Hyundai Motor Co

Hello, this is Michael Yoon, Head of the Ambassador Relations Team. Welcome everyone to Hyundai Motor Company's 2024 Q2 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 Q2 Business Results on our IRS site. 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 Q2 global wholesale decreased by 0.2% year-on-year to 1,057,168 units while retail sales decreased by 3% year-on-year to 1 billion . In the second quarter, our global wholesale decreased slightly compared to the previous year. However, excluding China, our Q2 wholesale increased by 2.2% compared to the previous year as sales momentum continued in North America. In the domestic market, sales decreased by 9.6% compared to the previous year, driven by the slowdown due to consumer sentiment and weakened EV demand. North America saw a 15.2% increase in sales, driven by continuous strong sales of high-margin vehicles. The U.S. market witnessed increased sales of SUVs and hybrids, with growth rates of 15.9% and 60.7% respectively. compared to the previous year boosted by the launch of all-new Sanofi and all-new Sanofi hybrid in the first quarter. Genesis also saw a 9.0% increase in sales driven by the success of the J280 facelift launched in March. In Europe, despite strong sales of the Kona and Tucson hybrids, sales decreased by 5.1% compared to the previous year on a wholesale basis due to weaker demand for e-braids. In India, Despite a slight slowdown in the second quarter affected by the policy uncertainty and its abnormality, sales increased by 0.7% compared to the previous year on a wholesale basis driven by the strong sales of the credit facelift released in the first quarter and continued growth in the SUV segment with extra and value. Next are sales by model and key status. Global SUV sales accounted for a 54.8% or 1.4 percentage point increase compared to the previous year, influenced by the global expansion of Santa Fe and the release of the Crado facelift and emerging markets. For eco-friendly vehicle sales, despite a 25% decrease in EVs due to weakened demand, hybrid sales increased by 26% compared to the previous year. Hybrid sales are also increasing globally, including but not limited to Korea, the US, and Europe. This is the end of presentation and sales summary, and now I'll move on to financial summary. This is the income statement. In the second quarter of 2024, revenue increased by 6.6% year-on-year to 45 trillion won, as well as operating profit increasing by 0.7% year-on-year to 4.2 trillion won. In the automotive division, revenue increased by 4.4% year-on-year due to regional mix improvements, centered on North America and product mix improvements centered on high-margin vehicles. Meanwhile, operating profit, including consolidation adjustments, decreased by 1.6% year-on-year due to increase in SG&A. Despite increased provisioning costs associated with asset growth and rising interest costs, the financial division saw revenue increase by 23.6% year-on-year due to ASB increase resulting from OEM's mix improvements and a continuous increase in penetration rate. Operating profit increased by 32.1% year-on-year. Net profit increased by 24.7% year-on-year to 4.2 trillion won. Next is revenue and operating income analysis. In terms of revenue, there was a positive volume effect of 713 billion won caused by increasing sales. Despite increased incentives, There was a mixed effect of 200 billion due to the strong North American sales and ASB increase. Favorable exchange rate environment and increase in financial and other division revenue resulted in a 6.6% increase in total revenue compared to the previous year. After operating profit, there was a positive effect of 400 billion won due to a weaker Korean won and a positive volume effect of 153 billion won. Also, there was a total mixed effect of $95 billion due to expansion of North American sale and increased ASB, which offset increased incentives. As a result, there was a 0.7% increase in operating profit. Our second quarter cost of goods sold ratio recorded a 0.5 percentage point decrease year-on-year to 78.4%. SG&A increased by 17.2% year-on-year to $5.5 trillion due to increase of labor and provisioning costs. Non-operating income increased by 70.2% year-on-year to 1.3 trillion won, mainly due to the base effect caused by inventory impairment loss in Russia from previous year and an increase in equity method income. Net profit increased by 24.7% year-on-year to 4.2 trillion won, affected by an increase in growth of operating and non-operating income. That concludes the presentation of the second quarter 2024 business results. Thank you. Senior Vice President Seung Jo Lee, the Head of Planning and Finance Division, will assess the company's business results and share information about the dividend payout for the second quarter. Hello, this is Seung Jo Lee, Vice President of the Planning and Finance Division. Allow me to share our business results for the second quarter of 2024, as well as the outlook for the business ahead and quarterly dividends. In Q2, driven by strong sales in the US, our performance showed a slight increase in FOSA compared to the previous year. The favorable exchange rate and continued improvement in product mix also contributed to the increase in sales and operating profit year-on-year. First, let me report on the sales volume. In Q2, wholesale including China amounted to 1,570,000 units, decreasing by 0.2% to each point year-over-year. Despite a significant decline in equity sales due to weakening demand, we continue to see strong sales of SUVs and hybrids, helping us maintain lava sales. As we mentioned in Q1, our line of eco-friendly vehicles, including hybrids and plug-in hybrids, allow us to adapt flexibly to the rapidly changing market and maintain stable sales and profit. While domestic and European markets declined year-on-year, we achieved our business plan targets for the first half of the year. The US market exceeded our business plan, maintaining a strong sales momentum. The Indian market also continues to show steady sales, and we have some major events coming up, such as the IPO of Hyundai Motor India in the second half of the year. Next is operating profit. In the second quarter, we achieved an operating profit of 4.279 trillion won, with an operating profit margin of 9.5%. The consolidated sales volume, excluding China, saw a slight increase year-on-year, and product improvement continued with more SUVs and hybrids. The share of SUVs increased by 1.6 percentage points year-on-year to 58.4%, While hybrids recorded an increase of 2.4 percentage points, reaching 11.6%, both contributing to the profitability of the company. Additionally, with cost reduction and foreign exchange rate effects, we maintained a high level of operating profit margin. Next, I will discuss an