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LG Chem’s profit dives following battery fires

Feb 04,2020
LG Chem’s 2019 operating profits plummeted 60 percent on year due to costs incurred by the energy storage system fires, the company announced Monday.

The domestic leader in batteries and chemicals saw its operating profit fall to 895.6 billion won ($751 million), down 60.1 percent on year. It was the first time in the company’s 12-year history that annual operating profit fell below the 1 trillion won threshold. But the company broke an all-time revenue record once again, generating 28.6 trillion won, up 1.6 percent from 2018.

“Continuing growth of the electric vehicle battery drove annual revenue to new records despite the ongoing trade war and a slowing world economy,” said CFO and Vice President of LG Chem Cha Dong-seok. “The entire profit, however, retreated due to the one-time cost regarding the ESS [energy storage system] fires.”

The storage systems are composed of a large number of batteries connected together, allowing them to store power from solar panels or wind turbines. Between 2017 and 2019, a total of 28 of the systems caught fire in Korea, bringing the local market to a halt. LG Chem was the largest provider.

The company announced it will create a 300 billion won fund to implement preventive measures for similar fires. That future expense was applied to LG Chem’s fourth-quarter costs. For quarterly performance between October and December, LG reported an operating loss of 27.5 billion won and 7.5 trillion won in revenue, up 1.6 percent on-year.

The government is conducting a second round of investigations regarding the fires, for which results are expected this month. The investigation committee’s report last year attributed the fire to mismanagement of the storage systems.

LG Chem once again stressed that it believes the batteries had not caused the fires, adding that the investment was intended “to regain trust and take on responsibility as a corporate member of society.”

However, company officials also hinted during the conference call that the local ESS market may have limits for growth in the near future.

“We plan to push for business expansion on foreign markets. Domestically, our focus will be on enforcing safety measures rather than push for size growth,” said Jang Seung-se, head of battery strategy, during the conference call.

Jang explained the electronic vehicle batteries business segment nearly reached a break-even point during the fourth quarter, which he considers a sign the company may be closer to getting the battery business into the black after years of investments.

“The company still has investments to make as it has a new factory ramping up to start mass production this year, but we’re expecting to see higher profitability from the year’s second half,” he said.

CFO Cha declined to put to rest rumors of a possible spin-off of the battery business division.

“Petrochemical and batteries are very different businesses. Being under one roof has its ups but also downs in terms of deciding investment priority. We’re in the process of reviewing a variety of plans to increase our capacity in both business fields,” he added.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]


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