OCT 18, 2001

Speech text for Carlos Ghosn on "NRP 2nd Anniversary Update and First Half FY 01 Earnings Preview, Oct 18, 2001"

I/ Introduction

Good afternoon ladies and gentlemen.

Two years ago on this day, I stood before you to present the Nissan Revival Plan. The analysis we made at the time showed that determined and effective action was needed urgently and unequivocally. Two years later and a full eighteen months into the execution of the plan, the NRP continues to bear fruit ahead of schedule and profits beyond analysts' forecasts, as you will see today.

NRP is about putting Nissan back on track to lasting profitable growth. It is a book with many chapters and each chapter has a focus of its own. There is a chapter on the product plan, one on technology, one on brand identity and brand power, one on investment opportunities, one on the supplier base, one on the manufacturing system, one on marketing and sales efficiency and so on. From the beginning, we have been implementing each one of them intensively and simultaneously, even though we recognized that the expected benefits would make a positive impact on the bottom line at very different points in time.

We needed to cut costs by 1 trillion yen over three years, to sell 500 billion yen of non-indispensable assets and shift significant resources to our core automotive business. Some chapters already produced massive effects, others will deliver the bulk of their results in the medium term, before and after the end of our three-year plan.

But in all cases, NRP was to produce results that could be measured and summarized by the three clear commitments we made two years ago; returning Nissan to profitability immediately in the first year, achieving a minimum 4.5% operating margin by fiscal year 02 and reducing net automotive debt by 50% to a maximum of 700 billion yen by the end of the same fiscal year.

NRP did not assume any positive contribution from growth; not that we were not planning and working hard for it, but we did not want to overly rely on it. A significant part of the expected benefits of NRP was set aside to counterbalance potential adverse market conditions and competitive pressure. In light of the most recent events, it was a wise decision, not a conservative one. In fiscal year 2000, however, we did benefit from growth in unit sales, whereas this year we do not foresee any, as the global automotive markets are weaker and much more competitive.

Today, I can tell you that Nissan will report its third consecutive and clear record half-year financial performance in its history.

Recurring growing profitability is the most tangible proof that NRP is in full gear. However, financial reports measure past events and can only serve as guides to potential future performance. I have said before: "Nissan is back", but I am looking forward to the day at some point in the not so distant future when I will be able to say: "Nissan is running at its full potential". The stage is now being set for Nissan to grow its market presence globally. It is the combination of growth and efficiencies that will further enhance our performance.

The cornerstone of growth is our product plan. Therein lies our greatest potential. We have been working patiently and diligently, segment by segment, market by market, on an energetic launch plan. Much of what we have been working on will be revealed at the Tokyo motor show next week where you will see the shape of many Nissan's to come.

In my speech today, I will give you an update of the NRP and review the preliminary key financial figures for the first half. I will also share with you our outlook for the next six months and, after my conclusion, I will answer your questions.

I must caution you that all figures I will comment today are preliminary and, as we are very early in the reporting season, we may still have some adjustments to make that should not cause any significant surprise. Full audited financial disclosure will be filed after our board of directors meeting on November 19th.

II/ NRP 1st Half Performance and Forecast

Sales

Let us begin with our unit sales. All the numbers I will comment are retail sales.

Globally, in the first half of FY 01, Nissan sold 1,286,000 vehicles compared to 1,337,000 in the first half of FY 00, a drop of 3.8%. Let's analyze this variance market by market, starting with Japan.

In Japan, the market grew slightly by 0.9% from April to September to 1,946,000 units. This is lower than our forecast of 2% growth for the full year that we shared with you in May. Today, we see the market continuing to weaken for the rest of the year dropping 2.6% overall compared to FY 00 and reaching 4,011,000 units for the full year.

Nissan sold 342,000 units, up 7,000 vehicles or 2.1%, improving our market share by 0.2% to 17.6%. This performance illustrates that Nissan's decline in the domestic market has stopped. How was this achieved and what has been the impact to profitability?

On the product side, we launched two all new cars, the Caravan and the Skyline. In addition, we made minor changes to the Presage/Bassara and especially to the Liberty minivan.

One more event occurred this week, the all-new Stagea wagon, and one will occur next week, the face-lifted Wingroad. Both wagons will help sustain our performance.

