Hyundai Motor Co

We will now begin Hyundai Motor Company's business result conference call for the fourth quarter of 2025. Once again, the presentation material can be downloaded from the Financial Supervisor Services electronic disclosure system at dart.fss.or.kr or the IR website at www.hyundai.com. Joining us are EDP Seung Jo Lee, Planning and Finance Division, Bibi Cha Yong-Koo, Head of R&D Division, Harry Ahn, Head of Finance Accounting Sub-Division, Michael Yoon, Head of R&D Group, VP Young-Seok Lee, Head of Planning and Finance Division of Hyundai Capital. We'll first have H&C's presentation on the business results followed by Q&A session with the attending investors. Those who have questions are advised to press the star button followed by number one after presentation. Now we'll proceed with the presentation by Michael Yoon, Head of IR Group at HMC. Hello, this is Michael Yoon, Head of IR Group. Welcome everyone to Hyundai Motor Company 2025 Q4 Business Results Conference Call. On behalf of Hyundai Motor Company, I appreciate your time for joining today's call. And please refer to the presentation HMC 2025 Q4 Business Results on the IR website. The presentation includes quarterly key messages, sales performance, and profit analysis. And for quarterly summarized cash flow statement and detailed regional sales breakdowns, please refer to the appendix. First Q4 Key Messages Despite concerns over tariff impact and the resulting flow down in demand, strong sales performance led to the highest fourth quarter revenue on record. Particularly in the U.S. market, we have achieved annual wholesale sales of 1 million units for the first time, driven by strong hybrid sales and a diversified SUV lineup. Finally, thanks to the robust hybrid sales in the U.S. market, the share of global hybrid sales recorded 16.3%. Next, the sales performance. In the fourth quarter of 2025, global wholesale sales recorded 1.03 million units and decreased of 3.1% compared to the previous year. Retail sales recorded 1.07 million units, reflecting 0.2 decrease worldwide. The annual wholesale decreased by 0.1%. to 4.13 million units, while retail sales decreased by 1.6% to 4.1 million units. Next, I'll go over details about the increase or decrease in wholesale sales through Key Market Summary. In the US market, sales increased 0.8% YY totaling 244,133 units. We continue to see strong sales performance of high margin vehicles as hybrid sales accounted for a record high 22.6% of total sales driven by new model effect of the Palisade hybrid and Genesis recorded the highest share of 8.9%. Sales of eco-friendly vehicles rose 29.2% YOY reaching 70,503 units driven by strong hybrid sales. In Europe, sales decreased 11.6%, totaling 138,152 units. Revised EV incentives in key countries like Italy and France led to EV wholesale sales increase of 54.1% compared to the previous year. As we continue to expand our key EV lineup such as INSTER and IME9, our EV sales accounted for 18.4%, sales of eco-friendly vehicles rose 12.1% YOY, reaching 62,078 units. In the domestic market, sales decreased by 6.3% YOY, totaling 177,496 units. Despite the reduced business days in the fourth quarter due to choose-up holiday break, the new model effect of the Palisade IM9 and Nexo led to a high proportion of SUV sales, sales of eco-friendly vehicles reached 62,189 units, a 1% YOY increase. Despite intensifying competition from rival hybrid model launches, the new model effect of hybrid drove hybrid sales to grow 89%, reaching the share of 29%. Next, I will explain the sales analysis by vehicle types. Global SUV sales, including Genesis, totaled 638,149 units, accounting for 61.8% of total sales. Eco-friendly vehicle sales increased by 12.1% YOY, driven by hybrid sales growth in the US market and expansion of EV sales in Europe. Despite the termination of EV subsidy programs in the US, EV sales rose 6.8% YOY, while hybrid sales continued to show strong momentum, growing 15.3% YOY. This concludes the discussion on sales, and now I will explain P&L. This page summarizes our income statement. Consolidated revenue increased by 0.5% YOY, 46.8 trillion won, and operating income decreased by 39.9% YOY to 1.7 trillion won. The automotive division's revenue increased by 2.4% YOY due to favorable FX environment and improved mix driven by hybrid and EV sales. The OP decreased by 49.7% YOY with tariff impact and increase in incentives. Revenue from finance division increased by 9.2% YOY due to interest rate cuts and FX fluctuations, while OP decreased by 2.8%. Net