June 27, 2006

Carlos Ghosn’ Remarks on June 2006 Shareholders’ Meeting


Welcome everyone to Nissan’s 107th General Meeting of Shareholders. Thank you for joining us today…here in Yokohama.

This year, as last year, we are meeting here for good reason. Nissan was founded here in Yokohama. The greatest concentration of our manufacturing and R&D facilities are here in Kanagawa Prefecture. And, as we announced two years ago, our headquarters will move “back home” to Yokohama’s Minato Mirai district.

Two years ago I told you our head office move would come in 2010. Today, I am pleased to announce we will move sooner than previously announced.  Our new headquarters will be ready by the time the Port of Yokohama celebrates its 150th anniversary in 2009.

This is what it will look like…

We hope that our new building, designed to suggest a “sailboat on a voyage across an ocean of unlimited possibilities,” will be received as a graceful and appropriate addition to the skyline of Yokohama’s harbor.

But its beauty will be more than just skin deep. Many advanced environmental functions are being incorporated… plus state-of-the-art earthquake and fire safety measures. This building is designed to be simple, flexible, functional, but still aesthetic and a center for value-creation on a global basis.

The location is also ideal. Yokohama’s main railway station is a convenient five-minute walk, and our many facilities in Kanagawa will now be much closer to head office. So we look forward to coming home to Yokohama.

I would now like to report on our business for fiscal year 2005….

Fiscal 2005 was a year of transition for Nissan. As we successfully completed our revival by fully delivering on the three commitments of the Nissan 180 plan, 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 in which we operate, 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.  2005 was the year in which we had the fewest number of new product introductions during the three years of NISSAN Value-Up.

Despite this… Nissan has lived up to those challenges and delivered all the commitments.  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. Then I will review progress towards NISSAN Value-Up. Finally, I will give you our forecast for this year. 


FY 2005 achievements

In 2005, global sales reached a record level of 3,569,000 units, an increase of 5.3% over 2004. We introduced seven all-new models in various markets around the world during the year.

In Japan, sales came to 842,000 units, down by 0.7% – and below our expectations – as we were not able to capitalize enough on the growth of previous years.   However, our performance in the mini-car segment has been encouraging. Thanks to the new Moco and Otti, our mini-car sales increased 39.6%. But, 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 no new models.

The Nissan Division grew by 6.8%. The current Altima and Sentra both continue to sell 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. 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 were 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.


FY 2005 Financial performance

Our consolidated financial performance remains solid. Consolidated net revenues amounted to 9 trillion 428 billion yen, up 9.9% from last year.
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% – which remains at the top level among global automakers.
Our net income reached 518.1 billion yen – an increase of 5.8 billion yen… or 126.94 yen per share.

Nissan’s chronic indebtedness now definitely belongs to the past.  At the close of the fiscal year, we had a net cash position of 372.9 billion yen.  Despite a lump-sum contribution of 222.2 billion yen to the Nissan Group’s pension funds, our cash on hand increased by 167.1 billion yen compared to the beginning of the fiscal year.  

Return on Invested Capital 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.             

Later in this meeting, 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 that I made to you two years ago.

To provide Nissan with added flexibility to respond swiftly to a changing business environment, the board of directors has approved the acquisition of treasury stock… in accordance with a provision in the articles of incorporation.

The details of this acquisition, and details of our non-consolidated financial results, are contained in the Fiscal Year 2005 Business Report you have received.


NISSAN Value-Up Update

Fiscal 2006 is the second year of NISSAN Value-Up, our third mid-term business plan, which is focused on “sustainable performance and profitable growth.” As with our previous business plans, it incorporates three commitments:

  1. To maintain the top level of operating profit margin among global automakers for each of the three years of the plan. 
  2. To achieve global sales of 4.2 million units in fiscal 2008.
  3. 20% return on invested capital on average over the course of the plan.


Under NISSAN Value-Up, we are pursuing four major breakthroughs. Let me review the progress with you:

1. Infiniti is extending its reach as a globally recognized luxury brand, 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. Starting in 2008, Infiniti will be launched across Europe through a brand-new network of dedicated dealers.  Europe is home to most of the luxury brands in the world, but we are confident the new generation of Infiniti products will provide a refreshing change for buyers in the premium automotive 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, Engineering, Administration and Finance are committed to increasing global parts, vendor tooling and services sourced from LCCs.

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 offshore 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:

  • In China, to further support our expansion and localization, we have set up a new technical center for passenger vehicles, investing a total of 4.6 billion yen. We will invest an additional 8.6 billion yen in the Huadu plant to increase capacity 80% to 270,000 units by the end of this year.
  • In Ukraine a new sales company for both Nissan and Infiniti was established in April 2005.
  • In Egypt, production of Sunny began last December.
  • In India, we started a new subsidiary last June and we will expand in this market by leveraging Suzuki’s production capacity.
  • Russia has been a very successful market for Nissan and will play a more significant role in the future.  We have announced the decision to build a new manufacturing plant in Russia, which will be located in the city of St. Petersburg.  This new plant, which will assemble a variety of vehicles for the Russian market when it is completed in 2009, represents an investment of $200 million.

