Good afternoon and good morning. This is Brian Heo, in charge of LG Display's IR. On behalf of the company, let me thank all the participants at this conference call. Today, I'm joined by the CFO, Sunghyun Kim, Hee-Yeon Kim, Senior Vice President of Corporate Strategy Group, Seung Min Lim, Vice President of Corporate Planning, Jeong Yi, in charge of Business Intelligence, Daniel Lee, in charge of Large Display Marketing, Seong Gon Kim, in charge of Medium Display Marketing, and Ki Hwan Son, Vice President of Auto Marketing. The conference call will be conducted in both Korean and English. Please refer to the provisional earnings release today or the IR events section in the company's website for more details on the financial results of Q2 2022. Before we begin the presentation, please take a moment to read the disclaimer.
Please note that today's results are based on consolidated IFRS standards prepared for your benefit and have not yet been audited by an outside auditor. Let me start off with our business performance in Q2. Due to COVID-19, there were lockdowns in some of the Chinese production bases, which have also affected the production and shipment of the company's high value and IT products. As a result, the company's business performance in Q2 has underperformed on the initial guidance. Revenue in Q2 was KRW 5.607 trillion, down 13% QoQ and 19% YOY. There were shipment disruptions from lockdowns in production bases, soft demand in the downstream, and continued fall in LCD panel price. There was an operating loss of KRW 488 billion. Operating margin in Q2 was - 9% with EBITDA margin at 12%.
There was a net loss of KRW 382 billion. Next is area shipment and ASP trends. Area shipment in Q2 was 7.85 million square meters, decreasing 4% from the previous quarter. Aside from the impact from Chinese lockdowns, concerns of economic downturn led to slowing demand in the downstream. Set makers, to minimize inventory, reduced their purchase, resulting in less shipment of both large and medium display products. ASP per square meter was $566, down 14% QoQ. Shipment of P-OLED smartphones decreased due to seasonality, and LCD panel price continued to decline. The company's production capacity in Q2 decreased by % QoQ owing to active adjustment in general use LCD production, as well as new product development and maintenance. Next is revenue breakdown by product segment. TV panels accounted for 31% of, up 5% ( up five percentage points QoQ).
Even as LCD panel price continued to decline, shipment of OLED TV panels increased thanks to its positioning in the high-end TV market. IT panel took up 45%, down three percentage points QoQ, with a significant impact from shipment disruptions resulting from Chinese lockdowns. Mobile and others were 24%, flat QoQ. Next is the company's financial position and ratios. The company's cash and cash equivalent was KRW 3.669 trillion. Inventory was KRW 4.722 trillion, increasing by KRW 492 billion QoQ. The inventory was prepared against shipment disruptions from Chinese lockdowns and to be ready for high-end product shipments in the second half, such as new P-OLED models. Liabilities to equity ratio was 162%, and net debt to equity ratio came in at 71%, increasing QoQ.
There was an increase in borrowing to invest in OLED to preempt the future market. Next is cash flow. The company's cash and cash equivalents at the start of Q2 was KRW 4.111 trillion. It decreased by KRW 442 billion and stood at KRW 3.669 trillion at the end of Q2. There were investments in OLED, payout of annual dividends for 2021, and net loss in Q2. Let me now move on to guidance for Q3 2022. In Q3, area shipment will increase by mid-single- digit QoQ. Shipment of IT panels affected by Chinese lockdowns will recover, and shipment of large OLED and P-OLED smartphones is expected to grow in response to the seasonal demand.
Recovery in Q3 is likely to be limited due to demand slowdown caused by macro instability and weaker consumer confidence, as well as customers' attempt to minimize inventory. ASP per square meter is also expected to rise to a 20% level, thanks to increased shipment of P-OLED smartphones and wearable products, as well as OLED TV panels. Per product, price is expected to keep declining for IT panels, while for LCD TV panels, the price decline is expected to gradually moderate as panel makers adjust production, such as utilization rate. Next is presentation by the company's CFO, Sunghyun Kim, on operational strategy.