income decreased by 52.1% YOY to 1.2 trillion won. Next is quarterly revenue and operating income analysis. Revenue benefited from favorable FX rate contributing 1.7 trillion won while decreased global wholesale resulted in negative volume effect of 2 trillion won. Additionally, regional mix improvement and sales expansion of hybrid and EV contributed to 1.25 trillion won. Despite the decline in the financial segment, total revenue rose 0.5% YOY. Despite the record high fourth quarter revenue, unfavorable business conditions negatively impacted our profitability, including the tariff impact and higher incentives driven by intensified competition in key markets. Although contingency plan partially off the tariff impact, OP decreased by 39.9% YOY. Our Q4 cost of goods sold ratio recorded 83.3%, a 2.8 percentage point increase via Y. SG&E recorded 6.1 trillion won, which is a 1.9% decrease compared to last year due to decrease of sales warranty provisions owing to quarter rate exchange rate decrease. Finally, our net profit decreased by 52.1% to 1.2 trillion won. This concludes the presentation of the 2025 Q4 business results. Thank you. Next, EDP Seungjoo Lee, the head of planning and finance division will assess the company's business results in Q4 and the annual guidance. Good afternoon, this is EDP Seungjoo Lee, head of the finance division. I'll now present Hyundai Motor Company Q4 2025 business performance and Q4 dividend and shareholder return policies. First, revenue reach I'm going to share with you the performance of the fourth quarter and guidance status. Revenue reached 46.8 trillion won, marking a slight YOY increase, which was driven by an improved regional mix from increased North American exposure and higher EB and HD sales. Although a weaker one offered favorable effects, offering profit declined by 1.1 trillion won YOY to around 1.7 trillion won due to ongoing U.S. tariff impact. lowered sales volume resulting from fewer working days, and increased incentives driven by intensifying regional competition. With the 2015 tariff rate applied retroactively from November 1, tariff costs declined by $360.1 billion to $1.46 trillion However, the benefit of the tariff rate cuts were limited due to the sales of inventories subject to a 25% tariff in Q4. Nevertheless, the company actively executed contingency measures mitigating the negative tariff impact by around 60%. Additionally, shutdowns at European and Jeonju plants to accommodate new model launches led to an increase in fixed costs per unit, resulting in about However, the sales momentum from upcoming new model launches is expected to enhance future business results. Next is 2025 guidance. This guidance was first announced at the fourth quarter 2024 earnings call. and this outlined wholesale of 4.17 million units, revenue growth of 3 to 4 percent, and OPM of 7 to 8 percent. However, following the unforeseen U.S. tariff issue, the guidance was revised at the 2025 CEO Investor Day, with the OPM target lowered by 1 percentage point to 6 to 7 percent. Despite an unfavorable external condition, we presented an upward revision of the revenue growth, which was raised by 2 percentage points to 5 to 6 percent, driven by aggressive and flexible production and sales strategies. Due to geopolitical challenges and intensified market competition, total sales reached 4.138 million units, falling short of the target by 36,000 units. However, we achieved a history milestone by surpassing 1 million wholesale units in the U.S. market for the first time. Driven by growing global demand and our diversified lineup, hybrid sales continued their strong momentum, rising about 28% worldwide to 635,000 units, accounting for 15.3% of total sales. Despite the difficult environment as a result of our commitment to meeting the market communicated guidance with a higher sale mix in North America and strong performance in hybrid and EV models, revenue grew 6.3% YOY, reaching 186.3 trillion won, exceeding our revenue growth target. OP. declined YOY due to about $4.1 trillion in annual tariff impacts, but the OP margin reached 6.2%, falling within the guidance range that we have provided. Next, I'd like to discuss our year-end dividends and shareholder return policy. To enhance dividend feasibility and ensure the continuity of shareholder returns, Even in periods of earning volatility, the company introduced a minimum annual DPS of 10,001 based on common share from 2024. Despite a 25% YY decline in consolidated net income attributable to controlling shareholders