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.

Thank you, Jeremy. 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 a question. Please speak in Japanese if you are participating by the Japanese Zoom link, and please speak in English if you are participating by the English Zoom link. As a matter of fairness to other participants, please limit yourself to two questions.

Naruse-san, please go ahead. Yes, thank you for the opportunity. I am Naruse from Okasan Securities. This is the first question. There will be a simple one. The first one is first quarter. Originally, 200 billion yen loss came down to 79.1 billion. You elaborate on that a little bit. What are the positive contributors? Could you give us the size of the figure? What were the positive contributors? compared to the initial expectation could you clarify this point that's my first part and there may be a time difference timing difference that is why in q2 it's a negative loss of 100 billion yen what is the variance between q2 the roadmap to q2 that's my first question and the second question is but tariff exposure in the first quarter 687 is how does it compare to initial expectation this tariff exposure in q1 450 billion year was the maximum that you estimated but the tariff is reduced from 20 was revised so your guidance on the tariff exposure for folio what is your estimate as of now as a result of the change thank you so on the on the um

gap between our 79 loss actual and the initial guidance of minus 200. I would say first to start with the 200 was a cautious guidance. There was a lot of uncertainty around tariffs. We also had uncertainties around supply chain stability. We were dealing with some questions around rare earth at the time, so I would just put that context back into how we communicated back in mid-May. However, and I also want to highlight the fact that we obviously were not anticipating the change in our warranty accrual, which we were obviously working on, but we didn't expect it to be booked in Q1. Besides that, let me reiterate, again, tariffs were a little bit better than expected. Our product mix was also slightly better than expected. Our marketing efficiency savings were a little bit better than expected. And in Monozukuri, we saw some improvement beyond expectation, particularly on the fixed side. And yes, there is also maybe some timing between Q1 and Q2. R&D, for example, which is down in Q1 year on year. we should have a higher R&D cost in Q2. So quarter over quarter, some of that will come higher. The seasonality of our R&D spend this year is going to be slightly different than it usually is with the biggest quarter of the year being Q2. And that's built into the forecast. Full year R&D should be at the flat or slightly down compared to last year. So that's how I would characterize the gaps to the initial guidance and the bridge to the Q1 to Q2. On tariffs, I would say in the end, the tariffs were, as we mentioned, 70 billion, 69 billion yen. That is roughly a few billion, five, six billion lower than we would have anticipated. That's what I would say. However, the tariff outlook is evolving fast, driven by two items. The first one is obviously the rules themselves. You mentioned the agreement between the Japan and and the USA, and that is going to help compared to 25, but definitely not compared to the previous 2.5%. And so I think it's – and the second item is the car flow management, the localization of sourcing, and the activities that the teams are running and engaged in, in terms of both reducing the tariff exposure and maintaining or improving the cost competitiveness. So I think we can safely say today that the $450 billion exposure that we had in a worst case scenario is going to be at 300 and we obviously see room for a lower exposure as we will get clarity on the Japan rate and the Mexican rate.

That's clear. Thank you so much.

Thank you.

Thank you. Okay. Moving on to Mizuho Securities. Nishiyama-san, please. Nishiyama speaking. Do you hear me? Yes, we do hear you. Go ahead. I have two questions. The first question. q2 100 billion yen loss what is the assumption behind this operating loss 100 billion in tariff exposure what is the assumption here and q1 200 billion yen was the initial expectation i think is this also conservatable q2 guidance could you give us the figures to talk about the reasoning of this 100 billion in loss for q2 that's the first one and the second one is about financing or funding approach this time in total 860 billion yen was funded in July During this financial announcement, according to the diagram, funding was 400 billion or 600 billion. That was what you said back in May. What is this gap, 500 billion yen to 860 billion yen? And going forward, when you approach funding, what kind of items are you going to look at when you are deciding on the funding plan? That's all. Thank you.

