Good afternoon. I am Yong-In Shin, CFO of Hanwha Solutions. Thank you everyone for joining the call. Let me report to you on the P&L and financial performance of Hanwha Solutions for the period of third quarter 2022. First, on P&L. Please refer to page 8 of the deck. As of third quarter 2022, the consolidated sales declined by 0.7% Q on Q to KRW 3,365.7 billion. This is because despite higher ASP for renewable energy division, the global price of key chemical products fell, thus lowering the total sales of chemical division. Despite challenging external environment, the operating profit increased by 25% Q on Q to record KRW 348.4 billion due to higher module ASP for renewable energy division and the lower ocean freight.
Please refer to the bottom half of page 8 for detailed performance by division. Next, on financials. Please turn to page 9. As of the end of Q3 2022, total asset increased by KRW 3,880.2 billion from the end of the previous year to KRW 23,887.8 billion. Cash and cash equivalent increased by KRW 561 billion from the end of previous year to KRW 2,416 billion. Total liabilities increased by KRW 2,437 billion from the previous year end to KRW 40,244 billion. Total borrowings increased by KRW 2,306 billion from the previous year and to KRW 8,180.9 billion
Total borrowings increased by KRW 1,744 billion from the previous year end to KRW 5,765 billion. The debt ratio increased by four percentage points from the end of previous year to 148%. The net borrowing ratio increased by eleven percentage points to 60%. Next, performance by division. Renewable energy division. Q3 operating profit of the renewable energy division recorded KRW 187.2 billion, which is 460% increase quarter-on-quarter. As the global renewable energy demand remains strong, expansion in residential retail sales drove the company's module ASP higher. Gradual stabilization of ocean freight in the second half contributed to a strong increase in the profitability versus the previous quarter.
In Q4, the operating profit is expected to further increase with increased sales volume and the continued stable ocean freight. Next, on chemical division. Q3 operating profit of chemical division declined by 48% Q on Q to KRW 119 billion due to lower global price of key products and narrowing spread due to sluggish demand coming from the concern of the potential global economic slowdown. In Q4, the demand will continue to dwindle with the slow economy, and the operating profit will further decline due to seasonality and turnaround. Next, advanced materials. In Q3, the advanced materials division recorded operating profit of KRW 19.8 billion, which is a 19% increase Q on Q thanks to the strong performance of key customers and lower materials cost. The OP is expected to decline due to the inventory adjustment of key customers during the year end.
Next, on Galleria. Despite the lower sales in Q3 due to the seasonal reasons, Galleria recorded operating profit of KRW 7.7 billion, which is a 114% increase thanks to the base effect of property tax reflected in the previous quarter. While the market uncertainties remain in the fourth quarter, the sales and the OP are expected to grow due to seasonality. Next, on equity method income. Equity method income in the third quarter turned negative as many equity method subsidiaries recorded loss due to poor market condition of chemical products due to slow economy. We expect a minor improvement in equity method income due to the widening of the spread of some chemical products. This has been the performance briefing. Thank you for listening.
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 star and number one. For cancellation, please press star two, that is star and two, on your phone. The first question will be presented by Parsley Ong from JPMorgan Chase. Please go ahead with your question.
Hi, thank you for the chance to ask questions, and congratulations on the strong results. I have three questions. The first question is on the IRA benefits. Could you give us an update on what kind of benefits you're expecting, your U.S. expansion plans, as well as how much of the manufacturing tax credit, you're expecting? I mean, if we assume that Hanwha has 8 GW by 2025 and gets $0.07 per watt cumulatively over five years, that could be as much as KRW 3 trillion. Could you share with us some of your expectations on the manufacturing tax credit as well?
The second question is on the could you give us a status update on your restructuring as well as the tender offer? Will Hanwha cancel some of the repurchased shares? And then the third question is on your solar division. I see that margins were very strong in third quarter and ASP went up as well. How sustainable do you think the tightness in the U.S. and Europe solar market is? And what is your expectation for fourth quarter and let's say over the next two years? Thank you. Let me respond to the first question on the expected benefit of the IRA. We do have the module capacity of 1.7 GW, and we have just announced the additional 1.4 GW expansion.
Of course, with the passing of the IRA, then there will be some benefit. Regarding the plan for the further facility expansion, that is currently under review internally. I do not believe that we can share any figure of expected benefit from the IRA at this moment. Regarding the second question, the repurchasing. We have started the subscription on October seventeenth and until the October nineteenth. If I may share the volume is that based upon the common share, it's 1.36 billion, and for the preferred share it is 10,500 shares. One correction. The number of shares for the common share is 1.36 million.
