Hyundai Motor's 1Q Real Operating Profit Declines Due to COVID Impact... "Liquidity Management Top Priority" (Comprehensive)

[Asia Economy Reporter Su-yeon Woo] Due to demand contraction and production disruptions caused by the novel coronavirus infection (COVID-19), Hyundai Motor Company's real operating profit in the automobile sector for the first quarter of this year decreased by 8% compared to the previous year. Although the overall operating profit appeared to have increased due to the exchange rate effect and one-time gains related to the establishment of the Aptiv joint venture, a clear decline was observed when examining the actual profit and loss of the automobile sector.

On the 23rd, Hyundai Motor announced through its 2020 first-quarter earnings conference call that it recorded sales of KRW 25.3194 trillion and operating profit of KRW 863.8 billion. These figures represent increases of 5.6% and 4.7%, respectively, compared to the previous year. Net profit for the same period was KRW 552.7 billion, down 42.1% year-on-year.

Global sales in the first quarter were 903,371 units, a decrease of 11.6% compared to the previous year, but showed resilience relative to global automobile demand. The sales mix improved with a focus on sport utility vehicles (SUVs), with the SUV sales ratio rising by 4.9 percentage points year-on-year to 42.9%.

Profitability was secured through new car effects continuing since the end of last year, favorable exchange rates, and an SUV-focused mix improvement, but the 'COVID-19 storm' could not be avoided. Operating profit for the first quarter increased by 4.7% year-on-year to KRW 863.8 billion, but this was largely influenced by a one-time gain of KRW 106 billion from the establishment of the Aptiv joint venture.

Excluding one-time costs, operating profit in the automobile sector for the first quarter was KRW 464 billion, down 8% compared to the previous year. Net profit for the same period fell sharply by 42.1%, reflecting the weakening of earnings from affiliates due to COVID-19 impacts and depreciation of emerging market currencies.

Hyundai Motor Company Q1 2020 Operating Profit by Division

Sang-hyun Kim, Executive Vice President and Head of Hyundai Motor's Finance Division, said, "In a situation of unprecedented uncertainty due to the spread of COVID-19, a rapid V-shaped recovery is not expected to be easy. Our top priority will be securing liquidity for stable business operations, expanding production flexibility, and minimizing profit and loss disruptions through inventory management."

Hyundai Motor currently has secured cash liquidity of KRW 11 trillion and has declared 'securing liquidity' as the top management priority to prepare for emergency situations caused by COVID-19. Kim stated, "Even assuming a sharp decline in global demand after April, liquidity management is possible until the end of the year. Based on stable cash holdings, we are securing additional liquidity and reviewing investment priorities in preparation for a prolonged crisis."

Furthermore, Hyundai Motor expects that the decline in overseas market sales due to the anticipated demand cliff will be offset by strong domestic market performance. The GV80, G80, and Avante models released this year have shown high popularity from pre-orders, and the current backlog of undelivered vehicles, including these new models, reaches 120,000 units.

Ja-yong Koo, Managing Director in charge of Hyundai Motor's Investor Relations, said, "Regarding exports from domestic plants, adjusting export volumes will be inevitable in the second quarter due to expected demand decline. We will operate domestic plant production focusing on the domestic market and concentrate on producing vehicles with strong sales to secure profitability."

In particular, Hyundai Motor aims to improve profitability by increasing sales of high value-added products such as the Grandeur, GV80, G80, and Palisade. In the second half of this year, the company plans to smoothly prepare for the launch of new models such as the new Tucson, Genesis GV70, and Santa Fe to maximize the new car effect.

However, the impact of COVID-19 is expected to continue into the second quarter, making sales declines and export volume adjustments unavoidable. In the U.S. and Europe, significant demand decreases are anticipated due to shortened dealer operations and forced retail store closures, while in China, prolonged export sluggishness is expected to hinder recovery to normal demand levels. The situation is similar in India, Brazil, Russia, and Middle Eastern markets.

To address this, Hyundai Motor plans to implement optimized response measures for each overseas subsidiary and recover performance through efficient cost management, stable incentive operations, and expanding supply focused on new cars and SUVs. Kim said, "We are undertaking various activities such as bond issuance, maximizing the use of credit lines, and opening additional lines to secure liquidity for each overseas subsidiary. To normalize management early, we will review the status of stakeholders including dealers and partners and implement direct and indirect support measures such as dealer financing support in collaboration with financial institutions."

This content was produced with the assistance of AI translation services.