November 8, 2018

Fiscal Year 2018 First-half Financial Results
Nissan Motor Co., Ltd.
Hiroshi Karube, Chief Financial Officer

Second quarter headline financial figures

For the three-month-period ending September 30, consolidated net revenues were 2.82 trillion yen, operating profit totaled 101.2 billion yen and net income was 130.4 billion yen. Free cash flow for the automotive business was a negative 4.8 billion yen, and we ended the period with an automotive net cash position of 1.56 trillion yen.

For the second quarter, we faced challenges such as the devaluation of emerging market currencies and rising commodity prices. As a result, revenue and operating profit decreased year-on-year.

Highlight of second quarter financial results

I will now explain our performance for the second quarter of fiscal year 2018. Although we are progressing toward improved quality of sales, retail sales volume and market share were nearly flat year-on-year. Dealer inventory volume was optimized through the reduction of wholesale volume, which resulted in the decline in net revenue. Our global retail sales volume was 1.37 million units, a 0.7% decrease from the previous year. However, our wholesale volume decreased 3.7% to 1.31 million units and net revenue decreased 2.6% to 2.8 trillion yen. As a result, our global dealer inventory decreased by 50 thousand units in the three month period from July to September and by 100 thousand units in the six month period from April to September. We started the second half of the fiscal year with an optimal level of dealer inventory.

Looking at the sales by markets, we improved and increased sales in Japan, China, Thailand, the Philippines and Latin America. In Japan, we recovered smoothly from the issues in fiscal year 2017 with strong sales of Nissan LEAF, Note e-POWER and Serena e-POWER. Sales for the second quarter increased by 1.6% from the previous year to 155 thousand units. In China we realized steady growth, with a 0.4 percentage point increase in market share to 6%. We took the first step towards sales recovery in the ASEAN region with sales in Thailand and the Philippines, increasing year-on-year by 22% and 68%, respectively. In Latin America, we took the first step towards growth, as our sales increased 17% from the prior year.

In the US and Europe, we are addressing urgent tasks, such as improving the quality of sales in the US and dealing with the strict environmental regulations in Europe.

Operating profit for the second quarter decreased by 27.3 billion yen from the previous year to 101.2 billion yen. Volume and mix, including the reduction of selling expense due to decrease in volume, had a negative impact of 14.4 billion yen, due primarily to the decrease in wholesale volume. However, this was offset by the 7.2 billion yen positive impact from selling expenses, which included the improvement of incentives spending in the US. We minimized the negative impact to a net effect of 7.2 billion yen.

The headwind from raw material price hikes and continued investments for the future, such as R&D, had a negative impact on operating profit. However, initiatives such as our cost reduction efforts are progressing well, resulting in a 9.9 billion yen positive impact from Monozukuri and others. Due to the significant impact from the devaluation of emerging market currencies such as the Turkish lira and Argentine peso, foreign exchange had a negative impact of 30 billion yen. While we managed to offset the negative impact from sales performance with the positive impact of Monozukuri and others, it was not enough to cover the negative impact from foreign exchange. This resulted in the year-on-year decrease in operating profit.

FY2018 First Half Sales Performance

Turning to our sales performance for the six months ending September 30, global total industry volume – or TIV – rose 2.3% to 46.59 million units.

Nissan’s sales volume grew in China, Latin America, Africa and other markets and decreased in North America and Europe. Our total unit sales decreased 1.8% to 2.68 million units. As a result, our market share fell 0.2 percentage point to 5.8%.

Sales performance in the key regions

<Japan Sales>

In Japan, TIV remained stable at 2.48 million units. Nissan’s sales increased 0.5% to 285 thousand units, resulting in a market share improvement of 0.1 percentage point to 11.5%.

Strong demand for the Serena e-POWER, which was introduced this past March, and the new Nissan LEAF, which went on sale last year, lifted sales. Sales of the Note continue to be strong, as the Note became the number 1 selling -registered vehicle in Japan for the first half of fiscal year 2018.

<China Sales>

In China, where our sales performance is measured on a calendar-year basis, TIV from January through June was up 5.1% to 13.23 million units. Nissan’s sales increased 10.7% to 720 thousand units, representing a market share of 5.4%, an increase of 0.2 percentage point from the comparable period in the prior year. The growth was driven by current models including the Sylphy and X-Trail, as well as new models such as the Venucia D60 and Kicks, which were introduced in late 2017.

As China is reported with a three month-lag, we also have the sales figure for the third quarter. For the July to September period, TIV dropped by 5.4% to 6.13 million units, while our sales increased 1.6% to 375 thousand units, resulting in a market share of 6.1%, up 0.4 percentage point. For the January to September period, our sales grew by 7.4% to 1.096 million units, and our market share increased 0.4 percentage point to 5.7%.

At the end of September, a new EV, the Sylphy Zero Emission, went on sale. In China, we have a strong plan for electrification. Including the Sylphy Zero Emission, we will launch twenty new EVs or e-Power models by 2022.

