Hyundai Motor Co

Welcome everyone to Hyundai Motor's 2023 Q1 Business Results Conference Call. On behalf of Hyundai Motor Company, I appreciate your time for participating in today's call. Please refer to the presentation, HMC 2023 Q1 Business Results on our IR website. Today's presentation consists of two parts, sales summary and financial summary. For more information, please refer to the appendix page. The first part is sales summary. Our 2023 first quarter global wholesale increased by 13.2% year-on-year to 1,021,712 units, while retail sales increased by 3.6% year-on-year to 986,823 units. In Q1, with semiconductor and other parts supply regaining balance, productions have increased and our wholesale sales saw a year-on-year increase with strong back orders. In domestic markets, thanks to better parts supply situation, productions have gone up and strong sales of the all-new Grandeur launched in Q4 last year resulted in all-time high Q1 sales up by 26% year-on-year. In North America, strong sales are continued, led by SUVs and Genesis, resulting in wholesale sales increase by 24% year-on-year. In the U.S. market, sales of Tucson and Santa Fe have increased significantly, with sales of SUVs in the U.S. rising 28% year-on-year. EV sales in the U.S. increased 100% year-on-year, thanks to increased sales of IONIQ 5 and the launch of new IONIQ 6. Our U.S. market share in Q1 was 5.5%, up 0.4 percentage points year-on-year. In the European region, sales growth was seen around eco-friendly vehicles with the launch of IONIQ 6 and strong sales of hybrid vehicles such as Tucson. And as a result, wholesale sales increased 10.5% year-on-year. Despite gradual improvement of parts supply in India, sales were limited due to inventory shortage. However, Wholesale sales increased by 11.2% year-on-year due to the low base set in the previous year. The new Verna, which was launched at the end of March, is receiving positive market response and is expected to contribute to future sales in Q2 and beyond. Next is sales and key status of each model. In 2023 Q1, global sales volume has increased year-on-year in most segments due to increased productions. Concentrated sales on segment D, especially with the launch of the Grandeur in Q4 last year, coupled with continued strong sales of the existing SUV and Genesis, is continuing the sales growth in high-value models. Global SUV sales have increased by 0.7 percentage points year-on-year to 52.7% due to increased sales of our flagship models such as Tucson, Santa Fe, and Creta. Genesis's wholesale sales in Q1 have increased by 10.2% year-on-year due to continued strong sales of existing models such as GV70 and GV80, but the sales portion fell by 0.1 percentage points year-on-year to 5.1% as better parts supply situation has increased the sales of all models. Sales of eco-friendly cars increased 40% year-on-year due to increased sales of EVs and hybrid vehicles. sales of IONIQ 5 continue to increase and the global launch of IONIQ 6 in Q1 upped by global EV portion by 1.5 percentage points to 6.5% and the number of sales increased by 48% year-on-year. While we continue our efforts to expand EV sales through global sales of IONIQ 6 and with the launch of the all-new Kona EV We will also continue to improve our sales mix by expanding sales of high-value models through the global launch of the all-new Kona and the launch of the all-new Santa Fe in the second half of the year. As of this year's business results report, further sales details for major markets such as Korea, the U.S., and Europe are provided in Appendix 11 to better understanding in our sales performance. This is the end of the presentation on sales, and now I'll move on to P&L. This is the summary of income statement. Consolidated revenue increased by 24.7% year-on-year to 37,788.7 billion KRW. Operating income increased by 86.3% year-on-year to 3,592.7 billion KRW. The Korean automobile's revenue increased 27% thanks to the production increase leading to sales increase and the improved mix with more high-margin vehicles sold. The operating margin increased by 139% year-on-year. The finance business increased revenue 16% year-on-year thanks to the strong car sales, but the operating income decreased 33% due to higher interest expense driven by the policy rate increase. Net income increased by 92.4% year-on-year to $3,419.4 billion. Next is revenue breakdown. Sales volume increased thanks to the increased production, had a positive impact on $2,559.8 billion, and the mixed improvement with more ASP cars sold had an impact of $3,135.6 billion. In addition, the February $1-2 rate had a $876 billion impact, increasing revenue by 24.7% year-on-year. Regarding operating profit, the volume increase, thanks to the increased production, had a $757.5 billion impact. Mixed improvement with high-margin cars like Grandeur had a $559.1 billion impact. And