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.

Good evening, Nihon Yanagi-san. So, thank you, as usual, for the very good first question to start off. Regarding the four-year guidance, I think that's your main question. To understand the four-year guidance, we need to understand Q1 results and how to interpret the real factors within the Q1 results. And as you saw, the Q1 result is roughly 75 billion yen. And within that, as I mentioned, and also addressed in the speech by Ashwani, we were able to mitigate some of the chip supply we are selling from our existing inventory, smartly allocating chips to the profitable region and profitable models, as we discussed before. So we were able to take advantage of that and therefore maintain a very healthy profit in Q1. But also, you know very well in the U.S. market, the performance of my sales finance company in terms of credit loss provision or used car value remarketing were also still very good. So in reality, that $75 billion, if you exclude these kind of one-time items or one-off, about half is what we can say is sustainable going forward in the next few quarters. About half is credit loss remarketing and these other temporary measures. So if you take half of that 75 and multiply that four, that's roughly the four-year number. Plus, you keep the one-time good news in first quarter. That's roughly how to understand this. Now, as Richard mentioned, the raw material, as we showed in the media session earlier, 185 billion negative raw material for four years. of which only $14 billion hit our P&L in the first quarter, which means the bulk of the raw material will hit us later in the year. And the logic of that is very simple, because we had bought a lot of raw material in the past at lower prices that we are consuming now. So it's not hitting us yet. But the later purchased raw material at the higher price will hit us later when we're consuming those in the later part of the year. Even though volume will come back up in the remaining quarters, the impact of raw material will also hit. But we're hoping that our performance in terms of quality of sales plus our new model effect will mitigate and sort of absorb these negative factors. I believe I answered your question. Was there any other one? No. I think, yeah, Ashwani will help us answer the semiconductor.

Thank you. Hello, Yanagi-san. Thank you, Stephen. I think you answered all. Thank you.

Okay. Did that answer your question, Yanagi-san? Yes, excuse me. Thank you for the thorough explanation. That was very helpful. I understand the background now. Just one thing that I would like to add. Semiconductor supply. You said... The other day, it was based on the media report, if I remember. In the second half of the year, the production recovery, compared with the initial assumption, it seems like you are ramping up the production volume more than what you initially expected in the beginning of the year. I mean, it means that the assumption remains unchanged from what you had in the initiation of the year, and the retail volume remains unchanged. But in terms of production volume or the volume of shipment, it changed a little bit.

Thank you for this question. Basically, in quarter one, what we have learned is we are not running our plant with a monthly production volume. We are running our plants as a weekly production volume because the situation is so uncertain that we have to be very flexible and adaptable to the production plan. Now, to answer to your question, we are fully geared up for the second half with the recovery And as and when we get the semiconductor in anywhere in the world, we make the car. So we have full plan to recover in the second half from the production capacity viewpoint. However, it is subject to how much more semiconductor we can get. And really, the challenge Nissan has today is not how many we can sell. The challenge we have is how many we can make. And that's why we are keeping the second half recovery absolutely there. Now you will ask the next question, how much confidence we have. The confidence, number one, is from last year we recovered 50%. Then there were two or three bottlenecks, one unfortunate fire incident in Japan, semiconductor plant, which has recovered and started supplying. So on that side, we see the progress. But on the other side, we have new risks which are coming up. especially with the small semiconductor suppliers, but also now South Asian pandemic. So that's why we do believe that the way we manage quarter one, we will have to manage quarter two, quarter three, quarter four with a very strict discipline between supply and demand and a very high flexibility and adaptability of our production with respect to the sales. I hope it answers the question, Yanagisan. Thank you.

