Nissan Motor Ltd S/Adr

Let us now begin Nissan's first quarter financial results for fiscal year 2022. We're very appreciative of the high number of participants for this session. We have with us COO, Mr. Ashwani Gupta, and Mr. Stephen Ma, CFO. First, our COO, Mr. Gupta, will give you the first quarter financial results. The floor is yours, Mr. Gupta.

Hello, everyone. Welcome to Nissan's first quarter results for the three-month period ending June 30, 2022. Let me begin with thanking our employees and partners for supporting us through yet another resilient quarter. Indeed, this quarter was even more demanding with challenging macro environment and continuing global uncertainties, including the fallout from geopolitical issue. While the pandemic understandably remains a priority challenge with persisting semiconductor shortage, raw metal price hikes and knock on impact from lockdown in China, supply chain remains constrained, affecting production and leading to delay in deliveries. we also see adverse effects on tiv in key markets especially in passenger vehicle segments at the same time we experienced tailwinds with favorable foreign exchange rates our approach and discipline in implementing nissan next transformation plan helped us keeping the momentum My sincere thanks to our customers for their patronage, patience and understanding. We apologize for the inconvenience caused by delays of certain models in some markets. Nissan is fully committed to delivering your desired models as soon as possible. Now I will take you through our latest quarterly results. Turning to our key metrics for the latest quarter, the retail sales in the first quarter decreased by 22% year on year. This is primarily due to the difference in inventory availability. In FY21, we made good use of our inventory for sales. However, our inventory was already at minimum level last quarter, which limited the opportunity to meet growing sales demand utilizing existing inventory levels. Due to the challenges mentioned earlier, our production volumes were flat year on year at 112,000 units. Nissan teams around the world worked hard to deliver every unit that we produce resulting in our retail sales being at the same level of production at 819,000 units. Even in this challenging backdrop, we are pleased by growing customer acceptance of newly introduced models in the markets that we believe are the key to our long-term performance. Our exciting core model lineup is delivering value to our customers and supporting growth in important vehicle segments. Our segment share for the Note and Aura in Japan reached 17% in the first quarter, while the net revenue per unit before any currency effects increased by 4%. We are also proud of the Note and Aura continuing to be the number one selling electrified vehicles in the first half of calendar year 2022. In China, the segment share of Silphy also reached 17% in the three-month period with a 22% jump in net revenue per unit. We also saw an improving performance in the US for The all-new Frontier with its segment share reaching 11% and net revenue per unit rising 19%. And the all-new Qashqai now accounts for 5% of the European crossover segment, with revenue per unit up 26%. We have also won further awards for new products with the zero-emission Nissan Ariya, named Car of the Year by Auto Express and winning the IF Design Award and the 2022 Red Dot Design Award. In the important mini-vehicle segment, we have received 23,000 customer orders for the all-new Sakura electric vehicle, more than half of whom are new customers for Nissan. We are confident that the Sakura will accelerate the democratization of electric vehicles in Japan. Further, the recently announced all-new X-Trail for the Japan market has become a dedicated e-power model available with e-fours. It has received positive reviews and our dealers are feeling a very strong response from the customers. Winning customer acceptance for new models to our wider transformation plan and the fact that more and more new customers are choosing Nissan vehicles endorses our commitment to innovation that excites. Now let us look at Q1 financial performance. This is the income statement for three months ending June 30, 2022 on an equity basis which excludes contribution from our China JV operations. Net revenue increased by 129.1 billion yen from the previous year to 2.14 trillion yen despite the decline in sales volume. The increase was driven by the improvement in net revenue per unit as well as the weakening of yen. Operating profit decreased by 10.8 billion yen from the previous year to 64.9 billion yen. representing an operating margin of three percent net income decreased to 47.1 billion yen this is primary because last year net income included an extraordinary gain on the sale of daimler share which amounted to 76.1 billion yen turning now to the operating profit variance from the first quarter this slide shows the variance factors from the first quarter of last year to this year foreign exchange had a positive impact of 25.7 billion yen primary due to strong US dollar. The increase in raw material prices had a negative impact of 50.7 billion yen, primarily driven by price hikes in material Price hikes in materials such as steel, aluminum and plastics. Sales performance had a positive impact of 53.5 billion yen. Continued improvement in quality of sales and pricing of our products based on customer value, as well as the continued tight supply-demand balance offsets the negative impact of raw material prices, even including the negative impact. from the decline in the sales volume monozukuri performance had a negative impact of 15.8 