Nissan Motor Ltd S/Adr

Thank you very much for taking time out of your busy schedule to attend Nissan Motors' fiscal year 2021 first quarter financial results briefing. I am Tatsumi, and I will serve as the moderator. The executives present today is CEO Makoto Uchida, COO Ashwani Gupta, and CFO Stephen Ma, and as well as executives in charge of each business area who will answer questions depending on the content. We will first do a presentation followed by Q&A session. and we plan to end at around 7.45 p.m. So first, COO Gupta will explain the first quarter results, followed by CEO Uchida on fiscal year 21 outlook. Mr. Gupta, please go ahead.

Thank you, Tatsumi-san. Hello, everyone. Thank you for joining our first quarter earnings session. This year, Nissan had a good start with very strong results driven by efficient business and financial management, and our decisive actions to adapt to the changing environment. This is a full team effort with every function and individual contributing their best. Let me provide highlights of our performance. In the first three months of fiscal year, our unit sales increased sharply as the industry rebounded from the pandemic disruption of 2020. Both total industry volumes and global Nissan retail sales increased by more than 60%, keeping pace with the industry volumes. Our digitally influenced sales have further increased in quarter one. This is largely attributable to the online inventory search, which allows for ease of shopping before customers visit dealers, given the uncertain supply situation. For starters, we have seen great product momentum and our unit sales improved across the markets. In the United States, Nissan achieved strong sales for new models, which lifted retail volumes by 68%, and North America's sales, including Canada and Mexico, by 70% to 378,000. In our home market of Japan, we are up by 7% to 90,000 units, while our K deliveries were impacted with supply constraints, This was offset by strong performance of registration cards, such as All New Note. In China, where we see strong market recovery, unit sales were up 71% to 352,000, reflecting our robust positioning as a technology brand. In Europe, unit sales were up by 69% as markets began to recover from the closure of retail networks in the first quarter of last year, with 91,000 units sold. And the markets were up. Other markets were up almost 80% accounting for 136,000 units in the quarter. This was an encouraging overall performance given external headwinds, including semiconductor shortages. A central part of our strategy is our rollout of new and enhanced models featuring bold designs and compelling vehicle technology offering, which enable Nissan to improve price points and the customer value. Let's take the rogue in the United States, where our share of the SUV crossover segment in this vehicle size rose to 8.2% for the quarter. Not only did we gain market share, but our product value is recognized more as customer-facing transaction price rose by 22%. This resulted in increase on our net revenue per unit by 28%. This reflects our determination to prioritize profit and value per unit rather than chasing volume. Similarly, in China, we increased our segment share for SILFI while maintaining the pricing even though others reduced. This is because of our differentiated positioning as a strong technology brand. In Japan, net revenue per unit for note rose 31% in quarter one, capturing 12.2% of the segment. This demonstrates that our customers recognize our new technology and design appeal. Building on our model and sales momentum, we are securing healthy pre-orders for our upcoming model launches, such as Nissan Note Aura and All Electric Aria in Japan, as well as New Qashqai in Europe. We are focused on industry leading and segment differentiating models, which deliver on customer aspirations, helping us to move from push to pull strategy without significant discounting. The Infiniti QX55 launched in April is a clear example of our business transformation where we are differentiated by value. To date, we sold 1,500 units with almost no discount. Taken together, these trends signal that we are securing and encouraging customers' acceptance for our new vehicles and the superior value they offer. We are working urgently and diligently to achieve key milestones in Nissan Next. At first, rationalization. Since fiscal year 2018, we have reduced fixed costs by 350 billion yen. As a result, we have lowered our breakeven point from 5 million to 4.4 million units a year. When we look at quality of sales, our net revenue per unit improved by 16% in this quarter compared to FY19. This was supported by our robust product momentum throughout Q1, starting from QX55 