6-K 1 d140289d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of April 2021

 

 

LG Display Co., Ltd.

(Translation of Registrant’s name into English)

 

 

LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Republic of Korea

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ☐            No  ☒

 

 

 


Table of Contents

ANNUAL REPORT

(From January 1, 2020 to December 31, 2020)

THIS IS A TRANSLATION OF THE ANNUAL REPORT ORIGINALLY PREPARED IN KOREAN AND IS IN SUCH FORM AS REQUIRED BY THE KOREAN FINANCIAL SUPERVISORY COMMISSION.

IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED AND CERTAIN NUMBERS WERE ROUNDED FOR THE CONVENIENCE OF READERS. REFERENCES TO “Q1”, “Q2”, “Q3” AND “Q4” OF A FISCAL YEAR ARE REFERENCES TO THE THREE-MONTH PERIODS ENDED MARCH 31, JUNE 30, SEPTEMBER 30 AND DECEMBER 31, RESPECTIVELY, OF SUCH FISCAL YEAR.

UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A CONSOLIDATED BASIS IN ACCORDANCE WITH KOREAN INTERNATIONAL FINANCIAL REPORTING STANDARDS, OR K-IFRS, WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. K-IFRS ALSO DIFFERS IN CERTAIN RESPECTS FROM THE INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ISSUED BY THE INTERNATIONAL ACCOUNTING STANDARDS BOARD. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES IN THIS DOCUMENT.

Contents

 

  1.    Company      3  
     A.    Name and contact information      3  
     B.    Credit rating      3  
     C.    Capitalization      5  
     D.    Voting rights      6  
     E.    Dividends      6  
  2.    Business      7  
     A.    Business overview      7  
     B.    Industry      8  
     C.    New businesses      10  
  3.    Major Products and Raw Materials      10  
     A.    Major products      10  
     B.    Average selling price trend of major products      10  
     C.    Major raw materials      11  
  4.    Production and Equipment      11  
     A.    Production capacity and output      11  
     B.    Production performance and utilization ratio      12  
     C.    Investment plan      12  
  5.    Sales      12  
     A.    Sales performance      12  
     B.    Sales organization and sales route      13  
     C.    Sales methods and sales terms      13  
     D.    Sales strategy      14  
     E.    Major customers      14  
  6.    Purchase Orders      14  
  7.    Market Risks and Risk Management      14  
     A.    Market risks      14  

 

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     B.    Risk management      15  
 

8.

   Derivative Contracts      15  
     A.    Currency risks      15  
     B.    Interest rate risks      15  
 

9.

   Major Contracts      16  
 

10.

   Research & Development      16  
     A.    Summary of R&D-related expenditures      16  
     B.    R&D achievements      16  
 

11.

   Intellectual Property      18  
 

12.

   Environmental and Safety Matters      18  
 

13.

   Financial Information      22  
     A.    Financial highlights (Based on consolidated K-IFRS)      22  
     B.    Financial highlights (Based on separate K-IFRS)      23  
     C.    Consolidated subsidiaries as of December 31, 2020      24  
     D.    Status of equity investments as of December 31, 2020      24  
 

14.

   Audit Information      25  
     A.    Audit service      25  
     B.    Non-audit service      26  
 

15.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     26  
     A.    Risk relating to forward-looking statements      26  
     B.    Overview      26  
     C.    Financial condition and results of operations      37  
     D.    Liquidity and capital resources   
 

16.

   Board of Directors      43  
     A.    Members of the board of directors      43  
     B.    Committees of the board of directors      43  
     C.    Independence of directors      44  
 

17.

   Information Regarding Shares      44  
     A.    Total number of shares      44  
     B.    Shareholder list      44  
 

18.

   Directors and Employees      45  
     A.    Directors      45  
     B.    Employees      48  
 

19.

   Other Matters      49  
     A.    Legal proceedings      49  
     B.    Material events subsequent to the reporting period      49  

Attachment: 1. Financial Statements in accordance with K-IFRS

 

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1.

Company

 

  A.

Name and contact information

The name of our company is “EL-GI DISPLAY CHUSIK HOESA,” which shall be “LG Display Co., Ltd.” in English.

Our principal executive office is located at LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Republic of Korea, and our telephone number is +82-2-3777-1010. Our website address is http://www.lgdisplay.com.

 

  B.

Credit rating

 

  (1)

Corporate bonds (Domestic)

 

Subject instrument

  

Month of rating

  

Credit rating(1)

  

Rating agency (Rating range)

Corporate bonds    February 2018    AA    NICE Information Service Co., Ltd. (AAA ~ D)
   May 2018
   February 2019    AA-
   April 2019
   November 2019
   February 2020    A+
   June 2020
   May 2018    AA    Korea Investors Service, Inc. (AAA ~ D)
   February 2019    AA-
   June 2019
   October 2019
   February 2020    A+
   June 2020
   February 2018    AA    Korea Ratings Corporation (AAA ~ D)
   April 2018
   April 2019    AA-
   November 2019
   February 2020    A+
   May 2020

 

(1)

The results of our credit ratings subsequent to the reporting period are as follows:

 

Subject instrument

  

Month of rating

  

Credit rating(2)

  

Rating agency (Rating range)

Corporate bonds    [February 2021]    A+    NICE Information Service Co., Ltd. (AAA ~ D)
Corporate bonds    [February 2021]    A+    Korea Investors Service, Inc. (AAA ~ D)

Corporate bonds

   [February 2021]    A+    Korea Ratings Corporation (AAA ~ D)

 

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(2)

Domestic corporate bond credit ratings are generally defined to indicate the following:

 

Subject instrument

  

Credit rating

  

Definition

Corporate bonds    AAA    Strongest capacity for timely repayment.
  

 

AA+/AA/AA-

  

 

Very strong capacity for timely repayment. This capacity may, nevertheless, be slightly inferior than is the case for the highest rating category

  

 

A+/A/A-

  

 

Strong capacity for timely repayment. This capacity may, nevertheless, be more vulnerable to adverse changes in circumstances or in economic conditions than is the case for higher rating categories.

  

 

BBB+/BBB/BBB-

   Capacity for timely repayment is adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity.
  

 

BB+/BB/BB-

  

 

Capacity for timely repayment is currently adequate, but that there are some speculative characteristics that make the repayment uncertain over time.

  

 

B+/B/B-

  

 

Lack of adequate capacity for repayment and speculative characteristics. Interest payment in time of unfavorable economic conditions is uncertain.

  

 

CCC

  

 

Lack of capacity for even current repayment and high risk of default.

  

 

CC

  

 

Greater uncertainties than higher ratings.

  

 

C

  

 

High credit risk and lack of capacity for timely repayment.

  

 

D

  

 

Insolvency.

 

  (2)

Corporate bonds (Overseas)

 

Subject instrument

  

Month of rating

  

Credit rating

  

Rating agency (Rating range)

Corporate bonds(1)

   November 2018    AA    Standard & Poor’s Rating Services (AAA ~ D)

 

(1)

Represents credit rating for our overseas corporate bonds guaranteed by the Korea Development Bank.

(2)

Overseas corporate bond credit ratings are generally defined to indicate the following:

 

Subject instrument

  

Credit rating

  

Definition

Corporate bonds   

 

AAA

   Highest level of stability.
  

 

AA+/AA/AA-

  

 

Very high level of stability. This stability may be slightly more risky than is the case for the highest rating category but presents no issues.

  

 

A+/A/A-

  

 

High level of stability. There are no issues with repaying the principal, but there are characteristics that could be subject to future deterioration.

  

 

BBB+/BBB/BBB-

  

 

Level of stability is adequate. Current level of stability and profitability is adequate, but requires special attention during times of economic downturns.

  

 

BB+/BB/BB-

  

 

Speculative characteristics. There is no guarantee on future stability. Expected business performance is uncertain.

  

 

B+/B/B-

  

 

Inadequate as an investment target. Ability to make principal repayments or comply with contractual terms and conditions is uncertain.

  

 

CCC/CC/C

  

 

Very low level of stability. Ability to make payments of principal and interest is highly unlikely. Extremely speculative. Currently in default or undergoing a serious problem.

  

 

D

  

 

Bankruptcy.

 

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  (3)

Commercial paper

 

Subject instrument

  

Month of rating

  

Credit rating(1)

  

Rating agency (Rating range)

Commercial paper

   May 2018    A1    Korea Investors Service, Inc. (A1 ~ D)
   May 2018    A1    NICE Information Service Co., Ltd. (A1 ~ D)
   November 2018    Cancelled(2)    Korea Investors Service, Inc. (A1 ~ D)
   November 2018    Cancelled(2)    NICE Information Service Co., Ltd. (A1 ~ D)

 

(1)

Domestic commercial paper credit ratings are generally defined to indicate the following:

 

Subject
instrument

   Credit
rating
  

Definition

Commercial paper    A1    Timely repayment capability is at the highest level with extremely low investment risk and is stable such that it will not be influenced by any reasonably foreseeable changes in external factors.
   A2    Strong capacity for timely repayment with very low investment risk. This capacity may, nevertheless, be slightly inferior than is the case for the highest rating category.
   A3    Capacity for timely repayment is adequate with low investment risk. This capacity may, nevertheless, be somewhat influenced by sudden changes in external factors.
   B    Capacity for timely repayment is acknowledged, but there are some speculative characteristics.
   C    Capacity for timely repayment is questionable.
   D    Insolvency.

※ ‘+’ or ‘-’ modifier can be attached to ratings A2 through B to differentiate ratings within broader rating categories.

 

(2)

Ratings have been cancelled due to repayment of our outstanding commercial paper on October 22, 2018 upon maturity.

 

  C.

Capitalization

 

  (1)

Change in capital stock (as of December 31, 2020)

There were no changes to our issued capital stock during the annual reporting period ended December 31, 2020.

 

  (2)

Convertible bonds (as of December 31, 2020)

 

Description

 

Issue Date

 

Maturity
Date

 

Issue Amount
(in Won)

   

Class of
Shares
Subject to
Conversion

 

Conversion
Period

 

Conditions for
Conversion

 

Outstanding Bonds

 

Notes

 

Conversion
Ratio

 

Conversion
Price

 

Issue Amount
(in Won)

   

Number of
Shares
subject to
conversion

Unsecured Foreign Convertible Bonds No. 3   Aug. 22, 2019   Aug. 22, 2024     813,426,670,000 (1)(2)    Registered Common Shares   Aug. 23,
2020 ~
Aug. 12,
2024
  100%   W19,845     813,426,670,000 (1)    40,988,998   Listed on Singapore Stock Exchange

Total

  —     —       813,426,670,000     —     —     100%   W19,845     813,426,670,000     40,988,998   —  

 

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(1)

The issue amount for Unsecured Foreign Convertible Bonds No. 3 is calculated based on the application of the mid-point of the relevant Won-US dollar exchange rates as of noon, July 30, 2019 (Korea Standard Time) quoted on Bloomberg, which was W1,182.65 per U.S. dollar, to the actual issue amount of USD 687,800,000.

(2)

The proceeds of our Unsecured Foreign Convertible Bonds No. 3 were used for general corporate purposes.

 

  D.

Voting rights (as of December 31, 2020)

(Unit: share)

 

Description

  

Number of shares

 

A. Total number of shares issued(1):

  

Common shares(1)

     357,815,700  
  

Preferred shares

     —    

B. Shares without voting rights:

  

Common shares

     —    
  

Preferred shares

     —    

C. Shares subject to restrictions on voting rights pursuant to our articles of incorporation:

  

Common shares

     —    
  

Preferred shares

     —    

D. Shares subject to restrictions on voting rights pursuant to regulations:

  

Common shares

     —    
  

Preferred shares

     —    
E. Shares with restored voting rights:   

Common shares

     —    
  

Preferred shares

     —    

Total number of issued shares with voting rights (=A – B – C – D + E):

  

Common shares

     357,815,700  
  

Preferred shares

     —    

 

(1)

Authorized: 500,000,000 shares

 

  E.

Dividends

Dividends for the three most recent fiscal years

 

Description (unit)

   2020      2019      2018  

Par value (Won)

        5,000        5,000        5,000  

Profit (loss) for the year (million Won)(1)

        (89,342      (2,829,705      (207,239

Earnings (loss) per share (Won)(2)

        (250      (7,908      (579

Total cash dividend amount for the period (million Won)

        —          —          —    

Total stock dividend amount for the period (million Won)

        —          —          —    

Cash dividend payout ratio (%)(3)

        —          —          —    

Cash dividend yield (%)(4)

  

Common shares

     —          —          —    
  

Preferred shares

     —          —          —    

Stock dividend yield (%)

  

Common shares

     —          —          —    
  

Preferred shares

     —          —          —    

Cash dividend per share (Won)

  

Common shares

     —          —          —    
  

Preferred shares

     —          —          —    

Stock dividend per share (share)

  

Common shares

     —          —          —    
   Preferred shares      —          —          —    

 

(1)

Based on profit for the year attributable to the owners of the controlling company.

(2)

Earnings per share is based on par value of W5,000 per share and is calculated by dividing net income by weighted average number of common shares.

(3)

Cash dividend payout ratio is the percentage that is derived by dividing total cash dividend by profit for the year attributable to the owners of the controlling company.

(4)

Cash dividend yield is the percentage that is derived by dividing cash dividend by the arithmetic average of the daily closing prices of our common shares during the one-week period ending two trading days prior to the closing of the register of shareholders for the purpose of determining the shareholders entitled to receive annual dividends.

 

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Historical dividend information

 

Number of consecutive years of dividends (*)

  

Average Dividend Yield

Interim dividends

   Annual dividends    Last 3 years    Last 5 years

—  

   —      —      0.65(**)

 

*

No dividends were paid during the last three fiscal years.

**

Arithmetic average of actual dividends paid in fiscal years 2016 and 2017 over the most recent five fiscal year period.

 

  F.

Matters relating to Articles of Incorporation

Our current articles of incorporation were amended as of March 15, 2019, and certain amendments as summarized below have been submitted for approval at the upcoming annual general meeting of shareholders. Consequently, our articles of incorporation may be subject to change based on the results of such upcoming annual general meeting of shareholders.

 

Articles to be Amended

  

Description of Amendments

Deletion of Article 27 (Election of Directors), Paragraph 2    To reflect the applicable provision of the amended Commercial Act that provides for a less stringent voting requirement for shareholder approval in the case of the adoption of electronic voting for the appointment of an audit committee member (including a director who will serve as an audit committee member).
Addition of new Paragraph 3 of Article 36-2 (Composition of Audit Committee) and re-numbering of previous Paragraphs 3 and 4 to Paragraphs 4 and 5, respectively    To reflect the applicable provision of the Commercial Act regarding a separate shareholder approval process for an audit committee member.
Deletion of Article 42-2 (Redemption of Shares)    To reflect the applicable provisions of the amended Commercial Act and the amended Financial Investment Services and Capital Markets Act, which permit a stock corporation to retire its own shares within the limit of its distributable income pursuant to a resolution of the board of directors without needing to have a basis to do so under its articles of incorporation.

 

2.

Business

 

  A.

Business overview

We were incorporated in February 1985 under the laws of the Republic of Korea. LG Electronics and LG Semicon transferred their respective LCD business to us in 1998, and since then, our business has been focused on the research, development, manufacture and sale of display panels, applying technologies such as TFT-LCD and OLED.

As of December 31, 2020, in order to support our business activities, we operated TFT-LCD and OLED production and research facilities in Paju and Gumi in Korea, and we have also established subsidiaries in the Americas, Europe and Asia.

As of December 31, 2020, our business consisted of the manufacture and sale of display and display related products utilizing TFT-LCD, OLED and other technologies under a single reporting business segment.

Consolidated operating results highlights

(Unit: In billions of Won)

 

     2020      2019      2018  

Sales Revenue

     24,230        23,476        24,337  

Gross Profit

     2,643        1,868        3,085  

Operating Profit (loss)

     (29      (1,359      93  

Total Assets

     35,072        35,575        33,176  

Total Liabilities

     22,335        23,086        18,289  

 

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  B.

Industry

 

  (1)

Industry characteristics

 

   

From the supply perspective, the display panel industry is technology- and capital-intensive in nature and requires mass production through achieving an economy of scale.

 

   

From the demand perspective, the display panel industry tends to demonstrate a high level of volatility depending on the global macroeconomic conditions, major regional sales events and/or seasonal factors.

 

   

Demand for display panels for traditional IT products such as notebooks and desktop monitors has shown a strong growth due to changes in lifestyle including increased instances of working from home and online classes as a result of the COVID-19 pandemic, and demand for high-end products has also sustained.

 

   

Demand for smartphone and automotive display panels has fluctuated due to weakened conditions in the end-product market in light of the COVID-19 pandemic. However, further growth is expected with the release of new products using plastic OLED panels and those that offer changes in form factors or new customer experiences such as foldable smartphones.

 

   

The market for television display panels has shown a steady growth, largely from developed countries, and has rapidly become focused on larger-sized panels reflecting increased consumer needs for larger screens.

 

   

We also anticipate a gradual growth in the market for high value-added product segments such as display panels for industrial uses.

 

  (2)

Growth Potential

 

   

We are focusing on securing profitability through differentiated products such as “Cinematic Sound” OLED and “Wallpaper” display panels under our strategic plan to transition our business to center around OLED, which has a strong future growth potential. In the television business, we are expanding our offerings of premium products such as OLED products. In particular, with respect to large-sized OLED television display panels, we are continuing to secure additional production capacity of 8.5th generation OLED panels and are planning to further strengthen the fundamentals of our OLED business by continuing to introduce differentiated products and obtaining additional production capacity for 8.5th and 10.5th generation OLED display panels. In the IT business, we are increasing the proportion of premium products such as high resolution and wide screen products based on IPS and Oxide technologies. In the mobile business, we have commenced mass production of 6th generation plastic OLED smartphones. We are also strengthening the foundation for the expansion of small- and medium-sized OLED business, including automotive display panels.

 

  (3)

Cyclicality

 

   

The display panel business is highly cyclical and sensitive to fluctuations in the general economy. The industry experiences recurring volatility caused by imbalances between supply and demand due to capacity expansion and changing production utilization rates within the industry.

 

   

Macroeconomic factors and other causes of business cycles can affect the rate of growth in demand for display panels. Accordingly, if supply exceeds demand, average selling prices of display panels may decrease. Conversely, if growth in demand outpaces growth in supply, average selling prices may increase.

 

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  (4)

Market conditions

 

   

Most display panel manufacturers are located in Asia as set forth below. Pursuant to the Chinese government’s initiative and support, Chinese panel manufacturers have continued to invest in new fabrication facilities and additional supplies, and the concern over intensification of a structural oversupply in the LCD industry continues to exist.

 

  a.

Korea: LG Display, Samsung Display, etc.

 

  b.

Taiwan: AU Optronics, Innolux, CPT, HannStar, etc.

 

  c.

Japan: Japan Display, Sharp, Panasonic LCD, etc.

 

  d.

China: BOE, CSOT, CEC Panda, HKC, etc.