billion yen primarily driven by increases in the manufacturing fixed costs such as additional investments in our products and facilities and inflation in logistics cost Other items deteriorated by 23.5 billion yen from the previous year, mainly due to one-time gains in the prior year from the release of sales finance provisions and increased used vehicle prices. Without the impact of last year one-time gains, the operating profit improved year on year by 24.2 billion yen. It is encouraging that despite heavy headwinds, Operating profit for the quarter was 64.9 billion yen, setting a steady step towards delivering our fiscal year outlook for 250 billion yen. This slide shows our key financial performance indicator on both the China JV proportionate basis and equity basis for first quarter. On an equity basis, which excludes contribution from our China JV operations, our net revenue rose to 2.14 trillion yen from 2.01 trillion yen in the same period of 2021. On the same basis, operating profit for the period was 64.9 billion yen with an operating margin of 3%. Net income was 47.1 billion yen. Free cash flow for the automotive business was a negative 304.6 billion yen due to working capital usage due to low production resulting from supply chain disruptions. While net income and free cash flow declined year on year, if we exclude the impact from the sale of Daimler shares, our performance was better than the previous year despite lower sales volume. Net cash from the automotive business was 826.4 billion yen. On a proportionate basis, which includes our China operations, our net revenue rose to 2.48 trillion yen from 2.32 trillion yen last year. Operating profit under this measure reached 98.8 billion yen, representing an operating margin of 4%. Net cash for the automotive business reached 1.34 trillion yen on this basis. Overall, Nissan continues to maintain strong level of liquidity. Our cash and cash equivalents for the automotive business was approximately 1.39 trillion yen on an equity basis. We also maintained approximately 2.1 trillion yen of unused committed credit lines during the period. As mentioned earlier, this quarter saw a mix of both headwinds and tailwinds. In these rapidly evolving and challenging conditions, the headwinds we faced are mirrored. And given the pandemic lessons, other ongoing industry trends and the potential for more disruptions in the year ahead, one thing has become clear. We must invest in building greater resilience. Hence, the majors we have undertaken not only address immediate concerns, but will help us build a sustainable approach for the long term. This quarter, Shanghai lockdown was on our top priority list. Our key immediate response was to address the logistics backlog in terms of shipment by using alternative ports other than Shanghai. We have able to cut delays for container deliveries by 96%, which is encouraging. Currently, all our suppliers have restarted their operations and returned to 100% operational levels. And 100% of Nissan dealerships have reopened and showroom traffic is recovering, which should feed through into orders. Coming to the semiconductor shortage, this has occupied our concern list for a longer period and exposed the need to look at the entire supply chain ecosystem. For the short term, we have taken steps to secure inventory level with chip suppliers and allocated chips to priority products and markets. In the mid term, we are developing alternative semiconductors and also replacing custom made semiconductors with general purpose semiconductors. We will provide suppliers medium to long term production outlook to ensure they align and meet supply commitments. The third challenge is the escalating raw material cost. We are focusing first on mitigating the impact. by reducing the usage of precious metals for example by developing a new generation of catalysts that use fewer precious metals and also developing cobalt free batteries as we look at the long term we are exploring direct sourcing options for raw materials leveraging scale efficiencies furthermore we are executing the physical and financial hedging in order to stabilize purchase prices While we rise up to the challenges, we continue to leverage opportunities. First, quality of sales with Nissan next transformation plan. We have been pursuing quality of sales in every market of our results, resulting in a strong and sustainable foundation. Stronger customer demand for our new products is contributing to higher revenue per unit. Next is our focus on diligent operational efficiencies. We have become more agile and resilient to adapt to changing external environment. added to this is a tailwind from weaker yen to us dollar in conclusion we are taking this headwinds as an opportunity to further improve the way we operate with strong business continuity plans and agile strategies nissan is striving to recover production as much as possible and keep cost under control as always we move forward with cautious optimism While challenging ourselves to maintain 4 million sales outlook for the fiscal year, we are strategically managing our operations to mitigate and manage risk from macro conditions and diligently managing our financial discipline. We remain optimistic to deliver our targets of 250 billion yen operating profit for the full year and net income of 150 billion yen. Let me reiterate, the Nissan Next transformation has built a strong foundation to sustain our business. And with this qualitative progress, we are confident in our capability to be even more agile and resilient as we address a constantly changing external environment. Thank you very much for your attention.

