June 20, 2007


Annual General Shareholders' Meeting

Remarks for Carlos Ghosn

Business Report

In fiscal year 2006, Nissan faced a tough business climate... at the lowest point in our product cycle... and at a time when we are investing heavily for our future. For the first time in eight years, we missed the performance objectives we had set for ourselves. Our actions did not meet the challenges before us.

Even so, Nissan did make significant progress in building for the future. We have been enhancing our brand power with attractive, competitive products... investing in our people and our infrastructure... and pursuing advancements in technological innovation. We are preparing many foundations on which we can build for the long term.

Today I will report on our business for fiscal year 2006, and I will bring to your attention many actions Nissan is taking, investing in the future.

FY 2006 sales performance
I will begin with a review of the key business highlights from fiscal year 2006.

Our fiscal 2006 global sales came to 3,483,000 units, 2.4% below the previous year. Around the world, we introduced 10 all-new models, including several important pillars of our line-up:

  • an all-new version of Altima, our volume leader in the U.S.;
  • the new generation of Infiniti's volume leader, the G35; and
  • Livina Geniss, the first model in a new family of global cars launched first in China.

In Japan, total industry volume dropped by 4.1% - with mini-cars up 4.2 % and registered vehicles down 8.3%. At 740,000 units, our domestic sales were down 12.1%... and our market share dropped 1.2 points to 13.2%.

In the U.S., as total industry volume fell by 3.4%... overall Nissan sales decreased 4.0% to 1,035,000 units. And U.S. market share for the full year was practically flat at 6.3%.

In Europe, where total industry volume was flat, on a calendar-year basis, Nissan sales were also flat at 540,000 units.

In the General Overseas Markets, sales were up 5.1% to 1,168,000 units.

Fiscal 2006 financial performance
Let me now review our consolidated financial performance in fiscal 2006. For non-consolidated figures, please refer to the business report that you have received.

  • Net revenues came to 10 trillion 468.6 billion yen
  • Operating profit was 776.9 billion yen compared to 871.8 billion yen in fiscal 2005. The major drivers were lower volume, lower mix and higher raw-material costs, all of which were partially offset by purchasing cost reductions.
  • Our operating profit margin was 7.4%.
  • Ordinary profit was 761.1 billion yen.
  • Net income reached 460.8 billion yen, versus 518.1 billion in fiscal '05.
  • We had a net cash position of 254.7 billion yen at the close of fiscal 2006.

In '06, we did not meet our fiscal-year performance objectives, and we are taking that responsibility seriously. The bonus for Nissan's directors amounted to 390 million yen last year, but in fiscal 2006 we are not proposing to pay a bonus to the directors.

After the close of fiscal 2006, we issued bonds of 100 billion yen for corporate investors in June 2007 in order to cover future global cash demand. We recognize that we have a net cash position on a consolidated basis, but in order to optimize the return from excess cash in overseas markets and to achieve the best results for our shareholders, we are taking advantage of attractive funding costs in Japan and are issuing debt in the Japanese market. Instead of relying too much on short-term funding, we prefer to issue long-term funding when it is appropriate.

Nissan Value-Up Update
Next, I will update you on the progress of our midterm business plan.

Fiscal 2006 did not boost our results toward achieving the objectives of Nissan Value-Up. But we believe the commitments are still within the potential of the company, and we remain focused on delivering them.

Accordingly, we will extend the delivery period for all Nissan Value-Up commitments by one year.

At the same time, we continue to prepare our next business plan, and we will announce it one year from now.

During fiscal 2006, we made tangible progress toward the four key breakthroughs that are central to Nissan Value-Up.

Our first breakthrough aims to establish Infiniti as a globally recognized luxury brand. In fiscal '05, Infiniti was introduced in Korea. And in fiscal '06, the brand was successfully launched in the rapidly growing Russian market.

In 2007, geographic expansion will accelerate as Infiniti enters the Chinese and Ukrainian markets... and extends across Western Europe during 2008.

To serve these new markets, new products are coming. The G35 sedan will be followed this year by the G37 coupe and the EX compact luxury crossover.

Infiniti is poised for rapid global growth.

The second breakthrough aims to build a global presence in Light Commercial Vehicles - or LCVs.

Global sales have grown 57% since the start of Nissan Value-Up to 490,000 units in fiscal '06. More importantly, the LCV business unit over-achieved its 8% operating-margin milestone. With LCVs now firmly established as a pillar of our global business, we are building on this momentum.

The third breakthrough involves developing new sources for parts, machinery and equipment, vendor tooling and services in what we call "Leading Competitive Countries."

Sourcing bases are now established in China and ASEAN for Japan... in Mexico for North America... and in Eastern Europe for Europe. To accelerate progress, the next step will be to develop a new sourcing base in India.

In fiscal '06, for Japan, North America and Europe, 15% of our purchasing, by value, was sourced from LCCs, versus 12% the previous year. In 2007, we will accelerate this trend to source 24% of our purchasing from LCCs.

The fourth breakthrough expands our geographic presence in emerging markets - the so-called BRICs - and beyond.

