Renault Sa Unsp/Adr

Good morning, everyone. We are very pleased to welcome you for the 23 H1 results of Renault Group. This presentation will be made by Luca De Meo, CEO of Renault Group, and Thierry Pietzon, CFO of Renault Group, and will be followed by a Q&A session. Luca, the floor is yours.

Well, hello, everyone. So thank you very much for being with us today. As you all know, a few weeks ago, we raised our guidance for the year. And this, of course, confirmed that the extraordinary dynamic within the Renault Group is continuing and is also pushing our financial performance to, I would say, new heights. So since the revolution started, in fact, I'm sure you have noticed that we have been constantly outpacing our commitments. And today I'm very pleased to show you that this is actually not changing in 2023. We are achieving a 7.6% operating margin. This is almost at the level of the commitment we gave for 2025. In fact, at the beginning we gave 5%, so we are beyond that. And this is also worth underlying that these are Renault's best H1 results ever. So basically nobody did better than this team before financially. We are also breaking records when it comes to free cash flow generation, which is important. Over this semester, excluding mobilized financial services dividend, we roughly generated as much cash as during the entire year 2022, which, as you probably remember, was already a record year. And, of course, I think this is very, very good news and very important for the future. so these results they come only two years and a half after this company hit rock bottom when it was losing 8 billion in 2020 so we can say that we have performed one of the fastest turnarounds in the recent history of automotive breaking past records anticipating our commitments for the future. So I would like to take the opportunity to thank all those who have supported us in the last thousand days, even in the most difficult times. Of course, our employees, our customers, our distribution partners, our suppliers, and of course, our shareholders. And talking about them, let me I also state that the symbolic dividend payout in 2022 is for us only a first step. We are really determined as a team to go much further, and as soon as we achieve our priority to be investment-grade, as Thierry said a few months ago, we will pay a 35% payout ratio. So what has happened at Renault could look like a kind of, I would say, a miracle, but there are no miracles in the automotive industry, and today's results are no exception. They are actually a consequence of, I would say, the passionate job done by the men and women of this company for two years and a half in depth at every level of the organization and preparing it for the future. So first of all, we've made the fundamentals of the Renault Group more and more sound and solid than ever before, restoring the profitability, but I would say structurally. Since 2019, we have reduced our cash fix cost by 2.5 billion and I can guarantee that we will not stop there. It remains our everyday fight and we have, of course, a lot of ideas and plans. We have divided our breakeven by more than 50%, so divided by two, more than two. We have reduced the research and development capex by 40%. We have increased the ROCE by 12 points. It actually doubled compared to 2019. We have been fighting on costs, but we haven't made many compromise or any compromise on the future. On the contrary, I would say, We have put technology and products back at the core of our action, preparing, for example, Renault, what we consider Renault's best lineup in three decades, 22 new cars launched between 2022 and 2025, shooting at the heart of the European market with 50% of full electric cars and 90% of electrified cars. developing each one of them efficiently with an entry ticket per month that has been reduced by 40% compared with the previous generation. Each one of these cars hits the road with boosted financial metrics and profitability compared to three years ago. The average net revenue and the contribution margin on new vehicles have increased and will increase by 46% on both dimensions. With the resolution, we... I've also reconnected Renault with its roots, first commercially. Renault is back in the number one position as a brand in the French market, Dutch on the podium for the first time, and Alpine now the leading sport label in this country. We have also put Renault back in the heart of the French ecosystem with the creation of, for example, of what we call the Soft Republic, which is a consortium with many important French companies. And we have delivered concrete solutions to give a new future to plants that had no clear perspective three years ago. So, around the way, Maubeuge, Ruiz and Cleon, we have developed the ecosystem of electricity for EVs. In Flandre, we have created a refactory for circular economy. In Dieppe, we have upgraded the manufacture around the new ambitions for the Alpine brand. Globally, We have also reshuffled the group footprint in depth, de-risking and optimizing it, I would say, everywhere. We reduced production capacity by 1.2 million units. We managed our exits from Russia, I would say, in an exemplary fashion. We successfully restructured and repurposed our operations in places like Korea, Latam, Turkey, China, Morocco. And we have improved profitability outside of Europe by 50% so far. In the meantime, we have engaged in the most comprehensive and business relevant ESG strategy on the automotive industry. And it's already recognized because we've entered the CAC 40, CAC 40 ESG for our 2022 results. So according to Moody's ESG rating, we now rank number two over 40 in the auto ranking and number 35 across all industry worldwide, over 4,800 companies. We have engineered, I would say, a very coherent, sharp, and customer-oriented portfolio of consumer brands, repositioning two historical brands, Renault for the core of the future of EV and hybrid market, Dacia becoming more and more a value franchise, And we are also creating new ones like Mobilize, and the future is neutral. For the Renault brand, I could say that we think we put back Renault where it belongs. Number one in France, as I already mentioned, but also number two in Europe, while it ranked number five just three years ago. Dacia. has entered in the OEM's top 10 in Europe, but when you just look at the retail market in Europe, Dacia is already the number two brand, which is of course very, very good news. We have reinvented Alpine. creating a first time opportunity for the brand to go global and to attract affluent car enthusiasts. We have almost tripled the sales of the brand, and we've done that at the end of the product life cycle, which is pretty surprising. We have given it worldwide visibility in Formula One, preparing for the time when we will go global with the product offensive. And as a matter of fact, in the meantime, Alpine, Thank you very much. We have created Mobilize. So on top of the traditional banking business, we are developing leasing, subscriptions, payments, insurances, mobility platforms, EV infrastructure, energy, and data business. In other words, it is not just any more traditional captive finance, but a new breed of an automotive brand coming to the product from the service side and not the other way around. We've set up the Futures Neutral. This is the first full-fledged circular economy company in the automotive world. For that, we're teaming up with leading infrastructure and chemical companies to control the whole value chain of repurposing and recycling. We have visibility here to triple the turnover in five, six years with double-digit profitability. We have also designed a global leading combustion engine supplier that has the ambition to give a new future for this technology with Geely and soon with Aramco. So this is a horse. We have also created Ampere, very important. It's the most, in our opinion, the most substantiated and holistic response of the European industry to EV pure players and the Chinese market. It is designed to reduce cost to achieve the price parity between ICE and EV by 2027, 2028, to break even in 2025, and to deliver double-digit margin in 2030. And finally, we have reinvented the alliance with a deal that paves the road for operational projects potentially generating hundreds of millions of euros per year for each one of the companies. The Nissan investment in Ampere up to 600 million euros and an additional catalyst of cash potential thanks to Nissan shares disposals. Without taking into account, I would say, the thousands of activities and the hundreds of projects happening every day and that we have to do to execute and to ensure operational performance, just counting the list of initiatives we have activated and engaged in, and that I have mentioned before, you can calculate more than 150 projects initiated in the last 1,000 days, one project every week. This gives you a measure of the dynamism and the speed of this organization. This is the beat of the revolution. So now I'll let the floor to Thierry to translate all of this in numbers.

