Nissan Motor Co Ltd
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Nissan Motor Co Ltd
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Ladies and gentlemen, it is time we would like to begin the fiscal year 2018 third quarter financial results of our company.
Thank you very much for coming despite your very busy schedule.
Ladies and gentlemen, first Mr. Karube, our CFO, will make the presentation of the financial results. Mr Karube, the floor is yours.
Good afternoon. Thank you very much for joining the announcement of Nissan's third quarter earnings for fiscal year 2018 despite your busy schedule. My name is Karube, CFO.
Today, I will give the outline of our global sales performance and third quarter results as well as the full year outlook. Following the presentation, my colleagues and I will be happy to take any questions you may have.
For the 3 months period ending December 31, consolidated net revenues were JPY 3.05 trillion, operating profit totaled JPY 103.3 billion and net income was JPY 70.4 billion. Free cash flow for the automotive business was negative JPY 69.6 billion, which was a significant improvement compared to last year. Furthermore, we achieved the same level for the 9-month period through December. We ended the period with an automotive net cash position of JPY 1.33 trillion. Operating profit and net income for the period included the JPY 9.2 billion impact from catch-up adjustments for prior fiscal years.
In the third quarter, we saw challenging market conditions. Global total industry volume, TIV, dropped 3.6% compared to the same period last year. However, we outperformed the market despite a 2.6% decrease in our global sales.
We increased sales and outperformed the markets in Japan, China, Thailand, the Philippines and Latin America. On the other hand, sales in the U.S. decreased amidst our continued efforts to improve the quality of sales. However, we are seeing the gradual effect in our performance.
Notably, an improvement in selling expenses. Sales in Europe also declined due to the introduction of WLTP, decreased demand for diesel models as well uncertainties surrounding Brexit.
Operating profit for the third quarter was JPY 103.3 billion, an improvement of JPY 20.9 billion from the prior year. The company's performance, excluding all -- onetime impacts such as the inspection issue and catch-up adjustments as well as external factors, including commodity prices and foreign exchange fluctuations, improved as a negative impact from Monozukuri and others was more than offset by the positive impact from sales performance.
For the 9 months ending December 31, global total industry volume, TIV, rose 0.3% to 68.74 million units. Nissan's sales increased in Japan, China and other regions and decreased in North America and Europe. As a result, total sales decreased 2.1% to 4.02 million units and market share fell 0.1 percentage point to 5.9%.
Looking at our key markets in detail. In Japan, TIV increased 2.1% to 3.73 million units. Nissan's sales were up 8.4% to 410,000 units, which resulted in a market share increase of 0.7 percentage point to 11%.
We saw significant growth as sales had slowed down in the third quarter for fiscal year 2017 due to the suspension of production following the final inspection issue in October. Excluding this onetime factor, the Nissan Serena e-POWER launched last March and the new Nissan LEAF, which came into the market last year, continued to boost our sales. The Nissan Note e-POWER was also well received by our customers. The Nissan Note was the top-selling registered model in calendar year 2018.
In China, where our sales performance is measured on a calendar year basis, TIV from January to September was up 1.6% to 19.36 million units. Nissan's sales increased 7.4% to 1.096 million units, representing a market share of 5.7%, an increase of 0.4 percentage point from the prior year.
The growth was driven by strong sales of Nissan models, including the Sylphy and X-Trail and the new models introduced in the latter half of 2017, such as Venucia D60 and Kicks.
For the 12 months period through December, our sales volume fell short of the full year guidance of 1.695 million units due to the market slowdown from the second half of the year. Although TIV decreased 2.7%, our sales increased 2.9% to 1.564 million units, which resulted in a market share of 5.9%, an increase of 0.3 percentage point.
At the end of September, the Sylphy Zero Emission, a new EV went on sale. We also launched the Venucia D60 compact SUV in November, and the new Altima in December.
In the US, TIV decreased 0.3% to 13.16 million units. Nissan sales declined 8.4% to 1.078 million units equivalent to a market share of 8.2%.
Due to the industry shift in demand from sedans to trucks, our sales decreased primarily in the sedan segment.
We continue our efforts to normalize sales in the U.S. Our efforts are progressing steadily as selling expenses have improved.
