Operator: Okay, moving on to UBS Securities, Takahashi-san, please.
Kohei Takahashi: Takahashi of UBS Securities, thank you very much for this opportunity. First of all, North America, personnel expenses, your peers, competitors in 2024 is going to increase costs significantly. GM, more than $200 billion, they’ve already made that announcement. Amongst the suppliers, Mexico personnel expenditure increase percentage is higher for some competitors than the United States. You produce in Mexico, I know that the absolute dollar value is low but what about the percentage of increase, if you can give us any indication on that point? Secondly, Renault, you purchased your share back. And regarding the cancellation of the shares you’ve bought back, do you have any policy regarding cancellation of those shares? You don’t put them in treasury. Your basic chance is to cancel. So if there are no any specific conditions, you cancel them rather than put them in treasury. Is that the right understanding? Thank you.
Stephen Ma : So, thank you, Takahashi-san. So, first of all, I think you saw in the news, we of course make sure that we are maintaining a competitive package for our valued employees in North America. And as a result of the situation in the US, we, I believe a couple months ago, we announced that we will increase 10% wages. So that’s already happened. In Mexico, we are following a similar policy of maintaining competitiveness. So we will make sure we move in line with the market to make sure that we are taking care of our employees. Exact percentage, I don’t remember, Takahashi-san. I want to come back to you on that one. But all I do remember is we are fairly competitive, so that I have no worries about. But in general, globally, not just US and Mexico, but globally, the inflation is high, including Japan.
So I think you have to assume that there will be inflationary pressure on labor costs everywhere. Secondly, about the shared buyback. So, of course, when we buy back, we do want to — we want to eventually, our ultimate goal is to improve shareholder return, either via dividend, share buyback, or through improved performance, which increases our share price, so all of these things are various levers for us to improve our shareholder return. So it’s not automatic or for sure, we don’t have a set policy that we will cancel automatically everything that we buy back. But and as I mentioned before, in response to Yuzawa-san’s question, when Renault do want to sell, depending on how big they want to sell, if they want to sell a lot, then we have to think about what to do.
But if they continue these kind of increments, of course, we have the funding available and the cash available to take it on. So to answer your question directly, there’s no set policy but obviously, our aim is to improve shareholder return over the mid and long term. Is that okay for you, Takashi-san? Clear?
Kohei Takahashi: On the first point, operating profit, how is that going to be impacted in the next fiscal year? Is there going to be any reduction from the previous year and if you have any numbers that you can share with us?
Stephen Ma : Oh, for next year? No, right now we are working on the plan for next year. So it’s not finalized yet. But I think you should have the confidence that what we did in Nissan NEXT, where we are focusing on reasonable profitability. We will try to continue that for the next few years as well. And we’ve done a lot to change the business practices and culture within Nissan. As you know very well, we do not want to blindly chase after volume or market share. But we do want a good balance between volume and profitability. And this is what we’re trying to do now. And now that the market is different than it was a couple of years ago, this how to balance and what to balance is what we’re going to be discussing for our plan for next year. So I think we will be showing the plan for next year in the May announcement when we announce the full year result and also the next year outlook. So please wait for us to share more of those details to you at that time. Thank you.
Kohei Takahashi: Thank you so much.
Operator: Thank you. Anyone else with additional question? Any more question from the floor? Oh, yes, Mizuho Securities, Ishiyama-san, please.
Yoshitaka Ishiyama: This is Ishiyama. Do you hear me?
Stephen Ma : Yes, we do. Go ahead.
Yoshitaka Ishiyama: Thank you for the opportunity. I have two questions. The first one is about the financials. Could you elaborate on them further? In the third quarter Q2, in the operating profit is there any one-off items which you can unveil? And for the full year guidance, operating profit remains unchanged. But the ForEx assumptions and volume have been changed, so operating profit, what are the positive contribution? In OP variance, what are the changes? Is there any numbers that you can give us? This is the first question. And second question is about the sales volume in US and China. You elaborated about the Q4. How about Japan and Europe? The fourth quarter sales target seems to be too ambitious. So what’s your confidence? What’s your perception or assessment here? These are the two questions.
