you very much for waiting. We now commence the presentation session of the financial presentation for fiscal twenty nineteen of Nissan Motor Company. Thank you very much for coming despite your busy schedule, and thank you very much for a large turnout. First of all, I will ask Mr. Steven Ma to make the presentation regarding the financial results.
Mr. Ma, floor is yours.
Ladies and gentlemen, good afternoon. My name is Steven Ma, and I'm currently the Corporate Vice President and Global Controller of Nissan Motor Company. Starting next month, I will be the Chief Financial Officer, and I'm looking forward to working with all of you. Thank you for joining us for the announcement of Nissan's half year's earnings for fiscal year twenty nineteen. Today, I will outline Nissan's global sales performance and financial results for the first six months of fiscal year twenty nineteen as well as the full year outlook.
Following the presentation, we will be happy to take any questions you may have. For the three month period ending September 30, Nissan Global Retail sales declined 7.5% to 1,270,000,000 units. Looking at our key markets in detail, our sales in China outpaced the market, but sales in the other key regions, including The U. S, Europe and Japan, underperformed in those markets. This resulted in an overall decrease in market share.
Excluding China, Nissan sales declined 9.5%. However, as we successfully adjusted inventory levels in the first quarter, we began the following quarter with an optimal level of delayed inventory. As a result, the decline in wholesale volume was limited to 6.3% year on year. Compared to the first quarter of the fiscal year, our retail sales, excluding China, increased 8,000 units, while wholesale sales increased 90,000 units. Therefore, profits increased quarter on quarter.
For the three month period ended September 30, consolidated operating profit totaled JPY30 billion. Similar to previous quarter, external factors including foreign exchange fluctuations, regulatory compliance expenses, product enrichment costs and rising commodity prices a negative impact of 44,600,000,000.0 yen Sales performance was a negative 60,500,000,000.0 yen in the first quarter. In the second quarter, the decrease in selling expenses offset the negative impact from lower sales results, resulting in a positive contribution of 1,000,000,000 yen from sales performance. We are starting to see the result of our ongoing efforts to improve our quality of sales, particularly in The U. S.
The positive impact from sales performance is a good sign and I will provide additional details in a moment. Monastery and others had a negative impact of 27,600,000,000.0 yen Furthermore, in the second quarter, quality related costs increased by approximately 40,000,000,000 yen which was 30,000,000,000 yen to 40,000,000,000 yen higher than the average quarter. However, if quality related costs had been at normal levels, operating profit in the second quarter would have reached approximately 60,000,000,000 yen to 70,000,000,000 yen due to the contribution from Monosuke and others. Nissan is progressing steadily towards its business transformation plans, which we discussed in May and July. I will provide an update on one of the key pillars of the plan, the recovery in The U.
S. Business. This slide shows the movement in geographical segment operating profit in North America for the second quarter. The negative impact from external factors including foreign exchange fluctuations, regulatory compliance expenses and commodity prices was offset by U. S.
Sales performance. For the quarter, operating profit was near the previous year's level. While The U. S. Volume mix were negative, this was more than offset by the improvement in U.
S. Selling expenses, mainly from decreased incentive spending. These are the indicators noting the progress in the sales normalization efforts for The U. S. Average net revenue per unit exceeded the previous year since May, thanks to a decrease in average incentive.
Furthermore, the Nissan Versa sedan underwent a model change in August and a new Nissan Sentra is scheduled for this winter. The company will launch and introduce several new models from fiscal year twenty twenty and onwards. As the average age of product portfolio becomes younger, these indicators should improve further. Dealer inventory levels in The U. S.
Are on healthy levels. At the September, inventory decreased by 22,000 units from the first quarter. While the fleet ratio exceeded the previous year, we expect the ratio to decrease in the second half of the fiscal year. Our ongoing efforts to improve and stabilize the sales finance business also remain on track. Nissan's business in The U.
S. Took the first step towards its recovery. We will continue our efforts to normalize and improve the quality of sales. Another pillar of Nissan's business transformation plan is steady growth through new models, new technology and Nissan Intelligent Mobility. At the Tokyo Motor Show last month, Nissan premiered the Nissan Ariya concept and Nissan IMK.
