This is Michael Yun, Head of IR Team. Welcome everyone to Hyundai Motor Company's 2024 Q3 Business Results Conference Call. On behalf of Hyundai Motor Company, I appreciate your time for participating in today's call. Please refer to the presentation HMC 2024 Q3 business results on our IR website. Today's presentation consists of two parts: sales summary and financial summary. For more information, please refer to the appendix page. First part is sales summary. Our 2024 Q3 global wholesale decreased by 3.2% year-on-year to 1,011,808 units, while retail sales decreased by 3.1% year-on-year to 988,594 units. In the third quarter, our global wholesale decreased slightly compared to the previous year. However, excluding China, our Q3 wholesale was comparable to previous year.
In the domestic market, sales increased by 1.8% compared to the previous year, driven by the EV sales improvement as the launch of Casper EV, an increase in high range demand. North America saw a 9.3% increase in sales, driven by continued strong sales of high-margin vehicles. The US market witnessed increased sales of hybrids and SUVs, with growth rates of 71.3% and 4.7% respectively compared to the previous year, boosted by increase in demand of overall hybrids models, including Tucson, Santa Fe, Avante, and Sonata. In Europe, although hybrid sales increased by 20.9% compared to last year, driven by strong sales of Santa Fe, Kona, and Tucson facelift hybrids, sales decreased by 9.5% compared to the previous year on a wholesale basis due to weaker demand for EVs.
In India, sales decreased by 5.7% compared to the previous year on a wholesale basis, driven by slowdown due to seasonality and pent-up demand before festival season in Q4. Next is sales by model and key status. Global SUV sales accounted for 60%, a 1.4 percentage point increase compared to the previous year, influenced by the global expansion of Santa Fe and the sales ramp-up of Creta facelift in emerging markets, as well as strong sales of GV70. D segment, the highest margin segment, was 7.3%, a 1.3 percentage point increase, driven by sales expansion of Sonata Hybrid. For eco-friendly vehicle sales, although EV sales decreased by 8.1% due to weakened demand, EV slowdown has recovered from the first half of the year due to the launch of Casper EV.
Hybrid sales increased by 45.4% compared to the previous year, replacing weakened EV demand. Hybrid sales are substantially increasing globally, including but not limited to Korea, U.S., and Europe. This is the end of the presentation on sales summary, and now I'll move on to financial summary. This is the income statement. In the third quarter of 2024, revenue increased by 4.7% year-on-year to KRW 43 trillion, while operating profit decreased by 6.5% year-on-year to KRW 3.6 trillion. In the automotive division, revenue increased by 5.3% year-on-year due to regional mix improvements centered in North America and product mix improvements centered on high-margin vehicles, as well as increase in volume.
Meanwhile, operating profit, including consolidation adjustments, decreased by 7.7% year-on-year due to an increase in incentives driven by intensified global competition and an increase in SG&A. In finance division, revenue increased by 10.1% year-on-year due to expansion of AUM, resulting from increased penetration rate under strong US sales. Despite an increase in interest costs and provisioning costs associated with asset growth, the operating profit increased by 13.6% year-on-year, driven by increased return on assets due to the OEM's mix improvement. Net profit decreased by 3% year-on-year to KRW 3.2 trillion, due to a decrease in operating profit. Next is revenue and operating income analysis. In terms of revenue, there was a negative volume effect of KRW -221 billion, caused by a decrease in sales.
Despite an increase in incentives, there was a mixed effect of KRW 1.5 trillion, due to the strong North America sales and ASP increase. Also, there was positive FX effect of KRW 494 billion under favorable exchange rate environment, and an increase in financial division revenue resulted in a 4.7% increase in total revenue compared to the previous year. As for operating profit, there was a positive FX effect of KRW 787 billion due to favorable exchange rate environment. However, a negative mix effect of KRW 469 billion, driven by an increase in incentives as well as one-time warranty cost of KRW 319 billion due to a proactive warranty extension for Grand Santa Fe sold in the U.S., resulted in a 6.5% decrease in operating profit....
