Nissan at 'rock bottom', says CEO; shares dip on dividend cut, weak profit

Tokyo

NISSAN Motor Co shares fell to their lowest since 2012 after predicting annual operating profit below even the most pessimistic analyst's estimate and cut its dividend for the first time in a decade, giving partner Renault SA a potential opening to push for greater control over their carmaking alliance.

Hurt by slumping US sales, ageing vehicle models and an out-of-sync product cycle, the Japanese carmaker issued an outlook for profit of 230 billion yen (S$2.9 billion) for the fiscal year ending March 2020, roughly half of the average projection for 453 billion yen. Nissan also reported its lowest annual profit in a decade at 318 billion yen.

The stock fell 6.5 per cent in Tokyo, the most since June 2016, and reached its lowest level since December 2012.

The results put additional pressure on chief executive officer Hiroto Saikawa to deliver a turnaround following the dramatic arrest of Carlos Ghosn, the former chairman and architect of the alliance between Nissan, Renault and Mitsubishi Motors Corp. To do so, Mr Saikawa is cutting 4,800 jobs, revamping car models and focusing more on retail sales in the US. The CEO said that Nissan had hit "rock bottom".

"This feels like a return back to the pre-Ghosn era," said Koji Endo, an analyst at SBI Securities. "They may close a factory and adjust production. In order to do this, they will need money, and this is probably why the dividend was cut."

Nissan said that it plans to pay out 40 yen a share, down from 57 yen, the first reduction since dividends were suspended in 2009.

"The cut was a huge shock," Mr Endo said. "Nissan was popular among investors because it has been increasing dividends regardless of its performance. If that's gone, it could drop to an all-time low."

The dividend cut also will impact Renault, which owns 43 per cent of Nissan. The French carmaker said that Nissan's results will wipe 56 million euros (S$85.9 million) off its first-quarter net income compared with a 478 million euro contribution during the same period a year ago. Renault's shares closed down 2.3 per cent in Paris.

The surprise jailing of Ghosn, who led Nissan and Renault for two decades, exposed rifts over control and decision-making. Since then, Ghosn was released, detained again and currently is back out on bail. Ghosn has denied all charges against him, saying that his arrest was due to a "dirty game" played by some Nissan executives. He is now preparing for a trial that may start later this year or next.

Nissan cut its mid-term revenue targets for fiscal 2022 to about 14.5 trillion yen from 16.5 trillion yen, and cut its operating margin target to 6 per cent from 8 per cent.

While the carmaker has blamed its performance on poor strategic decisions by Ghosn, Mr Saikawa is facing internal strife over whether he is the right executive to lead Nissan. So far, the CEO has pushed back against renewed efforts by Renault to deepen their partnership by adopting a holding company structure.

Mr Saikawa said that Renault chairman Jean-Dominique Senard agreed that this is not the right time to review the capital structure.

The Japanese carmaker said that it will cut staff and spend 47 billion yen during the next three years to refresh all core models, introduce 20-plus new models and focus on retail sales in the US.

"In the past, we overstretched ourselves to grow," Mr Saikawa said, adding that he would move away from the strategy of seeking market share with incentives and change Nissan's cost structure. "Such surgery should be done fast."

Although Renault owns a stake in Nissan, the Japanese carmaker is the bigger partner and owns 15 per cent of Renault, with no voting rights. They produce a combined 10.8 million cars each year, almost double Ford Motor Co's global deliveries. The alliance - currently held together by a series of cross-shareholdings - would be second in vehicle sales only to Germany's Volkswagen AG, with Toyota Motor Corp a close third.

Although Ghosn's arrest shook the partnership to its core, they will need each other more than ever as the industry undergoes a fundamental shift towards electric vehicles (EVs) and self-driving vehicles.

"All three partners need the alliance to flourish, given the much needed economies of scale it brings," Michael Dean, a Bloomberg Intelligence analyst, said before the results. "We are amid a culture of global automotive companies clamouring to collaborate with each other, given the huge costs associated with the transition to EVs, e-mobility, digitalisation and autonomous driving." BLOOMBERG