FY2019 Annual General Meeting of the Shareholders
Prepared Remarks
June 25, 2019
CEO Hiroto Saikawa
Introduction
To begin, on behalf of the company, allow me to express my sincere regret for any concern the nonconformities in the final vehicle inspection process and the serious misconduct by former executives may have caused.
Nissan takes these issues very seriously. As the company develops and ensures compliance mindset in all the operational aspects, we would like to elect the new board members and transition to the three-statutory-committee system upon your approval today. Today is a big milestone for us. From today onwards, we intend to intensify swift reform of our corporate governance structure.
I will now provide an update on FY2018 results and FY2019 outlook. Let me also present an overview of the ongoing reforms of our operational structure, the New Nissan Transformation.
FY2018 sales & financial performance
I will start with the business report for FY2018. Nissan’s global sales increased in regions including Japan, China, the Latin America, Thailand, and the Philippines, and decreased in the U.S. and Europe. As a result, our market share reached 6%.
Looking across the key regions:
In Japan, the Nissan NOTE e-POWER became the top-selling registered car in the last fiscal year. At the same time, the Nissan Serena became the best-selling minivan. Nissan enjoyed solid growth in the market.
In China, despite a difficult market that declined, Nissan’s sales increased 2.9%, resulting in a market share of 5.9%, up 0.3 percentage points.
In contrast, in North America sales declined due to the company’s efforts to normalize sales. In Europe we also lost sales because of short supply of gasoline engines as environmental regulations spurred an increase in demand for gasoline vehicles in the market.
Moving on to our financial results, consolidated net revenues for FY2018 totaled 11.57 trillion yen. Operating profit was 318.2 billion yen, which equates to an operating margin of 2.7%.
Foreign exchange, more stringent environmental regulations mainly in Europe, the necessity of product enrichment, rising commodity prices, and other factors had a negative impact of 210 billion yen. We also booked about 66 billion yen of one-off reserves for the warranty extension campaign for CVTs in the U.S.
The company is tightening its control on sales pushes based on incentives in order to enhance quality of sales. Because we had been dependent on discounts, our sales declined. We were unable to offset the negative impact through incentive reduction and other cost-cutting efforts. As a result, our profit decreased on a global basis.
By region, our profit grew year-on-year in Japan, China, and the Middle East, and significantly decreased in the U.S. and Europe. Our profit decreased compared to the prior year on a global basis.
FY2019 sales & financial outlook
For FY2019, our global retail sales volume is expected to increase by 0.4% to 5.54 million units. We foresee growth in Japan, China, and other markets while assuming a tough situation to continue in North America and Europe. If we remove the growth in China from the total for the year, on a global basis we foresee a decrease of 120,000 units or 3%. So, without our China JV operations included we are forecasting net revenues of 11.3 trillion yen and operating profit of 230 billion yen.
In addition to the negative impact from external factors including foreign exchange, commodity price hikes, and increases in regulatory costs in the U.S. and Europe, we are challenged with an aging vehicle portfolio mainly in the U.S. Particularly in the first half of FY2019 we foresee a further decrease in sales, and during this period we will continue to work on enhancing quality of sales instead of pursuing short-term profits through sales pushes so that we can prioritize a steady recovery from next fiscal year onward.
In addition, in order to ensure the company’s steady growth, we will increase our investments in technological innovations and new products to adapt to growing trends of C.A.S.E. This work has already begun, and we are making this a year to focus on these responsibilities.
Up until now, cost reductions helped to make up for decreased sales volumes and contributed to our bottom line. However, for FY2019, due to consequences of overstretched operations and core vehicles coming to the end of their lifespan, we cannot expect large benefits from cost-reducing efforts. For these reasons, unfortunately, Nissan foresees a challenging year ahead.
From FY2020 and onwards, we expect to see a gradual improvement of our results. As I said when we announced our full-year financials, our results will reach the bottom particularly in the first half of the year. But we will strengthen our resolve and for the future make this a year for us to push forward with a steady recovery.
FY2018 / 2019 dividends
With regard to shareholder return, we plan to pay the year-end dividend of 28.5 yen per share for FY2018. Together with the interim dividend of 28.5 yen per share that was paid last November, we are maintaining a full-year dividend of 57 yen per share as we previously stated.