incentive. As you may know, H&C has been focusing on securing profitability and has been improving the business fundamentals over the past few years. Through product enhancement, increasing brand awareness, and HMC strength and flexible market responses, we have consistently gained market share. Although there are external factors that raise concerns about incentive increases in the market recently, we have been closely managing the incentives under our management principles, and we will continue to do so in the future. With timely new model launches and continuous product enhancements through relentless technological development, we will expand our market share while also keeping the incentives at healthy levels. Next, I will discuss the outlook for the second half of the year. Due to the continued high volatility in the market, we do not expect the sales in major markets, except for the US, will improve easily. However, the challenging market conditions for this year have already been reflected in our business plans and we expect a strong performance in the U.S. market and a favorable FX rate to continue in the second half. Therefore, we will continue to focus on profitability and make efforts to fulfill our guidance. At this point, the outlook for the second half of the year is not expected to deviate significantly from the annual guidance, but if necessary, we will provide a revised guidance based on record conditions in the Q3 earnings conference call. Lastly, I will talk about the dividends for Q2. We have decided to maintain the dividend at 2,001, which was raised by 501 in the previous quarter. Going forward, we will continue to make efforts to deliver the promised shareholder returns. Moreover, We are planning to hold a 2024 CEO Investor Day at the end of August. We plan to announce our short-term and long-term business strategies and share our financial goals accordingly. Thank you for listening. Next, Senior Vice President Hyung-Suk Lee, the Head of Planning and Finance Division of Hyundai Capital, will assess the Q2 results for the finance business. Hello, I'm Hyunsuk Lee, Senior Vice President and Head of Finance of Hyundai Capital. Allow me to report on the earnings of the finance business in the second quarter of 2024 and outlook for the second half of the year. Despite the sluggish economy caused by high inflation and high interest rates in the first half of 2024, Hyundai Capital has not only strengthened its support for auto sales, but also solidified its market position with unrivaled financial capability and business soundness. As a result, we have achieved strong sales results. Now, let me provide more details of each business entity. First is Hyundai Capital. With strengthened collaboration between sales and finance, installments and leases grew, increasing total financial assets by 3% year-on-year. By continuing to operate a solid auto financing center portfolio, the proportion of auto finance within the operating assets increased to 83%. As a result, with more revenue from installments and leases, the operating income for the first half of the year increased by 16% year-on-year. Although there was an increase in interest costs due to the sustained high interest rates, the operating profit increased by 28% year-on-year as the provisioning cost increased by 5%. In overseas markets, the profitability of several subsidiaries in the UK, Canada and Brazil improved, resulting in a significant increase of 396% in equity methods income year-on-year. As a result, the net profit for the first half of the year increased by 46% year-on-year. An unstable business environment is expected in the second half of 2024 due to interest rate uncertainty and a sluggish real estate market. However, 100 capital plans to enhance profitability by proactively managing risks and improving asset quality, including keeping the delicacy rate below 1% for over a year. The company will also focus on strengthening support for automobile sales. Additionally, in line with the global strategy of the Hyundai Motor Group, Hyundai Capital plans to expand its overseas business, including starting operations in Australia this year and Indonesia next year. Next is Hyundai Capital America, or HCA. Backed by solid market demand in the US, HCA's penetration rate increased 9 percentage points compared to the same period last year, along with a 10% increase in total financing volume. In addition, with the effect of mixed improvement with more high-margin vehicle types, the financial assets increased by 22% year-on-year. With increased installment sales of new cars, HCA's operating income in the first half increased by 27% year-on-year. In the U.S., however, a prolonged high interest rate increased interest costs and provisions, resulting in a 26% increase in operating expenses compared to the same period last year, but operating profit increased by 33%. In the second half of 2024, we expect to see higher market volatility in the U.S. due to interest rate cuts and political issues. To prepare for such uncertainty, HCA is working to ensure financial wellness by maintaining a high share of prime customers, accounting for 88% of all customers, as well as keeping leased assets at 30% or lower to mitigate residual delivery risk. Furthermore, HCA has issued a total of $8 billion in global bonds over three occasions in the first half of the year to proactively secure liquidity. Such efforts will enable HCA to continue its role of providing financial support for Hyundai Motor Group's auto sales. This concludes my report on the finance business. Thank you for listening.

With that, we will conclude the presentation and take your questions. The first question will be presented by Eunyoung Lim from Samsung Securities.

Thank you for the opportunity to ask a question. I have two questions. The first is that you said earlier that you would promote MS by maintaining the right level of incentives in the United States, but I think there is a budget for the right level of incentives that you think. started to fall as the hybrid model was released, and I would like to ask if this trend continues in the second half of the year. So, I think it would be nice if you could tell us if there is an MS in the United States that you are targeting this year. And as you pointed out earlier, the United States has entered the election race, right now. So, it's the time when we're about to move the American factories, The demand for electric vehicles in the U.S. is also very worrisome, and when Trump is elected, he will eliminate the IRA incentive for electric vehicles, and he will add 10% of the customs to all imported vehicles. I think the market is very worried about it. I know that our electric vehicle factory is made of aluminum, but I don't know how flexible it is Thank you for giving me the opportunity.