Carlos Ghosn, President & CEO, Nissan Motor Co., Ltd. NISSAN 180 and Fiscal Year 2003 Review Speech

[Apr. 26, 04]

"Every year since the start of Nissan’s revival, I have reported our performance for the fiscal year just ended. And every year since the start of Nissan’s revival in 1999, the reported results exceed the prior year as well as our forecast.

Today will be no different.

For fiscal year 2003, Nissan is reporting record earnings and an operating profit margin that continues to lead the global automotive industry.

And, as in years past, the numbers will tell our story. Despite the fact that many of our anticipated risks materialized last year, we consistently executed NISSAN 180 and realized many of the foreseen opportunities.

I would like to acknowledge the invaluable contributions of the thousands of men and women who work for our company around the world. They made this record performance possible.

As we begin the final year of NISSAN 180, I will review our business performance in fiscal year 2003 and give you our forecast for this year. I will then give you the highlights of our next three-year plan, which we will start implementing one year from now in April 2005.

Part I: Review of FY03 Let me begin with an update on our sales.

Global sales came to 3,057,000 units, which exceeded our forecast of 3,040,000 units. This represents an increase of 10.4%, or 287,000 units, over fiscal year 2002… and the first time in 13 years that Nissan has sold more than 3 million vehicles.

In Japan, sales came to 837,000 units, a 2.6% increase, in a flat market. The March and the Cube contributed to this increase, ranking among the top 10 best-sellers every month. Our market share increased 0.3 percent, to 14.2%, including minicars.

In the United States, sales rose 17.9% to 856,000 units in a market that grew by 1%.

The Nissan Division grew by 16.1% with a richer mix. High-margin trucks rose 34.1%, driven by the Murano and the products from our Canton Plant, most of which are still in the early roll-out phase. Meanwhile, car sales increased by 6.5%, led by sales of the Altima and the new Maxima.

The luxury Infiniti Division had its best year ever, up 29.4%, to 124,000 units. Infiniti benefited from increased sales of the G35 sedan and coupe as well as the FX35 and FX45. The first full-sized Infiniti sport utility vehicle, the QX56, was launched successfully in February.

Our U.S. market share for the full year came to 5.1%, up from 4.4%. The pace of growth accelerated in the last quarter of the fiscal year, with our share reaching 6.1% compared to 4.7% in the last quarter of 2002.

Our performance in the United States was achieved in a market where incentives continued to reach new heights. We stayed our course and, as I have said many times, we did not and will not jeopardize our increasing brand power for short-term market share gains. Though our incentives did rise slightly in fiscal year 2003, we remained among the most disciplined with the Nissan Division while Infiniti recorded the lowest level of incentive spending among its luxury competitors.

In Europe, sales were up 14.4%, to 542,000 units. With 175,000 new Micras sold in its first full year, this car is bringing new customers to Nissan. Growing sales of 4x4s, particularly the X-TRAIL and Pick-up, also contributed.

In General Overseas Markets, including Mexico and Canada, sales were up 9% to 822,000 units. The X-TRAIL was an important contributor, particularly in Australia, where sales were up 23.1%. In China, the new, locally produced Sunny helped our sales increase 30.4% to 101,000 units.

In fiscal year 2003, we released 10 all-new models globally. We also achieved two major business developments.

In the United States, Nissan did something no other automaker has ever tried before. A brand-new plant in a new state, with new employees, with five all-new products launched on time within eight months – the Canton, Mississippi Plant now stands as a benchmark for manufacturing startup achievement in our industry.

In China, we launched Dongfeng Motor Co., Ltd. Our investment in the third-largest car and truck manufacturer in China will grow our business in both the rapidly expanding passenger car and truck markets.

In Taiwan our new company Yulon Nissan Motor will not only allow us to grow profitably in this market, but it will also support our growing presence in China.

Now I will review our consolidated financial performance in fiscal year 2003.

Consolidated net revenues came to 7.429 trillion yen, up 8.8% from last year, mainly due to higher volume and mix. Movements in foreign exchange rates produced a negative impact of 111.6 billion yen. Previously announced changes in lease accounting reduced revenues by 18 billion yen, while changes in the scope of consolidation reduced revenues by 23 billion yen.

Consolidated operating profit improved by 11.9% to a record 825 billion yen. 825 billion yen is 10 times the operating profit that we reported just four years ago. As a percentage of net revenue, our operating profit margin came to 11.1% – which remains at the top level among global automakers.

