Renault Sa Unsp/Adr

Good morning, everyone. We are pleased to welcome you for our presentation dedicated to our Q3 revenue with Thierry Piéton, Group CFO, Fabrice Cambolive, CEO of Renault Brands, Denis Levotte, CEO of Dacia Brands, and Xavier Martinet from the Dacia team. Thierry, the floor is yours.

Thank you, Philippine. Good morning to all, and thanks for joining us this morning. I'm pleased to comment today on Q3 revenue and commercial performance, but let me first give you an update on the strategic and commercial developments that took place over the last quarter. Renolution is moving ahead quickly with several projects that we're rolling out at the same time. So let's start with Horse, our business dedicated to ICE and hybrid powertrains. The carve-out was completed on July 1st. Day one was a real success. We had 9,000 employees, eight factories, and three R&D centers that were transferred without a glitch. On July 11th, we signed the JV agreement with Geely. The closing is expected in the upcoming months and will lead to the deconsolidation of the horse entities and the start of the new JV. At the same time, we're pursuing our fruitful discussions with Aramco, who would also join the new co in the coming months. Let's move on to Ampère. The carve-out will be completed in two weeks from now. On November 1st, Ampère will be a dedicated entity, 100% focused on EV and on software. The carve-out provides for us unique conditions to accelerate our work on performance and innovation. It also very clearly enables us to better identify cost reduction levers, Between our current generation of vehicles and the next one, as you know, we will reduce costs by 40%. This improvement will be continuous, and the benefits will materialize on vehicles in production and in upcoming launches. All this will be covered in detail during Ampers Capital Market Day, which we have announced will take place on November 15th. In September, we revealed Scénic, which is the second car of Ampère's EV offensive at the heart of the European market. With Scénic, we will offer to European families an all-rounder EV, able to become the first car of the household. Scénic is a high-tech car with benchmark connectivity, thanks to Google Automotive Services. It has best-in-class range with up to 625 kilometers WRTP. It's well-positioned from a pricing perspective, with an entry price at around 40K euros, less expensive than key competitors, and already has a TCO, meaning a total cost of ownership, on par with hybrid cars. In addition, this car is the flesh and bones materialization of our ESG strategy. It's a car born with a purpose which increasingly matters, especially to our fleet customers. It's built with up to 24% of recycled materials and up to 90% recyclable. Its cradle-to-grave CO2 footprint is significantly lower than EV pure players. With Scenic, we're demonstrating that we can offer a product with best-in-class specifications at a competitive price. And this car will be on the road, as you know, early 2024. Let me now take a minute to speak about the Flexus project, which we announced a few weeks ago. For us, this is a true game-changer in the path of electrification in the LCV world. As you know, Renault Group is already a leader in LCV, and Flexis is our answer to address new trends for this fast-growing market in Europe. Flexis will develop and produce Flexivan, which is a breakthrough LCV in at least three ways. First of all, it will be the first car to use our new software-defined vehicle technology, which enables the vehicle to remain up-to-date throughout its life. This technology will improve its business performance through monitoring of delivery activity, enabling reduced loading time, route optimization, improved vehicle fill rate, onboard predictive maintenance, et cetera, et cetera. Secondly, its fully electric LCV skateboard platform will offer high modularity for different body types at a low cost and will be breakthrough from a safety perspective. All in all, it will enable a 30% total cost of usage reduction for logistics players. Renault Group and Volvo have signed a binding agreement to launch a new company with an initial 50-50 equity split. CMA-CGM Group would also join the new company with a closing expected early 2024. Flexis relies on the strategic assets of the three partners. We're bringing the industrial expertise, the know-how in LCV, in EV, and in software-defined vehicle. Volvo Group will bring B2B relationships with logistics players, its whole suite of truck services transferable to LCV, and its international footprint. And CMA-CGM will bring its logistics ecosystem expertise, its customer network, and the ability to co-construct new services adapted to end-to-end supply chain. This cooperation will open significant innovative new market opportunities for Renault Group and RCV, with optimum time to market and shared investments. I'll conclude these highlights with a brief status on our agreement signed last July with Nissan. They'll be effective by the end of the year. At this point of time, 28% of our Nissan shares will be transferred to a trust and will become monetizable. Of course, a sell-down will be coordinated with Nissan, as they have a right to first offer, but will be free to sell when we deem appropriate. Let's now switch on sales and revenue for Q3. Group revenue was up 7.6% in Q3 at 10.5 billion euros. At constant exchange rate, it was up 13.8%. Mobility services amounted to 11 million euros, up 2 million compared to last year. Mobilized financial services revenue increased by 36.4%, mainly driven by the rise in interest rates and higher average performing assets. In the first nine months of the year, group revenue was up 21.1% to reach 37.4 billion. It was up 25.3% at constant currency. Let's now focus on the automotive revenue. Automotive stood at 9.4 billion euros in Q3, up 5% at constant exchange rate. It was up 11.3%. The negative exchange rate's effect of minus 6.3 points is mostly linked to the Argentinian peso and, to a lesser extent, to the Turkish lira. Let's take a look at the different drivers of this evolution. The volume and geographic mixed buckets were together positive at 1.5 points. Volume-wise, the group registered 511,000 units in the quarter, a 6.1% increase in the third quarter of 22. Over the first nine months of the year, the group sales reached more than 1.6 million units, an 11% increase, with Renault up 11.4%, Dacia up 16.7%, and Alpine up 15.9%. Back to the quarter, from a geographic standpoint, sales in Europe were up 15.3% at the group level, driven by a very strong performance of the Renault brand, which rose by 25%. This clearly demonstrates the success of our new launches. This led to a higher mix of European sales and explains the positive 3.1 points of geographic mix effect. Renault brand global sales were up 11% and again plus 25% in Europe versus Q3 2022. Renault confirms its ranking as second best selling brand in Europe with the first base both in passenger cars and LCV in France. Renault continues to outperform on the LCV market. Sales were up 21% worldwide and 25% in Europe on the nine months. Renault is the European leader on the commercial van market. Dacia sales were up 2.4% worldwide. In Europe, Dacia sales were up 1.6% to 127,000 units on tough comparatives. Dacia is ranked number two for retail sales in the region. Alpine sales grew by more than 30% thanks to the continued momentum on A110, supported by limited editions. Despite the 6.1% growth in retail sales, volume effect was negative by 1.6 points. The increase in registrations was offset by higher destocking in the independent dealers network in Q3 2023 compared to Q3 2022, with components and