LG Display Co., Ltd. — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone 2019 Q4 filing; the supplied text does not provide separate Q4 financial results. Financial statements are consolidated and prepared under IFRS as issued by the IASB. Amounts below are in Korean won (W) unless stated otherwise.
Business context
LG Display manufactures TFT-LCD and OLED panels for televisions, computers, tablets, mobile devices and other applications. Television panels remained its largest revenue category, while management continued shifting product mix and investment toward OLED. China represented about 65.7% of 2019 sales by customer location; the ten largest end-brand customers accounted for 80% of sales. LG Electronics, the 37.9% shareholder, represented about 19% of sales.
Key financial metrics
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | W23,476bn (US$20.3bn) | W24,337bn |
| Gross profit / gross margin | W1,868bn / 8.0% | W3,085bn / 12.7% |
| Net income (loss) / net margin | Loss W2,872bn / (12.2)% | Loss W179bn / (0.7)% |
| EBITDA (company-defined, non-IFRS) | W471bn | W3,476bn |
| Cash from operating activities | W2,707bn | W4,484bn |
| Cash used in investing activities | W6,755bn | W7,675bn |
| Capital expenditures, cash basis | W6,927bn | W7,942bn |
| Cash and cash equivalents | W3,336bn | W2,365bn |
| Total assets / total liabilities / equity | W35,575bn / W23,086bn / W12,488bn | W33,176bn / W18,289bn / W14,886bn |
At year-end, current assets of W10,248bn were below current liabilities of W10,985bn, a W737bn working-capital deficit. Borrowings and bonds totaled about W13,481bn, excluding lease liabilities; management reported net borrowings to equity of 81%, up from 41% in 2018. The filing also reports W13,491bn of debt obligations including current portions. The differing totals reflect differing debt definitions and should be checked against the notes.
Material changes versus prior periods
- Revenue declined 3.5% from 2018. Television-panel revenue fell 17.8%, mainly from fewer units sold and lower average selling prices; mobile and other applications rose 11.8%, and tablet revenue rose 13.1%.
- Cost of sales increased 1.7% despite lower revenue. Gross profit fell 39.4%, with gross margin contracting 4.7 percentage points to 8.0% as pricing pressure and higher product costs outweighed higher average selling prices in several categories.
- The annual loss widened to W2,872bn. Other expenses included W1,550bn of property, plant and equipment impairment and W249bn of intangible-asset impairment, principally associated with plastic OLED and the planned discontinuation of OLED lighting products.
- Operating cash flow fell about 40% to W2,707bn, while cash rose to W3,336bn, supported in part by increased financing. Total liabilities increased and equity declined.
- Inventory write-downs rose to W473bn from W313bn; warranty expense increased to W419bn from W235bn.
- The company adopted IFRS 16 leases in 2019. It recognized W142bn of right-of-use assets and W115bn of lease liabilities at adoption; prior-year comparatives were not restated.
Outlook, risks and unusual items
- Management expected 2020 cash capital expenditure to be lower than 2019, primarily to continue previously announced OLED-facility investments. This was an expectation subject to reassessment, not firm guidance.
- LG Display planned to cease TFT-LCD television-panel production in Korea by the end of 2020. It expected preparations for its Guangzhou large-sized OLED facility to conclude in the first half of 2020; mass-production timing was subject to COVID-19 and other factors.
- The filing says COVID-19 had disrupted operations, including temporary suspensions at some facilities. Management reported materially lower revenue and a larger net loss in Q1 2020 versus Q1 2019, without giving clear figures in the supplied text, and expected continued adverse demand effects in Q2.
- Key risks include industry overcapacity and panel-price declines, competition and capacity utilization, execution and cost of OLED investments, customer concentration, product quality and warranty claims, supply-chain disruption, currency and interest-rate exposure, and COVID-19-related demand and operating risks.
- Debt rose substantially; some borrowings were LIBOR-linked, and debt agreements include financial covenants and cross-default provisions. Management said it was compliant with covenants at December 31, 2019. The company issued US$688m of convertible bonds in 2019, convertible from August 2020 at W19,845 per share, subject to adjustment; conversion could dilute shareholders.
- Ongoing legal matters included a UK antitrust follow-on claim and patent litigation brought by Solas OLED in the United States and Germany. No provisions were recognized for legal claims at year-end based on management’s assessment; outcomes could differ.
- The auditor issued unqualified opinions on the IFRS financial statements and internal control over financial reporting. Critical audit matters included impairment testing and deferred-tax-asset recognition.
Most important facts for investors to verify
- Whether OLED capacity ramps, including the Guangzhou facility, achieve planned timing, yields, demand and cost reductions.
- Whether cash generation and liquidity can support investment and debt maturities while the company reports a working-capital deficit and higher leverage.
- The assumptions behind the W1,550bn PPE and W249bn intangible impairments, and the recoverability of deferred tax assets and unused tax credits.
- The continuing effects of COVID-19, LCD capacity reductions, industry pricing and customer concentration on revenue and margins.
- Convertible-bond terms and potential dilution, covenant headroom, LIBOR-linked debt transition, and developments in disclosed litigation and tax matters.