In Canada, Nissan's sales rose 2% to 115,000 units, equivalent to a market share of 7.4%. In Mexico, Nissan sales decreased 13.5% to 233,000 units, while we maintained our #1 position with a market share of 21.5%.
In Europe, including Russia, Nissan's sales totaled 472,000 units, a decrease of 13.2%. Excluding Russia, Nissan's sales fell by 15.8% to 391,000 units, which resulted in market share of 3%. Environmental regulations resulted in lower sales. However, sales of the new Nissan LEAF remained strong and grew by more than 3x.
In Russia, Nissan sales increased 1.9% to 81,000 units, equivalent to a 5.8% market share.
In other markets, Nissan's sales rose 1.9% to 619,000 units.
In Asia & Oceania, Nissan's sales were down 3.3% to 240,000 units. Sales increased significantly in Thailand and the Philippines by 22% and 48%, respectively. However, sales decreased in Indonesia and India where challenges still remain. Driven by strong demand for the Kicks, Nissan's sales in Latin America grew 14.3% to 173,000 units. In the Middle East, the Nissan sales declined 6.9% to 128,000 units, but all outpaced the market. Sales in Africa and other markets, particularly in Egypt, increased 11.1% to 78,000 units.
Moving to our financial results. As with the previous quarters, Nissan is presenting its financial performance under the equity accounting method for our joint venture in China. Consolidated net revenues are for the 9 months period totaled JPY 8.58 trillion. Operating profit was JPY 313.7 billion, which equates to an operating margin of 3.7%. Ordinary profit was JPY 471.8 billion. Net income stood at JPY 316.7 billion, which represents a 3.7% margin. The significant decline in net income was a result of the onetime positive impact from the U.S. tax reform in fiscal 2017.
Looking at the operating profit movement in detail. Special items, including fiscal year 2017 items as well as catch-up adjustments and fiscal year 2018 inspection-related items had a positive impact of JPY 63.9 billion. Sales performance in Monozukuri and others, which represent the company's performance, contributed positively.
For sales performance, the improvement in selling expenses more than offset the negative impact of volume and mix resulting from the decrease in sales volume. For Monozukuri and others, the continued contribution from purchasing cost reduction offset the increase in regulatory compliance expenses as well as R&D and manufacturing expenses. However, this could not offset the negative impact from the increase in raw material cost.
Foreign exchange continued to be a headwind, mainly due to emerging market currencies. As a result, operating profit totaled JPY 313.7 billion, a decrease of JPY 50.5 billion from last fiscal year.
For the period, free cash flow was negative JPY 105.9 billion for the automotive business. Aside from the negative working capital, the main components were tax and other operating activities and capital.
[Foreign Language] In U.S., normalization of U.S. sales is being pursued and the drop in sales volume was over the original forecast and TIV was lower than the previous term and that impacted our performance. Because of such circumstances, global TIV has been dropped by 320,000 to 610,000.
The performance up to the third quarter and the progress in global sales unit has been revised.
Net revenue of JPY 11.60 trillion, operating profit of JPY 450 billion, net income of JPY 410 billion. The forecast is based on a foreign exchange rate assumption of JPY 109 to the U.S. dollar for the fourth quarter and JPY 110 to the U.S. dollar for the full fiscal year.
Compared to the previous guidance announced last May, the anticipated movement in operating profit are a negative impact of JPY 130 billion from revenue and cost performance and others. This is a result of lower sales volume and incentive performance, although these are partially offset by efficiency enhancement and others. A JPY 20 billion negative impact from raw material and additional tariffs.
Fiscal year 2018 special items, which include items as JPY 9.2 billion from catch-up adjustments, was a negative impact of JPY 20 billion. Efficiency enhancements of R&D will contribute JPY 10 billion. Change in foreign exchange assumptions are expected to have a positive impact of JPY 70 billion. This is the outlook for our dividend which we announced back in May.
Before closing, I would like to say a few words regarding the case involving the ex-chairman. Nissan expresses its deepest respect -- regret for any concerns caused to the shareholders. As we previously announced, the special committee to improve governance, which consists of 4 outside committee members and 3 independent outside directors, was established to provide recommendations to the company by end of March. Based on these recommendations, Nissan is committed to implementing fundamental reform in order to strengthen its governance and regain the trust of our stakeholders.
Thank you for your attention. I will now be glad to take your request -- to your questions.
[Foreign Language] So, questions please.