Thank you, Mr. Gupta. Now we would like to start the Q&A session. If you have a question, please raise your virtual hand on the Zoom system. When you call on you, please unmute your microphone and start asking your question. Those who are joining from Japanese language, please speak in Japanese. Those who are Selecting the English channel, please use English. In order to entertain as many questions as possible, please limit the number of questions to two persons. Thank you for your kind understanding. Starting with City Group. Yoshida-san, please. Yoshida-san of City Group. Yes. Hello. Thank you. This is Yoshida of City Group. The first question is Q1. How do you assess this? You have both headwinds and tailwinds. Against the full year guidance, 64.9 billion yen. This progress, it seems like it's better than what you initially planned. So what's your assessment about the results of Q1 so far compared with the full year guidance? And 4 million units of global sales is the full year guidance. And what's the certainty of reaching this level? What I understand is in order to reach this, after Q1, you need to sell at least 350,000 units every month. On the other hand, in June, the production volume is only 290,000 units, which is much shorter than what you need to reach. From when, the timing-wise, can you come back to 350,000 units of monthly production? That's my question. Thank you.

Thank you. This is Ashwani. So thank you for your question. So I think your first question is about the Q1 assessment. And as you correctly said, the Q1 result is better than our expectation. It is better than our expectation, not because only the tailwind coming from the foreign exchange but it is coming mainly from number one our quality of sales but number two the operational efficiency which we could create despite the volume drop and the volume drop in the quarter one has been 15 so despite that we were able to uh to deliver the quarter one operating profit better than what we expected. I think that's what is our assessment for the one. Also, our sales performance has offset the negative impact coming from the raw material, but also the negative impact coming from the volume drop because of the Shanghai lockdown, as well as the semiconductor crisis. So that's what we believe is our quarter one assessment. now moving forward um the the the production is recovering and i think in the next three quarters uh we are going to challenge our production because the the biggest hit we got in quarter one was because of the shanghai lockdown which fortunately is opening up so that's why in the next three quarters uh we are we we are recovering and we will recover having said that uh we are challenging the 44 million uh volume because still we believe that there may be some more disruptions which we which may come in as recently we have seen the port conditions but on the other side when we look at our operating profit and the net income In quarter one, with a 15% less volume, we could do 64.9 billion yen, which means in the three quarters ahead of us, with a little bit more production, definitely we are confident of achieving our operating profit as well as the net income. And maybe I look at Stephen to talk about, Stephen, how do you think the three quarters ahead of us?

thank you ashwani uh good evening so uh 350 000 units a month means roughly one million a quarter uh that's i think your question is can we do a million a quarter and uh as ashwani mentioned uh in an earlier media session uh the q1 uh we did about 800 uh something a thousand of production and wholesale 810, 820 roughly that level and it was about 15% less than what we expected so if you do that math normally Q1 is a little bit lower and then Q2, Q3, Q4 each quarter is a little higher For sure, what we have visibility now is Q2 will be better than Q1. That we know for sure. That's based on current outlook that we just done. And then the Q3, Q4, we assume that the recovery will come back. And the question again, just like last year, is how fast or what is the pace of recovery? This is where we are still uncertain. We don't know. We know it's going to recover, but by how much, we're not sure. That's why Ashwani said that we are challenging to hit the 4 million, but as you indicated, it requires that we do more than 1 million a quarter. I think Q2 will probably be slightly less than 1 million, and Q3, Q4 will be slightly more than 1 million per quarter. I think that's the way to look at it. Is that okay, Yoshida-san?

Yes, thank you, gentlemen.

