119th Annual General Shareholders' Meeting
Business Report

June 26, 2018

Chairman Carlos Ghosn

My first comment is about Nissan strengthening its corporate governance. If approved by the shareholders, Nissan will appoint two new independent directors: Keiko Ihara and Masakazu Toyoda, bringing the total of independent directors to three, which represents one-third of the board. The insights to be provided by Ihara-san’s extensive motor sports experience and Toyoda-san’s esteemed positions in government will benefit the company, contributing to its growth and value to you.

My second comment is about Nissan’s benefits from the accelerated and extended convergence of the Alliance. I’m also raising this because it is one of the key topics of interest received in advance from shareholders.

In 2017, Renault, Nissan, and Mitsubishi sold more than 10.6 million vehicles to become the number one automotive group for passenger cars and light commercial vehicles. In 2018, we forecast to exceed 11 million vehicles.

As part of our Alliance 2022 strategic plan that we announced in September 2017, we forecast annual sales to reach 14 million units, generating combined revenues expected at 250,000 Oku-Yen by the end of 2022.

Being number one has never been our objective. It is the consequence of the patient implementation of a thoughtful strategy of convergence generating significant economies of scale and additional competitiveness to all members of the alliance.

In March 2018, we announced accelerated convergence in key areas of the business such as purchasing, engineering, and manufacturing.

We also extended the convergence in new areas such as Light Commercial Vehicles, Aftersales, Business Development and Quality.

Convergence is about delivering, more and better: delivery of new products (more and better), technologies (more and better), new businesses (more and better).

Convergence is also about efficiency: using our resources in the best way possible by eliminating duplication, generating savings and creating incremental revenue opportunities.

In 2017, the Alliance generated more than 7,260 Oku-Yen of synergies, out of which 4,040 Oku-Yen benefitted Nissan. Part of these synergies impacted our profitability and represented 30.1% of Nissan’s total operational profit.

By the end of the plan, the Alliance aims for combined synergies of 13,000 Oku-Yen. As a consequence, the Alliance contribution to Nissan’s profit will increase significantly in value as we gradually amplify and expand our work together.

Let me share a few concrete examples of what we’ve been developing recently.

In Purchasing, last year Renault, Nissan and Mitsubishi spent a total of 160,000 Oku-Yen in common purchasing, which generated significant cost avoidances and cost reductions. An example of joint initiative between Nissan and Mitsubishi was the common sourcing of electricity on Japanese-based sites, when located in the same district.

In Engineering, in 2017, the Alliance and Daimler have jointly developed a new generation of direct-injection, turbo-charged gasoline engines. Nissan and Daimler put together their state-of-the-art technologies such as Nissan’s expertise in increasing the engine efficiency, which we initially developed for Nissan GT-R’s powertrains.

Compliant with both Alliance and Daimler quality standards, this new engine family will be produced in Nissan’s plant in Sunderland, UK and in Renault’s plant in Valladolid, Spain. We’ll produce about one million units per year, covering multiple segments within the Alliance including Nissan vehicles.

During this mid-term plan, the Alliance will develop more common platforms, notably for EVs, B-segment vehicles and SUVs.

This will benefit Nissan by sharing engineering costs, by producing in the same plants to reduce investment and by using the same suppliers to reduce purchasing costs. By the end of the plan, more than 9 million Alliance vehicles will be sharing common platforms, up from 4 million today.

Nissan’s synergies will also come from powertrain: the proportion of common engines will rise from a third to three-quarters of total volumes, which will reduce development and manufacturing cost.

In Manufacturing and Supply chain, over the past two years Nissan benefitted from Renault’s plant in Flins, France, to produce Micra locally for the European market. This allowed us to get faster and closer to market, to avoid tariffs and reduce working capital.

Common shipment of vehicles is another example of cost-reduction initiatives.

In 2018, we plan to ship up to one million Renault, Nissan and Mitsubishi vehicles in common transcontinental vessels, worldwide. About 420 000 will be Nissan’s, which will benefit from significant cost reductions.

New opportunities of synergies also arise from our work with Mitsubishi. For instance, Nissan leveraged Mitsubishi’s competitiveness in ASEAN market by benchmarking the Navara pick-up with Mitsubishi Triton. This led to the implementation of improvements in engineering, bought-out parts and logistics.

We will also benefit from Mitsubishi’s expertise on PHEV when needed on our vehicles.

Another example of co-development is Nissan and Mitsubishi joining efforts to develop the next generation of Kei cars for the Japanese market. This joint project helped reduce investments and R&D costs.

