Nissan Motor Co., Ltd. (7201) Earnings Call Transcript & Summary

[Interpreted] Now ladies and gentlemen, we would like to begin the presentation of the financial results for the fourth quarter and full year of fiscal year 2021. Thank you very much for joining us in such a large number. In order to prevent the spread of COVID infection, today's briefing will be live streamed via Internet conferencing system. First of all, I would like to introduce the officers who are present today: Makoto Uchida, President and the Chief Executive Officer; Ashwani Gupta, COO, Chief Operating Officer; Stephen Ma, CFO, Chief Financial Officer. Thank you very much. Now first of all, I'd like to call upon CEO Uchida to offer his greetings, Mr. Uchida, over to you.

[Interpreted] Thank you for joining us today. Nissan continues to place the highest priority on the safety and well-being of our employees and communities as we run our operations. We support international efforts to address the humanitarian crisis in Ukraine and hope that the conflict will be brought to an end as soon as possible. In addition to the crisis, we faced multiple obstacles, including the ongoing COVID-19 pandemic, energy and supply chain disruptions resulting in extremely challenging business climate in the past fiscal year. Despite these difficulties, every individual in Nissan has been working hard to overcome the challenges with strong support from our suppliers, dealers and business partners. Above all, we received great support from our customers around the world who choose our brands. Nissan is making steady progress implementing the Nissan NEXT business transformation plan. Today, we are pleased to report the key initiatives along with the financial results. Our COO, Ashwani Gupta, will cover the full year performance for the fiscal year 2021, and I will present the outlook for the fiscal year 2022. Ashwani-san, over to you.

