February 8, 2018

Fiscal Year 2017 Third-quarter Financial Results
Nissan Motor Co., Ltd.

Headline Financial Results
For the nine-month period to December 31st, we achieved year-over-year growth in unit sales and market share. Today’s reported operating profit is down from the previous year due primarily to the adverse impact of special items related to the final vehicle inspection issue in Japan and settlement of the Takata related class action suit in the US as well as the lower than expected industry volumes in the US that prompted us to take actions to reduce dealer inventories during the third quarter.

For the nine-month period, consolidated net revenues were 8.53 trillion yen. Operating profit totaled 364.2 billion yen, which equates to an operating margin of 4.3%. Net income totaled 578.1 billion yen, which represents a 6.8% net margin – here I would like to point out that net income includes the favorable impact on tax expense of 207.7 billion yen related to the benefits from the recent US tax reform. Free cash flow for the automotive business was a negative 100.3 billion yen and we ended the period with an automotive net cash position of 1.31 trillion yen.

Please note that the year-on-year comparisons shown here are distorted by the previously mentioned special items that were recognized in the FY17 nine-month period related to the final vehicle inspection issue in Japan and the Takata Class Action Settlement in the US as well as well as the impact of our divestiture of Calsonic Kansei at the end of fiscal year 2016.

I will come back to these points later when I review the financial performance in more detail. Prior to that, I will briefly highlight our sales performance.

Sales Performance
During the nine months ending December 31st, global total industry volumes – or TIV – reached 68.52 million units, an increase of 2.0%.

Nissan’s total unit sales were 4.109 million units, an increase of 2.9% over the same period of fiscal year 2016. Global market share increased by 0.1 points to reach 6%. Moving to our sales performance in the key Regions…

In Japan, TIV rose by 4.5% to 3.66 million units. Nissan saw its overall retail volume increase by 9.7% to 378 thousand units.

Although we saw a 3.4% decrease in registered car sales to 252 thousand units due to the final vehicle inspection issue, this was offset by a 50.6% increase in mini car sales to 126 thousand units following the sales-resumption of the Dayz and Dayz Roox last year. As a result, our market share increased by 0.5 percentage points to 10.3%.

In China, where our sales performance is measured on a calendar-year basis, TIV for the nine-month period was up 2.6% to 19.08 million units. Nissan’s sales increased 9.8% to 1.02 million units, representing a market share of 5.3% for the period – this is up 0.3 percentage points versus the comparable prior year period. For the 12-month period to the end of December, our sales outpaced the market and increased 12.2% to 1.52 million units, as we saw encouraging sales of the X-Trail and Sylphy. Our full year market share reached 5.6% which is up 0.6 percentage point versus the prior year.

In North America, TIV decreased 1.8% to 15.97 million units. Nissan’s sales decreased 1.4% to 1.561 million units.

In the US, TIV was down 1.9% to 13.2 million units. Nissan’s sales increased by 1.1% to 1.177 million units, resulting in a market share of 8.9%, reflecting continued demand for the Rogue and Rogue Sport.

In Canada, TIV increased by 4.6%. Nissan’s sales rose by 8.6% to 113 thousand units, resulting in a market share of 7.0%.

In Mexico, TIV was down 8.3% and Nissan’s sales fell 13.7% to 270 thousand units, equivalent to a market share of 23.4%.

In Europe, including Russia, our sales rose 0.3% to 544 thousand units. Market share decreased slightly to 3.7%. Excluding Russia, sales decreased by 2.2% to 464 thousand units, which resulted in a market share of 3.5%. In Russia, the market continued to show signs of recovery. Our sales rose 17.8% to 80 thousand units and our market share was 6.3%.

In other markets, our sales increased by 2.0% to 607 thousand units due mainly to increased sales in Latin America and Africa and other markets. Models such as the Datsun redi-GO and the Nissan Kicks contributed to this improvement. Unit sales in Asia and Oceania decreased 2% to 248 thousand vehicles. Latin American sales rose 14.5% to 151 thousand units. Sales in the Middle East decreased 6.6% to 138 thousand units. Sales in Africa and others totaled 70 thousand, an increase of 11.7%.

Financial Performance
Moving to our financial results, as with previous quarters, Nissan is presenting its financial performance under the equity accounting method for our joint venture in China.

For the nine-month period,

  • Consolidated net revenues totaled 8.53 trillion yen.
  • Operating profit was 364.2 billion yen, which equates to an operating margin of 4.3%.
  • Net income improved to 578.1 billion yen, which represents a 6.8% net margin, this improvement is driven primarily by the positive benefits from the recent US tax reform on our US business.

Looking specifically at our third quarter 3-month results, our operating profit for the period was 82.4 billion yen and was affected primarily by two factors.

