Renault Sa Unsp/Adr

Good morning, everyone, and welcome to Renault Group H1 results. This presentation will be made by Luca De Meo, CEO, Thierry Piéton, CFO, and the management team of Renault Group. Luca, the floor is yours.

H1 results. And also, it will be an opportunity for us to update you with the in-depth transformation that we keep developing in this company. In the first semester of 2024, Renault Group achieved 8.1% operating margin. This is actually the highest operating margin this company has ever achieved. We generated 1.3 billion of free cash flow and we reached a very strong net financial position at almost 5 billion euros. I want to take the opportunity to thank all those who are supporting us and have supported us also in challenging times. Our employees of course, our clients, our distribution partners, our suppliers and of course our shareholders and investors. These results confirm the, I would say, constantly improving operational performance of Renault. This is the consequence of the passionate job done by women and men of this company for almost four years now in depth at every level of the organization to put it back at the highest standards in the automotive industry. 2.7 billion of cash, fixed cost reduction since the first half of 2019. over 90% utilization rate of our industrial footprint, and a strict commercial policy focused on value. All this allowed us to reduce our break-even point by 50% since 2020, and is reflected in our H1 results. And these ingredients are going to support the financial profitability of our all new lineup that is just beginning its ramp up in Europe and also globally. In H1, less than 5% of our invoices came from vehicle launched in 2024. It gives you an idea of what we have in the store. For us, putting Renault back at the top of the classical game that OEMs have been playing for 150 years was only the appetizer. We know that when it comes to the main course, the good old receipts are not going to be enough. Everything is moving incredibly fast and crisis turned out to be the new normal. So car makers need something more and they need something new. This is why we're working to transform Renault Group into one of the most progressive European companies, setting up a new breed of organization designed for an environment that has turned radically volatile and unpredictable tech landscape. It means something very simple, putting flexibility, strategic agility, and speed at the core of our model, injecting this mindset at every level of the organization. No other OEM, and we approve that, can pretend today to be so flexible as Renault Group when it comes to absorbing the shocks on the bumpy roads towards, for example, the all-electric mobility. On the EV side, we have Ampère, our EV and software champion. It's on track to cut its cost by 40% and to reduce prices while improving its margins. Every day, we measure the benefits of having a dedicated entity. On the ICE side, we have power with highly cash-generating businesses, Renault and Dacia ICE and hybrid cars, as well as our LCV business. On top of making money, this team works as a safety net for the group in front of the unevenness of the EV shift. It is supported by HORS, the global ICE and hybrid powertrain leader that we have set up with Giulia and Aramco. Horse is not only a supplier for Renault Group and Geely, it's a platform for the entire auto industry. It has the mission to reinvent the ICE technology and our core business to give it a future. Concretely, this means developing smart hybridization, but also alternatives of why not renewable fuels, developing innovative low-emission ICE and hybrid vehicles. Aramco's joining has given new evidence that setting up had been, I would say, the right move, establishing the value of the thing at 7.4 billion euros. I know that many supplier competitors are looking at this figure. Maybe this is also the reason why we receive so much interest from partners. On top, HORS also allows us to gain in productivity, reduce fixed costs, gain scale. We improve our balance sheet significantly and keep a substantial stake in a growing and cash-generating business. The open, ecosystemic approach that we have put at the core of our game plays a key role to boost the strategic agility of Renault Group. Since the start of the Renault-lution, we have struck over 20 strategic partnerships with the best players on all the new automotive value chains from Google and Qualcomm to AESC, Vercor, LG, CATL for the batteries to ST Microelectronics for power electronics. We go open because pretending to keep cultivating alone your small piece of land when all the boundaries are falling around you just makes no sense. Especially when you have to deal with the challenges that cut across the sectors like the energy transition or the digital revolution. On the contrary, this ecosystemic approach allows us to smartly address the new automotive value chains, including businesses with margin that are higher than in our traditional activity while nurturing innovation by exposing our people to the best in every sector, boosting our ability to switch quickly to a new technology, for example, when it comes to batteries, accelerating our time to market, sharing the risk and the investments. All of this ensures efficient capital allocation. We achieved 28.5 Roche in 2023, while we started from zero in 2021. Now, I will leave it to a person very important in the organization that you rarely see. This is Francois Pravot, our procurement and partnership and public affairs VP. And Francois is going to tell you about what he has been doing for two years to strengthen our value chain. Francois.

Thank you, thank you Luca. Over the last two years, we have reshuffled our relationship with our suppliers. We are pivoting from a pretty transactional and short-term to a more strategic approach, considering our suppliers like business partners boost agility, speed, and innovation of our entire ecosystem. We have already seen the power of this approach against inflation. Assuming transparency on costs, we accepted to take into account inflation triggers, together with a roadmap to offset cost increase within a reasonable timeframe. As an example, as Renault Group, we already reduced by over 25% the energy consumption per unit, and we expect our suppliers to do the same. In fact, we are onboarding our whole ecosystem in our struggle against inflation, and we have started, in H1 2024, to bring down the cost of our cars again by several hundreds of euros, not accounting for the regulatory impacts. Besides, we are increasing our control on our value chains. As a traditional OEM, we use to buy parts and systems to Tier 1 suppliers. Now we go to Tier N and we aim to develop, when it makes sense, parts and systems by ourselves. The best example is software. In the past, we used to buy software systems within black box. Now we want to develop partially by ourselves, to co-develop with Tier 1, but also to co-develop directly with tech companies such as Google and Qualcomm. As another example, we can also point out the strategic partnership and contracts signed with our electronic components producers, as well as contracts with raw material producers to secure battery supplies. We are also looking at all options to increase the speed of execution. It means involving our suppliers much earlier in sourcing phase. For instance, we are reducing our detailed technical specification, relying more on the creativity of suppliers to propose optimized solutions in terms of value and cost, including on-the-shelf solutions. This is a key level to develop cars within two years and to reduce costs, and the new Twingo is for us a kind of proof of concept we can develop European cars within two years. Another example is to move from traditional one-size-fits-all processes to tailor-made solutions for each entity of the group, like ampere or power. We do not manage EV and software technologies for ampere the same way we supply traditional technologies such as seats or chassis. Within 1.5 years, we already reviewed our supplier panels for over 70% of our purchase amounts, and we engaged with key suppliers, joined strategic and technological roadmap, reviewed on a quarterly basis. Thank you for your listening, and I give back the floor to Luca.

