April 26, 2004

NISSAN 180 and Fiscal Year 2003 Review

Analyst conference
April 26, 2004

Carlos Ghosn
President and CEO

Nissan Motor Co., Ltd.

Every year since the start of Nissan’s revival, I have reported our performance for the fiscal year just ended. And every year since the start of Nissan’s revival in 1999, the reported results exceed the prior year as well as our forecast.

Today will be no different.

For fiscal year 2003, Nissan is reporting record earnings and an operating profit margin that continues to lead the global automotive industry.

And, as in years past, the numbers will tell our story. Despite the fact that many of our anticipated risks materialized last year, we consistently executed NISSAN 180 and realized many of the foreseen opportunities.

As we begin the final year of NISSAN 180, I will review our business performance in fiscal year 2003 and give you our forecast for this year. Today’s disclosure is final. I will then give you the highlights of our next three-year plan, which we will start implementing one year from now in April 2005.

Part I: Review of FY03

Let me begin with an update on our sales.

Global sales came to 3,057,000 units, which exceeded our forecast of 3,040,000 units. This represents an increase of 10.4%, or 287,000 units, over fiscal year 2002 and the first time in 13 years that Nissan has sold more than 3 million vehicles.

In Japan, sales came to 837,000 units, a 2.6% increase, in a flat market. The March and the Cube contributed to this increase, ranking among the top 10 best-sellers every month. Our market share increased 0.3 percent, to 14.2%, including minicars.

In the United States, sales rose 17.9% to 856,000 units in a market that grew by 1%.

The Nissan Division grew by 16.1% with a richer mix. High-margin trucks rose 34.1%, driven by the Murano and the products from our Canton Plant, most of which are still in the early roll-out phase. Meanwhile, car sales increased by 6.5%, led by sales of the Altima and the new Maxima.

The luxury Infiniti Division had its best year ever, up 29.4%, to 124,000 units. Infiniti benefited from increased sales of the G35 sedan and coupe as well as the FX35 and FX45. The first full-sized Infiniti sport utility vehicle, the QX56, was launched successfully in February.

Our U.S. market share for the full year came to 5.1%, up from 4.4%. The pace of growth accelerated in the last quarter of the fiscal year, with our share reaching 6.1% compared to 4.7% in the last quarter of 2002.

Our performance in the United States was achieved in a market where incentives continued to reach new heights. We stayed our course and, as I have said many times, we did not and will not jeopardize our increasing brand power for short-term market share gains. Though our incentives did rise slightly in fiscal year 2003, we remained among the most disciplined with the Nissan Division while Infiniti recorded the lowest level of incentive spending among its luxury competitors.

In Europe, sales were up 14.4%, to 542,000 units. With 175,000 new Micras sold in its first full year, this car is bringing new customers to Nissan. Growing sales of 4x4s, particularly the X-TRAIL and Pick-up, also contributed.

In General Overseas Markets, including Mexico and Canada, sales were up 9% to 822,000 units. The X-TRAIL was an important contributor, particularly in Australia, where sales were up 23.1%. In China, the new, locally produced Sunny helped our sales increase 30.4% to 101,000 units.

In fiscal year 2003, we released 10 all-new models globally. We also achieved two major business developments.

In the United States, Nissan did something no other automaker has ever tried before. A brand-new plant in a new state, with new employees, with five all-new products launched on time within eight months – the Canton, Mississippi Plant now stands as a benchmark for manufacturing startup achievement in our industry.

In China, we launched Dongfeng Motor Co., Ltd. Our investment in the third-largest car and truck manufacturer in China will grow our business in both the rapidly expanding passenger car and truck markets.

In Taiwan our new company Yulon Nissan Motor will not only allow us to grow profitably in this market, but it will also support our growing presence in China.

Now I will review our consolidated financial performance in fiscal year 2003.

Consolidated net revenues came to 7.429 trillion yen, up 8.8% from last year, mainly due to higher volume and mix. Movements in foreign exchange rates produced a negative impact of 111.6 billion yen. Previously announced changes in lease accounting reduced revenues by 18 billion yen, while changes in the scope of consolidation reduced revenues by 23 billion yen.

