Hyundai Motor Co

Hello, this is Michael Yoon, Head of Investor Relations Team. I would like to ask, we have Senior Vice President Ja Yong-Koo, Seung Jo Lee, and we also have Lee Hyung-Suk from Hyundai Capital as well. Welcome everyone to Hyundai Motor Company's 2024 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 2024 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. First part is sales summary. Our 2024 Q1 global wholesale decreased by 1.5% year-on-year to 1,006,767 units, while retail sales decreased by 4% year on year to 946,870 units. In the first quarter, wholesale decreased slightly compared to the previous year. However, sales momentum continued in markets such as North America and India, where profitability is solid. In the domestic market, Sales decreased by 16.3% compared to the previous year due to temporary shutdown of Atam Plant, which was planned in advance for the retooling of lines to produce new EV. The sales decreased by 16.3%, as mentioned. North America saw a 11.1% increase in sales, driven by continued strong sales of high-margin vehicles. The U.S. market witnessed increased sales of SUVs and hybrids with respective growth rates of 9.9% and 14.2% compared to the previous year, boosted by the launch of all-new Santa Fe in January and all-new Santa Fe hybrid in March. Genesis also saw an 18% increase in sales compared to the previous year, driven by the success of the GV80 facelift launch in March. In Europe, despite a decrease in demand for EVs due to reduced subsidies, sales increased by 1.8% compared to the previous year on a wholesale basis, exceeding quarterly business plan, driven by strong sales of the Kona and Tucson hybrids. In India, sales increased by 8.1% compared to the previous year on a wholesale basis, driven by the strong sales of the Creta facelift release in January and continued growth in the SUV segment. Next is sales by model and key status. Global SUV sales accounted for 57.2%, a 4 percentage point increase compared to the previous year, influenced by the global expansion of Santa Fe and the release of the Creta facelift in emerging markets. Despite a 4.8% decrease in sales for eco-friendly vehicles due to weakened EV demand, hybrid sales increased by 16.6% compared to the previous year. In the domestic market, hybrid sales accounted for 21%, a 6.3 percentage point increase compared to the previous year driven by strong sales of the Tucson and Santa Fe hybrids. This is the end of presentation on sales summary, and now I'll move on to financial summary. This is the income statement. In the first quarter of 2024, revenue increased by 7.6% year on year to 41 trillion won. while operating profit decreased by 2.3% year on year to 3.6 trillion won. In the automotive division, despite a slight decrease in sales volume compared to the previous year, revenue increased by 3.5% year on year due to regional mix improvements centered on North America and product mix improvements centered on high margin vehicles. Operating profit, including consolidation adjustments, decreased by 6.6% year on year. Despite increased provisioning costs associated with growth and size of business and rising interest costs, the financial division saw revenue increase by 30.8% year-on-year due to ASP increase, resulting from OEM's mixed improvement and continuous increase in asset yields. Operating profits increased by 15.4% year-on-year. Net profit decreased by 1.3% year-on-year to $3.4 trillion. Next is revenue and operating income analysis. In terms of revenue, despite a negative volume effect of $231.1 billion caused by decrease in sales, there was a mixed effect of $942.1 billion due to the strong North American sales and ASP increase. Favorable exchange rate environment and increase in financial and other division revenues resulted in a 7.6% increase in total revenue compared to the previous year. As for operating profit, there was a positive FX effect of 251 billion won due to the strengthening of the $1 exchange rate. However, there was a 50 billion decrease due to volume decline and expansion of North American sales and AASP increase offset by incentive increase resulted in a negative total mix of $21 billion, resulting in a 2.3% decrease in operating profit. Our first quarter cost of goods sold ratio recorded a 0.1 percentage point decrease year-on-year to 79.3%. SG&A increased by 17.9% year-on-year to $4.8 trillion due to increase of labor improvement costs. Nonoperating income increased by 16.5% year-on-year to $117.1 billion due to increases in equity method income and decreases in interest costs associated with reduced borrowings. Reflecting discontinued operations losses, net profit decreased by 1.3% year-on-year to $3.4 trillion, affected by the decrease in operating profit. That includes the presentation of the first quarter of 2024. Moving on, we will have Hyundai Motor Company Title Planning and Finance Division Senior Vice President, Seung Jo Lee. Good afternoon, I am Seung Jo Lee, SVP of Agencies Planning and Finance Division. Let me share the Q1 business results for 2024, the performance outlook and Q1 dividend plan. In Q1 of 2024, despite wholesale slightly decreasing due to the retooling of lines and domestic plants and temporary shutdowns, Favorable exchange rates, regional mix in advanced markets, and improvements in the product mix has helped HMC achieve an operating profit margin of 8.7% on a consolidated basis. First, sales volume. EV sales are continuing to slow in 2024 with EV demands weakening from the latter half of 2023. This has led to a significant decrease in EV sales year over year. However, we are maintaining stable sales and profits by flexibly responding to market changes by utilizing our existing lineup of green vehicles, including hybrids and plug-in hybrids. Despite having weak demand in the domestic market, we are continuing to deliver solid growth in key markets such as the U.S., Europe, India, and etc. Next, operating profits. The operating profit for 2024 1Q is 3.6 trillion won and the operating profit margin is 8.7%. As mentioned, we saw the continued effects from the product mix improvement. SUVs increased 5.2 percentage points year-over-year to 60.6%, reaching an all-time high of SUV share in a quarter. Genesis has also increased 0.5 percentage point year over year, continuing to be a high margin vehicle and contributing significantly to our consolidated operating