LG Display Co., Ltd. - Q1 2016 Financial Summary
Business Context and Reporting Period
This Form 6-K filing covers the quarterly period from January 1, 2016, to March 31, 2016. LG Display Co., Ltd. is a global manufacturer of display panels, primarily utilizing TFT-LCD and OLED technologies. The company operates production facilities in Korea (Gumi, Paju), China (Guangzhou, Nanjing, Yantai, Shenzhen), and Poland (Wroclaw). The financial statements are prepared in accordance with Korean International Financial Reporting Standards (K-IFRS).
Key Financial Metrics (Consolidated)
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | W 5,989 billion | W 7,022 billion | -14.7% |
| Gross Profit | W 626 billion | W 1,361 billion | -54.0% |
| Operating Profit | W 40 billion | W 744 billion | -94.6% |
| Net Profit (Period) | W 1.2 billion | W 476 billion | -99.7% |
| Net Profit (Attributable to Owners) | W 2.4 billion | W 458 billion | -99.5% |
| EPS (Basic) | W 7 | W 1,281 | -99.5% |
| Operating Cash Flow | W 917 billion | W 783 billion | +17.1% |
| Total Assets | W 22,178 billion | W 22,577 billion (Dec 2015) | -1.8% |
| Total Liabilities | W 9,677 billion | W 9,872 billion (Dec 2015) | -2.0% |
Note: All figures are in millions of Won unless otherwise noted. Q1 2015 figures are for the three-month period ended March 31, 2015.
Material Changes and Drivers
- Revenue Decline: Revenue decreased by approximately 14.7% year-over-year. The filing attributes this to a decrease in the shipment of panels for mobile devices and a general decline in average selling prices (ASP) across the industry.
- ASP Pressure: The average selling price of LCD panels per square meter dropped by approximately 17% from Q4 2015 to Q1 2016, largely due to seasonal factors and reduced shipments of higher-priced mobile panels.
- Profitability Collapse: Operating profit plummeted by 94.6% to W 40 billion. This was driven by the significant drop in gross profit (down 54%) which was not fully offset by expense reductions.
- Non-Operating Items: The company recognized a significant foreign currency loss of W 451 billion in non-operating expenses, partially offset by a foreign currency gain of W 435 billion in non-operating income. Additionally, an impairment loss of W 6.1 billion was recognized on an investment in WooRee E&L Co., Ltd.
- Capital Expenditures: The company expects 2016 capital expenditures to be higher than 2015 (W 2.4 trillion) to fund the construction of the P10 fabrication facility in Paju and expand OLED production capacities.
Outlook, Risks, and Contingencies
- Market Risks: The display industry remains highly cyclical and competitive. The company faces continued pressure on prices and margins due to additional industry capacity from competitors in Korea, Taiwan, China, and Japan.
- Legal Proceedings:
- Antitrust Litigation: The company is defending against antitrust lawsuits in the U.S. (e.g., Costco Wholesale Corp.) and Canada. During Q1 2016, the company increased its provision for pending proceedings by W 11.2 billion based on new developments.
- Patent Infringement: Cases filed by Delaware Display Group LLC and Surpass Tech Innovation LLC are ongoing. The company states it is not possible to reasonably estimate potential losses as plaintiffs have not provided damage information.
- Environmental Compliance: The company is subject to greenhouse gas emission targets under Korean law. Failure to meet targets could result in fines or the need to purchase additional emission credits.
- Foreign Exchange: The company is exposed to currency risks as sales are primarily in U.S. dollars while costs are in Won, Yen, and Yuan. A weaker Won generally benefits the company, but volatility remains a risk.
Key Facts for Investor Verification
- Profitability Sustainability: Verify if the drastic drop in operating margin (from ~10.6% in Q1 2015 to ~0.7% in Q1 2016) is a temporary cyclical dip or a structural shift in the display market.
- ASP Trends: Monitor the trajectory of LCD and OLED panel average selling prices to determine if the 17% Q1 decline stabilizes in subsequent quarters.
- Antitrust Exposure: Track the status of the U.S. and Canadian antitrust class actions, as the W 11.2 billion provision increase indicates potential for further liability.
- Capital Allocation: Assess the impact of increased capital expenditures for the P10 facility and OLED expansion on future cash flows and debt levels.
- Investment Impairments: Review the recoverability of equity investments, specifically the impairment recognized in WooRee E&L Co., Ltd.