Nissan Motor Ltd S/Adr

Welcome to the Nissan Fiscal Year 2023 First Half Financial Results Investors and Analysts Session. This is Julian Krell speaking, Head of Investor Relations. Thank you very much for joining. Our today's attendees are Mr. Uchida, President and CEO, and Mr. Ma, CFO. Mr. Uchida will start the presentation with the highlights of the first half. We will conclude this call with a Q&A session. I am now handing over to Mr. Uchida. Thank you very much for your time.

Thank you so much. Let me present the results for the first half of the year. Welcome to Nissan's first half results for the six-month period ending September 30, 2023. Nissan's financial performance for the first half of this fiscal year improved significantly from the prior year. Net revenue increased 30%, operating profit was up 115%, and net income substantially increased. Since fiscal year 2020, we have been working on Nissan's next business transformation plan. The results of our continuous efforts are reflected in our business performance in the current fiscal year, which is the fiscal year of the plan. Now, I would like to ask our CFO, Mr. Stephen Ma, to present the results for the second quarter and the first half of the fiscal year. Later, I will talk about the outlook for the rest of the year and the status of our China business insights into our key steps. Ma San, please.

Hello, everyone. Let me present the key metrics for the first half of the year. Looking at the volume for the first half, global retail sales increased by 3.3% year-over-year to 1.62 million units. Excluding China, we achieved growth of over 23.4% with Japan, North America, and Europe delivering double-digit growth. In China, the rapidly changing auto modern market remains challenging. Our retail sales decreased significantly by 34.3%. Nissan's global production volume increased by 4.5% as we continued refilling the pipeline to serve customers worldwide. Excluding China, our production increased by 25.1%. Looking specifically at the second quarter, global retail sales increased by 11% year-over-year to 833,000 units. Excluding China, sales grew by 26.5% and production volume increased by 4.7% for the quarter. This slide shows our key financial performance indicators for the first half. On an equity basis, net revenue increased by 30% to 6.06 trillion yen from 4.66 trillion yen in the same period of 2022. On the same basis, operating profit for the period increased to 336.7 billion yen with a solid operating margin of 5.6%. Automotive segment profit improved to 168.8 billion yen. Net income totaled to 296.2 billion yen. Free cash flow for the automotive business was a positive 193.9 billion yen. Net cash for the automotive business came in at a healthy level of 1.5 trillion yen which ensures our financial flexibility. while investing for the company's sustainable growth and providing the necessary levels to weather headwinds in this uncertain environment. On a proportional basis, which includes our China operation, net revenue rose to 6.48 trillion yen from 5.26 trillion yen last year. Operating profit was 344.7 billion yen, representing an operating margin of 5.3%. Although free cash flow was a positive 161.6 billion yen and net cash reached 1.81 trillion yen. As the financial results indicate, we continue to successfully implement the objectives set forth on the Nissan X-Plan and we are on the right track. Now I will cover the performance of our key markets. In Japan, retail sales increased by 10.7% to 228,000 units. Thanks to the launch of the new Serena e-Power in April, total sales of the Serena increased by 62%. The Sakura continues to enjoy great customer acceptance and sales increased by 37% in the first half. Our total electrification ratio improved by 6 points to 54% and Nissan remains the number one EV seller for 13 consecutive years. the net revenue per unit improved by 14% from the prior year. Production volume increased 38.7% for the period due to improved supplies. In North America, retail sales and production volume increased by 39.2% and 35% respectively. This growth was driven by our top selling models, the Rogue and the Central in the US. In addition, both the Mexico market and Infiniti brands contributed to the overall sales volume growth in North America, each increasing by over 50%. Our net revenue per unit in the US increased by 3% from the prior year. In Europe, retail sales grew by 19.3% and production volume increased by 19.4%. Net revenue per unit improved by 19% year-over-year. Thanks to the strong acceptance of the Ariya, Juke Hybrid, XTRO e-Power and Qashqai e-Power, our electrification ratio increased by 25 points to 37%. I am happy to share that Leaf was awarded the best car for city driver in the UK. In China, sales and production volume continue to be significantly impacted in a difficult market environment. Our retail and production volume declined by 24.4% and 25.2% respectively. The SILFI continues to be the top selling model in the I segment. On a calendar year basis, our retail sales decreased by 28.9% for the July to September period. As I mentioned earlier, China market remains challenging with intense price war and increased competition with frequent model launches, especially from the domestic brands. During this period, Nissan has launched four new models. Though they have been a slow uptake, these models are seeing a gradual acceptance among our customers month over month. We will elaborate in detail later. Let's have a look at the income statement for the six months ending September 30, 2023 on an accurate basis. Net revenue increased by ¥1.4 trillion to ¥6.06 trillion and operating profit increased by ¥180.1 billion to ¥336.7 billion, representing operating margin of 5.6%. Non-operating margin, which includes equity metal company, tallowed to ¥75.9 billion and improved by ¥35.6 billion compared to the previous fiscal year. Extraordinary losses tallowed to ¥36.3 billion. As a result, net income increased to 296.2 billion yen. This slide shows the variance factors from the first half of last year to this year. Foreign exchange had a positive impact of 13.3 billion yen. The US dollar remained strong but was offset by emerging market currencies. Raw material impact was a positive 22.6 billion yen due to decrease in prices of most materials. Sales performance had a positive impact of 272.8 billion yen, driven by strong volume and positive pricing, partially offset by normalization of selling expenses in the industry. Mono-secret costs had a negative impact of 42 billion yen, mainly due to inflation and regulatory expenses. Other items had a total negative impact of 86.6 billion yen. This includes impact on sales finance as net credit losses and used car pricing has begun to normalize. As a result, operating profit for the half improved to 336.7 billion yen. And with that, I will hand over to Chiesan.

