FOR REFERENCE ONLY
Fiscal Year 2005 Results and NISSAN Value-Up
Good afternoon everyone. Thank you for joining us today.
Fiscal 2005 was a year of transition for Nissan. As we successfully completed our revival by fully delivering on the three commitments of Nissan 180, the next phase of sustainable and profitable growth through Nissan Value-Up was already well under way.
It was also a year of headwinds and turbulence as the costs of energy, raw materials, regulations and interest rates increased significantly. Because of the fiercely competitive environment, we had to absorb most of these additional costs. This has negatively impacted the increase in our profitability and slowed our growth in a low year of our product cycle – the year when we have the lowest number of new product launches during Nissan Value-Up.
Despite this... Nissan has lived up to those challenges. And I am pleased to report today record earnings and an operating profit margin that continues to lead the global automakers.
I will begin with a review of our business performance during fiscal 2005, which is final disclosure. Then I will review progress towards Nissan Value-Up. Finally, I will give you our forecast for this year.
FY 2005 sales performance
In Japan, sales came to 842,000 units, down by 0.7%. Our performance in the mini-car segment has been encouraging. Thanks to the new Moco and Otti, our mini-car sales increased 39.6%. However, overall, our market share dropped by 0.2 percentage points to 14.4%.
In the United States, sales increased by 6.1%, to 1,075,000 units, marking another year of record sales – despite zero new models. The Nissan Division grew by 6.8%. Altima and Sentra have both sold well, despite being at the end of their lifecycles, and products like Murano and Titan continue to attract new customers to the Nissan brand.
Infiniti achieved sales of 134,000 units, up 1.3% from the previous record year. The success of the new M sedan drove this increase with sales of 28,000 units.
Our U.S. market share for the full year came to a record level of 6.3%, up from 6%.
In Europe, where reporting is on a calendar-year basis, sales were basically flat – at 541,000 units. We continue our strategy of maximizing profitability by focusing on high-margin segments with products such as the Murano and Navara Pick-up, rather than pushing for volume. Sales were particularly strong in Russia, but weak in Germany and Italy where restructurings are making good progress.
In the General Overseas Markets, including Mexico and Canada, sales were up 13% to 1,111,000 units. By country, sales in China are up 53.4% at 297,000 units. Leading the way after a successful launch was the Tiida – China’s 2006 Car of the Year – following the Teana, which was China’s 2005 Car of the Year. Strong sales in the GCC markets and in Latin America helped offset declines in Taiwan, Thailand and Australia.
FY05 financial performance
Consolidated net revenues amounted to 9 trillion 428 billion yen, up 9.9% from last year. Movements in foreign exchange rates produced a positive impact of 301.0 billion yen. Changes in the scope of consolidation – such as the inclusion of Calsonic Kansei – had a positive impact of 117.8 billion yen on revenues.
Consolidated operating profit improved by 1.2% to a record 871.8 billion yen. As a percentage of net revenue, our operating profit margin came to 9.2%.
In analyzing the variance of operating profit between last year and this year, there are several factors to consider:
Regional profits were modified by a global change of inter-company payments that favors Japan, which bears most of our engineering and global development costs.
By region, operating profits in Japan amounted to 390.4 billion yen compared to 341.1 billion yen in fiscal 2004.
Profitability in the U.S. and Canada reached 345.4 billion yen compared to 379.7 billion yen last year.
In Europe, operating profit was 67.2 billion yen, up from 56.0 billion yen.
In General Overseas Markets, we achieved operating profits of 101.2 billion yen, compared to 84.8 billion yen the year before.
Finally, inter-regional eliminations resulted in a negative 32.4 billion yen, mainly due to unrealized profit on inventory.
Net non-operating expenses totaled 25.9 billion yen, up 20.4 billion from last year mainly due to foreign exchange losses.
Financial costs decreased by 5.8 billion yen to 4.6 billion yen.
As a result, ordinary profit was 845.9 billion yen, compared to 855.7 billion yen in fiscal 2004.
Net extraordinary items totaled a negative 36.9 billion yen, improving 25.5 billion yen from last year. The losses are mainly due to one-time charges on a change in Japanese accounting standards relating to the impairment of fixed assets. The sale of Nissan Diesel shares to Volvo produced a positive impact covering other extraordinary losses.
Income before taxes came to 809 billion yen. Taxes came to 254.4 billion yen, for an effective consolidated tax rate of 31.4%.
Minority interests – which are profits from fully consolidated companies that we do not own 100%, such as Calsonic Kansei, Aichi Kikai and Nissan Shatai – amounted to 36.5 billion yen.
Net income reached 518.1 billion yen, an increase of 5.8 billion yen.
We have a net cash position of 372.9 billion yen at the close of fiscal 2005, an improvement of 167.1 billion yen compared to the beginning of the fiscal year.
ROIC reached 19.4% at the end of fiscal 2005 – in line with our ROIC commitment to an average 20% over the three-year period of Nissan Value-Up.
At the annual general meeting of shareholders on June 27, as previously announced, we will propose a 15-yen-per-share year-end dividend, giving a full-year dividend of 29 yen per share for fiscal 2005 in line with our three-year commitment.
Nissan Value-Up Update
Under Nissan Value-Up, we are pursuing four major breakthroughs. These new frontiers for Nissan are:
Let me review the progress with you:
1. Infiniti is moving in the right direction, following a successful market entry last year in Korea. In 2005, global Infiniti sales reached 148,000 units – up from 142,000 units in 2004, thanks to the success of products like the new M and G35.
Starting with our new facilities in Korea, we are creating retail environments that express the vibrant energy of the Infiniti brand. This initiative, now being implemented around the world, will give a consistent look and feel to our showrooms, enhance the customer experience and strengthen the brand.
