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Operator: [Interpreted] Good afternoon. Thank you for joining us for HMC's 2025 Q2 Earnings Conference Call. The presentation materials can be downloaded on dart.fss.or.kr; or HMC's website, www.hyundai.com IR page. For today's conference call joining us today are Lee, Seung Jo, Executive Vice President and Head of Finance Division; Koo, Zayong, EVP and Head of IR Division; Kim, Chang Hwan, VP of Finance Accounting Division; and Michael Yun, Head of IR Group; and Lee, Hyungseok, CFO of Hyundai Capital. Let us share second quarter earnings results first and have a Q&A session with the investors. [Operator Instructions] Now Michael Yun, Head of IR Group will present the second quarter business results.
Michael Yun: [Interpreted] Good afternoon. I am in Yun, Taesik of IR. Welcome, everyone, to HMC's Second Quarter Business Results Conference Call. On behalf of the Hyundai Motor Group, I -- Hyundai Motor Company, I appreciate your time. And please refer to the presentation HMC 2025 Q2 business results on our IR website. The presentation includes quarterly key events, sales performance and profit analysis. And for quarterly summarized cash flow statement and detailed regional sales breakdown, please refer to the appendix. First, second quarter key messages. Starting from this quarter, we'll briefly introduce the key messages of our quarterly performance. Sales has continuously stabilized post-COVID with second quarter sales reaching 1,066,000 units, the highest level since 2020, up 0.8% compared to the previous year. The favorable exchange rate environment has persisted, recording an average exchange rate of KRW 1,404 to $1 and a quarter end rate of KRW 1,356 to $1. The quarter end rate being lower than the average rate had a favorable impact on debt evaluation. Lastly, the Palisade hybrid successfully address the demand for HUV -- SUV HEVs in Q2, achieving a wholesale sales volume of around 15,000 units. We plan to continue expanding sales to increase our market share in the hybrid market. Next, the sales performance. In the second quarter 2025, HMC recorded global wholesale of 1.07 million units, up 0.8% from the year before and retail sales reached 1.04 million units, reflecting a 0.9% increase over-over-year (sic) [ year-over-year ]. Next, I'll go over details about factors affecting wholesale sales performance in our key markets. In the U.S., sales increased by 6 -- excuse me, 3.3% year-over-year to 262,305 units. The growth in ICE and hybrid sales have continued to show a strong trend. Sales of eco-friendly vehicles recording a significant increase of 32.5% compared to the previous year, reaching 78,713 units due to the expansion of EV and HEV sales. Notably, the Tucson, Elantra and Santa Fe models contributed to strong sales performance in the U.S. Despite increasing uncertainty regarding EV sales targets due to policy changes in the second half, solid sales growth is expected to continue in the latter half. In the European market, sales increased by 2.6% year-over-year to 161,000 units. Growth in key markets such as Turkey, the U.K. and Spain contributed to the overall increase in European sales. Sales of eco-friendly vehicles recorded a strategic increase of 27.3% compared to the previous year, reaching 72,064 units. Strong sales of the Santa Fe hybrid and Tucson/Santa Fe PHEV drove the overall sales growth in the U.S. -- in the European market. In the second half of the year, we aim to achieve growth in EV sales volume alongside of the successful launch of Inster and IONIQ 9. In Korea, sales increased by 1.5% year-over-year, totaling 188,540 units. The successful launch of the Palisade HEV effectively captured the SUV demand and continue the upward sales trend. Sales of eco-friendly vehicles significantly increased by 45.6% compared to previous year, reaching 68,550 units due to the line of enhancement. Additionally, the new IONIQ 9 had a positive impact resulting in a 55.8% growth in EV sales. In the second half of the year, we plan to expand the sales through production optimization to effectively meet customers' demand for popular models and improve the competitiveness of key models with through various initiatives. Next, let me explain the sales analysis by vehicle types. Global SUV sales, including Genesis totaled 644,935 units accounting for 60.5% of total sales. Global passenger vehicle sales reached 366,287 units, representing a 34.4% of total sales. The trend of SUV seeking a portion of total sales continued, supported by the enhancement of our key SUV line, including the new Palisade. Sales of eco-friendly vehicles increased by 36.4% compared to the previous year, driven by a shift towards fuel efficient eco-friendly vehicle mixes, mainly in the European market and strong sales in the U.S. market. EV sales also saw significant growth, increasing by 33.9% year-over-year due to the robust growth of EV sales in the European market. Additionally, hybrid sales have continued to show strong growth of 38.5%. Now I'll move on to profit and