Nissan warns profits to fall to lowest level in more than a decade

FT, May 14, 2019

by Kana Inagaki

Nissan has warned that its operating profit will fall to the lowest level in more than a decade after the Japanese carmaker abandoned an expansion pursued by its ousted chairman Carlos Ghosn.

Hiroto Saikawa, Nissan’s chief executive, placed the blame squarely on a Ghosn-era expansion policy in the US and emerging markets. He promised a break from the past, laying out the broad outline of a restructuring plan that would involve a cut of 4,800 jobs and a 10 per cent reduction in capacity globally.

“This is the bottom for us. If you can give us two or at most three years, we will bring Nissan back,” Mr Saikawa said at a news conference. “Our top priority is to escape from this slumping financial performance.” 

For the fiscal year ending in March 2020, the company forecast its operating profit would fall 28 per cent from a year earlier to ¥230bn ($2.1bn), the lowest level since the company booked a loss for the 2008-2009 fiscal year. The forecast was well below analyst expectations.

In longer term targets, the company said it would aim for an operating profit margin of 6 per cent by 2023, compared with its earlier target of 8 per cent announced in November 2017 and its current margin of 2.7 per cent. 

“The bigger issue for Nissan is that they’ve lost quite a lot of senior managers,” said Janet Lewis, analyst at Macquarie. “Before you even see an improvement in profit or sales, it is how Mr Saikawa rebuilds the management team that he should be judged on.”

In the past five months alone, Nissan’s Infiniti brand has lost two chiefs and a string of other executives have left, including sales and marketing boss Daniele Schillaci, and José Muñoz, Nissan’s former chief performance officer.

Analysts have also warned that the weak performance could undermine Nissan’s negotiating power with Renault, which owns 43 per cent in the Japanese group and has pushed to resume merger talks as soon as possible.

Mr Saikawa said he had differences in opinion with Renault chairman Jean-Dominique Senard on the alliance and remained opposed to a full merger that he claimed would have more negative implications than benefits for Nissan.

Earlier on Tuesday, Japanese prosecutors revised charges levelled against Mr Ghosn, alleging that a brokerage account held by his private asset management company received $20m from an unnamed company, which people close to the investigation said was the company of Saudi businessman Khaled al-Juffali.

Prosecutors did not explain further what impact the $20m had on the case, but they have earlier alleged that Mr Ghosn tried to address unrealised losses from a derivatives transaction totalling ¥1.85bn ($16.7m) incurred by his asset management company, by transferring them to Nissan at the height of the financial crisis in 2008.

When the contract was transferred back to his asset management company four months later, Mr Ghosn is alleged to have made a series of payments totalling $14.7m from a Nissan subsidiary to Mr Juffali, who is an investor and partner in Nissan’s joint ventures in the Middle East. People with knowledge of the investigations have said Mr Juffali helped Mr Ghosn arrange a letter of credit to a bank that demanded additional collateral on the currency swaps agreement.

Mr Ghosn has said the payments to Mr Juffali’s company were made in exchange for “critical services that substantially benefited Nissan”. Mr Juffali’s company has also said the payments it received were “for legitimate business purposes” to promote Nissan’s business strategy in Saudi Arabia.

Representatives for Mr Ghosn and Mr Juffali were not immediately available for comment on Tuesday.