Analyzing the variance between last year’s operating profit and this year’s 825 billion yen, several factors are considered: * The effect of foreign exchange rates produced a 48 billion yen negative impact for the full year. - The average value of the dollar dropped 8.8 yen to 113.2 yen, yielding a negative impact of 101 billion yen. - The euro rose 13 yen to 131.2 yen, producing a positive impact of 29 billion yen. - Other currencies made a positive contribution of 24 billion yen. * The change in lease accounting added 20 billion yen while the change in the scope of consolidation produced a minor negative impact of 4 billion yen. * For the first time, the impact of higher volumes and mix was the biggest positive factor in our profit increase, contributing 185 billion yen. * Selling expenses increased by 72 billion yen, as forecasted. * The improvement in purchasing costs amounted to 183 billion yen, which shows, once again, the critical importance of having a competitive cost base and effective relations with suppliers. * Product enrichment and the cost of regulations had a negative impact of 83 billion yen. * We spent an additional 54 billion yen in R&D to further reinforce product and technology development. * Manufacturing and logistics costs had a negative impact of 12 billion yen, including the costs associated with the startup of our Canton Plant. * Finally, general and administrative and other expenses increased by 27.3 billion yen.

By region, operating profits in Japan came to 352.5 billion yen compared to 390.6 billion yen last year. The drop is primarily the result of higher R&D expenses, the negative impact of foreign exchange rates on export sales, and a decrease in mix in the domestic market.

Profitability in the United States and Canada came to 351.8 billion yen compared to 242 billion yen in fiscal year 2002. This significant increase is due to improvements in both volume and mix.

Europe’s operating profit level more than doubled, to 49.2 billion yen from 21.9 billion yen. The rise is due to the increase in volume and favorable exchange rates.

In General Overseas Markets, operating profits came to 66 billion yen compared to 77.6 billion yen. The decrease is due to lower profits in Mexico as a result of the decline in Sentra exports to the United States.

Finally, inter-regional eliminations came to 5.4 billion yen.

Ordinary profit came to 809.7 billion yen, up from 710.1 billion yen in 2002.

Net extraordinary losses grew by 57.7 billion yen, mainly due to the fact that last year’s numbers included a one-time gain of 56.3 billion yen from the sale of our Murayama Plant.

Income before taxes came to 736.5 billion yen. Taxes came to 219 billion yen for an effective consolidated tax rate of 29.7%.

Net income reached 503.7 billion yen.

At the close of fiscal year 2003, our net automotive debt at new accounting standards totaled 13.6 billion yen, well below our forecast.

We exceeded our targeted 20% return on invested capital, reaching a record 21.3% for fiscal year 2003.

As previously announced, we will propose a 19 yen per share full-year dividend to our shareholders at the annual general meeting on June 23.

Part II: Outlook for FY04 As we begin the final year of NISSAN 180, I would like to review our outlook for fiscal year 2004.

Assuming a total industry volume of 58.8 million units globally – which is 1.7% above fiscal year 2003 – Nissan’s sales are forecast to come to 3,380,000 units, a 10.5% increase over 2003.

In Japan, our sales objective is 870,000 units, a 4% increase over last year, based on a flat total industry volume assumption of 5.8 million units. To support that achievement, we will launch six all-new models, including the Murano, a luxury sedan and four compact cars.

In the United States, our sales objective is 1 million units, an increase of 16.8%, based on a flat total industry volume assumption of 16.9 million units. This would be the first time Nissan reaches the 1 million sales mark in the United States and will be supported by the launches of the all-new Pathfinder, Frontier, Xterra and the Infiniti M45.

In Europe, our sales objective is 538,000 units, a level that is basically the same as last year, since no new models are planned. Our objective is based on a relatively flat total industry volume assumption of 19.4 million units.

For General Overseas Markets, including Mexico and Canada, our sales objective is 972,000 units, up 18.2%, and including, for the first time, 96,000 Dongfeng light commercial vehicles. The heavy- and medium-duty trucks and buses of Dongfeng – representing 179,000 units in 2004 – will not be consolidated in our sales figures in order to keep the integrity of NISSAN 180’s 1 million additional sales.

In fiscal year 2004, we will launch nine all-new vehicles around the world, leading to 20 regional product events. Since most of these models are planned to be launched in the second half of the fiscal year, you can expect sales to accelerate toward the end of this year and through September 2005, when we will measure the sales of all the new products launched during NISSAN 180.

By the end of this fiscal year, we forecast that we will have achieved 783,000 of the 1 million additional sales committed during NISSAN 180, which we fully expect to deliver.