losses. First, our income statement. In Q2, consolidated revenue rose by 7.3% year-over-year to KRW 48.3 trillion and operating income fell by 15.8% year-over-year to KRW 3.6 trillion. The automotive business revenue increased by 5.1% year-over-year due to favorable ForEx impact and expansion in high-value segments, especially HEV vehicles. The operating profit decreased by 39.5% year-over-year with tariff impact from the U.S. market and general increase in incentives. Revenue from finance business increased by 16.4% year-over-year due to continuous growth in the U.S. market penetration rate and asset size. Operating profit increased by 16.4%. Net income decreased by 22.1% year-over-year to KRW 3.3 trillion. Next is quarterly revenue and operating income analysis. For revenue, favorable ForEx rate had a KRW 878 billion impact and a slight decrease in consolidated volume yielded negative volume impact of KRW 99.6 billion. Despite increase in incentive spending, hybrid model sales growth led to a positive mix effect of KRW 1.6 trillion. Additionally, increased finance revenue contributed to overall revenue growth of 7.3% year-over-year. In case of the operating profit, favorable ForEx rate resulted in positive ForEx impact of KRW 632.1 billion, the rising incentives combined with the sales mix led to a negative KRW 740 billion impact. The recovery in finance performance contributed to KRW 92 billion. The tariff impact began to show this quarter, resulting in a negative impact of KRW 828.2 billion. All those factors contributed to the operating profit decrease by 15.8% year-over-year. The Q2 cost of goods sold ratio recorded 81.1%, up 2.7 percentage points. In case of SG&A, SG&A recorded KRW 5.5 trillion, which is a 0.9% increase compared to last year due to an increase of marketing related expenses in R&D. Finally, our net profit decreased by 22.1% to KRW 3.3 trillion. This concludes the end of the presentation for the second quarter business results. Thank you. And Lee, Seung Jo, Head of Finance Division will explain the Q2 business performance and tariff impacts as well as countermeasures.
Seung Jo Lee: [Interpreted] Good afternoon. I am EVP, Seung Jo Lee, Head of Finance Division. I will now present HMC's Q2 2025 business performance and U.S. tariffs impact and recovery plans and the second quarter dividend. In the second quarter 2025, the operating profit declined by KRW 828 billion due to tariff impact and the average incentives in our major markets increased resulting in an incentive increase of KRW 535.6 billion compared to the same quarter last year. Still, HMC posted record high sales of hybrid models at 170,000, which is 15.8% of total sales. The Genesis brand also showed a solid performance, taking up 5.5% of the total sales, continuously enhancing the company's fundamentals. The sales of hybrid models and Genesis achieved 21.3% of the total global sales, surpassing the 20% mark for the first time. Moreover, thanks to the FX impact with the average of KRW 1,404 to $1 in this quarter, leading to the positive impact KRW 632.1 billion combined with the implementation of the proactive contingency plan announced in the first quarter offset the tariff impact allowing HMC to achieve KRW 3.6 trillion in operating profit above market consensus. If they exclude the tariff and FX impact, operating profit would have been approximately KRW 3.8 trillion with an operating profit margin of 7.9%. Now I'll elaborate on our measures to mitigate the U.S. tariff impact. As you are already aware, in the current situation of global uncertainty, it is very difficult for a single company to predict how the tariff situation unfolds in the future. Therefore, I'll share with you HMC's countermetures to mitigate the impact from tariffs, assuming that the current tariff policy remains in place. As short-term measures, the company will first closely monitor competitors and market situation and implement a flexible incentive policy and pricing strategy; second, adopt fundamental solutions such as reducing material and manufacturing costs as well as pursuing changes in parts sourcing to achieve efficiency in manufacturing; and third, proactively implement the contingency plan by prioritizing the investment without disrupting our core businesses. From mid- to long term, the company will first seek to localize sourcing of key parts through a company-wide collaborative efforts from R&D, production and quality. And second, thoroughly review expanding local vehicle production based on different scenarios to flexibly address different market changes. By implementing our short- and mid- to long-term strategies, we'll continue our efforts to not only mitigate tariff impacts but also improve the company's fundamentals. Now let me share our second quarter 2025 dividend plan. In August 2024, HMC announced a value-up program, promising a minimum dividend of KRW 10,000 per share and a quarterly dividend of KRW 2,500. In accordance with the program, a quarterly dividend of KRW 2,500 for both common and preferred stocks will be provided this