For FY2019, considering the unfavorable external environment, current business status, investments required to recover competitiveness and cash on hand, we plan to adjust the dividend to 40 yen per share.
I am obliged to make this decision in order to continue making timely investments for the future, carry out drastic reforms in our operations, and ensure steady growth. I would appreciate your kind understanding and support.
New Nissan Transformation
Please allow me to give an overview of the New Nissan Transformation, a program we started to carry out to reform our operational structure.
Governance transformation
As you may be aware, today Nissan is proposing to transition to a three-statutory-committee structure based on the recommendations from the Special Committee on Improving Governance. In order to make the meeting body more effective, independent outside directors will comprise the majority of the board. We are proposing director candidates from diverse backgrounds with a wide range of experience and knowledge.
Nissan sees the re-establishment of a highly robust corporate governance structure as imperative. Based on the recommendations from the Special Committee for Improving Governance received in March, Nissan has worked to reform its governance structure. With the lessons from the recent executive misconduct still fresh, Nissan resolves to rigorously pursue separation of supervisory and executive functions and, with shareholder approval, to transition from a company with statutory auditors to a company with three statutory committees.
We prepared for this on a very tight schedule, and may not have been able to fully communicate our intentions to all involved ahead of time. However, as we have said, independent outside directors are to be appointed to the positions of chair of the board and the heads of each of the committees. We plan to officially approve these positions at the board of directors meeting following this shareholders meeting.
Though we foresee a number of challenges before us, we will keep on carrying out these essential reforms in this our foundation year of governance.
Although the challenges will continue from today, together with the members of the new board we will work to stay true to our target and put full effort into the establishment of this new governance structure.
Organizational transformation
Nissan revised the members of the Executive Committee in May. A Chief Operating Officer (COO) and a Vice-COO have been appointed to ensure more-effective operations. In addition, the corporate officers who are leading the regions that significantly affect our global results, which are Japan, North America, and China, joined the Executive Committee. A corporate officer dedicated to structural reform and an Executive Vice President responsible for governance improvement have also been added. The new set-up enables all the regions and the global functions to collaborate more effectively. The entire organization is working together to resolve the issues.
Business transformation
Next, I’d like to discuss transformation of our business structure. We have already started initiatives to recover our performance. Our initial intention for the midterm plan was to maintain a 10% operating margin in the U.S., Japan, and China, while boosting profitability in other markets to 5%. Based on this, the company intended to deliver an 8% operating margin on a global basis.
Today, profit margins in Japan and China remain healthy while the businesses are growing and evolving as planned. In contrast, our North American operations saw a huge decline, and along with challenges in Europe, we have seen a large drop in two of our hitherto sources of profit. This is the situation so far.
If we look at the global cost structure, Nissan invested tremendously, mainly in emerging markets, following the expansion strategy under Nissan Power 88. However, our sales volume and profits largely fell short of our plans, and we failed to get expected returns on investment.
The compact cars and production capacity for emerging markets in which we invested are not generating the volume and profits we expected. As a result, the company is under the strains of excess production capacity and a large amount of fixed costs.
At the same time, we face imminent challenges of accelerated efforts and increasing investments in C.A.S.E technological innovations and new products. So, the company is under an increasing cost burden.
We need to cover this with increased sale volume and bigger marginal profits. It is essential to restore performance of the North American operation that used to be the biggest source of profit, but this will take time. In order to make sure that we do not make the same mistakes, we have to make steady efforts without haste.
Therefore, we intend to continue investing in future growth and C.A.S.E. technological innovations, while pursuing a course of selection and concentration to clean up unprofitable operations in the second half of the ongoing midterm plan. We will improve sales in a sustainable manner instead of pushing sales for short-term benefits, and restore the company’s results and profitability in three years, or if possible, in two years.
There are three key areas in which we will carry out reforms:
- 1. The U.S. business recovery
- 2. Operational and investment efficiency improvements, selection and concentration
- 3. Steady growth through new products, new technologies and Nissan Intelligent Mobility
In summary, we are working fast on our cost structure and production footprint. At the same time, we are taking the time needed to boost sales and recover sales in the U.S. Nissan is pursuing steady growth while maintaining our Nissan Intelligent Mobility strategy and enhancing our brand attractiveness.
I presented an outline of our ongoing efforts when we reported FY2018 financial results last month. I plan to report details, including progress and a roadmap toward FY2022, at the end of July.
