Nissan Motor Ltd S/Adr

Welcome to the Nissan Financial Results for the first quarter of fiscal year 2025 Investors and Analyst Session. This is Julian Krell speaking, Head of Investor Relations, and thank you very much for your time this evening. 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 as always. Thank you. For today's quarterly financial results presentation, I am joined by Ivan Espinosa, President and CEO, and Jeremy Papin, CFO. Ivan will start the presentation with a re-Nissan update, which will be followed by Q1 financials and latest outlook presented by Jeremy. The session will conclude with a Q&A session. So, Ivan, thank you very much for your time, and over to you.

Thank you. Thank you, Julian, and good evening, everyone. I hope all you are safe in light of the tsunami warning and the I'm hoping that you can take all necessary precautions and stay close to your family. Eleven weeks ago, I announced the Renison Plan and outlined the scale of our recovery efforts. Since then, we have made very meaningful progress and we have a clear understanding of the work ahead and have mobilized teams across the organization to execute the plan with discipline and also with urgency. Our financial results for FY25, especially H1, reflect the magnitude of the challenge that we are facing, but they also reinforce why the re-Nissan transformation is so critical and why our disciplined approach has to continue. Now let me begin by recapping the plan and detailing the actions that we have taken so far. As a reminder, the focus of re-Nissan is to restore auto profitability and achieve positive free cash flow by fiscal year 2026. This is not the final goal. This is the foundation for our future business. And in order to drive a recovery, a robust and sustainable recovery, we're executing comprehensive recovery actions across three key drivers. We are implementing measures to reduce costs. We are also redefining our approach to products and markets, aligning offerings more precisely with real market demand. And we are reinforcing our key partnerships to unlock economies of scale and deliver value at a significantly lower cost. Today, I will update the progress on two drivers. First, reducing the costs. We are reshaping our cost structure, aiming to save 500 billion yen through both fixed and variable cost reductions. We have taken decisive action to reduce variable costs and the Obeya office is now driving this transformation with speed, discipline, and measurable impact. The Obeya team brings together 300 specialized experts who are backed by 3,000 colleagues that we have temporarily shifted from long-term product work. For three months, they are focused entirely on re-engineering how we approach cost reductions, working in fast-paced sprints to deliver impact quickly. The team has already generated over 4,000 cost-saving ideas, 1,600 of which are now implementation ready. We have already identified actions that are giving us visibility in two-thirds of the net cost savings, underscoring our commitment to discipline cost management and rapid delivery. In addition, we are eliminating inefficiencies that exist in some areas and challenging legacy practices with discipline and urgency. We see the momentum is building up, it's real, and the transformation is underway. We are still in early stages of our recovery, but we are already making steady progress in reducing fixed costs. Of the seven manufacturing sites we plan to reduce from our footprint, five have already been announced. To quickly go through these again, production in Argentina of Frontier and Navarra pickups is being transferred to Mexico. We have sold our 51% in our joint venture in India to our partner Renault, which will continue to produce Nissan vehicles in the future. Here in Japan, we will transfer production from Opama plant to our Kyushu production base with vehicle assembly in Opama ending by fiscal year 2027. Production of NV200 at the Shatai Shonen plant is ending by fiscal year 2026, marking the end of Nissan model production at the site. And today we announced the fifth production site in Mexico. We will be transferring production from the CIVAC plant to our Aguascalientes production site with vehicle assembly in CIVAC ending by fiscal year 2025. Beyond this, we continue to execute measures for efficiency, and so far we have consolidated production at the plant in Thailand, moving to a single assembly line, and we have also announced changes to shifts in the US and UK plants. To drive fixed cost reductions beyond manufacturing, we have formed a dedicated cost task team. These efforts are already delivering results, showing more than 30 billion realized in Q1. providing strong visibility for the full fiscal year. We also have a clear roadmap to achieve our target of 20% reduction in the average engineering cost per hour. The task team is conducting a comprehensive review of expense overheads and auditing capital expenditures across the value chain to ensure every opportunity for cost efficiency is captured. We will continue to share updates as they become available. Now, Moving to the next driver, which is redefining our product and market strategy. Since the launch of ReNissan, we have taken decisive steps to reshape our market approach and align our product offerings with customer demand across key regions. The models introduced in Q4 of last fiscal year are gaining traction, and we are building on that momentum. In Q1 of this