 

   

Our worldwide market share of large-sized display panels (i.e., panels that are 9 inches or larger) based on revenue is as follows:

 

     2020     2019     2018  

Panels for Televisions(1)(2)

     21.6     28.1     28.3

Panels for IT Products(1)

     21.2     24.8     27.5

Total(1)

     21.4     27.2     28.8

 

(1)

Source: Large Area Display Market Tracker (OMDIA).

(2)

Includes panels for public displays.

 

  (5)

Competitiveness and competitive advantages

 

   

Our ability to compete successfully depends on factors both within and outside our control, including the development of new and premium products through technological advances, timely investments, adaptable product portfolio and flexible fabrication mix, achievement of competitive production costs through enhancing productivity and managing supply costs of components and raw materials, our relationship with customers, success in marketing to our end-brand customers, general economic and industry conditions and foreign exchange rates.

 

   

In order for us to compete effectively, it is critical to offer differentiated products that enable us to secure profit margins even during times of a mismatch in the market supply and demand, to be cost competitive and to maintain stable relationships with customers.

 

   

A substantial portion of our sales is attributable to a limited number of end-brand customers and their designated system integrators. As such, it is important to build a sustained relationship with such customers.

 

   

Developing new products and technologies that can be differentiated from those of our competitors is critical to the success of our business. It is important that we take active measures to protect our intellectual property internationally. It is also necessary to recruit and retain experienced key managerial personnel and skilled line operators.

 

   

As a leading technology innovator in the display industry, we continue to focus on delivering differentiated value to our customers by developing various technologies and products, including display panels with WOLED/POLED, IPS, Oxide, in-TOUCH and other technologies. With respect to OLED panels, following our supply of the world’s first 55-inch OLED 3D panels for televisions in January 2013, we have shown that we are technologically a step ahead of the competition by continuing to enhance the performance of our WOLED products and to introduce differentiated large-sized OLED products such as our “Transparent,” “Cinematic Sound,” “Bendable” and “Rollable” and “Transparent” large-sized OLED. Moreover, we have continually introduced differentiated plastic OLED products for smartphones, automotive products, wearable devices and foldable notebook computers, among others. With respect to TFT-LCD panels, we are leading the market with our competitive advantages in technology, including through our IPS, Oxide and LTPS technology-based ultra-large and ultra-high definition (“Ultra HD” or “UHD”) television panels, desktop and notebook monitors featuring high resolutions, differentiated designs and high frequency refresh rates, and specialized products for automotive, commercial and medical uses. Our production facilities are also equipped to produce products incorporating in-TOUCH technology.

 

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Moreover, we are maintaining and strengthening close long-term relationships with major global firms to secure customers and expand partnerships for technology development.

 

  C.

New businesses

For our continued growth, we are actively exploring and preparing for new business opportunities that may arise in the changing market environment. As such, we are continually reviewing and looking at opportunities in the display and promising new industries.

 

3.

Major Products and Raw Materials

 

  A.

Major products

We manufacture TFT-LCD and OLED panels, of which a significant majority is sold overseas.

(Unit: In billions of Won, except percentages)

 

                           2020  

Business area

   Sales type     

Items (By product)

  

Usage

  

Major
trademark

   Sales
Revenue
     Percentages
(%)
 

Display

    




Goods/

Products/
Services/
Other
sales

 

 
 
 
 

   Televisions    Panels for televisions    LG Display      6,706        27.7
      IT products    Panels for monitors, notebook computers and tablets    LG Display      10,121        41.8
      Mobile, etc.    Panels for smartphones, etc.    LG Display      7,403        30.5
              

 

 

    

 

 

 

Total

                 24,230        100.0
              

 

 

    

 

 

 

 

  B.

Average selling price trend of major products

The average selling prices of display panels are subject to change based on market conditions and demand by product category. The average selling price of display panels per square meter of net display area shipped in the fourth quarter of 2020 increased by approximately 12% compared to the third quarter of 2020 in part due to an increase in the production output of large-sized OLED and mobile plastic OLED panels as well as an increase in sales of our panels for IT products as a result of increased instances of online classes and working from home in light of the COVID-19 pandemic. There is no assurance that the average selling prices of display panels per square meter of net display area will not fluctuate in the future due to changes in market conditions.

(Unit: US$ / m2)

 

Period

   Average Selling Price(1)(2)
(in US$ / m2)
2020 Q4    790
2020 Q3    706
2020 Q2    654
2020 Q1    567
2019 Q4    606
2019 Q3    513
2019 Q2    456
2019 Q1    528
2018 Q4    559
2018 Q3    500
2018 Q2    501
2018 Q1    522

 

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(1)

Quarterly average selling price per square meter of net display area shipped.

(2)

Excludes semi-finished products in the cell process.

 

  C.

Major raw materials

Prices of major raw materials depend on fluctuations in supply and demand in the market as well as on change in size and quantity of raw materials due to the increased production of large-sized panels.

(Unit: In billions of Won, except percentages)

 

Business area

  

Purchase type

  

Items

  

Usage

   Cost(1)      Ratio (%)     

Suppliers

Display    Raw materials    Printed circuit boards (“PCB”)    Display panel manufacturing      2,578        21.5%      Youngpoong Electronics Co., Ltd., etc.
   Polarizers      2,016        16.8%      LG Chem, etc.
   Backlights (“BLU”)      1,636        13.6%      Heesung Electronics LTD., etc.
   Glass      838        7.0%      Paju Electric Glass Co., Ltd., etc.
   Drive IC      1,152        9.6%      Silicon Works Co., Ltd., etc.
   Others      3,800        31.6%     
           

 

 

    

 

 

    
Total               12,019        100.0%     
           

 

 

    

 

 

    
-

Period: January 1, 2020 ~ December 31, 2020.

 

(1)

Based on total cost for purchase of raw materials which includes manufacturing and development costs, etc.

 

(2)

Among our major suppliers, LG Chem and Silicon Works Co., Ltd. are member companies of the LG Group, and Paju Electric Glass Co., Ltd. is our affiliate.

 

 

The average price of electrolytic galvanized iron, which is the main raw material for BLU components, decreased by 2.0% from 2019 to 2020 but is expected to increase in 2021 due to China’s ban against the import of Australian iron ores and a supply shortage in China. The average price of resin increased by 32.0% from 2019 to 2020, primarily due to a rapid increase in demand in the Chinese domestic market. The average price of copper, the main raw material for PCB components, increased by 19.5% from 2019 to 2020, primarily due to the economic policy measures by the U.S. government and a depreciation in the U.S. dollar.

 

4.

Production and Equipment

 

  A.

Production capacity and output

 

  (1)

Production capacity

The table below sets forth the production capacity of our Gumi, Paju and Guangzhou facilities in the periods indicated.

 

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(Unit: 1,000 glass sheets)

 

Business area

   Items      Location of facilities      2020(1)      2019(1)      2018(1)  

Display

     Display panel        Gumi, Paju, Guangzhou        8,589        9,408        10,161  

 

(1)

Calculated based on the maximum monthly input capacity (based on glass input substrate size for eighth-generation glass sheets) during the year multiplied by the number of months in a year (i.e., 12 months). The production capacity for facilities with adjusted utilization rates have been calculated based on the maximum input capacity during the period.

 

  (2)

Production output

The table below sets forth the production output of our Gumi, Paju and Guangzhou facilities in the periods indicated.

(Unit: 1,000 glass sheets)

 

Business area

  

Items

  

Location of facilities

   2020(1)    2019(1)    2018(1)

Display

  

Display panel

  

Gumi, Paju, Guangzhou

   6,815    8,373    9,428

 

(1)

Based on the production results (input standard) of each plant converted into eighth-generation glass sheets.

 

  B.

Production performance and utilization ratio

(Unit: Hours, except percentages)

 

Production facilities

  

Available working hours
in 2020

  

Actual working hours in
2020

   Average utilization ratio  

Gumi

   8,784(1)
(24 hours x 366 days)
   8,718(1)
(24 hours x 363 days)(2)
     99.2

Paju

   8,784(1)
(24 hours x 366 days)
   8,756(1)
(24 hours x 365 days)(2)
     99.7

Guangzhou

   8,784(1)
(24 hours x 366 days)
   8,784(1)
(24 hours x 366  days)(2)
     100.0

 

(1)

Based on the assumption that all 24 hours in a day have been fully utilized.

(2)

Number of days is calculated by averaging the number of working days for each facility.

 

  C.

Investment plan

In 2020, our total capital expenditures on a cash out basis was around mid-W2 trillion. In 2021, we expect to make investments within our EBITDA and estimate that our total capital expenditures will be within low- to mid-W3 trillion range.

 

5.

Sales

 

  A.

Sales performance

(Unit: In billions of Won)

 

Business area

  

Sales types

  

Items (Market)

   2020      2019      2018  

Display

   Products    Display panel    Overseas(1)      23,287        22,180        22,722  
      Korea(1)      899        1,255        1,572  
      Total      24,186        23,435        24,294  
   Royalty    LCD, OLED technology patent    Overseas(1)      14        14        18  
      Korea(1)      0        0        0  
      Total      14        14        18  
  

Others

   Raw materials, components, etc.    Overseas(1)      24        17        13  
      Korea(1)      7        10        12  
      Total      30        26        25  
  

Total

   Overseas(1)      23,324        22,211        22,747  
         Korea(1)      906        1,265        1,590  
           

 

 

    

 

 

    

 

 

 
         Total      24,230        23,476        24,337  
           

 

 

    

 

 

    

 

 

 

 

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(1)

Based on ship-to-party.

 

  B.

Sales organization and sales route

 

   

As of December 31, 2020, each of our television, IT and mobile businesses had individual sales and customer support functions.

 

   

Sales subsidiaries in the United States, Germany, Japan, Taiwan, China and Singapore perform sales activities and provide local technical support to customers.

 

   

Sales of our products take place through one of the following two routes:

1) LG Display Headquarters and overseas manufacturing subsidiaries g Overseas sales subsidiaries (USA/Germany/Japan/Taiwan/China/Singapore), etc. g System integrators and end-brand customers g End users

2) LG Display Headquarters and overseas manufacturing subsidiaries g System integrators and end-brand customers g End users

 

   

Sales performance by sales route

 

Sales performance

   Sales route    Ratio  

Overseas

   Overseas subsidiaries      95.1
   Headquarters      4.9

Overseas sales portion (overseas sales / total sales)

     96.3

Korea

   Overseas subsidiaries      2.3
   Headquarters      97.7

Korea sales portion (Korea sales / total sales)

     3.7

 

  C.

Sales methods and sales terms

 

   

Direct sales and sales through overseas subsidiaries, etc. Sales terms are subject to change depending on the fluctuation in the supply and demand of LCD panels.

 

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  D.

Sales strategy

 

   

As part of our sales strategy for IT products, we have secured stable sales to major personal computer manufacturers and leading consumer electronics manufacturers globally.

 

   

With respect to television products, we have led the premium television market with our OLED TVs and strengthened the differentiation of our OLED products through unique designs and integration of additional technologies (Wallpaper, Cinematic Sound, Rollable, etc.). We also strengthened sales of high-resolution, IPS, narrow bezel and other high-end display panels in the monitor, notebook computer and tablet markets.

 

   

With respect to smartphones, commercial products (including interactive whiteboards and video wall displays, among others), industrial products (including aviation and medical equipment, among others) and automobile display products, we have continued to build a strong and diversified business portfolio by expanding our business with customers with a global reach on the strength of our differentiated products applying IPS, plastic OLED, high-resolution, high-reliability, Super Narrow bezel, in-TOUCH and other technologies.

 

  E.

Major customers

 

   

Customers “A” and “B” each accounted for more than 10% of our sales revenue in 2019 and 2020, and our sales revenue derived from our top ten customers comprised 80% of our total sales revenue in 2019 and 85% in 2020.

 

6.

Purchase Orders

 

   

We do not have purchase order contracts that recognize unbilled revenue by implementing the cost-based method.

 

7.

Market Risks and Risk Management

 

  A.

Market risks

The display industry may experience fluctuations in the average selling prices of TFT-LCD and OLED panels that may differ from cyclical patterns in the industry. To the extent prices decrease below our cost structure, our margins may be adversely impacted.

The display industry is highly competitive. We have experienced pressure on the prices and margins of our major products due largely to additional manufacturing capacity from competitors in Korea, China, Taiwan and Japan coupled with changes in the production mix of such competitors.

Our ability to compete successfully depends on factors both within and outside our control, including our development of products with differentiated technology, timely investments, adaptable production capabilities, our ability to execute and reliability, product prices, component and raw material supply costs, the success or failure of our end-brand customers in marketing their brands and products, and general economic and industry conditions.

Our results of operations are subject to exchange rate fluctuations. To the extent that we incur costs in one currency and generate sales in a different currency, our profit margins may be affected by changes in the exchange rates between the two currencies. Our sales of display panels are denominated mainly in U.S. dollars, whereas our foreign currency denominated purchases of raw materials are denominated mainly in U.S. dollars and Japanese Yen. Seeking to achieve stable management, we take every precaution in our foreign currency risk management to minimize the risk of foreign currency fluctuations on our foreign currency denominated assets and liabilities.

 

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  B.

Risk management

As the average selling prices of TFT-LCD and OLED panels can continue to decline over time irrespective of industry-wide cyclical fluctuations, we may find it hard to manage risks associated with certain factors that are outside our control. However, we counteract such declines in average selling prices by increasing the proportion of high value added panels in our product mix while also implementing various cost reduction measures. In addition, in order to manage our risk against foreign currency fluctuations, we eliminate such risk by matching foreign currency inflow and outflow by currency. We also continually monitor our currency position and risk, and when needed, we may from time to time enter into cross-currency interest rate swap contracts and foreign currency forward contracts.

 

8.

Derivative Contracts

 

  A.

Currency risks

 

   

We are exposed to currency risks on sales, purchases and borrowings that are denominated in currencies other than in Won, our functional currency. These currencies are primarily the U.S. dollar, the Chinese Yuan and the Japanese Yen.

 

   

Interest on borrowings is denominated in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by our underlying operations, primarily in Won, the U.S. dollar and the Chinese Yuan.

 

   

In respect of other monetary assets and liabilities denominated in foreign currencies, we have adopted a policy to maintain our net exposure within an acceptable level by buying or selling foreign currencies at spot rates, when necessary, to address short-term imbalances.

 

   

As of December 31, 2020, in order to avoid risks of interest rate fluctuations and exchange rate fluctuations on foreign currency denominated borrowings with floating interest rates, we entered into an aggregate of $2,225 million in Won/US dollar cross currency swap agreements with Standard Chartered Bank and others, for which we have not applied hedge accounting.

 

   

Any rights or obligations arising from derivative contracts that do not apply hedge accounting are measured at fair value and are accounted for as assets and liabilities, whereas any resulting valuation gain or loss is recognized as profit or loss at the time such valuation gain or loss is incurred.

We recognized a net loss on valuation of derivative instruments in the amount of W185 billion with respect to our foreign exchange derivative instruments held during the reporting period.

 

  B.

Interest rate risks

 

   

Our exposure to interest rate risks relates primarily to our floating rate long term loan obligations. We have established and are managing interest rate risk policies to minimize uncertainty and costs associated with interest rate fluctuations by monitoring cyclical interest rate fluctuations and enacting countermeasures.

 

   

As of December 31, 2020, we entered into an aggregate of W170 billion in interest rate swap agreements to KB Kookmin Bank and others, for which we have not applied hedge accounting. We recognized a net loss on valuation of derivative instruments in the amount of W2 billion with respect to our interest rate derivative instruments held during the reporting period.

 

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9.

Major Contracts

Our material contracts, other than contracts entered into in the ordinary course of business, are set forth below:

 

Type of agreement

  

Name of party

  

Term

  

Content

Technology licensing agreement

   Semiconductor Energy Laboratory    October 2005 ~ December 2020    Patent licensing of LCD and OLED related technology
   Hewlett-Packard    January 2011 ~    Patent licensing of semi-conductor device technology
   Ignis Innovation, Inc.    July 2016 ~    Patent licensing of OLED related technology

Technology licensing/supply agreement

   HannStar Display Corporation    December 2013 ~    Patent cross-licensing of LCD technology
   AU Optronics Corporation    August 2011~    Patent cross-licensing of LCD technology
   Innolux Corporation    July 2012 ~    Patent cross-licensing of LCD technology
   Universal Display Corporation    January 2015 ~ December 2022    Patent cross-licensing of OLED related technology

 

10.

Research & Development (“R&D”)

 

  A.

Summary of R&D-related expenditures

(Unit: In millions of Won, except percentages)

 

Items

   2020      2019      2018  

R&D Expenditures (prior to deducting governmental subsidies)

     1,740,083        1,776,879        1,758,813  

Governmental Subsidies

     (1,524      (590      (1,694

Net R&D-Related Expenditures

     1,738,559        1,776,289        1,757,119  

Accounting Treatment(1)

   R&D Expenses      1,454,072        1,338,344        1,384,284  
   Development Cost (Intangible Assets)      284,487        437,945        372,835  
     

 

 

    

 

 

    

 

 

 

R&D-Related Expenditures / Revenue Ratio(2)
(Total R&D-Related Expenditures ÷ Revenue for the period × 100)

     7.2      7.6      7.2
     

 

 

    

 

 

    

 

 

 

 

(1)

For accounting treatment purposes, R&D expenses are presented as research and development expenses in our statements of comprehensive income, net of amortization of capitalized intangible asset development costs.

(2)

Calculated based on the R&D-related expenditures before subtracting government subsidies (state subsidies).

 

  B.