quarter. Additionally, as explained in the last quarter, the dividend record date has been fixed at August 31. So for the second quarter, the dividend record date is August 31 and the payment date is September 30. At this very moment, the tariff impact and market uncertainties persist. While maintaining the 2025 annual guidance explained in the beginning of the year for now, HMC will communicate updated guidance with the market as soon as we gain more clarity on tariff policy after August 1st. Furthermore, President José Muñoz and our management at Hyundai Motor Group will employ all measures available to recover profit and thoroughly prepare plans to deal with the tariff impact as well as market uncertainties. We sincerely appreciate the continued support from shareholders and investors. Thank you for listening. Next is the presentation from Lee, Hyungseok, CFO of Hyundai Capital on Finance Business' second quarter results and the third quarter outlook.
Hyungseok Lee: [Interpreted] Good afternoon. I am VP Lee, Hyungseok, Head of Finance Division, Hyundai Capital. I will now report the second quarter business result and the outlook for the second half of the business -- for the finance business. In the second quarter, Hyundai Capital and Hyundai Capital America as the group's captive financial companies continue to provide financing for car sales. I'll now elaborate on the details. First is Hyundai Capital. In the second quarter, despite slow domestic economic growth and heightened competition, we expanded group collaboration by releasing financial products aligned with new model launch and utilizing subvention for SUVs, Genesis and EVs. As a result, total financing volume, including installment and lease, increased 9.8% year-over-year. The auto financing portion in our asset portfolio is maintained at a high level of 82%. With lease profit increased by 13.7% in the sequential quarter from a year ago, operating income went up by 3.7%, excluding ForEx and derivative effect. As for financing, we have achieved 44.67% of our annual target. It includes a green bond issued in April and the sustainability-linked bond issued in July. Within our domestic bonds, around 25.8% were financed through ESG bonds. In the meantime, supported by the decrease in market interest rate and our efforts to reduce financing costs by repaying high interest loans, second quarter interest rate expenses went down by 2.9% with the delinquency rate -- while the delinquency rates are rising of the financial market, we maintained a rate below 1%. However, as we preemptively manage risks by expanding provision reserves and increasing release bonds, that debt expenses rose which led to increase in operating expense by 3.8% year-over-year. As a result, operating income declined by 4.6%. However, pretax income affecting non-operating income, such as equity method gain of overseas subsidiaries hiked by 3.5%. In the second quarter, Hyundai Capital will continue to reduce OpEx and financing costs, and actively sell NPLs to secure profits. We also will continuously provide financing for the car sales of the group, while prepare for the business start of the Indonesian HQ and review establishment of overseas corporations and strategic regions for the group's auto sales. These activities will enable us to keep increasing the coverage of the global auto financing. Next is HCA. In the second quarter, led by the group's strong order sales. Our customers' penetration rates continue to surge. Both installment and lease showed sound growth and overall product assets grew 20% from the last year. Not only the asset side but also product interest rates went up, leading to second quarter operating income to hike by 4.3%. We achieved 60.3% of the annual financing target by successfully issuing $3.5 billion bond in June and EUR 1.2 billion bond in the EU market first time ever. As such, we could secure liquidity and diversified financing portfolio. Based on the active financing activities, the size of loans expanded and the second quarter interest expenses increased 22.3% year-over-year. From the perspective of asset soundness, unlike market concerns, our prime customers taking up more than 85% of total customers contributed to a continuous decline in delinquency rate from the end of 2024. Due to the rise of used car prices and active remarketing activities, the risk of residual value is also limited. As asset soundness improved, bad debt expenses decreased by 17.3% year-over-year, and the total operating expenses slightly increased by 3.0% year-over-year and operating income went up by 26.9% year-over-year. In the second half, market uncertainties are expected to grow mainly due to the tariff policy. However, Hyundai Capital America will launch financing programs aligned with the group sales and pricing strategies so that it can expand its role of providing auto financing and will respond to market changes flexibly by closely monitoring the market with Hyundai Motor Company. That is all for the presentation of finance segment. Thank you for your attention.