Yes, thank you. It was long, but thank you very much. I'm sorry for taking your time. Yes, City, Yoshida-san, please go ahead with your question. Yes, thank you for the opportunity. I am Yoshida from City Group. The first question, the first question is about this Q, performer basis 2% operating margin is pretty visible now. But in fiscal year 2023, you're shooting for 5% operating margin. Looking at the Q1 result of 2021, is it higher in conviction? Or are you certain about this 5% operating margin? But the Q2 to Q4 assumptions are conservative, it seems like. So do you think that you have a lot of challenges to overcome to reach 5% so you haven't increased your conviction So could you elaborate on how you see the goal for 2023, which is 5% operating margin? And the second question is Renault. Renault in June, was it? They explained about electrification, and they said that battery EV and ice margin parity, they said that around 2025, they would like to hit ice parity in terms of margin. And Nissan originally... In last year, you said around 2030, battery EV and IC will be at parity in terms of profit. That's what I remember hearing you. Within the alliance, you are promoting cost reduction, and is there a possibility to pull it ahead in terms of timing? How do you see the profitability here? Thank you. These are the two questions. Thank you for your question, says Uchida-san. Nissan Next 5% milestone, is this definite now? In our presentation, as I said, every quarter we have been moving closer to the better financial discipline and the net revenue per unit. These are what we are improving every quarter. and q1 results equity method is 3.8 operating margin including china is 4.5 having said that if you look at the other factors raw material price hike i want them to remain one-off and semiconductor impact is another effect looking at these factors fullier guidance we Iniquity basis is 1.5% or 2% or more, including China. That's the full year visibility. So raw material price hike is what we need to closely watch. And there are some that can be priced and some cannot be priced. So we need to handle them smartly. But in terms of our actual capability, we are on par with the milestone of the Nissan NEX because we have the impact of the new cars. So taking these into factors, We can increase the net revenue per unit, and we have a more earning capability. So in that sense, 5% operating margin of Nissan Next is pretty visible. And we intend to achieve it and make Nissan grow again. That's what we are pursuing as one team. And the second question, Renault's electrification. Excuse me, 2030, I don't remember that. I'm sorry. For example, in the alliance, battery strategy is the area where we are aligning the specifications, as I said in my presentation. As we increase electrified vehicles and in order to be ice parity, at least we need to ensure economies of scale within the alliance. So we will align the specifications and part of the engineering cost can be optimized among the alliance partners. Through these efforts, we would like we would like to advance or pull ahead the tipping point of the ice parity. So in that sense, we cannot be definite about the timing at this point of time. But with the current speed of electrification, there are different regions here. In some of the regions, as Renaud said, we may have to attain that point that Renaud has announced within that region. There are differences in the acceptability of the customers. So looking at these factors, we would like to be able to attain the ICE parity as soon as possible. That's our intention. Did that answer your question, Yoshida-san? Yes, thank you. I mean, including this subject, I want to hear more about the long-term vision in fall because you are going to make an announcement about this as well, right? And Uchida-san says, what's the directionality of the electrification will be provided in fall? At least that's our intention. But when it comes to specific ice parity, by when, I'm not sure whether we can disclose it at that point of time. We are still holding discussions within the company. I mean, I can't promise you that I will provide the details in fall about this yet.

Okay, understood. Thank you.

Thank you very much.

Next, Daiwa Securities. Sakomori-san, please. Yes, thank you very much. This is Hakomori from Daiwa Securities. Thank you very much. Can you hear me? Yes, I do. Thank you. My first question is about dividend, the way you think about dividend once again. So originally, for the second half, the auto free cash flow will be positive. And on that basis, you are studying the resumption of dividend. But the situation is changing, so this recovery production will be the big item in the second half. And so working capital, because of the inventory cash flow, may be difficult to generate. So with the technical operation, I think it will be difficult to generate. On the other hand, the profit plan from the second quarter will not be that high. So the free cash flow positive, how confident are you? And what is your thinking on the resumption of the dividend again? So could you update on us? Thank you. That's my first question. Second question about China. Could you update on the situation? Your sales is year-on-year negative, slight negative. And I think there are three possibilities or factors behind it. One is the market condition. Second is your model cycle is difficult. And third is, of course, the supply, the shortage of semiconductor. The demand in China or your inquiry, excluding the semiconductor shortage, what is your current real-term capacity momentum in China? Thank you. Thank you. So let me give you the general direction. And then regarding dividend, if there are additional questions, Stephen, CFO, will update you. and China detail if Ashwani-san has additional information on China. So regarding dividend, as you correctly mentioned, it's not just about profit, resumption, but free cash flow positive and net cash level will have to be considered comprehensively to think of our dividend. And as you correctly mentioned, and since we said last year, the auto free cash flow, we are expecting this to be turned positive in second half, but... As we said, the semiconductor shortage and the COVID-19 re-expansion, this unforeseeable condition is there. And so it is unfortunately difficult to show you the clear direction or policy. But we hope we can resume the dividend as soon as possible. And we are working on that under Nissan Next and with solid execution to have positive free cash flow as soon as possible. So that's how I would like to put it today. And last time when we talked about Nissan Next, we said we will turn free cash flow positive in the second half. And if we can have healthy condition, then we want to resume dividend as soon as possible as the next step. So we have that intention. And the market condition has to be taken into account. And every quarter, we will update and comment to you, share with you our view every quarter.

