Nissan Motor Co., Ltd. (PNK:NSANY) Q2 2023 Earnings Call Transcript

Nissan Motor Co., Ltd. (PNK:NSANY) Q2 2023 Earnings Call Transcript November 9, 2023

Julian Krell: Welcome to the Nissan Fiscal Year 2023 First Half Financial Results’ Investors and Analysts Session. This is Julian Krell speaking, Head of Investor Relations. Thank you very much for joining. Our today’s attendees are Mr. Uchida, President and CEO; and Mr. Ma, CFO. Mr. Uchida will start the presentation with the highlights of the first half. We will conclude this call with a Q&A session. I am now handing over to Mr. Uchida. Thank you very much for your time.

Makoto Uchida: Hi. Thank you so much. Let me present the results for the first half of the year. Welcome to Nissan’s first half results for the 6-months period ending September 30, 2023. Nissan’s financial performance for the first half of this fiscal year improved significantly from the prior year. Net revenue increased 30%. Operating profit was up 115% and net income substantially increased. Since fiscal year 2020, we have been working on Nissan NEXT business transformation plan. The results of our continuous efforts are reflected in our business performance in the current fiscal year, which is the fiscal year of the plan. Now, I would like to ask our CFO, Mr. Stephen Ma, to present the results for the second quarter and the first half of the fiscal year. Later, I will talk about the outlook for the rest of the year and the status of our China business and insights into our key steps. Ma-san, please.

Stephen Ma: Hello, everyone. Let me present the key metrics for the first half of the year. Looking at the volume for the first half, global retail sales increased by 3.3% year-over-year to 1.62 million units. Excluding China, we achieved growth of over 23.4% with Japan, North America, and Europe delivering double-digit growth. In China, the rapidly changing automotive market remains challenging. Our retail sales decreased significantly by 34.3%. Nissan’s global production volume increased by 4.5% as we continued refilling the pipeline to serve customers worldwide. Excluding China, our production increased by 25.1%. Looking specifically at the second quarter, global retail sales increased by 11% year-over-year to 833,000 units.

Excluding China, sales grew by 26.5% and production volume increased by 4.7% for the quarter. This slide shows our key financial performance indicators for the first half. On an equity basis, net revenue increased by 30% to JPY 6.06 trillion from JPY 4.66 trillion in the same period of 2022. On the same basis, operating profit for the period increased to JPY 336.7 billion with a solid operating margin of 5.6%. Automotive segment profit improved to JPY 168.8 billion. Net income totaled JPY 296.2 billion. Free cash flow for the automotive business was a positive JPY 193.9 billion. Net cash for the automotive business came in a healthy level of JPY 1.5 trillion, which ensures a financial flexibility, while investing for the company’s sustainable growth and providing the necessary levels to weather headwinds in this uncertain environment.

On a proportional basis which includes our China operation, net revenue rose to JPY 6.48 trillion from JPY 5.26 trillion last year. Operating profit was JPY 344.7 billion representing an operating margin of 5.3%. Auto free cash flow was a positive JPY 161.6 billion, and net cash reached JPY 1.81 trillion. As the financial results indicate, we continue to successfully implement the objectives set forth on the Nissan NEXT plan and we are on the right track. Now, I will cover the performance of our key markets. In Japan, retail sales increased by 10.7% to 228,000 units. Thanks to the launch of the new Serena e-POWER in April, total sales of the Serena increased by 62%. The Sakura continues to enjoy a great customer acceptance and sales increased by 37% in the first half.

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Q&A Session

Our total electrification ratio improved by 6 points to 54%, and Nissan remains the number one EV seller for 13 consecutive years. The net revenue per unit improved by 14% from the prior year. Production volume increased 38.7% for the period due to improved supplies. In North America, retail sales and production volume increased by 39.2% and 35%, respectively. This growth was driven by our top selling models, the Rogue and the Sentra in the U.S. In addition, both the Mexican market, INFINITI brands contributed to the overall sales volume growth in North America, each increasing by over 50%. Our net revenue per unit in the U.S. increased by 3% from the prior year. In Europe, retail sales grew by 19.3% and production volume increased by 19.4%.

Net revenue per unit improved by 19% year-over-year. Thanks to the strong acceptance of the Ariya, Juke Hybrid, X-Trail e-POWER and Qashqai e-POWER, our electrification ratio increased by 25 points to 37%. I’m happy to share that LEAF was awarded the “Best Car for City Driver” in the UK. In China, sales and production volume continue to be significantly impacted in a difficult market environment. Our retail and production volume declined by 24.4% and 25.2%, respectively. The Sylphy continues to be the top selling model in the ICE segment. On a calendar basis, our retail sales decreased by 28.9% for the July to September period. As I mentioned earlier, China market remains challenging with intense price war and increased competition with frequent model launches, especially for the domestic brands.