Good afternoon, shareholders, investors, and analysts. This is the CFO, Sunghyun Kim. Following the briefing on Q2 business performance, allow me to explain to you the company's operational strategy.
As economic downturn looms, consumption is expected to generally slow down, except for essential goods. Set makers and retailers in general are becoming more conservative in their business operations. Assuming that the trend will continue for some time, the company will strengthen risk management while actively seeking to identify new growth drivers for the future. Let me first share with you the company's current focus on risk management. We will remain unwavering in our business realignment initiative, more so now to reduce volatility and ensure stability in operations. Under the principle that insufficiently competitive and thus unprofitable businesses will be quickly realigned, we will further accelerate internal decision making and execution. One example is LCD TV panels, where differentiation is deemed to be limited. It is currently being downsized in phases with the goal of discontinuing domestic production of LCD TV panels sometime next year.
We will now speed up this process given the worsening market and competitiveness. The company will strengthen operational efficiency to respond to the highly volatile environment. We are revisiting the optimum capacity for each fab and finalizing how to enhance cost efficiency, such as reducing fixed costs. We will also ratchet up activities for cost innovation and efficiency as the insecure supply chain and inflationary pressure have driven up volatility in production cost. Next is strengthening inventory management. The company intends to focus more on minimizing inventory, given the uncertainty in market outlook. There was the specific issue of Chinese lockdowns in Q2, but in the second half, we will focus on recovering the shipment disruptions and proactively and flexibly adjusting production to minimize inventory by the end of the year.
Last, we will further improve investment efficiency while remaining steadfast in investment to upgrade the business structure and secure future competitiveness. We will revisit all adjustable investments, including current investment, to review their size and timing, as well as execution speed. Annual CapEx will be adjusted to the level of depreciation and amortization to secure financial soundness. We will keep strictly managing investment discipline. Even as uncertainties remain high in the global economy and business environment, the company intends to preemptively control risks by flexibly responding to changes enabled by stronger internal operation activities. Meanwhile, the company is also actively implementing activities to create unique performance that is unaffected by the market and to discover future growth engines. First is to strengthen dominance in the large OLED and IT segments, where the company already has differentiated competitiveness.
OLED TV is showing meaningful performance, growing in actual sales even when the overall TV market is showing negative growth. We will continue solidifying our market dominance in large OLED based on our fundamental competitiveness as large OLED increasingly becomes the mainstream. In IT, even as the market in general is slowing down, IT devices have now positioned themselves as essentials due to post-pandemic change in lifestyle. The company will keep consolidating its positioning in the market based on our customer base and competitiveness in high-end IT products and generate differentiated performance. Second, the company will actively develop make-to-order business to establish more consistent business operations. As business volatility keeps rising, the company is accelerating its push to increase the portion of make-to-order business based on alliance with key customers.
In mobile, we plan to ensure profitability with differentiated P-OLED products and establish the basis for new technology businesses in collaboration with strategic customers. We will also expand our IT product portfolio and solidify high-end leadership through mid-sized OLED, where investment is ongoing. We will make differentiated preparation for the future based on existing infrastructure and customer bases. In auto, the company continues to broaden its market dominance by providing differentiated solutions to global customers with our lineup ranging from OLED to high-end LCD. We remain global number one in auto display in terms of sales. We will strengthen activities to win contracts from global OEM customers with the goal of exceeding 30% market share in the next three years. Third, we will accelerate rollout of market creating businesses and aggressively explore markets.
We will focus on broadening new businesses to prepare for a differentiated future, where we are already seeing visible results in large OLED. Market creating businesses include gaming and transparent OLED, as we are actively trying to open up or broaden new markets in Life Display. Last is preempting future businesses and building the base for business development. Similar to OLED TV and high-end IT, the company plans to broadly utilize our differentiated technologies to more diverse applications. We will actively open up new display areas and build up competitiveness.
