CLASSY. CHIC. WOW. HIP. WHATEVER WAY YOU WANT TO PUT IT, LIFE’S GOOD WITH LG. THE PERFECT HARMONY OF AND IT IS GETTING EVEN BETTER WITH... CREATING GREATER VALUE FOR EVERY STAKEHOLDER IS OUR ONE AND ONLY FOCUS.

CEO MESSAGE

12 + 13 DEAR SHAREHOLDERS, CONSUMERS, BUSINESS PARTNERS, AND EMPLOYEES, PRODUCT PIPELINE HEALTH To have a healthy ORGANIZATIONAL HEALTH Our business pipeline, our current products must be aligned performance ultimately depends on the quality against clear target segments and our positioning of our people. We must have a more talented and I am pleased to report that the year 2007 was a solid year for LG Electronics as the must reflect true differentiation. We must also motivated organization than our competitors have clear technology and product road maps if we are to surpass them. passion and performance of our employees yielded concrete gains in profitability. Our through multi-generational product planning home appliance and mobile phone businesses were exceptionally successful in providing in all our businesses. FINANCIAL HEALTH When we are healthy in the previous six areas, we will naturally be in good our consumers with superior value by delivering stylishly designed smart appliances and CHANNEL COLLABORATION HEALTH Volume- and financial shape. That said, we must set mobile phones. Our display business also achieved an impressive turnaround during the transaction-based channel relationships are signs appropriate goals and quantify them as key of an unhealthy relationship. In addition to overall performance indicators so we can measure and second half of the year as improved market price positioning and steady cost reductions channel coverage and in-store share, we need to track our progress to ensure that we have the have robust multi-year partnership arrangements correct management systems in place and that helped put it solidly back on the path to profitability. with our partners, including collaborations in product they are working correctly. planning, promotions management, and all-around information sharing. It was exactly 50 years ago this year that Looking at the numbers, we generated incremental revenue growth as non-consolidated LG Electronics was established in Korea and sales rose just over 1.4% to KRW 23.5 trillion. Efficiency gains helped lower selling and CONSUMER RELATIONSHIP HEALTH Every began work on the nation’s first radio set. A lot has interaction with our consumers is a “Moment of changed since then, and we have weathered many administrative costs and overcome a higher cost of sales, boosting operating income by Truth”—an opportunity to make a positive challenges along the way to become a truly global 5.5% to KRW 564.6 billion. On the non-operating side, a strong performance by our impression. We need to make sure that we are company doing business in over 120 nations. constantly listening to and acting on what our Today, as we begin to take a closer interest in the equity-method investees helped net income rise more than fourfold to KRW 1.2 trillion. consumers tell us to ensure that each moment of health of our businesses, we will be laying the The response from the investor community was overwhelming, sending our share prices truth meets and exceeds their expectations. foundation for an even more successful future as we enter our sixth decade in business. I look forward soaring over 80% for the year from KRW 55,000 to KRW 100,000, far outpacing the BUSINESS PORTFOLIO HEALTH We are in some to working with our talented management team to of the most rapidly changing industries in the position the company to achieve its full potential in performance of our global top-tier competitors. world where growth, profitability, and competitive 2008 and beyond as we continue to create greater dynamics can change in just a matter of months. value for all our stakeholders. We hope you will be We must succeed in markets that are big and among them. While our 2007 results are clear proof that our renewed focus on profitability is already growing and countries where we have more profit paying dividends, we still have much to do if we are to achieve our goal of entering the opportunities. We must also have a clear picture of what our portfolio should look like in the future and ranks of the world’s top-three consumer electronics companies by 2010. In last year’s shape it through timely action, including exiting report, I outlined six strategic initiatives that the executive team and I believe will enable businesses as necessary. us to meet our ambitious goal. To recap, the initiatives are: 1) manage for ROIC as well BRAND HEALTH There is no question that our global presence has made us one of the world’s most as growth, 2) structure our business portfolio for leadership, 3) base strategies on clear YONG NAM recognized brands. The question is, are we projecting VICE CHAIRMAN & CEO segment, target, and positioning insights, 4) invest in a clear, global identity, 5) innovate a clear identity that resonates with consumers? We must create a brand consumers are passionate in design as well as technology, and 6) develop a truly global organization. about and willing to pay a premium for.

