LG Chem considers spinning off battery unit

Researchers look at a battery product at an LG Chem battery plant in this file photo. Courtesy of LG Chem

By Nam Hyun-woo

LG Chem's 2019 earnings

LG Chem said Monday it was in discussions to eventually spin off its battery unit in an effort to boost overall corporate competitiveness.

"Yes, LG Chem is actively reviewing plans on how to strengthen the company's competitiveness in each of our business units.

The separation of the company's battery business is one option," LG Chem finance chief Cha Dong-seok told investors in a conference call upon announcing its fourth quarter earnings results.

"The idea of spinning off the battery business initiated as LG Chem is operating chemical and battery businesses, which are quite different in terms of operation. LG Chem will communicate with markets about the plan if we see progress on the matter," the LG Chem executive Cha said.

The remarks came amid the company's growing need for additional funding to grow its battery business, which LG itself identified as the group's next cash cow.

The company's weakening chemical business is cited as a challenging factor burdening the battery business, according to experts.

The finance chief added that the company is yet to come up with detailed plans.

In recent years, it was assumed that LG Chem would separate its battery business in order to hedge risks and fund its costly rechargeable battery investment initiatives.

In December, General Motors and LG Chem agreed to create a $2.3 billion joint venture for electric vehicle (EV) battery cells, and the LG Group affiliate plans to invest up to 1 trillion won ($857 million) in the joint venture to be established in the U.S. Senior Corporate Communication Executive Owen Sung said LG Chem is mulling various options to "effectively boost" its battery business.

The upside for LG Chem is that its battery business is growing. Last year, it earned 8.35 trillion won in sales, up 28 percent from the previous year.

Though the battery division posted a 454.3 billion won operating loss after reflecting a one-off provision for fires in energy storage systems, Cha said the company's EV battery business "nearly broke even" last year.

"We expect our entire battery sales will reach 15 trillion won this year and EV batteries will account for 10 trillion won," Cha said. "As we continue to raise our production capacity, sales will grow continuously, and our mid-term goal is reaching a high single digit operating margin."

LG Chem's investment in batteries so far amounts to more than 10 trillion won.

For this year, the company expected its total capital expenditure will reach some 6 trillion won and half of it will go to the battery business.

Still, its chemical business accounted for more than half of the company's total revenue last year.

Last year, LG Chem generated 28.63 trillion won in sales and 895.6 billion won in operating profit. It was the highest sales in the company's history, but the operating profit declined by 60.1 percent from a year earlier.

Of these sales from its chemical business declined by 8.5 percent to 15.55 trillion won from 16.99 trillion won during the same period.

The operating profit in the petrochemical business also contracted by 30 percent to 1.42 trillion won from 2.03 trillion won. As a strategic decision to save costs amid its deteriorating chemical business, LG said it will stop producing unprofitable LCD glass substrates business.

"We expected growth in LCD glass substrates and made investments amid the expansion of the display industry, but experienced headwinds in the market situation as Chinese firms increased their facilities rapidly," the company said.

"As we see no great chance of a rebound, we decided to withdraw from the business."

The company added that it will turn the focus of its petrochemical business toward materials for e-mobility devices.

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