July 25, 2013
Fiscal Year 2013 1st Quarter Financial Results
Nissan Motor Co., Ltd.
Joji Tagawa, Corporate Vice President
Conditions in the first quarter have proved challenging. While our market share improved in Japan and North America, our overall sales performance continued to be limited by lingering impacts of the island issue in China, where we report on a calendar year basis, as well as persistent weakness in Europe. These trends are not confined to Nissan, but are impacting many parts of the wider auto industry.
Nissan's first quarter performance reflects these market conditions, as well as our continued investments for future growth. These results are in line with our expectations.
For the three months ending June 30 2013, Nissan is reporting the following pro-forma financial results - consolidated net revenues of 2.512 trillion yen and operating profit of 117.8 billion yen, which equates to an operating margin of 4.7%, and net income of 82 billion yen. Free cash flow for the automotive business totaled a negative 150.3 billion yen and we ended the period with an automotive net cash position of 760.4 billion yen.
Nissan remains on track with its Power 88 mid-term plan - and we anticipate improving results over the remainder of the year. By way of reminder, the Power 88 plan announced two years ago is targeting global market share of 8% by 2016 and a sustainable corporate operating profit margin of 8%.
Volumes and profit are expected to improve from the second quarter driven by new products and the continued recovery of our business in China. Healthy demand in our core markets of Japan and North America, should also enhance our performance over the coming quarters. As a result, we are confident that Nissan will meet its full year forecasts.
Before going through the financial results in more detail I will outline some of the operational highlights of the period.
FY13 Q1 business update
Nissan achieved some notable milestones during the first quarter, including maintaining a demanding new model launch program. We launched the all-new mini-car, the Nissan DAYZ, which went on sale in Japan last month. The DAYZ, part of our co-operation agreement with Mitsubishi Motors, is the first mini-car that Nissan has developed from the pre-production planning phase to launch. Initial orders have been encouraging, exceeding 30,000 units at the beginning of the month.
Meanwhile, in the US, encouraging demand for our newly launched US models - particularly the Altima and Pathfinder - has led to double-digit sales growth in each month of the first quarter. We have also created more than 900 new manufacturing jobs at the Smyrna plant in Tennessee, to support production of the all-new Nissan Rogue, which will be produced for the first time in North America.
In China, where our financial and volume performance is measured on a 12-month calendar year, we saw signs of recovery in the second quarter ending June 30. Healthy demand for models such as the all new Teana and Livina, which were launched in March and April of 2013, is expected to support our sales momentum in the world's largest car market.
Now turning to the premium segment, we are expanding our presence through Infiniti. As part of Infiniti's global expansion, we started production of the Q50 at the Tochigi plant. The Q50 is the all-new Premium Sports Sedan at the heart of Infiniti's new model line-up. Initial deliveries will first begin this August at Infiniti retailers across the US.
Nissan is continuing with its commitment to zero-emissions. The Nissan LEAF, the world's best-selling all-electric vehicle, has now surpassed cumulative global sales of 70,000 units. Enhanced driving range and warranty programs have further broadened its appeal, and we have expanded LEAF production outside of Japan to include the US and UK. Last month, Nissan was named one of the world's greenest brands by the respected consultancy Interbrand. Furthermore, through the Alliance, we have achieved cumulative combined sales of more than 100,000 electric vehicles.
Our ambitions in both the premium sector and in zero emissions form an important part of the Power 88 program. Another pillar in that strategy is to secure a growing share of the entry-level market, which we aim to achieve with the launch of the famous Datsun brand. We recently unveiled the first new generation Datsun GO in India, a key growth market for Nissan. Datsun will be a key brand for Nissan in India, as well as other markets such as Russia, Indonesia and South Africa.
Nissan has also continued to derive significant benefits from its 14-year old Alliance with Renault. Further Alliance synergies are expected to accelerate with the deployment of the new Common Module Family, which will produce affordable vehicles in multiple body and powertrain configurations for both Nissan and Renault. In other Alliance news, our CEO was recently appointed Chairman of the new AVTOVAZ Board of Directors. The board is now composed of 15 members, up from 12 previously, and includes eight people from the Renault-Nissan Alliance.
Having summarized the key operational highlights, I will go now through our overall performance for the first quarter in detail, starting with three-month sales numbers across our operating regions.
