A Centralized, Globalized Treasury Function AKIRA SATO Vice President  “Treasury was decentralized in the past, with various offices around the world dealing directly with their respective local banks. Four years ago, however,  we decided it would be more consistent and efficient to centralize the function in Tokyo as a Global Treasury Center. During the NISSAN Value-Up period, my major responsibilities are global tax optimization, risk management and quality improvement of the balance sheet. Global tax optimization is a major challenge because our taxable income has been rising. We used to be reactive to tax policies, but we’ve realized that we need to be more proactive, since tax is one of the biggest cash-out items. Tax planning is of no small concern; cash paid for taxes was approximately ¥200 billion in fiscal 2004, which made our effective tax rate 33 percent. This amount is substantial compared to our capital and R&D expenditures of ¥480 billion and ¥400 billion, respectively, for the same period. We will always comply with tax law, of course, but the strategy is to set up a long-term plan to reduce the effective tax rate. For example, we can take advantage of an R&D tax incentive that was recently introduced in Japan. Another example would involve the variability in tax rates among countries. These tax differences are important in determining production locations.  Risk management has also been centralized under our control, and is a developing facet of our organization. The financial risks we face are traditional ones such as interest rates and foreign exchange. However, we are also subject to a variety of physical risks. To put this in an automotive context, risk management at Nissan is not the brakes, but the airbags. We can’t prevent all risks from affecting us, but we can reduce their impact and keep our business going.  Our production facilities may be exposed to various forms of risk. For example, the production facilities in Japan are susceptible to earthquakes, so we are investing ¥20 billion to reinforce the pillars in all of them. Through the Nissan is currently rated a triple-B+ by the major international rating agencies. Our goal is to be a single A. To accomplish this, the first issue we need to address is profit sustainability, which is very important to the rating agencies. We’ve shown stable profitability growth over the past few years, but we must deliver sustainable profit growth for longer periods. The balance sheet is also important. Liquidity is one of the major factors for strong ratings. For that reason we decided to increase cash on hand from 3.5 percent of net sales to 8 percent, a figure The remaining issue is non-funded pensions. In June 2005, we contributed ¥228 billion to our pension fund. We did this to ensure the health of our fund and to reduce its future negative impact on operating profit. Our funding came from a bond issue, which got a favorable response in the market despite bad market conditions. Transparent communication with investors worked. When it comes to the state of the balance sheet, Nissan is in a good position with our current levels of debt. In 1998, for example, we had debt of ¥2.1 trillion; now we are in a cash-positive position of ¥205.8 billion under the new accounting standard. We concentrate more on the quality of our balance sheet. Factors affecting the balance sheet include our pension situation and possible impairment of assets. We have sold off a number of non- core assets over the past five years, significantly reducing the risk of capital loss from differences between market and book values.  On financial risks, we take a ‘no speculation’ position in addressing foreign exchange fluctuations. We usually hedge for only short periods of one to two months. Foreign exchange is a major concern, since a shift of one yen against the dollar translates to an ¥11 billion gain or loss, or ¥2 billion for a change of one yen against the euro. We hold weekly videoconferences with Renault Finance S.A. in Switzerland to exchange ideas and forecast trends. risk-mapping process developed by our cross-functional team, we’ve identified nearly 860 different risks, prioritized them, and started to create solutions to mitigate them.  Nissan Annual Report 2004 54 OUR WORK FINANCE