Thank you very much. Next, Goldman Sachs. Yuzawa-san, please. This is Yuzawa. I hope you can hear me. Yes, we can hear you clearly. Please go ahead. Thank you. First question, again. Q1 profit was strong, units will go up and Forex was to your favor than your expectations. So you said that 250 billion yen will be upheld, but something after July, are there any visible risk factors or deceleration of the economy and what are the factors behind your keeping 250 billion you can talk about forex or 4 million units you think that you will be able to do but you've factored in some risk so Can you explain the connection between first quarter performance and 250 billion? Now, sales finance, profitable, but the segment sales finance was supposed to drop. But in the second half, do you expect any risk factors to the sales finance? Should we factor in some deceleration? Thank you.

Thank you. This is Ashwini. Thank you for this question. And I think this is one of the first time we prepared this conclusive slide to be very transparent with our stakeholders and shareholders. Of course, you know, the challenges of Shanghai lockdown are getting over. And we are getting better and better. Semiconductor shortage. I can say that we are getting better, but we are not at our 100 percent potential. Our sales demand can go up to four point seven eight million, as I shared before also. So that's why we are we are doing our best to get more and more semiconductors and the raw material price hike. Of course, as I said in my speech, that the raw material price hike is coming from steel, aluminum and the plastics. On the other side, you would have seen that some of the other precious metals, especially the battery, the lithium, the nickel, have been increasing significantly. So but on the other side, there are some material which are going down. So now moving forward, we have risk. Let me say, you know, of still that COVID is not is not finished. Our plants are not running at 100 percent efficiency because we have to keep the people safety first and the social distancing and so on and so on. On the other side, the demand is strong. And then, you know, I look at Stephen, but we discussed that do we refocus just because we have a tailwind of foreign exchange? That is a big discussion we have to do. Why we don't want to refocus only because of the tailwind. Because then we believe it will affect our operational efficiency if we change our assumptions of the foreign exchange. That's why we want to challenge our operational excellence with a stable exchange rate which we announced for 2022. And first, mitigate all the risks coming from semiconductor shortage, raw metal price by the diligent operational efficiencies, but also the quality of sales. And at the end, we all know that there is a favorable US dollars to yen. And maybe Stephen, how do you think that this is favorable to us?

Why we did not change outlook? That's why your main question is. If everything else was constant and just exchange rate, I would have no doubt about changing outlook. No issue. It's just a question of how much to change. The issue is, I think what Ashwani very nicely put on the slide on the left side, we have We had how many waves of COVID? And now after Delta, Omicron, we have BA.4, BA.5. And you see the record number of COVID cases in Japan now. I mean, on a daily basis, reaching a new record. Even though it's not as severe in terms of symptoms, but it's spreading faster. So we don't yet know. This is what worries us a little bit. So, yes, we know we probably have a net upside to what we have in the 250 because the yen is so weak. But until we have one or two more months of looking at how the COVID situation develops, we don't want to change yet the other assumption, which is volume. Right now, as you know, in Q1, we already saw lower volume than what we planned by 15%. We think it's going to increase or recover a little bit, but maybe it will not recover as fast as we think. That's why we look at, we said in the speech and Ashwani said very nicely, be cautiously optimistic. Be cautious right now, but we're watching the next one or two months. And then when it comes down to first half, we will be ready if the assumptions are more stabilized and we can show you updated visibility. That's how our logic or thinking went behind this. Of course, you look at the effects now and you can look at our Q1 result, you can know pretty much our sensitivity of effects now, even with the hedging we've done, even with the summer raw material hedging we've done. Raw material hedging, as we mentioned last time, we only do about roughly 10% of exposure of some raw material. We did some fiscal hedging. FX, we did some hedging, but not all of it. So that means our sensitivity is less than before. So roughly one yen move is about 10 billion profit. That will give you a good indicator of thinking how to guesstimate profit. how things could move. I mean, I'm being very transparent with you. The only reason we didn't update is because we're not sure about the supply chain and the volume. Is that okay?

Yes, that was very clear. The second one, the sales finance, please. There was a question of sales finance.

Our treasurer also head of sales finance. He's here.

