NISSAN Value-Up Update and Review of FY 2005 First Half

Press Conference – October 28, 2005

Carlos Ghosn, President and CEO, Nissan Motor Co., Ltd.


At the end of September, we declared the revival of Nissan complete.By delivering the last and most challenging commitment of the NISSAN 180 plan -- 1 million additional sales -- Nissan has overachieved every single commitment made public since October 1999.

In April this year, we started our new three-year business plan – NISSAN Value-Up – and the drive toward long-term, sustainable, profitable growth.We are off to a good start. For the first half of fiscal year 2005, our revenue is up 12.1% and our operating profit rose to 411.5 billion yen.

At the start of this fiscal year, we forecast that our industry would face many challenges, such as rising material costs, rising interest rates and record levels of incentives.We have also seen the impact of negative factors resulting from natural disasters and rising gas prices, which created further instability, consumer concern, and a weakening product mix, particularly in the United States.

Despite this severe environment, Nissan continues to move at the right pace in the right direction, and the performance I will review today affirms that the fundamentals of our business continue to strengthen.

I will start with a review of our global sales performance before giving you an analysis of our financial results. Before concluding, I will share with you our outlook for the full fiscal year.


First-half global sales performance

Our sales are reported on a fiscal-year basis. For Japan and the United States, results are computed from April to September.In Europe, Mexico and several General Overseas Markets, fiscal year results are computed from January to June.For the first six months of fiscal year 2005 in all regions, Nissan’s sales totaled 1,834,000 units, an increase of 15% over 2004.

In the first half, total industry volumes were slightly up in Japan, the United States, and Europe, and we saw significant growth in the General Overseas Markets.Rising incentive levels continue to be a challenge in all markets.This year has seen especially deep discounting in the United States, Europe and China.We remain committed to using incentives in a selective way while recognizing that we have to keep our prices relevant to the market.Despite the pressure, we prefer to keep the focus on our products and our brand instead of trying to be the best “deal” in town.

We launched two all-new models in the first half in Japan – the Serena minivan and Otti minicar – and four more are being launched in the second half – three in Japan and one in Europe. Our sales growth has also benefited from new products launched during the last year of NISSAN 180 – such as the Teana in China and Infiniti M in the United States.At the same time, we continue to be encouraged by the popularity of models that have been in the market for some time and yet continue to contribute significantly to our volumes – such as the Altima, the Murano, the X-TRAIL and Infiniti G35.Nissan now has a broad lineup in every major market, allowing us to remain competitive even in the most challenging environments.

Let’s look at our performance on a regional basis, starting with Japan.

In our domestic market, we sold 421,000 units, up 14.5% from the same period last year, while total industry volume has increased by 3.5%.Our market share stands at 15%, including minicars, 1.4 percentage points higher than last year.Our new models such as Tiida and Serena are performing well in the market, and our performance in the minicar segment has increased by 37%, driven by the introduction of the all-new Otti.

Turning to the United States, sales in the first half came to a record level of 571,000 units, up 16.7%.Our U.S. market share for the first half was also at a record 6.1%, up seven-tenths of a percentage point.

We made gains in both the Nissan and Infiniti channels. Nissan Division sales are up 17.8% in the first half, largely due to the Altima, Sentra, and recent new models such as the Pathfinder. Infiniti Division sales also continue to grow, rising 9.7% over fiscal year 2004’s record level.

Moving to Europe, Nissan sold 287,000 units from January to June, up 0.8% from the same period in 2004.Our range of 4x4s, particularly the Pathfinder and the newly introduced Murano, are significant and steady contributors to sales growth.In the second half of 2005, the launch of the Micra C+C will further extend the appeal of our small-car range in Europe as well as the Navara pickup, which rounds out our 4x4 line-up.

Turning to the General Overseas Markets, including Mexico and Canada, our performance has been strong.In the first half, sales were up 22.4%, to 555,000 units.Let me highlight a few of the most significant markets.

  • In China, we sold 140,000 units, up by 67% over 2004. The success of the Dong Feng-Nissan business has been driven by the strong sales of the Teana and Tiida, both introduced in the last 12 months.
  • In the Middle East, sales were up 40% over 2004 to 62,000 units, driven by the introduction of Infiniti.
  • Finally, Mexico contributed 106,000 units, up 0.5% from the same period last year.


First-half 2005 financial results

Let us now turn to our first-half financial results.

Revenues reached 4.491 trillion yen in the first half of fiscal year 2005, up 12.1% from the same period in fiscal year 2004.Changes in the scope of consolidation – such as the inclusion of Calsonic Kansei – impacted revenues positively by 53.7 billion yen.

Operating profits rose 2.0% to 411.5 billion yen, compared to the first half of fiscal year 2004.The operating margin came to 9.2%.What were the drivers?