Our third quarter cost of goods sold ratio recorded a 0.8 percentage point increase year-on-year to 80.2%. SG&A increased by 6.1% year-on-year to KRW 4.9 trillion, due to increase of labor cost. Lastly, net profit decreased by 3% year-on-year to KRW 3.2 trillion, affected by a decrease in operating income. That concludes the presentation of the third quarter 2024 business results. Thank you for listening.
Next, Senior Vice President Seung Jo Lee, the Head of Planning and Finance Division, will address the company's business results for Q3 2024 annual performance outlook and the dividend payout for Q3.
Hello, this is Senior Vice President Seung Jo Lee, Head of the Planning and Finance Division.
Allow me to share our business results for the third quarter of 2024 , as well as the outlook for the business ahead and quarterly dividends. In Q3, driven by strong HEV and Genesis sales, continuous mix improvement, favorable FX effect, and material cost reduction, we have reached the operating profit in line with the market consensus. However, our preemptive guarantee extension measures regarding Lambda II engine of the Grand Santa Fe model sold in North America, resulted in around KRW 320 billion of provisions for liability, recording an operating profit of KRW 3.6 trillion, and an operating profit ratio of 8.3%. This warranty extension is caused by the high usage of towing by US consumers, and we have proactively implemented the warranty extension for the total number of sales.
In the case of other models with the same Lambda II engine, this issue has not occurred. If not for the above one-time contribution amount, an operating profit of KRW 3.9 trillion and an operating margin of 9.1% would have been possible. Next, I will talk about the 2024 annual performance outlook and business environment. We expect to achieve the 2024 annual guidance of 4%-5% sales growth and 8%-9% operating margin, and we have maintained the performance guidance that was mentioned earlier this year. However, due to worsening business environment in the automotive market, such as increased geopolitical risks, high uncertainty in government policies and regulations, such as fuel efficiency regulations, and concerns over slowing demand in advanced markets, incentives are expected to negatively affect our profitability in the short term.
Regarding the risk of deteriorating business environment, we are closely analyzing the market landscape through regular monitoring. Based on our enhanced fundamentals over the past few years, we will strengthen our profitability-oriented management status by improving sales mix and continuously reducing costs, and we will continue to secure a strong profitability through flexible market responses, which are our strength. While maintaining our fundamentals by improving the sales mix centered on high margin models and cost reduction, we will respond flexibly to changes in the market environment. Next, I will talk about the dividend for Q3. As in the first and second quarters, we will implement a quarterly dividend of KRW 2,000, which was raised by KRW 500 from the previous quarter.
Including the Value-up program announced at the CEO Investor Day, we will make sure to implement the shareholder return policy as promised to our shareholders and investors. Lastly, regarding the India IPO, let me share the shareholder return policy. Basically, the Indian competitiveness, the proceeds from this India IPO will be returned to shareholders, and we will establish the relevant IPO proceed plan and get the approval from the BOD, and then share you the details later. Thank you all for your support, and thank you for listening. Next, Senior Vice President Hyung Suk Lee, the Head of Planning and Finance Division of Hyundai Capital, will share the Q3 result and Q4 outlook for the finance business.
Good afternoon. I'm Senior Vice President Lee Hyung Suk, CFO of Hyundai Capital.
I'd like to begin with the Q3 2 024 earnings results and Q4 outlook for the finance business. In Q3, internal and external uncertainties were high due to interest rate volatility and sluggish domestic economy, but Hyundai Capital expanded its role as the captive auto finance company for Hyundai Motor Group, and maintained strong asset soundness and financial stability based on outstanding auto financing business. As a result, in August, S&P raised our credit rating, along with HMC, from BBB+ to A- . This year, all three global credit rating agencies raised our rating to A, the highest achieved for a non-bank financial firm in Korea. Consequently, our funding competitiveness has been further strengthened. I'd like to share the details for each company. First is Hyundai Capital.
Backed by our strong funding power, we strengthened the sales support for HMG, and were able to further expand our financial assets for auto financing. The proportion of auto financing accounted for 83% of the operating profits, maintaining a high ratio. Expansion of financial assets in the auto financing business increased installment and lease profits, resulting in a YTD operating income to increase by 11% year-on-year in Q3, when excluding FX and the revenue losses. In terms of cost, interest expenses have risen due to continued high interest rates, but the cost of bad debts remained stable, increasing the operating profit by 17% year-on-year. Overseas, profit improved in various overseas entities such as France, Canada and Brazil, to achieve a year-on-year equity method, income increase of 55%, and as a result, net income increased by 21% year-on-year.
