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LG Electronics February 2008 Disclaimer This presentation was composed utilizin

LG Electronics February 2008 Disclaimer This presentation was composed utilizing the data released on the dates shown, consequently reflecting management views according to the dates. All information in this presentation regarding the company’s financial results has been prepared on a parent (unconsolidated) and/or global (consolidated) basis as indicated, in accordance with the Korean GAAP. Sales information includes transactions of the company to and from its subsidiaries and affiliates, but excludes transactions of the Company’s subsidiaries and affiliates to third parties. This presentation includes forecasting statements in regards to the company’s outlook on the future, including projected sales. These forecasting statements are based on the company’s results on a parent (unconsolidated) and/or global (consolidated) basis as indicated. These forecasting statements are subject to known and unknown risks and uncertainties that may arise, and actual results may vary. Risks and uncertainties aforementioned are not limited to risk factors noted in the company’s earnings releases and company’s filings with the Financial Supervisory Commission of Korea. The company assumes no obligation or responsibility to update the information provided in this presentations in correspondence to their respective dates. Ⅰ. Business Overview Ⅱ. Home Appliances Ⅲ. Mobile Handset Ⅳ. Digital Display Contents Ⅰ. Business Overview 5 Washing Machine 21% Living 11% Others 13% Air conditioner 34% Refrigerator 25% PCB 4% Network 3% Handset 93% *Based on LGE Global (LGE parent + overseas subsidiaries) sales in 2007 *Digital Display breakdown by product is adjusted for PDP internal sales PC 21% Media 43% OS 36% Others 3% PDP 11% Monitor 31% TV 64% LG Electronics Digital Media Digital Appliance Mobile Communications 13% 27% 29% LG.Philips LCD LG.Philips Displays Digital Display 31% LGE Business Domain 6 ¾ Goal is to improve ROIC to over 20% by year 2010 ¾ Various ways to improve ROIC: Improve profitability, discard unnecessary assets, increase efficiency, etc. Key Financial Indexes 2004 2005 2006 2010 Over 10% Over 20% Growth & ROIC 2007 ROIC Sales Growth 26% 12% 11% 19.8% 9.9% 7.5% 12% 11.8% * Sales Growth based on LGE Global (LGE Parent and LGE overseas subsidiaries) in USD. * ROIC is Based on LGE parent 7 ¾ Great improvements in capital structure ¾ Cash flow used for debt reduction ¾ Goal is to reduce global net-debt to equity ratio to below 70% EBITDA /CAPEX (KRW tril) 5.1 6.2 7.3 6.2 6.4 71% 104% 146% 106% 179% 0 2 4 6 8 10 2003 2004 2005 2006 2007 Net Debt Trend (KRW tril) Global Net Debt Global Net-debt to Equity Improvements in Financials 0 0.5 1 1.5 2 2.5 2003 2004 2005 2006 2007 EBITDA CAPEX * Based on LGE Global 8 ¾ Redefining “LG Electronics” brand to premium markets ¾ Product-led marketing strategy: Handsets Æ Appliances Æ TV Branding Synergy Brand Awareness (USA) * AC Nielsen, Brand Survey ’06 3Q Aided Unaided ‘03 ‘04 ’05 ’10E 90 50 33 10 65 20 15 42 75 23 ’06 3Q Building Brand Awareness Ⅱ. Home Appliances 10 ¾ Sales growth over 16% CAGR ¾ “Innovative products with great design” ¾ LGE is global #3 in terms of sales but #1 in terms of profitability Target Zone Eletrolux Whirlpool LG Profitability Sales Global Sales '03 '04 '05 '06 '07 CAGR 16% Export Domestic LGE: Leading Global Appliances 11 ¾ Targeting global #1 in appliances ¾ Steadily growing in developed markets (U.S., Europe) ¾ Strong leader in emerging markets U.S. Distribution Channels Europe & others Joined forces with U.S. nationwide retailers - 2004 : Best Buy - 2005 : Home Depot - 2007 : Sears - 2008 : Regional Channels Joined forces with U.S. nationwide retailers - 2004 : Best Buy - 2005 : Home Depot - 2007 : Sears - 2008 : Regional Channels EU channels: DSGi, KESA, etc. EU channels: DSGi, KESA, etc. 2010 Profitability Sales 2006 LGE: Global Leader Market share in emerging countries India: 27% CIS: 11% Brazil: 5% Market share in emerging countries India: 27% CIS: 11% Brazil: 5% 12 ¾ LGE is positioned in the mass premium market (ASP $1000~$1400) ¾ Growth from Sears, Home Depot and Best Buy entry - major U.S. distributors ¾ Innovative products: Allergy care steam washing machines in various colors, etc. U.S. Appliance Market Source: Stevenson ’06 1Q 400 800 1200 1600+ (US$) ASP: LGE U.S. Appliance Sales '03 '04 '05 '06 '07 (US$ M) 1,060 1,670 LG OEM 44% 56% 62% 60% 40% 38% 1,217 CAGR 25% 41% 9% 2,185 