Nissan Motor Ltd S/Adr

Welcome, everyone, to the Nissan Financial Results for the Fiscal Year 2024, the Investor and Analyst Session. This is Julian Krell speaking, Head of Investor Relations. Thank you very much for joining. The presentation material can be found on the Nissan IR website. Please be informed of the disclaimer included on the last page of the document and read it carefully. Thank you. For today's presentation, I am joined by Ivan Espinosa, President and CEO, and Jeremy Papin, CFO. Mr. Espinosa will begin the presentation with a brief introduction. Following that, Mr. Papin will present the financial results for the fiscal year 24 and the fiscal year 25 outlook. Afterwards, Mr. Espinosa will provide an update on Renison, the new recovery plan. As always, the session will conclude with a Q&A for which additional members are joining today. So, Ivan, thank you very much for your time. and over to you. Thank you Julian and good evening everyone. Thank you very much for joining as we are announcing our results for FY24 and our plan to recover and position Nissan for long-term success in this very challenging environment. Thank you for allowing us, first of all, the time to do a deeper dive into the situation and develop a prudent plan. Since taking office and with the support of our new and strengthened Executive Committee, we conducted a comprehensive assessment of the situation, including an asset review, and made a careful decision to impair production assets in key markets. Today, I will be sharing our recovery plan with all of you in light of the fiscal year results. But before that, Jeremy will cover the FY24 and FY25 outlook. Over to you, Jeremy. Thank you, Ivan. Good evening, everyone. Fiscal year 2024 has been a challenging year for us, and we anticipate that these changes will continue into fiscal 25 as we focus on rebuilding Nissan. We are taking strategic actions to address performance gaps while navigating market uncertainties. I will take you through our financial results for the 12-month period to March 31, 2025. Nissan revenue was $12.63 trillion for the period, down 0.4% year-over-year. Although revenue remained flat, operating profit decreased to nearly $70 billion, impacted by lower volume, a weaker X, pricing pressure and increased costs. As referenced in April, These financial results include impairment charges of nearly $500 billion and restructuring costs of close to $60 billion. Combined, these items, along with the release of deferred tax assets, resulted in a net loss of $671 billion. Later in this presentation, we will address the ongoing recovery of Nissan and additional detail on the necessity of these impairments and restructuring costs. First, I will go through the performance for fiscal year 2024. Total global retail sales decreased by 2.8% year-over-year, with China volumes nearly 100,000 units lower than the previous year. Explained China, unit sales were flat. Revealed by new model launches, North American sales rose by 3%, which offset declines in other regions. Europe was down by 3%, Japan by 5%, and other markets by 1%. In China, retail sales decreased by 12% as we continue to adjust supply to demand and face intense competition from domestic brands. For the fourth quarter, ending March 31, global retail sales decreased by 5%, with China down by 20%. Excluding China, retail sales in the fourth quarter were down by 1%, with 10% decline in Japan, 3.5% in Europe, and 3% in other markets. The decline in consolidated retail sales was offset by a 5.5% increase in quarterly unit sales in North America. This slide highlights our key financial performance indicator on an equity basis for the full year. Net revenue on a consolidated basis was flat at $12.6 trillion. Last month, the financial outlook was revised, forecasting an operating profit of $85 billion. However, following our final audit, the operating profit for the fiscal year totaled $69.8 billion, resulting in an operating margin of 0.6%. Including the impairments of over 460 billion yen, restructuring costs of nearly 60 billion yen, and higher taxes, we are reporting a net loss of 671 billion for the fiscal year. Despite the challenges, we continue to invest in new products, services, and technologies which are critical to the future. This led to higher capex at 577 billion and maintaining R&D spending of 620 billion. Net revenue for the automotive business was $11.4 trillion and operating loss in autos was $216 billion. Due to negative auto profit and increased capex, free cash flow for the automotive business was a negative $243 billion. Automotive net cash for the period was $1.5 trillion flat year over year. Next, I would like to explain the variance factors for operating profit from the prior year to this fiscal. Against the $569 billion operating profit in fiscal 23, we saw a positive impact from foreign exchange of $36 billion. The US dollar was stronger, however, this was offset by declines in other currencies. All material costs had a positive impact of $13.6 billion. The largest negative contribution resulted from the