November 6, 2012
Fiscal Year 2012 first half financial results
Toshiyuki Shiga, Chief Operating Officer
Nissan Motor Co., Ltd.
Nissan has delivered solid results in the first half despite the continued appreciation of the Yen, and particularly difficult conditions in Europe.
For the first half of fiscal year 2012, Nissan is reporting consolidated net revenues of 4.5468 trillion yen - an increase of 4.1% over the same period of 2011. While operating profit decreased 7.3% from the prior year to 287.0 billion yen, the operating margin was still respectable at 6.3%. Looking at the second quarter specifically, we saw a year-on-year operating profit increase of 7.1 billion yen. For the first half period, net income was178.3 billion yen, which represents a 3.9% net margin. Free cash flow for the auto business was a negative 70.6 billion yen, primarily reflecting the normalization of inventory from lower levels at the end of the last fiscal year. Nissan ended the period with an automotive net cash position of 442 billion yen.
These results have been achieved against a backdrop of unfavorable currency movements, deteriorating macro-economic trends in Europe and signs of slowing growth in China.
I would now like to mention China specifically. As the China operations are reported on a calendar year basis, the January to June results are reflected in this announcement. Therefore, the recent political demonstrations in China will impact Nissan's operations in the second half. Production at all plants has resumed following a temporary suspension. While there will be a negative financial impact for this current fiscal year, we are working with our joint venture partner to minimize further adverse effects from the disruption.
Meanwhile, Nissan has continued its global new products offensive and extended its presence in fast-growing markets. We continue to pioneer new technologies. And we remain on track with our Power 88 mid-term plan.
Before going through the financial results in more detail, I will briefly outline some of the operational highlights of the period.
FY 12, First-half business update
In recent-weeks, Nissan's global product appeal and consistently strong performance was recognized in the influential Interbrand ranking of the Best Global Brands. Nissan achieved its highest-ever ranking in this survey, jumping 17 places to become the 73rd most influential brand in the world.
This accolade is a testament to Nissan's pioneering spirit. It also reflects our ability to launch exciting new products; to recover quickly from any crisis; and to continue with breakthrough innovations.
Since we last reported earnings, Nissan's product renewal has accelerated with the launch of models including the popular Note - which secured almost 22,000 orders here in Japan within two weeks of being unveiled. In our home market, we also launched Serena S-Hybrid, Latio sedan, along with the fifth-generation CIMA and the NV-350 Caravan.
The product offensive in Japan has been matched in the US where we introduced the all-new Nissan Altima, our highest-selling model. The Altima has been well-received and production is now fully ramped up. In October, we launched the all-new Sentra. Given its new aggressive styling and best in class fuel economy, we believe we will see a substantial increase in sales. And late last month, we also launched the all-new Pathfinder, which has been re-invented as a lighter, more aerodynamic and more fuel-efficient, SUV.
The product rollout continued in China, where we launched the long-wheel base Infiniti M and the first Venucia model...the D50. For the second half of the year, we launched the sporty Venucia R50 and the Sylphy compact sedan. Despite the recent political tensions, China remains an important market for us.
In the high-growth markets, the Sylphy was launched in Thailand. And in India and Indonesia, we launched the Evalia, a 7-seater Multi Utility Vehicle.
Our product offensive has been matched by investment in next-generation technologies. These include the Autonomous Emergency Steering System, which offers a high level of collision avoidance capability by applying automatic braking and automatic steering in situations where a collision is imminent. Nissan also unveiled the world's first electronic steering technology, which uses automatic sensors from steering inputs to enhance vehicle tire movements. This ground-breaking technology will be available next year on selected Infiniti models.
These technologies will build on Nissan's continued commitments to sustainable mobility, which is central to the Nissan Power 88 mid-term plan. We are building on our technological leadership in zero-emissions including electric vehicles, which is represented by the award-winning LEAF. We also maintain a holistic approach through Pure Drive technology such as the hybrid-versions of existing models and more fuel efficient gasoline engines. In August we announced the hybrid Serena. And we are now introducing even better fuel economy with smaller engines, lighter bodies and new technologies such as a super-charger in the Note compact car.
Nissan's commitment to new products and technologies is strong. At the Paris auto show in September, Nissan unveiled the TeRRA concept car, powered by a hydrogen fuel-cell.
In September, Nissan was impacted by the political demonstrations in China.
At the height of the protests, showroom traffic dropped significantly which strongly impaired our sales in September and October. Although October sales at 64.3 thousand units were down 40.7% compared with the same month of last year, showroom traffic has recently shown signs of recovery.
We are closely monitoring the situation and are working very hard to normalize our operations as quickly as possible.
The Renault-Nissan Alliance continues to deliver valuable synergies. As one example, the Alliance announced earlier this year an initiative to leverage available capacity at Renault Samsung Motors in Korea to meet demand for the next-generation Nissan Rogue. In September, the Alliance announced a further extension of its partnership with Daimler. Together, we will develop a compact direct injection turbo charged 4-cylinder gasoline engine. This engine will debut in Nissan, Renault and Daimler vehicles in 2016. Nissan will also manufacture an automatic transmission incorporating Daimler's latest technology for use in Nissan and Infiniti vehicles starting in 2016. Nissan subsidiary Jatco is planning to manufacture these newly licensed gearboxes in Mexico.
All of these initiatives give us confidence that Nissan has the foundations in place for continued progress for the mid to long term. Now I will turn to the unit sales performance in the first half period.
FY12 H1 unit sales performance
Overall global industry volumes increased 7.4% to 40.1million units. Nissan's overall sales results were up 11.3% at 2.476million units in the first half.
Looking across the regions...
