Nissan Motor Co Ltd
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Nissan Motor Co Ltd
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We hope you have the materials. Ladies and gentlemen, we'd now like to start with the presentation, Fiscal Year 2018 First Quarter Financial Results by Nissan Motor Co.
Ladies and gentlemen, thank you for joining us despite your very busy and demanding schedule. We appreciate your kind participation. Then we would like to first invite Mr. Tagawa, Corporate Vice President to share with you the results -- the financial results for the first quarter. Mr. Tagawa, the floor is yours.
Thank you very much. Good afternoon, thank you for joining us today for the announcement of Nissan's first quarter earnings for fiscal year 2018. My name is Joji Tagawa, Corporate Vice President, Investor Relations. Today, I will outline our global sales performance and the financial results for the 3 months ending June 30, 2018. And following the presentation, I will be happy to take your questions.
For the first quarter fiscal year 2018, the increase in sales volume in other markets as well as our purchasing cost-reduction efforts, offset the negative impact caused by the declining unit sales in the United States, where we continue to enhance the quality of sales and increasing R&D investment. However, it was not enough to offset the negative impact caused by the rising commodity prices which have an increased since last fiscal year 2017 and foreign exchange headwinds. As a result, revenue, operating profit decreased for the quarter. For the 3-month period ending June 30, consolidated net revenues were JPY 2.72 trillion and operating profit totaled JPY 109.1 billion, which equates to an operating margin of 4.0%. Net income was JPY 115.8 billion, which represents a 4.3% net margin.
Free cash flow for the automotive business was negative JPY 31.5 billion and we ended the period with an automotive net cash position of JPY 1.54 trillion.
Now turning to our sales performance for the 3 month ending June 30. The global total industry volume, or TIV, rose 4% to 24.13 million units. Nissan sales volumes decreased in North America and Europe and increased in regions including China, the Middle East and Latin America. However, performing well. However, our total unit sales decreased 3% to 1.31 million units. As a result, our market share fell 0.4 percentage points to 5.4%.
Looking at our key markets in detail. In Japan, TIV decreased 1% to 1.19 million units. Nissan sales decreased 0.1% -- 0.8% to 130,000 units resulting in a stable market share of 10.9%.
Strong demand for registered vehicles, including Serena with e-POWER, which was introduced this past February and the new Nissan LEAF which went on sale last year lifted sales, whereas kei car sales declined due to the timing of new model changes. This resulted in slight decrease in retail sales which was in line with the market trends.
In China, where our sales performance is measured on a calendar year basis, TIV from January through March was up 2.3% to 6.7 million units. Nissan sales increased 6.9% to 336,000 units, representing a market share of 5.0%, an increase of 0.3 percentage points throughout the comparable period in the prior year. The growth was driven by strong sales of our Nissan models including the Kicks and new model for the China lineup as well as all-new Navara, X-Trail and Teana. Furthermore, Venucia D60, which was introduced in January this year, contributed to the continued growth of the Venucia brand. As Chinese reported with a 3-month lag, we also have sales figure of the second quarter period. TIV increased 8.2% to 6.44 million units, our sales rose 14.3% to 384,000 units, resulting in a market share of 6.0%, an increase of 0.4 percentage points.
For the 6-month period to the end of June, TIV increased 5.1% while our sales significantly outperformed the market and increased 10.7% to 720,000 units. As a result, our market share increased 0.2 percentage points to 5.4%.
And going forward, the new Terra, a frame-based SUV launched in April, is expected to contribute to our growth for the remainder of the fiscal year.
In the United States, TIV increased 1.8% to 4.5 million units. Nissan sales declined 9.5% to 365,000 units, equivalent to a market share of 8.1%.
We continue to work on normalizing sales and improving dealer inventory levels. In the months ahead, the new Infiniti QX50 and Kicks will enhance the model cycle, along with the new Altima, which will go on sale in autumn. We'll continue to have -- we will continue our efforts to implement operational improvements towards the second half of this fiscal year.
In Canada, Nissan unit sales were up 3.4% to 43,000 units, market share was 7.0%.
In Mexico, Nissan sales decreased 15.7% to 74,000 units. While we maintained our #1 position with a market share of 21.6%.