decline in sales performance, which was down by almost $300 billion. This was due to weaker unit sales volume, higher variable marketing expenses, and some lower after-sales revenue. Oil and mercury costs had a negative impact of $7.9 billion, as increased costs for regulatory and product enrichment offset improvements in manufacturing cost, logistics, and R&D. Inflation had a negative impact of $106 billion, with inflationary pressure felt along the monozukuri and G&A functions and affecting our cost-cutting efforts and our supplier cost. Other costs, including seen normalization in credit losses from sales finance and weaker remarketing results, had a negative impact of $135 billion. As a result, operating profit decreased to $69.8 billion. For the fourth quarter, operating profit decreased to $5.8 billion. This was primarily due to a weaker contribution from sales, along with higher raw material costs. Having reviewed last year, let's look ahead to fiscal year 2025. Overall, unit sales for the upcoming fiscal year are expected to decrease by 2.9% to 3.25 million units. This expected decline, which excludes potential impacts from higher tariffs, is mainly from an 18% sales decline we forecasted for China, while we expect retail sales excluding China to be slightly up 1%. Sales in Japan, North America, and Europe are expected to be flat. However, sales in other markets are forecasted to increase by 6%, in particular in Brazil and India. Global production volume is projected at 3 million units adjusted to a reduced volume outlook to manage inventories. This slide illustrates the operating profit variance analysis for the fiscal year 2025 outlook, excluding potential tariff impact. Forex headwinds are projected at 120 billion. We expect a small positive contribution from raw materials. The sales performance is anticipated to improve by $60 billion, in particular through an improved car flow management and new model launches in the second half of the year. Better manufacturing cost management, improved logistics, and the push on total delivered costs are anticipated to positively contribute to 160 billion from Monozukuri, with cost savings boarding as the new plan ramps up. However, these gains will be offset by inflationary costs of 145 billion and other expenses of 45 billion that include higher CO2 emission-related costs. Operating profit is expected to break even for fiscal year 2025, excluding the potential impact from tariff. I will now discuss our assessment of the current situation regarding U.S. tariffs. Our exports from Mexico and Japan account for roughly less than 45% of our total U.S. sales. We estimate that our negative gross impact before any mitigation is 450 billion yen. However, we aim to mitigate this impact through various measures. On the upper right hand side, you can see a list of the measures we are implementing. In Q1, our actions could enable us to mitigate approximately 30% of the expected tariff impact. For fiscal year 2025, we expect net revenue to decrease to $12.5 trillion. The guidance for FY25 operating profit, net income, and auto free cash flow is thought to be determined. The uncertainty comes from the potential impact of tariffs and additional restructuring costs which are currently being assessed. However, for the first quarter, considering the impact of tariffs, we are forecasting net revenue of 2.75 trillion yen and an operating loss of 200 billion. Auto free cash flow for the quarter is expected to be a negative 550 billion. Following Nissan's 7-year pattern, the first quarter is expected to be our most challenging period. As the year progresses, we expect to see steady improvement driven by a refreshed product portfolio and the impact from our cost reduction strategies. For liquidity, we have a total available liquidity of ¥3.4 trillion in the auto business. This includes ¥2.2 trillion of cash and cash equivalents and around ¥1.3 trillion of auto cash loans outstanding to sales finance companies. Additionally, we have ¥2.1 trillion in unused committed credit lines that are fully available. with approximately 600 billion allocated specifically to the automotive business. At the end of fiscal year 24, our automotive debt stood at nearly 2 trillion, of which about 700 billion matures in fiscal year 25. Applying to refinance between 400 and 600 billion of the debt maturing, therefore we expect to end fiscal year 2025 and enter fiscal year 2026 with total debt ranging between 1.6 and 1.8 trillion yen. To sum up, FY25 will be a year of transition for us, a year of decisions. We have enough liquidity to cover our family needs, which will support us as we restructure the business. While FY25 is a year of challenges and uncertainties, the actions we are implementing as part of our new recovery plan are designed to yield positive results in FY26. Thank you for your continued support and confidence in our journey ahead. I now hand back to Ivan. Thank you, Jeremy. As you can see, our full-year financial results are a wake-up call. But reality is clear. Our variable costs are rising. Our fixed costs are