Mitsubishi Motors Corp

TSE:7211

Earnings Call Transcript 2019-Q1

[Koji Ikeya, executive]

Thank you very much. I'm Koji Ikeya. Thank you very much for coming in spite of the late time as well as the very bad weather.

And I'd like to explain about the financial results for the first quarter. In Page 3, so this is the summary, the first quarter financial results. Net sales increased 27% from the same period of the previous year to JPY 560 billion. Operating profit grew from JPY 20.6 billion to JPY 28.1 billion in the previous year, and operating profit margin is 5%. Net income was JPY 28.2 billion, which increased 23% from the same period of the previous year. Unit sales grew overall, so 292,000, so 21% increase from the previous year.

Please refer to Page 4. As you can see, the major KPIs versus the previous year. You can see the results, sales volume, net sales and revenue. Major KPIs are increased by more than 20% year-on-year.

Page 5. Please refer to Page 5. For the first quarter, operating margin transition is shown. This progress reflects the impact of the improving performance since we focused on clearer accountability and faster decision-making of each management team member. This is supported by the adoption of the PDCA model, which has become a key to this company's management month to month.

On top of that new model launch is an important reason why our COP margin has improved to 5% in the first quarter of the current fiscal year.

So after 6 page onwards, I would like to talk about the details. Please refer to Page 7. So concerning the operating profit variance, so JPY 20.6 billion last year, JPY 28.1 billion this year.

And concerning the Eclipse Cross and XPANDER volume, model mix produced positive impact of JPY 19 billion as a result of solid sales growth of the Eclipse Cross and XPANDER. Sales expense had a negative impact of JPY 2.5 billion due to increase in North America and ASEAN, nevertheless, significantly, improved in Japan. It was mainly due to the increase in incentives and advertisement for brand rebuilding, particularly in this region.

Cost reduction produced a positive impact of JPY 6 billion. Despite increased cost due to market condition, fluctuation and increased cost due to investment in growth, synergies are being generated, and material costs are progressing smoothly, as you see.

In ForEx, we saw negative impact of JPY 5.6 billion due to negative movements in the U.S. dollars, Thai bahts and other currencies.

Please refer to the next page. So sales volume results is shown with strong momentum from our new car launches as global sales volume grew. This was mainly due to the contribution of Eclipse Cross and XPANDER, which were launched last year to sales growth in each region and an increase in pickup truck Triton in Thailand. In ASEAN and Oceania region and Drive for Growth, which -- concerning which are the bedrock region -- in ASEAN and Oceania, which are the bedrock region in the Drive for Growth midterm plan, sales increased 22% year-on-year. And focus regions of North America, China and others grew steadily, increased by 30% year-on-year.

In Japan, recovery, which we define as a recovery market, sales volume increased by 11% to 21,000 from the previous year.

Please refer to Page 9. This is about the region. First, starting from ASEAN. ASEAN sales increased by 28% to 69,000 units due to the strong performance of new XPANDER MPV, which was launched in Indonesia last year. In the first quarter, strong sales of XPANDER totaled over 18,000 units, mainly Indonesia. We also launched this model in the Philippines during the first quarter. This MPV has proven our strong sales in ASEAN.

In the demand recovery market in Thailand, our volume increased by 4,000 units supported by our customer service campaign and good sales of Triton with a special edition. There, an increase of 4,000 units.

Indonesia, next. The XPANDER was the main reason for the strong performance from Indonesia. We have increased production capacity at the Bekasi plant to meet the demand for XPANDER. In the Philippines, sales volume are impacted by the introduction of the excise tax early last year, leading to 5,000 units decrease in sales volume. However, we anticipate this impact is only temporary, and that we will see some recovering soon. We will establish a sales structure and steady increase unit sales.

Please refer to Page 10, Australia and New Zealand. In Australia and New Zealand, sales increased by 8% to 26,000 in this quarter, maintaining our high market share in Oceania. The launch of Eclipse Cross last year -- which was introduced last year, made a substantial contribution to the solid performance. In addition, in February of last year, we increased our share at the Australian market after it became from five -- fifth to the fourth place in terms of cumulative sales in April to June quarter and ranked fourth. And we are keeping this rank. We will continue to focus on our strength in SUV and LCV, which is in [ cumulative ] trends in Australian and New Zealand markets.

Please refer to Page 11, North America, including United States. Sales in North America rose by 25% to 45,000 from last year. While the U.S. remains intently competitive, we were able to increase sales volume, thanks to launches of the new Outlander PHEV and Eclipse Cross. Sales of Outlander, a key model in the U.S., continue to show growth over the same period in last year.

China, that would be Page 12. In China, the sales increased by 50% to 36,000 units due to the solid demand for the localized Outlander. Total -- so 36,000, 50% total sales. And the region of China and others rose by 37% year-on-year to 41,000 units. We are now preparing to launch the locally produced Eclipse Cross, which will go on sale in this fiscal year. We expect demand for the Eclipse Cross contribute to growing sales volume in the China region. We are expanding our sales network in China, which now consists of 314 dealerships as of June, up from 302 last fiscal year.

Next, Japan. In our home market of Japan, sales volume increased by 11% to 21,000 compared with last year. Again, Eclipse Cross introduced at the end of fiscal year '17 greatly contributed to the performance with the sales of about 2,000 units. Our Japanese business also benefit from the stable growth of [ ETCs ] and other key models.

Please refer to Page 14. This page is the -- about Europe, including Russia. In Europe, solid demand for Eclipse Cross, which began shipping last physical fiscal year, helped us deliver a 22% improvement in sales volume to 55,000 units through the quarter. In Western Europe, unit sales growth in the U.K. -- and U.K., actually, grew by 11% year-on-year base. Demand is finally recovering in Russia. However, Mitsubishi Motors still receive local production in Pajero Sport [indiscernible], and the results are steadily increasing.