in the U.S. this April, followed by the reveal of all-new X-Trail and Silphi Power. In June, we began production of the all-new Qashqai in Sunderland. And the pace of our product offensive picked up during June with the initial 4,000 pre-orders for Aria, in its first 10 days in Japan, along with the reveal of Node Aura in Japan and Infinity QX60. Third, the source seats for future. We kept our product commitment by introducing 11 out of 12 models in 18 months, creating momentum for future. Having done this work, including rationalization of our product portfolio, market focus, and capacity utilization, we are well positioned to reinvest resources in continuing to develop bold new products. We have also most recently set the stage to expand and prepare for Nissan's electric future with the unveiling of EV360. Our full commitment towards zero emission ecosystem in our new EV hub in the UK and expand our electrification strategy. Turning to the financial performance in the first three months of the fiscal year, We have delivered stronger than expected results supported by operational excellence combined with marketing and financial discipline. This slide shows our key financial performance KPIs on both a proportionate basis and equity basis. On proportionate basis, operating profit for the quarter reached 103.7 billion yen with an operating profit margin of 4.5%. We regard this as a good start towards achieving the important milestone of a 2% operating profit margin in FY21 under Nissan Next. On an equity basis, which is without China or JV operations, operating profit was 75.7 billion yen with an operating profit margin of 3.8%. And our free cash flow for the auto business was minus 174.4 billion yen in the quarter. Our net income in the first quarter was 114.5 billion yen. This result was significantly improved compared to last year. However, auto-free cash flow was negative as production volume was low due to semiconductor shortage as well as the seasonality. At the end of the quarter, net cash stood at 744.8 billion yen. We continue to maintain strong levels of liquidity. At the end of June 2021, cash and cash equivalent for auto business was approximately 1.7 trillion yen. Furthermore, we continue to have approximately 2 trillion yen in unused committed credit lines. Turning now to operating profit, this bridge shows the big swing factors between quarter one operating profit this year and last were our marketing and sales performance and our monetary efforts. Our sales performance delivered a positive impact of 193.2 billion yen thanks to an increase in sales volume and improvement in selling expenses, helped our initiatives to enhance the quality of sales. The introduction of new products also contributed in a favorable market environment with a tight demand-supply balance. Monozukuri performance had a positive impact of 43.2 billion yen primarily due to a reduction in purchasing cost as well as an improvement in manufacturing. Foreign exchange was slightly positive But raw materials had a negative impact of approximately 14 billion yen due to continued increase in prices. Other items had a positive impact of 2.8 billion yen. Finally, now refer to this slide for our Q1 financial performance under the equity method. Net revenue improved by 834 billion yen to 2 trillion yen. Operating profit increased by almost 230 billion yen to 75.7 billion yen, representing an OP margin of 3.8%. Our performance during the quarter also resulted in an increase of 322.6 billion yen in ordinary profit versus the period last year. And net income reached 114.5 billion yen, a swing of more than 400 billion yen compared to the same period of fiscal 2020. We delivered a profitable quarter even before the additional positive gain on the sale of Daimler shares, which contributed $76.1 billion to the result. Our delivery on the Nissan Next and our high-quality sales focus have contributed to Nissan's return to profitability during the first quarter. Our teams across operations have gone above and beyond to move us from volume to value, bringing in a real cultural change in the way we do business. Although we anticipate this challenging situation to continue for a while, based on our learning, we will continue to be meticulous about our production and inventory to ensure minimum impact. To summarize, we have a strong beginning to the year. We are determined to continue this momentum with cautious optimism. We are moving to the phase of sustainable growth driven by differentiated, environment-friendly, and customer-focused products and technologies. With that, I will now pass on to our chief executive, Uchida-san, to take you through how to look for the folio. Thank you. Thank you, Ashwani.