Thanks for the question. On the $100 billion loss and the level of tariff assumption that we have, I would say it will be, in the $100 billion, it's slightly higher quarter over quarter in terms of our exposure to tariffs, and we're still working through the... how we will account for some of the credits, producer credits, and the U.S. content credits that the rules seem to be providing us with. But in the $100 billion, you should assume that the tariff exposure will be bigger based on more sales in the USA in the second quarter than in the first quarter. On the funding, again, I think we were going to – when we guided for the 400 to 600 billion, what we wanted to highlight was the fact that the intent was to – if we had access to the capital markets on acceptable terms, we would be trying to – cover our FY25 maturities and possibly more. FY26 is a small maturity but we tried and so when we were in the market there was an opportunity to do that and so that's how we executed the transaction. I would say that We now consider that we have ample liquidity. Again, we have covered the maturities. We are projecting automotive free cash flow to be breakeven next year. So I don't think we need to pursue any further capital markets funding. and I think the bank partners are also satisfied that the refinancing was executed for the bonds repayment, bonds maturing is being refinanced in the capital markets as well. So that's how I would characterize what we did in July and how we are thinking about the funding going forward.

Thank you. Just one thing, a follow-up question. The first question, Q2, 100 billion yen loss. Tariff, additional tariff on Japan, 25% is the assumption that is applied for Q2 guidance of 100 billion yen. Am I right? Okay, understood. Thank you very much.

Thank you very much. UBS Securities. Takahashi-san, please go ahead.

Hi, it's Kohei from UBS. Thank you very much for taking the question. So two questions about U.S. One is just you announced SIVAC restructuring. So can you explain the detail of whole North American production? So like production of some model moving from Mexico to U.S. I think is another factory with low utilization rate in Mexico is Compass, which I guess already announced the superb production of QX50 and QX55, which indicates Compass will be also integrated into the other factories. And the Remaining, I think the issue is low utilization rate of SMANA factory, which mainly makes the most important model ACP. So can you clarify how North America production will be streamlined by reducing the capacity in CBAC? That's one. And the secondary, so US sales, I think I understand that in the next maybe one, two years, still not so much new model, there may be like a tough period to operate. But as you guys start drastically restructuring, so what kind of KPI we should monitor to check whether really the sales activities are changing or not? In the past, probably investors are saying that I've been struggling to understand why their management continues to mention the high quality, but I think the incentives, ventures, free sales, all like an easy indicator showing that kind of enter into the negative cycle. So what kind of KPI you monitor for the usual activities in the U.S. operation. Thank you.

Thank you, Takashi-san. Let me answer your first question. This is Ivan Espinosa. So on the manufacturing footprint in North America, so what we announced today is that we are moving the production of CVAG models to Aguascalientes. So to give you a bit of context, we have two production lines in CVAG. one line that was dedicated to passenger vehicles and pickup line. The passenger vehicle line was working on a temporary contract with some workers and it was already planned to end production this year. And what we are adding to that stop or end of production is to move the pickup production to Aguascalientes by the end of fiscal year 2025. So this is what we are doing, and this is how we are shifting in CVAC and in the Mexican manufacturing footprint. Then for your question on Compass, on Compass, as you rightly said, we announced before already the plan to stop the production of QX50 and 55 in December 2025. And Daimler announced the stop of the GLB in February with a potential additional volume running up to May 26th. We are discussing with them what is the future plan, but we don't have any specifics to share now. We are in continuous discussion with Daimler around Compass. Then for Smyrna, the utilization rate of Smyrna, we see a very good traction on models built in Smyrna in the recent months. We have first, in total, the U.S. retail sales year over year has increased 2%. And in the last quarter, the retail sales, private retail sales, increased 12% quarter over quarter. And some of the specific models to your questions that are built in Smyrna, you can see year-over-year retail of Pathfinder increasing 52% and year-over-year retail of Rogue increasing 36%. So this will continue, we hope to improve for the better, and this will continue improving the utilization rate in Smyrna. So we want to continue building volume in the U.S. because this is going to help us drive our cost performance to a better direction. So we continue to monitor that closely and keeping efforts on maintaining that momentum. Yeah, for the second question, I will let Jeremy elaborate on it.