57% 43% 35% 65% 2,471 Success in the U.S. 13 Expanding our CAC Business ¾ Commercial Air Conditioner - new market for LGE ¾ B2B business, infrastructure and after service is important ¾ CACs using new energy solutions: Eco-design, reducing environmental impact Global A/C Market LGE A/C Sales CAC Portion 45% 20% 27% CAGR 6% CAGR Source: Company data 17 17.5 19 26 27.8 35 2006 2007E 2010E 43.0 45.3 54.0 RAC Total 2.5 3 2.8 0.8 1.1 2.3 2005 2007 2010E 3.2 4.1 5.1 Total 12% 30% 3% CAC 8% 3% (U$ Bn) (U$ Bn) CAC RAC Source: Company data 14 Producing high-end products in Korea Producing high-end products in Korea Utilizing China as low-cost production base Utilizing China as low-cost production base Global Production Korea 34% China 55% Asia 6% Others 4% Increasing premium product proportion Increasing premium product proportion Focus on High-end A/C Washing machine Refrigerator Focusing on 3 Major profitable products Focusing on 3 Major profitable products Emphasis on R&D Technological leadership - generated by vertical integration of key components Technological leadership - generated by vertical integration of key components Emphasis on R&D Æ product leadership Emphasis on R&D Æ product leadership A/C W/M Ref. Compressor Motor ¾ Emphasis on R&D Æ Innovative new products ¾ Highly efficient low cost production bases (China, India) ¾ Focusing on three major premium products: A/C, washing machines and refrigerators * Based on quantity, 2007 Success Factors In-house production Ⅲ. Mobile Handset 16 Demand by Technology Global Demand ¾ Emerging market is leading the handset demand ¾ Limited growth from CDMA ¾ Increase of 3G and GSM portion CAGR* (mn units) 2004 2005 2006 2007 E.Europe Asia W.Europe Others N.America CS.America 20% 5% 8% 23% 13% 28% 677 833 998 1,123 16% (mn units) GSM CDMA WCDMA/ HSDPA CAGR* 9% 13% 92% Others Market Update 2008E 1,211 677 833 998 1,123 1,211 2004 2005 2006 2007 2008E * Source : Strategy Analytics * CAGR : based on 2004 ~ 2007 * CAGR : based on 2004 ~ 2007 17 Sales & Margin ¾ In 2007, LGE showed handset stability and margin recovery (8.6%) ¾ Shipment reached historic high of 80.5 million units in 2007 ¾ Continuing the success of “Black Label” & “Blue Label” series Shipment (mn units) * Source : Company data 27 44 55 GSM CDMA WCDMA 64 80 2003 2004 2005 2006 2007 31% CAGR ** CAGR : based on 2003 ~ 2007 except for WCDMA 14% 55% 29% 5.2 8.4 8.4 9.0 9.6 2003 2004 2005 2006 2007 6.3% 4.5% 1.3% 4.8% (KRW tril) Margin recovery Stable Handset Business 8.6% ** based on LGE Parent sales and operating margin 18 Stabilization through Diversified Profit Portfolio Verizon (CDMA) & Hutchison (3G) 80% Others U.S. CDMA 35% 3G Total 20% GSM Open 30% Others • Chocolate 7.7m in 2007 • Shine and Viewty in 2007 2005 2007 • Vodafone, AT&T, 3, etc • Winner of GSMA’s “3G for All” project Successful entry into GSM market Wider 3G customer base Handset Growth ¾ Successful entry into GSM open market with “Chocolate” - “Chocolate” shipment reached 7.5M units in 2006, over 4M units in GSM ¾ Expansion of 3G customer base : Vodafone, AT&T, etc. 19 ¾ ASP improvement just as important as growth ¾ Increased concentration on high-end handsets ¾ “LG” Brand identification through design Global “Hit Product” • Enhance design • “User-centric” product development • Improve market research capability Two tier marketing strategy • Operator centric strategy for CDMA • Open market strategy for GSM Raise blended ASP • Take advantage of “Korea test market” • Expand 3G models and carriers • Move up in GSM market Volume L H H L Nokia Motorola Long-term Goal ASP Future Direction Ⅳ. Digital Display 21 ¾ Flat Panel technology became mainstream in the TV market ¾ Larger-size demand increasing rapidly backed by steep price erosion, and prevailing HD contents TV Demand '06 '07 '08E ‘10E FPD (%) (mn units) 30”~39” 30”↓ (mn units) Demand by Size Soaring FPD Demand '09E CRT 190 195 205 210 220 40”~49” 50”↑ '06 '07 '08E ‘10E '09E 190 195 205 210 220 29% 44% 55% 66% 68% Source: TSR, DisplaySearch, Company data Source: TSR, DisplaySearch, Company data 22 Product design and development - LCD cooperation with LPL - PDP cooperation with LG-Micron ¾ Strengthen brand and competitiveness to improve profitability - Invest in Brand : Increase marketing expenditure in selective markets: US, EU - Strengthen Competitiveness : Cooperative product design and development with affiliates, providing consumers with the best product portfolio Invest in Brand Strengthen Competitiveness TV PDP panel LCD uploads/Industriel/ lg-guide.pdf