Ladies and gentlemen, welcome to the First ALICE 2020 Financial Review Conference of Groupe Renault. I now hand over to Mr. Pierre Yount. Sir, please go ahead.
Yes. Good morning, everyone, and welcome to Renault First Half Results Conference, which is broadcast live and in replay versions on our website. The presentation file, press release and activity pack for this call are all available on our website in the Finance section. I would like to point out the disclaimer on Slide 2 of this pack regarding the information contained within this document and in particular of our forward looking statements. I invite all participants to read this.
Today's call is scheduled to last about 1 hour and 15 minutes. The presentation will start with a message of our new CEO, Luca DeMeo then, Petit Delbos, our Deputy CEO, will share with you her takeaways from H1 and will take you through the usual presentation about H1 performance. Denis Lovat, EVP, Head of Regents, Sales and Marketing and Thierry Pieton, Deputy CFO and Head of CORE Control will be there for answering your questions during the Q and A session. I hand over to Luca.
So good morning, everybody. Welcome to Groupe Renault. We are pleased to be here with you today, although frankly, we would be happier if we could communicate better news. In a moment, as Thierry said, Clotilde will share our financial results. But first, a few words of introduction.
And as a newcomer, I will also share my first impression to hopefully help put numbers into perspective. We are in a complex, difficult situation. We all are. But Renault took the COVID hit whilst we were already, I would say, feverish. So for sure, it is even harder for us.
I am personally already pretty deep in the diagnostic of what went wrong, what is wrong and what we need to do to fix it. I quickly reviewed all major projects of the company and I met personally via video conference all the most relevant people to assess the situation. I visited several plants, dealers, design and engineering centers. And look, the good news is that Renault is still a great company with a lot of substance projects and also a lot of competence. People are frustrated, but I think that's what I feel very eager to change direction.
The sense of urgency is also definitely there. I can confirm you. And I think that today's results would be a disturbing wake up call for them too. And I think also a strong stimulus to react. I think we are currently touching from what I see the bottom of a negative curve that started several years ago and probably even earlier.
So my message is that already now we know what we have to do. We have shared the concept and the ideas within the Executive Committee and agreed that this would be the way to move forward. Conceptually, it is very simple to summarize. We will move the whole system from volume to value. We will move the whole system from volume to value.
So right now, we are focusing on how to make it happen. A few days after my arrival on July 6, we organized a top team of about 40 experts from all functions, all regions, all levels of the group and this squad is physically located on the highest floor of our headquarter here in Boulogne and is working in a completely unconventional manner on the briefing that we gave them. They will spend the coming months on detailing the plan that we will present you by at last by January 2021. I can assure you that the plan will not be just a wish list, but rather some of actions that we will have already decided and organized by then. A lot will happen in this house in the next 6 months.
Now it would be too early for me to give you all details just after 4 weeks in the job, but I'll take today's opportunity to give you some hints. The plan will be looking at 3 phases within a horizon of 6, 7 years. That goes from simply surviving the storm to putting this team in a place where we have never been. I consider the 2022 planned project that was presented in May, especially the fixed cost reduction part as a crucial step to reestablish sound foundations for this company. We are going for it at full speed and we already see that we are on track.
But we have already agreed with the team that all the four dimensions of the problem will have to be attacked at the same time: fixed cost, variable cost, cash and revenue management. We are clear that the effort to make this company leaner and more focused should also feed the development of our future business potential. This is a very important to motivate the organization and the stakeholders to go for it without hesitation, I would say. So said in another way, what we are also doing is making clear to everybody that better times are awaiting at the end of this twisty road because when you know what is behind the corner, you are more confident and are willing to enter the curve much faster. I have seen a lot of potential to create value and we are already taking clear decision to catch it in product, technology, market and brands.
We have in a very short time substantially reworked the product plan to put the money on more profitable and growing segments. On the technology side, I actually found here some pearls. Etech is probably the best hybrid in the market when it comes to real usage for European drivers. The next C segment fully electric platform, we share within the Alliance has nothing to envy to the ones I've seen in my previous life, technically and cost wise. We are also reshuffling our market priorities based on the simple criteria of profit contribution and not volume potential.
And I can tell you it will change the geographical focus for Renault and Unleash potential. On the brand side, which you know are pretty much my specialty, I have also seen 3 or 4 open highways in front of us. Renault brand, of course, needs to come back to where it deserves and where it belongs in the heart of the market. Dacia, seen from the inside, looks like even more like a miracle. Nobody in the industry that I know can make that much money at that level of the market.
It is time for Dacia to flourish as a full fledged brand. As for Lada, it is an uncontested leader in its market. Alpine, I think is and might remain a niche brand in the future, but it could be leveraged much better. It is the living example of how far this company can go when it comes to create emotions. And emotions in my world means pricing power.
