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S&P revises Nissan outlook to negative, affirms ratings

S&P Global Ratings on May 20 revised its outlook on Nissan Motor Co. Ltd.'s long-term issuer credit rating to negative from stable, citing weakening profitability. It affirmed the automaker's A- long-term issuer credit and A-2 short-term ratings.

The agency revised the outlook after the Japanese automaker reported a 57% year-over-year decline in net profit for fiscal 2018 and warned that it expects profit to almost halve again in fiscal 2019.

Ratings highlighted Nissan's sales declines in North America and Europe and said it expects profitability to decline to "a greater degree" than previously assumed over the next two years. The rating agency assumes that "annual new car unit sales in 2019 will drop 3.6% year on year in the U.S. and 3% in China."

Rising research and development costs are also likely to weigh on profit. The company plans to increase research and development spending on next-generation technologies to ¥550 billion in fiscal 2019 from ¥523.1 billion in fiscal 2018.

Another challenge Nissan faces is its lineup, which has comparatively "aged models," making its products less competitive.

The negative outlook also considers the fact that Nissan is unlikely to increase profit through greater synergies with France-based Renault SA, and Japan's Mitsubishi Corp. as a new agreement on the nature of the three companies' alliance seems unlikely. The pressure on ratings will increase if the companies raise their cross-holding equity stakes or revise their management systems.

Ratings, however, affirmed Nissan's A- long-term issuer credit and A-2 short-term ratings, citing its global business franchise and sound financial profile.

The rating agency said it may consider a downgrade if the automaker's net cash position declines materially or the quality of the asset portfolio held by its captive finance operations deteriorates materially.

On the contrary, Ratings could upgrade the outlook to stable if Nissan's EBITDA margin stays above 6% on a sustainable basis from fiscal 2020 onward.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.