  • Operating profit was negatively impacted by 41.8 billion yen due to revenue deterioration in our US business reflecting prevailing market conditions. Specifically, our US performance was impacted by higher selling expenses as we transitioned from model year 2017 vehicles and adjusted our US dealer inventory levels downward in order to better position our business given the reduction in US TIV.
  • In Japan, the final vehicle inspection issues resulted in a negative impact of 39.6 billion yen. This was due to the combination of lower domestic and export sales volume, increased monozukuri costs resulting from the required manufacturing process changes and the longer than anticipated recovery times in line speeds at our plants, and higher selling costs incurred for vehicles sold in the domestic market.
  • Other items had a net positive impact of 9.2 billion yen.

For the nine-month period, our operating profit was 444.6 billion yen, before accounting for special items.

Looking at the operating profit movements in detail:

  • The adjustment for the divestiture of our equity stake in Calsonic Kansei was 23.8 billion yen
  • FX had a positive impact of 32.3 billion yen;
  • Raw materials had a negative impact of 80.1 billion yen;
  • Volume and mix and marketing and selling expenses had a net negative impact of 138.6 billion yen;
  • Cost items including purchasing cost reduction efforts and product enrichment resulted in net savings of 139.7 billion yen;
  • We continue to invest in R&D. As a result, R&D and manufacturing expenses increased by 21.4 billion yen; and
  • Other items had a positive impact of 33.3 billion yen.

Including special items, specifically the final vehicle inspection issue in Japan and the settlement of US class action lawsuits related to Takata air bags, our operating profit was 364.2 billion yen for the period.

On a management pro forma basis, which includes the proportional consolidation of our Chinese joint venture:

  • Net revenues increased to 9.42 trillion yen;
  • Due to the strong performance of our Chinese joint venture, the decline in operating profit was a bit less pronounced. For the period, operating profit was 474.8 billion yen, which equates to an operating margin of 5.0%;
  • Net income improved to 578.1 billion yen;
  • Automotive free cash flow was a positive 9.1 billion yen; and
  • We ended the period with automotive net cash of 1.58 trillion yen.

Relative to our outlook for the full fiscal year, we are revising our sales and earnings forecasts for the 12 months ending March 31, 2018.

Our fiscal year global retail sales outlook is being revised down by 50 thousand units to 5.78 million units to reflect declining conditions in Japan, Mexico and Europe which is only partially offset by the strong performance in China and other markets.

Reflecting our revised volume and business outlook, Nissan has also revised its full-year earnings outlook and has filed the following full-year forecast with the Tokyo Stock Exchange, using a foreign exchange rate assumption of 111 yen to the dollar for the year. It is based on the equity accounting method for our Chinese joint venture.

  • Net revenue is expected to be 11.8 trillion yen.
  • Operating profit is revised downward by 80 billion yen to 565 billion yen to reflect the additional impact related to the final vehicle inspection issue in Japan, as well as the measures we took to adjust for US market conditions.
  • Net income has been revised upward to 705 billion yen to reflect both the solid earnings of our affiliate companies, including our China joint venture, and the positive benefits from the recent US tax reform on our US business.

Looking at the change in operating profit from our previous outlook, we anticipate:

  • An additional negative impact of 30 billion yen from the vehicle inspection issue;
  • A 40 billion negative impact from the adjustment in dealer inventory levels;
  • An increase of 20 billion yen in raw materials cost; and
  • A positive impact of 10 billion yen from other items.

Based on the actions taken during the third quarter, we expect to see improved performance in the final three months of the fiscal year. Specific improvements expected in the fourth quarter include:

  • Global retail volume forecast to grow by 296 thousand units from the third quarter to 1.671 million units;
  • Net revenue that is expected to increase to 3.27 trillion yen;
  • We expect operating profit to improve to 200.8 billion yen, equivalent to a higher operating margin of 6.1%, as the two negative factors in the third quarter, the vehicle inspection issue and the adjustments we took for US market conditions, ease and as operations normalize; and…
  • Net income is forecast to reach 126.9 billion yen, equivalent to a 3.9% net margin.

Shareholder Return Outlook
Despite the recent challenges, for the 2017 fiscal year, we are still committed to a full year dividend of 53 yen per share, a 10.4% increase versus the prior year level.

In summary, the company faced a number of challenges during this nine-month period and in the third quarter specifically. These challenges included the impact from the final vehicle inspection issue in Japan, the lower than previously expected market TIV in the US, rising industry incentives levels and the raw material price increases.

We remain focused on improving steadily the underlying business performance and our financial results despite the market headwinds and the disruption caused by the final vehicle inspection issue.

We are implementing measures, such as the reduction in US inventory to align our US business with market trends and are also on track to fully recover from the vehicle inspection issue in Japan by the end of the fiscal year. As a result, we expect to normalize our operations by the end of the fiscal year.

We are committed to growing our business in a sustainable way to deliver solid earnings and automotive free cash flow as well as attractive shareholder returns.

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