Mitsubishi Motors Corporation (7211) Earnings Call Transcript & Summary

[Interpreted] Good evening to everyone. Thank you for your participation in the FY '21 results meeting out of your busy schedule. Now the COVID, which has continued since 2020, has been repeatedly epidemic due to mutant strain and has a strike of sales go to supply chain as well as the product sales in addition from the second half of FY 2021, of course increase is due to soaring raw material and logistic costs have become apparent, further more due to the emergence of geopolitical risks triggered by Russia's military invasion against the Ukraine. The business environment, surrounding us, became more uncertain and changed on a daily basis in FY '21. Although FY '21 was a very challenging year, we were able to significantly improve our business performance by delivering the new OUTLANDER, XPANDER and other products to numerous customers and also adapting flexibly to the various environment changes company-wide. And as shown on the slide, our earnings are on the recovery track. Cumulative sales in FY '21 were 937,000 units globally, an increase of 17% year-over-year. Net service increased 40% year-over-year to JPY 2,038.9 billion, while owing in part the tailwind of foreign exchange rates and increase in sales, the effect of curving discounts and the cost reduction effect helped improve consolidated operating profit to JPY 87.3 billion for the full year fiscal. The OP margin was 4.3%, an improvement of about 11 point from the previous fiscal year. Ordinary profit was JPY 101 billion due to an improvement in profit from equity method affiliates and the significant depreciation of the yen towards the end of the fiscal year. Net income after tax was JPY 74 billion mainly due to tax payment and the recording of an extraordinary loss related to Russian businesses. In Q4, we recorded net sales of JPY 622.8 billion, operating profit of JPY 31.4 billion, ordinary profit of JPY 39.9 billion and net income of JPY 29.3 billion. The OP margin was 5%. Please turn to Page 4. The study, you can see explains the factors behind the year-over-year changes in operating profit. For the full year of FY 2021, volume mix and selling price improved by JPY 75.5 billion ((sic)) [ JPY 75.7 billion ] due to increase in sales, mainly in North America, ASEAN, Australia and New Zealand, and the success of measures to improve the quality of sales in each country. Although advertising and promotional expenses increased in line with the plan, with the launch of new models, we strengthened measures to curb incentives throughout the year, which resulted in an improvement of JPY 20.3 billion year-over-year. Cost of reductions and so on resulted in an overall improvement of JPY 2.3 billion because of continued raw material price hikes were offset to some extent by progress in cost reduction activities as planned. And in addition, there were improvements in factory expenses associated with the normalization of operations. The effect of structure reforms improved by JPY 23 billion due to the curtailment of depreciation and indirect labor costs. R&D expenses increased gradually from Q3, but the cumulative total improved by JPY 2.1 billion. Other factors delivered an improvement of JPY 5.4 billion mainly due to an improvement in aftersales business with regard to FX, the yen continued to depreciate resulting in a positive effect of JPY 53.8 billion year-over-year. In total, operating profit in FY '21 increased substantially by JPY 182.6 billion year-over-year. Would you please go to Page 5. The slide you can see explains the factors behind year-over-year changes in operating profit for Q4 FY 2021, volume mix and selling price improved by JPY 15.3 billion year-over-year. Domestic sales were slightly lower than the previous year mainly due to restraints on car supply due to the impact of a semiconductor shortage, and the suspension of some production lines. However, sales volume growth and improved mix and selling prices in ASEAN, North America, Australia and New Zealand were the key drivers of the uptime. Service expenses had a positive impact of JPY 8.6 billion mainly due to the effect of [ curbing ] discounts mainly in North America, Australia and New Zealand. In cost reduction and others, raw material price hikes and increased material costs for enhancement of products were largely offset by cost reduction activities. However, operational losses due to the suspension of some factory lines resulted in an overall deterioration of JPY 4.2 billion. As mentioned earlier, R&D expenses began to increase from Q3 as preparation for launching new models from the next fiscal year onward. The Q3 also followed the same