변동성 높은 사업 환경이지만 리스크 선행 관리, 운영 효율화 활동과 함께 회사의 미래 준비에 성장성을 확보한 노력을 통해 차별화 밸류 창출을 지속적으로 해 나가도록 하겠습니다. 감사합니다.
Although volatility remains high in today's business environment, the company will continue to differentiate and create value through preemptive risk management and operational efficiency improvement while preparing for the future and ensuring growth. Thank you very much for your attention.
이상으로 2022년 2분기 주요 실적 내용 발표를 마치겠습니다. 다음은 질의 응답 시간을 갖도록 하겠습니다. 오퍼레이터께서는 질의 응답 안내 부탁드립니다.
That brings us to the end of earnings presentation for Q2 2022. We will now take questions. Operator, please commence with the Q&A session.
지금부터 질의 응답을 시작하겠습니다. 질문을 하실 분은 전화기 버튼의 별표와 일번을 눌러주시기 바랍니다. 질문을 취소하시려면 별표와 이번을 눌러주시면 됩니다. 원활한 회의 진행을 위해 질문은 한 분당 두 가지 이내로 부탁드립니다. Now Q&A session will begin. Please press star one. That is star and one. If you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two. That is star and two on your phone. In order to allow as many Q&A chances as possible within the restricted time, we would appreciate only two questions per each participant. 처음으로 질문해 주실 분은 하이투자증권의 정원석 님입니다. The first question will be provided by Won-Suk Chung from Hi Investment & Securities. Please go ahead with your questions.
네, 안녕하세요. 하이투자증권 정원석입니다. LCD에서 하나, OLED에서 하나 그렇게 두 가지 질문을 좀 드리려고 하는데요. 일단 LCD에서는 최근에 디스플레이 패널이 적용되는 대부분 세트 수요가 부진한 상황인데 향후에 LCD 라인 운용 방안이 궁금합니다. 스크랩 계획이라든지 아니면 OLED 전환 가능성 그런 것들이 궁금하고요. 또한, 코로나 이후에 어느 정도 이 LCD 업황 부진이 예상이 됐던 부분이었는데 국내 경쟁사 대비 LCD 라인 구조조정이 시장에서 봤을 때는 좀 늦어지고 있다라고 보고 있습니다. 그래서 그 타격적으로 운영이 잘 안되고 있는 가장 큰 이유가 뭔지 그 부분이 좀 궁금하고요. OLED에서는 간단하게 최근 이제 TV 수요도 부진하고 LCD 패널 가격이 크게 하락하면서 OLED TV 시장 상황도 그렇게 썩 긍정적으로 보기가 어려운데 올해 OLED TV 패널 출하량 계획 변화가 있는지 업데이트를 한번 부탁드리겠습니다.
I have two questions. One for LCD and another for OLED. Now for the LCD, we see that the set makers that utilize LCD display are also seeing demand decline. My question is what is the company's plan for the LCD lines? Will they be scrapped or will they be converted to OLED production? Related to this, it appears as if the domestic company's realignment of the LCD business has been a bit delayed or a bit belated, despite the fact that the LCD market's sluggishness has already been predicted since COVID-19. I wonder what the specific reasons or causes are for this lack of flexibility in the LCD line operations. The second question is about OLED.
Now, the overall, the demand for TV continues to fall, and also we see that the LCD panel prices are also declining. This does not bode well for the OLED TV market in general either. What is the company's plan for shipment for the remainder of the year?
네, 경영전략그룹의 김희연입니다. LCD 라인 향후 운영 방향에 대해서 말씀드리겠습니다.
This is Hee-Yeon Kim, Senior Vice President of Corporate Strategy Group, responding to your question about the operation of LCD lines.
경쟁력 관점에서 열위에 있는 LCD TV FAB은 지난 2019년 이후 Capa를 지속적으로 줄여왔습니다. 다만 COVID-19 특수 대응으로 인해서 기존 유휴 Capa를 일시적으로 Max 활용 대응했었습니다.