Finally, in Aftersales Nissan and Mitsubishi started sharing two spare parts warehouses, one in Tokyo and one in Melbourne, Australia, together with a regional delivery network. This project boosted the efficiency of transportation and improved the use of vacant storage, which will reduce costs.

Along with increased synergies, Nissan will contribute to and benefit from the Alliance common advanced technology and innovation. The Alliance plans to invest cumulatively 66,000 Oku-Yen in research & development.

By the end of the plan, the Alliance will have launched 12 pure electric models utilizing common EV platform and components. The Alliance will have launched 40 vehicles equipped with autonomous driving technology, and we’ll become an operator in robo-vehicle ride-hailing services.

Nissan will also participate and benefit from the creation of Alliance Ventures, a venture capital fund to invest up to $1 billion over five years in new technologies.

This fund will strengthen our cooperation with start-ups, widen the spectrum of technologies we are able to cover and help all Alliance member companies cultivate new areas of business.

As the Alliance approaches its 20^th anniversary, it will continue to turbo-charge the growth and profit of each member company. Our task is now to answer some preoccupations about the sustainability of the Alliance for the future.

There are many possible ways of doing that. As Nissan Chairman, I can assure you that every action to be taken will support the performance of Nissan and your interests as Nissan shareholders. This is my focus today as it has been during the 18 years I led the company as COO then as CEO.

You can count on me to continue to work for further growth and strength of Nissan within the Alliance.

Thank you very much.

 

CEO Hiroto Saikawa

Good morning, and thank you very much for taking the time to attend this meeting. I am Hiroto Saikawa, CEO of Nissan.

Following Mr. Ghosn’s comments on what benefits the Alliance brings to Nissan, I would like to report the company’s financial results and business highlights for fiscal year 2017, followed by the outlook for fiscal year 2018.

But let me first touch upon last year’s vehicle inspection issue in Japan, since many of the questions we received ahead of today’s meeting were on this topic.

Last year, Nissan accepted the Japanese Ministry of Land, Infrastructure, Transport and Tourism’s process improvement orders related to non-conformities found last September in the final vehicle inspection processes at our vehicle manufacturing plants in Japan. I sincerely regret the concern this has caused our valued stakeholders.

Nissan remains committed to ensuring our customers’ peace of mind as our top priority. To that end, we have taken swift action. After restarting production and shipments in November, we have implemented thorough measures to prevent recurrence.

We have been reviewing and discussing the progress of these recurrence prevention measures at monthly management meetings, and giving additional direction whenever necessary to ensure that these measures are effectively implemented. These efforts are being made at all levels of the company.

At present, we have finished implementing 51 of the 58 countermeasures. We are drawing up specific plans for the implementation of the remaining 7 measures.

One priority has been to increase the number of certified final inspectors. Since last September, we have added 111 certified final inspectors, with the total increasing from 346 to 457. This is sufficient to ensure normal plant operation at capacity. That said, we intend to add even more certified final inspectors during the current fiscal year, while strengthening the training process to ensure that the system is as robust as possible.

We are also making preparations to introduce new technology to the kanken line during the latter half of the fiscal year, including a system that monitors the implementation of the kanken in real-time and enables management of historical data. Our expectation is that this new electronic system will eliminate the need for paper-based data management, improving the accuracy of data managed while also significantly reducing the workload of final inspectors at our plants.

In addition, we have enhanced our internal auditing processes by creating a “three lines of defense” audit system. Last fiscal year we started implementing the first two lines of defense, consisting of self-auditing by each plant’s quality assurance department and auditing by the Total Customer Satisfaction function based at headquarters. From the current fiscal year, we are also implementing the third layer: auditing by our specialized Internal Audit Office. We must continue to find and correct issues by ourselves.

These changes are not just limited to the final inspection line: we are also improving the overall working environment at our plants and renovating older facilities.

Importantly, we have also taken specific steps to improve communication between the shop floor and management.

In addition to all of the progress mentioned already, we have engaged in broader and more thorough monitoring of all our operations in order to ensure complete compliance with laws and regulations.

As we have previously disclosed, in the course of this monitoring, we found instances in which we were not in compliance with rules related to the acceptance of non-Japanese technical trainees.

Naturally, the very existence of issues such as these is not a good thing, and hearing about such issues can cause discomfort and worry. That said, leaving compliance issues unnoticed and unaddressed could cause critical issues.

As I have stated before, my duty—as the person who is responsible for Nissan today—is to uncover any issues and enact countermeasures, ensuring that compliance at Nissan is fundamentally stronger going forward.

During the remainder of my tenure, I will leave no stone unturned in continuing to ensure thorough compliance.

Now, let me provide an overview of our performance.

First, our global sales performance for fiscal year 2017.

