May 10, 2013
Fiscal Year 2012 Financial Results
Carlos Ghosn, President and CEO
Nissan Motor Co., Ltd.
Although we faced a range of challenges during fiscal year 2012, it was a year of growth. Nissan Motor Company delivered net income in line with its full year guidance, generated significant automotive free cash flow, and strengthened its balance sheet. For the full year, consolidated net revenues totaled 9.6 trillion yen, a 2.3% increase compared with the previous 12-month period. Operating profits were 523.5 billion yen. Net income amounted to 342.4 billion yen. Automotive free cash flow resulted in a positive 248.6 billion yen. And we ended the fiscal year with Automotive net cash of 915.9 billion yen.
These results reflect a number of achievements, which we will build upon in 2013. They also highlight some opportunities for progress that, already, we are taking steps to address and seize. As we move forward, we are continuing to work toward the goals of our mid-term business plan - Nissan Power 88. We have a strategy in place to meet our objectives of achieving 8% global market share and a sustainable 8% operating profit margin by fiscal year 2016.
Before going through the financial results in greater detail, I'd like to mention a few achievements.
FY12 Business Update
In 2012, our products generated much positive recognition. The Note was crowned the RJC Car of the Year for 2013 in Japan. In China, the new Sylphy was named "Car of the Year" in the country's overall automobile awards ceremony; and the Venucia R50 took home the award for "most economical vehicle." Separately, the worldwide visibility of the Nissan brand was recognized when we achieved our highest-ever ranking on Interbrand's Global Top100 brands - being named 73rd.
In the 16th Nikkei Environmental Management Survey, Nissan was named second overall, and first among automotive companies. And Nissan earned its first-ever ranking among "Best Global Green Brands" - being named 21st among 50 top brands.
Nissan has now sold more zero-emission vehicles than any other automaker. Since we introduced the LEAF in December of 2010, we've sold more than 62,000 worldwide. Nissan LEAF also ranked first in the influential Kelley Blue Book's list of Best Green Cars of 2013.
Another area where we saw significant growth in the last fiscal year was with our Infiniti premium brand. In 2012, we achieved a new sales record of 173,000 units, an increase of 12% above the previous fiscal year. We also initiated sales in Chile, the Dominican Republic, South Africa, and Australia. In December, Infiniti announced that the Sunderland plant in the United Kingdom will manufacture an all-new premium compact car.
Other exciting developments include the introduction of the all-new Q50 - the next generation of Infiniti's best-selling sedan. The new Q50 was unveiled at the Detroit Motor Show in January - and also shown at this year's auto shows in Geneva, New York, and Shanghai.
To further increase brand awareness, for the Formula One 2013 season, we have significantly expanded our partnership with Red Bull Racing, to become title sponsor and technical collaborator.
Infiniti Red Bull has already made Infiniti the most visible brand on the grid this year. Of course, Infiniti's brand ambassador - Sebastian Vettel - also was the 2012 world champion for the 3rd year in a row.
We also further leveraged our industry partnerships to optimize investments, reduce costs, enhance efficiencies, and increase sales. The 14-year old Alliance between Nissan and Renault continues to be a model partnership - delivering 2.6 billion euros in synergies in fiscal year 2012. An example of this ongoing collaboration includes our recent announcement to build the next generation Nissan Micra at Renault's Flins plant in France, starting in 2016. In 2012, we expanded the Alliance to include Avtovaz - Russia's largest carmaker. The Alliance aims to secure a 40% share in the fast-growing Russian market.
Four months ago, we announced a fuel-cell technology collaboration between Nissan, Daimler, and Ford. Our goal is to accelerate the launch of the world's first affordable, mass-market fuel cell electric vehicles by as early as 2017.
Each of these achievements is in line with our Power 88 goals - which start with producing and selling world-class products. As part of the Power 88 plan, we are committed to delivering one new vehicle every six weeks, on average, for all six years of the Power 88 term. In 2012, we fulfilled this goal - and introduced 10 innovative new models, including three global growth models, in markets worldwide.
Our activities were especially strong in several high-growth markets - including Thailand, Australia, and Brazil - where we saw significant improvements over last year. To continue expanding and maximizing our operations in global growth markets, we invested a record amount to increase production capacity during 2012.