logistics conditions getting back to normal. Indeed, global inventories stood at 542,000 units in September compared to 569,000 units in June, with a strong destocking this quarter at independent dealers, which were down 93,000 units since June. This dealer destocking more than compensated the seasonal increase of group inventories. The overall improvement is in line with our objective of being below a total level of 500,000 units at the end of the year, with an acceleration of the drop that will take place in the fourth quarter. This level of inventories, again, is supported by a high proportion of vehicles that are affected to customers and should also be put in perspective with a still high order book, which stands at 2.5 months of forward sales. This will remain, by the way, above our targeted level of two months until the end of the year. Looking now at the product mix effect, it was muted in Q3, which is counterintuitive given the product launches that we've had since last year. It mainly results from strong sales of Clio phase one, with the revenue per unit lower than the group's average. In addition, Megane eTech invoices were lower this quarter compared to last year due to the destocking effect that I already mentioned. These two effects offset the strong positive impact that came from Austral and from Espace. Price effect was still a strong positive at 7.5 points. As you know, this price effect started to ease, mostly due to tougher comps and less pressure from raw materials. Nevertheless, it will remain a strong revenue growth driver throughout the last quarter and beyond. This increase mainly comes from our commercial policy focused on value. It also integrates our actions to compensate exchange rate impacts. As in previous quarters, our pricing effect is driven by our performance in the following areas. Firstly, a continued discipline in channel mix. The Renault brand keeps a healthy channel mix with one in two sales to retail customers in Europe. Secondly, a strong control over variable marketing expenses and incentives to dealers. And finally, the continued favorability of our trim mix, thanks to the attractiveness of our range. Let me give you an update on the products supporting our performance. First, Mégane eTech is still the number one EV of its segment in France in the third quarter and accounts alone for 2.2% of the BEV market in Europe. It remains a conquest product in Europe with around 60% of our clients which are new to the Renault brand. We sold 35,000 units year-to-date, of which 70% are high-trim versions and over 80% are equipped with the most powerful powertrain. We remain focused on value, even in this challenging environment, and on customer satisfaction and residual value. The residual value of Megane Tech rose by two points since the beginning of the year. Month after month, Austral confirms its success. Thanks to Arcana, Megane and Austral, Renault brands grew by 24% on the European C-segment in the third quarter. As an illustration, Austral took the lead of the C-SUV segment in France, which is an important signal for the brand. Sales amounted to more than 60,000 units year-to-date, 65% of which were E-Tech hybrid and 60% in the high-trim versions. Austral is progressively still being commercialized in all targeted countries. Most importantly, financially, Austral delivers the greatest passenger car contribution margin per unit in Renault brand's history. However, this record will soon be beat by ISPAS, which was launched in June, that you can see in the next slide. Espace is an important conquest product for the D segment for us. It shares 80% commonality rate with Austral, thanks to the family program initiated by Gilles Le Bon and his team. This is one of the key drivers explaining why the contribution margin for this vehicle is so high, while we reduced its selling price compared to the previous generation. Its past sales have just started, but the car is off to an encouraging start and will clearly support our margin development in the coming years. The third quarter was also marked by the start of sales of new Clio, the Phase 2. The bread and butter of the Renault brand is posting a higher contribution margin versus the previous generation, thanks again to significant cost improvements. Its hybrid version will further complement the group's electrified offer. Worth highlighting that while ramping up progressively Clio phase two, the phase one enjoys a remarkably strong end of life, as you saw in the mixed explanation. This Renault lineup will be strengthened by important launches for Europe, but also for international markets. Fabrice Cambolive and his team will be pleased to unveil the Renault brand international game plan on October 25th during a live event. Let's now take a look at the Dacia brand. Dacia pursued its good momentum in Q3, supported by the new brand identity. The new Extreme trim level launched at the beginning of the year and simultaneously on all vehicles is working well, representing now one third of orders across the entire range. It attracts new customers and generates incremental contribution margin on already very high levels. Dacia jogger hybrid 140, which was launched in January, represents one out of four jogger orders despite component supply constraints and longer lead times. It's an excellent illustration of Dacia's smooth electrification strategy. Dacia Spring, 100% electric, recorded close to 16,000 sales in Europe in the third quarter of 23. Year to date, it reached more than 43,000 sales. It was again on the podium of retail electric vehicles in Europe last quarter, being the most affordable BEV on the market. All in all, Dacia continues to grow, and we look forward to the launch of new Duster in 2024. which will be revealed by the end of the year. It will ensure the continued success story of our already double-digit operating margin brand. To finish the analysis of the automotive revenue change, our sales to partners contributed positively for 2.9 points this quarter, benefiting from the production of ASX from Mitsubishi Motors, illustrating the common projects that we're restarting with the Alliance. We also benefited from a dynamic LCV market, driving ourselves to Nissan, to Renault Trucks, and to Mercedes-Benz. Now, let's comment on the performance of mobilized financial services. New contracts increased by 5.1%, reflecting the higher level of registrations. Thanks to the group's net pricing policy, the average financed amount significantly increased, and total new financing rose consequently by 15.9%. The average performing assets follow this trend with a 15.6% increase at €52.1 billion, driven by higher new financing and the return to more normal dealers' inventories after the electronic components crisis. As a result, mobilized financial services revenues were up 36.4% to €1.1 billion, mainly driven by the effects described above in combination with higher interest rates. Moving to slide 24, we confirm our guidance for the four-year 2023 with an operating margin between 7% and 8% and an operating margin that's expected in H2 to be above H1, a free cash flow above 2.5 billion euros. All in all, we're confident in the achievement of our targets this year and in our ability to continuously improve our performance beyond that. We'll benefit from the four-year effect of the vehicles that were launched in 2023 and the numerous launches that will take place in 2024 and 2025. These new launches will also benefit from our significant efforts to reduce cost and will therefore deliver much stronger contribution margins than the previous generations. This concludes my presentation. I'm now ready to answer your questions, and thanks for your attention.