trend. Structural reforms provided an improvement of JPY 4.6 billion year-over-year mainly due to an improvement in indirect labor costs and others. Regarding the foreign exchange rates, the overall trend of yen depreciation continued, resulting in a positive impact of JPY 16.5 billion. In total, even in the Q4 alone, profit increased significantly by JPY 40 billion year-over-year. Would you please turn to Page 6. Now I'd like to explain our global sales volume for FY '21. Our total sales in other regions increased by 17% year-over-year to 937,000 units. In the ASEAN region, our core market, restrictions such as lockdown gradually is due to the policy shift from zero COVID to rid COVID by governments in each country, and the recovery in demand became apparent. From the end of 2021, the sales increased by 32% to 250,000 units from the previous year. In Australia and New Zealand, the market as a whole remained firm due to an increase in the number of households using separate funds to purchase new cars while the various activities were restricted. We increased sales by 35% year-over-year to 97,000 units due to service expansion of models where the impact of part shortage was relatively small with steady supply as well as strong sales of the new OUTLANDER. In Japan, which is our home market, sales increased by 3% year-over-year to 75,000 units as a result of the focus on inventory sales and the strong launch of the new OUTLANDER PHEV, amid limited supply due to a shortage of semiconductors. In North America, the new OUTLANDER, which began full-scale sales in April last year, performed well throughout the year, resulting in 38% increase year-over-year to 156,000 units. In addition, China, which was in the transitional period of the motorcycle, sales fell 23% year-over-year to 81,000 units. Sales in Europe, which is in the midst of business restructuring, decreased by 9%. And the sales in our other regions where recovery is observed, particularly in the pickup segment was 40% to 147,000 units. And then I will explain FY '22. Please go to the next. As I explained earlier, in FY '21, we were able to achieve significant improvements in profitability, but there are many areas that were helped by the tailwind of foreign exchange and the curtailment effect of incentives caused by tight supply and demand. Historically, as a result of trying to cover a wide range of regions and segments with limited development resources. There have been challenges, such as a lack of regular product enhancement or prolonged product line. In the face of the aging of the models, we think that in order to maintain the factories operating rate, there has been a tendency to secure sales volume by using a price appeal. Going forward, we will keep introducing attractive products that incorporate the value of uniqueness to Mitsubishi Motors, and carefully manage the life cycle, have customers fully understand our product value and sell them at the prices commensurate with the value. We expect a challenging and unstable business environment to continue in FY 2022. However, by constantly identifying issues and solving them one-by-one, we'd like to achieve our targets of net sales of JPY 2.29 trillion, operating profit of JPY 90 billion, ordinary profit of JPY 93 billion and net income of JPY 75 billion. Growth in both sales and earnings, excluding ordinary income, which was significantly affected by the exchange rate in FY 2021, as shown in the slide. And we intend to link these to our next midterm management plan. The dividend per share forecast is not determined at this point of time because the business environment is unstable, and changing significantly, and it is difficult to calculate the dividend based on reasonable ground. We will announce it as soon as the rational calculation becomes possible. The factors behind the changes in the operating profit forecast for FY 2022 compared to the previous fiscal year are shown in the Page 9. Regarding the impact of volume and mix and selling price, although the impact of the shortage of the car supply remains, sales will be increased in ASEAN regions, our core market, which has begun moving toward full-scale normalization of economic activities and with the effect of new models launched last year and the improvement in the quality of sales. We anticipate a total positive impact of JPY 59.6 billion. With regard to selling expenses as demand recovers after restrictions are eased. We would like to select areas and the models in which we should invest our resources intensively and assume a negative factor of JPY 8.8 billion from the previous fiscal year. In cost reduction, we will partially absorb the raw material price hike and