K Car Co., Ltd. ($A381970)

Yes. Good morning. This is Kwon Eun-Hee, Head of IR at K Car. Thank you for joining us at the first quarter 2026 Earnings Conference for K Car. We will be proceeding today's call through a consecutive translation into English. The CEO of K Car, Mr. Jung In-Guk will first take us through a business highlights, followed by financial results from our CFO, Mr. Bae Moo-Geun, followed by Q&A with Mr. Chun Ho-Il, Head of Marketing; and Mr. Jung Jin-Moon, head of Planning. Please note that detailed presentation materials are uploaded on the IR section of our corporate website as well as KRX KIND website in English and Korean. Materials are based on K-IFRS and contain estimates that may be subject to partial change upon external auditor review. Please be advised that the projections may differ materially from actual results, depending on changes to the macro and market environment. Now our CEO, Mr. Jung In-Guk, will start with an overview of business results.

[Foreign Language] [Translated] Good morning. This is Jung In-Guk, the CEO of K Car. I'd like to thank our investors and analysts for joining us today on our earnings call. The operating profit results for the first quarter of 2026 came in at KRW 14.2 billion, down KRW 7.2 billion year-over-year. As we prepare for the traditional peak season in March and April, we resumed large-scale marketing, including TV campaigns for the first time in about 3 years, anticipating improved consumer sentiment, we also implemented an aggressive purchasing strategy, increasing inventory by more than 1,000 units compared to year-end levels. However, following the outbreak of the Iran-U.S. war, used car demand saw a sharp contraction in particular, export demand from the Middle East. This, coupled with deteriorating shipping conditions had a negative impact on our auction business as well as inventory turnover. As a result, inventory stored preemptively in January and February sold more slowly than expected, creating short-term pressure on both profitability and earnings. That said, since the end of March, we have shifted to a profitability-focused purchasing strategy and margins on newly acquired inventory have improved meaningfully. Customer response to our marketing campaigns has also been better than expected. While the impact from these external factors is likely to continue partially into the second quarter, we believe conditions may gradually improve in the second half as the profitability of new inventory continues to recover while the operating environment normalizes further and as the benefits of upfront investments begin to materialize. Ultimately, we look at the first quarter results as the combined outcome of proactive investments for driving growth on the one hand and unexpected external disruptions on the other, a temporary correction rather than any sign of a structural deterioration in profitability. Now I will take you through a more detailed business metrics. [Foreign Language] [Translated] Yes, in terms of market share, as of the first quarter of 2026, the number of registered vehicles in the broad B2C used car market saw a 2.4% decrease Y-o-Y, reflecting an overall market contraction. This was largely driven by rising oil prices and weakened consumer sentiment following the war, which dampened demand across the market. Amidst these conditions, K Car's market share declined to 12.1%, down from 12.7% in the prior year, reflecting both the temporary demand slowdown and our inventory risk management approach during the quarter. In particular, the market has recently been undergoing a structural shift with weakening demand for higher-priced vehicles alongside driving demand for lower-priced models and certain EV segments. These changes in the demand mix had a temporary impact on our market share given our product portfolio and portfolio mix. That said, we view this as a short-term impact driven by changing external conditions and demand dynamics and expect market share to gradually recover as we adjust our product mix and the market goes back to more normal conditions. [Foreign Language] [Translated] Next, moving on to sales performance. In the first quarter, the total number of units sold was 36,787, declining year-over-year, but rising slightly Q-on-Q. However, considering traditional seasonality patterns, the results did come in somewhat below our initial expectations. The primary reason for the decline in retail sales was the slower-than-expected sell-through of inventory that we preemptively sourced ahead of the peak season. In particular, demand for higher-priced vehicles weakened amid rising oil prices and soft consumer sentiment, which had a temporary impact on inventory turns. In addition, weaker Middle East export demand and disruptions in maritime shipping conditions led to a contraction and auction activity creating additional pressure on