Thank you, Uchida-san. I will now take you through our annual financial performance for the FY '21 and our progress on our 4-year business transformation plan, Nissan NEXT. It is clear that our industry and therefore, our performance was impacted by intensifying headwinds in the last fiscal year. These challenges magnified in the fourth quarter with rising energy prices, continued supply chain shortages and ongoing COVID disruption, while Nissan has put in place an Agile business continuity plans. These continuous changes in the market are creating unprecedented uncertainty. I would like to apologize for the delays caused to our customers awaiting new cars. We are striving hard to address all these issues, thanks to the efforts of our employees and partners. Our results today coincide with the midpoint in the Nissan NEXT transformation. We are on track with our transition from volume-led to a value-driven strategy. And I will explain the progress made in both rationalizing our business and how we are prioritizing markets, product segments and technologies that will drive future profitable growth. I will now go through our results in detail and the key drivers of our performance for the 12 months to March 31, 2022. Starting with our sales performance. Nissan managed to exceed its full year forecast in terms of retail volumes. We sold 3.876 million units in the latest 12-month period, which was 2% ahead of 3.8 million guidance that we provided in our full year outlook. This was a satisfactory outcome given that total industry volumes were 1% lower than our forecast. But we are not immune to the major challenges facing our industry. As I mentioned earlier, these challenges intensified in the final quarter. While the total industry volume resulted 2% above fiscal 2020, these issues combined to reduce our global retail volumes by 4% compared to fiscal 2020. Against that background, we achieved unit sales in Japan of 428,000. And in China, overall unit sales were 3 point -- 1.38 million. We performed better in North America, where retail volumes were 1.18 million units, of which, the U.S. accounted for 842,000. In Europe, unit sales reached 340,000 units in a challenging market environment. Other markets, including South America, Asia and Middle East, bucked the trend with unit sales of 543,000 units. One of the key success factors, which supported our sales was the embellishment of the digitalization in our sales operations. We were able to grow customer engagement by providing the online shopping processes in the key markets. And as a result, sales influenced by digital engagement have increased by 6 points from FY '20. Over the past 2 years, our Nissan NEXT transformation plan gained strong momentum in key markets. This volume to value transition is reflected by our performance in our core markets, which I will now take you through. In the United States, we are rebuilding the quality of our business and improving our product, brand and sales power through 3 pillars: change the product, change the business and change the culture. The increasing focus on quality, pricing mix and customer appeal has seen our product acceptance improve in key segments such as midsized SUVs and pickups with our renewed lineup. The segment share of the Nissan Rogue, for example, is up to 7%. And we see an even sharper rise for Frontier, which is up to 11%. From the contribution of our key models, average net revenue per unit have increased by 19% over the past 3 fiscal years by focusing on healthy channels and by minimizing exposure to lower-margin fleet sales, which have reduced rental mix by 14 points since fiscal 2019. Most importantly, as a result of our collaborative culture with partners, our dealer engagement has shown significant improvement, which you can see from our NADA overall index score rising by 22 points from FY '19. Alongside building quality in the United States, we have been reaffirming the importance of our presence in our home market, Japan. Among our key models, the Nissan Note and Note Aura has seen its segment share in Japan rise to 14% since fiscal 2020. And net revenues per unit have jumped 38% compared to the previous model. Also, in the second half of fiscal 2021, the Note and Aura topped the rankings for electric powertrain vehicles in Japan. The Aura is also generating brand value for the company, winning 3 major awards, including Car of the Year Japan, of which we are extremely proud. We see a growing demand for the all-new Nissan Ariya, a vehicle that is a beautiful fusion of our 80 years SUV heritage and 11 years of EV legacy. We have received 6,800 preorders. Further, with the revitalization of our product range as part of Nissan NEXT, our average product age in Japan has reduced from more than 5 years to 3.3 years. Now let's look at the underlying performance trends in China and Europe. In China, we are sustaining momentum in the customer acceptance and pricing mix, while increasing the connectivity levels of our vehicles and additional e-POWER model options. Acceptance of models such as Sylphy and Altima are moving in the right direction with segment share solidly in the past 3 fiscal years. Importantly, our higher-grade mix, which commands higher margins increased by 7 points from the fiscal year 2019. Chinese customers increasingly place higher value on advanced smarter technologies and connectivity in their vehicles. Recognizing this, we have increased the proportion of vehicle connectivity on Nissan models sold in China by more than 10% points to 86% over the past 3 years. We are glad to see positive acceptance of our award-winning e-POWER technology in China. Meanwhile, in Europe, we have focused our efforts on increasing our presence in the growing crossover segment. As examples of this approach, we saw, 136,000 orders for the all-new Qashqai in fiscal 2021 with net revenue per unit rising 38%. We believe that our European lineup will gain further momentum with the introduction of e-POWER models further underlining our electrification efforts in the region. As part of our rationalization efforts, we have rightsized our production capacity, moving from 3 shifts to 2 shifts as well as our decision to close Barcelona production. These efforts contributed to significant reductions in the fixed cost, which I will explain in more detail shortly. Our core market transformation progress is a clear proof point of momentum we created with Nissan NEXT plan. When we embarked on Nissan NEXT in May 2020, we vote to number one, rationalize cost; number two, streamline our operations to prioritize and focus on core markets, core products and technologies; and number three, to sow seeds for the future growth. As a result of these actions, we have completed the rationalization phase of Nissan NEXT, and our ongoing prioritization efforts have led to a performance that is ahead of plan in key markets. We have been continuing to build on these foundations while investing in the next-generation production capacity and in technologies designed to solve our industry's major challenges, including innovations in battery technologies, vehicle intelligence and EV ecosystem. Let me elaborate on the progress points. On rationalization, we have optimized production capacity by 20%, enabling us to tailor production to match demand. We are also on track to achieve our target of optimizing our global product lineup. The number of models has been reduced by 15% so far. And we gained momentum by exceeding our target to reduce fixed costs by more than JPY 350 billion. In terms of market focus, we have prioritized our core market as the United States, Japan and China and Europe. We have focused our global core models around enhanced C and D segment models on electrified vehicles and sport cars with 12 new models introduced in the first 18 months of the plan despite ongoing headwinds. And the net result has been an 18% increase in net revenue per unit. This, in turn, reflects increasing customer acceptance of our new models. In summary, we have achieved the main elements of Nissan NEXT by rationalizing and focusing our business during the first half of the plan. Now as we turn our attention to the second half of the plan, we are intensifying our focus on seeds of future growth. And we must maintain momentum while empowering the journeys of our customers. As part of our long-term direction, Nissan Ambition 2030, we are leading to an electrification mix of more than 40% by fiscal 2026. In parallel, we are ramping up our battery development. We are working on cobalt-free batteries and aim to bring down the cost and improve performance of our liquid lithium-ion batteries by 2028. At the same time, Nissan is developing game-changing, all solid-state batteries in-house. With double the energy density and right material packaging, our goal is to offer more dynamic performance, better charging time and competitive costs. We will begin the construction of our pilot production line this year to get it ready in 2024 and intend to start mass production in 2028. Great technology requires great production lines and a talented workforce. That's why we are delivering and investing up to GBP 1 billion and creating more than 6,200 jobs, including among suppliers at our Sunderland plant in the U.K. under EV36Zero, our fully integrated manufacturing and service ecosystem connecting mobility and energy management with the aim of realizing carbon neutrality. In the United States, we will invest up to $500 million to transform our Canton assembly line to deliver all-new Nissan and INFINITI EV models. This will secure 2,000 jobs, many of which will be upskilled to focus on EVs with advanced technologies and battery pack production. As part of our electrification ambition, we are also focused on significantly expanding battery reuse and recycling, taking advantage of our 10-year head start in EVs. That's why we have created 4R Energy Corporation, our battery reuse, resell, recycle and refabricate business model, which operates Japan's first plant specializing in the reuse of lithium-ion batteries. Our 4R plant in Namie in Eastern Japan will be the first in the world to provide exchangeable refabricated batteries for the electric vehicles. And we intend to expand its presence to the United States and Europe. With this strong transformation, we are able to deliver confident results every year. And it is no different from the fiscal year ending March 31, 2022. As you can see, despite the challenging environment, we have overachieved the outlook that we announced in February 2022 at our third quarter announcements. This slide shows our key financial performance indicators on both the China JV proportionate basis and equity basis. On the equity basis, which is without our China JV operations, our operating profit for the year was JPY 247.3 billion with an operating margin of 2.9%. Net income was JPY 215.5 billion. Free cash flow for the automotive business was a negative JPY 294.7 billion due to the working capital usage as a result of low production from the semiconductor supply shortage in the first half of the year. However, as explained in previous announcement, we have succeeded to bring it to breakeven in quarter 3 and turned it to positive for the second half, which is a great accomplishment towards FY '22. Then our net cash for the automotive business was JPY 728 billion. On a proportionate basis, which includes our China JV operations, our operating profit for the year reached JPY 360.5 billion with an operating margin of 3.7%. This is well above our Nissan NEXT operating margin milestone of 2% for FY '21. Net cash for the automotive business exceeded JPY 1 trillion. We continue to maintain strong levels of liquidity. Our cash and cash equivalents for the automotive business was JPY 1.7 trillion on an equity basis. We also maintained approximately JPY 1.9 trillion in unused committed credit lines. Turning now to the operating profit variance analysis for the fiscal year ending March 31, 2022. This slide shows the variance from an operating loss in FY '20 to the operating profit in FY '21. Foreign exchange had a positive impact of JPY 63.4 billion primarily due to strong U.S. dollar. The increase in raw material prices had a negative impact of JPY 139.2 billion as a result of price hike in materials such as steel, aluminum, plastics and rhodium. Sales performance had a positive impact of JPY 339 billion. This was primarily driven by excellent acceptance of high product -- high-value products coupled with disciplined price management, which is a result of our continued initiatives to improve quality of sales as well as the tight market environment due to the semiconductor supply shortage. These ongoing challenges made us look beyond yesterday to rethink and realign our strategies, which led to our Monozukuri performance showing a positive impact of JPY 27.6 billion primarily due to the improvement in operational efficiency. Other items, which had a positive impact of JPY 107.2 billion, include an increase in operating profit from the sales finance business primarily due to the release of provisions as well as the impact from increased used vehicle prices. Next is the income statement for the fiscal year ending March 31, 2022, on an equity basis. Net revenue increased 7.2% and improved by JPY 562 billion from the previous year to JPY 8.4 trillion. Operating profit increased by JPY 398 billion to JPY 247.3 billion, representing an operating margin of 2.9%, an increase of 4.8 points from the previous year. Net income increased from the previous year by JPY 664.2 billion to JPY 215.5 billion. We booked noncash adjustment charge related to Russia and Ukraine businesses in the fourth quarter of FY '21, which amounted to JPY 52.6 billion, including the impact from the equity method companies. However, this was more than offset by the positive contribution from equity method companies, excluding the Russia impact and extraordinary income, which included the gain on our sale of Daimler shares in quarter 1 of FY '21. In addition to the improvement shown for the full year, the columns on the right show the progress we made in quarter 4. This concludes my summary of Nissan NEXT business transformation progress and fiscal year 2021 sales and financial results. All our performance indicators, operating profit, net revenue, net income and auto free cash flow in the second half are higher than expected despite strong headwinds. In closing, let me impress upon you that Nissan is moving ahead with cautious optimism to ensure diligent delivery of our transformation plan with agility, resilience and discipline in the current volatile environment. We set out on this journey when the company was at its lowest. And we are transforming ourselves and growing steadily during extraordinary difficult times. This is not an easy task, and this is where we needed stronger focus on key priorities and greater agility in our plans. Our strong conviction in our future helped us course through the transformation and set our ambition towards a progressive future. I will now hand back to Uchida-san for the fiscal year 2022 outlook before we take your questions.