We would like to start the question-and-answer session.
Sorry, I came in late. Just one word before we go to the discussion period. At the end, Mr Karube, as he said, unfortunately, this time around, we had to revise our results downward and that was around financial results.
In terms of content, it is exactly as Mr. Karube said. But after all, looking into the market situation, the third quarter aim was not achieved, and the rate of achievement was 70%, 60% below. So at that level, we can't go out of our way. So considering the current market situation, third quarter result decline does not have to be regained by force on the fourth quarter. If we do that, it will be the repeat of our past mistakes. So we will be continuing our efforts as we did in the past and we'd like to maintain our real capability in terms of competition. So that led into the sizable downward revision of the results.
As you know, Nissan Power 88, since then, the volume was stretched and we would like to come out of this character or quality, the nature of wanting to go out of our way in terms of the volume. We are having the effect, but we have not achieved the value attainment. So we need a little more time and from January, we changed our complete leadership and then we will be strengthening our work close to Genba and we will be creating a situation where we will give peace of mind to all of you. Just I wanted to supplement the financial results presentation by Mr. Karube.
So we will begin the questions.
[Operator Instructions]
Yes, the person in the middle, the second row, please.
Yes. Nikkei Shimbun, my name is Okada. The first question is about the China and U.S. sales volume forecast which was revised downward and this has been the major factor for the profit warning. What -- how does the U.S. market and Chinese market look like? That's my first part of the question. And also, what is Nissan's specific issue which is a low profitability? How are you going to enhance the profitability of Nissan? That's the first question. And the second question is about the misreporting JPY 9.2 billion of the catch-up adjustments that you are making on the book. And for 19 years, Mr. Saikawa was -- Mr. Ghosn was the Director and for 15 years, Mr. Saikawa, you have been working together with Mr. Ghosn for long years and supervisory function was not satisfied or fulfilled. And how are you going to take this responsibility?
Thank you for your question. Starting with the first question. The first question -- no, second question, excuse me. Let me answer the second part of your question. As Karube-san apologized earlier, this -- we -- I apologize to you for causing this kind of a significant misconduct, as you said. Not only me, but for long years, the top management and the directors -- the top management in the past, including myself were shocked by this case. And we feel a big responsibility. Yes, we feel a big responsibility, and as you said, we didn't discover it, or we couldn't stop this misconduct, including the soul-searching or reflection, there's -- we feel it. In terms of responsibility, as I said before, there are 2 types of responsibilities, responsibility about what happened in the past and the second aspect is about the responsibility for now and the future. These are the 2 types of responsibility. As I said, for the past things, things that happened in the past, the top management, including myself, this will give a big number of people. We, including myself, are shocked and feel a big responsibility. I think others will agree. And another part of responsibility which is about present and future, this is about -- this Nissan which is a valuable ship or a big vessel, we need to ensure the future development of this vessel. That's -- that is my obligation, and this is another big responsibility to fulfill. So first off, I would like to concentrate on this responsibility for present and future first and then think about my responsibility. So first, I would like to fulfill the responsibility that I should be fulfilling, which is about moving this big vessel called Nissan forward. That's what I want to concentrate on. This is my answer to your second part of the question. And the second one, the market in U.S. and China. How do we see the market in US and China? The U.S. market, for a long time, TIV has been expanding. And because of the changes in the environment, it peaked out and next fiscal year, we expect the figure to come down slightly and competition will intensify. That's how we foresee the U.S., market next year. How about China? China is a kind of plateauing or in a lull. But for -- on the long term -- in the long term, the market is going to grow. That's how I see the Chinese market. In U.S. and China, our challenges -- Nissan challenges are a bit different between the 2 countries. In U.S., we had an old habit of pushing sales and overstretch that we have been repeating over and over in United States. So brand value was not sufficient, therefore we put incentives and increased the fleet sales and pushed the wholesale. Otherwise, we were unable to boost the volume. That has been the characteristic of the U.S. operation in the past. So we are trying to enhance the brand value and entire value. That is the big piece of homework that we are addressing. TIV in U.S. does not allow us to easily boost the volume. Rather than volume increase, we would like to enhance the brand value. And as a consequence, we want to enjoy higher residual value or resale value, to increase -- and increase the average price of Nissan cars and be more appreciated by the customers. How about China? In China, continuous technologies and safeties are the center of the marketing and our brand value for Nissan brand is well embedded and well established. So going forward, without damaging the value that we have been creating, we will gradually grow our business in China. So in China, now we are -- we have created a strong -- we're creating a strong base. So now we would like to go and gain the new battleground in the future. And local brand Venucia brand, we need to accelerate Venucia brand in doing so. And in the luxury market, China is becoming the one of the biggest market. And Infiniti brand strategy is still lagging behind the competitors, so we need to restore this. These are the challenges in China. Based on these 2 pieces of experience, when we deliver cars to the consumers, branding is very important and we cannot do it overnight. We need continuous effort and as a consequence of continuous and steady effort, we are able to enhance the brand value. So we the top management, the most important thing is to ensure consistency and be patient with our work. That's what we should always remember.