Operator: [Interpreted] [Operator Instructions] The first question will be provided by Heejin Lim from Citi Securities.
Heejin Lim: [Interpreted] This is Heejin Lim from Citi. I have 2 questions about the tariff impact. Yesterday, there was an announcement of the Japanese tariff, which is 15%. And going forward, for our company into U.S. tariff policy, is it going to be changed in terms of our pricing policy? Let's say, if we have our scenario for tariff at 25% versus 15% or lower, will there be any changes in our pricing in the U.S.? Or rather regardless of the -- regardless of the tariffs changes based on incentives or the tier pricing, our pricing will be maintained, would that be your stance? That is my first question. And is it going to be changed your decision making? And how is that going to be going forward for your thought process? And my second question is regarding the second quarter impact by the tariff. It's not going to be impacted by the fourth quarter. So if we assume that the current tariff is maintained at the current number, then what is it going to be for the fourth quarter impact? And if can you give us the breakdown between the exports volume and also the component as well regarding the tariff impact?
Unidentified Company Representative: [Interpreted] So there was an announcement yesterday that the tariff negotiation between Japan and the U.S. has concluded for the time being, and it was at the rate of 15%. And as an individual company, I think your understanding -- because for us, it will be difficult to -- it will be premature to comment on the 15% rate impact. So we could possibly expect that the rate will be lower than 25%. But as the 2 countries negotiations are currently underway, it will be too premature. And for your second question about the pricing impact, I would like to answer after the interpretation. Let me answer your second question about pricing policy. As we mentioned in the first quarter earnings results, we will take the stance of the fast follower because we are not going to meet the pricing in the market. Rather, we will monitor the market situation closely, and we will try our best to meet our customer's value. And as such, we are going to flexibly respond to the market. Again, on your second question, we are not fully impacted by the tariff situation in the second quarter. And you asked about the second half outlook for our impact by the tariff policy. And as you mentioned, we were impacted by the tariffs policy at about KRW 828 billion for the second quarter, and it is not the full quarter results. Again, in the second half compared to the second quarter and the third quarter and fourth quarter, we expect, of course, there will be bigger impact on our outlook. And it is premature again to precisely comment on the exact figures. Also regarding the tariffs impact on components out of our total impact, there is a credit related policy on completed vehicles in the U.S. So if that is being considered, it's going to be about 20% out of our total impact by the tariffs.
Operator: [Interpreted] The following question will be presented by Eun Young Yim from Samsung Securities.
Eun Young Yim: [Interpreted] I'm Eun Young Yim of Samsung Securities. My first question is, EVP, Seung Jo Lee, explained the plan, the mitigation plan for the tariffs in his presentation. And when I look at the [indiscernible], I see that Hyundai Motor Company is not going to have a price increases in the third quarter, meaning in September and October. So I was wondering about the company's priority with it? Is it going to be the market share increase, or is it to fund the company's profitability in the U.S. market? That's my second part of the question -- sorry, it's my first part of the question. And my second part of the question is that from the third quarter, if the tariffs of 25% remain in place, I believe the impact will be over KRW 1 trillion. I believe the company has satisfied a provision quite excessively. I was wondering in this EV transitional period, is the provision going to be used as the buffer in this uncertain situation?