I think on the KPI that we are very keen on following is the momentum in the U.S. retail sales, pure retail I would say. We mentioned we did many changes in terms of how we engage with dealers, the simplification of our programs, further alignment between sales objectives for us and for the dealers. We have adjusted the way we do the car flow. And so all of these are materializing in terms of greater dealer engagement and a greater pull from the dealers. So we are going to definitely continue this. You will see in some of the appendix that the U.S. incentive rate year on year is not moving and we obviously are repurposing some of the incentives that were in the fleet business towards gaining traction on the retail side, particularly the products that are produced in the U.S. where we are seeing meaningful traction Rogue was mentioned. Pathfinder is also growing significantly as well as Frontier. So this is the strategy and this is what we're pursuing, volume growth for the U.S. production.

Thank you very much. So I want to confirm the first point. So Ivan, so now announcement of CVAQ, so the reduction of capacity in North America is almost done or still on the process?

Well, as I said, CVAQ is done and COMPAS we're still discussing and that's what we can say today, Takahashi-san. The US for the moment, we don't want to touch because we don't know what may happen in the future. I think it's a good thing to have some flexibility in the U.S., and this is what we will continue to observe in the coming months.

Okay. Thank you very much for your clarification. Thank you, Takashi-san.

Okay. Thank you so much. Moving on to CLSA Securities. Christopher-san, go ahead.

Okay. Can you hear me? All right. First question that I had is you are guiding for the first half, but not the full year for operating profit. And you say that there is uncertainty for you. Could we perhaps zero in on exactly what areas of, I presume, tariffs that are uncertain for you to the degree that you don't want to guide for the full fiscal year? The second question that I had was, you've taken, you know, you've refinanced some debt. The rates on the straight debt are relatively high. And I wanted to ask if this would negatively impact the auto finance business. When I look at those rates, it seems kind of hard to imagine maintaining a positive spread at those kind of rates. And does this create a risk that as you refinance more debt, that there could be deterioration in auto finance profits? I'll stop there. Okay.

So on the uncertainty that we're referring to around tariffs, I would say first of all we don't know for Mexico and it's a meaningful business and exposure for us. Second is the U.S. rules allow for the production in the U.S. to claim credits as well as U.S. content credits and the application of that to our accounts is still something we are discussing and further understanding. And finally, we're also reassessing the exposure of our supplier network to tariffs. And we're working with the supply base. So I would say the combination of these three elements that will be clarified, I would expect in the next few weeks, is what's holding us back at this point in time. That's for the first question, Chris. On cost, thanks for asking the question. So what I can say is that swapped in yen, the net interest cost for us is roughly 3.5% to below 4%, which... is acceptable. And to size the auto net interest cost, I think you can imagine that it could be up about 10 billion yen year on year in 25. So this puts context around some of the comments you were making about the high level of the coupons. I think once you... You know, you look at it the way we look at it. It's actually very affordable for the credit rating that we have. And finally, I would just point to the fact these are all auto emissions of the auto business. None of them are sales finance related. Sales finance, actually, if you go in the appendix, you will see that the sales finance funding source in the quarter has increased its asset-backed securities to 36%. That's page 21. And that's up from 21%. And that's up from 27% at the end of last first slide of the appendix. And that is the funding sources for the sales finance. So we're at the ABS of 36 and the previous Lee, we were at 27. And as you know, this is ABS is unrelated to the credit rating of the parent and is the cheapest source of financing that we can have. The emissions are AAA rated.

All right, thank you for that explanation. I'll take a closer look at it. Thank you very much.

Okay, thank you. Moving on to Goldman Sachs. Yuzawa-san, it's yours. Yuzawa-san, you are on mute. This is Yuzawa. Do you hear me? Yes, go ahead, Yuzawa-san. I have two questions. The first question is about how to recover the exposure of the tariffs. In the first quarter, 68.7 billion yen, this is the gross exposure, right? How did you recover this? How did you alleviate this? After saying this, throughout the year, 30% is how much you want to alleviate. That's what you said. You priced it, makes improvement. There are a lot of means that you described. 30% recovery. Is U.S. market condition enabling you to alleviate 30%? And the second point, restructuring. Thank you for the details. Last fiscal year, you did a huge impairment loss. But Obama plan, Shonan plan, Mexico, these new additional entities, additionally, there will be spending in cash and non-cash. How much spending is what we need to anticipate for non-cash and cash? These are the two questions. Thank you.

