Hyundai Motor Co

Hello, this is Michael Yoon, head of IR team. Welcome everyone to Hyundai Motor Company's 2024 Q3 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 Q3 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 Q3 global wholesale decreased by 3.2% year-on-year to 1,011,808 units, while retail sales decreased by 3.1% year-on-year to 988,594 units. In the third quarter, our global wholesale decreased slightly compared to the previous year. However, excluding China, our Q3 wholesale was comparable to previous year. In the domestic market, sales increased by 1.8% compared to the previous year, driven by the EV sales improvement as the launch of Casper EV and increase in hybrid demand. 3% increase in sales driven by continued strong sales of high-margin vehicles. The U.S. market witnessed increased sales of hybrids and SUVs with growth rates of 71.3% and 4.7% respectively compared to the previous year boosted by increase in demand of overall hybrids models including Tucson, Santa Fe, Avante, and Sonata. In Europe, although hybrid sales increased by 20.9% compared to last year driven by strong sales of Santa Fe, Kona, and Tucson facelift hybrids. Sales decreased by 9.5% compared to the previous year on a wholesale basis due to weaker demand for EVs. In India, sales decreased by 5.7% compared to the previous year on a wholesale basis driven by slowdown due to seasonality and pent-up demand before festival season in Q4. Next is sales by model and key status. Global SUV sales accounted for 60%, a 1.4 percentage point increase compared to the previous year, influenced by the global expansion of Santa Fe and the sales ramp-up of Creta facelift and emerging markets, as well as strong sales of GV70. D-segment, the highest margin segment, was 7.3%, a 1.3 percentage point increase driven by sales expansion of Sonata Hybrid. For eco-friendly vehicle sales, although EV sales decreased by 8.1% due to weakened demand, EV slowdown has recovered from the first half of the year due to the launch of Casper EV. Hybrid sales increased by 45.4%, compared to the previous year, replacing Wigbent EV demand. Hybrid sales are substantially increasing globally, including but not limited to Korea, US, and Europe. This is the end of the presentation on sales summary, and now I'll move on to financial statements. This is the income statement. In the third quarter of 2024, revenue increased by 4.7% year-on-year to 43 trillion won, while operating profit decreased by 6.5% year-on-year to 3.6 trillion won. In the automotive division, revenue increased by 5.3% year-on-year due to regional mix improvements centered on North America and product mix improvements centered on high-margin vehicles, as well as increase in volume. Meanwhile, operating profit, including consolidation adjustments, decreased by 7.7% year on year due to an increase in incentives driven by intensified global competition and an increase in SG&A. In finance division, revenue increased by 10.1% year on year due to expansion of AUM, resulting from increased penetration rate under strong U.S. sales. Despite an increase in interest costs and provisioning costs associated with asset growth, the operating profit increased by 13.6% year-on-year driven by increased return on assets due to the OEM's mixed improvement. Net profit decreased by 3% year-on-year to 3.2 trillion won due to a decrease in operating profit. Next is revenue and operating income analysis. In terms of revenue, there was a negative volume effect of minus 221 billion won caused by a decrease in sales. Despite an increase in incentives, there was a mixed effect of 1.5 trillion won due to the strong North America sales and ASP increase. Also, there was positive effects effect of 494 billion won under favorable exchange rate environment and an increase in financial division revenue resulted in a 4.7% increase in total revenue compared to the previous year. As for operating profit, there was a positive FS effect of 787 billion won due to favorable exchange rate environment. However, a negative mix effect of 469 billion won driven by an increase in incentives as well as one-time warranty cost of 319 billion won due to a proactive warranty extension for GRAT Santa Fe sold in the U.S. resulted in a 6.5% decrease in operating profit. Our third quarter cost of goods sold ratio recorded a 0.8 percentage point increase year-on-year to 80.2%. SG&A increased by 6.1% year-on-year to 4.9 trillion won due to increase of label cost. Lastly, net profit decreased by 3% year-on-year to $3.2 trillion, affected by a decrease in operating income. That concludes the presentation of the third quarter 2024 business results. Thank you for listening. Next, Senior Vice President Seung Jo Lee, the Head of Planning and Finance Division, will address the company's business results for Q3 2024 annual conference. performance outlook, and the dividend payout for Q3. Hello, this is Senior Vice President Seung Jo Lee, head of the Planning and Finance Division. Allow me to share our business results for the third quarter of 2024, as well as the outlook for the business ahead and quarterly dividends. In Q3, driven by strong HGV and Genesis sales, continuous mix improvement, favorable FX effect, and material cost reduction, we have reached the operating profit in line with the market consensus. However, our preemptive guarantee extension measures regarding Lambda II engine of the Grand Santa Fe model sold in North America resulted in around $320 billion won of provisions for liability, recording an operating profit of $3.6 trillion won, and an operating profit ratio of 8.3%. This warranty extension is caused by the high usage of towing by US consumers, and we have proactively implemented the warranty extension for the total number of sales. In the case of other models with the same Lambda 2 engine, this issue has not occurred. If not for the above one time contribution amount, An operating profit of 3.9 trillion won and an operating margin of 9.1% would have been possible. Next, I will talk about the 2024 annual performance outlook and business environment. We expect to achieve the 2024 annual guidance of 4 to 5% of sales growth and 8 to 9% of operating margin, and we have maintained the performance guidance that was mentioned earlier this year. However, due to worsening business environment and the automotive market, such as increased geopolitical