Thank you, Stephen. Let me talk about the full year outlook. We will maintain for the full year outlook in total global volume of 3.7 million vehicles. This 3.7 million already reflects the revision of China outlook and confirmation of our solid performance in other markets. Based on this solid performance reflected in the first half results, we increased our financial outlook as follows. Net revenue from 12.6 trillion yen to 13 trillion yen. operating profit of 620 billion yen which represents an operating profit margin of 4.8 percent net income of 390 billion yen to summarize we have achieved a solid financial result in the first half of the fiscal year 2023 we are firmly committed to the nissan next transformation plan in order to continue this recovery and deliver sustainable growth Based on the results and our outlook for the year, we decided to resume the interim dividend at 5 yen per share. We are maintaining the full year guidance of 15 yen or more, as we announced previously, while balancing financial flexibility, the necessary investments to ensure unsustainable growth, and securing solid levels of net cash to weather headwinds in this uncertain economic environment. Nissan aims to improve shareholder returns by further improving the company's performance and financial foundation. We remain committed to increasing shareholder value. nexus about china status update addressing the chinese market continues to be a pressing challenge for us nissan has been operating in china for over 20 years and has proudly sold more than 15 million vehicles in this important market we have many loyal customers in china and recognize the strategic importance of quickly providing them with high value new energy vehicles at attractive prices in addition to internal combustion engine vehicles which continue to have a certain level of demand in the market To this end, I explained that we will leverage our local assets across the full value chain to enhance the competitiveness of Nissan products back in july when i presented the first quarter results we are in the process of exploring every possible opportunity let me share three key initiatives that are crucial to make a breakthrough in the market the first action is to enrich our new energy vehicle offer we will launch four nissan branded new energy vehicles by 2026 to address this growing segment All four models will be developed by our local R&D center in China, the team which Nissan has been nurturing over the years. The first model, a D-segment EV, is targeted to be launched in the second half of calendar year 2024. Three other models will follow, including Nissan's first-ever plug-in hybrid model. The second initiative is further utilization of the local design and engineering assets. Our joint venture partner plans to launch six JV new energy vehicles made in China for China by 2026. The first Venucia plug-in hybrid was launched in the first half of this year and the battery EV was announced on November 3rd. We aim to increase the sales volume by offering the various products in the new energy vehicle segment. The third one is that we will start export to Nissan vehicles from 2025. As the first step, we aim at 100,000 unit level. The four Nissan branded new energy vehicles that I referred to are included in the potential products to be exported. We will announce the details including timing and destinations at the right timing. I intend to implement these actions with speed in order to put our China operation back on the growth track in this challenging market. let me reiterate that nissan is leveraging its strength including electrification vehicle intelligence to empower journey and society as we progress towards our goal of carbon neutrality many initiatives are underway across the world to realize nissan ambition 2030 long-term vision in september nissan design europe celebrated its 20th anniversary On the occasion, we announced that all new Nissan models in Europe will be 100% electric by 2030. Moreover, we are involved in the research project called Evolve AD that is intended to develop the latest autonomous drive technology capability UK as we hone our technological excellence. At the recent Japan Mobility Show, which ended last week, we have demonstrated the direction of our future mobility through the Concept 5 concept cars. Furthermore, this week we announced our decision to invest up to 2.8 billion rail in Brazil to produce two new SUVs, including all new Kicks. As you can see, Nissan is taking many concrete steps around the globe. Yesterday, we announced the completion of our agreements framing the foundations of the new chapter of the alliance. With this, we enter a new era of collaboration. The completion of rebalancing will enhance Nissan's agility and contribute to new value creation and operational efficiency as we strive for Nissan Ambition 2030 long-term vision and electrification strategy. Our next mid-term business plan, which we are now finalizing, will be bridged to realization of this vision. Though we intended to announce this in autumn due to the radical changes in the market environment in the recent months, we need to ensure that the plan is comprehensive and credible, hence we will present to you at an appropriate timing. Thank you for your attention.