Another question about how we look at the U.S. market because we have the rather strong ASP for the third quarter. Of course, there is a balancing act happening in the U.S. market overall, and we are making our own efforts to strengthen our shipment in the retail and the residential section. With those efforts combined, we expect the strong performance to be continued for the time being.
더불어서 4분기에는 3분기 대비해서 판매량이 증가할 것으로 예상하고 있고, 이번 하반기 들어서 전반적으로 해상운임 또한 안정화 추세이기 때문에, 그동안 저희가 과거에 6개 분기 연속 적자를 기록했을 때 좀 부담으로 작용했던 요인들도 전반적으로 개선되고 긍정적인 부분으로 작용될 것으로 보입니다.
Our prospect for the fourth quarter is that versus the third quarter, we expect the shipment to grow. What is also encouraging is that the ocean freight has become more stabilized in the second quarter, of course, than in the past. That we've had six consecutive quarters of loss, and that was due to many of the compounding factors and reasons, and those are finally seeming to turning around.
다음으로 질문해 주실 분은 하나증권의 윤재성님입니다.
The next question will be presented by Yoon Jae-sung from Hana Securities. Please go ahead with your question.
질문 기회 감사합니다. 하나증권 윤재성입니다. 두 가지 질문드릴 거고요. 첫 번째는 방금 4분기 판매량 증가를 말씀하셨는데요, 태양광 쪽에서. 구체적으로 어느 정도의 판매량 증가를 생각하시는지 궁금하고요. 그리고 4분기에 대한 판가 전망까지도 말씀해 주시면 감사할 것 같습니다. 두 번째는 최근에 유럽에서도 미국의 IRA 법안과 같은 원재료 조달에 관련된 뉴스들이 나오는 것 같은데요. 이러한 뉴스 플로우들이 위에 줄 수 있는 부분이라든지, 유럽과 관련해서 저희가 좀 업데이트할 수 있는 부분이 있는지 말씀 부탁드립니다.
I have two questions. First question is that, when replying to the previous question you mentioned about the increase in the shipment for the fourth quarter. Can you be more specific as to disclose by how much do you expect the shipment to grow in the next quarter? Also can you share what is your forecast for the ASP? The second question is about the European market. It seems that Europe has announced their own version of IRA. What kind of implication do you believe that it will have, or any other updates on the European market?
먼저 3분기에는 판매량이 2분기 대비해서 소폭 감소를 했습니다. 저희가 연간으로 판매량 shipment guidance를 8.4에서 8.5 gigawatt로 현재 유지를 하고 있는 상황에서 매 분기에 그 변동이 굉장히 크지는 않습니다. 하지만 굳이 분기의 변동을 따진다면 3분기는 2분기보다 소폭 감소했고요. 그런 효과와 또 4분기에 이제 11월 전까지는 좀 수요가 몰리는 부분, 국가들도 있어서 4분기는 3분기 대비해서는 판매량이 좀 의미 있게 증가할 것으로 생각이 됩니다. 하지만 아까 말씀드렸듯이 저희의 전체 변동성이 굉장히 중요한 시장의 변화가 있지 않는 이상은 최소한 5% 정도에서 최대 10에서 15% 정도 사이를 왔다갔다 하는 정도의 변동성으로 생각해주시면 될 것 같습니다.
Regarding the shipment, for the third quarter, it actually went down versus the second quarter. We have provided to you with the annual shipment guidance that is somewhere between 8.4-8.5 GW. There is not a lot of fluctuation on the quarter-to-quarter performances. The third quarter shipment went slightly down versus the second quarter. Fourth quarter, we expect the shipment to increase versus the previous quarter because some of the demand are concentrated for the period before November for some countries. We expect because of those seasonal reasons, that there will be a meaningful increase in the shipment in the fourth quarter versus the previous quarter. As I mentioned earlier, we don't have a huge fluctuation quarter to quarter.
Unless there is a significant market event, we believe that the variability, the quarterly variability will be maintained somewhere between as low as 5% to as high as 10%-15%.
판가 전망에 대해서도 언급을 원하셨는데요. 지금 모듈 가격은 원가 압박에 오랫동안 시달리다가 올해 저희가 이제 턴어라운드한 이후로 인해서 강세를 보이고 있습니다. 지역별로 좀 차이는 있지만 전반적으로 에너지 가격의 상승에 따라서 이런 추세는 모든 지역에 고르게 영향을 미치고 있는 것으로 보이고요. 저희의 4분기 판가 전망도 현재처럼 강보합세를 유지할 것으로 전망하고 있습니다.