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.  Since the Alliance was formed, the market capitalization of both companies has increased dramatically – and, significantly… more than any other global automotive company or group.  Nissan is healthy and growing; Renault is healthy and will grow faster.

Last year, I informed you that I had taken on additional responsibility as CEO of Renault.  After a full year in this position, I am pleased to report that both companies still have yet to achieve their full potential in terms of mutually beneficial collaboration.

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 and deliver the results you expect.

The Alliance is a powerful and flexible tool to enhance the performance of its members.  If mutually beneficial opportunities arise, it can be expanded… either through capital relationships or more simple forms of long-lasting partnership.

The expansion of our partnership with Suzuki, announced on June 2, is a good example of a relationship outside the Alliance, but based on the same principles of trust and mutual benefit. With this agreement, Suzuki will strengthen our offering in Japan’s mini-car market and in European A-segment cars… and their manufacturing capabilities in India will open doors for us in that growing market. In return, Nissan will provide new vehicles to complement Suzuki’s line-up in the U.S. and Japan.  This “win-win” deal will strengthen the global competitiveness of both companies.


Shareholders’ value

I will now review our share price performance in fiscal 2005.

From the end of fiscal ‘04 through the end of fiscal ‘05, Nissan shares appreciated 27.2%. Recently, however, the world’s stock markets have seen a significant downward correction, primarily due to the headwinds I described to you earlier.  Automotive stocks have been no exception.  Our share price has been particularly hard hit and as of yesterday stood at 1216 yen, after having peaked at 1526 yen.

Due to our product cycle, we have fully anticipated and alerted the market that the first half of 2006 would be a low point.   But facts are harder than forecasts.  So do not be too disturbed when you see that our sales and operating profit are down during the first half of this fiscal year.  

From October 2006, we have a very strong product pipeline. We will launch eight all-new products – three of them in the U.S., including our volume and profit leaders, the Nissan Altima and Infiniti G35. This product momentum will continue through NISSAN Value-Up in 2007 and beyond.   Stock markets always reward performance over time.

These new products should accelerate our significant progress in brand-building as measured by several key indicators. Let me show you the trends with several of these…

First is “product value”… and here we show solid improvement.

JD Power’s “APEAL” is a measure of customers’ impressions of their cars during the first 2-6 months of ownership. Strong design, performance and content have significantly improved Nissan’s score. Infiniti has benefited from its robust line-up to move past the luxury average.

Another leading indicator is reliance on incentives.  As shown by CNW, in the U.S. both Nissan and Infiniti have successfully minimized the reliance on incentives, by staying – as the charts indicate – well below the industry average.

On quality, the latest J.D. Power Initial Quality Survey – the most closely watched indicator, which was released earlier this month – shows evidence of progress. Especially encouraging are improved scores for the products built at our Canton, Mississippi plant – which had been a matter of concern. This corresponds with an 83% decline in warranty claims for Canton-built products.

Customer expectations are moving very fast so we need to make sure our efforts keep pace.  We are committed to ensuring that Nissan’s quality performance is second to none. We still have a long way to go… but the improvements are steady and encouraging.

In terms of manufacturing efficiency, the influential Harbour Report found that in the U.S. …  Nissan leads the industry with an overall measurement of 28.46 total labor hours to build one vehicle.

Finally, the overall value and strength of our brand is increasing. Measuring economic worth from 2003 to 2005… the Business Week Global Brand Scoreboard shows Nissan as the fastest-growing automotive brand.

Strong products; products with emotion that appeal to customers; and a strong brand… all these are critical to success in the auto industry. To ensure that our success in all these attributes is sustainable… we should focus on value creation over the long term.

A value-creation mindset is now pervasive throughout Nissan. Our three NISSAN Value-Up commitments – profitability, volume growth and investment efficiency – are the drivers that determine our long-term value. Achieving them automatically leads to value creation – which is why we call our current business plan “Value-Up.”

To make sure we deliver our Value-Up commitments we have instituted value-based performance measurement and compensation. The responsibility corporate officers have to deliver our commitments is reflected in their compensation.

We haven’t created our stock option plan so that executives could benefit from favorable economic trends or foreign exchange fluctuations. In order to exercise their options they must meet their specific individual operational targets. In other words, they are rewarded only when they really create value for shareholders. It is not a giveaway.


FY06 outlook

As I mentioned, Fiscal 2006 will be a year of two distinct halves. The first half will be challenging.  Volumes and 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. 

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 above 3,700,000 units.  In Japan, the U.S. and Europe, we expect TIV to be flat at best. Across the General Overseas Markets we expect growth in key markets such as China and the Middle East.