Thank you very much. We are now starting the Q&A session. If you would like to ask a question, kindly let us know by using the raise hand function. Once we call your name, please unmute your microphone, state your name, your company, and then ask your question. Please speak in Japanese if you are participating via the Japanese Zoom link. Please speak in English if you are participating via the English Zoom link. As a matter of fairness, please limit yourself to two questions.

Okay, starting with Citigroup Securities. Yoshida-san, please go ahead. Yes, do you hear me? Citigroup, Yoshida is speaking. Hello. Okay, thank you so much. The first question is about the quarter two. How do you assess the performance? More than 200 billion yen is the profit that you generated, which is strong. Is there a one-off factor that contributed to this strong number? And for the folio projection, you made an upward revision. Probably you don't disclose the breakdown of the contributors. Could you get into the details of the upward revision? What helped you to increase the result? And the retail volume, 3.7 million units, remained unchanged. But if you look at the progress rate in the first six months, we see a weak sales in many regions. Is this due to supply chain issues or because of the intensifying competition? Could you give us the details for each region or each market? In the second half of the year, you have a plan to increase the volume compared to first half. So how credible or how achievable is it? Thank you. This is Uchida speaking. The second question. the q2 profit will be presented by cfo later but before that let me talk about retail volume projection yes as you said in the first half of the year we were suffering we were affected by logistics and supply chain issues so that is why the volume in the regions were slow compared to our expectation at the same time semiconductor supply issue is becoming limited now but in the second half of the year this supply will come back and there are many customers who are waiting for a long time for the delivery in many regions so in the second half of the year we believe that there is an opportunity to increase largely the volume so that is what is behind this 3.7 million units of foliar projection by region was what you wanted to know in Japan Our Serena, X-Rail, there are a lot of customers waiting for the delivery of these cars. So we would like to recover this supply in the second half. In US, the logistics from Mexico was largely affected and partially in the production plants. We are increasing production, especially from Mexico to US. We are incorporating this production increase because the compact cars are more in demand, so we are going to supply these compact cars. That's the plan for the second half of the year. The biggest challenge is China. In China, 800,000 units is what we are retaining as a folio guidance. In October, Acquire a monthly sales plan. For example, don't believe our model is doing better than the monthly plan. and four models were introduced in july in china and we wanted to recover in the second half of the year but looking at the results in september or august and september we were struggling but starting from october we are ramping up gradually so taking this into consideration we decided to maintain the folio guidance for the volume having said that there are uncertainties especially in china therefore Within this fiscal year, we would like to monitor the circumstances carefully and at need, we would like to disclose how we project the volume. Okay, thank you. Yoshida-san, did that answer your question with regards to the volume? Yes, thank you. Yes, in that sense, you mean that mainly production and supply chain issues were largely affecting your performance so there's no issue with the demand and intensifying competition other than China that's not a concern for you for the second half of the year well in our plan there are many customers waiting for the delivery so we will make sure we are supplying them but Europe circumstances Europe is the TIV in Europe is changing now so we will monitor the situation carefully and follow up accordingly. Thank you.

