110TH Ordinary General Meeting of Shareholders
Nissan Motor Co., Ltd.
Business Report presented by
Carlos Ghosn, President and Chief Executive Officer
Toshiyuki Shiga, Chief Operating Officer
The global financial crisis and economic recession are creating a severe operating environment for every industry, including the global automotive industry. This crisis has affected both weak and strong companies, and every one has had to adapt in function of the circumstances. You may be aware that we suspended our five-year business plan, Nissan GT 2012, in February, in order to keep our company focused on the necessary recovery of our results. Our growth strategy was interrupted by the crisis, but we mobilized quickly to respond to the sudden changes in the economic environment. We began to implement a corporate recovery plan, which is guided by our Chief Recovery Officer.
I invite Toshiyuki Shiga to review our sales and financial performance in fiscal year 2008 and to give an update on our recovery plan progress.
In fiscal year 2008, our global sales came to 3.411 million units, down 9.5% year-on-year. For the fourth quarter alone, when the market environment deteriorated quickly, our sales fell 26.3% compared to the prior year.
For the full fiscal year, we had market share gains in North America and China, whereas Europe was flat and Japan was down. Our overall global market share was stable at 5.5%.
We had a solid product offensive; eight all-new models were launched globally, including the new 370Z and Cube.
Our products received numerous awards and top rankings, and our sports car flagship, the NISSAN GT-R, earned a long list of accolades, including the 2009 World Performance Car award in the U.S., Performance Car of the Year in the U.K., and Most Advanced Technology Award in Japan.
The awards we have received around the world reflect the positive opinions of media, automotive experts and our customers. It is very valuable to understand how our products are accepted in the marketplace, and it is critical for us to listen closely to the comments we receive from our customers. The voice of the customer is often complimentary, sometimes critical and always welcome. We use this important feedback to identify both strengths and areas that need improvement. Let me share three examples with you:
An American customer expressed satisfaction with the service performed on his Murano, saying it now "performs like a new vehicle."
A Cube owner in Japan wrote to tell us how our Customer Service staff helped to solve a problem on a day when many offices were closed due to a national holiday.
Also, in the UK, a customer who owns a (Nissan) Navarra voiced his frustration when he was told it would take one or two weeks for ordered parts to arrive. "I was totally disappointed in Nissan's response on this matter," he said. We then explained to him that the process takes time since the parts are being shipped directly from Japan. Though he understood the reason behind the delay, this gave us an opportunity to reconfirm the importance of taking the customer's point of view when it comes to how we think and act.
We do think about our customers, even though we know we can always improve. We are working hard to listen more and to respond effectively to what they tell us. We want them to have positive feelings about their experience with us so that they will be completely satisfied and will help attract new customers to Nissan.
For our customers, Nissan introduced 11 important new technologies in fiscal year 2008. Technology advances included a clean diesel engine for lower CO2 emissions that meet the world's most stringent emissions regulation, an ultra-low-precious-metal catalyst for lower costs and cleaner emissions, and the new STAR WINGS smart route-guidance navigation system in China.
As for our financial performance, our consolidated net revenues amounted to 8.437 trillion yen, and we had an operating loss of 137.9 billion yen.
Net income was a negative 233.7 billion yen.
For non-consolidated figures, please refer to the business report that you have received.
On dividends, we paid a mid-year dividend of 11 yen per share. However, given our declining profitability and negative free cash flow, we are not proposing a year-end dividend.
Over the course of fiscal year 2008, our revenues fell by 22% and our production declined by 16%, compared to the prior year. As soon as we saw the first signs of decline, we adapted quickly and put in place actions to preserve cash and recover profits.
In line with the drop in market demand, we eliminated work shifts and scheduled non-production days or shorter work hours at all our vehicle and powertrain plants worldwide. These actions reduced our global production volume for fiscal year 2008 by 772,000 units from our planned volume, a 20% decrease.
We took swift actions to tighten our control of global inventory. By the end of March 2009, inventory was down to 470,000 units, a level 26% lower than the previous year. We continue to monitor the balance of sales, inventory and production carefully.
In our outlook for fiscal year 2009, we expect our global sales to reach 3.08 million units, down 9.7% in sales.
We will launch eight new products globally in fiscal year 2009. Let me give you a sneak preview of the vehicles in order of launch:
the NV200, a next-generation global LCV, was launched in May in Japan;
the PIXO with low CO2 emissions in Europe;
the G37 Convertible and the 370Z Convertible in the United States;
the Fuga followed by the new mini in Japan;
the Patrol in the Middle East; and
beginning in Asia, the new global entry car to be launched at the end of fiscal year 2009.
We will continue working on advanced technologies. Seventeen new technologies will be commercialized in fiscal year 2009, including:
the ECO Pedal with push-back control to support fuel-efficient driving;
Side Collision Prevention that detects vehicles in the adjacent lane of traffic; and
a parking aid with the Around-View Monitor System.