Before I provide detailed performance numbers, I want to mention the main challenges that we faced in our two largest markets - China and the United States.
Like other Japanese auto makers operating in China, Nissan was negatively impacted by political tensions and demonstrations that surrounded the island dispute. In fact, Nissan was hit especially hard.
When the island dispute began last summer, it had a swift and significant impact. In the second week of September, showroom traffic suddenly declined by 57% and retail sales dropped by over 50%. However, activity has since improved. In fact, in the first three months of the current calendar year, our retail sales actually exceeded the same three-month period of 2012.
In the U.S., we confronted supply issues surrounding the new Altima and new Pathfinder - when important design changes ended up slowing down the supply chain. These issues have been solved. And we've improved the supply process to prevent future problems.
FY12 Sales Performance
Now, I'd like to turn to our overall sales performance - and then break this down by region.
For fiscal year 2012, Total Industry Volume was 79.33 million units. Nissan Motor Company sales reached 4.91 million units.
In Japan, Total Industry Volume increased 9.6% to 5.21 million units. Our retail volume decreased 1.3%, and our market share decreased 1.4 points to 12.4%. This was due to a lack of supply in the important mini-car market and the late timing of the Note's introduction. However, in the fourth quarter, we increased market share by 0.5 points to 13.9%.
In China, TIV rose 6.1% to 18.21 million units. Nissan's sales decreased by 5.3% to 1.182 million units. Our market share decreased by 0.8 points to 6.5%, largely due to the island dispute.
Turning to North America: In the United States, TIV increased 11.6% to 14.71 million units. Sales increased 5.4% to 1.138 million units.
In Mexico, Nissan maintained its "number one" market share position, with 24.8% of TIV and sales of 248,000 units. Five out of Mexico's top 10 models are Nissans. Nissan Mexico is first in the Customer Satisfaction Index, and second in the Sales Satisfaction Index.
In Europe, including Russia, TIV fell to 17.18 million units. Our retail sales declined 7.5% to 660,000 units, reflecting the state of the market.
The ongoing euro-zone debt crisis - combined with an escalation of incentives - significantly impacted our performance. We also were affected by the absence of any new product-launches in the last two years in Europe. Despite the tough selling environment, we fought to maintain market share - and it remained unchanged at 3.9%, with record share performances in Spain, the United Kingdom, and France.
In other markets - including Asia & Oceania, Africa, Latin America, and the Middle East - our sales volume rose by 16.3% to 959,000 units. Nissan continued to outperform the industry in many of these markets, with our overall sales growth almost double that of the industry as a whole. For example, in Thailand, Nissan sales increased 80.4% to 138,000 units. In Brazil, sales were up by 18.4% to 96,000 units. And in the Middle East, sales were up 20.8% to 184,700 units.
FY12 Financial Performance
I will now go through our overall financial performance for fiscal year 2012.
Consolidated net revenues increased 220.6 billion yen, to 9.63 trillion yen. Consolidated operating profit totaled 523.5 billion yen, yielding a 5.4% operating margin. Net income was 342.4 billion yen, giving a net margin of 3.6%.
Comparing operating profit from fiscal year 2012 to the previous year, it's clear that several negative factors outweighed positive contributions from our purchasing cost reduction efforts. Looking at these movements in detail:
- The 30.2 billion yen positive impact from foreign exchange came mainly from the US dollar.
- Purchasing cost reduction efforts including raw material costs resulted in a net savings of 190.4 billion yen.
- Volume and mix produced a negative impact of 57.2 billion yen.
- The increase in selling expenses resulted in a 53.5 billion yen negative movement.
- R&D expenses increased by 37.0 billion yen.
- Manufacturing expenses increased by 53.7 billion yen.
- Sales financing profit increased slightly by 0.2 billion yen.
- Other items, which consisted primarily of a decrease in profits from affiliated companies and Japan Dealer Companies, lower remarketing gains, and higher importation costs in Brazil due to changes in the Brazil-Mexico Free Trade Agreement, resulted in a negative impact of 41.7 billion yen.
Finally, we ended the year in a net cash position of 915.9 billion yen.