Thanks, Francois. So, as Frances said, we go deeper and faster, and actually we're not stopping there. We are now focusing on two topics that are kind of linked. One is speed and the other one is AI. When it comes to speed, we have launched the speed of lightness program. It means doubling the speed of around 10 key processes in the company and sparing 30% of their cost. This is already happening. So, as Francois said, the new Twingo that will be produced in Slovenia will be developed in two years, while this kind of thing traditionally took three or four years, or even more in the past. We do that thanks to a series of breakthroughs all along the process. For example, we reduced the development phase by 40% and the industrial phase by 30%. We dramatically reduced diversity and complexity. When it comes to diversity, we have already reduced it by over 40% on our current lineup, as you know, and we shoot for more. In 2019, our cars had an average 2,200 parts in average. In the new Twingo, we'll have 750, just to give you an idea. We push for systematic reuse of on-the-shelf and off-cycle parts. Before the Renolution, our carry-over, carry-across never exceeded 50%, and now we achieved up to 80%. We anticipate by 15 weeks the design convergence thanks to early suppliers' involvement and common development with engineering and styling and, of course, suppliers. All of this leads to a 30% entry ticket reduction between, for example, the Renault 5, which is already a new generation product, and the Twingo. In all this story, we owe a lot to Gilles Le Borgne, as you know. Gilles is stepping back from his position as Renault Group CTO, and I didn't want to miss the occasion to pay him a tribute that he deserves after all what he has done for this company and the stunning result he has achieved. So thank you for all, Gilles. Thank you. And now good luck, of course, to Philippe Grief, who takes up the torch. Philippe is another top engineer with 35... years of experience in the industry ranging from volume brands like Fiat to luxury brands so lately in Ferrari. So he knows what a car is all about. So let's now move to what is the new frontier of Renault Group, artificial intelligence. Our ambition is to make Renault Group the first AI-powered automobile manufacturer. We don't do AI for the show. We do it to impact the core processes. AI at Renault means augmented intelligence. It's like when you put a turbo into a Formula One engine, which we did way back in 78 for the first time. So it's an accelerator. So we are developing first through strategic partners, six digital platforms since four years now, to manage the company major processes from development to manufacturing to after sales to customer experience to support function. And we are connecting them this all together to harmonize data and circulate it seamlessly throughout the group improve the speed of course of decision making productivity simplicity transparency we break silos and have all the data about everything this company is doing and about its environment converge actually into one data lake this is very important because this is the bedrock on which you can build the enabler, you can build a digital twin of the company. And we are already well on the way. By 2026, almost 100% of Renault Group will be in the cloud. This is, in fact, the condition to make seriously AI a structural technology for the business. I can tell you that no other OEM is as advanced as we are when it comes to the stuff. At the level of our industrial metaverse alone, for example, we are collecting and analyzing 3 billion data every day thanks to over 15,000 robots and connected machines. All this opens a huge field of opportunities for Renault Group when it comes to leveraging the AI revolution, because AI is nothing if you don't have well-structured data. On this side, Renault, I have to say, has done its homework. And don't think AI is, for us, the usual kind of a magic buzzword. We already have 20 macro use cases validated at the Group level, and that are already generating value. AI is already transforming Renault across all our value chain. From development, for example, with AI automatically generating code and increasing our developers' productivity by 10 to 15%. to industrial operation, notably with predictive maintenance that allows us to repair the machines at the most convenient moment to prevent operation interruptions and to contribute, for example, with more than 400 million savings in 2023 and 2024. To logistics, for example, when we optimize in real time our trucks filling and routes, enabling us to use 8,000 less trucks and to avoid 21,000 tons of CO2. To customer experience, when AI digs into all the company's documents to draft answers to our people that they can check and then customize, reducing issue resolution time. AI will be on the product also, transforming into intelligent evolution in an hyper-connected vehicle. Our mantra is to humanize techs thanks to AI, hyper-personalizing our cars, having them learn every day from their users, evolving with them to better accompany them. Renault, the avatar of Renault 5, symbolizes this approach. It's a small character with a generative AI, that talks about a wide range of subjects, explains the car's reaction, and offers new service and will offer more in the future. To give you just one more example of how AI is already turning the table, we have managed to accelerate the aerodynamics testing process of our cars from 15 hours to 10 minutes, thanks to AI-powered simulation using the data of the previous vehicle simulation. This solution allows us to make six times more loops than before. Today, this is a presentation of half-year results, so the idea is not to be comprehensive, but I think we'll have time to dig into this topic in the month to come together. This team is on its way to transform Renault into the most progressive European OEM. We're getting faster, more agile, and better every day, and I can guarantee you that we're not going to stop here. And also our dear CFO Thierry Pietone is getting better every day, and I am going to give him the floor to present our financials.

