Nissan profit rises 25% as it books charge for Ghosn compensation
Nissan profit rises 25% as it books charge for Ghosn compensation
February 12, 2019 05:12 AM UPDATED 2 MINUTES AGO
YOKOHAMA, Japan – Nissan reported a 25 percent surge in profit in the latest quarter on a richer sales mix despite a one-time charge to cover the contentious deferred compensation ousted Chairman Carlos Ghosn is accused of not properly reporting.
Global operating profit advanced to 103.3 billion yen ($937 million) in the fiscal third quarter ended Dec. 31, CFO Hiroshi Karube said on Tuesday while announcing the company’s latest financial results.
They were the first quarterly financials since the Nov. 19 arrest of Ghosn threw Nissan and its alliance with Renault into turmoil. As part of the report, Nissan booked a 9.23 billion yen ($83.7 million) charge for the deferred compensation allegedly owed Ghosn.
That amount, covering the 2009-17 fiscal years, is the crux of two indictments against former chairman, who remains jailed in Japan. Prosecutors accuse Ghosn of falsifying official company financial filings by failing to report the income as a future liability against the company.
Ghosn maintains his innocence, saying such pay was neither finalized, not disbursed. Therefore, there was no obligation to report it. Also indicted in the matter are Nissan, as a company, and Greg Kelly, a Nissan director and Ghosn confidant, who allegedly helped Ghosn.
Kelly denies the charges, and like Ghosn, is awaiting trial in Japan.
Nissan has not entered a plea in the case. But the company’s booking of the deferred compensation indicates that it considers the pay a contractual obligation to Ghosn.
Doing so may undermine Ghosn’s legal defense.
Nissan said in December it would correct financial filings for what it considers unreported liabilities, to bring them in line with the regulations of Japan’s Financial Services Agency.
CEO Hiroto Saikawa, who also attended the Tuesday earnings announcement at the company’s headquarters here south of Tokyo, said Nissan may not need to actually disburse the amount.
“I personally don’t think we will reach a conclusion to pay this money,” he said. A person familiar with the issue said Nissan could, for instance, file suit against Ghosn to try reclaiming it.
Saikawa said he will meet new Renault Chairman Jean-Dominique Senard during a visit to Japan later this week. Saikawa said the first order of business will be establishing trust and stabilizing joint operations. But he also said there is room for change to the 20-year tie-up.
Saikawa suggested he was unconvinced that one person should hold power as the chairman of both Renault and Nissan. It was a reference to Renault’s position that, as the biggest shareholder in Nissan, it is entitled to appoint Ghosn’s successor as chairman.
Senard is considered a top candidate for the position.
“The concentration of power in one single person – is this solution a good one or not?” Saikawa asked. “That requires more review. We haven’t reached a conclusion with Mr. Senard, but we are ready to hold good discussions on this point and determine direction.”
Also, Saikawa suggested that the goals of the Alliance 2022 midterm business plan may also be re-examined in the future. The plan, unveiled by Ghosn as a set of joint targets for Renault, Nissan and their third partner Mitsubishi, aims to double annual synergies, or shared cost savings, to 10 billion euros by 2022. Alliance 2022 also outlines closer integration in everything from platform sharing to management. In alliance parlance, the integration is called convergence.
“Over the past several years, we have been working on convergence,” Saikawa said. “Whether convergence is the most efficient structure or not, that’s where I’m still reflecting. We need to revisit it in some way.”
Saikawa said there was no immediate intent to rethink the numerical targets of Alliance 2022, but he said Nissan would like to hold discussions and review them if necessary.
For the just-ended quarter, Nissan said net income slid 77 percent to 70.4 billion yen ($638.6 million). Revenue increased 5.9 percent to 3.05 trillion yen ($27.67 billion), despite a 2.6 decrease in worldwide retail sales to 1.34 million vehicles in the three-month period.
Global wholesale deliveries, on which the parent company bases its revenue, rose 5.2 percent to 1.03 million units.
Like its Japanese rivals, Nissan is being buffeted by slowing demand in the key markets of the U.S. and China, as well as by uncooperative foreign exchange rates.
