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Customer LoginsSame-Day Analysis: Kia reports 12.1% y/y fall in 2015 net profit despite 5.2% gain in sales revenues
Kia has reported a 12.1% year-on-year (y/y) decline in its net profit for 2015 owing to sluggish sales performances in key export markets, despite a 5.2% y/y gain in overall sales revenues.
IHS Automotive Perspective
- Significance: Kia suffered a 12.1% year-on-year (y/y) fall in net profit to KRW2.6 trillion (USD2.2 billion) in 2015 despite a 5.2% y/y increase in sales revenues during the period.
- Implications: Kia's financial fundamentals clearly remained under pressure throughout 2015 from rising operating expenses, while weak performances in key markets such as China did not help volumes.
- Outlook: For 2016, Kia is hoping for success in its key overseas markets with the launch of new and updated popular recreational vehicles. However, an expected slowdown in South Korea and the continuing sluggishness of its key export markets in Europe and the Middle East and Africa will place pressure on the automaker's 2016 global sales target of 3.12 million units.
In a preliminary and unaudited financial statement, Kia has reported that its net profit in 2015 fell 12.1% year on year (y/y) to KRW2.6 trillion (USD2.2 billion), compared with nearly KRW3 trillion in 2014. Kia's operating profit during the period fell by 8.5% y/y to KRW2.4 trillion, from KRW2.6 trillion in 2014, owing to increased spending on marketing activities aimed at countering intensifying competition in global markets. Despite the fall in earnings, Kia's sales revenues increased by 5.2% y/y to KRW49.5 trillion from KRW47.1 trillion during 2014. Of this total, Kia's South Korean unit accounted for 23.5%, while its North American and European operations contributed 38.1% and 18.0%, respectively. Other overseas plants contributed 20.4% of total revenues during the period. By segment, Kia's A-, B-, and C-segment models contributed 48.2% of total retail sales (excluding China), recreational vehicles accounted for 34.3%, D- and E-segment vehicles contributed 12.8%, while the remaining 4.8% came from other segments.
As far as volumes are concerned, Kia posted global sales of 2,915,000 units (on a retail basis) in 2015, representing an increase of just 0.3% y/y. Of this total, Kia's South Korean sales accounted for 527,000 units (up 13.4% y/y), helped by the launch of new models such as the K5 and the Sportage, while sales in the United States were up 7.9% y/y to 626,000 units, and those in Europe (including the European Union and European Free Trade Association markets) grew 8.8% y/y to 385,000 units. However, Kia's Chinese sales remained under pressure, falling 4.6% y/y to 616,000 units during the full-year period. Kia's individual sales performances in "other general markets" were as follows: in the Middle East and Africa its sales were down 10.9% y/y to 260,000 units; in Russia they were down 18.7% y/y to 153,000 units; in Eastern Europe/Turkey they were down 30.7% y/y to 33,000 units; in Latin America they were down 2.4% y/y to 160,000 units; in Canada they were down 3.0% y/y to 68,000 units; and in Asia-Pacific they were down 13.0% y/y to 88,000 units.
On a wholesale basis, Kia sold 3,050,000 units globally during 2015, up just 0.3% y/y. Of this total, sales from the South Korean unit accounted for 1,725,000 units (up 1.1% y/y), made up of domestic sales of 527,000 units (up 13.4% y/y) and export sales of 1,198,000 units (down 3.5% y/y). As far as its overseas operations are concerned, Kia's Chinese plants recorded a 4.6% y/y sales decline to 616,000 units during the period. The plant in the United States contributed sales of 371,000 units (up a modest 1.5% y/y), while the company's European unit posted an increase of 4.5% y/y to 338,000 units. Kia's market share in South Korea grew to 28.7%, while its market share in the United States also gained to 3.6%. Its European market share remained unchanged at 2.7%, while the company's Chinese market share fell to 2.7%. It should be noted that IHS Automotive's sales figures for Kia differ from the automaker's official data because of the inclusion of Saipa-brand data for the Iranian market.
