LG Display Co., Ltd. - Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, filed on March 12, 2020, submits the audited consolidated financial statements for LG Display Co., Ltd. (LGD) for the fiscal years ended December 31, 2019, and 2018. LGD is a global manufacturer of Thin Film Transistor Liquid Crystal Display (TFT-LCD) and Organic Light Emitting Diode (OLED) panels. The financial statements were audited by Samjong Accounting Corporation (KPMG) and received an unqualified opinion.
Key Financial Metrics (FY 2019 vs. FY 2018)
| Metric (in millions of KRW) | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | 23,475,567 | 24,336,571 |
| Operating Income (Loss) | (1,359,382) | 92,891 |
| Net Income (Loss) | (2,872,078) | (179,443) |
| Net Cash Provided by Operating Activities | 2,706,545 | 4,484,123 |
| Total Assets | 35,574,563 | 33,175,710 |
| Total Liabilities | 23,086,282 | 18,289,464 |
| Total Shareholders' Equity | 12,488,281 | 14,886,246 |
| Net Borrowings to Equity Ratio | 81% | 41% |
Material Changes and Drivers
- Significant Operating Loss: The company reported an operating loss of W1.36 trillion in 2019, a sharp decline from an operating profit of W93 billion in 2018. This was primarily driven by massive impairment charges.
- Impairment Charges: Total impairment losses on property, plant, and equipment amounted to W1.55 trillion, and impairment on intangible assets was W249 billion. These were recognized due to the planned discontinuance of the Lighting business and adverse changes in the Display (AD PO) business environment.
- Cash Flow: Despite the net loss, operating cash flow remained positive at W2.71 trillion, supported by non-cash adjustments for depreciation and amortization (W3.70 trillion) and changes in working capital.
- Debt and Liquidity: Total liabilities increased by approximately W4.8 trillion to W23.1 trillion. Net borrowings to equity ratio doubled to 81% as the company increased borrowings to fund capital expenditures and operations.
- Revenue Decline: Revenue decreased by 3.5% year-over-year, with significant declines in Television panel sales (down 17.8%) partially offset by growth in Mobile and other segments (up 11.7%).
Outlook, Risks, and Contingencies
- Business Restructuring: Management restructured Cash Generating Units (CGUs), separating Display (AD PO) and Lighting. The Lighting CGU was fully impaired (W231 billion), and the Display (AD PO) CGU incurred a W1.40 trillion impairment loss.
- Legal Proceedings: The company faces ongoing "follow-on" damages claims regarding EU competition law violations and patent infringement actions filed by Solas OLED Ltd. in the US and Germany. Final results remain unpredictable.
- Tax Uncertainties: Chinese tax authorities imposed additional taxes of W127.1 billion on LGD's Chinese subsidiaries regarding transfer pricing. LGD has initiated a mutual agreement procedure with Korean and Chinese tax authorities and expects a resolution within a reasonable period.
- Key Audit Matters: Auditors highlighted the assessment of impairment of non-financial assets (including goodwill) and the recoverability of deferred tax assets as key audit matters due to the high degree of management judgment involved.
Investor Verification Checklist
- Impairment Assumptions: Verify the sensitivity of the discounted cash flow models used for the Display (AD PO) and Lighting CGUs, specifically regarding discount rates and terminal growth rates.
- Capital Expenditure: Review the W6.93 trillion in acquisitions of property, plant, and equipment to ensure alignment with the company's strategic shift toward OLED and away from LCD/Lighting.
- Debt Maturity Profile: Assess the liquidity risk given the significant increase in borrowings and the maturity schedule of financial liabilities (W11.5 trillion due within 6 months).
- Related Party Transactions: Examine the W3.52 trillion in sales and W1.10 trillion in purchases with LG Electronics Inc. and its subsidiaries to understand dependency on the parent conglomerate.
- Tax Resolution: Monitor the progress of the mutual agreement regarding the W127.1 billion Chinese tax assessment.