in 2025, we remain committed to this pledge to our shareholders. Accordingly, we declared a year-end DPS of 2,501 based on common share, thereby fully delivering the minimum annual DPS of 10,001. As a result, our dividend payout ratio exceeded 25%, reaching 27.7%. In addition, in line with the three-year To meet the long-term share return policy announced in 2023, we completed the retirement of 1% Treasury shares in April. To achieve our target of TSR ratio of at least 35% in 2025, and to execute the plan to repurchase up to 4 trillion won of Treasury shares over three years, we plan to conduct a Treasury share buyback amounting to 400.7 billion won. Of this amount, around 200.2 billion won will be included in the calculation of the 2025 TSR ratio, The remaining around $200.5 billion corresponds to our previous analysis policy of retiring 1% of Treasury shares per year over three years and is intended for the final 1% retirement schedule for 2026. As such, this portion will be reflected in the 2026 TFR calculation upon requirement. The Treasury shares to be repurchased under this program are solely intended to enhance shareholder value and will be full retired during 2026. Their share repair program will commence on January 30th and will be conducted over a three-month period. This year, the automotive industry is expected to face a challenging environment marked by stagnant growth in key markets and intensifying competition, while continuous investment remains necessary to secure leadership in the future technology amid rapid changes. Despite these challenges, we will actively implement continuous measures to reduce cost and optimize volume and profitability by region with the aim of delivering solid results and fulfilling our commitment to shareholder return policy. Finally, we'd like to express our sincere appreciation for your continued support and interest in our long-term investment and efforts in future business, including robotics, autonomous driving, and the hydrogen ecosystem. Going forward, we'll continue to strive for sustainable growth as a smart mobility solution provider and provide regular updates on matters of importance to our shareholders. Thank you for listening. I'd like to present our 2026 Annual Guidance. Let me begin with our wholesale plan. Our sales target for 2026 has been set at 4.158 million units representing an increase of around 20,000 units YOY. This target reflects our assessment of industry demand by region and segment and please refer to page 2 for a detailed breakdown of regional and sales target. Turning to our consolidated financial outlook, we expect 2026 consolidated revenue to grow by around 1% to 2% YOY. Supported by continued AST improvement, and this outlook is driven by increased sales volume in North America and further expansion of hybrid deco sales. And we expect that there will be no temporary cost increase in 2026. So with respect to profitability despite a challenging external environment based on our fundamentals and competitiveness and cost innovation, we are targeting a consolidated OPM of 6.3% to 10.3% for 2026. Moving on to our investment plan, total investment for 2026 is planned at 17.8 trillion won, representing a 23.2% increase compared to 2025 actuals of 14.5 trillion won. By category, our investment is planned at 7.4 trillion won, up 21% year-over-year, driven by efforts to strengthen the Genesis and COSIS eco-friendly vehicle lineup, including Genesis HEV. PACEF is planned at 9.0 trillion won, 32% increase YOY for US localization related to investment in response to US tariffs and for electrification to gain future growth momentum. Structured investment is planned at 1.4 trillion won, representing a 7% decrease YOY. Regarding free cash flow, taking into account our profitability outlook and continued investment expansion in 2026, We expect free cash flow to be in the range of negative $1 trillion to positive $0.5 trillion. With respect to shareholder returns, in line with the value program announced on August 28, 2024, we intend to continue our shareholder return policy in 2026, targeting a shareholder return of at least 35% on a TSR basis. In closing, given amid heightened internal and external uncertainties in 2026, we remain committed to achieving our annual guidance through sustained profit generation and management activities that prioritize shareholder value grounded in strengthened product competitiveness and improved fundamentals. For further details, please refer to the 2026 guidance materials available on our website. This