Welcome to Delta's investor conference today. As usual, we will have our IR, Ronnie, to report the Q2 financial numbers to you. We will have the Q&A session. You may raise your questions through the platform, and then they will be answered during the Q&A session. Now we are going to review the financial numbers of Q2. The numbers all have been reviewed by CPA. In Q2, we had TWD 90 billion sales revenues. Despite the impact of the COVID control in China early this quarter, we soon recovered and resumed some growth after May. With the better component supply, we had 14% year-on-year growth and 9% quarter-on-quarter increase in Q2. Thanks to the better scale and more pass-through of the cost increases, GP in Q2 grew by 12% year-on-year and 18% quarter-on-quarter.
GP margin also improved to 29.4% in Q2 from 27.3% in Q1, and 30.1% a year ago. In terms of the expenses, with more marketing events and business trips after reopening, Q2 expense as a whole grew by 13% year-on-year and 12% quarter-on-quarter. Wage inflation was also a reason for both R&D and SG&A expenses to increase by the tens in Q2 compared to a year ago and to the previous quarter. Ratio-wise, the R&D expense as a percentage of sales shrank to 8.5% from 8.8% a year ago, but slightly increased by 0.2 percentage point from 8.3% in Q1.
SG&A, as a percentage of sales, remained at 10.1% the same as in a year ago, and only slightly increased from 9.9% in Q1. The Q2 OpEx ratio dropped to 18.7% from 18.9% a year ago, but moderately increased from 18.3% in Q1. The OP margin in Q2 improved to 10.7% from 9.0% in Q1, and slightly declined from 11.1% a year ago. Year-on-year, we found moderate growth in each segment, with Infrastructure recovering from the low base and growing faster than the other two. Otherwise, we also saw strong year-on-year improvements in Power Electronics, thanks to the better component supply this year and the pending demand from last year.
Sequentially, all segments resumed some growth after the COVID control in China. Earnings-wise, except for the Automation segment, which was significantly impacted by the COVID control, we found different degrees of improvements for the other two segments, with Power Electronics increasing by 29% versus a year ago, and Infrastructure growing by 4% compared to last year. Sequentially, the profitability of all segments improved substantially in Q2. Here we provide a revenue contribution breakdown for your reference. The non-operating profit was around TWD 1.2 billion in Q2. Attributable to the foreign exchange gains, largely from the depreciation of the Thai baht and some various charges on customers.
We had a small interest expense instead of the usual income as a result of the expanding spread between the borrowing and the deposit rates. With interest rates likely hiking further, we may continue to see small interest expenses before the reversal of the environment. In Q2, we had TWD 10.9 billion profit before tax, up 27% quarter-on-quarter and 7% year-on-year. EBITDA in Q2 was TWD 15.6 billion, up 18% quarter-on-quarter and 9% year-on-year. In terms of the Q2 tax expense was about TWD 2 billion, representing 18% effective tax rate. The net profit after tax in Q2 was then about TWD 7.6 billion, up 26% quarter-on-quarter, and 1% year-on-year.
The EPS in Q2 was 2.94. Now we will have a look at the first half's numbers. First half revenue was TWD 172.5 billion, up 14% from a year ago. GP in the first half was up 8% year-on-year, with a GP margin of 28.4% versus 29.9% in the first half of last year. The operating expense in the first half was up 10% year-on-year, with SG&A up 11% and R&D up 8%. With the better economies of scale, the OpEx ratio shrank to 18.5% in the first half from 19.2% a year ago.
SG&A, as a percentage of sales, dropped to 10.0% from 10.3% a year ago, while the R&D expense ratio contracted to 8.4% from 8.9%. The OP was up 5% year-on-year, with OP margin dropping to 9.9% from 10.8% due to the lower GP margin in the first half. By segment, we found decent revenue growth across the board. Profit-wise, other than Automation, which was significantly impacted by the COVID situation in China, we saw some profit expansion. Here again, we provide a sales percentage breakdown for your reference. In the first half, we had about TWD 2.2 billion non-operating profit, which was a little bit lower than last year.
