Hyundai Motor Co

Hello, this is Michael Yoon, the head of IR Group. Welcome to Hyundai Motor Company's 2025 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 titled HMC 2025 Q1 Business Results on our IR website. This presentation includes sales performance and profit analysis. And for a summary of quarterly cash flow statement and detailed regional sales breakdowns, please refer to the appendix. First, the sales performance. For your reference, starting from this quarter, we have slightly adjusted the scope of disclosed sales performance data, taking into consideration factors such as the increased significance of the U.S. market and our major business regions. In Q1 of 2025, the global wholesale recorded 1,001,120 units, down 0.6% year over year, while global retail sales totaled 956,354 units, an increase of 1.0% year over year. Although the global wholesale slightly declined year over year, wholesale, excluding China, rose by 1.3% year over year. In the U.S. market, the market continued its steady sales momentum driven by hybrid models showing a year-over-year increase of 1.1%. Notably, retail sales experienced robust growth, rising 10.8% year-over-year. In particular, hybrid model sales increased 43.0% year-over-year, led by sales expansion of SUVs such as the Tucson and the Santa Fe. Additionally, with emerging discussions of potential changes in EV-related policies, EV sales also grew 16.8% year over year. In the European market, the total sales volume decreased by 3.8% year over year amid weakening industry demand caused by a slowdown in economic recovery. However, the planned mixed shift towards eco-friendly vehicles is progressing steadily, as evidenced by a 61.1% increase in EV sales and a 24.7% increase in hybrid vehicle sales in line with efforts to meet fuel efficiency regulations. In the domestic market, sales increased by 4.0% year-over-year, primarily due to the base effect from the previous year's shutdown of conversion work at the Asan plant. In the Indian market, SUV sales rose slightly by 1.0% compared to the previous year. However, due to intensified competition, wholesale sales for Q1 declined by 4.2% year-over-year. Next up is sales by vehicle type. Starting this quarter, to easily identify quarterly sales trends of key segments, we will share data from the current quarter along with the previous four quarters. Global SUV sales including Genesis totaled 576,385 units, accounting for 57.6% of total sales, while global passenger car sales reached 374,673 units, making up 37.4%. Amid emerging concerns about a potential slowdown in the real economy, consumer preferences for affordability have strengthened compared to the previous year. Eco-friendly vehicle sales increased by 38.4% due to a mixed shift to respond to the fuel efficiency and strong sales in the U.S. High EV sales growth rate in the U.S. and European market led to a year-over-year 40.4% increase, and hybrid sales also increased by 40.4% year-over-year driven by hybrid SUV sales growth. This is the end of sales summary, and now I'll move on to the financial summary. This page summarizes our income statement. Consolidated revenue increased by 9.2% year-over-year to 44.4 trillion Korean won, and operating income increased by 2.1% year-over-year to 3.6 trillion Korean won. The automotive division's revenue increased by 11.2% year-over-year due to favorable effects environment and expansion in high-value segments, especially hybrid models or HEVs. The operating profit decreased by 3.5% year-over-year with a hike in incentive levels in the U.S. and European market and selling expenses. Revenue from the finance division increased by 11.2% year over year due to continued growth in the U.S. market penetration rate and asset size. Operating profit increased by 34.3%. Net income increased by 0.2% year over year to 3.8 trillion KRW. Next is quarterly revenue and operating income analysis. For revenue, 2.6 trillion Korean won occurred from favorable FX rate and global sales expansion, excluding China, yielding a volume effect of 72.6 billion Korean won. Despite a higher incentive spending, hybrid model sales growth led to a positive mixed effect of 868.9 billion Korean won. Additionally, the finance division revenue increased contributing to the overall revenue growth of 9.2% year-over-year. Regarding operating profits, a favorable FX rate resulted in positive FX effect of 600.6 billion KRW. Rising incentive levels led to the net mixed effect to result in negative 416 billion KRW. The continuous growth in the finance division contributed to 14.6 billion Korean won and the operating profit increased by 2.1% year over year. Our first quarter cost of goods sold ratio recorded 79.8%, a 0.5 percentage point increase year over year. SG&A recorded 5.3 trillion won, which is a 9.8% increase compared to the last year due to the increase of our new year