Thank you, Thierry. So we'll start the Q&A question with Thomas Besson from Kepler-Chevreux. Thomas, please could you open your mic?

Hi, Thomas. Yes, we can.

Okay, thank you. I have three very quick questions. First, I'd like to go back on the gap between your volumes of registrations in Q3 and what we should expect in Q4. I think last year in Q4, you ended with an increase by 136,000 units. So I think it's going to be difficult to match. Should we expect, again, a big negative gap between your registrations The fourth question? The second question? When should we expect the BV mix, the proportion of total, to start picking up? Is it already Q1 or more in the third quarter once you have the volume products that are launched? and third and last just a question which is not exactly linked with revenues but financial services or mobilized financial services revenues have increased very sharply 36% can you just remind us with the big increase in Europe of long term rentals or some form of leasing whether the risk carried by the financial services operations is still contained to a the UK business or whether you progressively have to transfer partners at risk to the bank. Thank you.

Thanks, Thomas, for the three questions. So on volume versus regs, so basically if you look at Q3 specifically, last year, you know, between June and September, there was a decrease in dealer inventory of about 45,000, 47,000 units I think in total. We were still in a period where availability of components was becoming more free, and therefore the reduction in dealer inventories was not so high. We announced this year that we were targeting a reduction of inventories to below 500,000 units. And we started doing the work in the third quarter. And therefore, in the third quarter, dealer inventories decreased by 93,000. So year over year, that's about 40K net variation of variation decrease. And that explains, basically, the gap between the registrations and the volume, which, again, is very much in line with the plan that we had laid out to the team and our target to get back to two months inventory, two months order book by the end of the year. So in terms of what we look at for Q4, you're absolutely right. In Q4 of last year, dealer inventory had increased 160,000 units. And that, again, was due to a combination of more free access to components and already at the time some logistics issues. This is not going to happen again in the fourth quarter of 2023. You can see where we're at now in terms of dealer inventories and we'll reduce total inventory to less than 500,000 by the end of the year. So there will be again a disconnect between registrations and billings in the fourth quarter. And we expect to have a negative volume effect again in the fourth quarter. This will turn around in 2024 because we will be at the level of inventories that we've anticipated. And we'll start getting some volume again from an invoicing perspective, thanks primarily to the product launches in Europe. So your second question was on BevMix. In fact, BevMix was actually pretty stable, if not in slight improvement in the third quarter year over year. So our BevMix is at 11% at a total group level. And it's driven by improvement both on passenger cars but also on the LCV side. So LCV BEV was up 46% year over year. So it's actually pretty stable. And it's interesting because we're kind of in a transition phase from a BEV volume perspective because we have Megane, which is basically, you know, first vehicle in the Ampere range. But let's say Zoe and Twingo are rather at the end of their life cycle, and we haven't yet launched the new BEVs that will come. Despite this, what we saw was a performance of Megane that's pretty stable. We saw Twingo EV actually with strong performance in the third quarter, and the order intake was actually pretty good. Zoe is trailing down, this is clear. And I mentioned Spring, which had a very good performance in the quarter with 16,000 registrations. So despite some of our range being end of life, we still have a pretty stable BEV mix. This mix will start increasing in the first quarter of 24, but I would say in a more significant fashion in the second quarter. Since we're introducing CENIC, CENIC will come towards the end of the first quarter, and it's really the next step in our BEV lineup. So expect BEV penetration to start really increasing in really second quarter with the launch of Scenic. We'll have the launch of Renault 5 coming towards late Q3, and then the Alpine version coming very late in the year. And gradually, the penetration will keep increasing. So your last question was on mobilized financial services. So yeah, mobilized financial services was up 36%. There is a change of mix towards long-term rentals. We carry some of that risk on our balance sheet, not only in the UK. In total, our long-term rental portfolio is around 400,000 units at this stage. It's something that's going to continue to grow. I would say we've always had a very prudent approach in terms of our anticipation of residuals. So we would never... arbitrarily fix residuals without good data. And we typically take a certain amount of security versus the external data that we've got. And we'll continue to do so. So clearly, there's an evolution towards that business. And we'll keep supporting it with prudent assumptions. One thing I want to add to that, though, is as we roll out the new vehicles, the residuals are actually improving. So we actually got, you know, on the Renault brand, I think almost three and a half points of residuals year over year, which is a positive. I mentioned the improvement in residuals of Megane. So, you know, look, we'll keep watching it, but we're typically very, very prudent and we'll keep going after that business, which is clearly very attractive, especially for Bev customers.

