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Edited Transcript of 000270.KS earnings conference call or presentation 22-Jan-20 7:00am GMT

Q4 2019 Kia Motors Corp Earnings Call

Seoul Feb 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Kia Motors Corp earnings conference call or presentation Wednesday, January 22, 2020 at 7:00:00am GMT

TEXT version of Transcript

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Presentation

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Unidentified Company Representative, [1]

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Before we begin our presentation, we'd like to provide a note to our investors. For investors' convenience, this presentation has been prepared with unaudited results of fiscal year 2019. Therefore, some numbers are subject to change upon review of Kia's independent auditors.

Kia Motors' business results for fiscal year 2019 will be presented in the following order: sales summary; financial summary; revenue and earnings analysis; and lastly, 2020 business plan. First is a summary of our global retail sales. Amidst the 4.4% decrease in global industry demand, Kia's global retail sales in 2019 recorded 2.816 million units, similar to the previous year.

First, in the U.S. market, the new model effect of Telluride, launched in the early 2019, continued to expand, while robust sales of Sportage added to the sales increase of SUVs. Despite a decrease in industry demand, Kia recorded a sales of 615,000 units, posting a 4.4% increase, which drove the growth of Kia's entire global retail sales.

In India, where we commenced sales after starting production in late July, thanks to the immense popularity of Seltos, despite a sharp decline in industry demand, we greatly outperformed our initial sales plan by recording a sales of 45,000 units and made a successful entrance into the market.

In the Korea domestic market, a continued strong new model effect of Seltos, K7 and [Mohave P], and lastly, K5, all launched in the second half, was able to offset the weak performance of the first half, recording a sales of 520,000 units.

In Europe, thanks to the positive market response of Europe's strategic model, Ceed, and its derivative models, the sales decrease of aged model Sportage was absorbed, recording a sales of 503,000 units, posting a 1.7% growth.

On the other hand, in China, a decline in industry demand along with the sales decrease of volume models, K2 and K3, resulted in a sales of 296,000 units, recording a 17.1% decrease. However, we recorded a monthly sales of over 3,000 units of Seltos launched in December, and we are expecting to be able to make up for our poor performance in 2020.

Next is a summary of our global wholesale performance by region. In 2019, our global wholesale decreased by 1.4%, recording a sales of 2.77 million units. Excluding China, our wholesale grew by 2.9%, recording a sales of 2.51 million units.

In the North America region, new model effect of Telluride and the launch of [Seltos] led to a growth of 3%, recording 783,000 units. In the Europe region, strong sales of Ceed; new model, Ceed CUV; and Stonic led to a growth of 3.3%, recording 521,000 units.

In the MENA region, due to the open business environment of Saudi Arabia and reconstruction of Iraq and a low base effect of the previous year, our wholesale increased by 7.1%, recording 191,000 units.

However, in the Latin America region, due to the effects of the U.S.-China trade confrontation, political uncertainty and increase of foreign exchange volatility, total industry demand fell and led to a decrease of wholesale by 12.2%, recording 122,000 units.

Next is our consolidated income statement. Thanks to an increase of sales units, increase of ASP led by new model launches and mix improvement with the help of new SUVs, Telluride, Seltos and so on, sales revenue totaled to reach over KRW 58 trillion, posting a 7.3% increase. As for our operating profit, new model effect, especially from U.S., India and the Korea domestic market, greatly drove an improvement of our consolidated earnings, while favorable foreign exchange rates and ordinary rate write-back in the first quarter, we're able to mostly absorb the increase of warranty expenses in the third quarter. As a result, our operating profit for financial year 2019 recorded KRW 2.1 trillion, posting a 73.6% increase and achieved a operating profit margin of 3.5%.

Next is our consolidated income statement for the fourth quarter separately. Increase in sales units driven by India's Seltos; the strong new model effect of Telluride in the U.S.; and in the Korea domestic market, Seltos, along with product enhancement models for K7 and Mohave, together contributed to a sales mix effect, which led to the improvement of our operating profit in the fourth quarter. At the same time, an increase of warranty expense due to a low base effect were offset by positive foreign exchange effects and so on, leading to an operating profit increase of KRW 209 billion from the same period of the previous year.

Next is our consolidated balance sheet. At the end of 2019, total assets recorded KRW 55.3 trillion, up by KRW 3.5 trillion, while total liabilities posted KRW 26.4 trillion, up by KRW 1.8 trillion. The increase in assets was primarily due to an increase of tangible assets and inventory as a result of the establishment of our new business in India.

Despite a decrease of provisions due to the payment of ordinary wages to employees, total liabilities increased due to borrowings from our India plant; increase of trade payables due to increased production from our overseas plants mainly U.S.; and increase of accrued expenses such as bonuses. Despite the payment of ordinary wages to employees in the first quarter, an increase of profits, thanks to profitability recovery and a stable maintenance of investments, net cash increased by KRW 719 billion, recording KRW 2.5 trillion.

Total equity increased by KRW 1.7 trillion, recording KRW 28.9 trillion, thanks to an increase of retained earnings as a result of improved earnings.

Next is the revenue analysis. While total sales revenue of 2019 increased by 7.3%, the Korea domestic market sales contribution decreased by 1.5% point, recording 23.1%, due to a decrease of sales units in the first half. The sales revenue contribution from the North America region increased by 0.8% point, recording 35.6%, due to a mix improvement driven by robust sales of new model, Telluride, and a stabilization of incentive spending, thanks to a decrease of inventory, which drove the growth of Kia's total sales revenue. The sales revenue contribution from Europe increased by 0.2 percentage points due to sale increased effect of green cars, Niro and Soul EV.

As for the rest of the world, strong sales of India's Seltos drove an increase of sales contribution by 0.6 percentage points, recording 19%. By segment, new models, Telluride and Seltos, and the sales growth of Niro, led to an increased percentage of RVs by 2.8 percentage points, recording 43.2%. On the other hand, the percentage of passenger cars decreased by 2.5 percentage points due to key models such as K2 and K5 being aged.

Next is a summary of our cost of sales and SG&A expenses. In 2019, cost of sales as a percentage of revenue improved by 1.3 percentage points, recording 83.9%, thanks to SUV-oriented mix improvements [week 1] and the write-back of ordinary wage-related provisions. SG&A expenses as a percent of revenue was 12.7%, similar to the previous year.

Next is our nonoperating items. Equity method gains decreased by KRW 110 billion, recording KRW 507 billion, due to a decrease of earnings from China's DYK and so on. On the other hand, financial and other income improved by KRW 320 billion mainly due to FX-related gains and reversal of interest expenses in relation to the ordinary wage litigation in the first quarter. As a result, nonoperating income in 2019 improved by KRW 210 billion, recording KRW 521 billion.

Lastly, we would like to share our business plan for 2020. The company is targeting 2.96 million units of wholesales in 2020, which is an increase of 4.9%, with 139,000 units compared to 2019. The majority of our growth is expected from China and India. In India, we expect an increase of 79,000 units with the ramp-up of our India plant and addition of our new model lineup. In China, we expect an increase of 51,000 units by business stabilization.

Overall, through profitability-focused business management rather than focusing on sales units' growth, as a continuation from the previous year, we plan to concentrate on profit improvement and qualitative growth.

This concludes our presentation of our 2019 business results and 2020 business plan. Thank you for your kind attention.