February 13, 2020

 

Fiscal Year 2019 Quarter 3 Financial Results
CEO Uchida

 

Good afternoon. Thank you for joining us for the announcement of Nissan’s 3rd quarter earnings for fiscal year 2019.

Today, I will outline Nissan’s global performance for the first nine months of fiscal year 2019 and the full-year outlook. I will then provide an update on the business transformation. Following the presentation, I will be happy to take any questions you may have.

For the nine months ending December 31, total industry volume weakened in China, Asia & Oceania, including ASEAN, and in India and some countries in Latin America. As a result, global total industry volume fell 5% to 65.3 million units.

Nissan’s sales were stable in China despite a drop in demand while our sales in North America and Europe decreased. As a result, Nissan’s global sales volume stood at 3 million 697 thousand units and our global market share was 5.7%.

Our sales performance for the nine-month period in the key markets was as follows:

In Japan, we faced a challenging market negatively impacted by the consumption tax hike and typhoons. As we continue to be affected by an ageing portfolio while competitors are on a new product offensive, Nissan’s sales decreased 6.9% to 381 thousand units.
Despite the challenges, demand for the new DAYZ, which was introduced last March, remains strong. We sold over 70,000 units of the new DAYZ in the period. The figure significantly exceeds its full-year sales volume in the fiscal year 2018.
Nissan is promoting the Nissan Intelligent Mobility strategy. The new Skyline, which features the updated ProPilot 2.0 technology, has also been well received. In fact, the Nissan Skyline won the Best Innovation Award as part of the 2019-2020 Japan Car of the Year competition.

In a challenging China market, where sales decreased, Nissan’s sales remained stable, and our market share increased 0.6 percentage point to 6.3%. The Sylphy, X-Trail, and Qashqai continued driving sales. The market remains tough due in part to the novel coronavirus outbreak. However, Nissan maintains its focus on steady growth without pushing for artificial volume increase through discounts, which will ensure healthy business operations.

In the US, Nissan’s sales decreased 9.1% to 980 thousand units. We are consistently working for better quality of sales. Incentives per unit and dealer inventories are improving. Meanwhile, our products grew less competitive due to an ageing portfolio, and this led to a decrease in sales.

In Europe, we are facing increasingly stringent environmental regulations and shifts in demand towards smaller cars, smaller gasoline engines, and electrification. We were delayed in our switch to compact engines for our key models Qashqai and X-Trail. Our volume was also negatively affected by a temporary sales decrease before the model change-over of the JUKE, and a changeover from NV200 to new NV250 light commercial vehicles. Nissan’s sales decreased 16.2% year-on-year.

For the nine-month period, consolidated net revenues totaled 7.507 trillion yen as a result of our decrease in volume. Operating profit was 54.3 billion yen, and net income was 39.3 billion yen. We ended the period with an automotive net cash position of 847.5 billion yen.

Our China business remains solid. On a management pro-forma basis, which includes the proportionate consolidation of our Chinese joint venture, operating profit was 179.3 billion yen, and automotive net cash was 1.1593 trillion yen.

Our financial results for the 9 months were as follows:

• Consolidated net revenues totaled 7.507 trillion yen.
• Operating profit was 54.3 billion yen, which equates to an operating margin of 0.7%.
• Ordinary profit was 141.4 billion yen.
• Net income stood at 39.3 billion yen.

The slide illustrates the operating profit variance analysis in detail.

Foreign exchange fluctuations, regulatory compliance expenses and product enrichment costs in the U.S. and Europe, and rising commodity prices are putting pressure on the automotive industry, and had a negative impact of 134.9 billion yen. Our performance was negative as incentive reductions and cost-cutting efforts only partially offset the negative impact from the decrease in sales. Meanwhile, we continue investing for the future. R&D expenses and other monozukuri costs had a negative impact.

I will now present the fiscal year 2019 outlook.

Nissan remains committed to business transformation and performance recovery. At the same time, we recognize the results the company has delivered so far, economic uncertainties and market slowdowns. Given the current circumstances, Nissan revised its full-year guidance for global sales to 5.05 million units, down 3.6% from the previous forecast.

Reflecting the latest sales forecast and the results of the 9-month period, we revised our full-year forecast as follows:

• Net revenues of 10.2 trillion yen.
• Operating profit of 85 billion yen.
• Net income of 65 billion yen.

The forecast is based on a foreign exchange rate assumption of 108 yen to the US dollar for the fourth quarter and the full fiscal year. This forecast does not include the potential impact of the novel coronavirus.

Compared to the previous guidance announced in November, the anticipated movements in operating profit are as follows:

• Considering the latest situation, changes in foreign exchange assumptions are expected to have a positive impact of about 20 billion yen.
• Lower sales volume is expected to produce a negative impact of 86 billion yen. Expected decreases in sales for Japan and the U.S. are the main negative contributors.

