LG Chem Operating Profit 10 Trillion 'Defense Failure'... Write-offs and 6 Trillion Won Future Investment (Comprehensive)

Koo Kwang-mo, CEO of LG, visits LG Chem Technology Research Institute
[Photo by Yonhap News]

[Asia Economy Reporter Park So-yeon] LG Chem failed to maintain an operating profit of 1 trillion won last year due to the deterioration of the oil market and the impact of provisions. It is the first time in 13 years since 2006 that LG Chem's annual operating profit has fallen below 1 trillion won.

◇ 'Record High' Sales... Profitability 'Below Expectations' = LG Chem announced on the 3rd that its consolidated operating profit for last year was preliminarily estimated at 895.6 billion won, down 60.1% from the previous year.

However, sales increased by 1.6% year-on-year to 28.625 trillion won, marking the highest level ever. Although sales increased, the slowdown in the oil market and provisions related to energy storage system (ESS) fires hindered performance.

Industry insiders estimate that the provisions related to ESS amount to about 350 billion won. Last year's net profit also plunged 75.2% year-on-year to 376.1 billion won.

In the fourth quarter of last year, sales grew 1.6% year-on-year to 7.4612 trillion won, but operating profit turned to a loss of 27.5 billion won due to the reflection of ESS provisions. Net loss was recorded at 56.8 billion won.

LG Chem's Chief Financial Officer Vice President Cha Dong-seok explained, "Despite the US-China trade dispute and global economic slowdown, we achieved record-high sales due to the continuous growth of the battery business, but the company's overall profit was reduced due to one-time costs related to ESS. Especially in the fourth quarter, operating profit turned to a loss due to the reflection of one-time costs."

He added that meaningful achievements were also made, such as maintaining solid profitability despite the seasonal off-season and market deterioration in the petrochemical sector, and achieving results close to the break-even point (BEP) in the battery sector.

◇ This Year's Sales Target 'Upward Revision'... 6 Trillion Won Investment for the Future = A performance rebound is expected this year through bold business structure reorganization. First, LG Chem decided to exit the liquid crystal display (LCD) glass substrate business. The company explained that the market continued to deteriorate due to the rapid increase in production facilities in China, and it was judged that the business would be difficult to recover, leading to the decision to withdraw.

Bold investments for the future will also be made. LG Chem set this year's sales target at 35.3 trillion won, a 23.4% increase from the previous year. Capital expenditures (CAPEX) are planned at 6 trillion won, a 13.0% decrease from the previous year.

Regarding specific business outlooks by division, the petrochemical sector expects favorable demand for downstream products such as ABS and PVC, while additional market deterioration is expected to be limited due to capacity adjustments and regular maintenance by major companies.

The battery sector is expected to continue expanding sales due to increased shipments of automotive batteries, and profitability is predicted to improve through new production capacity and yield stabilization. The advanced materials sector will focus on securing mid- to long-term growth engines by upgrading the business portfolio centered on OLED materials, and the life sciences sector will strengthen sales of key products and R&D investment for new drug development.

Vice President Cha said, "Although there is significant external uncertainty such as demand contraction in major markets, we will secure a stable profit structure through market stabilization in the petrochemical sector and significant growth in the battery sector."

Kiwoom Securities analyst Lee Dong-wook said, "There will be no additional provisions related to ESS this year, and since the European electric vehicle battery market is improving, LG Chem is expected to benefit. In the petrochemical sector, LG Chem mainly focuses on downstream products, so the margin weakness is expected to be less severe."

This content was produced with the assistance of AI translation services.