These two EV concept cars embody Nissan Intelligent Mobility and will soon be available to customers. These models represent the direction of our future lineup with entirely new designs and technologies that are enhanced by the new EV platform. Nissan continues to work on the other pillar, operational and investment efficiency improvement. And we will provide more updates at a later date. For the second quarter, consolidated net revenues were 2,630,000,000,000.00 yen Operating profit totaled 30,000,000,000 yen and net income was 59,000,000,000 yen Free cash flow for the Automotive business was a negative 29,500,000,000.0 yen We ended the period with an automatic net cash position of 1,100,000,000,000.0 yen I will now present the global sales results for the 2019.
For the first half, industry demand decreased in all markets except Japan and global TIV fell 5.9 to 43,850,000 units. Nissan sales decreased 6.8% to 2,501,000 units and market share decreased 0.1% to 5.7%. This slide describes our sales performance for the first six months in the key markets. In Japan, Nissan sales decreased 1.3% to 281,000 units. Sales of registered cars decreased but K car sales increased 20.9% due to strong demand for the new Days, which launched in March.
The new Skyline arrived this past September and has been well received by many customers. The hybrid version features the world's first advanced driver support technology, ProPilot two point zero and performance enhanced TurboEngine. In China, the market remains challenging. While TIV was down 12.8%, Nissan sales were stable at 718,000 units. Market share increased 0.8 percentage points to 6.2%.
Key models including Qashqai, Xtra and Sylphy continued driving sales. For July to September period, Nissan continued to outperform the market. The new Sylphy was launched in July and is off to a good start. In The U. S, Nissan sales decreased 4.3% to 679,000 units due to the aged product portfolio and the company's continued efforts to normalize sales.
In Europe, we continue to be impacted by environmental regulations and the aged product portfolio. Nissan sales decreased 19.7% to 265,000 units. Moving to our financial results. For the first six months, consolidated net revenues totaled 5,000,000,000,000 yen Operating profit was 31,600,000,000.0 yen which equates to an operating profit margin of 600,000,000.0 yen Foreigner profit was 115,600,000,000.0 yen This figure includes 84,300,000,000.0 yen in investment income from companies accounted for under the equity method, including our German trade in China. Net income was 65,400,000,000.0 yen This slide illustrates the operating profit variance analysis in detail.
External factors, including foreign exchange fluctuations, regulatory compliance expenses, product enrichment costs and rising commodity prices had a negative impact of 87,100,000,000.0 yen The impact from sales performance was nearly flat for the three month period compared to the prior year. However, the negative impact from the first quarter resulted in a negative 59,500,000,000.0 yen for the first half. Purchasing cost reduction efforts were a positive 52,800,000,000.0 yen while R and D expense, manufacturing costs, quality related costs and other items increased. I will now present the outlook for the full fiscal year. Nissan is progressing steadily towards its business transformation and profit recovery.
However, operating profit for the first half is behind original plan to achieve the initial full year forecast of $230,000,000,000 yen In addition, the yen has appreciated compared to our original assumption of 110 yen to the dollar. Furthermore, economic uncertainties and the slowdown in TIV continues. Therefore, we have decided to revise the full year guidance. We reassess the outlook for China and the other markets and revised global TIV for the full year to 88,500,000 units, a decrease of 4.7% from the original assumption. Nissan's global sales forecast has been reduced 5.4% to 5,240,000 units for the fiscal year.
Based on the revised sales forecast and earnings for the first six months, we revised the full year outlook as follows. Consolidated net revenues are now expected to be 10,600,000,000,000.0 yen Operating profit has been revised downward to 150,000,000,000 yen which equates to an operating profit margin of 1.4%. Net income is expected to be 110,000,000,000 yen a 1% net income margin. The assumption for foreign exchange is 105 yen to the dollar for the second half of the year and 107 yen to the dollar for the full fiscal year. This slide describes the variance between the original outlook for May and the latest outlook.