R&D achievements

Achievements in 2018

 

  (1)

Developed the world’s first glass-integrated LCD television product (Art Glass Series)

 

   

Achieved LCD modular appearance and simplicity in design by using glass material throughout product (including the panel, light guide plate and back cover)

 

   

Strengthened competitiveness of frameless design by decreasing bezel size from 7.8mm to 5.9mm

 

  (2)

Developed our first 5.8-inch Ultra HD Mobile 4K product

 

   

Developed our first Ultra HD mobile product

 

   

Achieved high luminance, low power consumption and HD resolution by applying Ultra HD RGBW (M+) pixel structure

 

  (3)

Developed the world’s first 5.8-inch mobile FHD product applying M+

 

   

Our first product applying camera notch concept technology

 

  (4)

Developed the world’s first four-side borderless curved monitor with 1900R curvature radius

 

   

Our first product applying glass 0.25T (etching) bezel printing/reverse bonding process technology

 

   

Strengthened product competitiveness with our first shared design applying three-side/four-side borderless TFT Mask

 

   

Achieved high-speed driving at 144Hz, high color recall (DCI 98%) and HDR (peak luminance 550nit)

 

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  (5)

Developed the world’s first 34-inch large-screen monitor/high-resolution four-sided borderless HDR

 

   

Pioneered HD Premium 21:9 monitor market through development of the world’s first WUHD(5K2K), four-side borderless monitor

 

   

Delivered Ultra HD (DCI 98Z%, sRGB 135%) by applying Adv. KSF LED PKG technology

 

   

Achieved high luminance (HDR 600); typ. 450 nit, maximum 600nit

 

  (6)

Developed LGD 6.01QHD+M+ Full Screen Display (LG Electronics)

 

   

Developed a full screen display concept smartphone product (G7) through strategic collaboration with other LG Group companies

 

   

Implemented a full screen display product concept through achievement of our first 19.5:9 screen aspect ratio and lower bezel of 2.7mm

 

  (7)

Developed the world’s narrowest bezel videowall product (0.44mm bezel, 55-inch FHD)

 

   

Achieved product competitiveness by developing the world’s narrowest bezel (originally 0.9mm g 0.44mm, Even Bezel)

 

  (8)

Developed the world’s first automotive glassless 3D cluster product

 

   

Developed FHD glassless barrier type 3D model (12.3 inches, 167 ppi level)

 

   

Achieved customers’ eye-tracking movement by applying a top moving barrier panel at the top of the panel

 

   

Improved adhesion accuracy of image panel and barrier panel by using OCA bonding technology

 

   

Improved barrier contrast ratio by applying a copper-based metal barrier panel

 

  (9)

Developed the world’s first 6th generation a-Si Indirect DXD product (21.9-inch, 14 x 17 resolution, 14µm pixel pitches)

 

   

Entered the DXD market through development of the world’s first 6th generation a-Si Indirect DXD product

 

   

Set up infrastructure for DXD product development through the development of our first DXD product

 

  (10)

Developed the world’s first 17-inch large-sized and lightweight notebook monitor

 

   

Developed large-sized (17-inch) product with a new screen aspect ratio (16:10)

 

   

Developed light-weight product (268g) through securing 17-inch+ Slim Design model technology

Achievements in 2019

 

  (1)

Developed the world’s first ultra large-sized in-TOUCH product (50-inch UHD)

 

   

World’s first to apply in-TOUCH technology on ultra large-sized products (50-inch and larger)

 

   

World’s first to apply low temperature PAS to achieve in-TOUCH function

 

  (2)

Developed the world’s first transparent WOLED product (55-inch FHD)

 

   

Developed WOLED-based Top Emission OLED device and process technology

 

  (3)

Developed the world’s first OLED 8K product (88-inch 8K)

 

   

Developed gearing technology that secures and compensates aperture ratio for high resolution (8K) product implementation

 

  (4)

Developed the world’s first gaming monitor product applying OLED (55” UHD)

 

   

Developed 55” UHD gaming monitor product using advantages of OLED (latency, gray to gray, color recall)

 

  (5)

Developed the world’s first curved gaming monitor product applying AH-IPS COT (37.5” WQ+)

 

   

Developed and produced the world’s first monitor product applying AH-IPS COT

 

   

Pioneered gaming/curved premium monitor product market

 

  (6)

Developed the world’s first monitor product applying Crystal Sound Display (“CSD”) (27.0” FHD)

 

   

Developed and produced the world’s first monitor product applying CSD

 

   

Developed large-sized, front-oriented stereo speaker through the application of exciter and piezo to the bottom cover of the liquid crystal module

 

  (7)

Developed the world’s first automotive product applying plastic OLED (16.9” + 7.2” / 14.2”)

 

   

Developed and produced the world’s first 1CG multi-display product applying plastic OLED (16.9” + 7.2” / 14.2”)

 

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Achievements in 2020

 

  (1)

Developed the first products in our Guangzhou OLED panel production facility (77” UHD, 48” UHD)

 

   

Completed the development of the first products in our Guangzhou OLED panel production facility (77” UHD, 48” UHD)

 

  (2)

Developed the world’s first rollable television display product (65” UHD)

 

   

Introduced a new form factor (from flat to rollable) to the television market

 

   

Enhanced space utilization through adjusting the display size and ratio based on the purpose of use

 

  (3)

Developed the world’s first 2K zone mini-LED & ultra-slim UHD monitor product

 

   

Fulfilled customer needs for top quality monitor products and strengthened our market position in the premium market by developing the world’s first differentiated 2K zone product

 

   

By leveraging early advantage in the underlying mini-LED technology, explored a new revenue source through applying the technology to all IT products

 

   

Achieved high luminance at HDR 1000 and wide color gamut at 99.8% DCI

 

11.

Intellectual Property

As of December 31, 2020, our cumulative patent portfolio (including patents that have already expired) included 21,350 patents in Korea and 28,002 patents in other countries.

 

12.

Environmental and Safety Matters

We are subject to a variety of environmental laws and regulations, and we may be subject to fines or restrictions that could cause our operations to be interrupted. Our manufacturing processes generate worksite waste, including water and air pollutants, at various stages in the manufacturing process, and we are subject to relevant laws and regulations in each area of the environment, including with respect to the treatment of chemical by-products. We have installed and operate various types of anti-pollution equipment, consistent with environmental standards, for the treatment of chemical waste and equipment for the recycling of treated waste water at our various facilities. However, we cannot provide assurance that environmental claims will not be brought against us or that the local or national governments will not take steps toward adopting more stringent environmental standards. Any failure on our part to comply with any present or future environmental regulations could result in the assessment of damages or imposition of fines against us, suspension of production or a cessation of operations. In addition, environmental regulations could require us to acquire costly equipment or to incur other significant compliance expenses that may materially and negatively affect our financial condition and results of operations.

In accordance with the Framework Act on Low Carbon, Green Growth, we implemented the greenhouse gas emission and energy consumption target system from 2012 to 2014. In 2015, we implemented the greenhouse gas trading system, under which we are responsible to meet our emission targets based on the emission credits allocated to us by the Ministry of Environment of the Korean government. As a result, we have been investing in additional equipment and there may be other costs associated with meeting reduction targets, which may have a negative effect on our profitability or production activities. In April 2020, we submitted to the Korean government a report on the amount of greenhouse gas emissions and energy used in our domestic facilities in 2019, which was verified by an independent certifier appointed by the Korean government.

In connection with the greenhouse gas emission and energy reduction target system, we submitted a statement of our domestic emissions and energy usage for 2018 to the Korean government in March 2019 after it was certified by BSI Korea, a government-designated certification agency. The table below sets forth yearly levels of our greenhouse gases emissions and energy usage in the statement submitted to the Korean government:

 

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(Unit: thousand tonnes of CO2 equivalent; Tetra Joules)

 

Category

   2019      2018      2017  

Greenhouse gases

     5,885        6,696        6,314  

Energy

     62,776        64,296        63,451  

Note: The amounts for 2020 are subject to assessment and confirmation by the Korean government during the first quarter of 2021.

As we were designated as a target company for the greenhouse gas emission trading system in 2015, we submit a plan for allocating and monitoring our greenhouse gas emissions to the government every year. In order to continually promote the reduction of greenhouse gas emissions, we have set a short-term goal to reduce the emission level from 2014 to 2022 by 16.8% and a medium- to long-term goal to reduce the emission level from 2014 to 2045 by 65.1%. To achieve this, we are continually investing in facility improvements and monitoring our emission levels.

We are making extensive investments to replace SF6 gas, which is the main component of greenhouse gases, with NF3 gas. In addition, as a short-term strategy, we are actively implementing measures in compliance with the emission trading system. In 2018, we reduced our carbon dioxide greenhouse gas emission levels by 1.28 million tons, which was 0.63 million tons more than our initial target of 0.65 million tons. As our medium- to long-term goal, we plan to develop low-carbon production technologies in order to eliminate greenhouse gas emission during our manufacturing process and to conserve energy.

The increase in greenhouse gas emission in 2018 is due to the inclusion of certain other greenhouse gas emissions (N2O used in deposition facilities and CO2 in cleaning facilities) during the second planning period (2018 to 2020) that were not included during the first planning period (2015 to 2017) in the overall amount of greenhouse gas emissions in accordance with guidelines issued by the Korean government.

Operations at our manufacturing plants are subject to regulation and periodic scheduled and unscheduled on-site inspections by the Ministry of Environment and local environmental protection authorities. We believe that we have adopted adequate anti-pollution measures and have minimized our impact on the environment by improving existing and developing new technologies for the effective maintenance of environmental protection standards consistent with local industry practice. In addition, we have continually monitored, and we believe that we are in compliance in all material respects with, the applicable environmental laws and regulations in Korea. Expenditures related to such compliance may be substantial. Such expenditures are generally included in capital expenditures. As required by Korean law, we employ licensed environmental specialists to manage our water and air pollution, toxic materials and waste. In December 2013, to ensure safe water quality and reduce costs, we entered into a contract with a specialist company to operate our waste water treatment facilities. In stages beginning in November 1997, we have obtained environmental management system ISO 14001 certifications for our domestic panel and module production facilities in Paju and Gumi and our overseas module production plants in Nanjing, Yantai, Guangzhou and Vietnam and have operated such facilities in accordance with such certifications. Since December 2013, we have also obtained energy management system ISO 50001 certifications for our domestic panel and module production plants and our overseas facilities in Nanjing and Guangzhou and have operated such facilities in accordance with such certifications.

 

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In addition, in August 2014, our “CA” subsidiary in Guangzhou, China, became the first manufacturer in the electronics industry in China to receive the “Green Plant” designation under China’s Green China Policy, in addition to receiving ISO 14001, ISO 50001, ISO 45001, ISO 9001, PAS 2050 and ISO 14064-1 certifications. Furthermore, with respect to our production facilities in Gumi, we were first certified by the Ministry of Environment as a “Green Company” for P1 in 1997, and we currently continue to maintain such certification. In recognition of our efforts to reduce greenhouse gas emissions, we were awarded a commendation from the Minister of Environment in the efforts against climate change category in the 2013 Green Management Awards, which was jointly hosted by the Ministry of Environment and the Ministry of Trade, Industry and Energy. In addition, in recognition of our efforts to improve recycling and reduce waste, we received a citation in 2014 for being a leading recycling company from the Prime Minister of Korea and, in recognition of our continued water conservation activities (reuse system investments, etc.), we attained the highest level, Leadership A, and received the grand prize award at the CDP Water Korea Best Awards in 2016 from the Carbon Disclosure Project, which was presided over by the Carbon Disclosure Project Korea Committee. Since then, we have continued to maintain our excellence in water conservation activities in 2018 and 2019. In addition, our continued efforts to reduce greenhouse gas emissions have been recognized from 2017 to 2019 by becoming the only domestic information technology company to attain the Leadership A level and again receiving carbon management honors by ranking in the top five among all eligible companies. In May 2017, we were awarded a commendation from the Minister of Environment for having scored the highest grade among companies in the low- and medium-volume pollutant emitters category that had entered into voluntary agreements with the Metropolitan Air Quality Management Office, in recognition of having successfully met our voluntary targets for reduction of air pollutants as well as our overall efforts to enhance our relevant facilities and operational systems. In addition, in recognition of efficient control, management and operating systems implemented in our manufacturing facilities, we received the top-level certification, Level 1, in 2017 under the Factory Energy Management System evaluation presided by the Korea Energy Agency. Furthermore, in November 2017, we received the highest commendation, the Presidential Award, in the Korean Energy Efficiency Awards presided by the Ministry of Trade, Industry and Energy in recognition of our energy management practices and energy saving measures. In May 2018, we received the CEM Insight Award, presented at the Clean Energy Ministerial Meetings, and also received certification for our energy business management (Energy Champion) presided by the Ministry of Trade, Industry and Energy and the Korea Energy Agency in November 2018. Since 2019, we have been carrying out forest development activities around our manufacturing facilities after signing an agreement with Gyeong-gi Province to surround our facilities with forests to reduce air pollutants such as fine dust and have received a commendation for such efforts.

In the case of the European Union’s Restriction of Hazardous Substances (RoHS) Directive 2011/65/EU, with the adoption of Directive (EU) 2015/863 in 2016, four additional substances (four phthalate substances) have been added to the six already restricted substances, which additional restrictions became effective as of July 22, 2019. In order to address the latent risk elements of the four phthalate substances that became restricted in 2019 and to establish a more stable management system, we implemented in 2016 a preemptive response process with respect to such four phthalate substances. In implementing this process, we collaborated with external agencies to ascertain regulatory trends and establish our response strategy, and we formulated and applied effective management measures through the collaborative efforts of our development, procurement and quality teams. Beryllium (Be) was not designated internationally as a mandatorily restricted substance but has continued to be the subject of discussion for restriction, and certain of our customers have designated it as a restricted substance not to be used in products. Accordingly, we have completed verification of the parts used in products for customers who have banned the use of Beryllium. We have also conducted verification of the parts used in products for all customers who are expected to implement a ban and we have established a Beryllium verification process for parts in development. Through such efforts, we have established a voluntary hazardous substance response process that can be expanded to products for all customers, not only those who have requested a response.

In October 2005, we became the first display panel company to receive accreditation as an International Accredited Testing Laboratory by the Korea Laboratory Accreditation Scheme, which is operated by the Korean Ministry of Trade, Industry & Energy. In September 2006, we received international accreditation from TUV SUD, EU’s German accreditation agency, as a RoHS testing laboratory. Our efforts to keep pace with the increasingly stringent accreditation standards and to receive and maintain such accreditations are part of our on-going efforts to systematically monitor environmentally controlled substances in our component parts inventory. Moreover, we participated in reforming IEC 62321, an international testing standard published by the International Electrotechnical Commission and used by RoHS, and the commission adopted our halogen-free combustion ion chromatography method in as IEC 62321-3-2, which was published in June 2013. In 2017, in a joint effort with the global product testing/accreditation agency SGS, we became the first display panel company to develop Eco Label, an environmentally friendly accreditation program for television display modules, and have since continuously received the SGS Eco Label accreditation for our OLED television models. For the IPS Nano Color for LCD, we received the Quality & Performance Mark from Intertek, a global product testing/accreditation agency, by applying a technology to eliminate cadmium (Cd) and indium phosphide (InP). In 2018, we became the first display panel company to receive the “Green Technology Certification” from the Korean Ministry of Science and ICT for improving the light efficiency technology of OLED to promote energy use reduction.

In June 2017, we were assessed a fine of W1 million, which we subsequently paid, for failure to meet certain waste disposal subcontractor requirements under the Waste Management Act. To prevent such violations from occurring again, we are strengthening the periodic evaluation process for our waste management subcontractors.

 

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In June 2017, we were audited by the Ministry of Employment and Labor in connection with the occurrence of a safety accident and found to be in violation of certain provisions of the Industrial Safety and Health Act relating to supervisory obligations. As a result, we were issued a corrective order and assessed a fine of W2.4 million. In addition, the trial court ordered a fine of W0.5 million on each of us and our chief production officer on the basis of certain other applicable provisions of the Industrial Safety and Health Act. In relation to the same matter, in May 2018, the Prosecutor’s Office sought a fine of W3.0 million on each of us and our chief production officer on the basis of certain other applicable provisions of the Industrial Safety and Health Act. The trial court (Goyang Branch of Uijeongbu District Court) issued a summary order confirming the same fines of W3.0 million on November 22, 2018, which fines were paid in full after such order was confirmed on November 5, 2020. In order to prevent such accidents from occurring again, we are strengthening our safety management standards and training for our employees.

In January 2018, we were audited by the Ministry of Employment and Labor in connection with the occurrence of another safety accident and found to be in violation of certain provisions of the Industrial Safety and Health Act relating to supervisory obligations. As a result, we were issued a corrective order and assessed a fine of W14.4 million. In relation to this matter, in January 2019, the trial court (Goyang Branch of Uijeongbu District Court) assessed a fine of W1 million as a summary order on each of us and our chief production officer pursuant to certain other provisions of the Industrial Safety and Health Act. In addition, in January 2019, the trial court sought a fine of W4 million and W2 million on us and the employee in charge of on-site safety management, respectively, on the basis of certain other provisions of the Industrial Safety and Health Act. Relevant authorities are currently conducting further investigations. In order to prevent such accidents from occurring again, we are strengthening our safety management standards and training for our employees.

Also in January 2018, the government of Gyeong-gi Province issued a warning and assessed a fine of W1 million on us, which we subsequently paid, for the failure to comply with certain requirements relating to air pollutant emission and prevention facilities under the Air Quality Management Act. To prevent such violations from occurring again, we have shortened the air pollutant emission maintenance reporting period and strengthened the verification process for relevant data.

In March 2018, we were audited by the Ministry of Employment and Labor in connection with our health and safety training practices, and we were found to have omitted requisite health and safety training sessions for certain employees in our P9 facilities in 2016 and 2017. As a result, we were assessed a fine of W6.95 million, which we subsequently paid, and have strengthened our efforts to promote health and safety training programs in advance as well as our management and supervision activities to ensure such programs are conducted.

In June 2019, the government of Gyeong-gi Province reviewed the operational history and the number of self-measurements of our emission outlets and confirmed that there were certain deficiencies in self-measurements for our reserve facilities. As a result, we were assessed a fine of W1.6 million by the government of Gyeong-gi Province, which we subsequently paid, for the violation of Article 39 of the Air Quality Management Act. To prevent the recurrence, we have established a monthly self-measurement plan for our reserve facilities.

In May 2020, we were assessed a fine of W1.4 million by the National Institute of Chemical Safety for our failure to conduct safety training on hazardous chemicals in violation of Article 33 of the Chemicals Control Act, which we subsequently paid. In order to prevent recurrence, we conducted safety training on hazardous chemicals for the relevant personnel and newly established a working process that complies with safety regulations.

In May 2020, we received a warning from Daegu Regional Environmental Office regarding a safety incident that occurred in April 2020 in violation of Article 13-1 of the Chemical Control Act. In addition, in connection with another safety incident that occurred in May 2020, we were assessed an administrative penalty of W1.44 million in May 2020 and an improvement order in June 2020, in each case by Daegu Regional Environmental Office, for a violation of Article 13-2 of the Chemical Control Act. We subsequently paid such fine, and we also submitted a report of compliance with such improvement order in July 2020. Regarding these two incidents, Gimcheon Branch of Daegu District Court issued a summary order to assess fines of W3 million on each of us and two of our employees (the former head of safety and health management at our Gumi facilities and a former working level staff), which order was subsequently confirmed. In order to prevent recurrence, we are strengthening our safety management standards and employee training efforts.

 

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In January 2021, an incident involving a leakage of tetramethylammonium hydroxide 2.4% chemicals occurred during refurbishment of equipment at one of our plants in Paju, causing bodily harm to workers. Government authorities are currently investigating the cause of such incident. In light of such incident, we plan to implement measures to fundamentally enhance our safety management standards with an aim to ensure health and safety of all workers at our facilities and maintain public trust, including four key safety management initiatives comprising (i) performing detailed safety diagnosis at all of our facilities, (ii) internalizing major hazardous tasks, (iii) developing dedicated personnel for safety- and environment-related matters and strengthening our support to our service providers, and (iv) strengthening the authority and capability of our safety management organizations.

 

13.

Financial Information

 

  A.

Financial highlights (Based on consolidated K-IFRS).

Note: the financial information below is based on our financial statements which remain subject to approval at our upcoming annual general meeting of shareholders scheduled on March 23, 2021. If our financial statements are not approved at such annual general meeting of shareholders or otherwise become amended, we will disclose such matter and the reasons therefor in an amended report.