So I can take one and then you take the second. That's all right. On the tariff, thank you for the question. I think it's a combination of things and Jeremy alluded a bit to it. One part of it is focusing our efforts on tariff-free products, so a bit of mix. We are, as you know, around half of our business is sourced in North America, in the U.S. So we are focusing our marketing dollars into those products. That explains also why our year-over-year retail is improving in some of those vehicle lines like Pathfinder and Rogue. So this is one of the measures that we're taking. We are also adjusting volume down on vehicles that are exposed heavily to tariffs and are not creating profit for the company, namely some of the products produced in Mexico. We are also working on resourcing of some components and also working on on the acceleration of the transaction of the taxation reimbursement with the government, which is also another level of measure that we took. And so the combination is allowing us to mitigate the tariff exposure that we have. But still, it remains a heavy burden, as mentioned earlier. The fact that it's 15 is not there. It's not a reason to celebrate. We still have a lot of work to continue doing. And Mexico is still uncertain at the moment. So we still need to keep monitoring the situation on the tariff. So Jeremy, you want to complement that?

Yeah, I would just say that we're looking also, especially from Q2, with the model year changes at the competitive landscape. And the teams are obviously trying to take any pricing opportunities. So we'll see if that can materialize or not. But it seems as if... The industry is moving a little bit that way. So, again, the mitigation is a combination of the rules changing, the credits that have been awarded, car flow adjustments we've made, sourcing of parts. And then from Q2, we will see if any pricing can be picked up. We have not put it in the forecast. for impairments and restructuring charges. So in Q1, there is a 40 billion impairment charge that covers mainly Japan assets and another 10 billion of restructuring charge that was booked. So that's in Q1. As regards the full year, For impairments, I think it could be providing your guidance north of 60, I would say. And for the restructuring charge, it could be around $100 billion. We are basically pulling some of the actions we had decided to make later in the plan into FY25. So a lot of this is moving from 26 to 25. In terms of restructuring cash out, I would guide towards $100 billion at the moment. And I would just remind you that in Q1 we also executed on an asset sale and we got $50 billion of cash there. So that covers restructuring, cash outs, impairments, and then realizing asset sales to cover some of the restructuring charges.

Thank you. Just one thing. Excuse me. In Q2, 100 billion loss. Excuse me. Maybe I mistook it. Including Japan, 25% of tariff is applied for 100 billion of loss. There may be a pricing opportunity, but you haven't incorporated a benefit of pricing of loss of 100 billion yen in Q2. Am I right?

Both assumptions. We are using 25% and we have not assumed any price.

That's very clear. Thank you.

Thank you very much.

J.P. Morgan, Kishimoto-san, please go ahead. Thank you for this opportunity. I have two questions. First, auto business free cash flow, how do we look at it? Q1, seasonally, free cash flow tends to be tight because of working capital. I understand that point. But according to your explanation, you're assuming that the free cash flow negative will continue in Q2. So how should we interpret that? Could you elaborate on the trend towards Q2? Should we think that production improvement ramp up will not go up in Q2? Then, when we think about the cash flow of the auto segment for the full year, I do understand regarding the financing, but net cash will become lower than 1 trillion yen. as a one time off event so free cash flow and how should we interpret that in the quarters ahead and that's my first one secondly variable cost 250 billion various ideas have been proposed according to the explanation you said that there are about 1600 items regarding variable cost I used to think that it would take more time but are you front loading those efforts if so what would be the timeline for achieving 250 billion by the end of this fiscal year versus next fiscal year thank you okay so on the free cash flow for uh for um uh

