Hyundai Motor Co

Hello, I am Michael Yoon, head of IR Group. Welcome everyone to HMC's Q1 2026 Business Results Conference Call. Please refer to the presentation HMC 2026 Q1 Business Results on our IR website. This presentation includes quarterly highlights, sales performance, and profit analysis. And for quarterly summarized cash flow statement and detailed regional sales breakdowns, please refer to the appendix. First, Q1 highlights. Despite the global demand slowdown due to the geopolitical risks, our global market share rose by 0.3 percentage point this quarter. Our market share in the US market rose by 0.4 percentage point, maintaining MS of 6% range for four consecutive quarters. In response to strong hybrid demand, the global hybrid sales reached 174,000 units. And the share of global hybrid sales recorded 17.8%. Also in the US market, the share of hybrid sales recorded 24.8%, continuing the momentum. Finally, despite unfavorable business conditions with demand slowdown, market share increase in major markets and robust hybrid sales led to the highest first quarter revenue on record. Next, the sales performance. In the first quarter of 2026, while global demand declined by 7.2%, global wholesale sales recorded 976,000 units, a decrease of 2.5%, Retail sales recorded 949,000 units, reflecting a 0.7% decrease. Next, I'll go over details about our wholesale by key markets. In the U.S. market, sales increased by 0.3% year-over-year, totaling 244K units, despite industry demand declining 5.5%. Sales of eco-friendly vehicles rose 22.7%. 0.7% year-over-year, reaching 69K units, thanks to strong eco-friendly vehicle sales. Hybrid sales accounted for a record high 24.8% of total sales. SUV sales also recorded share of 75.2% in the U.S. market, driven by strong sales performance of SUV models. In Europe, sales decreased by 7.8% year-over-year, totaling 140K units. Optimization of product mix drove SUV sales to rise 3.6% year-over-year, and hybrid sales increased by 22.7%. Despite challenges, mix improvement was achieved by focusing on high-margin vehicles. Sales of eco-friendly vehicles rose 7.1% year-over-year, reaching 70K units, driven by strong hybrid sales in Europe. We expect to sustain this momentum by launching the new IONIQ 3 in the second half of this year. In the domestic market, sales decreased by 4.4% year-over-year, totaling 159,000 units. However, EV sales rose 65.5% year-over-year, driven by government incentives for eco-friendly vehicles and IONIQ lineups. Hybrid sales grew 5.3%, reaching the share of 24.9%. And sales of eco-friendly vehicles reached 60K units, a 21.2% year-over-year increase. Next, I'll explain the sales analysis by vehicle types. Global SUV sales, including Genesis, totaled 607,000 units, accounting for 62.2% of total sales. While EV sales dropped 8.3% year-on-year, hybrid sales continued their strong momentum, growing 26.9% year-on-year. Eco-friendly vehicle sales increased by 14.2% year-over-year, driven by strong hybrid sales. This concludes the discussions on sales. I'll now move on to the profits and losses. This page summarizes our income statement. Consolidated revenue increased by 3.4% YOY to 45.9 trillion won, and operating income decreased by 30.8% year-on-year to 2.5 trillion Korean won. The auto business' revenue decreased by 0.5% year-on-year due to the global demand slowdown and increase in incentives, which is a revenue deduction item. The operating profit decreased by 36% year-over-year with a tariff impact and one of temporary external factors. Revenue from finance business increased by 21.5% year-over-year and operating profit increased by 1.4% due to continuous growth in the U.S. market penetration rate and asset size. Net income decreased by 23.6% YOY to 2.6 trillion KRW as a result of operating profit decline. Next is quarterly revenue and operating income analysis. Revenue benefited from favorable exchange rates contributing 997 billion KRW while decreased global wholesale resulted in negative volume effect of 857 billion won. Additionally, general increase in incentives resulted in negative mix effect of 31.9 billion Korean won. Combined with growth in the financial segment, total revenue rose 3.4% year-on-year. Despite the record high first quarter revenue, negative foreign exchange impact on sales warranty provisions due to quarter end exchange rate increase reduced positive forex impact to 25 billion Korean won. Sales shortfall caused by the Middle East war and the sales halt of policy led to negative volume effect of 247 billion. Higher incentives driven by intensified competition in key markets led to negative mixed effect of 337 billion KRW, along with tariff impact of 860 billion won. As unfavorable business conditions and one-time cost negatively impacted on our profitability, the operating profit decreased. by 30.8% year-over-year to 2.5 trillion Korean won, resulting in operating profit margin of 5.5%, despite contingency plan partially offsetting tariff effects. The last part is SG&A and net profit. Our Q1 cost of goods sold ratio recorded 82.5%, a 2.7 percentage point increase year-over-year due to the rise in materials cost. SG&A recorded 5.5 trillion won, which is a 2.9% increase compared to last year due to increase of sales warranty provisions owing to quarter and exchange rate increase. Finally, our net profit decreased by 23.6% to 2.6 trillion won as a result of operating profit decline. That is the end of my presentation. Thank you. Next. Head of the Finance Division will give us the Q1 Business Performance. Good afternoon, I'm Scott Lee, Executive Vice President and Head of Finance Division. I'll now present HMC's Q1 Business Performance and the Q1 dividend. As previously noted, Q1 results recorded revenue of $45.9 trillion, operating profit of $2.5 trillion, and operating margin of 5.5%, which is broadly in line with market consensus. Compared to January when we announced our annual guidance, the global auto industry environment has become more uncertain than ever. As a result, global auto demand, including major markets, declined by approximately 7.2% in the first quarter. In response to the demand slowdown and uncertainties such as the potential reappeal of the US IRA legislation, incentive costs increased by approximately 300 billion KRW compared