[Interpreted] This is the summary income statement for the outlook for this fiscal year on an equity basis. Net revenue is expected to increase by 18.7% year-on-year to JPY 10 trillion. The rate of increase is higher than that of the retail volume primarily due to continued improvement in quality of sales and the impact of yen depreciation. As explained on the previous chart, we are forecasting our operating profit to stay almost flat at JPY 250 billion, which equates to an operating profit margin of 2.5%. Net income is expected to decrease by 30% to JPY 150 billion primarily due to the onetime positive impact from the sales of Daimler shares last year, which will not repeat in fiscal year 2022. In our previous financial announcement, we mentioned that we should consider resumption of the dividend payment when we generate positive operating profit and net income, positive automotive free cash flow for the second half of the fiscal year 2021 and maintain a healthy level of net cash for the automotive business. We met all these conditions in the fiscal year 2021 and made steady progress towards achieving the Nissan NEXT objectives. At the Annual General Shareholders' Meeting in June, we will propose to pay the fiscal year 2021 year-end dividend of JPY 5 per share to the shareholders as of March 31, 2022, which represents a payout ratio of approximately 9%. For fiscal year 2022, with regards to the year-end dividend, we expect to pay JPY 5, the same level as of fiscal year 2021. As for the interim dividend, due to external factors that have been fluctuating significantly in the recent past, it is undecided at this time. And we would like to make a final decision based on the future situation. Improving shareholder returns is one of our priorities, and we will work to increase the amount to an appropriate level in the future. Next, I would like to talk about the priority items for this fiscal year. As I said, the environment is expected to remain challenging this year. We need to surmount the difficulties in order to transform Nissan into a healthy and strong company that is capable of ensuring stable earnings and sustainable growth irrespective of the business climate. Fiscal year 2022 is a crucial year to work on Nissan NEXT while sowing seeds for our long-term vision, Nissan Ambition 2030. Electrification and vehicle intelligence in which our strength lies are the pillars of Nissan Ambition 2030. We have started preparing for necessary investments and continuous innovations in these 2 domains. You have seen the examples when we presented the engineering status of our all solid-state battery and driver assistance technology equipped with the next-generation Lidar technology last month. It was encouraging to receive positive reactions from the journalists and analysts who joined the event. Nissan is increasing its competitive edge and economies of scale by leveraging Alliance benefits, which other carmakers do not have in developing technologies. We plan to introduce 23 new electrified models, including 15 new EVs by 2030. We started seeing the all-new Ariya crossover EV on the streets. It is pleasant and encouraging to see big smiles on our customers' faces while driving the car. The long-awaited all-new Kei EV, which we announced to launch in early fiscal year 2022, is going to be unveiled next week on May 20. The all-new Kei EV that is co-developed with our Alliance partner, Mitsubishi Motors, will definitely give impetus to democratization of EV in Japan. Nissan continues working with the various partners to drive initiatives to empower society, include development of energy management system, mobility services and EV ecosystem using electrification and vehicle intelligence technologies. Innovations are driven by every Nissan person. Nissan has been creating numerous innovations in the spirit of do what others don't dare to do since its establishment. Our people are the company's greatest assets. The most important thing is to foster our company culture in which every individual can reach their potential. It takes time and dedication to reform a company culture, yet this is a key to the success of Nissan Ambition 2030 and the company's growth beyond. We are working as one team to carry out the reform so that at the end of the day, many of you will tell us, "Good to have Nissan" and "Nissan makes my life exciting." The impacts of global issues such as the COVID-19 pandemic and semiconductor supply shortages have been much bigger than our initial expectation. Despite the difficulties, Nissan is delivering results that exceed the plan. This is the demonstration of a strong foundation that we have been building in the past years. Fiscal year 2023 is the final year of Nissan NEXT. We will keep a tight rein and strengthen the efforts to make our company's business foundation even stronger. We will start working on the next midterm plan, which will be a concrete action plan to achieve Nissan Ambition 2030. I will present the new midterm plan in due course. Your continued support will be highly appreciated. Thank you for your kind attention.

