Please note that all statements we'll be making today regarding the financial results of the Q3 are subject to change in accordance with the results of the external review. Uncertainties in the market and changes in strategies may cause our results to be different from the outlooks and forward-looking statements made today. Now, let us start with our Value-up plans and move on to the consolidated financial results for the Q3 of twenty twenty-four, and the outlook for the Q4 .
Good afternoon. My name is Changtae Kim, CFO of LG Electronics. As part of our effort to fully reflect our intrinsic value, we announced our corporate Value-up plans on October twenty-second.
In the announcement, we outlined detailed strategies and plans for achieving our mid- to long-term goals and directions, which have been communicated through events such as the Future Vision 2030 press conference and this year's investor forum. We have set mid- to long-term goals of achieving the Triple Seven Target by 2030, a 7% average annual growth rate, a 7% operating profit, and a sevenfold increase in EV/EBITDA multiple, aiming to post no less than 10% in ROE by 2027. To this end, we are focusing on expanding our platform-based services and B2B businesses, as well as identifying new high growth potential areas that align with our capabilities. By innovating our business portfolio, we aim to increase the contribution of these businesses to 52% of total revenue and 76% of operating profit by 2030.
We have decided to increase the distributable profit to no loss, no less than 25% of the net profit attributable to the owners of the parent, excluding one-off non-recurring profits. Additionally, we have introduced a minimum dividend of KRW 1,000 per common share per year, along with a semi-annual dividend scheme. We are taking a multifaceted approach to improving our shareholder return policy, including treasury stock strategies. We will keep the market informed of any changes we adopt through disclosures and other means. Let's move on to our business results of the Q3 and the outlook for the Q4 . Despite a delayed recovery in EV demand, Q3 revenue grew year over year, driven by increased appliance sales in emerging markets, a rise in OLED TV sales, and accelerated growth in incubating businesses such as subscription and webOS platform services.
However, operating profit saw a decline due to continued pressure from rising logistics costs, LCD panel prices, and fixed costs associated with delayed EV component sales. Looking ahead to Q4, the business environment remains challenging. Delays in demand recovery and market uncertainties are expected to persist, with risks posed by gradual interest rate cuts and potential oil price fluctuations triggered by geopolitical tensions in the Middle East. Global shipping rates, on the other hand, are stabilizing, alleviating concerns over further increases in logistics costs. We aim to achieve year-on-year revenue growth by expanding our home appliance business and actively responding to the increasing demand for TVs and vehicle components, including in the infotainment sector. To maintain stable profitability, we will focus on high-margin products, efficiently allocate the marketing resources and optimize global operations.
Despite ongoing global macroeconomic uncertainties, a prolonged demand slump, and intensified competition, we will leverage our unique competitive strengths to proactively address the rapidly changing external environment and achieve our desired outcomes. I'll now briefly review the Q3 performance of each business. H&A recorded KRW 8.3 trillion in sales, KRW 527.2 billion in operating profit, and 6.3% in profitability. HE recorded KRW 3.7 trillion in sales, KRW 49.4 billion in operating profit, and 1.3% in profitability. BS recorded KRW 2.6 trillion in sales and KRW 1.1 billion in operating profit. Last but not least, VS recorded KRW 1.3 trillion in sales and KRW 76.9 billion in operating loss. Let's move on to the profit and loss and cash flow of the Q3 .
Reflecting financial income and expense, equity method gain and loss, other non-operating income and expense, corporate income tax, and income and loss from discontinued operation, we posted KRW 90.2 billion in net income. Next on cash flow. Q3 cash flow from operating activities was KRW 207.2 billion, and cash flow from investment activities was negative KRW 754.1 billion, resulting in net cash flow of negative KRW 727.5 billion. When including cash flow from financial activities of negative KRW 134.6 billion, cash balance at the end of Q3 came to stand at KRW 7.69 trillion, a decrease of KRW 862.2 billion from the previous quarter. Next is the key financial position and indicators for the Q3 of 2024.
As of the end of the Q3 , assets stands at KRW 664.3 trillion, liability at KRW 39.9 trillion, and equity at KRW 24.4 trillion. In terms of leverage ratios regarding liability to equity, debt to equity, and net debt to equity, we are maintaining a healthy financial condition. Now, let's turn the call over to each business for its Q3 results and Q4 outlook. We'll begin with H&A. Let me share the Q3 outlook, Q3 results of H&A. We achieved year-over-year revenue growth despite the delayed demand recovery in the global appliance market, driven by the expanded sales of B2B product and steep growth in our subscription business.