risks, high uncertainty in government policies and regulations such as fuel efficiency regulations, and concerns over slowing demand in advanced markets, incentives are expected to negatively affect our profitability in the short term. Regarding the risk of deteriorating business environment, we are closely analyzing the market landscape through regular monitoring. Based on our enhanced fundamentals over the past few years, we will strengthen our profitability-oriented management status by improving sales mix and continuously reducing costs. And we will continue to secure strong profitability through flexible market responses which share our strengths. While maintaining our fundamentals by improving the sales mix centered on high margin models and cost reduction, we will respond flexibly to changes in the market environment. Next, I will talk about the dividend for Q3. As in the first and second quarters, we will implement a quarterly dividend of 2,000 KRW, which was raised by 501 from the previous quarter. including the value of program announced at the CEO Investor Day, we will make sure to implement the shareholder return policy as promised to our shareholders and investors. Lastly, regarding the India IPO, let me share the shareholder return policy. Basically, the Indian competitiveness that proceeds from this India IPO will be returned to shareholders and we will establish the relevant IPO process plan and get approval from the BOD and then share your details later. Thank you all for your support and thank you for listening. Next, Senior Vice President Hyung-suk Lee, the head of Planning and Finance Division of Hyundai Capital, will share the Q3 results and Q4 outlook for the finance business. Good afternoon. I'm Senior Vice President Lee Hyung-suk, CFO of Hyundai Capital. I'd like to begin with the Q3 2024 earnings results and Q4 outlook for the finance business. In Q3, internal and external uncertainties were high due to interest rate volatility and sluggish domestic economy, but Hyundai Capital expanded its role as the captive auto finance company for Hyundai Motor Group and maintained strong asset soundness and financial stability based on outstanding auto financing business. As a result, in August, S&P raised our credit rating along with HMC from BBB plus to A minus. This year, all three global credit rating agencies raised our rating to A, the highest achieved for non-bank financial firm in Korea. Consequently, our funding competitiveness has been further strengthened. I'd like to share the details for each company. First is Hyundai Capital. Backed by our strong funding power, we strengthened the sales support for HMG and were able to further expand our financial assets for auto financing. The proportion of auto financing accounted for 83% of the operating profits, maintaining a high ratio. Expansion of financial assets in the auto financing business increased installment and lease profits, resulting in a YTD operating income to increase by 11% year-on-year in Q3 when excluding FX and derivative losses. In terms of cost, interest expenses have risen due to continued high interest rate, but the cost of bad debts remained stable, increasing the operating profit by 17% year-on-year. Overseas, profit improved in various overseas entities such as France, Canada, and Brazil to achieve a year-on-year equity method income increase of 55%, and as a result, net income increased by 21% year-on-year. Some capital firms are showing performance due to continued high interest rates and real estate PF risks, resulting in deteriorated profitability and soundness but Hyundai Capital expanded its profit and secured soundness by operating a strong auto financing portfolio. The delinquency rate has further dropped to record an all-time low of 0.86%. With optimized portfolio operations and stable funding, Hyundai Capital will strengthen the sales support for HMG domestically and globally and respond to market volatility. Next is Hyundai Capital America . In the U.S., sale mix improvement was driven by SUVs and hybrid models, resulting in YTD penetration rates increased by 8 percentage points year-on-year in September, raising the sale volume by 14% year-on-year. Total financial assets increased by 22% year-on-year. Due to continued asset expansion, YTD installment and lease income in September upped by 50% and 13% year-on-year respectively. Total operating profit increased by 23% year-on-year. Increase in sales raised interest and bad debt expenses, lifting the operating expenses by 23% year-on-year. However, YTD operating profit in September improved by 32% year-on-year. In Q4, drop in interest rates and presidential election results are expected to further increase the uncertainties in the market. However, HCA is maintaining a significantly low delinquency rate even compared to pre-COVID-19 times and increasing its prime customers rate to 88%, minimizing risks. In terms of funding, HCA pre-secured liquidity by issuing global bonds worth $10.7 billion in addition to the $8 billion secured in the first half. HCA will continue to support HGMG sales in the U.S. by expanding EV sales and providing financial support for new mobility businesses. This is the end of my presentation on the finance business. Thank you for your attention. With that, we'll conclude the presentation and take your questions.

The first question will be presented by Eunyoung Im from Samsung Securities.

Yes, hello. I'm Eunyoung Im from Samsung Securities. Thank you for the opportunity to ask a question. I'd like to ask two questions. The first question is, the director said that the commission is one-time, but including that, the sales warranty fee for this quarter I think it went down by 5,660 billion won more than last year. And when we do a preview of the 3rd quarter, we look for recalls and things like that, but it's not in the article or anything like that. What's the background of the money that you've been fighting for? And even with this included, the warranty is a little higher than last year. I think it's a lot lower, so I think it would be helpful if you could explain why this is so. And the second is, recently, you have resolved the comprehensive work contract with GM, and then you are also paying attention to Waymo and Foundry business, but what I'm curious about is that since the R&D headquarters is integrated with Hyundai Kia, Thank you.