I think you guys also follow what's happening in Europe market. It's starting to slow down a little bit. The order bank that most OEM has is coming down a little bit, but still we have a very healthy order backlog that we are still working through. So, so far the demand for vehicles are still very strong, especially with the very refreshed lineup we have. We had the new Juke a year ago. We had the new XTRO e-Power. We had the Qashqai e-Power. and the new Aria all launched very solid four new models SUV segments right in the heart of the market so all of the vehicles are very high demand so we want to produce more so we can sell more so as Richard mentioned we don't have a big worry about the demand for our products I think it's just a matter of the market slightly slowing down a little bit but for us it's still a very healthy outlook that's for the volume additional for the Your question about the Q2, how do I assess Q2 performance because it's, as you mentioned, 208 billion yen. If I can take you to the appendix, I think probably easier to understand. So if you look at page 29, I think we show the consolidated sales volume. Can you show the page 29? You guys have the appendix? Yoshida-san? or other people?

Yes, I do.

Page 29. The consolidated sales volume is basically wholesale volume, and you can see that in Q2 on the right, it grew from 560 to 683, so about 123,000 units increase. That's the biggest reason why we had such a big, much better profit than last year. You look at the next page, page 30. You can see the step chart for the Q2 standalone. Versus last year, last year we made 91.7 billion, this year 200 billion, so doubling. And you can see that yes, we had some benefit from the weaker yen. So actually within that 11, about 25 or 26 is US dollar, but we were hurt by many minor currencies like Argentina peso, Turkish lira, Mexican peso, etc. That sort of net the US dollar positive impact down to only 11. So net net we got some benefit from FX. Raw material, as you know, prices come down. So we can a little bit benefit of that. It takes a little time to work through our P&L, but we're starting to see the benefit of roughly 20 billion. And the big part is, as mentioned, with 120 some thousand unit increase of wholesale, the performance on the sales performance is improving 112 billion that's the major reason with the increased volume came the increased profit and this was more than enough to offset the current inflation regulatory costs that we see in the monosucre and in others so for me uh it looks actually uh we are having very good uh As we have said multiple times in the last couple of years, we had good products. We have fixed the foundation of the company. We're just waiting for the volume. And I think this is proving it. Once the supply comes and the volume comes, we can get much more profit. And I think this is what we've been saying the last couple of years. And I'm happy we can actually demonstrate it now. So that's how I assess Q2, Yoshida-san. For your second question about the guidance revision from 550 billion yen to 620 billion yen, of that 70 billion increase, about 40 is FX as we updated the exchange rate of yen to dollar. We updated to 140 yen to dollar. And also I assume that the raw material will continue to give good news so we added 10 billion more for raw material and then the rest is performance another 20 based on the uh good momentum we're seeing in first half so that makes up a 70 billion improvement in their guidance You might say that it's still a little conservative or it could be upside, but right now we put the yen at 140 yen to the dollar in the second half. Of course, if the yen moves, we might have a little bit upside versus that. Let's answer your question, Yoshida-san.

Yes, thank you. If so, for example, in the first quarter, there were quality costs that was a negative contribution. But in the second quarter, its performance, which helped to increase the profit, there was no one-off.

You mentioned in Q1, The recall cost, we view that more as timing. That it just happened that two or three big campaigns all happened at one time in Q1. Usually for us it happened throughout the year and it just happened to be occurring earlier and at the same time. So we do not see as many recall campaign costs happening next three quarter because we think in the pipeline that we are looking at, We don't see anything major that's coming right now.

