Full Year 2020 Mitsubishi Motors Corp Earnings Presentation
Tokyo Jun 26, 2020 (Thomson StreetEvents) — Edited Transcript of Mitsubishi Motors Corp earnings conference call or presentation Tuesday, May 19, 2020 at 10:59:00am GMT
TEXT version of Transcript
================================================================================
Corporate Participants
================================================================================
* Koji Ikeya
Mitsubishi Motors Corporation – Representative Executive Officer & CFO
* Takao Kato
Mitsubishi Motors Corporation – Representative Executive Officer, CEO & Director
================================================================================
Presentation
——————————————————————————–
Unidentified Company Representative, [1]
——————————————————————————–
Good evening. We would like to thank you for you joining our fiscal 2019 results meeting. In FY ’19, the business environment surrounding us was extremely challenging amid a continued decline in global automobile demand. ASEAN, our core market which had been relatively firm, also weakened due to the economic slowdown in China. In addition, the spread of COVID-19, which became evident in early 2020, has had a significant impact on the global economy. Against this backdrop, we work to implement a variety of measures, such as reducing fixed cost and optimizing inventory in order to ensure steady progress toward our next midterm plan. However, the deterioration in the earnings environment was greater than expected and relatively, we were unable to achieve the targets revised at the FY ’19 first half results announcement as announced on April 24.
Today, we would like to talk about our results for FY ’19. After that, we would like to answer your questions as much as time allows. I would like to hand over to Ikea-san.
——————————————————————————–
Koji Ikeya, Mitsubishi Motors Corporation – Representative Executive Officer & CFO [2]
——————————————————————————–
This is Ikeya. Please turn to Page 3. First of all, in FY ’19, in addition to sluggish demand for automobile, sales dropped sharply toward the end of the fiscal year due to the spread of COVID-19. As a result, net sales was JPY 2,270.3 billion, operating profit was JPY 12.8 billion, and the operating profit margin was 0.6%. And ordinary profit was a loss of JPY 3.8 billion, mainly due to the deterioration of equity in earnings of affiliates. Net income was a loss of JPY 25.8 billion, mainly due to the reversal of deferred tax assets. Our global sales volume was 1,127,000 units down 9% from the previous fiscal year.
Please turn to Page 4. The factors behind the year-on-year changes in operating profits are shown here. In terms of volume and mix, in addition to a decline in automobile demand due to heightened concerns about an economic slowdown on a global basis, economic activity became paralyzed due to the outbreak of COVID-19 in late January of 2020. This made it impossible to expand sales as usual at the end of the fiscal year, and sales fell sharply in all regions. As a result, operating profit declined sharply by JPY 50.5 billion from the previous fiscal year. We recognize that more than 30% of this came from the impact of the spread of COVID-19.
As for cost reductions, we were able to reduce procurement costs and factory expenses more than planned, resulting in a total reduction of JPY 16 billion. We also succeeded in reducing sales expenses by more than planned, bringing the total savings to JPY 12.8 billion. In addition, while labor cost and R&D expenses were reviewed, which resulted in a certain restrained effect, earnings were squeezed by JPY 32.3 billion due to the deterioration of after sales and so on
Foreign exchange rates remained more stable than the rates revised during the fiscal year, but resulted in a deterioration of JPY 45.1 billion from the previous fiscal year due to the impact of the euro, the Australian dollar and the Thai baht.
Please turn to Page 5. Sales volume by region is shown in this slide. Our sales volume decreased by 9% year-on-year to 1,127,000 units. In the ASEAN region, the entire market has shrunk from the second half of FY ’19 due to the impact of economic slowdown in China. In addition, toward the end of the fiscal year, the large negative impact of the spread of COVID-19 resulted in a 9% decline from the previous fiscal year. Similarly, in Australia and New Zealand, automotive — automobile demand could decline sharply due to the impact of the economic slowdown in China, their largest trading partner. Furthermore, our sales were affected by the shutdown of dealer operations resulting from the state of emergency declaration toward the end of the fiscal year and declined by 14% from the previous fiscal year.
In Japan, the whole market. We finally introduced new models such as a formula change of the eK series. However, due to a reactionary decline going the consumption tax hike and the impact of the spread of COVID-19, sales fell 10% year-on-year. Demand in other regions, including China, dropped sharply due to sluggish overall demand and economic activities disrupted by the spread of COVID-19.
Demand in North America was relatively firm, but competition intensified in our sales segment, resulting in negative growth compared with the previous fiscal year. In Europe, the strategic sales expansion of the OUTLANDER PHEV to comply with tighter regulations progress in line with the plan. However, weak overall demand affected our overall sales.
Please turn to Page 6. Next, we would like to explain our business highlights in FY ’19. Kato-san, please.
