Nissan Motor Ltd S/Adr

Ladies and gentlemen, we would like to start the fiscal year 2021 first half of financial results of Nissan. Thank you very much for joining us in a great number. Thank you. COVID-19 pandemic is on the decrease, but from the point of view of preventing the further infection, we used the internet conference system as well as live streaming for this presentation meeting. First of all, we would like to introduce to you the participants on the podium. COO, Mr. Ashwani Gupta. And our CFO, Chief Financial Officer, Mr. Steven Ma. It is a great pleasure that we have this meeting. Mr. Gupta will make the presentation regarding first half of financial results as well as the annualized outlook. Mr. Gupta, the floor is yours.

Thank you, Hamaguchi-san. Hello, everyone. Thank you for joining our earnings session for the first half of fiscal year 2021. Let me first start by apologizing to our customers for the inconvenience caused by delayed deliveries due to the impact of the semiconductor shortage and the pandemic. We thank you for your patience and understanding. I would also like to pay tribute to Nissan's employees around the world who have worked through such a hugely challenging period while always keeping their focus on the customer. Their hard work and resilience positions us strongly in the face of ongoing challenges keep us focused on delivering value to customers and being well placed to emerge from this period as a stronger company in line with our Nissan Next transformation plan. Let me start with an overview of our business performance. As you may be aware, in the second quarter of fiscal year 2021, the whole automotive industry saw an ongoing adverse impact from continuing pandemic disruption. And the supply chain volatility dominated by the global semiconductor shortage. As a result, the total industrial volume declined 12% year on year. The impact we have felt at Nissan was in line with the global trend, with our overall quarter two retail volume declining by 10%. On the positive side, despite these challenging headwinds, Nissan delivered a strong performance in Q2 in our key markets of the United States, China and Japan, with our unit sales outperforming the average. However, we have felt the semiconductor impact most strongly in our European markets, where pandemic disruption has continued to distort demand, impacting our retail volume which has fallen 12 points below the market average. This is due to prioritization of product mix and market mix for the business community. Because of challenging external market environment, the reported unit sales performance was negatively impacted even if we outperform the industry as a whole in key markets. In Japan, we saw year-on-year sales decreased by 11.6% to 106,000 units, by 9.2% in China to 354,000 units, and by 8.6% in North America to 274,000 units. In the most challenging environment, Europe saw a year-on-year decline of 31.3% to 81,000 units. Our remaining markets saw a stronger Overall year-on-year performance, growing sales by 8.6% to 139,000. I am pleased to report that our newly launched models have been well received by our customers. For instance, the Aura in Japan has received 21,000 orders year-to-date through to October, and the Qashqai in Europe has received 58,000 orders over the same period. In United States, our new Pathfinder and Frontier products, both of which started sales this summer, are helping us to grow market share. The Pathfinder segment share has grown to 4.7% and increase of 1.7 points. The Frontier share is now at 9.9%, a leap of 5.3 points. Models launched earlier during the Nissan Next transformation plan have also showed continuous positive momentum after being well received by our customers. In quarter two, the note and the kicks in Japan performed well with the note growing market share by 2.9 points and the kicks by 3.6 points. Similar growth was seen in the United States with the Rogue and the Sentra. The Rogue grew share by 2.3 points and Sentra by 1.8 points. In China, our Silphi grew at an impressive 4.5 points over the quarter, and in India, the Magnite at 4.4 points. These trends show how our products are being well-received by more customers, and that momentum is building in the business. This momentum is founded on our products capturing customer needs market by market. Our commitment to invest in enhancing our products, technologies and manufacturing facilities has continued strongly through the quarter. The new Nissan Z was unveiled in August in United States paying tribute to the original Z through its iconic styling. The new Z continues our legacy in sports segment. As we drive forward with our focus on electrification, we are bringing to the market the new K-EV, an all-new electric mini-vehicle scheduled to be launched in early FY 2022. Again, Nissan is the first to enter K-segment which occupies 40% of the total Japan market with a battery electric vehicle and most important state-of-art driver assistance technologies like ProPILOT. We have also accelerated the rollout of our e-power technology in China. With our joint venture partners, Dongfeng Motors, we will begin e-power offerings in our products, starting with the Silphy. As we continue our product momentum, we are simultaneously making our factories greener and smarter. We announced our first EV360 hub in the UK. representing an investment of up to £1 billion in a unique electric vehicle manufacturing ecosystem. Last month, we have introduced our first Nissan