Welcome, everyone, to Hyundai Motor's 2023 Q1 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 2023 Q1 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. The first part is sales summary. Our 2023 first-quarter global wholesale has increased by 13.2% year on year to 1,021,712 units, while retail sales increased by 3.6% year on year to 986,823 units. In Q1, with semiconductor and other parts supply regaining balance, productions have increased and our wholesale sales, so on year-on-year increase with strong back orders. In domestic market, thanks to better parts supply situation, production has gone up and strong sales of the all-new Grandeur launched in Q4 last year resulted in all-time high Q1 sales, up by 26% year on year. In North America, strong sales have continued led by SUVs and Genesis, resulting in wholesale sales increase by 24% year on year. In the US market, sales of Tucson and Santa Fe have increased significantly with sales of SUVs in the US rising 28% year on year. EV sales in the US increased 100% year on year, thanks to increased sales of IONIQ 5 and the launch of new IONIQ 6. Our US market share in Q1 was 5.5%, up 0.4 percentage points year on year. In the European region, sales growth were seen around eco-friendly vehicles with the launch of IONIQ 6 and strong sales of hybrid vehicles such as Tucson. And as a result, wholesale sales increased 10.5% year on year. Despite gradual improvement of parts supply in India, sales were limited due to inventory shortage. However, wholesale sales increased by 11.2% year on year due to the low base than in the previous year. The new Verna, which was launched at the end of March, is receiving positive market response and is expected to contribute to future sales in Q2 and beyond. Next is sales and key status of each model. In 2023 Q1, global sales volume has increased year on year in most segments due to increased production. Concentrated sales and segment fee, especially with the launch of the Grandeur in Q4 last year, coupled with continued strong sales of the existing SUV and Genesis, is continuing the sales growth in high-value models. Global SUV sales have increased by 0.7 percentage points year on year to 52.7% due to increased sales of our flagship models such as Tucson, Santa Fe and Creta. Genesis' wholesale sales in Q1 have increased by 10.2% year on year due to continued strong sales of existing models such as GV70 and GV80, but the sales portion fell by 0.1 percentage point year on year to 5.1% as better parts supply situation has increased the sales of all models. Sales of eco-friendly cars increased 40% year on year due to increased sales of EVs and hybrid vehicles. Sales of IONIQ 5 continued to increase, and the global launch of IONIQ 6 in Q1, up by global EV portion by 1.5 percentage points to 6.5%, and the number of sales increased by 48% year on year. While we continue our efforts to expand EV sales through global sales of the IONIQ 6 and with the launch of the all-new Kona EV, we will also continue to improve our sales mix by expanding sales of high-value models through the global launch of the all-new Kona and the launch of the all-new Santa Fe in the second half of the year. As of this year's business results report, further sales details for major markets such as Korea, the US and Europe were provided at Appendix 11 to better understanding in our sales performance. This is the end of the presentation on sales. And now I'll move on to P&L. This is the summary of the income statement. Consolidated revenue increased by 24.7% year on year to KRW37,788.7 billion. Operating income increased by 86.3% year on year to KRW3,592.7 billion. The Korean automobile's revenue increased 27%, thanks to the production increase leading to sales increase and the improved mix with more high-margin vehicles sold. The operating margin increased by 139% year on year. The finance business increased revenue 60% year on year, thanks to the strong car sales. But the operating income decreased 33% due to higher interest expense, driven by the policy rate increase. Net income increased by 92.4% year on year to 3,419.4 billion. Next is revenue breakdown. Sales volume increased, thanks to the increased production, had a positive impact on KRW2,559.8 billion. And the mix improvement with more ASP cars sold had an impact of KRW3,135.6 billion. In addition, the favorable won to dollar rate had a KRW876 billion impact, increasing revenue by 24.7% year on year. Regarding operating profit, the volume increased, thanks to the increased production, had a KRW757.5 billion impact mix improvement with high-margin cars like Grandeur, had a KRW559.1 billion impact and a favorable FX rate, had a KRW276.4 billion impact. Despite the operating income fall of some of our finance businesses and increased SG&A costs, OP margin improved 86.3% year on year. Q1 cost was 1.3 percentage points, down by 79.6%. Thanks to the better auto parts supply leading to better operation rates of plants. SG&A was up 7.4% year on year to 4,129.3 billion due to increased marketing expenses with new car launches. Nonoperating profit increased 185.6% year on year to KRW998.3 billion due to the increase in equity method income and raising key rates. Net income increased 92.4% to KRW3,419.4 billion, thanks to the increased operating income. This is the end of my presentation. Thank you. Next, we will have the Head of HMC's Finance Events Division, EVP, Seo Gang Hyun, share his -- share HMC's mid- to long-term shareholder return plan and evaluation on Q1 performance and 2022 April outlook.