——————————————————————————–
Takao Kato, Mitsubishi Motors Corporation – Representative Executive Officer, CEO & Director [3]
——————————————————————————–
Despite the challenging global sales climate in FY ’19, the XPANDER, one of our main models, after the top share of the sales segment in fiscal 2019 in Thailand, the Philippines and Vietnam. The XPANDER, which began production and sales in Indonesia in October 2017, has become the best practice in our regional and product strategies going forward, we will further strengthen our ASEAN business through the accumulation of similar cases.
Please turn to Page 8. One of the goals of our drive for growth midterm plan is product renewals, and we have been actively expanding our product lineup and strengthening the life cycle management. In FY ’19, despite the harsh global sales environment, we launched a full model change of the eK series in Japan and renewed existing models as planned. Going forward, we will work to enhance our brand and increase unit sales by continuously introducing attractive products that meet customers’ needs.
Please turn to Page 9. Next, we would like to discuss our outlook for FY 2020 and beyond. Please turn to Page 10. Some countries are beginning to resume economic activity in phases, but we cannot predict when we will overcome and exit the coronavirus crisis. It is extremely difficult to calculate a fair and reasonable forecast because it is impossible to judge the extent of the impact that a business environment with a remarkable uncertainty would have on our business performance. Therefore, we will announce our forecast of FY ’20 as soon as it becomes possible to disclose it. The dividend forecast per share is also yet to be determined.
Please turn to Page 11. According — the impact of COVID-19 on our business, this is the slide. According to the policies of national and local governments around the world we place top priority on safety and work to minimize the impact on our business in order to close the spread of COVID-19. However, production disrupted by difficulties in procuring parts from overseas and inventory adjustments due to decreased sales, have already had a major impact. While we pay close attention to the situation in each country, the current operational status of each production base is shown on the slide. We will continue to constantly monitor the supply chain and sales momentum and respond to it accordingly.
Please turn to Page 12. Let me talk a little bit about the concept of our structural reforms under the previous midterm plan. Drive for growth. We plan to actively invest in mega markets focusing on expanding our market share. Our basic policy was to grow on all fronts. However, during the planned period, competition intensified by the slowdown in the global economy, compliance with environmental regulations in the mega markets and more sophisticated services demanded by customers have increased the burden of investment in R&D. Consequently, as shown in the slide, fixed costs as a whole rose 1.3x from FY ’15. And under the small but beautiful concept from the latter half of fiscal 2018, we accelerated our efforts to revise the selection and concentration strategy.
However, it was difficult to secure profitability in sales, particularly in the mega market. In this challenging business environment, it is not realistic for a company of our scale to continue to pursue an all-round expansion strategy. We are aware of that, in line with our policy of selection and concentration, the highest priority should be given to a stronger sense of crisis and concerted efforts to promptly reform our cost structure.
Please turn to Page 13. Therefore, we have positioned the period of the end of FY ’21 as a period of structural reforms centered on fixed cost reductions. First, we will concentrate our management resources in ASEAN. In other regions, we have strength and work intensively on strengthening our sales network and production system in ASEAN. We would drastically revise our product strategy based on the concept of concentrating on ASEAN and focus on our competitive product segment.
In line with this strategy, we will broadly review all cost structures, including reduction in CapEx and R&D expenses, reduction in indirect labor costs including the reallocation of human resources, and reduction in selling G&A expenses through a review of advertising expenses and the sales network. Through these measures, fixed costs will be reduced by more than 20% over the next 2 years compared to FY ’19 to the level of FY ’15.
We will swiftly embark on measures and make every effort to produce result as soon as possible. Many reform plans have already been formulated, and some have already been implemented. However, there are extremely large uncertainties in the short term, we are currently examining the impact again.
Please turn to Page 14. As everybody knows, the spread of COVID-19 is continuing and has seriously damaged the economy. This is not an exception in our industry. And against the backdrop of the impact on the supply chain, a significant decrease in demand and requests from governments in each country, we are being forced to stop the factory operation in Japan. And overseas, one after another. Although the situation will eventually come to an end, it is said that it will take a considerable amount of time for economic activity to return to its previous level.
Needless to say, in addition to sluggish demand due to unstable global situation, the automotive industry is facing a period of major change, and we are facing various challenges such as responding to new technologies and complying with increasingly stringent environmental regulations globally. In order to accommodate to these changes and challenges, we must strengthen our business structure, and we will promptly implement measures to reduce fixed costs. Based on the assumption that reasonable calculation conditions are in place, we intend to announce a specific reform plan in the full year forecast for FY ’20 with the timing of the first quarter financial results.
Thank you for listening.
——————————————————————————–
Unidentified Company Representative, [4]
——————————————————————————–
Thank you.