Like good French wine. Thank you, Luca. Good morning to all. Once more, I'm very pleased to comment today our half-year results, which, as Luca has already mentioned, reach record levels of profitability. Let's start with the group revenue. It was pretty stable compared to H1 2023 at 27 billion euros. At constant exchange rates, it was up 3.7 percent. Automotive revenue stood at 24.4 billion, down 1.9%. At constant exchange rate, it increased by 1.2 points. The mobility services contribution amounted to 31 million euros, up 10 million compared to last year, and last but not least, mobilized financial services revenue increased by 29.2% to 2.6 billion euros, mainly driven by higher interest rates, the increase in average ticket per vehicle, and higher average performing assets. Let's drill down into the automotive revenue. It included 3.1 points of negative exchange rates, mainly related to the Argentinian peso and to a lesser extent the Turkish Lira devaluations. At constant exchange rates, it increased by 1.2% as previously mentioned. Volume effect was negative 4.7 points in the semester, following the same trend as in Q1, higher registrations, but tight distribution inventory management. So I'll take you through each part. Registrations increased by 1.9% at 1,155,000 units at group level, despite a high comparison basis. In Europe, Renault Group consolidated its third position, outperforming the market with sales up 6.7%. Each of our three brands, Renault, Dacia and Alpine, contributed to this growth. Renault-Brand was once again the best-selling French car brand in the world and continued its progression with global sales up 2%. It recorded a strong 8.2% increase in Europe, outperforming the market by 2.7 points. Renault-Brand remains on the podium of passenger cars in the LCV market and number one in France. On passenger cars, the sales figures were boosted by the very strong performance of hybrid cars with a 45% increase year on year. The brand is now ranked number two in hybrid market with a 17% market share. Renault pursues its conquest on the C and above segments. It's now mainly driven by Rafale and Espace, which have been added to Arcana and Austral, and pending the imminent arrival of Saint-Bjose. By the way, on these models, we continue to experience very favorable trim mix. On LCVs, Renault brand enjoyed an impressive growth of 19.2% in a market of 13, thanks to the successes of Kangoo, Express, and Master, all leaders in their segments, while Trafic now ranks number three. Renault confirmed its first place in the European LCV market, excluding pickups. In H1, Renault started to roll out its products offensive in the overseas markets. Following the launch of the Renault brand in Korea last April, Renault has just revealed Grand Coleos in the Busan International Motor Show. This vehicle will be commercialized this autumn. In Brazil, we just launched Cardian. The car will also be launched in other Latin American markets and in Morocco in the second half of 2024. This offensive will continue in H2 with the launch of Renault Duster. Dacia sales were up 3.8% worldwide. In Europe, Dacia confirmed its place on the podium of the PC retail market thanks to its four pillar models, unique business model, and its strong brand identity. As illustrated during the Dacia Days organized a few weeks ago, Dacia truly stands out with a very high new customer conquest and loyalty rate. Sandero is the best selling vehicle to retail since 2017 and the best selling model in Europe across all customer channels in H1. Dacia Duster maintained its position on the podium of SUV retail sales in Europe. It includes Duster's second generation and the third generation, which arrived lately during Q2 and which is off to a very good start. There's more to come. New Spring will arrive in the showrooms in the summer. In H2, Dacia will present Bigster, its future C-segment SUV, to be launched in H1 of 2025. Switching gears to Alpine, Alpine continued its double-digit growth after three years of consecutive progression, with 2,700 units sold. It delivered a 47% volume increase versus last year, benefiting from the very strong success of the A110R and S models in particular. In June, Alpine began its electric offensive with a reveal of A290, the brand's sporty electric five-seater hot hatch. Orders are scheduled to open this summer for first deliveries towards the end of the year. Fingers crossed one of them will be for me. All in all, Renault Group continues its commercial policy focused on value. First, retail channel represented 62% of passenger cars group sales, almost 20 points above the European market average. Second, top-of-the-range versions represented a significant share of our mix. Finally, our electrified sales at group level represented nearly 30% of our European PC sales, up 4.3 points compared to last year, thanks to a 60% increase in HEV sales. As mentioned previously, Renault Group continued to proactively manage distribution inventory. The 1.9% growth in registrations was more than offset by the evolution of inventories. While there was a stock increase in the dealership network of 69k units in the first half of 23, in H1-24 we recorded a 6k unit stock decrease. At the end of June, total inventories represented half a million vehicles, which is a very healthy level. And this level continues to be fully supported by a strong order intake, fueling a very sound order book, which stood at 2.6 months of forward sales. The sales to partners effect was positive 0.2 points. New vehicle sales to partners decreased in a transition year before the launch of new products as anticipated. This was offset by R&D billings in line with a ramp up of the group's partnerships. As already mentioned, after several years of price increases, Renault Group has entered a phase of price stabilization. In H1, the 1.8 points of price effect was mostly related to the offset of currency devaluations, mainly in Argentina and Turkey. The positive product mix of one point reflects a gradual improvement versus a muted effect over the last two quarters, driven by our recent launches, mainly Scenic, Rafale, and Duster. This trend will continue in the next quarters. The geographic mix impacted positively for 1.1 points, driven by higher relative contribution of Europe. To finish, the other bucket posted a positive 1.8 points, mainly thanks to the strong activity in parts and accessories, as well as used car sales. Now let's switch to the operating margin analysis. This semester, again, we posted a record operating profit, delivering 2.2 billion euros, up 135 million versus last year. It represented 8.1% of revenue, up 0.5 points versus the first half of 23. The automotive segment operating margin also reached a record level at 1.6 billion euros, or 6.6% of auto revenue, up 0.4 points. MFS is operating profit increased by 75 million Euro to reach 593 million. This slide illustrates the huge work that was made by the team over the last years. We're continuing to progress on the group and automotive operating margins, both in percentage and in absolute value. Let's deep dive on the group's operating margin evolution. First, currencies impacted positively by 93 million euros, reflecting mainly the positive impact of the Turkish lira on production costs. The negative volume impact is in line with the evolution of invoices of new vehicles and sales to partners, which I commented previously. In H1 2024, price mix enrichment effect was positive 51 million euros and cost decreased by 262 million. Together, these represented a positive impact of 313 million. After two years of strong headwinds, costs have turned positive this semester, as Francois mentioned, mainly thanks to the strong purchasing performance of 165 million and supported by a raw materials tailwind of 117 million. As explained before, Renault Group is able to pass part of these gains to its customers while continuing to improve margins. We offer increasingly attractive vehicles in terms of price and content, while offsetting regulatory requirements, especially on new models and facelifts. For example, we were able to launch Clio Phase 2, Capture Phase 2, and Espace cheaper than previous versions, but with improved margins. R&D costs decreased by 153 million euros, higher R&D spend in H1 of about 150 million, and the effect of lower capitalization rate were more than offset by lower amortization and R&D billings to our partners. The capitalization rate has decreased 6.2 points versus H1 of 23 to 44.5%, mainly due to the non-capitalization of the R&D spend on the software-defined vehicle program. SG&A expenses were up 109 million euros, mainly driven by higher marketing costs related to the brand's offensive and to the current performance of motorsport activities. The last bucket highlights the impact of horse deconsolidation. Since November of 2022, HORS was under IFRS 5, assets held for sale, accounting treatment, and therefore, as you know, amortization of its assets has been suspended, had been suspended. Since HORS was deconsolidated on May 1st, 2024, invoices paid to HORS by Renault Group include the cost of amortization again, as well as HORS's markup. The cumulative effect of these two elements represented a 55 million euros headwind for the month of June, which means that the 0.5 points improvement that you see here is actually 0.7 points on an apple to apple basis. As a reminder, the synergies generated by Horse Powertrain joint venture will more than offset Horse's markup in the second year of operation, will actually pay for the engines less than when we were manufacturing them ourselves. I'll come back to the details of the impacts of Horse just before the Q&A session. Mobilized financial services generated 10.7 billion euros of new financing, up 2.5% thanks to the growth in registrations. Average performing assets amounted to 54.9 billion, up 5 billion versus H1 of 23, driven mainly by a strong commercial activity on the customer financing business since early 23, following the end of the electronic component shortage, but of course, thanks to the success of our range. Net banking income as a percentage of average performing assets was stable. It's worth noting that in H1-23, it was impacted by a negative swaps revaluation to the tune of 37 million. This effect did not reoccur in H1 of 2024. Cost of risk at 0.41% remained broadly in line with the same period last year and with our historical levels. Operating cost and absolute value remained well contained and improved by 10 basis points as a percentage of average performing assets. Overall, Mobilized Financial Services posted an operating profit of €593 million, up €75 million year-over-year. Moving to the items in the Group P&L below the operating margin line. Other operating income and expenses were negative, 277 million euros, and included the 440 million capital loss on the Nissan Chess disposal carried out in March 2024, and restructuring expenses for 123 million. These effects were partially offset by a 286 million capital gain on the deconsolidation of horse. The deterioration in our net financial expenses is entirely explained by the impact of hyperinflation in Argentina. Profit from associated companies at 195 million euros dropped 371 million. This is primarily driven by Nissan's contribution, which stood at 264 million euros compared to 582 posted in H1 2023. Current and deferred taxes represented a charge of 328 million compared to 278 last year. The effective tax rate amounted to 17% at the end of June 24, up two points versus last year. primarily due to the first year of implementation of Pillar 2 and other deferred tax impacts. All in all, and including 440 million of capital loss on the disposal of Nissan shares, net income reached 1.4 billion euros. Now let's switch to free cash flow. Renault Group generated 1.3 billion euros of free cash flow in the first half of 24. Cash flow was 3.1 billion, including a 600 million dividend inflow from MFS, same as in H1 of 2023. Group capex and R&D rate, excluding the impact of assets disposals, amounted to 7.9% of revenue in H1, up one point year on year due to our product cycle, but it remains below 8% of revenue guidance. Assets disposals amounted only to 28 million euros compared to 197 in H1 of 2023. Change in working capital requirements was a headwind of 209 million. Finally, a restructuring cash out amounted to 167 million compared to 219 in H1 of 2023. This free cash flow contributed to a significant improvement in our net cash financial position, which improved by €1.1 billion and reached a record level of €4.9 billion. Never in Renault's history has this position been so favourable. Net financial investments and dividends paid include around €200 million of investment in Flexis. Dividends paid to our shareholders strongly increased in 2024 at €1.85 per share, representing €540 million, while we benefited from €142 million of dividends received from Nissan. The net debt, of course, was deconsolidated for €420 million. And to finish, the disposal of more than 99 million shares in March of Nissan represented an inflow of 358 million. With these two transactions on Nissan shares in December 23 and March 24, we've already sold 7.5% of our ownership for 1.1 billion of cash, but decreased our stake by only 4.5% due to the relution effect of the cancellation of the shares bought back by Nissan. And this is not over. As already mentioned, we'll continue to monetize Nissan shares, which represents a potential cash of around 3 billion euros at the current Nissan stock price. As you know, we can sell to Nissan or to any other investors. This future cash inflow will allow us to accelerate our deleveraging while developing our activities and returning cash to our shareholders. Until the effective disposal of those shares, Renault Group continues to receive Nissan's dividends. I'll end the presentation with the liquidity of the automotive division, which stood at a very comfortable level of 17.6 billion at the end of June 2024. Regarding our credit ratings, Moody's has upgraded, as you know, its outlook to positive in May. I confirm that returning to investment grade rating remains our first priority, and then to increase our payout ratio to 35% of net result group share. And with that, I'll hand over back to Luca for the financial outlook. Thank you.