Good morning. I am EVP Seo Gang Hyun, Head of Planning and Finance Division. I'll first start with the mid- to long-term shareholder return policy and evaluation of Q1 performance. In 2023 Q1, HMC saw an increase in sales volume through . And after announcing our shareholder return policy, we have upped our transparency. And we would like to share you that with the market. The mid- to long-term shareholder return policy is to have a transparency shareholder return to heighten the shareholder return value and to have a rational dividend policy and to have a long-term share cancellation policy. In the future, we will have a consolidated mix -- consolidated mix as compared to the existing dividend policy that will consolidate governance shareholder -- will be the base of the dividends heightening the transparency so that we can have more visibility in terms of the dividend payout. Now we will have a quarterly dividend payout, which has been two times before, will now be extended to four times so that we can mitigate the changes in the share prices and increase the attractiveness. Finally, for the next three years, our equity shares will be canceled 1% every year, a total of four years. HMC will continue to expand the shareholder values as they become more shareholder friendly so that we can respond to market expectations. Now I'll move on to the business performance for 2023 Q1 as well as the outlook for H2. In 2023, Q1, HMC saw an increase in sales volumes through production expansion, a mix improvement centering on high-value products and a favorable exchange rate effect, resulting in an operating profit margin of 9.5%, the highest quarterly record that exceeds market consensus. Although there are still concerns about various external uncertainty, our global sales increased by 13% year on year, thanks to better parts supply that allowed production expansion and solid back order demand. By region, sales in major markets such as Korea, US and Europe, rose by more than two -- double digits year on year, improving the regional mix. In particular, sales in the US increased by 30% from wholesale. And SUVs and Genesis sales increased by 28% and 36%, respectively, driving our profitability improvement. Furthermore, Genesis and SUV sales portion increased from 54.5% last year to 55.5% this year, as the improved product mix effect was further realized in Q1. Hence, the continued increase in Genesis and SUV sales and strong sales of the new Grandeur, which was launched at the end of last year. Incentives have increased year on year due to the previous year's low base effect, but fell against the previous quarter, maintaining the favorable trends. The won to dollar exchange rate also exceeded our business plan estimates, which had been forecast at the beginning of the year, acting favorably on our performance. Global EV sales also increased by 48% year on year, continued the sales growth. Sales of IONIQ 5 and 6, which have large back orders, have strengthened due to better chip supply situation. And with the start of Kona EV sales in Q2, EV sales growth is expected to continue. Next is the outlook on 2023 Q2. External uncertainties such as hiking interest rates are still at bay, but solid performance is expected to continue in Q2, backed by strong demand and with Q2 traditionally being a peak season. Although the semiconductor supply issue is not fully resolved, the production plan established at the beginning of the year is expected to be achieved and thus, sales increase expected in Q2 that was solid demand. Sales are particularly expected to increase around Genesis and SUVs, which are high in demand, resulting in a continued improvement in product mix. Although there are some concerns on EV sales in the US due to the IRA, we plan to respond actively by pulling forward the local production schedule and by leveraging to provisions for commercial vehicles. Furthermore, with IONIQ 6 sales beginning, EV sales growth will also continue in Q2. Thank you for your time. Next, SVP , Head of Hyundai Capital Finance Division, will present on Q1 financial business performance in H1 outlook.

