Nissan 2008 3rd Quarter Financial Performance

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February 10, 2009

Just the other day I outlined the state of the global automotive industry in January 2009 Global Auto Sales Continue to Be Depressing. Nissan is the most recent company to report their latest financial results and it is sobering. Of the three major Japanese manufacturers, Nissan has posted the largest loss given the size of the company and expects full year results to be worse. At the press conference Nissan’s COO, Toshiyuki Shiga summed up well the emergency facing the Nissan and the rest of the industry as global financial crisis quickly changed the economic environment and market assumption.

Toshiyuki Shiga stated:

“The global financial and economic crisis, which began to accelerate last September, continues to evolve negatively, as our third-quarter results will reflect. Nissan has been taking decisive actions to adapt to the downward trends in financial markets and the deteriorating conditions in global markets.

Allow me to begin with some indicators that show the effect of this crisis on our industry. At the start of fiscal year 2008, we estimated the global total industry volume to be 69 million; now we estimate it to be 62 million, a 10% decline. In the third quarter, mature auto markets continued to be in a period of significant recession, with demand down 35% in the U.S., 14% in Japan and 20% in Europe, and demand also declined in emerging markets.

Another serious challenge has come from the yen strengthening against major currencies, which is having a significant negative impact on our profitability. In December 2007, the exchange rate was 114 yen to the dollar. In December 2008, the rate was 91 yen to the dollar, a difference of 20%. The difference is greater among some other currencies. For example, the yen strengthened 27% against the Russian ruble by the end of December.

The speed and severity of the financial crisis has far exceeded all industry expectations. The slump in demand that began in September increased sharply in the third quarter as consumer confidence fell and access to credit tightened.”

Nissan announced, in the third quarter, its consolidated net loss after tax came to ¥83.2 billion ($0.81 billion), compared to net income of ¥132.2 billion yen ($1.28 billion) from the same period a year ago. Net revenue was down 34.4% to ¥1.8165 trillion ($17.65 billion). The company's operating loss totaled ¥99.2 billion ($0.96 billion). Ordinary loss amounted to ¥112.7 billion (US $1.1 billion).

In the April-to-December 2008 period, net income after tax totaled ¥43.2 billion (US $0.42 billion), down 87.5% compared with the previous year. Net revenue fell 14.7% to ¥6.6858 trillion (US $64.97 billion). Operating profit totaled ¥92.5 billion (US $0.9 billion), down 84.0%. Operating profit margin came to 1.4%. Ordinary profit amounted to ¥90.0 billion (US $0.87 billion), down 84.0%.

Globally, Nissan sold a total of 2,633,000 vehicles in the first nine months, down 3.0% compared with last year. The company also reduced its estimates for the full year ending March 31, as it now expects a net loss of ¥265 billion yen ($2.88 billion). It earlier forecast ¥160 billion ($1.75 billion) net profit.

Of importance was the company’s cash burn since the start of the fiscal year. As of March 31, 2008 the company reported it has ¥570 billion ($ 6.22 billion) which dropped to ¥463 billion ($5.06 billion) as of December 31, 2008.

The company’s CEO Carlos Ghosn has made preserving cash a top priority including cutting spending, headcount reductions and increasing its alliance with Renault to share cost.

He stated:

“The aim of all these measures is to return to a positive free cash flow in fiscal year 2009 with a total industry volume forecast at 55 million units and a foreign exchange rate at 90 yen to the dollar.”
Mr. Ghosn also announced the following specific actions to reduce the company’s burn rate as the global market contracts.

• Salary reduction:

• Cut by 10% for all board members and corporate officers from March 2009 until the situation improves

• Cut by 5% for all managers at Nissan Motor Company and at all of Nissan’s affiliates in Japan from March 2009 until the situation improves

• No bonus for the board of directors in FY08

• Reduce working hours

• In Japan, overtime reduced by 30% since the beginning of FY08, with an additional 75% in FY09

• Adjust production days

• In Japan, production days will be reduced by 50% in February and March

• In U.S., operating on four-day work weeks

• Negotiate work sharing scheme for employees

• Improving working capital by 130 billion yen during FY09

• Planning sale of identified non-core assets and activities

• Proposing no dividend payment for 2nd half of FY08



In a separate statement, a spokesman for Nissan US announced it had submitted an application to the US Department of Energy (DOE) to receive a low-cost loan to develop fuel efficient vehicles. Nissan was the only Japanese company to apply for the funds. According to a Nissan spokesman the company was its application met initial requirements, and the request entered the second of four approval stages. The DOE was authorized to lend $25 billion to the auto industry to design and develop fuel efficient vehicles to meet the pending Corporate Average Fuel Economy requirements signed into law in December 2007. All companies doing business in the US are elligible to apply for and receive loans under this program.

Nissan’s results only reinforce the perfect storm facing Japanese auto companies as export sales drop off a precipice and the yen rises against the dollar. For instance, sales were down 29.3% in North America, 19.3% in Japan and 24.9% in Europe for the quarter. Yet net sales in yen fell 46.3% in North America, 34.4% in Japan and 50.1% in Europe (Figure 1). Nissan appears to be preparing to take aggressive action to improve its cash position. However without the global market reaching its nadir, the company may have to make for drastic cuts to conserve cash. In any event, I do expect the road to remain very bumpy for the foreseeable future as the credit market remain very tight and the Japanese government not taking action to devalue the yen.


Figure 1: 2008 3rd Quarter Consolidated Financial Information

Additional Resources:

Nissan to slash jobs, production after forecasting .9bn annual loss, Automotive News, February 9, 2009

Nissan swings to Q3 loss; sees full-year loss, Market Watch, February 9, 2009

Nissan 2008 3rd Quarter Consolidated Financial Information

Nissan 2008 3rd Quarter Presentation

Nissan Financial Results 2008 3rd Quarter

Press Conference Statements by Nissan CEO Carlos Ghosn

February 9, 2009 Press Release


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