Mitsubishi Motors Corporation (7211) Earnings Call Transcript & Summary

Good morning, everyone. I am Kato, Representative Executive Officer and CEO of Mitsubishi Motors Corporation. Thank you all for taking valuable time out of your busy schedule to attend our Ordinary General Meeting of Shareholders. In accordance with the articles of incorporation of the company, I will preside over this general meeting today. First of all, I would like to express my sympathy to those who have been infected by the new coronavirus and their families, friends and colleagues. As stated in the document distributed to you today, this general meeting is going to be held in a different way from the meetings we had in the past in order to prevent the spread of COVID-19 infection. Therefore, we have shortened the proceedings of this meeting, giving primary consideration to the prevention of the infection, and we will finish the meeting in about 45 minutes. I apologize for this major inconvenience, and I would appreciate your understanding of the situation. Also, I would like you to note that the proceedings of this general meeting from the beginning to the end will be made available to public on our corporate website, so that a number of our shareholders, who are not physically attending this meeting, can also watch the proceedings. I hereby declare the opening of the 51st Ordinary General Meeting of Shareholders of Mitsubishi Motors Corporation. Please look at a nearby monitor screen. Today, the company's directors, except those who are on this stage, are joining the meeting from another venue for preventing the spread of COVID-19 infection. Also, Mr. Sono, one of our directors, is not present in this meeting due to various reasons. I ask for your understanding of the situation. I, hereby, submit as the matters to be dealt with at this meeting, the proposed matters stated in the notice of convocation as described in the notice. It has been confirmed that the requirements are met for all the matters proposed today to be voted on. If you have any comments or questions, please save them until after the audit report from the Audit Committee, the matters to be reported and the matter for resolutions have been presented. This meeting will be conducted in Japanese. We will take comments or questions from shareholders in Japanese only. If a foreign shareholder is accompanied by an interpreter, the Japanese translation by the interpreter will be accepted as the shareholders' statement. Before the business report and other reports and the deliberation on the proposed matters, I ask that the audit report from the Audit Committee be provided as well as the audit results of the consolidated financial statements. I would like to ask Shiraji, an Audit Committee member, to make the report.

This is Shiraji, the full-time auditor to the Audit Committee and trusted by the Chairperson of the Audit Committee. I would like to report on the result of the audit conducted by the Audit Committee for fiscal year 2019. The Audit Committee of MMC deliberated on the FY 2019 audit report and compiled the audit report. The audit method used by the Audit Committee and the results are shown in Page 45 to 46 of the notice of calling and Page 27 of the audit reports of the consolidated financial statements disclosed in our website, and no issue was observed. First, we acknowledge that the business report and the annex detail statements fairly present the status of the company in conformity with the applicable laws and regulations and the articles of incorporation of the company, we found no unfair act or material act in violation of laws or ordinances and the articles of incorporation with respect to the performance of duties by the directors and executive officers. We acknowledge that the Board of Directors' resolutions, with respect to the internal control systems, are appropriate. Also, no suggestion is required with respect to the Director's performance of the duties concerning the internal control system, including internal control over financial reporting. With regard to the internal control of our financial reporting, reported at the time of compiling the audit report that the evaluation and audit of the subsidiary in the Philippines were partially incomplete due to the impact of the preventive measures against the spread of COVID-19 in the Philippines, but no material defects were observed. However, as of today, the evaluation and audit have been complete and no suggestions are required. Next is about our consolidated and nonconsolidated financial statements. As stated in Page 43 to 44 of the notice of calling and Page 24 to 26 of the audit reports of the consolidated financial statements disclosed in our website, they were verified by the accounting auditor. We also acknowledge that the audit method used by the accounting auditor and the result are appropriate. Lastly, we report that each agenda and documents submitted to this general meeting are in compliance with the laws and ordinances and the articles of incorporation, no suggestion required. This concludes my report.

Next, I report the fiscal year 2019 business report, consolidated and nonconsolidated financial statements as described in Page 22 to 42 of the notice of calling and on our website. Now I would like to submit the matters to be resolved. I submit a proposal regarding the appointments of 15 directors. The detail of this matter is described in Page 7 to Page 20 of the notice of calling. The terms of office of the 15 current directors terminate at the close of this Ordinary General Meeting of Shareholders. Therefore, the company proposes the appointment of 15 directors as written in the notice of calling and would like to seek your approval. So this is the end of the proposal for today.