Hello. I am SVP Lee Dong Seok, CFO with Hyundai Capital. Please allow me to share with you our Q1 2022 earnings result and H1 outlook of the financial business. In Q1, unfavorable business conditions persisted, including high interest rate and economic slowdown that had begun last year. However, by working closely together with our affiliates to operate a solid portfolio with mainly auto financing, managing risk proactively and promoting financial soundness, Hyundai Capital has defended our profitability. Please allow me to elaborate on our earning results by company. First, in terms of capital, thanks to the improved competitiveness of our installment programs, driven by HMC's car sales growth and our cooperation with HMC, our assets increased by 4% year on year. When the Korean market was experiencing a financial crunch late last year, our competitors reduced their auto financing sales. But Hyundai Capital kept offering captive auto financing on the back of a stable financing capacity. And the auto volume shares exceeded 90% in Q1, solidifying our position as a top captive finance company. This resulted in an operating revenue, an increase of 38% year on year, mostly from installment and lease. However, reflecting interest expenses with increasing base rate and growing bad debt expenses due to growing concerns over an economic slowdown, OP margin was down 29% year on year. Current top three credit rating agencies upgraded Hyundai Capital credit rating to AA+ in March and April. Also, Moody's and Fitch elevated our credit ratings to positive from Baa1 stable and BBB+ stable, respectively. This is acknowledgment of the fact that we are now better aligned with our affiliates as a captive financial company and has an unrivaled position in the market. In H1, unfavorable market conditions are likely to remain, but the company will make our auto financing products more competitive and develop financial solutions for CPO vehicles to fully serve as a captive finance company. And we'll do our best to build stable liquidity and manage credit risks. Next is Hyundai Capital America, HCA. With the increased car sales and penetration combined with higher ASPs and strong sales of high-margin vehicles like Genesis and SUVs, HCA's asset increased 4% year on year in Q1. Therefore, the Q1 2023 operating revenue went up 3% year on year. But so did the interest expenses and bad debt expenses with rising interest rates and asset value improvements would have led to higher operating expenses. As a result, net income denominated in Korean won went down 26% year on year. To minimize the negative impact of uncertain market conditions, HMC increased the prime asset share in the portfolio to 86% to be more financially sound. And it issued USD2.5 billion worth of global bonds last March with the aim to proactively improve liquidity. And as the company was elevated to be strategically and highly important to Hyundai Motor Group, like Hyundai Capital, Moody's adjusted the Hyundai credit rating from Baa1 stable to positive last February. In 2023 Q1, we have concerns over growing interest expenses with the Fed potentially raising its policy rate again and an economic slowdown as result of the worsening financial . To fend off such risks, HCA will proactively manage risks mostly for our prime customers and manage a lending portfolio properly to make the company stronger. Thank you for your time. That is the end of our presentation. And we'll now receive questions.

[Operator Instructions]. The first question will be presented by Jinwoo Kim with Hankook Investment & Securities. Please go ahead with your question.

Good afternoon. I have two questions. But before that, I'd like to congratulate you on the highest-ever first-quarter earnings. And also secondly, regarding the treasury stock cancellation, I think it's going to be very positively received by the market. Therefore, I'd like to thank you for that as well. And moving on to my questions, I have two questions. First, regarding the SG&A costs, which was lower than expected, your revenue went up 25% in the first quarter. Thought the SG&A cost is only 7%. So you also explained it's mostly marketing cost. So I was wondering if this lower SG&A cost expense trend will continue in other quarters as well. Or was it an outlier in the quarter? And my second question is about the profitability. The profitability result of this quarter exceeded the company guidance, was impacted by the favorable FX rate. So I was wondering if this profitability will continue in the second and third quarter as well.