Q2 compared to Q1. Obviously, the assumption is that the P&L contribution is going to be slightly lower. We also have a number of cars that are being launched over the summertime. Some of them are being exported from Japan. So at the end of September, we're anticipating, I would say, inventories that are not as low, central inventories that are not as low as what we had at the end of June. So we will have that coming. I would say, weighing on our cash flow for Q2. That's how I would... And then some possible ramp-up in CapEx as we launch new models. So that's how I would characterize it from Q1 to Q2. On the net cash outlook, I think, you know, you... You clearly understand the management of the liquidity is to maintain roughly $2 trillion in gross cash in the auto business. The net cash is a function of this gross cash and then obviously maturities on the debt side that have now been extended quite significantly given how we cover the maturities. I would say the intent is to maintain a auto net cash above 1 trillion yen, but we may have some quarters where we go below, mostly driven by working capital swings. That's how I would characterize the evolution of the net cash position. We do think at year-end we can be above a trillion.

Yeah, maybe I can elaborate on the viable cost. On the viable cost timing, we have piled up, as mentioned, as you highlighted, we have piled up 1,600 ideas ready for implementation. This gives us visibility for around two-thirds of the goal in FY26. So we are keeping the objective of getting to $250 billion by 2026. If your question is about how much we can expect in 2025, at the moment we're seeing something around $30 billion, and we are trying to accelerate as much as we can. As explained, in the viable cost side, it takes time in the supply chain to get the cost reduction implemented into the vehicle line, and then the vehicle being wholesaled, and then seeing the benefit flowing to the P&L. So it's kind of a long ramp-up curve, let's say. But at the moment, in terms of ideas towards the FY26 goal, we have around two-thirds of visibility, a little bit more of 150 billion, out of which around 30 visible for FY25. This is where we are as of now on this Kishmotsan.

Thank you, Ivan. So this was already the last... Oh.

Understood very well. Thank you very much. Thank you very much for your responses.

If I may, sorry, just to compliment, I would point on, because you had some good questions on net cash, and I want to make sure you understand. What is not in our free cash law, but does favorably impact net cash and that we manage actively, obviously, is the ability to manage pay dividends to the auto business and so from sales finance and other entities that are consolidated. And so I would encourage all of you to clearly look at the auto net cash change analysis and historically to look at how it's been because we do have a capability of adding to our net cash position through dividend payments from the sales finance businesses and other entities.

Thank you for the elaboration. That was very clear. Thank you. Okay, because of the time limitation, this will be the final question. Daiwa Securities, Hakomori-san, it's yours. Yes, good evening. I am Hakomori. Do you hear me? Yes, we do. Go ahead. Okay, thank you for the opportunity. Tariff in U.S., there were a lot about U.S., so let me talk about other topics. The first question is... the regions outside U.S., especially in the other regions, other regions. Page 28, page 28, by the way, 90,000 units of retail volume. But the mix is 30 billion yen benefit for this other market because of the increase in the portrayal, because this benefit is so significant against the absolute level of the sales volume. So could you elaborate on this? And the second point, In Japan, K cars is where the competition is coming back. In Japan, once again, in the full year, do you have a plan to boost the volume? What is the sales environment in Japan? What's your analysis? These are the two.

So I will answer the first question and the CEO will take the second question. So yes, the mixed impact that you see is patrol related and it is significant per unit. We won't elaborate further.

On the second question, we will be renewing our K car. So the One of the most important products in our range will be renewed later this year. And this is the reason why we see the growth coming back in Japan. We also are renewing leaf. So this is another product that we will be renewing in Japan. And later on, we will have also Ilgrand. So there's a few products that will come in the future months. And we also will start a communication campaign to try and reverse the sentiment that we are having today in Japan to try and accelerate dealer showroom traffic in the remaining part of the year. So these are the elements behind Japan growth or recovery. I wouldn't say growth, but recovery.

Okay, thank you. The first question, patrol. is largely contributing. There's no exceptional factors behind this huge benefit except for petrol. Thank you. Understood.

Thank you. Thank you very much. So we will now close the session. Thank you for your participation today and please reach out to the IR team for any other questions. Thank you and bye-bye.