the favorable FX rates had a $276.4 billion impact. Despite the operating income fall of some of our finance businesses and increased SG&A costs, OP margin improved 86.3% year-on-year. Q1 cost was 1.3 percentage points, down by 79.6% thanks to the better auto parts supply leading to better operation rates of plants. SG&A was up 7.4% year-on-year to $4,129.3 billion due to increased marketing expenses with new car launches. Non-operating profit increased 185.6% year-on-year to $998.3 billion due to the increase in equity method income and raising key rates. Net income increased 92.4% to $3,419.4 billion thanks to the increased operating income. This is the end of my presentation. Thank you. Next, we will have the Head of Agency Planning and Finance Division, EVP Seo Kang-hyeong, share his share agency's mid- to long-term shareholder return plan and evaluation on Q1 performance and 2022 H1 outlook. Good morning. I am EVP Seo Kang-hyeong, Head of Planning and Finance Division. I'll first start with the mid- to long-term shareholder return policy and evaluation of Q1 performance. In 2023 Q1, HMC saw an increase in sales volume through production. And after announcing our shareholder term policy, we have upped our transparency and we would like to share that with the market. The mid to long term shareholder term policy is to have a transparency shareholder turn to heighten the shareholder turn value and to have a rational dividend policy and to have a long-term share cancellation policy. In the future, we will have a consolidated mix. And compared to the existing dividend policy, the consolidated governance shareholder will be the base of the dividends, heightening the transparency so that we can have more visibility in terms of the dividend payout. Now we'll have a quarterly dividend payout, which has been two times before and will now be expanded to four times so that we can mitigate the changes in the share prices and increase the attractiveness. Finally, for the next three years, Our equity shares will be canceled 1% every year, a total of four years. HMC will continue to expand the shareholder values and become more shareholder friendly so that we can respond to market expectations. Now I'll move on to the business performance for 2020 Q1 as well as the outlook for H2. In 2023 Q1, H&C saw an increase in sales volumes through production expansion, a mixed improvement centering on high-value products, and a favorable exchange rate effect resulting in an operating profit margin of 9.5%, the highest quarterly record that exceeds market consensus. Although there are still concerns about various external uncertainties, our global sales increased by 13% year-on-year, thanks to better parts supply that allows production expansion and solid back-order demand. By region, sales in major markets such as Korea, U.S., and Europe rose by more than double digits year-on-year, improving the regional mix. In particular, sales in the U.S. increased by 30% for wholesales, and SUVs and Genesis sales increased by 28% and 36%, respectively, driving our profitability improvements. Furthermore, Genesis and SUV sales portion increased from 54.5% last year to 55.5% this year. as the improved product mix effect was further realized in Q1, then the continued increase in Genesis and SUV sales and strong sales of the new Grandeur, which was launched at the end of last year. Incentives have increased year-on-year due to the previous year's low base effect, but fell against the previous quarter, maintaining the favorable trend. The $120 exchange rate also exceeded our business plan estimate, which have been forecast at the beginning of the year, acting favorably on our performance. Global EV sales also increased by 48% year-on-year, continuing the sales growth. Sales of IONIQ 5 and 6, which have large back orders, have strengthened due to better chip supply situation, and with the start of Kona EV sales in Q2, EV sales growth is expected to continue. Next is the outlook on 2023 Q2. External uncertainties such as hiking interest rates are still at bay, but solid performance is expected to continue in Q2, backed by strong demand and with Q2 traditionally being a peak season. Although the semiconductor supply issue is not fully resolved, the production plan established at the beginning of the year is expected to be achieved and thus sales increased expected in Q2 thanks to a solid demand. Sales are particularly expected to increase around Genesis and SUVs, which are in high demand, resulting in a continued improvement in product mix. Although there are some concerns on EV sales in the U.S. due to the IRA, we plan to respond actively by pulling forward the local production schedule and by leveraging the provisions for commercial vehicles. Furthermore, with IOTX6 sales beginning, EV sales growth will also continue in Q2. Thank you for your time. Next, SVP Lee