Mitsubishi Motors Corp

TSE:7211

Earnings Call Transcript

[Koji Ikeya, executive]

This is Ikeya. I'm sorry for such a late time then. I'd like to explain about the financial results. Please refer to Page 3. And this is the summary of the third quarter. And we have a summary of the business results for the 9 months ended December 2018.

Net sales increased 18% on year to JPY 1.7941 trillion, operating income increased by JPY 24.4 billion to JPY 85 billion and operating income margin improved to 4.7%.

Net income declined slightly, which reflected the reversal for provision for income taxes in the previous fiscal year. Excluding this factor, we were able to secure an increase in income.

Global unit sales totaled 894,000 units, an increase of 15% from the same period of the previous fiscal year. For the 3-month period to the end of December, net sales were JPY 624.8 billion, operating profits was JPY 28.1 billion and the OP margin was 4.5%.

Currently, the global economy is becoming increasingly uncertain, but up to this point our results have put us on track toward achieving our full year forecast for fiscal 2018.

Please refer to the next page. So KPI and the retail volume, net sales, operating profit, and compared to the previous year, it has increased. So actually -- so 18% and 32%, respectively.

And on Page 5, please refer to Page 5. So this is the year-to-date third quarter results for the current fiscal year. Please refer first to Page 6. So in terms of volume mix, operating profit increased by JPY 47.5 billion due to the launch of new models and strong sales have expanded in the ASEAN region.

So -- although the selling expense improved significantly in Japan, this was offset by a higher expense in North America and ASEAN, and this had a negative impact of JPY 2.4 billion. This is due to increase in adverting expense associated with strengthening our brand power and launching new cars.

Cost reduction boosted operating profits JPY 17.8 billion. Cost increases due to the raw material price hike investment for the growth were offset by steady progress in procurement cost reduction, including synergy effects.

On exchange rate, we saw a negative movement across the board, not only the U.S. dollar and Thai baht but also the currency, especially emerging and commodity currency such as Australian dollar, Russian ruble and Indonesia rupiah. And this had a JPY 29.2 billion negative impact on operating profit.

So Russian ruble and Australian dollar, you can see on the blue graph at the top.

On Page 7. So retail volume is shown here. In the first 9 months of fiscal year '18, unit sales in our region rose compared to the same period of the previous fiscal year. Sales in the ASEAN region, in Australia and New Zealand region, which were identified as bedrock in current Drive for Growth midterm plan, grew 20% year-on-year, supported by steady sales growth, particularly of the new XPANDER model.

In our focus area, we achieve year-over-year growth in the first 9 months of the fiscal year, thanks to introduction of new models and expansion and reorganization of our dealer network, where we are aware that the market environment is becoming increasingly severe in both North America and China.

In Japan, which is recovery region, sales increased 11% year-on-year, and the total units sales increased by 15% to 894,000 units.

Please refer to the next page. Now details by region. I would like to explain, sales volume in the ASEAN were 235,000 units, up 27% year-on-year, partly due to strong sales of new MPV XPANDER, first launched in Indonesian in 2017.

Sales of XPANDER particularly in Indonesia, Thailand and the Philippines have been favorably exceeding 74,000 units and are on driving growth in ASEAN.

Looking at sales by country. In the Philippines, although the orders for XPANDER, which was launched in May remain firm, the impact of introduction of excise tax prolonged the weakness in overall demand, resulting in a decline of 9,000 units year-on-year to 47,000 units.

In Indonesia, although the XPANDER has been on the market for about a year, strong demand continued to support sales, resulting in a significant year-on-year increase to 43,000 units to 106,000 units.

In Thailand, our sales rose in line with increasing total industry volume, and we launched a new Triton L200 in November as we continue our efforts to improve our services, and number of units sold expanded to 64,000 units.

Please refer to the next page. In Australia and New Zealand, where we have significant market share, shares remain stable amid a downward trend in overall demand, increasing 3% year-over-year to 73,000 units. In particular, as a result of launching special edition models and improving our sales network in line with the expansion of the SUV market, which we excel in, our market share improved from fifth place in the prior year to fourth place, 7.7% in Australia and 8.1% New Zealand.

We will continue to focus on sales of SUV LTV models, which are continuing to grow in this market.

Please refer to next page, North America. In North America, we sold 118,000 units, up 9% compared with same period of previous fiscal year and made a slight contraction in total industry demand of minus 1% year-on-year.

In the U.S., our improved sales performance reflects demand for a new Eclipse Cross launch in the second half of the previous fiscal year, and the significantly improved Outlander PHEV.

Given the continuing trend of sluggish growth in overall demand and intensifying sales competition, we recognize it will not be easy to reach our fourth quarter target as part of our full year forecast. In the mid-longer term, we will certainly implement initiatives to strengthen our brand power while aiming to achieve profitable sales growth.

