Thank you once again. Welcome to financial results for the first half and second quarter of fiscal year 2026. Let me begin by introducing the speakers today. Ivan Espinosa, Chief Executive Officer. George Leondis, Chief Financial Officer. Today Ivan will begin with an update on Re:Nissan, and George will follow to explain details of the financial results and outlook for the year. We will then take your questions. I will hand over to Ivan now.
Thank you. Thank you, Lavanya. Good afternoon, everyone. Let me begin with an update on Re:Nissan. At the midpoint of its final year, we remain focused on our priorities: reducing costs, renewing our products, and responding faster to customer needs. We are delivering tangible results on all fronts. Let's take a look at Nissan's performance in key markets. Overall, business conditions remain difficult, but the reality differs from market to market, and our response reflects that.
In the U.S. and Japan, renewed products and sharper retail execution are building momentum. In the U.S., we are seeing retail growth and improving share. In Japan, demand for new models and higher trims is encouraging. China, on the other hand, remains more challenging. Demand is weaker, competition is intensifying, and the shift to new energy vehicles is happening faster than expected. Our strategic direction remains right. We are acting with urgency, assessing and adapting our execution to reflect the reality of this market.
In the U.S., the business continues to move in the right direction. We grew first-half sales by 5.5% in a market that was essentially flat. Our strategic approach to localize production in the U.S. is working. Our U.S. produced models made substantial gains in the first half, with Frontier up by 36%, Pathfinder by 12%, and Rogue by 31%. And there is more to come. The all-new Rogue Hybrid is already reaching US showrooms, and the early media feedback is encouraging.
Our e-POWER hybrid technology is driving much of the positive response, including being named one of the 10 best engines and propulsion systems by WardsAuto. At the same time, pricing discipline and richer grades are improving revenue quality. The U.S. remains highly competitive, and we are responding carefully through product mix, disciplined pricing, and a stronger product portfolio. In Japan, we are seeing good momentum with first-half sales up by 6.3%.
A big part of this is our new products. We have already received 11,000 orders for the all-new Elgrand and 20,000 for the all-new Kicks, both launched this fiscal year. We are encouraged to see customers seeking higher trim levels. This is a positive signal that they recognize the value we are bringing to the market, and it can be an important factor for building satisfaction and loyalty over time. The strengths of our products is gaining recognition too.
Most recently, Elgrand and LEAF were recognized by the Japan Automotive Hall of Fame for Car of the Year and Car Design of the Year. And we also just learned today that our third-generation e-POWER hybrid system, featured in Elgrand and Kicks, has won the RJC's Technology of the Year Award in Japan. China remains our most challenging market. Industry volume declined by 22% in the first half, while Nissan retail sales were down by 15%. These pressures intensified from July through October.
We are responding on three fronts. First, we acted swiftly to rebase our business by adjusting ICE production and dealer inventory to better match demand. Second, we are accelerating new energy vehicles, increasing the role of NEVs in our mix. We are seeing encouraging early demand for products such as the NX8. And third, we are expanding exports from China. During this quarter, we started exports of Frontier Pro or Navara Pro to Mexico and the Philippines, with the Middle East, Latin America, and Oceania to follow.
Primera EV just launched in the Philippines. We will launch NX7 and NX8 in Latin America. Looking ahead, we are exploring plans to export plug-in hybrid versions of NX7 and the production version of the Terrano concept. The strategy remains right. Our focus now is staying agile, adapting quickly, and executing with greater speed. Now, let's look at our Re:Nissan cost actions. On cost reduction, Re:Nissan remains firmly on track towards our target of JPY 500 billion in fixed and variable cost savings.
We delivered JPY 110 billion in savings in the first half. Bringing cumulative cost reductions to JPY 365 billion since the launch of Re:Nissan. For the final two quarters, the priority is clear: keep the intensity high and maximize the full financial benefit of the ideas our teams have raised from the past 18 months.
Re:Nissan is delivering, but the external environment continues to challenge us, so there is no room to slow down. We need to remain agile, disciplined, and focused on execution. With that, I will hand it over to George to take you through the financial results.
Thank you. Thank you, Ivan. With this context, let me start with our sales performance. In the first half, total retail sales were down 4.7%. The biggest factor was China, where first-half sales declined by 15%. As Ivan explained, competitive pressure intensified further, and sales were down by 31.5% in the first nine months of the calendar year. Excluding China, the picture was more resilient, as global sales decreased by a more modest 2.3%.
