Merger for Market Dominance

The new company to expand market share, financial structure: LG Chemical has super Q2

LG Chemical said its Q2 sales posted 2,644.9 billion won, up 16.4 percent from the same period last year with operating profit up a whopping 238 percent over the same period last year at 162.6 billion won and normal profit reaching 217.6 billion won, up 368 percent and net profit recording 236.7 billion won, up 424.8 percent.
The record performance is owed to improved operation of PVC business sector and strong sales of Oxo-alcohol, boosting the profit in the petrochemical sector and to vastly improved battery business, including the large increase in the sale and profit of the information electronic material sector in particular.
The company, during its investor relations session held at Korea Exchange conference room on Aug. 18, said the Q2 sales is up 11.1 percent from the preceding quarter, operating profit 28 percent and normal profit up 39.7 percent followed by net profit up 109.5 percent from the previous quarter.
Merger of LG Chemical and LG Petrochemical:
In the meantime, President Kim Ban-sok on the company's merger with LG Petrochemical, said he expects the merger will upgrade market dominance, and competitive edge to strengthen the corporate value with the merged company having improved financial structure and management effectiveness, all positive effects.
Boards of Directors of both companies resolved the issue on Aug. 5, with the merger ratio being 1:0.4805033 with LG Chemical 1 effective Nov. 1. The merged company will have a total ethylene production capacity of 1.66 million tons per year become the second largest NCC production company in the country and the No. 5 in Asia, securing a larger market share.
The company will also have the benefit of strengthening its purchasing power of raw material including naptha, improvement in cash cost, and combining production, marketing and R&D activities, enhancing the company's edge in those areas.
The company will have the advantages in integrating its investment capacity and become strong in launching large new businesses or in M&As to find future growth engines. LG Chemical feels that the merger will bring positive financial advantage in that its debt ratio will be cut to around 80 percent, upgrading its financial structure in general to a level good enough to command lower borrowing costs due to its large financial transactions, especially in securing long-term loans.
Shareholders meeting is scheduled for Sept. 14 and shareholders opposed to the merger can sell their shares from Sept. 14 to Oct. 4 with the merger date officially set for Nov. 1.
LG Chemical has done particularly well in its petrochemical sector with the sector's Q2 sales amounting to 1,647.3 billion won and operating profit set at 99.5 billion won thanks to rises in prices, improvement in PVC business results due to T/A efforts similar to restructuring; Oxo-alcohol shortages and improved operation of synthetic rubber and special resins owing to stable raw material prices and exploration of high-valued overseas markets, raising sales by 15.2 percent. The operating profit has turned around greatly from the loss of 5.5 billion won in the previous quarter.
Compared to the previous quarter, sales increased 9.9 percent in Q2 and operating profit up 11.8 percent.
In the area of industrial material, the company's sales recorded 563.3 billion won and operating profit 35.9 billion won. Due to seasonal demand, the sale of housing solution sector rose sharply along with profit, but those of the living solutions fell due to increases in raw material costs and deteriorated exchange rates, while total sales increased 3.7 percent, owing to the new business such as building integrated photovoltaic or solar power system, but operating profit fell 14.3 percent.
Compared to the Q1, sales jumped 12.7 percent and operating profit up 19.3 percent.
In the area of information and electronic raw material, sales were up 37.7 percent from Q1 at 510 billion won and operating profit up 101.5 percent from Q1, owing to hikes in the sale of batteries used in note book computers and batteries used in mobile phones. The reductions in sales of optic material and electronic material were slowed down thanks to the improvement in the sale of LCD and an increase in Polaroid productivity, which improved the overall sale and profit of the company.
The H2 outlook for the petrochemical sector looks good as demand for AbS and PVC continue to rise and stable prices of raw material coupled with continued shortage in the supply of Oxo-Alcohol and the completion of depreciation allowance for the installations at Daesan plant. The industrial sector outlook also looks good as the profit-level of H1 would be maintained in H2 too., due to reductions in the prices of raw material and enhanced competitive edge. nw

President Kim Ban-sok of LG Chemical Co.