We now have a question from Pushkar Tendulkar from HSBC. Pushkar, please, could you open your mic?

Yes. Thank you, Philippine. Thank you, Terry, for taking my questions. I have three. So the first one on the order development, if you can just talk us through how orders have developed in the third quarter sequentially compared to the second quarter. And more importantly, how the mix within those orders has been in terms of trim and channels. Then just continuing on the topic of mix, I think the indication probably at the start of the year was that through 2023, the mix effect would take over from the pricing effect. The pricing remains strong, but that mix improvement probably hasn't happened. So is that a case of something that you kind of overestimated in terms of mix or not? It's just got pushed to the right. There was my second, the second question was about, so 2024, I don't want to get into numbers, but historically you have tried to offset raw material headwinds with price mix enrichment. Now when in 24, you kind of have a raw material tailwind, would you still say that you can maintain that raw materials or cost inflation versus price mix enrichment at a neutral or a stable level? And then just the last set of questions on the alliance, you have ended the purchasing agreement with Nissan. Is there any financial impact of that sits in your productivity bucket? And also Nissan has recently increased their targets for BEV penetration in Europe to 100% fully electric by 2030, which is the same as what Renault targets, the Renault brand targets. So do you see more projects, this project-based cooperation happening with Nissan in the later half of the decade? Sure. Sure.

More like six questions than three to me, by the way. But no problem. Thanks for being there this morning. So I'll start with the order intake. Hey, look, I would say, you know, realistically, we're still in tough markets. So we're still in a situation where We're talking markets that are 30% to 35% down versus where they were prior to the crisis, to 2019. So in terms of evolution, I would say, if anything, year over year, Q3 was maybe a slight improvement versus the first half of the year. but still over a pretty bleak situation, I would say, generally speaking. I would say one thing that we've seen is that this pickup in the third quarter, from an order entry perspective for the market, seems to be a little more driven by non-retail channels. So some return to fleets and demos, et cetera. We haven't followed this. As you can see in some of the comments that we've made, we've remained very faithful to the retail market because that's just the phase we're in from a product launch perspective. It doesn't mean, by the way, that we're not open to doing some fleets. provided that the returns are interesting. And so we'll keep looking at the evolution in the market towards the end of the year and next year. But that's how I would describe it. A tough market with maybe a very slight improvement in Q3, but with some of it coming from fleet. And we've stayed out of that so far. From a mix level, though, and thanks for asking specifically that question, our order intake is very good. And, candidly, all the metrics that I mentioned on the mix of the higher powertrain on Mégane, the higher trim mix levels on Austral, even still on Arcana, on Mégane, the fact that we've got now one-third of the mix in Dacia coming from the extreme trim level, What we see from a backlog perspective is that it's very good from a quality standpoint. And that's really been a constant over this year. And I think it's clearly linked to the product activity that we've had. You know, for your question on the mix impact, so as I mentioned, it's not really a surprise in terms of things being disappointing. I would say it's more of a surprise in terms of Keogh doing better than what we expected. So we've got a vehicle with KIO that has an average revenue per unit that's lower than the average of our range. And it's actually performing very well, even the phase one, which is actually starting its phase out. And that's compensated some of the very positive effects that we had anticipated on Austral and on Espace. The other thing I would say is we're talking about revenue now. But the mixed level on operating margin is a different story. And whereas on revenue, Clio has a negative impact in terms of revenue mix, from an operating margin perspective, we worked very, very hard to simplify the range of Clio to reduce its costs so that we would be able to launch the phase two with a lower price for the consumer, but with a much improved contribution margin. And we'll keep doing that. I stated also the example of Espace. Espace is cheaper than the previous generation, but it makes a contribution margin that's, candidly, multiple times the contribution margin of the previous model. So we'll keep seeing a little bit of this effect of KEO, but gradually we'll get back to a situation where MIX will become a positive driver on revenue again, and certainly will stay a positive driver from an operating margin perspective. Then your third question was on our ability to continue to have sort of mix plus pricing offset raw material and productivity. The short answer is yes. And clearly we're reaching the maximum from a pricing perspective, I think, with less necessity to cover raw material increases. The one thing that we'll keep doing from a pricing perspective is offset effects, like we've done this quarter. But price should stabilize. Mix, I already commented on, will be a positive thanks to the product launches. Cost should get back to being a more positive driver in the coming months and years. So yeah, absolutely, we'll keep doing the margin expansion from an operating perspective. And then your last question was on the alliance with Nissan. So the short story is, no, there's no short-term impacts of the change in the alliance agreements. So first of all, technically, the move that we do to transfer the shares or 28% of the shares to a trust doesn't have any impairment issues or implications or anything like that. From an accounting perspective, we have to record an impairment when the sale of Nissan shares becomes probable within the next 12 months. So it's something that we'll assess on a constant basis and take the impairment as we go, but we don't have to take a full impairment on the ownership because of the change in the trust. I think maybe your question was relative as well to the announcements that we made on the purchasing organization, and I think the answer is rather than it should have a positive impact. The way I look at it is... You have two ways of making synergies with Nissan. One is trying to squeeze a bit more from suppliers by saying, we're buying the same part on a Nissan Rogue that we're making in Japan. and an Austral that we're making in Spain, which is really hard. Or you can say, we're going to design, manufacture, and source a car for both companies in the same place, like we do on Micra in Douai. the benefit that you get from having the project done in common from the design phase through manufacturing is way higher than the synergies that you get from trying to squeeze a bit more volume from the suppliers, especially in an industry that's getting more and more high tech, more ESG conscious, where you need to have a network of suppliers that's pretty close to you, et cetera, et cetera. So from my perspective, the name of the game becomes how do we maximize the number of projects that we do together, which is the last part of your question. And I think absolutely, yes, we have now alliance operating boards every second week. And most of what we talk about is the projects that we're going to do together. We've announced a large number of projects already. I stated MICRA. I mentioned in the speech here ASX and CULT with Mitsubishi. We'll do more projects going forward, and those will come with significant benefits from us. More to come on that topic.

