Hyundai Motor Co

Good afternoon. I am Yoon Tae-sik of IR Group. Welcome everyone to HMC second quarter business results conference call. On behalf of the Hyundai Motor Group, Hyundai Motor Company, I appreciate your time. And please refer to the presentation HMC 2025 Q2 business results on our IR website. The presentation includes quarterly key events, sales performance, and profit analysis. And for a quarterly summarized cash flow statement and detailed regional sales breakdowns, please refer to the appendix. First, second quarter key messages. Starting from this quarter, we'll briefly introduce the key messages of our quarterly performance. Sales have continuously stabilized post-COVID, with second quarter sales reaching 1,066,000 units, the highest level since 2020. up 0.8% compared to the previous year. The favorable exchange rate environment has persisted, recording an average exchange rate of $1,404.01 and a quarter end rate of $1,356.01. The quarter end rate being lower than the average rate had a favorable impact on debt evaluation. Lastly, the Palisade hybrid successfully addressed the demand for HUV SUV, HEVs in Q2 achieving a wholesale sales volume of around 15,000 units. We plan to continue expanding sales to increase our market share in the hybrid market. Next, the sales performance. In the second quarter of 2025, HMCA recorded global wholesale of 1.07 million units of 0.8% from the year before it. And retail sales reached 1.04 million units, reflecting a 0.9% increase over year. Next, I'll go over details about factors affecting wholesale sales performance in our key markets. In the US, sales increased by 3.3% year-over-year to 262,305 units. The growth in ice and hybrid sales have continued to show a strong trend. sales of eco-friendly vehicles recorded a significant increase of 32.5% compared to the previous year, reaching 78,713 units due to the expansion of EV and HEV sales. Notably, the Tucson, Elantra, and Santa Fe models contributed to strong sales performance in the U.S. Despite increasing uncertainty regarding EV sales targets due to policy changes in the second half, solid sales growth is expected to continue in the latter half. In the European market, sales increased by 2.6% year-over-year to 161,000 units. Growth in key markets such as Turkey, the UK, and Spain contributed to the overall increase in European sales. Sales of eco-friendly vehicles recorded a strategic increase of 27.3% compared to the previous year, reaching 72,064 units. Strong sales of the Santa Fe Hybrid and 2020 Santa Fe PHEV drove the overall sales growth in the European market. In the second half of the year, we aim to achieve growth in EV sales volume alongside a successful launch of Insta and IONIQ 9. In Korea, sales increased by 1.5% year-over-year, totaling 188,540 units. The successful launch of the Palisade HEV effectively captured the SUV demand and continue the upward sales trend. Sales of eco-friendly vehicles significantly increased by 45.6% compared to the previous year, reaching 68,550 units due to the line-up enhancement. Additionally, the new IONIQ 9 had a positive impact, resulting in a 55.98% growth in EV sales. In the second half of the year, we plan to expand sales through production optimization to effectively meet customers' demand for popular models and improve the competitiveness of key models through various initiatives. Next, let me explain the sales analysis by vehicle type. Global SUV sales, including Genesis, totaled 644,935 units, accounting for 60.5% of total sales. Global passenger vehicle sales reached 366,287 units, representing 34.4% of total sales. The trend of SUVs taking a big portion of the total sales continued, supported by the enhancement of our key SUV lineup, including the new Palisade. Sales of eco-friendly vehicles increased by 36.4% compared to the previous year, driven by a shift towards fuel-efficient eco-friendly vehicle mixes, mainly in the European market and strong sales in the U.S. market. EV sales also saw significant growth, increasing by 33.9%. year-over-year due to the robust growth of EV sales in the European market. Additionally, hybrid sales have continued to show strong growth of 38.5%. Now, I'll move on to the profit and losses. First, our income statement. In June 2, consolidated revenue rose by 7.3% year-over-year to 48.3 trillion KRW, and operating income fell by 15.8% year-over-year to 3.6 trillion KRW. The automotive business revenue increased by 5.1% year-over-year due to favorable forex impact and expansion in high-value segment, especially HEV vehicles. The operating profit decreased by 39.5% year-over-year with tariff impact from the U.S. market and general increase in incentives. Revenue from finance business increased by 16.4% year-over-year. due to continuous growth in the U.S. market