10/30/2024

speaker
Investor Relations Officer
Director of Investor Relations

Thank you very much for taking time out of your busy schedule to attend our first half earnings call. In addition to an increase in vehicle supply across the industry, intensifying competition, the delay in recovery of the macro economies mainly in Thailand and Indonesia have slowed down the demand for automobile. As a result, the sales environment surrounding us remains to be severe. As shown in this slide, our results for first half FY 2024 showed a decrease in both sales and profit on a year-on-year basis. The net sales were 1,307,400,000,000 yen, a drop by 2% year-on-year. The operating profit decreased 13% year-on-year to 90.7 billion yen, and the OP margin dropped 0.9 point year-on-year to 6.9%. The ordinary profit decreased 43% year-on-year to 69.2 billion yen, mainly due to the impact of Forex losses, and the net income after tax was 38 billion yen. The retail sales increased 5% year-on-year to 408,000 units.

speaker
Moderator
Conference Call Operator

Please turn to page 4. In this slide,

speaker
Investor Relations Officer
Director of Investor Relations

you can see the factors behind the year-on-year changes in operating profit for first half of 2024. In terms of volume mix and price, despite an increase in shipment to Japan, North America, and Australia, New Zealand, and other markets, shipments to Europe and the Middle East were controlled according to the plan, and inventory adjustment in ASEAN were accelerated. As a result, the operating profit decreased by ¥7.9 billion. Sales expenses pushed down the operating profit by ¥27.7 billion, mainly due to higher incentives in the U.S. and Thailand for intensified market conditions. Procurement cost shipping costs improved by ¥10.4 billion in total, despite an increase in material costs due to inflation and increase in plant expenses. and deterioration in transport costs from higher unit price of transportation as well as special vessel arrangements. Activities to reduce material cost offset those negative factors. R&D expenses increased as planned and that reduced the operating profit by 8.5 billion yen. Other items mainly an increase in general expenses such as higher personnel expenses and the impact of inflation and an increase in quality costs deteriorated the OP by 12.5 billion yen. Regarding Forex, the negative impact of the cost currency Thai baht was offset by U.S. dollars and Australian dollars and improved the OP by 32.7 billion yen. Please turn to page 5. In this slide, you can see the factors behind the EON-E changes in operating profits for the Q2 FI 2024. In terms of volume mix and price, In addition to ASEAN's turnaround in profit thanks to contributions from Vietnam and the Philippines, an increase in shipments to Japan and North America and improved mix due to an expansion of new model shipments resulted in improving DLP by 4.1 billion yen. Sales expenses reduced the operating profit by 18.3 billion yen, mainly due to an increase in incentives in the U.S. for the intensified market competition. Procurement cost shipping costs improved by 8.4 billion yen in total as material cost hiked due to inflation. Factory expenses and increased transportation costs were absorbed by favorable changes in raw material prices and activities to reduce procurement costs. R&D expenses increased as planned, bringing down the operating profit by 4.3 billion yen. Other items deteriorated by 1.8 billion yen. due to an increase in personnel expenses and an increase in general expenses due to inflation and an increase in quality costs. Regarding Forex, the negative impact from the cost currency Thai baht was reversed by the US and Australian dollars and improved the operating profit by 8.1 billion yen. Please turn to page six. I would like to explain our global sales volume for first half of 2024 compared with the previous fiscal year. all regions showed an upward trend. Globally, the retail sales increased by 5%. The significant decrease in sales in China and others was due to the impact of structural reforms implemented in FY 2023. Next, I will explain the situation by region. Please turn to page 7. First, I will explain the ASEAN and Oceania regions. In the Philippines, with the robust automobile demands, we maintain the strong sales momentum. of existing models and both our sales volume and market share grew significantly. We aim to further increase our sales volume and market share by focusing on new models such as Exforce and Triton, which have gradually penetrated into the market since the launch. In Vietnam, where automobile demand is recovering, our sales volume and market share both grew significantly. Going forward, we will expand our sales volume and market share by leveraging the new Triton, which will be launched shortly. In Thailand, the tightening of credit for automobile loans continues and demand for automobiles continues to decline, particularly in the pickup segment. We expanded our market share by accelerating inventory optimization and focusing on expander, which is performing well. To prepare for the recovery of demand, we will continue optimizing inventories and firmly maintain measures to expand our market share. Indonesia is also in a severe situation where the total demand has fallen year-on-year for 16 consecutive months since June 2023. Under such environment, our market share is on the increasing trend thanks to solid sales of the new Pajero Sport and Triton. Going forward, we aim to further expand our market share by expanding the sales of new X-Force, which is gradually increasing sales after its launch. In Australia, which accounts for the great majority of the Oceania region, the total demand for automobiles remained almost unchanged from the previous year, despite concerns about the decline in consumer sentiment due to the economic downturn. We increased our vehicle supply year-on-year and increased both sales volume and market share. Please turn to page 8. Next is Latin America and the Middle East and Africa. In Latin America, Brazil is showing a strong recovery. A full-fledged recovery of the economy and a gradual reduction of the policy interest rate have increased the total automobile demand by 15% EOE. Other major economies are also showing a moderate recovery. but that has not led to a full-fledged recovery of the total automobile demand. Under such environment, we managed to increase sales year-on-year, leveraging the launch of the new L200 Triton and the new Outlander Sport X-Force. We will continue to launch these new models to boost sales throughout Latin America. In the Middle East, We were slightly affected by the Israeli-Gaza conflict that began last fall and restrictions on the Red Sea route due to ship attacks off the coast of Yemen. Going forward, we will focus on sales of new L-200 Triton launched in first half FY2024 and new Outlander Sport X-Force and enhance our brand. Please turn to page 9.