Okay, thank you so much. Okay, thank you so much. Moving on to Goldman Sachs, Yuzawa-san, please. Yes, thank you. This is Goldman Sachs, Yuzawa. I have two questions. That's a great result. And in terms of performance, operating profit and cash flow are at a higher level now. Once again, what's the dividend policy again? This time you have officially announced to entrust the remaining 28.4%. One trillion yen cash will allow you to afford many investment needs and cash out. So what's our policy in cash? Will the policy on cash change because of this policy or the changes in the circumstances? And you are putting off the timing of announcement, MTP. But is there any area that you need to brush up further, whether it's a product or operations? Could you disclose what you can say today? And as you mentioned, the China update. how long will you spend to restore chinese operation and deliver results could you give us a timeline these are my questions thank you yes thank you china regional mtp i will talk about this in china if you look at the present status we see a lot of new cars introduced between june july and august 61 new models were launched in the market in october as far as what we know 22 models were launched and the pricing com more than what we imagine there is a price reduction in the market for example in jv the level of nissan we are in the middle of the price level more car makers are reducing the prices largely making our discounts To compress the profit is not what we are trying to do. We are striking a balance between profit and presence. That's what we are doing in China. Therefore, in China, probably towards the end of the calendar year, based on my experience in China, probably many car makers will do the discounts. That's my concern. And with so many new models launched, incentives may arise for example even if we spend fmi it wouldn't make an impact that is why we are struggling today having said that uh we have many units in operation car park in internal combustion engine as i said silphy remains number one in the ice segment so There are many districts where ICE are in high demand and that is why we are rebuilding our sales strategy accordingly. So this is how we are trying to maintain the presence as much as possible so that we can bridge to the launch of the four new energy vehicles. That is the most important thing in China. So we are not overly optimistic about China. China, next year, we believe that things will calm down. That's what we anticipate. But still, we need to monitor the situation carefully. In these circumstances, if you think about the capacity in China, our utilization rate is very limited. we would like to complement this by doing export but we need to optimize the fixed costs we have going forward we need to discuss with partners to reinforce the plan to reduce the fixed costs so while we maintain the performance today we would like to take action to grow and increase presence and Introduce the cars that are adapted to the Chinese circumstance and bring China operation back and growth track and these new cars will come in the latter half of 2024 So we would like to spend time whether in the two-year three-year span. We would like to bring Chinese operation back on track So that was about China At the same time for the midterm plan Yes Midterm plan if we If the KPI is up to 2026 or the figures, these can be shown. But we need to look at MTP and beyond, not only MTP period. Now the market is fragmented. So in each region, we need to specify the strategy. That's what we need to demonstrate to the market. Otherwise, it wouldn't be credible. People will not understand how we are going to achieve the goal that we define. I think this is a key element. For example, in North America, How are we going to address the IRA and increase presence at the same time? What will be the battery strategy? What is part of the electrification strategy in Japan? The question is how to increase the share of electrification. These specific concrete action is what we want to explain and that's what we are trying to work out. So the key here is that in Nissan Ambition 2030, we define a vision and midterm plan is in the middle of this. So midterm plan, as you may know, in the auto business model in 2026 are already defined. So what's beyond this? In 2030, what should be the performance that we deliver in each market and how to do it specifically? That's what we want to define clearly in the midterm plan and beyond. Yuzawa-san, did that answer your question? That was about MTP and China. Yes. Yes, you are looking into a more comprehensive plan. And could you go back to the first question that I asked?

So, thank you for recognizing our good performance in Q2. And just to share a little bit extra insight for you, the net income in Q2 is the highest ever on Nissan record for Q2. That's also, we didn't want to brag about it, but it's actually one of the best Q2 we ever had. But your question is about the OP and Free Cash One dividend policy, if I understood correctly. So, as we said before, eventually we want to get back to 30% payout ratio for dividends, but we will do it gradually. Obviously, if our profit is improving so quickly, taking a little more time because then the payout per share, I mean we are increasing it but I don't know if I can increase it at the same speed as how fast the profit is increasing but we will be increasing the dividend per share gradually and eventually we will get to the 30% but I cannot commit to the timing right now because we are also looking at what we are going to do in the mid-term plan and what investment we have to spend money on and As we just explained, for example, in China, we are pulling ahead in many things to meet the market demand and market speed. Similarly, we're going to be doing other things, adjustments in our strategy to meet the shifting market demand. So there might be a need for investment that we're going to do for future. So this is one of the reasons why you can see at the end of of first half, we decided that we're going to have a much higher net cash position because we knew that in second half, we will have several already big potential cash out item. One is, as you all know, the MPI investment. It most likely happen within the next six months. And then the other ones could be, if Renault decide to sell some of the shares back to us, I hope we want to be ready to take it. So this is why initially we knew rebalancing will happen in November. So we knew after rebalancing the windows open for them to start selling. So we want to be ready for that anytime they want to sell. So intentionally we kept a little more cash than normal. reasonable level of cash i mean i think in the past we said uh we want to keep running what a trillion maybe plus or minus a little bit is okay on that level we don't need to have as much uh because we're not now much better at managing free cash flow from a quarterly basis and we are much more efficient at managing things so we don't need to have a huge net cash position on the auto side to uh function and operate smoothly so I believe I answered, I think, two or three questions that was embedded in your one question, Yuzawa-san. Is that okay?

Yes. Anyhow, we are looking forward to the MTP announcement. Thank you for your elaboration.

Yuzawa-san, thank you.