And my second... Yeah, so I think, Hagomori-san, thank you for the question. And we know that everybody is waiting for Nissan to declare dividend again. So we are, every quarter, very closely evaluating all the factors and considerations, so when that will allow us. And as Uchida-san clearly mentioned... The first step is positive profit, and, of course, we have to get a positive free cash flow, and we have to maintain a certain level of net cash to just make sure we are not subject to volatility and uncertainty, which you know right now is quite a bit because of chip supply, because resurgence of COVID, especially Delta variant, all that kind. All of these uncertainties going on right now is what right now we cannot indicate the timing of the assumption of dividends. Our confidence of second half free cash flow, we have pretty good visibility. We should be able to hit free cash flow positive second half given no more chip supply issues and COVID issues. So we are very much looking at when we can. But at this point, we cannot indicate the exact timing. But we know the expectation and we are trying our best to make sure we can do as soon as we can. Thank you, Steve.

And for China, as you may be aware, in China, it recovered from COVID-19 faster than other regions and enjoying a continuous growth. And for Nissan, in the first half of 2021, with better quality of sales and market share and profit, we are maintaining a healthy level. And in the first half of China, we increased the sales by 18.4%. And going forward, we would like to accelerate this momentum. If we give you the details, the passenger vehicle sales volume increased by 17.8% to 569,462 units. LCVs, 30.1% gross, 130,709 units. And going forward, if you think about the future, our new X-ray will be introduced by the end of July. And on top of this, in the second half of the year in China, for the first time, we are going to introduce the e-power equipped models. And new crossover ARIA will start receiving the pre-orders. So with new value like this, we would like to further increase the presence in China. Having said that, If you look at the latest performance, as you indicated, the semiconductor supply issue has not only impacted Nissan, and in Japan we are seeing an impact. So that's what we need to closely monitor and ensure a healthy operation and maintain the momentum. But as Ashwani-san presented earlier, transaction price compared with the industrial average among the Japanese carmakers... Compared with the drop in the transaction price in the industry, our transaction price is maintained. So we still enjoy a healthy profit in China. Thank you.

I think you shared everything. And one thing which we are absolutely clear, that we are not buying the market share in China, even if we have an age product line-up. So we are going to use this momentum of having the market share, for example, Silphy is the number one joint venture brand sedan car in China in terms of sales. And that's why after achieving a market share of 18.2%, and then when we will start launching the ePower, we will increase the value and we will increase the profitability while capitalizing on the current UIO in China for the existing Silphy customers So I think step by step, what we are going to do is to copy-paste exactly what we have done in the United States in terms of launches and in terms of positioning of the brand as a technology brand. Hope it answers the question. Thank you.