In Europe, including Russia, Nissan sales totaled 162,000 units, a decrease of 12.7%. Excluding Russia, Nissan sales decreased 14.4% to 139,000 units, representing a market share of 2.9%. This is primarily due to the decline in sales volume in the United Kingdom, where Nissan has a strong presence and a focus on profitability including the reduction of fleet sales.
In Russia, our sales decreased 0.6% to 23,000 units, equivalent to a market share of 5.0%.
In other markets, Nissan sales increased 6.6% to 200,000 units. Unit sales in Asia and Oceania decreased 7.4% to 76,000 units. Sales in Latin America, where there is a strong demand for Kicks, were up 26.4% to 55,000 units, while the industry continues to decline in the Middle East, our unit sales increased 4.0% to 44,000 units. Sales in Africa and others rose by 26.3% to 25,000 units.
Moving to our financial results. As with previous quarters, Nissan is representing its financial performance under the equity accounting method for our joint venture in China.
On this basis, consolidated net revenues totaled JPY 2.72 trillion. Operating profit JPY totaled 109.1 billion, which equates to an operating margin of 4.0%. Ordinary profit, which includes the performance of affiliate companies such as joint venture in China was JPY 158.9 billion. Net income was JPY 115.8 billion, which represents a 4.3% margin.
Looking at the operating profit movement. Foreign exchange had a negative impact of JPY 19.3 billion and the increase in raw material prices resulted in negative impact of JPY 27 billion. Excluding these 2 external factors, our operating profit was nearly flat year-on-year with an increase of JPY 2.1 billion. With regard to the company's performance, the negative impact caused by the decrease in sales volume particularly in the United States, and the increase in investments for the future, including R&D and manufacturing expenses was offset by positive factors including cost items such as pricing cost-reduction efforts and product enrichment increases in volume other markets as well as decrease in marketing, selling expenses.
If you look at volume mix and marketing, selling expenses by the region, the U.S. is negative by JPY 40 billion and other regions was positive by JPY 23 billion.
On a management pro forma basis, which includes a proportion of consolidation of our Chinese joint venture are key indicators throughout that. Net revenues totaled JPY 3.03 trillion, operating profit was at JPY 154.4 billion, which equates an operating margin of 5.1%. Net income totaled JPY 115.8 billion.
Automotive free cash flow was negative JPY 15.4 billion. We ended the period with automotive net cash of JPY 1.81 trillion.
In summary, our results for the quarter were unfavorable as we faced a number of challenges including decline in sales in North America and Europe and increase in commodity prices and foreign exchange headwinds.
Nissan remains focused on enhancing the quality of sales, particularly in the United States and maintaining strict cost discipline globally, in order to increase profitability. We're also determined to address the issues that came to light in Japan since last year. Nissan will continue to reinforce compliance fully, across-the-board, and restore customer confidence.
For the full fiscal year, we are maintaining our previous guidance and continue to project a full year dividend of JPY 57 per share, a 7.5% increase from the prior year.
Thank you. I will be pleased to take your questions.
[Operator Instructions] So we'd like to start with the person in the second row, please.
[indiscernible] from Nikkei. I would like to ask a question about the performance. While this is the first quarter and I think it's in line with the broad consensus, but having said that, for the full year, as far as this first quarter is concerned, is this the bottom do you think in relation to this full year? And with the -- I believe the key is the -- we build a new business or recovery in the United States. But what about the trends pertaining to the incentive? And also, the initiatives you're taking and in order to reinforce your sales in the market to get this in line with your projection? If you could share with us your thoughts about these topics, I would appreciate it. And also if I could further add one other point, if I may. In the commodity prices you mentioned, it is one of the factors that has pushed out the cost for your company overall, but we saw good trade friction. Is this impact of the tech -- tariff imposition in steals and aluminum and also between the trade frictions to between U.S., Japan U.S., China and Europe? But has this had impact on your business strategy? Could this push up your cost going forward? Can you envision these points, please?