This year we will launch Infiniti in the Russian market... and in China during 2007. Today, we are also pleased to announce that Infiniti will be launched across Europe from 2008 through a brand-new network of dedicated dealers. Europe is the most competitive luxury market in the world, but we are confident the new generation of Infiniti products will provide a refreshing change for European buyers in the premium segment.
2. The Light Commercial Vehicle business is ahead of schedule to meet its Nissan Value-Up commitment ... and solidify its role as a pillar of our global business. The goal is to achieve 8% operating profit margin on 434,000 units sold in 2007. Compared to 2004, that represents a doubling of operating profit and a 40% rise in volume.
In fiscal 2005, we achieved 7.7% operating profit as LCV volume grew 28.2% to reach 400,000 units. Sales were notably strong in China and the General Overseas Markets.
In fiscal '06 and '07 we will launch four new LCV products. We are introducing specialized LCV dealerships – first in Japan, and later in Europe – to enhance service to our commercial customers. In North America we have also established a dedicated team to implement our strategy for this region.
3. The Leading Competitive Countries initiative – LCCs as we call them – is well under way. Purchasing and Engineering are committed to increasing global parts sourcing from LCCs, with similar efforts in progress for vendor tooling.
China and Thailand are the current focus of LCC activity. Efforts in these two countries – plus our prospects in India – will serve as a global benchmark and help us to reinforce overall cost competitiveness.
We are also pursuing opportunities to outsource and off-shore back-office functions and a variety of work in engineering-related R&D, Information Services and manufacturing. This will reduce costs and allow us to focus employee efforts on core value-added tasks. In fiscal 2005 we achieved an initial gross savings of 14 billion yen.
4. Geographic expansion is proceeding as planned. New production facilities and distribution channels are also taking shape in several countries:
Another significant expansion is happening in R&D. As attractive and competitive products are vital to our growth through Value-Up and beyond, we are spending 90 billion yen to renovate our R&D facilities in Japan. A new engineering facility will open this month and the Design Center will be entirely renovated by this fall.
The Renault-Nissan Alliance continues to generate value for all our stakeholders. Together we now rank among the top-four global automakers – with total sales of 6.1 million units in 2005. The market capitalization of both companies has increased dramatically since the Alliance was formed. Nissan is healthy and growing; Renault is healthy and will grow faster.
We are two separate companies united for performance. We work together where there are demonstrable benefits for both sides. We share technologies, competencies, best practices and support infrastructure. And we provide benchmarks for each other with a degree of transparency others cannot match.
There is no blueprint to follow – because we are pioneering this model of industrial partnership. This is a unique and long-lasting opportunity. It requires a delicate balance and strong resolve, but I’m confident we can continue to manage it convincingly well over the long term.
Growth will be hard to achieve in the first half. Volumes will be down and our operating profit will be lower.
In the second half, however, volume growth will increase by more than 10% and we expect our operating profit to accelerate as we begin to launch nine all-new vehicles around the world – one in the first half and eight in the second.
The most important of these introductions will be in the U.S.... the market that continues to provide 60% of our profit. We will launch all-new versions of Altima, Sentra and the Infiniti G35 sedan, key models that will spearhead a product blitz that continues beyond Nissan Value-Up.
In Japan, we will launch three new products including a new mini vehicle and an LCV – plus in fall we will introduce an all-new Skyline. In Europe we will launch a new LCV and a new compact crossover. In the General Overseas Markets we will launch a new car dedicated for the region.
During fiscal 2006, we will have 23 regional product-launch events around the world.
Assuming global industry volume of 63.9 million units, we forecast global sales volume at 3,730,000 units, 4,5% higher than 2005. In Japan, the U.S. and Europe, we expect TIV to be flat at best. Across the General Overseas Markets we expect growth in specific key markets such as China and the Middle East.
Looking at our sales objectives by region: in Japan we forecast TIV of 5.9 million units. Our sales objective for the year is 846,000 units, flat versus last year.
In the U.S., we forecast a market of 16.9 million units. Our sales objective is 1,100,000 units, up 2.3%.
For the General Overseas Markets, including Mexico and Canada, our sales objective is 1,223,000 units, a 10.1% increase.
Throughout this fiscal year, though, we face a challenging environment to meet our Nissan Value-Up commitments. Foreign exchange rates continue to be volatile. Raw material and energy prices continue to be high. Interest rates continue to rise. And with incentives remaining at a high level, competition is relentless.
The only way to overcome all these obstacles is to deliver Nissan Value-Up effectively and completely.
In light of all these factors, we have filed the following forecast with the Tokyo Stock Exchange, using a foreign exchange rate assumption for the year of 110 yen per dollar and 135 yen per euro.
It was a record year, but a tough year none-the-less. Going into the lowest phase of our product cycle, we faced headwinds in every direction. Raw material and energy prices continued to rise. Interest rates rose. We faced new additional regulatory costs. And none of these costs could be passed on through higher pricing.
In continuing to wage incentive wars, the automotive industry remains more focused on capturing volume than creating value. This race to the lowest common denominator – selling deep discounts not desirable cars – is ultimately destructive at a time when society expects innovation from our industry as never before – especially on the environmental front.
It is evidence of our fighting spirit that Nissan could achieve better results in a very challenging year. We are confident in our ability to compete, having overcome significant obstacles over the past seven years. But we know we cannot be complacent. We can take nothing for granted as we work to meet our Nissan Value-Up commitments. Once again, we will have to stretch to succeed. And that, you can be sure, we will do.
Thank you. Now I would like to take your questions.