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Earnings

LG Electronics Q3 profit halves on GM recalls, sales at record-high

With talks on how to share the recall burden with GM concluded, LG Energy is set to resume its IPO process

By Oct 12, 2021 (Gmt+09:00)

LG's built-in home appliance
LG's built-in home appliance

LG Electronics Inc. said on Tuesday it expects its third-quarter operating profit to plunge as heavy costs for General Motors Co.’s recall of electric cars equipped with LG batteries dented its otherwise solid earnings.

The South Korean home appliance giant said its operating profit in the three months to September is estimated at 540.7 billion won ($452 million), down 49.6% from a year earlier.

However, its preliminary third-quarter sales are estimated at a record 18.78 trillion won, up 22% from the year-earlier period, on strong demand for TVs and other home appliances, LG said in a regulatory filing.

Other financial data, including its net profit, will be released later this month when it announces full figures for the third quarter.

Back in mid-August, GM said it is recalling the Chevy Bold EVs equipped with batteries supplied by LG due to fire risks after some of the vehicles caught fires.

The Detroit-based automaker said at the time the recall covering some 73,000 Bolt EVs will cost about $1 billion, and that it will ask LG to share the burden. LG estimated the total recall cost at about 1.4 trillion won ($1.17 billion).

LG Chem Ltd., the parent of EV battery maker LG Energy Solution Ltd., and LG Electronics, which assembles cells manufactured by LG Energy into battery modules, said they would fully cooperate with GM to look into the cause of the EV fires.

On Tuesday, LG Electronics said it has earmarked 480 billion won in loss provisioning connected to the GM recall for the third quarter.

Separately, LG Chem said on Tuesday it has set aside about 620 billion won in similar costs to be reflected in third-quarter earnings.

The two companies already reflected 235 billion won and 91 billion won, respectively, in such costs in the second quarter.

LG's OLED TV
LG's OLED TV

ROBUST HOME APPLIANCE SALES

Industry watchers said the electronics maker’s record third-quarter revenue was supported by strong sales in its home appliance and TV divisions.

LG’s main cash cow, the Home Appliance & Air Solutions unit, likely posted nearly 7 trillion won in sales in the third quarter, according to industry officials.

“A suite of high-class consumer goods under the Objet Collection brand continued to enjoy high sales in the third quarter, while sales of air conditioners were also good with the long summer this year,” said an LG official.

Sales from LG’s Home Entertainment division, which makes TVs, are estimated at over 4 trillion won, boosted by robust sales of organic light-emitting diode (OLED) TVs.

Market researcher Omdia last month revised up the size of this year’s global OLED TV market to 6.5 million units, from a forecast of 5.8 million units made earlier this year.

LG is the world’s top OLED TV maker controlling about 70% of the market.

The company’s Vehicle Component Solutions unit is forecast to report an operating loss for the third quarter as global carmakers still suffer from production disruptions due to a chip shortage.

LG Electronics terminated its mobile phone business at the end of July and is treating the Mobile Communications division’s performance as a discontinued operating loss.

GM Chevrolet Bolt EV 2022
GM Chevrolet Bolt EV 2022

RESUMING LG ENERGY IPO

LG Energy Solution said on Tuesday it is resuming its suspended initial share sale process now that LG and GM have concluded talks on how to proceed with the recall of GM EVs.

The battery-making unit of LG Chem said on Aug. 30 it won’t likely list its shares on the main Kospi market by the end of the third quarter as announced earlier due to the GM EV recall.

According to industry officials, LG Energy has hired KB Securities and Morgan Stanley as the lead managers for its initial public offering to raise between 10 trillion won and 15 trillion won.

The battery maker has also selected five other brokerage firms – Shinhan Investment Corp., Daishin Securities Co., Citigroup Global Markets Korea Securities, Goldman Sachs and Bank of America – as joint bookrunners.

Write to Hyung-Suk Song and Il-Gue Kim at click@hankyung.com

In-Soo Nam edited this article.

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