LG Display Co., Ltd. Q1 2012 Financial Summary
Business Context and Reporting Period
This Form 6-K filing covers the quarterly report for the three-month period ended March 31, 2012, submitted on May 15, 2012. LG Display is a global manufacturer of TFT-LCD and OLED panels, with primary production facilities in Paju and Gumi, Korea, and sales subsidiaries worldwide. The company operates in a highly cyclical industry characterized by intense competition and declining average selling prices (ASP) due to overcapacity.
Key Financial Metrics (Consolidated K-IFRS)
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | W6,183.7 billion | W5,365.5 billion |
| Gross Profit | W328.2 billion | W232.9 billion |
| Gross Margin | 5.3% | 4.3% |
| Operating Loss | (W178.2 billion) | (W239.2 billion) |
| Net Loss | (W129.2 billion) | (W115.4 billion) |
| Loss Per Share (Basic) | (W359) | (W322) |
| Total Assets | W24,531.6 billion | W25,162.9 billion (Dec 2011) |
| Total Liabilities | W14,532.7 billion | W15,031.9 billion (Dec 2011) |
| Net Borrowings to Equity | 29% | 22% (Dec 2011) |
| Operating Cash Flow | W650.9 billion | W814.4 billion |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 15.2% year-over-year to W6.18 trillion, driven by higher sales volumes in notebook, monitor, and television panels, despite a 2% decline in average selling prices per square meter compared to Q4 2011.
- Improved Operating Performance: The operating loss narrowed significantly from W239.2 billion in Q1 2011 to W178.2 billion in Q1 2012. Gross profit improved to W328.2 billion, reflecting better cost management and product mix.
- Net Loss Expansion: Despite operational improvements, the net loss widened slightly to W129.2 billion (from W115.4 billion) due to increased finance costs and foreign currency losses, partially offset by a W67.8 billion income tax benefit.
- Capital Expenditures: The company incurred W1.2 trillion in cash outflows for property, plant, and equipment in Q1 2012, consistent with its strategy to expand capacity (estimated W4 trillion for full year 2012).
Outlook, Risks, and Contingencies
- Market Conditions: Management notes continued industry overcapacity and pressure on ASPs. The company is focusing on cost reduction, new technology development (3D, touch, OLED), and expanding module production capacity in the U.S. and Mexico.
- Antitrust Litigation: The company faces significant ongoing legal risks. It has settled with the U.S. Department of Justice (W400 million fine) and the European Commission (W215 million fine, currently under appeal). Class action lawsuits in the U.S. and Canada remain pending, with a settlement reached with the direct purchaser class in the U.S. in June 2011. Actual liabilities may differ materially from current provisions.
- Patent Disputes: Ongoing patent infringement cases include a dispute with Chimei Innolux (stay lifted Jan 2012), an appeal by Anvik Corporation regarding Nikon equipment, and a USITC investigation by ITRI seeking exclusion orders.
- Convertible Bonds: The remaining US$66 million of convertible bonds due April 2012 were repaid at 116.77% of principal upon maturity.
Investor Verification Checklist
- Antitrust Exposure: Verify the status of the European Commission appeal and the potential liability from pending U.S. and Canadian class action lawsuits, as actual losses could exceed current provisions.
- ASP Trends: Monitor the trajectory of average selling prices for LCD panels, as a decline faster than cost reductions would severely impact margins.
- Capital Allocation: Assess the return on the estimated W4 trillion capital expenditure plan for 2012, particularly regarding the new P9 facility and overseas module plants.
- Currency Sensitivity: Review the impact of foreign exchange fluctuations, as the company has significant exposure to USD, JPY, and CNY, which contributed to Q1 losses.
- Convertible Bond Repayment: Confirm the cash impact of the April 2012 repayment of the remaining convertible bonds.