the operational efficiency of inventory. That being said, we believe these factors are temporary and externally driven. Already, we are seeing rapid normalization in our inventory operations under our current profitability focused performance strategy. If that sales trends have gradually stabilized since March, and we expect sales momentum to improve further as consumer sentiment also recovered. [Foreign Language] [Translated] Next, on to the current status of our ASP. Retail ASP was KRW 17.61 million, increasing slightly year-over-year but declining Q-on-Q. The Y-o-Y increase reflected our stable mix of higher-priced vehicles and broad-based rise in used car pricing, while the Q-on-Q decline reflected softer demand and shift in consumption patterns. More recently, the market has seen weakening demand for high-end vehicles versus growing demand for EVs and lower-price models, which has created some short-term volatility in ASP. Auction ASP declined to KRW 5.2 million on both a Y-o-Y and Q-on-Q basis, mainly due to weaker export demand and instability in overall logistics conditions, which negatively affected the auction price. This year, given the great impact of global geopolitical developments on the market, we are further strengthening our operational systems to be more responsive and agile in managing external risks. As logistics conditions stabilized and export demand recovers, we expect ASP trends to also improve accordingly. [Foreign Language] [Translated] Next on to our GPU. In the first quarter, retail GPU was KRW 1.59 million down Y-o-Y and Q-on-Q, reflecting pricing adjustments as a result of a slowdown in inventory turnover and weaker demand. Also, as demand shifted toward low- to mid-priced vehicles, this created a temporary margin pressure from product mix. However, after shifting to a margin-focused procurement strategy, the margin profile on vehicles sourced after May -- March, excuse me, have shown significant improvement with profitability near double compared to previous levels. We believe this clearly demonstrates that the recent decline in GPU is temporary in nature rather than being structural driven by external disruptions and the timing of our preemptive investment. Looking ahead, we expect GPU recovery to be supported by normalized inventory turnover and a larger mix of higher-margin in vehicles. In particular, from May, which is when we expect to clear our existing inventory, we expect profitability improvement to become more visible. [Foreign Language] [Translated] Yes, overall, we believe that our first quarter 2026 results represent a temporary correction from unexpected external factors. The important thing is that despite these challenges, our strategic direction and long-term growth foundations at K Car remain completely intact. We have quickly transitioned to profitability focused procurement and are already seeing here improvements in margins on newly acquired inventory. We're also quickly realigning our operational execution in response to recent changes in market conditions. We have reassessed operating intensity and performance targets across our nationwide trade center network and further strengthen management standards for key operational metrics, including inventory turnover, product mix and productivity. In addition, we are closely analyzing performance gaps at different locations to identify root cause and improved execution at the field level. Our head office is also working closely with many trade centers under a broad field driven approach to identifying and act on opportunities for improving operational efficiency further. Even amid external volatility in the short-term, we believe that strong operational fundamentals and execution capabilities remain the most critical factor. Through continued enhancement of our operating system, we expect both profitability and operational efficiency to improve into the second half of the year. Meanwhile, our medium- to long-term growth initiatives remain firmly on track. Our My Car Vehicle Management service continues to steadily expand its customer base, demonstrating its potential as a scalable platform business. Also, our C2C, say direct service, which is scheduled to launch within the second quarter, will establish another growth driver for business going forward. Furthermore, we will be proceeding with new trade center openings throughout the second half, starting in June as we further strengthen our off-line infrastructure and long-term growth capacity. At K Car, we have been responding to short-term volatility while continue to expand foundations for continued structural growth. And building on this momentum, we expect our profitability to recover as we get back on track to a more stable growth trajectory. I will now hand the presentation over to our CFO, Mr. Bae Moo-Geun, who will walk you through the detailed financial results.

