LG Display Co., Ltd. - 2010 Annual Report (Form 20-F) Summary
Business Context and Reporting Period
Company: LG Display Co., Ltd.
Reporting Period: Fiscal year ended December 31, 2010.
Accounting Standards: International Financial Reporting Standards (IFRS).
Business Overview: LG Display is a leading global manufacturer of Thin-Film Transistor Liquid Crystal Display (TFT-LCD) panels, primarily for televisions, notebook computers, desktop monitors, and mobile applications. The company operates fabrication facilities in Korea (Paju and Gumi) and module plants in China, Poland, and Korea. In 2010, the company expanded its product portfolio to include Organic Light Emitting Diode (OLED) displays.
Key Financial Metrics (Year Ended Dec 31, 2010)
| Metric | 2010 (Won Billions) | 2010 (US$ Millions) | 2009 (Won Billions) |
|---|---|---|---|
| Revenue | 25,512 | 22,565 | 20,038 |
| Cost of Sales | (21,781) | (19,265) | (17,477) |
| Gross Profit | 3,731 | 3,300 | 2,561 |
| Operating Profit | 1,310 | 1,159 | 1,010 |
| Net Profit (Profit for the Period) | 1,159 | 1,025 | 1,118 |
| EBITDA | 4,236 | 3,747 | 3,852 |
| Capital Expenditures | 4,942 | 4,371 | 3,761 |
| Net Cash from Operating Activities | 4,884 | 4,320 | 4,153 |
| Total Assets | 23,858 | 21,102 | 19,703 |
| Total Liabilities | 12,797 | 11,319 | 9,663 |
| Total Equity | 11,061 | 9,783 | 10,040 |
Note: US$ amounts are translated at the rate of 1,130.60 Won = US$1.00 (Dec 30, 2010).
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 27.3% to Won 25.5 trillion, driven by a 44.9% increase in unit sales of television panels and a 38.5% increase in notebook computer panels. This growth offset a 5.5% decline in the average selling price (ASP) of large-size panels.
- Margin Expansion: Gross margin improved from 12.8% in 2009 to 14.6% in 2010, attributed to higher capacity utilization rates and a faster decline in unit raw material costs compared to ASP declines.
- Profitability: Net profit increased slightly by 3.7% to Won 1.16 trillion. However, net margin decreased from 5.6% to 4.5% due to increased expenses.
- Expense Increases:
- R&D Expenses: Surged 65.4% to Won 675 billion (2.6% of revenue) to support new product development (3D displays, OLED).
- Selling & Admin Expenses: Increased 31.7% to Won 1.37 billion, driven by depreciation from intangible assets (LG Innotek acquisition), higher after-sales service costs, and increased salaries.
- Antitrust Costs: The company recognized Won 309 billion in antitrust-related expenses in 2010, including provisions for legal proceedings and settlement payments.
- Liquidity Position: Current liabilities (Won 8.88 trillion) exceeded current assets (Won 8.84 trillion) by Won 41 billion at year-end, a reversal from 2009 where current assets exceeded liabilities. This was primarily due to increased payables related to construction of new facilities (P8 and P9).
Guidance, Outlook, Risks, and Contingencies
- Capital Expenditure Outlook: The company expects total capital expenditures in 2011 to be approximately Won 5.0 trillion. Major projects include the construction of the P9 eighth-generation fab in Korea (approx. Won 3.1 trillion) and the expansion of P83 and AP2E.
- Market Risks:
- Cyclicality & Pricing: The TFT-LCD industry is highly cyclical. The company faces pressure from declining ASPs and potential overcapacity as competitors ramp up new facilities.
- Customer Concentration: The top 10 end-brand customers accounted for 75.8% of sales in 2010. LG Electronics (largest shareholder) and Apple were the only two customers contributing over 10% individually.
- Supply Chain: The March 2011 earthquake and tsunami in Japan disrupted suppliers of raw materials and equipment, creating uncertainty regarding supply constraints and costs.
- Legal Contingencies (Antitrust):
- US: Pleaded guilty to Sherman Act violations; agreed to pay a US$400 million fine (payments ongoing through 2013). Class action lawsuits are pending with trial set for February 2012.
- EU: Fined EUR 215 million in December 2010 for anti-competitive activities. The company filed an application for partial annulment/reduction in February 2011; ruling pending.
- Other: Investigations remain ongoing in Korea, Japan, Canada, Mexico, and Brazil.
- Technology Transition: The company is investing heavily in next-generation technologies (OLED, flexible displays, 3D) to mitigate risks from alternative display technologies and maintain market leadership.
Key Facts for Investor Verification
- Antitrust Liability Exposure: Verify the status of the EU fine appeal and the potential magnitude of damages from pending US class action lawsuits, as actual liability could materially differ from current provisions.
- Working Capital Management: Monitor the company's ability to manage the negative working capital position (current liabilities exceeding current assets) amidst high capital expenditure requirements.
- Customer Concentration: Assess the risk associated with reliance on LG Electronics (24.8% of sales) and Apple, and the potential impact of any reduction in orders from these key clients.
- Japan Supply Chain Impact: Evaluate the long-term operational and cost impacts of the March 2011 Japan earthquake on the supply of critical components and manufacturing equipment.
- Capital Expenditure Execution: Track the progress and cost overruns of the P9 fab construction and other expansion projects, which require significant external financing.