Yuzawa-san, thank you for the question. The next question will be asked by Kunu Iimoto-san of Nomura Securities. Please go ahead. Thank you very much. Can you hear me? Yes, we can hear you. I have two questions. First of all, the first question is addressed to Mr. Uchida. 600 billion operating income is quite significant with investment into EV. And for EV, the profitability will become lower. there would be intense competition over sales in North America in the next three to four years. Will there be an opportunity to increase the profits further to the next level? If so, where do you find the opportunities to elevate profits? Can you identify the major factors for potential increase in profits? That's my first question. Secondly, this will be a granular question this time in price revision 57.6 billion yen pricing selling expenses 44.1 billion yen is the effect in terms of increase in profit due to inflation there could be some regions where cost is rising but Are there specific regions where price increase was done successfully? Those are my two questions. Thank you very much. 600 billion yen. We're not complacent. in the next transformation program we ought to establish a robust foundation so this is the starting point and we are now entering into the difficult phase electrification can go further and as you have The profitability for electrified vehicles is not at a satisfactory level. As we finalize the MTP, how can we optimize costs? This is one item where discussions are conducted internally intensively. In EV, the Chinese manufacturers as well as Tesla are gaining cost competitiveness more than we had expected and the they are reducing their selling price as well along with such cost competitiveness so as we try to further electrify in ambition 2030 x in one a stepped cost reduction or in battery cobalt less batteries we have to do a step further in order to reduce cost or else 600 billion plus profits would be difficult to achieve. There would be various challenges. Having said so, however, due to the elevated quality of sales, we have been able to secure profit in each of the models. So as the foundation, we will maintain the current level. But with higher electrification ratio and as you have rightly pointed out with the investment burden becoming higher how can we optimize cost we have to accelerate all efforts in cost optimization and at the same time regarding investment into electrification under the framework of the alliance these changes have begun to occur how can we more cleverly do something with our partners or maybe find other partners to share investment burden. There could be several options which we are discussing at the moment. So including the burden that we will be bearing, we want to establish a foundation that will allow us to deliver sustainable profits and one key would be the MTP. So what are the important challenges? Cost competitiveness would be one challenge. And in electrification, we need to reduce cost a step further. And Stephen?

Answer the other question, I believe. You're looking at page 33, right? The Q2, selling expense, incentive pricing improvement of $44 billion. And you're asking why that is so big, if I understand your question correctly. Well, as we mentioned before, we are, last few years, focused very much on quality of sales. We are very much disciplined despite what happens in the market or what competitors do. And one of the things is we are focusing not just the major markets, but also all the minor markets to make sure we are pricing for the value that we put in the cars. And for many of the cars, we are, as a newly launched in the market, like e-power variants of various cars like XTRA or Qashqai or other places. They are actually very, very well received in some of the markets. South America, Latin America, or Southeast Asia, et cetera, we are able to first price for that. But that doesn't explain all of that number. A big portion of that number is in some emerging market where there's hyperinflationary environment, where the FX is going up a lot. So unlike the old ways of Nissan, we sometimes use that advantage to keep the price low and sell more volume. Now what we have done is if the hyperinflation like currency move a lot, we move the price at the same time. So we will adjust the price immediately. Even if it means we sell a little bit less volume, but we make sure that we are pricing for the FX movement in the local markets. So a lot of that big number you see in there is what I mentioned earlier in the negative effects on emerging markets like Turkish Lira, Argentina Peso, etc. Those markets For those negative effects we have on global, immediately we are pricing for it in the market. That's why this number is so big.