In this fiscal year, we will spend 70% of our research and advanced engineering budget on environmentally friendly technology. We are on track with our Nissan Green Program 2010 environmental action plan. For example, in fiscal year 2007, we exceeded our 1 million-unit CVT sales objective. In fiscal year 2008, the first clean diesel was released with X-TRAIL, as planned. In the spring of 2010, we will add an automatic version of this car. This fiscal year, we will promote the Nissan ECO series in Japan - 16 models that benefit from the new preferential tax scheme for eco-friendly vehicles.
Considering this environment, we filed our forecast for fiscal year 2009 with the Tokyo Stock Exchange on May 12. Net revenues are expected to be 6 trillion 950 billion yen, the operating loss is expected to be 100 billion yen, and the net loss is expected to be 170 billion yen.
The crisis is ongoing. Market conditions are still volatile. We still have significant challenges before us. But I assure you that Nissan's recovery plan has been embraced by all employees and is fully engaged. Our recovery plan has two main objectives: to return to positive free cash flow and to positive consolidated operating profit as soon as possible.
In order to get through this crisis, we are trying to be pragmatic and responsive, and we monitor our operations every day. Let me give you an update on our short-term actions.
First, we are focusing on preserving cash.
At the end of fiscal year 2008, the value of our global inventory was 735 billion yen. Even though our sales volume in the second half of fiscal year 2009 should increase compared to the second half of fiscal year 2008, we will keep the inventory level flat through a tight control of new cars, used cars, parts and materials.
Capital expenditures will be reduced to 350 billion yen, a 9% reduction from the FY08 level. Of the 350 billion yen, 50% will be dedicated to new vehicles.
Next, we are taking actions to improve our profitability.
In a time of declining revenue, cost reductions need to be made at the same rate of decline. Monozukuri cost reduction is the biggest and most important contribution to deliver our plan. We are working with our suppliers to develop concrete action plans. Major opportunities are linked to parts diversity and complexity reduction and to exchange rates. Specific initiatives are mainly focusing on four action plans:
Our aim is to double the volume per part, on average, and reduce parts complexity by 50% by fiscal year 2012.
We are increasing the depth and scope of Leading Competitive Country sourcing, working with suppliers to raise their monozukuri capabilities.
We will pull ahead new-model cost-reduction activities. Upstream involvement, starting with R&D, will include early-phase cost analysis as sourcing decisions are made.
Finally, we will minimize cash-out throughout the supply chain through disciplined inventory control.
Monozukuri cost-reduction activity was the key to the success of the Nissan Revival Plan, and it will be the key to this recovery plan as well.
We are taking actions to reduce our company's projected exposure to the volatility of foreign exchange. We are making plans related to overseas production opportunities for vehicles, powertrains and in-house parts. In FY09, we will allocate 70,000 units to overseas production, making minimal investments to take advantage of available capacity in existing plants.
We continue to focus on the competitiveness of our plants in Japan, where domestic production will be at the level of 1 million units. Japan is our home country and will remain our base for our global business. We will concentrate on continuing to strengthen our plants' ability to remain competitive.
We expect to increase our global market share even though fixed marketing expenses will drop by 22% compared to the FY08 level. Emphasis will be given to emerging markets, such as China, where four-fifths of all new cars sold are bought by people who are first-time car buyers.
Now I invite our CEO, Carlos Ghosn, to tell you about Nissan's plans beyond 2009.
The current crisis is forcing us - and every other global automaker - to rebalance our long-term goals and short-term priorities. Over the longer term, our financial goals are to grow revenue and profits while increasing our operating profit margin. In the short term, our priority is surviving the crisis.
What indicators will we use to know when this crisis is over?
There are two clear indicators:
when we see no further global market TIV decline; and
when our net income after tax returns to positive and our forecast is that it will remain positive.
As long as there is a credit issue in the global economy, positive free cash flow will be our leading indicator, but we are not letting our concern for the present cast a shadow over our vision for the future. We are tuning our short- and long-term objectives in order to remain viable and prepare for the major evolutions that are occurring in our industry.
We are moving forward with our zero-emission leadership strategy, which involves electric vehicles and fuel cell vehicles. Electric vehicles will be launched first. Vehicle production will begin in Oppama in the fall of 2010, and we are also exploring other production sites around the globe. Oppama will be the mother plant. We will start with production of 50,000 units a year, ramping up volume as mass-marketing begins in fiscal year 2012. The EV motor will be produced in Yokohama, and the inverter will initially be produced in Zama.
The core technology for the electric vehicle - Nissan's compact laminated lithium-ion battery - is being produced by our affiliate AESC in Zama. Nissan has a long history of working with electric cars, and we have been developing our battery technology over the past 17 years. Compared to a conventional lithium-ion battery with the same weight, our battery has higher reliability and higher performance, with twice the power and twice the energy. In other words, with half the size, you can store the same amount of energy.