Japan and the U.S. continued to provide positive momentum, up by 6.3% and 5.5%, respectively. Across North America, sales increased by 2.1% overall. This helped offset some of the pressure in other markets. Europe declined by 7.9%, while other markets were down by 17.8%, driven largely by the Middle East. We continued to align production with demand and manage inventory with discipline. Total production volume declined by 6.6%.
We reduced production in China by 16.3% as we responded quickly to market conditions, while production outside of China was down 4.3%. Overall, the first-half picture reflects two different dynamics: continued pressure in China and improving momentum in Japan and North America. Despite lower sales and production volume, first-half consolidated net revenue increased by 8.8%, primarily driven by favorable foreign exchange, with further support from pricing and product mix.
Operating profit was JPY 80 billion, an improvement of JPY 108 billion from the prior year, representing an operating margin of 1.3%. This improvement reflects the growing contribution from Re:Nissan and the greater resilience we are building into the business. We reported a net loss of JPY 39.7 billion, a significant improvement from a JPY 222 billion net loss in the prior year period. This was primarily due to substantially lower restructuring costs year-over-year. CapEx was JPY 213 billion, in line with the plan.
Excluding lease asset-related spending, we increased investment to support new product programs. R&D spending was controlled at JPY 241 billion, reflecting continued investment discipline under Re:Nissan. Turning to the automotive business. Net revenue, including eliminations, increased by 8.6%. The automotive operating loss narrowed to JPY 81.4 billion. Automotive free cash flow was -JPY 493 billion, an improvement of approximately JPY 100 billion year-on-year.
Excluding approximately JPY 100 billion of asset sales and other one-time benefits in the first half of FY 2025, our cash flow improvement was closer to JPY 200 billion. At the end of the period, automotive net cash was JPY 831 billion. Importantly, our liquidity remains solid, with JPY 2.2 trillion in automotive cash and cash equivalents, together with JPY 1.88 trillion in unused committed credit lines. This slide shows the year-on-year improvement in operating profit.
Foreign exchange had a positive impact of JPY 47.9 billion, largely due to the depreciation of the yen against the US dollar. This was more than offset by JPY 69.9 billion in higher raw material costs, mainly aluminum and copper. Lower tariff costs contributed JPY 42.3 billion, while overall sales performance contributed JPY 20.4 billion, supported by volume, mix, pricing, and lower selling expenses. By far, the largest positive contribution came from monozukuri costs at JPY 127 billion.
This reflects Re:Nissan progress, including manufacturing efficiencies, lower R&D spend, and realized vehicle cost reductions. Logistics were a headwind, largely reflecting the disruption in the Middle East. These improvements were partly offset by JPY 26.1 billion from inflation. One-time items had a negative impact of JPY 3.8 billion, mainly from warranty estimate changes in U.S. and emission-related expenses, partially offset by one-time US tariff gains.
Other items, including sales finance and remarketing expenses, had a further negative impact of JPY 30.4 billion. Taken together, these factors resulted in first-half operating profit of JPY 80 billion. Now, let me take you through the outlook for the remainder of the fiscal year. As mentioned earlier, we see strong momentum in some of our most important markets. However, China remains highly volatile, with limited visibility into industry demand. Given this uncertainty, we project full-year sales to be in a range of 370,000-400,000 units.
Outside China, the outlook is more positive. Based on the momentum we are seeing, we have raised our full-year sales outlook for Japan and North America. Our outlook for Europe and other markets remains unchanged. Excluding China, we expect full-year sales to increase by 4.1% year on year. Taking all of this into account, we aim for our global retail sales to be between 2.97 million and three million units for the full year. On production, we will continue to align output closely with demand and manage our inventory levels.
We estimate our full-year production to be approximately 2.65 million units. Importantly, even with the revised volume outlook for China, our full-year financial outlook remains unchanged. The momentum in Japan and North America, combined with continued delivery of Re:Nissan cost efficiencies, supports our confidence in reaffirming the outlook. We expect JPY 13 trillion in net revenue, JPY 200 billion in operating profit, at an operating margin of 1.5%, with net income at JPY 20 billion.
Our focus is now on execution, sustaining the momentum in our strong markets, capturing the full benefit of our cost actions, and managing the remaining risks with strict discipline. Our full-year foreign exchange assumptions are updated to JPY 157 to the US dollar and JPY 183 to the euro. This slide shows how we expect to move from JPY 80 billion operating profit in the first half to JPY 120 billion in the second half. The first half included a JPY 60 billion one-time tariff benefit, which will not repeat in the second half.