Intelligent Factory at our Tochigi plant, a smart factory which will manufacture next-generation vehicles using innovative technologies. All with the aim of supporting our commitment to carbon neutrality. The first half of the current year also endorses our focus on customer excellence and demonstrates strong acceptance of our products. The human-centric innovations we pursue to enrich people's lives are definitely resonating with our customers, be it electric technologies like e-power or e-force or driver assistance technologies like ProPilot. On top of it, It is gratifying to see appreciation for our products and services by prestigious third-party organizations. In quarter two, approximately 20% of our sales were driven through digital platform for the sales conversion, providing seamless customer journey with an increase of six points than quarter one. We have expanded this digital online sales initiative to more markets and we are glad to see good customer receptivity. Dealer engagement is an additional priority for us, with good products and strong collaboration helping to motivate our key sales partners. It is evident that the combination of customer experience driven by great products and technologies and the efficiency of customer touchpoint managed with strong dealer collaboration have profound influence on our growing brand power. In Nissan Next, we made a strong commitment to change our business culture, prioritizing value over volume with a focus on profitability rather than maximizing volumes. And you can see the definitive progress here. Net revenue per unit is on a very positive trajectory year on year, growing 11%. thanks to higher grade sales, residual value improvements and disciplined price management. These have led to higher revenues. As a result, we have further reduced our breakeven point by 15% year-on-year while enhancing our investments in products and technologies for sustained growth. Now, turning to the financial performance for the first half, we delivered stronger than anticipated results despite the challenging environment. This slide shows our key financial performance KPIs on both the China joint venture proportionate basis and equity basis. On an equity basis, which is without our China joint venture operations, our operating profit for the first half was 139.1 billion yen with an operating margin Net income for the first half was 168.6 billion yen. Free cash flow for the automotive business was a negative 349 billion yen due to working capital usage as a result of low production resulting from semiconductor supply shortage. The net cash for the automotive business was 552.3 billion yen. On a proportionate basis, which is with our China operations, our operating profit for the first half reached 199.7 billion yen with an operating margin of 4.3%. This is well above our Nissan Next operating margin milestone of 2% for this fiscal year. The net cash for the automotive business was 949.8 billion yen. We continue to maintain strong levels of liquidity. Our cash and cash equivalents for the automotive business was approximately 1.4 trillion yen on an equity basis. We also have approximately 1.8 trillion yen of unused committed credit lines. Turning now to the operating profit variance analysis, this slide shows the variance from last year's operating loss to this year's operating profit. Foreign exchange had a positive impact primarily due to strong US dollar and Canadian dollar. The increase in raw material prices had a negative impact of 39.8 billion yen. The main drivers for the year-on-year improvement in profitability were due to our continued efforts to improve sales performance and monosuccurring. The sales performance had a positive impact of 263 billion yen. A significant portion of this came from higher grade sales, residual value improvements and disciplined price management, which is a result of our initiatives to improve quality of sales as well as tight market environment due to semiconductor supply shortages. Monozukari performance had a positive impact primarily due improvement in operational efficiency. Other items had a positive impact of 10.6 billion yen. Next is the income statement for the first half on an equity basis. Net revenue improved by 854.3 billion yen from the previous year to 3.9 trillion yen, which is 27.6% above than previous year. Operating profit increased by 297.9 billion yen to 139.1 billion yen representing an operating margin of 3.5% which is 8.6 points above than previous year. Net income increased from the previous year by 498.6 billion yen to 168.6 billion yen due to the improvement in the operating profit. As well as positive non-operating income resulting from the significant positive contribution from equity method companies and extraordinary income which included the gain on our scale of Daimler shares in quarter one of this fiscal year. In addition to the improvement shown In the first half, on an year-on-year basis, the columns on the right show the progress we made in Q2 year-on-year. Turning now to our outlook for the remainder of fiscal year 2021. Based on our H1 performance, despite the challenges of supply chain, we are revising our outlook from 150 billion yen announced in July 2021 to 180 billion yen. Due to the change in the foreign exchange assumptions, which reflect the recent devaluation of yen, we are forecasting an additional improvement in foreign exchange regulatory and product enrichment costs. In addition to the Forex, one of the main reasons for the upward