[Osamu Masuko, executive]

Next slide, please, on Page 11. In China, while the total demand had declined 5% from the same period of previous year, we achieved a 3% year-on-year increase in sales to 123,000 units, thanks to the solid sales of OUTLANDER as well as launching the locally produced Eclipse Cross in November.

We continued the expansion of our sales network, achieving a network of 350 outlets by the end of December, with plans for a further increase by the end of this fiscal year.

However, growth in this market has been shaken by intensifying trade friction between the United States and China, and demand for automobiles has been sluggish.

In our volume to the third quarter fiscal 2018 having itself below the level of the previous fiscal year to achieve the full year forecast result, we will carefully monitor demand trend and slowly manage costs with the aim of increasing the sales volume with profitability.

Next page, please. Sales in Japan increased by 11% year-on-year to 69,000 units. In addition to the new Eclipse Cross launched at the end of the previous fiscal year, this increase was due to higher sales of Outlander PHEV, which has been significantly improved. Also that product sales of special edition Delica D:5 that contributed to the increased total sales volume. On top of the effect of these new models, we will continue our efforts to further rebuild in sales and improve our brand image through the new Delica 5 for which we began taking pre-orders on November 21 last year.

Next page, 13, please. The sales volume in Western Europe was 131,000 units, an increase of 21% year-on-year. In Europe, as a whole, wider overall demand was [ slight ] year-on-year, our sales benefited from orders for the significant country -- improved OUTLANDER PHEV, which was launch in August.

The sales volume in Russia and others increased significantly by 68% year-on-year to 37,000 units. In addition to PAJERO SPORT, which resumed local production in the second half of fiscal 2017, we launched Eclipse Cross in April and resumed the sales of ASX and PAJERO in the middle over the year. This expanded our model line up and it contributed significantly to our sales growth.

And next, on Slide 14. In other regions, sales rose 6% to 108,000 units year-on-year. In the Middle East, Africa, and others, wider demand was sluggish in the GCC countries, or Gulf Arabic countries, we expanded our market share in the region and won freighter deals which contributed to the increase in the number of unit sales. In Latin America, overall demand recovered in line with the economic recovery in major countries. As a result, our unit sales in the region also grew moderately.

Next, we'll go through the -- our financial forecast for the full year, and please go to Page 16. Looking back in fiscal 2018, despite the impact of the currency depreciation in emerging and resource-rich countries, in addition to natural disasters in the first half of 2018 in Japan, we were able to end the third quarter with same sales volume, net sales and operating profit, while exceeding the previous year's level and maintaining a level close to the initial plan.

Meanwhile, looking ahead to Q4, we expect that the economic outlook is increasingly uncertain worldwide with no sign of a conclusion of the trade friction between the United States and China. And on the sales front, demand is slowing in major markets, such as the U.S. and China. And in addition given that, we still need to prepare for unstable currency exchange rate, particularly in emerging countries. We have decided to leave our full year earning forecast unchanged that we have announced in last May taking a cautious outlook. We will continue to increase in sales in ASEAN and other regions where we excel, while stepping up our efforts to reduce costs, and we will focus on ensuring that we achieve our target for the current fiscal year.

And next, turn to Page 17. We analyzing the root cause. While the full year forecast remains unchanged, but a foreign exchange impact is expected to worsen by about JPY 4 billion from the November forecast to negative JPY 35 billion for the full year. This reflects a view that assesses the current situation of the currency depreciation in emerging countries. At the same time, we are looking to achieve a full year operating profit of JPY 110 billion. And we initially forecasted by accumulating benefits over JPY 2 billion each from cost-reduction activities and the recent management of our sales expenses, which has been steadily advancing to disappoint.

Then next, I would like to talk about some business highlights of the third quarter. Please proceed to Page 19. In November 2018, we unveiled the new Triton L200 in Thailand for its road premiere. This product has been highly praised by media from all countries around the world for its dramatic improvements in product appeal, including the -- an in-house full-read drive system that delivers improved off-road performance and the latest active safety and driver assistance system.

Following Thailand, shipments have already began in Australia and we plan to launch this model in Malaysia, the Philippines, Vietnam and other ASEAN countries. From April 2019, we plan to introduce the vehicle in Latin America, the Middle East and Europe, gradually. The new Delica D:5, for which we began accepting pre-orders in November 2018, has been highly praised for its excellent running performance off-road, its good handling, improved quietness and improved interior and exterior texture. As of January 31, we received more than 4,200 orders and we plan to begin sales in June -- on this fiscal year.

Page 20. Looking ahead, there should not be -- it should not be optimistic that the current harsh market environment will be temporary. Furthermore, as the environment surrounding the automobile industry as a whole changes dramatically, leaving the -- liberating the Alliance is of great importance for us. From this point of view, we intend to maintain and strengthen our relationships, while searching for a better decision closer to discussions among the 3 Alliance companies. At the same time, we need to strengthen ourselves, steadily increase our earning power in a sustainable manner and contribute to the Alliance. To that end, we will return to the basics, and redefine our strategy as our vision for Mitsubishi Motors, which suits our side. That is all from my side.