Excuse me, this is Uchida speaking. In terms of profit, naturally, growth is what we are pursuing. Therefore, compared to the current level in the mid-term plan, Well, we need investments in electrification and the profitability of electrification should be addressed, but we would like to pursue the profit growth. This remains unchanged. Thank you so much. Okay, thank you. Moving on to Bank of America's Nihon Yanagi-san. Go ahead with your question. Yes. Thank you for your valuable time. I am Nihon Yanagi. I have two questions. The first one, this is related to the previous question, page 33. In U.S., volume and mix, in this volume mix, for the mix, in the second quarter, there is a big negative factor from the mix. What's behind this? Could you analyze? could you elaborate on this what's behind this mixed negative contribution since the past model mix has been deteriorating but in a full year having said that in full year we thought that it will be stable or will be on the positive side but Is this due to production confusion and this can be recovered in the second half of the year? Or the market circumstances changed and do we need to address it? Could you elaborate on the mixed effect? That's my first question. And the second question. Well, this is related to my first question. U.S. market. You didn't talk about U.S. market in details. How do you assess the U.S. market in the second half of the year and next fiscal year? What's your projection for the U.S. market? Because microeconomy-wise, things are uncertain. And according to auto data, I find out that Nissan's monthly performance seem to be, the incentives seem to be normalizing. That's one way to look at it. So based on what you see, what's your assessment in terms of sales, incentives, what's the outlook? That's my second question. Thank you. Yes, the second question. In US, we continue to see the TIV which is growing. That's what we anticipate. Because of interest rate rise, there are some risks. However, We believe that there is an opportunity to increase our presence. Having said that, mix is changing as we have said last time. Affordable cars are where we see a stronger demand for and affordable cars are correspond to Versa or Sentra in our lineup. So the profitability of these cars are worse than the higher end, but there still are strong demands. So Mexico, we are increasing the production in Mexico to address this. So this will translate to supply and better presence. That's what we pursue. And the basic volume, fundamental volume in the past, fleet in rental especially we tended we tended to see a lot of challenges but here again if we address we there are good ways to manage it so including this us operation we expect this u.s operation is where we see an opportunity to increase our presence and beyond this ira and addressing the regulations is becoming an immediate challenge for us and on this point as i said in mtp for example just an example ira in u.s zev or tier 4 that's another thing that we need to consider in this environment as if the regulations are enacted What kind of strategy should we have to promote electrification with competitiveness? That's what we are considering and we are building plan to address it. And the first question.

Steven. So, as Uchisa mentioned, the reason the mix is negative is because the environment in the US market has changed. Given the high inflation and the high interest rate, the consumer's affordability is no longer what it used to be a year or two ago. So they are no longer able to afford as nice of a car because with the highest interest rate, the monthly payment will be higher if they buy too expensive a car. So now to keep the monthly payment the same with the higher interest component, they have to downgrade to a lower segment. So that's what we're seeing quite a bit. a lot of the customer moving down into the sedans and smaller cars and actually it's not bad for Nissan because they are very strong in Altima, Sentra, Versa, Kicks so as Ruchirasa mentioned many of these cars Central and Versa, we are producing in Mexico and we have maxed out in terms of production level. So we're trying as much as we can to produce as many as we can. Our inventories on these models are very, very low. So we are trying to meet the demand of the US consumers right now. But this is purely a mechanical calculation because the market is shifting to more affordable cars. of course at the same time we are still trying to make sure we keep the volume and in the higher end the suvs and premium this is why i highlighted in the presentation that infinity brand grew 50 percent over here we are still making sure that we are keeping the volume high on those vehicles and therefore keep the customer engaged at a higher segment For those customers who can afford it, we're still making sure that we have good sales in the area. So that's how to explain the mix. And for the next, for second half and next year, as I mentioned, I will not elaborate on that, but I do want to highlight something about auto data and any external data you have on incentive. those external sources sometimes when they collect information from incentive about OEM they do a sample test and they do extrapolation and estimation of the number of incentive we have it's very different actually than what we have internally that's what we actually spend and just for you to know I repeat what I said last quarter most of our incentive 80 or 90% of our incentive is spent on sales finance. We do not spend, we spend very little now on cash incentive for customers. We want to help, given the higher interest rate, we use our incentive to provide more affordable interest rate products, loans and leases for our customers. So we do that, so we buy down all the interest rate for them so that they can afford a bond. By doing that, we keep the customer in ourselves financed, kept the business and we can engage with customer for a longer time. So it's actually better and much more healthy way of spending incentive. Is that okay? Is that clear?

sure yes that was very clear thank you okay thank you so much moving on to UBS securities Takahashi-san go ahead yes UBS securities my name is Kohei Takahashi do you hear me yes we do go ahead okay talking about the short term China Between July and September in third quarter, what are the results? Retail volume and production volume are given to us. But how about the profit? Listening to you, it seems like price is increasing and the competition is intensifying and the new car impact will come later. So it seems like the profit will largely deteriorate. So could you elaborate on the guidance of the profit? And at the same time, Other car makers are putting expenses on the restructuring or they are reckoning the retained earnings that will be destroyed. But according to your plan, you didn't make any revision. Is this because you are revising your MTP? So that is why, for example, you haven't incorporated the restructuring fee or in the second half of the year, the contribution profit for China will not deteriorate largely. Is that the message? So third quarter and what's the second half that we should expect?