soaring material costs, including semiconductors through procurement cost reduction activities. However, due to soaring transportation costs and worsening the factory-related expenses, we expect a total deterioration of JPY 72.4 billion under the expenses. On the increasing trend towards the introduction of new models scheduled for this fiscal year onwards, and we anticipate a deterioration of JPY 11.3 billion. In addition, we assume an increase in personnel expenses and the general expenses due to [indiscernible] inflation, and expect a deterioration of JPY 25.1 billion, the impact of FX rate is expected to be an increase of JPY 60.7 billion based on the current rate. Next page, supply chain turmoil, including the shortage of semiconductors is expected to continue for the time being. And there are also logistical prices caused by geopolitical risk. However, in addition to the sales of new models, such as new EV Kei-cars, we will carefully sell attractive lineups that embody the Mitsubishi Motors uniqueness such as the new generation models, ECLIPSE CROSS PHEV, OUTLANDER, OUTLANDER PHEV and XPANDER, we have launched since last year. And our sales target for FY '22 will be 938,000 units globally. Next page, please. In our core market, ASEAN, we'll launch a series of new models, starting with New TRITON after this fiscal year. In FY '22, we'll accelerate preparations to launch new models. First of all, in Thailand we'll introduce a BMC model of XPANDER. We vastly revamped the exterior, interior and powertrain to enhance the product, which we could call almost our full model change. Its rollout in Indonesia made a good start, and we begin sales measures aimed at a successful product launch in Thailand. Such measures will solidify our sales capabilities after TRITON's launch. In Indonesia, we'll introduce models that comply with Euro 4 regulations, which took effect in April 2022. Also, we'll further improve customer satisfaction by strengthening the DX and CX, which we've been actively working on since FY '21, and aim to expand the fan-base through branding initiatives. Furthermore, we'll systematically expand our sales network nationwide to maximize new model sales in the future. In the Philippines, the long-lasting ease of restriction has remained, which is anticipated to drive economic normalization in full scale. We'll focus on the sales and exhibitions in malls as our competitive advantage while striving to see improve sales through digital tools and to continue our sales network expansion. In Vietnam, we'll steadily capture demand and recovery from COVID, and build a brand and the growing market. We'll expand our sales network while improving data marketing, training sales reps, and in an attempt to capture new and loyal customers. In Malaysia, despite anticipated tighter regulations due to another wave of COVID, we'll focus on the mainstream products, such as TRITON and XPANDER, with expected strong demand strengthen our sales network and leverage digital marketing to accommodate new norms. Please turn to Page 12. Next is about our sales strategies in each region. Firstly, it's important to maintain stable profit in developed countries such as Europe, North America and China, where we strive to improve sales quality while complying in a swiftly and flexibly, with the ever-changing environment with focus on global models, such as OUTLANDER and ECLIPSE CROSS. Next is Japan, our home market, where we strengthen our brand and profitability. Driven by the enhanced lineup of EVs, including soon-to-be-on-sale mini EVs and Minicab MiEV, which will resume production in sale. We'll refine our brands with a unique lineup, full of uniqueness of Mitsubishi Motors, increased presence and improved profitability. Oceania is also an important market where we have achieved high profitability. But there is a still room for improvement. With an attractive lineup of global models such as OUTLANDER and OUTLANDER PHEV as well as ASEAN models, including TRITON, will increase our market share, thanks to profitability. Lastly, Latin America, Middle East, Africa. We're being informed that competitors are making excellent profit, leveraging ASEAN-dedicated product. In that sense, we can strengthen sales with higher profitability by taking advantage of our ASEAN products in those regions. Going forward, pursuing growth in ASEAN, and maintaining or even increasing profits in each regions are essential from a strategic perspective in the mid- and long term. We'll communicate closely with each region, and continue sales activity as adapted to the respective local environment. Next, we'll introduce our important measures for FY '22, Mr. Kato, the floors is yours.