Okay, moving on to the next question. Yes?
Asahi Shimbun, my name is Kimura. I have a couple of questions. The first one, earlier, you talked about the misreporting by Mr Ghosn. JPY 9.2 billion of catch-up adjustments, it's JPY 9.23 billion to be precise. You booked this figure. And when it comes to real payment, how will you handle the payment of this amount to Mr Ghosn? This is my first part of my question. And the second question, earlier Mr. Saikawa, you said that this valuable ship called Nissan should move forward, that's your important obligation or duty you said. And Renault has a new chairman in place and they are under new management. So going forward, between Renault and Nissan, how are you going to make the relationship between 2 entities in order to facilitate the progress of Nissan as a vessel? Because so far, holding company integration there, a lot of media reports. But Mr. Saikawa, as the head of Nissan, what do you think is the best way for Nissan?
Thank you for your question. Yes. To answer your first question, I want Karube-san to make supplementary comments. We booked this JPY 9.2 billion because this is based on the anticipated or expected liabilities, so to speak. We took a conservative approach and we estimated this amount. And actually, we booked it. And whether we will pay it or not, we haven't determined that we will pay it or not in reality. And what are you -- and your question is, what are we going to do going forward. Here again, from different angles, we will consider this and discuss and make a decision. But I personally don't think that we'll reach a conclusion to pay this money. Karube-san, supplementary comment?
Yes. As Saikawa-san said, JPY 9.232 billion. In accounting-wise, this is a conservative approach. We haven't paid this money yet and it depends on the results of the investigation or by the prosecutors and the authorities to determine what's the entire amount will be. So this is separate from whether we will pay it.
And also you said about the relationship between Renault and Nissan. With regards to Renault and Nissan's relationship, the new leader of Renault, Mr. Senard, the point that I would like to work together Mr. Senard remains unchanged. Alliance, as I said, is a very major strength and asset. And in the future, I want to polish this Alliance value. And Alliance value -- value of Alliance basically, as you asked, is not about the stakes or ownership in each other or contractual agreement. These are not the things that determine the value of Alliance. The value of the Alliance is to benefit from the value of the Alliance to enable the each entity to grow. Which means that we respect the autonomy of each other. While respecting each other's autonomy, we look for win-win opportunities and maximize the synergies. And we will compete effectively with the bigger competitors who is at the size of the combined volume of us 2, or enjoy a consistency or more ability to grow. So something which appears or the scheme to support this Alliance is determined by the success of the business. And whether we can generate the value is something to ensure the value in the future and facilitate the operation, the biggest value is to create environment that will enable us to continue to operate in that way, where we can generate value and benefit each other probably, while being autonomous and independent. So we are able to compete with -- to have a efficiency that is equivalent to the combined volume of the Alliance partners. We have each stakeholder history and employees and motivation of each entity. So directionality, growth and development and evolution of each partner company of the Alliance will be accelerated or impeded by the value of Alliance. This is the kind of Alliance which is being created based on the past efforts. And for the -- in the future, I want to develop this further. That's what I want to do. I think this is the primary importance. And on this point, you talk about the shape or structure, but what we pursue is aligned with the Nissan and Renault's new Chairman, Mr. Senard, does not object on what we pursue as an objective.
Yes?
From Wall Street Journal. Apologies for question in English. Personally, on the Alliance, you said for the future you want to be able to compete on equal footing with competitors of similar size, but your profit margins now are quite low. So I guess, looking at Alliance 2022 targets, how many of those do you think need to stay or be adjusted for you to be able to compete on equal grounds? Are you going to still do all the shared platforms and engine targets? And also when Mr. Senard lands in Tokyo later this week, what sort of things are first on your agenda to talk about for the Alliance?