The new fiscal year will bring risks and opportunities. Risks include adverse foreign exchange rate fluctuations and rising commodity prices and interest rates. We consider our greatest opportunities to lie in the accelerated implementation of all our action plans during the final year of NISSAN 180.

In light of all these factors, we have filed the following forecast with the Tokyo Stock Exchange, using a foreign exchange rate assumption for the year of 105 yen per dollar and 125 yen per euro. * Net revenue is forecasted to be 8.176 trillion yen, up 10.1%. * Operating profit is expected to be 860 billion yen, up 4.3% from fiscal year 2003, giving an operating profit margin of 10.5%. * Ordinary profit is expected to reach 846 billion yen. * Net income is forecasted to be 510 billion yen. * Capital expenditures will be 480 billion yen. * ROIC is expected to remain above 20%.

Had our forecast used actual foreign exchange rates experienced in fiscal year 2003, our operating profit would have come to 990 billion yen – 130 billion yen more than what we are forecasting today – and our operating profit margin would reach 11.6%.

As Nissan grows globally, we will continue to increase our investments and take management control of key businesses. In fiscal year 2004 we will consolidate Yulon Nissan Motor, Nissan Motor Light Truck Company and Siam Nissan. We will also switch from equity to proportional consolidation of our 50% ownership of Dongfeng Motor Co., Ltd.

Part III: Outline of NISSAN Value-Up As NISSAN 180 enters into its final year, the time has come to share the main drivers of the plan that will be implemented during the three years from fiscal year 2005 through 2007.

Much has already been said and written about how NISSAN 180 has propelled Nissan into a new dimension of profitable growth. The plan still has a year to go, but already it has positioned Nissan as the most profitable global automotive company, giving us renewed pride and confidence in our abilities. Our new three-year plan, which is named NISSAN Value-Up, will be just as ambitious as the plans it follows.

As with the Nissan Revival Plan and NISSAN 180, the name “NISSAN Value-Up” is simple and has a single, universal meaning, and each of its commitments is measurable over time. Value is how we measure almost everything – benefits, costs, performance, products. This is true whether you are a customer, an employee, a business partner, a shareholder or a member of society. Value creation is what Nissan is all about.

The NISSAN Value-Up plan – the details of which we will unveil when we start implementation in April 2005 – has three critical commitments relating to growth, sustained profitability and return on investment.

The first commitment of NISSAN Value-Up is to reach annual global sales of 4.2 million units by the end of the plan in fiscal year 2007.

This commitment represents an increase of 820,000 units over fiscal year 2004, our reference year, and slightly higher than the amount of growth in the three years of NISSAN 180. The additional 820,000 units in sales will come from all regions in the world. As an indicative guide, driven by China, General Overseas Markets should contribute 350,000… United States and Canada, 250,000… Japan, 150,000… and Europe, 70,000 additional sales. By the end of NISSAN Value-Up, our three main country markets will be the United States at over 1.2 million units… Japan, over 1 million units… and China, over 500,000 units.

We have made a relatively conservative assumption for total industry volumes globally, which we have forecasted to be 60 million units. All of that growth is expected to come from General Overseas Markets, and most of it from China.

Our sales growth has been robust under NISSAN 180 and will remain so under NISSAN Value-Up. But if you look at our global market share, which is a consequence of growth, our performance has been even more remarkable. In 2001, we were at 4.7% market share. In 2003, we reached 5.3%. With the total industry volume forecast of NISSAN Value-Up, we should reach 7% in 2007. This means that we are growing on our own merit, driven by our competitive products and not only by expanding markets.

This volume growth will be supported by a steady stream of new products. During NISSAN Value-Up, we will deliver 28 all-new models, the same high pace as under NISSAN 180. As we renew many current models, we will also introduce seven new models that will be completely innovative in their concept and benefits. Also, we will expand the geographic reach of many of our models. For example, the next Cube and the next Skyline GT-R will be sold globally.

The second critical commitment of NISSAN Value-Up is to maintain the top-level operating profit margin in our industry, which today means a double-digit margin.

Finally, the third commitment is to maintain return on invested capital at or above 20%.

As we did with NISSAN 180, we will communicate a three-year dividend policy for NISSAN Value-Up to our shareholders when we meet on June 23. Management’s fiduciary responsibility to shareholders is to provide visibility of earnings to support the share price and to propose a globally competitive dividend payout policy. NISSAN Value-Up will deliver on both counts.