Consolidated operating profit improved by 11.9% to a record 825 billion yen. 825 billion yen is 10 times the operating profit that we reported just four years ago. As a percentage of net revenue, our operating profit margin came to 11.1% – which remains at the top level among global automakers.

Analyzing the variance between last year’s operating profit and this year’s 825 billion yen, several factors are considered:

  • The effect of foreign exchange rates produced a 48 billion yen negative impact for the full year.
    • The average value of the dollar dropped 8.8 yen to 113.2 yen, yielding a negative impact of 101 billion yen.
    • The euro rose 13 yen to 131.2 yen, producing a positive impact of 29 billion yen.
    • Other currencies made a positive contribution of 24 billion yen.
  • The change in lease accounting added 20 billion yen while the change in the scope of consolidation produced a minor negative impact of 4 billion yen.
  • For the first time, the impact of higher volumes and mix was the biggest positive factor in our profit increase, contributing 185 billion yen.
  • Selling expenses increased by 72 billion yen, as forecasted.
  • The improvement in purchasing costs amounted to 183 billion yen, which shows, once again, the critical importance of having a competitive cost base and effective relations with suppliers.
  • Product enrichment and the cost of regulations had a negative impact of 83 billion yen.
  • We spent an additional 54 billion yen in R&D to further reinforce product and technology development.
  • Manufacturing and logistics costs had a negative impact of 12 billion yen, including the costs associated with the startup of our Canton Plant.
  • Finally, general and administrative and other expenses increased by 27.3 billion yen.
By region, operating profits in Japan came to 352.5 billion yen compared to 390.6 billion yen last year. The drop is primarily the result of higher R&D expenses, the negative impact of foreign exchange rates on export sales, and a decrease in mix in the domestic market.

Profitability in the United States and Canada came to 351.8 billion yen compared to 242 billion yen in fiscal year 2002. This significant increase is due to improvements in both volume and mix.

Europe’s operating profit level more than doubled, to 49.2 billion yen from 21.9 billion yen. The rise is due to the increase in volume and favorable exchange rates.

In General Overseas Markets, operating profits came to 66 billion yen compared to 77.6 billion yen. The decrease is due to lower profits in Mexico as a result of the decline in Sentra exports to the United States.

Finally, inter-regional eliminations came to 5.4 billion yen.

Net non-operating expenses totaled 15.2 billion yen – 12 billion less than last year. As planned, the return of the substitute portion of the pension plan to the government decreased our expenses by 10 billion yen.

Financial costs decreased by 800 million yen to 15.7 billion yen despite the announced incorporation on the balance sheet of 133.7 billion yen in leases.

As a result, ordinary profit came to 809.7 billion yen, up from 710.1 billion yen in 2002.

Net extraordinary losses grew by 57.7 billion yen, mainly due to the fact that last year’s numbers included a one-time gain of 56.3 billion yen from the sale of our Murayama Plant.

Income before taxes came to 736.5 billion yen. Taxes came to 219 billion yen for an effective consolidated tax rate of 29.7%. This year we expect a consolidated tax rate of 34%.

Minority interests amounted to 13.8 billion yen compared to 700 million yen in fiscal year 2002 due to the increase in profits of companies that are fully consolidated but not fully owned.

Net income reached 503.7 billion yen.

As disclosed last year, the inclusion of our Canton Plant and lease liabilities increased net automotive indebtedness to a total of 268.3 billion yen. In fiscal year 2003, cash from operations totaled 1.042 trillion yen, a 245 billion yen improvement over last year.

Investing activities totaled 428 billion yen – including 52.7 billion yen of our investment into Dongfeng. The balance of the payment, amounting to 61.5 billion yen, will occur in the first quarter of fiscal year 2004.

Finance activities totaled 232.8 billion yen. This includes 92.3 billion yen for the purchase of treasury stock, 74.6 billion yen for the payment of dividends and 65.9 billion yen for the repayment of maturing debts and lease obligations.

