Mitsubishi Motors Corp

This is Matsuoka speaking. Thank you for taking the time out of your busy schedule to attend our FY23 full year earnings call today. In the second half of fiscal year 2023, inventory shortages caused by the shortages of semiconductors and ships have almost been resolved, and the competition in our sales environment has been normalized. Due to a sharp decline in the total demand for automobiles in some ASEAN countries, our overall business environment was challenging. Under such circumstances, we reviewed every cost and focused on improving the quality of sales and the net revenue strategy. However, the results fell slightly short of the revised full-year operating profit forecast. The net sales increased 13% year-on-year to ¥2,789,000,000. The operating profit was ¥190.1 billion. and the operating margin was 6.8%. The ordinary profit was 209 billion yen, and the net income was 154 billion yen. The retail sales were 815,000 units, mainly due to the impact of stagnant total automobile demand. Please turn to page 4. In this slide, you can see the factors behind year-on-year changes in the operating profit for the FY2023. The volume and mixed selling price improved by 76.1 billion yen . The volume increased 9 billion yen due to the growth in North America and Latin America and the Middle East, Africa, and the domestic sales. Also, the mixed selling price contributed 67.1 billion yen in profit due to the contribution of the net revenue strategy. Regarding the sales expenses, the incentives increased because the vehicle supply shortage was resolved and the advertisement expenses also enhanced as planned. As a result, the sales expenses reduced to the operating profit by 34.6 billion yen year-on-year. The procurement cost and shipping cost decreased by 40.1 billion yen in total, mainly due to the impact of inflation and the increase in shipping costs such as special vessel allocation expenses. The R&D expenses increased as planned, resulting in 7.4 billion yen decrease in profit. The other items deteriorated by 31.3 billion yen, mainly due to an increase in expenses such as indirect labor costs and quality costs. The negative impact of the cost currency Thai baht was offset by the US dollars and other currencies, resulting in a favorable effect of 37.8 billion yen year-on-year. Please turn to page 5. This slide explains the factors behind the year-on-year change in operating profit for the fourth quarter FY 2023 alone. The volume mixed selling price improved by 11.4 billion yen year-on-year, Of this, the volume increased in North America, Japan, and Oceania, but reduced in ASEAN regions, and Latin America, Middle East, and Africa resulted in a deterioration of 0.9 billion yen in the operating profit. On the other hand, the mixed selling price increased by 12.3 billion yen, thanks to the promotion of the net revenue strategy. The sales expenses deteriorated to deteriorated the operating profit by 12.5 billion yen due to an increase in incentives with the normalization of the competitive sales environment and an increase in advertisement expenses. The procurement cost, shipping cost worsened by 11.1 billion yen in total, although raw material prices have become more stable as the commodity market being restored, higher factory and shipping costs deteriorated the total amount. The R&D expenses increased and bring down the operating profit by 1.7 billion yen and other items deteriorated by 13.5 billion yen, mainly due to an increase in expenses such as indirect labor costs and general expenses as well as the booking of the quality-related costs. Regarding the forex, negative impact of the appreciation of Thai baht was reversed by US dollars and other currencies, resulting in an increase in profit of 21.5 billion yen. Please turn to page 6. Next, our global sales volume for FY2023. Compared with the previous fiscal year, overall global sales volume decreased other than in North America, where the sales of the Outlander series increased the volume, and in Japan, where the Delica Mini was well-received. The overall demand in Thailand and Indonesia, in the ASEAN region in particular, fell sharply and that hit hard on our business as well. In Australia and New Zealand, sales declined year-on-year due to slow inland transportation caused by the port congestion. The sales declined year-on-year as well in Latin America and the Middle East and Africa due to intensified competition associated with the recovery in vehicle supplies and the timing of model switching. In China, the structural reforms implemented in FY2023 have the sales Yaon Yi. Next, CEO Kato will present our plan and the key initiatives for FY2024. Kato-san, please turn to page 8. So now I would like to talk about the FY2024 financial forecast. In FY2023, Starting from Thailand and Indonesia, we launched new models, Triton and Xforce. However, demand in those two markets were particularly sluggish, and we struggled to sell out the old models and also suffered to launch new models. And as a result, we were unable to enjoy sufficient effects of new models. Despite this environment, we believe that the effects of those two new models will expand in FY2024 as those two new models will be rolled out sequentially in the Philippines and other countries where the economies are firm. In Thailand and Indonesia, we think it will take some time for their demands to recover. On the other hand, Japan and the US, these economies continue to be well. Therefore, a certain level of sales volume and profits would be expected. Considering those items in FY2024 as shown on the slide, we aim to secure the net sales of 2.88 trillion yen, the operating profit of 190 billion yen, the ordinary profit 190 billion