penetration rate and asset size. Operating profit increased by 16.4 percent. Net income decreased by 22.1 percent year-over-year to 3.3 trillion Korean won. Next is quarterly revenue and operating income analysis. For revenue, February Forex rate had a $878 billion impact and slight decrease in consolidated volume yielded negative volume effect of $99.6 billion Korean won. Despite increase in incentive spending, hybrid model sales growth led to positive mixed effect of $1.6 trillion Korean won. Additionally, increased finance revenue contributed to overall revenue growth of 7.3% year-over-year. In case of operating profit, The overall Forex rate resulted in a positive Forex impact of 632.1 billion KRW. The rising incentives combined with the sales mix led to a negative 740 billion KRW impact. The recovery in finance performance contributed to 92 billion KRW. The tariff impact began to show this quarter, resulting in a negative impact of 828.2 billion KRW. All those factors contributed to the operating profit decrease by 15.8% year-over-year. The Q2 cost of goods sold ratio recorded 81.1%, up 2.7 percentage point. In case of SG&A, SG&A recorded 5.5 trillion won, which is a 0.9% increase compared to last year due to increase of marketing related expenses in R&D. Finally, our net profit decreased by 22.1% to 3.3 trillion won. This concludes the end of the presentation for the second quarter business result. Thank you. And Lee Seung Jo, head of finance division, will explain the Q2 business performance and tariff impact, as well as countermeasures. Good afternoon. I am EVP Seung Jo Lee, head of finance division. I'll now present HMC's Q2 2025 Business Performance and U.S. Tariff Impact and Recovery Plans and the Second Quarter Dividend. In the second quarter of 2025, the operating profit declined by $828 billion due to tariff impact, and the average incentives in our major markets increased, resulting in an incentive increase of $535.6 billion Korean won compared to the same quarter last year. HMC posted record high sales of hybrid models at 170,000, which is 15.8% of total sales. The Genesys brand also showed solid performance, taking up 5.5% of the total sales, continuously enhancing the company's fundamentals. The sales of hybrid models in Genesys achieved 21.3% of the total global sales, surpassing the 20% mark for the first time. Moreover, thanks to the FX impact with the average of $1,441 in this quarter, leading to a positive impact of 632.1 billion Korean won, combined with the implementation of the proactive contingency plan announced in the first quarter, offset the tariff impact. allowing HMC to achieve 3.6 trillion in operating profit above market consensus. If they exclude the tariff and FX impact, operating profit would have been approximately 3.8 trillion KRW with operating profit margin of 7.9%. Now, I'll elaborate on our measures to mitigate the U.S. tariff impact. As you are already aware, in the current situation of global uncertainty, it is very difficult for a single company to predict how the tariff situation unfolds in the future. Therefore, I will share with you HMC's countermeasures to mitigate the impact from tariff, assuming that the current tariff policy remains in place. Short-term measures, the company will first closely monitor competitors and market situation and implement a flexible incentive policy and pricing strategy. Second, adopt fundamental solutions such as reducing material and manufacturing costs, as well as pursuing changes in parts sourcing to achieve efficiency in manufacturing. And third, proactively implement the contingency plan by prioritizing the investment without disrupting our core businesses. From mid to long term, the company will first seek to localize sourcing of key parts through company-wide collaborative efforts from R&D, production, and quality. And second, thoroughly review expanding local vehicle production based on different scenarios to flexibly address different market changes. By implementing our short and mid to long term strategies, we'll continue our efforts to not only mitigate tariff impact, but also improve the company's fundamentals. Now, let me share our second quarter 2025 dividend plan. In August 2024, HMC announced a value-up program promising a minimum dividend of 10,000 Korean won per share and quarterly dividend of 2,500 Korean won. In accordance with the program, a quarterly dividend of 2,500 Korean won for both common and preferred stocks will be provided this quarter. Additionally, as explained in the last quarter, the dividend record date has been fixed at August 31st. So for the second quarter, the dividend record date is August 31st, and the payment date is September 30th. At this very moment, the tariff impact and market uncertainties persist. While maintaining the 2025 annual