year, we introduced additional models, and we will continue to expand our lineup throughout the remainder of the year and beyond. Highlight of Q1 is our new heartbeat model, the all-new Leaf, which will be introduced in the U.S., Europe, and Japan. In addition, we are focused on high-demand models, including the next-generation K-car and the L-Grand in Japan. In the U.S., we are expanding our SUV portfolio with the plug-in hybrid Rogue, alongside the Armada Pathfinder and Infiniti QX60, and also a new Sentra will also be introduced as a core model for North America. In Europe, where electrification continues to drive demand, we have launched the Micra EV and the Qashqai with next-generation e-power. In Mexico, Nissan maintained its leadership position with successful launches like Mach 9, contributing to solid sales and segment dominance. In China, the new N7 NEV is already proving to be a sales success and we are preparing to export China-made vehicles to other markets. The product offensive, as you can see, is accelerating and further model announcements are planned for the next months. Now, let me stress again, re-Nissan recovery is a two-year plan. and we are progressing with discipline and intent at the right pace. Fiscal year 2025 is our transition year, the year in which we are taking decisions as we simultaneously execute actions. These actions are being delivered in structured phases, each with clear milestones and accountability. While we expect to see tangible impact of our variable cost transformation By the end of this fiscal year, we do acknowledge that variable costs will take a little bit of time to show in our results. This is due to the nature of changes we need to implement in our operational framework. The consolidation of our manufacturing footprint is on track for completion by fiscal year 2027. We are also working on the consolidation of our powertrain production, and we will be sharing progress in due course. Our workforce reduction is progressing in phases aligned with the timing of the operational changes across locations. In parallel, we are executing actions to optimize G&A expenses, which is an area in which we are already seeing good progress. Our focus on streamlining development activities is on track, with benefits expected to begin showing in the first half of fiscal year 2027. Now, let me conclude with reaffirming that each stage of the Renissan plan is being implemented with discipline, dedication and with a focus on delivering enduring value. With that, I will hand it over to Jeremy to present the Q1 results.

Good evening everyone. As Ivan noted, we are advancing steadily with Renissan and that progress is encouraging. At the same time, the magnitude of our challenge remains significant as it is reflected in our Q1 results, which reinforces the urgency of our continued disciplined execution. Let me begin with a brief overview of our Q1 performance. As expected, we had a muted start to the fiscal year, with retail sales down by 10%. Our operating loss of 79 billion was better than we had guided in May, thanks to one-time gains and some early signs that our fixed cost control is starting to take effect. Free cash flow was negative 390 billion, but automotive gross cash position remains solid at 2.1 trillion yen. To reinforce our financial flexibility, we have raised 860 billion yen in July through both straight and convertible bonds emissions, fully covering FY25 and FY26 debt maturities. At the end of June, our total automotive liquidity stands at 3.1 trillion yen, including 2.1 trillion cash and 1 trillion of auto cash lent to sales finance. On top of this, we also have access to 1.8 trillion yen in committed unused credit lines. Looking ahead, we are maintaining our fiscal year 25 retail sales forecast, and introducing a Q2 forecast with operating loss expected to be negative $100 billion and free cash flow expected to be approximately negative $350 billion. We anticipate a return to positive territory in the second half of the year in line with our seasonal pattern. Let me go through the details of Q1 results. Unit sales for Q1 were down mainly due to challenges in China. Competition remains intense, the non-privileged JV segment continues to shrink, and the price war has escalated further. As a result, our unit sales in China dropped 27.5%. We faced an 11% decline in Japan, with returning competition in the K-car segment and lower showroom traffic. The 2.4% decline in North America is partly due to our adjustments to the tariff impacts that are reshaping the competitive landscape. In particular, we focused our sales efforts on U.S. produced vehicles and prioritized private retail channels while scaling back rental fleet sales. This strategy is beginning to gain traction, as seen in month-over-month improvements in our U.S. retail market share trend. A notable highlight in the quarter is Nissan being ranked number one mass market brand in J.D. Power's IQS survey, an achievement that could positively influence both our brand image and sales performance. In Europe, we saw a 5% decline, primarily driven by reduced overall demand for electrification, and at Nissan, we had to cover the LEAF model change. At the end of production of the NV400, The 9% decline in other markets is mainly driven by the changeover kicks model in Brazil. On a positive note, volume growth in the Middle East was fueled by strong demand for the midnight and the ongoing success of the new