Yes, thank you for your question. So for the first quarter, how do we evaluate the circumstances including the normalization in U.S. and incentives trends in U.S. For the first quarter, U.S. and Europe suffered from the sales decreased which was the largest in impact. In the rest of the regions, not only China, but we enjoyed growth in Brazil, the Middle East, Thailand. So far in these regions, we had difficulties, but these are picking up. These were the pieces of good news and purchasing cost reduction also was a contributor, but as we said in the presentation, unfortunately, raw materials' price hiked and the ForEx were not fully offset by these good news. So we believe that the results were the difficult ones. How about the progress rate over the full year? Retail in the first quarter, the retail volume in first quarter was 22%. It was a progress rate. The revenue was 23% progress rate against the full year guidance and 20% plus operating profit and net income was 20% or so. So U.S. and in Europe, we are working to normalize the sales. And also with the new model impact, this will contribute especially in the latter half of the year. So if we think about it, we are on track toward the full year guidance. And how about the U.S.? In U.S., inventories are normalized. Dealer inventories normalization as well as the central inventories normalization are underway. Globally, I said there's a reduction of inventories by 30,000 units. So globally, the inventories dropped by 30,000 units. If you look at only U.S., 68,000 units are how much we reduced. And this inventory reduction and we tried to be ready and get rid of all the old model here before we introduced a new model here. In this aspect, we are in a good shape. However, in the first quarter, we don't still have a new model. And partially, for example, Altima, with regards to the cars which we are waiting for the new model, we are spending a lot of incentives on this. And for the fleet sales, compared to last year first quarter, the incentives are a bit higher. So the -- it doesn't mean the revenue per unit fell largely but the selling and marketing expenses, as I said in the profit variance, the selling and marketing expenses, because of the volume decrease, there's a drop in the amount of selling and marketing expenses. However, in the second quarter, there will not be a big change from what we have seen in Q1. We will continue working and after second half, when we introduce new cars, we will see enhancements in profit and enhancement in the level of incentives. And what else? Commodity prices as well as the trade friction impact. If you look at only financial results, full year, the raw material price hike is about JPY 80 billion negative. That's what our interpretation for full year, and JPY 27 billion is how much we suffered from in the first quarter. And if you think about the forecast going forward, we believe that commodity price hike may be in excess of our initial expectation. And out of this commodity price hike, what is caused by trade issues? For example, in June -- starting from June in fact, because of Section 232, steel, aluminum are under tariffs, but aluminum and steels are -- many of them are localized in our case. Some are imported, of course, so the impact in quarter 1 is not 0, but it's very limited, almost 0 for the first quarter. How about second quarter and onwards? It depends on how much the tariffs will continue. And even without the tariffs, there's a commodity price hike purely, as some of you may now. Last night, GM, Ford, Chrysler announced in the financial results, there is a big negative impact from the commodity price hike. So if you look at the latest trend compared to JPY 80 billion at this range of full year, maybe there's an -- there may be an additional negative contribution from the commodity price hike. And lastly, trade friction in U.S., Europe and China. Well, in terms of a comment, authorities or through automobile associations, we are raising concerns via these organizations. So there's no change or addition to what we have seen. But globally, we have been promoting localization. So even if it's a trade issue or a ForEx headwind or differences in the circumstance of that region, we would like to pursue localization, increase local contents. Anyhow, this is effective to solve any issues that may rise. So irrespective of the result, we will promote localization. That's our intent. Thank you.
Okay. Thank you very much. Okay, moving on to next question.
Sean McClain, The Journal. Sorry for the question in English. I was wondering if you could elaborate a little bit on the trade side of things, if you could maybe explain a little bit about the new strategy that Nissan is considering. In anticipation of any actions, you must have plans ahead of time. Some of your competitors, Toyota, for example, is talking about discontinuing some models in the U.S. Is Nissan considering such an action? Or what sort of plans are you taking to deal with any eventuality?
Wall Street Journal, Sean's question is about trade. Is there any specific strategy or action that we are considering for the trade issue? For example, Toyota is thinking of some action. How about Nissan? That was his question. With regards to this point, yes, I said that promoting localization is the best solution. But as of today, what kind of changes will take place, or -- especially for the Section 232, we never know how this will turn out because yesterday, there was talks between Mr. Juncker and Trump. Even for Europe, we never know whether the tariffs will be imposed or not. So things are uncertain now. So it's not time to make a specific decision or create a new plant, for example. But whether it's steel, aluminum, components or NAFTA or between U.S. and China, whatever the matter is, we are running different simulations. So we say when this happens, this is the action that may be factored, this is a consequence, and different scenarios are considered internally. But as of today, we -- it's not -- we are not making a specific decision before the authorities make their final decision.
Okay, thank you. Moving on to the person in the middle row, please.