1) The effect of foreign exchange rate movements to first-half operating profits was a positive 10.4 billion yen, mainly due to favorable movements of the Mexican Peso, Australian and Canadian dollars.The average U.S. dollar rate was little changed at 109.5 yen compared to 109.8 yen… while the euro moved to 136.3 yen from 133.1 yen. The net impact of both those currencies to operating profits in the first half was minimal.
2) The change in scope of consolidation that I just mentioned contributed an additional 11.2 billion yen to first-half operating profits.
3) Volumes and mix contributed 58.1 billion yen in additional operating profits.
4) Selling expenses produced a negative impact of 30.7 billion yen, due to higher levels of incentives, particularly in the U.S. market.
5) Purchasing continued to turn in a good performance as lower net purchasing costs generated a positive contribution of 49.7 billion yen to operating profits, which includes the negative impact from higher prices of raw materials of 22.3 billion yen.
6) Product enrichment and the cost of regulationsproduced a negative impact of 47.4 billion yen.
7) HigherR&D expensesgenerated a negative impact of 8.3 billion yen as we continue to boost investments in technology and product development.
8) Manufacturing and logistics expenses increased by 17.4 billion yen reflecting continued capacity and product specific investments needed to support the launch of 28 all-new vehicles coming during the NISSAN Value-Up period.
9) Warrantyexpenses increased by 21.0 billion yen as a result of growing sales and more proactive and swift customer service actions.
10) General, administrative and other expenses produced a positive impact of 3.5 billion yen.

Regional profits were modified by a global change of inter-company payments effective since October 2004 favoring Japan, which bears most of our engineering and global development costs.

Profits from Japan amounted to 199.4 billion yen compared to last year's 162.4 billion yen.

In the United States and Canada, profitability was 152.1 billion yen compared to 169.5 billion yen last year.

Europe’s operating profit level came to 18.2 billion yen compared to 19.3 billion yen in 2004.

Finally, in General Overseas Markets, including Mexico, the contribution to total profits was 46.2 billion yen from 52.1 billion yen in 2004.

Inter-regional eliminations resulted in a negative 4.4 billion yen contribution compared to a positive 0.1 billion yen in the first half of last year.

Net non-operating items totaled a negative 15.9 billion yen, giving an ordinary profit of 395.6 billion yen, compared to last year’s level of 401.4 billion yen.

Net extraordinary items totaled a negative 28.2 billion yen, improvingslightly from last year’s 30.9 billion yen.

Income before taxes came to 367.4 billion yen.Taxes amounted to 117.2 billion yen, down from 120.7 billion yen.Our consolidated effective tax rate came to 31.9%, slightly lower than the 32.6% rate in 2004.

Minority interests – which are profits in fully consolidated companies that we do not own 100%, such as Calsonic Kansei, Aichi Kikai and Nissan Shatai – came to 19.5 billion yen.

Finally, net income after tax reached 230.7 billion yen, 3.4% lower than last year's 238.8 level, mainly due to our alignment on the new Japanese accounting standards relating to the impairment of assets, which produced a negative impact of 14.8 billion yen.


Outlook for fiscal year 2005

As we consider the risks and opportunities before us, the most significant risks continue to be, first and foremost, related to continued higher levels of incentives worldwide… mix and grade deterioration, particularly in the U.S. market, and finally, higher commodity prices, higher interest rates, and higher energy prices.Major opportunities come from the flawless implementation of the NISSAN Value-Up plan and more-favorable-than-foreseen foreign exchange rates, especially the yen-dollar relationship.

Taking into account these risks and opportunities, we continue to believe the favorable foreign exchange rates will offset the identified risks, and we do not see any compelling reason to change our initial forecasts for the full fiscal year.



The lessons of the revival are still fresh and relevant to our future, and the speed, focus and intensity that have characterized Nissan over the past six years will be tested in the current environment.

Our gains have never been earned easily… and, over the coming months, the headwinds facing our industry will continue to be severe. The dynamics of the U.S. market in just the last few months have demonstrated how quickly consumer sentiments can shift from different segments and products.Globally, we remain bearish on the prospects for growth in the North American, Western European and Japanese markets.For the new and emerging markets such as China, the picture is mixed, with the days of almost automatic profit deriving from significant market growth largely behind us.Only Russia and India appear to provide good visibility and prospect in the near future.

2005 has been a quiet product year for us in the U.S. and Canada… an active year in Europe and General Overseas Market with the launch of globally existing products… and continues to be a busy year in Japan with five all-new products. Overall, 2005 will not be the most active product year in Nissan, but this is not the pattern for NISSAN Value-Up.As you can see in this graph, our pace of new model introductions increases from next year with 10 new models coming in 2006 and 12 in 2007. Not only are we replacing our first-generation products, we will also enter new markets and segments during this period.

Nissan is not holding back.Amid the obstacles are opportunities, and we are pursuing them.We have three commitments under NISSAN Value-Up… 4.2 million units in 2008… top level of operating margin in the industry… and 20% on average return on invested capital. We are on track, and you can continue to expect the best from Nissan.