Good afternoon. Thank you for joining Hanwha Solutions' earnings call. The call will start with a presentation from the company, followed by the Q&A. If you have any questions, please press star and one. Now, we will begin Hanwha Solutions' earnings call for Q2 2024. Good afternoon. I am Ahn-sik Yoon, CFO of Hanwha Solutions. I would like to thank everyone for joining the call today. I will brief you on the business performance, financials, and outlook by segment for Q2 2024. First, the company's performance during the second quarter of 2024. Please refer to page eight of the presentation. The consolidated sales of Q2 2024 increased by 13% quarter-on-quarter to KRW 2,679.3 billion. This is mostly from the renewable energy module sales recovery.
The consolidated operating profit recorded KRW -107.8 billion, and the size of the operating loss has decreased quarter-over-quarter due to improved performance of renewable energy division. Pretax profit was KRW -311 billion, and net income negative KRW -329.8 billion. For detailed performance by segment, please refer to the bottom of page eight. Now, let's move on to page nine for financial performance. As of the end of the second quarter, the total assets for non-financial business increased by KRW 3,416.4 billion from the end of last year to KRW 26,792.3 billion. The cash and cash equivalent declined by KRW 97.2 billion from the end of last year to KRW 1,984.8 billion.
The liabilities for non-financial businesses increased by KRW 3,045.7 billion to KRW 17,383.2 billion, and the debt increased by KRW 2,609 billion to KRW 11,958 billion. The net debt by KRW 2,706 billion to KRW 9,974.1 billion. As of the end of Q2 2024, the liabilities to equity ratio has increased by 26% points from the end of last year to 185%, and the net debt to equity ratio by 26% points to 106%. Next, performance by segment for Q2 2024. First, renewable energy. As the impact from the seasonality from the previous quarter ended for the second quarter, the module sales volume recovered, and the partial realization of profit from the power generation asset in Europe helped boost the performance, and thus operating loss improved quarter-on-quarter to negative KRW 91.8 billion.
We expect the module sales will continue to grow, and the size of loss declined in the third quarter. The sales from the power generation asset development and the EPC for Q3 is expected at around KRW 800 billion. Next, on chemical business. The operating loss from the chemical for Q2 has improved quarter-on-quarter to -KRW 17.4 billion. This is due to the slight increase in prices of some products despite a somewhat delayed recovery of global demand. In Q3, rising maritime freight rates may pose a burden, but the recovery in the prices of key products is expected to reduce the operating loss. Next, advanced materials. Due to the rise in raw material costs and the maritime freight rate, the operating profit for Q2 declined by 15% quarter-on-quarter to KRW 9 billion.
We expect the operating profit to decline for Q3 due to summer vacations of the major customer. Next, on equity method gains. The equity method gains for Q2 have improved and recorded reduced deficit due to the increase in the equity method gain from Hanwha Impact. As the performance of equity method companies is expected to improve during the third quarter, the equity method gain for the period is expected to improve. This concludes the earnings briefing. Thank you.
[Foreign language] Now, Q&A session will begin. Please press star one, that is star and one if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone. [Foreign language] . The first question will be provided by Dong-jin Kang from Hyundai Motor Securities. Please go ahead with your question.
[Foreign language]
Since June, and also during the second quarter, the tariffs imposed upon the Chinese companies have stepped up, and that has actually had a negative impact on the operating ratio of the solar manufacturer in China. Under that backdrop, I'd like to understand about the inventory status and the competition status in the U.S. market. Any updates will be appreciated. And also, you also mentioned during the briefing that the size of the loss during the third quarter will decline. Can you elaborate also in line with the sales of the power generation asset and also the EPC and module sales? And if there is any change in the volume guidance, then please share the update with us.
[Foreign language]
First, let me share the sales guidance. We will maintain with our existing sales guidance for the year 2024, which is 9GW.
[Foreign language]
About the third quarter forecast, we expect that during the third quarter, the operating loss, the size of it will decline, and that is partially because of the improving module sales. The module sales for the Q1 was rather poor, but as we have predicted in the second quarter, it went up by 40%, and we expect additional 30% incremental growth in the module sales volume in the third quarter.
[Foreign language]
Regarding the power generation asset development and the EPC, we were in line with the previous guidance of the second quarter. That was KRW 400 billion, and that helped us reducing the size of the loss. We expect the trend to be maintained in the third quarter, and the sales from the power generation asset development and EPC will be around KRW 800 billion, and mostly it will come from EPC.
