LG Display Co., Ltd. annual report, Q4 FY2018

Business context and reporting period

LG Display Co., Ltd. designs and manufactures TFT-LCD and OLED display panels for televisions, computers, tablets, mobile devices and other applications. This Form 20-F, filed April 30, 2019, reports the fiscal year ended December 31, 2018, under IFRS as issued by the IASB. It is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide clear Q4-only financial results.

Financial performance and position

Amounts are consolidated and in Korean won (W) unless stated otherwise. Dollar translations are approximate filing translations.

Cash and current bank deposits together were W2,443bn at year-end 2018. Working capital was negative W1,154bn, versus positive W1,495bn a year earlier. Net cash used in investing activities was W7,675bn; net cash provided by financing activities was W2,953bn. Operating cash flow less cash capital expenditures was negative W3,458bn, a simple calculation rather than a company-reported free-cash-flow measure.

IFRS statements do not present operating profit as a separate line item. The filing reports K-IFRS operating profit of W93bn for 2018, compared with W2,462bn in 2017, in a separate SEC Form 6-K.

Material changes versus 2017

• Revenue fell 12.4%, while gross profit declined 42.5% and gross margin contracted 6.6 percentage points. The company swung from net profit of W1,937bn to a net loss of W179bn.
• Management attributed the deterioration mainly to industry capacity growth and price pressure, particularly in television panels. Average revenue per square meter shipped fell 13.6%, although the average selling price per panel rose 1.3% as product mix shifted toward higher-value products.
• Television revenue declined 17.0%; mobile and other applications declined 18.8%; tablet revenue declined 16.0%; desktop monitor revenue declined 8.0%. Notebook-panel revenue increased 26.4%.
• Operating cash flow decreased 33.7%, while cash capital expenditures increased to W7,942bn. Property, plant and equipment rose to W21,600bn from W16,202bn.
• Financial liabilities and financing needs increased. Gross borrowings and bonds were approximately W8.6tn, and the net-borrowings-to-equity ratio rose to 41% from 15%.

Outlook, commentary, risks and unusual items

• Management expected 2019 cash capital expenditures to be similar to 2018 levels, principally for OLED facilities; this was subject to reassessment and market conditions. The company was targeting 2019 production starts for the E6 plastic OLED line and the Guangzhou large-sized OLED joint venture.
• Major planned investment included approximately W5.0tn for the company’s 69%-owned Guangzhou OLED joint venture and previously announced plans for up to W7.8tn in new large-size OLED and plastic OLED lines in Paju. The filing describes timing and project details as subject to change.
• Key risks include display-industry cyclicality, further panel-price declines and excess capacity; competition, especially from Chinese manufacturers; reliance on a concentrated customer base; execution, yield and funding risks from substantial OLED investment; and foreign-exchange and interest-rate exposure. The top ten end-brand customers represented 77% of 2018 sales; LG Electronics accounted for about 21%.
• Year-end 2018 included W313bn of inventory write-downs, W43.6bn of property, plant and equipment impairment losses, and a one-time retirement allowance associated with a voluntary retirement program. Reclassifying masks and molds from inventory to property, plant and equipment reduced 2018 depreciation expense by about W110bn.
• Antitrust-related proceedings remained ongoing in certain jurisdictions, including claims in the United Kingdom and Israel and a Puerto Rico complaint not served as of April 24, 2019. No provision was recognized for legal claims at year-end based on management’s assessment; outcomes could nevertheless result in costs or cash outflows. Earlier competition-authority fines included US$400m in the United States, €210m in the European Union and R$33.9m in Brazil.
• The company declared no cash dividend at its March 2019 shareholders’ meeting. Management reported compliance with debt covenants at December 31, 2018. Certain U.S.-dollar borrowings were LIBOR-linked, and the filing identified uncertainty around the transition from LIBOR.

Important facts for investors to verify

• Obtain the actual fourth-quarter 2018 results separately: this annual filing’s reported financial statements cover the full year, not Q4 alone.
• Reconcile IFRS results with the separately reported K-IFRS operating profit, and review the definition and reconciliation of company-defined EBITDA.
• Assess the drivers of panel pricing, gross-margin pressure and inventory growth, including whether OLED product mix can offset TFT-LCD price declines.
• Review the financing plan and liquidity needs against the large 2019 investment program, debt maturities, working-capital deficit and expected cash generation.
• Track OLED project timing, spending, production yields and demand, as well as customer concentration and related-party transactions.
• Monitor the status and possible financial effect of unresolved litigation, foreign-exchange exposure and variable-rate debt.