November 4, 2014

FY14 first half financial results
Nissan Motor Co., Ltd.
Hiroto Saikawa, Chief Competitive Officer

Introduction

Today, I will go through some of the business highlights, sales performance and financial results of the six month period to September 30. My colleagues and I will then take any questions you may have.

Overall, Nissan delivered solid business results for the period. We are continuing to execute our Nissan Power 88 mid-term plan and profitably grow our business. The results we are reporting today reflect positive sales momentum in North America, as well as the partial recovery from depressed prior-year sales in China and improving market conditions in Western Europe. This helped to offset the softening in the Japan market following the consumption tax increase at the beginning of the year and volatility in Emerging markets. Today’s reported earnings, calculated under the equity accounting method for our joint venture in China, show the company is on track with its financial performance.

For the first half of fiscal year 2014, Nissan is reporting consolidated net revenues of 5.14 trillion yen. This represents an increase of 8.2% over the same period in 2013. Operating profit totaled 261.9 billion yen, which equates to an operating margin of 5.1%. Net income increased to 237 billion yen, which represents a 4.6% net margin. Free cash flow for the automotive business was 164 billion yen for the first half, and we ended the period with an automotive net cash position of 1.13 trillion yen.

Before going through the financial results in more detail, I will first briefly outline some of the business highlights as well as our sales performance for the period.

FY 14 H1 business update

Product
Nissan has maintained its product offensive. In Europe, we launched the all-new Pulsar, which was our twelfth new entry in as many months. As we said previously, we aim to compete in nearly every vehicle segment, and Pulsar is our re-entry into the important European core C-segment.

In the European crossover segment, the Qashqai continues to be well received. This week, the Sunderland plant in the UK produced the two millionth Qashqai. Along with the other initial Common Module Family vehicles, the Rogue and X-Trail, these crossovers continue to be among our most popular models.

And just last month, the US EPA gave another reason for consumers to select Nissan vehicles. In their "Trends" Report, the EPA reported that the Nissan Group ranks as the most fuel efficient full-line automaker with a fleet-wide fuel economy rating of 26.2 combined miles per gallon.

Infiniti
In the premium arena, Infiniti continues to globalize. This week, we will start production of the Infiniti Q50 L in China.

Our aspirations for Infiniti go beyond the current portfolio. Last month in Paris, we unveiled the Inspiration design concept. This concept hints at Infiniti’s design and technology direction and how Infiniti will distinguish itself among the various premium competitors.

Brand Enhancement
The Nissan brand continues to be more visible and attractive. Interbrand recently reported that the brand’s ranking improved by nine places to 56th during the past year, which was one of the biggest movers in their annual study of the Best Global Brands. This result follows an excellent performance, earlier in the year, in Interbrand's Best Global Green Brands report.

A key to greater brand visibility is our presence around major sporting events such as the English Premier League, UEFA Champions League and the Africa Cup of Nations in soccer. Association with such powerful sports-franchises is an important marketing tool, driving audience engagement. No matter how dispersed media becomes, big moments during live games still have a large impact on audience traffic. So linking Nissan to those events will increase awareness of our brand.

Zero emissions
We remain committed to our zero-emissions strategy. Total sales of the Nissan LEAF have now surpassed 142 thousand units, including 19 consecutive months of sales increases in the US. In China, we are expanding our EV presence with the September introduction of the Venucia e30. And we launched the e-NV200 in Europe and Japan.

Alliance
The Alliance strategy remains on track to deliver significant synergies. In September, the Renault Samsung plant in South Korea began exporting the Nissan Rogue to the US to meet growing customer demand. And as I mentioned earlier, we continue to see positive momentum from the first set of CMF vehicles.

During the Paris Motor Show, we highlighted the increased co-operation between the Renault-Nissan Alliance and Daimler. Since the launch of the partnership in 2010, the combined project portfolio shared between Renault-Nissan and Daimler has quadrupled to 12 projects in Europe, Asia and North America. This will include plans to jointly develop and manufacture premium compact vehicles in Mexico and continued engine partnerships.

I will now turn to our sales performance for the financial period.

FY14 H1 sales performance

While overall global industry volumes increased 3.1% to 42.69 million units, Nissan’s total retail volume was up 5.8% at 2.58 million units in the first half with strong sales in North America and recovering sales in China from the depressed prior year level. Europe showed signs of stabilizing, which offset some sluggishness in Japan and continued volatility in emerging markets.

Looking across the regions…

In Japan, our volume was 291 thousand units. The 7.6% decline from last year was expected due to the sale tax increase earlier this year, which pulled forward some new car orders. Although the total industry volume was down 3% from last year, the decline was lower than expected due to the carryover of orders from last year by some makers and excessive competition in the mini vehicle segment. While our overall market share declined, in the mini vehicle segment, we achieved record sales and market share in the 1st half, where the Dayz series was ranked number 2 in the segment.