First off, as you may be aware, as soon as possible, I wanted Mr. Senard to visit Japan. So I'm happy that he is taking this opportunity this week and I'm sure I'm -- I think that he'll be visiting Japan this week as he scheduled. But -- I mean, this is the first time that we are meeting each other. So first, we would like to create trust between us and I want Mr. Senard to see a lot of members and share good communication. And between 4 operations, between operational teams and also between the boards of 2 companies, I want to make sure we can ensure trust and good communication and focus on stabilizing the operation. This is the biggest challenge as of today, so that's where I want to put more efforts on. And your question Alliance 2022. To start with, the direction that we're pursuing, or what we have to do is about enhancing competitiveness and then efficiency. To this end, all the objectives of Alliance 2022 should be pursued. In other words, what we can commonize or share. The more we share or the more we commonize, this will enhance the efficiency of investments. And each entity can allocate more resources for growth more efficiently and we can spend more resources to grow the brand. So directionality-wise, we should be doing what we should be doing and these remain unchanged. But in terms of operation, over the past several years, we have been working on conversions. And whether conversions is the most efficient structure or not, that's where I'm soul-searching or reflecting and we need to revisit it in some way. So first, we need to stabilize the operation and at the same time, we would like to revisit whether the operational structure what we have today is efficient, the best way or not. That's what we need to carefully look at and make improvements if necessary. So far, we haven't discussed more than this. So as you asked, okay, Alliance 2022, which goal? The figures, numerical targets, are we going to revise them? Today, I have nothing to answer. But going forward, we would like to hold discussion and if necessary, we may revisit it.
Yes, this person?
Hiramoto from Television Asahi. Mr. Saikawa, what you are going after? Mr. Senard and you, you may not have any disagreement. I'm sure that you wanted to say that you are in agreement, but there is one concern. The French government, the largest shareholders of Renault, Mr. Saikawa, you went to Europe at the end of last month and you had a discussion with French government. From the French government, was there anything? What was that they talked from French government and what kind of ideas did you talk to the French government, Mr. Saikawa? Another point, Mr. Senard comes to Japan and he will be meeting with various people. Do you know the calendar? If you know the calendar, I want to know about it. Plans?
Now with -- what kind of government (sic) [ talks ] I had with the French government, I would like to refrain from making any reference about that. But usually, I always say this. And this is an indirect message, I guess. As Nissan, we have a certain position, certain stance we keep. What is Alliance? Regarding Alliance, we are forward looking. We want to go forward. I talked about rules and principles which produce the value and the benefit from the Alliance. As you know, the margin of Nissan is not something that we are proud of. But North American operation of Nissan is the major cause of that. So as a matter of fact, I wouldn't say 50% but 40% of the profit would come from the North American operation. So this is something that we have to work on our own. But what is the value of Alliance? As of now and even into the future, I believe and viewed from Nissan's perspective, it is a great asset and it is great value. What can I say, how can I say it? So to inactivate this value is not something that we are thinking about at all. We want to activate and energize the Alliance and along that direction, Nissan would like to work. I always talk about that. So in that sense, the posture and attitude of Nissan is something that the French people understand, I am sure. Having said so, the work style, the modus operandi of what we do. Is there a problem? Or in order to continue our work in a sustainable way if we want to continue it? What are the things that we have to put in place? So these are the things -- at present as well as in the future, these are the things that we have to discuss incessantly always and revisit it any time. So this is the process that we have to go through. That is my recognition. First and foremost, between myself and Mr Senard, we will talk about the short-term matters -- and first we will discuss the short-term matters and then on the midterm and long term are there challenges? I think it is going to be the next stage that we discuss.
Automotive News, Hans is speaking. English, may I? Can you elaborate a little bit more, Mr. Saikawa, about the U.S. situation? Last year and to this year -- or this current fiscal year, you had some trouble adjusting the formula for incentives and the fleet sales. First, it was kind of overkill and now you're bringing it back up with, I think, more incentives. I think the third quarter incentives increased. Can you talk a little bit about how you're going to adjust it going forward? And what's not -- what's working and what's not working? It seems to be taking more time than maybe originally expected.
