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Edited Transcript of 7211.T earnings conference call or presentation 24-Jul-19 10:59am GMT

Q1 2020 Mitsubishi Motors Corp Earnings Presentation

Tokyo Jul 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Mitsubishi Motors Corp earnings conference call or presentation Wednesday, July 24, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Ashwani Gupta

Mitsubishi Motors Corporation - Representative Executive Officer & COO

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Presentation

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Unidentified Company Representative, [1]

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Good evening, everybody. Thank you for joining our meeting to cover the FY 2019 first quarter earning results.

Since the end of last year, global automotive demand has been sluggish, and the yen's appreciation has also continued. This has created a challenging environment in fiscal 2019.

Today, we would like to begin with an explanation of the financial results for the first quarter of fiscal 2019. In addition, we would like to answer your question in time we have allowed.

Please refer to Page 3. First, sales in the first quarter of fiscal 2019 decreased 4% year-on-year to JPY 536.2 billion due to the restrained shipments to adjust distribution stock.

Operating profit fell significantly to JPY 3.9 billion from JPY 28.1 billion in the previous fiscal year. And OP margin was 0.7% because despite a review of investments and efforts to reduce expenses, some of the actions take more time for the effects to be realized.

We are reporting a negative ordinary profit of minus JPY 1.4 billion, largely due to the impact of foreign exchange losses outside of our operating profit.

Net income amounted to JPY 9.3 billion, mainly due to transient tax-related factors.

Our global unit sales increased 2% from the previous year to 298,000 units.

Please turn to Page 4. While global automobile demand declined, our sales volume in first quarter FY '19 was 298,000 units, up 2% year-on-year, as you can see.

In ASEAN region, the progress was largely in line with our plan, although the situation differs depending on each country.

In Australia and New Zealand region, demand for SUV, light commercial vehicles and passenger cars was weak due to the economic slowdown in Australia, in particular, and our sales were also affected by slowing demand.

In Japan, where we’re aiming for significant growth this fiscal year, our sales volume increased on a year-on-year basis, thanks to the impact of new models, such as Delica D:5, eK X, eK Wagon, which began sales in early 2019.

In other regions, although overall demand was sluggish and competition has intensified, progress remained almost unchanged from the previous year.

Please turn to the next page. Factors behind changes in operating profit are as follows. In terms of volume and mix, despite the effects of new vehicles in Japan and the effects of product renewals in the mainstay ASEAN region, sales in other regions deteriorated, resulting in a decline of JPY 3.9 billion.

Sales expenses reduced profits by JPY 0.9 billion year-on-year. This was mainly due to an increase in selling expenses to expand unit sales.

In terms of cost reduction, despite the progress made in reducing procurement costs through joint purchasing with the Alliance, the increase in costs to improve our product lineup was a significant factor resulting in only a JPY 1.7 billion contribution to profit.

Changes in exchange rates reduced profits by JPY 5.6 billion due to fluctuation in major currencies, such as Thai bhat's appreciation, the euro depreciation, and the Australian dollar depreciation.

Other R&D expenses and labor costs, et cetera, increased significantly year-on-year. As a result, operating profit for the first quarter of fiscal 2019 was JPY 3.9 billion, a significant year-on-year decrease.

Please turn to the next page. Next, I will explain the FY 2019 financial forecast. Please refer to Page 7. We announced our full year earnings forecast for fiscal 2019 in May, but this forecast remains unchanged. Although the uncertainty remains in the global economy and there are no grounds for optimism, we aim to achieve a recovery in sales in line with our plan towards the second half of the year with ASEAN where demand is growing steadily.

In addition, we will make every effort to achieve our full year forecast by further optimizing costs and maintaining a balance between revenues and expenditures.

Please turn to the next page. And next, our COO, Gupta will express some business highlights during this quarter.

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Ashwani Gupta, Mitsubishi Motors Corporation - Representative Executive Officer & COO [2]

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Good afternoon, everyone. We are also focusing on strengthening and upgrading our core product. And on June 13, we launched our new Eclipse Cross, which is equipped with a clean diesel engine as planned. On July 25, we will begin the sales of our new PAJERO SPORT in Thailand.

In addition, we will introduce a new type of a super-height wagon, which will succeed eK Space to the domestic Japanese market by the end of the year.

Regarding the other existing models, we will gradually introduce innovative, refreshed versions of several models and strengthen our model life-cycle management. For instance, we will launch the XPANDER SUV by the end of the year as a derivative model. Also regarding XPANDER, so we are now exporting this model to 12 markets, but we are going to expand the markets, including Asia, Africa and the Middle East. We are going to add some more countries to the destination.

Next slide. As we have announced on July 8, that we are investing in GOJEK, a leading on demand multi-service platform in Southeast Asia, together with Mitsubishi Corporation. The 3 parties have signed a Memorandum of Understanding to discuss joint project.

GOJEK based in Indonesia provides an app which fulfills the people's daily needs such as transportation, food delivery and e-payment by utilizing their on-demand mobile platform and is rapidly expanding not only in Indonesia, but also in other Southeast Asian countries.

We will be able to leverage the GOJEK platform and study possibilities for various new mobility services.

So today, I want to summarize our Q1 performance. There are 3 key points that I want to cover. FY 2019, the first quarter compared to the same period last year, the result was lower. Why? Because in November, we have revisited our management direction and this is a result in Q1. Without OEM, we have reduced our stock by 8%, and retail was increased by 2%.

The second key point is looking at the market, the U.S. and China. And those markets declined. In conjunction with that, we have concentrated on our profit. However, our core markets, ASEAN, 8% increase; and Japan increased by 9%; and Middle East and Latin America, those markets have grown as well.

The third key point is about the cost. There are 2 types of cost: number one, investment. For investment, we are in line with our plan. So next, pick up NC segment. And we want to push those models and expenses, the second category of the cost. As I said, we had stretched on strategy to push our volume. We have revisited our direction, but in Q3 and in Q4, and in what we have spent in those quarters, there is an impact on Q1. Because of that, there was an imbalance between expenses and profit.

But from going forward from Q2 to Q4, about markets, looking at our core markets, which is ASEAN and Thailand, especially Thailand, the Philippines, Malaysia, the -- Indonesia, all those markets are growing. And Japan is also growing. Europe is flat, but EV market is expanding.

And our PHEV is #1 in European markets. So from our view, our PHEV market in Europe is growing too. And Brazil, Latin America, Chile and Peru, we are growing in those markets too. However, the U.S. market is shrinking. Now we need to concentrate on boosting our profit.

And next point is product. In Japan, our super-height wagon and Delica, we are going to launch those 2 models; and ASEAN, which is our core market; and PAJERO SPORT and XPANDER export, and Triton for model change. So we would do those. And Europe, PHEV will be launched.

And the third point is cost. As I said, we had a volume strategy and because of that, we created imbalance between profit in those expenses. We need to adjust that in Q2 to Q4. We need to manage our expenses better to strike a balance.

Thank you very much for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]