LG Chem Q3 OP drops due to GM Bolt recall expense

LG Chem’s operating profit for the third quarter dropped 20 percent from a year ago largely due to a one-off massive expense to cover the recall of GM Bolt electric vehicles but it expected a recovery in earnings thanks to the strong demand for its petrochemical products and batteries in the fourth quarter.

Its operating profit came to 726.6 billion won ($620.5 million) on a consolidated basis for the July-September period, down by 19.6 percent from the same period of the previous year and 66.1 percent from a quarter ago, LG Chem announced in a regulatory filing on Monday. This was the lowest operating income since the fourth quarter of last year.

Sales jumped 41.4 percent on year to 10.61 trillion won but down 7.3 percent on quarter, while net income gained 19.2 percent to 679.9 billion won from the same period of last year but down 56.5 percent from the previous quarter.

Shares of LG Chem rose 1.1 percent to close at 830,000 won on Tuesday.

The plunge in operating profit was largely owed to a one-time 620 billion won reserve for its battery defect that has caused massive recalls of GM Bolt EV in the United States.

Excluding the one-off factor, the operating profit would have been 1.3 trillion won with an operating margin of 13 percent, said LG Chem’s Chief Financial Officer Cha Dong-seok during a conference call, adding the company is expected to see an improvement in earnings in the fourth quarter thanks to the solid growth in demand for petrochemical products as well as battery products.

The company’s operating profit in the last quarter of this year is expected to reach 1.21 trillion won, up a whopping 925 percent from a year ago with sales of 11.73 trillion won, up by 31 percent, according to Seoul-based market tracker FnGuide.

In the third quarter, LG Chem’s petrochemical division recorded 1.08 trillion won in operating profit over sales of 5.63 trillion won, the highest quarterly revenue in the division’s history, thanks to the revived demand driven by the global economic recovery.

LG Energy Solution, LG Chem’s wholly-owned battery subsidiary, posted an operating loss of 372.8 billion won with 4.02 trillion won in revenue after reflecting the one-off charge in the recalls of its batteries used in GM’s Bolt EVs.

The advanced materials division logged an operating profit of 49.1 billion won and 1.16 trillion won in sales. For the bioscience sector, LG Chem posted 9.3 billion won in operating profit and 177.4 billion won in revenue.

LG Chem will spend more on green projects, EV battery materials and new drug developments to groom them as its new growth engines.

It is in talks with Chicago-based Archer Daniels Midland to jointly build a poly lactic acid (PLA) factory to produce biodegradable plastics, Cha said. The planned business for battery separators is on track for inauguration after organizational integration in the fourth quarter, Cha added.

The company also said it will expand its battery portfolio to include lithium iron phosphate batteries (LFP) for EVs in response to recent market dynamics from Tesla and other EV makers hoping to churn our more affordable EV models. LFP batteries are 20 to 30 percent cheaper than nickel-cobalt-manganese (NCM) batteries, but their energy density is low.

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