SPEECHES

February 12, 2019

Fiscal Year 2018 Third Quarter Financial Results
Nissan Motor Co., Ltd.

Hiroshi Karube, Chief Financial Officer
February 12, 2019

Third quarter headline financial figures

For the three-month period ending December 31, consolidated net revenues were 3.05 trillion yen, operating profit totaled 103.3 billion yen and net income was 70.4 billion yen. Free cash flow for the automotive business was a negative 69.6 billion yen, which was a significant improvement compared to last year. Furthermore, we achieved the same level for the 9-month period through December. We ended the period with an automotive net cash position of 1.33 trillion yen. Operating profit and net income for the period included the 9.2 billion yen impact from catch-up adjustments for prior fiscal years.

Highlight of third-quarter financial results

In the third quarter, we saw challenging market conditions; global total industry volume – or TIV – dropped 3.6% compared to the same period last year. However, we outperformed the market despite a 2.6% decrease in our global sales.

We increased sales and outperformed the markets in Japan, China, Thailand, the Philippines and Latin America. Sales in the US decreased amidst our continued efforts to improve the quality of sales. However, we are seeing the gradual effects in our performance, notably an improvement in selling expenses. Sales in Europe also declined due to the introduction of the WLTP, decreased demand for diesel models, as well as uncertainty surrounding Brexit.

Operating profit for the 3rd quarter was 103.3 billion yen, an improvement of 20.9 billion yen from the prior year. The company’s performance excluding one-time impacts, such as the inspection issue and catch-up adjustments, as well as external factors including commodity prices and foreign exchange fluctuations, improved as the negative impact from Monozukuri and Others was more than offset by the positive impact from Sales Performance.

Nine months global sales performance

For the nine months ending December 31, global total industry volume – or TIV – rose 0.3% to 68.74 million units.

Nissan’s sales increased in Japan, China, and other regions and decreased in North America and Europe. As a result, total sales decreased 2.1% to 4.02 million units and market share fell 0.1 percentage point to 5.9%.

<Japan sales>

In Japan, TIV increased 2.1% to 3.73 million units. Nissan’s sales were up 8.4% to 410 thousand units, which resulted in a market share increase of 0.7 percentage point to 11%.

We saw significant growth, as sales had slowed down in the third quarter of fiscal year 2017 due to the suspension of production following the final inspection issue in October. Excluding this one-time factor, the Nissan Serena e-POWER, launched last March, and the new Nissan LEAF, which came to the market last year, continued to boost our sales. The Nissan NOTE e-Power was also well received by our customers. The Nissan NOTE was the top-selling registered model in calendar year 2018.

<China sales>

In China, where our sales performance is measured on a calendar-year basis, TIV from January to September was up 1.6% to 19.36 million units. Nissan’s sales increased 7.4% to 1.096 million units, representing a market share of 5.7%, an increase of 0.4 percentage point from the prior year. The growth was driven by strong sales of Nissan models including the Sylphy and X-Trail, and new models introduced in the latter half of 2017, such as Venucia D60 and Kicks.

For the 12-month period through December, our sales volume fell short of the full year guidance of 1.695 million units due to the market slowdown from the second half of the year. Although TIV decreased 2.7%, our sales increased 2.9% to 1.564 million units, which resulted in a market share of 5.9%, an increase of 0.3 percentage point.

At the end of September, the Sylphy Zero Emission, a new EV, went on sale. We also launched the Venucia T60 compact SUV in November and the new Altima in December.

<North America sales>

In the US, TIV decreased 0.3% to 13.16 million units. Nissan’s sales declined 8.4% to 1.078 million units, equivalent to a market share of 8.2%. Due to the industry shift in demand from sedans to trucks, our sales decreased primarily in the sedan segment.

We continue our efforts to normalize sales in the US. Our efforts are progressing steadily, as selling expenses have improved.

In Canada, Nissan’s sales rose 2% to 115 thousand units, equivalent to a market share of 7.4%.

In Mexico, Nissan’s sales decreased 13.5% to 233 thousand units, while we maintained our number-one position with a market share of 21.5%.

<Europe sales>

In Europe, including Russia, Nissan’s sales totaled 472 thousand units, a decrease of 13.2%. Excluding Russia, Nissan’s sales fell by 15.8% to 391 thousand units, which resulted in a market share of 3%. Environmental regulations resulted in lower sales. However, sales of the new Nissan LEAF remained strong and grew by more than three times.