patrol. Proceeding to the right-hand side of the chart, our production volume declined by 14%, primarily due to the 31% reduction in China. This was driven by ongoing restructuring efforts and production optimization, including reduced operating hours and capacity adjustments. In parallel, we proactively managed lower dealer inventories ahead of the model year change in the U.S. and the launch of new models in Europe and Japan, aligning production with anticipated demand and managing impacts to our free cash flow. Consolidated net revenues for the period were $2.7 trillion with an operating loss of $79 billion and a net loss of $116 billion. Excluding our sales and leaseback operations, our capex remained largely flat year-on-year. And through disciplined control in R&D spending, we reduced them from $148 billion to $140 billion. In the automotive business, after eliminations, revenues were $2.4 trillion, reflecting lower wholesale volumes and about 200 billion of negative forex impact. Our operating loss deepened to 158 billion, including a tariff impact of nearly 70 billion yen. Consequently, the free cash flow in the automotive business was a negative 391 billion yen. This was expected due to seasonal factors, specifically lower payables in Q1 that affect adversely working capital. At the end of the quarter, our net auto cash stood at 1.1 trillion yen. The operating loss of 79 billion for the period reflects some specific factors. Of these, we were adversely impacted by 40 billion of Forex effects, mainly due to the weakening of the U.S. and Canadian dollar. There was a 69 billion negative impact from tariff. Our sales performance resulted in $5 billion positive, reflecting a positive momentum from volume mix and incentive pricing. However, this was offset by decline in after sales, mainly due to lower wholesale volume. Our monetary costs contributed $25 billion, where we saw higher variable costs offset by better fixed costs and lower depreciation on some of our production assets. Inflation was a negative $26 billion in the quarter. We also recognized a $29 billion improvement from a one-time adjustment to our provisions for warranty costs. Sales finance and remarketing also contributed positively year-on-year, with a $19 billion improvement. However, we had to accrue costs related to CO2 emissions compliance. Our first quarter operating loss of $79 billion is better than our initial outlook. We had taken a very cautious stance at the start of FY25 to account for potential risks. Adjusted for some one-time positives, the underlying Q1 COP stands at a negative $108 billion. Several factors outperformed our expectations. including lower tariffs a greater positive impact from product mix lower credit losses in sales finance and stronger remarketing results we also benefited from solid fixed cost reductions we continue to actively manage our automotive liquidity in early july we issued 660 billion in both euro and dollar straight bonds with maturities ranging from four to ten years and 200 billion in convertible bonds with a six-year maturity. Proceeds from the straight bonds will be used to refinance the 700 billion of debt maturing this fiscal year. The net proceeds from the convertible bonds will be used over the next few years to invest in product development technologies such as electrification and software-defined vehicles. For Q1, prior to the bond issuance, We ended the period with total available liquidity of 3.1 trillion. This includes 2.1 trillion of auto cash on hand and 1 trillion of auto cash that has been lent to sales finance company. In the first quarter, sales finance actually repaid some of the cash it borrows from auto while increasing its securitized funding. Additionally, we have 1.8 trillion in unused committed credit lines if needed. We maintain ample liquidity for upcoming maturities and to cover our funding needs as we continue to restructure the business. I will now move to the outlook. For volume, we are confirming our previous forecast provided in May. We expect retail sales to reach 3.25 million vehicles this fiscal year. down by nearly 3%, mainly due to the projected 18% fall in China. Sales in Japan, North America, and Europe are likely to be flat year-on-year, and other markets are forecasted to grow 6%. As explained by Ivan earlier, we are ensuring a global product momentum. This should enable us to reverse the trend in Q1 and grow our retail sales starting from Q2. Production volume is projected to be 3 million units as we continue to manage actively our dealer inventories. For the financial outlook, we expect net revenue of $12.5 trillion for the current fiscal year. But given the external market environment, in particular ongoing uncertainty related to tariffs, we are not able to provide a detailed full year forecast yet. We would like to share our current visibility for the second quarter. Revenue at 2.8 trillion yen, an operating loss of 100 billion yen, and a negative operating free cash flow of 350 billion yen. This outlook reinforces the urgency of executing the re-Nissan plan. They do show some improvement compared to the first quarter when adjusted for the one-time gain. Let me reiterate Ivan's words. Green Nissan is more than a plan. It's a company-wide commitment. With clear oversight and cross-functional execution, we are rebuilding competitiveness. We truly appreciate our employees' and partners' commitment and their support on this journey. Thank you.