This is the first drop in annual earnings under chief executive Carlos Ghosn since he joined the company in 1999.
Nissan reported net profits of 460.80 billion yen (£1.98bn), down from 518.05 billion yen (£2.17bn) in the previous fiscal year.
Operating profit fell 10.9% to 776.94 billion yen (£3.26bn) while revenue rose 11% to 10.47 trillion yen (£44bn).
Ghosn said Nissan would push back its target of selling 4.2 million vehicles in the fiscal year March 2009 to March 2010.
“2006 did not boost our results towards achieving the objectives of Nissan Value-Up,” said Ghosn.
“However, we believe that the commitments are within the potential of the company and we remain focused to deliver them completely. Accordingly, we have decided to extend the period for delivering all the Nissan Value-Up commitments by one year.”
Nissan predicted a rebound in profits in the current fiscal year to March 2008, forecasting net profit of 480 billion yen (£2.01bn) and operating profit of 800 billion yen (£3.35bn) but revenue is expected to fall to 10.3 trillion yen (£43.1bn).