Question

Nissan has been at the heart of one of the biggest automotive financial scandals to date. From executives under-reporting wages, to misreporting earnings, and even corporate espionage charges. For Project 1 you're job is to approximate the financial loss that this scandal has cost the company.

For this project you are going to be wearing your financial analyst hat. As an analyst it's your job to objectively evaluate the financial sustainability of a firm and offer your recommendation to current or potential shareholders.

In an executive summary (that is no more than two pages, 12pt font, 1.5 spaced) I want you to site major events in the scandal and use available financial information (stock prices, publicly available company financial statements, etc) to approximate the financial loss the company sustained.

Your writing this executive summary to the current and prospective shareholders so your conclusion must include your recommendation. Should investors buy, hold, or sell this stock? Is there any weight to the news around Nissan's new direction? Do you believe Nissan can recover from the financial and reputation damages?

You may include an appendix beyond the two page executive summary to include relevant links/citations to news articles, financial statements, stock charts, your own original Excel models etc. used to support your analysis.

Answer 1

This question belongs to the case study of Nissna Motor Co. Ltd.:

Executive Summery :

To Shareholders of Nissan Motor Co., Ltd.

Dear All.

Below are my findings and recommendation while working as an analysist and evaluate the financial sustainability of the firm:

1. Major events in the scandal:

Nissan Motor Co Ltd, a Japan Based Co has been at the heart of one of the biggest automotive financial scandals to date.

Carlos Ghosn, the ousted chairman of Nissan, for under-reporting his income, and officially charged the automaker for its role in the financial misconduct scandal that has shocked the industry.Ghosn was arrested on Nov. 19 on suspicion of conspiring to understate his compensation by about half of the actual 10 billion yen ($88 million) awarded over five years from 2010.

“Making false disclosures in annual securities reports greatly harms the integrity of Nissan’s public disclosures in the securities markets, and the company expresses its deepest regret.

Nissan, which fired Ghosn as chairman days after his arrest, has said the misconduct was masterminded by the executive with the help of former Representative Director Greg Kelly, who was also indicted.

The indictments also put the ball back in Renault’s court, as Nissan’s alliance partner and 43.4 percent-owner prepares for a Dec. 13 board meeting likely to discuss Ghosn’s future as its chairman and chief executive.

2. SCIG’s FORMATION :

NISSAN MOTOR CO., LTD. (“Nissan”) has resolved to form a “Special Committee for Improving Governance” at its Board of Directors Meeting on December 17, 2018. The Special Committee for Improving Governance (“SCIG”) was formed for the following purposes: (i) to ascertain the root causes behind Nissan’s governance issues which led to the misstatements in Nissan’s Annual Securities Reports, etc.; (ii) to provide recommendations for the improvement of Nissan’s governance commencing with Nissan’s approval process for determining director compensation, and (iii) to provide recommendations for Nissan to create a healthy state of governance as a foundation for sustainable business as a world-leading company (the recommendations in (ii) and (iii), the “Recommendations”). The purposes of SCIG do not include assigning any criminal or other legal responsibility to any individual or corporation.

SCIG received the investigation report concerning the results of the internal investigations dated February 1, 2019 (the “Investigation Report”) from Nissan, reviewed it and received explanations regarding the subject, methods and results of the internal investigation from the person in charge of Nissan’s internal investigation. SCIG also conducted interviews with seven persons involved with Nissan including the current CEO, Director and Statutory Auditor, and analyzed and took into consideration many materials and data such as the records of statements of other persons involved with Nissan and interview reports with them, Nissan’s articles of incorporation and other internal rules (including regulations for delegation of authority, regulations regarding control processes and organizations), past minutes, and records of audits (explanations, interviews, materials and data which SCIG considered shall collectively be called “Considered Materials”).

3. BACKGROUND FACTS:

• Renault bailed out Nissan, which had run into financial difficulty, by making investments such as obtaining 36.8% of Nissan’s shares in 1999, which made Renault the largest shareholder of Nissan. Currently, Renault has 43.4% stake of Nissan and is able to exercise its voting rights against Nissan. Nissan on the other hand has 15% stake of Renault indirectly through a subsidiary, but according to the French laws, since Renault holds in excess of 40% of Nissan’s shares, Nissan is not able to exercise its voting rights against Renault.
• Nissan and Renault are both listed companies, and both list common shares, Nissan at the Tokyo Stock Exchange, Inc. (“Tokyo Stock Exchange”) and Renault at Euronext Paris. For Nissan, Renault is a company accounted for using the equity method. Nissan is also an equity method affiliate of Renault.

4.  AVAILABLE FINANCIAL INFORMATION:

Financial results for fiscal year 2019, ending March 31, 2020 and filed the following results with the Tokyo Stock Exchange:

• Net revenues of 9,878.9 billion yen
• Operating loss of 40.5 billion yen
• Net loss attributable to owners of parent of 671.2 billion yen

Globally, Nissan sold a total of 4,930 thousand vehicles in this fiscal year.

NIssan has paid Dividend of Yen 57 per share in FY 2018-19 but it goes dwn in current FY as interim dividen of Yen 10 per share.

Share price as on 17.07.2020 is 439.5 & looks stabel here.

My reommedations to shareholders should  have faith in the company as the co. is doing recovery soon.

Thank you!!

Appendix- Information for Shareholders:

1. Stock Summary (as of March 31, 2020)

Securities Code	7201 (Japan) NSANY (ADR)
Stock Listings	Tokyo Stock Exchange
Number of Shares per unit	100
Transfer Agent and Registrar for Common Stock	Sumitomo Mitsui Trust Bank, Limited
Depository and Transfer Agent for ADR	JP Morgan Chase Bank
Total number of shares to be issued	4,220,715,112
Number of shareholders	612,749
Fiscal Year End	March 31
General Shareholders Meeting	June
Record Dates for Dividend	March 31, September 30

2. Shareholdings Structure

(1) Principal Shareholders

	Number of Shares (thousands)
Renault S.A.	1,831,837
The Chase Manhattan Bank, N.A. London Special Account No. 1	142,561 (Note)
The Master Trust Bank of Japan Ltd. (Trust)	101,168
Japan Trustee Services Bank Ltd. (Trust 9)	75,019
Japan Trustee Services Bank Ltd. (Trust)	69,303
Nippon Life Insurance Company	54,029
Japan Trustee Services Bank Ltd. (Trust 5)	48,035
BNY GCM CLIENT ACCOUNT JPRD AC ASG (FE-AC)	42,136
JP Morgan Bank LUXEMBOURG S.A 1300000	34,400
JP Morgan Chase Bank 385151	33,851