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Nissan Chief Financial Officer Joe Peter explains Q3 earnings and implications for fiscal 2011

 

Q1. What were some of the key features of the quarterly Nissan numbers, and what trends do they point to for full-year results?

CFO:

First I’d like to say that we’re encouraged by the results that we’ve been able to post over the first nine months of the year, in what was clearly a very challenging business environment.

If I could highlight a couple of things: First, we saw strong demand for our products across the globe. You can see that in the 9-month period our sales reached 3.429 million units, which was up 411,000 units over the comparable prior year – and up 13.6%. If we look specifically at the third quarter, results are even more encouraging. We see that results in terms of sales over this period are up 19.5%. Our global market share for the 9-month period increased by half-a-percentage-point to 6.1%. And for the third quarter specifically, our global market share increased 0.8 percentage points to 6.5%.

Second, in this period we were able to post very strong financial results in spite of the natural disasters in Japan and Thailand and the continuing impact of the strong yen, as well as rising material costs. In the 9-month period, we achieved an operating profit of 428 billion yen, roughly equivalent to $5.4 billion for operating profit margin of 6.4%.

From a net income perspective we achieved 266 billion yen, roughly $3.4 billion, for a net income margin of 4%. We also generated automotive free cash flow in the amount of 173 billion yen, roughly $2.2 billion. And ended the period in an automotive net cash position of 357 billion yen, roughly $4.6 billion.

While the 9-month financial results are somewhat down from the comparable year-ago period, the entire shortfall is more than explained by the negative impact of foreign exchange over the period. The underlying performance of our operation has been improving. In fact, if we look specifically at our Q3 financial results, we can see that both from an operating profit perspective and a net income perspective, we showed improvement versus the comparable prior year.

 

Q2. You talk about market share increasing. Let’s move to geographic markets. What geographic markets have been outperforming and what regions are facing the biggest challenges?

CFO:

Quite frankly, our sales footprint and growth has been fairly broad-based throughout the year. In fact, in Japan, where we experienced those supply constraints directly from the earthquake in March, we’ve seen our sales volume grow double-digit in every major sales market that we have. We can see that in North America our sales over the 9-month period increase 12.1%. In Europe, we were up almost 21%. In China, we were up over 20%. And in the other markets around the world, our average growth was 14.2%.

Even in Japan, our sales decline was much less than the sales decline of the overall industry in Japan, and we were actually able to increase our market share 1.3 percentage points to 14%.

 

Q3. You also mentioned the impact of the appreciating yen. It’s been a headwind not only for Nissan but for other Japanese automakers. How significantly is it impacting performance?

CFO:

Very significantly. Just to put it in perspective, every one yen move versus the dollar costs us 20 billion yen in terms of our operating profit on a 12-month basis. For the 9-month period ending December 31, 2011, the negative year-on-year impact of foreign exchange moves cost us 150 billion yen. So, a very significant impact.

In fact, if we looked at our performance at a constant exchange basis, that is, assuming that exchange during the first nine months of this year was the same as it was in this comparable period in 2010, our operating profit margin would have exceeded 578 billion yen and our margin would have been over 8%. So, again, you see a significant impact as a result of the yen strengthening.

Over the medium term, we have initiatives in place to reduce the exposure of our business as a result of the current yen revenue and cost imbalance. This includes production footprint shift along with increased sourcing from qualified competitive sources outside of Japan for components and services. Given the current strength of the yen, our activities in this regard are being amplified and the pace is being quickened.

 

Q4. It’s hard to imagine, but it’s been nearly one year since the earthquake and tsunami struck Japan, and, later in the year, the flooding in Thailand. Is it fair to say that Nissan has been able to overcome these major external issues?

CFO:

I think it is fair to say. Our people worked very hard to recover our operations from the impact of these disasters. And I think our results demonstrate the effectiveness of their efforts in that regard.

As we look forward, we continue to face external challenges. The primary ones being, obviously in the short term, the continued strength of the yen, as well as the uncertainty related to the European debt crisis and the potential impact that will have on the pace of global economic growth going forward. Having said that, we’re confident that our Nissan Power 88 mid-term plan, which we announced earlier in the year, coupled with our exciting product portfolio and our organizational agility leaves us well positioned to meet those challenges going forward.

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