As we continue to press ahead with these strategic initiatives in 2008, our focus will be squarely on the overall health of our businesses, not on short-term performance. Specifically, we will be paying close attention to the health of our product pipeline, channel collaboration, consumer relationships, business portfolio, brand, organization, and finances. Let me briefly go over these seven measures of health.

14 + 15 Consumer electronics is one of the world’s most 1. MANAGE FOR ROIC AND GROWTH Growth is RISING challenging businesses. Over our 50 years in the good. Growth with profitability is superior. While ABOVE industry, we have faced and overcome countless some might be satisfied with being a global leader challenges to emerge as one of the world’s leading in revenue, we aim to be a leader in shareholder ALL names in electronics. Today, the following six returns, profitability, growth, revenue, and market initiatives are guiding us as we refocus on the share—in that order. Today, our key performance CHALLENGES greatest challenge of all—creating value for our indicators emphasize cash flow and return on shareholders, consumers, partners, and people— invested capital, keeping us focused on creating as we take the next step toward becoming a global shareholder value as we aim for an ROIC of 20% top-three consumer electronics company. by the end of the decade.

YOUNG HA LEE SIMON KANG BB HWANG SKOTT AHN President & CEO President & CEO President & CEO President & CEO Digital Appliance Company Digital Display Company Digital Media Company Mobile Communications Company

16 + 17 2. STRUCTURE OUR PORTFOLIO FOR LEADERSHIP as the middle market is squeezed by competition a clear identity that we believe will resonate with consumers even more passionate about our brand. We operate in over 120 countries today, competing in from above and below. Our clear segment, target, consumers around the globe: LG is a refreshing roughly 30 product categories. We are already a clear and positioning (STP) insights are now guiding us as brand with products that make you feel sophisticated. 6. DEVELOP A TRULY GLOBAL ORGANIZATION To leader in a number of these fields. In the ones that we create consumer value with aspirational and be one of the world’s top companies, we have to have we are not, we are now making strategic, objective premium products to win at both ends of the market. 5. INNOVATE IN DESIGN AS WELL AS TECHNOLOGY world-class people and a world-class organization. decisions on whether to move ahead or exit as we Consumers are becoming increasingly sophisticated in Today, we are seeking out the best minds from around shape our portfolio to achieve our global top-three 4. INVEST IN A CLEAR, GLOBAL IDENTITY The LG their tastes and preferences. They expect products that the globe and equipping our people with the skills goal in all our businesses. brand is one of the best-known names in consumer have the latest technology and design. Our passion for they—and we—need to grow. We continue to cultivate electronics. But consumers are still a little hazy creating products that deliver a perfect harmony of styl- a mindset of excellence and creativity as we re-evaluate 3. BASE OUR STRATEGIES ON CLEAR STP INSIGHTS about who we are and what we stand for. Our ish design and smart technology that fits life is a power- the way we do things and eliminate the waste and Consumer markets are becoming increasingly polarized brand-building focus is now on communicating ful value proposition. One that we believe will make our inefficiencies that hold us back from our true potential.

WOO HYUN PAIK TOM LINTON DOHYUN JUNG DERMOT BODEN President Executive VP Executive VP Executive VP Chief Technology Officer Chief Procurement Officer Chief Financial Officer Chief Marketing Officer

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At LG Electronics, we believe that style and substance are not an either-or proposition. We believe in a proverbial “third way”—in delivering a perfect harmony of stylish design and smart technology that fits your life. It is a simple-but-powerful premise that is empowering us to create new and refreshing products that bring a relaxed sophistica- tion to life for consumers like you around the globe.

BRAND IDENTITY

20 + 21 R&D AND DESIGN

Delivering style with substance sounds like a simple task. But it is an incredibly difficult challenge. At LG Electronics, our holistic product devel- opment process synergistically brings together some of the world’s best designers, engineers, marketers, and product planners with the mis- sion of creating products that are far more than just the sum of their parts. Our Corporate Institute of Technology, Production Engineering Research Center, and 38 research labs around the globe provide the smart technology that makes our products intuitive, essential, easy-to- use, and up-to-date. Our Corporate Design Center and five regional design studios in Milan, Beijing, New Jersey, Tokyo, and New Delhi provide the stylish design that makes them refined, trend-setting, contemporary, and stand out. Together, this formidable team made 2007 our most prolific year to date at major international design com- petitions. making the year our most prolific to date. The 11 iF Design Awards, 29 Red Dot Design Awards, and single IDEA Award that we won during the year are a remarkable testimony to the powerful synergy that is propelling us closer to our vision of being a top-three global player in the consumer electronics and telecommunications fields with each passing day.

