Renault Sa Unsp/Adr

Good morning, everyone. We are pleased to welcome you for our 2023 financial results. This presentation will be made by Luca De Meo, CEO of Renault Group, and Thierry Piéton, CFO of Renault Group, and will be followed by a Q&A session. Luca, the floor is yours.

Thank you. Thank you. Hello, everyone. And thank you for being with us. So, you know, in the life of a company, every moment is a challenge, especially in automotive and especially in our times. You can actually never be sure whether you will stay in the game. But sometimes people that do my job get the most important rewards I would say a leader can have. Because you realize that you have the right team, you have the right mindset. and that you have created a dynamic that will keep your performance sustainable. And apparently, we are also kind of keeping our competitors awake, even forcing them to wake up very, very early in the morning. So I want to take the opportunity to congratulate them for the excellent results. So, chapeau, as we say in French. But you will see that we also have to bring a few good news. So Renault Group financial performance is actually higher than it has ever been in more than a century. It's simple. In 2023, we are breaking records on every major financial KPI. We outperformed the guidance that we had already raised in June. In 2023, we achieved a record operating margin of 7.9%. This is actually two points above our initial guidance at the beginning of the year. And we generated $3 billion of free cash flow for renewing something historic. Over the decade before the COVID, we generated less than 1 billion per year on average. So this number shows that we have changed something structural in the system. It's the first time that the machine is designed to deliver financial performance. And the beauty of the thing is that we have managed to put the product back at the core of our strategy. while we were very busy restructuring the company. The fact that this is solid work is even more obvious if you look not only at the snapshot, but at the whole movie. So in only three years, we went from record losses to record results, constantly improving our operational performance. And this powerful dynamic is the result of in-depth work that we have been doing, and that we are still doing on our lineup, on our commercial policy, on our cost structure, and of course on our organization. This new breed of, you know, type of organization that we have put in place is designed to capture value on all new automotive value chains through dedicated and focused businesses. We call it the next-gen automotive company. The idea behind is very simple. The automotive landscape is being radically transformed. Instead of one sport, we now have to play at least five different disciplines, address five different value chains, and tap into five different profit pools. So to excel... In these five sports, we need five types of athletes, each of them 100% focused. These are power, ampere, alpine, mobilized, and neutral. When I arrived at Renault, what struck me was the complexity of its structure. It was a matrix organization with too many dimensions, brands, regions, countries, functions, and of course also the alliance. You can ask any philosopher. They will tell you that beyond three dimensions, you are already in the space of metaphysics. So we've stopped with metaphysics. We killed the metrics organization. We have created a focus on what matters, and we have plugged the company into the new value pools. We put transparency and accountability at the level of the businesses where the things are really happening every day. And every day this organization supports our relentless quest for performance improvement and capital allocation optimization. So cost reduction will remain and remains our obsession. I confirm that we are going to reduce cost of EVs by 40% thanks to Ampere. For ICE and hybrid cars, we will achieve 30% cost reduction by 2027. We push our efforts not beyond our traditional scope. We have dramatically increased our control on our value chain. Traditional card makers dealt only with tier one suppliers in a very classical way. Supply chain was a black box in a way. We have opened it. And this is what we do when we deal, for example, with Qualcomm or when we co-develop with STMicroelectronics, with Valeo, and many others. So our horizontal approach is an additional level of performance improvement, allowing us to share investment and risks all along the value chains that we have to cover. We are also pushing the limits to reduce development time, A few years ago, it took us at least four years to develop a new car. Now we're developing the new EV Twingo in around two years. All these efforts are boosting Renault Group's capital efficiency. So we'll achieve over 30% roadshed by 2025. And remember, we started from zero in 2021. Besides performance improvement, our new organization supports our second mantra. This is strategic agility and flexibility to address the ongoing automotive transition. We have designed a next-gen company to be ready to smartly adapt to the changing pace of markets and technologies. Of course, the end game is clear, but we know that there will be ups and downs to get there. We are all set for the journey thanks to two clear assets allowing us to play the smooth transition. Ampere on the one hand, this is our EV and software champion, tailored to outpace the EV pure players in the race towards EV price parity. and powering a horse, on the other hand, generating cash, de-risking the group, racing to reinvent the ICE technology through smart hybridization, synthetic fuels, and ultra-low emission solutions. And of course, out there... also mobilized the Futures Neutral and Alpine to support the group business model with differentiating products and solutions on the new mobility services, circular economy and profitable high-end car value chains. Boosting strategic agility has also been our key objective when we have reshuffled our alliance with Nissan and Mitsubishi. at the core of this new alliance we've put operational projects that have the potential to generate hundreds of millions of euros every year each company is free to move forward with its own projects and the others can join not because they have to but because it makes business sense my job now is to leverage this great dynamic in the teams to take advantage of an unprecedented product life cycle, pushing the system to secure long-term performance and to catch new growth opportunities. I will tell you more about that in a few minutes, but before that, Thierry will go more in detail on the financial results.