Operating profit reached the level at least equal to that of the same period last year, despite increasing pressure from logistics costs, thanks to revenue growth and initiatives to improve material expenses and productivity. Next is the outlook for Q4. The domestic market is expected to remain stagnant, while the overseas market is projected to recover, supported by improvement in leading economic indicators in major countries, such as a rise in global trade volume and interest rate cuts. However, uncertainties persist due to the ongoing geopolitical risks and the unpredictability surrounding the U.S. presidential election, among other factors. In response to the market, we plan to introduce new products tailored to local market needs and expand the Volume Zone segment to produce additional revenue and strengthen our online and subscription businesses to sustain our growth momentum.
Furthermore, we'll enhance our productivity to optimize manufacturing costs and marketing expenses to secure profits. Next is the Q3 results of Home Entertainment business. Sales continued to grow year over year, fueled by increased TV hardware sales, particularly in Europe, and a surge in OLED TV shipments. The expansion of webOS-based advertisement and content business has also contributed to this upward trend. Operating profit, however, posted a small drop year over year due to ongoing cost pressures stemming from rising LCD panel prices. Let's move on to the Q4 outlook. In terms of overall market demand for TVs in Q4, we expect to see a slight year-over-year improvement. The demand recovery is likely to be more pronounced in the volume zone than the premium segment.
Accordingly, we aim to accelerate sales growth and enhance our contribution to overall profitability by continuing to increase the sales of premium products, such as OLED and QNED TVs, strengthen the competitiveness of master products to meet the volume zone demand, and expanding partnerships to grow the ecosystem of the webOS platform. Next is the Q3 result of the vehicle component solution business. For sales, we are able to maintain year-over-year growth momentum. However, quarter-over-quarter sales saw a slight dip due to stagnant demand in the EV market.
Operating profit decreased year over year, impacted by reduced sales and increased R&D costs for upfront investment in the mass production of existing products and future preparations for SDV. Next is the outlook for the Q4 . The market environment suggests that the demand for finished vehicles is likely to grow compared to the previous quarter.
However, due to stagnation in EV demand, the growth rate is predicted to be slower than previously forecasted. Against this backdrop, despite these headwinds, we plan to continue growing sales and strengthening our market position based on orders on hand, and secure profitability by improving our product mix and optimizing operational costs. Let me present the Q3 results of the Business Solutions. Q3 revenue grew year over year, thanks to increased sales of gaming monitors, LED signage, and other strategic products, a large volume of PC orders from B2B partners, and revitalized sales in online channels. Our operating profit experienced a deeper deficit due to a competition-triggered drop in average selling prices, rising logistics and material costs, and increased resource allocation towards the growth of new business areas. Now let me turn to the Q4 outlook.
Market demand for monitors and infotainment display business is likely to be similar to that of the previous quarter. Demand for PCs in general, however, is expected to be sluggish, but we believe that demand for premium laptops will grow year over year, as the market is showing more interest in AI-powered PCs.... Against this backdrop, we will concentrate on improving profitability by first growing year-over-year sales of the IT business by capitalizing on emerging opportunities in vertical markets. Second, increasing sales of strategic products and invigorating online channels for IT products. And third, improving the efficiency of our resource management and optimizing cost structure. Last but not least, our ESG activities and achievements. LG Electronics has been widely recognized for its competitiveness in high efficiency, eco-friendly products.
With the grand prize awarded to our Turbo Heat Pump, we have received a total of 10 awards at the twenty-seventh Energy Winner Awards, including the Carbon Neutrality Award. This marks our eighth consecutive year as the most awarded company in home appliance category. Additionally, 15 products were selected as this year's green product, chosen together with consumers by the Korean Green Purchasing Network, marking the fifth consecutive year of being selected as a Green Masterpiece. Meanwhile, 5 models of our TVs and drum wash combo were certified as the first E-Cycle Excellent Product of the Year by E-Cycle Governance.
Our products and services are recognized not only for their eco-friendliness, but also for their excellent ease of use and accessibility. The LG Comfort Kit, an accessory designed to help all customers use appliances easily, secured the gold medal at the International Design Excellence Awards.
Additionally, in the 2024 Korea Service Quality Index, organized by the Korean Standards Association, LGE ranked first in the home appliance AS category for our improved customer AS experience and visibility, and in the call center quality index for the introduction of AI assistant solution. Our competitiveness in sustainable products and services stem from our commitment to responsible technological innovation. Our V2X module, which enables communication between vehicles and surrounding objects, has achieved Common Criteria certification for its security, making a world first. Additionally, we are collaborating with Altair, a leading American simulation company, to develop solutions that extend the lifespan of automotive electronic components, thereby enhancing the reliability of our product in this sector. We'll continue to strengthen our competitiveness in sustainable products and services as a smart life solution company.
