"Record Revenues, Yet LG Electronics' Operating Profit Falls 6% to KRW 3.43 Trillion"

[Korea Financial Times, Kim JaeHun] LG Electronics posted record annual sales last year, but profitability took a backseat due to soaring logistics costs, especially in the fourth quarter, when operating profit fell well below market expectations. LG Electronics plans to accelerate external growth through business portfolio innovation while focusing on expanding profitability.

On the 8th, LG Electronics announced that its cumulative sales on a consolidated basis last year amounted to KRW 87.7442 trillio and operating profit was KRW 3.4304 trillion, respectively. While sales grew about 6.7% year-on-year to reach a record high, operating profit fell about 6.0% over the same period.

LG Electronics has maintained solid fundamentals and achieved steady growth over the past several years despite various external uncertainties. In particular, in the past year, changes in business methods such as home appliance subscriptions and D2C (direct-to-consumer) sales have clearly established themselves as a driving force to break through the limitations of the main business. The growth of B2B (business-to-business) business also continued, contributing to the expansion of company-wide sales.

In terms of operating profit, profitability was somewhat affected by the unexpected surge in global ocean freight rates in the second half of last year and one-time expenses to rebuild inventory in light of the uncertain business environment. In particular, the preliminary operating profit for the fourth quarter was KRW146.1 billion, significantly below the KRW 397 billion consensus forecast by financial information company FnGuide.

This year, LG Electronics will accelerate qualitative growth based on business portfolio transformation. While strengthening the fundamental competitiveness of its businesses, including quality and cost, it will also focus on securing a sound profit structure by streamlining fixed costs.

Home Appliances, our flagship business and cash cow, is expected to exceed KRW 30 trillion in sales for the second consecutive year last year. Our solid premium leadership, expanding our AI home appliances and volume zone lineup, and diversifying our business methods to subscription and D2C to meet changing customer demands are contributing to our solid performance. Growth in HVAC (heating, ventilation, and air conditioning), built-ins, and parts solutions in B2B has also been steady.

This year, we will continue to create opportunities by actively expanding our subscription business from Korea, Malaysia, and Taiwan to Thailand and India. We will operate the The HVAC business, the largest part of our home appliance B2B business, as an independent business headquarters to promote our leap to a global top-tier comprehensive air conditioning company.

In the TV business, the overall demand recovery has been delayed, but demand in premium markets such as Europe is gradually recovering. The webOS advertising and content business is expanding its ecosystem to include TVs, smart monitors, and in-vehicle infotainment. Starting this year, we will further accelerate the expansion of the advertising and content business by targeting volume zones based on regional demand in overseas markets and strengthening the ‘dual track’ strategy of OLED and premium LCD lineup QNED.

Following the reorganization at the end of last year, we plan to operate screen product-based businesses such as IT and ID under the MS (Media & Entertainment Solutions) division from this year, adding synergies to our hardware and platform businesses.

The electronics business is expected to exceed KRW 10 trillion in annual sales for the second consecutive year, although it is somewhat impacted by the ongoing electric vehicle chasm (temporary slowdown in demand). In particular, the Automotive Infotainment (Telematics, AVN, Display, etc.) business, which is our flagship product, has continued to grow steadily while consolidating its market position.

This year, we will focus on the transformation to SDV (Software Defined Vehicle) to prepare for the future, while also focusing on solidifying our future through profitability-oriented operations.

The preliminary results announced today are estimates based on Korean International Financial Reporting Standards (K-IFRS). LG Electronics plans to announce finalized results for 2024, including consolidated net profit and operating results by business unit, at an earnings call scheduled for later this month.

Kim JaeHun (rlqm93@fntimes.com)