[Interpreted] Page 14, please. In FY '20, we charted and announced our midterm plan, Small but Beautiful. And we have implemented structural reforms, and focused on reinforcing environmental technologies and providing a sense of safety through 4-wheel drive technologies as well as off-road performance. Despite heaps of adversity, the performance improved significantly due to results reached in the first year of the structural reforms, and boost sales quality. We achieved a profit target a year ahead of schedule. FY '22 will be the final year of the midterm plan, and we're committed to accomplish what we plan by addressing the identifying issues and improving profitability, which will lead us to the next phase of regional and product strategies. Please turn to Page 15. We have set Phase 1 from FY '20 to FY '22, and been working to strengthen our lineup of eco-friendly cars by leveraging technologies of ourself in Alliance. Up until FY '21, we focused on the PHEV, particular, and launched ECLIPSE CROSS PHEV and OUTLANDER PHEV in sequence. The trend towards decarbonization and electrification will accelerate. But as a pioneer of EVs, we'll see a moment to contribute to the environment. In FY '22, we introduced 3 [ PHEVs], new AIRTREK, which was launched in China in March, soon to be launched Kei-car EV, which was jointly developed with Nissan, and Minicab MiEV of which launch is slated to this autumn. With these new additions, we'll offer to our customers a wider variety of electric vehicles options. Now please turn to Page 16. From this fiscal year onwards, we'll enter a cycle of reinforcing our same product. The upcoming TRITON is our core model aimed at the spearheading efforts in ASEAN's new car market. We've taken every necessary step to be fully ready for production. This fiscal year is important to gain the upper hand in new car sales, and we strive to execute measures to make that happen. Please turn to Page 17. We also think it's important to set initiatives, including a product launch in a promotional campaign in order to encourage customers to embrace Mitsubishi Motors' uniqueness. The response to the new OUTLANDER PHEV, which began selling domestically on December 16 last year, far exceeded our expectations, and won the first place in national domestic plug-in hybrid EV sales in 2021. In addition, the model received a high evaluation in design and equipment, highlighted by winning award, including Technology Car of the Year from Japan Car of the Year, iF DESIGN AWARD in 2022, and the Five Star Award, which is the top award in the automotive assessment in JNCAP. New OUTLANDER first rolled out in U.S. followed by its PHEV model launched in Japan, will be rolled out globally to enhance our brand value for wider audience. As previously mentioned, we believe expanding our lineup for EVs contributes to raising consumer awareness on eco-friendly aspect of Mitsubishi Motors' uniqueness. The Minicab MiEV will be relaunched this autumn after we have proceeded, with trials and demonstrations as many companies. And we keep receiving new inquiries for trials and proposal of potential collaboration showing a great deal of a public interest. We've taken challenges to provide new value to customers throughout the value chain. As we announced its revival last year, Ralliart is our heritage brand. That stream is driving performance in technologies in the top fields of the World Rally Championship in it appears the car rally. All respecting its heritage, we'll evolve the brand further to lead a Mitsubishi Motors' uniqueness and a monozukuri spirit with the best-in-class technologies. We'll refine the brand even more by participating in the Asia Cross Country Rally by team Mitsubishi Ralliart, and selling exclusive accessories and special edition models. Please turn to Page 18. Lastly, the fiscal year is a key year to conclude the current midterm plan. But it probably has to face even greater uncertainty than previous year. The pandemic seems to be gradually subsiding as people manage to cope with it. But parts shortage, soaring material cost and disruptive logistics network are still likely to take some time to resolve. Moreover, there is no sign of reconciliation between Russia and Ukraine anytime soon, and the outlook for Chinese lockdown is uncertain. But we anticipate that ongoing turmoil would come to end, all disturbing the world, and that would eventually drive changes further. Under such circumstances, we'll formulate the next midterm plan. We're determined to identify a direction that we should pursue in a response to carbon neutrality including electrification and digitization as well as a shifted business models by grasping changes in the world. In such an environment, we'll further ensure the upward trend towards a recovery in earnings and further strengthen the management foundation to meet the expectation of all stakeholders. Thank you for your attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]