SPEECHES


118th Annual General Shareholders' Meeting
Business Report

June 27, 2017

CEO Hiroto Saikawa

Despite a challenging business climate, including forex headwinds, we enjoyed steady growth in production and sales volume while enhancing operational efficiency in FY2016. Nissan delivered solid financial results.

The company generated consolidated net revenues of 11.72 trillion yen and an operating profit of 742.2 billion yen for the financial period. This represents an operating profit margin of 6.3%.

Net income rose 26.7% to 663.5 billion yen, which included the proceeds from the divesture of Calsonic Kansei. We generated automotive free cash flow of 677.1 billion yen.

Excluding the cost of our investment in Mitsubishi Motors and the proceeds from the sale of Calsonic Kansei, automotive free cash flow would have been a strong 817.1 billion yen. As a result, Nissan ended the period with a net cash position of 1.64 trillion yen from its automotive operations.

Reflecting our financial health, Nissan will pay the full-year dividend of 48 yen per share for FY2016.

In FY2016, Nissan’s retail volumes rose 200,000 units from 5.42 million units in the previous year to 5.63 million units, breaking another record with solid growth.

In the second half of the FY2016, our sales topped 3 million units in the last six months, up 7.3% over the previous year.

In Japan, Nissan saw unit sales fall due in part to the suspension of the Dayz and Dayz Roox kei cars in the beginning of the fiscal year. We resumed sales of those models in July, and in August, we launched the Serena with ProPILOT, followed by the introduction of the Note e-POWER. Our market share in the second half of the year rose by 0.7 percentage points year-on-year to 12.5%.

A strong and consistent brand campaign, coupled with solid ground-level work such as outlet renovations and headcount increases, are delivering results.

In China, despite intensifying competition, Nissan largely boosted its sales, driven by our strong products – mainly X-Trail, Sylphy, and the recently launched Qashqai. Our sales volume in China reached 1.35 million units.

Today, local brands are growing stronger in the Chinese market. The local brand market is rising rapidly, growing by about 30% in 2016, reaching close to 10 million units out of the 27 million-unit market and counting. Under our local brand Venucia, we are reinforcing our strategy. We launched the new Venucia T90 last December. Between January and April, our sales rose by about 10% year-on-year, helped by TIV growth. We are taking the right steps to adapt to tough competition and the changing market.

In the U.S., we sold 1.58 million units. We significantly outperformed the market by recording a market share of 9%, up 0.4 percentage points. This performance reflected solid demand for both the Rogue and Altima. Sales of the new Armada and the Titan full-size pickup truck also rose strongly.

In the U.S., demand is shifting from sedans to SUVs and crossovers. Because of our strength in crossovers, we are effectively adapting to the segment growth.

In Canada, Nissan outperformed the market. In Mexico, the company maintained its number-one position.

In Europe, TIV grew and Nissan saw unit sales increase. This performance was driven by strong demand for models including the Qashqai SUV and the Navara pick-up. We began deliveries of the fifth-generation Nissan Micra toward the end of FY2016, and we are counting on the model to contribute to this year’s sales.

In Russia, economic uncertainty continued to negatively impact TIV. Although our sales were down in FY2016, we expect that the market bottomed out by the end of FY2016 and will gradually come back from this fiscal year onward.

Nissan launched some core models during the course of the fiscal year. In addition to the ones that I referred to earlier, we introduced Kicks in Latin America, the Infiniti Q60 sports coupe, and the Datsun redi-GO in India.

Now I would like to give you some updates on our new technology initiatives. In FY2016, we introduced new technologies to advance Nissan Intelligent Mobility, which is the core of Nissan’s brand strategy.

In the autonomous driving area, we launched our first model with ProPILOT technology, the new Serena. With regards to electrification, we introduced Note e-POWER, the first application of our e-POWER technology. The Note e-POWER is a new type of electric vehicle, and it has been well received by the market.

In the connected and new mobility services area, we began working with our partner DeNA to be ready for development and field test of driverless cars. We are making progress toward future mobility.

And the new Nissan LEAF, which is arriving within this fiscal year, will also have ProPILOT technology.

The Alliance made another big step forward over the last 12 months.

Following Nissan’s acquisition of a strategic stake in Mitsubishi Motors in October 2016, Mitsubishi Motors became the third member of the Alliance. With this added scale, the Alliance now enjoys global sales of nearly 10 million units.