Yes, you are totally right, Hans. In that sense, the outside, like the dealer inventory reduction, reducing the fleet sales or spending less incentive for wholesale push. Not only doing these kind of things. If we do these things alone, the volume will come down. And if you -- if volume comes down, we have to restore the volume. And we try to boost and spend more. If we repeat bumping into this wall, nothing will improve. So in order to make fundamental improvement, even if the volume declines, consistent marketing efforts and brand value creation. In order customers to appreciate the brand value, gradually we need to enhance the sales power so that the customers will appreciate it. We need to do this, yet eliminating overstretch and let the volume come down. That's what we have done, but we need to enhance our capability. That's where we are struggling with and taking time. That's where we are today. Why? Why maybe your question because this is a long-lasting habit, old habit that we need to change. Our team should change this old habit and convince our partner who are dealers. And this will -- at the end of the day, if this ensures the consistency and we are aligned, we will move toward that direction, but it's -- U.S. team is -- did not have enough time to develop this kind of capability yet. As you may be aware, under CPO, Chief Performance Officer, U.S. team has been working, so that's how the structure looked like under CPO. But last year, 1 year ago, Mr. Denis Le Vot is the new Chairman of the Management Committee in North America. However, we were unable to enhance the capability as much as we expected. So we totally changed the leadership -- I think you may say it's late and criticize us, but the new leadership was put in place last December. And starting from this January, Mr. Jose Valls is assuming the responsibility to work on the things that we were unable to address. Of course, in order to deliver results, it will take time. But as I said, not to push sales. But sales based on value is what we want to embed in the organization and accelerate sales on value. That's what Mr. Valls' team is working on fast. And gradually, this will deliver results. But unfortunately, onetime -- temporarily decline of volume cannot be avoided. So we would like to spend time on making improvements because the top management should be patient enough to wait for this.
Yes, we are running out of time. So this will be the, yes, final question, please.
Toyo Keizai, Kishimoto is speaking. The first question, you said that operational wise, over the past several years, there were issues and you said that you need to revise it. For example, is it about the 8 areas of convergence between Renault and Nissan that you want to revisit? Specifically, what are the areas where you need to revisit? That's my first question. And the second question, Mr. Le Vot who is chairing the MC NA, is he replaced? Was he dismissed from the head of the U.S. operation?
No. Starting from the second question, Mr. Le Vot -- that MC Chairman, Management Committee North America, which includes Canada, Mexico and U.S., these 3 countries are covered by the Management Committee in charge of manufacturing to sales. That's the position, and Mr. Le Vot remains in that position. But especially, as I said, what's important in particular was U.S. sales -- strengthening the sales force in U.S. So specifically for the sales force in U.S., Vice Chairman, Mr. Valls is assigned to concentrate on the sales. I want to really concentrate the effort on this area, otherwise we cannot do it fast. That's why we appointed Mr. Valls And Mr. Jose Valls, in that sense, is within Nissan. In the past, he has done a very good job delivering results. So he excels in selling based on value. So I'm counting a lot on Mr. Valls. And the second question, that's a very good question. I said that we are aligned in terms of direction with Mr. Senard. So we want to develop the Alliance value as an asset for the future, and we are totally, what do you call, we're totally aligned on this point. But in the way we work today or the scheme in terms of governance operation, I mean it can be said on both ways. One single person. If there is the concentration of power on one single individual, we thought the job will be done right or things will go in the successful manner. That was how things were arranged depending on one single person. But Alliance is where Renault, Nissan and Mitsubishi Motors are taking part. We are respecting autonomy and independence of each other and collaborating with each other. So if we intentionally concentrate power on one single person, concentration of power in one single person, whether this is efficient or not, it's very hard to answer this question. So I don't know how to put it, but concentration of power on one single person, is this solution a good one or not? That requires more revision or review. So we haven't reached a conclusion with Mr. Senard but we are ready to hold good discussion on this point and determine directionality. Same thing can be said about the governance structure. Concentration of power on single individual and evolution based on this understanding shouldn't be the case, rather Alliance support -- will facilitate the growth and development of all the partner companies. So Alliance contributes to the growth of each partner, and that's the kind of scheme that we need to create.
So with this, we will conclude the press statement -- press explanation regarding the third quarter financial results. Thank you very much.