That brings us to the end of the Q3 earnings release and outlook for the Q4 . We'll now take questions. Operator, please commence with the Q&A session.
Now, Q&A session will begin. Please press star and one if you have any questions. Questions will be taken according to the order you have pressed the star and one. For cancellation, please press star and two on your phone. The first question will be presented by Kang Ho Park from Daishin Securities. Please go ahead with your question.
Thank you for taking my questions. I have two questions, and my first one is about additional question on the corporate value-up program. Taking a look at your announcement, I was able to hear some news about enhancement and dividend scheme policies. Thus, I am seeing higher expectation from the market. Can you share some schedule or plans that we can see in the market? The second question will go to the HE business. I think it's very important for us to realize that we have to expand the webOS platform within HE, and recently, LG has decided to exit from its LCD panels. And we also have seen an increase in Chinese brands gaining more market share. What kind of measures is LG taking?
Thank you for taking my questions. [Foreign language]
Thank you for your question. Your question will be answered by investor relations. As you just covered, we have announced our Value-up Program last twenty-second of October, and we have newly set our target ROE, reaching no less than 10% by 2027, in connection with the mid- to long-term goals of like achieving KRW 100 trillion in sales and the Triple Seven Target by 2030. For this, we would like to bring transition of our business portfolio by focusing on platform business, B2B business, and new business discovering. And we aim these three business group to achieve 52% revenue and 76% operating profit by 2030.
In addition, along with the dividend policy of 2024 that we have announced earlier this year, it includes a minimum dividend and semi-annual dividend scheme, and on top of this, we would like to further review introducing quarterly dividends as well. Touching upon buyback and incineration of treasury stocks, these are also under review as they can be one of the efficient options that can enhance shareholder value. However, we would like to comprehensively consider the market condition as it may change, and we also have to take a look at the financial condition that we are facing in order to determine the exact timeline or scale. Of course, we will keep the market informed at all times about any changes to our shareholder return policy through disclosures and other means. Thank you.
[Foreign language]
To answer your second question on HE, as you are well aware, Chinese TV brands are capturing market share by offering entry-level products and ultra-large lineups to customers at a low cost. This strategy is far from the direction our company is taking to deliver a memorable customer experience through our unique and differentiated products. Excessive price cuts may trigger channel inventory issues and cause profitability to deteriorate throughout the entire ecosystem.
[Foreign language]
LG's product is already highly recognized within the market, and LG continues to gain the upper hand in the premium TV segment with OLED and QNED TVs. To compete with Chinese TV brands, we are making procurements and production more efficient in the entry-level TVs to secure cost competitiveness, delivering customer value through our exceptional and unparalleled product competitiveness, while also ensuring robust profitability. For instance, we have launched more entry-level TVs that come with our highly acclaimed webOS and strengthen product competitiveness in the volume zone, while maintaining a relatively favorable price and increasing sales of entry-level TVs.
[Foreign language]
Next question, please.
[Foreign language]The following question will be presented by Simon Wu from Bank of America. Please go ahead with your question.
[Foreign language]
Thank you for taking my questions, and I would like to first say thank you for the explanations on the Value-up Program. I believe that your comment was more important than any other times in history. And my first question is about logistics costs and marketing expenses. I would like to ask the impact of these two expenses on the profit and loss of the Q3 compared to other times. Do you think this will continuously be a burden? And my second question is about your investment plan on new business, because I know that the management level has been continuously emphasizing on this. When do you think to expect when do you expect to achieve profitability? Thank you.
[Foreign language]
I would like to answer your first question from the home appliance perspective. To begin with, the impact stemming from logistics costs, we have witnessed some impact on the Q3 profit and loss year on year, as we have gone through renegotiation of freight rates by region with major shipping companies due to geopolitical issues. Fortunately, SCFI has been declining from July, and we are talking about adjusting freight rates with high rate shipping companies. As the rate will be adjusted based on the existing contracts of the previous second half, we expect that decline will not be significant, but we do anticipate the impact from sea freight charges will lessen in the Q4 compared to the previous one.
[Foreign language]
Next is marketing expenses, which increased year on year and quarter -on -quarter. In the Q4 , we would like to add more resources with strategic marketing activities so that we can further contribute to greater sales at year-end and in the future. Thank you.