Hakamori-san, did that answer your question? Yes, thank you very much. Moving on to Goldman Sachs, Yuzawa-san, it's yours now. Yes, Goldman Sachs, Uzawa, do you hear me? Yes, we do. Okay, thank you. I have two questions. The first question is a simple one, net income. This has been discussed last time. Because of Daimler share sales and you have a good profitability in China, so compared with operating profit and net income, it seems like the variance is a bit unclear. I don't know. Maybe it's because of the corporate tax. I don't know. Could you elaborate on why net income will stay at only 60 billion yen? That's my first question, variance between operating profit and net income. And the second question earlier, I think, could you simplify? I mean... that you have a real power of thirty bit thirty five billion yen and bite by multiplying by four it gives up one hundred fifty billion in a full year but if the semiconductor supply comes back and as the increase the volume over that border and role material price hike maybe there's an additional impact a romantic about thirty billion or forty billion in them but the assumption of multiplying four by thirty seven billion is too conservative So how do you assess it? What are the risks that are you assuming? Especially across the industry, inventory is small, so maybe the sales are too strong now in reality. So how are you trying to generate the profit and Q2 onwards? That's all from me. Thank you very much. Yuzawa-san, thank you very much, says Uchida-san. Okay, the first one, which is about the net income. Here, CFO Mr. Ma will elaborate on this. And our folio guidance is too conservative. I think that's what you mean. But really, I mean, under COVID-19, it's very uncertain. And if you look at the circumstances in ASEAN and even Japan today, things are uncertain. We shouldn't be over-optimistic. And since we announced Nissan next, when you criticize that we are conservative, as a constant, yes, we look conservative, but we are doing what we promised. That's our motto. So every quarter, we are making progress, making improvement. And in May, we didn't anticipate the stronger market in the U.S. And thanks to this contributor, we came up with a new foliar guidance. So raw material price hike. We need to anticipate other indexes. Then there may be additional impact of raw material price hike And as we increase electrification, many countries are pursuing electrification, and the supply-demand balance may be imbalanced. And on top of this, we will have an impact of COVID-19, and this is resulting in rising prices of raw materials. So this is how we calculated the foliar guidance. The details will be provided by CFO. Ma San, talking about net income and operating profit followed by overall visibility, protection. In order to clarify what we said, I would like to provide details as much as possible. Go ahead.

Sure. Thank you. So it sounds like a good question. And why Q1 net income is positive 1.15 and 4-year is only 60, which in implies next three quarters is average negative. That's what your main question is. Obviously, Q1, you know, is higher because we had a gain from diamond sale, a diamond share sale, so $75 billion. So you've got to first take that out when you evaluate the remaining quarters. Now, as we mentioned earlier, given the chip supply issue, shortage, we are doing very, very big discipline in terms of reallocation of the chips to the profitable models in the profitable markets. And we're trying to balance everything. And this is why you also see the good result in Q1, because we have a good U.S. performance. And given that situation, and you know, we are by segment information you already see, our profit in the U.S. will be at a higher level. So therefore, obviously, we have to pay more taxes That's very obvious. So that's mainly because of the taxes that we have in the next few quarters. On top of that, we obviously, as you know, we issued a big bond structure. So average every quarter, about $11 billion of interest costs on those. And finally, I think in the second half, I still kept a little bit of provision on foreseen things in case we had to do, in case COVID goes further. or in case we had to do more restructuring, I kept a little bit, 10 to 20, very small, in that net income at the very end. So we are cautious. I wouldn't say conservative, but I think this is the best visibility we have given the facts of today. And until the COVID and CHIPS aside clarifies further in the next quarter, we'll come back and explain further about what our look for the remaining year is. You saw a son that's okay.

You saw a son. Hello. I understood about the net income. That's fine for net income. But if possible, could you tell me whether the sales reform is successful in U.S.? Compared with other car makers, your transaction price is better. How do you compare yourself with the industrial average? I mean... Are they both positive? Could you elaborate on the sustainability or profitability of U.S.? Could you compare yourselves with the rest of the industry?

