Hanon Systems posted second-quarter operating profit growth of more than 60% despite nearly flat sales, as cost cuts and operational efficiency gains began to show up in earnings following the company's integration into Hankook & Company Group last year.
The auto-parts maker said Friday its consolidated second-quarter sales rose 0.6% from a year earlier to 2.88 trillion won ($2 billion). Operating profit climbed 61.2% year-on-year to 103.7 billion won.
In the same period last year, sales stood at 2.86 trillion won and operating profit at 64.3 billion won. The sales gain amounted to just 17 billion won, but operating profit expanded by 39.4 billion won, lifting the operating margin to 3.6% from 2.2% — an improvement of roughly 1.4 percentage points.
The improvement also held up against the previous quarter. Second-quarter sales were up 4.6% from the first quarter's 2.75 trillion won, and operating profit rose 6.7% from 97.2 billion won.
Net profit for the period also swung to a gain. Second-quarter net profit came in at 86.1 billion won, reversing a net loss of 15.1 billion won in the year-earlier period. Net profit attributable to owners of the parent likewise turned around, from a loss of 16.4 billion won a year ago to a profit of 85.3 billion won.
Hanon Systems said favorable exchange rates and higher electric vehicle and hybrid vehicle production by European automaker customers supported sales growth. Global facility restructuring and reductions in material and logistics costs also contributed to the operating profit increase.
The company's cost of sales ratio for the first half stood at 89.3%. For auto-parts suppliers, this ratio reflects the share of sales consumed by materials, labor and logistics costs involved in producing and delivering components to customers — the lower the ratio, the more profit is retained from the same level of sales.
Electrification-related sales accounted for 31 percent of the total, driven by increased supply of thermal management components for electric and hybrid vehicles, primarily to European customers.
Hanon Systems produces air-conditioning and cooling systems for electric vehicles, hybrids and internal combustion engine vehicles alike. The company has highlighted this breadth as a buffer against any slowdown in EV market growth, noting it can sustain revenue from hybrid and other powertrain vehicles.
The improvement was even more pronounced over the full first half. Sales reached 5.62 trillion won, up 2.7% from the first half of last year. Operating profit surged 135.3% to 200.9 billion won.
First-half operating profit was 85.4 billion won a year ago; this year it grew by 115.5 billion won to more than double that figure. The first-half operating margin also rose to 3.6% from 1.6%, a gain of roughly 2 percentage points.
First-half net profit came in at 153.5 billion won, swinging from a net loss of 37.7 billion won in the same period last year.
Lee Su-il, vice chairman and chief executive of Hanon Systems, said the company had "laid the groundwork for an earnings recovery through company-wide operational efficiency improvements and structural reforms, even amid rising global cost pressures." He added that the company would "continue to strengthen its fundamentals against an uncertain external environment while actively pursuing new businesses grounded in automotive thermal management technology, to sustain long-term growth."
Since joining Hankook & Company Group in January last year, Hanon Systems has been reviewing its production footprint and cost structure as part of a broader push to improve profitability. The group has expanded its automotive components portfolio by adding Hanon Systems' thermal management business to Hankook Tire's tire operations and Hankook & Company's battery business.
kwater@heraldcorp.com