Foreign exchange rates produced a negative impact of 126.9 billion yen to cash flow.

As a result, net automotive debt at new accounting standards totaled 13.6 billion yen at the close of fiscal year 2003, well ahead of our forecast of less than 150 billion yen.

Capital expenditures increased 49 billion yen to 427 billion yen, representing 5.8% of net revenue. This is the third year in a row with a double-digit increase in capital expenditures.

In R&D, we spent 354.3 billion yen – an increase of 54 billion yen – to fund new technologies and product development. This included increased expenses for hybrid and fuel cell vehicles.

Despite these significantly higher expenditures to prepare for the future, we were able to eliminate more than 250 billion yen in automotive debt.

Our investments are made within the strict guidelines of our ROIC. We exceeded our targeted 20% return on invested capital, reaching a record 21.3% for fiscal year 2003.

The ratio of working capital to net revenue has improved, dropping to 3.6% from 5.8% in 2002, through tighter control of accounts payable, receivables and inventory.

As previously announced, we will propose a 19 yen per share full-year dividend to our shareholders at the annual general meeting on June 23.

Part II: Outlook for FY04
As we begin the final year of NISSAN 180, I would like to review our outlook for fiscal year 2004.

Assuming a total industry volume of 58.8 million units globally – which is 1.7% above fiscal year 2003 – Nissan’s sales are forecast to come to 3,380,000 units, a 10.5% increase over 2003.

In Japan, our sales objective is 870,000 units, a 4% increase over last year, based on a flat total industry volume assumption of 5.8 million units. To support that achievement, we will launch six all-new models, including the Murano, a luxury sedan and four compact cars.

In the United States, our sales objective is 1 million units, an increase of 16.8%, based on a flat total industry volume assumption of 16.9 million units. This would be the first time Nissan reaches the 1 million sales mark in the United States and will be supported by the launches of the all-new Pathfinder, Frontier, Xterra and the Infiniti M45.

In Europe, our sales objective is 538,000 units, a level that is basically the same as last year, since no new models are planned. Our objective is based on a relatively flat total industry volume assumption of 19.4 million units.

For General Overseas Markets, including Mexico and Canada, our sales objective is 972,000 units, up 18.2%… and including, for the first time, 96,000 Dongfeng light commercial vehicles. The heavy- and medium-duty trucks and buses of Dongfeng – representing 179,000 units in 2004 – will not be consolidated in our sales figures in order to keep the integrity of NISSAN 180’s 1 million additional sales.

In fiscal year 2004, we will launch nine all-new vehicles around the world, leading to 20 regional product events. Since most of these models are planned to be launched in the second half of the fiscal year, you can expect sales to accelerate toward the end of this year and through September 2005, when we will measure the sales of all the new products launched during NISSAN 180.

By the end of this fiscal year, we forecast that we will have achieved 783,000 of the 1 million additional sales committed during NISSAN 180, which we fully expect to deliver.

The new fiscal year will bring risks and opportunities. Risks include adverse foreign exchange rate fluctuations and rising commodity prices and interest rates. We consider our greatest opportunities to lie in the accelerated implementation of all our action plans during the final year of NISSAN 180.

In light of all these factors, we have filed the following forecast with the Tokyo Stock Exchange, using a foreign exchange rate assumption for the year of 105 yen per dollar and 125 yen per euro.

  • Net revenue is forecasted to be 8.176 trillion yen, up 10.1%. ú Operating profit is expected to be 860 billion yen, up 4.3% from fiscal year 2003, giving an operating profit margin of 10.5%.
  • Ordinary profit is expected to reach 846 billion yen.
  • Net income is forecasted to be 510 billion yen.
  • Capital expenditures will be 480 billion yen.
  • ROIC is expected to remain above 20%.
The exchange rate forecast that we are making today will significantly dampen our operating profit potential for fiscal year 2004 by 130 billion yen. Despite this assumption, we will improve our financial performance further, a clear sign of the potential that still exists in Nissan.