[Operator Instructions] The first one, Nikkei Shimbun, Masuda-san.

[Interpreted] This is Masuda. Do you hear me?

[Interpreted] Yes, go ahead, Masuda-san.

[Interpreted] I have 2 questions. The first one is about the full year outlook or guidance that you showed us. Operating profit will increase while the net income is falling compared to the prior year. What are the reasons behind this? And dividend payment -- no, dividend payment, it's undecided. But one of the conditions of dividend payment is the free cash flow for automotive for this year is on the positive side this year. What's the outlook on the free cash flow on the automotive side? And at the same time, can we expect -- in order to ensure stable payment of dividend, what are the conditions that you need to meet for the stable dividend payment? And the second question, well, this is related to this fiscal year. Raw material price hike is big impact for all the carmakers. In Nissan NEXT, you have been working on rationalization, and many efforts are made. Based on the circumstances, do you need additional efforts for rationalization? If yes, what are the specific actions that you have in mind? These are my questions.

[Interpreted] Thank you for your question, Masuda-san. Yes, let me talk about the big directionality, and Stephen-san, who is the CFO, to give additional comments. Starting with this fiscal term, fiscal year 2022, you were talking about the full year guidance, I believe. Operating profit increases, while -- go to the slide of operating profit fiscal year '22 outlook, please? Thank you. Yes, what you ask is about net income, which is falling year-on-year. Compared with the prior year, JPY 65.5 billion is a decline because last year, we benefited from the proceeds of the sales of Daimler shares. This was about JPY 76 billion or so. That is if we deduct this, we are on par with the prior year when it comes to net income, if you adjust this proceeds of sales of the Daimler share. And dividend, the funds for the dividend. Dividend conditions, could you show us the conditions to meet for the dividend payment? Within the company, since we announced Nissan NEXT, I have been saying this. First, a healthy level of net income, operating profit. These are the conditions to meet to resume the payment of dividend and automotive free cash flow, especially in the second half of 2021, we said that we want to turn the free cash flow positive. These are the 3 conditions to consider the dividend payment resumption. In 2021, we met all these conditions. So that is why we have confidence about the Nissan NEXT. So that is why we show the directionality proposing the dividend payment, which we indicated earlier. And the second question, which was about the raw material price hike and additional rationalization. Raw material price hike is happening quickly. And since the past, we have been addressing material challenge, which is a name of the effort, and we are trying to reduce the consumption. At the same time, for the future new cars, new materials will be applied. And we will change the different -- we will apply new materials to develop new cars. These rationalization efforts will continue. Having said that, in your question, you were talking about further fixed cost reduction is your question. But fixed costs, as I said, we did much better than the plan when it comes to fixed cost reduction. So as of today, our new car acceptance is rising. We will continue delivering high value with new car so that we can get the earnings. And for the raw material price hike, we will monitor the situation carefully and address it accordingly.