Good, thanks Eri. So when it comes to our financial outlook for 2024, we confirm that we will achieve at least a 7.5% operating margin and at least 2.5 billion of free cash flow for this year. So if you exclude the impact of horse, we confirm an operating margin in H2 above H1. All in all, Renault Group continues therefore to improve its operational performance. We are fully concentrated on boosting the performance of the compact teams that we have set up. This new organization is already bearing fruit because it allows these teams to be 100% focused on their respective discipline, shooting for excellence on each of the new automotive value chains. And having compact teams allows us to spot more easily where the value is and how we can boost it, business by business, being sure that we do it with people doing that and nothing else. Speaking about value creation, we already see the results. With Ampere and Power, of course, with Horse, Renault Group holds 45% of a business now with an enterprise value of 7.4 billion euros in an activity that some saw as just a legacy. Alpine brand reaches 700 million value, 14 times more than in 2019, and by setting a minority stake in Alpine Racing Limited to Otro Capital and Redbird, we have achieved to value this business more than 800 million. Mobilize Financial Services has a book value of above six billion, and on this solid asset we build tomorrow's mobility. So the key ingredients of Renault's new secret sauce are clear. Five focused businesses, a horizontal and ecosystemic approach, the strengthening of our supply chain, key process optimization, AI deployment at all levels and across all value chains, flexibility, agility and innovation continue to drive performance, improvement and efficient capital allocation. And the most important, the most important is that Renault Group's people are fully committed to achieve this transformation. This is passion for this industry, fueling sustainable value for all our stakeholders. All this shows that Renault Group, I think, is on the right way. So, have no doubt, focus, discipline, and execution will remain our key words in the coming month. And now I'd like to open to your questions, together with Thierry and the other members of the team.

