Renault upgrades outlook despite $1.4B loss as turnaround starts to pay off

PARIS -- Renault reported a 1.36-billion-euro ($1.39 billion) net loss for the first half from the cost of closing its Russian business in the wake of the Ukraine war, but the company upgraded its full-year outlook, saying its turnaround plan to improve profitability was delivering results ahead of schedule.

The automaker increased its full-year margin forecast to more than 5 percent, up from a previous goal of 3 percent, as new models and better pricing improve profitability. It said operating margins in the first half were 4.7 percent, against 2.1 percent in the same period last year.

The first-half loss stemmed from a 2.2 billion-euro writedown on the value of its Russian operations.

Renault was the most exposed of the Western automakers to the Russian market. It sold its majority stake in AvtoVAZ, Russia's biggest automaker, in May for a symbolic amount reported to be one ruble.

CEO Luca de Meo said the improving margins showed that a turnaround plan he initiated when he took over in 2020, focused on profitability over sales volumes, is delivering results ahead of schedule.

He said the company is moving from plan's emergency phase into a rebuilding phase.

"After two years of sacrifices and a hard diet, we are now ready for the next chapter at Renault," he said on an analysts call after announcing first-half results on Friday.

De Meo said the company was three years ahead of schedule in hitting the plan's targets despite challenges the entire sector faces in obtaining the microchips used in everything from brake sensors to entertainment systems.

While the results surpassed expectations by many measures, Renault remains "a work in progress" compared to other automakers, RBC analyst Tom Narayan wrote in a note.

Like rivals, Renault is benefiting from selling fewer vehicles at higher prices such as the Arkana compact SUV and the electric version of the Megane compact car. De Meo said discounts on Renault's cars are at their lowest in a decade.

Renault stuck to its previous forecast that chip shortages will cut production by around 300,000 vehicles this year.

Vehicle sales dropped nearly 30 percent to around 1 million during the first half due to the retreat from Russia, which was the automaker's second biggest market, and an inability to produce some vehicles due to a shortage in components.

The global shortage of semiconductors, used in everything from brake sensors to entertainment systems, has cut into car production at many major automakers.

10-year high for cash generation

Renault achieved a 10-year high for cash generation in the first half of this year, de Meo said. The automaker upgraded its prediction for automotive operational free cash flow for the year to more than 1.5 billion euros, a big jump from the previous "positive" guidance.

Renault's improved 4.7 percent margin still falls well short of the double-digit result reported Thursday by bigger European mass market competitor Stellantis for the same period.

Renault, which also produces cars under the Dacia brand and has an alliance with Nissan, is in the early stages of a restructuring its operations to be competitive as it shifts to electric vehicles.

As part of the shift to EVs, the automaker is planning to carve out electric and combustion-engine businesses and has promised to give details in the autumn. The move would be aimed at regaining lost ground to rivals Volkswagen and Stellantis.

Bloomberg contributed to this report