LG Chem’s net profit drops 54.1 percent on year

LG Chem CEO Shin Hak-cheol speaks during a shareholder's meeting in March. [LG CHEM]

LG Chem’s net profit dropped 54.1 percent on year to 718.3 billion won ($547 million) in the second quarter as business was interrupted by the global logistics crisis and lockdowns in China.

That still beats the market consensus of 626.4 billion won compiled by FnGuide.

Quarterly revenue hit an all-time high of 12.2 trillion won, up 7 percent on year. Operating profit plunged 59 percent to 878.5 billion won during the same period.

Both figures slightly fell short of market expectations, which were 12.7 trillion won for revenue and 908.6 billion won for operating profit.

LG Chem blamed high oil prices and global inflation for the earnings report, but had the advanced materials business for electric vehicle (EV) batteries to thank for the expectation beating result.

Cha Dong-seok, LG Chem’s chief financial officer, explained that the company had lots of “difficulties in management due to the surging oil prices, global inflation and lockdowns in China amid the pandemic.”

In the petrochemicals business, the company’s traditional cash cow, operating profit plummet 61 percent on year to 513 billion won in the second quarter. Revenue rose 13.7 percent to 6 trillion won.

Increased prices of raw materials reduced profit, the company said.

The advanced material business reported 335.4 billion won in operating profit, up 107 percent on year. Revenue jumped 56.1 percent to 2.02 trillion won, in part thanks to robust sales of EV battery materials including cathodes.

"Sales will further grow in the second half, as the demand for cathodes is on the rise constantly," said Cha.

LG Energy Solution, an EV battery maker 81.8 percent owned by LG Chem, generated 90 billion won in net profit, down 86 percent on year. Revenue came in at 5.1 trillion won, down 1.2 percent.

Sales of cylindrical batteries to Tesla sharply dropped in the second quarter as the automaker's Shanghai plant was hit hard due to lockdowns.

But the base effect was also a factor, as the company booked a gain of about 550 billion won in the first quarter of 2021 related to compensation it received from SK Innovation after a high-profile battery trade secret dispute in the United States.

The EV maker expects that the figures will rebound in the third quarter as the first Ultium Cells plant in Ohio is expected to start production.

LG Energy Solution’s share in the global EV battery market dropped to 14.4 percent in the January-to-May period from 23.6 percent the same period a year ago, according to data from SNE Research.

BY SARAH CHEA [chea.sarah@joongang.co.kr]