Thanks very much, Luca, and thanks to all of you again for joining us this morning. I'm very pleased to comment today our half-year performance, which, as Luca has already mentioned, is reaching record levels. Starting with group revenues, they were up 27.3% in the first half, reaching 26.8 billion euros. At constant exchange rate, they were actually up 30.6%. If you look at the contribution of the different segments, Automotive revenue drove most of the increase. It was up by 27% and reached $24.9 billion. Mobility services amounted to $21 million, up $4 million compared to last year. And mobilized financial services revenue increased by 32%, driven by the rise in interest rates and higher average performing assets. Let's move forward to slide 23 with a review of the automotive revenue. So as I mentioned, it stood at 24.9 billion, up 27%. At constant exchange rate, it was up by 30.2%. Our sales to partners contributed positively by €308 million, or 1.6 points, benefiting from the start of production of ASX for Mitsubishi Motors. This illustrates the common projects that were starting with the Alliance again. We also benefited from a dynamic LCV market, driving our sales to Nissan, to Renault Trucks, and to Mercedes-Benz. We'll now deep dive into the three main drivers of our revenue growth in H1, volume for 15 points, and price and product mix for accumulated 12.3 points. Volume-wise, the group registered 1.13 million units in the first half, a 13% increase over the first half of last year. In Europe, with a 24% rise, we strongly outperformed the market, which was up 17%. This is also one of the drivers of the positive geographic mix that you saw on the previous page. This progression was driven by the commercial success of our vehicle lineup, combined with an improved availability of electronic components. Invoices outperformed registrations as outbound logistics tensions continued to prevent some vehicles that had left our plans from reaching final customers. I'll come back to this in the section about inventories. Renault Brand sold 772,000 units, up 12%. As Luca already mentioned, Renault is back on the podium, number one in France and number two overall in Europe. Renault RCV, in particular, experienced a 26% sales increase in the first half and is leader in vans in Europe. Dacia posted another outstanding performance with 24% growth, delivering 345,000 units. We grew significantly in the first half. Our figures continue to illustrate the relentless focus on value pricing and distribution channel discipline. The three following areas, C and above segment, the trim mix, and the retail channel mix illustrate that our volume to value strategy is continuing to pay off. It demonstrates quarter after quarter that we're among the most disciplined OEMs and that it pays off. We continue to benefit from a significant positive effect arising both from pricing and mix with 12.3 points in the first half. We expect these effects to ease a little bit as we move forward in 2023, mostly due to tougher comps, but they'll continue to be strong revenue growth drivers throughout the remainder of the year and beyond. Let's explore some of the products which made the success of the H1 performance. Whereas the start of the year was affected by subsidy cuts in numerous European countries, Megane Tech orders have improved since March. Megane Tech is the number one EV of its segment in France in the first half. We sold more than 23,000 units in the semester, of which 70% are high trim versions and 80% with the most powerful powertrain. Megane is a conquest product with 57% of clients which are new to the Renault brand. We'll pursue this conquest as Megane eTech will be launched in the second half in Turkey and in Brazil. As we said we would, we remain focused on customer satisfaction, residual value, and favored price stability in a very challenging environment. A strong residual value, as you know, is a key driver of the car's competitiveness, as more than 80% of our European retail customers buy a Megane with a financing. The residual value of the car rose by nearly two points in June 23 compared to December 2022. Month after month, Austral confirms its success. Thanks to Arcana, Megan, and now Austral, Renault brands grew by 42% on the European C-segment in the first half. Sales of Austral amounted to almost 40,000 units in H1, 65% were E-Tech hybrid, and 60% of our clients opted for the highest trim versions. Austral is progressively being commercialized in all our countries. The UK and Turkey have started recently, while Morocco will start in the second half. Financially, Austral delivers the greatest passenger car contribution margin per unit in Renault brand's history. Thanks to the commercial success of Arcana, Megane, Austral, and Kangoo EV passenger car, we're on track with Renault brand's ambition to reach 65% of electrified vehicles by 2025. Renault brand sales of electrified vehicles increased by 18% in H1 versus last year. 37% of our clients in Europe went for electrified vehicle, hybrid or BEV. 11% of our sales were BEV in volumes, a 10% increase year over year. Looking ahead, electrification will be further supported in the second half by Espace E-Tech Hybrid and by new Clio, equipped with a hybrid engine at the core of the range. From 2024 onwards, our Pure Electric lineup will further accelerate its development with Scenic early in the year, which will be presented in the Munich Auto Show in September, and then Renault 5. Let's look at the Dacia brand. The new brand identity has been a true booster in 2022 and Dacia pursued its strong momentum with all models growing in the first half. The new extreme trim level launched at the end of last year is an additional asset for Dacia to attract new customers and generates incremental contribution margin on already high levels. The first hybrid version in the Dacia range was launched in January with Jogger. Dacia-Jogger Hybrid 140 already represents more than 25% of customer orders despite component supply constraints and longer lead times. This model is a stepping stone in Dacia's smooth electrification strategy. Dacia Spring, 100% electric, recorded more than 27,000 units in Europe in the first half of 23. Spring is a true product of conquest. 72% of the customers are new to the brand, and 93% of them are buying their first EV. It was again on the podium of retail electric vehicles in Europe in H1. I want to take the opportunity to say that we get a lot of questions about an EV below 25,000 euros. Today, Dacia Duster, before government incentives, is at 20,800, which means that you can, not Duster, sorry, Spring, you can get a Spring with government incentives in France at 15,800 euros, and the car is profitable. Last but not least, Duster was on the podium of retail SUVs in Europe. We look forward to the launch of new Duster in 2024, which will ensure the continued success story of the brand. In a nutshell, Dacia continues to grow and we're now well into double digit operating margin territory. To summarize, the success of the group's lineup fed the revenue growth we recorded in the first half. It was also a key driver of the operating profit you'll see on the next slide. We more than doubled our operating profit in the first half of 23, delivering two billion euros, which represented 7.6% of revenue, up three points versus the first half of 22. This performance is driven by the progress of the operating profit in our automotive segment, which stood at 1.5 billion euros, or 6.2% of auto revenue. We more than tripled our automotive segment operating profit versus last year. You're now familiar with this chart. I think it illustrates pretty clearly the group's strong transformation throughout the last three years. 