LG Energy Solution Ltd (XKRX:373220) Q3 2024 Earnings Call Highlights: Strong Revenue Growth ...
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Revenue Growth: Increased by 12% in Q3 2024, reaching approximately 6.9 trillion won.
Operating Loss: Reduced to 17.7 billion won, with an operating margin of 6.5%, up by 3.3 percentage points from the previous quarter.
Net Income: Increased by 585 billion won from the previous quarter, reaching 561 billion won, with a net income margin of 8.2%.
Assets: Increased by about 5.1 trillion won, totaling 56.6 trillion won at the end of Q3 2024.
Liabilities: Increased by about 4.3 trillion won, reaching 28.1 trillion won.
Equity: Increased by about 0.9 trillion won, totaling 28.5 trillion won.
Debt Ratios: Liability to equity ratio at 99%, debt equity ratio at 59%, and net debt equity ratio at 40%.
EBITDA: Generated about 1.2 trillion won with an improved EBITDA margin of 18%.
Cash Flow: Positive cash flow with about 2.8 trillion won fund inflow due to increased borrowings and 3.1 trillion won of CapEx executed for capacity expansion.
Cash Balance: Increased by about 1.5 trillion won, reaching 5.45 trillion won at the end of Q3.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
LG Energy Solution Ltd (XKRX:373220) reported a 12% increase in topline revenue for Q3 2024, reaching approximately 6.9 trillion won, driven by double-digit growth in shipments.
The company signed a large-scale supply contract totaling 160 gigawatt hours with global top OEMs, enhancing its customer portfolio.
Significant progress in R&D was made, including the development of the world's first self-pack technology for high voltage mid-nickel batteries, maximizing energy efficiency and price competitiveness.
The company successfully started production and supply through a joint venture in Ontario, Canada, with plans to expand production capacity.
LG Energy Solution Ltd (XKRX:373220) generated about 1.2 trillion won in EBITDA with an improved EBITDA margin of 18%, up 2.9 percentage points from Q2.
Negative Points
The company posted an operating loss of 17.7 billion won, although this was a significant reduction compared to the previous quarter.
Non-operating loss amounted to 109 billion won due to net interest expenses from increased borrowings and valuation loss on currency swaps.
The mobility and I battery division experienced a decline in revenue, attributed to softer demand from a major EV customer.
There are uncertainties in the macroeconomic environment and geopolitical risks, leading to a more competitive market landscape.
The company anticipates potential revenue decline in Q4 due to inventory adjustments by key customers and declining metal prices affecting ASP.
Q & A Highlights
Q: Can you provide an updated guidance for the fourth quarter and growth expectations for 2025? Additionally, how might GM's inventory adjustments impact your performance? A: This is Chang Sil Lee, CFO. For Q4, we expect some inventory adjustments by North American customers, potentially decreasing volume. Metal price declines will affect ASP, possibly leading to revenue adjustments. However, European OEM demand and North American grid ESS sales are encouraging. We anticipate Q4 revenue to be similar to Q3. Profitability may face challenges due to seasonality and product mix changes. For 2025, uncertainties like geopolitical risks and increased competition make forecasting difficult. However, stronger CO2 regulations and new EV models could boost demand. We aim to maintain competitiveness and sound fundamentals. Regarding GM, we expect temporary adjustments in battery demand due to their inventory management, but improvements in sales performance are noted. We aim to align with our guidance of 30-35 GWh for IRA tax credits.
Q: How will the new CO2 emission regulations in Europe impact demand, and what is your outlook for regional demand dynamics? A: This is Changshou from corporate strategy. The EU's stricter CO2 regulations will likely boost EV sales, especially in the affordable segment. However, European economic constraints make us cautious about growth expectations. We expect customers to deplete existing inventories before increasing battery demand. We plan to offer a range of chemistries, including LFP and high-voltage mid-nickels, to enhance performance and cost competitiveness. For regional demand, we saw improved utilization in Poland and China due to increased EV and ESS demand. We expect gradual improvement in Europe OEM volume, but US and China sites may see limited utilization improvements due to inventory adjustments.
Q: How are you managing capacity and CapEx given the current market conditions? A: This is the CFO. We are optimizing global capacity and focusing on efficient CapEx execution. Unused battery lines are being converted for new applications, and we aim to maximize existing line utilization. In North America, we are moderating capacity additions and investment pace to prevent overcapacity. However, we are actively pursuing growth opportunities in the North American ESS market. We are minimizing CapEx, focusing on essential investments, and expect a significant reduction in CapEx next year compared to this year.
Q: Can you discuss your strategy for LFP and high-voltage mid-nickel batteries targeting mid to lower-range EVs? A: This is Kim Jong Hoon from advanced automotive battery planning. We are securing low-cost solutions like LFP and high-voltage mid-nickel batteries to meet market demand. We shipped our first LFP batteries with CTP solutions to European customers, enhancing energy density and safety while reducing manufacturing costs. We aim to strengthen our position in the mid to low-end market with these products and are in discussions with potential customers for orders.
Q: What is the status of your 4680 battery production and potential orders from Tesla? A: This is Ninho from mobility and IT battery planning. We are in the final stages of preparing for mass production of 4680 batteries, with sample production starting in Q4. We are in discussions with key customers about supply schedules and expect to supply from our Arizona site starting in 2026. We are focusing on mass production capabilities and will communicate with the market once additional supply arrangements are confirmed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