[Foreign language]
Regarding the inventory and the additional tariff from June, I also read through the media report that the manufacturer in Southeast Asia, the operating ratio went down, but because of the heavy inventory buildup previously, we have not yet witnessed any dramatic change in terms of the amount of inventory.
[Foreign language]
When we look into the trend of the price, it is showing some positive trend. We believe that the period of the fast decline in AST is over, so it is almost at a standstill, and this gives us some room for breath in terms of the volumes that we are selling at the better price.
[Foreign language]
We believe that the sudden price decline that we have experienced in the first half is not likely to happen or to be maintained in the rest of the year.
[Foreign language] . The following question will be presented by Hee-young Jeon from Daol Investment Securities. Please go ahead with your question.
[Foreign language] .
I have two questions for you. The first is, what is your view about the U.S. solar market demand for the second half of this year? And the second question is that there has been some concern about the financial structure of the company from the market, and there are some rumors that there could be some additional funds raised during the second half of this year or towards in the future. So any updates on the financial structure or any plans?
[Foreign language].
Let me first share the second half forecast with you. I do not believe that we have seen any major change in the forecast of the market research agency so far. For our perspective, yes, we did have some inventory buildup in the second, rather the first half of this year in the United States, but we believe that the demand remains very strong, especially with regard to the utilities that we are seeing some positive signals. Regarding the residential, we are yet to witness any growth, but we believe that the impact from the NEM 3.0 has been fully absorbed by the market so far. Additional development is the third-party ownership, that is, the third party owns the solar systems and the facilities, and on that arena, we believe that there are still strong needs for the products or the solutions and the power utilization.
So we believe that for the residential market, this will be the future driver of the demand, and we expect a strong growth in that area, and also to be in line with this up-and-coming trend that we have also introduced, the financing services in the U.S. market. So it would not necessarily generate a short-term strong performance, but starting from this year, we expect that this will be one of the drivers of future growth.
[Foreign language].
Regarding the concern from the market, we have disclosed this briefly before the earnings call that we have decided to issue the Hybrid Tier 1 Bond worth KRW 800 billion, and the purpose of this bond issuance is to improve the financial structure and repay the borrowings that we've had so far. So with this Hybrid Tier 1 Bond issuance and the fund raise, we believe that our financial structure will be further improved.
[Foreign language] . The following question will be presented by Tae-yeon Kim from Mirae Asset Securities. Please go ahead with your question.
[Foreign language] .
I'd like to ask you the impact that the company is expecting to the ongoing U.S. presidential election campaign, and has that affected your strategic direction or the business plan, and have you adjusted the IRA forecast for the year onwards because of the presidential election?
[Foreign language] .
So it has been the company's policy to develop the business strategy, not to be impacted by any change in the political scene. So because of that reason, we believe that the ongoing U.S. presidential election and the campaign will have a limited impact on our business, and we do not expect our existing strategy to change. So the solar business or the renewable business has gone through the business restructuring that has happened in the past four or five years, and now we have entered into this fifth year of the business restructuring, and the strategy will remain valid in the future.
We have already established sizable plants in the U.S., and the operating ratio of those sites has gone up significantly. We've had this business with the previous administrations, and we have maintained the position that the U.S. is one of our most important strategic markets. This will remain valid in the future regardless of the outcome of the presidential election.
[Foreign language] .
Regarding the AMPC, we have booked KRW 200 billion for 2023 and for 2024 for the first quarter. The amount recorded was KRW 96.6 billion. For the second quarter, it is KRW 146.8 billion. For the third quarter, we expect the amount to be in the same range with the slight potential for growth. The guidance figure that we have given you for the whole year of 2024 was KRW 500 billion-KRW 600 billion, that we expect that figure is something that will be maintained for the year.
[Foreign language] . The following question will be presented by Woo-jae Jeon from KB Securities. Please go ahead with your question.
[Foreign language] .
I have two questions for you. First is that you said earlier that you will maintain the sales guidance for the year. That means that for the second half of this year, you will have to absorb the 6GW. So can you give us the breakdown between the utilities and the residential, and what is the committed volume out of the 6GW through the contract and so forth? The second question is that can you give us an update on the CAPEX plan for the year 2024 and 2025?
It seems according to your existing plan that the CAPEX investment will be closed or finalized for the year 2024, but as many companies are adjusting their plans for the CAPEX, so I was wondering if, say, it will be true for Hanwha Solutions, and do you expect there will be additional investment for the EPC or the power generation assets?
[Foreign language] .