In Brazil, we're investing $150 million in our operations to reach sales of 40,000 units by 2009.

In Russia, we are investing $200 million in a plant in St. Petersburg that will have a capacity of 50,000 units when it opens in 2009.

In India, we are joining Renault in a partnership with Mahindra. Together, we're building a plant in Chennai that will open in 2009... with a planned capacity of 400,000 units.

In China, since 2003, we have invested $1.6 billion in our partnership with Dongfeng - with recent investments including a new engine plant and a new R&D center.

FY07 outlook
2007 will be a better year for Nissan. We have taken a number of business initiatives to improve profitability:

  • In Japan, we are restructuring our dealer network - to focus more and better-trained resources directly on the customer.
  • Nissan Shatai will close its #1 plant and shift production to the #2 plant and to the Kyushu plant, which is being expanded.
  • We have initiated voluntary-retirement programs across all operations in Japan
  • In the U.S., we have implemented voluntary-transition programs.
  • In Europe, we're transforming national sales companies into leaner regional business units.
  • In South Africa, we have announced headcount reductions to boost productivity and competitiveness.

Overall, we are fine-tuning our operations in order to boost our performance. As we address short-term issues, we remain focused on our long-term goals, keeping a close eye on the motivation and engagement of our people.

For fiscal 2007, we are forecasting global sales to reach 3.7 million units, a 6.2% increase.

On April 26, we filed our forecast for fiscal year 2007 with the Tokyo Stock Exchange. Consolidated net revenue is expected to be 10 trillion 300 billion yen... consolidated operating profit, 800 billion yen... and net income after tax, 480 billion yen.

For the first quarter of '07, our budget planned lower results than the first quarter of '06, mainly due to a substantially weaker product mix and a higher effective tax rate.

Even taking this into consideration, we maintain our full-year forecast for fiscal year 2007.

Shareholders' return
When you consider Nissan's recent share price, it mirrored our FY06 financial performance.

I can understand your frustrations - frustrations that I share - because Nissan's share price is being discounted in the market, for a variety of reasons. A significant part of this discount is related to longer-term performance perceptions. To a lesser extent, short-term performance considerations have weighed negatively. And our share has also suffered from our accounting and financial presentations that are not considered to be sufficiently investor-friendly.

We are and will be taking action to address these concerns. And you can expect specific initiatives to be taken by our company in order to shrink this gap.

Nissan has a clear business plan, with clear objectives. We are committed to clear communications with all our stakeholders - with our employees, with our suppliers and, obviously, with our shareholders, to make sure you understand our strategies and are willing to support them.

We want to bring you the best return possible. We want to recognize your trust and contributions through transparent shareholder relations and a sustainable dividend policy. Today we will propose a 17-yen-per-share year-end dividend, giving a full-year dividend of 34 yen-per-share for fiscal 2006. We will also maintain the proposed 40 yen-per-share dividend for fiscal '07.

The Future
Confidence is boosted by understanding, so let me give you some examples of actions we are taking to reinforce our long-term direction.

Building our brands
I will begin with brand identity, which is, in fact, a great challenge in our industry. Anyone who continues to sell cars as a discount commodity will not last long. In the future, it is brand power that will distinguish the winners - and the survivors.

Today, although Nissan and Infiniti have made substantial progress, both brands are somewhere in the middle on the brand appeal scale. Our successes still come much more from the strengths of individual models than overall brand appeal.

So building our brand power is critically important. Patiently and consistently, we are focusing on every facet of our relationship with the customer. In parallel, we are working on two fronts:

  • Attractiveness - which is the emotional side of our relationship... internal and external design, driving pleasure, customer service and brand image; and on the other hand...
  • Competitiveness - which is the rational side... quality, reliability, price and availability.

So far, compared to our benchmarks, we're doing better on attractiveness than competitiveness. We are recognized for the attractiveness of our designs and for driving pleasure. As examples, Nissan brand icons include the Skyline and Fairlady Z in Japan... the Altima and Infiniti G35 in the U.S.... the X-TRAIL in Europe... and the Patrol in many General Overseas Market countries.

And Nissan's automotive prowess will be further reinforced, without a doubt, by the GT-R. This model will possess supercar performance that anyone can drive, anytime and anywhere.

The GT-R represents our strong heritage... showcases our present capabilities... and foretells our future promise. I don't think you should have any doubts about Nissan's passion and growing technological strength; the GT-R will help to dispel them. See the excitement for yourself as we show you a clip from one of the GT-R test drives we conducted in Germany....

Come and see the final product at the Tokyo Motor Show and in our showrooms in December.

Product offensive
The GT-R is not our only new product. We will launch 10 more all-new products globally in 2007.