My name is [indiscernible]. The fuel economy and the mission exhaust, there was a misconduct around this matter. In the first quarter, you don't see an impact because it's in -- the announcement was made in July. Going forward, how do you see the impact in sales in Japan? And what are the countermeasures? Or how much spending are you anticipating? How does this impact your bottom line or performance? And MLIT gave -- ordered you to give a report about the month. So where are you in terms of progress about this?
Yes, exhaust emission. The impact in sales in Japan, as you said, in the first quarter there is no impact or in the financial statements that we are announcing, at the time of the final inspection last year, we are not reckoning provision as we have done last fall. Because for this -- the recent incident, we are not conducting a recall, or at least, we don't believe that we don't need -- we need a recall. So as of today, there's no provision for recall or big additional spending which we need a provision. That's not what we have in mind. Where are we in terms of sales performance in Japan? The order intake today from the 1st of July, up till this week, 2 days before. According to the report that I got, the order intake, in fact, compared to prior year is increasing. Naturally, in Western Japan, there's a torrential rain which decreased the demand. But on the 9th of July, after we made the press conference, partially some of the showroom traffic at the dealers fell in some of the outlets. But today, things are picking -- things are normalized, so order intake compared to prior year, it increased by about 5% or so. So looking at the latest circumstances, we don't see a big impact. However, going forward, Nissan brand or the -- regaining the confidence, that's what we are working on as one team to minimize any negative impact. That's my intention. And the report to MLIT in one month. The third party is involved in investigation. So we are on track. We are looking at the historic circumstances, training inspectors, interviewing people. So when can we make a report? Specifically, this is still under coordination with the authority. So when the time is clear, I will let you know.
Okay. Thank you very much. Anyone else who have a question? Yes?
My name is [indiscernible] from [indiscernible]. The other day, METI said that in 2015, Japanese-made cars will be all electrified and they are thinking of the actions to make it true. And your representative was there. So could you make a comment on this policy? Nissan when are -- what are you counting on? How does it impact your sales? That's my question.
Yes, thank you for your question. Yes, zero-emission leadership is what we have as a goal. For example, in the EV or investment in infrastructure is what we had been involved. In the past decade or so, we have been taking many actions according to this goal. However, so far, with regards to EV, 10 years ago or 8 years ago or 7 years ago, across nation, there was not a big trend or big tide towards the EV, but now the authority is saying that by 2050, they are to trying to reduce 90% of the greenhouse gas or 100% will be electrified vehicles by 2050. So specific actions are starting. This is the only -- not only about mere subsidies, coordination with the global community, that's what the authority has in mind. So we would like to reinforce the ongoing activities. So far in EV, Nissan LEAF, so 340,000 units on a cumulative basis. So across the world, we are top brand in EV market. So we would like to reinforce these ongoing initiatives. And if you talk about electric vehicles, e-POWER is part of electrified vehicles. So by combining different technologies, we -- because there's a support from the authorities which is a very encouraging. As a company, we would like to accelerate the ongoing initiatives. So now the environment is ready to do that.
Yes. Moving to the next question, please?
[indiscernible] speaking. Talking about the EV, the other day, automotive energy supply, AESC, battery company sale to Chinese entity was canceled. As of today, do you have -- by selling AESC and sourcing battery from outside, this policy remains unchanged, that's my first part of the question. And as of today, the reason for the cancellation was the shortage of fund. If it's -- the fund is short today, if you want to construct new plant in China and make investment, there may be a major concern around this idea. So going forward, maybe around GSR, are you going to continue negotiating with the buyer? Are you looking for new buyer for this?
Yes, thank you for your question. Yes, as you said, the negotiation with GSR has been canceled. I'm not sure the -- short of fund is on the GSR side. So this does not directly impact us. And going forward, should we have the same kind of transaction with other entities or not? That's what we are discussing within ourselves. So once we are ready and decide, we will let you know. Make an announcement.
My name is Hans from Automotive News. I'll ask in English, if I may? I'm wondering if you can talk a little bit about the condition of the U.S. market going ahead. I think you said you've reduced the inventories by 68,000 units in the first quarter and 30,000 globally. How -- when do you expect the inventories to be in a realm that you think is appropriate? And what is that level when you achieve it? When can we expect that to kind of even out and a normalization in the U.S. market?