marketing related expenses and R&D. Finally, our net profit increased 0.2% to 3.4 trillion won. That concludes the end of the presentation of the 2025 Q1 business results. Next, Executive Vice President Seung Jo Lee, the Head of Planning and Finance Division, will assess the company's business results in Q1. Good afternoon, this is Executive Vice President Seung Jo Lee, the Head of Planning and Finance Division. I will now present our Q1 2025 business performance, U.S. tariff impact and recovery plans, as well as Q1 dividend and Treasury stock cancellation. In Q1 2025, despite industry average incentives rising in both the Europe and U.S. markets, and our investments in new vehicles and future technology have expanded, with all-time high sales of hybrid and strong sales in North America, in addition to a favorable FX rate effect compared to the same period last year. So we posted a record high first quarter operating profit of 3.6 trillion Korean won and a 8.2% operating profit margin, outperforming market consensus and annual guidance OPM. Next, I would like to address the impact of U.S. tariff on our business performance and our countermeasures. As an individual corporate entity, our focus will be on mitigating the effects through profitability recovery initiatives. As there remains a high degree of uncertainty regarding some specific elements in the tariff impact calculation, it is too early to disclose specific figures. Once uncertainty clears somewhat, we will connect with the market once again. Now I will elaborate on our countermeasures in response to the impact of the U.S. tariff policy. Instead of relying on external variables, we intend to leverage our internal capabilities to drive a structured response. So we're going to use this as a momentum to change our fundamentals. We have launched U.S. Tariff Response, TFT, as a specific countermeasure to establish a company-wide response system. And we'll optimize our production and sales strategy by region and model type to leverage our core strength. And we're preparing to pursue a CAPEX and OPEX contingency plan based on company-wide and region-wide investment by priority and efficiency. Moreover, we will conduct cost reduction via production efficiency improvement at our newly opened HMGMA and original Alabama plant. We will also implement mid- to long-term U.S. localization strategies, which include parts sourcing and logistics. Finally, we will continue our efforts to recover profitability by responding to supply and demand fluctuation by implementing flexible and efficient pricing strategy and incentive policy. By actively pursuing these company-wide recovery plans, we believe we can meet the annual guidance announced last January and therefore we'll maintain our guidance for sales growth of three to four percent and operating profit margin of seven to eight percent. Next, let me share a quarterly dividend for Q1. In August 2024, we announced the Value Up program, where we have first introduced a minimum dividend of 10,001 per share and a quarterly dividend of 2,500 won starting from 2025. In line with the Value Up program, we will pay a quarterly dividend of 2,500 Korean won for both common and preferred stocks this quarter. Additionally, we have implemented record date for year-end dividend in 2024 to improve dividend transparency for our investors. Consistently, improvement of quarterly dividend system has been approved at the 57th General Chairholders' Meeting this March, so that record dates for quarterly dividends are determined by the Board resolution. Accordingly, the record date for quarterly dividend for Q1 has been determined as May 30th by the board instead of the last day of March. Payment date will be June 30th. Now, let me share a plan for cancellation of Treasury stock. First, we plan to implement mid to long-term shareholder return policy previously announced in April 2023. We have promised to cancel 1% of the issued stock annually for the three years starting from 2024, and this year's cancellation is the second round. In addition to that, we will cancel Treasury stock which has been bought back from last November to this February for shareholder value enhancement. This accounts for a cancellation of 1.2% of issued stock. Total number of Treasury stock cancelling accounts for roughly 1.1 trillion Korean won. Amid expanding uncertainties and rapidly changing auto environment, we will continue our efforts to implement shareholder return policy for our investors and shareholders as we have promised in the value of program. In times of past challenges such as COVID-19 pandemic and the semiconductor shortage, We have successfully optimized profitability and improved our fundamentals by responding swiftly and flexibly to changes. Likewise, regarding the tariff impact, our management team, led by President Jose Munoz, along with our group, will