7.6 operating margin is a new record for the group. To give you some perspective, the previous record stood at 7% and it dates back to the second half of 2017. In 2017, this was achieved with significantly higher volume of 1.8 million vehicles. It also means that we're closing the gap with some of our competitors, but clearly this is not the end. We're 100% focused on continuing to improve our performance year after year. In the first half, our operating margin increased by 1.1 billion. The biggest contribution came from price, mix, and enrichment for 1.8 billion. This reflects our commercial policy and more than compensated the cost headwinds. Despite good operational cost performance, our cost of goods sold increased year over year by about 1.2 billion euros. This was primarily driven by H2 2022 carryover effects in raw material and other input costs, namely logistics, energy, and labor. Raw materials weighed for 342 million euros, as you can see on the slide. In H2, we expect a meaningful improvement versus H1 to get close to a neutral effect. Logistics and energy costs will continue to weigh in H2, but to a much lower extent than in the first half. As already announced and embedded in our initial guidance, our profitability level includes, since November 2022, a positive effect of the cessation of amortization for horses' assets held for sale. This impact, as you can see on the page, accounted for 275 million euros in H1. Restated from the horse impact, OTO margin would have been up 300 basis points compared to H1-22 and up 130 basis points sequentially against the second half of 22. Let there be no doubt that we're strongly improving our operational performance. Mobilized financial services generated 10.4 billion euros of new financings, up 19%, thanks to the 11% increase on average finance amount and to the registration levels. Average performing assets amounted to 49.9 billion euros, a 6.2 billion increase versus 22, thanks to the increase in retail financing and to higher dealer inventories. Net banking income was negatively impacted by non-recurring impacts of interest swaps and by a higher mix of wholesale financing versus retail. Cost of risk at 0.38% remains at a very low level, both for wholesale and for retail. Overall, our sales financing activity delivered €518 million in operating profit, excluding the non-recurring swap valuation impact, mobilized financial services, posted an operating profit that was up 9% year-over-year. Looking at key items from our group profit and loss account below the operating margin line, The slight deterioration in our net financial results is explained by the impact of hyperinflation in Argentina, partially compensated by a positive impact of the rise in interest rates on our net cash position. Profit from associated companies rose primarily due to Nissan's contribution, which stood at €582 million compared to €325 million last year. The rest of the increase resulted from the non-recurrence of the RN bank write-off that we performed in H-122 due to the situation in Russia. All in all, net income strongly improved by $3.8 billion, reaching $2.1 billion. Even excluding the one-off $2.3 billion loss related to the exit from Russia in 2022, net income from continuing operations more than tripled versus last year. Now let's switch to free cash flow. Renault Group generated 3.3 billion of cash in H1 of 2023. Once again, this is a record for the group. and reflects our operating performance. This figure included a $600 million dividend inflow from Mobilized Financial Services compared to $800 million in the previous year. Group net capex and R&D rate, excluding the impact of asset disposals, amounted to 6.9% of revenue in H1 versus 8% last year. Disposals represented roughly 200 million euros of inflow, and as in prior periods, it almost covered the 219 million of restructuring cash out recorded in the semester. The change in working capital requirement was a slight negative at 138 million euros, and was mainly led by the decrease in our receivables factoring to reduce our financial expenses. As a result, operating free cash flow was positive by close to 1.8 billion, which again is a new record. Restated from mobilized financial services dividend, it stood at 1.2 billion this year against 0.2 in the first half of 2022. This record free cash flow strongly contributed to a significant improvement in our automotive financial position, which improved by 1.6 billion and reached 2.2 billion positive. Turning to slide 36, global inventories stood at 569,000 units. Continuing tensions on the downstream logistics weighed on our ability to deliver vehicles to our final customers. It slightly decreased compared to the first quarter of 2023. This level of inventories should also be put in perspective of much higher activity, obviously, than last year, and of the very strong order book, which stands at 3.4 months of forward sales, significantly above our target level of two plus months. The proportion of vehicles that are affected to customers remain stable at a very high level, and inventory aging is extremely low. Our inventory levels will gradually improve through H2 as tensions on logistics continue to ease. This improvement will accelerate in Q4, and we expect to be below 500,000 units at year-end. The liquidity of the automotive division stood at a very comfortable level of €16.8 billion on June 30, 2023. In the first half, Renault Group has fully reimbursed ahead of schedule the remaining €1 billion tranche from the banking pool guaranteed by the French state, thereby clearing off this debt. As part of our credit rating since last year, most of the agencies covering us have upgraded their outlook of Renault Group. I wish to stress out that returning to investment grade, as Luca mentioned, remains our number one priority. Moving to the last slide, let's look at our guidance for the rest of the year. On June 29th, we announced, as you know, an upgrade of our financial guidance for 2023. This was more than reflected in our H1 figures, as commented by Luca. For 2023, we confirm this financial guidance with an operating margin between 7% and 8% and a free cash flow above 2.5 billion euros. We expect the second half operating margin to be slightly above the first half. Following 275 million euros of positive impact in the first half operating margin, the impact from horse should be neutral in H2. Post closing, the effect of the cessation of amortization will be compensated by the initial markup on the purchases that we will do from horse, which by the way will be offset by productivity starting in the year two. Thus, if you exclude overall horse impacts, the sequential improvement in H2 will be even more marked. All in all, the first half results reinforce our confidence in the achievement of our targets for the year and in our ability to continuously improve our performance. This concludes our presentation, and Luca and I are now ready to answer your questions. Thanks for your attention.