22 + 23 In the fast-paced mobile phone industry, LG Electronics continues to impress critics and consumers with premium phones that set the standard for cutting-edge technology and sophisticated design. We have embraced touch technology to make advanced features more accessible and intuitive, while keeping our phones sleek and slim. We have used full-metal bodies to create phones that are beautifully solid. We have taken the camera-phone convergence to the next level with 5-megapixel resolution, full manual controls, and robust inte- gration with online photo and video sharing services. And we have adopted the latest 3G technologies like HSDPA to give consumers access to the latest high-speed networks. These amazing technologies, combined with premium design elements, have created phones that are truly innovative. Just imagine what we will think of next.

Mobile Communications Innov ations

24 + 25 Digital Displa y Innov ations

In recent years, LG Electronics has wowed the world with the indus- try’s first 100-inch LCD and 102-inch Plasma TVs with built-in digital video recorder. Today, we continue to redefine the viewing experience in every dimension. We have adopted full HD resolution across our entire product lineup. We have doubled screen refresh rates for blur- and flicker-free viewing. We have added sensors to continuously op- timize picture quality for ambient light conditions. We have increased contrast up to 50,000:1 for truer colors and deeper blacks. We have added more digital inputs and full HD wireless streaming for easier connections to other devices. And we have worked with audio leg- end Mr. Mark Levinson to create superior sound without any visible speakers. Just imagine what we will think of next.

26 + 27 LG Electronics believes that great products start with simple but novel ideas that solve real-world problems. We have created air condition- ers that cool, heat, and showcase art. We have integrated manual icemaking into freezer doors to provide more convenient access and save energy. We have used steam cleaning technology in our washing machines to save water, energy, and clothing wear-and-tear. We have compressed dust in our bagless vacuums to reduce dustbin emptying and messiness. We have focused the power of light to prepare food four times faster than conventional ovens while preserving all the flavor and nutrients. And we have developed energy solutions that provide elec- tricity, heating, and cooling using clean and renewable energy sources like geothermal energy. Just imagine what we will think of next.

Digital Appliance Innov ations

28 + 29 Digital Media Innov ations

Digital technology is enabling us to deliver exciting, compelling enter- tainment experiences both at home and on the go. We have turned living rooms into theaters with premium high-definition disc players and stylish home theater audio systems. We have worked with audio legend Mr. Mark Levinson to deliver sound that impresses even hardcore audiophiles. We have created advanced digital signal processing chips that help security cameras deliver clearer, sharper, and brighter images. We have added mobile TV reception to our MP3 players and portable navigation devices for on-the-go entertainment. And we have offered next-generation wireless technologies like HSPDA in our notebooks for ubiquitous connectivity. Just imagine what we will think of next.

30 + 31 It has been 14 years since we made history by being Korea’s first Eliminating Hazardous Substances Enhancing Efficiency As part of our environmental commitment, we are committed to There is a hidden price to pay for all the modern conveniences we major consumer electronics company to make a public meeting and exceeding the world’s toughest environmental standards. enjoy today. Everything that plugs into an electrical circuit consumes The EU’s RoHS Directive has been our focus for the past few years. electricity, even when it is in standby mode or turned off. In August commitment to environmental sustainability in 1994. In the years Known best for its banning of the use of lead, RoHS also restricts 2005, we launched an initiative to limit the standby consumption of the use of three other heavy metals—mercury, cadmium, and our products to one watt or less. As of 2007, we have achieved this that have passed, our commitment has grown and taken on new hexavalent chromium—as well as polybrominated biphenyls and goal for the vast majority of our product lines as well as substantially polybrominated diphenyl ether, both commonly used as flame retar- exceeding it for certain categories such as washing machines (0.3 dimensions. We have continued to make our products more dants in plastics. Our progressive internal guidelines are significantly watts) and LCD TVs (0.5 watts). This is just a part of our ongoing ef- stricter than RoHS, and we continue to work closely with our sup- forts to reduce the power consumption of our products to save our environmentally friendly by systematically and proactively pliers to ensure that raw materials, packaging materials, batteries, consumers money and help conserve our energy resources. and other sourced components meet our high standards. We are eliminating the use of hazardous substances in manufacturing, currently taking the next step toward environmental sustainability by Expanding Recycling phasing out our use of volatile organic compounds, PVC, brominated We believe that one of the greatest environmental contributions we can boosting energy efficiency, and making them easier to recycle. flame retardants, and other substances identified as hazardous by make is to ensure future generations do not find our products piled up in environmental NGOs. a junkyard or buried in a landfill. We currently use a number of holistic Our products are now among the industry’s greenest, and we design approaches to make our products easy and efficient to recycle at the end of their service lives. For example, our home-grown ATROiD continue to innovate with new materials, processes, and software enables us to evaluate the recyclability of products from the initial stages of design, providing our designers and developers with technologies that will help ensure a sustainable future for us, invaluable insights on how to ensure the best use of our planet’s finite resources. We are also involved in major industry e-waste recycling our industry, and the world. initiatives such as the European Recycling Platform and the Electronics Manufacturers Coalition for Responsible Recycling in the US.