Detailed answers. Thanks a lot. Good day.

Pushkar, we now have a question from Daniel Rosca Bernstein. Daniel, please, could you open your mic?

Good morning, everybody. Good morning, Thierry. A couple of questions on the Ampere IPO, if I may. Considering you're still thinking about this, how are you thinking about the risk of value dilution to existing Renault shareholders, given some of the examples we've seen in the industry? Maybe what's your what's your pitch? that this will be accretive to Renault shareholders?

Yeah. Look, I think there's a couple elements to that. So first, you know, there's the fact that we're separating en paire. At the end, I think, you know, for our shareholders, our responsibility is to make the business as successful as possible. So to put to put into Ampère the best possible conditions to make that business successful. Ultimately, that's what's going to generate shareholder value, both at the Ampère level and at the group level. So what we're doing is separating Ampère so that we have people that work on EV all day and we're really starting to see the benefits, and I mentioned the cost element, et cetera, and I'll come back to that maybe later in the discussion, but clearly that's already starting to pay off. This is linked to the IPO in the sense that The IPO is taking that accountability and that responsibility of the management team of Ampère to the maximum level. It's one thing to be a business unit in a group, right, and to be accountable for a set of financials, et cetera, et cetera. It's another thing to be a fully independent, publicly listed company with the scrutinies of people like you, of the shareholders, of a separate board, etc. And, you know, jokingly, I say, you know, it's kind of like when your kids grow up, first they have a separate room and they start, you know, managing their day-to-day life. But then when they leave the house and have their own apartment, that's when they start being really responsible for what's going to happen, right? And the way I look at Ampère is a little bit like that. On the technical dilution part, you know, I think for us, Ampère gives optionality to some of our investors, for sure. However, it appeals to different categories of investors as well. People who are buying more the growth story of Ampère, the technology story. If you look at the partnerships that we're building in Ampère today, if you look at Qualcomm, Qualcomm would never have invested in Renault. The fact that they invest in Ampère shows the attractiveness that we're bringing to new types of investors. We've done some pretty detailed analysis in our shareholding today and looking at who potentially... might want to do a trade-off between Renault and Ampere, et cetera. And candidly, based on the data that we have, we don't assess that that's a high risk. There will be some of it, but we think the value that we will create by having a business that has all the right conditions around it to be successful more than outweighs that by a significant amount.

But aren't you worried that we've had another split in the sector where the hope was that all the right investors that give that new company a better valuation, that that benefit of the better valuation and the new goal kind of translates back to the existing shareholders and your existing shareholders will be giving up X percent of that exciting new company. But markets may not necessarily reflect that in the renewal share valuations.

Look, I think, again, it's a question of, do you want to own 100% of something that's successful, or do you want to own 80% of something that's incredibly successful? And we look at that math the same way you do, right? So it's a question of being comfortable that by putting all the chances behind Ampère, giving it the right capital, giving it the means to accelerate its product development, to accelerate its cost-out activities, etc., will make it incrementally more successful than if we had kept 100%. And that ultimately will return more cash to the group and more up-profit, etc. If we were not convinced that that is going to be the case, we wouldn't do it. That's really the trade-off. And I think, you know... We don't see a lot of comparisons out there that actually match what's going on with Ampère. If you look at the Porsche IPO, it's a different thing, right? You have a franchise with Porsche that's already incredibly successful, that's, I'm sure, going to continue to grow, but off a very, very large base. Ampère, realistically, is still kind of a startup. And so we're in a phase where really making it successful and putting all the chances on its side is going to make the difference. And so it's kind of a different environment for us, and that's why we're doing it this way.

Thanks. We now have a question from José Sumendi, J.P. Morgan. José, please, could you open your mic?

Thank you very much. Good morning. Good morning to you. How are you? Three quick ones, please. Can you comment, please, on product mix improvement into 2024? Which vehicles are going to be driving the mix next year? Second, can you elaborate a little bit more why pricing is so strong again in the third quarter? And what is driving, again, the very strong pricing or revenues in the second half of the year? And how much of that will be dedicated to offsetting currency headwinds? And then three, finally, As you monetize the stake in Nissan, what are the investment priorities you have for deploying the cash you receive from monetizing the stake? Thank you.