(Unit: In millions of Won)

 

Description

   As of
December 31,
2020
     As of
December 31,
2019
     As of
December 31,
2018
 

Current assets

     11,099,470        10,248,315        8,800,127  

Quick assets

     8,928,814        8,197,160        6,108,924  

Inventories

     2,170,656        2,051,155        2,691,203  

Non-current assets

     23,972,053        25,326,248        24,375,583  

Investments in equity accounted investees

     114,551        109,611        113,989  

Property, plant and equipment, net

     20,147,051        22,087,645        21,600,130  

Intangible assets

     1,020,088        873,448        987,642  

Other non-current assets

     2,690,363        2,255,544        1,673,822  

Total assets

     35,071,523        35,574,563        33,175,710  

Current liabilities

     11,006,948        10,984,976        9,954,483  

Non-current liabilities

     11,327,636        12,101,306        8,334,981  

Total liabilities

     22,334,584        23,086,282        18,289,464  

Share capital

     1,789,079        1,789,079        1,789,079  

Share premium

     2,251,113        2,251,113        2,251,113  

Retained earnings

     7,524,297        7,503,312        10,239,965  

Other equity

     (163,446      (203,021      (300,968

Non-controlling interest

     1,335,896        1,147,798        907,057  

Total equity

     12,736,939        12,488,281        14,886,246  

(Unit: In millions of Won, except for per share data and number of consolidated entities)

 

Description

   For the year
ended
December 31,
2020
     For the year
ended
December 31,
2019
     For the year
ended
December 31,
2018
 

Revenue

     24,230,124        23,475,567        24,336,571  

Operating profit (loss)

     (29,117      (1,359,382      92,891  

Profit (loss) from continuing operations

     (70,636      (2,872,078      (179,443

Profit (loss) for the period

     (70,636      (2,872,078      (179,443

Profit (loss) attributable to:

        

Owners of the Company

     (89,342      (2,829,705      (207,239

Non-controlling interest

     18,706        (42,373      27,796  

Basic earnings (loss) per share

     (250      (7,908      (579

Diluted earnings (loss) per share

     (250      (7,908      (579

Number of consolidated entities

     21        22        22  

 

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  B.

Financial highlights (Based on separate K-IFRS).

Note: the financial information below is based on our financial statements which remain subject to approval at our upcoming annual general meeting of shareholders scheduled on March 23, 2021. If our financial statements are not approved at such annual general meeting of shareholders or otherwise become amended, we will disclose such matter and the reasons therefor in an amended report.

(Unit: In millions of Won)

 

Description

   As of
December 31,
2020
     As of
December 31,
2019
     As of
December 31,
2018
 

Current assets

     6,948,054        7,081,228        6,378,339  

Quick assets

     5,529,932        5,554,929        4,427,184  

Inventories

     1,418,122        1,526,299        1,951,155  

Non-current assets

     19,757,148        20,301,452        20,683,767  

Investments

     4,784,828        4,958,308        3,602,214  

Property, plant and equipment, net

     11,736,673        12,764,175        14,984,564  

Intangible assets

     887,431        708,047        816,808  

Other non-current assets

     2,348,216        1,870,922        1,280,181  

Total assets

     26,705,202        27,382,680        27,062,106  

Current liabilities

     10,180,660        9,140,483        7,416,630  

Non-current liabilities

     6,261,307        7,576,104        6,432,895  

Total liabilities

     16,441,967        16,716,587        13,849,525  

Share capital

     1,789,079        1,789,079        1,789,079  

Share premium

     2,251,113        2,251,113        2,251,113  

Retained earnings

     6,223,043        6,625,901        9,172,389  

Other equity

     0        0        0  

Total equity

     10,263,235        10,666,093        13,212,581  

(Unit: In millions of Won, except for per share data)

 

Description

   For the year
ended
December 31,
2020
     For the year
ended
December 31,
2019
     For the year
ended
December 31,
2018
 

Revenue

     22,799,273        21,658,329        22,371,687  

Operating profit (loss)

     (812,979      (1,784,245      (472,995

Profit (loss) from continuing operations

     (513,262      (2,639,893      (442,291

Profit (loss) for the period

     (513,262      (2,639,893      (442,291

Basic earnings (loss) per share

     (1,434      (7,378      (1,236

Diluted earnings (loss) per share

     (1,434      (7,378      (1,236

 

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Table of Contents
  C.

Consolidated subsidiaries (as of December 31, 2020)

 

Company Interest

   Primary Business    Location    Equity  

LG Display America, Inc.

   Sales    U.S.A.      100

LG Display Germany GmbH

   Sales    Germany      100

LG Display Japan Co., Ltd.

   Sales    Japan      100

LG Display Taiwan Co., Ltd.

   Sales    Taiwan      100

LG Display Nanjing Co., Ltd.

   Manufacturing    China      100

LG Display Shanghai Co., Ltd.

   Sales    China      100

LG Display Guangzhou Co., Ltd.

   Manufacturing    China      100

LG Display Shenzhen Co., Ltd.

   Sales    China      100

LG Display Singapore Pte. Ltd.

   Sales    Singapore      100

L&T Display Technology (Fujian) Limited

   Manufacturing and sales    China      51

LG Display Yantai Co., Ltd.

   Manufacturing    China      100

LG Display (China) Co., Ltd.

   Manufacturing and sales    China      70

Nanumnuri Co., Ltd.

   Workplace services    Korea      100

Unified Innovative Technology, LLC

   Managing intellectual property    U.S.A.      100

Global OLED Technology LLC

   Managing intellectual property    U.S.A.      100

LG Display Guangzhou Trading Co., Ltd.

   Sales    China      100

LG Display Vietnam Haiphong Co., Ltd.

   Manufacturing    Vietnam      100

Suzhou Lehui Display Co., Ltd.

   Manufacturing and sales    China      100

LG Display Fund I LLC

   Investing in new emerging
companies
   U.S.A      100

LG Display High-Tech (China) Co., Ltd.

   Manufacturing and sales    China      70

MMT (Money Market Trust)

   Money market trust    Korea      100

 

  D.

Status of equity investments (as of December 31, 2020)

 

  (1)

Consolidated subsidiaries

 

Company

   Capital Stock
(in millions)
     Date of
Incorporation
     Equity
Interest
 

LG Display America, Inc.

   USD 411        September 1999        100

LG Display Germany GmbH

   EUR 1        November 1999        100

LG Display Japan Co., Ltd.

   JPY 95        October 1999        100

LG Display Taiwan Co., Ltd.

   NTD 116        April 1999        100

LG Display Nanjing Co., Ltd.

   CNY 3,020        July 2002        100

LG Display Shanghai Co., Ltd.

   CNY 4        January 2003        100

LG Display Poland Sp. z o.o. (1)

     —          September 2005        —    

LG Display Guangzhou Co., Ltd.

   CNY 1,655        June 2006        100

LG Display Shenzhen Co., Ltd.

   CNY 4        August 2007        100

LG Display Singapore Pte. Ltd.

   USD 1        January 2009        100

L&T Display Technology (Fujian) Limited

   CNY 116        January 2010        51

LG Display Yantai Co., Ltd.

   CNY 1,008        April 2010        100

Nanumnuri Co., Ltd.

   KRW 800        March 2012        100

LG Display (China) Co., Ltd.

   CNY 8,232        December 2012        70

Unified Innovative Technology, LLC

   USD 9        March 2014        100

LG Display Guangzhou Trading Co., Ltd.

   CNY 1        April 2015        100

Global OLED Technology LLC

   USD 138        December 2009        100

LG Display Vietnam Haiphong Co., Ltd.

   USD 600        May 2016        100

Suzhou Lehui Display Co., Ltd.

   CNY 637        July 2016        100

LG Display Fund I LLC (2)

   USD 12        May 2018        100

LG Display High-Tech (China) Co., Ltd. (3)

   CNY 15,600        July 2018        70

MMT (Money Market Trust)

   KRW 11,300        January 2018        100

 

(1)

The liquidation process of LG Display Poland Sp. z o.o., our former consolidated subsidiary, was completed during 2020. We reclassified the comprehensive loss amounting to W72,654 million from foreign currency translation differences to profit or loss.

(2)

In 2020, we invested an additional W7,242 million in LG Display Fund I LLC. There has been no change in our interest in LG Display Fund I LLC due to such additional investment.

(3)

In 2020, the non-controlling shareholders invested an additional W172,966 million in LG Display High-Tech (China) Co., Ltd. Due to such additional investment, our interest in LG Display High-Tech (China) Co., Ltd. has decreased from 75% as of the end of 2019 to 70% as of the end of the reporting period.

 

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Table of Contents
  (2)

Affiliated companies

 

Company

   Carrying
Amount
(in
millions)
     Date of
Incorporation
     Equity
Interest
 

Paju Electric Glass Co., Ltd. (1)

   W 47,262        January 2005        40

Wooree E&L Co., Ltd. (2)

   W 10,540        June 2008        14

YAS Co., Ltd.

   W 24,493        April 2002        15

Avatec Co., Ltd.

   W 20,196        August 2000        14

Arctic Sentinel, Inc.

     —          June 2008        10

Cynora GmbH (3)

   W 2,609        March 2003        12

Material Science Co., Ltd. (4)

   W 3,791        January 2014        10

Nanosys Inc. (5)

   W 5,660        July 2001        3

Changes since December 31, 2019:

 

(1)

In 2020, we recognized a reversal of impairment loss of W433 million as finance income with respect to the difference between the carrying amount and the recoverable amount of our investment in Paju Electric Glass Co., Ltd.

(2)

In 2020, we recognized a reversal of impairment loss of W2,905 million as finance income with respect to the difference between the carrying amount and the recoverable amount of our investment in Wooree E&L Co., Ltd.

(3)

In 2020, we recognized an impairment loss of W2,105 million as finance cost with respect to the difference between the carrying amount and the recoverable amount of our investment in Cynora GmbH. We did not participate in Cynora GmbH’s paid-in capital increase during the reporting period, and as a result, our equity interest decreased from 12.2% as of December 31, 2019 to 11.6% as of December 31, 2020.

(4)

In 2020, we recognized an impairment loss of W1,239 million as finance cost with respect to the difference between the carrying amount and the recoverable amount of our investment in Material Science Co., Ltd.

(5)

In 2020, we recognized a reversal of impairment loss of W811 million as finance income with respect to the difference between the carrying amount and the recoverable amount of our investment in Nanosys Inc. We did not participate in Nanosys Inc.’s paid-in capital increase during the reporting period, and as a result, our equity interest decreased from 4% as of December 31, 2019 to 3% as of December 31, 2020.

As of December 31, 2020, the market values of Woori E&L Co., Ltd., YAS Co., Ltd. and Avatec Co., Ltd., each of which is listed in the KOSDAQ market of the Korea Exchange, were W10,540 million, W26,700 million and W17,180 million, respectively.

Additionally, for the years ended December 31, 2019 and 2020, the aggregate amount of dividends we received from our affiliated companies was W7,502 million and W8,239 million, respectively.

 

14.

Audit Information

 

  A.

Audit service

(Unit: In millions of Won, hours)

 

Description

   2020    2019    2018

Auditor

   KPMG Samjong    KPMG Samjong    KPMG Samjong

Activity

   Audit by independent
auditor
   Audit by independent
auditor
   Audit by independent
auditor

Compensation(1)

   1,050 (280)(2)    1,280 (500)(2)    1,170 (450)(2)

Time required

   19,453    21,194    17,269

 

(1)

Compensation amount is the contracted amount for the full fiscal year.

(2)

Compensation amount in ( ) is for Form 20-F filing and SOX 404 audit.

 

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  B.

Non-audit service

(Unit: In millions of Won, hours)

 

Period

   Date of contract    Description of
service
   Period of service    Compensation

2020

   —      —      —      —  

2019

   July 23, 2019    Issuance of
comfort letters
   July 23, 2019 ~
August 31, 2019
   120

2018

   September 11, 2018    Green bond
verification
   September 11, 2018
~ October 9, 2018
   45

 

15.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

  A.

Risk relating to forward-looking statements

This annual report contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. These forward-looking statements reflect our current views as of the date of this report with respect to future events and are not a guarantee of future performance or results. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors beyond our control. We have no obligation to update or correct the forward-looking statements contained in these materials subsequent to the date hereof. All forward-looking statements attributable to us in this report are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

 

  B.

Overview

In 2020, the role and significance of display products became greater as the culture of contactless and remote interactions became prevalent as a new lifestyle. Such changes in the macro-environment had a positive influence on demand for television and IT products, in response to which we quickly accommodated the changing needs of consumers and our customers in relation to large-sized OLED display panels for televisions and TFT-LCD display panels for IT products. As a result, we were able to improve our operating results. Such improvement in our operating results was further amplified by a continued increase in the TFT-LCD display panel prices.

With respect to each of our business areas:

 

   

Television. Sales of the OLED segment of our television display panel business achieved an increase of low-20s in percentage compared to the previous year through stable operation of our increased production capacity and diversification of our products and customer base.

 

   

IT. Our IT product display panel business benefited from opportunities arising from an increase in overall demand for IT products due to increased instances of working remotely and online classes. In response, we increased our production of differentiated products utilizing our strengths in oxide-TFT and IPS technologies and achieved an increase of more than 10% in sales compared to the previous year.

 

   

Mobile. We added new production capacity of plastic OLED products in the second half of 2020, which is currently engaged in mass production with stable product quality. Leveraging the increase in sales resulting from such development, we are strengthening the foundation for a turnaround in this business area.

 

  C.

Financial condition and results of operations

 

  (1)

Changes in Political, Economic, Social, Competitive and Regulatory Environment

Our industry is subject to cyclical fluctuations, including recurring periods of capacity increases, that may adversely affect our results of operations.

Display panel manufacturers are vulnerable to cyclical market conditions. Intense competition and expectations of growth in demand across the industry may cause display panel manufacturers to make additional investments in manufacturing capacity on similar schedules, resulting in a surge in capacity when production is ramped up at new fabrication facilities. During such surges in capacity growth, as evidenced by past experiences, customers can exert strong downward pricing pressure, resulting in sharp declines in average selling prices and significant fluctuations in the panel manufacturers’ gross margins. Conversely, demand surges and fluctuations in the supply chain can lead to price increases.

 

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Table of Contents

We address overcapacity issues by, in the short-term, adjusting the utilization rates of our existing fabrication facilities based on our assessment of industry inventory levels and demand for our products and, in the mid- to long-term, by fine-tuning our investment strategies relating to product development and capacity growth in light of our assessment of future market conditions.

From time to time, we have been affected by overcapacity in the industry relative to the general demand for display panels which, together with uncertainties in the current global economic environment, has contributed to a general decline in the average selling prices of a number of our display panel products. However, in light of our ongoing efforts to continue increasing in our product mix the proportion of higher-priced OLED panels, coupled with an increase in the market price of TFT-LCD panels in 2020 attributable to an increase in demand for television and IT products due to the COVID-19 pandemic, our average revenue per square meter of net display area increased by 5.9% from W576,817 in 2018 to W610,716 in 2019 and further increased by 29.5% to W790,874 in 2020.

While we believe that overcapacity and other cyclical issues in the industry are best addressed by increasing the proportion of high margin, differentiated specialty products based on newer technologies in our product mix that are tailored to our customers’ evolving needs, we cannot provide any assurance that an increase in demand, which helped to mitigate the impact of industry-wide overcapacity in the past, can occur or be sustained in future periods. We will therefore continue to closely monitor the overcapacity issues in the industry and respond accordingly. However, construction of new fabrication facilities and other capacity expansion projects in the display panel industry are undertaken with a multiple-year time horizon based on expectations of future market trends. Therefore, even if overcapacity issues persist in the industry, there may be continued capacity expansion in the near future due to pre-committed capacity expansion projects in the industry that were undertaken in past years. Any significant industry-wide capacity increases that are not accompanied by a sufficient increase in demand could further drive down the average selling price of our panels, which would negatively affect our gross margin. Any decline in prices may be further compounded by a seasonal weakening in demand growth for end products such as personal computer products, consumer electronics products and mobile and other application products. Furthermore, once the differentiated products that had a positive impact on our performance mature in their technology cycle, if we are not able to develop and commercialize newer products to offset the price erosion of such maturing products in a timely manner, our ability to counter the impact of cyclical market conditions on our gross margins would be further limited. We cannot provide assurance that any future downturns resulting from any large increases in capacity or other factors affecting the industry would not have a material adverse effect on our business, financial condition and results of operations.

A global economic downturn may result in reduced demand for our products and adversely affect our profitability.

In recent years, difficulties affecting the global financial sectors, adverse conditions and volatility in the worldwide credit and financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have increased the uncertainty of global economic prospects in general and have adversely affected the global and Korean economies. Global economic downturns in the past have adversely affected demand for consumer products manufactured by our customers in Korea and overseas, including televisions, IT products (comprising notebook computers, desktop monitors and tablet computers) and mobile and other application products utilizing display panels, which in turn led them to reduce or plan reductions of their production.

The overall prospects for the global economy remain uncertain, especially in light of the ongoing COVID-19 pandemic in China, Korea and other countries. We cannot provide any assurance that demand for our products can be sustained at current levels in future periods or that the demand for our products will not decrease again in the future due to such economic downturns which may adversely affect our profitability. We may decide to adjust our production levels in the future subject to market demand for our products, the production outlook of the global display panel industry, in particular, the display panel industry, any significant disruptions in our supply chain and global economic conditions in general. Any decline in demand for display panel products may adversely affect our business, results of operations and/or financial condition.

Earthquakes, tsunamis, floods, infectious diseases and other natural calamities could materially adversely affect our business, results of operations or financial condition.

 

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As our main production facilities are concentrated in China, Korea and Vietnam and we are heavily dependent on certain countries including Korea, Japan and the United States for our major equipment, components and raw materials, any natural calamity that escalate in such regions may have an impact on our production. For such reasons, we experienced temporarily closures of certain of our manufacturing facilities located in those areas affected by the current outbreak of COVID-19 in order to disinfect such facilities, protect the safety of our employees and prevent the infection from further spreading to the local communities. As our supply chain is generally concentrated in Northeast Asia, there may be delays in the supply of raw materials, components and manufacturing equipment as well as disruptions in our production levels due to unforeseen natural calamities that may recur in the future.

In particular, an outbreak of infectious diseases, such as COVID-19, which has had an effect on the global economic activities, may affect our operations. The global economy may be adversely affected by a variety of infectious diseases that spreads worldwide, which may impact the market demand for finished products that utilize display panels. As a result, any changes in inventory management or purchase adjustment or other changes in the operational strategies of our end-brand customers, may affect our business performance.

Our industry continues to experience steady declines in the average selling prices of display panels irrespective of cyclical fluctuations in the industry, and our margins would be adversely impacted if prices decrease faster than we are able to reduce our costs.

