LG Electronics March 2006

Transcription

1 LG Electronics March 2006

2 As a note, this presentation was released as the dates shown and reflected management views as of these dates. All information in this presentation regarding the Company s financial results has been prepared on a non-consolidated basis in accordance with Korean GAAP. In particular, sales information includes sales by the Company to, and purchases by the Company from, its subsidiaries and affiliates, but excludes sales by the Company s subsidiaries and affiliates to third parties. The presentation includes forward-looking statements regarding the Company s outlook for the future including projected sales. These forward-looking statements also refer to the Company s results on a non-consolidated basis. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those stated or implied by such statements. These risks and uncertainties, but are not limited to the risk factors noted in the Company s Earnings Releases and 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 The Road Ahead Raising brand image developed overseas markets LG Electronics means high-end quality products Successful launch of high-end LG brand appliance in US market Digital TV - next stage of brand building Improve financial structure Maintain CAPEX within cash flow means Tighter control on working capital Improve handset profitability Improve costs structure and R&D efficiencies Successful entry into open market Introduce mega hit product for global market ROE and EVA remains the focus EVA is a key performance measurement Reduce overhead costs 3

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

5 Ⅰ. Business Overview

6 Business Domain LG Electronics LG.Philips LCD LG.Philips Displays Overseas Subsidiaries 25% Appliance 22% Digital Display 13% Digital Media 40% Mobile Communications Cooking Appliance 7% Washing Machine 23% Vacuum Cleaner 3% Others 6% Air conditioner 34% PDP 25% Others 6% Monitor 29% TV 40% PC 23% A/V 33% OS 44% Network 8% GSM Handset 40% Others 2% CDMA Handset 50% Refrigerator 26% *Based on sales in 2005 *Digital Display breakdown by product is adjusted for PDP internal sales 6

7 Improving Returns Higher asset turnover leading to improved returns on investment Improving returns via business rationalization and better efficiencies Main goal is to improve profitability in the future Op Margin vs. Asset Turnover* Operating Profit / Invested Capital* 10.0% % OP Margin Asset Turnover 30% % 20% 5.0% % % 5% 0.0% '01 '02 '03 '04 ' % '99 '00 '01 '02 '03 '04 '05 * Based on LGE parent and LGE overseas subsidiaries only 7

8 Balance Sheet Capital structure ratios improving Internally generated cash flow allows for debt reduction Goal is to reduce global debt-equity ratio below 70% Net Debt Trend EBITDA /CAPEX % (U$ bn) 2.5 (U$ bn) 8 146% % Global Net Debt Global Net-debt to Equity EBITDA CAPEX 8

9 Building Brand Awareness Redefining LG Electronics brand to high-end market Product led marketing strategy Handsets, appliance and Digital TVs leading the charge Branding Synergy Brand Awareness (USA) Aided 33 Unaided E * AC Nielsen, Brand Survey 9

10 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 Petrochemical 30% LGIS (41.5%) 6.1% Dacom (49.1) 3.2% LG Department Store (57.7%) LG CNS (10%) LG Investment & Securities (7.2%) 6.9% 4.4% LG Electronics 3% 7.5% 10% 5.4% 5.4% 5.4% LG Chemical 0.5% LG Cable (6%) 4.8% 4% 10.7% Demerger After LG LG Corp. Corp. (36%) LG Electronics LG Chem (34%) LG Household & Health Care (34%) LG Life Sciences (30%) LG Telecom (37%) DACOM (40%) LG Siltron (51%) LG CNS (66%) LG MRO (100%) 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 Construction (8.6%) 10.7% 4.8% LG International (2.9%) 4.2% LG.Philips LCD (45%) LG.Philips Displays (50%) LG Caltex (3.1%) 3.1% LG Micron (36%) LG Caltex (3.1%) 15.8% 31% 6% 15.8% LG Mart (50%) 50% LG Innotek (70%) Hiplaza (100%) 10

11 Ⅱ. Home Appliances

12 Becoming a Global Player Sales growth more than 19% CAGR New product innovation has led to rising export growth Becoming a major player in the the global market Sales Growth Market Distribution (U$ bn) 6,9 CAGR 19% Asia 20% CS America 5% Korea 24% M.East 10% US 22% 0 '03 '04 '05 Europe 20% 12

13 Differentiating Factors LGE has competitive edge in fast innovation and cost reduction - Emphasis on R&D for new innovative products - Highly efficient production base in low cost centers Focusing on key competitive products R&D Investment Global Production Focusing only 5 Emphasis on R&D led to product leadership Producing only high-end products in Korea A/C Washing machine Refrigerator Technological leadership in key components Utilizing China as low-cost production base 3.3% 2.7% (E) LG 3.9% Major Competitors 2.8% (E) Others 5% Asia 10% Korea 35% China 50% Cooking Appliance Vacuum Cleaner