We reiterate our previous market share forecast of 18.2% for the full year in Japan giving us 729,000 unit sales.

As important as volumes are to overall profits, the NRP has significantly increased the number of profitable models we sell in Japan. This is key to understanding our increase in profitability on the domestic market where the proportion of loss-making cars has been substantially reduced out of our total sales. In fiscal year 1999, only 4 out of 43 cars were profitable, representing 12% of unit sales. In fiscal year 2000, the number of profitable cars improved to 11 out of 40, representing 27% of our volumes. And in fiscal year 2001, 18 out of 38 models will make a positive contribution to consolidated operating profits, which is 42% of our sales volume. This trend will continue into fiscal year 2002 when we expect more than two thirds of our cars to be profitable.

Turning to the United States, the market fell by 5.7% to 8,677,000 units from April to September. However, we recognize that this drop would have been more significant without the high incentives that we witnessed during this period. On top of that, due to the economic impact of the terrorist attacks in September, we foresee a decline in the second half at a steeper rate of about 11.5%. For the full year, this would give us a total market of 15.7 million units.

In the US market, Nissan sold 349,000 units in the first half, down 14% from the first half of fiscal year 2000. Our market share fell from 4.4% to 4% during the same period. Let's analyze what happened in more detail.

Since no new products were launched in the U.S. in the previous fiscal year, with the exception of the face-lifted Frontier, our product plan did not lend much support to our overall sales until September of this year when we launched the all-new Altima and face-lifted several cars, the Xterra, the Frontier long-bed and the Maxima 3.5

Second, as I have consistently told you, our strategy is to focus on increasing profitability and building back a strong brand identify rather than chase volumes at unreasonable cost. We maintained our disciplined approach to incentives and kept below the rising industry trend as you can see it on the chart.

Also, we did not aggressively pursue fleet sales, as you can also see on this chart compared to the main players, nor did our sales finance company, NMAC engage in unreasonable retail leases. Carefully managed leases account for 20% of NMAC's acquisitions in the first half of the fiscal year, down from 25% in fiscal year 2000. We foresee a significant contribution to Nissan North America's profits from NMAC's business, which is well provisioned.

The major weakness in volumes has come primarily from the compact truck segment. Our lineup has been under severe competitive pressure due to high incentives. The long-bed Frontier and the face-lifted Xterra that were launched in September should help stabilize our positions.

As for passenger cars, on the contrary, we have gained market share in the compact sedan segment driven by the Sentra and the previous Altima. The high-performance version of the Sentra, the SE-R, comes to market in October, but, most importantly as I mentioned, the all-new Altima was launched in September. This car has been very well received by the media, our dealers and our customers. On a full-year basis, we are planning Altima sales volumes of 190,000 units. On that basis, this car will improve its per/unit profit contribution three-fold compared to the previous Altima.

Rounding out the Altima and SE-R launches in passenger cars in the first half is the new Maxima equipped with the state of the art 3.5 liter VQ engine which also went on sale in September.

In total, for the full fiscal year, we are expecting a market share of 4.3%, which is unchanged from fiscal year 2000, giving us 680,000 unit sales.

Looking now to Europe, total industry volume declined by 1.7% to 9,090,000 units from January to June. I remind you that Nissan Europe's reporting period is on a calendar year basis. Here too, we see the persistence of a downtrend and still forecast 16.4 million units for the full calendar year.

On this market, Nissan sold 273,000 units, down 5.5% compared to fiscal year 2000 giving us a market share of 2.8%, down slightly from last year's 2.9% share.

As in our other major markets, we have had relatively few product launches as we prepare for a more aggressive cycle in 2002. After the Almera and Almera Tino last year, we introduced the Xtrail SUV that went on sale during the Frankfurt motor show in September. This vehicle, very successful in Japan where it leads its segment, will reinforce Nissan's already strong image in the European SUV market.

We have also worked on reducing our exposure to foreign exchange. This has taken us to make numerous changes in our sourcing decisions and, as a result, we have radically changed the currency footprint of the next Micra, for example compared to the existing one. No impact has yet been felt from this change, but it is a good illustration of the many things invisible to you that are happening behind the NRP scenes.

Our current forecast is to maintain market share of 2.8% for the full year, giving us 490,000 unit sales.

Finally, in the General Overseas Markets, Nissan sold 293,000 units in the first half of fiscal year 01, up 4.6% compared to the first half of fiscal year 2000.