Regarding the ASP forecast, of course, that the module is under a strong cost pressure. But we were able to turn around because of the strong market demand. Of course, there is a minor differences depending on the particular part of the country, but it is a global trend that the price ASP is increasing. With that said, I believe that the ASP will be remained rather strong in the fourth quarter as well. 그리고 유럽 시장 같은 경우에는 올해 굉장히 큰 시장으로 성장을 했습니다. 원래 30 GW 정도대의 설치 수요를 예상을 했었는데 지금 현재 전망으로는 대부분 40 GW 이상 예측을 하고 있을 정도로 많은 성장을 이룬 상태입니다. For the European market, the growth, the pace of growth was quite notable for the annual total.
The original estimation for the installation basis, it was at around 30 GW. There is a revised figure, and the revised figure is 40 GW or even more than that. So, the European market has been growing very rapidly.
그런 와중에 이제 IRA 관련된 유사한 그런 식의 혜택이라던가 이런 부분에 대한 기대감이 시장에서 고조가 되고 있는데요. 사실 조금 더 구체적인 정책들이나 방향성이 나와야만 저희가 이 부분을 저희가 전략적으로 어떻게 활용을 할지 판단이 될 것 같습니다. 하지만 general하게 생각해 봤을 때도 신재생 에너지에 대한 안보 의식이 지금 높아지고 있고, 에너지 자체에 대한.
신재생 에너지를 예전에 과거에는 이제 FIT라던가 이런 보조금 관련된 부분이었지만 지금은 어떤 큰, 조금 더 큰 패러다임에서 정책적으로 support 할 수 있는 부분이 나온다면 당연히 저희가 유럽과 미국을 저희의 주요 전략적 시장으로 가지고 가고 있기 때문에 긍정적으로 활용할 수 있을 것으로 생각됩니다.
Of course, there is increased expectations with the European version of the IRA, will soon be announced with greater detail. Without the proper understanding of its strategic details or the policy details, then we cannot say with any certainty as to what will be the expected benefit from this policy. If I may share, the general comment is that there is a renewed awareness on the importance of energy security in Europe, and there is increased focus and emphasis on the renewable energies.
In the past, the renewable energy policy and the support was around FIT or around a subsidy. If there is a minor paradigm change so that there will be a bigger policy or the strategic support, then of course, as our company, Hanwha Solutions, keeps European and the U.S. market as the strategic market. Definitely it will work in our favor.
다음으로 질문해 주실 분은 삼성증권의 조현열 님입니다.
The next question will be presented by Hyun-Yeol Cho from Samsung Securities. Please go ahead with your question.
네, 안녕하세요. 삼성증권 조현열입니다. 크게 세 가지 질문 좀 드리려고 하는데요. 첫 번째로 아까 3분기에 태양광 출하량이 좀 줄었다고 말씀 주셨는데 전반적인 수요가 좀 강한 상황에서 3분기 Q over Q로 감소는 저희가 기존에 예상 못했던 부분인 것 같은데 혹시 물량 감소의 특별한 배경이 있는지가 궁금하고요. 두 번째로 3분기 태양광 매출의 지역별 비중, 그리고 4분기는 어떻게 될지에 대해서 궁금합니다. 마지막 세 번째는 4분기에 태양광 이익 전망에서 이익의 증가를 말씀 주셨는데 여기서 ASP랑 운임 감소를 봤을 때 어느 부분이 좀 더 크게 기여할지에 대해서 말씀 주시면 감사드리겠고요. 그 말은 즉슨 수익성 또한 개선되는 건지도 궁금합니다. 감사합니다.
I have three questions. You said in your reply previously that the shipment for the third quarter was reduced Q-on-Q. That happened in the midst of the strong overall market demand, and this is something that was unexpected. Can you share what drove the decline in the third quarter shipment? Second question is that regarding the third quarter sales, can you give us at a high- level regional breakdown and if possible, the fourth quarter revenue expectation and when it comes to the regional breakdown? Third question is that for the fourth quarter profit forecast, you said that operating profit will increase, and that is due to the higher or the strong ASP and the lower ocean freight.
Out of those two major factors, which do you believe will play a more important role? The reason for me to ask this question is to understand the implication on the overall profitability.
네, 먼저 출하량은 시황적인 부분은 아니고요. 전반적으로 아까 말씀드렸듯이 감소폭이나 변동폭이 올해 들어서 1분기에서 2분기 넘어갈 때를 제외하고는 그렇게 크지 않습니다. 따라서 일반적인 선적 스케줄의 조정이라던가 이런 부분, 그다음에 여름철 하계 시즌의 살짝의 영향, 이런 부분으로 이해를 해주시면 될 것 같고요. 그리고 원래 저희의 guidance가 3분기 출하량이 2분기 대비 유지 또는 소폭 감소였습니다. 그래서 기존 guidance하고는 크게 차이가 없는 것으로 저희는 이해를 하고 있습니다.