to last year. Additionally, sales disruptions caused by the Middle East conflict and the suspension of Palisades sales resulted in a negative impact on operating profit of around 250 billion. Regarding foreign exchange effects, the average exchange rate against the dollar in Q1 was 1465.2 Korean won, representing a 0.9% increase compared to the same period last year. However, short Forex volatility toward the end of March led the quarter end exchange rate to close at 1513, marking a 5.5% increase compared to 2025 year end. This quarter end exchange rate, which was higher, temporarily increased the Korean won denominated valuation of Korean currency-based warranty provisions at the end of the quarter. This resulted in approximately 270 billion Korean won negative impact on the operating profit. Regarding the tariff impact, as sales subject to the 2015 tariff rate began to materialize, the decline in operating profit was approximately 860 billion, which significantly was lowered compared to the quarterly tariff impact in the second half. Despite intensified macroeconomic uncertainty, we still achieved solid sales performance by leveraging hybrid models and maximizing sales mix optimization in key markets such as North America. Our global market share expanded by 0.3 percentage point from 4.6 to 4.9, and the U.S. market share increased by 0.4 percentage point from 5.6 to 6 percent, reflecting continued strong strengthening of our market presence. In addition, hybrid vehicle sales reached a record high mix of 17.8%, sustaining strong growth momentum. Accordingly, revenue reached $45.9 trillion in Q1, the highest ever first quarter result, underscoring sustained top-line growth. To offset profitability pressures stemming from macroeconomic challenges and tariff headwinds, We are actively executing zero-based budgeting-driven contingency plans and mobilizing company-wide efforts to protect margins on a sustained basis. For reference, excluding contemporary external factors such as negative forex impact and the Middle West conflict, the suspension of palisade sales operating profit is estimated at around 3 trillion KRW with the operating margin of 6.6%. Next. I would like to address the dividend for the first quarter of this year. In accordance with a value-all program announced in August 2024, we plan to distribute a quarterly dividend of 2,500 Korean won per share for both common and preferred stocks. The record date for the first quarter dividend is May 31st, and the payment date is June 30th. As mentioned earlier, the global auto industry is facing unprecedented level of uncertainty driven by macroeconomic headwinds, CARES policies and the ongoing conflict in the Middle East. Despite such challenges with our improved fundamentals, including record high hybrid sales and resilient performance in the North American market, we remain confident in our ability to achieve our annual operating margin guidance of 6.3% to 7.3% through the launch of the new model cycle in the second half of the year and continued execution of contingency measures including zero-based budgeting initiatives. Going forward, we'll continue to strengthen profitability to support shareholder return and future investment by leveraging our company-wide capabilities. We deeply appreciate the continued support of our shareholders and investors. Thank you. Next, the finance business results will be shared by the head of Canada Capital. Hello, I am Hyung Seok Lee. I'd like to tell you about the results of the finance with the Iranian conflict and uncertainties continued, but Hyundai Capital and then the Capital America strengthened the collaboration with the group and based on the strong captive as a portfolio, we maintain a stable performance. I'd like to tell you about the details. First, Hyundai Capital. with our superior financing capabilities. We continue to support the group's car sales business and the auto asset share was maintained at around 82% with the no interest installment program for Grandeur and the new car promotions with the fourth quarter Genesys specialized financial product, the new car and the lease asset improved by 9.4% and 10.4% improving the asset by 4.8%. In case of the retail sales, with the lease growth, the asset grew by 2.1% and the operating expenses was down by 1% compared to the same period of last year. By selectively utilizing different lending methods including overseas receivables and ABS, we were able to reduce the interest rate, interest expenses down by 0.7% and the total debt expenses were down by 23.7%. With the premium captive asset portfolio management and the aggressive risk management led to this result and so the delinquency rate in Q1 was 0.78%, therefore the operating profit improved by 31.8% and the pre-tax as well. And we are expecting heightened volatility in the first quarter. Therefore, we'll optimize the operation and manage our profits better. And we'll have a solid financial management so that we can continue our stable business. And also, we'll continue to expand globally in the second half. will finalize the preparation for the financial entity launch in India. By doing so, improve the financial support for the auto business of HMG. Next is Hyundai Capital America HCA. With the solid sales results in Q1, we've maintained a high penetration rate of 67% and the product asset improved by 30.1%. with higher installment and lease profit, the operating profit improved by 17%. And because of the debt expenses, the operating expenses rose by 17%. With the additional provision, the debt provision expense went up as well. In the US market, the delinquency rose. but still it's below the market average and we are thoroughly managing our client portfolio with prime customer share over 87%. Therefore, the pre-tax income, however, declined by 12.6%. In the first half, because of the headwinds from the Iranian conflict and so on, we are expecting some heightened market volatility and challenging market environment. However, based on our solid credit rating, Hyundai Capital America is very well prepared for the impact and the market uncertainties. We'll continue to provide higher finance synergies and support the group's auto business. That is all. Thank you. That is all for the presentation part. We'll now move on to the Q&A.