[Foreign language]
Your second question in regards to new business investment will be covered by business solutions as we are making investment in EVs and robots. We're not only expanding and enhancing the existing production lines, but also making continuous investments this year in order to establish a growth foundation and secure competitiveness in new businesses with, like, promising future growth, such as EV charging business and robots. To begin with, we acquired business in October 2022, and established production sites in Texas, U.S., in late 2023, aiming to enter the North American market. This year, we are expanding the business structure through establishing product lineup and making more investments, and our robotics business has made investment centered on delivery robots.
Yes. [Foreign language]
We believe that EV charging and robot business is the future growth of business solution and will drive revenue significantly in the mid to long term, reaching trillions. Therefore, we would like to continuously make investments in these areas so that we can secure business competitiveness. Please understand that I cannot specify the exact timing for achieving operating profit, as our new business is focused more on strengthening capabilities for business expansion rather than generating immediate revenue. However, we are striving to achieve profitability as soon as possible, based on securing stable sales at a certain scale. Thank you.
Next question, please.
Next question, please. The following question will be presented by Sanguk Kim from UBS Securities. Please go ahead with your question.
[Foreign language]
Thank you for taking my questions. I have brought two questions. First one on H&A, the second one on Vehicle Solutions. To begin with, I understand that you have been emphasizing the growth of HVAC several times. Can you share the sales portion of HVAC within the H&A business, along with the B2C and B2B sales contribution to HVAC? Additionally, how much do you expect the HVAC sector to show revenue growth in twenty twenty-five? The second question will go to the VS business. The first question is: Could you please give us the current status of order backlog and provide a breakdown of each business? Additionally, could you give us an estimate of the order backlog for twenty twenty-five in comparison to twenty twenty-four?
Also, could there be order cancellations due to the flagging demand for EVs and concerns in the market? Please give your measures.
[Foreign language]
Your question in regards to HVAC will be covered by Home Appliance Business. The contribution of HVAC to our H&A business is slightly over approximately 25%. Taking a close look into the HVAC sector, B2C business, consisting of RAC and air care, represents 45% of revenue share, while B2B business, that includes system air conditioners and chillers, accounts for 55% of revenue.
[Foreign language]
In the coming year, we anticipate encountering challenging market conditions due to a slowdown in the electrification transition in advanced markets, geopolitical risk in Middle East and increased competition. Against this backdrop, however, we believe that we will be able to maintain our revenue growth through preparing for and responding more specifically to electrification opportunities in North America and Europe, and expanding our chiller business based on enhanced data center cooling solutions. Thank you.
of September, the size of the order backlog, based on the market position of our differentiated products, we are successfully advancing new order activities in the competitive landscape and recording an order backlog of 100 billion won.
To answer your question for the VS business, as of late September, although we cannot provide you with the exact figures, we can say that we have been successful in actively pursuing new orders based on our unique and distinct products, and strong market presence, and have secured an order backlog worth KRW 100 trillion.
half, but overall, the second half inventory is increasing compared to the previous year, and we expect the inventory increase in this year's second half to continue as well. Regarding sales by major business division, infotainment products recorded 20% growth in the overall market, electric vehicle components 20%, and powertrain and lamps at the 10% level. Thank you.
As EV market growth slows down, we expect to see delays and decrease in sales in some projects, which may marginally impact our order backlogs. Regardless, we remain strong with order backlog increasing year over year, and expect to see this upward trend continue into 2025. Going into the sales composition of each business, in-vehicle infotainment accounts for 60% of the entire order backlogs, EV components take up 25%, and automotive lighting and headlamps hold 15%. Next question, please.
The following question will be presented by Hyungu Park from SK Securities. Please go ahead with your question.
Hello. I would like to bring two question. My first question is about subscription business. I understand that so far you have been focusing on domestic subscription business, and now you're trying to bring this to the overseas market. Can you tell us about the current sales status, and to which extent you expect the business to grow? And also, it will be appreciated if you can share the scale, proportion, and profitability, and your outlook for the next year. The second question will go to the VS business. I have three questions for the VS business. The first is, could you please walk us through the current demand status for EVs and the outlook? The second question, did the slowdown of OEM's EV sales ripple through and impact LG?
