LG Display Co., Ltd. - 2015 Annual Report (Form 20-F) Summary
Business Context and Reporting Period
Company: LG Display Co., Ltd.
Filing Type: Annual Report on Form 20-F
Reporting Period: Fiscal year ended December 31, 2015
Accounting Standards: International Financial Reporting Standards (IFRS)
Business Overview: LG Display is a leading global manufacturer of display panels, primarily Thin-Film Transistor Liquid Crystal Display (TFT-LCD) and Organic Light-Emitting Diode (OLED) panels. Products are used in televisions, notebook computers, desktop monitors, tablet computers, and mobile devices. The company operates fabrication facilities in Korea and China.
Key Financial Metrics (Year Ended Dec 31, 2015)
| Metric | 2015 (Won) | 2015 (US$) | 2014 (Won) |
|---|---|---|---|
| Revenue | W 28,384 billion | US$ 24,275 million | W 26,456 billion |
| Profit for the Year | W 1,023 billion | US$ 874 million | W 917 billion |
| Gross Profit | W 4,314 billion | US$ 3,689 million | W 3,789 billion |
| Gross Margin | 15.2% | 15.2% | 14.3% |
| Net Margin | 3.6% | 3.6% | 3.5% |
| EBITDA | W 4,880 billion | US$ 4,174 million | W 4,795 billion |
| Operating Cash Flow | W 2,727 billion | US$ 2,332 million | W 2,865 billion |
| Capital Expenditures | W 2,365 billion | US$ 2,023 million | W 2,983 billion |
| Cash & Equivalents | W 752 billion | US$ 643 million | W 890 billion |
| Total Debt (Long-term + Current) | W 4,228 billion | US$ 3,616 million | Filing text does not provide a clear consolidated total for 2014 |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 7.3% year-over-year to W 28.4 trillion. This was driven by a 58.2% surge in revenue from "Mobile and other applications" (primarily larger smartphone panels) and a 3.0% increase in television panel revenue.
- Profitability: Net profit rose 11.6% to W 1.02 trillion. Gross margin improved from 14.3% to 15.2% due to a strategic shift toward higher-end, differentiated products (OLED, Ultra HD) which command higher premiums, offsetting rising raw material costs.
- Product Mix Shifts:
- Mobile: Revenue grew significantly due to higher average selling prices (ASPs) for larger smartphone panels and smartwatches.
- Tablets: Revenue declined 29.1% due to a 38.2% drop in unit sales, reflecting a maturing market.
- Notebooks: Revenue decreased 6.0% as consumer demand shifted toward mobile devices.
- Cost Structure: Cost of sales increased 6.2%, largely due to higher raw material costs (denominated in USD) and a shift to more expensive high-end components. However, depreciation costs decreased as a percentage of revenue due to the end of useful lives for certain older assets.
Guidance, Outlook, and Risks
Outlook and Capital Allocation:
- Management expects 2016 capital expenditures to be higher than 2015 levels to fund the construction of the P10 fabrication facility in Paju, Korea (targeting OLED production in H1 2018) and the E5 production line in Gumi (targeting OLED production in H1 2017).
- The company continues to focus on expanding OLED capabilities to maintain a competitive edge against TFT-LCD technology.
Key Risks and Contingencies:
- Industry Cyclicality: The display panel industry is highly cyclical with frequent overcapacity, leading to downward pricing pressure. Average selling prices per square meter decreased 5.7% in 2015.
- Customer Concentration: The top 10 end-brand customers accounted for 82% of sales in 2015. LG Electronics alone accounted for 23.5% of sales.
- Legal Proceedings: The company faces ongoing antitrust litigation globally. Notably, a US$61.9 million judgment was entered against LG Display in the Costco case in June 2015; the company has appealed. Other proceedings include class actions in Canada and Israel.
- Technology Transition: Risk of rapid obsolescence of TFT-LCD technology in favor of OLED. Failure to commercialize OLED at scale could materially harm financial results.
- Foreign Exchange: Significant exposure to fluctuations between the Korean Won, U.S. Dollar, and Japanese Yen, as sales are primarily in USD while some costs are in JPY or KRW.
Investor Verification Checklist
- OLED Ramp-up: Verify the timeline and yield rates for the new E5 and P10 OLED production lines to ensure they meet the H1 2017 and H1 2018 targets.
- Antitrust Liabilities: Monitor the status of the Costco appeal and other pending class actions (Canada, Israel) to assess potential future cash outflows beyond current provisions.
- Customer Concentration: Review the stability of orders from LG Electronics and other top 10 customers, given they represent over 80% of revenue.
- Raw Material Costs: Assess the impact of USD/KRW exchange rate fluctuations on future margins, as 86.7% of raw material purchases are denominated in USD.
- Tablet Market: Evaluate the trajectory of the tablet panel market to determine if the 29% revenue decline is a temporary correction or a structural shift.