Thank you, Luca, and good morning, and thanks again to all of you for joining us. So I'll go straight into the financial performance, starting with the revenue. So our group revenue was up 13.1% in 2023 at €52.4 billion. At constant exchange rates, it was up 17.9%. Mobility services amounted to €45 million, up €10 million compared to last year. The revenue from our captive finance company, Mobilized Financial Services, grew 31.8% to 4.2 billion euros, mostly driven by the rise in interest rates and by a strong increase in average finance amount. Let's drill down now in the automotive revenue. Automotive revenue stood at 48.2 billion for the year, up 11.7%. At constant exchange rate, it was up 16.5%. Forex was a negative by 4.8 points and mostly linked to the Argentinian peso devaluation and, to a lesser extent, the Turkish lira. The volume and geographic mixed buckets together were a positive at 5.7 points. Volume-wise, the group registered 2.2 million units in the year, a 9% increase compared to 2022 signs. All brands contributed to this growth. In 2023, Renault brand was the best selling French brand in the world with a 9.4% growth. In Europe, the brand moved from fifth to second place in the passenger car and LCV market. In light commercial vehicles in particular, with a 25.7% growth, Renault took the second place and was first in commercial vans. Dacia sales were up nearly 15% worldwide. The new brand identity is proving very successful month after month. In Europe, its core market, the brand confirmed its second place on the retail channel. The extreme trim level launched on all vehicles at the beginning of 2023 now represents a third of orders across the entire range, attracts new customers, and crucially, generates incremental contribution margin. Alpine continued its double-digit growth in the high-end segment for the third consecutive year, with more than 4,000 units sold. It delivered a 22% growth versus 2022. From a geographic perspective, sales in Europe were up 18.6%, a strong outperformance versus a market up 13.9%. This market share gain was mostly driven by our product offensive. More on this later. Renault Group moved up to the third place among car manufacturers in Europe, and this led to a higher mix of European sales and explains the positive 1.7 points of geographic mix effect. For the overall group, the 9% growth in retail sales translated into a 4% volume effect as the increase in registrations was partially offset by a lower restocking in the independent dealers network in 23 compared to 22, in particular in the fourth quarter of the year. Global inventories stood at 484,000 units at the end of December compared to 480,000 units in December of 2022. This is better than the objective that we had communicated to you of being below a total distribution stock of 500,000 units by the end of the year and allows us to enter 2024 with a very healthy inventory position. This should also be put in perspective with the still high order book, which stands at two and a half months of forward sales. It reflects the success of our launches and remains above our target level of two months plus. In 2023, we benefited from a strong price and product mix effect. All in all, they represented 8.4 points. The price effect was a strong positive at 7.4 points for the full year. As anticipated, even if it continues to be strong, it started to ease, mostly due to tougher comps and less pressure to offset raw materials. The price effect was mainly driven by performance in the following areas. First, a continued discipline in channel mix. Almost two-thirds of our sales are made in the retail channel, and specifically 50% for the Renault brand in Europe. Secondly, a strong control over variable marketing expenses, which includes incentives to dealers. Thirdly, the continued favorability of our trim mix, thanks to the attractiveness of the range. And finally, pricing power that allows us to more than cover adverse exchange rate impacts where necessary. Switching to the product mix effect, it stood at positive one point, mainly thanks to the success of Austral, Espace, and LCVs. A lower figure in the second half of the year mainly results from a strong sales performance from KEO, which has a revenue per unit that's below the group's average. Nonetheless, as you will see, the model mix is positive for our margin. In the second half of the year, it drove a 50 basis points positive effect on the group's operating margin. Let me give you an update on the products that supported this performance. Starting with Megane. Megane E-Tech is still the number one EV of its segment in France. In 2023, it ranks number three of its segment in Europe. Even with volumes that are below the levels we anticipated at the time of the launch, this car remains a conquest product in Europe, with more than 50% of our clients which are new to the Renault brand. In 2023, we sold 47,000 units. of which 70% are higher trim versions and over 80% are equipped with the most powerful powertrain. By the way, the residual value of Mégane continued to increase in 2023. In the meantime, we worked hard on costs in line with the roadmap detailed last November during the Ampère CMD. Because we started to benefit from the first cost reductions on the vehicle, we also started to reflect it in the price of Mégane to ensure that it remains competitive. In France, Austral became the leader of the retail C-SUV segment and Renault-Browns the leader in the C-segment in 2023. Austral's sales amounted to more than 86,000 units in the year. 100% were electrified and 62% were E-Tech 4 hybrid. 