LG Display Co., Ltd. - SEC Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, filed on February 27, 2017, submits the audited consolidated financial statements for LG Display Co., Ltd. (LGD) and its subsidiaries for the fiscal years ended December 31, 2016, and 2015. The company manufactures and sells Thin Film Transistor Liquid Crystal Display (TFT-LCD) and Organic Light Emitting Diode (OLED) panels and modules. Operations are located in South Korea (Gumi, Paju), China, and Poland. The financial statements were audited by Samjong Accounting Corporation (KPMG) and received an unqualified opinion.
Key Financial Metrics (Fiscal Year 2016 vs. 2015)
| Metric (KRW Millions) | 2016 | 2015 |
|---|---|---|
| Revenue | 26,504,074 | 28,383,884 |
| Operating Income | 1,311,416 | 1,625,566 |
| Net Income | 931,508 | 1,023,456 |
| Operating Margin | 4.95% | 5.73% |
| Net Margin | 3.51% | 3.61% |
| Total Assets | 24,884,336 | 22,577,160 |
| Total Liabilities | 11,421,948 | 9,872,204 |
| Shareholders' Equity | 13,462,388 | 12,704,956 |
| Cash & Cash Equivalents | 1,558,696 | 751,662 |
| Net Cash from Operating Activities | 3,640,906 | 2,726,577 |
| Net Cash Used in Investing Activities | (3,189,182) | (2,731,929) |
| Net Cash from Financing Activities | 307,947 | (174,498) |
Material Changes and Analysis
- Revenue Decline: Revenue decreased by approximately 6.6% (W1.88 trillion) year-over-year, driven by lower sales volumes and pricing pressures in the display market.
- Profitability Compression: Operating income declined by 19.3% and Net Income by 9.0%. Gross profit margin decreased from 15.2% in 2015 to 14.1% in 2016.
- Cost Management: Despite revenue declines, the company reduced Selling, General, and Administrative (SG&A) expenses and Research & Development (R&D) expenses. R&D spending dropped from W1.22 trillion to W1.13 trillion.
- Liquidity Improvement: Cash and cash equivalents more than doubled from W751.7 billion to W1.56 billion, supported by strong operating cash flow generation (up 33.5%) and net financing inflows.
- Capital Expenditures: Net cash used in investing activities increased to W3.19 trillion, primarily due to higher acquisitions of property, plant, and equipment (W3.74 trillion) compared to the prior year (W2.36 trillion), reflecting continued investment in manufacturing capacity.
- Foreign Exchange Impact: The company recognized significant foreign currency gains (W1.54 trillion) and losses (W1.42 trillion) in non-operating items, resulting in a net positive impact on the bottom line despite a stronger Won in certain periods.
Guidance, Outlook, and Risks
Management Commentary: The filing does not contain specific forward-looking guidance or numerical forecasts for 2017. Management notes that the company continues to invest in OLED technology and manufacturing facilities to maintain competitiveness.
Risks and Contingencies:
- Legal Proceedings: LGD is involved in patent infringement lawsuits in the U.S. (Delaware and Texas districts) filed by Delaware Display Group LLC, Innovative Display Technologies LLC, and Surpass Tech Innovation LLC. The company states it has no present obligation and has not recognized provisions, as potential losses cannot be reasonably estimated.
- Antitrust Litigation: The company reached agreements regarding antitrust class actions in the U.S. and Canada during 2016.
- Market Risks: The company is exposed to currency risk (USD, JPY, CNY, EUR) and interest rate risk. A 5% weakening of the Won against the USD would increase equity and profit by approximately W57.1 billion and W63.3 billion, respectively.
- Accounting Changes: The company plans to adopt K-IFRS No. 1109 (Financial Instruments) and K-IFRS No. 1115 (Revenue from Contracts with Customers) effective January 1, 2018. The quantitative impact of these changes is not yet reliably estimable.
Key Facts for Investor Verification
- Customer Concentration: The top 10 end-brand customers accounted for 82% of total sales in 2016. Sales to two specific customers (Company A and Company B) totaled W9.12 trillion and W5.81 trillion, respectively.
- Dividend Declaration: The Board of Directors determined a dividend of W500 per share (totaling W178.9 billion) in 2017, which has not yet been paid as of the reporting date.
- Related Party Transactions: Significant transactions occurred with LG Electronics Inc. and its subsidiaries, including purchases of raw materials totaling W538.2 billion and sales of W23.0 billion in 2016.
- Defined Benefit Obligations: The company has a net defined benefit liability of W143.0 billion. Actuarial assumptions include a discount rate of 3.0% and an expected salary increase rate of 4.7%.
- Business Combination: In July 2016, LGD acquired 100% equity interest in Suzhou Lehui Display Co., Ltd. via an exchange of equity interests, recognizing W4.6 billion in goodwill.