The second quarter was impacted by around JPY 30 billion of specific factors, including an impact from the Kumamoto earthquake and the timing of cost reduction benefits. We expect these to support Q3 performance. Foreign exchange will have a JPY 20 billion negative impact, while raw material costs are expected to be JPY 25 billion higher. The biggest positive driver will be sales performance. We expect second-half volume to increase by around 256,000 units, contributing approximately JPY 105 billion of improvement.
This increase will be driven by the usual stronger seasonality in the second half, new model launches, and a richer product mix. Ivan will explain the drivers behind this in more detail later. Finally, continued progress on Re:Nissan is expected to contribute a further JPY 10 billion through monozukuri performance and other items in the second half. Taken together, this brings us to JPY 120 billion of operating profit in the second half and JPY 200 billion for the full year. That concludes my remarks. Ivan, back to you.
Thank you, George. Let me bring this back to the bigger picture. The first half shows that we are making progress. Momentum is building in the U.S. and Japan. Our financial performance is improving, and Re:Nissan is delivering tangible benefits. But the picture is not the same everywhere. China remains our biggest challenge, with limited visibility on how market demand will develop. We have reflected that uncertainty in our volume outlook. Against that backdrop, we are reaffirming our full-year financial targets.
That gives us confidence, but not comfort. There is still a lot of work ahead. Importantly, we continue to maintain a solid liquidity position. We ended the first half with around JPY 800 billion in automotive net cash and JPY 2.2 trillion in automotive cash and cash equivalents. That financial foundation gives us the resilience to continue investing in our products and executing the transformation.
In the second half, our focus is on delivering positive operating profit and positive automotive free cash flow before tariffs while maintaining financial discipline. We are targeting a net income of JPY 20 billion and automotive net cash above JPY 1 trillion at year-end. The priorities are clear. Build on the momentum in our strong markets, adapt faster in China, capture the full benefits of Re:Nissan, and improve cash generation while protecting our liquidity.
The second half gives us real opportunities to make progress. We have a strong pipeline of product ahead, with the pace of new model launches accelerating across key markets. That will help build momentum market by market. In the U.S. and Japan, our focus is to accelerate the growth we are already seeing, supported by products such as Rogue, Elgrand, and Kicks, with Skyline and Patrol still to come.
In China, we need to continue to respond with urgency. We are expanding our NEV lineup for domestic sales. The upcoming NX7 launch is one important milestone. We are increasing our exports from two models and two markets today to five models and 12 clusters in the near term. In parallel, we will continue to reassess market conditions and adjust our execution accordingly. In Mexico, we will build on our strong performance and capture the next wave of growth, accelerating with recent launches and reinforcing our lineup with exports from China.
In Europe, we will do the same through our expanding EV lineup, with Pixo on sale and soon Juke coming after. Across every market, the discipline remains the same. Manage volume and inventory carefully, reduce costs, protect profitability, and improve free cash flow. And a s we focus on delivering the second half, we are already looking beyond the immediate recovery. Re:Nissan is helping us strengthen the foundation. The next step is to build on that foundation and define where Nissan goes from here.
In February, we will share our new Nissan business plan, setting out where we will focus, how we will compete, and the capabilities we will deliver. The goal is clear. Translate our long-term vision, mobility intelligence for everyday life, into concrete priorities and actions, and create a path towards sustainable growth, profitability, and cash generation. There is plenty to do between now and then, but we are equally clear about what comes next. Thank you.
Thank you, Ivan. We will now open the floor for Q&A. The process is the same. Please raise your hand if you have a question, and our team will come to you with the mic. To help us manage time, limit your questions to two per person. Thank you. I see middle row, first person on the third row. Yes.
Nikkei Shimbun Matsumoto here speaking. Thank you for this opportunity. I have two questions, one by one, please. On slide number 15, Q2 one-off items, JPY 30 billion. You talk about earthquake and timing of the cost reduction benefit. Could you elaborate on this? What happened? What are behind the number? Why do you say this is one-off? What makes you think that this will be recoverable? What is the breakdown, if possible? How much for earthquake and others? Could you give us these numbers, please?
You want to take that one?
Yeah, sure. Thanks for the question, and I understand why you would find that interesting. Obviously, for us, the earthquake did have an impact in the second quarter. We lost quite a few days of production in Kyushu, with that devastating impact that affected the community. We lost days production, and we lost production of cars, several thousands. Some of those are high-end profit cars, which can be recovered also in the rest of the year with some additional efforts.