14 Target Market Segment Targeting high end market with LG brand Best Buy and Home Depot are major US distributors Aggressively introducing new models LGE US Appliance Sales U.S. Appliance Market ( 05) CAGR 27% (US$) 1,960 LG Brand OEM 1,060 9% 31% 60% 1,217 19% 19% 62% 1,616 38% 7% 55% 48% 8% 44% 182% -9.9% 15.1% '03 '04 '05 '06(E) ASP: Source: Stevenson 05 14

15 New Growth Area Commercial A/C is new market for LGE Commercial A/C is as large as residential market Employ competitive advantage from residential A/C Global A/C Market LGE A/C Sales (In U$ Bil.) Total 36.3 CAC CAGR 5.7% 9.0% CAC Portion Total CAC 20% 38% 48% CAGR 11.8% 31.0% RAC % RAC % E 2010E E 2010E Source: Company data Source: Company data 15

16 Ⅲ. Mobile Handset

17 Rising Global Presence Global Presence Becoming a major player in the global handset market Brand awareness growing in major markets Further growth opportunities in WCDMA and GSM Global Market (in million units) LGE (in million units) W-CDMA GSM CDMA Others W-CDMA GSM CDMA CAGR 53% * Source : Strategy Analytics 17

18 Rising Global Presence Cost Cutting Measures Improve R&D, time-to-market, and handset design efficiency Rationalizing production and R&D facilities Increasing component commonality and improve supply chain management Higher ASPs Timely new innovative products Better return on R&D investment CDMA GSM Integration Better production flexibility Better inventory control Lower overhead costs Increase component commonality Reduce platform diversity Rationalize component suppliers 18

19 Penetrating Restructuring New Benefits Markets Rising shipment to platform ratio improving component commonality Raw material cost falling rapidly with restructuring measures Cost competitive framework in place for future growth Shipment to Platform Ratio Cost and ASP Trend (Unit :K) 1, (Unit :U$) (E) 80 Blended ASP Raw Material Cost Q 04 4Q 05 19

20 Open Market Strategy Gain experience in the GSM B to C business model Entering major open market in 2006 and full scale in 2007 Create product portfolio synergy between Open and Operator market ~ Taste of open market in CIS and Asia Technological leadership in key components GSM Shipment Entering major GSM open market with Black Label Building Premium brand image in Europe GSM Shipment Create Synergy between open and operator market Success in open market can improve product mix and ASP. GSM High-end Strategy Open 10% Operator 90% Open 35% Operator 65% Success in Open market Operator follows 20

21 Penetrating Future Direction New Markets ASP improvement just as important as growth Increased concentration on high-end handsets Create global LG identifiable designed phone H Long-term Goal Global Hit Product Outsource design capability User centric product development Improve market research capability ASP Two tier marketing strategy Operator centric strategy for CDMA Open market strategy for GSM Improve market research Motorola Nokia Raise blended ASP L L Volume H Take advantage of Korea test market Expand 3G models and carriers Move up market in GSM 21

22 Ⅳ. Digital TV

23 The DTV Battlefield LCD and PDP can co-exist in the years to come LCD is expected to be the main technology for TV below 40 inches PDP is expected to be the main technology for large size TV New Displays by Technology Market for both Pixels (mil.) 101% CAGR LCD PDP '03 '04 '05 '06(E) Size 23

24 Potential PDP demand 42 digital TV is equal to 34 conventional TV Growing high definition broadcasting to drive large screen demand End market PDP demand could be larger than expected 24

25 PDP Market Trend Large sized TVs taking larger portion of market Falling retail prices spurt demand for PDPs Industry in consolidated with three major players PDP demand growing 2005 PDP Module market share 7,500 US$ mn units ,000 4,500 42" XGA Global PDP demand Pioneer 10% Hitachi 9% LGE 26% 3,000 1,500 42" VGA MEI 25% SDI 30% 0 Source: TSR, Displaysearch, LGE '03 '04 '05 ' Source: Company data 25

26 Technological Leadership ¾ Retain proprietary transmission technology VSB/EVSB patent by ATSC ¾ EVSB patent approves by ATSC for terrestrial digital broadcasting in US ¾ Considerable royalty revenue stream expected in the years to come Transmission/Reception Technology - EVSB Broadcaster(service) Digital TV Encoder Data Encoder Integration Encoder Transmission 26

27 Summary The Road Ahead Raising brand image developed overseas markets LG Electronics means high-end quality products Successful launch of high-end LG brand appliance in US market Digital TV - next stage of brand building Improve financial structure Maintain CAPEX within cash flow means Tighter control on working capital Improve handset profitability Improve costs structure and R&D efficiencies Successful entry into open market Introduce mega hit product for global market ROE and EVA remains the focus EVA is a key performance measurement Reduce overhead costs 27

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