As previously announced, we expect to generate 24 billion yen in synergies benefitting Nissan for FY2017. We are on track to identify synergies mainly in purchasing and logistics. For the mid-term, we are exploring opportunities in platform development and cooperation in Asia. In April, we announced an OEM deal in which Nissan leverages assets of Mitsubishi Motors for minivan production in Indonesia. We will further specify synergy opportunities in many areas.

We have been saying that new partnerships beyond the traditional automotive industry are necessary to drive the Nissan Intelligent Mobility strategy. We made progress in this area, too.

In addition to our partnership with DeNA, we started working with several partners including Microsoft, Transdev, and Mobileye. We are also involved in joint development of future technologies with NASA in the U.S.

Nissan continues to play an extensive and active role in Corporate Social Responsibility. As you may be aware, last year we named Senior Vice President Hitoshi Kawaguchi our first Chief Sustainability Officer. Under Kawaguchi-san’s leadership, we are accelerating our global efforts to make Nissan a sustainable company that contributes to society.

I would like to highlight a few examples of our initiatives in FY2016. Following the Kumamoto Earthquake, we made monetary donations and delivered relief goods including water and food supplies. We also offered 100 Nissan LEAF and e-NV200 electric vehicles to the local authorities and nonprofit organizations. The EVs loaned to regions affected by the 3/11 earthquake and tsunami were also appreciated. In addition, we sent employee volunteers as part of ongoing aid efforts.

Nissan continues to support the regions affected by the 3/11 earthquake and tsunami, and we took quick actions to support reconstruction efforts in other disaster-stricken areas outside of Japan.

Now, I would like to talk about FY2017. We are working on the following three themes this year:

  • Delivering steady growth;
  • Introducing new technologies and products to further promote Nissan Intelligent Mobility; and
  • Fully capitalizing on the Alliance benefits to make the above two a reality.

I will provide the full-year guidance for FY2017.

We are forecasting a global sales volume of 5.83 million units, assuming the company’s steady growth. Sales are expected to rise in all regions, but particularly in China and Japan, where we have already seen sales picking up. Based on this sales plan, net revenues are projected to be 11.8 trillion yen for the 12 months ending on March 31, 2018. Operating profit is targeted to reach 685 billion yen – representing a margin of 5.8%. Net income is expected to reach 535 billion yen.

We made a rather conservative assumption on profitability in anticipation of a commodity price hike and negative impacts of forex as well as somewhat slowing momentum of the U.S. market. Meanwhile, we are increasing R&D investments for future development.

Market conditions are expected to be somewhat challenging. Despite this, Nissan intends to continue advancing Nissan Intelligent Mobility, backed by our technology DNA, and expressing a strong face for Nissan’s brand.

We will launch products that are critical to these goals. Let me give you some examples.

Following the new Serena and Note e-POWER launches last year, we are going to launch the new Nissan LEAF, with an extended driving range. We have high expectations for the new LEAF, which is at the core of the Nissan Intelligent Mobility strategy. We will first introduce it in Japan, and then North America and Europe.

We are equipping X-Trail and Qashqai in Europe with the ProPILOT technology. New technologies will be delivered globally. We also plan to expand our e-POWER line-up.

In the U.S., a king cab will be added to the Titan full-size pick-up line-up. Nissan is going on an offensive in this growing segment.

In China, we are introducing the Nissan Paladin. The growth of our local brand is key to our future success in this market. We launched the Venucia M50V minivan in April.

In addition to these products, Nissan is going to launch more attractive products around the world this year. We will deliver these new models with quality excellence to our customers, and achieve solid growth.

Nissan will maintain a progressive dividend policy, reflecting our healthy profitability and free cash flow. We are forecasting a 5-yen increase in the full-year dividend to 53 yen per share for FY2017.

The end of FY2016 marked the completion of Nissan Power 88. We are starting the new midterm plan this fiscal year. I will touch on the progresses so far and the skeleton of the next midterm plan.

Nissan Power 88 mid-term plan targeted significant growth based on big investments. If you compare the results of the six years with the FY2010 performance, you can see that the size of our business grew by 30% to 40%. We were successful in growing the business footprint, building a strong foundation for further business growth in the next midterm plan. Although we couldn’t reach our target of 8% market share, we intend to reach the level during the next midterm plan.

In terms of reaching an 8% core operating profit (COP) margin, as well as the business efficiency to sustain profitability, we experienced difficulty in sustaining our profitability in the first half of NP88, due to significant investments. However, we recovered in the second half of Nissan Power 88, and our business efficiency has been steadily improving since FY2014.

