’Smart grids’ to power LS’s growth

CEO expects revenue to W5.1 trillion in 2015

By Kim Yoo-chul

ANYANG, Gyeonggi Province - LS Industrial Systems (LSIS) is aiming for rapid but solid growth for revenue of 5.1 trillion won ($4.5 billion) by 2015 by putting more focus on selling energy management-solutions, its CEO said Tuesday.

LSIS is Korea’s leading producer and seller of electric power and energy solutions, or “smart grids” to a wide range of customers from commercial buildings to ordinary households. It also provides battery rechargers and automation equipment.

LSIS’s CEO and Vice Chairman Koo Ja-kyun said its operating profit target is 750 billion won, enough to achieve a 15 percent operating profit margin as the company has been expanding its business portfolio to untouched territories with higher growth potential.

``LSIS is set to create 750 billion won in operating profit out of 5.1 trillion won in revenue by 2015. Our businesses are less volatile and LSIS has begun yielding meaningful returns from previous investments overseas,’’ Koo said in an interview with The Korea Times at his Anyang office.

LSIS is estimated to earn some 1.8 trillion won this year and is aiming to boost its next year’s revenue to around 2.6 trillion won.

The chief executive stressed LSIS has been successfully penetrating the global energy management system (EMS) market, once dominated by Germany’s Siemens and the French engineering group Alstom.

``LSIS’s in-house EMS solutions are receiving more attention, especially from governments in the Middle East, Southeast Asia as well as some states in America,’’ Koo said.

LSIS is ``very near’’ to signing a 100 billion won new deal with a country, though the CEO declined to identify which one, citing technical matters that remain before an official announcement.

Last month, Iraq had signed an $85 million contract with LSIS to install 35 power distribution stations.

``LSIS is also shifting its sights on the United States. We can’t lose this market. We are aiming high, however, LSIS will start with small chunks. With aggressive pricing strategies, we are hoping to bolster our presence in the United States, though we believe it will take time to see significant returns there due to stiffer competition and market barriers,’’ said Koo.

In line with this cautionary approach, LSIS doesn’t have any imminent plans to create a joint venture in the United States. Rather, it plans to build warehouses and strengthen after-sales policies by partnering leading distributors from next year.

``The demand for energy-saving solutions from factories to general households is steadily increasing. If we breaks the wall, then growth momentum will be maintained,’’ according to Koo, who’s led LSIS since December 2009.

``We had planned to advance to the United States sometime from 2014 or 2015, however, our top management agreed to go into the market ahead of schedule as we need to enjoy a `first-mover advantage’ in the rising market.’’

Southern California Edison (SCE) has been using LSIS’ battery chargers for an energy storage pilot project for homes and small businesses

The project, to run through the end of 2012, will give Edison data about how stored solar electricity can complement its responsibility and interest in managing the supply and demand for renewable energy, through the use of smart meters and other communications equipment to manage its transmission and distribution networks.

In China, LSIS opened an outlet to advertise its core energy-saving solutions, while the company has been building ``green factory’’ systems in its domestic factories in Cheongju and Cheonan.

No share sale plan

Koo denied speculation that LSIS plans to sell new shares amid the continued sluggish performances of its overseas businesses.

``LSIS doesn’t have any big liquidity-related problems. Our current debt ratio is 125 percent, which is quite stable,’’ he said.

LSIS runs five domestic subsidiaries and eight overseas ones as of the end of last year.

The company has been losing some money, hit by rising materials costs such as higher silver prices, increased capital expenditure for new businesses and fluctuating currencies.

``We’ve invested in new businesses with money saved from core interests but the moves were too hesitant. One impressive sign is that LSIS has hired more qualified employees. I believe they will play a key role to help LSIS earn more after global economic situations normalize.’’

Considering the global economic turmoil, achieving significant growth will not be easy, according to Koo.

However, he said LSIS is well-positioned to secure its bottom line because higher appetites for investment in social infrastructure by emerging economies will cushion any adverse market and economic impact.

``We are ruling out the possibility that the global uncertainties will continue throughout next year. Even with struggling economies, governments continuously spend on social infrastructure. That’s why our businesses forecasts aren’t negative.’’

The growing global market for electric vehicles is also adding additional growth momentum, according to the CEO, as LSIS also sells key components such as relays used in electric vehicles (EVs) to global carmakers such as GM of the United States.

``LSIS has patents for battery chargers. We are supplying them for 12 related companies’ electric vehicles, though I can’t unveil their names. We became a first-tier parts supplier to GM. GM is a critical partner,’’ said Koo.

According to the CEO, the American automobile multinational Chrysler Group and Germany’s Mercedes-Benz’s entire car line-ups will be EVs from 2015, giving more business chances to the Korean company.

``We will be more aggressive for the sale of our products for EVs. The United States is leading the way in EVs. But I believe China is the next big market,’’ he said, adding Seoul should do more to boost the demand for EVs in response to the new industry wave.

LSIS plans to spend 8 percent of next year’s estimated total revenue for research and development (R&D) activities and the CEO said the amount would be around 120 billion won, which is no significant change from last year.

``In R&D, we need to maintain greater consistency. LSIS won’t cut R&D spending, even if global economies slump.’’

The global market for EVs is expected to reach 2.6 million vehicles by the 2015, according to market research firms.

Key factors leading growth include growing environmental concerns as a result of deteriorating air quality, and emphasis towards increased alternative fuel consumption to minimize heavy dependence on oil.

Policy initiatives, including legislation, benefits and rebates from various governments, in a bid to curb further damage to the environment, are additionally favoring the penetration of EVs, according to analysts and research firms.