Thank you, Terry. So we'll start the Q&A session. We have a first question from Pushkar Tendulkar, HSBC. Pushkar, please, could you open your mic?

Yes, hi. Thanks for taking my question, and good morning, everyone. So I actually have a few questions. Maybe I'll start with theory first. So the first one on the order intake, I think you commented about the Dacia orders when the brand released their first half retail sales. If you could update us with how the order intake is at the group levels. So the incoming orders. And then the next one on mix that remains strong, but in the second quarter, it's softened compared to what it was in the first quarter. So just want to understand what are the drivers with that, whether it's the trim mix that has been slightly weaker compared to the past. And then one for Luca about ampere timing. So what exactly do you look for in terms of the timing in the first half, whether it's the condition of the financial markets, the EV penetration rates, which have kind of slowed down in Europe? I mean, the reason for asking this question is I understand you don't need the cash from Ampere as such to drive the business. So if these conditions are not met, then do you think that this can get further postponed? Thanks. Thanks.

I'll start with the order intake. I think your question was specifically on Dacia, but if it's on the group, I can comment the group as well. So on Dacia, you know, the order intake continues to be strong. I think it's clear that the brand has an excellent positioning in this type of environment where cars are relatively onerous. So we actually see growth in all the different models. As I mentioned previously, The launch of the extreme trim mix is an additional positive. We sold 45,000 of that trim already since the beginning of the year, and that comes with even better margins than we have on the rest of the range. And these numbers were achieved by Dacia on a stable range, so with no specific new models other than the new trim. And we'll start having productivity again coming into 2024. with New Duster, and we're, as you can imagine, psyched to be able to put on the market New Duster, which we think you will like. And the car will continue to drive the growth in that business, and it's performing extremely well. As I mentioned, we've already disclosed that Dacia was making more than double digit operating profit. And we're well into that territory now. On the second element, on the mix thing, you're absolutely right. The mix effect on the turnover was slightly softer in the second quarter than in the first quarter. But I want to say, in fact, it's a little bit good news. What drove that is the fact that Clio had an amazing second quarter. So Clio sales were up more than 40%. And so, you know, Clio comes with a net revenue per unit, which is slightly above average for the rest of the group, so this incremental volume kind of drove the percentage down. But on the flip side, the positive mix impact that we're getting from Austral, from Megan, and even from Espace, which was only commercialized very late in the month of June, is very positive, and we'll see that continuing throughout the rest of the year. I want to say that this mixed impact will be a little bit softer in the second half, again, for the same reason, because we'll have the new Clio coming out, and so we have high expectations from that car. But the good news is the fall down between the impact on the turnover level and the impact of the margin is very, very good. So the softening that you see in terms of impact on the top line is in fact a reinforcement of the mixed impact that we've got on the bottom line. So it's all good. I'll let Luca comment and I'll be happy to jump in if you need me.