Lastly, when will VS hit the trough, and how long will it take for the business to rebound? Let me answer your question about subscription business. We anticipate revenue from subscription business from home and abroad to continuously grow in the future. Based on our competitiveness and experience in the Korean market, we are gradually expanding our business in the overseas market. As our subscription business, centered on large appliances, continues to grow in the Korean market, we have achieved an accumulated revenue of KRW 1.3 trillion in the Q3 , making a growth of over 50% compared to the same period last year. Consequently, subscription business contribution has increased by approximately 15% last year to over 20% currently, while maintaining a double-digit operating profit.
large home appliances, while Taiwan and Thailand have launched subscription services in October through the construction of systems and infrastructure by area. It is difficult to specify the exact schedule, but we are reviewing the business feasibility from various angles for additional entry into India and other Asian countries. That's all.
Adding more colors on the overseas business that you've just touched upon. After launching our business in Malaysia, we are expanding the scope to other Asian countries, such as Taiwan and Thailand. We are continuously seeking for subscription business growth centered on large appliances in Malaysia, and we've just launched our subscription business in October in Taiwan and Thailand after establishing system and infrastructure for the business. Please understand that I cannot disclose exact timeline, but plans and feasibility of entering India and other Asian countries are under review from various angles. Thank you.
[Foreign language]
Let me answer your question headed towards the VS business. Despite seeing slower than expected market growth due to a tapering of demand in the short term, we believe that the mid to long term direction towards electrification remains strong with the increase of EV charging stations, adoption of new environmental regulations and OEMs expansion of EV lineups. We believe that overall, this is going to have a positive impact as major OEMs are also strengthening their XHEV portfolio in response to EV growth slowdown.
[Foreign language]
As demand for EVs cools, we may see sluggish growth in the short term. Nevertheless, we are capable of swiftly responding to OEMs' requests to develop hybrid vehicles as we see growth in the in-vehicle infotainment system centered on ICEs and our technological capabilities in developing motors and inverters for XHEVs. Performance levels may undergo temporary adjustments, yet we expect to see growth rate and profitability continue to improve.
[Foreign language]
Next question, please.
[Foreign language]The following question will be presented by Jay Kwon from JP Morgan. Please go ahead with your question.
[Foreign language]
Thank you for taking my questions. I have two questions, and my first question is about the Value-up Program, because when you first announced the Value-up Program, you suggested the ROE proportion. And in order to achieve such target of 10%, do you have any, like, anticipated equity or financial structure plans? I am asking this because I believe that this portion may differ based on the net debt ratio. The second question is going to go to the HE business regarding the webOS business. We see that the webOS is centered around the North American market. I would like to ask whether your mid- to long-term plans hold any different strategies regarding North America and the composition, sales composition of North America and other regions.
I would also like to get an answer from regarding the growth and the growth possibility within the markets.
[Foreign language]
[Foreign language]
Thank you for your question. Your question in regards to ROE will be covered by investor relations. When announcing the Vision 2030, we have all reflected the financial structure, including ROE, revenue, operating sales, and so on, and also the recent business performance, the future environment, was all comprehensively considered.
[Foreign language]
As you have mentioned, market uncertainties and challenges for business operations still persist. However, we would like to accelerate transition towards a high value-added business, and also we would like to explore various plans to enhance efficiency on equity management, including shareholder returns.
[Foreign language] 80%
To answer your question, headed towards HE, the business. Yes, we realize that our market share is focused on the U.S. as it holds about 80% of the market share as of 2024, and other regions hold about 20% in 2024. Our goal for the mid to long term by 2030 is to seek other advancements, especially in a few of the advanced E.U. markets. We also hope to expand to the Central South American region, but still we are seeing quite some uncertainties regarding the advertisement business, so we think that the ratio of the share, sales share, will be 40%-60%. 40%-60%.
[Foreign language]
Next question, please.
[Foreign language] The following question will be presented by Eoyun Hwang from Nomura Securities. Please go ahead with your question.
slow down [Foreign language]
My question. Thank you for taking my question. My question is going to head towards the VS business. I have two questions in total. First, we are seeing a growth slowdown in the EV sector. However, one of our key customers, GM, has reported a rise in Q3 profits recently. They have diversified their EV lineup, and they have penetrated the low-end EV car sector as well. They have seen a 60% growth year over year. When do you think this performance will be reflected in LG and Magna's performance? And what do you expect this to have a reflection on LG's Q3 profits?
[Foreign language]
To answer your questions regarding GM's 3Q profits, yes, we have seen the rise in EV sales for GM in the GM's IR recently. But that's not... It seems high because their sales in the previous quarter and the year before was quite low. Their supply request has also been reflected into the LG and Magna's performance. As we see increase in the lineups for new cars, we believe that this will overall have a positive effect on our business as well. We also believe that these efforts will revitalize the EV markets.
Do you guys have any more questions?