Some capital firms are showing poor form, performance due to continued high interest rates and real estate PF risks, resulting in deteriorated profitability and soundness. But Hyundai Capital expanded its profit and secured soundness by operating a strong auto financing portfolio. The delinquency rate has further dropped to record an all-time low of 0.86%. With optimized portfolio operations and stable funding, Hyundai Capital will strengthen the sales support for HMG domestically and globally, and respond to market for volatility. Next is Hyundai Capital America, HCA. In the U.S., sale mix improvement was driven by SUVs and hybrid models, resulting in YTD penetration rates increased by 8 percentage points year-on-year in September, raising the sale volume by 14% year-on-year. Total financial assets increased by 22% year-on-year.
Due to continued asset expansion, YTD installment and lease income in September upped by 50% and 13% year-on-year, respectively. Total operating profit increased by 23% year-on-year. Increase in sales raised interest and bad debt expenses, lifting the operating expenses by 23% year-on-year. However, YTD operating profit in September improved by 32% year-on-year. In Q4, drop in interest rates and presidential election results are expected to further increase the uncertainties in the market. However, HCA is maintaining a significantly low delinquency rate, even compared to pre-COVID-19 times, and increasing its prime customers rate to 88%, minimizing risks. In terms of funding, HCA pre-secured liquidity by issuing global bonds worth $10.7 billion in Q3, in addition to the $8 billion secured in the first half.
HCA will continue to support HMG sales in the US by expanding EV sales and providing financial support for new mobility businesses. This is the end of my presentation on the finance business. Thank you for your attention.
With that, we'll conclude the presentation and take your questions.
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The first question will be presented by Eunyoung Im from Samsung Securities.
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Thank you for the opportunity to ask a question. I'm Eunyoung Im from Samsung Securities. My first question is regarding the provisioning that you mentioned, that you said it was a one-time provision. However, it seems that the overall warranty fee is lower than the year-on-year cost at KRW 566 billion. When we talk about warranty, we tend to look up if there are any articles regarding recalls or so. But I don't think there have been any articles or news regarding a recall, but you said that it was a proactive action that we have taken. What is the background to such actions? Because the warranty fee is considerably low, considering the provisioning. What is the reason behind that? That's my first question.
My second question is, Hyundai is now actively engaged with partnering with GM, for example, with Waymo, in terms of foundry business. But I understand that your R&D function is currently shared between Hyundai and Kia, and you also share the cost. So if there is any cooperation with these partners regarding platform, shared platform or powertrain or hybrid technology, who is holding the patent and who is sharing the cost? Is it solely by Hyundai, or would this be shared with Kia as well?
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Thank you for your question. So to answer your first question regarding the provisioning, so that was regarding Lambda II and it wasn't actually a recall regarding safety. The engine that is mounted on this vehicle, Grand Santa Fe, which is sold in North American market, in Korea, that would be Maxcruz model, and it's the 2013 and 2014 model year version. Now, we have contributed KRW 320 billion worth in terms of provisioning to extend the warranty, and the U.S. consumers tend to use a lot of the towing function, and when that function is used, it's really used at a high output, which means that it's done at a very high RPM level.
And also, compared to what the manufacturers recommending in terms of the changing periods for engine oil, the U.S. consumers tend to use it a bit longer, making the oil kind of wear out and kind of putting too much pressure on the engine as well. And as a result, however, this didn't really directly result in the default rate increasing. Whatever the case, we were not able to fully reflect the local users characteristics in our developing process. So we contacted NHTSA of the U.S. and decided to do a preemptive action in terms of extending the warranty. So it's not necessarily a recall. It's where we have extended the warranty from 10 years to 100,000 miles to 15 years to 150,000 miles.
