Hanwha Solutions Corporation (A009830) Earnings Call Transcript & Summary

Good afternoon. This is General Manager Han Sang-Heum of IR Communications Department, Strategy Division at Hanwha Solutions. We thank the investors, analysts, press and others for joining this call. Now let me brief you the consolidated performance of Q4 2019 and the outlook for Q1 2020. Please refer to the presentation material we posted on our website. First is profit and loss. Consolidated sales for Q4 grew by 0.4% to stand at KRW 2.4517 trillion. Despite weak performance of Chemicals, total sales recorded small increase, thanks to solid performance of PV business. Consolidated operating profit of Q4 declined by about 80% over the last quarter to KRW 30 billion. Although Chemicals was strongly affected the off season and increase in low material price, PV's performance was, on the other hand, more solid, thanks to higher ASP profit -- ASP and profit recognized from downstream business. EBITDA for the same period was KRW 172.1 billion. On yearly basis, operating profit of 2019 rose by about 7%, vis-a-vis 2018, to KRW 378.3 billion. EBITDA also increased 18% over 2018 to KRW 939.5 billion. As for 4Q net profit spread narrowed owing to low seasonality at key companies under equity method relations and new capacity expansions in North America and within the region to result in decrease in equity method income, one-off expense such as about KRW 300 billion of asset impairment loss from Polysilicon business being recognized as nonoperating loss turned the net profit into negative territory. Hanwha Solutions has decided to cease Polysilicon business as per resolution taken by our Board of Directors today and plans to fully exit from the business within the year after taking the necessary preparatory steps. For details of performances by business segment for Q4 2019, please refer to the table at the bottom of Page 4. Next, I'll go over the balance sheet. As of end of 2019, the company's total asset increased by KRW 449.6 billion to KRW 15.6811 trillion. Cash and cash equivalents, including short-term financial instruments, rose by KRW 142 billion over the end of 2018 to stand at KRW 1.5421 trillion. Total liabilities rose by KRW 870.9 billion over the end of 2018 to KRW 9.8753 trillion. That rose by KRW 480.1 billion to KRW 6.3686 trillion. Total liabilities to equity grew 25 percentage points over the end of 2018 to stand at 170%. For financials of business segments, please refer to the bottom table of Page 5. Let me now move to performance by business segment. First is Chemicals. Operating profit in this segment turned into deficit to record KRW 4.6 billion. This is due to narrowed spread coming from weak demand of major products and impact from scheduled maintenance of Hanwha Solutions and customers. Operating profit for Q1 this year is expected to turn positive with underlying scheduled maintenance costs from Q4 last year, but increase is expected to be limited due to continuing seasonal weak demand and tightened demand from coronavirus outbreak. Next is PV. Photovoltaic operating profit rose by KRW 10.7 billion Q-on-Q to reach KRW 76.3 billion. This is because, despite lower shipment due to seasonality and one-off losses reflected at the year-end, we saw positive impact from production's switch from multi to monocrystalline, which we started from early last year, and profit contributed from downstream project. For Q1 2020, despite continuing off-season intensifying price competition in Europe and Korea, solid profit is expected to continue owing to base effect of one-off expense from previous quarter and stronger demand created due to the U.S. safe harbor issue. Next is Advanced Materials. Advanced Materials saw some positive impact from new model release in Korea but sluggish sales from subsidiaries in North America, Europe, coupled with customers' reducing year-end inventory and inclusion of one-off expense at year-end widened deficit in sales to keep operating loss at negative KRW 19.6 billion. For Q1 2020, coronavirus outbreak negatively impacting production in Chinese and Korean subsidiaries will be unavoidable, but base effect coming from one-off loss post in Q4 last year is expected to lower operating deficit. Next is Retail. Operating profit in Retail improved, despite the increase in various costs with start of new business and inclusion of one-off costs due to discontinuation of duty-free business and strong seasonal demand. Operating profit stood at KRW 8 billion, an improvement over previous quarter. For the first quarter of 2020, sales is expected to go down, owing to decrease in seasonal factor compared to Q4 2019. Base effect of one-off expense from Q4 last year is expected to improve operating profit. Let me now explain about equity method income. Equity method income stood at KRW 4.5 billion, a decrease of KRW 76.5 billion from previous quarter. Narrow spread from seasonal weak demand and capacity expansion, along with one-off expense recognized from company in equity method relations, resulted in decrease of equity method income. As for equity method income for this first quarter, narrowed spread of the chemical products is expected to decrease earnings of key subsidiaries in equity method relations, but improvement is expected owing to base effect from one-off expense coming from Hanwha Hotels & Resorts in the Q4 2019. Lastly, let me explain about ways to maximize shareholders' value. Please turn to Page 18. First, we plan to reshuffle the composition of BOD and its compensation scheme through a balance of outside directors from diverse professional background, nationalities and gender with inside directors. With both in-depth understanding of future growth industries, we will strengthen diversity and expertise, along with efficiency in decision-making process to maximize shareholders' value. Also by adopting long-term incentive scheme for the management that is tied to the share value of the company, we hope to strengthen management responsibility to the shareholders. Newly introduced long-term incentive scheme is described in Page 19. Next, we'll further increase our sales and operating profit by promoting continuous growth in PV, which is environmentally friendly, high-growth business sector. Through such efforts, we want to maximize long-term value for shareholders and stakeholders. Amidst structural changes coming from mega transformation in energy industry ecosystem, opportunity in solar business expanding, and business models are also diversifying. We'll gradually expand solar power plant investment development business and retail power sales business that are tied to existing PV module business to maximize synergistic effect. This will, in turn, give us additional growth and allow us to diversify our profit structure. Last, but not least, as we have done also in the past, we'll combine cash dividends with stock buyback and cancellation for mid- to long-term stable shareholders' return. Our company plans for reasonable and transparent shareholders' return that is based on marking to market industry peers' average yield range. As for this year, through cash dividends, along with buyback and cancellation of shares, our plan for shareholders' return is total KRW 63.1 billion. Cash dividend will be the same as last year, KRW 200 per share for common shares and KRW 250 per share for preferred stocks a total of KRW 32.6 billion. Shares buyback and cancellation will also be the same as last year, 1% of total common shares equivalent to KRW 30.5 billion. This concludes briefing on performance by business segment for Q4 2019 and outlook for Q1 2020. Thank you for listening. [Statements in English on this transcript were spoken by an interpreter present on the live call.]