[Foreign Language] Good morning This is Bae Moo-Geun, the CFO of K Car. Allow me to comment on dividend related matters first. Earlier this morning, our Board of Directors resolved upon quarterly cash dividend of KRW 300 per common share for the first quarter 2026, which will be paid out in May. Since our IPO, we have maintained a stable dividend policy supported by consistent cash generation and shareholder returns continue to be a core pillar of our financial strategy. Meanwhile, as announced in our previous disclosure, early April, a sale process involving the controlling shareholders' stake is currently underway. Once the transaction is complete, we will provide further details on our medium- to long-term shareholder return framework including our dividend policy during our second quarter earnings call. [Foreign Language] [Translated] First quarter sales recorded KRW 572.1 billion, down 5.4% year-on-year. Looking at the drivers behind the decline, the number of units sold was down 6.7% year-on-year whereas ASP was up 0.9%, with reduced volume having an offsetting effect on the rise in unit pricing. In terms of retail sales, it totaled KRW 501.3 billion, down 5.1% year-on-year, mostly due to the 5.6% decline in the number of vehicles sold. Meanwhile, retail ASP was KRW 17.61 million, up moderately year-on-year resulting from the high-priced product mix and also the -- partially the rise in used car pricing overall. For auction sales totaled KRW 51.7 billion, down 10.4% year-on-year. Number of units sold through auction declined 9.7%, and we also saw a moderate decline in ASP as well. This is mostly due to contraction in export demand and also instability in the global logistics condition, which occurred at the same time. Overall, in terms of first quarter sales results, we believe that our preemptive buildup of inventory ahead of the peak season, also the contraction in external demand had a direct impact on our performance. However, since March, we have already started to see some early signs of a recovery in demand, and we have since realigned our operational strategy to be more focused on profitability and improving turnover. Please refer to Pages 8 through 11 of your deck for more details on other revenue, also a breakdown of sales by channel and other detailed indicators. [Foreign Language] [Translated] In terms of gross profit for the first quarter, it totaled KRW 55.9 billion, down 15% year-on-year. While GP margin was 9.8%, down 1.1 percentage points. In terms of the key drivers behind the movement, there were 3. First is the impact of inventory mix. our preemptive buildup of inventory, again, ahead of the high season, did not clear as quickly as initially anticipated, and this resulted in pricing adjustments and maintenance costs incurred at the same time. The second driver is changes to the consumption pattern and structure. Price sensitivity among consumers rose through the breakout of the war, and there was a large shift in demand more towards mid- to low-priced vehicles creating margin pressure from product mix. The third driver is from the wholesale auction business, which saw reduced demand, particularly for exports, which led to a decline in the award price and also transaction volume at the same time reducing the contribution from the high-margin option business to overall company earnings. However, since March, as we shifted our sourcing policy more to be focused on profitability. We have since seen a meaningful improvement in the margin profile of the newly acquired inventory, and we are looking at the recovery in our GP margin as a key leading indicator. [Foreign Language] [Translated] In the first quarter, SG&A totaled KRW 41.7 billion, 7.3% of revenue. There were 2 drivers behind the increase in SG&A. First is our preemptive marketing spend mostly focused around ATL campaign. We concentrated our large-scale advertising campaign, including TV advertisement ahead of the high peak season and saw a temporary rise in advertising and marketing spend. However, while these investments may lead to an increase in cost in the short-term, we believe that it will ultimately lead to improvement in sales conversion in the longer term through enhanced brand awareness and traffic acquisition. The second driver was our investment into new business and new platforms, namely our D2C business also upgrades to our data infrastructure, which will form the foundation for growth in the mid- to longer-term. As a result, our operating profit in the first quarter was KRW 14.2 billion down 33.8% Y-o-Y with operating profit margin at 2.5%, down by 1.1 percentage points. Again, the drivers behind the decline in margins in the first quarter was due to the preemptive marketing spend, also inventory turnover pressure from expanded inventory, also contraction in demand and exports due to externalities. And all 3 drivers coincide at the same time, which weighed on our margins. Importantly, however, we do not see these factors as being structural drivers of change, but a matter of timing and a temporary impact from external disruption. At present, we have been strengthening our sourcing criteria to be more focused on profitability, while managing our inventory turnover system based on more conservative assumptions, also making adjustments to our product mix to better fit market demand. And with this quick response, we expect that sometime from the midpoint of the second quarter onward, as our product mix normalizes, we should gradually see improvement trends to our profitability as well. [Foreign Language] [Translated] And finally, please refer to Page 14 for our CapEx trends. In the first quarter, CapEx totaled KRW 800 million managed at below 0.2% of total revenue. Major CapEx items include investments into our D2C new business and also upgrade to our ERP system. In 2026, we do have new trade center openings in the plan. However, due to the structure of our investments, we do not anticipate any significant upfront cost burden on those investments and expect to be able to manage CapEx at a stable 0.2% to 0.3% relative to our revenue. We will continue to maintain a stance based on efficient capital deployment while being selective in making investments for underlying growth infrastructure as we continue to enhance our competitiveness in the mid- to longer-term. Now please refer to our IR website and the KIND website as well for more details on our financials and other operating indicators. We thank all of our investors and analysts for your trust in K Car over the years. And with that, I will conclude the financial report for the first quarter of 2026. Thank you.