[Foreign language]
The provisioning cost was reflected fully for all 2013 and 2014 model year models. I don't think there will be additional provisioning contributions in the coming years. Whatever the case, for us, top priority is the consumers as well as the quality, and we have zero tolerance in terms of anything that will damage the quality and also the customer value. Hyundai Motor will continue to proactively and actively act on our principles.
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...Now, to answer your second question, I will have to check the specific details into this, but let me just give you an answer at first hand, and if this is wrong, we will correct you later. Like you said, the R&D center is currently shared between Hyundai and Kia, where the investments as well as the advanced technologies are developed together. So anything that is used in that field, the patent that is held jointly, will be separated, and the two companies actually develop their own models and cars. So any of the technologies that were developed in that space would be also handled differently. Now, if there is any technology or patent that is used or collaborated with GM and Waymo, and that is related to Kia, we'll make sure that is separated.
Whatever the case, we will work in a way so that all of the collaboration is to do with Hyundai only and not really in interference with Kia, and that any of the profit made through this will also solely be held by Hyundai as well. If I could further elaborate, please, regarding the provisioning. The reason that it's lower than the previous year is because due to the year-end FX rate.
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The next question will be presented by Jun Sung Kim from Meritz Securities.
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I have four questions. My first question is regarding the OP increase and decrease. So if you go back to the OP profit and financial income statement, you said the other costs account for about KRW 569 billion. And even excluding the KRW 320 billion won, which accounts for Lambda recall, there are still remaining KRW 204 billion won for other expenses. So I wonder where these other expenses were used. And my second question is regarding the Metaplant operation in the U.S. that it will be held in October this year. I wonder that if the Metaplant has started operation, and if not, when it will start operation?
And also, regarding the IONIQ 5, that will start as a peer soon. I heard that the middle trim IONIQ 5 model will be set around $50,000-$55,000. So I wonder whether the price range will go down from this set price, or it will remain. And my third question is in connection with the previous question. You talked about the year-end exchange rate and the related provisions, and when considering today's FX rate, the level is that of the second quarter. But if you say that this FX rate remains until the end of this year, I wanna ask whether the provision will dramatically go up or down, or how the trend will continue. And my last question is about the India IPO process.
You said that the details will be shared later on, but I wanna know the exact timeline, whether the share return policy will be executed within this year, or whether the dividends or the treasury stock payment will be made next year. If so, when will be the exact timeline?
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The CBA cost, which was signed in July this year, so from July to September this year, there was additional expenses or other expenses that were KRW 400 billion. For your second question about the Metaplant operation in the U.S., it actually started operation in October third this year, and now we are in the ramp up phase, so the volume is quite low, but we are trying to make things speed up, and once it's normalized, I think the volume will go up as well, and regarding the price range of the IONIQ 5, we are considering various factors, including raw material costs and battery costs, and the price hasn't been finalized yet, but we are trying to make it as competitive as possible.
So for that, we are looking at things from the multi-sided angle, and if the Metaplant starts operation, we'll be able to receive incentives for that from next year, and that will further increase efficiency of our sales cost as well. We will try to maximize our customer value in this respect. For your third question, the fourth quarter's FX rate, one dollar rate, stays at around KRW 1,380 per $1. I believe your concern is about the FX impact of FX rate impact on the provisions. The logic is that once the FX rate goes up, then we'll get more profit from selling the foreign currencies. According to that logic, I believe that we'll see more profits in the upcoming fourth quarter.
Regarding your last question about Indian IPO, although it is difficult to specify the exact timing, we will try hard to communicate with the market within this year, and I actually just came from the India business trip yesterday, so I will try my best to communicate with the relevant parties, including the board of directors, and get to you as soon as possible.
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The next question will be presented by Yong-kwon Moon from Shinyoung Securities.
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[Foreign language]
Thank you for giving me the opportunity. I have two questions. First, regarding the Lambda engine. Again, you said that this was mounted on the Grand Santa Fe. However, do you think there will be a possibility for this issue to be spread out to other models, such as the Kia models? Because I understand that there was an issue with the same engine in 2017 with Genesis. So there was a recall regarding the luxury vehicles as well. So will this KRW 320 billion provisioning just covering the entire engine that are mounted on all models, or will it just be for Grand Santa Fe?