In China, Nissan’s sales increased by 14.6% in the first half. Our overall market share in China during this period increased 0.3 points to 5.6%. But for the July to September period, which is the third quarter under the China operations fiscal year, Nissan’s unit sales decreased by 12% to 259 thousand units, which is equivalent to a market share of 5.1%. In the third quarter, a general market slowdown, particularly in the LCV segment, as well as increased competitive pressure in the compact segment and the lingering negative consumer sentiment resulting from political tensions weighed on our sales pace. As a result, unit sales were lower than originally expected. To counter this, we took actions to normalize inventories and enhanced our engagement with the dealer network.

Turning to North America: in the US, our sales grew 13.7% to 708 thousand units, which outperformed the overall market. This helped lift our market share to 8.2%. This performance included strong demand for the Rogue and Altima. In Canada, sales increased 30.6% to 66 thousand units. Sales also increased in Mexico to 138 thousand units, where Nissan has continued to be the market leader with a market share of 25.6%.

In Europe, trading conditions showed signs of stabilizing. Nissan saw sales increase by 8.4% to 334 thousand units. Sales in Europe excluding Russia increased 9.5% to 261 thousand units, resulting in a market share of 3.5%. In Russia, sales increased 4.4% to 73 thousand units for a market share of 6.2%.

In other markets, sales volume was down 0.2% to 423 thousand units, which reflected the economic downturn in the emerging markets. In Asia and Oceania, sales increased to 180 thousand units, up 1.2% and sales in the Middle East increased to 110 thousand units, up 14.4%. This was offset by continued deterioration in Latin America, where sales decreased by 11.6% to 88 thousand units.

FY14 H1 financial performance

I will now go through our overall financial performance for the period.

Under the equity accounting basis for our joint venture in China, consolidated net revenues increased 388.4 billion yen, to 5.14 trillion yen, primarily driven by the increase in volumes and favorable exchange rate. Operating profit totaled 261.9 billion yen. Net income was 237 billion yen.

Looking at Operating Profit movement in detail:

• The 17.3 billion yen favorable impact from foreign exchange came mainly from the correction of the yen against the U.S. dollar.
• Cost items including purchasing cost reduction efforts, higher raw material costs and product enrichment resulted in net savings of 52.5 billion yen.
• Volume and mix produced a positive impact of 27 billion yen.
• The increase in marketing and selling expenses resulted in a 34.7 billion yen negative movement.
• R&D costs increased by 4.4 billion yen.
• Manufacturing expenses increased by 15.3 billion yen.
• And other items had a negative impact of 2.4 billion yen.

At the end of the period, Nissan continued to enjoy a solid automotive net cash position of 1.13 trillion yen.

As we have done in prior quarters we will present financial performance on both the equity accounting basis as per our filing and a management pro forma basis which is how we are measuring our Power 88 targets. This slide shows our first half income statement under the pro-forma basis. For the half, net revenues were 5.64 trillion yen, operating profit was 332.6 billion yen and net income was 237 billion yen.

FY14 full year outlook

Based on our first half sales performance and our outlook on market conditions for the remainder of the fiscal year, we have decided to revise our sales forecasts for the 12 months ending March 31, 2015.

Specifically, our 2014 fiscal year sales outlook is being revised downward by 2 hundred thousand units to 5,450K vehicles. This primarily reflects our reduced sales outlook for emerging markets, particularly in China where we are seeing general weakness in the LCV segment, increased competition in the compact segment and the continued adverse impact of political tension on Japanese brands. These impacts are likely to more than offset the improved outlook in North America.

Relative to our outlook on financial performance, we are maintaining our prior guidance for both Operating Profit and Net Income. We fully expect to offset the negative impacts from volume reduction in emerging markets through increased sales in North America, along with further improvements on the cost side of the business and the benefits of net favorable foreign exchange movements compared to our prior forecast.

Reflecting these changes, Nissan has filed the following revised full-year forecast with the Tokyo Stock Exchange, using a foreign exchange rate assumption of 105 yen to the dollar and 137 yen to the euro for the second half. It is based on of the equity method for our Chinese joint venture.

• Net revenue is expected to be 10.8 trillion yen;
• Operating profit is unchanged at 535 billion yen;
• Net income is unchanged at 405 billion yen;
• Capital expenditure is expected to remain at 525 billion yen;
• And R&D expenses will remain at 500 billion yen.

Conclusion

Based on our revised FY outlook, we continue to expect to generate solid full year automotive free cash flow and deliver solid returns to shareholders. Nissan remains committed to maintaining a minimum 30% payout ratio to net income during the remainder of the mid-term plan period, and we forecast a dividend payment of 33 yen per share for this fiscal year. Earlier today, our Board approved payment of an interim dividend of 16.5 yen per share to be made on November 26, 2014.

In conclusion, I would like to reaffirm that Nissan remains committed to improving our business performance and we are on track to achieve our full year guidance.

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