This growth has been fueled by a continued strong performance in Mexico where our sales increased by 14.1% from January to June to 89,000 units, improving our market share from 20.1% in the same period last year to 20.7% in 2001.

Several successful existing Nissan cars will be launched around the world including the Bluebird Sylphy and the Xtrail further reinforcing our market presence.

As you can see, these markets are growing in importance and are making a major contribution to better balance our sales and, as a consequence our geographic profit mix.

For the full fiscal year 2001, our current forecast calls for worldwide sales of 2,571,000 units, a 2.3% decline from fiscal year 2000.

Cost reductions

Where do we stand on cost reductions? Let us review our achievements, measure our progress and identify our challenges.

The single most important item that has the biggest impact to profitability remains purchasing. We were on an accelerated pace in fiscal year 2000 and have maintained the momentum. Our actual results continue to show that we are overachieving, both our commitments and targets. We are on a trend that shows a cumulative purchasing cost reduction of over 18% at the end of FY 01.

The number of parts and materials suppliers as well as service suppliers continue to decline in line with what we announced two years ago. Today, parts suppliers are down 35% to 750 suppliers and service suppliers are down 50%.

In manufacturing, NRP has been achieving exactly what was planned. Remember if you will our previous domestic manufacturing system, which is represented on this chart; 7 plants producing cars on 24 different platforms.

Today, our domestic manufacturing system is simplified to 4 plants producing cars on 15 platforms. The impact to the capacity utilization rate has been significant. From the pre-NRP utilization rates that you see where the average was 51.1% with Tochigi as low as 28%, all of our factories in Japan are now operating at above 74% with the average at 75.7%.

By 2004, three more platforms will be taken out of production, further simplifying our production map. I would like to reiterate that while all these transformations are taking place, output has not, in the least, been affected. Manufacturing excellence remains one of Nissan's core assets on which we will continue to build.

In R&D, efficiency continued to improve. The average R & D cost per vehicle project declined by more than 25% since the beginning of NRP

In marketing and sales we have continued to move swiftly.

In Japan, for example, we have already closed 335 outlets compared to the 300 we had planned to close over three years. Of the 18 dealerships we planned to transfer to the private sector, we have already achieved 12.

Total headcount worldwide at the end of the first half of fiscal year 2001 came to 128,100 which is very near the 127,000 level we had foreseen for the end of NRP with a 21,000 headcount reduction.

Despite the volatility of the financial markets, we continued our policy of shifting resources to our core automotive business. A total of 81 billion yen were raised from asset sales in the first half, 59 billion from the sale of marketable securities and 22 billion from the disposal of real estate. All of these amounts were applied to debt reduction. Since the beginning of NRP, we have sold for a total of 422 billion yen in assets, which is 85% of the amounts identified two years ago.

Preparing for the future

The first leg of the NRP was not only necessary; it was the only way to rapidly generate the financial resources Nissan needs to prepare for sustainable growth. We have reached the point today where the vast majority of the restructuring efforts have been implemented, where the balance sheet gives us the financial flexibility needed to invest and where the product plan is on the verge of delivering its full potential.

We are a few days from the opening of the Tokyo Motor Show. So let's talk cars!

As you know, 22 all new cars were, or are, being developed under the NRP, four were launched last year and five are scheduled for this fiscal year. Four have already been launched in fiscal year 01, but there remains a significant one to come at the end of February in Japan, the all-new March.

This car is the first of a series of big volume vehicles to come out on the new Alliance B platform. It will also be the first car needed to reposition Nissan in the crucial entry-level segment of the market. In Japan, vehicles of this category accounted for 22% of registered sales in the first half and, due to our ageing line-up, we have not been able to compete effectively and profitably.

The new March will be a profitable vehicle, replacing yet again a loss-making car. This is the type of volume we are ready to chase vigorously.

Next year in Japan, we are planning to launch six all new products; three in the first half, with the mini-car that we will source from Suzuki, and three in the second half, including the new Cube. In addition, seven minor changes to existing vehicles will take place, four in the first half and three in the second.

In the United States, our product launch intensity will also be high. Three new Nissans will be launched, including the much-awaited Z car in August. We will follow in the second half with a crossover SUV and in early calendar year 2003 with the all-new Maxima.