My second question is regarding the downside of the downsizing of the guidance, because many of the European OEMs are also lowering and readjusting their guidance level, and they are not able to portray an OP level of maybe two digits, but maybe 7%-8% ish. You also said that this is due to the unfavorable environment that is expected in the upcoming years. Although you might not be able to give you a specific number, what is your forecast for the automotive business, OP? Will it be the same level as the first half of this year, or what is your rough outlook?
[Foreign language]
Thank you for your question. Let me answer your first question regarding the Lambda engine. I would like to apologize that I'm not able to comment on what the other companies or listed companies or actions that it's going to take. However, I would like to emphasize once again that the Lambda engine is not really actually due to the engine itself, but because of the characteristics and the use environment of the consumers of the SUV that is mounted with this engine, in particular, Maxcruz and other SUV models. So although this problem is somewhat connected to the engine, but it's really more to do with the user characteristics of the SUV drivers that has this engine mounted on, and that led to the increase in the provisioning.
However, apart from that, I apologize again that I will not be able to give comments on what other companies will do in the upcoming future regarding this.
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I would like to reiterate again that regarding the provisioning contributions, we did go through a lot of discussion as well as multifaceted review. We did not, we really did not want to repeat the same problems that we had in the-
... contribution level was calculated at a very conservative level. Moving on to your second question, the Q4 business environment is actually not as favorable. We also have increased in incentives, so we will have to pull our, all our efforts in the sales, in not only retail, but also wholesale as well, so that we can make up for any of the losses that could occur for Q4. Now, our annual guidance, we had mentioned that the OP level will be at 8%-9%, and we will be able to keep that level. As for next year, as we mentioned in the, CEO Investor Day previously, it will not be easy. However, we do tend-- we do intend to maintain our mid to long-term profit level at 8%-9%.
Whatever the case, we'll keep a close eye on our upcoming future so that we can respond accordingly. Thank you.
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Due to the time constraint, we will be receiving one last question. Thank you.
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The next question will be presented by Kyungjae Hwang from Merrill Lynch Securities.
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My first question is about hybrid mix, the powertrain profitability. Before that, I'd like to mention that even considering the one-time expenses of KRW 319 billion, there was an operating profit of KRW 3.9 trillion, and the operating margin was 9.2%. So even despite the challenging external environment, like you mentioned, I believe that you have achieved a very stable and strong operating margin. So in regards to that, I'd like to know about the profitability of hybrid powertrain until the first half of this year versus the ICE engine vehicles. And my second question is regarding material cost trends. So I'd like to know what the trends were like until the end of this year, and what is the outlook for next year?
[Foreign language]
So the answer to your first question is about the hybrid sales. In the third quarter, we sold 131,000 units that accounts for 13% of the total sales. It is 4.5% up year on year, and even compared with the last quarter, it is 1.3% up, and we will maintain this strong sales momentum in the fourth quarter as well. Regarding hybrid profitability, I'm sorry, I cannot tell you the exact number, but when considering the effects impact, we are overachieving the business level. And even when compared with the ICE vehicles, I would say that some hybrid models are very profitable. It's the second digit number, and the profitability is even higher than the overall operating profit.
So I would say that we have very strong sales in terms of hybrid portfolio.
[Foreign language]
We have a continuous efforts to reduce our raw material cost, and we have the medium to long term plan for reducing material costs for PE parts and EV parts as well. So, would like to tell you that we are making, gradual and continuous improvements in this part. However, there may be some increase, in the material cost due to high processing, costs by increase in wage. However, we will make sure to offset that as well. And we are keeping a close eye on the raw material cost, which has been continuously declining this year. There is a possibility of increasing next year as well, but we will, secure much more volume in order to proactively respond to this increasing raw material costs. So we will try our best to minimize its side effects. Thank you.
[Foreign language]
To add one more comment. From January to September this year, we have been making innovative efforts to reduce material costs, and thanks to these efforts, we were able to reduce KRW 400 billion. With that, we will also combine our accumulated know-hows in terms of innovative raw material reduction. We will maintain this trend to the next year as well. When setting the business plan next year, we'll make sure to reflect these our efforts, and we will cooperate with the relevant departments to maintain this momentum as well. Thank you.