closely monitor and analyze market conditions and risk to recover profits and overturn the challenges and turn the challenges into opportunities. We sincerely appreciate the continued support of our shareholders and investors. Thank you for your attention. Next, Senior Vice President Hyung-Suk Lee, the Head of Planning and Finance Division of Hyundai Capital. We assess the Q1 results for the finance business and the business outlook for Q2. Hello, this is Hyung-Suk Lee from the Planning and Finance Division of Hyundai Capital. Allow me to share the finance business's performance for the first quarter of 2025 and our outlook for the first half of the year. Despite market uncertainties caused by rapidly changing domestic and global politics in Q1, Hyundai Capital continues stable business operations based on a strong captive asset portfolio while further strengthening collaboration with the group. Although U.S. government's tariff policy raised global stock market volatility significantly, the bond market remained relatively stable, and in Q1, Hyundai Capital successfully issued $500 million in global bonds and HCA $5 billion, continuing active funding activities both domestically and internationally. Next, I'll go over the details for each company. First is Hyundai Capital. Based on strong credit ratings and competitive funding capabilities, we continue to support the group's auto sales financing, maintaining the proportion of auto finance at 83% of total product assets in Q1. With the launch of various financial products specific for eco-friendly models in line with the group's recent electrification strategy, lease assets grew by 3.9% year-over-year. With increasing leasing-based revenue, operating profit per Q1, excluding derivatives effects, rose by 3.8% year-on-year. Due to the minimization of funding costs based on a diversified borrowing portfolio, interest expenses decreased by 3.2% year-on-year. However, despite a delinquency rate in the 0% range, the worsening soundness of the financial sector led to an increase in provisioning for bad debts. Additionally, higher leasing costs drove up operating expenses by 6.4% year-over-year, resulting in a 17.6% decrease in operating profits year-on-year. However, with improved profits from overseas subsidiaries in Europe, including Germany, the UK, and France, equity method income increased by 15.9% year-on-year, resulting in pre-tax profits growing by 3.1% and net income increasing by 8.4% year-on-year. We expect to see high volatility in both domestic and global markets in Q2 of 2025. Hyundai Capital will focus not only on expanding its size, but also on enhancing profitability through cost efficiency and minimize risk through stable business operations and soundness management centered on high-quality auto financing. Moreover, Hyundai Capital Australia, which recently received a An A-minus credit rating from the Global Credit Rating Agency S&P will expand its operations. In the second half of the year, we will begin operations of our Indonesian subsidiary, further strengthening our position as a leader in the global auto finance market. Next is Hyundai Capital America, or HCA. In QA, with strong vehicle sales across the group, the acquisition rate rose to the 70% range, leading to an expansion of asset size across the entire portfolio. In particular, with a significant increase in leasing for eco-friendly vehicles, lease assets grew by 41.6% year-on-year and total product assets grew by 19.9% year-on-year. Not only did the asset size increase, but the profitability of both installment and lease products also improved, leading to a 9% increase in operating income year-over-year. Due to increased borrowings for business expansion, interest expenses rose, but by managing the proportion of prime customers at 88% and minimizing the increase in provisioning for bad debts, operating profit increased by 66.6% and net income grew by 63.5% year-on-year. In Q2, the US market is expected to remain unstable, depending on the scope and impact of the tariff policies. However, based on its strong customer portfolio, HCA is reducing credit risk by maintaining a low delinquency rate and has secured liquidity through large-scale bond issuance in Q1 to proactively prepare for various scenarios. As market volatility is higher than ever, we will closely monitor the market conditions in the first half of the year and minimize uncertainties through effective risk management and continue to provide stable financing support for the group's auto sales. And that's the end of the finance business presentation. Thank you for listening. With that, we will conclude the presentation and take your questions. Please limit your questions to two per person.

Thank you. 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 Changho Kim from Korea Investment and Securities. Please go ahead with your question.