Moving to our outlook for fiscal year 2013 we will continue to execute our Power 88 strategy and expect global TIV to be at 81.10 million units. Our sales forecast anticipates a record 5.3 million units, up 7.8% from 2012 - which would give Nissan a global market share of 6.5%.
I want to note that, in 2013, our capacity-building investments will exceed 2012's record levels. And we'll continue to focus these investments in high-growth markets.
I also want to briefly mention our two largest markets - China and the U.S., where we will accelerate our growth efforts.
In China, TIV is expected to grow 6.0% to 19.30 million units. Our sales are forecast to grow 5.8% to 1.25 million units.
We are working hard to recover from the impact of the island dispute. And we anticipate that Nissan and Venucia product launches will boost sales - especially the introduction of the new Teana, which is the flagship of the Nissan brand in China.
We also plan to increase dealer network coverage by opening 40 new Nissan dealers and 20 new Venucia dealers. And we will increase the number of Infiniti outlets from 60 to 66.
In the U.S., we anticipate that TIV will grow 4.0% to 15.3 million units; and sales are expected to increase by 11.6% to 1.27 million units.
To gain market share and improve profitability in the U.S., we are strengthening the flow of our products - and making sure that the right cars are being offered in the right places. We also are enhancing our dealer network - and supporting and monitoring our dealers in ways that will help them go on the offensive to improve performance. Finally, we are aligning our entire team in the U.S. around our Power 88 priorities and objectives. In 2013, we will launch four new products in the U.S, including the all-new Rogue and Infiniti Q50.
The Rouge and Q50 are among several new vehicles we will launch during fiscal year 2013. This product offensive includes the new Note and Qashqai in Europe. And we are preparing for the first new model of the iconic Datsun brand, with sales beginning in early 2014 in India - soon followed by Indonesia, Russia and, by the end of 2014, South Africa.
In order to drive sales, we will expand our global dealer network from 9,100 outlets to 9,600 outlets by the end of fiscal year 2013.
Now I will turn to our pro forma outlook. Based on our planned performance, the following information highlights - on a pro-forma basis - the key financial metrics for the 2013 fiscal year. We have used a foreign exchange rate assumption of 95 yen to the dollar and 122 yen to the euro:
- Net revenue is forecast to be 11.2 trillion yen.
- Operating profit is expected to be 700 billion yen.
- Net income is forecast to be 420 billion yen.
- Capital expenditure is expected to reach 570 billion yen.
- R&D expenses will amount to 520 billion yen.
Nissan is on track to grow by 386,000 units during 2013 - which will move us toward our objective of an 8% global market share by 2016. For fiscal year 2013, the outlook for operating profit reflects the anticipated favorable impact of foreign exchange, purchasing cost reductions and volume growth - which is partially offset by higher selling and market-related expenses and business expansion costs. We don't anticipate any change to the competitive nature of the pricing environment, particularly in the U.S.
Before we move forward, I want to highlight an important point on our forecasted results. Due to changes in reporting standards, we will be using a different methodology to calculate next year's results - specifically, to account for our China Joint Venture, Dongfeng Motor Company.
Up to fiscal year 2012, Dongfeng is accounted for under the Proportional Consolidation Method. However, starting in fiscal year 2013, the joint venture will be accounted for under the Equity Accounting Method. Although the reporting of net income will remain the same under both accounting methods, as we shift to the Equity Method, next year's income statement will no longer include the Dongfeng results in Revenues and Operating Profit.
If you have any questions on this, our CFO can explain the change in greater detail during the Q&A session.
Based on our outlook, the factors presented in this report and our expectations for continued solid free cash flow generation, for fiscal year 2013, we are forecasting a 20% increase in the dividend to 30 yen per share.
Before we open the discussion to questions, let me quickly sum up what happened in fiscal year 2012: we achieved a lot; and we learned a lot.
Like every year, 2012 brought new opportunities and new achievements. Although we faced significant headwinds, we learned some valuable lessons. In 2013, we will put these lessons into action to strengthen our performance.
While expect that this year will present new questions and tests, we also see new opportunities for growth and achievement. And we intend to seize them.
# # #