higher than our current revenue can support. And as Jeremy said, FY25 is a year of transition. So we are taking a prudent approach and keep our revenue assumptions flat. The reality is clear, we have a very high cost structure, and to complicate matters further, the global environment is volatile and unpredictable, making planning and investment increasingly challenging. Hence, Nissan must prioritize self-improvement with greater urgency and speed, aiming for profitability with less reliance on volume. This is what we are setting out to do with our new recovery plan, Re-Nissan. Our plan outlines three key drivers that will help us achieve positive operating profit and positive free cash flow by fiscal year 2026. These are reducing costs to aim for break-even, redefining our product and market strategy with a sharper focus, and reinforcing partnerships to complement our strategies. Let me talk through in detail. Reduce costs. This is the area where we need to go further and faster. With the help of cross-functional teams, we have reassessed and scrutinized all the assumptions on which forecasts were based in the past. Given our structural challenges and market conditions, we need to deliver more cost reductions on a significant larger scale. Our new target is total savings of ¥500 billion, which includes ¥250 billion from viable costs and another ¥250 billion from fixed costs. We have increased our target for viable costs and we plan to further reduce these costs in FY27 to achieve a solid and sustainable profitability. Now let me clarify why there are two sets of members. We are presenting the targets alongside the most recently announced figures to illustrate the extent of the reductions being implemented. The earlier targets were based on assumptions from the AHRQ business plan. Now, our goal is to establish realistic and measurable targets based on the actual results from FY24. We will be tracking our progress on these targets and reporting in a timely manner. To achieve the magnitude of variable cost reduction, we need a dedicated program and task force. We have already established a new variable cost transformation program to realize maximum engineering and cost efficiencies. Another big area is our supply chain. We are rethinking our supply base to ensure more volume for fewer suppliers and increase efficiencies while benchmarking. We will also be challenging our internal standards for more practical outcomes. With this, we aim for a 10% reduction over three years with the potential for further significant savings in FY27. The task at hand is very big and very challenging. We need a strong governance model to ensure we identify, execute, and achieve our reductions quickly. Hence, we created a sprint team under our Chief TDC Officer who will directly report to the Executive Committee. We have allocated 300 cross-functional and cross-regional experts to divert their efforts and expertise to achieve this goal. They have already organized more than 66 commodities and identified at least 19 different activities. This team has already generated a total of 2,300 ideas, with more than 800 ready for implementation, amounting to $75 billion in FY26. Many more ideas will follow, and we are pushing to bring them faster. Additionally, we will be pausing some advanced and post-FY26 projects, and with this one we will be able to reassign 3,000 employees to work on TDC reduction. This will not be where our production starts for new vehicles, thanks to our shortened development process. The resources we are allocating demonstrate the importance we place in this area and our commitment to succeed in this front. While we work diligently in variable cost reduction, we will seek further efficiencies to reduce our fixed costs. There are several initiatives, but let me highlight some key measures that demonstrate the scale of the actions. First is to restructure manufacturing. This includes consolidating our vehicle and power train plants globally, including Japan. This will require reducing the number of our manufacturing plants from 17 to 10 and increasing utilization rate to 100% by FY27. We will reduce our production capacity to 2.5 million by FY27, with the option to increase it by half a million if demand arises. Additionally, we will utilize our partner plants to support production as needed. We have already taken quick and decisive actions, such as consolidating the pickup production from Argentina to Mexico, reorganizing operations in India with our partner Renault, and stopping investment in an LFP battery plant in Japan. As part of our We Nissan program, we need to implement further workforce optimization, primarily driven by our plant consolidation efforts. We're aiming for a revised global target of 20,000 people by FY27, with roughly 65% coming from manufacturing, 18% from SG&A functions, and 17% from R&D, mostly contractual staff. While this decision is essential for enhancing operational efficiency and ensuring long-term sustainability, we will for sure ensure necessary support to affected employees during the transition. In addition