The average selling prices of display panels have declined in general with time irrespective of industry-wide cyclical fluctuations as a result of, among other factors, enhancements in productivity through technological advancements and cost reductions. While such trend may continue in the future, fluctuations that are not consistent with past trends may emerge to the extent new technologies such as OLED expand or the production levels of higher value-added and differentiated products increase. Although we may be able to take advantage of the higher selling prices typically associated with new products and technologies when they are first introduced in the market, such prices decline over time, and in certain cases, very rapidly, as a result of market competition or otherwise. If we are unable to effectively anticipate and counter the price erosion that accompanies our products, or if the average selling prices of our display panels decrease faster than the speed at which we are able to reduce our manufacturing costs, our gross margin would decrease and our results of operations and financial condition may be materially and adversely affected.

We operate in a highly competitive environment and we may not be able to sustain our current market position.

The display panel industry is highly competitive. We have experienced pressure on the prices and margins of our major products due largely to additional capacity from panel makers in Korea, Taiwan, China and Japan.

Some of our competitors may currently, or at some point in the future, have greater financial, sales and marketing, manufacturing, research and development or technological resources than we do. In addition, our competitors may be able to manufacture panels on a larger scale or with greater cost efficiencies than we do and we anticipate increases in production capacity in the future by other display panel manufacturers using similar display panel technologies as us. Any price erosion resulting from strong global competition or additional industry capacity may materially adversely affect our financial condition and results of operations.

In addition, consolidation within the industry in which we operate may result in increased competition as the entities emerging from such consolidation may have greater financial, manufacturing, research and development and other resources than we do, especially if such mergers or consolidations result in vertical integration and operational efficiencies, which may have a material adverse effect on our financial condition and results of operations.

Our ability to compete successfully also depends on factors both within and outside our control, including product pricing, performance and reliability, our relationship with customers, successful and timely investment and product development, success or failure of our end-brand customers in marketing their brands and products, component and raw material supply costs, and general economic and industry conditions. We cannot provide assurance that we will be able to maintain a competitive advantage with respect to all these factors and, as a result, we may be unable to sustain our current market position.

 

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Our operating results fluctuate from period to period, so you should not rely on period-to-period comparisons to predict our future performance.

Our industry is affected by market conditions that are often outside the control of manufacturers. Our results of operations may fluctuate significantly from period to period due to a number of factors, including seasonal variations in consumer demand, capacity ramp-up by competitors, industry-wide technological changes, the loss of a key customer and the postponement, rescheduling or cancellation of large orders by a key customer, any of which may or may not reflect a continued trend from one period to the next. As a result of these factors and other risks discussed in this section, you should not rely on period-to-period comparisons to predict our future performance.

Our financial condition may be adversely affected if we cannot introduce new products to adapt to rapidly evolving customer needs on a timely basis.

Our success will depend greatly on our ability to respond quickly to rapidly evolving customer requirements and to develop and efficiently manufacture new and differentiated products in anticipation of future demand. A failure or delay on our part to develop and efficiently manufacture products of such quality and technical specifications that meet our customers’ evolving needs may adversely affect our business.

Close cooperation with our customers to gain insights into their product needs and to understand general trends in the end-product market is a key component of our strategy to produce successful products. In addition, when developing new products, we often work closely with equipment suppliers to design equipment that will make our production processes for such new products more efficient. If we are unable to work together with our customers and equipment suppliers, or to sufficiently understand their respective needs and capabilities or general market trends, we may not be able to introduce or efficiently manufacture new products in a timely manner, which may have a material adverse effect on our financial situation.

In addition, product differentiation, especially the ability to develop and market differentiated specialty products that command higher premiums in a timely manner, has become a key competitive strategy in the display panel market. This is in part due to trends in consumer electronics and other markets, such as televisions, tablet computers and mobile devices, where the growth in demand is led by end products employing newer technologies with specifications tailored to deliver enhanced performance, convenience and user experience in a cost-efficient and timely manner. Accordingly, we have focused our efforts on developing and marketing differentiated specialty products, such as “Cinematic Sound OLED” sound integrated panels, rollable OLED display panels and transparent OLED display panels. We also strive to deliver differentiated values to meet our consumers’ demand for various display panels including (i) panels utilizing ultra-high definition, or Ultra HD, technology with oxide TFT backplanes, (ii) Advanced High-Performance In-Plane Switching, or AH-IPS, panels for tablet computers, mobile devices, notebook computers, desktop monitors, and (iii) plastic OLED display panels for smartphones, automotive products and wearable devices. We have also focused our efforts on cost reductions in the production process, in particular of panels with newer technologies, such as OLED, in order to improve or maintain our profit margins while offering competitive prices to our customers.

We have developed differentiated sales and marketing strategies to promote our panels for differentiated specialty products as part of our strategy to grow our operations to meet increasing demand for new applications in consumer electronics and other markets. However, we cannot provide assurance that the differentiated products we develop and market will be responsive to our end customers’ needs nor that our products will be successfully incorporated into end products or new applications that lead market growth in consumer electronics or other markets.

Problems with product quality, including defects, in our products could result in a decrease in customers and sales, unexpected expenses and loss of market share.

Our products are manufactured using advanced, and often new, technology and must meet stringent quality requirements. Products manufactured using advanced and new technology, such as our OLED technology, may contain undetected errors or defects, especially when first introduced. For example, our latest display panels may contain defects that are not detected until after they are shipped or installed because we cannot test for all possible scenarios. Such defects could cause us to incur significant re-designing costs, divert the attention of our technology personnel from product development efforts and significantly affect our customer relations and business reputation. In addition, future product failures could cause us to incur substantial expense to repair or replace defective products.

 

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We recognize a provision for warranty obligations based on the estimated costs that we expect to incur under our basic limited warranty for our products, which covers defective products and is normally valid for a certain period from the date of purchase. The warranty provision is largely based on historical and anticipated rates of warranty claims, and therefore we cannot provide assurance that the provision would be sufficient to cover any surge in future warranty expenses that significantly exceed historical and anticipated rates of warranty claims. In addition, if we deliver products with errors or defects, or if there is a perception that our products contain errors or defects, our credibility and the market acceptance and sales of our products could be harmed. Widespread product failures may damage our market reputation and reduce our market share and cause our sales to decline.

If economic conditions in Korea deteriorate, our current business and future growth could be materially and adversely affected.

Developments that could have an adverse impact on Korea’s economy include:

 

   

declines in consumer confidence and a slowdown in consumer spending;

 

   

deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the ongoing trade disputes with Japan);

 

   

adverse conditions or developments in the economies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, including as a result of deteriorating economic and trade relations between the United States and China and increased uncertainties resulting from the United Kingdom’s exit from the European Union;

 

   

the occurrence of severe health epidemics in Korea and other parts of the world, such as the ongoing COVID-19 pandemic;

 

   

adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, Euro or Japanese Yen exchange rates or revaluation of the Chinese Yuan, as well as the impact from the United Kingdom’s exit from the European Union on the value of Korean Won), interest rates, inflation rates or stock markets;

 

   

increased sovereign default risk in select countries and the resulting adverse effects on the global financial markets;

 

   

a deterioration in the financial condition or performance of small- and medium-sized enterprises and other companies in Korea due to the Korean government’s policies to increase minimum wages and limit working hours of employees;

 

   

investigations of large Korean business groups and their senior management for possible misconduct;

 

   

a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers in Korea;

 

   

the economic impact of any pending free trade agreements or changes in existing free trade agreements;

 

   

social and labor unrest;

 

   

volatility in the market prices of Korean real estate;

 

   

geo-political uncertainty and risk of further attacks by terrorist groups around the world;

 

   

a decrease in tax revenues or a substantial increase in the Korean government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs, including in connection with the Korean government’s ongoing efforts to provide emergency relief payments to households and emergency loans to businesses in light of economic difficulties caused by COVID-19, which may lead to an increased government budget deficit as well as an increase in the government’s debt level;

 

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financial problems or lack of progress in the restructuring of Korean business groups, other large troubled companies, their suppliers or the financial sector;

 

   

loss of investor confidence arising from corporate accounting irregularities or corporate governance issues at certain Korean companies;

 

   

increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

 

   

natural or man-made disasters that have a significant adverse economic or other impact on Korea or its major trading partners;

 

   

political uncertainty or increasing strife among or within political parties in Korea;

 

   

hostilities or political or social tensions involving oil producing countries in the Middle East (including a potential escalation of hostilities between the U.S. and Iran) and Northern Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;

 

   

increased reliance on exports to service foreign currency debts, which could cause friction with Korea’s trading partners;

 

   

the continued growth of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of manufacturing bases from Korea to China);

 

   

political or social tensions involving Russia and any resulting adverse effects on the global supply of oil or the global financial markets; and

 

   

an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.

 

  (2)

Results of operations

In 2020, unprecedented levels of volatility in worldwide economies occurred due to the effects of COVID-19. In particular, contrary to concerns during the earlier part of the year, new opportunities arose in the display industry as an environment of “home economy” formed under the prevalent culture of contactless and remote interactions. By responding quickly to changes in consumption patterns and trends of actual product sales, we were able to increase our sales and significantly reduce our losses compared to the previous year.

By business area:

 

   

Television. Sales in the OLED segment of our television display panel business increased by low-20s in percentage compared to the previous year primarily due to a stronger product line-up and an increased level of diversification in our customer base compared to last year, as we commenced the operation of, and quickly achieved stable production quality at, our new fabrication facility in Guangzhou. We also engaged in organizational restructuring activities with respect to our fabrication facilities for TFT-LCD television panels in Korea. Furthermore, we were able to achieve meaningful enhancements in sales and profitability through a shift in our product mix to focus on display panels for ultra-large televisions, commercial displays and IT products.

 

   

IT. In response to opportunities arising from stronger demand for IT products due to increased instances of working remotely and online classes, we increased the proportion of the production of display panels for IT products in our TFT-LCD fabrication facilities in Korea, and by expanding the sales of larger and differentiated products leveraging our technological strengths, we achieved an increase of more than 10% in sales compared to the previous year. In addition, we further solidified our market leadership through close cooperation with our customers.

 

   

Mobile. Despite weakened conditions in the end-product market due to the effects of the COVID-19 pandemic, we commenced the operation of our newly added production capacity in the second half of the year and, through stable production, we achieved an increase of more than 10% in sales compared to the previous year in this business area. In addition, we began supplying the world’s first plastic OLED panels for automotive displays at the end of 2019, and we are continuing our efforts to increase the sales of automotive display panels and expand the use of plastic OLED products in other business areas.

 

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(Unit: In millions of Won)

 

Description

   2020      2019      Changes  

Revenue

     24,230,124        23,475,567        754,557  

Operating profit

     (29,117      (1,359,382      1,330,265  

Profit (loss) before income tax

     (595,098      (3,344,242      2,749,144  

Profit (loss) for the period

     (70,636      (2,872,078      2,801,442  

 

  (a)

Revenue and cost of sales

In 2020, the role and significance of display products became greater as the culture of contactless and remote interactions became prevalent as a new lifestyle, and as demand for television and IT products grew stronger, display panel prices also increased. As a result of such trend and an increase in the proportion of high value-added products in our product mix in light of the acceleration in the transition of our business focus to OLED, our revenue increased by 3.2% compared to 2019. Our cost of sales as a percentage of revenue decreased by 2.9 percentage points from 92.0% in 2019 to 89.1% in 2020, reflecting such transition in our business focus and the increase in the proportion of higher value-added products in our product mix.

(Unit: In millions of Won, except percentages)

 

Description

   2020     2019     Changes  
  Amount     Percentage  

Revenue

     24,230,124       23,475,567       754,557       3.2

Cost of sales

     21,587,554       21,607,240       (19,686     (0.1 )% 

Gross profit

     2,642,570       1,868,327       774,243       41.4

Cost of sales as a percentage of sales

     89.1     92.0     (2.9 )%      —    

 

  (b)

Sales by category

Revenue attributable to sales of panels exhibited varying trends by product category according to changes in product mix, customers and market conditions.

 

Categories

   2020     2019     Difference  

Panels for televisions

     27.7     34.1     (6.4 )% 

Panels for IT products

     41.8     38.6     3.2

Panels for mobile applications and others

     30.5     27.3     3.3

 

  (c)

Production capacity

We downsized certain of our production facilities, primarily relating to large-sized TFT-LCD fabrication facilities with relatively lower profitability in light of intensified competition in the market. As a result, our annual production capacity decreased by approximately 18% as of December 31, 2020 compared to the end of the previous year.

 

  (3)

Financial condition

Our current assets amounted to W11,099 billion as of December 31, 2020, representing an increase of W851 billion from the end of the previous year, and our non-current assets amounted to W23,972 billion as of December 31, 2020, representing a decrease of W1,354 billion from the end of the previous year. Our current liabilities amounted to W11,007 billion as of December 31, 2020, representing an increase of W22 billion from the end of the previous year, and our non-current liabilities amounted to W11,328 billion as of December 31, 2020, representing a decrease of W774 billion from the end of the previous year. Our total equity increased by W249 billion to W12,737 billion as of December 31, 2020 from the end of the previous year, which mainly reflected an increase in paid-in capital attributable to non-controlling interest.

 

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(Unit: In millions of Won)

 

Description

   2020      2019      Changes  
   Amount      Percentage  

Current assets

     11,099,470        10,248,315        851,155        8.3

Non-current assets

     23,972,053        25,326,248        (1,354,195      (5.3 )% 

Total assets

     35,071,523        35,574,563        (503,040      (1.4 )% 

Current liabilities

     11,006,948        10,984,976        21,972        0.2

Non-current liabilities

     11,327,636        12,101,306        (773,670      (6.4 )% 

Total liabilities

     22,334,584        23,086,282        (751,698      (3.3 )% 

Share capital

     1,789,079        1,789,079        —          0.0

Share premium

     2,251,113        2,251,113        —          0.0

Retained earnings

     7,524,297        7,503,312        20,985        0.3

Reserves

     (163,446      (203,021      39,575        (19.5 )% 

Non-controlling interest

     1,335,896        1,147,798        188,098        16.4

Total equity

     12,736,939        12,488,281        248,658        2.0

Total liabilities and equity

     35,071,523        35,574,563        (503,040      (1.4 )% 

Due to the re-adjustment of our product mix in light of an expected increase in demand during the first half of 2021, our inventory increased by W120 billion from the end of the previous year to W2,171 billion as of December 31, 2020.

Trade accounts and notes receivable as of December 31, 2020 was W3,518 billion, representing an increase of W363 billion from net trade accounts and notes receivable as of December 31, 2019, mostly reflecting an increase in our sales.

The book value of our total tangible assets as of December 31, 2020 was W20,147 billion, representing a decrease of W1,941 billion from the book value of our total tangible assets as of December 31, 2019. The decrease was due mainly to the significant effect of depreciation of our more recently acquired assets.

Trade accounts and notes payable as of December 31, 2020 was W3,779 billion, representing an increase of W1,161 billion from trade accounts and notes payable as of December 31, 2019.

 

  (4)

Dependence on Key Customers

We sell our products to a select group of key customers, including our largest shareholder, and any significant decrease in their order levels will negatively affect our financial condition and results of operations.

A substantial portion of our sales is attributable to a limited group of end-brand customers and their designated system integrators. Sales attributed to our end-brand customers are for their end-brand products and do not include sales to these customers for their system integration activities for other end-brand products, if any. Our top ten end-brand customers, including LG Electronics Inc., our largest shareholder, together accounted for approximately 77% of our sales in in 2018, 80% in 2019 and 85% in 2020.

We benefit from the strong collaborative relationships we maintain with our end-brand customers by participating in the development of their products and gaining insights about levels of future demand for our products and other industry trends. Customers look to us for a dependable supply of quality products, even during downturns in the industry, and we benefit from the brand recognition of our customers’ end products. The loss of these end-brand customers, as a result of their entering into strategic supplier arrangements with our competitors or otherwise, would thus result not only in reduced sales, but also in the loss of these benefits. We cannot provide assurance that a select group of key end-brand customers, including our largest shareholder, will continue to place orders with us in the future at the same levels as in prior periods, or at all.

 

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We expect that we will continue to be dependent upon LG Electronics and its affiliates for a significant portion of our revenue for the foreseeable future. Our results of operations and financial condition could therefore be affected by the overall performance of LG Electronics and its affiliates. Further details of our transactions with LG Electronics and its affiliates are described in Note 29 to our consolidated annual financial statements as of and for the years ended December 31, 2020 and 2019, which were furnished on March 4, 2020 as part of the current report on Form 6-K titled “Submission of Audit Report.”

Our revenue depends on continuing demand for IT products (comprising notebook computers, desktop monitors and tablet computers), televisions and mobile and other application products with panels of the type we produce. Our sales may not grow at the rate we expect if consumers do not purchase these products.

Currently, our total sales are derived principally from customers who use our products in IT products (comprising notebook computers, desktop monitors and tablet computers), televisions and mobile and other application products with display devices. In particular, a substantial percentage of our sales is derived from end-brand customers, or their designated system integrators, who use our panels in their IT products, which accounted for 36.5%, 38.6% and 41.8% of our total revenue in 2018, 2019 and 2020, respectively. A substantial portion of our sales is also derived from end-brand customers, or their designated system integrators, who use our panels in their televisions, which accounted for 40.0%, 34.1% and 27.7% of our total revenue in 2018, 2019 and 2020, respectively, and those who use our panels in their mobile and other applications, which accounted for 23.5%, 27.3% and 30.5% of our total revenue in 2018, 2019 and 2020, respectively. We will continue to be dependent on continuing demand from the IT products industry (comprising the personal computer and tablet computer industries), television industry and the mobile device industry for a substantial portion of our sales. Any downturn in any of those industries in which our customers operate would result in reduced demand for our products, which may in turn result in reduced revenue, lower average selling prices and/or reduced margins.

 

  (5)

Changes in Manufacturing Costs and Difficulties in Securing Supply of Raw Material

If we cannot maintain high capacity utilization rates, our profitability will be adversely affected.

The production of display panels entails high fixed costs resulting from considerable expenditures for the construction of complex fabrication and assembly facilities and the purchase of costly equipment. We aim to maintain high capacity utilization rates so that we can allocate these fixed costs over a greater number of panels produced and realize a higher gross margin. However, due to any number of reasons, including fluctuating demand for our products or overcapacity in the display industry, we may need to reduce production, resulting in lower-than-optimal capacity utilization rates. As such, we cannot provide assurance that we will be able to sustain our capacity utilization rates in the future nor can we provide assurance that we will not reduce our utilization rates in the future as market and industry conditions change.

Limited availability of raw materials, components and manufacturing equipment could materially and adversely affect our business, results of operations or financial condition.

Our production operations depend on obtaining adequate supplies of quality raw materials and components on a timely basis. As a result, it is important for us to control our raw material and component costs and reduce the effects of fluctuations in price and availability. In general, we source most of our raw materials as well as key components, such as glass substrates, driver integrated circuits, polarizers and color filters used in both our TFT-LCD and OLED products, backlight units and liquid crystal materials used in our TFT-LCD products and hole transport materials and emission materials used in our OLED products, from two or more suppliers for each key component. However, we may establish a working relationship with a single supplier if we believe it is advantageous to do so due to performance, quality, support, delivery, capacity, price or other considerations. We may experience shortages in the supply of these key components, as well as other components or raw materials, as a result of, among other things, anticipated capacity expansion in the display industry or our dependence on a limited number of suppliers. Our results of operations would be adversely affected if we were unable to obtain adequate supplies of high-quality raw materials or components in a timely manner or make alternative arrangements for such supplies in a timely manner.