We also carried some inventory, monozukuri parts, in the second quarter, getting ready for a bigger Q3 and Q4 production. Those parts are carrying some of the cost reduction that we have been working on with the Obeya team, and will show themselves into the P&L in the third and fourth quarters.
We also had some settlements relating to some above-the-line taxes in some jurisdictions that affected our profit in the second quarter, which were related to matters of previous years. That one will not repeat itself in the Q2 and the Q3. That is why we are confident these could be clawing back into the quarter three and quarter four profitability.
Okay, thank you. If possible, could you give us a numbers, breakdown of the numbers? How much was for which item, if possible? I really appreciate it. Is it difficult to do that?
Yeah, some of the numbers are commercial in confidence. Roughly speaking, as we said, it's JPY 30 billion, but roughly speaking, it's 1/3 , of the impact.
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Okay, thank you. The second question. In Q2 alone, operating profit is JPY 2.1 billion, which is a large decline. Revenue in U.S. and Japan are strong, and US emission-related expenses will not be explaining everything. Cost of JPY 69.9 billion increase. Compared to this cost increase, is it inflating compared to what your initial expectation? What's your cost situation compared to your initial expectation?
Yeah. Again, it's a good question. Obviously, we're very vigilant about cost, and one of the big cost impacts we're encountering is raw materials. I'm not sure if you're referring to raw materials, but raw materials certainly is having a big impact on our business in the first half. It's around JPY 69.9 billion. A lot of that is coming from some core materials like aluminum and copper, as well as some precious metals, and the oil price as well that has been hovering around $100 is impacting us.
In the last announcement, I mentioned that we had about an JPY 85 billion risk. That was in May, sorry. I said JPY 85 billion risk on raw materials. In fact, what we're seeing in the first half alone is JPY 69.9 billion. So, by this stage, we were hoping that situation would taper off. On the other hand, we've been taking measures to offset raw materials impact through the way we are working with our engineers to try and adjust, in some cases, the type of materials we're using on different components.
That hopefully can mitigate some of the exposure. Secondly, remarkably, we've been taking pricing in many of our markets. We're tracking very closely day in, day out how the market is moving in different segments, in different geographies, in different grades, and we've taken around JPY 34 billion of pricing in the first half. In the second half, raw materials continues to be volatile.
We know this because our spot prices in the last few weeks have been oscillating, they've been modulating a lot. Aluminum has come down from our forecast situation, but copper is going up.
It's extremely volatile to see, and we're expecting a little bit more of raw materials uncertainty in the second half. Oil price, on the other hand, has come down, and so we're going to track that and see how that goes, because that affects supply chain as well as many of our components. But certainly, raw materials is top of mind for us and is impacting our business.
Thank you. I saw the lady in the front raising her hand first.
[Non-English content] My name is Kosaka. I have two questions. This full-year volume guidance was revised downward. In Q2, net loss is generated. Having said that, in the full year, guidance is maintained. How are you going to recovering in the rest of the year? What are the specific actions that you are taking?
So, let me start with the volume, and probably George can elaborate on the profit side. I think we explained earlier the good momentum that we were building in North America and in Japan. North America probably not a surprise to many of you because we have been reporting a consistent growth. So now it is 19 months in a row of our retail performance improving on the back of the strategy of focusing on cars that are built in the U.S. tariff-free. This is also helping profitability a lot.
In Japan, I think this might be news for you, but we are growing as well, 6.3% year-over-year. We almost reached 200,000 units in the first half, and we will continue with this focus. It is product-driven, but there is a lot of activity happening in the ground, improving traffic, improving conversion by fixing the basics of how we sell and market cars, getting cars to customers, building trust, bringing more customers closer to the product, having them experience and test drive the product.
This is what we will continue doing. On top of that, we have markets that have upside, like Mexico. Mexico, we had a very strong second quarter compared to the first quarter. We launched many new cars in the Q1, and the traction started to pick up strongly in the second quarter. We had a best September, I think, since 2019. So the performance is quite good. We reached 18% market share in Mexico, and we will continue building on this strength that we have. So, we have markets that are strong.
We have the product coming, and we have confidence that we can complement some of these markets by bringing exports, more exports from China, as I explained during the presentation. We will expand from two products and two markets to five products and 12 clusters of countries in which we will start introducing products exported from China.
These will help us both increasing our performance in some of these markets and at the same time defending ourselves in these markets from the very aggressive Chinese OEMs that are coming with very cost-competitive products. This is how we see the performance improving. On top, we have also natural seasonality.