The most important of these introductions will be in the U.S.… the market that continues to provide the majority 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. 

Supported by these new models, our U.S. sales objective is 1,100,000 units, up 2.3%… in the context of a stable Total Industry Volume we forecast at 16.9 million units.

Last year, we announced that our North American headquarters would relocate from California to Tennessee, where we already have a significant manufacturing presence. Next week, employees will start working at a temporary facility in Nashville, prior to the completion of a new, purpose-built building, to be opened in 2008.  Bringing our American operations closer together will substantially improve the efficiency and effectiveness of our operations… and I am confident our new management team will realize those benefits.

Turning to Japan… in 2006 we forecast a total industry volume of 5.9 million units, which is basically flat from 2005.  In April, we set our own sales goal at 846,000 units – matching last year’s performance.  It would be realistic to say today – based on a downward evolution of total industry volume… unfavorable mix… and on our first quarter sales performance – that we will be more likely to achieve between 800,000 and 846,000 units this year.

We will launch an all-new Skyline sedan and all-new light commercial vehicle.  Also in the second half of the year, we will release two new minis to boost our offering in this expanding market segment.

As I said earlier, we are not satisfied with our current level of performance in Japan. But we believe the solutions can be found inside the company… and we are taking specific measures to improve our performance.

Our plans for Japan are not simple, nor will they be easy to deliver. We need to be more customer-driven. We need to focus on building a profitable and sustainable business… with an organization that can deliver the right mix of products and services through efficient distribution channels. 

In 2005, we announced that all Nissan models would be available through both Red and Blue Stage dealers, giving our customers enhanced convenience and flexibility… in sales and in servicing their vehicles. This change has enabled our best dealers to grow. It has also promoted higher standards of customer care and service.

We are reorganizing our consolidated dealerships by separating sales functions from asset management functions. To manage dealership assets – the real estate, buildings and other assets – next month we will establish a holding company called “Nissan Network Holdings.” This will allow our network to focus more on sales and customer service… with no distractions.

In terms of product for Japan, we are working to achieve a breakthrough with our next generation of vehicles. We will introduce exciting new models in several segments. In other segments where – frankly – we are over-represented… you can expect to see some consolidation.

Success in our home market is very important for Nissan. But as with all our markets around the world, success in Japan must be measured by sustainable customer satisfaction and profitability… not market share.   While others may focus on volume and market share, at Nissan, we will remain resolute and relentless in our drive towards value creation and customer satisfaction.

Let us turn next to Europe, where we will launch a new light commercial vehicle and a new compact crossover. We forecast sales of 561,000 units, up 3.7% from fiscal ‘05. Our performance in Russia continues to be strong. And, six months into a major restructuring, we are encouraged by early signs of new growth in Germany.  Our total industry volume assumption for the year is 20.4 million units.

In the General Overseas Markets, including Mexico and Canada, we expect growth in key markets – such as China and the Middle East – to fuel a 10.1% increase in volume to meet our objective of 1,223,000 units. The first variant of an all-new family of global vehicles will launch first in Asia later this year.  Growth in the General Overseas Markets will be critical as we expect total industry volume to be flat at best across Japan, the U.S. and Europe.

Throughout this fiscal year, we will continue to face a challenging environment: foreign exchange rates continue to be volatile, raw material and energy prices and interest rates all continue to rise. And with incentives remaining at a high level, competition is relentless in all major markets where we operate.

The only way to overcome all these obstacles is to systematically deliver the commitments of NISSAN Value-Up… all of them.

In light of all these factors, we filed the following forecast with the Tokyo Stock Exchange.

  • Net revenue is forecast at 10 trillion 75 billion yen, up 6.9%.
  • Operating profit is expected to be 880 billion yen, up 0.9% from fiscal 2005.
  • Ordinary profit is expected to reach 870 billion yen.
  • Net income is forecast at 523 billion yen.
  • Capital expenditures are expected to reach 550 billion yen – 5.5% of net sales.
  • R&D expenses are forecast to reach 490 billion yen – 4.9% of net sales.
  • ROIC is expected to be at 20%.



We are pleased to report another record year in terms of operating profit and net income after-tax. For this I would like to acknowledge the tremendous efforts of the 220,000 Nissan employees around the world, our dealers and our suppliers. And gratefully thank our customers and shareholders for their support.

It was a record year, but a tough year. Going into the lowest phase of our product cycle, we faced headwinds in every direction… and we had limited room to maneuver.

In continuing to wage incentive wars, the automotive industry remains more focused on capturing short-term 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 with safety and environmental issues.

Concerning safety, the environment and other topics related to Corporate Social Responsibility… I encourage you to read our Sustainability Report that is available here today. We will also show you a video featuring Nissan’s corporate citizenship activities at the end of the meeting. At Nissan we believe that committed management of Corporate Social Responsibility will become decisive in our century.

Finally… let me say that 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. And 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.