This past year, Nissan’s global sales volume increased 2.6% to 5.77 million units, exceeding the pace of total industry volume growth, and resulting in a market share increase of 0.1.

Moving on to our sales performance in key regions…

First, the domestic market.

Our sales were impacted by the recall and suspension of production and shipments due to the vehicle inspection issue. However, looking at the year’s result, we recovered in the end. Our sales increased from the previous year by 4.8% to 584 thousand units, and our market share increased to 11.2%.

We are grateful for the result, and sincerely thank all of our stakeholders for your support.

In terms of product, this sales growth was driven by the Note e-POWER, Serena, and the new Nissan LEAF, as well as kei-cars DAYZ and DAYZ ROOX.

Moving on to China …

In China, where our sales are calculated on a calendar-year basis, total industry volume increased 1.8% over last year.

Nissan’s sales increased significantly by 12.2% to 1.52 million units, representing a market share of 5.6%. This was led by strong sales of X-Trail and Sylphy.

In the U.S., total industry volume grew steadily until fiscal year 2016, but fell 1% to 17.31 million units in fiscal year 2017.

Nissan’s sales totaled 1.593 million units, up slightly from the previous year, resulting in a market share of 9.2%. The Rogue and Rogue Sport led our sales growth.

In Mexico, total industry volume decreased 8.9%, and Nissan’s sales decreased as well.  However, we maintained a high market share of 23.5% and our number-one position.

Let’s move on to Europe.

In Europe, while total industry volume increased 1.5%, unfortunately, Nissan’s sales fell by 4.6%.

In Russia, we saw an increase in total industry volume, and Nissan’s sales increased as well. However, we did not catch up to total industry volume growth, and our market share slightly fell.

Now for the highlights of the FY17 financial results.

On the TSE report basis, consolidated net revenues slightly increased to 11.95 trillion yen. Consolidated operating profit unfortunately decreased, while net income increased, impacted by tax reform in the U.S.

Operating profit largely decreased in the third quarter, reflecting the negative impact from the vehicle inspection issue in the domestic market, as well as weak TIV in the U.S. The TIV issue caused the company to optimize our dealer inventory, which impacted our profit. We also increased incentives spending, and saw an increase in raw material costs combined with other items. We recovered some in the fourth quarter leading to the full year result as reported.

Next I would like to touch upon key business highlights.

As we announced already, we started a new, six-year midterm plan, Nissan M.O.V.E. to 2022, with the following two missions: achieving sustainable growth and advancing the technology and business evolution.

According to each mission and pillar, let me explain the progress we made in FY2017 and our plans for FY18.

First, as fundamentals to sustain steady growth, we continued to offer new products and new technologies in fiscal year 2017.

We had the global launch of the new Nissan LEAF. In Japan, we introduced the Serena e-POWER. This is the second model that offers e-POWER technology, following the introduction of the Note, and we have received very positive feedback from the market. The X-Trail in Japan and the Rouge in the U.S. are now offered with ProPILOT. We introduced a new model, the Datsun CROSS. In China, where the local brand market is growing, our local brand Venucia introduced the D60 and M50V.

In addition, as part of the geographic deployment of strategic models, the Rogue Sport went on sale in the U.S. and the Kicks and Navara went on sale in China.

We will continue to deliver attractive new models and expand our new technologies in fiscal year 2018.

For example, we will introduce a top-range version of the new Nissan LEAF with more range and more power. We will also introduce the new Altima.

In China, the Sylphy Zero Emission will go on sale. We will be offering our ProPILOT technology on Rogue Sport and Qashqai.

For the new Infiniti QX50, the new VC turbo (variable compression ratio) engine, will be introduced, in addition to ProPILOT.

Also, we will introduce the frame-based Terra, and our global model Kicks in the U.S.

We anticipate that these new models will significantly contribute to sales in the second half of fiscal year 2018.

In terms of steady growth, I will touch upon some key areas of progress.

In China, our joint venture with Dongfeng introduced its midterm plan, titled the “DFL TRIPLE ONE Plan,” earlier this calendar year to build a foundation for our future business. The company is progressing well, aiming to increase sales by 1 million units by the end of the plan.

Another growth pillar is the expansion of pickups and frame-based SUVs. This is an area where Nissan has to catch up with our competitors, but it means that there is a huge potential for growth.

Our sales growth in the previous year was steady, and we will double the growth speed by introducing a new Terra and increasing sales of the Titan in the U.S.

Next, in addition to growth, let me talk about the technology and business evolution, including Nissan Intelligent Mobility.

First on electrification.