Usually, our second half is stronger in terms of sales volume and overall performance. So the seasonality, of course, plays a big role as well on the delivery of the performance coming. This is how we see the performance coming in the second half, to answer your first question. And maybe, George, you can elaborate on the profit.
Yeah, thank you, Ivan. Thanks for the question. For us, I can assure you, net income is a core KPI for us this year and will be in the future as well. A net income positive is paramount for us this year, and everything we're doing is making sure that we can deliver on this promise to the market and to our stakeholders. There's a few reasons why I'm confident that we can deliver a positive net income for the full year. One is that the second half profit will yield JPY 40 billion more operating profit than the first half.
That's the first reason. The second reason is, the first half and the second half below OP items are relatively equal, I would say. So about the same. The third element is that we are working on some tax planning initiatives which should support some tax efficiencies towards the end of the fiscal year.
Finally, I should add that China for us is equity accounted, and to be totally fair, the situation in China, including how it lands and also how the balance sheet looks by the end of the year, is a little bit uncertain and volatile, and we're trying to manage this through mitigating actions in terms of what we're doing in the market to recover the situation, and also making sure that it doesn't jeopardize this very important KPI of positive net income this financial year. Thanks for the question.
Thank you. Next. Could we come to the
Second one. I have second question. Sorry. Second question. Re:Nissan. Oppama plant, how are you going to repurpose the plant? What is the negotiation underway? Within this fiscal year, are you going to reach the conclusion? What's your visibility here?
Thank you for the question. I am sorry, but we do not have any major updates on the Oppama situation. As we have explained before, we are doing what is best both for the community and as well as the financial benefit for the company. The philosophy has not changed, and we will share news as they get clearer later on. Thank you for the question. Unfortunately, nothing to share today.
If it is okay, let us come to the gentleman in the front row.
Yes. Hans Greimel, Automotive News. Thanks for calling on me. I just had a quick question for clarification on slide 30 about the second quarter profit, operating profit walk. Maybe you have already described this already.
But if you could bear with me and just explain a little bit more about the one-time items on the kind of the right side of the walk, including the JPY 36 billion for the emissions, and then the others on the far right for about JPY 30 billion there. What is going on with those? I guess these will be one-time items that will not appear in the second half, right? This is a one-off for this one quarter, right?
Yeah. Thank you, Hans, for the question. We are referring to page 30, so we are on that on the screen. First of all, the only one-time factor here versus last year is in the second last or the third last bar, the JPY 36 billion. So that is one time. Why is that one time? Because last year in the second quarter, there was a regulation change in the United States on federal GHG CAFE. We had taken provisions in our balance sheet and costs earlier than that, of course, over the periods prior, and we were able to reverse those provisions.
They gave us a benefit in the P&L account quarter two last year. Of course, they do not repeat. The other items on the second last bar, there are many, many different items here that accumulate to JPY 30 billion. They range across a whole different range of issues in terms of some warranty adjustments, quality. There are other hyperinflation for Argentina and Turkey and other markets. They are a very, very long list. They are not one-time adjustments. I hope that is clear. They are not one time. Okay?
Right. But those are probably not conditional related to the normal business. These are mostly outside impacts, it seems. Is that correct?
No. Typically, if we are calling out one-time items, we would say they are not going to recur, and these are not necessarily extraordinary items. They are run the business costs. There is a lot of run the business costs sitting in that side of the P&L.
How do you evaluate the second quarter performance overall then?
Yeah. Again, it's a good question. I mean, for us, it's first of all, I want to say this, and I said this before, I think, publicly. Our first half plan, we are actually in line with our first half plan. Irrespective of the IEEPA tariffs that we took credits for in the first quarter and the U.S. content that we took credit for the year before, we are broadly in line with our original plan.
Our initial outlooks were projecting that our profit would build progressively over the year, especially as the cost reduction was going to come through with the volume increases and all the efforts that were being made in R&D and in the commercial and technical adjustments, and the commercial negotiations would come through the second half. Fortunately, a lot of that has been coming through earlier, and there's more to come in the second half.
Now, specifically about quarter two, as I mentioned earlier, had we not realized some issues that came out of the Kumamoto earthquake and some of the cost reduction that's sitting in monozukuri parts and some settlements we made on above-the-line taxes in some geographies that were related to previous years.
Our profit would have been around JPY 30 billion in the quarter. So JPY 2 billion is good news, positive. Regardless, notwithstanding, JPY 30 billion is missing from those items. So on a run rate, I would say to you, it should have been JPY 30 billion.