To put this forecast in perspective, if we were to use the same exchange rates that existed in fiscal year 2003, today I would be forecasting operating profit of 990 billion yen and an operating margin of around 11.6%.

As Nissan grows globally, we will continue to increase our investments and take management control of key businesses. In fiscal year 2004 we will consolidate Yulon Nissan Motor, Nissan Motor Light Truck Company and Siam Nissan.
We will proportionally consolidate our 50% stake in Dongfeng Motor Co., Ltd. From Dongfeng, after consolidation adjustments we expect an additional 250 billion yen in revenue and 20 billion yen in operating income.

Part III: Outline of NISSAN Value-Up

As NISSAN 180 enters into its final year, the time has come to share the main drivers of the plan that will be implemented during the three years from fiscal year 2005 through 2007.

Under the Nissan Revival plan and NISSAN 180, Nissan has consistently created value in the global automotive industry. Our market cap has grown from 1.2 trillion yen on March 31, 1999, to 5.3 trillion yen at the close of fiscal year 2003. We believe there is a tremendous amount of value still to be delivered. Value creation is what Nissan is all about.

Our new three-year plan, which is named NISSAN Value-Up, will be just as ambitious as the plans it follows. The name “NISSAN Value-Up” is simple and has a single, universal meaning, and each of its commitments is measurable over time.

The plan – the details of which we will unveil as we start implementation in April 2005 – has three critical commitments relating to growth, sustained profitability and return on investment.

The first commitment of NISSAN Value-Up is to reach annual global sales of 4.2 million units by the end of the plan in fiscal year 2007.

This commitment represents an increase of 820,000 units over fiscal year 2004, our reference year, and slightly higher than the amount of growth in the three years of NISSAN 180. The additional 820,000 units in sales will come from all regions in the world. As an indicative guide, driven by China, General Overseas Markets should contribute 350,000... United States and Canada, 250,000... Japan, 150,000... and Europe, 70,000 additional sales. By the end of NISSAN Value-Up, our three main country markets will be the United States at over 1.2 million units... Japan, over 1 million units… and China, over 500,000 units.

We have made a relatively conservative assumption for total industry volumes globally, which we have forecasted to be 60 million units. All of that growth is expected to come from General Overseas Markets, and most of it from China.

Our sales growth has been robust under NISSAN 180 and will remain so under NISSAN Value-Up. But if you look at our global market share, which is a consequence of growth, our performance has been even more remarkable. In 2001, we were at 4.7% market share. In 2003, we reached 5.3%. With the total industry volume forecast of NISSAN Value-Up, we should reach 7% in 2007. This means that we are growing on our own merit, driven by our competitive products and not only by expanding markets.

This volume growth will be supported by a steady stream of new products. During NISSAN Value-Up, we will deliver 28 all-new models, the same high pace as under NISSAN 180. As we renew many current models, we will also introduce seven new models that will be completely innovative in their concept and benefits. Also, we will expand the geographic reach of many of our models. For example, the next Cube and the next Skyline GT-R will be sold globally.

The second critical commitment of NISSAN Value-Up is to maintain the top-level operating profit margin in our industry, which today means a double-digit margin.

Finally, the third commitment is to maintain return on invested capital at or above 20%.

As we did with NISSAN 180, we will communicate a three-year dividend policy for NISSAN Value-Up to our shareholders when we meet on June 23. Management’s fiduciary responsibility to shareholders is to provide visibility of earnings to support the share price and to propose a globally competitive dividend payout policy. NISSAN Value-Up will deliver on both counts.

The proposals to support NISSAN Value-Up were developed by 14 strategic task teams. Several breakthroughs were selected to grow the top line while maximizing the bottom line. A breakthrough proposal is one that breaks with Nissan’s current business organization, way of management or delivered performance, requiring a complete change in mindset and attitude.

Let me give you some examples.

One breakthrough is that our Infiniti luxury brand is going global as a tier-1 luxury brand. Since its establishment in 1989, Infiniti has primarily competed in the United States, steadily building its identity as a brand that offers customers distinctly modern, high-performance products and personalized, progressive services. Infiniti’s recent performance demonstrates that the brand is now capable of competing in the global luxury market.

