Q1 Operating Profit 264.6 Billion KRW... 67.1% Decrease YoY
Continued Weakness in Petrochemical Sector
LG Chem recently announced that it is considering options such as establishing joint ventures (JVs) rather than selling off its struggling petrochemical business. Given the increasing uncertainty in the business environment, the company also plans to proceed cautiously with the approximately KRW 4 trillion capital expenditure (CAPEX) initially planned for the year.
On the 30th, during the Q1 earnings conference call, LG Chem reported consolidated sales of KRW 11.6094 trillion and an operating profit of KRW 264.6 billion. Compared to the same period last year, sales decreased by 18.7% and operating profit fell by 67.1%.
Cha Dong-seok, LG Chem’s Chief Financial Officer (CFO), stated, "Despite the challenging business environment, the company achieved improved profitability compared to the previous quarter based on its crisis management capabilities. We will continue gradual performance improvements through fundamental business competitiveness enhancement centered on three new growth engines and operational optimization activities."
Petrochemical Business Holds Up Due to Lagging Effect... "Considering Restructuring via JV"
The petrochemical division recorded sales of KRW 4.4552 trillion and an operating loss of KRW 31.2 billion. Despite raw material price increases due to geopolitical risks, the company explained that it reduced the deficit compared to the previous quarter through a positive naphtha lagging effect (time lag in raw material input) and cost-cutting activities.
CFO Cha said, "The petrochemical business expects to return to profitability in Q2 through the mass production launch of new high-margin product lines such as polyolefin elastomers (POE) and isopropyl alcohol (IPA), as well as the start-up of a North American high-value-added synthetic resin (ABS) compound plant in Q2."
LG Chem forecasts that high-value-added products will significantly contribute to profit growth starting in the second half of this year or next year.
Regarding the restructuring of the petrochemical business, he said, "Nothing has been finalized yet," but added, "Rather than selling, we are continuously reviewing various strategic options such as JVs to strengthen the competitiveness of downstream businesses in the future."
"Advanced Materials, CAPEX Execution Cautious... KRW 4 Trillion Investment Plan Maintained"
The advanced materials division, including cathode materials, recorded sales of KRW 1.5834 trillion and an operating profit of KRW 142.1 billion. Battery materials shipments increased by more than 60% quarter-on-quarter due to a base effect from customer inventory adjustments in the previous quarter. Electronic materials led overall sales and profitability improvements through an increased proportion of high-value-added products.
LG Energy Solution Headquarters, Yeoui-daero, Yeongdeungpo-gu, Seoul. Photo by Jinhyung Kang aymsdream@
LG Chem explained that its forecast to increase shipments by 40% compared to last year, as targeted at the beginning of the year, remains unchanged. A company representative said, "We have built a customer portfolio mainly focused on the North American market, which has the greatest growth potential. Since we supply to numerous OEM (Original Equipment Manufacturer) projects, the possibility of a sharp drop in shipments is low." However, they added, "In the second half, we are continuously monitoring shipment fluctuations due to factors such as electric vehicle sales trends and customer inventory adjustments."
Regarding cathode material profitability, "Negative inventory effects will persist until Q2 but are expected to gradually diminish," and "Profitability is expected to improve slightly in Q2 compared to Q1," the company explained.
With the global electric vehicle market slowdown continuing, the company plans to be cautious with CAPEX execution. CFO Cha said, "We initially planned to execute about KRW 4 trillion in investments at the beginning of the year, but due to ongoing macro uncertainties such as market conditions and slowing demand growth, we will invest cautiously," adding, "We plan to manage so as not to exceed KRW 4 trillion as much as possible."
Regarding funding for investments, he added, "We will partially secure funds through external borrowing and continuously pursue the sale of non-core assets to maximize internal cash flow."
On the possibility of utilizing LG Energy Solution shares, the company drew a clear line, stating, "There are no specific plans or strategic changes yet."
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