So first on product mix in 24. So as I mentioned, product mix will be a key driver for our profitability improvement in 24. We'll have really several effects. One is the carryover of the launches that we're doing this year. So I mentioned Austral and the impact that Austral is having on our financials. We mentioned that we've sold over 60,000 Australes already this year, and it's a year of launch. And we're gradually rolling Australes to all the different geographies that we want to sell the car in. And it's a car that just has a very, very strong contribution margin. And we haven't seen the full effect. On top of Austral, we're going to have the sister cars. So the first sister car is Espace. And as I mentioned, Espace shares 80% of its components with Austral. It's a car that costs us a little bit more to manufacture because it's a bigger car. but that provides significantly more value to the consumers because it has significant more space, et cetera. So the cost-price differential incremental to Austral is very favorable. So we'll get even more margin on asbestos than we're getting on Austral now. And again, Espace is just at the launch right now. It's really fully live only in France and Spain at this stage. And so we still have a significant amount of work to do to keep boosting that product. We'll have the second sister car coming in the first quarter with Rafale. And it's the same recipe, right? 80% commonality with Austral, a more sort of qualitative car with a higher price point and a slightly higher cost point, but even better sort of contribution margins. Then we'll have the full impact of Clio. As I mentioned, we're selling Clio Phase 2 cheaper than Phase 1, but it will come with better contribution margins, thanks to all the cost activities that we've rolled out. And then we'll have all the launches that are going to take place in 25. So we'll start having the sales of Scenic in Q1. We'll start in Ampere. We'll start having the sales of Renault 5 towards September. In the Dacia range, we'll have the new Duster come on. In LCV, we'll have the new Master, both ICE and EV. We'll start having a new product offensive that Fabrice and his team will talk about on October 25th outside of Europe with Cardian coming out in the second quarter. of 24, and all these products come with contribution margins that provide an improvement versus the prior generation. So for us, that's clearly the key driver. Your second question is on pricing. First, the portion of the 7.5% that comes from compensation of foreign exchange is roughly 40%. So the other 60% continues to be pricing improvement. And there is carryover effect of pricing actions that we've taken earlier on in the year. And then just the attractivity of the range is enabling us to keep the pricing good. And we stayed very faithful to the channel mix recipe that we've developed over the last couple of years. So Renault is still every second car in retail, for example, which is significantly higher than it had been in the past. And that's driving some of the pricing. So we see pricing as continuing to be quite a significant driver in Q4, and gradually becoming less of a driver into 2024. Still offsetting FX and still doing some actions here and there, but clearly mix will take over. And then your last question was use of proceeds, so to speak, on the Nissan stake. And look, I think I can't really go into too much details. But for us, it's a question of allocating the capital to things that are going to provide a better return on investment compared to what we're getting or what we're expecting to get from Nissan. And you know the areas that we're investing in. So there is obviously continuing to build the EV value chain, continuing to build the software value chain, both from an Ampère perspective, but also outside of Ampère on things that we can do to improve our operational efficiency with software and artificial intelligence and things like that for internal productivity purposes. We also want to develop the Alpine brand, as you're well aware. And we're on a journey to invest to make Alpine go from a one-car franchise to being a full range of attractive sports car business. And that will take some investment. And we'll continue to invest also in the future as neutral. So we've got lots of answers. And as the specifics come about, I'll give you more details. But that's as far as I can go at this stage.

Excellent. Thank you. We now have a written question from Henning Kosman, Barclays. So, Thierry, please, could you discuss the main revenue breach items for 2024? Not looking for guidance, but in the context of negative invoices, negative mix, and big order book correction in Q3, clients are nervous. Please, could you confirm the improvement beyond 2023? And please, could you confirm the positive pricing in 2024? Thank you.

OK. So hi, Henrik. And on the first question on the revenue bridge in 24, as I mentioned, by the end of this year, I think we will have hit the target inventory levels that we set to ourselves. So the volume element in our bridge of next year should become a positive. Now, as I've mentioned many times in the past, when we do the equations for new product launches, we try to be conservative from a volume standpoint. And typically, what we actually ask the teams to do is to make sure that their cars can fly even if they hit sort of 80% of what the marketing guys are saying we can hit. The result of that is that we tend to build forecasts going forward with conservative volume assumptions. So what we're seeing for next year is sort of a low to mid single digit volume growth in 24 versus 23. And I think we remain prudent from that perspective. As I've mentioned, as we do the product launches, the mixed element of revenue should get back to being a positive. Pricing will remain a positive, but largely to cover some of the foreign exchange issues. pressure that we're seeing. We continue to forecast foreign exchange pressure coming next year. And those are really the key drivers. So a slight volume increase, good mix, improvement with the launches, and pricing that continues to be positive, but in a lower fashion outside of just continuing to cover foreign exchange. And then on the profitability for 24, you're gonna have to wait until we give the guidance with the publication of the four year results. But you know our motto, and our motto is we don't go back. And we firmly intend to continue to have a strong improvement in the profitability. going into 2024.

We now have a question from Horst Schneider, Bank of America. Horst.

Yeah, thank you for taking my questions and good morning. One that has not been answered is I have a good question on sales financing. So can you maybe provide a little bit of color What are now the refinancing costs in sale financing? And can you fully pass it on to customers still? Or do you need to subsidize a little bit the financing rates now? And where are these subsidies getting booked? Are these subsidies getting booked in automotive or in financial services? That's number one. Number two is a question on Dacia and the increase in competition that seems to come from the repositioning of the Citroën brand. So we saw the announcement on the EC3. this week that it's going to be priced very competitively close to the Dacia Spring. Do you think there's a need to work further on lower prices for Dacia on the back of that in order to keep it as a price market leader? I mean from a bottom perspective in the market. The third question that I have relates a little bit to the last comment you made on Henning's question on FX. Can you provide some color on to what extent this negative FX revenue impact feeds through to the earnings line also this year?