So regarding the first question, the shipment declined. In terms of the variability, it is not that significant, as it was the case in the first quarter and the second quarter. Minor decline, and that is mostly due to the scheduling issue, scheduling of the shipment and of course also the summer holidays. Our original guidance for the third quarter shipment was that it will be in the same range or the minor reduction from the second quarter shipment. We believe that it is not necessarily out of sync from our original guidance. Regarding the regional breakdown then, because of the sensitivity, that we cannot disclose any definite figures. Please understand that. We are shipping our products to the U.S., Europe, Korea, Japan and Australia.
Out of these markets then we do have a high weight or the reliance on the European and the U.S. and the Korean market. This is our strategic imperative to focus on the residential and the retail use. We will continue to expand our market share and the shipment. As we have also disclosed our plan to expand the module facility of 1.4 GW worth for the U.S. market. If and when everything is implemented on schedule, then of course that our weight for the U.S. market will further expand. When it comes to the ASP, we do not expect there will be any major change between the third quarter and the fourth quarter ASP.
The same is true for the other elements in the value chain, such as wafers and the poly. This market is not experiencing any sudden change at this moment, but it will be maintained at a strong position for the time being. When it comes to the ocean freight, we believe that it will be further stabilized in the fourth quarter. The contributing factor for the fourth quarter's stronger performance will be increased shipment and the stabilization in the freight. We do not believe that there will be any other reasons for additional concerns, and more favorable environment will be maintained.
The next question will be presented by Dong-jin Kang from Hyundai Motor Securities. Please go ahead with your question.
I have three questions. In July 20, there was the UFLPA passed, and that might have some potential implications on the panel manufactured in China, and there could be some change in the responses from the demand side. I'd like to understand general market situation change after the UFLPA passing. Second question is about the tax credit. I'd like to understand if there is any guidelines for how you will account or the accepted in the accounting the tax credit that can be, that is expected from the IRA and other favorable policy measures. The third question is that the midterm is just around the corner and maybe many predict that there could be some change in the political landscape in the United States.
Do you believe that might lead to some business uncertainties and any possible implications from the midterm?
I'd like to ask for your understanding that because of the sensitivity; I'd rather not respond directly to the ongoing political issue. I'd like to ask for your understanding once again. If I may share, the current status quo is that there are restrictions that impose on many different countries around the world, and some might lead to the rather tighter supply, and that definitely have some impact on the market price. We are looking at the situation and any development in any markets that might present as opportunities. We wanna make sure that we will make the best use of any opportunities that is presented when needed development.
I hope that that might be able to respond to your questions, number one and three. We would not be necessarily swayed by any political tendency or the affiliation. What we believe is happening with the solar panel or the photovoltaic business is that, versus the traditional source of energy, now this renewable energy is securing its non-inferiority in terms of the cost, and it is now respected as an independent source of energy. There is increased awareness on the importance of energy security. With that as a backbone, we want to focus on the markets that we can do well with the products that we are very proud of in terms of the quality and the performance. We will focus on the sales of these quality products, and we'll continue to make sustainable profits.
This is our policy and the strategy. About the potential accounting treatment of the tax credit coming from the IRA. This will require some additional consultations with internal and external tax and accounting experts. It is provided in the form of credit for the tax incurred, so we believe that it will actually improve the movement of cash. Once we know the final amount that we will be eligible for the tax credit, I believe that it is possible to be securitized with the conditions met. We will try to make sure to satisfy all these necessary conditions, and we believe that we will contribute to the improvement of cash flow. In summary, the benefit will be more concentrated on the financial statement instead of P&L. Of course, many details are still unclear.
We will be able to share it with you with greater detail at the later point.
The next question will be presented by Joon Ho Lee from Bank of America. Please go ahead with your question.
I have two questions. The first question is that what is your mid- to long-term solar cell technology development roadmap and how you can improve the efficiency and also reduce the cost? The second question is that what is your forecast and outlook for the solar market for year 2023? As you are aware, we do have the three- to five-year plan to develop the new products and also to improve efficiency. For the year 2023, we have a plan to start the mass manufacturing of the TOPCon or N-type cell and module. With all of those plans implemented at schedule that we expect the efficiency improvement of the range between 1-2 percentage points, and that is to utilize the silicon PERC technology.