yen, and the net income of 144 billion yen. Based on this plan, we plan to increase the dividend to 15 yen per share for FY2024. In addition, we will clarify the investment required for future growth within this year, and we will vigorously consider more about our shareholder return policy. Please turn to page 9. This slide shows the factors behind the transition in the operating profit forecast for FY24 from the previous year. As for the impact of volume and mixed selling price, We expect that the termination of sales in some regions and transition to new models will reduce the sales volume, but they will be offset by efforts such as maximizing the impact of new models, which will be rolled out and improving further the quality of sales. Thus, an increase of 28 billion yen is expected in profits. The selling expenses will decrease by 28 billion yen from the previous fiscal year, mainly due to an increase in incentives as the sales competitive environment is being normalized. As for material and transportation costs, a sharp rise in material costs due to inflation and the worsening of the factory expenses due to higher energy and labor costs are expected, but they will be countered with cost reduction initiatives so that a total increase of 5 billion yen is forecasted. The R&D expenses are on an increasing trend to secure resources and achieve sustainable growth, a drop of 10.4 billion yen in profit. Regarding others, efforts to reduce general expenses are expected to increase the operating profit by 5.4 billion yen compared to the previous year. Regarding the forex, Although the yen has depreciated since the beginning of the year, we expect a negative impact of 1 billion yen, assuming a moderate appreciation of the yen. Please turn to page 10.

Following on from FY2023, although a severe macro environment is predicted, especially in some countries in ASEAN and Oceania, we are forecasting retail sales of 895,000 units globally, by implementing the planned rollout of new models such as the Triton and the X-Force in various countries. Next, I will explain the key initiatives to achieve the plan. Please turn to page 12. First is the ASEAN and the Oceania regions that are the growth drivers for us. In fiscal 2024, it is predicted that a certain amount of time will be needed to recover market conditions in Thailand, Indonesia, Vietnam, and others in ASEAN. However, the new Triton and the X-Force began to be rolled out in various countries from the beginning of 2024, and orders in all these countries have been firm. It is expected that the effects of new launches will gradually increase with the expansion of the territory of sales. And sales of BEV, which grew rapidly in Thailand in FY2023, have been suddenly break this year, and it is probable that the expansion of BEV has hit the low at this moment. On the other hand, the expander HEV, which was launched in Thailand in February 2024, has been very well received by customers, and orders have exceeded our expectations. Going forward, we will continue to introduce products that embody Mitsubishi modus-ness in the HEV market, which is in high demand from customers. Also, we will contribute to ASEAN's move toward decarbonization while aiming to grow further by leveraging new products. In addition, while utilizing HEV, we will continue to prepare for re-accelerating the transition to BEV, which will be happening in the future. In FY2024, the macroeconomy in the Oceania region is expected to decelerate, affected by inflation and high interest rates. Despite the challenging sales environment, we will leverage the new Triton, whose full-scale sales were launched in March 2024, to maintain and increase our sales volume as well as further improve our brand value. Please turn to page 13. is Latin America, the Middle East, and Africa that are our leveraged regions. In Latin America, demand for automobiles in Brazil is expected to decrease slightly from FY2033. However, demand for automobiles in Chile, Peru, et cetera, is expected to exceed FY2033 due to the end of inflation and the reduction of policy interest rates. Under these environments, we will strengthen sales to private customers by launching the new L200 Triton and the Outlander Sport. In addition, the Outlander, which has been well received since its launch in various countries, we will also roll out the Outlander PHEV in line with customer needs. We aim to increase sales volume, which accompanies improvement in sales quality. In the Middle East, the Israel-Gaza conflict is not expected to end, which is great concern, but aggregate demand in neighboring countries is said to be generally close to the level of last year. In addition to the Outlander and the Expander, which were enjoying strong sales in FY2023, the new L200 Triton will finally be added to our lineup in the first quarter of FY2024. We will work to maximize the effect of the new L200 Triton through rolling out promotion events in each country. In addition, in some countries, we will launch the exports and strengthen our SUV product lineup to improve brand value and boost sales capabilities. In Africa. despite projected instability, such as high inflation, currency instability, and the general election in South Africa. The economy is expected to gradually recover from the second half of the fiscal year, and the automobile demand is expected to be roughly on par with the previous year. We will work to boost our sales capabilities by launching new models such as the Outlander Sports, which is X-Force, and the new L200 Triton. In addition, the expander, which has developed the segment market after its launch, has grown into our major model in South Africa and Egypt, where the markets are large. Going