LG Electronics. June 2003

Transcription

1 LG Electronics June 2003

2 As a note, this presentation was released as the dates shown and reflected management views as of these dates. While reviewing this information, the data and information contain certain forward-looking statements that are subject to known and unknown risks and uncertainties that may cause actual results to differ from those stated or implied by such statements. These risks and uncertainties include, but are not limited to the risk factors noted in the Company s Earnings Releases and the Company s filings with the Financial Supervisory Commission of Korea. The Company assumes no obligation or responsibility to update the information provided in the presentations in correspondence to their respective dates.

3 Highlights Accomplishments Revenue grew over 13% CAGR over last three years Led by strong sales of handsets Appliance division still growing Profitability improvement Restructuring in system and IT related business (PCB, Monitor etc.) Concentrating on premium brand products Low-end production to China Established framework for enhanced corporate governance Demerger removed non core assets Holding company structure limits investments in affiliates

4 Highlights The Road Ahead Efficient cost and risk management Tighter control on receivables and inventory Cash reserve for sufficient liquidity Reduce overhead cost by 20% Invest in key growth products for the future Investing for the future despite current difficult market conditions -> PDP 3 rd line, LCD, OLED etc Raising brand awareness in developed overseas markets Expand LG brand appliance in North America Aggressive marketing on handset in Europe Maintain high ROE and EVA EVA is a key performance measurement

5 Ⅰ. Business Overview Ⅱ. Home Appliances Ⅲ. Mobile Handset Ⅳ. Digital TV

6 Ⅰ.Business Overview

7 Business Structure LG Corp. LG Electronics LG. Philips LCD LG. Philips Displays LG Innotek LG Micron LGIBM PC Overseas Subsidiaries Digital Appliance Air-Conditioner Refrigerator Washing Machine Vacuum Cleaner Cooking Appliance Others Digital Display & Media Optical Storage Monitor TV Audio/Visual Recording Media PDP Telecom Equip. & Handset CDMA Handsets GSM Handsets Telecom System PC

8 Sales Trend All divisions registering growth Fastest growth seen in handsets Contribution evenly distributed among three divisions (US$ bn) CAGR 25% CAGR 4% Appliance Display & Media CAGR 16% (Handset: CAGR 51%) Telecom E & H

9 Operating Profit Appliance maintaining double digit operating margin Display&Media improving after restructuring in IT divisions Telecom earning contribution becomes more significant thanks to handset Appliance Display&Media Telecom E&H 500 Op margin 14% 12% 400 Op margin 7% 6% 250 (handset margin) Op margin 10% % 8% 6% 4% 2% % 4% 3% 2% 1% % 6% 4% 2% 0% 0% 0 0%

10 Balance Sheet Reduced debt by 41% over three year period Internally generated cash flow allows for further debt reduction Goal is to reduce debt-equity ratio to 50% 118% 95% Debt Trend 128% 96% (US$ bil.) 1,278 EBITDA /CAPEX 1,101 1,283 (U$ Mil.) % Level Debt Upon Demerger D/E Ratio EBITDA CAPEX

11 Creating Shareholder Value Improved returns via business rationalization EVA is key performance measurement for business divisions Long-term goal is to maintain ROE above 20% Economic Value Added (EVA) Return on Equity (ROE)* 600 (U$ Mil.) 50% 15% 13.7% EVA ROIC WACC 12.3% % 30% 10% 9.4% 10.4% % 5% 10% 0 '99 '00 '01 '02 0% 0% '99 '00 '01 '02 *Adjusted for extraordinary capital gains

12 Corporate Governance Committed to increasing transparency and raising shareholder wealth Disposal of non-core assets via demerger Holding company structure restricts investments in affiliates Before LG Department Store (57.7%) LG CNS (10%) 7.5% 10% After LG Chemical (30%) Dacom (30%) LG Home Shopping (30%) LG Petrochemical 30% LGIS (41.5%) 6.1% Dacom (49.1) 3.2% LG Investment & Securities (7.2%) 6.9% 4.4% LG Electronics 3% 5.4% 5.4% 5.4% LG Chemical 0.5% 4% LG Cable (6%) 4.8% 10.7% Demerger LG LG Corp. Corp. (32%) LG Electronics LG Telecom (37%) LG H&H (30%) LGIS (48.9%) LG Caltex (50%) LG CNS (64%) Silitron (51%) 16.4% LG Innotek (53.4%) 10.2% LG Micron (17.2%) 17.4% LG Philips Displays (37.5%) LG Capital (6.2%) LG Telecom (28.1%) LG Philips LCD (50%) LG Sports (39.3%) LG IBM PC (49%) LG Caltex (3.1%) 15.8% 31% LG Construction (8.6%) 10.7% 4.8% 6% LG International (2.9%) LG Caltex (3.1%) 15.8% LG Mart (50%) 4.2% 3.1% 50% LG.Philips LCD (50%) LG.Philips Displays (50%) LG Micron (37%) LG Innotek (70%) LG IBM PC (49%) Hiplaza (100%) LG Sports (25%) LG Inv.&Sec (7%) As of June 2003

13 Product Roadmap ¾ Implementing efficient resource allocation to maximize returns ¾ Preparing for potential demand growth for digital TVs ¾ Concentrating on key growth products Optical Storage Profitability Home Appliances Handsets Digital TV / Home Theater PDP Time OLED

14 Ⅱ. Home Appliances

15 Global Comparison Revenue grew over 25% CAGR ( ) Profit margins remain above the competition Further room for growth with premium brand products Sales Growth* Operating Profit Growth* 25.0% LGE Appliance *3 year CAGR 20.0% 15.0% LGE Appliance *3 year CAGR 20.0% 10.0% 15.0% 5.0% Electrolux 10.0% 5.0% Maytag Electrolux Whirlpool GEA 0.0% -5.0% -10.0% -15.0% Whirlpool Maytag 0.0% Source: Company data -20.0% Source: Company data GEA