Yes, thank you for the question. I'm going to answer. I am Seo Gang Hyun, EVP of Planning and Finance Division. First, on your comment on SG&A cost, now it's almost impossible for a company to intentionally increase or decrease the SG&A costs because now we are adhering to the global financial standards. And it is true in the second -- in the first quarter, there is seasonality to it. So compared to the second and the third quarters, our marketing and R&D expenses are lower because of the seasonality, but we have implemented our marketing activities as planned. And also, one more thing was coming from the provision cost for our quality cost. There was no big spending in terms of holiday cost in the first quarter. That's why we didn't spend much provision in this quarter. And so the SG&A cost increase was not as high as our revenue increase in this quarter. And all in all, most of our revenues increased because of the increase of the portfolio mix improvement with more and more large vehicles and SUVs selling more. And on your second question, regarding the guidance for profitability, the profitability guidance was 6.5% to 7.5% range. And in the first quarter, we achieved the operating profit margin of 9.5%. And when we announced these numbers to the market, some analysts expressed some concerns, saying that it was very ambitious. But we believe in the first quarter, we achieved the great performance and that we believe that this will continue in the second and the third quarter. This does not necessarily mean that's going to continue until the fourth quarter, but still, we believe this will -- the momentum will continue in the second and the third quarter. There -- the semiconductor supply shortage issues are easing and our productions are good as well as sales as well. Therefore, I believe that good momentum will continue in the second quarter and lift. So it is too soon to tell if we need to revise our guidance now because we still have some inflation issues in the US. Inflation is not coming down in the US. And there -- the Fed might increase the rate once again. And also in the second half of this year, there are still looming concerns about the economic recession. Therefore, we are taking more of a conservative look on the outcome in the second half than in the first quarter. So if the economy slows down, then it is going to increase more competition in the market. So we are going to wait and see and see the market situation in the third quarter and see if the guidance needs to be changed. And we'll make the decision by the end of the third quarter. Next question, please.

The following question will be presented by Eun-young Lim with Samsung Securities. Please go ahead with your question. Eun-young Lim: Thank you. I am Lim Eun-young from Samsung Securities. And thank you for giving me the opportunity to ask a question. I have two questions, actually. I understand that from your presentation, you mentioned that you're going to expand production for the year by a great amount. So how much of that would be -- have already been done in Q1? Because I understand during COVID, the inventory level is very low that's why you're able to lower the incentives. However, once the post-COVID period comes and we are free from COVID, the inventory will start piling up. So what will happen to the incentives? Will you go -- will the incentives go up against? So that's my first question. The second question is regarding material costs. In H2, the material cost has dropped drastically, especially regarding the batteries and lithium. It dropped by even one-third. So how do you think the material cost is going to impact this year? And what is the impact for Q1?

Thank you for your question, Ms. Lim. So as I understand, your first question is regarding the productions as well as sales incentives. So you're correct. Our production has exceeded level, whereas wholesales and retail sales is similar to BP levels. And yes, if you do increase productions, you're worried that our inventories will go up and then in the end will begin incentive competition. Thank you for your concerns. However, right now, our stock level, our inventory level is impacting our sales because we don't have enough stock to sell. Usually, we targeted MOS of 2.6. But right now, that level is much lower. So we aren't going to increase production. However, that is to enable much seamless sales. Of course, if -- the inventory stocks start piling up, we will have to control production so that we don't go back to incentive -- competitive intense giving. To answer your second question regarding the material cost, it is true that the market is much interested in the batteries and its material costs. However, what's more critical for us right now is the catalyst price because so much of the market proportion is taken by ICE vehicles rather than EV yet. Of course, the lithium, nickel and cobalt prices have peaked in H2 and are now going down in general. Many people are concerned about these raw material prices, and it has slightly dipped in Q1. However, we are not as worried as of yet because the drop in the material costs that was seen in Q1 is not actually reflected in the prices yet. Usually, the material cost is reflected a quarter later. So the price drop in raw material in Q1 will be reflected in Q2 and afterwards. And we're not going to be complacent with the drop in the raw materials, those raw material prices in the short term, because we have now learned that we are very vulnerable to the price increase. And this is a big risk for us. So at this time, we are trying to take preemptive offtake action through procurement and also look into precious metal industry as well through finance. And the mid to long term, we are going to be involved in the upstream of the raw material industries by managing and strengthening our capacity there. So that is all part of our strategic decision making. We are fully aware that the market is concerned about this, and we are making strategic decisions regarding this matter. So once something is filled up and we see something visible, we will share that with the market as well. Next question, please.

