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.