November 12, 2019

Fiscal year 2019 first half financial results – remarks from corporate vice
president Stephen Ma

Ladies and gentlemen, good afternoon. My name is Stephen Ma and I am currently the corporate vice president and global controller of Nissan Motor Company. Starting next month, I will be the chief financial officer and I am looking forward to working with all of you. Thank you for joining us for the announcement of Nissan’s half-year earnings for fiscal year 2019.

Today, I will outline Nissan’s global sales performance and financial results for the first six months of fiscal year 2019, as well as the full-year outlook.

For the three-month period ending September 30, Nissan’s global retail sales decreased 7.5% to 1.27 million units.

Looking at our key markets in detail, our sales in China outpaced the market but sales in the other key regions, including the U.S., Europe, and Japan, underperformed in those markets. This resulted in an overall decrease in market share.

Excluding China, Nissan’s sales declined 9.5%. However, as we successfully adjusted inventory levels in the first quarter, we began the following quarter with an optimal level of dealer inventory. As a result, the decline in wholesale volume was limited to 6.3% year-on-year.

Compared to the first quarter of the fiscal year, our retail sales, excluding China, increased 8 thousand units but wholesale sales increased 90 thousand units. Therefore, profits increased quarter on quarter.

For the three-month period ending September 30, consolidated operating profit totaled 30 billion yen.  Similar to the previous quarter, external factors including foreign exchange fluctuations, regulatory compliance expenses, product enrichment costs, and rising commodity prices had a negative impact of 44.6 billion yen.

Sales performance was a negative 60.5 billion yen in the first quarter. In the second quarter, the decrease in selling expenses offset the negative impact from lower sales resulting in a positive contribution of 1 billion yen from sales performance. We are starting to see the results of our ongoing efforts to improve our quality of sales, particularly in the U.S. The positive impact from sales performance is a good sign and I will provide additional details in a moment.

Monozukuri & Others had a negative impact of 27.6 billion yen. Furthermore, in the second quarter, quality-related costs increased by approximately 40 billion yen, which was 30 to 40 billion yen higher than the average quarter. However, if quality-related costs had been at normal levels, operating profit in the second quarter would have reached approximately 60 to 70 billion yen due to the contribution from Monozukuri & Others.

Nissan is progressing steadily toward its business transformation plan, which we discussed in May and July. I will provide an update on one of the key pillars of the plan, the recovery in the U.S. business.

Looking at the movement in geographical segment operating profit in North America for the second quarter, the negative impact from external factors including foreign exchange fluctuations, regulatory compliance expenses, and commodity prices was offset by US sales performance. For the quarter, operating profit was near the previous year’s level. While US volume & mix were negative, this was more than offset by the improvement in US selling expenses, mainly from decreased incentives spending.

These are the indicators noting the progress in the sales normalization efforts for the U.S.

Average net revenue per unit exceeded the previous year since May, thanks to the decrease in average incentive. Furthermore, the Nissan Versa sedan underwent a model change in August and the new Nissan Sentra is scheduled for this winter. The company will launch and introduce several new models from fiscal year 2020 and onwards. As the average age of the product portfolio becomes younger, these indicators should improve further.

Dealer inventory levels in the U.S. are at healthy levels. At the end of September, inventory decreased by 22 thousand units from the first quarter.

While the fleet ratio exceeded the previous year, we expect the ratio to decrease in the second half of the fiscal year.

Our ongoing efforts to improve and stabilize the sales finance business remain on track.

Nissan’s business in the U.S. took the first step toward its recovery. We will continue our efforts to normalize and improve the quality of sales.

Another pillar of Nissan’s business transformation plan is “steady growth through new models, new technologies, and Nissan Intelligent Mobility.” At the Tokyo Motor show last month, Nissan premiered the Nissan Ariya Concept and Nissan IMk. These two EV concept cars embody Nissan Intelligent Mobility and will soon be available to customers. These models represent the direction of our future line-up with entirely new designs and technologies that are enhanced by a new EV platform.

Nissan continues to work on the other pillar, “operational and investment efficiency improvement” and we will provide more updates at a later date.

For the second quarter, consolidated net revenues were 2.63 trillion yen, operating profit totaled 30 billion yen, and net income was 59 billion yen. Free cash flow for the automotive business was a negative 29.5 billion yen. We ended the period with an automotive net cash position of 1.14 trillion yen.