Stephen, do you want to add some?

No, just I think you said most of it. So I think for free cash flow, your point is very valid for a condition of dividends, positive profit and healthy net cash. And then, of course, we had to have positive free cash flow. Those are major conditions, and we are striving very hard to make sure that we have those conditions also for FY '22. And for raw material, in addition to the usage and new material, we're also trying to do a little bit of hedging. And also we do a little bit of prebuying the old contract rates so we have a healthy level of inventory for next year usage. Thank you.

[Interpreted] Moving on to the second question. Yomiuri Shimbun, Suzuki-san.

[Interpreted] Yes. This is Suzuki. Do you hear me?

[Interpreted] Yes, go ahead, Suzuki-san.

I have 2 questions. The first question is about electrification and the sales volume for 2022. Ariya standard model was launched, and Kei EV will be coming soon, I understand. EV democratization or making them a sale [indiscernible] products is your intention, I believe. In fiscal year 2022 in Japan, 19.2% increase is the volume that you're anticipating in. What will be the contribution of EV in this number in Japan? And related to this question, flagship introducing EV, including a flagship. In fiscal year 2022 for Nissan electrification, how -- what is the significance of fiscal year 2022 in electrification strategy? And the second question is Russian business. For Russia, since middle of March, you have suspended operation of production plants. In the last fiscal term, it was limited. Between 2021 and 2022, what will be the negative impact of Russian business? In fiscal year 2022, for example, for 1 year, you will stop the operation. What are the assumptions for the '22 plan for Russian business?

[Interpreted] Thank you for your question. Starting with the second question, Russia and Ukraine. We have suspended the operations because of the supply issues and logistics. For Nissan, whether it's Russia or Ukraine, we are putting highest priority on the safety and living of our employees as well as their family members. That's our top priority. And we need to carefully monitor the situation and take the right actions. This is the only thing that I can say for now. But at the same time, what's the forecast for 2022? I show you the sales volume in Europe earlier. Russia, Ukraine volume is not anticipated in this volume. So we will continue to carefully monitor the situation, but we haven't added -- we didn't count the volume for Russia, Ukraine, meaning that we are assuming the operation will be suspended for the year. And going back to the first question, which was about -- well, of course, Ariya, this is the culmination or presentation of our long history and experience of EV technologies. And starting here, we would like to deliver the cars that only Nissan can deliver. That's what I want the customers to see. And this is what makes Ariya significant. And Kei car EV well, Kei car accounts for about 40% of the TIV in Japan. So for this Kei car demand, we would like to deliver Kei EV, which is affordable and accessible for these people. And I'm pleased to deliver this car. This is a big picture, including the electrification ratio in Japan, number-wise, we are on track. So going forward, Nissan is EV or e-POWER. Based on these 2 pillars, we would like to increase electrification. Anything else? Ashwani-san will give you further details.

Uchida-san, you said it all. I think your question was more precise on the 19.2% increase. All of it will come from the electrified vehicles because the major growth pillars for us in Japan in 2022 is Kei EV, Note, Aura and the Ariya. So these are the 4 growth pillars which will not only bring the market share increase, but also will bring the net revenue per unit increase in Japan. And your next on the FY '22, Ariya is -- has been successfully accepted around the world that even in United States, we had to request our customers to stop the orders. So that's why FY '22, seen from the electrification viewpoint, Nissan will see its second revolution in the electric vehicles. The first evolution we did was the LEAF in 2010, and now we will do it with Ariya and the Kei EV. That's why FY '22 is extremely important for Nissan to shift the gear towards the electrification.

[Interpreted] Moving on to the next question. Wall Street Journal, Sean.

McClain from the Wall Street Journal. Two questions. The first one, I was wondering if you could address the rising prices in the U.S. car market. Obviously, it's great for you guys seeing sort of volume decrease but your profits being bolstered. But I'm wondering if you're having any concerns about affordability of new vehicles in the U.S. and anything you plan to do about it or if there's anything you can do about it? And then secondly, Mr. de Meo is in town for the first time, and I'm sure you guys have been having a lot of meetings and showing him around. He seems quite keen on this idea of an EV spin-off, and I understand that he's pitching it to you guys. And absent any technical or sort of complications practically of accomplishing such a deal, do you see any merits for Nissan in Nissan doing the same thing as Renault, separating your business out?