In Japan our volumes increased 7.5% to 304 thousand units. But our domestic market share declined due to our product launch schedules and the rebound by rival Japanese manufacturers which recovered more slowly than Nissan following earthquake-related disruption in the same period of 2011. Nevertheless, demand for our major products including the Serena and Note remained encouraging. The all-new Note ranked third in the registered vehicle market for two consecutive months in September and October.
In China Nissan's sales for the January to June period increased by 14%, to 678,000 units and our market share improved by 0.6 points to 7.5% despite a wider industry slowdown in the growth rate. This reflects the growing appeal of our mass volume models such as the Tiida and Sunny. In the July to September period, sales decreased by 13.8% to 269,000 units due mainly to the political situation. As a result, market share decreased by 1.5 points to 6.3%.
Turning to North America; In the US our sales grew 11.3% to 544,000 units due to solid sales of the Rogue and Versa. Our growth was slightly lower than the market resulting in a market share decline of 0.3 points to 7.3%.
In Canada, sales were down 7.4% to 44,000 units. In Mexico, Nissan maintained the top market share at 24.5% with sales of 115,000 units, which was an increase of 8.3%.
In Europe, trading conditions have been difficult for most manufacturers given the economic environment. But Nissan registered only a modest decline of 3.2% in unit sales to 328,000 while our market share actually increased - due mainly to the appeal of the Qashqai and Juke. In Russia, sales increased 17.3% to 81,000 units, resulting in an improvement of 0.2 points for a market share of 5.1%.
In other markets - including ASEAN, Africa and South America - our sales volume was up 26.4% to 463,000units. Asia and Oceania increased 27.9% to 202,000 units. Sales in Thailand increased 49.8% to 52,600 units. Sales in Indonesia increased 29.2% to 35,400 units, while sales in India increased 139.5% to 21,300 units. Latin America was up by 23.3% to 121,200 units, with Brazil up 95.7% to 57,300 units.
And sales in Middle East increased 34.9% to 87,600 units.
FY12 H1 financial performance
I will now go through our overall financial performance for the period.
Consolidated net revenues increased 179.4 billion yen, to 4.5468 trillion yen, reflecting the strong product performance and solid market demand that I just described, which was partially offset by the negative translation impact on overseas revenues due to the yen strengthening.
- Operating profit totaled 287 billion yen.
- Net income was 178.3 billion yen.
Operating profit declined marginally compared to the first half of fiscal year 2011 amid negative foreign exchange movements and increased selling and other expenses, compared with the low levels from the prior year resulting from the earthquake counter measures. This outweighed positive contributions from purchasing cost reductions and improved sales volume.
Looking at these movements in detail:
- The 34.9 billion yen negative impact from foreign exchange came mainly from the appreciation of the yen against the Russian Ruble and Brazilian Real.
- The Increase in energy and raw material costs was a negative 16.7 billion yen.
- Purchasing cost reduction efforts resulted in a saving of 100 billion yen.
- Volume and mix produced a positive impact of 89.6 billion yen.
- The increase in selling expenses resulted in a 73.8 billion yen negative movement.
- R&D costs increased by 38.9 billion yen.
- 5.1 billion yen negative impact came from Sales finance.
- Other items, which included an increase in manufacturing costs, warranty costs and G&A expenses produced a negative impact of 42.9 billion yen.
Looking specifically at the bottom of the chart, operating profit in the second quarter improved from 159.3 billion yen in the prior year to 166.4 billion yen.
Meanwhile, Nissan continued to enjoy a positive automotive net cash position of 442 billion yen. If the yen had remained at the exchange rates that existed at the start of this fiscal year, our net cash position would have been 477 billion yen.
FY 12 outlook
For the 2012 fiscal year, Nissan is revising its full-year guidance downwards given the over-valued Yen, the disrupted selling environment in China resulting from the political demonstrations, and the challenging economic environment in Europe. Our fiscal year sales volume is now forecast to decrease from 5.35 million units to 5.08 million units, which reflects the volatile situation in China and Europe.
We have filed a revised full-year forecast with the Tokyo Stock Exchange, using a foreign exchange rate assumption of 80 yen to the dollar and 103 yen to the euro for the second half.
- Net revenue is expected to be 9.815 trillion yen;
- Operating profit is expected to be 575 billion yen;
- Net income is forecast to be 320 billion yen;
- Capital expenditures are expected at 520 billion yen;
- R&D expenses will amount to 467 billion yen.
Next, I will explain the difference in the outlook for consolidated operating profit for the full fiscal year.
Against the operating profit result achieved last year, although there was an negative impact on profits due to currency fluctuation, due to earnings on cost reductions we expect an earnings increase of 29.2 billion yen.
In addition, in contrast to the previous outlook for operating profit, due to the impact of the strong yen, China, and market conditions in Europe, we expect a 125.0 billion yen decrease in earnings.
Although we have revised the full-year outlook for operating profit downward, we still expect an increase in profit of 51.9 billion yen in the second half of fiscal 2012 compared to the same period of the prior year.
In conclusion, Nissan continues to deliver positive results in a challenging environment. We continue to focus on profitable growth for the mid-and-long term.
We remain committed to new technology development, new and attractive product introductions, further market expansion, and innovative alliances. In each of these areas, Nissan's management is determined to deliver results with both creative passion and financial discipline.
Given Nissan's ability to overcome near-terms challenges, as well as our projected future growth, we remain committed to the dividend of 25 yen per share for the year. We will pay 12.5 yen per share as an interim dividend at the end of this month.
Nissan has continued to withstand the challenges posed by the over-valued Yen and difficult conditions, particularly in Europe and China. And we have delivered solid earnings that reflect both the strength of our new products and our effective cost management.
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