60% were configured in the highest trim levels. Austral is a car with outstanding financials and delivers historical levels of contribution margin. The record, though, now belongs to the car on the next slide, which is none other than Espace. Espace is an important conquest product on the D segment. It enjoys an 80% commonality rate with Austral. This enables it to deliver record contribution margin even though we reduced its selling price compared to the previous generation. Espace sales are off to a good start. 80% of the sales are in the high trim level. In H2 of 2023, we also introduced the new Clio with the E-Tech hybrid version, further reinforcing the group's offensive on electrification. Clio was the best-selling vehicle in France in 2023 and is now number three in Europe. Thanks to significant cost improvements, it's posting a higher contribution margin than the previous generation, while its price is actually lower. As you will see later with Luca, this Renault lineup will be strengthened by important launches in 2024. Dacia's four pillar models all grew in 2023, with two vehicles on the podium of retail sales in Europe. Sandero was the second car sold in Europe last year, and remains the top seller on the European retail market since 2017. Dacia Spring recorded close to 62,000 sales in Europe in 2023. This car is the most affordable EV in Europe and was the third best-selling electric vehicle to retail customers. Last but not least, despite approaching the end of its life, the current Duster was number two of retail SUVs in Europe, New Duster will be launched in the upcoming months and will ensure the continued success story of Dacia, our double-digit brand. Switching to Alpine, Alpine A110 maintained a strong momentum driven by the success of the limited editions. Alpine starts 2024 with a seven-month order book, thanks, for example, to the successful start of the A110R Turini, launched in December. In a nutshell, the success of our lineup fed the revenue growth. It was also a key driver for our operating performance, and I'll come back to this in a moment. To finish the analysis of the revenue change, our sales to partners contributed positively for 2.1 points. They benefited from the production of Colt and ASX for Mitsubishi and illustrates the common projects that we're restarting with the Alliance. We also benefited from a dynamic LCV market, driving our sales to Nissan, Renault Trucks and Mercedes. Now let's move to profitability. In 2023, we increased our profit by more than 60%, delivering €4.1 billion, which is 7.9% of revenue, up 2.4 points versus 2022. This is at the top of our guidance, which, as Luca mentioned, we had already increased last June. This performance is driven by the progress of the operating profit of our automotive segment, which stood at 3.1 billion euros, or 6.3% of auto revenue. We basically more than doubled our automotive segment of profit versus 2022. Our financing activity, Mobilize Financial Services, delivered a 1.1 billion euro contribution. This slide showcases our fast and strong transformation throughout the last three years. 7.9% operating margin is the new record, as mentioned for the group. In H2, we reached 8.1%. We're closing the gap with some of our competitors, but this is not the end. We're 100% focused on continuing to improve our operational performance year after year. In 2023, our operating margin increased by 1.5 billion euros. The biggest contribution came from price, mix, and enrichment for almost 3 billion. Price, mix, and enrichment taken individually were all strong profit contributors in H1 and in H2. This reflects our commercial policy, the vitality of our lineup, This effect obviously way more than compensated the strong cost headwinds. Despite good operational cost performance, our cost of goods sold increased year on year about 1.6 billion euros. This was primarily driven by raw materials and other input costs, namely logistics, energy and labour costs. Raw material weighed for 216 million euros. After almost 350 million negative in H1, the trend reversed in H2. Logistics and energy costs continued to weigh in H2, despite a meaningful sequential improvement. After 1.2 billion of cost effect in H1, the pressure is now easing very significantly. Looking at SG&A, they increased by 389 million euros, mainly driven by the marketing cost due to the ongoing product offensive, and by labor costs. Most of the positive 376 million euros in the other item are explained by price increases in Renault Group's subscription plans in Argentina. In this country, Renault, as other OEMs, offers a subscription plan in which individuals can collectively contribute towards the purchase of the vehicle. As you remember, a few words on horse, as you remember in November, 2022, we announced our intention to merge our ice and hybrid powertrain and gearbox business with Geely's equivalent activities and form a world leading supplier. Since the announcement and in accordance with IFRS 5, we reclassified HORSES assets in assets held for sale and ceased their amortization. In 2023, this resulted in non-cash positive effect on our operating margin, which amounted to €482 million, which is €398 million more than in 2022. As stated, it's non-cash, so we had no impact on free cash flow in 2023. Restated from this impact, the group operating margin would have been 6.6% in H1 and 7.3% in H2, up 0.7 points sequentially. Clearly, performance continues to improve, whether you include the impact of force or not. The JV agreement was signed in July and the closing of the deal is currently pending approval from antitrust and foreign direct investment authorities. Until closing, the freeze of amortization