[Foreign Language] [Translated] With that, we'll now proceed to the Q&A. [Operator Instructions]. [Foreign Language] [Translated] Yes, we will first take the text questions that were sent in, in real time. Question number one, you explained that the reason behind the sluggish performance in the first quarter was the combined effect from multiple factors. But which of those factors do you think have the largest impact? And from what point within the second quarter, do you expect to go back more on to track. Could you give us a status update in terms of how you are selling out of the existing inventory, also that is of GPU as well?

[Foreign Language] [Translated] Yes. Thank you for the question. This is Jung In-Guk, the CEO. So if I were to single out the biggest impacting factors in the first quarter. I will have to say the contraction in market demand following the outbreak of the unexpected war. Even as recently at the start of this year, we had actually been seeing improving trends -- gradual improvement trends in consumer sentiment indicators. And we believe that it was highly likely that demand will show recovery in the traditional peak season between March and April, which is why we made our preemptive inventory sourcing or we conducted our preemptive sourcing and resumed our ATL marketing. However, at the time, the war broke out, and we saw a very rapid slowdown in the peak season demand. And the inventory turn on our build up inventory, which tended to be higher priced, slowed down, which was the one factor that has the most direct impact on our sales performance and GPU. However, at present, we have changed over our procurement strategy to focus more on profitability and turnover. And for the vehicles that were sourced after March, we have been seeing a meaningful improvement in GPU compared to previous levels. Also, the existing inventory is selling down under normal conditions and -- but the inventory mix itself has also been trending at more normal levels since we entered May. For the entirety of the second quarter, we may continue to be still exposed to external factors. However, since March, we have started to see gradual stabilizing trends. And internally, we think that after the mid part of the second quarter, we should start to see more visible improvement trends in terms of profitability.

[Foreign Language] [Translated] And we will move on to the second question. So the company's market share declined in the first quarter. And while the company explained that it was a temporary effect, I suspect that it might also have been impacted by changes to the local demand patterns in the used car market and also more intense competition. So how are you looking at the current decline in your market share? What level of recovery do you think is possible in the second half? And please provide your outlook on the used car market going forward as well?

[Foreign Language] [Translated] Yes. Thank you for the question. This is Jung In-Guk again. In terms of the decline in market share in the first quarter, we do not look at it as any structural weakening of our competitiveness but again, as a combined effect and consequence of changing market conditions in the short term as well as our operational strategy. In the first quarter, demand for the overall market itself goes down while consumption patterns actually changed quite rapidly as well. And while demand for higher demanding price points decline, in relative terms, there was growing demand for lower-priced vehicles and some EV segment models as well. As we prepared ahead of the peak season, we did increase our mix of higher-priced vehicles. And when the market demand pattern changed, yes, it did, in the short-term, have an effect on our market share and also inventory turns. However, after the emergence of these external factors, we have adjusted our strategy to place greater priority on the quality and soundness of our inventory as well as defending margins rather than expanding sales volume itself while enforcing more conservative procurement criteria as well. So overall, while we did see a partial impact to market share in the short-term, we believe it was a choice made for more stable operations in the longer-term. In terms of the competitive landscape, it is true that it is becoming more intense. But if you look at the recent market trends, I think rather than price competitiveness itself, the structural sources of competitiveness, namely operational capacity or capacity across both on and off-line are becoming increasingly more important. In that sense, these strengths or these factors continue to be our distinct strength in the industry. [Foreign Language] [Translated] At present, we have been quickly making adjustments to our product mix, again, to reflect changing demand conditions. And our procurement strategy that is focused on profitability is also well anchored. And in the second half, we have new trade center openings scheduled. And coupled with the launch of new C2C services, we believe that this will gradually expand our sales base to deliver better performance. While I feel cautious to share detailed numbers at guidance, we do look at the decline in market share in the first quarter as a temporary correction. And with the market returning to more normal conditions, we do expect a gradual recovery in our market share as well into the second half.

[Foreign Language] [Translated] Yes. Question number 3, you did explain that there were changes to the market demand patterns. So rather than preferring higher-priced vehicles, now there's growing demand for mid- to low-priced or even some EV type of vehicles. So have you been reflecting these changes in demand to your actual procurement strategy and product mix? If so, how will this likely affect your ASP or GPU going forward?