Infiniti today accounts for 4% of Nissan’s global volume, 8% of our total revenue and 12% of our consolidated operating profit.

Last month in Seoul we established Nissan Korea Company, where Infiniti sales will begin in mid-2005. During NISSAN Value-Up, Infiniti will be introduced in Japan, China, Russia and, at a later stage, Western Europe.

In Japan, we will reorganize our distribution network to take into account the introduction of a clearly distinct Infiniti channel. We will also clarify our current Red and Blue Stage distribution channel system in order to be more appealing to the Japanese public.

A second breakthrough is significant geographic expansion. Since 1999, we have invested in our General Overseas Markets to fuel growth.

In China, our joint venture with Dong Feng was a breakthrough during NISSAN 180, but substantial growth will be realized during NISSAN Value-Up.

In the ASEAN trade area, Thailand will become a strategic regional base of operations, now that it has been fully consolidated and is under Nissan’s management control.

In the Middle East, we have committed 10 new products to the market, including an expanding Infiniti lineup. Nissan’s presence in Egypt will be significantly expanded, where we will take over and develop an existing manufacturing plant to support sales in that market and in neighboring countries.

We will turn our attention to the entire African continent, where our presence today is small and concentrated in South Africa.

In Russia, we will significantly expand the scale of our operations from our newly established national sales company.

Finally, India and Pakistan will also provide new opportunities.

A third breakthrough focuses on sourcing parts and services from Leading Competitive Countries. The vast majority of our sourcing has been with traditional suppliers based in Japan, North America, or Europe. With most of the future growth of Nissan coming from China and General Overseas Markets, cost competitiveness and effective supplier relations will be a key driver of growth and profits in those markets.

We are working on other breakthroughs in the broad field of customer satisfaction.

Finally, we see potential for a breakthrough in the field of Light Commercial Vehicles. LCVs represent a growing segment in global markets, but nowhere did we have the necessary focus or the proper organization to support this business until now. Earlier this month we established the Light Commercial Vehicle Business Unit, which will focus on the manufacture and sale of light-duty trucks globally, with a special emphasis on Japan, China and Europe.

The numbers alone make a compelling case for increased attention. Of the 72 models Nissan sells globally, 20 of them – or 28% – are light commercial vehicles, but they only represent 7% of our sales volume and less than 4% of our operating profits.


The Nissan Revival Plan was about establishing a solid base for the company and investing for the future. NISSAN 180 is about profitable growth. NISSAN Value-Up will continue the growth and maintain profitability.

It’s not just a margin story. It’s not just a growth story. It’s both. It’s another shift in conventional wisdom in our industry. It is possible to grow and sustain profits at the same time.

Each time we set objectives for Nissan, the reaction is that they are unattainable, and as we have consistently met them, the perception is perhaps that they were easy. However, the results speak for themselves, and today Nissan remains at the top level of profitability in the industry.

As CEO, my involvement in the elaboration of NISSAN Value-Up has been as intense as it was for the Nissan Revival Plan and NISSAN 180. Even though I will be called to take on additional responsibilities as Renault’s CEO during NISSAN Value-Up, I will remain fully accountable for delivering the commitments made today. Do not expect me to be a part-time CEO but, rather, a full CEO with two hats.

For now – and for the years to come – I simply remind you of one fact. The direction we started in 1999 is ongoing. Our dream was to deliver profitable growth that would make Nissan a major global automaker in alliance with Renault.

As we mark the fifth anniversary of the Alliance, our vision has not changed. The growth we are experiencing has been thoughtfully planned and boldly executed. Nissan is indisputably creating significant value. For society. For our employees. For our shareholders. And for our customers.

With every new model – such as the Tiida we introduced earlier today – we aim to deliver our very best. The women and men of Nissan have already shown what they are capable of. With their renewed pride and dedication, Nissan will continue to delight and enrich people’s lives. Nissan is moving swiftly and decisively in the right direction, and we will keep value going firmly up.

Thank you for your attention.

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