Nissan's earnings in the first half of the current fiscal year were primarily driven by favourable currency movements, while headwinds in China and Europe remain strong.
IHS Automotive perspective | |
Significance | Nissan has reported a 2% year-on-year (y/y) increase in net income to JPY107.8 billion (USD1.1 billion) for the quarter ended 30 September. Revenues increased 16.4% y/y during the quarter, although sales volumes grew only marginally. |
Implications | Although exceeding expectations, Nissan's sales and profits were largely driven by currency exchange gains, effectively making up for a slowdown in China and the continuing slump in Europe. |
Outlook | Keeping the challenges in mind, Nissan has pruned its full-year earnings guidance by 20%. Currency gains and strong demand in the United States are likely to boost earnings, albeit at a slower rate. |
Nissan has reported a 2% year-on-year (y/y) increase in net income for the quarter ended 30 September 2013. In a statement on its website, the automaker said that its profits stood at JPY107.8 billion (USD1.1 billion) during the quarter, up from JPY105.7 billion in the same period last year. Revenues grew a solid 16.4% y/y to JPY2.5 trillion, while operating profit declined 18.7% y/y to JPY113.8 billion. Although sales volumes grew only marginally to 1.27 million units during the quarter, the automaker was helped by favourable currency exchange rates.
For the first six months of the current financial year (FY), the automaker's profits increased 6.8% y/y to JPY189.8 billion as revenues grew 17% y/y to JPY4.76 trillion. The effect of foreign-exchange rates was more prominent during the period as revenues grew despite sales volumes falling 1.5% y/y to 2.44 million units. Operating profit for the first six months stood at JPY221.9 billion, down 2.6% y/y.
"Nissan's results reflect improved demand for our new products in Japan and the Americas," said Carlos Ghosn, Nissan president and CEO, adding, "This was offset by difficult conditions in Europe, volatile demand in several emerging markets and higher expenses related to recalls."
Nissan's financial results (JPY bil.) | ||||||
Q2 FY 2013/14 | Q2 FY 2012/13 | % change | H1 FY 2013/14 | H1 FY 2012/13 | % change | |
Sales revenues | 2,523.3 | 2,168.3 | 16.4 | 4,756.2 | 4,063.7 | 17.0 |
Operating income | 113.8 | 139.9 | -18.7 | 221.9 | 227.8 | -2.6 |
Net income | 107.8 | 105.7 | 2.0 | 189.8 | 177.7 | 6.8 |
Profit forecast pruned
Despite the double-digit percentage revenue growth and an associated increase in profits during the quarter, Nissan has shaved its profit forecast for the full FY by nearly 20%. Japan's second largest automaker now expects its annual profits to remain at JPY355 billion, lower than the previous forecast of JPY420 billion. The new guidance still projects a 4.1% increase in earnings from the previous year. Continued sluggishness in Europe, a slowdown in key Asian markets including China, and higher-than-anticipated costs associated with a recent massive recall are behind the move to cut the profit projection (see World: 27 September 2013: Nissan recalls 908,900 vehicles over accelerator sensor flaw). The automaker has also reduced its revenue and operating profit guidance, albeit by smaller amounts. Nissan now projects full-year revenue of JPY10.19 trillion (up 16.6% y/y) and operating income of JPY490 billion (up 11.7% y/y).
Senior management appointments
The automaker has also made some changes to its global leadership team to enhance performance and better align the company with the "Power 88" mid-term plan that aims to boost operating profit margin to 8%. As a result of the latest changes, Nissan's chief operating officer (COO), Toshiyuki Shiga, will become a vice-chairman with responsibility for external affairs, asset management, and corporate governance. Shiga's current responsibilities will be shared among three executives. Hiroto Saikawa, chief competitive officer, will continue in his role to lead global purchasing, manufacturing, supply chain management, research and development, and total customer satisfaction. Andy Palmer, executive vice-president of planning and marketing communications, has been named chief planning officer (CPLO). Palmer will be in charge of Zero Emission Vehicle planning and strategy, the global battery business unit, and global sales and will report to Ghosn. Trevor Mann, currently executive vice-president, has been named chief performance officer (CPO) with responsibility for running the automaker's regional operations. Mann will also lead Datsun, as well as the light commercial vehicle and global aftersales business units. Colin Dodge, currently executive vice-president and CPO, has been promoted to a newly created role managing special projects and reporting directly to Ghosn.
Outlook and implications
Nissan's results for the quarter exceeded expectations as the automaker benefited from resurging demand for minicars in the domestic market, while continued strength in the United States added impetus. North America was among the markets where the automaker saw a strong boost in sales volumes. With a 10.9% y/y jump in deliveries, Nissan sold a total of 404,000 units in North America during the period, making it the company's largest regional market. In the United States, its sales jumped 9.6% y/y to 316,000 units. North America was followed by Asia (excluding Japan) where Nissan's sales declined 10% y/y to 401,000 units. China – Nissan's biggest individual market within Asia – saw a decline of 1% y/y but sales fell more sharply in other Asian markets. In Japan, its sales volumes increased 10.6% y/y to 180,000 units including minivehicles. However, persistent weakness in Europe caused a sales decline there of 2.2% y/y to 158,000 units for Nissan in the last quarter.
Nissan has essentially joined Honda in reporting better profits on the back of the weak yen against the US dollar – a development that is boosting revenues of Japanese companies (see Japan: 30 October 2013: Honda's Q2 FY 2013/14 net profit jumps 46% y/y on strong North American sales). However, there is little else to cheer about in the results and Nissan's downward revision to its profitability outlook for the full year is in line with the market realities. China accounted for nearly 25% of Nissan's sales volumes in the last quarter but there is not much clarity as to when the automaker will recover from the consumer backlash against Japanese brands in the country. Meanwhile, quality issues continue to plague the automaker globally. Apart from the massive recall related to faulty accelerator sensors, the automaker has also been involved in recalls in Japan (see Japan: 13 September 2013: Daihatsu, Nissan recall minivehicles in Japan over engine problems).
Despite the headwinds, the support offered by favourable exchange rates is expected to offset the negatives. The situation appears positive for Nissan for the full FY as it prepares for new model launches such as the Rogue crossover in the United States, where it has been gaining market share (see United States: 1 November 2013: Nissan Rogue goes on sale in US during November, first vehicle using Renault-Nissan all-new CMF). That said, Nissan's performance in emerging markets will be the key in determining whether it can achieve its medium-term targets, which call for an 8% global market share and an 8% operating profit margin by FY 2015/16. A key aspect of this target has to do with the success of the recently revived Datsun budget brand for emerging markets including India, South Africa, Russia, and Indonesia (see India: 16 July 2013: Nissan unveils Datsun Go in India, makes budget-brand push in emerging markets). On the positive side, the brand will benefit from the fact that it is a new entrant in these markets with no history and will be judged purely on the value of its vehicles. However, with the brand targeted at first-time buyers, Nissan faces a challenge to attract potential customers.