The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: Dongwon Kim - KB Securities Co., Ltd., Research Division - Analyst
: [Interpreted] I have 2 questions. My first question regards to Home Appliance and Air Solution business. Due to the spread of inflation, there are
growing concerns on disposable income decrease and overall demand slowdown. What are your projections on this year's overall home appliances
demand? I also would like to ask about your demand forecast and the current trend that you see in major regions such as Korea, North America,
Europe and Latin America.
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APRIL 28, 2022 / 7:00AM, 066570.KS - Q1 2022 LG Electronics Inc Earnings Call
My second question regards to Vehicle Solutions. There are growing expectations in the market that the vehicle component business may make
a turnaround earlier than expected. If your profits do improve, which customer or a product would have mainly contributed to such improvement?
Do you think there are chances of meaningful turnaround in the second half of this year?
Unidentified Company Representative
[Interpreted] Thanks to the pent-up effects of COVID-19, we have seen positive sales demand in the advanced market last year. However, in this
year, we are expecting the growth rate of home appliances demand to go down compared to the previous year as many countries' governmental
spending that were used to tackle the COVID-19 outbreak has been reduced.
If I may tell you about the Korean market, it seems to enter the period of stagnation. Unlike when COVID-19 pandemic just broke out, recently, we
witnessed signs of demand going down. Thus, we're keeping a close eye on the home appliance demand circumstances.
In the North American market, we have seen the pent-up demand and also the slowing down of growth momentum. However, under these
circumstances, LG Electronics have paved the way to create continuous revenue by expanding floorings with cooperation with our distributors.
And also, we are pouring out such efforts, so even though the supply becomes back to normal, we believe that we will keep the market share as
it was.
In case of Europe, as you may already know, we are seeing geopolitical risks stemming from the conflict between Russia and Ukraine, and also
inflation level and exchange rate depreciation has gone up more than expected. As additional sanctions are posed on Russia, the possibility of
Eurozone nations to enter stagflation has increased. As a result, we expect a short-term demand slowdown until the end of the first half, and slight
recovery is expected after the second half of the year.
In Latin America, there are concerns on stable exchange rate due to political uncertainty witnessed in the region. LG Electronics will consider all
the circumstances and plan and establish market strategies.
Unidentified Company Representative
[Interpreted] I'll answer your question on VS. We expect the vehicle components business this year to see revenue growth and improved profitability
versus last year. And as you saw from today's earnings report, our Q1 performance indicates that we're close to breaking even.
That said, uncertainties over sales and cost fluctuations abound due to an ongoing shortage of semiconductor chips in the vehicle component
industry and rising raw material prices, along with the Russia-Ukraine conflict and COVID lockdowns in China.
Therefore, please understand that we're unable to comment on the specific timing of a turnaround.
Question: Kangho Park - Daishin Securities Co. Ltd., Research Division - Analyst
: [Interpreted] I have 2 questions. My first question regards to H&A business. I believe that increase in raw material cost, logistic cost and higher
inflation are adding uncertainties to the demand, and this will continue in the second quarter as well. At a time when we're expecting continuous
growth in logistic costs and raw material costs in the next quarter, I would like to ask your projections on the second quarter and the second half
of this year. Additionally, I would like to ask about your strategies to improve profitability, including pricing strategies, to secure margin.
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APRIL 28, 2022 / 7:00AM, 066570.KS - Q1 2022 LG Electronics Inc Earnings Call
My second question regards to Vehicle Solutions. The market is taking a look at -- taking a good look at JV Magna project. Has it generated any
synergies? And I would like what is your outlook for the revenue and P&L for 2022?
Unidentified Company Representative
[Interpreted] We expect the material cost increase and logistic disruption would continue for a while. Market price of steel is on the rise, and there
are also upload pressures on the same cost due to soaring oil prices and increase of raw material prices.
As a result of establishing partnerships and keeping cooperative relations with strategic partners, our purchasing price remains lower than the
market price. In addition, LG Electronics is also working hard to offset raw material cost increase by changing our existing materials to those that
can lead to cost reduction.
In regards to logistic cost, thanks to long-term contract with shipping companies and less shipping volume from China, the containerized freight
index went down. Also, we're seeing less additional freight payments that are paid on top of our shipping contract prices. However, the possibility
of short-term recovery seems to remain low, considering the current situation regarding port strike on U.S. West Coast and China's lockdown in
major cities.
We are seeing a burden in costs. However, we are conducting improvement activities on all fronts to secure profitability through additionally
increasing sales price and implementing optimized spending activities.
Unidentified Company Representative
Let me answer your question on VS. LG Magna JV is on track. To create synergies, we're continuously working on enhancing our capabilities by
benchmarking Magna's Vehicle Component business-related know-how. And we've also been having a discussion about exploring various business
opportunities.
Also, we have secured a new channel, and the establishment of LG Magna's new plant in Mexico is a testament to our collaboration.
Despite issues such as a shortage of semiconductors and rising raw material prices, our revenue in 2022 is expected to remain solid, driven by the
fast-growing EV market, and profitability is also expected to grow as a result of revenue growth.
Question: Jong Wook Lee - Samsung Securities Co. Ltd., Research Division - Analyst
: [Interpreted] I have 2 questions. My first question is on home entertainment. Many are concerned saying that. It will be difficult to secure mid- to
single digit in TV profitability in the long term because it may take considerable time until a rising raw material -- until rising raw material prices
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