Now, because of the lesser competitiveness, the LCD TV's fab capacity has been gradually reduced since 2019. We have been utilizing the existing capacity to the fullest extent possible to respond to the demand arising during the pandemic period.
이제 경쟁력 관점에서 차별화가 어려운 국내 LCD TV FAB은 Downsizing 및 조기 Exit를 할 계획입니다. 고객과 Align된 것들을 정리해 가며 내년 상반기 중까지는 Capa가 줄어들 계획입니다.
Now for the domestic LCD business, for where the competitiveness is weak, the business will be downsized, and we are planning for an earlier exit. Where we are aligned with the customers, then we will begin to discontinue production, and we will be reducing our capacity into the first half of next year. For the LCD TV fab in China, where we do have cost competitiveness, we will keep converting them to the more competitive products like IT or commercial. Now in the Korean P7 fab, the capacity is 150,000, and we will be reducing 60,000 in the second half of the year and another 30,000 in the first half of next year. The Chinese fab, we have 200,000 capacity, and of this, 10% has already been converted to IT.
The remaining 170,000 they will be converted, as I explained earlier, to either commercial or IT, whichever has a bigger competitive edge. By the second half of next year, about 40% of the TV capacity would have been reduced. Aside from the TV capacity, the IT capacity, for which we have about 200,000. The IT capacity will remain depending so based on the cost competitiveness as well as the product competitiveness. Next, this is Daniel Lee in charge of Large Display Marketing, responding to a question about the OLED shipment and the plan for the remainder of this year. As has been duly noted by the questioner, the display market in general is struggling.
For the TV market, there was negative growth of 24% in 2021, and another negative growth of 10% in the first half of this year. In the first half of this year, what we have seen is, despite the challenges, the OLED TV, the actual sales of OLED TV has increased by about mid-20% Y-o-Y. We believe that this is quite a meaningful performance that has been achieved in cooperation with our customers. In the second half of the year, unlike the market in general, we still expect the actual sales of OLED TV to continue to grow. Having said that, because of the economic downturn as well as the sluggish demand in the downstream, we believe that the overall set sales are also going to slow down compared to the first half.
It is projected to be in the mid-teen %. Because of the difficulties, the retailers as well as set makers have been quite conservative in their inventory management. The company will keep monitoring the market situation and will run our own operations and inventory accordingly based on the assumption that the downside risks are going to materialize. Overall, the shipment Y-o-Y is going to grow slightly. Next question.
The following question will be presented by SK Kim from Daiwa Capital Markets. Please go ahead with your question. Yes.
Now, I also have two questions. First question is about the OLED. Now, as the CFO has also pointed out earlier, now the company is quite strong in terms of technology in IT and automotive. Then also, there are the new MR devices. The company appears to be strong in terms of technology for new applications. If you could elaborate a bit further on your technological advantage compared to other players. For example, what are the differentiating factors and what is the extent of the technological gap with other players? The second question is about the LCD outlook. Up until July, it appeared as if the LCD TV price decline had slowed down. But more recently, we see that the pace of decline has picked up again.
Based on the latest developments, then what is the company's view regarding the market outlook in the second half as well as the price trend for LCD in the second half?
This is Ki Hwan Son, Vice President of Auto Marketing, responding to your question about the OLED technology. Now for the automotive OLED, because of the nature, it is very important for this product to withstand extreme environment and conditions. Because of this, LG Display has been developing long living OLED and also the Tandem OLED technology. We have been developing the Tandem OLED devices since 2015, and as a result, in 2019, we were able to launch the Tandem OLED for automotive application.
Now, this type of Tandem OLED technology, this can also be applied to IT products because, thanks to its high brightness as well as longevity, and it is also good in terms of low power consumption. This means that they would also be good for latest technologies like MR. We believe that the technology that we have developed for automotive purposes are also appropriate for IT products as well.