 

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Furthermore, we may be limited in our ability to pass on increases in the cost of raw materials and components to our customers. We do not typically enter into binding long-term contracts with our customers, and even in those cases where we do enter into long-term agreements with certain of our major end-brand customers, the price terms are contained in the purchase orders. Except under certain special circumstances, the price terms in the purchase orders are not subject to change. Prices for our products are generally determined through negotiations with our customers, based generally on the complexity of the product specifications and the labor and technology involved in the design or production processes. However, if we become subject to any significant increase in the cost of raw materials or components that were not anticipated when negotiating the price terms after the purchase orders have been placed, we may be unable to pass on such cost increases to our customers.

We have purchased, and expect to purchase, a substantial portion of our equipment from a limited number of qualified foreign and local suppliers. From time to time, increased demand for new equipment may cause lead times to extend beyond those normally required by the equipment vendors. The unavailability of equipment, delays in the delivery of equipment, or the delivery of equipment that does not meet our specifications, could delay implementation of our expansion plans and impair our ability to meet customer orders. This could result in a loss of revenue and cause financial stress on our operations.

 

  (6)

Intangible Assets, Including Intellectual Property, and Research and Development Activities

Our business relies on our patent rights which may be narrowed in scope or found to be invalid or otherwise unenforceable.

Our success will depend, to a significant extent, on our ability to obtain and enforce our patent rights both in Korea and worldwide. The coverage claimed in a patent application can be significantly reduced before a patent is issued, either in Korea or abroad. Consequently, we cannot provide assurance that any of our pending or future patent applications will result in the issuance of patents. Patents issued to us may be subjected to further proceedings limiting their scope and may not provide significant proprietary protection or competitive advantage. Our patents also may be challenged, circumvented, invalidated or deemed unenforceable. In addition, because patent applications in certain countries generally are not published until more than 18 months after they are first filed, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were, or any of our licensors was, the first creator of inventions covered by pending patent applications, that we or any of our licensors will be entitled to any rights in purported inventions claimed in pending or future patent applications, or that we were, or any of our licensors was, the first to file patent applications on such inventions.

Furthermore, pending patent applications or patents already issued to us or our licensors may become subject to dispute, and any dispute could be resolved against us. For example, we may become involved in re-examination, reissue or interference proceedings and the result of these proceedings could be the invalidation or substantial narrowing of our patent claims. We also could be subject to court proceedings that could find our patents invalid or unenforceable or could substantially narrow the scope of our patent claims. In addition, depending on the jurisdiction, statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions.

Failure to protect our intellectual property rights could impair our competitiveness and harm our business and future prospects.

We believe that developing new products and technologies that can be differentiated from those of our competitors is critical to the success of our business. We take active measures to obtain international protection of our intellectual property by obtaining patents and undertaking monitoring activities in our major markets. However, we cannot assure you that the measures we are taking will effectively deter competitors from improper use of our proprietary technologies. Our competitors may misappropriate our intellectual property, disputes as to ownership of intellectual property may arise and our intellectual property may otherwise become known or independently developed by our competitors.

Any failure to protect our intellectual property could impair our competitiveness and harm our business and future prospects.

 

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We rely on technology provided by third parties and our business will suffer if we are unable to renew our licensing arrangements with them.

From time to time, we have obtained licenses for patent, copyright, trademark and other intellectual property rights to process and device technologies used in the production of our display panels. We have entered into key licensing arrangements with third parties, for which we have made, and continue to make, periodic license fee payments. In addition, we also have cross-license agreements with certain other third parties. These agreements terminate upon the expiration of the respective terms of the patents.

If we are unable to renew our technology licensing arrangements on acceptable terms, we may lose the legal protection to use certain of the processes we employ to manufacture our products and be prohibited from using those processes, which may prevent us from manufacturing and selling certain of our products, including our key products. In addition, we could be at a disadvantage if our competitors obtain licenses for protected technologies on more favorable terms than we do.

In the future, we may also need to obtain additional patent licenses for new or existing technologies. We cannot provide assurance that these license agreements can be obtained or renewed on acceptable terms or at all, and if not, our business and operating results could be adversely affected.

We rely upon trade secrets and other unpatented proprietary know-how to maintain our competitive position in the display panel industry and any loss of our rights to, or unauthorized disclosure of, our trade secrets or other unpatented proprietary know-how could negatively affect our business.

We also rely upon trade secrets, unpatented proprietary know-how and information, as well as continuing technological innovation in our business. The information we rely upon includes price forecasts, core technology and key customer information. We enter into confidentiality agreements with each of our employees and consultants upon the commencement of an employment or consulting relationship. These agreements generally provide that all inventions, ideas, discoveries, improvements and copyrightable material made or conceived by the individual arising out of the employment or consulting relationship and all confidential information developed or made known to the individual during the term of the relationship is our exclusive property. We cannot provide assurance that these types of agreements will be fully enforceable, or that they will not be breached. We also cannot be certain that we will have adequate remedies for any such breach. The disclosure of our trade secrets or other know-how as a result of such a breach could adversely affect our business. Also, our competitors may come to know about or determine our trade secrets and other proprietary information through a variety of methods. Disputes may arise concerning the ownership of intellectual property or the applicability or enforceability of our confidentiality agreements, and there can be no assurance that any such disputes would be resolved in our favor. Furthermore, others may acquire or independently develop similar technology, or if patents are not issued with respect to technologies arising from our research, we may not be able to maintain information pertinent to such research as proprietary technology or trade secrets and that could have an adverse effect on our competitive position within the display panel industry.

We have designated R&D organizations for our research and development activities.

Our research organizations consist of the infrastructure technology research center and designated departments, all of which are overseen by our chief technology officer. Our research organizations conduct research on differentiated and next-generation technologies and basic infrastructure technology as well as enhances our competitiveness by conducting research that is geared toward future product development. Our development organization comprises of groups and departments dedicated to the development of a wide range of television, IT and mobile products, including product-specific circuits, instrument/optics and panel design.

Our research and development related expenditures amounted to W1,739 billion in 2020, a decrease of W38 billion from 2019. We plan to continue investing in research and development activities in the future.

The book value of our intangible assets increased by W147 billion compared to the previous year to W1,020 billion as of December 31, 2020.

 

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  (7)

Sensitivity to Exchange Rates and Inflation

There has been considerable volatility in foreign exchange rates in recent years, including rates between the Korean Won and the U.S. dollar, between the Korean Won and the Chinese Yuan and between the Korean Won and the Japanese Yen. To the extent that we incur costs in one currency and make sales in another, our profit margins may be affected by changes in the exchange rates between the two currencies.

Our sales of display panels are denominated mainly in U.S. dollars, whereas our purchases of raw materials are denominated mainly in U.S. dollars, Japanese Yen and Chinese Yuan. Our expenditures on capital equipment are primarily denominated in Korean Won, U.S. dollars, Chinese Yuan and Japanese Yen. Accordingly, fluctuations in exchange rates, in particular between the U.S. dollar and the Korean Won, between the Chinese Yuan and the Korean Won as well as between the Japanese Yen and the Korean Won, affect our pre-tax income, and in recent years, the value of the Won relative to the U.S. dollar, Chinese Yuan and Japanese Yen has fluctuated widely. Although a depreciation of the Korean Won against the U.S. dollar increases the Korean Won value of our export sales and enhances the price-competitiveness of our products in foreign markets in U.S. dollar terms, it also increases the cost of imported raw materials and components in Korean Won terms and our cost in Korean Won of servicing our U.S. dollar denominated debt. A depreciation of the Korean Won against the Chinese Yuan or Japanese Yen increases the Korean Won cost of our Chinese Yuan- or Japanese Yen-denominated purchases of equipment, raw materials or components, as applicable, and, to the extent we have any debt denominated in Chinese Yuan or Japanese Yen, our cost in Korean Won of servicing such debt, but has relatively little impact on our sales as most of our sales are denominated in U.S. dollars. In addition, continued exchange rate volatility may also result in foreign exchange losses for us. Although a depreciation of the Korean Won against the U.S. dollar, in general, has a net positive impact on our results of operations that more than offsets the net negative impact caused by a depreciation of the Korean Won against the Chinese Yuan or Japanese Yen, we cannot provide assurance that the exchange rate of the Korean Won against foreign currencies will not be subject to significant fluctuations, or that the impact of such fluctuations will not adversely affect the results of our operations.

 

  (8)

Changes in Organization and Business Reorganization

In order to secure the fundamental competitiveness of our businesses and to seek sustainable growth, we are accelerating the transition of our business focus to the OLED business, while simultaneously pursuing activities to restructure our LCD business. From the overall organizational level, we are in the process of establishing an organizational structure geared towards providing value innovations to customers and achieving differentiated competitive strengths and enhanced profitability of our OLED business.

 

  D.

Liquidity and capital resources

 

  (1)

Liquidity

Our main source for the procurement of funds include operations and financing activities. As of December 31, 2019 and 2020, our cash and cash equivalents amounted to W3,336 billion and W4,218 billion, respectively, and short-term deposits in banks amounted to W79 billion and W79 billion, respectively. Our primary use of cash has been to fund capital expenditures related to the expansion and improvement of our production capacity with respect to existing and newly developed products, including the construction and ramping-up of new, or in certain cases, expansion or conversion of existing, fabrication facilities and production lines and the acquisition of new equipment. We also use cash flows from operations for our working capital requirements and servicing our debt payments. We expect our cash requirements for 2021 to be primarily for capital expenditures and repayment of maturing debt.

 

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The details of the consolidated cash and cash equivalents and deposits in banks as of December 31, 2019 and 2020 are as follows:

(Unit: in millions of won)

 

Description

   2020      2019  

Current assets

     

Cash and cash equivalents

     

Cash

     156        375  

Demand deposits

     4,217,943        3,335,628  

Deposits in banks

     

Time deposits

     1,800        1,500  

Restricted cash (1)

     76,852        77,257  
  

 

 

    

 

 

 

Total current assets

     4,296,751        3,414,760  
  

 

 

    

 

 

 

Non-current assets

     

Deposits in banks

     

Restricted cash (1)

     11        11  
  

 

 

    

 

 

 

Total non-current assets

     11        11  
  

 

 

    

 

 

 

Total

     4,296,762        3,414,771  
  

 

 

    

 

 

 

 

(1)

Restricted cash includes mutual growth fund to aid LG Group’s suppliers, pledge to enforce investment plans following receipt of subsidies from Gumi city and Gyeongsangbuk-do and others.

(Unit: in millions of won)

 

Description

   2020      2019      Changes  
   Amount      Percentage  

Current assets

     11,099,470        10,248,315        851,155        8.3

Current liabilities

     11,006,948        10,984,976        21,972        0.2

Net current assets

     92,522        (736,661      829,183        112.6

As of December 31, 2019, our current assets and current liabilities amounted to W10,248 billion and W10,985 billion, respectively, resulting in net current liabilities of W737 billion. As of December 31, 2020, our current assets and current liabilities amounted to W11,099 billion and W11,007 billion, respectively, resulting in net current assets of W93 billion.

 

  (2)

Financial liabilities and capital resources

We need to observe certain financial and other covenants under the terms of our debt obligations, the failure to comply with which would put us in default under such debt obligations.

We are subject to financial and other covenants, including maintenance of credit ratings and debt-to-equity ratios, under certain of our debt obligations. The documentation for such debt also contains negative pledge provisions limiting our ability to provide liens on our assets as well as cross-default and cross-acceleration clauses, which give related creditors the right to accelerate the amounts due under such debt if an event of default or acceleration has occurred with respect to our existing or future indebtedness, or if any material part of our indebtedness or indebtedness of our subsidiaries is capable of being declared payable before the stated maturity date. In addition, such covenants restrict our ability to raise future debt financing.

If we breach the financial or other covenants contained in the documentation governing our debt obligations, our financial condition will be adversely affected to the extent we are not able to cure such breaches, obtain a waiver from the relevant lenders or debtholders or repay the relevant debt.

As of December 31, 2020, we had agreements with several banks for accounts receivable sales negotiating facilities of up to an aggregate of US$1,115 million in connection with our export sales transactions, and our subsidiaries also have various such arrangements.

As of December 31, 2019 and 2020, W697 billion and W395 billion of short-term borrowings were outstanding, respectively.

As of December 31, 2020, our long-term borrowings, including the current portion of long-term debt and the discount on bonds, amounted to W13,674 billion, which mainly consist of bonds of W2,772 billion, long-term debt denominated in foreign currencies of W7,629 billion and long-term debt denominated in Won of W3,273 billion.

 

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Some of our long-term borrowings may include covenants with acceleration rights. If an event of default occurs from failure to comply with the agreed financial ratios or cross-default occurs as a result of a breach of other debt obligations, the principal amount and interest may be subject to early repayment. As of December 31, 2020, we have complied with applicable financial and other covenants contained in the documentation governing our debt obligations.

Our financial liabilities and capital resources are as follows:

 

  (a)

Financial liabilities

Our financial liabilities amounted to W14,320 billion in 2020, representing an increase of W730 billion from 2019.

(Unit: in millions of won)

 

Description

   2020      2019  

Current financial liabilities

 

Short-term borrowings

     394,906        696,793  

Current portion of long-term borrowings

     2,705,709        1,242,904  

Derivatives(*)

     58,875        —    

Lease liabilities

     35,534        37,387  

Sub-total

     3,195,024        1,977,084  

Non-current financial liabilities

 

Won denominated borrowings

     2,435,000        2,692,560  

Foreign currency denominated borrowings

     6,584,658        6,107,117  

Bonds

     1,948,541        2,741,516  

Derivatives(*)

     108,750        20,592  

Lease liabilities

     47,897        51,125  
  

 

 

    

 

 

 

Sub-total

     11,124,846        11,612,910  
  

 

 

    

 

 

 

Total

     14,319,870        13,589,994  
  

 

 

    

 

 

 

 

(*)

Represents derivatives that have not been recognized as hedging instruments and have resulted from currency interest rate swap contracts entered into in order to manage risks arising from foreign currency denominated borrowings and foreign currency denominated bonds.

 

  (b)

Capital resources

Set forth below are the details of our procurement of funds as of December 31, 2020.

(Unit: In millions of Won or millions of other currency except percentages)

 

Short Term Borrowings

 

Lender

   Purpose      Interest rate as of December 31,
2020 (%)
     2020      2019  

Standard Chartered Bank Korea

    

Import
invoice
financing
 
 
 
     12-month LIBOR + 0.98        326,400        347,340  

Standard Chartered Bank Vietnam, etc.

    

Working
capital
loan
 
 
 
    
3-month LIBOR +
0.80~0.90
 
 
     68,506        61,613  

Standard Chartered Bank China, etc.

    

Working
capital
loan
 
 
 
     —          —          287,840  
        

 

 

    

 

 

 

Equivalent amount in applicable foreign currency

           US$363        US$353, CNY1,737  
        

 

 

    

 

 

 

Total

           394,906        696,793  
        

 

 

    

 

 

 

 

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Long-term borrowings denominated in Won

Lender

   Purpose     

Interest rate as of December 31,

2020 (%)

   2020     2019  

Woori Bank

     Policy loan      2.75      60       608  

Korea Development Bank, etc.

     Facility loan     

CD(**) interest rate (91 days) + 1.00~1.60,

2.21~3.40

     3,272,500       3,330,000  

Less: current portion

     (837,560     (638,048
        

 

 

   

 

 

 

Total

     2,435,000       2,692,560  
        

 

 

   

 

 

 

Long-term borrowings denominated in foreign currencies

 

Lender

   Purpose     

Interest rate as of December 31,

2020 (%)

   2020     2019  

Korea Export-Import Bank, etc.

     Facility loan     

3-month LIBOR + 0.75~2.40 /

6-month LIBOR + 1.25~1.35

     1,680,960       1,696,177  

China Construction Bank, etc.

     Facility loan     

US$: 3-month LIBOR + 0.80~1.43;
CNY: 5-year LPR(**) + 0.44 /

1-year LPR – 0.15 ~ + 0.50 /

4.70

     5,948,472       4,606,094  

Equivalent amount in applicable foreign currency

    
US$2,742,
CNY27,825
 
 
   
US$2,767,
CNY18,699

 

Less: current portion

     (1,044,774     (195,154
        

 

 

   

 

 

 

Total

     6,584,658       6,107,117  
        

 

 

   

 

 

 

Bonds denominated in Won net of amortization

 

Type

   Maturity     

Interest rate as of December 31,

2020 (%)

   2020     2019  

Public Offering

    
Feb. 2021 ~
Feb. 2024

 
   1.95~2.95      1,320,000       1,730,000  

Private Offering

    
May 2022 ~
May 2033

 
   3.25~4.25      160,000       110,000  

Less: original issue discount

     (1,798     (3,404

Less: current portion

     (499,796     (409,702
        

 

 

   

 

 

 

Total

     978,406       1,426,894  
        

 

 

   

 

 

 

Bonds denominated in foreign currencies net of amortization

 

Type

   Maturity     

Interest rate as of December 31,

2020 (%)

   2020     2019  

Public Offering

     Nov. 2021      3.88      326,400       347,340  

Private Offering

     Apr. 2023      3-month LIBOR + 1.47      108,800       115,780  

Equivalent amount in applicable foreign currency

     US$400       US$400  

Less: original issue discount

     (3,161     (6,883

Less: current portion

     (323,579     —    
        

 

 

   

 

 

 

Total

     108,460       456,237  
        

 

 

   

 

 

 

Financial liabilities at fair value through profit or loss

 

Type

   Maturity     

Interest rate as of December 31,

2020 (%)

   2020     2019  

Foreign currency convertible bonds

     Aug. 2024      1.50      861,675       858,385  

Equivalent amount in applicable foreign currency

           US$792       US$741  

 

(*)

Represents certificates of deposit.

(**)

Represents the People’s Bank of China’s Loan Prime Rate.

 

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Set forth below are the details of our convertible bonds as of December 31, 2020.

