Nissan, least profitable Japanese automaker in Q3, stays strong on EVs

FY13 3Q financial results
Nissan Motor Co., Ltd.
Joji Tagawa, Corporate Vice President

Introduction

For the nine-month period, Nissan has made solid progress to improve its business performance. The pro forma nine-month financial results, and particularly those of the third quarter, are up compared to the same period last year, despite intense competition and uncertain economic conditions. These results, however, do not reflect the full potential of Nissan. Looking ahead to the quarter ending March 31, 2014, we expect to continue to improve our business results and as such, we are maintaining our prior profit outlook for the fiscal year.

For the nine months ending December 31st of 2013, Nissan is reporting pro forma consolidated net revenues of 7.94 trillion yen and operating profit of 370.8 billion yen, which equates to an operating margin of 4.7%, and net income of 274.1 billion yen, which represents a 3.5% net margin. For the period, Nissan had a negative free cash flow of 203.6 billion yen which was 79B yen better than the comparable 2012FY period and Nissan ended the period in a net cash position of 733 billion yen, more than double the level at the same point in fiscal year 2012.

We remain committed to our Power 88 mid-term plan, which based on a strong product and technology cadence and improvements in Brand and Sales Power has set market share and operating margin targets for the company. Before going through the financial results in more detail I will outline some of the operational highlights of the period.

FY 13, business update

In the latest reporting period, Nissan unveiled the first models under its Common Module Family architecture, delivering economies of scale and shared advanced technology for the Rogue, the X-Trail and the new Qashqai. It is anticipated that the first CMF program will encompass 1.6 million vehicles per year for Nissan and its Alliance partner Renault when it is fully implemented.

Our expansion of manufacturing capacity continues, with new plants coming on stream including the third Nissan facility in Mexico. This will reinforce our position as the clear market-leader in Mexico, where Nissan's annual output is set to increase by 25% to more than 850,000 vehicles.

Our commitment to growth markets is also reflected by Nissan's sales rebound in China, where we remain the largest Japanese manufacturer. Our China sales in the 2013 calendar year rose to a record 1.27 million units where our presence has been enhanced by the launch of new models such as the Sylphy and Venucia R50X, jointly produced with our partner DongFeng.

Alongside market expansion, Nissan has continued its drive in zero-emission vehicles.
In the latest quarter and for the first nine months of the current fiscal year, the Nissan LEAF has reinforced its position as the world's best-selling EV. The LEAF is now sold in 35 countries and cumulative sales have exceeded 100,000 units in January.

Nissan's EV strategy will accelerate with the launch in fiscal 2014 of the e-NV200, the second all-electric model available globally. The potential of the e-NV200 to transform emissions among commercial vehicles comes as Nissan is also supporting initiatives such as EV car-sharing in Japan and the continued deployment of charging infrastructure.

This past November, we made several important changes to the management and operational structure at Nissan. Across the regions, we made progressive changes to allow management to focus on more detailed market-by-market execution. We moved from a three-region structure to six regions and announced the appointments of Jose Munoz for North America, Jose Luis Valls for Latin America and Takao Katagiri for Asia. In December, we finalized the regional executive team with the appointments of Takashi Hata for the Africa, Middle East and India region, Jun Seki for China and Paul Willcox for Europe. The leaders in our six market regions are now in place to deliver the demanding targets we have set.

Nissan's global presence has been enhanced by our 15-year Renault-Nissan Alliance. At the end of January we announced a major step forward in the Alliance by exploring collaboration in four key functions: Research & Development, Manufacturing & Logistics, Purchasing and Human Resources.

We anticipate that annualized synergies from the Alliance, shared across Renault-Nissan, will exceed 4.3 billion Euros by 2016.

These synergies comprise incremental revenues, cost savings and cross-function efficiencies.

Together, the Alliance sold 8.3 million vehicles in the 2013 calendar year, and can now accelerate areas of potential co-operation.

Having summarized some of our operational highlights, I will go now through our overall performance for the nine months in detail, starting with the unit sales numbers across our operating regions.

FY13, 3Q sales performance

For the nine months ending December 31, overall global industry volumes increased 4.2% to 61.56 million units. Nissan's overall sales results in the same period increased 1% to 3.7 million units as strong growth in North America and Japan - which out-performed the industry was offset by pace of our sales recovery in China, particularly during the first 6 months, and volatility in other markets.

In Japan, Total Industry Volume - or TIV - rose by 4.5%, to 3.85 million units, reflecting solid consumer demand ahead of the planned sales tax increases in April. Encouraging demand for new Nissan models including the Note and DAYZ enabled us to outperform the market with a 7.4% sales increase to 466,000 units. Our market share improved to 12.1%.