In total, we had NTD 19.4 billion pre-tax income, which was up 3% from a year ago. Our EBITDA in first half was NTD 28.7 billion, up 5% from a year ago. The first half tax expense was around NTD 3.7 billion, representing a 19% effective rate. Non-controlling interest increased by over a billion NTD as the Delta Thailand more than doubled its earnings in the first half. Therefore, the net profit after tax in the first half was NTD 13.7 billion. The EPS in the first half of this year was 5.27 versus 5.46 a year ago. Here we are going to have our Q&A session. Please just raise your questions if there is any.
Can you talk about the seasonality for the first half? Will there be any gaps between different business units? I think as usual, Q3 has always been the peak season of the year, and Q4 is more or less slightly higher than Q3 or lower than Q3 or remain flattish. For this year, I think there are actually still many uncertainties out there for Q3. We actually have pretty limited visibility for Q3. Sorry, for Q4. For Q3, we think is still doing okay. For the second half, we think it's going to be better than the first half.
In terms of each business segment, our power supply business will continue to grow, especially in some applications, for example, the server powers. For other applications, I mean, for example, the notebook powers, I think as you can see from the newspapers, the market itself, I mean, the notebook market is relatively slow, currently. For the industrial automation, because I think there are still some moving parts and uncertainties in the macroeconomic environment in China. I would say, we think there are still some uncertainties for the demand for, I mean, especially for the China IA market.
We think that for the other part of the automation segment, which is our building automation business, I think we'll continue to grow pretty nicely in the second half. Our cooling fan business will also continue to grow. As for our passive component business, I think in terms of the applications of this business is also highly diversified. Although we are exposed to, I mean, some smartphone market, I mean, for our passive component business. I think the other part of it, we still provide products, I mean, our passive components to some other markets and applications. For other parts of the, I mean, the passive components are actually doing okay. Does the company see any demand slowdown for notebook-related businesses?
If not, what is the reason? We still have positive growth for our notebook power business in the first half. Probably because we had less exposure to Chromebook. That is actually the weaker part in the notebook market now. In the long run, we think that we will be relatively conservative about the growth of the consumer-related products. Anyways, we think the demand is still going to be there, but just high or low, but we will be relatively, I mean, conservative. Can you give us the composition breakdown of your inventory? Like, how much is the raw material and how much is finished goods? About half of the company's inventory is raw materials and components, and the other half is work in progress and finished goods.
With the better component supply, in the supply chain now, as well as the coming of the peak season, we expect the inventory levels to go down gradually in the coming quarters. Is the company still facing any chip shortages? I think there are a few items still in short supply. Overall, we don't see a serious chip shortage here. Will you continue to increase your product prices further in the second half? What is the current cost environment of raw material? I think, we actually started to negotiate the cost-sharing with our customers since last year.
Just the negotiation, I mean, in terms of the whole process or the whole cycle, is actually pretty lengthy because from the time we started to discuss or negotiate the new pricing with our customers till we see it, I mean, takes effect, it actually is a pretty long time. I think that for this year, we gradually see the contribution from this cost-sharing. Does company expect GP margin and OP margin continue to improve in the second half? I think there are still many variables for GP margin, so it's hard to say. With, I mean, better economies of scale, I think there is a chance, or is actually like likely, very likely that there is still, I mean, some upside potential for our OP margin improvements.
Can you talk about the outlook for your EV business in the second half? Can we see the breakeven? I mean, it's breakeven this year. I think the EV business was somewhat limited by the supply chain disruption, I mean, in last year and also for the first half of this year too. I think starting from June of this year, we actually saw the acceleration of the revenue growth of this business. Then as for the breakeven, I think we are actually getting there, but I think it is actually not the short-term goal we are actively pursuing, because I think the more important thing is this is for our long-term growth.