Thank you. Ashwini here. So I will try to give you some of the progress which should build confidence in you. U.S. is not only about the transaction price because at the end, transaction price is the consequence. So there are five things which we have done in U.S., which if you remember one year before when we started the year, last year, we talked about it. Number one is the product power, which is refreshing the portfolio. By 2023, 80% of our U.S. product lineup will be refreshed, starting from Centra, Rogue, Frontier, Pathfinder, Aria, Zee, and many model changes like kicks, number one. Number two is sales power. We had a strong challenge to keep the dealer engagement, if you remember, one and a half years before. This we completely transformed from mass volume incentive-driven business to per unit incentive driven by the pricing power. And clearly we have seen it not only on Rogue, starting from Sentra, but also you can see today Altima, which is not a new vehicle, but clearly we see the dealer engagement. Third is the comprehensive fleet strategy. Now, fleet, we are around 12%, which we used to be 30%, 40%. So we have definitely, because of that, what has happened is our residual value has improved. For example, on Rogue, we have a significant increase in the residual value. And hence, our transaction price is between $32,000 and $33,000, which is higher than our two Japanese competitors, which was not the case six months before. And finally, it comes to the monozukuri, but I'm pretty sure you are not interested in monozukuri. But on the other side, very much important is the dealer engagement. One year before, dealers were, we call it CPO, Confirmed Purchase Order. Dealers were buying 40% to 50% of our production, and rest we were pushing with incentives. Today, 90% to 100% of our production is sold out before we manufacture. So that's a good sign that dealers are engaged, dealers are making profit on sale of new car per unit, and hence, With all these factors which are moving in the right direction, good residual value, good dealer profit, better visibility on the wholesale, and as a result, our transaction price is better. And that's why I said the transaction price of Rogue is better than two Japanese auto manufacturers in the U.S. We have to sustain it. and we have to demonstrate it in coming two years that we can sustain it. That's the challenge Nissan has, and we are determined to deliver that. Thank you.

By the way, this is Suchida. With regards to United States, I would like to add one more thing. Since we took our office in the third quarter when we announced, many people asked when we are hitting bottom in U.S. and when we are recovering, and at the time, We said that we are taking time more than we expected. And after Q2 of last year, we are steadily seeing the results of what we have been doing. So in that sense, we are confident about the recovery in U.S. And the way we manage the operation today will be maintained going forward. And with new car launches, we would like to enhance the corporate value, including the business partners, whether they are suppliers and dealers. As long as we ensure this management style, we will be able to ensure sustainable profitability in the U.S. If we cannot do this, We are unable to hit 5% operating margin in Nissan Next if you look at the business portfolio. So today, Nissan's North American operation is recovering strongly, and we are delivering the results. And going forward, we would like to continue delivering strong results. Kizawa-san, did that answer your question? Yes, thank you. That was very thorough.

Thank you.

We have less than 10 minutes left, so this will be the last question. CLSA, Chris-san, please. CLSA, Chris-san, please. Chris-san does not seem to be there, so Mitsubishi UFJ Morgan Stanley, Mr. Sugimoto, please. Yes, this is Suimoto speaking. Thank you very much. Can you hear me? Yes, I'm sorry the time is short. So if you could just ask one question, please. Yes, okay. I see. Thank you. So the new model launch is my question. If you could review the new model launch. So you have many new model launch planned. And the one you have announced is ARIA, unfortunately with the chip shortage will be delayed. And it will be wintered and Qashqai will be summer as scheduled and hybrid model will be a little late, so added later. So Qashqai hybrid and the one that will be introduced, Frontier, Pathfinder, So do you think you can launch them smoothly going forward? So if you could say whatever you can say, please. Yes, so as far as we can say about model launch, yes, let us explain. The impact of the semiconductor is there, but we are trying to deliver the product time to market the new model with the highest quality to our customers. And so in that sense, semiconductor impact, So let me put it this way. So as far as we can say about the new models going forward, Ashwani would like to explain.

So at first we are keeping all of our new models because we know that the new model launching is the core of our not only recovery but the growth plan because recovery we have done it using the rationalization which is a fixed cost reduction. So now we have to be going forward with the growth. So we are keeping all the new models. Of course, depending on the semiconductors, we are fine-tuning the launches. For example, Qashqai. In Europe, we are going step by step, and we are not launching Qashqai in all the markets in Europe at the same time, and maybe one week, then second week, then third week, then fourth week. So I think we are very smartly managing the launch plan, with respect to the production plan, and I think this will continue this year, but we have no aspiration to delay the full model and wait for the next time. So to answer to your question, we plan to launch all new models on time. However, we may have to do fine-tuning, which we are already doing it. Hope it answers your question. Thank you.

Sugimoto-san, did that answer your question? Excuse me for the limited time. Yes, I'm fine. Understood. Okay, with this, we would like to conclude the session. Thank you for joining the session, and good night.