[Interpreted] Thank you very much. So first of all, I'd like to respond to the second part of your question, and Ashwani will respond to the first part. First of all, Luca, CEO Luca de Meo of Renault coming to Japan. But every month, we have Alliance discussion with them and because of the COVID -- now it has become possible for us to have a face-to-face meeting because of the alleviation of COVID. So that is the reason why we are having this meeting. And Renault having a new company working on the EV business on that side, there was an announcement from them. And we wanted to understand that the announcement. We already started a discussion with them. Now the question is what this means to Nissan? Is this good for Nissan? Well, we are in a position to provide support to Renault support. However, is this good for Nissan, and is this also for the good direction for Alliance as a whole? We need to have a further discussion with them. And so that is the approach we'd like to take, and that is the response that we can take right now.

Fair question. Before we get into whether it will be affordable or not, I would draw the attention in December 2019 when we said that in the United States, we are going to work on rebuilding our quality of sales. And before the pandemic and before the semiconductor shortages, we started our transformation by changing the product, changing the business and changing the culture. And we already started at that time the foundation for the quality of sales. For Nissan, rising car prices is always a concern seen from the customer because at the end, it's a customer who decides the price and customer willingness to pay for the price. So what Nissan has been focusing on for the last 2.5 years is on the quality of sales, which means how we put more and more value in the car, which is perceived by the customer. This is what we did in all-new Rogue. This is what we did in all-new Frontier. This is what we did in the all-new Pathfinder. And on the other side, we used this situation to accelerate the incentive reductions. So which means for Nissan, the objective is to improve the net revenue per unit by increasing the value and reducing the incentives, which means seen from the customer, it comes as a value. And this is across the lineup, we are following the same thing. In future, till where we will be able to keep this discipline, as part of discipline, we will keep the discipline. However, we will keep on adjusting with agility and resilience based on how market is reacting and how a customer is willing to pay. Thank you.

[Interpreted] Next question, Toyo Keizai, Yokoyama-san.

[Interpreted] Yes. This is Yokoyama. Do you hear me?

[Interpreted] Yes, go ahead, Yokoyama-san.

Yes, I have 2 questions, too. The first one is about the production plan. 4 million units is your guidance for this year? It's less than 2020. So there will be a decline year-on-year, right? But aren't you bullish here? I mean, for example, semiconductor supply issue or parts of logistics disruptions, I assume. So what are the assumptions behind this 4 million units of production plan? Could you elaborate on this? It will be very helpful. And in relation to the suppliers, suppliers are struggling because there are sudden changes in the production plan. So in order to increase the accuracy of production plan, what do you do specifically? This is the first question. And the second one is the commodity price hike of raw materials prices. Specifically, I want to know whether it's in precious metals or resin. What is the level of impact of raw material price? You showed us the figure, but could you elaborate on this? That's all.

[Interpreted] Thank you, Yokoyama-san. When it comes to specific, including suppliers, how are we addressing supply chain management. This is more operational side. So I would like to ask Ashwani-san to answer. And if you need supplementary information, I would like to [indiscernible] in charge. For the second one, raw material price. Well, as you may be aware, CFO will provide further details on this. But what I can say is that market price, general market price, we call it index materials. Index materials is the determiner. That's -- these are the indicators that you see every day. So these will be the majority of the impact. Later to the extent that we can disclose, Stephen will talk about it. Okay, go ahead.

Thank you. I think that's a great question, and thank you for having a very good insight. Yes, you are right. In FY '20, we did 4.05 million of retail sales. In FY '21, we did 3.876 million. And in FY '22, we are targeting 4 million sales. The only difference is that this is not our production. This is our retail program. This is our retail sales, which means in 2020, when we did the 4.05 million, our production was less because at that time, we were running the inventories. During the pandemic and especially during the supply chain crisis, our inventories have come down to the least level, which means we could do a better retail with less inventory in 2021. Now moving to 2022 with all the supply chain risk and opportunity, we are targeting 4 million, which also includes the increase in the bare minimum inventories where customers are really have to wait. For example, today, we explained about all new Qashqai, 136,000 waiting is really we feel sorry to the customers. That's why we want to improve the production and improve the inventory so that customer can get the grade which they are looking for. You asked the question on the semiconductors. We all know that semiconductors and maybe some more commodities will face the challenge of shortages. But I think the 2022 plan, which we are presenting today, we think that semiconductor shortage is a new normal, same as pandemic. And we have to live with it because this is not going to finish tomorrow morning. And that's why 2022 plan is very realistic based on what is the supply chain visibility as on today. Maybe tomorrow, we may have an opportunity. Maybe tomorrow, we have a risk, and this is how we are going to run our production on a weekly basis. Hence, answering to your question that we have changed our supply forecast system, which we call it EDI with our suppliers, we are giving a better forecast, and we have a better flexibility in our production system to adapt to the supply chain, hence improving the efficiency and effectiveness, not only in our plants, but with the suppliers all over the world. I hope it answers your question. Thank you.

