Business Context and Reporting Period
Company: LG Display Co., Ltd.
Filing Type: Form 6-K (Semiannual Report)
Reporting Period: Six months ended June 30, 2010
Accounting Standard: Korean International Financial Reporting Standards (K-IFRS)
Business Overview: LG Display is a global leader in the research, development, manufacture, and sale of display panels, primarily TFT-LCDs, with a smaller OLED segment. The company operates fabrication facilities in Paju and Gumi, Korea, and sales subsidiaries in the US, Europe, and Asia. As of June 30, 2010, the company held a 24.7% worldwide market share for large-sized TFT-LCD panels.
Key Financial Metrics (Consolidated K-IFRS)
| Metric | Six Months Ended June 30, 2010 | Six Months Ended June 30, 2009 |
|---|---|---|
| Sales Revenue | 12,330,543 million Won | 8,314,678 million Won |
| Operating Income | 1,515,410 million Won | 34,807 million Won |
| Net Income | 1,203,413 million Won | 20,316 million Won |
| Earnings Per Share (Basic) | 3,366 Won | 57 Won |
| Net Cash from Operating Activities | 2,168,434 million Won | 1,322,484 million Won |
| Total Assets | 22,941,972 million Won | 19,703,477 million Won |
| Total Liabilities | 11,858,058 million Won | 9,663,728 million Won |
| Shareholders' Equity | 11,083,914 million Won | 10,039,749 million Won |
Capital Expenditures: The company estimates capital expenditures of approximately 5.5 trillion Won for the full year 2010.
Material Changes vs. Prior Period
- Revenue Growth: Sales revenue increased by approximately 48% year-over-year, driven by increased demand for LCD panels for notebook computers, monitors, and televisions.
- Profitability Surge: Operating income jumped from 34.8 billion Won in H1 2009 to 1.52 trillion Won in H1 2010. This turnaround was fueled by rising average selling prices (ASP) in Q2 2010 compared to Q1 2010 and improved cost competitiveness.
- Inventory Build-up: Inventories increased to 2.26 trillion Won from 1.67 trillion Won in the prior year-end, reflecting production ramp-ups to meet demand.
- Convertible Bonds: In April 2010, holders exercised put options on US$484 million of convertible bonds. The company repaid these at 109.75% of principal. The remaining US$66 million matures in 2012.
- Acquisitions: In May 2010, the company acquired the LCD module division of LG Innotek Co., Ltd. to improve supply chain efficiency and module manufacturing processes.
Guidance, Outlook, Risks, and Contingencies
Outlook and Strategy:
- The company expects average selling prices to continue to fluctuate due to supply and demand imbalances.
- Strategic focus includes expanding production capacity (P8E+ facility), strengthening OLED and flexible display technologies, and developing 3D and touch screen products.
- Long-term supply agreements with Apple Inc. (5-year term) were entered into in 2009 and 2010, securing US$580 million in long-term advances.
Risks and Contingencies:
- Antitrust Litigation: The company is under investigation by the Korea Fair Trade Commission, European Commission, and other authorities regarding anti-competitive activities in the LCD industry. It pleaded guilty to a Sherman Antitrust Act violation in the US, agreeing to a US$400 million fine. Numerous class action lawsuits in the US and Canada remain pending.
- Patent Disputes: Ongoing litigation with Chi Mei Optoelectronics Corp. and AU Optronics Corp. regarding patent infringement. A US court found four of the company's patents valid but not infringed by AU Optronics, while finding four of AU Optronics' patents valid and infringed by the company. Final judgment is pending.
- Market Cyclicality: The TFT-LCD industry is highly cyclical. Intense competition and capacity expansion by competitors in Korea, Taiwan, China, and Japan pose risks to pricing and margins.
- Foreign Exchange: Sales are primarily denominated in USD, while costs are in Won and Yen. The company uses forward exchange contracts to hedge currency risk.
Key Facts for Investor Verification
- Antitrust Exposure: Verify the status of pending class action lawsuits and potential fines from the European Commission and other jurisdictions beyond the settled US$400 million DOJ fine.
- Convertible Bond Liability: Confirm the remaining liability and potential dilution from the US$66 million of convertible bonds maturing in 2012.
- Apple Dependency: Assess the impact of the long-term supply agreement with Apple Inc. on revenue stability and margin pressure.
- Capital Intensity: Monitor the execution of the estimated 5.5 trillion Won capital expenditure plan for 2010 and its impact on cash flow.
- Patent Litigation Outcome: Track the final judgment in the AU Optronics/Chi Mei patent dispute, as it could result in significant damages or injunctions.