The new Nissan LEAF is expanding globally, and cumulative sales of the Nissan LEAF have reached 320 thousand vehicles. Sales of the new Nissan LEAF totaled 32 thousand units in its first six months, so I can say that sales are growing very well.

In Japan, in addition to the new Nissan LEAF, the Note e-POWER and Serena e-POWER are accelerating our electrification plans.

In China, with our joint venture DFL, sales of EVs exceeded 23 thousand units in calendar year 2017, including EVs that are unique to only China. This is more than three times the sales compared to the previous calendar year.

The new Nissan LEAF will be launched in China this year, as well as Sylphy Zero Emission, which would double our sales in China.

Autonomous drive technology is steadily expanding as well.

ProPILOT is now expanding to X-Trail and Rogue, in addition to the new Nissan LEAF. As a result, ProPILOT has now expanded to the U.S. and Europe, and the number of vehicles equipped with this technology has reached more than 120 thousand units.

For this fiscal year, ProPILOT will expand to the new Altima, Qashqai, Rogue Sport, and INFINITI QX50.

Moving on to new business: Mobility Services.

As we already announced, we began conducting field tests in Japan of our robo-vehicle service Easy Ride with our partner DeNA, a significant step forward to enable customers to experience real services and technologies.

Building on the success of our “NISSAN e-share mobi” program, we will increase car-sharing from 30 current locations in Japan to more than 500 by the end of this fiscal year.

On the global front, through the Alliance, we signed a memorandum of understanding with DiDi to explore the possibility of future business cooperation on a new electric vehicle car-sharing program in China.

Nissan is also proactively implementing extensive programs and activities for corporate responsibility and CSR.

As we announced earlier this month, we launched “Nissan Sustainability 2022.”

This plan defines the company’s environment, social, and governance initiatives, while reiterating our commitment to contributing to the sustainable development of society.

The ultimate goal is “zero emissions and zero fatalities.” The initiatives which will contribute to achieving these goals include our Nissan Green Program 2022 and other activities to strengthen global compliance systems and governance. Nissan is implementing these activities as part of Nissan M.O.V.E. to 2022, based on what we’ve learned from our experience and findings from last year’s vehicle inspection issue.

As Mr. Ghosn said earlier, synergies from the Alliance are crucial for Nissan’s midterm prosperity and growth. In our alliance with Renault and Mitsubishi, Nissan is the biggest component in terms of business volume and management resources.

My stance is that Nissan should proactively engage in the Alliance to create benefits for all companies. In, Nissan itself gains significant benefits in return. We will continue converging business and functions in the Alliance to create synergies.

Also, while respecting and maintaining the principles of the Alliance and each company’s autonomy, as an equal partner we will maximize our synergies through collaboration. We will proactively work to ensure this unique character, strength, continuity beyond generations, and sustainability.

Next, let me provide our sales outlook for fiscal year 2018.

As I mentioned earlier, we will continue to launch attractive new models and expand our new technologies in fiscal year 2018 as a driving force for steady growth.

Our assumption is that global total industry volume will increase by 2.0%.

Our global retail volumes are planned to increase 2.7% to 5.925 million units, supporting our goal of delivering steady growth.

Although we have to forecast a decline in sales in the U.S. and Europe for this fiscal year, we aim to offset this with sales growth in Japan, China and other markets such as Latin America and ASEAN.

The power of the Alliance is essential for Nissan’s future growth and midterm activities. As I said, Nissan will lead Alliance activities and generate greater synergies to achieve our annual and midterm objectives.

Based on these factors, Nissan has filed the following full-year forecast with the Tokyo Stock Exchange:

• Net revenues are targeted at 12.0 trillion yen for fiscal year 2018
• Operating profit is targeted to reach 540.0 billion yen – representing a margin of 4.5%; and
• Net income is expected to reach 500.0 billion yen.

Moving to shareholder returns…

As we previously stated, the board is proposing to lift the fiscal year 2017 full-year dividend to 53 yen per share, a 5-yen increase from the previous year.

For fiscal year 2018, we continue to maintain a progressive dividend policy. For the year, we are forecasting an increase in the full-year dividend to 57 yen per share, a 4-yen increase from the previous year.

In conclusion, fiscal year 2017 was a big year with several key events, including new management changes and the start of a new mid-term plan.

Moving forward, we will continue to identify and address challenges and robustly enhance the foundations of our business. By responding to external changes quickly, we are committed to expanding our business in growing markets, increasing and improving profitability in matured markets, further innovating technologies, and preparing for evolution. We will implement these measures thoroughly and steadily.

With these commitments in mind, we will proactively advance our businesses in fiscal years 2018 and 2019, giving a strong start to our midterm plan.

We appreciate your continued understanding and support.

Thank you very much.

 

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