For the raw material assumption, which you're asking about, I think in the outlook, we showed roughly JPY 212 billion increase year-over-year for raw material. More than half of that is due to steel and aluminum, and rest is other precious metal. Of course, as alluded to earlier by Uchida-san, we are striving to mitigate the negative impact as much as possible via usage in more efficient ways. Or as I mentioned also earlier, we tried to do a little bit more prebuying or some hedging. We also did some. So we're trying to -- from all angles, trying to mitigate or compress the cost increase as much as possible. But the macro environment is that the raw material price will increase. Yes.

And I think to be precise, you asked which raw materials. Mainly it's steel and aluminum, which is contributing to the majority of the raw material increase. Thank you.

[Operator Instructions] Okay. Moving on to the next question. Bloomberg, [indiscernible].

This is [indiscernible] from Bloomberg. I have 2 questions I'd like to ask today. The first is on the forecast for the current year. I'm wondering if you can speak a little bit more about how much impact you're forecasting from the COVID situation in China right now? And what if anything Nissan is doing to mitigate risks there? And my second question is on the dividend. So you laid out very clearly what kind of boxes needed to be ticked in order to resume dividend payments. What factors are you looking to -- looking at in order to increase the dividend payments going forward?

[Interpreted] So the -- first of all, I'd like to respond to the second part about the dividend. And the first point is about the lockdown in Shanghai. So as for the first question, the COO will respond to that part. And as for dividend, and probably you're asking about the payout ratio. So as I mentioned earlier, well, as the criteria for us to pay out the dividend. Well, there, it will be the repetition. So it is the JPY 5, which is the 9% repayout ratio. So is this sufficient? Is it going to change in the future? From our point of view, it is still low. But if we assure that we can achieve the target of Nissan NEXT and continuously -- well, we hope to continuously pay the dividend. And so the starting point is JPY 5 per share, which is about 9% payout ratio. So generally speaking, we need to raise this up to 30% payout ratio. So that's what we would like to achieve. So that is the general guideline. But right now, currently, there are so much uncertainties, particularly situation in China. In April, May this year, we were impacted heavily just like other auto companies. So the interim dividend this year at this point in time, well, it takes some time for us to make a decision about the interim dividend for this year. So we would like to consider that and would like to show the conclusion when it is made.

Before talking about the business impact, we feel sorry for the people who are impacted by the COVID. And our thoughts are with them and with their families. And that's why for us, the people are first and business is second when it comes to pandemic especially. For us, we are following the people safety when it comes to our plants, our suppliers, our dealers. And we sincerely request them to follow the safety protocol. Now how we are going to mitigate the risk is totally another question, which is on the business side. This lockdown is also giving us an opportunity on the business side to reallocate the semiconductors to the other regions in the world, and that's how we are going to operate. And that's what we said in the previous question that for crisis is the mother of innovation, and every crisis is teaching us to relook into the way we operate, the way we manufacture, the way we sell. And this is how we are going to do that. As far as the lockdown in Shanghai is concerned, we are not taking any actions. And we are just asking the people to be safe. Thank you.

[Interpreted] Moving on to the next question. NHK, [indiscernible].

[Interpreted] Yes, this is [indiscernible] from the NHK. Do you hear me?

[Interpreted] Yes. Go ahead.

[Interpreted] Yes. I want a big picture. What do you assess the results of fiscal year 2021 and your projection for this fiscal year? For fiscal year 2021, so far, for 2 consecutive years, you have made losses, but now you have generated more than JPY 200 billion of profit, especially the U.S. in key markets, incentives has been largely reduced. And I think this was a big contributor. Uchida-san, how do you assess the results of 2021? How confident are you about this? And the second point, for fiscal year 2022, as this has been covered by the earlier questions. Raw material price hike is pretty big, right? And in terms of demand -- demand in China, it seems like the market demand is falling. There are a lot of uncertainties continuing this year. What's your projection and anticipation for this fiscal year? It will be more of a big picture, Mr. Uchida.