Stephen Ma : Okay, Ishiyama-san, thank you for the question. And I think I captured three or four. But anyway, I will try to answer all of them one by one, so it’s very clear. So Q3, I think, is temporarily a little bit lower than it should be. As I mentioned, we had to take care of the model year 23 inventory, which was larger than we expected. So we put some more incentive to sell down those stocks. That one-off portion of that is probably around ¥30 billion, in my opinion, I don’t think that will be repeated in Q4. That’s number one. Number two, as also mentioned in the step chart that you see on the screen right now, we had a lot of costs in Monozukuri that is for what we call inflation or other things. What this means is, in December, we had a finished discussion with our supplier.
How much of the inflationary costs increase, we’re going to share with them. So that they incur is going to be passed on to us, etc. So we settled those inflationary costs in support of our suppliers. So of that amount, it’s about ¥40 billion or ¥50 billion on a gross basis. Of that, about ¥20 billion, I would say, is really not just for Q3 but for the first half as well. So I would say probably about ¥20 billion is not belonging just in Q3, but it should be looked at over the full nine months. Then that’s the above OP too, kind of a one-off, I would say, the incentive additional provision to sell down. And then also these kind of retro adjustments for inflation or other price adjustments that’s covering the full nine-month period, not just the three-month period.
Then below OP, we had a couple of items. I’m not sure if you picked up on it, but we actually booked the impairment for India in the amount of roughly ¥54 billion. As we are progressing with our good collaboration with Renault, we have decided to restructure India operation. We have several entities and joint ventures together with Renault in India. We decided to rebalance them and also take care of some legacy issues. So we decided to impair as part of this restructuring change about ¥54 billion. Obviously, that will be not repeated again in Q4. Finally, probably somebody will pick it up, so I may as well mention and highlight this. But in Q3 also, given the interest rate decline in China, and then also we want to have, making sure that we have plenty of cash here in Japan, in case more shares sell down by Renault or other investor need it.
So we moved some cash from China to Japan in the form of dividend. So we took a big dividend from China to Japan. But in the past, we didn’t do that because in the past, we just left the cash in China because there was much higher interest rate in China that we could get income on. So but as we did this, we changed our dividend policy. So as changing the policy, we triggered from a tax point of view, having to book deferred tax liability for the undistributed dividends as well, or retained earnings. So this was a little bit extra tax expense for the quarter, but this is purely because we are opening up the possibility of moving cash in and out of China a little bit more. So these are, I would say, four items in Q3 P&L that slightly distorts or makes it look a little bit lower than actually normally the trajectory would be.
So as you can understand from these four factors, going to Q4, I will not have a repeat of the incentives because I already have all the model year 24 in the dealerships now. And the sell down of model year 23 is going very well. The retro adjustment for supply already done, so if we do anything more, it will only be for one quarter’s worth. So it will be not big as we had in December. And then I will not do another impairment in Q4 for any operation. And then we already took the tax liability, deferred tax liability for the undistributed China retained earnings in Q3. So I won’t have a repeat of these factors, of these negative factors. On top of that, actually, as I mentioned, we will have improved sales because we have now all the new model years which has refreshed exterior interiors.
We have more availability. We took care of all the logistics issues. So we actually have this vehicle ready to be sold and available for dealer to sell. We have updated our sales strategy so that we are now relatively competitive vis-à-vis our competition in the marketplace. And I would say lastly, some of our sales in the US, as I mentioned, is already confirmed via contracts, contracted order that we’re going to be delivering. So to be quite frank, I think Q4 is already set up for being a good quarter. So Q3 is a little bit low, but Q4 will be on a good trajectory. So your question about my confidence or the Q4, I think I’m pretty good in for that. And I think I just gave you all the one-offs for Q3. This is why we’re keeping the full year guidance at ¥620 billion.
As you notice, we updated the Q4 yen rate to ¥145. And I think yesterday was ¥147 anyway, or today. I forgot to check today. So we might have a little bit upside on that one. So even though the volume has come down, the retail we adjusted down by almost 150,000 units. As you know, what drives the financial is the wholesale. The wholesale drop or wholesale adjustment that we did from the previous guidance is only 75,000 units. So only less, half of the retail drop, which means that the financial impact is not as big. And on top of that, because we know the situation and we understand, we learn from our Nissan NEXT, all the good principle and management practices, we are keeping a very good focus on cost and control it as much as possible. Of course, there will be inflation and other costs, but all the other costs we are watching very carefully to make sure we don’t have a huge escalation in fixed cost.