Thank you, Lucas. Before starting to open the Q&A session, we'll just do a short recap on all those impacts to be sure that everyone understands them correctly.

Yeah, thanks Philippine. So, coming back to the impact of HORS to make sure that we're absolutely clear. So, as you know, there's two periods, before we deconsolidated HORS and after. Before we deconsolidated, as you all know, it was treated as IFRS 5, and therefore, we stopped the amortization. This was bringing a benefit of roughly 40 million per month. After the deconsolidation, we basically transact with Horse as we would any other supplier, which means that we start paying the amortization again, and we pay a slight margin so that Horse can fund itself. So if you look at the H1 numbers, You can see the 55 there that we had, which corresponds to the impact of one month of deconsolidation of horse. The way to analyze that in a simple fashion is roughly 40 million of amortization that we start paying again, and 15 million of margin that we give to horse. Okay, so if you look at H1 standalone, we got 190 million of amortization tailwind in the first five months. compared to if we hadn't done horse. And we got a 15 million headwind in the last month, corresponding to the fact that we pay a margin to horse. So net-net, it's 175 million. Okay, so it's about a 0.6 points tailwind in H1, but a 0.2 points headwind on a year-over-year basis. If you project yourself in the second half of the year, this 55 million headwind that we got in the last month, we're actually going to have it over each one of the six months of the second half. So on a year-over-year basis, it means six times 55 year-over-year. If you compare H2 to H1, it means five months with an incremental headwind of 55 million, which means 330 million. And if you take H2 standalone, so you compare H2 to what it is compared to if we hadn't done horse, it's 15 million times six, so about a 90 million headwind. So hopefully that's clear. I want to make sure as well that it's understood that despite, if you exclude the impact of horse, the margin rate in the second half will be better than in the first half. And I also want to let you know that in absolute value, the margin that we will generate in the second half will be better than in the first half, regardless of the impact of horse. which means that you can count on an H2 performance, which continues to improve in absolute value versus H1, regardless of the consolidation treatment, of course. Two quick last items, so below the line in operating profit, We generated around $290 million of profit from basically replacing the assets that we owned in the Renault portion of horse by the 50% stake that we now own in the consolidated entity. So that's 290 between operating profit and net income. And the final impact that you saw in the bridge to the net financial position is Horst actually had net debt to the tune of $420 million. We deconsolidated that, so it helped us reach the $4.9 billion level that we talked about previously. Hopefully that's clear. If it's not, we'll be happy to respond to any questions that you might have.

Thanks very much. Thank you, Jay. Very clear. So we'll start the Q&A session with Thomas Besson from Kepler Chevreux. Hello, Thomas.

Hello. Thank you very much. Congratulations on the performance in H1. I have two questions, please. The first is to do with European regulation. Luca, you made some comments in the press in multiple papers about... the fact that apparently Ursula von der Leyen seems to want to maintain the regulation as it is for 2035, 2030, and more increasingly 2025. Can you help us understand how automakers overall, and Renault in particular, are going to handle that? Give us an idea of the benefits of the 60% increase in HEV on your average CO2 emissions in Europe. Do you have an estimate of where you are in Europe in terms of CO2 in H124 versus the objective in H25? And so how are you going to make an arbitrage between eventually having to dump prices on BVs or sell fewer ice products? That's the first question. The second, and sorry, I'm staying on my negative tone. You still have a great 2.6 months of the bank and you're clearly launching lots of very nice products, but European demand seems to be slowing and the competitive landscape seems to be accelerating. Can you comment on the level of industry inventories and pricing you see by Powertrain in the third quarter during the summer? I know you have a remarkable 62 points share in retail, but even for you, it has declined a little bit. And can you finally comment on what you see as potentially a risk on financial services? The cost of risk is still very low, but with economic backdrop deteriorating, do you see that as a headwind in H2? Thank you.

Well, look, I think, you know, my call for was, although I did it as, let's say, as CEO of Renault, for what I see in the industry, right? The reality is that we have an EV market that is stuck at 15%. In fact, when you analyze the thing, it's actually growing, you know, relatively fast in most of the market, the big impact coming from Germany. So Germany is actually pulling down the whole thing right now because they actually took off, you know, subsidies. So I think the, let's say, the EV market is, you know, surprisingly dynamic in the last few years. I mean, there's been very few technologies that in a matter of four or five years, they came from zero to, you know, relevant market share. If you remember, you know, maybe, I don't know, common rail in the 80s, 90s, etc. So it's very dynamic. But the thing doesn't match the speed that is required to hit what they are asking us to do, which is to have an average fleet of, let's say, impact of 95 grams for each one of the fleet of each manufacturer. So I think that to hit the target, we need to be way above 20%, maybe 22%, 23%. Okay, that's our estimation. And we are at 15. Now, this is the average, right? So, my call is that it's not going fast enough. But, you know, the problem is on the shoulder of the manufacturer because we are the only ones supposed to pay fines. There are no fines for people not putting infrastructure. There are no fines for energy industry, you know, to provide electricity. or not renewable energy at the competitive price, et cetera, et cetera. So that's the reality we are facing, right? And we estimate that all in all, we'll not make it if it goes like this, okay? Now, if there is an OEM that can reach the target, that is us, we sell small cars, We had a top two in hybrid, so we basically replaced the old diesel thing with hybrid, so we have a very, very high mix, up to 60-80% on some models. And we have an array of new EV products coming right now from Dacia, from Renault, from Alpine, etc. of cars that are supposed to do volume because these are affordable cars, small cars. So if there's someone that can do it, but so my call is from the industry and this could have a huge impact for the thing because if you make the math and it stays there is more than 10 billion fines theoretically for the industry from passenger car and on commercial vehicle you are You know, there's no way you can do it because EV technology is not adapted to that kind of usage. So the mix is even the half of what is in passenger car. So I think we are calling for a level of flexibility, okay? As it happened, for example, in 2020, okay? because a lot of things are not going in the dream. We are not saying, I mean, I'm not saying that we should renounce to the target because we are fully committed to that. Now, it will be a day-by-day management of the thing. We will decide what we are depending on the success of hybrid, especially EV because one EV basically accounts for four ICE cars. So the EV is key in this calculation. So we will try to do the job. We are relatively, let's say, well positioned, but it's a problem for the whole sector. On the, let's say, 2.6 months, actually, we are seeing orders. We don't communicate orders, but we are seeing orders, compared to last year, growing because of, of course, also the new products are coming in. So we feel all the KPIs are right. It's a bit slower on the EVs because of the general situation of the market, uncertainty, subsidies are going in and out, etc., etc. The retail part, you pointed out that we are going down. I think it's a technical thing on movement of some rental cars, etc. So I think we are keeping the pace. But when you are 20 points above the average, it's maybe time to you know also with the new product that we have maybe c-segment cars to go back a little bit to do good fleets but we can we can define the condition ourselves so we're not going to go in fleets to discount cars so we're going to go in fleets if there is a good opportunity because uh let's say because the you know the companies won't want our product okay so i think you can see it actually is an opportunity because being so high on retail maybe is not a totally natural thing. It is for sure for Dacia because it's a pure retail brand, but I think we have some opportunity that we didn't took to do volumes. But as you know, inventory are down, production capacity is filled, order book we have, so there is no reason to push. We are also in the market relatively well positioned in terms of market share. So for us, focus is to generate cash, to make money, and to continue to serve our customer and doing go-to-market strategies oriented to value and quality more than volume.

