Nissan slashes full-year forecast as first-half profit falls

Nissan blamed the poor outlook on weak first-half earnings, a strong yen, an uncertain global outlook and the stagnation of the car industry in general. (AP)
Updated 12 November 2019

Nissan slashes full-year forecast as first-half profit falls

  • Full-year sales are now estimated at ¥10.6 trillion, down from a previous forecast of ¥11.3 trillion
  • Nissan blamed the poor outlook on weak first-half earnings, a strong yen, an uncertain global outlook and the stagnation of the car industry in general

YOKOHAMA, Japan: Crisis-hit Japanese automaker Nissan Tuesday slashed its full-year forecast for both sales and profit as it struggles with weak demand in Japan, the US and Europe, as well as fallout from the arrest of former boss Carlos Ghosn.
Nissan downgraded its net profit forecast to ¥110 billion ($1 billion) for the fiscal year to March 2020, compared with an earlier estimate of ¥170 billion.
Full-year sales are now estimated at ¥10.6 trillion, down from a previous forecast of ¥11.3 trillion.
Nissan blamed the poor outlook on weak first-half earnings, a strong yen, an uncertain global outlook and the stagnation of the car industry in general.
Incoming chief financial officer Stephen Ma said: “Sales in China outpaced the market but sales in other key regions including the US, Europe and Japan underperformed in those markets. This resulted in the overall decrease of our market share.”
Net profit for the six months to September plunged 73.5 percent to ¥65.4 billion on sales down 9.6 percent at ¥5.0 trillion.
It was its first earnings announcement since Nissan named Makoto Uchida as new chief executive last month, elevating the insider heading the firm’s China unit as it overhauls its leadership after the Ghosn scandal.
The appointment, to take effect on December 1, came after months of turmoil for the automaker in the wake of the arrest of former chief Ghosn on allegations of financial misconduct.
Former CEO Hiroto Saikawa resigned in September after an investigation prompted by the Ghosn scandal revealed he was among Nissan executives who received excess pay by altering the terms of a share price bonus.
“Nissan’s new management is setting sail in a storm,” said Satoru Takada, auto analyst at TIW, a Tokyo-based research and consulting firm.
“Uchida is expected to show new strategies for Nissan’s survival,” Takada said.
The automaker has cited a global slowdown in the auto sector, but it is also suffering from a lack of innovation on its production line and reputational damage from the Ghosn scandal.
Uchida inherits the harsh cost-cutting measures Saikawa proposed as a way out of the crisis — including reducing dealer incentives and promotions but also cutting global production by 10 percent to 2023 — a measure that means the loss of 12,500 jobs.
“Additional restructuring is possible in the wake of the layoff plan,” Takada said.
Asked about possible fresh job losses, Nissan official Ma said no new announcement would be made until the full new management team is in place on December 1.
Adding to Nissan’s woes is continued tension within the three-way alliance with Mitsubishi Motors and Renault.
Ghosn, who created the alliance, wanted greater integration with France’s Renault, and says his push for that prompted angry Nissan executives to plot against him.
The two firms have made a show of holding the marriage together in the wake of Ghosn’s arrest, but tensions have bubbled to the surface.
Renault holds a 43-percent stake in the Japanese automaker, which in turn controls 15 percent of the French firm but has no voting rights.
“The negative impact of the furor around Ghosn is gradually becoming visible,” Takada said. “The alliance is facing a crucial stage,” he added.
Ghosn is out on bail in Tokyo, awaiting a trial that reports have suggested could start in April on charges of under-reporting millions of dollars in salary and using company funds for personal expenses.
He denies any wrongdoing.


Gold rush at Turkish bazaar a test of trust for lowly lira

Updated 15 August 2020

Gold rush at Turkish bazaar a test of trust for lowly lira

  • As precious metal prices soar, Turks rush to buy amid economic uncertainty and a volatile currency

ISTANBUL: Hasan Ayhan followed his wife’s instructions last week and took their savings to buy gold at Istanbul’s Grand Bazaar as Turks scooped up bullion worth $7 billion in a just a fortnight.

With memories of a currency crisis which rocked Turkey’s economy only two years ago fresh in his mind, the retired police officer was among those playing it safe as he queued in the city’s sprawling market, where a screen showed the gold price rise by one Turkish lira ($0.1366) in just 10 minutes.