concludes our 2026 Annual Guidance Presentation. Thank you. Next, Vice President Young-Suk Lee, the Head of Planning and Finance Division of Hyundai Capital, will assess the Q4 results for the finance business. Good afternoon. Youngsuk Lee, head of finance at Hyundai Capital. Let me now present the five sectors, Q4 2025 performance and 2026 outlook. In Q4, Hyundai Capital and Hyundai Capital America delivered solid results by continuously expanding their role as the group's captive finance companies. I will now touch upon the details performance by company. First is Hyundai Capital. In Q4, under strengthened sales finance collaboration with the group by introducing specialized programs such as Genesis Finance, Hyundai Capital actively supported vehicle sales. As a result, installments and lease volume increased by 14.7% and 10.1% respectively YOY. Total product assets grew 3.6%. Lease income rose on the back of expanding high-value model-based lease assets. However, due to declining market interest rates and regulatory impact, installment and low-interest income decrease, leading to a slight YY decline in operating revenue, excluding effects and derivative effects. On the funding side, 14% of domestic bond issuance in 2025 was ESG bonds. By expanding a foundation for lower-cost funding with diverse borrowing offerings, such as offshore bonds and ABS, interest expense in Q4 decreased 2.7% YOY. In January this year, we were the first to issue public funds in the amount of 500 unit euros as a credit fund company, further demonstrating strong global funding competitiveness. Despite continued downward pressure on soundness in the industry, driven by real estate stress in the regional area and rising household debt and others, Hyundai Capital maintained solid performance through a high-quality captive portfolio and active NPL disposal recording a delinquency rate of 0.82%. In spot-out decline in leave costs, we rather increase provisioning for preemptive risk management. As a result, total operating expenses rose slightly while driving a decline in operating profit in Q4, however, with equity method gains from overseas procedures increasing profits before tax rose 13.6%. In 2026, Hyundai Capital intends to strengthen liquidity to navigate heightened market volatility and defend profitability through funding cost management and OPEX optimization. The company will further enhance digital capabilities through data collaboration at the group level and adoption of AI in core operations. Globally, Hyundai Capital is preparing to launch its finance subsidiary, India, and further advance capabilities across overseas subsidiaries to reinforce position as a leading global mobility finance provider. Next is Hyundai Capital America. Despite macro uncertainty in 2004, thanks to strong vehicle sales trends at the group level since the beginning of the year, and a high 72% P-rate, we recorded growing trend across the overall portfolio. In particular, prior to the RA subsidy expiration, the lease volume of eco-friendly vehicles increased rapidly, driving a 32.2% YOY rate in lease assets and a 16% growth in total product assets. On the backup robot asset growth, installments and lease income grew in Q4 YOY, keeping operating revenue at a similar level to last year. For funding, HCA issued a total of $11.9 billion in public bonds in 2025 and successfully debuted in the Euro bond market in June, impacted by an increase in total borrowing interest expense in two, four rows, 14.3% YY. In terms of asset soundness, above 85% of the customers were rated prime, with those subprime rated recording less than 1%. Although the Fed's debt expense went up with the increased provisioning for residual value risk management. However, as total operating expenses declined slightly, OPQ4 grew 48.4% YYY. In 2026, tariff impact, interest rate volatility, and inflation are expected to create a challenging environment. Nevertheless, HCA would like to maintain sufficient liquidity based on strong credit ratings to navigate this urgency. The company will continue to support auto sale financing to sustain asset growth and secure outstanding financial sustenance through discipline risk management. Added to that by diversifying business such as financing for the group's new businesses, the company will broaden its role as the HMG's global mobility finance company. This concludes my presentation. Thank you for listening. With that, we'll conclude the presentation and take your questions.

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