Annual General Meeting of the Shareholders
CEO Business Report
June 29, 2020
CEO Makoto Uchida
In fiscal year 2019, global total industry volume – or TIV – fell 6.9% to 85.73 million units due to the slowdown in the China market and stagnation of global markets as a result of the outbreak of the COVID-19.
Nissan’s sales outperformed the market in China, but our global sales volume decreased 10.6% to 4.930 million units given the significant slowdown of TIV in the 4th quarter, as well as the decrease in sales primarily in North America and Europe.
These are the headline financial results for fiscal year 2019 based on the equity accounting method for our joint venture in China.
Consolidated net revenues declined to 9.879 trillion yen resulting in an operating loss of 40.5 billion yen and net loss of 671.2 billion yen.
In addition to the negative impacts of external factors including forex impact, regulatory and product enrichment costs, and rising commodity prices, our automotive profitability was affected by the decrease in sales volume as we suffer from an aging product portfolio and limited profit contribution from our efforts to normalize sales.
In FY2019, we incurred restructuring charges and impairments in business assets of 603.0 billion yen, as we transform the business to improve profitability and achieve sustainable growth.
While free cash flow for the automotive business deteriorated to a negative 641.0 billion yen, Nissan continues to have healthy levels of cash for the automotive business and sufficient funding available to meet our cash needs during this crisis. At the year-end, cash on hand for the automotive business totaled 1.495 trillion yen and automotive net cash was 1.065 trillion yen. In addition, the company continues to have access to approximately 1.3 trillion yen in credit lines, which remain unused. Furthermore, we raised additional 712.6 billion yen in funding this April and May.
For fiscal year 2020, we currently estimate global TIV to decline by approximately 15% to 20% from the prior year due to the COVID-19 pandemic. However, uncertainty remains. It is difficult to reasonably forecast an outlook for fiscal year 2020 at this time. We will issue the fiscal year 2020 forecast as soon as we are able to make a reasonable projection for the year.
Given the latest situation of the free cash flow and funding for the fiscal year 2019, our outlook on our profitability and free cash flow for the fiscal year 2020 as well as the necessity of investments for future development to increase our competitive edge, Nissan decided not to distribute the year-end dividends for the fiscal year 2019.
Let me express my sincere regret to our shareholders. We cannot afford any delay in investments on future technologies and product developments. We believe that this is the right thing to do in order to transform our business to ensure steady growth, and increase the corporate value of Nissan.
We take the situation very seriously. In order to share the pain with the shareholders who have to give up the dividends and our employees who are coping with challenges and restrictions including temporary shutdowns, the top management decided to reduce and give up part of the executive compensation upon the compensation committee’s approval.
Now, I would like to present the business transformation plan, NISSAN NEXT.
Since Nissan announced the Nissan Power 88 mid-term plan, the company has been pursuing a strategy of expansion with a focus on emerging markets based on expectations of growing demand.
Although we sowed the seeds, we were not able to grow them effectively. As a result, Nissan was unable to harvest. In addition, due to massive investments made around the world, Nissan was not able to launch new products in key markets, particularly in Japan.
About two years ago, we started shifting away from this expansion strategy. However, we have been left with a situation where we have global production capacity of around 7 million units, but annual sales of less than 5 million units. To continue our business and generate a profit under these conditions have been extremely difficult.
For Nissan to overcome this situation, we must admit our mistakes and correct course. We must resolve the issue of redundant assets from which we do not expect sufficient returns. We must therefore prioritize and focus by constantly allocating resources to core markets and core segments. Nissan is determined to take all these actions without compromise.
The key focus of our plan is to:
- Ensure steady growth instead of pursuing excessive sales expansion
- Concentrate on core competencies while enhancing the quality of our business, alongside financial discipline
- Restore a culture defined by “Nissan-ness” for the new era
By focusing on these areas, we aim to build a business foundation by the end of the fiscal year 2023 that is robust enough to compete effectively for the next decade.
Nissan is focusing on two key areas in NISSAN NEXT.
The first is rationalizing the businesses. In this area, we are reorganizing operations from which we do not expect sufficient returns, reducing excess production capacity, and carrying out structural reforms. Specifically, we are
- Optimizing production capacity
- Rationalizing our global product line-up
- And, through our efforts to optimize other expenses, we will significantly reduce fixed costs.
The second area is prioritization and focus. Here, with robust management we will make ample investments to deliver a solid recovery and steady growth in the identified core areas.
Let me now provide more details on how we are rationalizing our businesses.
The reductions we are making in production represent a 20% cut globally in the 7.2-million –unit capacity that we had in the fiscal year 2018. We will move to a 5.4-million-unit production footprint under normal production shifts.
We will close our production plant in Indonesia.
We intend to close the Barcelona plant and will begin discussions and preparations.
On the product side, we are streamlining our portfolio down to core models. By concentrating our resources in the core models, we are able to develop products with greater value and competitiveness. We will also lower the average age of models, bringing it to four years or less.
Specifically, by the end of the fiscal year 2023, we will discontinue older cars and trucks as well as models unique to a single region, and withdrawing the DATSUN brand in Russia, reduce the number of models in our portfolio from 69 to 55. This represents a reduction of approximately 20% from the fiscal year 2018 level, and will enhance our product competitiveness.
We are improving our cost base significantly through various actions including reduction of general and administrative expenses by 15%. We are reducing fixed costs by approximately 300 billion yen, and will work to maintain that cost base going forward.
