Renault 2012 earnings beat estimates as debt is eliminated
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PARIS -- Renault eliminated debt at its auto manufacturing unit last year for the first time since its tie-up with Nissan Motor Co. as it held back on spending and refrained from cutting vehicle prices.
Releasing 2012 financial results today, Renault said its automotive unit's net cash position was 1.49 billion euros ($2 billion) at the end of 2012 compared with net debt of 299 million euros a year earlier.
Earnings before interest, taxes and one-time items were 729 million euros for 2012, the company said. That beat the 698 million-euro average of 15 analyst estimates compiled by Bloomberg.
Renault's performance and outlook contrasted sharply with PSA/Peugeot-Citroen, which on Wednesday unveiled a 5 billion euro loss bloated by write-downs, including a 1.5 billion deficit at its auto division.
"In a contrasted global automotive market, Renault benefited from the growth outside Europe," CEO Carlos Ghosn said in a statement. "In the difficult environment in Europe, and especially France, the group led a rigorous sales policy," he said. "The Renault group is pursuing its strategy of global growth while strengthening its financial situation."
Renault hopes that eliminating debt at its manufacturing unit will improve credit ratings for the parent company and its RCI Banque financing unit, Chief Financial Officer Dominique Thormann said. Renault's debt is one step below investment grade at Moody's Investors Service, Standard & Poor's and Fitch Ratings.
Jose Asumendi, an analyst at JPMorgan Chase & Co., said: "These are good results. The outlook of positive operational free cash flow and positive operating margin is reassuring for the investors." Sascha Gommel, an analyst at Commerzbank, said: "It's clearly positive to have a net cash position as it should have a positive impact on refinancing rates which is crucial in the automotive industry."
Automotive loss
Renault's auto operations posted a loss of 25 million euros after a profit of 330 million euros a year earlier. Asset write-downs at the unit totaled 279 million euros, CFO Thormann said. Reorganization costs last year totaled 110 million euros, and currency effects cut 184 million euros from operating profit, Thormann told analysts.
Renault lost market share in Europe last year to push growth in Latin America and Russia. Sales in its home region tumbled 19 percent, the biggest drop in Europe and outpacing the regional industry's 7.8 percent contraction. The company said new models such as the revamped Clio subcompact and budget Dacia Sandero and Logan will lift its flagging European market share.
The automaker pledged to increase full-year global sales, which fell 6.3 percent to 2.55 million vehicles in 2012, and to restore its core auto division to profit.
India focus
Renault expects that the European market will fall at least 3 percent but said the worldwide car and light-truck market will expand 3 percent this year, with growth of as much as 11 percent in India.
The Renault-Nissan alliance is proceeding with creating a small-car platform in India targeting first-time auto buyers, Rachel Konrad, a spokeswoman for the partnership, said today. Gerard Detourbet, who helped lead the Logan's development, will lead the project. The Economic Times reported that investment in the platform will total 20 billion rupees ($371 million) and annual capacity will amount to 300,000 vehicles. Konrad declined to comment on figures.
Renault said operational free cash flow at the division was 597 million euros last year. That contrasts with negative operational free cash flow of 3 billion euros for 2012 that PSA reported on Wednesday. "[That] can only be described as magic when we see a car company facing falling sales," London-based Credit Suisse analyst David Arnold said in a note. The figure "clearly reflects efficient management of working capital," Philip Watkins, a London-based analyst at Citigroup, said in an e-mail to clients.
Renault said net income declined 15 percent to 1.77 billion euros. Sales fell 3.2 percent to 41.3 billion euros. Renault said it would propose a dividend payment of 1.72 euros increasing last year's 1.16 euro payout, largely reflecting income from its 43.4 percent stake in Nissan and a 6.55 percent stake in Volvo Trucks sold in December for 1.48 billion euros.
Ghosn gives up bonus
Renault said CEO Ghosn would temporarily give up part of his bonus this year as the company cuts jobs and seeks union concessions in a new nationwide labor deal. Ghosn's pay, which came to 2.8 million euros last year in addition to his salary as Nissan CEO, has drawn French government criticism in recent days as the company pushes through 8,200 job cuts over three years.
Renault is asking unions to sign up for a pay freeze, longer working hours and increased flexibility in return for commitments to increase domestic production and avoid factory closures. Renault is willing to increase production in France by 15 percent once a labor deal is reached. Renault's French factories may build 80,000 more vehicles a year by 2016 to supply partners, including Nissan and Daimler, the carmaker said on Jan. 22
Payment of 30 percent of Ghosn's bonus, or some 480,000 euros, will be postponed until 2016 and conditional upon the production commitments, the company said.
Upscale push, Russian growth
Renault is trying to broaden its product range by reviving the Alpine sports car label and developing the Initiale Paris insignia into a full-fledged luxury brand. The upscale cars would flank the mass-market Renault marque and the budget Dacia nameplate.
To push growth outside Europe, Renault signed a final agreement, together with Nissan, in December to take control of Lada maker AvtoVAZ in Russia. The alliance partners will invest 23 billion rubles ($765 million) in the venture.
Renault is sticking to a "medium-term" target of earnings at 5 percent of sales, though it won't reach that figure this year, Ghosn said today.
Renault is forecasting a weaker first half of 2013 than in the final six months of this year, Ghosn said. Russian operations are the most profitable for the company,he said, and he's "bullish" on the market and the partnership with AvtoVAZ.
Bloomberg and Reuters contributed to this report
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