MOBILE PHONES Considering that a billion or so phones are sold and discarded AIR CONDITIONERS worldwide each year, eco-design Heating and cooling equipment can have a big impact. Our mobile requires lots of electricity to keep phones now ship with power us comfortable. Our air conditioner adapters that consume just 0.11 outdoor units feature inverter watts when not charging. All compressor technology that reduces components are RoHS compliant, both power consumption and plastics are free of Deca-DBE noise. We use R-410A refrigerant flame retardant, and the main because it does not contribute to circuit board is halogen-free. ozone depletion. Our indoor units Nickel, a metal known to cause skin also have washable filters, irritation in some individuals, is not LCD TVs eliminating another source used in any surface that comes in As flat-panel TVs get larger, of waste. frequent contact with the face. their power consumption rises dramatically. We have reduced the standby power consumption of our LCD TVs to under 1 watt. We have also developed a new technology called “Eye’Q Green” that dynamically adjusts picture quality to match ambient light conditions with the added benefit of improving WORKING DVD REWRITERS energy efficiency by up to 60%. As Almost every computer peripheral with our other products, we have REFRIGERATORS comes with an external power eliminated the use of Deca-BDE Like air conditioners, refrigerators FOR adapter. We designed our latest in plastics. are big consumers of power. Our DVD rewriter to get its power from refrigerators are among the world’s the USB data cable and consume most energy efficient thanks to A just 0.2 watts of power when idle. inverter linear compressors, The elimination of the power highly efficient heat insulators, and adapter also means less optimized airflows. We have also GREENER packaging and cheaper shipping. eliminated the use of Deca-BDE in The unit uses non-halogen flame plastics and adopted eco-friendly retardant and is marked for R-600A refrigerant and FUTURE easy recycling. cyclopentane foam insulation.

