LG Chem Reports Operating Profit of 570 Billion Won Driven by 'Tesla Effect' (Comprehensive)

Electric Vehicle Battery Surplus Leads to 'Surprise Earnings'

Operating Profit Increases 131.5% Year-on-Year

Stable Petrochemical Earnings Despite Low Oil Prices

Accelerated Sales of Cylindrical Batteries... Positive Signs for Q3

[Asia Economy Reporter Park So-yeon] LG Chem delivered an 'earnings surprise' in the second quarter of this year with an operating profit exceeding 500 billion KRW, despite the challenges posed by the COVID-19 pandemic. The operating profit margin also reached its highest level since the third quarter of 2018. The main driver behind this unexpected strong performance in Q2 was the electric vehicle battery business, often called the 'second semiconductor.'

LG Chem announced on the 31st that its consolidated operating profit for the second quarter of this year was 571.6 billion KRW, a 131.5% increase compared to the same period last year. Sales rose 2.3% year-on-year to 6.9352 trillion KRW. Net profit surged 399.9% to 419.1 billion KRW. The operating profit margin reached 8.2%, the highest since Q3 2018.

The battery division posted remarkable results. LG Chem recorded its highest-ever quarterly sales and operating profit in the battery division with sales of 2.823 trillion KRW and operating profit of 155.5 billion KRW in Q2. Although the battery division is considered LG Chem's future growth engine, it was previously an investment business that did not contribute significantly to earnings, recording an operating loss of 454.3 billion KRW last year. However, with the global electric vehicle market expanding significantly this year, LG Chem explained that the division has transformed into a cash cow generating substantial profits.

Particularly noteworthy is the electric vehicle battery business, which had been in continuous deficit due to expanded investments after briefly reaching breakeven in Q4 2018, but returned to profitability in Q2 this year. Sales in the battery division increased 25% quarter-on-quarter due to the expansion of eco-friendly policies worldwide, including Europe and China, boosting electric vehicle sales, and large-scale ESS project supplies in North America. On the profitability front, improvements in production yield at the Poland plant and cost reductions led to profitability in the automotive battery business, achieving record-high results. This marks a significant milestone in securing a firm leadership position in the electric vehicle battery sector.

In the petrochemical division, differentiated operational efficiency improvements and better spreads on key products resulted in sales of 3.3128 trillion KRW and operating profit of 434.7 billion KRW. Although sales declined compared to last year due to lower product prices amid low oil prices, the recovery in Chinese demand and expanded spreads on key products such as ABS led to a double-digit operating profit margin (13.1%) for the first time in five quarters since Q1 last year.

The advanced materials division posted sales of 789.2 billion KRW and operating profit of 35 billion KRW. LG Chem explained that although sales decreased due to reduced demand in front-end markets such as IT and displays amid the COVID-19 spread, profitability improved thanks to lower raw material prices and cost efficiency measures.

Additionally, the life sciences division recorded sales of 160.3 billion KRW and operating profit of 14.1 billion KRW, while subsidiary Pharmhanong posted sales of 177.8 billion KRW and operating profit of 11.6 billion KRW.

LG Chem expects to maintain strong performance in the battery and petrochemical divisions in the third quarter. Automotive battery shipments are expanding to European automakers, and sales of cylindrical batteries are increasing, supporting sustained solid profitability. Cylindrical batteries are mainly supplied to companies like Tesla.

Chief Financial Officer (Vice President) Cha Dong-seok said, "Despite the impact of COVID-19 in Q2, we achieved results exceeding market expectations through internal efficiency improvements and strengthened differentiated capabilities. Particularly, normalizing yields and reducing fixed costs in the automotive battery division laid a structural foundation for profit generation, which is highly meaningful."

He added, "Although uncertainties due to the ongoing COVID-19 pandemic are expected in Q3, we anticipate continued strong performance through stable profitability in the petrochemical division and significant growth in the battery division. We will also continue to enhance business efficiency from a mid- to long-term perspective to build a business structure that achieves stable results even amid crises."