Please refer to the next page, Page 15. This is other regions, including Latin America, Middle East and Africa. To complete the picture, here are our results from that particular region. Together, these 2 regions contributed the sales of 35,000 units in the quarter, a 6% increase on last year, thanks to the successful fleet business in the Middle East and the increased sales of pickups in Latin America where Eclipse Cross was also launched.

In 15 -- Page 15 (sic) [ Page 16 ] and onward is the outlook of our financial forecast. May 9 was the time of the announcement of the financial result, and there is no change ever since. And we are forecasting a 9% increase in the net sales to JPY 2.4 trillion. Operating profit is projected up 12% year-on-year to reach JPY 110 billion; ordinary profit, up by 14% to JPY 125 billion. Net income is forecasted to be increased by 2% year from previous year to JPY 110 billion. Sales volume is expected to rise 14% year-on-year to 1.25 million units.

Next page will give you the business highlights. As for the torrential rain in the Western Japan, we would like to express my heartfelt sympathies to the individuals who are affected by the flood disaster. Unfortunately -- fortunately, our Mizushima plant has suffered no major damage, although we temporarily suspended operation due to a disruption in the distribution system. We have been operating normally since 16th of this month. However, the people and business partner in the vicinity of the Mizushima plant are suffering significant damage, and we're providing our assistance as much as possible.

To assist in the recovery of the disaster-stricken area, we have offered 16 vehicles, including Outlander PHEV, to [ staff ] our employees to provide relief goods and incorporate in the recovery of the area. In addition, we decided to donate JPY 20 million to the local government.

As part of our immediate support of our affected suppliers, we have decided to pay our common payables ahead of the schedule. As of last week, we have paid a total of JPY 10.9 billion to 258 companies. In addition, MMC Diamond Finance provided support to customers by extending payment due dates for individuals in the affected region and providing loans at special interest rates and payment terms to customers who need to purchase new products. MMC Diamond Finance becomes our 100% subsidiary company since this April.

I hope these activities will help operations in the individuals devastated with the disaster-stricken regions as much as possible.

Please refer to Page 12 -- 20. This page is about sales of new models. Since we began selling the XPANDER in last fiscal year, mainly in ASEAN regions, we have to expand the production capacity at our Indonesian plant in Bekasi to meet the demand. As of June, we have received 81,000 orders in total. We sold a total of 52,000 XPANDERs. Of this total, 18,000 units are sold in this first quarter of 2018. We began shipping XPANDER to Philippines in April and plan to roll it out to other ASEAN markets over the course of the coming months.

And Eclipse Cross, which was launched last fiscal year, has been sold in more than 60 countries, bringing the total sales volumes to 36,000 as of the end of June. In the second half of this fiscal year, we also introduced this product to China to further expand sales. In addition, we plan to significantly improve the Outlander PHEV and begin global sales in August. As an EV leading company, we are aiming to further expand sales by improving product capability such as the upgrade in PHEV system and improve the driving performance and quietness.

Please look at Page 21. This is about the new design for dealers worldwide. Mitsubishi Motors is also investing in its brand, and we announced in this month, July, that we will introduce new design to dealerships globally. In keeping with that, we have this month announced a new design concept, which will reflect the new corporate and the visual identity for our 5,000 dealerships worldwide. We intend to create a high-quality retail environment with a consistent look and a feel [indiscernible] Mitsubishi. We are confident that it will enhance our brand image as well as make it easier to deliver better service quality.

Please look at the following page, Page 22. Here is a progress of the Alliance, an expansion of Alliance. Two example I would like to share with you. As to your left, this is actually -- this month, July, 2018, we have opened a joint training center in the Philippines. This is a center where each day, up to 200 trainees from Mitsubishi Motors and Nissan will be taught how to provide a better and more efficient service to customers, whether in the showrooms or the dealer centers, and to provide a cost reduction to the synergy at converging our function with that of Nissan.

And to your right, this is another example. The Alliance has also opened a shared parts and accessory warehouse, National Distribution Centre, handling 90,000 parts in Australia, and it represents the first alliance among the 3 companies. It uses industry-leading technologies and processes for the fast and efficient movement of automotive parts and accessories at the center of distribution networks and the Alliance.

Please refer to Page 23. As a part of the enhancement of the customer service, especially sales finance, as you can see here, I have -- we have partners with the Nissan sales finance subsidiaries to launch sales finance services in Australia, Thailand, New Zealand and Canada in the previous fiscal year. In addition to these, we have started to collaborate with RCI Bank and Services, Renault's sales finance subsidiary, to launch financial services in the Netherlands starting from this February.

This is how we improve the customer loyalty, and it will reinforce the sales support for dealers.

In Japan, in the middle of this slide, is about the domestic market. MMC Diamond Finance, starting from April, we bought from the MMC group, like a partially on the equity of MMC Diamond Finance, and it became now the -- is a subsidiary company, become a wholly owned subsidiary in April 2018. Positioning of sales finance business is an important strategic area for its domestic scale. Through these mergers, it will strengthen the value chain by providing attractive financial products in line with the new vehicle sales, enhancing after sales and promoting replacement sales. It will also strengthen our domestic sales structure by implementing sales measures fully integrated with financial services.

Last page, Page 24. In the second year of the current and midterm plan, the first quarter of 2018 fiscal year, we have made a quick start in line with our goals for both volume and profitability. We will be relentless in achieving our target while making necessary investment for the future growth.