[Interpreted] Thank you, [indiscernible]. Rather than talking of the fiscal year 2021, since we announced the Nissan NEXT, every 6 months, we have been delivering on what we set forth as a goal or objective. That's what you will see. As I said in the beginning, thanks to our employees and the great support of dealers, suppliers and other business partners, we were able to enhance the quality of sales and optimization of fixed costs despite the challenging environment. And you see the demonstration in the results that we show today. So in Nissan NEXT, finally, we are on the starting line. In the end of November, we were able to announce Nissan Ambition 2030. That was when we were at the starting line. And going forward, as we strengthened the business foundation in fiscal 2022, while the business climate remains challenging, Nissan's customer acceptance on our new vehicles and earning abilities with new cars are demonstrated in the performance, especially if you look at fiscal year 2022 revenue is JPY 10 trillion. This is the expectation. It's not proportionate to the sales volume. Forex is a benefit. But more than this, with new cars, we are delivering value that the customers are accepting and paying for us. So in the next -- we will build on the momentum that we gained in Nissan NEXT and pursue the Nissan Ambition 2030, keep on investing for the future and deliver value to the customer. And to this end, 2022 is an important year. In fiscal year 2023, we will complete Nissan NEXT. So what we will hit on the goals of Nissan NEXT. And at the same time, we'll sow seeds for the future and deliver the value, which was promised in Nissan Ambition 2030. We will do all these things at the same time despite the challenging environment. But the results of 2021, we are pretty confident about this. Our power Nissan is more than what we are showing today. That's what I said when I was appointed. And finally, you are seeing it in the number that we are delivering. So we would like to keep this momentum, make the company grow further, so we are essential part of the world. Did that answer your question?

[Interpreted] We are running out of time, so this will be the final question. Automotive News, Hans-san, go ahead.

Hans Greimel. Can you hear me?

Yes. Very well.

So just a follow-up on that question, Uchida-san, about your assessment of the earnings and the performance of the Nissan NEXT. In 2020, you said that the Board -- or sorry, the shareholders could fire you if you do not see an improvement in performance at Nissan. Does the return to profit this year mean that your job is now safe and that your mission is accomplished? And the secondary question would be more about the United States market. The assumption is that there's lots of pent-up demand in the United States market, and that when supply can finally match it, all the carmakers will zoom with massive sales increases. But with the recent inflationary pressures and uncertainty about the economy there, what is your assessment? Is there a growing concern that maybe that pent-up demand will deflate a little bit as we go forward with the economy there? How do you assess the stability of the U.S. economy?

[Interpreted] Thank you very much. And well, the COO has reported the numbers, which is the result that we have actually accomplished through our efforts. But no, there is a picking out of the used cars in the market, and the needs of the consumers are changing in the other market. So we have to make sure that we continuously offer cars, which shows the value to the consumers. And we have to encourage the consumers to fully understand that. And now we have come to be able to do that. And that is particularly important in the U.S. market. Electrification for the future. Well, the -- including regulations of the country, it is important to pay attention to that as a balance. And we need to show the -- our presence in the U.S. market. That is the basic idea in the U.S. market. Ashwani, please explain as well. And the next question, I'd like to respond to that.

Hans, I think to be very precise, we are -- we have rebuilt the U.S. operations based on quality of sales. Now increasing the value and reducing the incentives, which means we are controlling our business by net revenue per unit. Now inflation is a growing concern, and definitely this is going to become a challenge. However, the inflation is the consequence of the supply and demand gap. And -- but on the other side, when we look at the unemployment ratio and when we look at other economic indicators of United States, they are in the right direction. When we took -- when we take -- when we look at the investments, they are in the right directions, which means there will be an adjustment between the supply and demand. And that's why our business transformation, which goes from volume to value, will help because our net revenue per unit will not change significantly because of that, which means if market is adjusting towards less -- towards more supply, definitely, we will adjust ourselves with the more demand. And that's where the strategy of pull works in. For FY '22, at least in the first half of the year, we don't see a challenge. In fact, we see more opportunities in the United States automotive market. In the second half of the year, we will -- we may have to relook into our business mechanism based on the supply-demand gap and the impact of inflation but on the other side, impact of the growing mobility requirement in the United States. Hope it answers your question. Thank you.

[Interpreted] Going back to your first question or maybe your opinion maybe, thank you. So well, we have more to do to make Nissan stronger. That's my ambition. Finally, in terms of business operations, we are at the starting line, as I said. So finally, we are at the starting line. Now is the time to deliver greater value and grow the company. So still as a top management, we still have a mission to fulfill, and fulfilling this mission is our responsibility and our job. So first, I would like to keep the momentum built by Nissan NEXT and deliver on what we promised and demonstrated. At the same time, in order to develop the company for the future in Nissan Ambition 2030, where we want to be with -- what we want to deliver to customers, that should be realized. In that sense, the next midterm plan for Nissan NEXT is what we'd like to put efforts in and make Nissan an essential part of the society. And we, the top management, will strive towards this. If we cannot do this, I still think that as I said in the shareholders' meeting -- I haven't fulfilled the mission that I talked about at shareholders' meeting, so I am going to continue striving. Thank you.

[Interpreted] Lastly, I would like to ask Uchida-san to give a few words.

[Interpreted] Thank you for giving us an opportunity to answer many questions. As you have seen, we intend to transform Nissan into a strong company that is capable of ensuring sustainable growth despite challenging environment by remaining focused on implementing Nissan NEXT and hitting its goals. Thank you, and your continued support will be appreciated.

[Interpreted] With this, we would like to conclude the session. Thank you for joining us. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]