Kia Motors Q2 Operating Profit Down 72.8% YoY... Still Maintains 'Black Ink' (Comprehensive)

[Asia Economy Reporter Kiho Sung] Kia Motors' operating profit for the second quarter of this year was 145.1 billion KRW, a decrease of 72.8% compared to the same period last year. Although this reflects the direct impact of the novel coronavirus disease (COVID-19), it exceeds the securities market consensus (average forecast) of 76.2 billion KRW. Both Hyundai and Kia Motors recorded profits in the second quarter, which is considered a relatively strong performance amid expectations of losses for most global automakers.

On the 23rd, Kia held the "2020 2nd Quarter Earnings Conference Call" at its Seoul headquarters and announced that the second-quarter results were ▲sales revenue of 11.3688 trillion KRW (down 21.6% year-on-year) ▲operating profit of 145.1 billion KRW (down 72.8%) ▲ordinary profit of 211.4 billion KRW (down 67.8%) ▲net profit of 126.3 billion KRW (down 75.0%).

In terms of sales, global sales recorded 516,050 units, down 27.8% from the previous year. Specifically, ▲domestic sales increased by 26.8% to 161,548 units ▲overseas sales decreased by 39.7% to 354,502 units.

Regarding revenue, despite record-high domestic sales, an improved sales mix centered on RVs and new models leading to an increase in unit price, and a favorable KRW-USD exchange rate, global sales sharply declined, resulting in a 21.6% decrease to 11.3688 trillion KRW compared to the previous year.

The cost of sales ratio rose by 0.9 percentage points year-on-year to 84.8% due to increased fixed costs from operational disruptions at overseas plants. The selling and administrative expense ratio was 13.9%, 1.5 percentage points higher than the previous year, despite company-wide cost-cutting efforts, due to the impact of decreased sales. Consequently, operating profit fell 72.8% from last year to 145.1 billion KRW, and the operating profit margin dropped 2.4 percentage points year-on-year to 1.3%.

Meanwhile, cumulative global sales of Kia up to the first half of this year were ▲278,287 units domestically, up 14.6% year-on-year ▲886,448 units overseas, down 21.8%, totaling 1,164,735 units, a 15.4% decrease overall. First-half sales revenue was 25.9357 trillion KRW, down 3.8% year-on-year, and operating profit was 589.6 billion KRW, down 47.7%.

Joo Woo-jung, Executive Director of Kia’s Finance Headquarters, stated, "In advanced markets such as North America and Europe, dealer operations are currently close to 100%, and lockdowns like those in the first half have been lifted." He added, "We expect no ruthless situations like the first half in the second half, and dealer operations will proceed normally."

However, he explained, "Emerging markets such as Africa, the Middle East, and India are still operating at 50-70%, so difficulties remain." He further noted, "Globally, 94% of dealers are operating normally, so we predict sales conditions will improve in the second half."

Kia plans to secure competitiveness in the second half by focusing sales capabilities on profitable new models and managing production and sales capacity in preparation for demand recovery. Domestically, Kia will actively respond to demand contraction caused by changes in the individual consumption tax rate in the second half by promoting stable sales centered on new models such as the new Sorento, which has enhanced competitiveness with hybrid sales, and the soon-to-be-released new Carnival.

Director Joo said, "We plan to launch the 4th generation Carnival in August," adding, "The domestic sales target is about 60,000 units annually." He also mentioned that in the second half of this year, Kia will maximize the effect of the new Carnival by realizing the waiting demand for Carnival and absorbing demand from competing models.

Overseas, Kia will focus on the sales of Telluride and Seltos, which are maintaining strong sales momentum, and will continue to introduce new models such as the new K5, Sorento, and Sonet (India’s entry-level SUV) to key markets without disruption to sustain sales momentum.

To overcome COVID-19, Kia will also expand liquidity. Director Joo said, "There are various situations where external factors such as COVID-19 could significantly worsen conditions," adding, "As a countermeasure, liquidity is expected to be maintained at about 13 trillion KRW by the end of the year, which is about 2 trillion KRW more than the original business plan."

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