So maybe your cash, please. Yeah. Thank you. Thank you for the question. So, you know, sales finance, we already said that this year the profitability is going to be lower simply because last year we had one time provision release, which is not going to happen. Now we have additional headwind of higher interest rates. So certainly when the rates go up, there is an impact on the penetration. Also, semiconductor availability means less car sales and means less assets. So those headwinds are there. But on the tailwind, on the better side, the credit losses continue to be low. Used car prices continue to be high. Residual values continues to be good. Customers continue to pay well. So I think we will balance out. And, you know, in summary, we still expect a very solid sales finance here. And I don't anticipate. I think the risk and opportunities are balanced as we get to the second half. Does that answer your question?

Yes, thank you. Gupta-san, Steven-san, Kocha-san, under your leadership, you are raising the realistic objective that you are always announcing. And thank you for your clarification. Thank you. Moving on to BOFA, Securities Nihon Yanagi-san, please.

Thank you for the explanation, BOFA. I have two questions. First of all, first quarter volume, you said you underperformed by 15%. You've been repeating that number. What are the factors behind? Can you elaborate on the factors behind? semiconductor shortage was more serious or the Shanghai lockdown impact was more negative than you had estimated. So you said that you will challenge 4 million yen for the full year. So I don't think that's a stretch-less goal, but why You underperformed in Q1 in terms of volume. Can you elaborate? And can you also repeat your explanation regarding how you intend to catch up to that target? That's my first question. And secondly, have you any plans for Revising price. Can you update us on increase of price with raw material costs surging? I'm sure you're taking actions to increase price, but there's still opaqueness in the macro economy and emerging opaqueness of macro economy. So in 2Q and in the quarters to follow, do you need to change the concept with regards to pricing? So that's my second question.

Thank you. So out of 15 percent, eight percent is coming from the Shanghai lockdown and seven percent is coming from the global semiconductor crisis. There is some direct link. There is some indirect link. So we just can't have a black and white. But roughly, I would say half and half. And that's why half of it is for sure has recovered. And the global semiconductor crisis, which today only restricts to, let me say, seven to eight commodities, which was the case last year, 40 to 50 commodities. So it is improving. But are we at the maximum of the maximum of the potential? I would say no. And that's where I think this is the new normal and semiconductor crisis is going to continue. Now, the question is how we can minimize the shortage. And that's where we have developed the second sources. We have signed the midterm supply contracts and so on and so on. Now, regarding your second question, are we increasing the prices? I would say yes, we are increasing the prices. But are we increasing the prices just because we have to pass on the raw material cost increase to the customer? Answer is no. We are definitely increasing our net revenue per unit. Net revenue means we are increasing the price by... selling the values you see sakura you see aura you see new frontier in united states you see kashkai in europe you see silphi in china and on the other side we are reducing our incentives but reducing our incentives is also the consequence of the supply and demand gap but selling the value is purely our performance and on the other side we are pushing our cost optimizing our cost uh to uh to go down so that's what we are doing so that's why at the end we are able to generate our net revenue per unit because at the end we we are monitoring what customer is willing to pay and looking at our net revenue per unit customer is paying higher prices to us on the new models with respect to what they used to pay in the old prices

did that answer your question yes thank you yes excuse me how about the second question uh there there's a lot of increasing uncertainties in the macro economy which is generally said under these circumstances the pricing strategy based on the value proposition will be kept or will this be possible or are you going to change approach i'm being persistent i'm sorry about this

For us, we will be persistent on our pricing strategy, which is focusing on the value, reducing our incentives in line with the market and working more on the cost structure. But definitely, as we said, quarter one result is significant. mainly driven by the sales performance and also after sales performance, because after sales is also driven by the price and cost. And sales and after sales performance has completely offset the negative impact of raw material and the volume drop. So which means when volume drop becomes lesser and lesser, which means that sales performance is going to supersede the negative impact of raw material and the volume drop. This is what we are planning to do in quarter two, quarter three and quarter four.