Yes, thank you for your question, Hans from Automotive News. The question was as follows. The outlook for the U.S. market in particular in relation to inventory, 68,000 inventory reduced in -- the first quarter as we go on to the second quarter. How -- what is the most optimal level of inventory? I believe that was the gist of the question. So I talked about 30,000 units reduction earlier. It's actually in the first -- in comparison with the first quarter -- in comparison with the previous year in the first quarter, and reduced 30,000 units on a global basis. Now if you take a look at the U.S., in the first quarter of the previous year, in comparison with the first quarter, inclusive the dealer inventory, we saw a reduction by 68,000 units. Now in comparison with fiscal 2017, which is only 3 months ago. In the United States, inventory went down by as much as 28,000 units, primarily in the dealer inventory. So the outlook for the future. So we have models -- well, there'll be a switchover of models from this summer onwards. So as we go on to the second quarter, it's not so much at -- we look to the absolute level, it's simply that the substance in the context of the inventory, we want to reduce the older models, I guess. So even through the second quarter until the end of September this year, I believe that we'll make -- we'll continue with our efforts to normalize the inventory level. Now as for Kicks, this has already launched as a new model -- as a new car at the end of June. But others will come online in the second quarter -- in the second half. So by the time that we switch to new models, we hope that our inventory structure will be much more leaner. That is the objective of our efforts that we are undertaking at this moment.
My name is [ Takahashi ]. Earlier, you talk about -- there were questions about the trade frictions and I will be putting on top of this, especially the additional tariffs in the U.S., which is 25%, that's what some people are saying. If this is imposed, what -- how does it impact you? And as an emergency, are you going to do pricing action or localization that you were referring to? What kind of actions are considered?
Yes. Thank you for your question. Yes, you -- if there is 25% tariffs on vehicles in U.S. and I think there'll be an imposed on components which are import. I think the impact is significant. For example, in U.S., the local entities, according to their estimate, it's a rough estimate, of course, in import cars, this is $6,000 of cost increase per unit. Or even with the localized cars with the import of parts, there is a $2,000 cost up. And if this is -- we cannot price everything, can we? Or we cannot terminate sales. So each carmaker will be taking their own strategy or approach. So I can't say what we are going to do specifically and we don't even know when this will happen. So we will continue working on localization, whether it's the parts localization or vehicle localization, we would be ready to take any actions required. But specifically, what kind of policy are we going to adopt? I would like to refrain from commenting on that.
Yes, thank you very much. Yes, moving on.
[ NHK, Hayakawa ] speaking up now. Yesterday, there was a talk between EU and Mr. Trump -- President Trump. And tariffs, vehicle tariffs, there were not specific comments about a vehicle tariffs. How -- what's your reaction? Are you relieved? For -- and another one, earlier, you said that you are pursuing localization. If there's a tariffs on automobiles, you are going to localize. In the future, does that impact or translate to less employment in Japan and less production in Japan? Am I right to think it like this?
Yesterday, the talks between Europe and U.S. at the conference as Hayakawa san mentioned, there was no specific comment about automobiles. And am I relieved? For example, if the talks broke down and EU will suddenly impose the retaliatory tariff, that's better than that. But now as I don't think the risk is totally eliminated. We need to watch carefully what will go on. And localization, and like the old days, several decades ago, it doesn't mean that we will produce what we are producing in Japan now in U.S. because we have Mexican production as well as Japanese production and South Korean production, which are the vehicles that are sold in the U.S. and some are produced in U.K. So within the region, these are -- we have a complex transaction. So for example, it depends on how the tariff will look like in U.S. and how the NAFTA will do and how the relationship between U.S. and China will evolve. There are different factors to watch out. And the most preferable scenario, what's the most preferable scenario is what we need to consider as well. Especially the production of passenger vehicles, are we going to construct a new plant? After we decide investment, it will take time to construct a plant. So for this matter, as of today, we are -- it's premature to prepare anything specific. But for Japan, we will continue to maintain a certain level of production volume, for example, 1 million units that I referred to. And this policy remains unchanged as of today.
Thank you very much. Any other questions? If not, then although there is some time remaining, we would like to end the meeting as we seem to have run out of questions. So this time, we conclude the presentation of the financial results. Thank you for your kind attendance. Thank you very much, ladies and gentlemen.