will continue to have a non-cash positive impact every month. When the deal closes, we will deconsolidate Horst and consolidate our share of the combined entity on an equity basis. At this point, the amortization of horse assets will resume and be included in the price that we pay for the powertrains. Horse will take a margin as a supplier, and synergies will more than compensate this margin from the second year. All in all, for 2024, we took an assumption of a slight negative impact from horse on operating margin. This number has to be compared with a positive impact of $482 million just mentioned. These effects are taken into account in the 2024 operating margin guidance that we'll cover later on. Now let's comment on the performance of mobilized financial services. Mobilized financial services generated €21 billion of new financings, up 17.1% thanks to the growth in registrations, compounded with a 9.9% increase of the average financed amount. Average performing assets amounted to $51.2 billion, a $6.4 billion increase versus 2022, driven by both new retail and wholesale financing, the latter due to the return of more normal dealer inventory levels post-electronic component shortages. Net banking income as a percentage of average performing assets was negatively impacted by the reversal of positive swaps valuation impact observed in 2022 and by the higher mix of dealer inventory financing with lower margins. Cost of risk at 0.29% remained at a very low level both for wholesale and retail. Overall, mobilized financial services posted an operating profit of 1.1 billion euros Excluding the non-recurring impact of swaps, this represents an 8% improvement versus 2022. Moving to the key items from our group P&L below the operating margin line, the other operating income and expenses were impacted mainly by four elements. First, the €880 million capital loss related to the disposal of Nissan shares and non-cash items, as you already know. Secondly, assets impairment linked to vehicle developments and specific production assets. Third, restructuring costs. And finally, on the positive side, the impact of asset disposals, which amounted to 323 million euros. The slight deterioration of our net financial income and expenses is explained by the impact of hyperinflation in Argentina, partially compensated by the 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 797 million euros compared to 526 million posted in 2022. As a reminder, we adjust Nissan's JGAP results to convert to IFRS. Key adjustments concern the valuation of Nissan's stake in Mitsubishi Motors for 228 million euros and deferred tax retreatments. Current and deferred tax represented a charge of $523 million, stable compared to 2022. The effect in the pre-tax income, the increase, sorry, in the pre-tax income was driven by the operating performance improvement, but it was offset by the evolution of deferred taxes. The effective tax rate for 2023 was close to what is going to be normative levels. All in all, net income strongly improved by more than 3 billion, reaching 2.3 billion euros. Net income group share reached 2.2 billion euros. From the start of Renolution, return on capital employed has been a key indicator for us. You can see on this slide that, as Luca mentioned, we made remarkable progress in the last three years, confirming what Luca said about the transformation. From zero in 21, we're now close to 30%, which was our commitment for 2025. Now let's cover how this translates into our cash performance. Renault Group generated 5.5 billion euros of cash in 2023. This is a record for the group and reflects all the work that we've carried out to build a much stronger fundamentals to underpin our performance. This figure included a $600 million dividend inflow from MFS compared to $800 million in 2022. Group CapEx and R&D, excluding the impact of asset disposals, amounted to 7.3% of revenue versus 7.4% last year. Disposals represented a $282 million cash inflow. The change in working capital requirement was positive, €637 million, and is mainly related to the decrease in our inventory levels. Finally, restructuring cash out amounted to €496 million. As a result, we generated €3 billion of free cash flow which is one more new record. Excluding NFS's dividend, it stood at €2.4 billion against €1.3 billion in 2022, up €1.1 billion. Don't forget that this free cash flow was generated while funding Ampère's development. It shows that we now have ample capacity to continue to do so. This record-free cash flow, alongside with around €200 million inflow from the sale of the 24% equity stake in Alpine Racing LTD and the positive impact from Nissan's shares disposal, strongly contributed to a significant improvement in our automotive financial position. All in all, our net financial position rose by €3.2 billion to reach €3.7 billion. The liquidity of the automotive division stood at a very comfortable level of 17.8 billion at the end of December. As you know, most of the agencies covering the stock have upgraded their outlook of the rating of Renault Group for 2023. Rewarding our stakeholders is very important for us. We will therefore submit to the approval of our shareholders at the next General Assembly a dividend of 1.85 euro per share payable in cash. It means a 17.5 payout ratio, improving significantly our dividend yield. Then, as we make progress towards our first priority, which is to return to investment grade, the dividend will gradually grow in a disciplined fashion with a goal to reach 35% of group consolidated net income parent share. This concludes the financial section. Luca, back to you for the 24 hours.