FY13 Q1 sales performance by market
For the three months ending June 30. Total Industry Volume - or TIV - increased 4% to 21.1 million units. Nissan's overall sales results were down 3.3% at 1.17 million units in the first quarter, mainly reflecting the decline in volumes in China, resulting from the island dispute.
In Japan, Nissan retail volume decreased 4.4%, to 135 thousand units. However, our market share rose by 0.2 percentage points to 11.4% amid solid demand for the Note and DAYZ models.
In China, retail volumes fell by 15.1%, and our market share declined by 2 points to 5.5% as the market volatility caused by the island dispute continued to impact year-on-year comparisons. More recently we have seen encouraging demand for the Sylphy and Teana and expect demand for our products to normalize during the course of the year.
Turning to North America; In the US, our retail volume rose by 20% to 306 thousand units, driven primarily by demand for the Altima and Pathfinder models. The Nissan LEAF also contributed to this growth with total sales of 6 thousand units. Market share improved to 7.4% in the US. Meanwhile, in Canada, sales were down 2.5% to 25 thousand units. In Mexico, Nissan maintained its number one market share position at 25.1%, with sales of 64 thousand units.
In Europe, the continued weak regional economy saw retail volumes decline by 9.8% to 151 thousand units. In Russia, sales also declined by 25.3% to 29 thousand units. However, robust demand in markets such as the UK for models including Qashqai and Juke enabled Nissan to maintain its overall market share at 3.4%.
In other markets - including Asia & Oceania, Africa, Latin America, and the Middle East - our sales volume fell short of expectations with retail volume of 204 thousand units. Of these markets, the Middle East increased 16.4% to 48 thousand units, while Asia & Oceania decreased 15.1% and Latin America was down by 22.9%.
FY13 Q1 overall financial performance
I will now go through our overall financial performance for the period.
Consolidated net revenues increased 375.7 billion yen, to 2.512 trillion yen, primarily driven by the correction in the Japanese yen, which offset the decrease in volume.
Consolidated operating profit totaled 117.8 billion yen, yielding a 4.7% operating margin.
Net income was 82 billion yen, giving a net margin of 3.3%.
Looking at the year on year change in operating profit in detail, which includes the continuing negative impact of the island dispute on our China operations:
- The 69.8 billion yen positive impact from foreign exchange came mainly from the correction of the yen against the U.S. dollar. It is worth noting that the yen is still not trading at historic norms against the dollar, and continues to be somewhat overvalued.
- Purchasing cost reduction efforts, including raw materials, resulted in net savings of 43.8 billion yen.
- Volume and mix produced a negative impact of 39.9 billion yen.
- The increase in selling expenses resulted in a 25 billion yen negative movement.
- R&D expenses increased 5.6 billion yen.
- Manufacturing expenses increased 16.4 billion yen, primarily reflecting investments in capacity expansion.
- Other items produced a negative impact of 29.6 billion yen. These included higher recall and warranty costs, compared with exceptionally lower costs in the prior year, as well as smaller remarketing gains and increased expenses.
Due to changes in financial reporting standards, we have adopted a different methodology for filing with the Tokyo Stock Exchange since the start of this fiscal year - specifically, we change the way in which we account for our China JV, Dongfeng Motor Company, from the proportional consolidation methodology used previously and in our pro-forma financial results to the equity method of accounting. This slide shows the summarized fiscal year 2013 Q1 profit and loss statement as well as the re-stated fiscal year 2012 Q1 figures under the new accounting methodology.
At the end of the period, our automotive net cash position was 760.4 billion yen. This represents a seasonal decline from the 915.9 billion yen at the end of the last fiscal year, but remains significantly ahead of the 509.2 billion yen pro forma net cash position from the same period last year.
Looking ahead, the accelerated product offensive will continue from the second quarter and beyond - particularly in the US where we will introduce Rogue and Infiniti Q50. Based on the expected positive impact from the full ramp-up of our US operations and the anticipated recovery in Chinese demand, Nissan's full year guidance remains unchanged.
Nissan is on track to meet the demanding targets of the Power 88 mid-term plan.
The plan encompasses further growth in global markets and continued benefits from the Renault-Nissan Alliance and other partnerships. I want to re-emphasize that Nissan continues to make solid progress and remains committed to our investments for future growth.
That concludes my remarks and I'll now be glad to take any questions you may have.
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