I think the safety issue, the quality issue, and reliability issue is actually way more important than the short-term financials, financial performance of this business. I think with a much better economies of scale, it's pretty natural to see the breakeven point, I mean, in the future. I think the more important thing right now is still to maintain our product qualities and reliabilities. What is the outlook for Industrial Automation? I think the China market still accounts for a big part, at least, around half, I mean, half of our Industrial Automation business.
Given there are still many macro turmoils in the China market, it's very pretty hard to predict the growth, I mean, or the outlook for this business in the coming quarters. I think that except for the weakness of China market, we still have, I mean, product selling to other markets. For example, the European markets and American markets. We expect those parts to contribute more to this business going forward. Can you share the CapEx plans for this year and next year? Given the highly uncertain macroeconomic environment, would you consider to reduce some capital spending for the next few years?
As mentioned in the previous analyst meetings, this year's CapEx is going to increase by tens compared to last year. For next year, it's likely to go down a little bit from this year's level. Our investment plans are all based on long-term strategies and will not be significantly adjusted or changed by the short-term economic fluctuations. By nature, we are not a capital-intensive company. The main projects of our capital expenditure are still related to, I mean, buying lands, office buildings, and factories. The increase in actual production capacity, I mean, is not equivalent to the increase in capital expenditure. For the part of capacity expansion, we will be very flexible since we make a lot, many equipment by ourselves. Any guidance for next year? Considering the
I mean, again, considering the high uncertainty of the macroeconomic environment in next year, we don't really have a very clear view yet. Roughly speaking, we think the EV components, charging products, data center, server-related products, building automation, and some infrastructure businesses should be able to maintain a relatively fast growth this year. As for the consumer electronics and computer-related products, we are relatively more conservative on them. Do you think that the transition you have been undertaking over the past decade is the main reason why your performance is relatively resilient under this slow macro environment? I think our strategy has been determined to continue to move forward to the solution and system business.
I think there is actually big room for us to continue to grow, I mean, in the solutions and systems business. We still need to invest into those areas. Can you talk about why the pandemic in China seems to have little impact on the company? Well, I wouldn't say it doesn't have any impact on us because in April of this year, we were actually worried about the situation. We actually even expected to see like the shipment being cut by half in the worst case. Fortunately, I mean, those things didn't happen. The orders were not structurally impacted by the pandemic in China. We recover well. It looks like okay now, but it was.
I mean, it was pretty. We were pretty worried about that. I mean, in early of this quarter. We hope, let's hope that, I mean, for the second half, we will continue to deliver the pending orders smoothly, and see, I mean, the acceleration of growth in the second half. How much impact will China's pandemic and the COVID control impact on your GP margin and OP margin? I'm sorry. How much did the COVID control in China impact the gross margin and OP margin in Q2?
I think as you can see from the financial numbers, although I mean at the beginning of this quarter, it was significantly I mean impacted. I mean the shipment was significantly impacted by the COVID control in China. Fortunately, we soon recovered from this impact. I mean it was okay if you look at GP margin and OP margin in Q2. As for the operating expenses, I think it's going to increase to some extent. One of the reason is because I mean more and more business trips on the road and also more marketing events, and also considering the wage inflation environment. Then we also want to be competitive in the hiring market.
That was the reason why we saw an increase, I mean, in the operating expense. The chairman actually previously mentioned that you expected double-digit growth for this year. Considering the current macro environment, is that still the expectation? Actually, we don't make financial forecasts, so we cannot provide the clear estimates or guidance. However, I mean, the company has an annual growth. I mean, but considering that we have like above 14% year-on-year growth in the first half, and also with the low base of second half, I think double-digit growth is achievable for this year.
Can you talk about, I mean, comment on the company's, I mean, turnover time of inventory? In Q2 that we saw the number, I mean, inventory number was about TWD 71 billion. If you use the, I mean, the Q2 revenue to do the calculations, it was about like 71 days. And if you use the the monthly revenue of June to do the calculation, it was around 65 days. But the higher, I mean the inventory level in the first half was actually strategically prepared and considering the upcoming, I mean, the coming, I mean, peak season in the second half. We think that, I think the whole situation is going to be better in terms of the inventory level.