[Foreign language] .
If I were to share with you the quarterly actual and the forecast that we have bottomed in the first quarter, and in the second quarter it improved by 40%, and we expect additional 30% improved Q&Q in the third quarter. Traditionally we have allocated the largest volume in the final quarter, the fourth quarter. If we were to meet with the volume according to the guidance, then we also expect for the fourth quarter that will be another round of sizable volume growth. If I were to give you the breakdown between the utilities and the residential, so it is the matter of allocation by the company. The quarterly breakdown might not be that relevant, so that is why we have been communicating the annual allocation between the utilities and the residential because the ratio holds true on a quarterly basis as well.
Just to remind you that the allocation for the utility segment is 50%-60%, and the rest goes to the commercial and the residential. Based upon the general allocation trend by the global companies, yes, we do have a higher allocation for the residential and commercial especially, but when you look into the commercial segment, that it also includes the small size utilities or those small size power generation, so there could be some of the overlap between the utilities and the commercial.
[Foreign language] .
You also asked us about the committed volume for this year and next, and of course then we look into the timeline. First half is ended, and second half also the volumes have been committed through the contract and so forth, and starting from 2025 onwards, then we will fully operate our manufacturing facilities in the U.S., and the sales and onwards will be manufactured in the States. You know that the volumes that are to be generated there are fully committed already, and there is a very strong demand for these products generated, manufactured in the U.S.
[Foreign language] .
With regard to the CAPEX, there haven't been many changes, so we commit to the KRW 3 trillion for the year 2024, and the majority goes to the plant expansion in the United States.
[Foreign language] .
So regarding 2025, then the plan is not yet finalized, so it is our practice to finalize the CAPEX plan for the following year in the second half of the previous year. So hopefully in the next earnings call, then we can give you more color as to what's to happen next year. And further towards the possible sales of the power generation asset and the EPC investment, so we have maintained the sales of the existing investment, so maybe within those cash flows, so there might be some minor adjustment. But in terms of the annual sales figure, we maintained the KRW 2.5 trillion, and I believe that in the first two quarters of this year, we were able to be good on those guidance, and we were able to continuously generate the profit.
In the third quarter, the profit of the revenue will come mostly from the EPC sales, but on the fourth quarter, we expect there will be another round of the power generation asset sales.
[Foreign language] . Currently, there are no participants with questions. Please press star one, star and one to give your question. [Foreign language] . The next question will be provided by Hee-young Jeon from Daol Investment & Securities. Please go ahead with your question. [Foreign language] .
[Foreign language] .
So the question is with regard to the ASP for the U.S. market. So you expect the inventory that has been built up during this year will be resolved in the second half of this year. So that means that you expect the model ASP for 2025 will improve while slightly.
[Foreign language] .
So the predicting ASP is always difficult, but we have seen that the price decline that we have witnessed from the end of last year came to some stable change in the second quarter, the beginning of the second quarter. But if we look into the degree of the price decline for that period, starting from the end of last year until the early second quarter, it was as high as 40%-50%, and that is because of the natural influx of the extreme amount of inventory. So if we were to think logically, then once this unnatural cost that has driven the price to go down that rapidly is resolved, then the price has no choice but to revert to its original range. So the current average cost is about $0.20, but we need to understand that this is the average price.
That means that in some cases it was sold at early $0.20 or even at the $0.30. But if all of those factors that have caused some extraordinary happening at the U.S. market are resolved, then it will naturally be reverted to the price that we have experienced before this happening, which was late $0.20 or the $0.30 range.
[Foreign language] .
[Foreign language] .
But of course that we need to factor in other elements or other influences. So some areas of consideration are what other companies are doing in terms of the policy change, for example, the imposition of the tariffs, and what kind of response they are planning in terms of the volume. And now we have seen the extreme competition in terms of the supply. So even for some companies, for the sales that they are generating, they are actually generating loss. So we need to keep a close eye on other companies' behavior. Will they maintain such strong supply at an extremely low cost despite the loss generation?
Another factor that we need to take into consideration. Well, it's not universally applicable to the whole market, but for Hanwha Solutions specifically, because we are shifting the place that we are manufacturing our products, and that will have an impact on the ASP because we wanted to provide our customers with the additional merit by utilizing the products made in the U.S.A., and how that will translate into the ASP that we will have to wait and see.
[Foreign language] .
If there is no further question, we'd like to end the earnings call for the second quarter of 2024 for Hanwha Solutions. Thank you, everyone, for joining us today.