<North America Sales>

In the US, TIV decreased 0.6% to 8.79 million units. Nissan’s sales declined 9.1% to 709 thousand units, equivalent to a market share of 8.1%. We continue to work on normalizing sales. Dealer inventory levels are improving and decreased by 54 thousand units since the end of March. Incentives per unit improved from the second quarter compared to the prior-year level. In early October, we introduced the new Altima, which is expected to contribute to the control of incentives in the second half of the fiscal year.

In Canada, Nissan’s sales rose by 1.8% to 82 thousand units, equivalent to a market share of 7.2%.

In Mexico, Nissan’s sales decreased 13.6% to 150 thousand units, while we maintained our number-one position with a market share of 21.7%.

<Europe Sales>

In Europe, including Russia, Nissan’s sales totaled 330 thousand units, a decrease of 12.1%. Excluding Russia, Nissan’s sales fell by 14.3% to 280 thousand units, which resulted in a market share of 3.2%. The introduction of WLTP in September is impacting our sales, as well as the industry. We are taking actions to address this issue. A new WLTP-compliant engine is now available for the Qashqai in Europe. The new Nissan LEAF continues to deliver strong sales, particularly in Northern Europe, growing by nearly two and a half times from the same period last year.

In Russia, Nissan’s sales increased 2.4% to 50 thousand units, equivalent to a 5.6% market share.

<Other Markets Sales Slide>

In other markets, Nissan’s sales rose 4.3% to 407 thousand units.

In Asia and Oceania, Nissan’s sales volume decreased 4.3% to 158 thousand units. Our sales volume increased significantly in Thailand and the Philippines. However, sales decreased in Indonesia and India, where issues remain. Driven by strong demand for the Kicks, Nissan’s sales in Latin America grew by 21.1% to 113 thousand units. In the Middle East, Nissan’s sales dropped 2.4% to 84 thousand units but outpaced the market. Sales in Africa and other markets increased 13.3% to 52 thousand units, mainly due to strong growth in Egypt.

Financial Highlights

Moving to our financial results, as with previous quarters, Nissan is presenting its financial performance under the equity accounting method for our joint venture in China.

• Consolidated net revenues in the first half totaled 5.53 trillion yen.
• Operating profit was 210.3 billion yen, which equates to an operating margin of 3.8%.
• Non-operating profit increased significantly from the previous year to 119.6 billion yen, primarily due to the increase in profit from companies under the equity method. Our joint venture in China was the largest contributor for this increase.
• Ordinary profit, which includes non-operating profit, was 329.9 billion yen.
• Net income was 246.3 billion yen, which represents a 4.5% margin.

Operating Profit Variance

Looking at the operating profit movements in detail:

Foreign exchange and raw material prices had negative impacts of 49.3 billion yen and 53.9 billion yen, respectively.

The negative impacts caused by increases in investments for the future, including R&D and manufacturing expenses, and sales performance primarily resulting from the decrease in sales volume in the US and Europe, were offset by the positive contribution from cost items, including purchasing cost reduction efforts and product enrichment. The bottom of the graph notes the results for the three-month period from July through September. The trend is consistent with the first half of the year. As our initiatives to normalize sales in the US are beginning to deliver results, the negative gap from sales performance has narrowed compared to the first quarter.

Dealer Inventory Evolution

As a result of our dealer inventory optimization initiative, our dealer inventory decreased by 100 thousand units in the first half and we ended the quarter with 510 thousand units. Inventory decreased in all major regions including Japan, the US and Europe.

Key Performance Indicators (management pro forma basis)

On a management pro forma basis, which includes the proportionate consolidation of our Chinese joint venture, our key indicators for the second quarter showed that:

• Net revenues totaled 3.17 trillion yen.
• Operating profit was 152.3 billion yen, which equates to an operating margin of 4.8%.
• Net income totaled 130.4 billion yen.
• Automotive free cash flow was 17.3 billion yen.
• We ended the period with automotive net cash of 1.84 trillion yen.

FY2018 Shareholder Return Outlook

In summary, our results for the first half were unfavorable, as we faced a number of challenges, including declining in sales in North America and Europe, increasing commodity prices and foreign exchange headwinds.

Our efforts to enhance quality of sales in the US will take time but are gradually producing results. More improvements are expected in the second half of the fiscal year. In addition, the cost reduction initiatives are progressing well and we expect Monozukuri to achieve a solid performance. As such, we are maintaining our previous guidance for the full fiscal year.

Automotive free cash flow was slightly negative for the first half, due to the decrease in earnings as well as negative working capital resulting from the dealer inventory optimization. We expect free cash flow to recover in the second half in line with the earnings recovery. We expect to achieve free cash flow of around 300 billion yen for the full fiscal year and for this reason, we continue to project a full-year dividend of 57 yen per share, a 7.5% increase from the prior year. Earlier today, our Board approved payment of an interim dividend of 28.5 yen per share, which will be paid at the end of this month.

 

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