Yeah, I mean, the question on pear, I think that for us, let's say the priority of operation is to actually carve out the organization as we did, I would say, successfully with horse on the 1st of July. It's not a detail because, you know, in a carve-out of horse... You have to really unlock a lot of processes, I don't know, 15,000 contracts with suppliers. So it was a very complicated operation, but the team did very, very well. So I think we learned a lot of things that will be useful for the carve-out of Ampère that we want to execute before the end of the year. That's the first thing. And when it comes to the potential IPO, we are looking at the next, let's say, good window into the market, which might be in the first months of 2024. That's what we're looking at. And I want to say, you know, I confirm what you're saying is, The potential IPO, of course, is not motivated by the needs of having cash just to start up the operation. As you know, as you can see, we probably have the money and most of the investment of Ampere are behind us. It's a way to accelerate the plan. to create an even more ambitious strategy to face new entrants and the Teslas and the Chinese of this world. So we're going to make a very, very bold decision, which we want to make. We have ideas. So that's the reason why we do this. And the other reason is a little bit more... cultural thing, it's clear that EV and software is a different sport. So you've got to have a different mindset in the organization. So the attempt is also to create within Ampere a different subculture into the group. And when you have investors that are trusting you and give you money for your venture, what you want to see is a team that is very oriented to performance and very transparent in its governance. So I have to ensure, and let's say a potential IPO can help us to have a governance which is autonomous, which is focused on its plan with a management team that thinks 24 hours a day at how to create the strongest European response to any threat that comes on the EV and software space. So that's the way we see the things.

Yeah, I would just add to what Luca said, that we started marketing au pair, so Luca, Rekha, and Vincent started having early look meetings in the last few months, and the response has been positive. So first we had access to many, many potential investors. I think the feedback is that, It's a business that's unique on the market, that has real consistency, and so there's a lot of interest in the story. Obviously it's the beginning of the process, but I would say that the early look meetings were very encouraging.

Thank you Thierry. So now we have a question from Thierry Kemener, Stifel. Thierry, please could you open your mic?

Good morning, everyone. Thanks for taking my question, Pierre-Yves, with Stifel. Actually, I got four questions. I'll try to be as brief as possible. Nissan should invest what I see as a limited amount into Ampère, 600 million euros. What kind of stake that would imply for Nissan into Ampère? And are you happy with this minimal commitment? That would be the first question for you, Luca. The second one, I got two for you, Thierry. When you mentioned a neutral impact for cost headwind into issue, was it for raw material only or for overall inflation? And accordingly, the entire cost headwind as weighed on the first half, we should model zero into second half, or maybe I didn't hear you correctly on that one. And more broadly, could you comment on the key drivers of the operating incoming to the Second Harbor? So the first off, We understand from your earlier comment that mix should be a bit softer, but what about volume and pricing? Any color would be appreciated. And last, on inventories, you know they are very closely monitored by investors. Dealer inventory rose by 100,000 units in the second quarter. Your target total inventory is below 500K at the end of 2023, but how should we think about the dealer inventory trends into the second half? Thank you.

Good morning, Thierry. Look, I'm going to answer on the Ampere investment from Nissan. Actually, I think we're very happy with that because the whole idea, of course, is that Inampero will keep a very strong stake because it's the heart of our future business. But at the same time, we have to ensure if we want to make an attractive operation, a floating which is decent for investors in the space of 20%, 25%. So, you know, initially there was, you know, kind of shared in the press or through the analysts that Nissan should invest 15% of the thing or up to 15%. And a lot of people were worried that this would be too much of a stake into the thing to leave, you know, floating for the investors. So we are very happy with that because I had also to leave potentially space for, People like Qualcomm and people like Mitsubishi that is actually right now trying to decide whether to go into it and with a certain substantial amount of money. But you have to look at the overall benefit of the thing. which is, in fact, the real advantage of this operation with Ampere is that Nissan and potentially also Mitsubishi could actually buy products from Ampere. So Nissan has already announced the Micra. And this, of course, is a huge advantage also in return for us. You have seen for the first time sales to partner going back to decent level already in this quarter. Part of it is the fact that we made a deal with Mitsubishi for the Captur and for the Clio, what they call ASX and Colt. And so you can imagine that you have to not only think about the money they're putting as a stake into the company, but also the business that we will do with them. And overall, that will be a very, very interesting thing. And by the way, I don't know how familiar you are with the alliance, but people here don't remember a time where Nissan would put cash in one of the Renault projects on a project where we will produce cars for them and we will, of course, make margin on it. So I think it's a pretty decent deal, and it will allow us to leave space for the investors in case we do the IPO beginning of next year.

I'll take the other more sort of financial questions, pure financial questions. So on the neutral effect on cost, it was specifically on raw materials, right? So we're obviously, like everyone else, seeing raw material prices for most of them come down. Although for some of them, they remain at a pretty high level, such as lithium. If you look at the 342 million we had in the first half, there was roughly 400 million of carryover effect, and on the new buy it's a slight positive, and this balance is gonna continue in the second half, and raw material should be just about balanced, but raw material only. On the other input costs, so logistics, energy, and labor costs to some extent will continue to be a headwind year over year in the second half, but to a much more limited extent. So I guess if you took something that's, if you took a total cost bucket, something that's in the second half, roughly half the impact of what we had in the first half, you're probably not very far from the truth. The drivers of the second half improvement versus the first half, so volume should be approximately flat, so we should have the same level of invoicing in H2 than we have in H1. Mix will actually be a positive, so the mix impact softening, which I mentioned, is on the top line. because of Keogh, but new Keogh will come with actually better margins than the previous model. So actually from an operating margin perspective, Mix will continue to be a positive driver in the second half, even sequentially versus first half. Cost will slightly improve as I already mentioned. And then part of this will be offset by the fact that we will no longer have this sort of tailwind that we had in the first half coming from horse. So that's really the dynamic. It would be actually pretty strong improvement from an operating perspective between H1 and H2, excluding the horse impact, and the horse will soften that a little bit, but still net positive. And then on inventories, look, it's the reduction between the level we're at now and the level will be at your end will come from dealer inventory. I mean, the OEM inventory is already pretty low. We took care of the incomplete vehicle amount that we had at the end of Q1. It's back to normal, I would say. So OEM inventory is good. And as the cars reach the final consumers, it's the dealer inventory that will go down very, very significantly. Thanks much.