34 + 35 Sports has often been called a “universal language” because of Football Golf It is natural that our biggest sports commitment is to football, the In 2006, we became the title sponsor of the LG Skins Game, an annual its ability to bring people together regardless of race, background, world’s most popular sport. We sponsored the Copa América—the event that brings together four of the world’s top male golfers at the world’s oldest international competition—in 2004 and 2007. We have end of the PGA season to vie for USD 1 million in prize money. Stephen or social status. The ideals of teamwork, fair play, and excellence hosted the annual LG Amsterdam Tournament—Europe’s famous Ames topped the skins game for a second straight year in 2007 with pre-season warm-up competition—since 2006. And we continue to USD 675,000 in winnings. www.lgskinsgame.com are things we all can appreciate, regardless of where we come sponsor or host numerous continental and regional competitions each year. In addition to our tournament sponsorships, we sponsor Cricket from or which side we root for. We are proud to be associated with a number of major professional clubs including Sao Paulo FC of Over the years, we have been a major sponsor of the sport loved and Brazil, Olympic Lyon of France, Fulham FC of Britain, and Morelia played across the British Commonwealth, including the International a large and growing number of teams and events in some of the Monarcas Club of Mexico. We are also a proud supporter of the na- Cricket Council (ICC) Cricket World Cups in 1999 and 2003. We also tional teams of Germany, Greece, Hungary, and Iraq. sponsored the respected ICC Player Rankings from 2002 to 2007. world’s favorite leisure pastimes. And regardless of who takes www.cricketratings.com Snowboarding home bragging honors at the end of the day, it is our hope that each We are the title sponsor for the 2008-2009 season of the FIS Snow- Action Sports board World Cup. First held in 1994-1995, the series has evolved We are the title sponsor of the LG Action Sports World Championships, spectator or viewer is left with the unmistakable impression that into one of the world’s biggest winter sports competitions, covering the only major competition tour in action sports. This multi-city US every aspect of this spectacular sport. The LG FIS World Cup will tour pits the world’s top skateboarding, bicycle motocross, inline LG is an exciting, world-class brand that shares their passion for life. take place at 22 resorts in 16 countries between September 2008 skating, and freestyle motocross pros against each other as they vie and March 2009. www.fis-ski.com for the right to compete at the year-end World Championships. www.lgactionsports.com Ice Hockey We have been a partner of the Swedish national team and the title sponsor of the LG Hockey Games since 2006. Hosted by the Swedish Ice Hockey Association, the games have brought together the national teams of Sweden, Russia, Finland, and the Czech Republic every Feb- ruary since 1991 for a tournament that is considered the unofficial European championships. Sweden won the 2007 tournament, and Russia triumphed in 2008. www.lghockeygames.com

FULHAM FC SPONSOR UNITED KINGDOM

LG Skins Game Sponsor United States

LG Action Sports Sponsoring World Championships the United States Sao Paulo FC Sponsor Pursuit Brazil of Excellence

36 + 37 Supporting Education Lending a Helping Hand It is often said that success breeds success. We would like to add Helping young people improve themselves is one of the most re- We are involved in an incredibly diverse range of volunteer programs, warding things in the world. One of our major educational initia- contributing countless hours each year to worthy causes in our com- that it also breeds responsibility. Our success has enabled us to tives is our support of primary schools in underdeveloped regions munities. We partner with Habitat for Humanity to build affordable of Asia. We start with the basics, repairing or rebuilding facilities homes. We operate community kitchen programs for the homeless become actively involved in local communities through a diverse and furnishing classrooms. We also help bridge the “digital divide” and elderly. We provide computer training and other services to by providing computers and Internet access. We are deeply honored the handicapped. We hold blood drives to benefit the Korean Red range of programs and initiatives that span all levels of our that the schools we have helped in China have chosen to rename Cross. We donate to and volunteer at Beautiful Store thrift shops. themselves “LG Hope Schools.” We also support Villa de Las Ninas We help support parentless teens and single mothers. We partner organization. We actively support those striving to achieve their run by the Sisters of Mary Catholic charity in Mexico, an institution with Korea’s Make-A-Wish Foundation to make the dreams of kids that provides secondary and higher education classes as well as with life-threatening illnesses come true. We provide emergency re- dreams. We partner with consumers, local communities, one-year vocational training programs to more than 4,000 under- lief services when disaster strikes. We get college students involved privileged Mexican girls each year. in community service. We help introduce orphans and kids in rural and non-government organizations to meet local needs. We take communities to the wonders of science. We work with United Way Contributing for Good International to make a difference in nine countries across Asia. We a long-term view in our initiatives. We sponsor, support, and Every one of us is financially involved in helping our needy neighbors. sponsor surgeries for kids with cleft lips and palates in the Middle Each month, we donate the small change—the amount less than East and Africa. These are just a few of the ways we are making a volunteer in programs that enhance social welfare, educational, KRW 1,000—from our paychecks to the Usuri Fund, the primary real difference in our local communities. funding source for our community outreach activities. Beyond this, and cultural opportunities. And we do all these things wherever we our executives donate 1% of their monthly paychecks, and union members contribute the same percentage of their annual bonuses. do business around the globe to help make the world a better place. In the spirit of partnership, the donations we make are automatically matched by the company, doubling their impact for good.

Food Donations Brazil

Cleft Lip & Palate Surgeries LG Hope School Morocco China Artificial Limb Donations Nigeria

Eye Check-Up Clinics India Giving Greek Veteran Visit Sponsor Korea Volunteer Teaching Thailand Back Coal Briquette Donations to Korea Our Communities

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