Yes. Thank you for joining this session, analyst conference. I am Uchida, CEO of Nissan Motor Company. Let me provide you with the folio guidance for the fiscal year 2021. Back in May, we forecasted consolidated net revenues of 9.1 trillion in an operating profit to come out even and a net loss of 60 billion yen for the full year. Given the results for the first three months, we have revised our full year guidance as follows. Nissan's global sales forecast for the full year remains unchanged at 4.4 million units. or 2.87 million units excluding China. Consolidated net revenues are revised upward to 9.75 trillion yen, reflecting our new forex assumption and better quality of sales. We forecast an operating profit of 150 billion yen, which equates to an operating margin of 1.5%. This is equivalent to more than 2%, including the proportionate consolidation of the results from the joint venture operation in China. It shows we are on track to achieve an important milestone of Nissan Next. Net income is expected to increase 120 billion yen from the previous assumption to positive 60 billion yen. Our Forex assumption from the second quarter onwards is revised to 180 yen to the U.S. dollar and 128 yen to the euro. This slide provides an year-on-year analysis of the operating profit variance for our latest forecasts. The difference between the latest forecast and the one explained in May is noted at the bottom of the graph. Reflecting a new forex assumption, the estimated impact of foreign exchange regulatory and product enrichment costs improved by 80 billion yen to negative 20 billion yen for the year. Given better quality of sales and strong performance of sales finance business and rising used car prices, Our operating profit performance is expected to improve by 105 billion yen to positive 655 billion yen. The expected impact investments associated with new product launches remains the same at negative 150 billion yen. Nissan continues to make necessary investments in our future growth. We expect business risk to have a negative impact of 185 billion yen, which is larger than the previous guidance due to further increases in raw material prices. As I have said, Nissan faces significant business risks for this fiscal year. Despite these challenges, the company is making steady progress in implementing the Nissan Next business transformation plan. Given the momentum in the first quarter, we decided to revise our earnings forecast upward. We are determined to make the business plan for the year and will continue working as a team to transform the company to realize a 5% operating margin in fiscal year 2023, the final goal of Nissan Next. It has been one year and eight months since I became CEO. Over this period, we have been working hard to make Nissan shine again. We are already seeing encouraging changes within the company as well as in the voice of our customers. What we need now is to show a clear vision beyond Nissan next internally and externally for Nissan. We need to demonstrate how we will contribute to society and transform Nissan into a company that is on track with sustainable growth. I am going to steer the company to realize this. As I said during our annual general shareholders meeting in June, we are currently developing Nissan's long-term vision for the next 10 years and beyond along with a clear roadmap to make this a reality. Electrification is one of the pillars of our long-term vision and we will provide more details on our road ahead this fall. The speed of electrification and customers' specific needs vary significantly by market. Our role is to develop a vehicle strategy that can be adapted to different local conditions. Nissan's electrification plans are taking this into account with our offering primary driven by two technologies, EV and e-power. Following the all-new EV crossover area in early fiscal year 2022, Nissan will be launching an all-new battery electric K-car that we have jointly developed with Mitsubishi Motors. We also recently revealed our plan to produce a new generation crossover EV for Europe in the UK earlier this month. It is our intention to continue enriching Nissan's EV offering to meet diverse customer needs around the world. In parallel, we will soon be offering our e-power system globally starting first in China and Europe this year. This expansion follows a strong success for e-power in Japan. Nissan is also seeking economies of scale and further manufacturing cost reductions by aligning vehicle specifications and increasing parts communization within the alliance. We also continue to drive technological innovation to increase our competitive edge. This can be seen with the latest production processes which must keep pace with the sophistication of new vehicles. Our next-generation EVs will be produced by Nissan's Intelligent Factories. We are introducing the first Nissan Intelligent Factory at our Tochigi plant, where we will also be producing the all-new Ariya. Nissan is likewise strengthening our global production sourcing capabilities with our long-term supplier strategy. We recently announced our EV360 plant, which represents the future of monozukuri, the combination of local production for local consumption to support global carbon neutrality. Our new EV production hubs in the UK will be the first of several that will drive Nissan's initiatives in these areas. It is important to deliver new value beyond mobility to support the adoption of