profits. While EVs have seen a huge decline in sales volume, hybrids remain a high margin model. Increasing by 17% year over year, hybrids are contributing to HMC's high profitability. We will continue to focus on high margin vehicles' improved profitability and continue increasing our market share and boosting profitability in key markets. Let's move on to the incentives that recently heightened. The automotive market is rapidly changing due to external factors such as the downturn in EV demand, strong sales, performance of hybrids, and supply chain normalization. However, we remain strong. as we are able to flexibly respond and boost profitability and increase market share amidst changes in the market. Incentives are being managed in a stable manner under high profitability. While incentives may temporarily be above the market average because of strategic decision making, it is being managed so that it does not largely affect profitability and we will continue to thoroughly manage the incentives. Next, I'd like to discuss one Q dividend. With great improvements in our performance in 2023, we implemented a dividend payout ratio of minimum 25%. With stable profits in 2024, we will continue to implement an annual dividend payout ratio exceeding 25%. Considering improvements and being able to create profit, the Q1 dividend was decided 2,000 Korean won per common share, a 501 increase year over year. Lastly, I'd like to mention the Corporate Value Up program that is receiving the spotlight in the market. In light with our medium to long-term shareholder return policy announced in 2023, we are reviewing the Corporate Value Up to enhance our value. Once we finish reviewing the program details, we will seek approval from the Board of Directors and announce our plans to the market. Thank you for listening. Next, we will have Hyundai Capital's Head of Planning and Finance Division SVP, Lee Hyung-seok, present the 2024 1Q Business Results and Outlook for the first half of 2024. Good afternoon. I am Lee Hyung-seok, Head of Planning and Finance Division of Hyundai Capital. I will report the 2024 1Q Business Results and Outlook for the first half of 2024. Despite seeing sustained high interest rates and unfavorable business environments, Hyundai Capital and HMG have a strong sales-finance cooperation to strengthen our auto-finance competitiveness and solidify our position in the market. As a result, Moody's raised Hyundai Capital's corporate credit rating from BAA1 to A3, and Fitch raised Hyundai Capital's corporate credit rating from BBB+, to A-. the highest level among non-bank financial companies in Korea. This has helped strengthen our procurement capabilities. I'll now elaborate on the details of Hyundai Capital and HCA. First is Hyundai Capital. 2024 1Q auto volume increased 5.4% year-over-year and financing assets grew 4.4% year-over-year. With strength and support for auto sales, auto finance grew and takes up 82.4% in the asset portfolio, the highest figure in 12 years. With more competitive installment products and growing leads demand for high value models, the operating profit increased by 14.9% year over year. While interest expenses increased due to sustained high interest rates, bad debt expense decreased 15.2% year over year and the operating profit increased 54.8% year-over-year. Overseas, we have seen profit and loss improve in Germany and Brazil, leading to a 280.9% increase year-over-year through equity method income. As a result, we saw a 112.2% increase of net income year-over-year. In the first half of 2024, we will see delays in lowering interest rates, and we will see uncertainties in the market. However, Hyundai Capital will continue to strengthen auto finance competitiveness and make costs more efficient to increase profitability. Hyundai Capital's delinquency rate remains under 1%, and we will continue to stabilize and improve our fundamentals. Also, we will strategically expand operations in Australia with Hyundai Capital Australia and ensure we strengthen auto finance in overseas HQs. Next is Hyundai Capital America, HCA. With continued strong demand from American consumers, we saw the acquisition rate increase 14.1 percentage point year-over-year and auto financing volume increase by 7.6% year-over-year. Improved sales mix led by SUVs and continuous increase of ASP caused financial assets to go up by 24.2% year-over-year. The growth of assets led by new model installment plans has led to installment profits increasing 65% year-over-year and operating profits increasing 32.5% year-over-year. As the U.S. continues to hold high interest rates, the operating costs increase by 34.1% year-over-year, but the operating profits increase 5.9% year-over-year. While there are concerns over asset soundness, the share of prime customers in HCA's portfolio still stands at 90%. The market price of used cars is dropping, yet at a gradual pace. Leased assets are less than 30% of the portfolio, contributing to stable management of residual value. In 2024, continued high inflation and political events and issues in the U.S. is bound to lead to changes in the market, but HCA is expected to see sound asset growth. With strengthened procurement competitiveness and securing sound fluidity, we will continue our efforts to provide support for auto sales finance in the US. This is all for the presentation from Finance. Thank you for your attention. This concludes our presentation.

The first question will be presented by Yongmin Kim from CGS International.

Hello, I'm Yongmin Kim from CGS International. Thank you for the question. Our sales savings have increased significantly compared to last year. What was the most important factor that affected this? Or were there any specific factors that affected this quarter? I wonder if it has increased like this. And secondly, you mentioned that there is a reduction in cash flow in the financial sector. I wonder if this is reduced by any standard, whether it is related to the market trend or whether it is decided by other factors. And lastly, in terms of profits, the fact that MIX and incentives have been reduced means that I think the segment or the type of car that should be sold with a lot of incentives and a car that brings up MIX will be different, but I would like to ask if you think it is possible to continuously improve the profits through MIX improvement when it includes future incentives. Thank you.