[Foreign Language] [Translated] Yes, this is Jung Jin-Moon, Head of the Planning division. Let me address this question. Recently, across the market, together with the overall contraction in consumer sentiment, there's been growing sensitivity towards prices and also maintenance expenses as well. And so as a result, there has been a shift in demand more towards vehicles at accessible price points with lower maintenance cost burden and preference for certain EV vehicles also has emerged as well. So we have been reflecting the changing market trends as well and making adjustments to our inventory management and procurement strategy. First, at the procurement stage, we have been reflecting the turnover or demand-related data by different -- at different price levels, much more conservatively than in the past and adjusting our product mix to be focused more on mid- to low-priced vehicles with stable turnover profile. For EVs, we have been quite selective rather than just increasing volume. We are looking to procure certain EV segments or models with stable depreciation and backed by real demand. In terms of ASP in the short-term, there is a possibility that pricing may stabilize at a somewhat lower level. However, under the current market conditions, rather than focusing on ASP itself, I think managing both inventory turn and GPU together will be much more important. In terms of GPU, at the beginning, there might be some effect from the changes to the product mix. However, because we have reinforced our procurement strategy to be much more strengthened -- stronger in terms of profitability and turnover. If anything, our newly acquired inventory actually has already been showing better margins compared to previous levels. And so right now, given the current environment, I think it is a matter of how agile we react to changes to the market demand and achieve both stable inventory turns and profitability at the same time. And so we have been making adjustments to our operational strategy in keeping with these objectives.

[Foreign Language] [Translated] Yes, we'll move on to the fourth question on marketing. So it seems that in Q1, you were quite aggressive in terms of your ATL marketing spend, including your TV advertisement campaign. So how much performance have you been able to verify so far in terms of the customer reaction, traffic or new acquisitions. Also, will this likely be a one-off expense? Or do you expect similar marketing spend in the future as well?

[Foreign Language] [Translated] Yes, this is Chun Ho-Il, Head of Marketing. Our market activities in the first quarter were not purely targeted at expanding sales in the short-term only. It was a form of investment to lock in peak season demand while also driving a brand traffic. And it was the first time in about 3 years that we have resumed ATL campaign, including the TV advertisement. And so the focus of the campaign was to extend our brand reach while driving new customer acquisition. Based on the indicators that we have seen so far, overall, we think that there has been a positive effect based on the funnel indicators like search -- brand search volume or app or website traffic inflows. However, given the overall abrupt contraction in the overall market itself, we do think that it may take a little bit longer than expected for the advertising campaign to translate into actual conversion. That being said, we have been able to verify the effectiveness of the campaign internally given the customer reaction, also the enhancement to the brand awareness. In terms of marketing spend, I don't think it is likely that we will continue to repeat these types of campaigns every quarter at a similar intensity, including these type of large-scale TV campaign. However, we intend to be flexible between ATL and digital marketing, reflecting the market conditions and our branding strategy with a focus on efficiency of marketing spend, looking at the efficiency -- effectiveness of the campaign particularly in terms of new customer acquisitions.

[Foreign Language] [Translated] Yes, because of the time, we will accept our final question. Any further inquiries, please contact us at the IR team. Question number 5, I understand that there is a stake sale process ongoing to the KG Group. I wonder if there will likely be any changes to your business strategy or financial management policies with the change in ownership. And the market, in particular, is highly interested whether there might be changes to your shareholder return or dividend policy. You did mention that you will elaborate on the mid- to long-term shareholder return policies during the second quarter earnings call. But today, could you at least provide some kind of directionality?

[Foreign Language] [Translated] Yes, this is the CFO, Bae Moo-Geun. Thank you for the question. The current transaction is between the major shareholders, and because the deal has not yet closed, I'm afraid I am limited in terms of how much information I can share in terms of any changes to our strategy or policy direction going forward. At present, we continue to steadily implement our mid- to long-term growth strategy without any particular change. So everything is proceeding as planned. In particular, our new C2C business or My Car platform expansion, new trade center openings. These key parts of our existing growth strategy are also underway according to our original schedule. In terms of financial policies, since our IPO, we have consistently delivered a stable dividend backed by strong cash earning capacity. And we believe that the shareholder returns will continue to be a very important part of K Car in the mid- to long-term as well. That said, because the change in ownership, the transaction is still underway, I believe that once the deal is closed, the newly formed BOD and the company will have to undertake a study -- a comprehensive study of the mid- to long-term shareholder return policy, including dividends on a more comprehensive basis. And so as we explained before, we expect sometime perhaps during the second quarter earnings call that we'll be prepared to provide you with greater details in terms of the direction for our mid- to long-term capital deployment or shareholder return policy post deal closing.

[Foreign Language] [Translated] Yes, this concludes our earnings call for the first quarter for K Car, thank you to all participants for joining us. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]