revision is our continued focus on sales performance. While the semiconductor shortage continues to be a challenge for the automotive industry, we anticipate that our sales performance efforts, including our quality of sales initiatives and sales finance business, will more than offset the reduction in the sales volume resulting from these challenges. As a result, we are forecasting an improvement of 20 billion yen in our performance. Investment In new vehicles remains unchanged as we pursue future growth. We are also maintaining our assumptions for the increase in the raw material prices. We see the semiconductor shortage impact to the automotive industry has been larger than anticipated. Quarter 2 global market was down by 12%. Most recently, September was down by 19%. and October was down by 17% year-on-year. Specifically, in the United States, Japanese OEMs were down 23% in September and 28% down in October. We anticipate November to start recovering, but we see the operating environment to remain volatile in the second half. Given these uncertainties, it is difficult to refocus the global market At Nissan, we are revising down the FY21 global sales volume outlook conservatively from 4.4 million units to 3.8 million units. For the full-year financial outlook, we are revising our profit forecast upwards. In line with our sales volume decrease, the net revenue is expected to be down by 950 billion yen to 8.8 trillion yen. However, the decreased rate for the net revenue is smaller than the sales volume, which demonstrates the improvement in quality of sales. We are revising upward our outlook for the operating profit by 30 billion yen to 180 billion yen. This equates to operating profit margin of 2% based on equity basis. Including our China JV operations, this amounts to 280 billion yen a 2.8% operating profit margin. This is primarily due to better than expected results for the first half, in particular on the improvement of quality of sales and sales finance performance. We revised our net income guidance upward by 120 billion yen to 180 billion yen, primarily due to the contribution of our better operating profit performance and also better profit contribution from partner companies under equity method as well. In summary, despite volume reduction, the decrease in net revenue is less than the rate of volume reduction. This means our shift from volume to value is translating into improvement in operating profit and net income. With the upward revision of operating profit margin at 2.8% based on proportionate basis with China, we are confident to exceed the Nissan Next milestone of 2% operating margin this fiscal year. With this, we will continue to be on track to deliver our goal of 5% operating profit margin in fiscal year 2023. In conclusion, let me reaffirm that commitment to sustainable growth. With Nissan Next, we committed to making a significant strategic shift in our business and build a durable foundation. We pursued sustainable growth by rationalizing our business, putting priorities on core markets and core products, delivering a continuous stream of innovative products while being meticulous in our financial management and ensuring the a shift in mindset to deliver value over value. As I said during the last quarter, we move forward with cautious optimism, embracing disruption, prioritizing products in demand, and maximizing our operations efficiency. Time is right for us now to bridge from where we are today to where we want to go. We will announce our long-term vision on November 29 and inform you of our strategic priorities and how these will develop beyond the Nissan Next timeline. As a company driven by our purpose of driving innovation to enrich people's life, we set an ambition to empower mobility and beyond, and we will do this together with our employees, our partners, and the wider society. On behalf of Nissan, I invite you all to join us as we embark on the next phase of our transformation journey. Thank you.

Okay, thank you. We would like to move on to the Q&A session. If you have a question, please raise hand function on the Zoom screen. We will call you, and if you are called, Please unmute your microphone, put on your camera so that if you see your face on the screen, please start your question. Your visual or your face will be shown on the people who are joining the session from the digital meeting system. Please limit the number of questions to two per person. Thank you. Please start your question. Nihon Keizai Shinbun, Asayama-san, please go ahead with your question. This is Asayama from the Nikkei Shinbun. Thank you for this opportunity. First, the folio guidance, what are the assumptions here? Net income of 120 billion yen. This 120 billion was improved for net income, whereas sales volume declined by 600,000 units. But the revenue... revised downward but net income why are you making such a big improvement in net income what are the positive factors behind this better net income regional sales volume forecasts are not shown here so could you give us including the regional breakdown could you give us the numbers behind this and as an assumption this production how How do you foresee the production going forward? Because semiconductor supply, COVID-19, in summer, I'm sure you are hit by these factors. But in the second half of the year, is it possible to recover your production? And how do you foresee the risk for the rest of the year? And how long will this risk last? These are the two questions. Thank you.