For the Infiniti brand, we are planning a significant changeover. After the entry- level luxury G35 in March 02, we will follow with a new mid-size luxury sedan, a new coupe and a new SUV. With these introductions, the Infiniti brand will be in a much stronger position to compete with its rivals.

In Europe, the Primera sedan, hatchback and wagon that we showed at the Frankfurt auto show go on sale in March 2002. In the same month, we will begin to sell the first Renault-built LCV under the Nissan badge. We will follow by a second smaller LCV that will be built in Nissan's Barcelona plant and sold under our brand. Then it will be the turn of the new Micra in early calendar year 2003, which is a key product for our European product range.

In the General Overseas Markets activity will also be high. We have seven regional launches of all-new cars scheduled around the world, three in the first half and four in the second half. Two minor changes will also occur in the first half. I would just like to point out one of those launches which is a derivative of the Renault Clio, which will be built and badged by Nissan for the Mexican market.

If we add up all these regions, Japan, United States, Europe and General Overseas Markets, we come to 22 Nissan products events worldwide in the next fiscal year.

In the first half of this year, we continued to focus our attention on the important investment decisions that we have taken.

In the United States, work is progressing smoothly and on plan at our new Canton, Mississippi site. This plant will give us the additional capacity that we need to accommodate our expanding product line-up. As you also know from our announcement in early October, we have decided to produce the Maxima in the Smyrna, Tennessee factory when it changes over in early 2003. This is another move in our strategy to continue to localize production closer to the point of sale, minimizing foreign exchange risks, inventories and logistics costs.

In Thailand, however, we had to announce that we were breaking off our discussions with our local partner, as we could not come to acceptable terms. This case is an illustration that we will not compromise on management and when a deal does not give sufficient guarantees to reach the expected return on investment and make total sense for Nissan, we just will not sign it.

In Indonesia, we closed the transaction as we expected in June and have raised our stake in our partner, the Indomobil group to 75%. We are implementing our plan to integrate manufacturing, sales and import activities on this market.

Finally, we have opened serious discussions in China with the Dongfeng group. As you know, Nissan and Dongfeng already have a business relationship and produce the Bluebird locally. We are exploring ways to significantly expand this relationship with them and are assessing the profitability potential of a number of opportunities.

III/ Preliminary 1st Half Financial Results and Forecast

Financial results

Let us now turn to a summary of the key financial numbers of the first half. As I said, these numbers are still preliminary and because we are still consolidating our accounts, I will not provide a detailed variance analysis today.

Consolidated net sales will total 3 trillion yen, which is in line with our performance in the first half of fiscal year 2000. The rising value of foreign currencies had a positive effect on revenues while the overall drop in volume was negative. I would also like to point out that our revenue was negatively impacted by the spin-off of companies that were previously fully consolidated in our accounts.

Consolidated operating profits will come to 187 billion yen, an improvement of 53 billion yen and an increase of 39% compared to fiscal year 2000. This is by far the highest half-year result ever achieved by Nissan. As a percentage of sales, the operating margin will come to 6.2%, significantly above our full year forecast of 5.5% and better than the target of 6% that I set for next fiscal year. Let us recognize here that very few global car manufacturers will top this level operating margin for the first half of 2001.

On a regional basis the shift in the origin of our profits has been quite significant. As I have told you previously, Japan is the country where we had the most potential and where the impact on total operating profits would be the greatest. The first half of the fiscal year will show a significant increase in profitability in Japan.

Profits coming from Japan in the first half will more than double from last year's level. We are expecting to report 129 billion yen compared to last year's 59 billion yen profit. If I refer you back to my explanation on the increase in the number of profitable cars we sell in the domestic market, the profit potential coming from Japan is not over.

Turning to North America, which as you know includes the United States and Canada, profitability declined 42%. This is in line with the volume shortfall that I described earlier. We expect to report a drop from 81 billion yen last year to 47 billion yen this year.

Europe is improving. The region is still loss-making, but only slightly. Our loss will be reduced to approximately 5 billion yen in the first half coming from last year's first half loss of 15 billion yen.

Finally, as I told you at the last results announcement, the General Overseas Markets are becoming a significant contributor to our total profits. Our profits nearly doubled this first half, coming from 16 billion yen in fiscal year 2000 to 31 billion yen this half.