Our initial assumption for the exchange rate between the Japanese yen and U. S. Dollar was 110 yen to $1 We updated the assumptions to 105 yen to $1 for the second half and 107 yen to the dollar for the full fiscal year. Aside from the U. S.
Dollar, other currencies, mainly emerging markets, are depreciating against the Japanese yen. Foreign exchange volatility is expected to have a negative impact of approximately 80,000,000,000 yen Based on the revised sales outlook, sales performance is expected to have a negative impact of 70,000,000,000 yen compared to the original outlook. However, Monosuke Re and others are expected to benefit from some improvement in commodity prices and tighter cost control and is now expected to be a positive 70,000,000,000 yen This should offset the negative impact from sales performance. In May, we announced a dividend plan of 40 yen per share for the full fiscal year. Today, the Board decided on an interim dividend of 10 yen per share, given the slower than expected progress that we saw in the first half and the downward revision of the fiscal year forecast.
Along with the new CEO and the new management team, we will review the full year dividend plan and the mid term plan. We will discuss this in detail at a later date. That concludes my presentation. REPRESENTATIVE:] I will now take your questions. Thank you very
Thank you very much, Mr. Ma. Now we'd like to open the floor for discussions. If you have a question, please raise your hand And the staff will bring the roving microphone, and please speak through the microphone. Incidentally, regarding questions, please limit to two questions per person.
Hope you I hope to have your cooperation.
REPRESENTATIVE:]
Okada from Nikkei. First of all, my question regarding incentives. From April to September, on average for six months, it is above $4,200 compared with Toyota of the same period, 70% more in your case. But earlier on, you said that the incentives are coming down. So you have some improvement, but I can't feel improvement from the average numbers.
So incentives are going to be improved and then new models will have to be REPRESENTATIVE:] launched. What are the ideas of lowering incentive levels? What is your idea? Can you talk about it? The second question, the free cash flow of Automotive business, July to September, it is in the red zone.
So you are not able to earn cash and dividend is lowered. So fund allocation is becoming rather tough. That's why I think dividend is decided to be lowered. Was that a decision factor?
UNIDENTIFIED I believe the first question is about the incentive improvement in The U. S. Market. As we show in this chart, we have been consistently trying to improve our quality of sales in The U. S.
We're trying to be reducing the incentive per unit on a consistent basis and having less volatility in the incentive per unit. So instead of adjusting monthly basis, we are now doing more on a quarterly basis and having more consistent visibility for dealers, which I think will help with the stability. And it's going as you can see from the chart, it's going in the right direction. And with the new launch, the new Versa and also new CENTRA as well as new molecule in next year, I expect these trends to continue going forward. So that's for your first question.
For the second question about free cash flow in our business, you're right, the first half free cash flow is minus $415,000,000,000. But if you look at Q2 stand alone, it's only minus JPY 29,500,000,000.0, almost breakeven. So Q1 was mainly a correction and for our dealer inventory and our card flow, if you remember from our Q1 announcement, we're improving quality of sales. We had lower sales and production. So therefore, our free cash flow was mainly negative in Q1.
Q2 will be almost breakeven. And second half, we expect a significant improvement in Q3 and Q4 for free cash flow. The dividend payout is mainly consideration of the progress that we have in first half of profit. At 31,000,000,000 or 32,000,000,000 yen OP for the first half, you can see it's only about 14% versus originally announced $230,000,000,000 yen And our proposal is based on the fact that our earnings per share, if you saw the number, if you divide that number by earnings per share, it's roughly 16 yen or 17 yen per share. We did not want to exceed the earnings per share in terms of paying dividends.
That would not be responsible in this time and age. So we are now just offering interim dividend of 10 yen per share. And then the full year dividend, we will wait for the new CEO with the new management to come in and propose the full year dividend. Does that answer your question?
You very much.
Next question please.
Sean McLean from The Wall Street Journal. Have two questions as well. First, if I could return to North America again. I note your operating profit for North America is higher than your entire operating profit that you've reported for the second quarter. Could you talk a little bit about how we should read that number?