In Russia, Nissan’s sales increased 1.9% to 81 thousand units, equivalent to a 5.8% market share.

<Other Markets sales>

In other markets, Nissan’s sales rose 1.9% to 619 thousand units.

In Asia and Oceania, Nissan’s sales were down 3.3% to 240 thousand units. Sales increased significantly in Thailand and the Philippines by 22% and 48%, respectively. However, sales decreased in Indonesia and India, where challenges still remain. Driven by strong demand for the Kicks, Nissan’s sales in Latin America grew 14.3% to 173 thousand units. In the Middle East, Nissan’s sales declined 6.9% to 128 thousand units but outpaced the market. Sales in Africa and other markets, particularly in Egypt, increased 11.1% to 78 thousand units.

Financial highlights – nine months

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 for the nine-month period totaled 8.58 trillion yen.
  • Operating profit was 313.7 billion yen, which equates to an operating margin of 3.7%.
  • Ordinary profit was 471.8 billion yen.
  • Net income stood at 316.7 billion yen, which represents a 3.7% margin.

The significant decline in net income was a result of the one-time positive impact from the US tax reform in fiscal year 2017.

Operating profit variance

Looking at the operating profit movement in detail:

Special Items including fiscal year 2017 items as well as catch-up adjustments and fiscal year 2018 inspection-related items, had a positive impact of 63.9 billion yen.

Sales Performance and Monozukuri & Others, which represent the company’s performance contributed positively.

For Sales Performance, the improvement in selling expenses more than offset the negative impact of volume and mix resulting from the decrease in sales volume.

For Monozukuri & Others, the continued contribution from purchasing cost reduction offset the increase in regulatory compliance expenses, as well as R&D and manufacturing expenses. However, this could not offset the negative impact from the increase in raw material costs.

Foreign exchange continued to be a headwind mainly due to emerging market currencies.

As a result, operating profit totaled 313.7 billion yen, a decrease of 50.5 billion yen from last fiscal year.

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 showed that:

  • Net revenues totaled 3.36 trillion yen.
  • Operating profit was 144.3 billion yen, which equates to an operating margin of 4.3%.
  • Net income totaled 70.4 billion yen.
  • Automotive free cash flow was 10.6 billion yen.
  • We ended the period with automotive net cash of 1.68 trillion yen.

Full-year sales outlook

Given the current circumstances, Nissan revised its full-year guidance for global sales and financial performance.

Our efforts to normalize sales in the US and comply with environmental regulations in Europe resulted in a decrease in volumes. Furthermore, the current global market slowdown since the 3rd quarter has affected our performance. Given these factors, we revised the full-year global sales forecast by 325 thousand units to 5.60 million units.

Full-year financial outlook

Reflecting the latest sales forecast, we revised our full-year forecast as follows:

  • Net revenues of 11.60 trillion yen.
  • Operating profit of 450.0 billion yen.
  • Net income of 410.0 billion yen.

The forecast is based on a foreign exchange rate assumption of 109 yen to the US dollar for the fourth quarter and 110.6 yen to the US dollar for the full fiscal year.

OP variance analysis of revised forecast against initial forecast

Compared to the previous guidance announced last May, the anticipated movements in operating profit are:

  • A negative impact of 130.0 billion yen from Revenue and Cost Performance and Others. This is a result of lower sales volume and incentive performance, although these are partially offset by efficiency enhancement and others.
  • A 20.0 billion yen negative impact from raw materials and additional tariffs.
  • Fiscal year 2018 Special Items, which include items such as the 9.2 billion yen from catch-up adjustments, will have a negative impact of 20.0 billion yen.
  • Efficiency enhancement in R&D will contribute 10.0 billion yen.
  • Changes in foreign exchange assumptions are expected to have a positive impact of 70.0 billion yen.

As a result, operating profit guidance has been revised downward by 90 billion yen.

FY2018 shareholder return outlook

This is the outlook for our dividend, which we announced back in May.

Before closing, I would like to say a few words regarding the case involving the ex-Chairman. Nissan expresses its deepest regret for any concerns caused to its stakeholders. As we previously announced, the Special Committee to Improve Governance, which consists of four outside committee members and three independent outside directors, was established to provide recommendations to the company by the end of March. Based on these recommendations, Nissan is committed to implementing fundamental reform in order to strengthen its governance and regain the trust of our stakeholders.

 

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