Last November, we paid an interim dividend of 10 yen per share. Given the full-year earnings and free cash flow outlook, Nissan does not plan to distribute a year-end dividend for fiscal year 2019. The full year dividend will be 10 yen per share.

Let me express my sincere regret to our shareholders. The company’s results are weaker than expected. At the same time, we cannot afford any delay in investments on future technologies and product developments. We decided this was the right thing to do to ensure the steady growth of Nissan.

Nissan is carrying out its business transformation plan to restore profits and attractive shareholder return as soon as possible.

Now I will provide an update on the business transformation efforts.

As you may recall, Nissan is working on three pillars of business transformation namely U.S. business recovery, operational and investment efficiency improvement, and steady growth through new products, new technologies, and Nissan Intelligent Mobility.

In the U.S., we continue our efforts to normalize our sales. Net revenue per unit, sales incentives, and dealer inventories improved from the prior year. Our fleet sales progressed to a more appropriate level in the third quarter.

Pure retail volume excluding fleet and retail share of the new Versa that was launched last August as well as our SUVs, in which our strength lies, including the Rogue Sport and Kicks are starting to pick up. Profits are heading in the right direction thanks to our sales effort that do not rely on incentive spending. We are beginning to see the results of our initiatives.

While we are taking similar actions for midsize sedans, for which the market is slowing down, as well as other ageing models, we face decreasing sales and negative impact on profitability.
We know we are doing the right thing, and it is critical to remain focused. Yet it will take time for the U.S. business to recover, as we prepare to launch new technologies and products in the market.

Nissan is improving operational and investment efficiency toward fiscal year 2022. Rationalization of production capacity and efficiency enhancement of production operations are on the right track. We are redefining the strategic roles of each production plant. The direction is clear. We will provide further updates as we commence the implementation phase.

Rationalization of the product line-up is also making progress. We decided to end the sales of Datsun brand in Indonesia. We continue a strategic focus on technologies, range of models, and regions in which our strength lies, and optimizing investments. Short-term steps are done. We are making better use of Alliance assets, and selecting and prioritizing upcoming models that will be launched from fiscal year 2022 onward.

As you can see, the business transformation initiatives for fiscal year 2022 onward are on the right track. However, our sales volume and performance are weaker than expected. We are developing additional countermeasures including acceleration plans and better use of the Alliance and other partnerships for short-term recovery.

Because Nissan is experiencing weak performance, we have to tighten control on fixed costs. We find the situation challenging. That being said, steady growth through new products, new technologies, and Nissan Intelligent Mobility is a critical pillar that will determine the company’s future. I am confident we can make this a reality.

Continuous launches of new products are expected to largely improve the average age of our portfolio around the world from the latter half of fiscal year 2020 onward.

In fiscal year 2020, one of Nissan’s core models, a new SUV, will be introduced starting from North America. In addition, a compact sedan and crossover will be launched mainly in emerging markets.

Regarding new technologies, we launched the new Skyline in Japan. The car features ProPILOT 2.0, which enables multi-lane highway driving and hands-off driving while cruising in a given lane. With regards to electrification, a crossover equipped with an updated e-POWER system and an all-new EV that offers an exciting new driving experience are also coming to the market, starting with Japan.

We have more to come in our home market, Japan. On February 25, we are going to unveil the new Roox super height wagon, which will be introduced in the kei car segment that accounts for 40% of the Japan market. The new Roox, like the DAYZ, is equipped with a system that goes beyond conventional safe driving assistance; ProPILOT driver assistance technology controls the vehicle with high precision.

As for new business areas, the second series of field tests of Easy Ride, a new mobility service using driverless vehicles, is underway here in Japan.

Nissan offers new customer values. We keep on taking on challenges and making breakthroughs. This is the carmaking DNA that is passed down within Nissan for generations. We will package it into technologies and products, which we will deliver first to customers in our home market, Japan. You can count on us.

Given the current performance, we are reviewing milestones up to 2022. We are going to announce a revised plan, including ways to better leverage the Alliance, this May.

Since I became CEO, I have been listening to feedback from inside and outside the company, and started working on the identified challenges. There are three of them.
1.Focus on core competence and develop a stronger financial foundation
   Ensure selection and prioritization, and fix the high-cost structure.
2.Better execution and faster implementation
   Quick decision-making and simplified processes
3.Define raison d’etre / corporate purpose, and reform corporate culture for steady growth

We already made some changes to the internal system and processes to get this done.

As CEO, I am committed and determined to steer Nissan. You can count on Nissan to change for the better.

Thank you.

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