Yeah, and just 62% versus an average 40, this means that we're more than 50% above the market average. So it's still a pretty good result, I think. And also to Luca's point, the profitability on the fleet side is very good. So the differential on the fleet sales that we're taking today is minimal compared to retail. So it's a good position, but as Luca said, it's a volume opportunity for the future. You had a small question on cost of risk of mobilized financial services. It's obviously something that we track very, very closely. It was up a few basis points versus last year on retail, but mostly outside of Europe. So, so far, no real trends in terms of evolution of cost of risk, and obviously we'll keep monitoring the situation very closely.

Thank you very much.

Thank you. We will now take a question from Michael Jacks, Bank of America. Michael, please, could you open your mic?

Good morning, Philippine, Thierry, Luca. Thank you for taking my questions as well. And congrats on the strong set of numbers in what's been a tough half, I guess, for a number of your competitors. Staying on the topic of EVs and tariffs, Europe has implemented tariffs now on Chinese EEVs, but not on PHEVs. And it would appear that one or two of your Chinese competitors are pivoting shipments in response to that. Is this an oversight by the EU? And do you see that as a potential threat, especially given the increase in your own HEV mix? That's my first question. My second question is just on Nissan share sales. You had planned to sell up to 7.5% by the end of September. Do you still think this is feasible in light of Nissan's guide cut this morning? And what is your latest thinking on disposal timeline to get down to the 15% stake? And one small additional question, if I may. Lucateria, you confirmed the outlook for an H2 margin above H1, even including the horse effect. why not raise the margin guide then for the full year? Thank you.

Look, Michael, I think the PHEV, we also work on that technology, as you know. We have seen recently the thing, actually the mix in Europe going down. It's a technology more adapted to premium cars, to high-end cars, because it's innerly very expensive. Actually, you have basically two powertrains in the same thing. Of course, you know, any... Any push from any competitor coming from East or West are a challenge, but we are used to challenges. We have this technology, which is actually pretty efficient. If the market goes up for plug-in hybrid, I think we can follow. But I don't think that plug-in hybrid will become a dominant technology in Europe. I think we have to bet on mild hybridization and especially EVs because the rules of the game are even more clear. We have seen also a revision of let's say, the regulation on plug-in hybrid that make them even less attractive, right? So you're seeing trends in, for example, in Germany where PHEV has been kind of, taken out of, in a way penalized as a technology. They are revising what is the cycle, the consumption cycle of the thing, trying to raise that from the 20, 30 grams that is now to above. You see demand for plug-in hybrid with batteries above 100 kilometers, which makes the thing even more expensive. I think it's a good technology, personally. I'm for technological neutrality, so I think we have to have any kind of technology to really hit the target of CO2. But I suppose that there will be a technology more for the high-end thing and not a core technology for Europe, considering how the regulations are defined and what the customer demands are.

On the Nissan shares, yes, it's obviously still possible. By the way, it's not limited to the 7.5. The 7.5 is the offer that we put forward in March, but we can put down another offer if we deem appropriate for a larger amount if we think it's the right timing. When we did the new alliance agreements and we put the 28% in the trust, clearly the intent is to go down in terms of ownership, and we'll continue to do so. It needs to be the right timing, but we're going to continue to redeploy capital. Depending on our perception of Nissan's performance and the way it's going to evolve, And also depending on our capital needs. As we keep the Nissan shares, we get the dividend. So there's not much point in just selling and keeping the cash in the bank. So one element is the use of proceeds. But to be clear, we will continue to go down in terms of ownership of Nissan. That was always the intent and we'll continue to do so. On H2 versus H1, so first to be clear, in terms of rate, H2 margin will be better than H1, excluding the horse impact. And again, as a reminder, there's going to be a lot of horsing today, but five months of 55 million is 330 million of adverse impact in H2 versus H1. But this, you know, if you exclude this impact, margin rate will improve. The margin will improve in terms of absolute value, regardless of horse. So, in mass, it will be higher. But if you take, you know, this effect of the 55 times 5, that's, you know, more than one point of margin. And that explains why, at this stage, we're not changing the guidance.

That's very clear. Thank you.

We now take a question from George Gallias, Goldman Sachs. George, please could you open your mic?

Yeah, thank you. I'm sorry to be an absolute bore on this, but just because you used the term margin, which I think people associate with a percentage, just to be clear, what you're saying is the absolute profit should be higher than the 2.18 billion that you just reported for the first half. Is that correct?

Correct.