The following question will be presented by Theodorus Hadiwidjaja with JP Morgan Asset Management. Please go ahead with your question.

Hi. Yeah, thank you very much for taking my questions. I have two questions. So the first one is in regards to the shareholder return policy. So you mentioned that you are changing to payout ratio of 25% or above. Is that based on free cash flow or net income? And I guess with this, how does it tie to your credit ratings? Now you're on positive outlook. Are you intending to have your ratings at the same level or upgraded to single A category? And the second question I have is on the recent announcement on the battery JV in the US. So how would that impact your CapEx plan for this year or maybe the next couple of years?

This is Jaehoon Koo. Thank you for your question. First, your first question is on the shareholder return policy. It is actually based on the net income rather than the free cash flow. So we have revised that from our free cash flow payout of 30% to 50% to a net income payout of 25% or above. In terms of the credit rating, I mean, there's -- I guess it is -- we hope that the rating agencies will upgrade our ratings, but that it depends on their policy rather than what we -- our policy, I guess, in general. And to your second question? Okay. And your second question on the battery joint venture, whether the CapEx will have an impact on the CapEx overall, as you have seen from the announcement, we will be -- the total investment on the joint venture will be approximately USD5 billion, which is about KRW6.5 trillion, which Hyundai Motor Group will own 50% and the remainder will be SK. But in general, you may recall that about a year or two years ago, actually, we announced the plans overall in the US investment funds of about $10 billion. And so this is actually included in that. So the overall CapEx that we had announced earlier has not changed dramatically. So it is pretty much in line with what you have seen in the past. Thank you. Next question, please.

The following question will be presented by Taeyoung Oh with Kiwoom Investment and Securities. Please go ahead with your question.

Hi. Thank you for the opportunity. I have also two questions. My first question is regarding production. So what is the production trend in April? You can compare it -- and also the outlook for May, you could compare with the March productions or with Q1, whatever it may be. One, I'm just wondering what the production trend for this launch is. My second question is I understand that in February, you gave out special bonus payout to Hyundai and Kia employees of KRW4 million and shares. So was this expense covered in Q1 or is this going to be settled in installments?

Right. To answer your first question, the production for April, we believe will reach 100% of our business plan and also for May include -- so for Q2, including May, I've had talks with the manufacturing today, and we believe it will also be close to the BP level. The Q1 production was close to 100%, 99%. However, the chip supply issues, although it is not fully resolved, it's not that serious enough to impact our production. For the second question, I think it's pretty similar to the first question regarding the SG&A. We consulted with our auditor on how to recognize this as in terms of accounting. And rather than making it a lump sum payment, we got advised that it's better to divide it out throughout the year for 12 months. Next question, please.

The following question will be presented by Kung Jae-il Jung with Merrill Lynch Securities. Please go ahead with your question. Kung Jae-il Jung: I have two questions. First of all, my first question is about the profitability of the Korean plant only. I believe in the first quarter, the plant and revenues grow double-digit growth. And then I was wondering how much the Korean plant contributed to the profit. And second question is about the contributions of each region, including the US and other key markets.

On your first question, it's hard for me to disclose individual margins by each region. I can only tell you that our overall profitabilities across all regions are quite stable. And it's hard to really consolidate every profitability from every other region compared to Korea because of the different standards, accounting standards and so on. And also, how we calculate loyalty payment and other elements are different in Korea from other markets as well. So I think that's the question that you have to ask to our IR team so that you can get the information separately. Thank you. Next question, please.

The following question will be presented by Pyoung-Mo Kim with DB Financial Investment. Please go ahead with your question. Pyoung-Mo Kim: Thank you for the opportunity. My question is regarding the IRA. You said that you're going to build a battery JV and to begin production in the second half of 2025. However, once you get the yields running and once it is to full plant production, I guess the full running of the productions will be possible by 2026. But before that time, you'll have to source the batteries maybe by exporting it from Korea or so. The reason I ask this question is because recently GV70 was not able to receive the subsidies of the IRA because of the battery issue. So what is the plan regarding battery sourcing prior to the production of battery JV?