If I may add to that, Ashwani and the whole team want to make sure that we are demonstrating the value of our new products and the customer recognizing and therefore willingly pay the price. And your question is, are we going to keep this pricing strategy? Of course, under normal circumstances, under various, even if current environment we do. But as you can also see in some of our more hyperinflationary environment, like South America or Turkey, et cetera, hyperinflationary environment, we do price for the inflation or FX. So it depends on how extreme the changes are in terms of the macro environment. At this moment, I know what you're thinking, US inflation 9%, is this extreme or not? I mean, this is a question to be asked, how persistent this will go going forward. And with that in mind, what we're looking very carefully now is what the competitors are doing also. and we are also making sure as we mentioned last time when you guys asked the question we want to make sure we maintain competitiveness we don't want again to Nissan to be viewed as a cheap brand but we want to make sure we are value for value for what we have in our cars relative to others and they're willing to pay for it so the strategy is still we want to make sure the value is fully recognized and willingly pay for that's the main comment here Sorry, I added a little more complexity to that, but does that answer your question?

Yes, understood. That was very clear. Thank you, gentlemen.

Then Nomura Securities, Kunigimoto-san, please. Thank you. Can you hear me? Yes, we can hear you very well. I have two questions. First, US, North America. macroeconomy is slowly to decline and there's interest rate hike and inflation you said prices have increased what about the dealer traffic and your outlook of demand have you changed your expectations especially second half of 22 and demand for 23 what are your prospects that's my first question going to my second question on china since june they've announced reduction of tax and i see cars the purchase tax has been reduced for gasoline cars so are you going to change your sales approach or policy and equity method chinese entities what's the profitability today and what are your prospects going forward those are my two questions

Thank you. I think you put the right question in front of us, which is U.S. economy. I'm not a financial astrologer, but based on all the recessions which we have seen in United States, first recession happened, but the recovery also happened very fast. On the other side, when recession happens, normally the automotive industry is among the top two or top three to get hit. But this recession, because the demand is so higher than the supply, I think automotive industry will be the one of the last to get hit because customers and especially after pandemic, the need for private mobility has increased. So I do believe that demand will continue. But yes. There should be a line when the customer will start talking about the affordability when the demand and supply becomes normal. Now, when you look at Nissan, and this also answers your question on dealership, when you look at Nissan, I would say that we have five things which are going in the right direction in the United States. Number one is all of our products have a very good momentum and customer acceptance. Second, our customer facing transaction price is increasing and definitely it's increasing by value and it is decreasing by incentive. And number three is the lean inventory with a very high sales efficiency. which is giving our dealerships a very good return on profitability. Of course, we can debate upon the higher used car prices, the higher residual values are also helping our dealers to have profit. So our dealers are are keeping and in fact increasing their profitability number number four is because our products are doing great because dealers are profitable and because dealers have confidence now in nissan so their engagement score is still keeping very high of course a lot of challenge coming to us because of the supply but no challenge is coming to us because of product because of profitability and last but not the least is nissan was far ahead than others to announce the electrification investment in united states especially in canton and announced the two brand new cars one nissan and one infinity which means you know our business today and tomorrow is moving in the right direction and in future we are announcing the investments having said that cost of funds and inflation definitely remains the challenge from consumer affordability viewpoint but i think as far as nissan is concerned we have enough tailwinds to offset these headwinds this is what we think at least in fi 22 and the first half of fi 23.

and to your second question about china tax and as after the shanghai lockdown obviously china government tried to spur the growth again and they i believe announced tax support for lower smaller displacement engine and fuel efficient engine fuel efficient vehicle and obviously that benefits many of the Japanese OEMs as well as Nissan because we have many our key model is Sophie which has a smaller displacement engine so of course we're trying to take advantage of those benefits and support For equity method, I believe there's the question about the profit. Q1, equity method was $65 billion. On a proportional consolidation method, it's $99. So the difference is $34. I mean, that's basically DFL contribution to global. the contribution to OP margins 1%, with 3% accurate base and 4% proportional base. So that's very simply how to look at it. Of course, you will ask then, what about Q2? Because Q2, when we consult the China is actually, their calendar Q2, which is the midst of the Shanghai lockdown. So we will not have as much contribution from China in our Q2 results, but then it will come back in Q3, Q4. So that's give you a little bit of visibility in the next few quarters.

And regarding the change in the sales policy, definitely we are focusing more on tier 3, tier 4 cities, especially with the engines which we have less than 2 liters. So I think this is an opportunity for us to really explore the customers in the tier 3 and tier 4 cities. Thank you.