to these reductions, we will focus on lowering labor costs and expenses, expanding the utilization of shared services, and achieving greater marketing efficiencies. In the area of development, we will focus on improving efficiency in three key areas, cost of engineering, complexity, and speed. We aim for a 20% reduction in workforce average cost per hour by rationalizing our global R&D facilities and allocating work to the most competitive locations within the Nissan global R&D footprint. In addition, we are targeting complexity reduction in two major areas. The first is parts complexity, which we aim to reduce by 70%. The second area is platform reduction, and while this takes time, it will help reduce engineering workload in the short term. We plan to cut the number of vehicle, mobile vehicle platforms by nearly half from 13 to 7 by fiscal year 35. And regarding speed, we have outlined efforts to shorten development lead times through the family development concept. We have invested significant energy into this initiative, and we are excited to announce for the first time the first three vehicles that will emerge from this process, the all-new Nissan Skyline, an all-new global C-segment SUV, and an all-new Infiniti compact SUV. Here you can see the timeline for implementation extending through FY27. This timeline reflects our commitment to executing these tasks and underscores our dedication to transparency in our processes. We believe in open communication with our stakeholders and this timeline will serve as a tracker to demonstrate our progress and the impact of our initiatives. We fully expect to be held accountable for our announcements. Now, I would like to explain our second area of focus, our redefined strategy for markets, products, and partnerships. As previously stated, we understand that a sustainable recovery plan cannot rely solely on cost reduction. It must also be supported by strong product offerings. To this end, we will concentrate on developing vehicles in core market segments while collaborating with partners to create vehicles tailored for other markets and needs. Here you can see the segments in which Nissan will develop vehicles and how we will leverage our partners to support other segments and markets. For instance, we will collaborate with Renault in Europe, Mitsubishi in the US, and Dongfeng Nissan in China, not only for the Chinese market but also for exports. We will leverage models from one of these approaches to cover other markets and explore further collaboration opportunities in the US to adapt to the evolving market environment. We will prioritize markets and products to ensure we have the right models for the right markets at the right price points, aligning supply with demand. This involves establishing distinct strategic positions for each region. In the US, our focus will be on crossovers and SUVs with plans to offer more hybrids and reinvigorate Infiniti's market presence. In Japan, we aim to renew Nissan's distinct brand appeal while driving up our average price by leveraging larger size models and signature technologies. In China, we will more effectively leverage our joint venture to lower costs and optimize the production of new energy vehicles. Additionally, we will begin exporting our NEV models to markets outside China, ensuring speed, cost competitiveness, and innovative technologies. In the high-growth Indian market, we will renew our product lineup and maximize synergies within the Alliance. We have already taken a step in this direction by transferring control of our plant in India to Renault, allowing our Alliance partner to assemble next-generation models for Nissan and enabling us to capture export markets. In Europe, we will strengthen our presence by assembling more electrified models in Sonderland and utilizing our alliance relationship with Renault to take advantage of their assembly lines and electric vehicle architectures. Finally, in Mexico and the Middle East, we will capitalize on our strong brand position to sustain the profitable business we have established in those regions. In very simple terms, all our product efforts must be aimed at making the heart of Nissan beat stronger. We will prioritize our portfolio investment around three key objectives. First, we must retain our core business and current customers by providing vehicles that they value. Second, we will focus on geographical and segment growth to attract new customers in targeted markets. And third, we really enhance our marketing and sales efforts for our iconic models, which represent the heartbeat of Nissan, to reignite customer passion for our brand. We take pride in our heartbeat models, which reflect the true DNA of Nissan. They are defined not just by sales volume, but by their iconic design, engineering ambition, and most importantly, by how they fully represent Nissan's values. Additionally, partnerships will enable us to cover various segments and regions with optimized investments, allowing us to refocus our resources on core project priorities. Our focus on core models will be supported