Thank you, Thierry. So we now have a question from Thomas Besson, Kepler Chauvet. Thomas, please, could you open your mic?

Thank you, Philippine. First, I have a very simple modeling question, please. Could you give us an indication on what we should expect for CapEx and working capital in H2 for your free cash flow? Because you... invested a little bit less than anticipated in H1 like most of your peers, but you had a drain from working capital and I think most should change in H2. And then I have wider questions. Can you just help us and share your net pricing assumptions by vehicle types for BEVs, PHEVs and ICE in the second half of the year and your best guess when we look out at 24 in Europe? Then another question, what should we expect in terms of your BEV volumes for 2023? Do you expect them to rise or are you happy to continue to keep a focus like you did in Q2 on the residuals? And could you remind us broadly how many BEV units you think you have to sell in 2025 to meet your European CO2 requirements? Thank you.

So I'll take the first question on CapEx and then you can let me know if you want me to take the rest or if you want to jump in. So for CapEx, we'll have a stronger cash out in the second half compared to the first half. Because of the timing, we're in the middle of a large amount of launches, as you know, and typically the cash out is pretty synced with the launches, so H2 will be higher than H1, but will stay well in the 8% R&D and CapEx guidance that we've consistently given. Working capital should be about flat, I would say, in H2, so we're not counting on a large working capital improvement. Just the slight headwind that we had in the first half, quite frankly, with the cash generation being so strong, we took the opportunity to reduce some of the more onerous factoring programs that we had to improve our financial cost. And if we have the opportunity to continue to do so, that's something that we will do. So it's just an arbitration between cash and financial interests. So our assumption should be roughly flat. So net pricing on EV, EV and ICE. So for the rest of the year, I think we're not going to go back. So we're not changing our commercial policy. We don't plan on engaging enterprise wars. I think we stuck to our guns with Megane Tech, and I think it delivered what we were expecting in terms of volume. At the same time, we don't expect to raise prices significantly anymore. I mean, clearly, headwinds from raw material, et cetera, have disappeared, and we're gonna go in a period where costs should gradually get better, and so there should be an opportunity to maybe capitalize that to make the cars more competitive. Going into... Yeah, on the facelift or the new versions of Clio and Arcana, we actually took the opportunity that the cars are in a better position from a cost standpoint to lower the MSRP a little bit and to make the car more competitive. But we still make more margin on them. and we'll tactically look at opportunities to do that. If you take Dacia for example, we were at a 25% gap versus the competition a few years ago. We're close to 10% now and we feel that's the right level. We need to keep the recipe that makes that brand what it is. Obviously we'll keep working on the Renault brand on incentives and things like that to try to gain some ground but You should not expect any more strong positive pricing actions like we had in the past. It's clear. And going into 24, I think, again, the dynamic for us is to take cost out. So we'll be working very, very hard on cost. And when there's an opportunity to be tactically, you know, to give some pricing back while continuing to improve margin, that's what we'll do. On the level of volume for EV, I should not expect a lot of change for the second half of 23. The change will come when we launch the next vehicle, so Scenic will come early into 24, and Renault 5 and the Alpine version will come shortly after that. That's what's gonna drive the volume growth. And then on 25, the 25 level of volume that we need from Bev to cover our CO2, I don't have the number on top of my head, but we're fine from a CO2 perspective. As you can see, our mix in terms of HEV, PHEV, and EV is improving. So we're quite comfortable that we're not going to have a problem from a CO2 perspective going into 25.

Great. Thank you, and congrats on the results.

Thank you, Thomas. We now have a question from Nikita Lal at Deutsche Bank. Nikita, please, could you open your mic?

Hi, good morning. Thank you for taking my question. First of all, congratulations for the impressive results. Justin, follow up on the dealer's inventories. I think I did not get your comment here. My connection was a little bit lost. Could you just repeat what you said on dealer inventories and when we expect if they will come down in H2 or 2024 or will stay at that level? Then on your order book, it's pretty high still. When do you expect that it will come down to your preferred two months? And how is the current order intake on the group level? So you already commented on Dacia, maybe then on group. And lastly, on Megane E-Tech. Earlier this year, we were talking about adjustments of your offerings due to boost the Megane E-Tech. And now we saw Q1 and Q2 pretty equal. Do you expect that this will stay at this level or do you expect to be able to increase further the Megane E-Tech sales. Thank you.