 

Categories

  

Content

Type of bond    Registered unsecured foreign currency-denominated convertible bonds
Issue amount    US$687,800,000
Annual interest rate (%)    1.50
Issue date    August 22, 2019
Maturity date    August 22, 2024
Interest payment    Payable semi-annually in arrear until maturity date in equal installments
Principal redemption   

1. Redemption at maturity:

 

Redeemed on the maturity date, at their outstanding principal amount, which has not been redeemed early or converted

 

2. Early redemption:

 

Payment of the principal and interest accrued up to the expected repayment date upon the exercise of the company’s call option or the bondholder’s put option

Conversion price    W19,845 per common share (subject to adjustment based on dilutive effects of certain events)
Conversion period    August 23, 2020 ~ August 12, 2024
Redemption at the option of the issuer (Call option)   

—   On or at any time after three years from the issue date, if the closing price of our common shares for any 20 trading days out of the 30 consecutive trading days is at least 130% of the applicable conversion price;

 

—   The aggregate principal amount of the convertible bonds outstanding is less than 10% of the aggregate principal amount originally issued; or

 

—   In the event of certain changes in laws and other directives resulting in additional taxes

Redemption at the option of the bondholders (Put option)   

—   On the date which is three years from the issue date

We designated the convertible bonds as financial liabilities at fair value through profit of loss and recognized the change in its fair value in our income statement. We measure the fair value of the convertible bonds using the market price of convertible bonds disclosed on Bloomberg. Set forth below is certain information regarding our common shares subject to conversion under the terms of the convertible bonds as of December 31, 2020:

 

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Categories

  

2020

Aggregate outstanding amount of the convertible bonds

  

W813,426,670,000

Conversion price

  

W19,845

Number of common shares subject to conversion

  

40,988,998 shares

Set forth below are the cash flows on our borrowings by maturity, including interest payable thereon. We do not expect that such cash outflows will occur materially earlier than, or be materially different in amounts from, as indicated below.

(Unit: In millions of Won or millions of other currency)

 

Categories

   Book value      Contractual cash flows  
   Total      Within 6
months
     6~12
months
     1~2 years      2~5 years      Over 5
years
 

Borrowings

     11,296,898        12,201,452        1,672,931        942,835        2,753,807        6,375,984        455,895  

Bonds

     2,771,916        2,786,822        327,489        551,540        1,379,750        435,757        92,286  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     14,068,814        14,988,274        2,000,420        1,494,375        4,133,557        6,811,741        548,181  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (3)

Cash usage

Our management constantly monitors our working capital, and we have historically been able to satisfy our cash requirements from cash flows from operations and debt financing. As of December 31, 2020, we believe that we have sufficient working capital for our present requirements.

Our ability to satisfy our cash requirements from cash flows from operations and financing activities will be affected by our ability to maintain and improve our margins and, in the case of external financing, market conditions, which in turn may be affected by several factors outside of our control. Therefore, we re-evaluate our capital requirements regularly in light of our cash flows from operations, the progress of our expansion plans and market conditions. To the extent that we do not generate sufficient cash flows from our operations to meet our capital requirements, we may rely on other financing activities, such as external long-term borrowings and securities offerings, including the issuance of equity, equity-linked and other debt securities.

Our net cash from operating activities amounted to W2,707 billion in 2019 and W2,287 billion in 2020. The decrease in net cash provided by operating activities in 2020 compared to 2019 was mainly due to changes in working capital.

Our net cash used in investing activities amounted to W6,755 billion in 2019 and W2,319 billion in 2020. Net cash used in investing activities primarily reflected the expansion and conversion of our existing production facilities and construction of our new facilities centered on OLED products. These cash outflows from capital expenditures amounted to W6,927 billion in 2019 and W2,604 billion in 2020. We intend to fund our capital requirements associated with our expansion and construction projects with cash flows from operations and financing activities, such as external long-term borrowings.

In 2020, our capital expenditures were significantly less compared to 2019. Our previously announced investments will primarily focus on investments related to facilities for OLED panels. However, our overall expenditure levels and our allocation among projects are subject to many uncertainties. We review the amount of our capital expenditures and may make adjustments from time to time based on the size of cash flows from operations and market conditions.

 

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Our net cash provided by financing activities amounted to W4,988 billion in 2019 and W932 billion in 2020. The net cash provided by financing activities in 2019 and 2020 primarily reflect long-term borrowings incurred during such periods.

(Unit: In millions of Won)

 

Description

   2020      2019      Changes  

Net cash provided by operating activities

     2,286,948        2,706,545        (419,597

Net cash used in investing activities

     (2,319,316      (6,755,393      4,436,077  

Net cash provided by financing activities

     931,829        4,987,902        (4,056,073

Cash and cash equivalents at December 31,

     4,218,099        3,336,003        882,096  

 

16.

Board of Directors

 

  A.

Members of the board of directors

As of December 31, 2020, our board of directors consisted of two non-outside directors, one non-standing director and four outside directors.

(As of December 31, 2020)

 

Name

  

Position

  

Primary responsibility

James (Hoyoung) Jeong(1)    Representative Director (non-outside), Chief Executive Officer and President   

Overall head of business management

Donghee Suh(2)    Director (non-outside), Chief Financial Officer and Senior Vice President   

Overall head of finances

Young-Soo Kwon    Director (non-standing)   

Chairman of the board of directors

Sung-Sik Hwang    Outside Director   

Related to the overall management

Kun Tai Han    Outside Director   

Related to the overall management

Byung Ho Lee    Outside Director   

Related to the overall management

Chang-Yang Lee    Outside Director   

Related to the overall management

 

(1)

James (Hoyoung) Jeong was newly appointed as a non-outside director at the annual general meeting of shareholders and as the representative director at the board of directors’ meeting, both held on March 20, 2020.

(2)

Donghee Suh was reappointed for another term as a non-outside director at the annual general meeting of shareholders held on March 20, 2020.

 

  B.

Committees of the board of directors

We have the following committees that serve under our board of directors: Audit Committee, Outside Director Nomination Committee and Management Committee. As of December 31, 2020, the Management Committee consisted of two non-outside directors, James (Hoyoung) Jeong and Donghee Suh.

As of March 20, 2020, the composition of the Outside Director Nomination Committee was as follows.

(As of March 20, 2020)

 

Committee

  

Composition

  

Member

Outside Director Nomination Committee(1)

   1 non-standing director and 2 outside directors    Young-Soo Kwon, Kun Tai Han, Chang-Yang Lee
(1)

Each of Young-Soo Kwon, Kun Tai Han, Chang-Yang Lee was appointed as a member of the outside director nomination committee of the board of directors at the board of directors’ meeting on March 20, 2020.

 

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As of December 31, 2020, the composition of the Audit Committee was as follows.

(As of the date of this report)

 

Committee

  

Composition

  

Member

Audit Committee

   3 outside directors    Sung-Sik Hwang(1), Kun Tai Han, Chang-Yang Lee

 

(1)

Sung-Sik Hwang is the audit committee chairman.

 

  C.

Independence of directors

Directors are appointed in accordance with the procedures of the Commercial Act and other relevant laws and regulations. Our board of directors is independent as four out of the seven directors that comprise the board are outside directors. Outside directors candidates are nominated for appointment at a shareholders’ meeting after undergoing rigorous review by the Outside Director Nomination Committee.

All of our current outside directors were nominated by the Outside Director Nomination Committee, and all of our current non-outside directors were nominated by the board of directors.

 

17.

Information Regarding Shares

 

  A.

Total number of shares

 

  (1)

Total number of shares authorized to be issued (as of December 31, 2020): 500,000,000 shares.

 

  (2)

Total shares issued and outstanding (as of December 31, 2020): 357,815,700 shares.

 

  B.

Shareholder list

 

  (1)

Largest shareholder and related parties as of December 31, 2020:

 

Name

  

Relationship

   Number of shares
of common stock
     Equity
interest
 

LG Electronics

   Largest shareholder      135,625,000        37.9

James (Hoyoung) Jeong

   Registered director of member company      10,000        0.0

Donghee Suh

   Registered director of member company      9,000        0.0

 

  (2)

Shareholders who are known to us that own 5% or more of our shares as of December 31, 2020:

 

Beneficial owner

   Number of shares
of common stock
   Equity
interest

LG Electronics

   135,625,000    37.90%

National Pension Service

   18,862,707    5.27%

 

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18.

Directors and Employees

 

  A.

Directors

 

  (1)

Remuneration for directors in 2020:

(Unit: person, in millions of Won)

 

Classification

   No. of directors(1)      Amount paid     Per capita average
remuneration paid(2)
 

Non-outside directors

     3        1,917 (3)      639  

Outside directors who are not audit committee members

     1        78       78  

Outside directors who are audit committee members

     3        234       78  
  

 

 

    

 

 

   

 

 

 

Total

     7        2,229       318  
  

 

 

    

 

 

   

 

 

 

 

(1)

Number of directors as at December 31, 2020.

(2)

Per capita average remuneration paid is calculated by dividing total amount paid by the average number of directors for the year ended December 31, 2020.

(3)

Due to Mr. Sang Beom Han’s resignation as a non-outside director and Mr. James (Hoyoung) Jeong’s nomination as a non-outside director at the annual general meeting of shareholders held on March 20, 2020, the amount paid to non-outside directors includes the remuneration paid to both directors (but only with respect to the period in which such directors served as our non-outside directors).

 

  (2)

Standards of remuneration paid to non-outside and outside directors

 

   

Non-outside directors (excluding outside directors and audit committee members)

The remuneration system for non-outside directors consists of base salary, position salary and performance-related pay. The remuneration for non-outside directors is measured in accordance with the standards established by the board of directors (within the amount approved at the annual general meeting of shareholders), including the non-outside director’s position and job responsibilities.

 

   

Standards for base salary/position salary: relevant position and job responsibilities, among others

 

   

Standards for performance-related pay: financial performance of the company and achievement of individual management goals, among others

 

   

Outside directors, audit committee members and auditor

The remuneration for outside directors, audit committee members and auditor is measured in accordance with the standards established by the board of directors (within the amount approved at the annual general meeting of shareholders), including the individual’s job responsibilities, among others.

 

  (3)

Remuneration for individual directors and audit committee members

 

   

Individual amount of remuneration paid in 2020 (among those paid over W500 million per year)

(Unit: in millions of Won)

 

Name(*)

   Position    Total remuneration   Payment not included in
total remuneration

James (Hoyoung) Jung

   Chief Executive Officer    1,317(**)   —  

 

*

Information relating to Mr. Sang Beom Han is omitted, as remuneration for Mr. Han for the period in which he served as our director was less than W500 million.

**

Remuneration for Mr. James (Hoyoung) Jung for the period in which he served as our director was W1,098 million.

 

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Method of calculation

 

Name

  

Method of calculation

James (Hoyoung) Jeong   

Total remuneration

 

•  W1,317 million.

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W60.9 million between January and December were made.

 

•  Position salary is calculated based on the significance of the position and responsibilities of the job. Monthly payments of W48.7 million between January and December were made.

 

•  A total of W1.6 million of welfare benefits were paid on an annual basis in accordance with welfare benefits standards.

 

  (4)

Remuneration for the five highest paid individuals (among those paid over W500 million per year)

 

   

Individual remuneration amount

(Unit: in millions of Won)

 

Name

   Position    Total remuneration      Payment not included in
total remuneration
 
Sang Beom Han    Senior Advisor      5,194        —    
Kyung Ho Lee    Advisor      1,530        —    
James (Hoyoung) Jeong    Chief Executive Officer      1,317        —    
Chul Gu Lee    Advisor      1,289        —    
Sang Hoon Lee    Advisor      1,122        —    

 

   

Method of calculation

 

Name

  

Method of calculation

Sang Beom Han   

Total remuneration

 

•  W5,194 million (consisting of W728 million in salary and W4,466 million in retirement pay).

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W71.6 million between January and March and W35.8 million between April and December were made.

 

•  Position salary is calculated based on the significance of the position and responsibilities of the job. Monthly payments of W57 million between January and March were made.

 

•  A total of W18 million of welfare benefits were paid on an annual basis in accordance with other welfare benefits standards.

 

Retirement pay

 

•  Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (18 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).

 

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Kyung Ho Lee(1)   

Total remuneration

 

•  W1,530 million (consisting of W226 million in salary and W1,304 million in retirement pay).

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W29.6 million between January and March and W14.8 million between April and December were made.

 

•  A total of W3.8 million of welfare benefits were paid on an annual basis in accordance with other welfare benefits standards.

 

Retirement pay

 

•  Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (16 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).

 

James (Hoyoung) Jeong   

Total remuneration

 

•  W1,317 million.

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W60.9 million between January and December were made.

 

•  Position salary is calculated based on the significance of the position and responsibilities of the job. Monthly payments of W48.7 million between January and December were made.

 

•  A total of W1.6 million of welfare benefits were paid on an annual basis in accordance with welfare benefits standards.

 

Chul Gu Lee(1)   

Total remuneration

 

•  W1,289 million (consisting of W246 million in salary and W1,043 million in retirement pay).

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W29.6 million between January and March and W14.8 million between April and December were made.

 

•  A total of W24 million of welfare benefits were paid on an annual basis in accordance with other welfare benefits standards.

 

Retirement pay

 

•  Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (13 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).

 

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Sang Hoon Lee(1)   

Total remuneration

 

•  W1,122 million (consisting of W227 million in salary and W895 million in retirement pay).

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W29.6 million between January and March and W14.8 million between April and December were made.

 

•  A total of W4.8 million of welfare benefits were paid on an annual basis in accordance with other welfare benefits standards.

 

Retirement pay

 

•  Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (11 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).

 

(1)

Mssrs. Sang Beom Han, Kyung Ho Lee, Chul Gu Lee, and Sang Hoon Lee are former officers who retired from our company effective as of March 31, 2020.

 

  (5)

Stock options

Not applicable.

 

  B.

Employees

As of December 31, 2020, we had 25,980 employees (excluding our directors). On average, our male employees have served 11.9 years and our female employees have served 9.8 years. The total amount of salary paid to our employees for the year ended December 31, 2020 based on income tax statements submitted to the Korean tax authority in accordance with Article 20 of the Income Tax Act was W1,602,359 million for our male employees and W221,579 million for our female employees. The following table provides details of our employees as of December 31, 2020:

(Unit: person, in millions of Won, year)

 

     Number of
employees(1)
     Total salary
in 2020(2)(3)(4)
     Average
salary per
capita(5)
     Average
years of
service
 

Male

     21,932        1,602,359        73        11.9  

Female

     4,048        221,579        54        9.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     25,980        1,823,938        70        11.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes part-time employees hired for temporary needs or to serve as temporary replacements for employees on parental leave.

(2)

Welfare benefits and retirement expenses have been excluded. Total welfare benefit provided to our employees for the year ended December 31, 2020 was W323,707 million and the per capita welfare benefit provided was W12.5 million.

(3)

Based on income tax statements, which are submitted to the Korean tax authority in accordance with Article 20 of the Income Tax Act.

(4)

Includes incentive payments to employees who have transferred from our affiliated companies.

(5)

Calculated using the cumulative salary and the average number of employees (male: 22,086, female: 4,077) for the year ended December 31, 2020.

In December 2017, we were audited by the Ministry of Employment and Labor regarding our human resource practices (including in relation to employment contracts, hours of work, outsourcing and employees in pregnancy), and we were found to be in violation of certain provisions of the Labor Standard Act relating to overtime, night and holiday work. As a result, we were issued a corrective order in January 2018 and paid additional overtime wages of W2,893 million to 16,106 administrative employees of our Paju facilities for their nighttime work between January 1, 2015 to December 31, 2017. In addition, we reviewed nighttime work records of our administrative employees outside of our Paju facilities during the same period and paid additional overtime wages of W2,166 million to eligible employees. In order to prevent such violation from occurring again, we are periodically monitoring the nighttime work records of our employees.

From December 2017 to January 2018, we were audited by the Ministry of Employment and Labor regarding our human resource practices relating to temporary and part-time employees, and we were found to have omitted certain required information (including the number of break hours and vacation days) in the employment contracts of 82 temporary employees. As a result, we were assessed a fine of W27 million, which we subsequently paid. In order to prevent such violation from occurring again, we have amended the relevant provisions of the applicable employment contracts.

 

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19.

Other Matters

 

  A.

Legal proceedings

We are a defendant in three separate civil lawsuits (comprising one damages claim in the United Kingdom filed by private plaintiffs, one damages claim in Israel filed by private plaintiffs and one unjust enrichment claim in the United States filed by the Commonwealth of Puerto Rico) filed against us and certain other TFT-LCD panel manufacturers in connection with alleged anticompetitive behavior of the defendants. In each of these cases, the amount being sought has not been determined, and no trial has been scheduled. While the expected outcome of each of these cases is unclear, we do not believe that any of these cases would have a material effect on our financial conditions.

We have also been a defendant in four patent infringement lawsuits (two in the United States, one in Germany and one in China) filed against us and certain other set manufacturers by Solas OLED Ltd. With respect to each of these cases, we have entered into a Settlement and License Agreement with the plaintiff in December 2020. The plaintiff withdrew its claim in China in January 2021 and its claim in Germany in February 2021. We expect the plaintiff to also withdraw its claim in each of the two cases in the United States.

 

  B.

Material events subsequent to the reporting period

None.

 

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LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

For the Years Ended December 31, 2020 and 2019

(With Independent Auditors’ Report Thereon)

 

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Table of Contents

Independent Auditors’ Report

Based on a report originally issued in Korean

To the Shareholders and Board of Directors

LG Display Co., Ltd.:

Opinion

We have audited the accompanying consolidated financial statements of LG Display Co., Ltd. and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position of the Group as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income (loss), changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2020 and 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements as of and for the year ended December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

(i)

Impairment test for Display CGU

As discussed in Notes 3(j), 9 and 10 to the consolidated financial statements, the goodwill of W45,531 million is allocated to the Group’s Display CGU. The Group’s non-financial assets as of December 31, 2020 amount to W21,167,139 million, and a large portion of which are related to the Display CGU. The recoverable amount used by the Group in impairment test of the Display CGU is value in use based on discounted cash flow model. As a result of impairment test for Display CGU, the Group concluded that recoverable amount exceeds the carrying amount.

We identified impairment test for Display CGU as a key audit matter. Revenue and operating expenditures for the forecast period, growth rates for subsequent years (“terminal growth rate”), and discount rate used to estimate value in use for impairment test of Display CGU involve significant judgement and minor changes would have a significant effect on the results of the Group’s impairment test of Display CGU.

 

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The primary procedures we performed to address the impairment test for Display CGU include followings:

 

   

We tested certain internal controls over the Group’s non-financial assets impairment test process, including controls related to development of the revenue and operating expenditures forecasts, terminal growth rate and discount rate assumptions for Display CGU.

 

   

We compared the Group’s historical revenue and operating expenditures forecasts to actual results to assess the Group’s ability to accurately forecast.

 

   

We evaluated the revenue and operating expenditures forecasts used to determine the value in use by comparison with the financial budgets approved by the board of directors.

 

   

We performed sensitivity analysis over the terminal growth rate and discount rate assumptions to assess their impact on the Group’s impairment test.

 

   

We involved our valuation professionals with specialized skills and knowledge who assisted us in the following:

 

   

testing discount rate by comparing them against independently developed rates using publicly available market data for comparable entities; and

 

   

testing revenue, operating expenditures forecasts and terminal growth rate by comparing them against analyst reports and industry reports.

 

(ii)

Assessment of recognition of deferred tax assets

As discussed in Note 24 to the consolidated financial statements, the deferred tax assets arise primarily due to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as, unused tax losses and tax credit carryforwards. The assessment of the recognition of these deferred tax assets is dependent on the generation of future taxable income of the Group. As of December 31, 2020, the Group had W2,273,677 million of deferred tax assets in the consolidated statement of financial position and W230,768 million of unrecognized tax credit carryforwards as of December 31, 2020, primarily related to LG Display Co., Ltd.