This is Jeong Yi, in charge of Business Intelligence, and I would like to respond to your question about the second half market outlook as well as the LCD price trend.
Now, first of all, about demand in the second half, because of the sluggish actual sales, for the set makers, their inventory level at the end of the second quarter range from four weeks to seven weeks, meaning that, they have an excessive level of inventory. 그렇기 때문에 현재 삼분기까지도 세트 업체들의 패널 구매 조정이 계속될 것으로 예상을 하고 있고요. 이런 관계로 실판, 세트의 실판매보다 패널 구매템의 감소가 하반기에 더욱 커질 것으로 예상하고 있습니다. Because of the high inventory level, the set makers will continue to adjust their purchasing of panels into the third quarter of the year. As a result of this, there is likely to be a bigger decline in the purchase of panels, more so than the decline in the actual sales of the set products.
그런 상황 때문에 현재 이분기부터 패널 업체들의 가동 조정이 시작됐고, 삼분기에는 가동 조정이 더욱 본격화될 것으로 판단하고 있습니다. That is also the reason why the panel makers have started to adjust their utilization rate in the second quarter, and such adjustment is likely to become broader in the third quarter. 이러한 상황을 종합해 볼 때, 하반기의 가격 흐름은, 삼분기까지는 일정 수준 가격 하락세가 지속될 것으로 판단하고 있고, 사분기 정도의 공급 조정 여하에 따라서, 일정 부분 안정화될 것으로 판단하고 있습니다. Against this backdrop, looking toward the price trend in the second half, it appears as if the price decline is likely to continue into the third quarter. In the fourth quarter, as a result of the supply adjustment, the price trend is likely to at least partially stabilize.
네, 다음 질문 추가로 받도록 하겠습니다.
다음으로 질문해 주실 분은 하나증권의 김현수님입니다. The following question will be presented by Kim Hyun-su from Hana Securities. Please go ahead with your questions.
안녕하십니까? 질문 기회 주셔서 감사합니다. LCD IT와 OLED TV 부문에 대한 질문인데요. 먼저 LCD IT 부문 같은 경우는 이번 분기에 부문 수익성이 좀 악화되었을 것으로 생각되는데요. 일분기 대비 수익성의 악화 수준인지와 그리고 하반기 IT 부문의 수익성 전망에 대해서 말씀 부탁드립니다. 두 번째는 OLED TV에 대한 것인데요. 지난 분기 때도 한번 말씀을 주셨습니다만, 국내 신규 고객사 협상 관련해서 진행 상황에 대해서 공유 가능하신 수준에서 말씀 부탁드리고요. 아울러 OLED TV에서 향후 증설 계획에 있어서 업데이트 사항이 있다면 말씀 부탁드리겠습니다. 감사합니다.
I have one question on the LCD IT. Another question on OLED TV. First about the LCD IT business. It's assumed that the profitability in the second quarter would have deteriorated. What was the extent of the profitability decline in the second quarter versus the first quarter? Also, if you could, if the company could also give us a guidance on the IT profitability in the second half of the year. The second question is about the OLED TV, and that the company was in negotiation with a new customer, domestic customer. Is there anything that the company can share with us at that point regarding the negotiation? Also regarding the OLED TV, is there any update on potential ramp up?
중형 마케팅실 김창원입니다. IT 시황부터 시작을 해서 수익성 부문, 그리고 수익성 실적, 그리고 수익성 예상 부문에 대해서 답변드리겠습니다.
This is Chang-won Kim in charge of Medium Display Marketing, and I would like to give you a response regarding the IT market as well as the profitability and profitability outlook.
앞전에 여러 분들이 설명을 드렸듯이, IT는 전반적으로 경기 악화 속에 모니터, 노트북 수요가 하락되고 있고, 전체 시장 패널 생산부터 세트 유통까지 파이프라인 내에 전반적으로 해소되지 않은 재고 수준 때문에 재고 조정까지 일어나면서 패널 구매 역시 되게 축소되고 있는 상황입니다.