We will unveil our all-new electric vehicle for the first time on August 2, at the opening of our new global headquarters in Yokohama, and you will be able to see it at the Tokyo Motor Show this October. We are confident about the potential of this breakthrough technology, and we hope you will be, too.
Quality leadership continues to be a corporate objective. Our internal indicators show positive trends, and our efforts to improve product and service quality are producing encouraging results in external surveys.
We want Nissan to be known as a quality leader, and we are working hard to earn our customers' trust.
In addition to our normal product lineup renewal, we continue to move forward with our plans for affordable, fuel-efficient entry cars. From my recent gemba visit, I can tell you with confidence that we are ready to have cars developed on this platform to be a key pillar for Nissan, representing one million unit sales at full ramp-up. These cars will be sold in more than 150 countries, such as Europe, Japan, India, Thailand, South Africa and the Middle East. They will be sourced in five countries, including India, Thailand and China. The key challenge lies in bringing a consistent, high-level quality standard while keeping the price of the car competitive and affordable. I recently enjoyed testing a prototype, which offers the roominess, technology and comfort of a B-segment vehicle with the fuel efficiency and overall cost of ownership of a global entry segment vehicle.
In emerging markets, Nissan is well positioned to grow when economic growth in those markets resumes and demand rises.
Earlier this month, we started production at our new plant in St. Petersburg, Russia, where Prime Minister Putin drove the first vehicle to come off the production line, a Nissan Teana. For Nissan, Russia represents a key global market, ranking as the number-one market in Europe and the number-five market globally. I was encouraged by the enthusiastic support of the Russian government and by the commitment of our new employees, who have been working very hard to establish the Nissan Way in our newest plant.
In India, the Chennai plant will open in 2010 with the start of production of our first new global entry car. The preparation of the new plant in Chennai is on track.
In Brazil, we will introduce the whole Livina family as well as flex-fuel technology for Tiida and Sentra in 2009.
In China, our Light Commercial Business continues to expand. Production has begun at our new engine plant in Shiyan, the launch of the NT400 Cabstar will be in mid-2009, and the launch of a new assembly plant in Zhengzhou will come in 2010.
In the Middle East, our sales have grown by 12% in a market that was up 4%. With the new Patrol to be launched at the end of FY09, Nissan will redefine the boundaries of the large SUV segment.
The Nissan brand is known around the world, and we are working to earn a position among the market leaders everywhere our products are sold.
Finally, we have a tremendous competitive advantage in our Alliance with Renault. We have a solid partnership built upon 10 years in the Alliance - a significant, unique experience in a car industry that is now going through a wave of consolidation. Many auto companies are now seeking ways to increase economies of scale, which is something Nissan and Renault already enjoy. Combined sales have increased from 4.9 million units in 1999 to 6.9 million units in 2008. Based on official 2008 data, the Renault-Nissan Alliance has become the world's third-largest automotive group.
Now we are moving to a new stage of strengthening and extending synergies between our two companies. We have a plan to accelerate synergies that will generate 180 billion yen of additional free cash flow for the Alliance in 2009. Results will be achieved through profit contribution, or cost savings, or cost avoidance measures in R&D, vehicle engineering and powertrain engineering, research and advanced engineering, manufacturing and logistics. Purchasing, LCVs, sales and marketing, and IS and support functions. We have dedicated a small team of individuals to be totally focused on accelerating synergies so we can do more, better, faster and deeper.
Through the Alliance and through all the efforts we have described today, our desire is to create greater value for all our stakeholders - for our customers, our employees, our partners and for you, our shareholders.
In terms of our dividend policy, I would like to repeat that the payment of a globally competitive dividend continues to be at the heart of our company strategy and our relationship with you. We will pay a dividend as soon as our results allow us to do so.
The men and women of Nissan are actively making a difference in the world where we live and work. Over the past five years, Nissan has been recognized often for its commitments to sustainability and diversity, and our company is a member of the United Nations Global Compact, an international corporate responsibility initiative.
We are giving back to society in many practical ways, with a focus on education, the environment and humanitarian relief. For example:
The "Science of Survival" Exhibit is teaching people around the world about environmental technologies.
Through programs such as our Wakuwaku Eco School and Monozukuri Caravan, children are learning about the environment and the science of making things.
The Nissan Technology Square launched in Asia lets visitors experience Nissan innovation and the future of automobiles.
Deserving families are now living in houses built by Nissan employees through Habitat for Humanity.
Nissan donations are helping people after natural disasters, such as cyclones, earthquakes or major fires.
Our corporate sustainability efforts touch many lives, and you can read more about them in the sustainability report that is being posted online today.
We consider you to be our partners in all our efforts and accomplishments. We count on your support to continue to be an effective and responsible carmaker - one that is responsive to changes in the world around us and attentive to the needs of people and our planet. Thank you for your valuable support.