I do understand that the market has a keen interest in how IRA is going to impact us. And we also are very new to the situation, so -- because it impacts how we sell EVs in M&A. So we are may be paying the attention to how we incorporate this into our management decisions. And it's already been opened through the press that none of our models are subject to these incentives of the IRA. However, we are trying to get the subsidies through the use of commercial vehicles because -- through HCA, Hyundai Capital America, if we lease our vehicles, that tax benefits will go to the company and in turn to the end users as well. The lease proportion in the US had been only 5%, but we have now pulled this up to 35% as of March. And as a result, the overall sales will not be impacted negatively. And the establishment of this battery joint venture with SK has been approved by the Board this morning. And once it goes into full production by 2025, we will also begin the production of vehicles that are subject to these batteries and also the IRA subsidies. And once we have the yield on a full range, of course, our foreseeing might also get better. The thing is the JV, that is in plan, the full capacity of 35 gigawatts, and it does -- it's more than enough of the production volume that we have planned for the US. So the plans that we have in M&A, Georgia, Alabama, all of their production plan for 2025 is not going to exceed the 35 gigawatts. So even if the battery is started to produce in the US, there's not going to be a sourcing issue. For all of our models produced in the US to be subject to IRA tax credits by -- we believe it will be possible by 2026. Until then, we are gradually making plans to get other benefits such as what we are seeing with HCA's releasing. And the other gaps that exist, we are trying to fill it with the branding of our cars. For example, IONIQ 5 and 6, they won various awards, including the World Car of the Year. If necessary, we also try to strengthen our brand. The incentive may seem like a key competition factor, but it actually is not because our EV sales have not gone down. We are actually backed by our strong brand. So from 2024 to 2025, when the tax credit actually comes into effect and the competition gets fierce, maybe we might have to strengthen our emphasis just for EVs. Who knows? But we have everything planned so that we do not lag behind in terms of competition. And it is not as easy that we saw in the US. We have most of the sales that is centered on SUVs and Genesis as well. So the IRA impact is not as big as everybody is worried about. Due to the lack of time, we will now receive one last question.

The following question will be presented by Tan Ming Kun with Kobus. Please go ahead with your question.

Thank you for your time. I just want to ask, the first thing is about the margin of the EV product. I think you have a kind of a long-term vision to get to 10% of OP margin for the EV. I wonder how does that look like? I mean, in the quarter, roughly. And also, how do you face the competition with other EV players cutting price? It was kind of lower-cost battery, et cetera. How does that impact you obtaining a long-term on return? That's one. And the other one will be you the treasury share, but in fact, that doesn't impact the net outstanding shares. I wonder if you have any plan to use part of the capital, not the cash to buy back shares. So that's actually really reduce the outstanding shares. Thank you.

Yes. Hi, thank you for your question. This is Jaehoon Koo. To your first question on the margins of EVs, as you have pointed out, we had indicated a long-term OP margin of achieving about 10% on EVs. That is correct. However, we cannot actually give out the actual numbers right now. But we can what we can say is that we are currently making a profit on our EVs. And the second part of your question was, I guess, on the competition. Yes. I mean, there is a lot of competition, especially in the -- from the Chinese players. However, as we had pointed out earlier, we are -- we believe that our products are much more competitive based on the awards, the accolades that we have received. And we believe that consumers will select us over competitors based on these merits and the overall characteristics of our vehicles. And your second question was on the buyback. Again, we cannot announce anything at this time. But nevertheless, as you have seen in the past, we have been always looking at various options, including share buyback and cancellation. And in a period when we do that, we will actually be letting you know. However, of course, the buybacks and cancellations will depend on the price, the share price, et cetera. So if we do believe we are undervalued and we will definitely try to share buyback. But at this time, we have no current plans.

Thank you. We would like to end the conference call for HMC's 2023 first quarter business results. Thank you for your time.