Nissan’s results were hit by the Japanese yen’s appreciation against the U.S. dollar and other currencies. Exchange rates took a 10.2 billion yen ($92.5 million) bite out of quarterly operating profit, while rising raw material costs dented results by 15.4 billion yen ($139.7 million).
Still, improved wholesale volume and model mix lifted operating profit by 36.7 billion yen ($332.9 million) to help power operating profit ahead for Japanese automaker’s No. 2 market.
Nissan faces the additional headwind of trying to reposition the brand in the U.S. to move it away from its discount image by reining in incentives and fleet sales. Executives have said the to improve profitability is taking more time and money than expected as it struggles to cut back marketing expenses at a time when demand has peaked and customers are seeking deals.
To shore up profits in North America, Nissan recently said it would cut 700 workers from a factory in Mississippi amid slowing sales of trucks and vans.
“The margin of Nissan is not something we are proud of,” Saikawa said of company’s 3.7 percent operating profit margin in the first three fiscal quarters.
“The North American operation of Nissan is the major cause of that.”
In the crucial North American market, regional operating profit climbed 75 percent to 29.4 billion yen ($266.7 million) in the most recent quarter, as rising U.S. wholesale volume offset higher incentive outlays. North America retail sales declined 7.7 percent to 486,000 vehicles.
Saikawa called for more patience with what the company calls the “normalization of sales” in the United States. Nissan Group retail sales in the U.S. declined 6.3 percent to 1.49 million vehicles last year in an overall market up 0.6 percent. The group’s U.S. volume tumbled 19 percent in January, outpacing the overall market’s 1 percent retreat.
“In the U.S., we had an old habit of pushing sales and overstretch,” Saikawa said. “We are trying to enhance overall brand value. That is a big piece of homework.”
Saikawa is trying to pivot the company away from profit-draining fleet sales and incentives in the U.S. in an attempt to shore up brand value and margins.
Saikawa has said Nissan is prepared to sacrifice some volume to bolster margins. Early last year, the company began pulling back fleet deliveries, culling bloated inventories and easing pressure on dealer sales-incentive programs, even as the U.S. light vehicle market softens.
Critics say he moved too quickly and too dramatically at the expense of volume.
“Unfortunately, a temporary decline in volume is unavoidable,” Saikawa said. “The top management should be patient enough to wait for this.”
An influx of new or redesigned models has helped Nissan wean itself from incentives. Recent fresh offerings include the Kicks subcompact crossover, the Infiniti QX50 crossover, the redesigned Altima sedan and an upgraded Leaf electric vehicle with a longer range.
Later this year, Nissan is expected to get redesigns of the Versa and Sentra small sedans.
But incentive spending at the Nissan and Infiniti brands increased 1.5 percent to an average of $4,389 per vehicle in the October-December, according to figures from Autodata Corp.
That bucked the industry trend, which saw a 3.4 percent decrease in per-vehicle spending, but Nissan’s outlays were still below the industry average of $3,714 per unit.
By contrast, U.S. spiffs at Japanese rivals Toyota, Honda, Mazda, Subaru and even Mitsubishi were all below Nissan’s in the October-December period. Each of those makers, with the exception of Honda, also managed to dial back incentive spending in the quarter.
At the same time, Nissan North America has been trying to whittle down U.S. inventories.
Vehicles stocks at the Nissan Group declined to a 51-day supply on Jan. 1, from 53 days in October and 66 in December 2017, according to the Automotive News database. On Jan. 1, the Nissan and Infiniti brands had 290,200 vehicles in inventory, up from 259,500 on Oct. 1.
Europe loss, outlook cut
Nissan’s European unit, meanwhile, swung to an operating loss of 7.3 billion yen ($66.2 million) in the fiscal third quarter, from an operating profit of 2.0 billion yen the year before. European sales declined 16 percent to 142,000 vehicles in the three months.
Citing lower sales outlooks for the U.S., China, Europe and Japan, Nissan cut its full-year sales forecast for the current fiscal year ending March 31, 2019.
It now sees global retail sales falling 2.9 percent to 5.6 million vehicles. It had originally forecast sales to increase to 5.9 million units, from 5.8 the year before. Nissan also lowered its forecasts for operating profit, net income and revenue, because of the deteriorating sales.