Kunigimoto-san, did that answer your question? Yes, thank you.

Next, JP Morgan, Kishimoto-san, please. Thank you, Kishimoto of JP Morgan. Thank you for this opportunity. I have two questions. First of all, you said quality of sales has improved on incentives. Against the full-year plan, Q1 in US and Europe saw improvements in incentives. In North America, the production level has gone up. So do you think that competition is going to intensify? So if so, what do you think about the sustainability of incentive improvement? So that's my first question. And secondly, Auto business free cash flow. Last fiscal year, second half, surplus was recorded, but then there was impairment in the first quarter, incurring losses with production recovering in Q2. And do you think what's the likelihood of profits in free cash flow for the auto business? You said that interim dividend is undecided. So in that context, can you elaborate on your prospects? Thank you.

Thank you. I think I'll take the second question, the free cash flow, and I will ask Ashwani to answer the incentive in US market, whether or not it will stabilize. So free cash flow. Last year, second half, free cash was positive, as we have declared. And I think you understand perfectly well in Q1 of this year, free cash was negative, not because of our profit. We actually have cash in from P&O items, but it's mainly working capital. And the reason it's negative working capital is because the volume is less than what we thought and as well as we had a build-up of parts that we were planning to use for production that we couldn't use so our inventory for parts and raw material was higher than expected and as well we made some produce some cars was not completely finished so we didn't have the chip so we keep the factory running we produce some cars and sit in there so That will resolve itself very quickly in the next quarter, Q2 and Q3. So the difference between last year is that I believe Q2 this year should be free cash or positive. I think we just discussed free cash earlier. Q2 onwards, we should be positive. Now, again, that all depends on the volume and the recoverability of the semiconductor and supply chain. For the auto profit, if you pay attention to our U-Haul disclosures, the auto business profit is about minus 21, 22, almost exact same number as we had Q1 last year. But the important point here is with less volume. So which means with less volume, we kept the same, roughly the level of profitability or loss, I'm sorry to say. But still, minus 20 is almost a break even. So that's an important point for us to watch very carefully. We are now just very eagerly waiting for volume to come back. If volume come back, we have a very good chance of auto profit to be positive. When it will happen, I cannot tell you right now. And when our full year will be, I don't know yet. It all depends on the volume and how it comes back. But what we can tell you is that we are very diligent about keeping fixed cost low. And we are very diligent about making sure that we don't have too much expenses and making sure we keep the break-even point as good as we can for as long as we can. But there are some, as you saw in the step chart earlier in the announcement, there are some fixed expense that will go up, like manufacturing side, because we invested, the depreciation for sure will go up. So that's a consequence. But we're trying to offset everything and make sure that the overall fixed cost still stays stable. And in Q1, fixed cost has not significantly increased versus Q4 last year. So that's additional information for you. All right. Maybe Ashwani answered the incentive in US market.

Yeah, thank you. I think the control of incentives are going to continue. And for us, we are really reducing our incentives. However, I think as stability of incentives will come when supply will be same as demand, which is we don't believe is going to happen at least in 2022 and 2023. because we clearly know that global semiconductor crisis is not going to finish tomorrow morning because the discussions which we are having with suppliers it is going to continue even in 2023 so which means it's going to continue but on the other side I think What will be very important is how we control the value of the product. And this is where our pricing strategy linked to the lifecycle events of the product will help us in keeping and increasing our profitability in the United States. Hope it answers your question. Thank you.

Kishimoto-san, did that answer your question, sir? Yes. Thank you very much, gentlemen. Okay, moving on to the next question about Daiwa security. Sakomori-san, it's yours now. Yes, hello, this is Sakomori. Do you hear me? Yes, we do. Do you hear me? Yes, we do. Thank you. So there are two topics other than the financials. The first one is KEV Sakura. Wow, it's selling very well. Once again, so far, Gupta-san, Ma-san or other people, KEV or EV market in Japan, how do you project it? What's the assessment of the K-EV market in Japan? Compared to what you initially assumed, is there more room for penetration? Or do you think that because the infrastructure issue, it will go step by step for the EV dramatization? Is there any change in the projection of EV market in Japan? That's one. And the second one, Nissan's brand value. In order to stabilize or enhance Nissan brand, Infiniti brand will be one of the big contributor. I can't say if I may, but if you look at the sales volume and appreciation, it's still weak. So could you take this opportunity to elaborate what is the position of Infinity and what are the challenges and what do you want to do with the Infinity brand? These are the two questions. Thank you.

