Dec 31, 2010) |
| Net Cash from Operating Activities | 814.4 billion Won | 958.4 billion Won |
Material Changes vs. Prior Period
- Profitability Decline: The company reported a net loss of 115.4 billion Won in Q1 2011, a significant reversal from the 648.6 billion Won profit in Q1 2010. Operating profit swung from a 789.4 billion Won profit to a 239.2 billion Won loss.
- Revenue Decrease: Revenue declined by approximately 8.7% year-over-year to 5,365.5 billion Won.
- Margin Compression: Gross profit margin contracted sharply from roughly 21% in Q1 2010 to approximately 4.3% in Q1 2011, driven by declining average selling prices (ASPs) of LCD panels and high fixed costs.
- Inventory Build-up: Inventories increased to 2,505.2 billion Won from 2,215.2 billion Won at the end of 2010, reflecting a change in inventory levels of 289.9 billion Won recognized in cost of sales.
- Foreign Exchange Impact: The company recognized significant foreign currency gains (329.6 billion Won) and losses (316.9 billion Won) in other income and expenses, respectively, due to currency fluctuations.
Guidance, Outlook, Risks, and Contingencies
Management Commentary and Outlook
- Industry Conditions: The TFT-LCD industry remains highly cyclical and competitive. Management notes that ASPs may continue to decline due to technology advancements and cost reductions, regardless of business cycles.
- Investment Plan: LG Display estimates capital expenditures of approximately 5.0 trillion Won for 2011 to expand production capacity, including the P83 facility (mass production commenced March 2011) and a new eighth-generation facility (P98).
- Strategic Focus: The company is focusing on 3D technology, touch screens, and next-generation displays (OLED, flexible displays) to differentiate products. Long-term supply agreements with major customers like Apple Inc. remain in place.
Risks and Contingencies
- Antitrust Litigation: The company faces significant legal exposure regarding anti-competitive activities in the LCD industry.
- European Commission: Imposed a fine of EUR 215 million (approx. 336 billion Won) in December 2010. LG Display filed an application for partial annulment in February 2011.
- US DOJ: Pleaded guilty to Sherman Antitrust Act violations in 2008, agreeing to a total fine of USD 400 million.
- Class Actions: Subject to federal class actions in the US and Canada. Trial is set to begin in February 2012. The company has established provisions but notes actual liability may differ materially.
- Market Risks: Exposure to foreign currency fluctuations (USD, JPY, EUR) and interest rate risks. The company uses forward exchange contracts and interest rate swaps to hedge these risks.
- Patent Litigation: Ongoing patent infringement lawsuits against Chi Mei Optoelectronics and AU Optronics, as well as a counter-claim by Anvik Corporation. Outcomes remain uncertain.
Key Facts for Investor Verification
- Antitrust Liability: Verify the status of the EUR 215 million European Commission fine appeal and the potential exposure from US class action lawsuits scheduled for trial in 2012.
- ASP Trends: Monitor the average selling price of LCD panels, which remained relatively flat in Q1 2011 compared to Q4 2010 but face downward pressure from industry capacity expansion.
- Capital Expenditures: Confirm the execution of the estimated 5.0 trillion Won capital expenditure plan for 2011 and its impact on cash flow.
- Customer Concentration: Sales to LG Electronics constituted approximately 22% of total revenue in Q1 2011; verify the stability of this key relationship.
- Convertible Bonds: Note the outstanding USD 66 million convertible bonds maturing in April 2012, which are designated as financial liabilities at fair value through profit or loss.