speaker
Kato
Chief Executive Officer

From Japan, North America, and Europe. In the domestic market, automotive demand decreased year-over-year partly due to the impact of the suspension of shipments of some OEMs, but our sales volume increased along with market share expansion driven by the strong sales momentum of Delica Mini. Going forward, in addition to maintaining sales momentum, the new Outlander PHEV, which has significantly enhanced the product, will be added to the lineup. We will further expand sales volume and market sales by focusing on models that symbolize Mitsubishi Motors' net. In the United States, which accounts for the great majority of the North American region, automobile demand itself has generally remained at the same level as the previous year, but competition has intensified as each company has increased sales expenses in line with the increase in vehicle supply. We also increased incentives in line with the market trends to maintain sales momentum. We will continue to monitor market trends and strive to utilize incentives effectively with an emphasis on improving the quality of sales and customer satisfaction. In Europe, competition remains challenging amid the overall macroeconomic stagnation, but our sales volume increased year over year due to increased sales over cold. Going forward, in addition to promoting the sales of the new ASX, which went on sale since July, we will also promote pre-order activities for the new Atlanta PHEV, which is scheduled to be launched at the end of the current fiscal year and focus on successful launch. Next, Mr. Kato, our CEO, explains the full-year forecast for FY2024. Kato-san, please. Please stand to page 11. I will talk about the performance forecast. We were able to secure a certain level of revenues in the first half of 2024 in a business environment where the growth of automobile demand in the global market is slowing. The current business environment is a mixture of negative factors such as slowdown in the growth of automobile demand in the global market, a delay in the recovery of demand in Thailand and Indonesia in ASEAN, and sharp rise in incentives due to oversupply of vehicles, particularly in the United States, as well as positive factors, such as the driving force of growth markets, such as Vietnam and the Philippines, and the recovery in our presence in the domestic market, and uncertainties such as exchange rate fluctuations, which have both positive and negative effects. Many events are scheduled to come, including the U.S. presidential election in November, and we believe that things will change irreversibly at a faster pace than we can imagine. Based on these business environments and the progress of our business performance so far, we have decided to maintain the initial forecast for the full year performance of 2024 and will strive to achieve a plan by responding swiftly and flexibly to future changes in the environment. Next slide. I will introduce the business highlights for the first half of FY24. Please turn to page 13. We announced that we will start the sales of crossover SUV Outlander PHEV that we have significantly improved in Japan from October 31. In order to further evolve the Ifudodo authentic and majestic product concept, The new Outlander PHEV maximally reflects the product needs of PHEV customers, including a change in the drive battery to improve the features unique to EVs and an improved texture of the interior. Now that the PHEVs, which combine EV and hybrid, are attracting attention again as the optimal solution for SUVs, we are proud that the new Outlander PHEV is the best ever. Spence will start in the European market from the spring of 2025 and will then be expanded to North America and Australia. We aim to take our brand to a new level and further strengthen the brand by launching the new generation Outlander PHEV globally. Please turn to page 14. The new X-Force, which was introduced in Indonesia last year, is now being fully deployed from this year. Launched in Vietnam in the first quarter of 2024, the product and body Mitsubishi Models Nest has been well received by many customers. Since its first month of sales, X-Force has consistently held the top position in the compact SUV segment, and in July and August, X-Force won the top position in all passenger car sales across Vietnam. In the first half of FY24, the sales of X-Force and Xpanda were in the top three of all models, according to our calculation. and we were able to make a significant leap forward in Vietnam. We plan to gradually roll up the exports to Middle East and South Asia. In the future, we plan to add a hybrid version of the model, aiming to further improve the product's attractiveness, embodying the Mitsubishi model's net, and expand our market share in each region. Please turn to page 15. We premiered the Mitsubishi DST concept, a mid-size SUV concept car, at the 9th Philippine International Motor Show. The Mitsubishi DST concept is an embodiment of an all-new three-row SUV to be launched during our current Mid-Town Business Fund Challenge 2025, and the production vehicle will be rolled out primarily in the ASEAN region in FY2025. We aim to take this all-new SUV, a global strategic model following the expanded crossover MPV that was born in the ASEAN region and grew to become a model beloved by customers around the world, and the X-Force compact SUV that has been highly acclaimed since its introduction in FY2023. Next page, please. The first half of FY2024 was an environment with many unstable factors, such as the prolonged slowdown in the total automobile demand in Thailand and Indonesia and rising incentives in the United States. However, while focusing on optimizing production and inventory, we have been rolling out the new Triton and new exports in line with the plan. Taking an advantage of the effect, of these new models, we have been able to expand our market share in many key regions, even in a difficult demand environment. Looking ahead, however, we expect the economic environment to remain resistant to optimism due to a delayed market recovery in ASEAN, political and economic fluctuations, and the impact of ongoing conflicts around the world. Although this is an unpredictable era in which conventional wisdom is being overturned, we also see it as an era with great potential. While responding to such an era swiftly with a sense of crisis, we will continue to seize new business opportunities and take on challenges through collaboration with various partners. Thank you very much.

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