Thank you. Thank you for this question. So number one is K EV market in Japan. I still remember two or three years before. Of course, I was in Mitsubishi at that time when we were discussing about K. There were two opinions in Nissan and Mitsubishi. The one opinion was absolutely, you know, with the with the autonomy of 180 kilometers to a charge. a kev cannot be successful in japan the another opinion was look there is a great opportunity in japan because 40 of the market is k and most of the customers are in the countryside area who who have to drive 20 to 30 kilometers every weekend to get the gasoline so there were two opinions and finally we both companies decided to go for the opinion that there is a great opportunity in japan This is how this program was approved. Now, when we look at today, who are our customers? Our customers are 53% new customers to Nissan. Why? These are the customers, either they are young or they are female or they are the customers who are living in countryside. Why they are buying KEV? They are buying KEV number one because it's nowhere it is a K from space viewpoint, from the driving acceleration viewpoint and especially from the engine noise viewpoint, especially in the uphills and the downhills. The kind of engine noise in the normal K car is honestly is terrible. So definitely they are buying for it. And the most important reason what we have come to know is 180 kilometers. The average running of these customers is 15 to 20 kilometers a day, which means they need to charge just twice in a week. And that, too, with the home charging, which we are giving as optional, definitely, if we have a car, and especially with the smart charging, midnight, the electricity cost can be cheaper. And on top of that, cherry on cake is the government subsidies towards the customers, which means that, number one, the entry price for customer is almost at par with the ICE-K. number two the total cost of ownership is much better because within one year the difference between the kev and the icv is finished and then no need for gasoline and so on and so on hence we believe that japan japan definitely will go for it now the question is why the japan is not moving faster than the other other continents especially the europe I don't think this is only because of the infrastructure. This is also because Japan does not have still the domestic competition. We are the only one today as the Japanese OEM who is having a big presence in Japan. Last month, we did more than 75% market share. Number one is Nissan EV, number two is Nissan EV, and number three is Nissan EV. to make a good awareness in the japan market we need competition and we love competition because competition teach each other so that's why i do believe that in near future our competitors will be ready with the evs so that the competition creates awareness and awareness create market that will be a great opportunity for all of us to move forward and regarding the infinity You know, Infinity, we have revitalized. I think you raised a real question. Two years before, we brought back Infinity headquarters from Hong Kong to Japan. And now we have Infinity, which is under the umbrella of the Nissan Motor Company, which means Nissan and Infinity both are two equal brands of Nissan Motor Company. then as a next that was the first step the second step we took was to infinity to use the monozukuri assets of nissan to enjoy the economy of scales and you saw that in united states in canton we announced two brand new cars which will be manufactured in canton but with the same platform of course with the two different brand is distinctiveness Now, there is a fortunate and unfortunate event that we launched QX55 and QX60. And at the time of launch, we had the semiconductor crisis. Even then, in the United States, Infinity is doing extremely good. And in China, it just started. And I think we are waiting for the next new model to come in. I think these are the two markets which definitely we want China and United States. We want Infinity to grow and move forward. Hope it answers your question. Thank you.

Yes, thank you. Just one thing. Gupta-san, in U.S., do you think infinity is strong? You think that infinity is strong in U.S.? I think there are more opportunities you need to hunt for.

You're right. This is what I'm saying. There's a big, big opportunity in the United States with QX55, QX60, and QX80. And we launched and we had this crisis of semiconductor. We have big opportunities. You're right.

Hakomori-san, does that answer your question? Yes, thank you very much. Thank you for joining us. Are there any other people, attendants, who have questions? There seems to be none, so a bit earlier than scheduled, but with this we will conclude the fiscal year 2022 first quarter financial results. Again, thank you for your participation. We're most