We are not yet sure as to what will be the exact capacity those technology will be applied. This TOPCon technology development completion and mass manufacturing will be our priority for the years 2023 and 2024. Afterwards, our focus will be on the finalization of the technology development for the perovskite tandem. That is to add the current crystalline silicon cell with the perovskite cell. That will further improve the efficiency. Our aspiration is to complete the technological development all internally. That is our mid- to long-term technological roadmap. When it comes to the cost implication for the module, it is calculated as price per watt or the dollar per watt.
If we can actually increase the watt or calculate exactly by how much, then we will be able to actually do something about the cost. Our focus is to provide the customers with advanced technology so that we can provide them with the premium efficiency and utilization and to also guarantee the higher profitability and the premium. As for the outlook for 2023, we are currently in the process of developing the business plans for the year 2023, not just for the renewable energy, but for all other divisions. Because of that, the information that we can share at this moment will be only limited. Please understand that. What I can share today is that our strategic direction will remain the same generally.
That is, we will no longer focus solely on the manufacturing and the sales of modules, but we will be total system providers, and also, we'll seek the alternative path, such as connecting with the software's, and become the total energy solution providers. That will create additional value add and change the market dynamics. Also, on top of that has been already disclosed is that the module expansion in the U.S. market of 1.4 GW will serve as an important driver. What hasn't been mentioned recently is the power generation business that is on track, and we expect to see some meaningful contribution starting from the year 2023.
Currently there are no participants with questions. Please press star one, star and one to give your question. The next question will be presented by Dong-jin Kang from Hyundai Motor Securities. Please go ahead with your question.
Just briefly, what is your expected CapEx for this year and next? You mentioned about the power generation business. Is it what you have shared with us earlier is that you will develop and will sell out the whole total business, or will you operate yourself? First about the CapEx. As was said earlier, we are currently in the process of finalizing our business plan for the FY 2023. Our CapEx is not yet finalized, so we will be able to share with you more concrete figures when we share the whole year performance. That will be the February of 2023. As for the FY 2022 figure, the consolidated basis, the figure that we have shared with you earlier was KRW 1.2 trillion.
Out of that, the Qcells portion was KRW 430 billion. With the recent disclosure of 1.4 GW expansion in the United States, it will require about KRW 200 billion more in terms of CapEx. The revised figure is that the total CapEx on a consolidated basis will be KRW 1.4 trillion, and the Qcells portion out of that will be KRW 630 billion. As for the planned operation, mode of operation for the power generation businesses that we are looking at all the different options which include the development and the complete sell out of the business and the partial equity sales. We operate the power generation facilities, or we maintain the equity and do the operation ourselves. We are currently reviewing all these different options.
The next question will be presented by Parsley Ong from JPMorgan. Please go ahead with your question.
Hi. Thank you. Just a clarification on your comment that you expect more power generation revenue contribution from 2022. How much is that? I remember in the past, you were targeting the earnings from solar power plant construction and sales. Because the European electricity price was really high, we decided not to sell in 2022, and we decided to operate instead. How much are we actually earning from operating that plant now? Basically, how much earnings or at least revenue from power plant sales and retail power generation should we expect over the next few years or in 2022? Can I confirm what was the number for 2022? Was it zero or less than KRW 100 billion?
For the year 2022, there was no meaningful contribution to the earnings that come from any meaningful sales. I have shared with you earlier. If there is any meaningful contribution that will be disclosed, but unfortunately there hasn't been none so far and none this quarter. What I meant by my comment earlier is that it is our mid- to long-term strategy, and we are trying to generate the revenues and the sales from the power generation business so that it can make a positive contribution starting from 2023. We expect that there might be something happening in Q4. There is a project currently ongoing that might help us to realize the profit, but there are still too many uncertainties around this project.
If it is executed, of course it will work in our favor, but there are quite large number of uncertainties around this project. I believe that it is better off for me to disclose when I do the earnings call in the fourth quarter if there is anything to share. For the mid to long term basis, the pipeline is somewhere between 12-13 GW, and that includes various options of us building and sales and also the partial equity sales and the operation and the full ownership and operation. It also includes solar and wind. When the profit will be realized, of course, then my earlier comment is that because of the increase in the electricity cost or the.
We are currently looking at the right timing. We decided not to engage in any sales immediately to make sure that we are making the deal at the most opportune moment. There has been a delay for about one year. I believe that this will be the right time for us to revise our business plan. Hopefully we will be able to share something more tangible in the next earnings call.
Thank you for joining us and this concludes our earnings call for Hanwha Solutions for the period of third quarter 2022.