guidance explained in the beginning of the year for now, HMC will communicate updated guidance with the market as soon as we gain more clarity on tariff policy after August 1st. Furthermore, President Jose Munoz and our management at Hyundai Motor Group will employ all measures available to recover profit and thoroughly prepare plans to deal with the tariff impact as well as market uncertainties. We sincerely appreciate the continued support from shareholders and investors. Thank you for listening. This is a presentation from Lee Young-suk, CFO of Hyundai Capital, on finance business's second quarter result and the third quarter outlook. Good afternoon. I am VP Lee Young-suk, Head of Finance Division, Hyundai Capital. I will now report the second quarter business result and the outlook for the second half of the business, for the finance business. In the second quarter, Hyundai Capital and Hyundai Capital America, as the group's captive financial companies continue to provide financing for car sales, I'll now elaborate on the details. First is Hyundai Capital. In the second quarter, despite slow domestic economic growth and heightened competition, we expanded group collaboration by releasing financial products aligned with new model launch and utilizing subvention for SUVs, Genesis, and EVs. As a result, total financing volume, including installment and lease, increased 9.8% year-over-year. The auto financing portion in our asset portfolio is maintained at a high level of 82%. With lease profits increased by 13.7% in the second quarter from a year ago, operating income went up by 3.7%, excluding Forex and derivatives effect. As for financing, we have achieved 44.67% of our annual target. It includes a green bond issued in April and a sustainability-linked bond issued in July. Within our domestic bonds, around 25.8% was financed through ESG bonds. In the meantime, supported by the decrease in market interest rate and our efforts to reduce financing costs by repaying high interest loans, second quarter interest rate expenses went down by 2.9%. While the delinquency rates are rising across the financial markets, we maintain the rate below 1%. However, as we preemptively manage risks by expanding provision reserves and increasing relief funds, that expenses rose, which led to an increase in operating expense by 3.8% year-over-year. As a result, operating income declined by 4.6%. However, pre-tax income of spending non-operating income, such as equity methods gained, over which the subsidiaries hiked by 3.5%. In the second quarter, Hyundai Capital will continue to reduce OPEX and financing costs and actively sell NPLs to secure profits. We also will continuously provide financing for the car sales of the group. While prepared for the business start of the Indonesian HQ and review establishment overseas corporations and strategic regions for the group's auto sales, these activities will enable us to keep increasing the coverage of the group's global auto financing. Next is HCA. In the second quarter, led by the group's strong auto sales, our customers' penetration rate continued to surge. Both installment and lease showed sound growth and overall product assets grew 20% from last year. Not only the asset size but also product interest rates went up leading to second quarter operating income to hike by 4.3%. We achieved 60.3% of the annual financing target by successfully issuing $3.5 billion bond in June and 1.2 billion euro bond in the EU market first time ever As such, we could secure liquidity and diversify financing portfolio. Based on this active financing activities, the size of loans expanded and the second quarter interest expenses increased 22.3% year over year. From the perspective of asset soundness, unlike market concerns, our prime customers taking up more than 85% of total customers contributed to a continuous decline in delinquency rate from the end of 2024, Due to the rise of used car prices and active remarketing activities, the risk of residual value is also limited. As asset soundness improved, bad debt expenses decreased by 17.3% year-over-year, and the total operating expenses slightly increased by 3.0% year-over-year, and operating income went up by 26.9% year-over-year. In the second half, market uncertainties are expected to grow, mainly due to the tariff policy. However, Hyundai Capital America will launch financing programs aligned with the group's sales and pricing strategies so that it can expand its role of providing auto financing and will respond to market changes flexibly by closely monitoring the market with Hyundai Motor Company. That is all for the presentation of finance segment.

Thank you for your attention. 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 Heejin Lim from Citi Securities. Please go ahead with your question.