Let us look at our work to prioritize and focus in three areas: markets, products, and technologies.
Nissan is focusing on Japan, China, and North America including Mexico as our core markets where we concentrate resources and ensure healthy business operation.
For the rest of the regions, we are maximizing the use of the Alliance assets and developing appropriately-sized businesses.
We will withdraw from Korea where we see limited opportunities.
Japan is Nissan’s home market, and we are refocusing accordingly. We have a strong foundation that we have been developing over the years. We will enrich the line-up consisting of more attractive products with practicality and advanced technologies that offer value to our important customers in this home market.
In Japan, more than 90% of our customers appreciate our e-POWER and ProPILOT technologies. By focusing on our electrification and autonomous driving technologies, we aim to build greater brand value and regain market share.
As a starter, Nissan unveiled the all-new Nissan Kicks e-POWER last Wednesday. Its sales will start tomorrow on June 30. We are counting on the all-new Nissan Kicks e-POWER to drive our brand and sales in Japan.
We are going to hold a world premiere of the all-new Ariya crossover EV on July 15. The highlight of the all-new Ariya is the fusion of electrification and advanced driver assist technology that is expected to evolve into self-driving car in the future. The all-new Ariya equipped with the ProPILOT 2.0 advanced driver assist technology and the latest e-powertrain is coming to the home market first before being deployed across the world. We expect the all-new Ariya to play a key role as a brand driver and the face of Nissan for the new era.
Nissan maintains strong presence in the world’s largest market China as we continue our healthy business operations. China is expected to enjoy further growth and prosperity. As part of our Nissan Intelligent Mobility strategy, in addition to having seven EVs in our line-up, we will launch our e-POWER technology in core products.
In the U.S., over the past two years, Nissan has shifted its focus from fleet sales to pure retail and has been working to normalize sales. Although we are taking significantly more time than initially expected, we are rationalizing further, including reducing fixed costs and the revision of the product plan to recover our performance.
As we work to normalize sales, we are starting to see results from the launch of the new Sentra last year. On June 15, we revealed the new Rogue, the top-selling SUV in the market. The sales will start this fall.
New product offensive is starting with the new Rogue. We also have a series of enhancements planned for our SUVs and pickups. These include the new Pathfinder, the new QX60, and the new Frontier.
Let me talk about our offensive strategy.
We are introducing at least 12 new models in the next 18 months. We are applying electrification and advanced driver assist technologies, which are our strengths, to more models to renew and enrich our product offer.
By adding two new EVs, we are on track to launch more than eight 100% EVs by the end of the midterm plan.
Another pillar of our electrification strategy is e-POWER. As we expand our e-POWER offerings globally, we forecast electrified vehicles to account for 60% of our sales in Japan, 23% in China, and 50% in Europe, resulting in sales of more than 1 million units by the end of the fiscal year 2023.
Nissan is also a leader in autonomous driving in terms of product application and technological excellence. For example, the Nissan Skyline is equipped with the ProPILOT 2.0, which is the world’s first advanced driver support system with a hands-off function.
As of March this year, we have sold around 700,000 vehicles equipped with our ProPILOT features. Our autonomous drive system will be introduced in more than 20 models in 20 markets by the end of the fiscal year 2023. Sales of ProPILOT equipped vehicles are expected to reach more than 1.5 million units per year by the end of the fiscal year 2023.
So far, I have been outlining the business transformation plan and initiatives to achieve steady performance recovery through prioritization and focus.
By implementing all of these actions, and under certain economic and market conditions, Nissan aims to complete its strategy in the next two years and return automotive free cash flow to a healthy level. By the end of the fiscal year 2023, we aim for our global market share to reach 6% and our core operating margin to increase to 5%, based on the equity method accounting basis, which includes the proportionate share of our Chinese joint venture.
We are resolved to take all the steps necessary, without any compromise, to rebuild a solid foundation that enables Nissan to effectively compete for the next decade.
This is an overview of the Nissan NEXT business transformation plan. Last June, Nissan transitioned from the board of statutory auditors to the three-statutory-committee format with the approval of the shareholders. We are increasing transparency of decision-making and ensure quick and agile business operation by clearly separating execution and supervision. Nissan is working hard to restore confidence while recovering its performance.
To finish, let me share some thoughts with you.
In the past several months, the COVID-19 pandemic has forced us to change our lifestyles. I rediscovered that Nissan’s long-term mission is to enrich people’s lives through cleaner and safer mobility, and energize the society.
Nissan is constantly delivering new values to customers. To do this, we continue to take on challenges and make breakthroughs. This is Nissan’s DNA.
I am committed to put Nissan back on a growth track.
Our pathway to recovery will not be a smooth one. Yet Nissan is blessed with extremely talented employees. We are working together to overcome the crisis.
What I want to see is for Nissan to retain its “Nissan-ness.” Nissan is about people-focus and pursuing technologies and services relevant to customers.
Nissan’s electrification initiatives are not only for a better environment. Our technologies and products offer driving pleasure. This is demonstrated by the new driving experience of e-POWER and the soon to be revealed Ariya, a car that offers an amazing driving experience and excitement. Our autonomous driving technology is also designed to assist customers around the world.
The COVID-19 pandemic has brought significant changes to our lifestyles. The auto industry is at a major turning point. Even in this challenging environment, Nissan intends to keep on taking on challenges that only Nissan can to enrich people’s lives.
We thank you for your ongoing support.