Unidentified Company Representative: [Interpreted] To first answer your first part of the question. By September and October, you said we are not going to increase prices, but it's very -- it's hard for us to tell you, definitely, we are going to increase prices or not at this point because we are going to take the fast follower approach. And when or if ever we are going to increase prices as soon as something that we cannot tell you at the moment. But again, we are monitoring the market situations, and we'll adopt the right pricing strategies depending on different scenarios. And we -- at the same time, we are reviewing many ways to generate more revenue, including port installed options and freight prices. So we are looking into different options to improve our opportunities. And also, on your question on our priority in the U.S. market, whether our priority be the MS or profit. So our strategy is to achieve both targets of the MS as well as profitability. We'd like to defend our market share in the U.S. market at the same time, maintain the current level of profitability, which is, of course, challenging, but with the right strategy, we'll be able to achieve both. And on the second part of your question regarding if the tariffs impact -- tariffs of 25% continues to remain in place. In the second half, there is going to be the impact over KRW 1 trillion. So your question regarding the sales warranty provision and in this transition, is it going to be used as a buffer. So we set aside our provision reasonably according to our standards, and we review the amount of provision at the end of every quarter. So for now, we believe that there's no buffer in terms of the provision to be used to mitigate the tariff impact.
Operator: The following question will be presented by Kyung Jae Hwang from Merrill Lynch.
Kyung Jae Hwang: [Interpreted] This is Kyung Jae Hwang. You initially mentioned about the raw material cost, processing cost and the component sourcing changes. If these actions are being executed, when is it going to be happening? And is that going to be factored in the third quarter results? And I would like to know the timing of the utilization impact on our cost reduction, especially for the raw material costs and processing cost, is there going to be a negotiation for the pricing overall? Or is that going to be limited to specific segments, including raw materials or is it just battery? And my second question is related with the comparison to our peers, especially the Japanese peers as we see the data -- expert data released by the DOJ, the pricing level in May to the North American region has reduced by about 12%. This seems to be impact by the tariff. And are we going to respond to tariff impact with the same stance as the peers? Or are we going to respond afterwards? What are your plans on this in the third quarter?
Unidentified Company Representative: [Interpreted] Thank you for your question. Your question about component sourcing changes or the raw material costs and processing cost reduction, we are actively engaged in these activities, and you asked about the actual impact on the third quarter results. In terms of processing costs and efficient production methodology, as you know, our operations of HMMA has been about many years. So we are going to expand our methodology of efficient production will be expanded to Metaplant. And that will mean, you can see the results in the third quarter results. However, though, in terms of components sourcing changes, it's not going to be achieved. It can be achieved in the shorter term. So the portion of that impact will not proceed in the third quarter. However, we have forms of TFT for component sourcing changes. So we have about 200 component suppliers that we collaborated with and we have received their proposal for -- as we're going review the proposal in a various way, and we're going to assess and analyze if that's going to be better for us to be on export or be locally sourced. So these kind of reviews have to be implemented in steps. And as you know, for change suppliers, it is a massive scale of analysis because our most priority is quality and customers' safety. So to meet our expectations in various items, including quality production, manufacturing and procurement, we need to take sufficient time to review on these items. And you also mentioned our competitors on pricing policy or the pricing trend, especially Japan, their price or FOB pricing to the North American region. And our stance or our reaction to this, I guess you mentioned and asked this question because there is a possibility for us to decrease the FOB price for the export. However, FOB pricing changes is highly related with the transfer pricing issue, so we cannot touch that easily. And we have been actually reviewing on this agenda for many -- for a long time. So if we -- once we conclude our review and then we could officially communicate with the market. But as per now, it will be premature to comment on this. And I would like to refrain from commenting on this, especially to prevent any misunderstanding between the 2 countries. Lastly, I would like to add another point because on the pricing and the amount within the APA scope, we have been adjusting FOB pricing, so it has been done annually, and that has been done regardless of the tariff, and we are doing it already.
Operator: The last question will be presented by [ Chris Roberts ] from [indiscernible].
Unidentified Analyst: Could I just asked, what is the net cash position in the auto business as of the end of the quarter, please? Because I know that that's a number you've given in the past.
Zayong Koo: This is Zayong Koo. The net cash position as of the last quarter is KRW 14.1 trillion ex-finance.
Unidentified Company Representative: [Interpreted] That concludes our second quarter 2025 earnings results conference call. Thank you for listening.
Operator: [Interpreted] If you have any questions, please contact Hyundai Motor Company's IR Group. Thank you very much for your attention. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]