We identified the assessment of the recognition of the deferred tax assets as a key audit matter because it involves high degree of subjective management judgment in estimating future taxable profits over the periods in which the above mentioned differences become deductible and within the periods before the unused tax losses and tax credit forwards expire and the feasibility of planned tax strategies. The subjectivity is primarily driven by the Group’s assumptions in revenue, operating expenditures and subsidiaries’ dividend distribution, which are used to estimate the forecasted taxable income in the future.

The primary procedures we performed to address the assessment of recognition of deferred tax assets include followings:

 

   

We tested certain internal controls relating to the Group’s deferred tax assets recognition process, including controls related to the development of assumptions in determining the future taxable income and subsidiaries’ dividend distribution for each year.

 

   

We analyzed the Group’s estimates of taxable income, including analyzing the Group’s forecasted revenue and operating expense by comparing them with the financial budgets approved by the board of directors and historical performance.

 

   

We compared the forecasts of taxable income and timing of utilization of tax losses and tax credit carryforwards in prior years to actual results to assess the Group’s ability to accurately forecast.

 

   

We also evaluated the Group’s assessment on the history of realizing deferred tax assets in connection with the unused tax losses carryforwards and collecting declared subsidiaries’ dividends in connection with the development of assumptions in determining subsidiaries’ dividend distribution.

 

   

We involved tax professionals with specialized skills and knowledge who assisted in assessing the feasibility of planned tax strategies when recognizing deferred tax assets.

Other matter

The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

 

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Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing these consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether theses consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

   

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.

 

   

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

 

   

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

   

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

   

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

   

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

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We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditors’ report is Sang Hyun Han.

KPMG Samjong Accounting Corp.

Seoul, Korea

March 3, 2021

 

This report is effective as of March 3, 2021, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

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LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Financial Position

As of December 31, 2020 and 2019

 

(In millions of won)    Note      December 31, 2020     December 31, 2019  

Assets

       

Cash and cash equivalents

     4, 26      W 4,218,099     3,336,003

Deposits in banks

     4, 26        78,652     78,757

Trade accounts and notes receivable, net

     5, 14, 26, 29        3,517,512     3,154,080

Other accounts receivable, net

     5, 26        144,480     474,048

Other current financial assets

     6, 26, 27        52,403     70,945

Inventories

     7        2,170,656     2,051,155

Prepaid income tax

        114,202     114,143

Other current assets

     5        803,466     969,184
     

 

 

   

 

 

 

Total current assets

        11,099,470     10,248,315

Deposits in banks

     4, 26        11     11

Investments in equity accounted investees

     8        114,551     109,611

Other non-current accounts receivable, net

     5, 26        —       9,072

Other non-current financial assets

     6, 26, 27        68,231     111,510

Property, plant and equipment, net

     9, 17, 27        20,147,051     22,087,645

Intangible assets, net

     10, 17        1,020,088     873,448

Deferred tax assets

     24        2,273,677     1,727,122

Defined benefits assets, net

     12        224,997     127,252

Other non-current assets

        123,447     280,577
     

 

 

   

 

 

 

Total non-current assets

        23,972,053     25,326,248
     

 

 

   

 

 

 

Total assets

      W 35,071,523     35,574,563
     

 

 

   

 

 

 

Liabilities

       

Trade accounts and notes payable

     26, 29      W 3,779,290     2,618,261

Current financial liabilities

     11, 26, 27        3,195,024     1,977,084

Other accounts payable

     26        2,781,941     4,397,121

Accrued expenses

        651,880     675,270

Income tax payable

        25,004     120,034

Provisions

     13        197,468     189,525

Advances received

     14        333,821     925,662

Other current liabilities

        42,520     82,019
     

 

 

   

 

 

 

Total current liabilities

        11,006,948     10,984,976

Non-current financial liabilities

     11, 26, 27        11,124,846     11,612,910

Non-current provisions

     13        89,633     67,118

Defined benefit liabilities, net

     12        1,498     1,338

Long-term advances received

     14        —       320,582

Deferred tax liabilities

     24        9,530     11,210

Other non-current liabilities

        102,129     88,148
     

 

 

   

 

 

 

Total non-current liabilities

        11,327,636     12,101,306
     

 

 

   

 

 

 

Total liabilities

        22,334,584     23,086,282
     

 

 

   

 

 

 

Equity

       

Share capital

     15        1,789,079     1,789,079

Share premium

        2,251,113     2,251,113

Retained earnings

        7,524,297     7,503,312

Reserves

     15        (163,446     (203,021
     

 

 

   

 

 

 

Total equity attributable to owners of the Controlling Company

        11,401,043     11,340,483
     

 

 

   

 

 

 

Non-controlling interests

        1,335,896     1,147,798
     

 

 

   

 

 

 

Total equity

        12,736,939     12,488,281
     

 

 

   

 

 

 

Total liabilities and equity

      W 35,071,523     35,574,563
     

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

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LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

For the years ended December 31, 2020 and 2019

 

(In millions of won, except earnings per share)    Note      2020      2019  

Revenue

     16, 17, 29      W 24,230,124      23,475,567

Cost of sales

     7, 18, 29        (21,587,554      (21,607,240
     

 

 

    

 

 

 

Gross profit

        2,642,570      1,868,327

Selling expenses

     19        (817,611      (1,057,753

Administrative expenses

     19        (755,340      (947,978

Research and development expenses

        (1,098,736      (1,221,978
     

 

 

    

 

 

 

Operating loss

        (29,117      (1,359,382
     

 

 

    

 

 

 

Finance income

     22        438,786      276,732

Finance costs

     22        (802,678      (443,247

Other non-operating income

     21        1,784,646      1,267,251

Other non-operating expenses

     21        (1,999,280      (3,097,743

Equity in income of equity accounted investees, net

     8        12,545      12,147
     

 

 

    

 

 

 

Loss before income tax

        (595,098      (3,344,242

Income tax benefit

     23        (524,462      (472,164
     

 

 

    

 

 

 

Loss for the year

        (70,636      (2,872,078
     

 

 

    

 

 

 

Other comprehensive income (loss)

        

Items that will never be reclassified to profit or loss

        

Remeasurements of net defined benefit liabilities

     12, 23        148,436      128,640

Other comprehensive income from associates

     8        39      238

Related income tax

     12, 23        (38,032      (35,235
     

 

 

    

 

 

 
        110,443      93,643

Items that are or may be reclassified to profit or loss

        

Foreign currency translation differences for foreign operations

     22, 23        48,181      106,690

Other comprehensive income (loss) from associates

     8, 23        (210      3,925
     

 

 

    

 

 

 
        47,971      110,615
     

 

 

    

 

 

 

Other comprehensive income for the period, net of income tax

        158,414      204,258
     

 

 

    

 

 

 

Total comprehensive income (loss) for the period

      W 87,778      (2,667,820
     

 

 

    

 

 

 

Profit (loss) attributable to:

        

Owners of the Controlling Company

        (89,342      (2,829,705

Non-controlling interests

        18,706      (42,373
     

 

 

    

 

 

 

Loss for the year

      W (70,636      (2,872,078
     

 

 

    

 

 

 

Total comprehensive income (loss) attributable to:

        

Owners of the Controlling Company

        59,730      (2,636,948

Non-controlling interests

        28,048      (30,872
     

 

 

    

 

 

 

Total comprehensive income (loss) for the year

      W 87,778      (2,667,820
     

 

 

    

 

 

 

Loss per share (in won)

        

Basic and diluted loss per share

     25      W (250      (7,908
     

 

 

    

 

 

 

See accompanying notes to the consolidated financial statements.

 

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LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2020 and 2019

 

    Attributable to owners of the Controlling Company              
(In millions of won)   Share
capital
    Share
premium
    Retained
earnings
    Reserves     Sub-total     Non-controlling
interests
    Total
equity
 

Balances at January 1, 2019

  W 1,789,079     2,251,113     10,239,965     (300,968     13,979,189     907,057     14,886,246
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the year

             

Loss for the year

    —         —         (2,829,705     —         (2,829,705     (42,373     (2,872,078

Other comprehensive income (loss)

             

Remeasurements of net defined benefit liabilities, net of tax

    —         —         93,405     —         93,405     —         93,405

Foreign currency translation differences

    —         —         —         95,189     95,189     11,501     106,690

Other comprehensive income from associates

    —         —         238     3,925     4,163     —         4,163
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

    —         —         93,643     99,114     192,757     11,501     204,258
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the year

  W —         —         (2,736,062     99,114     (2,636,948     (30,872     (2,667,820
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transaction with owners, recognized directly in equity

             

Subsidiaries’ dividends distributed to non-controlling interests

    —         —         —         —         —         (6,541     (6,541

Capital contribution from non-controlling interests

    —         —         (591     (1,167     (1,758     278,154     276,396
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2019

  W 1,789,079     2,251,113     7,503,312     (203,021     11,340,483     1,147,798     12,488,281
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at January 1, 2020

  W 1,789,079     2,251,113     7,503,312     (203,021     11,340,483     1,147,798     12,488,281
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the year

             

Profit (loss) for the year

    —         —         (89,342     —         (89,342     18,706     (70,636

Other comprehensive income (loss)

             

Remeasurements of net defined benefit liabilities, net of tax

    —         —         110,404     —         110,404     —         110,404

Foreign currency translation differences

    —         —         —         38,839     38,839     9,342     48,181

Other comprehensive income from associates

    —         —         39     (210     (171     —         (171
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

    —         —         110,443     38,629     149,072     9,342     158,414
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year

  W —         —         21,101     38,629     59,730     28,048     87,778
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transaction with owners, recognized directly in equity

             

Subsidiaries’ dividends distributed to non-controlling interests

    —         —         —         —         —         (12,086     (12,086

Capital contribution from non-controlling interests

    —         —         (116     946     830     172,136     172,966
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2020

  W 1,789,079     2,251,113     7,524,297     (163,446     11,401,043     1,335,896     12,736,939
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

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LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2020 and 2019

 

(In millions of won)    Note      2020     2019  

Cash flows from operating activities:

       

Loss for the year

      W (70,636     (2,872,078

Adjustments for:

       

Income tax benefit

     23        (524,462     (472,164

Depreciation and amortization

     9,10,18        4,134,843     3,695,051

Gain on foreign currency translation

        (296,870     (103,460

Loss on foreign currency translation

        217,287     171,966

Expenses related to defined benefit plans

     12, 20        160,669     162,997

Gain on disposal of property, plant and equipment

        (37,835     (35,788

Loss on disposal of property, plant and equipment

        60,294     40,897

Impairment loss on property, plant and equipment

        38,494     1,550,430

Gain on disposal of intangible assets

        (111     (552

Loss on disposal of intangible assets

        368     139

Impairment loss on intangible assets

        79,593     249,450

Reversal of impairment loss on intangible assets

        (1,110     (960

Impairment loss on other assets

        —         3,602

Gain on disposal of non-current assets held for sale

        —         (8,353

Expense on increase of provisions

        308,334     419,720

Finance income

        (331,723     (186,707

Finance costs

        612,164     338,419

Equity in income of equity method accounted investees, net

     8        (12,545     (12,147

Loss on liquidation of investments in subsidiaries

        72,654     —    

Other income

        (11,485     (20,416

Other expenses

        —         4,451
     

 

 

   

 

 

 
        4,468,559     5,796,575

Changes in:

       

Trade accounts and notes receivable

        (935,888     (1,007,373

Other accounts receivable

        63,192     (49,443

Inventories

        (128,495     632,359

Lease receivables

        6,428     6,617

Other current assets

        175,486     (288,770

Other non-current assets

        (58,641     (38,608

Trade accounts and notes payable

        1,387,084     (394,564

Other accounts payable

        (1,152,786     2,035,750

Accrued expenses

        (9,704     11,787

Provisions

        (277,876     (294,096

Short-term advances received

        (408,900     (242,365

Other current liabilities

        (40,200     27,690

Defined benefit liabilities, net

        (109,801     (65,681

Long-term advances received

        —         63,672

Other non-current liabilities

        12,973     7,045
     

 

 

   

 

 

 
        (1,477,128     404,020

Cash generated from operating activities

        2,920,795     3,328,517

Income taxes paid

        (156,997     (252,812

Interests received

        75,424     47,276

Interests paid

        (552,274     (416,436
     

 

 

   

 

 

 

Net cash provided by operating activities

      W 2,286,948     2,706,545
     

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

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LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2020 and 2019

 

 

(In millions of won)    Note      2020     2019  

Cash flows from investing activities:

       

Dividends received

      W 8,239     7,502

Increase in deposits in banks

        (78,452     (114,557

Proceeds from withdrawal of deposits in banks

        78,557     114,200

Acquisition of financial assets at fair value through profit or loss

        (3,227     (708

Proceeds from disposal of financial assets at fair value through profit or loss

        99     452

Acquisition of financial assets at fair value through other comprehensive income

        —         (21

Proceeds from disposal of financial assets at fair value through other comprehensive income

        6     107

Proceeds from disposal of investments in equity accounted investees

        2,400     16,738

Acquisition of property, plant and equipment

        (2,603,545     (6,926,985

Proceeds from disposal of property, plant and equipment

        446,193     335,446

Acquisition of intangible assets

        (353,313     (540,996

Proceeds from disposal of intangible assets

        16,996     2,468

Government grants received

        118,341     248,124

Proceeds from disposal of non-current assets held for sale

        —         81,351

Receipt from settlement of derivatives

        24,468     21,752

Increase in short-term loans

        —         (8,725

Proceeds from collection of short-term loans

        13,720     19,881

Increase in long-term loans

        —         (6,465

Increase in deposits

        (2,084     (30,680

Decrease in deposits

        1,286     5,307

Proceeds from disposal of other assets

        11,000     20,416
     

 

 

   

 

 

 

Net cash used in investing activities

        (2,319,316     (6,755,393
     

 

 

   

 

 

 

Cash flows from financing activities:

     28       

Proceeds from short-term borrowings

        2,238,806     1,841,008

Repayments of short-term borrowings

        (2,506,420     (1,154,911

Proceeds from issuance of bonds

        49,949     1,323,251

Proceeds from long-term borrowings

        2,329,013     4,341,087

Repayments of current portion of long-term borrowings and bonds

        (1,278,199     (1,567,818

Repayment of lease liabilities

        (62,200     (64,570

Capital contribution from non-controlling interests

        172,966     276,396

Subsidiaries’ dividends distributed to non-controlling interests

        (12,086     (6,541
     

 

 

   

 

 

 

Net cash provided by financing activities

        931,829     4,987,902
     

 

 

   

 

 

 

Net increase in cash and cash equivalents

        899,461     939,054

Cash and cash equivalents at January 1

        3,336,003     2,365,022

Effect of exchange rate fluctuations on cash held

        (17,365     31,927
     

 

 

   

 

 

 

Cash and cash equivalents at December 31

      W 4,218,099     3,336,003
     

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

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Table of Contents
1.

Reporting Entity

 

  (a)

Description of the Controlling Company

LG Display Co., Ltd. (the “Controlling Company”) was incorporated in February 1985 and the Controlling Company is a public corporation listed in the Korea Exchange since 2004. The main business of the Controlling Company and its subsidiaries (the “Group”) is to manufacture and sell displays and its related products. As of December 31, 2020, the Group is operating Thin Film Transistor Liquid Crystal Display (“TFT-LCD”) and Organic Light Emitting Diode (“OLED”) panel manufacturing plants in Gumi, Paju and China and TFT-LCD and OLED module manufacturing plants in Gumi, Paju, China and Vietnam. The Controlling Company is domiciled in the Republic of Korea with its address at 128 Yeouidae-ro, Yeongdeungpo-gu, Seoul, the Republic of Korea. As of December 31, 2020, LG Electronics Inc., a major shareholder of the Controlling Company, owns 37.9% (135,625,000 shares) of the Controlling Company’s common stock.

The Controlling Company’s common stock is listed on the Korea Exchange under the identifying code 034220. As of December 31, 2020, there are 357,815,700 shares of common stock outstanding. The Controlling Company’s common stock is also listed on the New York Stock Exchange in the form of American Depository Shares (“ADSs”) under the symbol “LPL”. One ADS represents one-half of one share of common stock. As of December 31, 2020, there are 23,525,460 ADSs outstanding.

 

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Table of Contents
1.

Reporting Entity, Continued

 

  (b)

Consolidated Subsidiaries as of December 31, 2020

 

(In millions)                            

Subsidiaries

  Location   Percentage of
ownership
    Fiscal year
end
 

Date of
incorporation

 

Business

  Capital stocks  

LG Display America, Inc.

  San Jose, U.S.A.     100   December 31   September 24, 1999   Sell display products   USD  411  

LG Display Germany GmbH

  Eschborn, Germany     100   December 31   November 5, 1999   Sell display products   EUR 1  

LG Display Japan Co., Ltd.

  Tokyo, Japan     100   December 31   October 12, 1999   Sell display products   JPY 95  

LG Display Taiwan Co., Ltd.

  Taipei, Taiwan     100   December 31   April 12, 1999   Sell display products   NTD 116  

LG Display Nanjing Co., Ltd.

  Nanjing, China     100   December 31   July 15, 2002   Manufacture display products   CNY 3,020  

LG Display Shanghai Co., Ltd.

  Shanghai, China     100   December 31   January 16, 2003   Sell display products   CNY 4  

LG Display Guangzhou Co., Ltd.

  Guangzhou, China     100   December 31   June 30, 2006   Manufacture display products   CNY 1,655  

LG Display Shenzhen Co., Ltd.

  Shenzhen, China     100   December 31   August 28, 2007   Sell display products   CNY 4  

LG Display Singapore Pte. Ltd.

  Singapore     100   December 31   January 12, 2009   Sell display products   USD 1  

L&T Display Technology (Fujian) Limited

  Fujian, China     51   December 31   January 5, 2010   Manufacture and sell LCD module and LCD monitor sets   CNY 116  

LG Display Yantai Co., Ltd.

  Yantai, China     100   December 31   April 19, 2010   Manufacture display products   CNY 1,008  

Nanumnuri Co., Ltd.

  Gumi, South Korea     100   December 31   March 21, 2012   Provide janitorial services   KRW 800  

LG Display (China) Co., Ltd.

  Guangzhou, China     70   December 31   December 10, 2012   Manufacture and sell display products   CNY 8,232  

Unified Innovative Technology, LLC

  Wilmington, U.S.A.     100   December 31   March 12, 2014   Manage intellectual property   USD 9  

LG Display Guangzhou Trading Co., Ltd.

  Guangzhou, China     100   December 31   April 28, 2015   Sell display products   CNY 1  

Global OLED Technology, LLC

  Sterling, U.S.A.     100   December 31   December 18, 2009   Manage OLED intellectual property   USD 138  

LG Display Vietnam Haiphong Co., Ltd.

  Haiphong, Vietnam     100   December 31   May 5, 2016   Manufacture display products   USD 600  

Suzhou Lehui Display Co., Ltd.

  Suzhou, China     100   December 31   July 1, 2016   Manufacture and sell LCD module and LCD monitor sets   CNY 637