I will now present the global sales results for the first half of fiscal year 2019.

For the first half, industry demand decreased in all markets except Japan and global TIV fell 5.9% to 43.85 million units. Nissan’s sales decreased 6.8% to 2.501 million units and market share decreased 0.1 percentage point to 5.7%.

This slide describes our sales performance for the first six months in the key markets.

In Japan, Nissan’s sales decreased 1.3% to 281 thousand units. Sales of registered cars decreased but kei car sales increased 20.9% due to strong demand for the new DAYZ, which launched in March. The new Skyline arrived this past September and has been well received by many customers. The hybrid version features the world-first advanced driver support technology ProPILOT 2.0 and performance-enhanced turbo engine.

In China, the market remains challenging. While TIV was down 12.8%, Nissan’s sales were stable at 718 thousand units. Market share increased 0.8 percentage point to 6.2%. Key models including Qashqai, X-Trail, and Sylphy continued driving sales. For the July to September period, Nissan continued to outperform the market. The new Sylphy was launched in July and is off to a good start.

In the U.S., Nissan’s sales decreased 4.3% to 679 thousand units due to an aged product portfolio and the company’s continued efforts to normalize sales.

In Europe, we continue to be impacted from environmental regulations and an aged product portfolio. Nissan’s sales decreased 19.7% to 265 thousand units.

Moving to our financial results, for the first six months:

• Consolidated net revenues totaled 5 trillion yen.
• Operating profit was 31.6 billion yen, which equates to an operating profit margin of 0.6%.
• Ordinary profit was 115.6 billion yen. The figure includes 84.3 billion yen in investment income from companies accounted for under the equity method, including our joint venture in China.
• Net income was 65.4 billion yen.

Looking at the operating profit variance analysis in detail, external factors including foreign exchange fluctuations, regulatory compliance expenses, product enrichment costs, and rising commodity prices had a negative impact of 87.1 billion yen. The impact from sales performance was nearly flat for the three-month period compared to the prior year. However, the negative impact from the first quarter resulted in a negative 59.5 billion yen for the first half. Purchasing cost reduction efforts were a positive 52.8 billion yen but R&D expense, manufacturing cost, quality-related costs, and other items increased.

I will now present the outlook for the full fiscal year.

Nissan is progressing steadily towards its business transformation and profit recovery. However, operating profit for the first half is behind the original plan to achieve the initial full-year forecast of 230 billion yen. In addition, the yen has appreciated compared to our original assumption of 110 yen to the dollar. Furthermore, economic uncertainties and the slowdown in TIV continue. Therefore, we have decided to revise the full-year guidance.

We reassessed the outlook for China and the other markets and revised global TIV for the full year to 88.5 million units, a decrease of 4.7% from the original assumption. Nissan’s global sales forecast has been reduced 5.4% to 5.24 million units for the fiscal year.

Based on the revised sale forecast and earnings for the first six months, we revised the full-year outlook as follows:

• Consolidated net revenues are now expected to be 10.6 trillion yen.
• Operating profit has been revised downward to 150 billion yen, which equates to an operating profit margin of 1.4%.
• Net income is expected to be 110 billion yen, a 1% net income margin.

The assumptions for foreign exchange is 105 yen to the dollar for the second half of the year and 107 yen to the dollar for the full fiscal year.

I will explain about the variance between the original outlook from May and the latest forecast.

Our initial assumption for the exchange rate between the Japanese yen and U.S. dollar was 110 yen to a dollar. We updated the assumptions to 105 yen to the dollar for the second half and 107 yen to the dollar for the full fiscal year. Aside from the U.S. dollar, other currencies, mainly emerging markets, are depreciating against the Japanese yen. Foreign exchange volatility is expected to have a negative impact of approximately 80 billion yen.

Based on the revised sales outlook, sales performance is expected to have a negative impact of 70 billion yen compared to the original outlook.

However, Monozukuri & Others are expected to benefit from some improvement in commodity prices and tighter cost control, and is now expected to be a positive 70 billion yen. This should offset the negative impact from sales performance.

In May, we announced the dividend plan of 40 yen per share for the fiscal year.

Today, the board decided on an interim dividend of 10 yen per share, given the slower-than-expected progress of results in the first half and the downward revision for the fiscal year forecast.

Along with the new CEO and new management team, we will review the full-year dividend plan and the midterm plan. We will discuss this in detail at a later date.

 

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