Thank you. If I go to the gentleman in the third row. Middle, yeah.
Yes. Jiji Tsushin. My name is Sakadashi. I have two questions. The first question is as follows. Earlier, you talked about Oppama plant, and there was a question about it. So far, according to the media reports, it was said that Anduril Industries of U.S. may be one of the potential buyers. That's what media reported. Is this a fact? Is this true?
I've answered this question maybe 5x in the past six weeks. We are not talking to this company, just to make it very clear and straightforward. We haven't been in contact with them. We are not talking to them, and I don't have a plan to talk to them in the future. We are, as I said, looking to see what is the best balanced decision for the community and for Nissan financially. Thank you.
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Thank you. Second one. In EU today, because of subsidies, they are trying to prioritize the goods within the same region. How is U.K. handled? These details are to be worked out. If this new regulation is established, how does it impact your business operation in that region? What are the risks that you foresee? What's your evaluation on this new restriction, if made, ma'am?
We are following the discussions very closely, of course. As you know, we have a manufacturing site in the U.K. We are hopeful that the U.K. and also Japan will be included into some of the incentives that are granted to these products. We will continue advocating for this to happen. Both, as we said, U.K. is important, but also Japan.
We are in close collaboration with other manufacturers as well, with JAMA and the government, to continue the lobbying and the discussions with EU to make that happen. Thank you. Thank you for the question. It's very important for us, and we will continue the efforts on trying to make this happen. Thank you.
We move on to the next question. Come here to the right. Gentleman on the second row.
Diamond. My name is Yamamoto. I have a couple of questions. The first one is slide 30. Slide 30 again. Earlier, you showed it to us. Sales performance contribution is what I would like to know more. Operating profit is positive, and this is significant, but new product introduction was made, but sales performance is only limited as a contribution compared to initial expectation. Is it in line, or is it better or worse? How does it compare to your initial expectation with regards to sales performance contribution? This is my first question.
I think we explained it earlier. There are two points. One is China is not having a huge effect in the consolidated numbers because it is equity accounted, so it comes below the OP. So the reality is, except China, is what you see as contribution in terms of sales performance. As we mentioned earlier, the performance both in North America and Japan is trading very strongly, and that is why we have upgraded our outlook for these two markets. We expect strengthening on other markets as well.
We mentioned the case of Mexico, and we mentioned also that we will see some improvement because of some vehicles exports will increase from China to some markets. As we said, we will move from two markets and two products to five products and 12 clusters of destinations. So this will help us increase the performance. In addition, we have also strengthening. We are a stronger product mix, so we will have more Patrol, Armada available in the second half versus the first half.
This will also contribute. We are investing on the nameplate in North America in terms of marketing and sales. The performance is improving, and we see this will help us also build that sales performance. This performance comes on top of the seasonality that I was mentioning earlier. Traditionally, around 55% of our sales are delivered in the second half versus the 45% in the first half.
So, all these factors are embedded into this contribution. You are absolutely right. We are rolling out e-POWER in North America, in Motomachi. It is hitting the outlets as we speak, and it has been very well received by media and by everyone who has tested it. We are very confident that this will also help us building stronger performance in the second half.
Okay, thank you. Second question is about slide 14, full-year guidance, please. You said retail volume guidance has been revised downward, and yet the full-year financial outlook is maintained as it is. Why? What makes you think that although the volume came down, you are maintaining the financial outlook? There may be some distortions if you think that you are just achieving the full-year guidance no matter what.
Thank you for the observation. First of all, the adjustment that we have made in our outlook on sales is in relation to China. We adjusted China negatively. We adjusted Americas and Japan positively. So we have upgraded our sales forecast for Americas, in particular United States, and in Japan. We adjusted China downwards. China is equity accounted. That means it is not affecting the profitability in a significant way of our above the line, so above OP profitability.
So this performance here you see is without China, this growth that we are talking about here. That is the first point. The second point is, our business is quite seasonal. Historically, up to 55%, about average 53%, 55% of our sales are skewed to the second half versus the first half. So there is a natural seasonality around the world that we are confident gives us a tailwind on the sales. The third aspect is new models.
We are introducing models exporting from China to our new markets and already hitting the shores of the markets where we are going to be competing with these products in those markets. And we are introducing the e-POWER Rogue in the U.S. in the coming days, in the coming weeks.
Those models will propel us. About a 1/3 of this performance is new models, and 2/3 is about the models that were previously launched and continue to grow in the business, including our Elgrand and Juke and LEAF and so on and so forth. That is what gives us confidence.