Thanks for the question, and thanks for the comment on the results. So dealer inventory will come down. So if you look at the number at the end of this first half is, in total, 569,000 will be below 500,000. So it's sort of a 70k decrease, and most of that will come from dealer inventory. Sorry? By the end of this year, yeah. So by the end of 23, dealer inventory should come down roughly 70,000 units or more. On the order book, yeah, it's still pretty high. You know, we're at 3.4 months. As you say, our target is to be around two. With the electronic components becoming more available, the order book has started to come down. We expect to be, depending on, you know, the second half order entry, we expect to be back at the two months level, either, you know, sort of, very end of this year or early into 2024 if the market remains at the very depressed level it's at today kind of thing. I would say from our order intake at the total group level, it's been pretty stable since the beginning of the year. It was a bit softer in April and it picked back up in the month of June. It's pretty stable now. Look, I would say for us the good news is You know, our recipe going into the second half and going into 24 and 25 is to capitalize on the success of our new vehicles. And our new vehicles are performing very, very well. You know, I spoke quite a bit about Austral, Austral is off to an excellent start. We launched ISPAS towards the end of June, and it's already bringing financial results, despite the limited amount of time it's been on the market. ISPAS being a derivative of Austral comes with even better margins than Austral, so it's positive. And Rafale, which is the third car of the family, will come early next year with even better margins. So we're excited about that. And by the way, this is not unique to the C segment. We'll be launching the new Clio in September. And you know Clio for us is kind of bread and butter. So we look forward to that. We'll have the new Duster, as I mentioned, in 24. We'll have the Renault 5. We'll have Scenic that will present in Munich. We'll have new cars in Alpine. We'll have Master in the RCV range. So for us, we're capitalizing on a range that will be very, very fresh. that the customers appreciate. If you look at the Renault brands, right now we have the unique position of having Open R, which is Google Automotive, in that level. It's very unique to the market and the customers love that. And we'll keep being in that spot for a while. On Megane eTech, so Q2 was actually a bit better than the first quarter, primarily because January and February were a bit depressed with the cut in the subsidies, so it's improving. But look, we're not gonna push Megane for the sake of making four or 5,000 units more. We want Megane to be the first building block in the electrified, in the electric range we'll have in Ampere. And the last thing that we want to do is destroy value in that segment, which represents a big part of the future of the brand. So, you know, the car is doing what we want it to do, and we'll keep it that way. We'll keep it competitive on a monthly rate perspective. We'll keep working on quality and cost to improve the competitiveness and stick to our guns.

I think that with the... The last action we did to reshuffle the range and working on the competitiveness of the monthly rate, April, May, and June were completely different from the first quarter. The first quarter was bad. There was a lot of uncertainty. Also, of course, price cuts from Tesla created a lot of uncertainty. obviously, you know, buzz into the market. But you have to remember that, you know, we were in a time where, you know, electricity price was very, very high. So it was confusing for the customer. And there was a little bit of uncertainty on the position on some governments regarding, you know, the cut of subsidies. I think that they are understanding that. subsidies to consumer will be still fundamental to keep the EV market growing. So April, May and June were pretty good for Megane. We are happy that we see, and you can check that, that contrary to some of our competitors, actually our residual value are going up. which is a very, very good sign. It means that our strategy works because the residual value is that pays directly into the monthly rate, so we can offer to the customer a very competitive offer. And, you know, we always look at the Megane, but I think that Renault is, you know, it's kind of a, you know, traditional EV, I would say, producer. We have a pretty good numbers with the Spring, which has a very clear positioning, with the Twingo, even with the Zoe, despite the fact that it's a 12, 13 years product. So we have to look at the whole thing. And as Thierry said, we will have an all array of products. 50% of them will be BEV, already starting from 2024. What happened at Renault, and that was our word two, three years ago, is that we could not bridge the time when the new wave of products would come with good results, considering also all the miseries that all of us experienced in the last two, three years with the COVID, with the geopolitical tension, the supply issues, et cetera. And in fact, what happened is that we're delivering to you today the best result of the history of this company, before the new wave of products comes. So next year we'll have 12 products coming into the market. This is actually unprecedented for Renault. And that will make Renault in 2024, 2025, and probably even 2026, the company with the youngest lineup in the market. Normally in the automotive business, from my experience, when you have fresh products, you can do a good job. And you can make, you know, you avoid discounting, you know, you can keep the price up, you can do margin, et cetera. So that's what we count on. Thanks God we were able, you know, the last two, three years to bridge properly the thing, which is not a miracle, as I said. It's, you know, the result, the consequence of a lot of work structural on the company, on the cost, on the fixed cost, et cetera. So now it's our turn to take advantage, you know, of a good lifecycle of products. And I am actually pretty optimistic that we'll continue to show you, you know, improving performance.

Thank you. We now have a question from Arya Gacemier-Barclays. Arya, please, could you open your mic?

Hi, morning. Thanks for taking our question. Coming back to comments you just made, we were hoping you could discuss your leasing strategy in a bit more detail. Is it your strategy to keep list prices stable, but to improve your competitive positioning by lease price reductions? And conceptually, how should we think about lease price reductions feeding into financials? Thank you.