What does that say about the rest of your businesses? And on the incentives, as my colleague from Nikkei mentioned earlier, I mean, all the data we're seeing show your incentives sort of going up, but it seems you're saying incentives per unit is decreasing. Could you explain maybe what the separation there is? Maybe there's something about fleet incentives that is factored into analyst numbers that we're not really understanding here? Your fleet numbers are quite high REPRESENTATIVE:] still.
Yes.
As I mentioned, fleet plan for the full year, we still track to reduce the total year fleet volume. In Q2, it's slightly higher as a percentage because the retail volume is slightly down. So as a percentage, it's a higher percentage. And we had some delivery timing, a little early delivery of some fleet units. But for the full year, the rental fleet, separate from commercial fleet, is still on track to reduce the full year rental fleet volume.
That's the first question. And for the incentive that you mentioned from the that you see the incentive unit of this per unit we see here is our financial result, meaning these are what's actually booked in our books. So there might be other numbers from other agency that we don't know the sources, but these are actually matching our financial results figures. For North America, the profit, this is geographical segment profit. So obviously, we have still other costs that's not yet fully allocated.
This is just geographical segment profit. But I will direct more to the team later to give you details about how this fits into the global picture. Is that okay? You can help me with answering that a little bit more, if can. REPRESENTATIVE:] Thank
you. Ms. Atagawa of Investor Relations Division. Yes. As Steve mentioned earlier, this is geographical segment.
It's this and on a geographical segment basis, yes, U. S. Operating profit is larger And Japan is worsening, but then this is due to negative impact of the foreign exchange and also internal transactions. So therefore, negative impact of the forks, that's one factor. And also in terms of quality costs, some costs are booked in Japan.
For example, quality costs that are actually generated in The U. S. Might be booked in Japan in terms of reserves. So at the end of the day, when actually, yes, overall, geographical segment shows that U. S.
Is doing better. But generally speaking, the situation is different. I think that's how you should interpret the number.
Oi from NHK. The business transformation, how is it progressing? In the first Q, the production line is going to be improved and 12,500 headcounts would be reduced. And also, other reductions was announced. So how is the progress status?
How much reduction did you achieve? And are you planning any additional reduction? One more question. The industry demand, the TIV, you have lowered your expectation, and I think business environment is becoming tougher. Are you considering any additional restructuring?
Do you think that there is a need for you to consider additional restructuring?
UNIDENTIFIED Today, we are focusing mainly on first half results. So for the business transformation plan that we announced in May and July, I will wait for the new CEO with the new management team to come and provide an update at a later timing. But as I showed, one of the key pillars of that plan was recovery in The U. S. And for that first pillar, you can see we are well on track, and we are seeing recovery in The U.
S. Quality of sales. For the product optimization and efficiency optimization and other improvement actions, the two other pillars we have, we are right now progressing as planned. But again, like I said, I will wait for the new management to come in and give an update at a later time. Given the current market situation and the economic situation, naturally, we are now revisiting all the assumptions.
And as you can see, that's why we have updated TIV and revised down the volume for the full year. And naturally, when we implement the restructuring plan or other actions within the company, we will take this consideration into account during execution.
Sangyo Times. My name is Ueta. The full year capital investment, compared to the initial expectation, you have reduced amount by 10,000,000,000 yen to this 10,000,000,000 yen reduction. What's the reasoning behind this reducing the capital investment for the full year? That's my question.
REPRESENTATIVE:] think capital investment sorry, one second. Let me see the number. I think I have to come back with you. I don't have the information in front of me. But as we mentioned earlier, we are obviously having very good effect on tight cost control in the first half as you saw from our various analysis.
In addition to that, we are also very frugally, efficiently investing in everything we do. So please be assured that our investment right now is conducted for all the projects that we need. So I don't think this is just a reduction of projects, but I will come back to you on that. Just optimization of the CapEx so far. I'll come back to you with more detail from the communication team.
Okay. Anyone else with additional question, please? No? No additional question?
