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Edited Transcript of 000270.KS earnings conference call or presentation 24-Oct-19 6:30am GMT

Q3 2019 Kia Motors Corp Earnings Call

Seoul Oct 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Kia Motors Corp earnings conference call or presentation Thursday, October 24, 2019 at 6:30:00am 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 third quarter results of fiscal year 2019. Therefore, some numbers are subject to change upon review of Kia's independent auditors.

Kia Motors' business results for third quarter of 2019 will be presented in the following order: first, sales summary; next, financial summary; and lastly, an analysis of our revenue and earnings.

First is the summary of our global retail sales. In the midst of a 5.6% decline in industry demand, our global retail sales up to the third quarter of 2019 posted a 1% decrease compared to the previous year at 2.08 million units. In the U.S. market, while the new model effect of Telluride, a mid-sized SUV launched in the beginning of the year, has been continuously driving sales, solid sales of Soul and Sportage also added to our performance. As a result, despite slow industry demand, we were able to continuously increase our market share, posting a 2.6% growth and strongly contributing to our entire global sales.

In the Korean domestic market, strong sales of the newly launched Seltos and facelifted models of K7 and Mohave, led to year-on-year growth of 4.3% in the third quarter, which made up for the slow performance in the first half, posting a total of 375,000 units.

In Europe, positive response for Europe strategic model, Ceed and its derivative models as well as strong sales of Morning and Stonic and the sales increase of Niro, offsetted slow sales of Sportage, posting a 0.9% growth.

In India, where we commenced business from August, with the successful launch of Seltos a B-SUV, sales greatly surpassed our initial expectation, selling over 8,000 units despite unstable market conditions.

However, in China, even with the sales growth of China's strategic models Zhipao, YI PAO and Pegas, a sharp decline in industry demand and weak performance of volume models, K2 and K3, led to a sales of 219,000 units, posting a 11% drop.

Lastly, as for the rest of the world, despite increasing economic and political uncertainties in most emerging markets, stable sales in Russia, the Asia Pacific region and the MENA region led to a sales of 626,000 units, similar to the previous year.

Next is the summary of our global wholesale by region. Our wholesale up to the third quarter of 2019, fell by 1.4%, recording 2.04 million units, due to weak performance in China. Excluding China, our wholesale grew by 0.8%, recording a sales of 1.84 million units.

As for the North America region, new model effect of Telluride and Soul led to a sales growth of 1.9%, recording 592,000 units. While in the Europe region, as mentioned earlier, with the strong sales of Ceed, Stonic and Niro, sales grew by 1.2%, posting 393,000 units.

As for the MENA region, a low-base effect last year and strong sales gain from Saudi Arabia, led to a 9.6% growth. Lastly, in the Latin America region, sales weakened due to unstable market conditions such as political uncertainty and increasing foreign exchange volatility.

Next is our consolidated income statement. Despite a decrease in consolidated sales units, product mix improvement, led by the launch of new models such as Telluride and Seltos, with the help of won depreciation, resulted in a 3.3% increase of sales revenue of over KRW 42 trillion.

As for our operating profit, while favorable foreign exchange rates and ordinary wage write-back in the first quarter were more than able to absorb higher incentives, the continued robust performance of the Telluride in the U.S. and the rollout of new models such as the K7 facelifted model and the new Seltos in Korea, greatly contributed to operating profit growth, posting an 83% increase at KRW 1.42 trillion, with a 3.4% operating profit margin.

Next is our consolidated income statement for the third quarter. Strong sales performance of the newly launched Seltos and facelifted model K7 in the Korean domestic market as well as the sales increase of Telluride in the U.S., improved our product mix and drove a strong growth of operating profit, while increase in warranty expenses and other expenses were mostly offsetted by positive foreign exchange effect. Excluding the quality-related expenses reflected in the third quarter, we would have recorded an operating profit of about KRW 600 billion.

Next is our consolidated balance sheet. At the end of the third quarter, total assets recorded KRW 55.4 trillion, up by KRW 3.64 trillion, while total liabilities posted KRW 26.7 trillion, up by KRW 2.15 trillion. The increase in assets was primarily due to tangible assets increase by the establishment of our new business in India. The increase in liabilities was mainly due to the increased borrowings and equipment purchases in relation to our new India plant, increase in quality-related reserves and increase in accrued expenses such as bonuses.

As for our net cash, despite the payment of ordinary wages to employees in the first quarter, an increase of profits due to better profitability and a stable maintenance of investments led to an increase by KRW 596 billion, recording KRW 2.4 trillion. Our total equity increased by KRW 1.5 trillion, recording KRW 28.7 trillion, thanks to an increase of retained earnings from improved business results.

Next is the revenue analysis. By region, out of the total sales revenue, the Korean domestic market contributed 22.7%; North America, 36.2%; Europe, 22.8%; and the rest of the world, 18.3%. The sales revenue contribution from the Korean domestic market decreased by 1.4 percentage points due to a decline in sales units. The contribution from the North America region expanded by 0.9 percentage point due to an improvement of product mix with strong sales of Telluride and stabilization of incentive spending, driving the growth of the total sales revenue. The sales revenue from Europe increased by 0.3 percentage point due to a sales increase of green cars such as Niro and Soul.

Lastly, sales revenue from the rest of the world increased by 0.2 percentage point, as we newly commenced our business in India with Seltos and the sales units of the MENA region increased due to a low-base effect.

Next is the summary of our cost of sales and SG&A expenses. Cost of sales as a percentage of revenue improved by 1.5 percentage points, recording 83.5%, thanks to SUV-oriented mix improvement, weak won and the write-back of ordinary wage-related provisions in the first quarter. SG&A expenses as a percentage of revenue was 13.2%, similar to the previous year.

Lastly, nonoperating items. Equity method gains decreased by KRW 166 billion, recording KRW 492 billion due to a decline in earnings from our affiliates. On the other hand, financial and other income improved by KRW 294 billion, mainly due to foreign exchange transaction gains and the reversal of interest expenses of KRW 150 billion in relation to the ordinary wage litigation. As a result, our nonoperating income improved by KRW 128 billion, recording 627 billion.

This concludes our presentation of the 2019 third quarter business results. Thank you for your kind attention.