Nissan Delivers Blow to Renault, Warns Dividend Is Undecided

By Bloomberg
November 13, 2019 Updated: November 13, 2019

Nissan Motor Co. withdrew its dividend outlook and said it’s now undecided on a payout, an unexpected blow to top shareholder Renault SA.
The Japanese automaker, which slashed its profit and sales outlook for the current fiscal year to March, had already cut its dividend earlier this year. On Nov. 12, it withdrew its outlook for a 40 yen-per-share payout for the year in a filing to the Tokyo Stock Exchange. Renault shares fell 1% in Paris trading.

The French automaker stands to lose the most because it owns 43% of Nissan. The Yokohama-based manufacturer is conserving cash as it embarks on 12,500 job cuts globally, and cost reductions aren’t happening soon enough to blunt the impact of weaker demand, higher raw materials costs and unfavorable currency trends. Makoto Uchida, who takes over as chief executive officer next month, inherits the monumental task of restoring Nissan’s brand image and rolling out new cars that appeal to retail customers.

“Renault’s profits aren’t very good either, so less dividend means reduced cash flow and flexibility,” said Tatsuo Yoshida, a Bloomberg Intelligence analyst.

Nissan will contribute 233 million euros ($257 million) to Renault’s third-quarter earnings, lower than the 384 million-euro contribution a year ago, the French carmaker said in a statement Nov. 12. Renault received 784 million euros in dividends from Nissan for 2018, the company has reported.

New Management

Stephen Ma, Nissan’s recently appointed chief financial officer, said in a briefing in Tokyo that the new CEO and management team will provide an update on the dividend once they are in place starting next month.

Renault last month reduced its financial guidance for 2019, citing deteriorating results in markets including Turkey and Argentina, and spending on research and development. It embarked on its own search for a new CEO after ousting Thierry Bollore.

Back in May, Nissan had cut its annual dividend to 40 yen from 57 yen per share, marking its first reduction since payouts were suspended in 2009.

The Nov. 12 surprise announcement on the payout underscores Nissan’s struggles as it seeks to get back on track almost a year after the arrest of former Chairman Carlos Ghosn. Nissan shares rose 1% before the results were announced. The stock is down 19% this year.

“This was always a possibility with Nissan slowing,” said Tom Narayan, an analyst at RBC Capital Markets in London. “Renault has enough cash to weather the drop in dividend earnings from Nissan.”

For the fiscal year to March, Nissan’s operating profit will be 150 billion yen ($1.4 billion), below the prior forecast for 230 billion yen and just short of the analysts’ average projection for 158 billion yen. The revenue outlook was cut to 10.6 trillion yen, compared with the prior forecast for 11.3 trillion yen.

Slumping Sales

Nissan joins Honda Motor Co. and Mazda Motor Corp. in cutting profit and sales outlooks for the year, as they struggle to sell cars in the U.S. and Europe. Global light vehicle production is on track to expand less than 1% to 94.5 million units, according to IHS Markit. Sales in China, South Asia, and South America are helping to make up for declining volumes in more mature markets, the research firm said.

For the latest quarter ended September, the manufacturer reported an operating profit of 30 billion yen, compared with analysts’ prediction for 57 billion yen. For the quarter, Nissan reported sales slightly below the estimate for 2.64 trillion yen.

“Another quarter of low profits after an already weak first quarter means the downward revision was inevitable,” Yoshida said.

Among Japanese carmakers, Toyota Motor Corp. has been the exception, joining Volkswagen AG and Ford Motor Co. in reporting better-than-anticipated results. Cost controls have helped Toyota maintain profits ahead of projections, even while it invests heavily in an industry undergoing a tectonic shift to electrification and self-driving automobiles.

Ghosn Saga

The results are beginning to overshadow Nissan’s other big headache, the charges against Ghosn on alleged financial crimes. Sluggish profits, stuck near a decade low, also weaken the Japanese company’s position in its three-way carmaking alliance. After years of sales incentives that eroded margins and pushing businesses to buy cars, Nissan needs to rebuild its brand image and focus on appealing to retail customers.

Ghosn, who has denied all charges, is preparing for the start of his trial next year.

Uchida formally takes over from Dec. 1, following the September resignation of Hiroto Saikawa over issues related to overcompensation of income. He will work alongside new Chief Operating Officer Ashwani Gupta and Jun Seki, the new deputy COO.

Nissan will hold an extraordinary shareholder meeting on Feb. 18, where investors will vote on adding Uchida, Seki, Gupta and Renault director Pierre Fleuriot to the board. Bollore and Saikawa will leave the body.

Uchida, Nissan’s third CEO since 2017, joined Nissan in 2003 from metals and machinery company Nissho Iwai Corp. He was most recently in charge of the Japanese automaker’s operations in China.