In terms of the M&A, in terms of the mergers and acquisitions, will you have any change, I mean, in this target, I mean, considering the current environment? I think our M&A, I mean, are a part of the growth strategy of the company. We don't buy the businesses, I mean, to grow, but we grow the business we buy. I think that as long as we believe that the target companies are beneficial to the long-term growth and the competitiveness of the company, we will do that.
Considering the sluggish China market, the China IA market, do you think that the European market and the American market can drive the growth of industrial automation? Of course, we expect the IA market to continue to grow, I mean, outside of China. But considering the China IA, I mean, we still have like around 50% of our IA sales is from China, so we still can't eliminate the impact, I mean, of China macro environment. Can you give me some updates about your telecom power business?
I think that, as previously explained, I think the main reason, I mean, or the main constraints for the fast growth of this telecom power business is still the lack of the key applications. Because we are, I mean, actually very competitive in the market for this business, so we actually have a leading position in terms of the market shares, so we can still outperform the market. Can you talk about your energy storage system business? I think the storage energy storage system is still a new, I mean, business for us, so it actually still, I mean, contributes very little part, a tiny part of our revenues.
We are preparing for the long term, so I think going forward, we might see more sales contributions, I mean, from this business, but it's actually right now still pretty small. Can you talk about, I mean, or how do you see the growth, I mean, the demand for your networking products this year? I think the main problem of our networking business last year was related to the chip shortage. The chip shortage of the chip makers. Since last year, I mean, the end of last year, we have been seeing the, I mean, gradual improvements in terms of the chip supply. Also considering the, I mean, the low base, we actually had pretty nice growth for this year.
In the first half, we had around like close to 30% growth for our networking products. For the second half, I think we'll continue to see pretty nice growth for this business. How is your EV solution business? Do you think the 30%-40%, I mean, growth rate is achievable for this year? I think that, I mean, at least, I mean, if you look at the sales revenue, I mean, of June, we actually have ahead close to 50%, growth, I mean, for this product. We might see, I mean, some acceleration, I mean, in July or even, I mean, in the coming months.
I think that we're still positive on the growth of this business for this year. Can you talk about the competitive landscapes and sales contribution of your powertrain solutions of EV solution business? I think that the main products of our powertrain solutions are the motors and inverters. We actually have many design wins from the international leading OEMs. We also have pretty significant contribution, I mean, from the motors and inverters.
I mean, going forward, we believe with our, I mean, technology and then the cost advantage and our, I mean, also as I said, we're piling many design wins in the pipeline. We shall continue to see more sales contributions from this powertrain solution business. Can you talk about your plan for the third generation of, I mean, semiconductors? When will we start to see the sales contribution from it? And how should we think about the sales contribution of it? I think that we have been working on the, I mean, the development of the, I mean, of the third-generation semiconductors.
We also believe that it's going to play an important role, I mean, in the future, especially when we see more and more heavier applications. That is a reason why we have this business. We also expect or we also hope this business continue, I mean, to contribute more. I think more important thing is we expect to get to know more about the technologies, I mean, of it. Can you talk about the progress, I mean, in terms of your construction plans for the factories in different regions? I think we have four factories, I mean, in India now.
One of them, we almost, I mean, it's actually it started to run almost nearly its full capacity. We will continue to work on, I mean, other parts, I mean, other factories in India as well as other, I mean, our other production sites in other regions. How do you see the challenges, I mean, in terms of recruit talents for the electric vehicle business? Did it go well this year? I mean, considering the higher penetration rate of EVs, I think it has been challenging, I mean, in recent years in terms of recruiting talents.
Fortunately, because we have, I mean, a very big, I mean, business segment, which is the Power Electronics, I mean, segment, and also, we have some co-working projects with top universities. We are doing okay here, but we will continue to work on it in order to recruit more high-quality talents for not only for this business, but also for other businesses. Is there still any impact, I mean, from the COVID control in China? Do you see any changes recently? I think there's pretty, I mean, everything is going well and doing okay, I mean, in our production base in China now.