Hyung-seok, Head of Hyundai Capital Finance Division, will present on Q1 Financial Business Performance and H1 Outlook. Hello, I'm SVP Lee Hyung-seok, CFO of Hyundai Capital. Please allow me to share with you our Q1 2022 earnings results and H1 Outlook of the financial business. In Q1, unfavorable business conditions persisted, including high interest rates and economic slowdown that had begun last year. However, by working closely together with our affiliates to operate a solid portfolio with mainly auto financing, managing risk proactively, and promoting financial soundness, Hyundai Capital has defended our profitability. Please allow me to elaborate on the earning results by company. First is Hyundai Capital. Thanks to the improved competitiveness of our installment programs driven by HMC's car sales growth and our cooperation with HMC, our assets increased by 4% year-on-year. When the Korean market was experiencing a financial crunch late last year, our competitors reduced their auto financing sales, but Hyundai Capital kept offering captive auto financing on the back of a stable financing capacity. and the auto volume shares exceeded 90% in Q1, solidifying our position as a top captive finance company. This resulted in an operating revenue, an increase of 38% year-on-year, mostly from installment and lease. However, reflecting interest expenses with increasing base rates, and growing bad debt expenses due to growing concerns over an economic slowdown, OP margin was down 29% year-on-year. Korea's top three credit rating agencies upgraded Hyundai Capital's credit rating to AA-plus in March and April. Also, Moody's and Fitch elevated our credit ratings to positive from BAA1 stable and BBB plus stable, respectively. This is acknowledgement of the fact that we are now better aligned with our affiliates as a captive financial company and have an unrivaled position in the market. In H1, unfavorable market conditions are likely to remain. But the company will make our auto financing products more competitive and develop financial solutions for CPO vehicles to fully serve as a captive finance company and will do our best to build stable liquidity and manage credit risks. Next is Hyundai Capital America, HCA. With the increased car sales and penetration, combined with higher ASPs and strong sales of high margin vehicles like Genesis and SUVs, HCA's assets increased 4% year-on-year in Q1. Therefore, the Q1 2023 operating revenue went up 3% year-on-year. But so did the interest expenses and bad debt expenses, with rising interest rates and asset value improvements, which led to higher operating expenses. As a result, net incomes denominated in Korean won went down 26% year-on-year. To minimize the negative impact of uncertain market conditions, H&C increased the prime asset share in the portfolio to 86% to be more financially sound. And it issued 2.5 billion USD worth of global bonds last March with the aim to proactively improve liquidity. And as the company was elevated to be strategically and highly important to Hyundai Motor Group, like Hyundai Capital, Moody's adjusted the Hyundai credit rating from BAA1 stable to positive last February. In 2023 Q1, we have concerns over growing interest expenses with the Fed potentially raising its policy rate again and an economic slowdown and resultantly worsening financial sound blitz. To fend off such risks, HCA will proactively manage risks, mostly for our prime customers, and manage our lending portfolio properly to make the company stronger. Thank you for your time. That is the end of our presentation, and we will now receive questions.

질문을 하실 분은 전화기 버튼의 별표와 1번을 눌러주시기 바랍니다. 질문을 취소하시려면 별표와 2번을 누르시면 됩니다. Now Q&A session will begin. Please press star 1, that is star and 1 if you have any questions. Questions will be taken according to the order you have pressed the number star 1. For cancellation, please press star 2, that is star and 2 on your phone. The first question will be provided by Jinwoo Kim from Korea Investment and Securities. Please go ahead with your question.

Hello. Thank you for your question. First of all, I would like to thank you for the outstanding performance of the company. We are also looking forward to receiving a positive evaluation from the company. I would like to ask two questions. First of all, I think it's a little lower than I thought. The sales revenue has increased by 25%, but the return on investment has increased by 7%, and most of them are marketing costs due to the release of new products. Is the return on investment not increasing as much as the sales revenue, and will this trend continue in the future? The sales revenue is now in the early 10%, is this going to continue in the future, or are you using the return on investment in this quarter? The second question is, good afternoon I have two questions but before that I'd like to congratulate you on the