Yeah, great, thank you. Very interesting presentation at the start. I just wanted to follow up on one of the points you mentioned the opportunity for productivity gains of 15% on R&D from AI. Can you give any indication by when this might be achievable and how should we think about this? Should we think about this as being your absolute spend being potentially 15% lower in the future than it is today? Or is this an efficiency that will allow you to invest more in other areas? And on the topic of R&D, clearly we also had a nice tailwind in the income statement. Just with respect to the billings, could you help us understand how those work? Do the billings normally relate to R&D expense during the same period? Or are there also instances where the billings are for work which Renault may have incurred in prior periods. Thank you.

Maybe you can, let's say you can... Yeah.

On the R&D billings, it's, you know, they're relative to R&D that we do on behalf of some of the partners that we have in the ecosystem. They typically would be within the period. In the case of the first quarter, there was a catch-up on some of the R&D billings that had occurred in prior periods. In any case, this R&D billing phenomenon was a bit of a one-off in the first half, so you shouldn't expect anything very material from an R&D billing perspective in the second half of the year. So we'll be back to sort of a normal type of situation within the guidance of less than 8% of turnover.

Maybe I'll leave it to Gilles to answer the question on productivity. I think it will be both, George. I think it will be savings, and on the other side, we actually bring that productivity to new technology.

Yes, so a few world streams on which we are working on. First of all is to get, you know, AI is all about that data. So as explained by Luca, we are gathering all our data in six digital world streams. And of course, for the upstream one, it's called RVT, Revolution Virtual Twin. that we developed together with Dassault Systèmes, and that's very simple. We gathered all the data, CAD, cost, all the purchasing data, all the logistics, all the industry in one area with a single point of truth for each data. Based on that, we can, of course, optimize and use AI. Two examples, very simple. First, we work on having direct CAD generation through AI, generative AI, based on existing, I would say, CAD from all the RVT program and all the cars that have already been engineered. So, automatic CAD generation that you can imagine is helping a lot regarding timing. Second example, of course, is well-known, but it's automatic generation of code for software, automatic coding that we are using also, and that's cutting the timing and the cost by between 30 to 50%. So, just those two examples, but of course we have plenty. For example, automatic costing also, based on a large number of data that we have, is helping us in costing and of course reaching our cost target for each in America. So, these are a few examples.

George, to make it clear. You can't make AI a structural driver of your day-by-day performance if you don't set up a data lake. This data lake has to be, let's say, connected to a few systems that run the different divisions of the company. We started this work four years ago. If you talk to the Dassault system guys, they will probably tell you that we have a few years of advantage because we started at the beginning with the vision of putting a layer of IT architecture and creating a virtual twin of Renault on top of the company to manage what you call the complexity of the different units, you know, division with, I don't know, Dutch Alpine, you know, horse, This is the outcome of a work that started a long time ago now. And that's why we think we have something special. We don't do AI just for the fun or for the show. We do it and we embed it in the real core process of the company. The ones that started this thing, actually even before I came, was manufacturing, and we got the inspiration from that example, and we went downstream and upstream, upstream to the engineering, downstream to the logistics, to the customer. I think we have something pretty special.

Thank you, Luca. We now have a question from Renato Gardiolio from Intesa. Renato, please could you open your mic?

Yes, good morning. Thanks for taking my questions. The first one is on pricing. You were citing a price stabilization if we exclude the prices to offset Forex and devaluation in some markets, and that you are using your lower cost base to have a competitive offering in the next month. So I was wondering what are you seeing in terms of price environment going forward in the second half of the year? The second question is on light commercial vehicles. You achieved another good performance in the first half, I can assume, with good margins. Even in this case, if you can give us an indication and outlook about the remaining part of the year. Thank you.

Look, the pricing depends on what you want to do, right? So I think we have a... In general, I think there is more pressure in the market. That's for sure. Especially for the people that have a lot of stock, which is not our case. But you see the position of Renault. We are, you know, maybe number two, number three in the market with the Renault brand. We're in the top ten with Dacia, you know, Sandero is the most sold car in Europe. Clio must be number two or three, something, three or four, exactly. Sorry, three, okay? So I think we don't have to stretch the thing. So we don't need to necessarily push. We'll continue in this direction. We'll try maybe to get in two channels, but at the right condition without discounting. So in general, I think there will be pressure on price as you anticipate, as we actually even see, but price stabilization and giving that back to the customer is good because it makes our offer more attractive. at the condition that we keep the margin. And as we said at the beginning, our priority is to keep the margin generating cash. So that's the condition. But if we have some room, we will do it. If we have to adjust, we will do it. But as I said, we are relatively Let's say relaxed on that because I'm not here to push metal that the market doesn't want. On the LCV, I think we'll continue on that trend. Don't forget that we just launched the new master. And this is probably right now the best car in the market. And normally, I mean, this model has always been the cash cow of commercial vehicles. This is where really the big money is. And so I think we will have there, you know, a product effect into the thing that makes me also pretty relaxed about the performance of commercial vehicles.

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

Yes, thank you. Good morning. Congratulations on the results. Obviously, all the talk about tariffs on Chinese BEVs coming into Europe But obviously, on the other hand, maybe less discussion about how probably you have now the most coherent response to the threat from cheaper Chinese VVs with your VV strategy. So I was wondering, when are you going to give us some more detail about precise about first customer deliveries and when will we actually get a chance to actually to drive the Renault 5? And could you give us some more information maybe about the order intake and any other data you want to share with us?

I think it's a bit early, because we launched Scenic, let's say, I think it came into the dealers in April, May in France, and then maybe later, June. in other countries, so I think we'll have to wait for end of the year. We'll also have to see next year, because I think that next year we'll see an acceleration of the EV market. Because of the old story of cafe, hopefully it's healthy. Renault 5, we will start to deliver in October. From a production point of view, the ramp up is going. A couple of weeks ago, we started to really get into a really good production rhythm. Probably, we will be able to see the potential of the Renault 5, I would say, maybe mid-2025. We have a lot of, let's say, interest for the car, that's for sure. We haven't, let's say, opened, or we have very recently opened the order book, the ordering, I think, in France. So I think it's too early right now to say. I can tell you, I drive a yellow Renault 5 in Paris, one of the first ones. I can tell you that people stop me at every red light and they make selfies with me. So I think... That car is really a magnet for people. Now, we have to see if this converts into order, but it seems good, right? And it's a very unique proposition because new generation car at that level of price, completely new platform. So you see that we don't have a lot of competition, to be honest, at that level of the market.