Excuse
me. Going back to your question, as a consequence, the total amount is JPY 10,000,000,000 less, but it doesn't mean that I cannot we are not giving you the breakdown of each item. But do okay, do we have the reasoning behind JPY 10,000,000,000 at hand? We cannot disclose it to you because there we have been revising the overall picture. And as a total, we reduced it by
JPY 10,000,000,000
as consequence. I hope you understand REPRESENTATIVE:] this. Anyone else with additional question?
Yes, go ahead.
TBS TV, my name is Umed. Talking about Japanese market, in October, there was a raise in the consumption tax. And how did you how do you analyze the impact on the consumption tax high? And there's what is the repercussion or backlash from the raise of the consumption Wei:] tax today?
October, we saw a decline in TIV for Japan. And right now, it's little difficult to decipher how much of that is due to consumption tax hangover. As you know, we had typhoons. We had many weather factors in the month of October, which affected our weekend showroom traffic. So we are still trying to analyze the impact of that in October.
UNIDENTIFIED
Yes.
Hans Greimel from Automotive News. I'd like just to get an update on the performance or the outlook for the performance in The U. S. Market. Last time we heard from former CEO Saikawa.
He said that they were still targeting 1,400,000 vehicles in the year ending 03/31/2023. When do you expect to see an actual turnaround in The U. S. Sales for Nissan? And is that really critical or hinging on the performance of the overall market there?
So I'd like two questions really. What's your outlook for the overall market in The U. S? How long will it keep going down? And when do you expect Nissan to turn the corner and recover in The U.
S?
Okay. So I believe in the outlook we just showed here, the outlook we have for U. S. Is 1,310,000.00 units for the full fiscal year, so slightly down versus what we had announced before and in line with what we see based on current pace. And as we saw as we showed in Q2 for The U.
S. Parent loan, we are already starting to see improved quality of sales in The U. S, which is our primary focus right now. Unlike in the past, we're not chasing market share, we're not chasing volume. We are really primarily focused on sustainable long term growth.
So the most important thing for us right now is the business fundamentals in The U. S, making sure we are doing everything we can in every aspect of quality of sales. So with the new Versa and the new Sentra that's coming and the new models, as I mentioned, I think we will start to see very good improvements in the following months. Does that answer your question? UNIDENTIFIED Thank
Thank you. Okay. Anyone else with additional question? Yes.
So let me just come back about the earlier question about CapEx. So I didn't answer it properly before. Just look at the detail, there's no change in CapEx. Change of 10,000,000,000 yen is purely the FX impact. So the translation of the overseas and all the different currency CapEx is the result resulting in about 10,000,000,000 yen
May I Nippo Ho, so my name is Hata Naka. This financial results themselves that you showed us, is this as a company, do you have a sense of urgency? Or can you be optimistic? I mean, now you will be appointed a new CFO. So looking at the financial REPRESENTATIVE:] performance, I mean, how do
you see it, your frank opinion, please? What's your perception on it?
Well, the company is very urgently working on all the improvement actions and we are, as I mentioned, on track in one of the main key pillars, which is The U. S. Markets. For the improvement more action details and the future, I will wait for the new CEO and then imagine him to come in at a later date to explain, as I said before. Is that okay?
But so far, we are progressing very well and on track in most of the improvement actions we are doing inside the company.
UNIDENTIFIED Yomiuri Shinbun, my name is Kawaguchi. Dividend revision that you made. So far, Nissan has been enjoying a high payout ratio. And going forward, how what will be the dividend level going forward? What's the direction for the dividend going forward?
That's my question.
Yes. So as mentioned, this JPY 10 per share based on the first half profit per share is roughly 60 percent payout ratio. In the past, we've been paying out around 30% payout ratio. The new dividend policy or if we're going to revise, we have to wait for the new CEO, and we will kind of discuss with the new management team and propose to the Board. So please wait for our future update.
Thank you. Okay.
Thank you. Yes. Anyone else? No?
No
more question? Okay. Since there's no one else who is asking question with this, we would like to conclude the press conference. Thank you for joining us.