16 Moving Up Market Maintaining product leadership in key product lines Newly introduced premium products driving export growth TROMM DIOS Cyking Microwave Oven Commercial A/C (In U$ mill) 1,500 Sales of Premium Products Premium Portion 35% 2003(E) 1, % 64% 22% % Domestic Export

17 Building Brand Power Aggressively building band awareness in overseas markets Concentrating marketing activities to North America and Europe Lowering OEM portion 10 bil$ Sales* Whirlpool Electrolux Target Zone Marketing Spend ($ Mil. ) bil$ Matsushita GEA Maytag LGE '00 '01 '02 OEM Portion % 30% 28% 25% 0% 5% 10% OP margin 10 '99 '00 '01 '02 *consolidated

18 Ⅲ. Mobile Handset

19 Penetrating New Markets Becoming a major player in the global market Growth in CDMA has put LGE in global top tier position GSM handsets will be the next growth driver (in million units) GSM Exports CDMA Exports Domestic '01.1Q 2Q 3Q 4Q '02.1Q 2Q 3Q 4Q '03.1Q

20 Market Diversification Reducing dependence on Korean market GSM allowing expansion into European market Still making strides in the global CDMA market 1Q 2003 Other Korea Latin America 16% 2001 other 2% 34% Korea Europe Latin America 6% 7% 22% 1Q % 15% 37% North America China 48% North America

21 Global Position LGE is now the fifth largest handset maker globally Brand awareness growing globally Targeting No. 3 global market share Q 1 Nokia 35.6% 2 Motorola 14.9% 3 Samsung 7.3% 4 Siemens 7.3% 5 SEMC 7.1% 6 NEC 2.9% 7 Mitsubishi 2.9% 8 Panasonic 2.7% 9 Alcatel 2.6% 10 LGE 2.5% 1 Nokia 35.1% 2 Motorola 15.4% 3 Samsung 12.2% 4 Siemens 7.4% 5 LGE 5.2% 6 SEMC 5.0% 7 Kyocera 2.6% 8 Panasonic 2.0% 9 Mitsubishi 1.8% 9 NEC 1.8% Source : Strategy Analytics

22 Market and Strategy Focusing on high-end segment Color handset diffusion is still low globally Current global situation an opportunity for LGE Growing in Italy and Russia Actively discussing with major operators Gradual recovery seen Introduce new models focusing on replacement demand Expanding sales to Verizon Focus on high-end phones to Sprint High inventory and SARS effecting demand Falling ASP a concern Focus on high-end market ASP 1Q 2003 LGE $165 Samsung $163 Nokia $159 SEMC $144 Motorola $144 Source: Strategic Analytics

23 Ⅳ. Digital TV/ PDP

24 Market Expansion Entering the sweet spot for digital TV demand Digital TV market is expanding in major developed countries Preparing to meet the future head on Product Life Cycle DTV market Outlook Conception Stage Theoretical Sweet spot Mil. units % CAGR(%) Total 42% PDP 55% % LCD 38% % PTV 16% DTV Portion Over 10% 40% CRT 61% '03 '04 '05 '06 * Source : In-Stat, SRI, TSR, NRI, Displaysearch etc.

25 LGE Competitiveness Technological leadership in next generation displays Vertical integration in display devices and components PDP targeting > 40 digital TV market Display Devices TV Set PDP Top Tier Position in Capacity and Yield LCD Global No.1 in LCD module Flat CRT PDP LCD CRT Best brightness and contrast (1000:1) Best yield in Industry (over 90%) Full product line-up from 40 ~60 Full product line-up (from 13 to 52 ) Offers various choice of design Pre-emptive investment in next generation fab Largest distribution channel Largest global production base Top M/S in CRT PTV Secure technology on MD engine in LCD & DLP projection TV In house production of Lens, Optical components

26 PDP Strategy Production yields are the highest in the industry Create early awareness (PDP = Large screen DTV) Potential to become another cash cow business Market Outlook LGE Strategy Current demand exceeding production Future demand growth to be led by residential demand Sales & Marketing Early ramp-up in 2 nd and 3 rd line Expand overseas brand awareness and distribution Need to reduce unit price further Enhance product performance Product Innovation Continued production costs cuts planned Continued R&D investment in core digital technology

27 Growth in China Our 12 Joint ventures in China growing rapidly 30% of LGE s total production is done in China (U$ bil) Sales 4.7 Production Portion LGESY Units 25% 30% Revenue 15% 15% st : Haier 2nd : Panasonic 3rd : Chang Hong 4th : Sony 5th : LG 6th : Samsung Source: Gallup poll 20th E Brand Recognition 12th 11% 5th 30% LG Tianjing LGEBJ JV LGEQH LGETA LG Langchao LGECT LGEPN LGENT LGESG JV LGEHZ LGTOPS Market Share Optical Storage 1st Microwave oven 1st CD-Writer 2nd PDP/Projection TV 2nd CDMA handset 3rd LCD monitor 3rd

28 Summary The Road Ahead Raising brand awareness in developed overseas markets Expand LG brand appliance in North America Aggressive marketing on handset in Europe Maintain high ROE and EVA EVA is a key performance measurement Efficient cost and risk management Tighter control on receivables and inventory Cash reserve for sufficient liquidity Reduce overhead cost by 20% Invest in key growth products for the future Investing for the future despite current difficult market conditions -> PDP 3 rd line, LCD, OLED etc

29 Thank You