Inter-regional eliminations will come to minus 15 billion yen in the first half this year compared to minus 7 billion yen in the first half of last year.

If you analyze them, these numbers are particularly encouraging. First of all, we are returning to a significant level of profitability on our domestic market. Second, our dependence on the American market is lessened. Of course, we would prefer to see rising earnings there, but as you know, we were not expecting them in the first half. With the product plan in place, the potential for the second half is certainly in place.

Europe is making great efforts. Coming back close to breakeven before we launch key new products increases our level of confidence in reaching profitability already for this full fiscal year. Finally, the General Overseas Markets, which can typically be volatile, are proving to be a significant source of profits.

The last preliminary number on the income statement that I would like to share with you is the bottom line net income after tax. We have not closed our consolidated tax position and other important accounting entries, but the indication is that we will report an amount of 230 billion yen. This would give us a net return on sales in excess of 7.5%.

Our net automotive debt has continued to decrease sharply. We have exceeded our full year commitment six months in advance and will report net automotive debt of 804 billion yen. The 149 billion yen improvement from the end of last March is due to the improvement in cash that Nissan is generating from its automotive operations and from the pursuit of our asset sales policy, which generated 81 billion yen in cash.

I see in these numbers significant signs of encouragement and a clear indication of the priorities to come. They are telling us that Nissan is still improving its performance, that momentum is still building and that we have the financial capacity to face extremely unfavorable market and competitive conditions. The challenges that the auto industry is facing today can only reinforce our determination not to lose sight of the NRP's goal, which is to restore lasting profitable growth.

Forecast

Today, there is considerable tension in the world. The events of the past months have created an environment in which it is not always easy to decipher what is based on fact and what results from emotion. Overreactions abound; the volatile stock and bond markets are but one example.

As in all circumstances, there are risks and opportunities before us.

On the side of risks, a simultaneous slowdown in the global automotive markets is clearly present. We have made a cautious forecast market by market as I described to you earlier. But the risk exists that further unforeseen events could put additional downward pressure on unit sales.

In such a case, there is a risk of competitive pressures, in the form of incentives increasing significantly and for a prolonged period of time. This will have an adverse effect on the potential growth of profitability.

NRP remains Nissan's biggest opportunity. Even though it is very much ahead of schedule, the NRP is far from being over. The bulk of the difficult restructurings, plant closures, asset sales and headcount reductions are done or will be done by the end of the fiscal year.

What lies ahead is the bulk of the product plan and all the growth related actions of the NRP.

Foreign exchange rates have also held at more favorable levels than last fiscal year and have also been better than our initial forecast.

Taking all of these factors into account leads us to maintain our previous forecast for the full year. We still expect full year operating profits of 350 billion yen and a net profit after tax of 330 billion yen. Of course, had market conditions been more predictable and less volatile as they were before September, we would have revised our forecast upward. The degree of uncertainty that we see today leads us to a more cautious outlook, which however, still represents a more than 20% improvement in operating profits for the year.

The only revision that we would like to make today is to net automotive debt forecast. We feel comfortable with a forecast of no more than 750 billion yen in net automotive debt by the end of fiscal year 2001.

IV/ Conclusion

In conclusion, allow me to take you at the heart of our revival process, which we call NRP for the period 2000 - 2002 and Plan 180 for the period 2003 - 2005. Plan 180, as you may remember, stands for growth (1 million more units sold compared to the present level), profitability (the top level operating margin of the global volume players of the auto industry) and financial fitness (meaning zero debt).

At the heart of the revival process, there are two fundamental missions. The first one is to change the mindset inside Nissan and around Nissan so that the deep transformations and changes we are undertaking will be adopted wholeheartedly, rather than tolerated on the surface and, therefore, will have long lasting effects on our competitiveness and our growing performance.

The second one is to establish a high level of trust in our company, in our brand and in our products and services. Trust of our customers, trust of our shareholders, trust of our employees and trust of our partners.

And trust is based on a high level of transparency from one side and on a recurrent delivery of growing measurable performance from the other side. So trust cannot be claimed, it has to be earned every single day.

That is what is driving us today and will be driving us tomorrow. We know the jury is still out on the ultimate success of our revival effort and that is fair. Nevertheless, we have no apprehension, as long as everyone looks at us with objective eyes, to receive the verdict that we deserve.

Thank you