Thank you. If I come to the left, first person from the right in the first row. In the first row, yeah.
NHK no Taru.
Taru of NHK. China market, exporting to other countries and regions, five models, 12 clusters. Can you give us the number of units? What is your estimate? Or in proportion, to what extent do you want to increase the proportion accounted for by exports out of China?
To be a bit practical in the numbers, we are already shipping cars. At the moment, we have already shipped around 4,000 cars over products to be exported from China. We expect this number to go, of course, gradually up within this fiscal year, hoping to reach somewhere around 16,000 or 17,000 units this year. However, this will greatly increase next year, as I said, as we gradually increase the offer to five products and 12 markets.
The details of those markets will be shared with you a bit later on as we roll out and we launch. For the midterm, my expectation is to try and get a high two-digit volume on export from China. This is what we are contemplating and gradually ramping up. We have shared those numbers in the past.
We said, like, gradually we want to start growing to 100,000 units, eventually to 100,000 units of exports. That is the magnitude, so that you can get the magnitude of the numbers that we will gradually start hitting in terms of exports. I hope that gives you a sense of what we are contemplating and how this will contribute to the business moving forward. Thank you.
We will take the question from the person next to him too.
Yomiuri Shimbun.
Yomiuri Shimbun, Sunaga is my name. Thank you. First half profit has largely improved, JPY 80 billion positive. Depreciation of yen and tariff has been positive, but cost reduction is also benefiting you. How do you assess this performance so far? Your core business, how far did you improve the profitability of core business versus automotive segment? These are the two questions.
So let me start with the assessment. Maybe George can go into the second part of the question. The environment in which we are operating is very harsh. Even when we see a very good traction year-over-year, so year-over-year the improvement is JPY 108 billion. The H1 is solid, and we have very good traction on the Re:Nissan program. As we said during the presentation, in 18 months of the program, we have achieved JPY 365 billion worth of savings.
This is remarkable effort that the teams in Nissan have achieved. But at the same time, as I said, the environment is very harsh, so we cannot slow down. We need to continue working with a lot of discipline, a lot of dedication, and continue pushing both sides, cost, and continue to control cost, because as George explained earlier, raw material costs are creeping, inflation is creeping, the market is very volatile in terms of currency exchanges, so we need to continue working on having a very resilient structure.
At the same time, we need to build on growth. We need to continue pushing our performance in the markets where we have already shown that we can improve. We have spoken already about the U.S., which is not new. The news, I think, is Japan. I think some time ago, we were having discussions in this room about how tough was it for us to start moving the needle in Japan. We finally started to move the needle. I'm prudent because we are just starting, but I think it's proof that the strategy that we laid down is working.
As we said, we will continue doing the same efforts in the different markets around the world, leveraging on our capabilities, like the case of Mexico and the products that we have launched, as well as starting to dial up the exports of new products from China. This comes on top of the natural planning cycle that we had in the company. These new products are incremental business opportunities for us, and we will continue doing that. In short, we cannot slow down.
We need to continue working very hard and very strongly. The performance, as we said, is solid, is good, but we need to continue pushing forward both sides, cost side, as well as the marketing and sales performance forward.
I don't know, George, you want to add to-
Yeah. I mean, I'm just going to add, it's a remarkable turnaround from the first half of last year. It's a JPY 107 billion better profit, operating profit. Its net income is almost JPY 200 billion better than the first half last year, JPY 182 billion. Free cash flow, JPY 100 billion better, and that excludes some one-time asset sales and other things we took last year. It's actually, our free cash flow profile has improved six months this year versus six months last year by JPY 200 billion.
We are keeping a very healthy level of R&D and CapEx spending relative to our net revenue. It's around 7.5%. This is not something we specifically target, but it is a healthy level when you look at some of the benchmarks around the world. Another thing, another observation you will discover from the TSE documents is last year, at the same time, we reported a loss for Japan. This year, we're reporting a profit, a healthy profit for our Japan overall geography business.
Last year, we reported almost a break-even, just a break-even profit for Americas in the first six months. This year, we have, again, in the TSE documents you will see, we have a very healthy profit being generated in the Americas, and the United States is giving us a really nice profit pull for us in the business. That's helping to offset some of these factors that we know are in the market, the raw materials and the Middle East situation. The Middle East situation has cost us around about JPY 40 billion.
Imagine if the Middle East situation wasn't happening, we would have tipped in another JPY 20 billion in the first half of profit and a full year of about JPY 40 billion. These are the things that I think we should give credit to our teams who are working hard on all the things, trying to combat the conditions. But those numbers, I think, speak for themselves.