by complementary vehicle development in collaboration with our partners. With Renault, we will enhance our collaboration in Europe, India, and Latin America. We are also working with Mitsubishi Motors and Honda to explore advancements in vehicle intelligence and electrification. Specifically, with Mitsubishi Motors, we are collaborating on pickups and EV battery sharing. We will continue to actively seek business collaboration in the U.S. to adapt to evolving market conditions. And in addition to our partnership projects, we are continuing our strategic review process, and we will, of course, provide updates at the appropriate time. We are not only committed to the actions we take, but also the results that they yield. To drive this change, we are establishing a special steering committee to oversee initiatives in all areas. This committee will bring together our best and brightest from both regional and global teams, ensuring comprehensive coverage, visibility, and accountability. I will be chairing this committee with the support of the Executive Committee of Nissan. I extend my gratitude to the senior leaders and the wider executive team for the dedication and the task ahead, as well as to the employees for their invaluable support in achieving our goals. In conclusion, I would restate that our fiscal FY24 results have exposed the urgent need for recovery at Nissan. To safeguard our future, we have to go further and go faster. We have a mountain to climb from the losses we are announcing today. As our path forward, the remit and recovery plan is action-based, grounded in reality, and driven by determined actions. It will not be easy to deliver it. It will require dedication, discipline, and hard work in every part of the organization. But I'm confident that we have what we need to rebuild our company. We need the understanding and support from our valued business partner and stakeholders, as well as collaboration from future partners. And with the shared mission, Nissan people have the skills and ability to return Nissan to its rightful position. As I have stated before in several forums, I truly believe there is no competition that cannot be won by working together as one team. And today we're starting the building of the future of Nissan. Thank you for your attention. Thank you, Ivan. 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 and ask your question. Please speak in Japanese if you are participating via the Japanese Zoom link, and please speak in English if you are participating via the English Zoom link. And as a matter of fairness to other participants, please limit yourselves to two questions.

Okay, City Securities, Yoshida-san, go ahead. Yes, thank you for the opportunity. I am Ishida from Citigroup. In fiscal year 2026, you are going to reach a breakeven of OP. That's what you showed us. But on the other hand, with the restructuring, the restructuring will benefit from 2027 onward in particular. At that time, utilization rate will reach 100%. In 2027, utilization rate of 100%. When at this time, what is the operating profit that you are assuming as a target for 2027? That's my question first one and another question is simpler tariffs impact 450 billion yen that you showed us this estimation how what are the assumptions that you use to estimate this for example suppliers bought out parts assumption could you give us the details of the assumptions for 450 billion in tariff impact thank you

Okay, so let me start to answer the first question. The restructuring will not only start from 2027. There's a few things that we are laying down today that will kick in from 2026 and even earlier. We're just looking, or probably you're just looking at the fixed cost side of the equation. But as I explained, the viral cost piece plays a very important role as well. On the viable side, as mentioned, we have already put in place a team of 300 people, and they have found opportunities that add up to 75 billion yen in 2026. And this is before the additional 3,000 engineers that we will dedicate in the coming months to cost reduction efforts. So we can expect to see further improvement before 2027. And there will be a gradual rollout of the measures of restructuring. It's true that part of it will come in 27, but also we will see gradual flows as we go in the years before then. As for the target, what we're saying today is Auto OP for 26 and Free Cash Flow positive in 26. And of course, the targets for 27 should go beyond that. We don't have a concrete number to show today, but of course, it should be piling up and adding on top of this target that we are given. As for the tariffs, I will ask you, Jeremy, to share a bit of detail of the assumptions behind the $450 billion. So as regards tariffs, we shared with you our exposure. The total exposure is 450. I would say roughly two-thirds of the exposure is linked to the imports. and we have shared with you the imports from Mexico and from Japan and within those, even though they are not the same size, they are fairly similar in terms of exposure and the last third of the exposure is