In China, TIV in the calendar nine months to September 30 increased 12.8% to almost 15 million units. Nissan sales were steady at 886,000 units over that period. However, sales showed a marked return to growth in the third quarter, rising 23% year-on-year to 294,000 units. That momentum continued in the final quarter, in which Nissan's sales jumped 93.8% to 381,000 units over the same period last year. This growth outpaced Chinese TIV, which increased 17.1% to 5.78 million units, resulting in Nissan ending the fourth quarter with a market share of 6.6% - up 2.6 points as the political situation has stabilized.

Turning to North America; In the US, TIV increased 8% to 11.91 million units. Nissan's sales volume once again out-performed the market by increasing 13.5% to 930,000 units, driven by demand for the Altima and Pathfinder models. Market share improved 0.4 points to 7.8% in the US. Meanwhile, in Canada, sales were up 19.2% to 73,000 units. In Mexico, Nissan maintained its strong market share position at 24.6%, with sales of 201,000 units for the period.

In Europe, TIV was down 0.5% at 12.92 million units. Nissan saw retail sales volumes decline 1.7% to 471,000 units in the period. Market share was stable at 3.7% supported by continued consumer demand for best-selling models including the Note, Juke and Qashqai. Nissan`s sales in the Russian market have begun to show signs of recovery with sales increasing 25.7% in the third quarter alone, resulting in a 6.5% market share.

In other markets - including ASEAN, Africa and Latin America - economic conditions have been volatile. This impacted Nissan, with sales volumes falling 8.9% to 645,000. Of those markets, Asia and Oceania was down 15.3% at 271,900 units. Latin America fell 15.7% to 146,500 units. These reductions were only partially offset by a 15% increase in the Middle East to 151,900 units. In addition, while Nissan`s sales in India for the 9 month period were down 22.2% versus the comparable 2012FY period. Looking specifically at the 3rd quarter, despite industry volumes falling 8.8%, Nissan's sales in India increased 27.5% driven by strong sales of the new Terrano, which was named the Multi Utility Vehicle of the Year in India.

FY13 9-month financial performance

I will now go through our overall pro-forma financial performance for the period. Consolidated net revenues increased 1,180 billion yen, to 7.94 trillion yen, primarily driven by the correction in the yen.

Consolidated operating profit totaled 370.8 billion yen which is up 21.6B yen from FY2012 yielding a 4.7% operating margin.
Net income was 274.1 billion yen, up 41.7B yen or 17.9% on the same period of fiscal 2012.
Looking at the year-over-year operating profit movements in detail:

The 223.4 billion yen impact from foreign exchange came mainly from the correction of the yen against the U.S. dollar.
Purchasing cost reduction efforts, including raw materials, resulted in a net savings of 138.1 billion yen.
Volume and mix produced a negative impact of 41.2 billion yen.
The increase in selling expenses resulted in a 181.9 billion yen negative movement.
R&D expenses increased by 24.2 billion yen.
Manufacturing expenses increased by 24.7 billion yen, and
Warranty and recall expenses increased by 48.4 bn yen.
Other items netted to a year-over-year deterioration of 19.5 billion yen.

Under the equity accounting method for our China joint venture, revenues for the fiscal nine month period rose 19.7 per cent to 7.28 trillion yen. Operating profit was up 9.5% at 300.7 billion yen, and net income rose 18.4% to 274.1 billion yen.

At the end of the period, we continued to be in a net automotive cash position at 733 billion yen, more than 2 times the 333.8 billion yen at the end of December 2012.

FY13 outlook

Looking to the remainder of the year, Nissan will continue to benefit from solid demand in the core markets of North America and Japan, and is seeing signs of improvement in growth markets such as China and Russia.

We will also benefit from our continued new model launch program, with important flagship vehicles coming to market since December, including the Rogue in the US, Qashqai in Europe, Datsun GO in India and the X-Trail, DAYZ Roox and Skyline in Japan.

Supported by these new product launches as well as other cyclical sales factors, we expect to see a significant improvement in our financial performance in the last three months of our fiscal year versus our Q3 results.

Conclusion

In closing, I would like to re-emphasize that Nissan remains committed to continuing to improve the fundamentals of our business. While the global economic environment remains somewhat uncertain, we are maintaining our full year profit guidance, and expect to generate positive automotive free cash flow. We are also maintaining our forecast for the projected FY13 dividend of 30 yen per share.