We have time for one last-
Sorry, sorry. May I? Sorry. There's another one. Sorry. On the other hand, in China, sales performance is largely declining. New energy vehicles are introduced, and you are not recovering, yet you see a decline in the sales performance today. You said that you are maintaining the right strategy against this backdrop. Are you sure that you can recover the performance in China? I am sure you have ways to do so. Could you elaborate on how you are going to approach China to recover?
Thank you. You are right. The market in China is suffering two things. One is, there is a huge contraction of TIV, in the order of, we saw and we explained earlier, in the order of first half was around 22% year-over-year drop. We dropped around 15%. The drop was magnified in the third quarter, in the last three months. So, we see the market is being very, very harsh. On the positive side, one thing that we have to acknowledge is we started early.
We were one of the companies that started to move earlier to new energy vehicles that were prepared and produced for the Chinese customers. So, this is one of the strengths that we have as of now. Conversely, one of the threats that we have, or one of the weak areas is, we are recognized as an ICE company, and we are recognized heavily by our Sylphy lineup, which is relatively low in price and ICE-oriented. So, we are working very heavily on transforming our brand perception and accessing new customers.
The good thing, as I said, is we have the products, and we will continue adding product with good technology, with good costs, and with cycle renewals as well as freshening. We will export these products. So with these exports, we will hedge a bit the volume impact that we are having in China, and at the same time, we are defending ourselves outside of China.
So, this is how we are planning to recover. Domestically, we need to continue strengthening the way we position our product, as I was saying, working on the fundamentals, same as we are doing in the rest of the world.
As I have always said, there is no secret on the marketing and sales other than doing the basics right, which have to do with good communication, good product that is oriented to your customer, and reinforcing the way we distribute and deliver the product to our customers. So, we will continue doing these efforts in China, and we expect to gradually stabilize the performance over there. Yeah. Thank you. Thank you for the question.
I think really short of time, just come to the middle row, the first person in the second row. Second row, first person. Yes. Could you keep the question short and maybe answer short as well?
Asahi Shimbun, Yamashita is my name. In U.S. in particular, in North America, it has been strong. Could you elaborate on why were you very strong in this region? In the midterm election, the Democrats won. Going forward, how does it impact your EV strategy? I think this has an implication on EV policy. How do you assess the situation in U.S.?
Thank you. Let me start with the second question. I think it is very premature to say anything about how the policy may change or not. As we have said before, the only thing that we can do as manufacturer is to be agile and quick, and this is what we will continue doing because this is happening now. Maybe in six months, we will see another news changing the state of the world. The only thing that you can do as a manufacturer is to be very resilient and to improve your speed and your agility, and we continue doing that.
We will continue monitoring what happens, and we hope that we can get some stability for the future investments in the U.S., which is a market that has been very, very strong for us, as I have been saying, and a market in which we have very strong investments as a company. Now, what is driving the performance? I think consistency is one. We have been very consistent in the way we approach the market. We have been speaking about this already for some months.
We are focusing in two or three things. One is supporting the product that is built in the U.S. tariff-free. With this, we are channeling most of our marketing and sales resources into these products, and this is driving volume performance, as we explained in the presentation, and profitability as a consequence. Second thing is having a very stable and practical way of doing business with our dealer partners. We simplified a lot the way we work with them, the way we evaluate.
We made it very simple, focusing on profitability both for dealer and the partner, sales performance, and customer satisfaction. Very simple. Sell cars, make money, and have happy customers. Quite simple. This is the other thing that we have put in place, and it's helping. Last thing, I would say is working also on communication and brand. We started to reinforce a lot the image of our reliability and trust.
We've been talking about some accolades that we have achieved with our products, with JD Power and others in the past, and we are utilizing that very consistently to build trust in our products and our brand in the U.S., and this is working. This consistency on working on these three main fronts is what is building the performance up. At the same time, we are focusing on retail customers. We are stepping away from fleet and rentals. We keep that consistency delivering product to the retail buyers.
Buyers that are bringing, of course, better profit. They are more loyal, and at the same time, they are sticking with the brand for longer and buying our sales finance products, which are also adding to the profit of the business. This is what we are doing, and we will consistently do it because it's working, as we said earlier. Thank you. Thank you for the question, Yamashita-san.
With that, we'll close the session. Once again, thank you for joining us today. If you have any further questions, Nissan communication team will follow up with you. Thank you very much. Have a good day.