Look, we're not going to sacrifice the profit that we make in the Finco in order to push more volume. So it's not a question of left pocket, right pocket, cutting price on the OEM side or cutting price in the rates of leasing, et cetera. We work to make the card competitive based on the residual value, the perception from the customers, and its cost positioning. So, you know, from a leasing perspective, what we tried to do during this year is to make the offer as flexible as possible, so give options to the consumer. So whereas in the past we would typically offer a product that had a lot of bells and whistles directly embedded with, you know, sort of maintenance and things like that, We tried to have an offer where the customer can pick and choose in a more specific fashion what he wants and what he doesn't want. So to keep the rates low. It's not giving away rates or anything like that. We want to protect the future profit as well. And we'll keep doing that. In parallel, we're laser focused on cost. At the end of the day, we want the cars to be competitive from a cost standpoint as well. I think on EV, Luca mentioned it earlier in the discussion, the market is still volatile. The end of the volatility will come ultimately when there's parity in terms of total cost of ownership between ICE vehicles and EVs. And so our focus is to get there as fast as possible. We announced back in June that we were targeting a 40% cost reduction on the EV range. It's not just a target, we wouldn't have said that if we didn't think we had a roadmap to get there. And what this cost reduction achieves is that, it's parity between ICE and EV. And I can tell you, you know, again, since we've carved out Ampère and we've got teams that think about EV cost reduction from the morning until the evening and look at how they can engineer an electric vehicle with the best chemistry, with the best powertrain efficiency, with the best integration between the EV powertrain and the chassis of the car, et cetera, et cetera, we've been making much more progress from a cost-out perspective. And so we're gonna be working on that, and that's gonna be the recipe.

And just to be very clear on monthly rates, the changes we made beginning of this year were just there to display the same monthly rates on the same scope as our peers. So thank you, Arya. We have a last question from José Sumendi, J.P. Morgan. José, please, could you open your mic?

Thank you very much. Thank you, Philippine. Good morning and congratulations on the results. A couple of questions, please, Luca. Can you comment a little bit around what is going to be Renault's offensive in the electric vehicle segment to offer vehicles below the €25,000 level? We heard from other conference calls yesterday about a Chinese offensive in Europe in the electric vehicle segment. So I would love to understand a little bit more your perspective. on what you're planning to introduce in the coming years in that price segment and below. And then on financials, apologies if I repeat myself here. On the revenue bridge, when it comes to pricing and mix, as we think about the second half, how do we think about this contribution on price mix, H2 versus H1? And also, can you maintain capex in the second half sequentially flat versus the first half? Thank you.

Buenos dias, José. Look, I think that your question calls for a simple answer. Our response to all of this is Ampère. And Ampère is done exactly to, let's say, face a new competition coming, very aggressive. And it comes from the understanding and accepting the fact that this is a completely new game. And it's not only about the EV. It's a combination of EV and software. So we made, in the last couple of years, pretty, let's say, radical decision also on the technology side. We decided here to go into an SDV, so software-defined vehicle, with, I would say, a pretty, let's say, unique approach with an horizontal partnership with Google and Qualcomm. We will be in the market in 2026. According to our estimation, at that time, we will be on par with Tesla from a technological point of view and probably ahead of our traditional, let's say, competitors and for sure on par even with the best Chinese when it comes to software. On the EV side, the other decision was made, and this is a pretty relevant one, is that we decided to develop an EV native B-segment platform. We will be the first one in Europe to have a new generation small car native platform that will underpin cars like Renault 4, Renault 5, the Micra, and also the Alpine. And, you know, this mechanically brings the entry price for new generation EV cars, including software, you know, I would say 25%, 30% below what we have today with the Megane. So that's the first movement, is we bring the EV of a new generation closer to the budget that people can afford in Europe. And that's the first movement. The second movement is, And this is what we're deciding right now is by 2028, we'll have to renew the C-segment platform of Renault, let's say C and D-segment cars. And the reason why we're doing Ampere is that we want to do a revolutionary move. on that thing. So in a normal world, we would try to synergize with Nissan, which we'll, of course, try to continue to do, et cetera, but we would actually somehow follow a convergence scheme. In that case, we go for a very radical thing. That's why also we're doing unpaired. That's why also probably we need some of the money from the investors to enable us to take the decision, radical decision, with a little bit more lighthearted, you know, mindset. We have the ideas, we have the visibility to drastically reduce the cost, we know how to do something that can match any competitor in the world, because Ampere needs to prove, in my opinion, that the European automotive industry can respond to the challenges that are coming from all over the world, and that's the challenge. It's not done, but I can tell you that I think we have the right mindset, also the right level of humility, to understand that the world is changing. And we don't have this like since last week. We have that since at least a couple of years where we sit together with all the team and we decided that we wanted to do Ampere because we want to reinvent Renault and to bring it back where it deserves.

On your two other questions, on the revenue bridge, so the comps are obviously a little harder in the second half versus the first half. So we'll see price a bit softer than what we had in H1. From a mix perspective, as I said, the launch of new Clio will take the revenue mix a We'll put a bit of pressure on the revenue mix. It's good news from a margin mix perspective. I think what you should expect is a combined effect of price and mix for H2 that's kind of in the mid to high single digit as opposed to the 12% that we had in the first half. And then your second question was on, your last question, sorry, was on CapEx. And again, CapEx in H2 should be a bit higher than in the first half because we have the launch of the vehicles coming. So we do manufacturing approval and then that's when the CapEx comes online. And we also have not embedded any disposals in the second half versus we had quite a significant amount in the first half.

Thank you very much.

Philippines telling me that we're over with the time. So I know that you guys have... busy day because there are a lot of announcements and we also have to continue our day with other few things and conversation so I want to take the opportunity to thank you all for spending time with us and to wish you a well deserved break so we'll see each other after the summer break and we'll be continue to commit ourselves to improve the results of Renault which for the time being are pretty good So thank you for your support and attention.