Under a constant forex assumption, our profitability improved by 1.2 percentage points and 1.3 percentage points respectively in two years. This means that we are now capable of achieving 8% operating margin under certain economic and market conditions.

The theme of the next six-year midterm plan starting from FY2017will be delivery of steady growth and evolution, building on the foundation that we established during Nissan Power 88.

Our key growth objective is to keep an 8% operating margin while growing revenues from 12.8 trillion yen to 16.5 trillion yen. In addition, we will generate a cumulative 2.5 trillion yen of automotive free cash flow over the next six years.

We see significant changes in technologies and business evolution coming in the next six years. Nissan has already started strategic efforts to respond to these changes through Nissan Intelligent Mobility. Here, we need to make the best use of the benefits from the Alliance. We are now identifying opportunities together with Renault and Mitsubishi Motors.

We plan to announce the entire picture within this fiscal year when we are ready.

Thank you very much.

 

Chairman Carlos Ghosn

In April, I left the CEO position at Nissan to focus more on the growth and evolution of the Alliance. It was a bittersweet decision, as leading Nissan was a great privilege for the last 18 years. I thank the shareholders for that opportunity…and now for the opportunity to continue as its Chairman.

I was able to step back from the CEO role because the company was on the right course. It has a strong management team in place. The appointment of Saikawa-san was a natural evolution, and his leadership will assure Nissan’s bright future.

Now, my attention can be paid to ensuring that each company, including Nissan, is able to harness the benefits of our growing Alliance.

This month, the Alliance marks its 18th year – a unique and enduring arrangement in the automotive industry.

With Nissan’s acquisition of a strategic stake in Mitsubishi Motors, the Alliance added a third member last fall. The addition of Mitsubishi Motors greatly increased our scale, potential for synergies, and presence in markets such as ASEAN, where we as an Alliance have not always been strong.

It has given us another benefit: Based on the sales data from the first three months of the year, we are forecasting the Alliance could take our place at the podium as the number one automotive group by mid-year.
This has never been the goal, but it should give us great satisfaction. Our next step is to leverage our scale in ways that strengthen our competitiveness.

We see multiple opportunities on this front.

The first is the continuation of synergies. In 2016, the Alliance has established a new record of synergies. Looking forward, in 2018, we should achieve our target of 5.5 billion euros in synergies.

There is more to come.

By 2020, we expect that 70 percent of vehicles will be produced on common platforms – reducing procurement costs per car by 30 percent, and engineering costs per car by 40 percent.

In the near term, Nissan will also begin to see the results of the first full year of synergies from the work with Mitsubishi Motors.

Another opportunity will be to generate benefits from our newly created Light Commercial Vehicle business unit. This unit will combine Nissan’s leadership in pick-up trucks and SUVs for the US, China, and Japan, with Renault Group’s 15-year expertise in making vans for European and South American markets.

With Mitsubishi Motors, the Alliance has coverage of 77 percent of the LCV market. We will leverage the combined investment and expertise, while respecting the markets and identity of each brand for greater growth.

We will also continue to advance our leadership in electrification. The Alliance has sold more than 460,000 vehicles to date – twice as many as our immediate competitor, Tesla, despite the outsized media coverage it receives. From 2015-2020, we have put into place a plan of 1.2 billion euros to develop new technologies which will deliver even greater efficiency and performance.

We will launch the new LEAF later this fiscal year. And with Mitsubishi Motors, we are adding hybrid plug-in technology to our offering. Not only will these moves continue our pioneering leadership in electrification, they will also improve our capabilities to be proactive in responding to increasing environmental regulations.

This brings me to the final opportunity I’ll highlight. It is on technology sharing.

It is no longer a surprise to anyone that the future vehicle will be electric, autonomous, and connected. Through the Alliance’s scale, joint engineering, and research & development, our operating model allows us to develop technologies in each domain for every market – without compromise or handicap. In the coming months this will include our driverless testing with DeNA and Transdev, as well as shared connectivity platforms, which we are developing with Microsoft.

These are just a few of the milestones ahead. It is an exciting time for the Alliance, but it is not a time for complacency. Scale does not automatically lead to success. It will depend on the independent contributions of each company, working at the height of their capabilities.

Nissan is at the heart of the Alliance’s future potential. The company is on solid ground, with a strong vision for its future.
To discuss this vision, I am pleased to turn it over to Nissan CEO, Hiroto Saikawa.

 

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