Thank you, Steven. And we now have a last question from Pushkar Tendulkar from HSBC. Pushkar, please, could you open your mic?

Sure. Thanks, Philippine. And thanks, Luca and Thierry as well for taking my questions. I think a couple of clarifications actually that I have. One is on your EBIT operating platform. profit bridge, the price mix enrichment bucket is a lot lower compared to that same price bucket, which was 450 million almost in the revenue bridge. Just a bit confused because this hasn't been the case in the past. Is it because of enrichment being a lot more negative than it used to be or you're offsetting price in the FX bucket? Yes, on that bridge. And then you mentioned earlier on inventories that the current 500,000 level is a healthy level. I think that was, we were close to that level by year end 23 as well. So going forward, would we see wholesales and retail kind of tracking each other or there's still some sort of effect left in that?

Hi, Pushkar. Thanks for the questions. I'll take those. So, on price-mix enrichment, yes, it's the enrichment bucket that is negative. Price is positive. As an offset, a foreign exchange mix is positive from margin perspective, both model mix and country mix. The thing that makes it less high than usual is the enrichment bucket. And in line with what we've said previously, we're using the strong traction that we're getting from a cost perspective to put some content in the car. So it's actually better sometimes to put some content in the car to improve the margins than to give price away. And I think that's something that you'll continue to see in the second half. The thing that you should have in mind is that if you take the $93 million that we've got in FX and then the effect of price mix enrichment and cost together, that's $400 million of margin improvement in marginal profit of the vehicle. So that's how we drive the profitability forward. So give a little back to the customers, but while improving the margins, if that makes sense. And then your second question on inventories, yeah. So the $500K is... is a good level for us. We don't foresee massive changes between now and the end of the year, maybe five or 10K, depending on the launch cycle, et cetera. Whereas last year we had a big ramp up of inventory in the first half and a ramp down in the second half, we don't have to do that in the second half. So you should see registrations and wholesale pretty much evolving together in the future. There's always gonna be some timing, But generally speaking, there's not going to be any massive inventory movements like there has been in 2023. Thank you.

Thank you, Thierry. We finally have a last question from José Sumendi, JPMorgan. José, please, could you open your mic?

Good morning. Can you hear me?

Yeah. Perfect.

Thank you very much. Congratulations on the results. And a few questions, please, Thierry. Maybe just to kick it off with financials, do you expect, just a few of them, do you expect volume to be a positive contribution on the bridge in the second half of the year? There's a large acceleration of product mix and geomix in the second quarter. Do you expect this momentum to continue into the second half of the year? Three, housekeeping, horse, how much is the negative impact year-on-year in the second half? I know you mentioned the number, but if you could just repeat, please, how much is horse year-on-year on the bridge in H2? And then, please, on that, if you could just comment again on pricing. One of your peers is showing 6.5% margin in Europe is taking a 2.5% margin hit on pricing. Are you seeing anything exceptional happening in the European market in terms of pricing power? Then, Luca, a couple of them for you, please. On emissions, Do you think there should be a bit more coordinated approach from European countries to provide incentives to sell electric vehicles in 2025 to help European carmakers meet emission targets? I mean, this is becoming very obvious as we go into 2025. And then second, can you comment tactically whether you could consider giving back some of the uh the the money you're getting from the sale of the of the of the shares in nissan would you think do you think you could actually give back some of the cash back to shareholders maybe 50 back to shareholders and 50 to be reinvested back into the business thank you

From the last one, I will answer on behalf and under the control of Thierry. We have always said that our priority is to get back to investment grade. Starting from that, we will... have a dividend policy which is transparent and gets up to 35%. We will continue to confirm our position on that. You were asking me on the coordination of the European countries. This is exactly what we wish. We really need a strategy. We don't need a set of deadlines and fines to get the thing done. We need a kind of a 360 approach and coordinated. I mean, it's a bit worrying that, for example, there was a proposition lately from the Hungarian presidency to have exactly that kind of coordination in subsidies across Europe, etc. But the thing was refused. But I think that we will soon, I think that we will create soon a certain understanding that if it continues like this, the plan doesn't work, right? Because we have to see EVs going very quickly above 20%. And then, of course, each one of the OEMs will try to do its best. As I said before, Renault is probably well positioned because of the mix we have, etc. Also the support in France because it's one of the countries that didn't pull off from that. But yeah, so that's what I'm screaming for since months is European strategy for energy transition in the automotive. uh yeah so i i think if not then we have to call for flexibility that means a little bit what happened in 2020 where you had i don't know super credits for evs or for some technologies that will allow us not to be all involved in in fine payments which are not an efficient way of developing i think even the business itself and the technology

Hi, Jose, by the way. On your questions, volume, yes, will be a positive year over year, especially since last year we had to destock in H2 to get back to the 500 mark. We no longer have to do that. So it'll be positive year over year, and it will also be positive sequentially, in particular thanks to the launches that you mentioned. On the impact of horse year over year on H2, Basically, take the $55 million that we had in the month of June and multiply that by six, right? So, it's $330 million adverse impact, profit and cash embedded in the numbers that I, in the forecast that I gave you. Hope that's clear.

And then on pricing, are you seeing anything exceptional? We just have one of your peers reporting. So, on pricing, yes, sorry.

Yeah, I missed that one. I think Luca, you know, answered on pricing. It's definitely a more tense environment. But again, you know, we have over 90% utilization on plants. We've got 2.6 months of order book. We're launching a whole bunch of new models. So, you know, we're going to do some stuff in content like we've done in the first half, but we're going to stick to our guns. And I want to take the opportunity because you're kind of asking the profitability in Europe. And I'd like to say that Europe is above average in groups profitability, right? So if you take the 8.1% that we're reporting for this semester, the European margin is actually higher than that.

It's a good way to conclude. I'll leave it there.

Thank you so much. It's a good way to conclude, guys. So I can only wish you fantastic summer. And I thank you all for your support. Thank you very much.