I think according to Delta Thailand, they actually mentioned, considering the geographic risks, you are going to have more and more productions, I mean, being shifted to Thailand. Can you confirm that? I think that we actually have this plan to, I mean, to be more diversified, not only for our business portfolio, but also for our production site in order to reduce the volatility in many aspects. We will, I mean, we are, but we have the EV productions in both China and Thailand, and we will continue to expand our capacity in the U.S. and Europe.
I think the bigger trend is we are not going to see a very highly concentrated production base in somewhere, but we will have a more diversified production base. The next question is how much do you see the consumer products, I mean, as a percentage of sales of the company? I think that it's actually a hard question for me to answer, because I don't really have an aggregate number of it. Maybe I can add to that. Because we actually categorize our businesses not by the applications, by the product, but by the product lines. For each of the products or each of the businesses, we actually have, I mean, pretty diversified applications and markets for them. It's hard.
That's the reason why it's hard for us to provide such an aggregate number for you. How do you see the, I mean, the EV charging products? How do you see the demand and the outlook for this? I think with, I mean, increasing EV penetration in the market, we are definitely going to see more and more charging points and charging facilities in different regions. For the China market, I think that for one thing, I mean, the China market is highly competitive and then also it's highly price sensitive. Also, maybe, I mean, many of the local suppliers, they've got some subsidy from the local governments. We have less exposure to the China market, I mean, for the EV charging facilities and products.
We are actually selling a lot into many other regions. I think that this business is definitely continue to grow. I mean, considering the EV, I mean the increasing EV penetration in the market. Can you talk about the demand for the servers, and is there any, I mean, like, component shortage for this business? I think the demand for server powers continue to be really strong and also the shortage issue, I mean, has been eased gradually. Can you share, like, any growth target for your EV solution business? I think, as I mentioned, that's for this year, I think, like maybe at least 30%-40% growth rate is likely to achieve both.
For next year, because we haven't really compiled the annual budget yet, so I'm afraid I don't have any detail, I mean, for you. Can you talk about, like, how much contributions is. I mean, on the shipping margin is from the previously written down inventories or from the benefits with the customers. I think there are actually many variables, I mean, impacting the movements or the dynamic of the shipping margin movements. But we actually have a really consistent and very strict accounting policy for this. We continue to write down the aging inventory according to that. But it's hard for us to give, I mean, such number, like how much can be attributed to the shipping margin expansion.
The next question is, can you give us any color on why Delta Thailand has had such a very strong second quarter results? Was that related to the COVID control in China in the second quarter? I don't think that was related to the COVID control in China because, in terms of the production, I mean, to shift the production to other area, for example, from China to Thailand, it can be completed, I mean, just within a quarter. It actually needs to take at least one year. I don't believe that was because of that. The next question is related to the energy storage system business. Are you still seeing the significant or a severe battery shortage? I think the.
There is not only, I mean, not only the supply, I mean, in terms of the volume, the quantity of battery matters, but also the quality of batteries. Actually, even weighs more because I think the battery, I mean, the quality of battery is highly related to the safety issue. Speaking of or when it comes to the battery procurement, we cannot only consider how many batteries, I mean, in terms of the quantity we can get from the suppliers or from the market, but also we need to consider the qualities of the batteries we get from the suppliers. How do you see the demand and the outlook for your server powers as well as your data center solution business? I think we continue to see pretty nice demand for these two businesses.
What are the key growth drivers for a strong growth of Delta Thailand? Are they sustainable? In terms of the production in Thailand, they actually have a big part of the production related to the power supplies and also related to the cooling fans, especially the automotive fans. They also have a big part of it related to the EV products. As you may still recall, we actually shifted some of our networking products to Thailand from China during the outbreak of the trade war between the U.S. and China.
At the beginning, it wasn't really go well because we still needed to do a lot of tunings in terms of the qualities, but it's actually going well now. We have answered all of the questions, and now also the time is up. Yeah, thank you for coming. Take care, and all the best. Thank you.