Let me present a key part of our growth strategy, Nissan Intelligent Mobility.
Nissan Intelligent Mobility
Nissan will continue to invest in areas that require strategic focus. We remain focused on the top priority of commercialization and market application of technological innovations to adapt to C.A.S.E. The core models in the pipeline will be introduced from FY2019 and onwards. By FY2022, more than 20 new global strategic models will be coming to the markets.
Electrified vehicles, such as the Nissan LEAF and models equipped with e-POWER are being well received in the markets. Nissan will continue to electrify its offerings towards 2022. For example, we will launch a high-performance 4WD model equipped with large-capacity motors on the front and rear. Electrified vehicles will eventually account for more than half of our sales volume in Japan and Europe, and 30% of our global sales.
In the area of autonomous driving, our global cumulative sales of vehicles equipped with ProPILOT technology reached 350,000 units. By FY2022, we will launch 20 models equipped with ProPILOT technology in 20 markets and increase annual sales to 1 million units. Nissan plans to make ProPILOT 2.0, which enables autonomous driving on multiple lanes, available on the new Skyline in Japan this fall.
We are ready to package new technologies and value into mass production cars, and deliver them to a large number of customers. We are promoting Nissan Intelligent Mobility, an updated version of Nissan’s DNA of technological excellence, in the era of C.A.S.E. With this, we want our customers to be attracted to our brand rather than buying our products and services because of discounts. This will result in a better quality of sales.
At the same time, we are changing the course from expansion to more sustainable growth by addressing the challenges of the U.S. business recovery, operational and investment efficiency improvement, and steady growth through new models, new technologies, and Nissan Intelligent Mobility.
People often ask if Nissan is facing a situation that is similar to the one that we experienced during the Nissan Revival Plan. Today, we clearly know what should be done, and enjoy healthy financial strength. It will take two years, or three years at the longest to put the company back on track. I would like to ask you to give us time. Your kind understanding will be appreciated.
Alliance
Since the discovery of the executive misconduct last year, we have been working very hard to make sure that this will not affect our relationship with Renault. Based on the Memorandum of Understanding agreed and announced by the three partners including Mitsubishi Motors on March 12, the new Alliance Operating Board has started under equal partnership based on a win-win-win spirit.
Upon your approval at the Extraordinary General Meeting of the Shareholders in April, Nissan discharged two directors and appointed Mr. Senard, Renault’s Chairman, as a new director. We drew a line under the period of the previous chairman and we’re making progress towards a new era. As I said at the financial announcement, we have been spending a lot of time discussing the relationship between the two partners.
I discussed stabilization or the evolution of the relationship and capital tie-up with Mr. Senard. For the time being, both of us agreed to prioritize and focus on Nissan’s new steps to improve its governance structure and performance. Nissan has been working on the new governance structure and the board composition with the understanding and support of the biggest shareholder, Renault. Today, we are here to make that proposal.
The understanding and cooperation of our largest shareholder, Renault, is necessary to embed the new corporate governance structure in the organization. Nissan will continue asking for its partner’s understanding and cooperation as it establishes new rules and operations.
Postponing discussion regarding the relationship between the two partners may cause speculation, may result in undermining collaboration within the Alliance, and may affect Nissan’s recovery efforts. It is therefore critical to create opportunities with Renault to discuss the future form of our relationship while we continue improving Nissan’s performance.
Closing: the New Nissan
Nissan’s priorities are performance recovery, re-establishment of corporate governance, and stabilization of the Alliance. Following recent revelations, we were a bit slow in taking action in the midst of instability. We are intensifying our efforts to catch up as quickly as possible.
Technology is the source of Nissan’s value. The right solutions differ depending on the times. Nissan is taking on the challenge to package solutions to deliver practical value to a larger number of customers, rather than just create demo cars. This spirit is represented by the Skyline, Z-car, Nissan LEAF, e-POWER, and ProPILOT. The specific solutions are different, but Nissan’s DNA has always been consistent. We are definitely capable of winning in this age of transformation.
We face the challenge of technological innovations for the next-generation mobility to adapt to C.A.S.E. Nissan intends to continue evolving and to be a company that is depended on for developing a new mobility society.
We look forward to your continued support and understanding.
# # #