The proposals to support NISSAN Value-Up were developed by 14 strategic task teams. Several breakthroughs were selected to grow the top line while maximizing the bottom line. A breakthrough proposal is one that breaks with Nissan’s current business organization, way of management or delivered performance, requiring a complete change in mindset and attitude.

Let me give you some examples.

One breakthrough is that our Infiniti luxury brand is going global as a tier-1 luxury brand. Since its establishment in 1989, Infiniti has primarily competed in the United States, steadily building its identity as a brand that offers customers distinctly modern, high-performance products and personalized, progressive services. Infiniti’s recent performance demonstrates that the brand is now capable of competing in the global luxury market. Last month in Seoul we established Nissan Korea Company, where Infiniti sales will begin in mid-2005. During NISSAN Value-Up, Infiniti will be introduced in Japan, China, Russia and, at a later stage, Western Europe.

In Japan, we will reorganize our distribution network to take into account the introduction of a clearly distinct Infiniti channel. We will also clarify our current Red and Blue Stage distribution channel system in order to be more appealing to the Japanese public.

A second breakthrough is significant geographic expansion.

In China, our joint venture with Dong Feng was a breakthrough during NISSAN 180, but substantial growth will be realized during NISSAN Value-Up.

In the ASEAN trade area, Thailand will become a strategic regional base of operations, now that it has been fully consolidated and is under Nissan’s management control.

In the Middle East, we have committed 10 new products to the market, including an expanding Infiniti lineup. Nissan’s presence in Egypt will be significantly expanded, where we will take over and develop an existing manufacturing plant to support sales in that market and in neighboring countries.

We will turn our attention to the entire African continent, where our presence today is small and concentrated in South Africa.

In Russia, we will significantly expand the scale of our operations from our newly established national sales company.

Finally, India and Pakistan will also provide new opportunities.

A third breakthrough focuses on sourcing parts and services from Leading Competitive Countries. The vast majority of our sourcing has been with traditional suppliers based in Japan, North America, or Europe. With most of the future growth of Nissan coming from China and General Overseas Markets, cost competitiveness and effective supplier relations will be a key driver of growth and profits in those markets.

We are working on other breakthroughs in the broad field of customer satisfaction.

Finally, we see potential for a breakthrough in the field of Light Commercial Vehicles. LCVs represent a growing segment in global markets, but nowhere did we have the necessary focus or the proper organization to support this business until now. Earlier this month we established the Light Commercial Vehicle Business Unit, which will focus on the manufacture and sale of light-duty trucks globally, with a special emphasis on Japan, China and Europe.

The numbers alone make a compelling case for increased attention. Of the 72 models Nissan sells globally, 20 of them – or 28% – are light commercial vehicles, but they only represent 7% of our sales volume and less than 4% of our operating profits.

Conclusion As CEO, my involvement in the elaboration of NISSAN Value-Up has been as intense as it was for the Nissan Revival Plan and NISSAN 180. Even though I will be called to take on additional responsibilities as Renault’s CEO during NISSAN Value-Up, I will remain fully accountable for delivering the commitments made today. Do not expect me to be a part-time CEO but, rather, a full CEO with two hats.

For now – and for the years to come – I simply remind you of one fact. The direction we started in 1999 is ongoing. Our dream was to deliver profitable growth that would make Nissan a major global automaker in alliance with Renault.

As we mark the fifth anniversary of the Alliance, our vision has not changed. The growth we are experiencing has been thoughtfully planned and boldly executed. Nissan is indisputably creating significant value. For society. For our employees. For our shareholders. And for our customers.

New models are one expression of what value means at Nissan. For example, as our home market has moved toward smaller cars, Nissan has kept pace with compacts that refuse to compromise on quality, features, performance and style. The March and the Cube led the way, and their appeal to young customers and families keeps them among the best-sellers in Japan.

This fall we will offer our customers another no-compromise compact. I am pleased to introduce… the all-new Nissan Tiida.

[Tiida is revealed]

The Tiida brings something new to the market, offering the characteristics of a luxury sedan with the price and size of a compact. The Tiida will launch in Japan first and, later, in many overseas markets.

With this competitive line-up of compact models in Japan, we will nearly double our share of this segment from fiscal year 2001 through 2004.

With every new model, there comes the challenge to deliver our very best. And that challenge can only be met if the women and men of Nissan have the needed motivation, which is, ultimately, our most valuable asset. Motivation is what drives performance, and performance creates value. Providing our people an environment that offers training, knowledge and a permanent opportunity to learn and grow is the best investment I know of, and it is the one that will keep value going firmly up.

Thank you for your attention."