Now, as has been mentioned several times by other speakers already, the IT market is now in a downturn. Because of this, demand for most of the products, including monitors and notebooks, is also declining. That is why we also see that overall in the market, there also is quite a high level of inventory, and this also translated into lesser purchasing of panels as well.
이렇게 시장은 침체되고 있지만, 아시다시피 자사는 상대적으로 시장 대비 변동성이 낮은 하이엔드 영역 중심으로 플레이를 하고 있기 때문에 시장에서 Q1 대비 Q2의 IT 수익성이 악화된 것 대비 자사는, 자사의 IT 수익성은 상대적으로 악화폭이 적다라고 말씀드릴 수 있을 것 같습니다.
We see that overall the market is struggling and slowing down. Now, as you would also know, the company is mostly engaged in the high-end segment, where the volatility is less. In the between the first quarter and the second quarter compared to the overall decline in the IT market in general, I would say that the company's profitability impact has been lesser than the average market level. In terms of the outlook for the next quarter and on, now although the other players are adjusting their utilization rate, which is also going to affect the overall demand and supply dynamics, the company will keep focusing on the high-end segment to generate consistent performance. Now, this is the CFO and the questioner asked for an update on the negotiation in the OLED business.
Now, as you would also know, the company had been focusing on solidifying the position of OLED panels in the market to make it the norm in the market. I would say that the company has been making strides in that direction so far. In this process, a new potential customer expressed intent to use our panels, and the market also became aware of it. Negotiations have been underway. Now at this time, there is nothing in progress. Down the road, we will be cooperating with any potential customers to create synergy effect, as long as they recognize the value of OLED and are willing to work together to create new markets. The next question will be presented by Junghoon Chang from Samsung Securities. Please go ahead with your questions.
The next question will be presented by Junghoon Chang from Samsung Securities. Please go ahead with your questions.
Now, in terms of the inventory, it became higher in the second quarter, and in the presentation, it was explained that this was a preemptive preparation for the demand to come in the future. I would just like to ask for further clarification of the higher inventory level. Was this the result of a deliberate buildup in the inventory per plan? Or is it also at least partially due to the changes in the end demand? Another question is, now in the financial statement, it seems as if the short-term borrowings has increased significantly to about KRW 6 trillion level. I would imagine that it was probably due to investments, so the company probably needed some financing for investment.
If you could give us some explanation about the increase in the short-term borrowings.
This is Seung Min Lim, Vice President of Corporate Planning, and I would like to respond to your question about the higher inventory level. Now for the inventory increase. Now, a considerable part of the increase is owed to our plan to respond to the higher demand for, P-OLED in the second half. And then another part of it is because of the lockdown in Shanghai, and as a result, the inability to produce IT modules. So we also have, built up the panels to make up for the shortfall from the first half of the year. But in terms of the specific inventory level, we will be running it according to strict planning.
In the second half, according to the sales situation and changes in the demand, we plan to normalize the inventory level. This is the CFO, and the question also asked about the increase in the short-term borrowings. I must clarify that this is not the type of short-term borrowings that you would know, or it's probably not the same kind of short-term borrowings under the conventional definition. Now, on one hand, the long-term borrowing is not acceptable in the market these days, and also the interest rate for long-term borrowings has gone up considerably. The case that you have mentioned, that is actually where we set up credit line based on mutual agreement.
We would continue to roll over in the form of short-term borrowing. That is why I said that it is different from the type of short-term borrowing that we know. Also because of the higher inventory level, for example, the materials cost or other costs probably would become sunken costs. That probably has partially affected our borrowing level as well.
It appears as if there are no further questions, and we will now close Q2 2022 earnings conference call. Thank you once again for joining us today. Please do contact us at the IR team for any additional questions. Thank you.