LG Electronics Inc
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LG Electronics Inc
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Good morning, and welcome to LG Electronics' Fourth Quarter 2017 Conference Call. This is [ Soo Han De ], Vice President and Head of LG Electronics' IR division. Starting from this year, I'm newly in charge of LG Electronics' IR division, and I would like to appreciate your continued interest in LG Electronics. Now I would like to turn the call over to [ SG Kim ], who is team leader of IR.
Thank you, sir. Thank you, everyone, for joining us today. This is [ SG Kim ], and our IR team members are here with me today. As always, please note that all information regarding our performance and financial results were prepared in advance, and it is subject to change in the process of final audit. All forward-looking statements may be different from those expressed or implied by the changes in the future market environment or business strategy.
Now let me start with our earnings. Full year consolidated revenue for 2017 was KRW 61.4 trillion, the highest in the company's history, and full year operating income was KRW 2.47 trillion, which is the highest profit as of 2009. Consolidated revenue for the fourth quarter was KRW 16.96 trillion, and operating income was KRW 366.8 billion. As for our declared statement of financial position and cash flow statements, please refer to our presentation material, which is reported on our global website.
Next, I'd like to give a brief overview of our fourth quarter results and 2018 outlook by each division. First, H&A. Home Appliance & Air Solution division achieved sales of KRW 4.3 trillion, increased 7% Y-o-Y, driven by strong sales in domestic and growth market. Operating income temporarily declined due to marketing expenses to enhance premium brand position, infrastructure investment in the U.S., and R&D expenditure related to AI appliances and robots. In 2018, we will maintain stable profitability by increasing sales of premium products and improving cost structure.
Moving to HE. Home Entertainment division maintained strong sales from continued growth of OLED and UHD TV. Profitability improved Y-o-Y, but slightly declined Q-o-Q due to year-end peak seasonal marketing costs. We expect premium TV market to grow continuously, and we will focus on maintaining solid profitability by increasing premium product sales and reducing costs.
With regard to MC, Mobile Communications division, sales went up 9% Q-o-Q and 3% Y-o-Y. And profitability wise, operating losses reduced from strong sales of premium products and improved business structure despite a challenging marketplace and strong competition.
This year, we will do our best to increase sales by strengthening smartphone lineup and improving product mix. Also, we will focus on not only strengthening brand and quality of the product for the supply platform and model activities in the manufacturing play to improve the cost structure.
Last, VC. Vehicle Components division posted similar level of sales Q-o-Q and Y-o-Y. Profitability slightly declined due to temporary sales decrease in infotainment business and investment in new business. In 2018, growth of the global electric vehicle market is expected to generate additional market demand, and we expect sales growth by increasing shipments of existing products and launching new products.
Thank you for listening. Operator, we are now ready to open the Q&A session?
[Operator Instructions] The first question will be provided by Nicholas Gaudois from UBS.
First one is it will be great if you could provide this audience with some clarifications as you've done in the Korean conference call yesterday about how you intend to deal with the tariff increase on washing machines in the U.S. And effectively, how much of that is absorbed by price increase? And you have ways to basically buffer the issue, accelerate productions, local sourcing as well. And net-net, what could be the impact on the overall business?
Thank you very respectfully. As our H&A division chief, [ Ho ], mentioned yesterday regarding the tariffs, in the short-term basis, we don't see it -- we see a slight impact. But however, on an annual basis, we do -- the impact is expected to be minimal. This is because of several reasons. First of all, we're going to set up a manufacturing line in the U.S., which is located in Tennessee, which will be launched actually starting from fourth quarter this year. And the second reason is that we have a certain level of inventory already in the U.S. So we -- for this reason, we don't see that much impact. And the last one is that due to the custom, we expect that we can actually leverage this as a rationale to increase the product price itself. So that will also minimize the impact of the operating margin level of the washing machine in the U.S. All in all, if we just look at the revenue of the total H&A division, the revenue is quite huge. And if we just have a calculation, the impact for this tariff will be really small.
Great. Second question is still with Home Appliances & Air Solutions. Could you clarify a little bit more towards the impact in Q4 of the raw material price increase on a year-over-year basis on your operating profit? I mean, you gave that for Q3. Just want to check whether Q4 level is broadly similar.
Thank you very respectfully. For the raw material price impact, since it has been inching up starting from last year second half, every quarter, there was a slight impact. And what we expect is that the impact for -- because this -- quarter-by-quarter, the impact was minimal, we have actually improved ourselves by having a design and platform design in order to improve our cost structure. So all in all, raw material price on a Y-o-Y basis is not that huge.
Great. And last question on my side if I may. Again, in the Korean call yesterday, there were some discussions on the timing of a G7 launch where I think you explained you are pushing this out somewhat due to some software optimization that would be for AI purposes. So with that, could you maybe elaborate a little bit if more medium to long term you're actually changing your product strategy, and the recurrent timing you had for launch of high-end devices where we see you always had one in H1, and -- the largest one, with smaller volumes in H2 pretty much every year for the last few years. So a, did something change a little bit more in the longer term in how you look at your product strategy for smartphones? And b, maybe if you could be a bit more explicit, I guess, on what really you're doing in terms of optimization. I mean, AI, of course, is a very broad, general term. We're curious to hear what are you trying to make better in that, in smartphone, which led you to make the decision to push out a lot?
Yes, so very respectfully, as our CFO of MC division mentioned during the conference call last day, the new flagship model will be launched within the first half this year. And to add a bit of color to this, currently, we are revisiting our strategy on handset business. And our focus is to come out with a better and competitive product. And second, another focus is to observe the market environment by right timing the launch of our new product. That being said, we are not going to launch new models because our competitors are launching theirs. And we -- and that means we are stepping away from the yearly update cycle, and we will wait until we are ready in terms of our product and also update our [indiscernible] the market.
And for the -- regarding the AI question that you asked previously, we're trying to have a deep collaboration with Google in order to support its future technology.
Right. So putting this in the context of with CES announcement, I should assume that will be a Google assistant-enabled phone versus you having used Alexa before, right, basically for some of your handsets?
Yes, that's right.
Currently, there are no participants with questions. [Operator Instructions] The next question will be by Sanjeev Rana from CLSA.
I would like to know your view on the global TV demand for 2018. What are you seeing in major markets in terms of demand inventory and pricing?
Yes, thanks for your question very respectfully. The global -- the TV demand is going to be like mid-single-digit up on a year-on-year basis because, this year, we have like 2 sport events. And then in our -- in terms of our inventory situation, we keep it very healthy, and then the team met all of their inventories.
Operator, if there are no more questions, I'd like to end this conference call. And I'd like to thank you for joining our conference call today. If you have any further questions, please contact our IR team. Thank you.
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