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Edited Transcript of 009830.KS earnings conference call or presentation 13-Nov-19 5:00am GMT

Q3 2019 Hanwha Chemical Corp Earnings Call

Seoul Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Hanwha Chemical Corp earnings conference call or presentation Wednesday, November 13, 2019 at 5:00:00am GMT

TEXT version of Transcript

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Presentation

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Unidentified Company Representative, [1]

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Good afternoon. I am [Hak Tang Sak], the Head of Strategy at Hanwha Chemical. I will now begin the earnings call for the third quarter 2019.

I'd like to first thank the investors, analysts, the press and others who joined the call.

Now I will brief you on the consolidated performance of Q3 and the Q4 outlook of Hanwha Chemical. Please refer to the earnings presentation deck from the website.

First, earnings. The Q3 sales for consolidated basis increased by 2.8% Q-on-Q to KRW 2.4412 trillion. Growing shipments and higher ASP in the photovoltaics contributed to the strong performance. Consolidated operating profit of Q3 increased by 56.3% from previous quarter to record KRW 152.4 billion. The improvement is attributable to lower costs for basic material, better profit profile in the photovoltaics and the elimination of property tax cost in the retail segment.

EBITDA in the period recorded KRW 295.1 billion. The net profit in the Q3 increased by KRW 88.5 billion to KRW 111.5 billion, boosted by higher equity method gains coming from the completion of the regular turnarounds and the lower-cost raw materials of equity method companies.

For Q3 performance by segment, please refer to the table at the bottom of Page 4 of the presentation deck.

Second, I will brief you on the financials.

Total assets as of the end of 2019 Q3 increased by KRW 620.8 billion versus the previous year-end to reach KRW 15.8523 trillion. The cash and cash equivalents were reduced by KRW 237.5 billion versus the previous year-end at KRW 786.6 billion.

Total liabilities increased by KRW 473.2 billion versus the previous year-end to record KRW 9.4776 trillion. Meanwhile, the debt grew by KRW 350.9 billion to KRW 6.2394 trillion. Total liability-to-equity increased by 4 percentage points from the end of last year at 149%.

Please refer to the table at the bottom of Page 5 of the deck for the financials by segment. Next, I will go over performance for each business segment.

First, basic materials. OP of basic materials increased by KRW 25.4 billion from the previous quarter to record KRW 75.6 billion. This is due to lower raw material costs for key products, base effect of regular turnaround in the previous quarter and FX rate. More specifically, weak global petroleum and naphtha price lowered the raw material costs, contributing to wider spread and better profitability. Also exchange rate between the U.S. dollar and the Korean won moved in our favor.

The OP in Q4 is expected to be smaller due to the lower global price of key products. Sluggish global demand and seasonality will continue to drive PE, PVC, caustic soda and the TDI price at a lower level. If the U.S.-China trade conflict enters into a more favorable phase, the market conditions may fare better with rebounding demand. Operating profit will be affected by the scheduled maintenance during the fourth quarter. Operating loss is expected to continue with polysilicon as the global price is slow to recover.

Next, on photovoltaics. Photovoltaics OP increased by KRW 32.9 billion from the previous quarter to record KRW 65.6 billion. This is due to transition from multi- to monocrystalline starting from earlier this year and, two, strong demand from our key markets of the U.S. and Europe. Both shipment and ASP increased. In the fourth quarter, line upgrade will continue to further drive product sales mix improvement and higher ASP. Thus, strong profit performance.

Next, on process materials. Thanks to new cars and the cell phone model launches, the loss in the process materials decreased from the previous quarter at KRW 0.6 billion. While the domestic new car launch will work in our favor in Q4, sluggish sales from overseas entities, mainly in China and Europe, and the customers' inventory reduction at the year-end will further drive operating loss.

Next, on retail. The retail segment recorded operating profit of negative KRW 0.8 billion due to [temporary] costs in the previous quarter and the strong sales of luxury goods. The DFS business was discontinued on September 30. In Q4, the segment is expected to turn around with a strong performance from department store as they enter into seasonal peaks and operating loss from DFS is resolved from business closure.

Next, on equity method entities. Equity method income grew by KRW 49.2 billion Q-on-Q to reach KRW 81 billion. The performance was boosted by increasing sales as regular turnarounds were completed and the lower raw material costs due to weak global petroleum and naphtha price. Despite weaker price of some products, equity method income in Q4 is expected to be at the same range as Q3, as Hanwha Total's performance will recover with the normalization of the production and sales volume.

This concludes my briefing on 2019 Q3 performance and Q4 outlook by business segment.

Thank you for listening.