Yes, so let me address those points. Yeah, the volume as you can see in Q3 we show on page 11 is come down in July to September period. And I think, yes, we've done as much as possible internally to already do streamlining reducing fixed costs and trying to reorganize ourselves as much as possible internally to get through this very intensive price war just for your reference last year calendar 2022 i believe china market the average transaction price dropped by more than nine percent and this year already as of October, we already dropped like 9.5, almost 10%. So in a matter of two years, transaction price dropped almost 20%. I don't think any OEM make 20% profit margin anywhere in the world. So I don't think I need to say much other than saying that yes, profitability for China is challenged. I cannot give you the number right now, we will show it in the Q3, but it's very challenging. Right now, as all of the international brands are doing in China, we are trying to shift and transform and find a new way to compete in China and thrive. So this is why we accelerated the new energy vehicle. As we just showed four new Nissan brand and six German brand. So a total of 10 new energy vehicle will come to China within the next starting next year and within next two years, basically, will come very rapid fashion. So we are quickly reorganizing ourselves to make sure that we are able to compete in the China market. So yes, you're right. I mean, I don't think we can expect much proper contribution from China in the short term. That's a reality. I think many of the OEM has the same reality now. For your other question about restructuring H2, yes, if you do look at the H2 profit that we have and then especially below operating profit and income, yes, we did put some contingency just in case we need to do some cleanup and some costs related to cleanup. We did put something in there and we do not yet know if we need to use all of it. But we did consider some of that in the second half. Okay, Takai-san.

Yes, understood. In the third quarter, I will look into your numbers. Thank you. Thank you very much.

It's about time to close, so the next question will be the final question. Daiwa Securities, Hakamori-san, please go ahead. Hakamori of Daiwa Securities, thank you for talking with us once again. Two simple questions. First of all, Nissan Next, global production capacity 5.4 million, it's been reduced. China's utility ratio is low, I understand that, but depending on production site. Like Mexico, there are areas where utility ratio is high. There's a great variance. So 5.4 million, how will you be planning for the future? And 100,000 units to be exported from China, where are the candidate destinations? That's my first question. Secondly, SNP credit rating. downgraded and you said that one of your priorities is to upgrade once again but Renault has Nissan shares and Ampere there's a capital requirement as well so it's been six months since the downgrade have you changed your capital policy those are my two questions the second question will be responded to by Steven but How do we optimize production capacity? Currently, we're at 3.7 million. Under Nissan Next, we had a higher goal, so we're far away, and we are seeking efficiency like assembly line layout. There are such plans, but the biggest factor would be China. 1.7 million is the capacity in China, but you know how many units we're producing at the moment. So partly that will be solved through export, but is that going to be impacting other production sites? These are four models developed in China, so we consider this as new opportunity, and in other production sites, there are areas where there hasn't been any choking points in Nissan's supply. So we are currently studying the possibility of exporting from China to respond. Optimization of capacity and fixed cost in China, those are under discussion with our partners. And I think we have to come up with a concrete plan. That's where we are at the moment. And regarding other regions than China, Depending on site, the saturation differs, but utility ratio should be at around 85%. So I think it's possible to optimize, and that will be written down in the mid-term plan. That's where we are.

Just to supplement on Uche-san's points, this is the beauty of what Uche-san is saying about exporting from China. They are, as you noted, in some plants globally, Mexico and in Japan, Kyushu, we are max production. and they are producing some of the vehicles that are in high demand. And some of those cars can also be produced in other areas globally. So if we can supplement some of it by China production and export, it actually helps us globally to actually achieve the higher volume. So that's the nice part about that. And to your second question about S&P downgrade that we did before, as we mentioned before, we keep repeating or emphasizing we have strong performance, we have strong balance sheet, and as you can see now, very high Q2 profitability and very high net cash. So you can imagine I will be having very... very good conversation with S&P tomorrow to try to convince them to reverse their opinion. But I think we are doing as much as we can to demonstrate to them that we are very, very strong and we are getting better every quarter, quarter on quarter. In terms of policy, I think what we're doing right now is pretty good. Rakesh, if you want to add anything to it, but there's not much we can do. So I think right now we are on the right track with all the right principle and the strategy. So as we mentioned many, many times, we just need the volume. and the good performance of our management and the vehicle products will shine through all of it.

Thank you very much. We will now close the session. Thank you very much for your participation today. The Nissan Investor Relations team remains at your disposal for any follow-up questions. Bye-bye.