Q4 2015 vs. Q4 2014
During the three months ending 31 December 2015, Kia's net profit was down 1.2% y/y to KRW431 billion from KRW436 billion during the same quarter of 2014. Despite the fall in earnings, Kia's operating income rose from KRW501 billion in the final quarter of 2014 to KRW514 billion in October-December 2015. Sales revenues also remained in positive territory during the quarter, up 9.3% y/y to KRW12.8 trillion from KRW11.7 trillion during the comparable period of 2014.
Outlook and implications
Looking at the healthy increase in sales revenues, Kia was undoubtedly helped by the relatively stable South Korean won versus the US dollar during the final two quarters of 2015. The exchange-rate value of the South Korean won against the US dollar gained 7.4% during the period, which had a positive impact. As well as this, Kia also saw an uptick in sales of larger recreational vehicles, which carry higher prices and profit margins. This particular segment increased its share of Kia's total sales, from 30.4% in 2014 to 34.3% during 2015. Operating profit declined mainly because of a 35.8% y/y drop in equity earnings to KRW895 billion, which had a negative effect on the overall results. Kia's financial and other income also posted a mild decline of 0.7% y/y to KRW149 billion. "Other income" generally comprises rental income, foreign-exchange transaction gains, gains on immovable and intangible assets, and any other reversal of provisions made during previous years, among other things. Kia, like its affiliate Hyundai, which reported its annual financial results yesterday, remained under pressure financially in 2015 as its selling, general, and administrative expenses (as a percentage of sales revenues) increased 0.8% y/y, with the ratio of marketing expenditure growing 0.4 percentage point to 4.6%, and warranty expenditure by 0.7 percentage point to 2.8%, while other miscellaneous expenditure rose by 0.1 percentage point to 4%. In addition, the appreciation of the South Korean won during the previous quarters of 2015 and the slowdowns in key export markets hurt the automaker throughout the period, resulting in sluggish results overall.
Kia's global sales volumes are expected to remain largely flat in 2016 at 2,787,633 units, a slight decline of 0.04% y/y, according to IHS Automotive data, as stiff competition from global automakers and the collapse of the Russian market will continue to weigh down on the automaker's performance. Competition is expected to drive increased selling and marketing expenses, maintaining pressure on Kia's operating profit in 2016. However, Kia is expected to offset this pressure with strong performances in its two best-selling markets: the United States and China. Kia is forecast to perform in line with the Western European market's recovery, but a weak performance is expected in its fourth largest market, Russia, where its volumes are forecast to decline 21.2% y/y this year. As well as this, Kia's South Korean sales are also expected to fall slightly, by 0.6% y/y, as only the Morning and the new K7, among the mainstay models, are expected to generate positive sales. According to IHS Automotive forecasts, Kia's positive sales performance in the United States this year will stem largely from the Sorento and the new Cadenza (known as the K7 globally), while Kia is also expected to launch its new hybrid-electric vehicle in the country some time this year. The company's performance in China will depend on the Sportage R, the K5 (known as the Optima globally), and the mainstay K3 model, which should help it offset the current cooling of the market. Kia's Chinese sales are forecast to grow 2.8% y/y during 2016.
Kia's expectation of 3.12 million sales globally in 2016 (on a wholesale basis) is optimistic in our view given the downside risks expected from South America and Russia. Kia is aiming to sell 1.63 million units through its South Korean plants (down 5.5% y/y), consisting of domestic sales of 525,000 units (down 0.3% y/y), and export sales of 1,105,000 units (down 7.8% y/y), while it projects its overseas plant sales at 1,490,000 units (up 12.4% y/y). Kia is forecasting a 5.8% y/y rise in its retail sales globally this year to 3,083,000 units, consisting of 525,000 units in South Korea (down 0.3% y/y), 677,000 units in the United States (up 8.2% y/y), 406,000 units in Europe (up 5.3% y/y), 680,000 units in China (up 10.4% y/y), and 795,000 units in "other general markets" (up 4.4% y/y). According to IHS Automotive predictions, sales of Kia's light vehicles (including passenger vehicles and light commercial vehicles) are expected to reach 2,785,551 million units in 2016 (down 0.04% y/y), while its sales of medium/heavy commercial vehicles are predicted at 2,082 units (down 6.6% y/y).
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.