electrified vehicles. To date, Nissan has signed 137 agreements under the Blue Switch program in Japan to help society harness the many benefits of EVs. We envision a circular economy for batteries where EVs can serve as mobile power storages and used Vehicle batteries can be recycled for the second life through Nissan's 4R energy services. By bringing used batteries and renewable energy together, we expect to increase our collaboration with the energy sector. Nissan as an EV pioneer aims to continue contributing real-world technologies with our innovation know-how built over many years. As we have discussed today, Nissan is not only working on its short-term recovery, but also building towards a long-term vision with wide-ranging initiatives to achieve carbon neutrality. The basic premise for this long-term vision is our corporate purpose, driving innovation to enrich people's lives. Nissan is poised to take on challenges to make itself what customers and society see as essential. We have had to tackle, and thank you for your attention. Now we would like to take questions. If you have a question, please push 01. And if you want to cancel your question, please push 02. Please give us the name of affiliation and identify yourself and ask a question. In order to entertain as many questions, please limit the number of questions to two per person. Thank you for your kind understanding. The first question is POFA, Nihon Yanagi-san. Nihon Yanagi-san, please. Yes, thank you for the presentation. I am Nihon Yanagi. I have a couple of questions. This is the first question, so this will be the question about the results that you announced. The first question. is semiconductor supply issue. With regards to the impact of supply issue, could you elaborate on this point, if I may? After first quarter, what will be the production level? Earlier in the presentation, the press conference, second quarter will be hit harder than Q1. That's what you said during the press conference. So what's the visibility or projection of the semiconductor supply impact? In addition to this, foliar guidance, The volume to be shipment, could you give us more clues on the volume to be shipped? What's the inventories now? In the end of June, it's 380,000 units in inventory in slide number 26. In the end of March, you used to have 550,000 units. So in the end of this fiscal term, this will come down to 550,000 units, or is it in between the two numbers? Could you elaborate on the number of vehicles to be supplied or shipped? That's what I want to know. And the second one, looking at the full year guidance, after Q2, the profit seems to drop largely compared with what we see in Q1. If we make a mechanical calculation, what are the factors that you have considered? If you give us the numbers, I will appreciate it, but it can be qualitative as well. Compared with Q1, the sales volume will increase, right? But operating, the total of three quarters will be equivalent to Q1. What are the factors behind this full year guidance of the operating profit? Could you elaborate? Thank you very much. Thank you for the question. Yes, starting with the full year guidance. First quarter, I guess the result of first quarter, the full year guidance operating profit looks smaller. I think that's your question. The Q1 result was strong, and there are three reasons behind this. Semiconductor supply issue, we used inventories that we had in the initiation of the fiscal year, and strategically, we allocated the chips to the highly profitable models, and as a result, we minimized the impact of the supply shortage. The second one is sales strategy. Quality of sales is better. As a result, net revenue per unit, as we explained, increased by sixteen percent compared with the past year every quarter this number has been improving and favorable market especially u.s market used car prices are rising and sales finance profit is improving and forex assumptions are the big impact on the positive side but this will not continue in q2 q3 and q4 there are we need to look at different factors here first In your first question, you asked about semiconductor supply shortage. The impact of supply shortage, as you said, because inventory is very low at 380,000 units, Q2 will be the hardest hit because of semiconductor supply shortage. So we will continue minimize or mitigate the impact of semiconductor supply. That's one. And U.S. market, sales, finance, profit, used car prices are rising. Today, I wouldn't say they are all one-off, but because of the supply shortage semiconductor, we used to have a big contributor in Q1, but will we enjoy the same impact for the Q2 onwards? No. A raw material price hike, and this impact is the largest. In Q1, we used inventories of the raw materials, So we were able to minimize the impact of the raw material price hike. So this impact of raw material price hike will be affecting after Q2. Looking at all these factors, we have to say that COVID-19 still continues and semiconductor supply shortage, ASEAN, which is a source of the semiconductor, we see a concern here as well. So we shouldn't be over-optimistic with the foliar guidance. and that is why we are forecasting 150 billion in operating profit. Okay, as you said, to the extent that we can disclose, we will provide you with further details by Stephen. Stephen will give you further details. I'm not sure whether I am answering all your questions, so let Stephen say. Okay, go ahead.