Operating Profit Reaches 20 Trillion Won Due to ITC Battery Lawsuit Settlement
Battery Order Backlog Increases from 150 Trillion to 180 Trillion Won
Chemical Business Achieves Steady Profit
Strengthening Materials Such as Advanced Materials and Separators... Sales Expected to Reach 12 Trillion Won by 2026
LG Chem Acquires LG Electronics Separator Business Ahead of Earnings Announcement
[Asia Economy Reporter Hwang Yoon-joo] LG Energy Solution recorded its highest quarterly performance due to the impact of one-time operating profit items, including the reflection of battery lawsuit settlement payments. Before the earnings announcement, the company announced the acquisition of LG Electronics' separator business, accelerating vertical integration in the battery sector from electric vehicle batteries to battery materials and chemical products for separators. Although the chemical business has driven performance since COVID-19, the rapid growth of the electric vehicle market is expected to gradually increase the proportion of eco-friendly business earnings such as batteries.
LG Chem disclosed on the 29th that its consolidated operating profit for the second quarter of this year increased by 290.2% year-on-year to 2.2308 trillion KRW. During the same period, sales rose 65.2% to 11.4561 trillion KRW, and net profit jumped 289.5% to 1.6322 trillion KRW on a provisional basis.
By business division, the petrochemical sector recorded sales of 5.2674 trillion KRW and operating profit of 1.3247 trillion KRW. A differentiated product portfolio including eco-friendly materials such as renewable energy and hygiene products, combined with improved demand due to global economic recovery, led to record-high performance. In the third quarter, sales growth and solid profitability are expected to continue due to the operation of new facilities such as Yeosu's second NCC.
The life sciences division posted sales of 203 billion KRW and operating profit of 29.1 billion KRW. It achieved the highest quarterly sales through the launch of a new polio vaccine and expanded sales of key products such as Gemiglo and Utrophin, with profitability also improving. In the third quarter, steady sales are expected due to the full-scale supply of the polio vaccine and maintenance of market share for key products.
Energy Solution recorded sales of 5.131 trillion KRW and operating profit of 815.2 billion KRW. Despite impacts from supply and demand disruptions in the upstream industry and customer demand issues, sales and profitability improved due to recognition of one-time factors.
An LG Chem official explained, "Despite reflecting a 400 billion KRW provision for recall costs, operating profit exceeded 2 trillion KRW due to the inclusion of settlement payments from the SK Innovation and ITC lawsuit."
Previously, LG Chem agreed to end the lawsuit with SK Innovation at the U.S. International Trade Commission (ITC) on the condition of receiving 1 trillion KRW in settlement payments and 1 trillion KRW in royalties. The settlement payments are to be received as 500 billion KRW each in this year and next year, and royalties will be collected starting in 2023.
The battery business outlook is progressing better than expected. In the second-quarter earnings conference call, LG Chem stated, "Although LG Energy Solution is already realizing profits quickly from projects ordered this year, new orders are increasing mainly from customers in the U.S. and Europe, maintaining an order backlog of about 180 trillion KRW." This is an increase from the previously announced 150 trillion KRW, indicating that "the order pipeline is being maintained very solidly."
In the third quarter, sales growth of automotive batteries and small batteries for IT due to increased electric vehicle sales is expected, and efforts to improve profitability through early stabilization of expanded production lines and cost reduction will continue.
The advanced materials division recorded sales of 1.2969 trillion KRW and operating profit of 94.5 billion KRW. Sales growth and solid profitability were maintained through increased shipments of cathode materials and price increases for engineering materials. Sales growth due to the expansion of the battery materials business is expected to continue in the third quarter.
Notably, before the earnings announcement, LG Chem revealed the acquisition of LG Electronics' separator business, demonstrating its aggressive investment intentions in the battery materials sector. The acquisition target is LG Electronics' Business Solutions (BS) division's Chemical & Electronic Materials (CEM) business unit, with the acquisition amount estimated at around 525 billion KRW.
In the second-quarter earnings conference call, LG Chem emphasized, "By 2026, sales of battery materials alone in the advanced materials sector are expected to reach 8 trillion KRW, and total sales of advanced materials will exceed 12 trillion KRW."
It also stated, "The ultra-high molecular weight PE market used in separators is growing rapidly," and "mass production is being thoroughly reviewed." This reflects a strengthening of vertical integration from electric vehicle batteries to separators and PE for separators.
Cha Dong-seok, LG Chem CFO and Vice President, said, "We will execute concrete plans based on three new growth engines grounded in ESG: eco-friendly sustainability business, e-Mobility centered on battery materials, and global innovative new drugs."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