During this period, Nissan has launched four new models. Though there have been slow-uptake, these models are seeing a gradual acceptance among our customer month-over-month. We will elaborate in detail later. Let’s have a look at the income statement for the 6 months ending September 30, 2023, on an equity basis. Net revenue increased by JPY 1.4 trillion to JPY 6.06 trillion; and operating profit increased by JPY 180.1 billion to JPY 336.7 billion, representing operating margin of 5.6%. Non-operating margin, which includes equity-method companies, totaled to JPY 75.9 billion, and improved by JPY 35.6 billion compared to the previous fiscal year. Extraordinary losses totaled to JPY 36.3 billion. As a result, net income increased to JPY 296.2 billion.

This slide shows the variance factors from the first half of last year to this year. Foreign exchange had a positive impact of JPY 13.3 billion. The U.S. dollar remained strong, but was offset by emerging market currencies. Raw material impact was a positive JPY 22.6 billion due to the decreasing prices of most materials. Sales performance had a positive impact of JPY 272.8 billion driven by strong volume and positive pricing, partially offset by normalization of selling expenses in the industry. Monozukuri cost had a negative impact of JPY 42 billion mainly due to inflation and regulatory expenses. Other items had a total negative impact of JPY 86.6 billion. This includes impact from sales finance as net credit losses and used car pricing has become too normalized.

As a result, operating profit for the half improved to JPY 336.7 billion. And with that, I will hand over to Uchida-san.

Makoto Uchida: Thank you, Stephen. Let me talk about the full year outlook. We will maintain for the full year outlook in total global volume of 3.7 million vehicles. This 3.7 million already reflects the revision of China outlook and confirmation of our solid performance in other markets. Based on the solid performance reflected in the first half results, we increased our financial outlook as follows: net revenue from JPY 12.6 trillion to JPY 13 trillion; operating profit of JPY 620 billion, which represents an operating profit margin of 4.8%; net income of JPY 390 billion. To summarize, we have achieved a solid financial result in the first half of the fiscal year 2023. We are firmly committed to the Nissan NEXT transformation plan in order to continue this recovery and deliver sustainable growth.

Based on the results and our outlook for the year, we decided to resume the interim dividend at JPY 5 per share. We are maintaining the full year guidance of JPY 15 or more as we announced previously, while balancing financial flexibility, the necessary investments to ensure our sustainable growth and securing solid levels of net cash to weather headwinds in this uncertain economic environment. Nissan aims to improve shareholder returns by further improving the company’s performance and financial foundation. We remain committed to increasing shareholder value. Next is about China’s status update. Addressing the Chinese market continues to be a pressing challenge for us. Nissan has been operating in China for over 20 years and has proudly sold more than 15 million vehicles in this important market.

We have many loyal customers in China and recognize the strategic importance of quickly providing them with high value new energy vehicles at attractive prices in addition to internal combustion engine vehicles, which continue to have a certain level of demand in the market. To this end, I explained that we will leverage our local assets across the full value chain to enhance the competitiveness of Nissan products back in July, when I presented the first quarter results. We are in the process of exploring every possible opportunity. Let me share 3 key initiatives that are crucial to make a breakthrough in the market. The first action is to enrich our New Energy Vehicle offer. We will launch four Nissan branded New Energy Vehicles by 2026 to address this growing segment.

All four models will be developed by our local R&D center in China. The team which Nissan has been nurturing over the years. The first model, a D-segment EV is targeted to be launched in the second half of calendar year 2024. Three other models will follow including Nissan’s first ever Plug-in Hybrid model. The second initiative is further utilization of the local design and engineering assets. Our joint venture partner plans to launch 6 JV New Energy Vehicles made in China for China by 2026. The first Venucia Plug-in Hybrid was launched in the first half of this year and the battery EV was announced on November 3. We aim to increase the sales volume by offering the various products in the New Energy Vehicle segment. The third one is that we will start export to Nissan vehicles from 2025 as the first step we aim at 100,000-unit level.

The four Nissan branded new energy vehicles that I referred to are included in the potential products to be exported. We will announce the details including timing and destinations at the right timing. I intend to implement these actions with speed in order to put our China operation back on the growth track in this challenging market. Let me reiterate that Nissan is leveraging its strength including electrification and vehicle intelligence to empower a journey and society as we progress towards our goal of carbon neutrality. Many initiatives are underway across the world to realize Nissan Ambition 2030 long-term vision. In September, Nissan Design Europe celebrated its 20th anniversary. On the occasion, we announced that all new Nissan models in Europe will be 100% electric by 2030.

Moreover, we are involved in a research project called evolveAD that is intended to develop the latest autonomous drive technology capability UK as we hone our technology excellence. At the recent Japan Mobility Show, which ended last week, we have demonstrated the direction of our future mobility through five concept cars. Furthermore, this week we announced our decision to invest up to BRL 2.8 billion in Brazil to produce two new SUVs including all-new Kicks. As you can see, Nissan is taking many concrete steps around the globe. Yesterday, we announced the completion of our agreements framing the foundations of the new chapter of the Alliance. With this, we enter a new era of collaboration. The completion of rebalancing will enhance Nissan’s agility and contribute to new value creation and operational efficiency as we strive for Nissan Ambition 2030 long-term vision and electrification strategy.