We are now going to proceed to the question-and-answer session. First, I would like to address a few topics that drew the interest of many of our shareholders in the questions we received in advance. After that, I will open the floor to questions from the shareholders who are present today. [Operator Instructions] Also we may refrain to answer questions that are irrelevant to the purposes of this general meeting. Prior to this general meeting, the company received more than 1,300 questions from our shareholders. The breakdown of the questions is shown on the monitor screen. Among them, we will address 4 topics on which we receive particularly many questions. First, we received a number of questions about the company's product and management strategy. Given that we posted a loss for the fiscal year 2019 and that we expect our business will still be in a tough situation in the fiscal year 2020, many shareholders are especially interested in how we will turn around our business and realize future growth. Therefore, I would like to explain about this topic first. In our midterm business plan for the period starting in the fiscal year 2017, we aimed to increase sales in so-called mega markets, such as Europe and China. We reinforced our products, sales network and human resources to achieve the same, and eventually, our fixed cost in the fiscal year 2019 increased by about 30% from the fiscal year 2015. Even though we increased sales volume in the mega markets, we have not yet achieved the level of profit we expected, which, combined with the increased fixed cost, has made it difficult for us to secure profit. Under such circumstances, we made a shift in our policy to small but beautiful in the second half of the fiscal year 2018, under which we will start an extensive structural reform in the fiscal year 2020. First, our regional strategy sets us in -- as a core region, and we aim to increase sales in the region where we can offer our core products. We will gradually reduce our commitment to mega markets. Our product strategy sets pickup trucks and truck based SUVs and MPVs, which are our main products in ASEAN as our core products, and we will strengthen our existing products and those in the pipeline. According to the strategy, we will cut costs in a variety of areas, including capital expenditure, R&D, advertisement, indirect labor and general expenses to reduce fixed cost by more than 20% over 2 years from the level of the fiscal year 2019. We will start implementing these cost reduction measures as soon as possible, and we will do our best to realize the effect of these measures as soon as possible. Even in a very tough situation, we will look ahead into the future and move forward, making a full-fledged transition to selection and concentration, which we promote under our new policy, small but beautiful. Next, I would like to explain about our dividend and stock price, which is a topic receiving the second highest number of questions. First is about dividend. Given that the company posted a net loss in the last fiscal year and that we cannot yet foresee when and how the COVID-19 will be brought under control, we carefully consider the need for immediate cash flow. As a result, it is extremely regrettable that we have to suspend our dividend payment for this fiscal year, as we believe that securing sufficient cash and deposits in hand as much as possible now will help us make return for our shareholders in the mid- to long term. We deeply apologize for the decision and would sincerely ask for your understanding. Also, we have received comments that it is hard for our shareholders to know about the suspension of our dividend, as there is no reference to it in the notice of this general meeting. I would like to apologize for this as well. As for the dividend outlook, given that we cannot even disclose our earnings guidance for this fiscal year today, we hope to communicate our dividend policy for the fiscal year 2020 to our shareholders when we announce our earnings guidance. Next is our stock price. We understand that a company's stock price is determined by the stock market. This means we think that our stock prices compounded from many factors, including the harsh environment surrounding automotive industry, impact of COVID-19 and investor's funding trends as well as our business performance. From this fiscal year on, we will advance the drastic structural reform through allocating more management resources to ASEAN region, significantly reducing our fixed costs and promoting selection and concentration of our production and sales resources. Next, I'd like to answer to the future alliance with Renault and Nissan, which was the fourth most asked question. The automobile industry is in the major turning point. In addition to that, the novel coronavirus is changing significantly the current management environment of the automobile industry as well as the society of the industry it's in. As a result of the discussion with Renault and Nissan on how to respond under the situation as an alliance, we announced the leader-follower scheme at the end of May, which will be adopted to make the alliance functions in a more efficient manner. From now on, each alliance partner will leverage on their own leader domain and geological strength to support business of other alliance partners. For us, for geological strength, MMC will be the leader in ASEAN and Oceania regions, and we will also be the leader in PHEV system for C&D segments. In specific terms, we have started a discussion on potential collaboration with Nissan Indonesia and the Philippines. Lastly, I would like to answer 2 questions about the number of directors and compensation for executives. Some shareholders commented that we may have too many directors. Before answering to that question, I would like to explain our basic concept for consisting the Board of Directors. As a bridge between the executive officers that execute operations and directors for supervised businesses, MMC proposes that the Chairman and CEO to be also directors because they are the top of the internal management team. In order to ensure effectiveness of the auditing by the Audit Committee, we also appoint one candidate for Director as the Audit Committee member. MMC also complies with the corporate governance code. Therefore, we consider points stipulated in the code, namely appointing at least 2 independent outside directors. The Board of Directors shall have a good balance of expertise and have an appropriate scale to ensure diversity. And appoint at least 1 Director who has financial accounting and legal expertise as an Audit Committee member. We've also taken into account another point. That is, in general, it is said that it will be desirable that 1 sort of directors are independent outside directors. Moreover, Nissan and Mitsubishi Group have injected the capital as our major shareholders. Therefore, the composition of the shareholders has been reflected in forming the Board of Directors. Due to the aforementioned reasons, we have the current structure of 15 directors, which includes 2 directors concurrently holding the representative executive officers, one non-executive in-house director concurrently serving as the Audit Committee member and 6 independent outside directors, 3 outside directors from Nissan and 3 outside directors from the Mitsubishi Group. We believe that this balances out the expertise, diversity and independence of the Board of Directors and response to the situation MMC is in. Also, having 4 female directors add diversity to the composition of the Board. We will consider various points, including requests from shareholders and stakeholders and also to consider clarification required by the Board. And we will continue to strive in maintaining and improving the effectiveness of the Board. Lastly, some shareholders commented that executives' compensation should be reduced since the company is not making profit. I would like to answer to this point as well. As the business environment increases in severity, the decline in revenues was highlighted by the external factor, which is the spread of the novel coronavirus infection. The FY 2019 landed in the red ink, which led us to decide not paying the dividend for the first half. Directors, executive officers and the corporate officers take this matter seriously, and we have decided to reduce the compensations. In addition to reducing the performance-linked compensation to 0, directors, executive officers and corporate officers will reduce their base compensations by 20% to 30%. With this arrangement, the largest reduction rate to the total compensation expected under the ordinary time among executive directors and officers will be 45%. We have also decided that non-executive directors, including outside directors, will grant only return 10% to 25% of the total compensation. All executives are determined to make every effort to restore the performance and to ensure for future growth. We would like to solicit your understanding in advance. This concludes our explanation regarding the questions we received from our shareholders in advance. Now I would like to take questions from the shareholders who are present today. [Operator Instructions] This gentleman in the second row, please. Number 7.