“I think it is the best investment right now so I converted my dollars to buy gold,” the 57-year-old said. “I might withdraw my lira and buy gold with it too, but I am scared to go to the bank right now because of coronavirus.”

The day after Ayhan bought his gold on Aug. 6, the lira hit a historic low and remains skittish, laying bare concerns that Turkey’s reserves have been badly depleted by market interventions, which are showing signs of fizzling out.

Turks traditionally use gold for savings and there may be 5,000 tons of it “under mattresses,” with more added after the recent buying spree, Mehmet Ali Yildirimturk, deputy head of an Istanbul gold shops association, said.

Although bullion has never been more expensive, vendors at the Grand Bazaar said almost no one was selling their gold jewelry. There are only buyers.

HIGHLIGHTS

  • Currency touched record lows in three volatile weeks.
  • Local holdings of hard currencies at all-time high.
  • All are buyers at Grand Bazaar, despite expensive gold.

“I’ve been chatting with hundreds of people who are thinking about selling their cars or houses to invest in gold,” vendor Gunay Gunes said.

In the last three weeks, as selling gripped the lira, local holdings of hard assets such as dollars and gold jumped $15 billion to a record of nearly $220 billion.

There is no evidence suggesting people are about to pull savings from banks, and this week the lira has hovered around 7.3 versus the dollar, although it remains among the worst emerging-market performers this year.

Demand has eased since Turks withdrew some $2 billion in hard foreign cash from their banks during a March-May period in which a lockdown was imposed and the lira hit its last low. Analysts say that if Ankara cannot boost confidence in the currency, which has fallen almost 20 percent this year, import-heavy Turkey risks inflation and even a balance of payments crisis that will worsen fallout from the coronavirus crisis.

Given foreign investors now have only a small stake in Turkish assets, they say the key for President Recep Tayyip Erdogan’s government is convincing Turks to stop turning to the perceived stability of dollars and gold.

The central bank and treasury did not immediately comment on the dollarization trend or any policy response.

Finance Minister Berat Albayrak, Erdogan’s son-in-law, said on Wednesday the lira’s competitiveness was more important than exchange rate volatility.

The central bank has effectively borrowed on local dollar liquidity to fuel foreign exchange market interventions, which are meant to stabilize the lira.

Through Turkish state banks, which together are “short” foreign exchange by $12 billion, the central bank has sold over $110 billion since last year. In turn, the bank’s gross FX buffer has fallen by nearly half this year to below $47 billion, its lowest in years.

The central bank has said its reserves naturally fluctuate in stressful periods, and the treasury says the bank intervenes at times to stabilize the currency.

But ratings agencies say Ankara should take decisive steps, such as an interest rate hike, to rebuild reserves and restore confidence. Otherwise, rising current account deficits and possible debt defaults could tarnish a solid reputation for meeting foreign obligations.

“Locals don’t want to keep Turkish lira, they’ve been dollarizing and buying gold. Turks have hardly ever done that,” said Shamaila Khan, New York-based head of EM debt strategy at AllianceBernstein, which manages $600 billion. “That is why you need proactive policies because if you get to that stage where locals are unwilling to keep their money in the bank then you’re heading to a balance of payments crisis. That’s when the alarm bells will start ringing.” 

Some banks imposed fees on withdrawals this week, while the central bank has curbed cheap credit channels it opened to ease the coronavirus fallout. Yet while lira deposits now earn more than the 8.25 percent policy rate, their real return is negative with inflation at 11.8 percent.

Traders say such backdoor tightening needs to reach 11.25 percent to stabilize the lira, which has nearly halved in value since early 2018.

Market expectations have risen for a formal rate hike that economists say would reinforce central bank independence, even while it could slow economic recovery.

Politics may stand in the way.Erdogan, whose popularity has dipped this year, holds the view that high rates cause inflation, and sacked the last central bank governor for disobedience.

He said on Monday he hoped market rates would fall further.

But firms such as System Denim, which imports materials and makes clothes for companies like Zara and Diesel, are feeling the pinch from rising costs. Owner Seref Fayat said he converted his 4 percent euro-denominated loans to lira at 10 percent. “No need to take on additional FX risk,” he said. “I pay a higher rate, but at least I can see ahead.”