All right, so on sales financing, clearly there's an increase in the cost. As you know, we have a very low appetite for variable financing, so we tend to be fixed financing cost. So I would say typically when rates are going down, we don't fully get the benefit right away of the fact that we finance ourself on a fixed basis. However, when the rates are going up, then we also don't, we feel the brunt may be a little slower than if we were going full variable. So we remain very prudent from that perspective. So far we've always been able to pass the increase in rates in terms of pricing. You can see it in the numbers in Q3 here. There is no plan to subsidize the financing activity in any specific fashion more than what we've been doing so far. So our plan is to continue to run that as a separate shop, keep a prudent approach on funding with fixed rates as much as we can, and then, you know, to push the pricing to the financing rates. And one thing, again, that helps is the residuals are improving, right? So we're able to offset a significant amount of the cost of financing with improved residuals for the consumers. Your second question was on Dacia. So I think you're referring to EC3. Look, so first I would say we're happy to see that we're not the only ones to think that you can make a profitable BEV vehicle in Europe now. So I think that's a positive for us. But look, I think Dacia has a whole range that's uniquely positioned. I think it has, as you know, very low distribution cost. It has very low manufacturing cost. I was in Morocco actually last week visiting the plant there. The plant is running full steam, maximum capacity, very efficient. We have the same setup in Romania. And the content of the car is very, very well designed so that people get what they want but no more. You know, despite all the pricing actions that the Dacia team has taken, we're still roughly 10% below the closest competition. And that's where we want to keep it. There is no plan to reduce the price in Dacia. Absolutely not. We're going to have exciting product activity. So I mentioned Duster. And I can tell you, I'm looking forward to seeing the launch of Duster. The car will be revealed towards the end of this year. And I think you guys will like it. We'll have a new version of Spring coming towards the end of the year with improved cost position, which will keep its competitiveness in Europe. Today, as we speak, you can get a full electric spring after incentives for 15,800 euros in France. So it's a loan on this segment. And we'll keep working the competitiveness. And then into 2025, we'll have Bigster. So we'll start entering a larger segment in the Dacia range. With a recipe that's, I would say, similar to what we're doing from a family perspective on Austral, Espace and Rafale, Bigster will share a lot of the components with Duster, but will be a more qualitative and bigger car. So we're looking forward to seeing the financials there. And then your last question on FX, thanks for asking the question. So there's two main drivers here. It's Argentina and Turkey. And in both countries, we have a track record of being able to offset the turnover pressure with pricing actions, as we can show here. In Argentina specifically, localization is starting to be better. So it's also less of an effort from a pricing perspective. And then Turkey is a different equation because in Turkey, we actually have more cost than we have revenues because that's where we make Clio. So typically short term, when the Turkish Lira devaluates, it's not necessarily bad news for us from a profit perspective.

Thierry, on the first question again, on the refinancing cost, am I right to assume that it's currently 5% to 6% and you need to charge dealers and customers 7% to 8%? And if subsidies were getting booked, you would book the subsidies in financial services, correct?

Yes, that's correct, yeah.

Right. Thank you.

We now have a question from Steven Reitman, Societe Generale. Steven, please, could you open your mic?

Thank you very much. Three questions as well. I noted your comments about the residual values on the Megane Electric improving. Could you make some more comments about that, given what we see is obviously very strong price cutting right across the BV space, led obviously by Tesla? um secondly um what is the reno position regarding eu inquiry into unfair um subsidies of for the chinese um bb manufacturers in china and thirdly um any comments about supply conversations that you've been making for raw materials in the second half of the year thank you very much

Yeah, on residuals, look, I think it's a competitive pricing environment. And that's why you need to work hard to maximize the residual value of the cars. And this has always been our key focus on Megane. And this comes by one. not discounting just to gain volume at any cost. I mean, I think I've made that pretty clear several times before. We're not going to throw massive incentives just to sell a few thousand more cars when Mégane is just the first building block in the story of Ampère. But more importantly, residuals come from the quality of the vehicle. And Megane is a vehicle that has great customer satisfaction. They love the infotainment of the car. They love the quality of the build. They love the drivability of the car, et cetera. And the people who own them, you know, like them. And that's what's keeping the residuals high. And we'll keep working on that. Afterwards, you know, when there's price wars, et cetera, we stick to our policy. I guess that's the only thing that we can do. And this will be the recipe for Ampère as well. And in fact... Again, you can see it in the numbers so far. We've increased the residuals, whereas some of the competition sees the residuals going down. Your second question was on the EU inquiry. I'd say a couple of things about that. First, from a philosophy, we're not into protectionism, right? So we want our vehicles to be competitive in their own right. So our first commitment is to work like hell on the features of the cars, on the cost of the cars, on the overall package that we give to the consumer so that the cars are competitive in the market period. And if you look at Scénic today, that's the case, right? I mentioned the price positioning versus the features that we put on the table, and we think it's a very competitive car. And we'll keep doing it that way. When we do the milestones and the review of the development of the programs, we never let the teams count on subsidiaries. So the cars need to fly without bonuses and subsidiaries, et cetera. That being said, when you play a sport, you would like all the players to have the same rules. And so I think there is an imbalance today in terms of the rules that we have to contend with if we want to go to China or if we wanted to go to the US with Inflation Reduction Act, et cetera, et cetera. But there is no barrier to entry to Europe. And I think the fact that someone is looking into that and also how the industry is run in each one of the different geographies makes sense and will support the inquiries the way we can, et cetera. But again, we want to be competitive in our own right. And your last question was the supplier compensation. Look, as I said, I think we were pretty firm towards the end of last year to keep the prices down with our suppliers despite some of the cost increases. So we've had to do some supplier compensations in the first half of this year. Not at all to the extent of what we've seen published in the industry. We've heard 80%, 90% compensation, et cetera. We're not at all at that level. The brunt of the compensations is behind us and was in H1, but we will still have a significant amount coming in H2. And that will only gradually get back to normal only during 2024.