Thank you very much for holding the shareholder meeting. Before the question, last year, you launched eK Cross, and I'm happy that it's been successful so far. And then I'm driving eK Wagon since fall last year. I like it. So I hope that I can talk with you about that afterwards. Let me move on to my question. You talked about the directors' remuneration. You said you will reduce the amount and the range of reduction. I would like to ask that you reduce the range -- the reduction or you take away that reduction because maybe it's necessary to reduce the compensation considering the automobile industry, but pertaining to coronavirus infection. So I think like the executives, like here, should spend money to stimulate the economy inside the company. So I would like the management to consider canceling this proposal, decision of reducing your remuneration so that you can spend more money.

Okay. Thank you very much for your question, and thank you very much for driving our eK Cross. So the point -- your question is to reduce the range of the reduction of our compensation and you said that we should use that money to stimulate the domestic economy. And the reduction of our director remuneration, this is partially a responsibility of the leadership. But due to COVID pandemic, like, we needed to stop our production lines and we needed to make a 10% cut of the salaries of the workers involved. And this time, we have suspended our dividend. And then, I think because of that, we have caused inconvenience to our shareholders. So I think we all need to share the pain. And under such circumstances, I'm not sure whether it's a good idea that we -- only the directors receive the full amount of remuneration and not sharing the pain with the rest of the people. So that is the background to this decision. And the economy is expected to decline further. And considering that, I think it is important to stimulate the economy. So your question and comments will be well taken. I would like to consider that so that we can somehow utilize that. And as a company, we would like to seek what kind of activities or actions we can take to stimulate the economy. So now I would like to take the next question. [Operator Instructions] As there is no one else who wishes to ask a question, I would like to stop the Q&A session and proceed to voting of the proposal.

Now I would like to proceed to the vote on the proposal. The vote on the proposal, election of 15 members of the Board, if you approve this proposal, please acknowledge your proposal -- approval by applause. Thank you. [Voting]

The proposal has been approved as originally proposed by a majority of shareholders present, including those who exercised their voting rights by voting form, the Internet vote or proxy vote. With that, we have fulfilled all the purposes of today's meeting. Thank you very much for taking precious time out of your busy schedules. This concludes the 51st General Meeting of Shareholders of Mitsubishi Motors Corporation. Now I would like to take a moment to introduce newly appointed directors. So please look at the right side of the stage. I would like to introduce one by one. So Mr. Yoshihiko Nakamura, newly appointed Director; Mr. Joji Tagawa, the newly appointed Director; Mr. Takahiko Ikushima, the newly appointed Director. Executives of MMC are determined to make every effort to improve our corporate value. We continue to seek your understanding and support. Thank you very much for taking the time out of your busy schedule to attend our Ordinary General Meeting of Shareholders. [Statements in English on this transcript were spoken by an interpreter present on the live call.]