LG Electronics to invest KRW 1.2 trillion in home appliances… “Operating profits expected to grow in two digits”
Kim Eun | silverkim@ | 2018-05-28 10:58:44

[Digital Times, Kim Eun] LG Electronics is expected to invest more than KRW 1.2 trillion in consumer electronics this year, compared to last year. The company plans to establish a factory in the state of Tennessee to increase sales in the US, the largest home appliance market, and invest in converting the Changwon 1 plant, a domestic white goods manufacturing facility, to a smart factory. It is said to increase the productivity of household appliances factory to lower costs and increase profitability.

It is also expected to aggressively pursue R & D and strategic business mergers and acquisitions such as artificial intelligence appliances.

The H & A division, which oversees LG Electronics` white goods business excluding TVs such as refrigerators, washing machines, and air conditioners, recorded the highest OP margin among global consumer electronics companies, which was 7.8% last year. It was 11.2% in the first quarter. The H & A division plan to achieve an OP margin of over 10% this year. According to industry sources, LG Electronics` H & A division will invest KRW 1.2 trillion in facility investment, including expansion of production facilities, research and development, and merger and acquisition (M & A). LGE`s H & A division is investing approximately KRW 380 billion in 2015, KRW 590 billion in 2016, and KRW 660 billion in 2017, increasing its annual investment.

The H & A division posted an operating margin of 5.9% in 2015, 7.3% in 2016 and 7.8% in 2017. In the first quarter of this year, the company posted double-digit OP margin of 11.2%. This is three to four times higher than the world`s leading home appliances companies such as Samsung Electronics (including TV), 2.9% whirlpool, and 2.7% Electrolux. It is a virtuous cycle effect that invests in future household appliances technology and facilities with operating profit of more than KRW 1 trillion every year, which leads to profitability again.

Meanwhile, LG Electronics will invest a total of USD 250 million to construct a home appliance plant in Tennessee, which is scheduled to be completed by 2019. The company is speeding up US plant construction as the export quota is reduced in line with US safeguard measures. The Tennessee plant will produce more than one million washing machines annually.

The company will invest KRW 600 billion by 2022 to transform its 1 Changwon factory located in Seongsan-gu, Changwon, Gyeongsangnam-do into a smart factory. We believe that there is a limit to improving productivity by improving existing production facilities and line expansion, and have begun construction of a new plant almost every year since last year. The plant will be built in Changwon 1 next year, and the production and storage warehouses will be built. The annual household appliance production capacity of Changwon Plant 1 will increase from 2mn units per year to 3mn units after switching to a smart factory.

On the other hand, the company also invests in facility investment and recruitment of human resources to develop artificial intelligence (AI) technology, including robotics, which is being developed as a new growth engine for the home appliance sector. Earlier, the company acquired a 10.12 % stake in Robotizes, a domestic robot maker earlier this year. It also invested in domestic AI start-up acrylics.

By Kim Eun silverkim@

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