Thank you, Thierry. We have a question from Pierre-Yves Kemener, Stifel. Pierre-Yves, please, can you open your mic?

Yes. Hi, Pierre. Bonjour. Bonjour, Thierry. Bonjour, Philippe. Hi. I think I will follow up on the product mix. Sorry to be a pain on that one. Two follow-ups, I guess. The first one is Negative product mix on the top line does not necessarily mean a negative impact at the operating level. That would be the first one. And the second one on mix, how should we think about that bucket, the product mix into the fourth quarter you already mentioned? indicated some item for 24, I guess, but not for the fourth quarter. So will it still remain negative? Or could we expect a slight recovery for the product mix in the fourth quarter? And the other question I would have would be on the guide. You target to have a higher margin at group level in percentage term in H2 versus H1. In your mind, what will be the largest tailwind sequentially? Will it be the Finco or will it be the Carco for the improvement of the group margins? Thank you.

Thanks, Pierre-Yves. So product mix, you're absolutely right. Top line product mix and bottom line product mix don't necessarily go in the same direction. As I mentioned previously, the fact that our product mix from a revenue perspective is muted in Q3 comes from the fact that we're selling more Clios than we intended or we expected, which is good news, right? And Clio actually comes with a very good margin. So it's not necessarily bad news. And we'll continue to see profit lift coming from product mix. Excuse me. The revenue line, specifically in Q4, product mix should become more balanced. So the Q3 slightly negative number that you saw should get better in Q4 and should gradually continue to improve into 2024. And then the guide in the improvement in margin between H1 and H2, that's automotive. So the improvement will come from the automotive side, very clearly.

So we now have a question from George Gallios, Goldman Sachs. George, please, could you open your mic?

Thank you. Yeah, Thierry, I also wanted to just ask you a question on the guide and maybe reading too much between the tea leaves here. But in your pre-prepared marks at H1, you described the group margins as being slightly above the first half. Here you've dropped the slightly. Should we infer from that that actually what you've seen so far in Q3 and as you look to Q4, the second half is actually tracking better than you anticipated as of the end of July? Thank you.

No, I didn't mean to send any specific signal on there. I think the second half is panning out the way we intended. I think one thing I will say is when we did the guidance in H1, we had assumed that horse would have a flat impact in the second half of this year. And in fact, because we were assuming deconsolidation of horse in the middle of the quarter, it's probably going to be a little later than that. And so each month that we don't deconsolidate horse is about $45 million of improvement. So not a very large amount, but a slight increase. a slight improvement. One thing on horse, by the way, is we already had this effect last year. Keep in mind, we started having the stop of amortization of horse after doing the CMD, which was on November 8th. So year over year, it's less of an effect, but versus what we had baked into the H2 numbers, we have a bit of favorability coming from horse. Otherwise, I would say the business continues to improve the way we had forecast.

Thank you for the clarification.

Thank you, Thierry. We now have a last question from Philippe Uchoir, Jefferies. Philippe, please, could you open your mic?

Yes, thank you. I hope you can hear me. Just two little detailed questions here. Good morning. On the Dacia Spring, with the way the French government is revamping incentives, would that mean the Dacia Spring will still get an incentive in 2024 in France? And would that vehicle be eligible for this 99 euro a month scheme for EVs? That's my first question. And then if you can clarify on the, a lot of the funding of RCI is customer, savers, customer deposits. You must have raised the rates quite significantly. Should we think about two to three percentage point of higher cost of funding if we think of where we'll be maybe in the second half of 2024 compared to where we were in 2022.

Yes, so on Dacia Spring, I'll give a quick answer and then maybe I'll hand over to Denis. But look, it's too early to have the exact impact on what the French incentive scheme is going to do. In all likelihood, though, it's probably going to mean that Spring is going to lose its incentive. Short term, it's actually having a positive effect on spring. As you saw, we're getting a lot of spring sales so far. But probably it will lose the incentives. The team is working hard on the cost side to be able to offset that. It remains a pretty competitive vehicle. I don't know, Denis, if you want to add something.

Yeah, just a few comments. The spring is doing well in Europe first. We have 44,000 cars since the beginning of the year. It's a 40% growth. It's a huge growth during this year. Of course, the likelihood is very high to your question, and we know that. We are working on the introduction of a new spring that will come at the end of the Q1, actually. a new version of the spring early next year. And this, of course, will reboost the volumes. I repeat, in Europe, the car is doing very well. We are on the podium of the retail EV vehicles. And then we'll try to position ourselves as cleverly as we can according to what will be the situation with this new spring coming in the next quarter.

Thanks, Denis. And on your second question on mobilized financial services, you're right. We have a large portion of funding that comes from deposits, and we will have to reflect some of the rate increases on the deposits. As the magnitude, I think you're probably not very far off. So thanks, Philippe. Thanks, everyone. I think that's the last question. Thanks for attending this morning. We look forward to seeing all of you at the latest on the 15th of November when we do the Capital Market Day for Ampere. So see you soon. Thank you.