  1. In the General Overseas Markets, starting with China, we introduced the Livina two-row minivan in April.
  2. In the U.S. the Altima Coupe was launched.
  3. To strengthen our domestic LCV business, new Single- and Double-Cab versions of our Atlas truck have been launched.
  4. The new X-TRAIL will launch this month, first in Europe, then in Japan and around the world.
  5. And in Mexico, Aprio, a new entry-level sedan derived from Renault's successful Logan platform.
  6. For Infiniti in the U.S., our new G37 coupe will be powered by a new 3.7-liter VQ Variable Valve Event & Lift engine.
  7. That will be followed by an all-new compact crossover in the U.S. - the Rogue.
  8. And not long after, the Infiniti EX, a compact luxury crossover.
  9. Then we will introduce an all-new version of our very popular Murano.
  10. Finally, the new Frontier-Navara single-cab pickup truck, starting with Thailand.

Once we complete the 28 launches of Nissan Value-Up this year, we will begin to introduce more than 33 new products during the following three years - an average of nearly one new product each month.

Investing in people
An appealing brand and attractive products are undoubtedly critical... but the true power behind any company is the talent and motivation of its people.

Since our future is global - much more global than before - we need human-resource strength all over the world. That is why we are dedicated to creating a corporate culture that embraces diversity. We want the most talented and motivated people in every country to recognize Nissan as an employer where merit - and merit alone - opens every door.

We are investing in people and in working conditions that enable our people to work more efficiently and cross-functionally. For example:

  • In November 2006 we opened our new design center in Atsugi.
  • In May we opened the new Nissan Advanced Technology Center, also in Atsugi.
  • We also began operations at our new Global Production Engineering Center in Kanagawa Prefecture, the focal point for production engineering and development for all our production facilities worldwide.
  • In mid-2008 our new headquarters for the Americas will open in Nashville.
  • In October 2009 our new global headquarters in Yokohama will be ready.
  • And in our plants worldwide we are steadily improving working conditions and our cross-functional capabilities.

I hope you will see that we are equipping our people with the tools and with working environments that will enable them to perform in a highly effective, cross-functional manner that will lead to strong results.

Investing in society
Our investments in people are not limited to our employees. We also aim to enrich people's lives by contributing to the societies where we do business. Specifically, our efforts are focused on education, environmental awareness and humanitarian relief. For example, we're teaching children about the environment using the example of fuel-cell vehicles. We partner with the World Wildlife Fund to help college students become advocates for the environment. And Nissan has provided emergency disaster relief on numerous occasions, such as the deadly 2006 Java earthquake.

We are increasing transparency by sharing our goals and our progress toward nine key areas as outlined in the Corporate Sustainability Report scorecard, which we developed this year. We want to earn the trust of all our stakeholders as we pursue our company's sustainable, profitable growth.

Finally, we are investing massively in the future with focused R&D spending.

In the 1990s, Nissan's finances were so fragile the company could not afford to maintain its reputation for technological innovation - the traditional core of its brand identity.

Since 1999, annual R&D expenditures have doubled to nearly 500 billion yen in fiscal 2007. But bigger budgets are only one measure of the change. Our research and advanced technology functions are now more than five times more efficient than they were in 1999.

Instead of unfocused and sporadic technical achievements, we now have a culture of consistent cross-functional innovation. And through the Alliance we have significant collaboration with Renault's R&D. Together we are advancing on all fronts.

Following the world's first 4-wheel active steering system introduced recently in the new Skyline, in fiscal '07 eight new original technologies will be featured in our products. More "world-firsts" are coming, including safety features such as the Distance-Control Assist System, Lane Departure Prevention and Around View Monitor. And starting in 2009, we will deploy more than 15 new technologies in our products each year. It is then that we will realize the fruits of all the investments we have systematically been making over the past seven years.

Our most urgent R&D challenge today is to meet society's environmental expectations. That's why 40% of our budget for advanced engineering is devoted to Nissan Green Program 2010, our five-year environmental blueprint.

For our industry, environmental sustainability represents the biggest engineering challenge. Along with Renault we will pursue every possible avenue of environmental progress - from hybrids to fuel-cells to electric cars and clean diesels.

In April, I announced Nissan will have its first-ever clean-diesel passenger car for all 50 states in the U.S. in 2010. We will launch a Nissan Maxima powered by a clean-diesel engine co-developed by Nissan and Renault.

Here in Japan, we have formed a new company with N-E-C Corporation to focus on the development and marketing of advanced lithium-ion batters, designed to power future generations of electric-powered vehicles.

Our new Advanced Technology Center will help to accelerate the research and advanced engineering of breakthrough technologies in all these areas. Focused technology will once again be a pillar of Nissan's competitive strength... and the core of our brand identity.

At Nissan, we have clear vision and strategies for the future. We have been focused on doing the right things... and we will put more emphasis on doing them the right way.

We know where we're going. We know how we're going to get there. We are realizing significant synergies and benefits through our Alliance with Renault. And we have enough fuel to go the distance - the resources we need to fund our future - with a 7.4% operating profit margin and strong cash flow from operations, at more than 1 trillion yen.

Strong companies are not the ones who never trip. They are the companies who always learn when they trip and adapt to keep on course as the competitive race goes forward. We have fully learned many lessons from our experience in fiscal 2006, and we are emerging with a sharper competitive edge. You can continue to expect the best from Nissan.

I will now proceed with the deliberation of the five items to be resolved in this General Meeting. You have received the items in your convocation documents. Afterward, I will be glad to take your questions.