forward, we will work to further expand sales, which will lead to an increase in our brand value. Please turn to page 14. Here is Japan, North America, and Europe, which are advanced technology promotion regions for us. Japan domestic market is expected to remain firm due to the normalization of inventory levels of dealer companies. We have maintained strong orders and sales for the Delica Mini and the Triton, the models that symbolize Mitsubishi Motors since their launches. Leveraging these two models and with the Outlander APA TV, the Eclipse Cross, and the ever-popular Delica D5, we will further expand sales and improve brand value. In North America, automotive demand is expected to exceed FY2023 due to a recovery in inventories and demand growth in the fleet market, despite the possibility of persistently high interest rates and the risk of an economic slowdown. At the same time, the competitive environment is gradually intensifying, and we will work to expand sales activities with an emphasis on improving brand power, quality of sales, and customer satisfaction while appropriately controlling incentives. Looking ahead, we plan to maintain stable sales and earnings by strengthening our product lineup through utilizing the alliance. It is said that automobile demand in Europe will generally remain at the fiscal year 2023 level. In addition, in the two largest European markets, namely Germany and France, there has been concern about stagnant BEV demand triggered by the termination of subsidies, while demand Expectations for XEVs are rising. With the launch of the Outlander P-ATV in Europe, we intend to meet the customer needs. Please turn to page 15. As explained earlier, the new Triton and the X-Force, which were introduced in FY2023, will begin full-scale deployment in various countries according to the schedule shown on the slide. At this moment, Total demand in ASEAN is extremely weak and this situation is expected to continue for some time. Having said that, the importance of ASEAN which is expected to grow in the future remains unchanged. Going forward, we plan to introduce more new products including electrified vehicles and as our current policy, we aim to further strengthen our foundation and improve profitability in the ASEAN region. We will also aim for further growth in the Middle East, Latin America, and Oceania, where we can utilize our ASEAN strategic products. Also, we plan to strengthen the entire value chain by collaborating with various partners, which I will explain on the next page. Please turn to page 16. As stated in our Mid-Term Plan Challenge 2025, we will gradually accelerate initiatives to strengthen regional businesses, take on challenges in new business areas and new business models, and achieve profitability through various partners. In Europe, we will give the compact SUV ASX, which is supplied by Renault as an OEM, a major enhancement, including a completely redesigned front panel, enhanced connected functions, and enhanced safety features. This model will go on sale in some countries in Europe in June. We will collaborate with Nissan Motor Corporation to promote a next-generation one-ton pickup truck and battery sharing strategies at the global level. In North America, we will provide PHEVs and utilize Nissan's EV assets. In addition, we will promote collaboration of future models in ASEAN and Oceania with our alliance partners, Nissan and Renault. In the ASEAN region, which is our core region, we agreed to conclude a joint venture agreement with Security Bank Corporation, a financial institution in the Philippines, to establish Mitsubishi Motors Finance Philippines that offers financing services to Mitsubishi Motors customers in the country. And yesterday, on May 7th, we announced that Mitsubishi Motors Corporation, Mitsubishi Motors Thailand, PTT Public Company Limited, and its electric vehicle subsidiary Arun Plus Company Limited agreed to begin talks on a partnership. The four companies will start discussing collaboration in XEV business, including local manufacturing operations, domestic sales and export, and related services in Thailand, with the aim of contributing to achieving carbon neutrality in the country. FY2023 was the first year of our Mitran Plan Challenge 2025 and was also a start of major changes from the past. We reviewed our regional portfolio, including the withdrawal from the China and Russian markets, launched new models, and reviewed our product lineup, including OEM supply from alliance partners, and launched our first HEV model. We had challenges in dealing with a transitional period between vehicle generations, coupled with the economic downturn in the ASEAN region. On the other hand, we made steady progress in the net revenue strategy, achieved success with the Delica Mini and the Triton, which embody Mrs. Motorsness, and the HEV model that we have been developing for the past few years became hit. As a result, we were able to generate a certain level of revenue and gain a sense of momentum toward the future growth. For FY2024, the external environment remains unstable due to heightened geopolitical risk and concerns about economic downturns in various countries. In addition, the automotive sector is experiencing a completely different trend from just six months ago, as demand for BEV has temporarily reached a plateau, while HEV and PHEV have increased their presence. Changes in the world are extremely rapid and violent, but at the same time, we think that the direction of major changes will remain unchanged. In any case, we need to grasp the turning point of change and turn it into an opportunity, and we will implement our initiatives for further growth in FY2024. Thank you very much.