LG Electronics Reports Fourth Quarter 2008 Earnings Results

Seoul. ––LG Electronics (LG), a leader in consumer electronics and mobile communications, announced unaudited consolidated earnings results of the three-month period ending December 31, 2008. Amounts in Korean Won (KRW) are translated into US Dollars (USD) at the average rate of the three month period in each corresponding quarter: KRW 1,362 per USD (2008 4Q), KRW 1,063 per USD (2008 3Q, QoQ), KRW 921 per USD (2007 4Q, YoY). In addition, the average rate of the twelve month period in 2008 was KRW 1,103 per USD and KRW 929 per USD in 2007.

Sales and Profit

In the fourth quarter of 2008, sales and operating profit on a global basis jumped 22.5% year on year to KRW 13.37 trillion (USD 9.82 billion) and KRW 101 billion (USD 74.16 million), resulting in a profit margin of 0.8%. On a parent basis the company recorded sales of KRW 6.59 trillion (USD 4.84 billion), an operating loss of KRW 310 billion (USD 228 million) and a net loss of KRW 671 billion (USD 493 million).

2008 annual sales on a global basis soared 20.8% to a company record-high level of KRW 49.33 trillion (USD 36.22 billion) with operating profit recording KRW 2.13 trillion (USD 1.56 billion). Consolidated sales including subsidiaries rose 18.4% YoY to KRW 63.18 trillion (USD 46.39 billion). Consolidated operating profit reached KRW 4.05 trillion (USD 2.97 billion), for a margin of 6.4%, 1.1% point higher than the previous year.

LG’s Mobile Communication Company reached a company high of KRW 4.49 trillion (USD 3.3 billion) in sales, 34.6% higher than a year earlier. Handset sales accounted for KRW 4.09 trillion (USD 3.0 billion), up 40.3% YoY and 16.5% QoQ. Shipments of handsets recorded 8% growth YoY to 25.7 million, which resulted in a record 100.7 million units being sold in 2008 versus 80.5 million units in 2007. Sales stayed strong in Europe and Asia despite the economic slowdown. Europe saw the introduction of new models including “Renoir”, an 8-megapixel camera phone, “Cookie”, a full touchscreen phone and “LG-KS360”, a QWERTY keypad messaging phone while a QoQ increase in India contributed to Asia’s strong performance. Operating profit margin declined 8.8% YoY and 11.5% QoQ to 5.2% in the handset division due to increased marketing to minimize year-end inventory. While the global economic downturn is expected to continue into 2009, LG’s business target is to grow continuously and expand market share, capturing more of the market for feature-packed premium models, smartphones and mid-to-low end mass volume units.

Digital Appliance Company sales rose 20.1% to KRW 2.971 trillion (USD 2.18 billion) year-on-year. Operating margin resulted in a loss of KRW 62 billion (USD 45 million). Increased competition led to a slowdown of demand and changes in the pricing environment. The slowdown in demand is expected to continue into 2009 but market share growth will be implemented through stronger marketing and cost controls.

Digital Display Company sales jumped to KRW 4.62 trillion (USD 3.39 billion), an increase of 16.4% from a year earlier. Sales of flat panel digital TVs grew 22% YoY and 26% QoQ, but PDP module sales declined 44% YoY and 24% QoQ. Globally, operating profit saw a loss of KRW 14 billion (USD 10 million) primarily due to a sharp drop in the prices of TVs and slowdown in external sales of PDP modules. The company sees global demand in 2009 to be similar to 2008 as a result of growing low-end/small sized flat panel TV demand in emerging markets and expects to expand its market share with stronger branding activities and product line-up. Sales for Digital Media Company increased 11% YoY and 15% QoQ to KRW 1.27 trillion (USD 0.93 billion) with operating profit and margin recording KRW 4 billion (USD 3 million) and 0.3% respectively.

Financial Statement and Non-operating Items on a Parent Basis

The company recorded a recurring profit loss of KRW 942 billion (USD 692 million) primarily as a result of foreign exchange loss of KRW 276 billion (USD 203 million) and equity method loss of KRW 294 billion (USD 216 million) from overseas subsidiaries and affiliates. LG Display, in which LG Electronics has a 37.9% stake, booked an equity method loss for LGE of KRW 214 billion (USD 157 million).

2009 Business Direction and Prospects

Slow market demand and intensified competition will continue into the new year causing changes in industry dynamics. Forecasting the exchange rate at KRW 1,100 per US dollar in 2009, the company plans to tighten CAPEX and maintain its investments in branding and R&D.