What I really liked is, Renaud, is the creativity that this organization still has. This is, I think, perfect in these times when business discontinuity challenges established organization. What I didn't like is how we play the game. The new rule is simple, maximizing the opportunities to kick the ball and strike. We are planning on a fundamental reorganization of the team on the playground.
It will be it will put actually players into a position in which they are more accountable, leaner, faster and more oriented to the markets and to the score. Look, dear friends, I have ridden too many kilometers in this industry and I have seen too many places and situation like this one not to be able to make the difference between naive optimism and real potential. I think we are here closer to the second scenario. It will be tough. It will imply taking some high steps, strong decision.
We will bring you with us in this journey before and beyond the presentation of the plan in January next year. What I can say for the time being and before leaving the stage to Clotilde is that you can count on Groupe Renault's management team's full determination to turn our share into one of the good and unexpected positive surprise in the portfolio of our investors. Clotilde, please.
Thank you, Luca, and good morning, everyone. As you have seen from our publication, the group's financial results for the first half of twenty twenty have been severely impacted by the unprecedented situation the world has experienced. We estimate that the COVID negative impact on our revenues is about €8,000,000,000 for the first half. The net impact on our operating margin for the same period is estimated at nearly €1,800,000,000 after taking into account the benefit of the short time work schemes put in place in many countries and often supported by the local government. Our net result has been massively affected by the record losses booked by Nissan in the last two quarters.
But Renault was facing some difficulties even before the COVID. Our main markets were already declining in almost all regions. Our cost went too high. Currency and raw material remained headwinds. Then we had lockdowns in most of the European countries, which stopped the business overnight.
In spite of this context, we have done our best to continue our pricing discipline and to keep our product cadence. We have also relied on the resilience of RCI business model. After this H1, I'm convinced that we will now be on a more positive dynamic provided the pandemic does not hit us with a second wave in Europe. But as just said by Luca, we're not naive and we know that a recovery takes time. We can count on different levers that should put us back in the right track to show a gradual improvement started in the second half.
First, we have started to get the fruits of our cost cutting program and this should continue going into H2. We told you that we should see about 30% of the €2,000,000,000 saving project this year and I confirm that it will be the case. Our electrified lineup, EV and hybrid, is unique and recognized as best in class. It is decisive to deal with the CAFE regulation. 3rd, RCI will continue to be a solid pillar of our business model.
Last but not least, the €5,000,000,000 additional credit line signed with our banks and benefiting from the French state guarantee give us enough financial resources to get through these unpredictable times, leaving our automotive liquidity reserves at €16,800,000,000 at the end of June. Of course, I cannot end this introduction without welcoming the arrival of our new CEO, Luca DeMeo, who is bringing his undisputable experience in the car industry. All this makes me very confident about the recovery of our group. Let's look now in detail to these numbers and share the main explanation. Let me start with a brief summary of our commercial figures as released on July 20.
The worldwide market decreased 28.3% with all regions showing a negative development and Europe being the worst. In this context, Groupe Renault saw its volume failing by almost 35% with 1,260,000 vehicles sold. In Europe, our registration declined by 42% in the market down 39%. Despite the success of our new models, namely Clio, Captur and ZOE, we have been penalized by our country mix as our higher market share are in the countries where the lockdown has been the stricter. In addition, Dacia suffered from the more than the Renault brand owing to its high presence in the retail channel, which has been the most impacted.
One positive note has been the strong growth of ZOE with an increase in sales of nearly 50%. Our sales outside Europe followed the worldwide market's sharp decline and fell 26.4%. In Russia, the group outperformed the market with sales down 19.5% in a market down 23%, thanks to the success of Arkana. Lada has been following the market trend with a decline of 24%. In Latin America, the situation has deteriorated further.
In Argentina, despite a very low basis, the market fell again by 39% and our sell by 46%. In Brazil, which has which was the bright spot of the region at the beginning of the year, the trend is now as bad as in Argentina with the market down 39% at the end of June. In this context, our sales were up 47% as we have decided to favor profitability over volume. In India, we benefited from the continuing success of Triber and in a market falling by 49%, our sales were down 29%. The only significant market where demand was up has been South Korea, up 7%.
And thanks to the strong success of the new concept XM3, our sales were up 51%. To close this commercial part on a more positive tone, I can tell you FAMEK's business that the business in June has been very encouraging, at least in Europe and our order book is well filled. I will now turn to the financial review. On Slide 9, we show the full P and L of the group. Starting on the top line, group revenues €18,400,000,000 a decrease of 34.3% over the last year.
At constant scope and exchange rate, the decline would have been 32.9%. The next line shows a negative operating margin at minus 6.5%. Due to the Nissan's losses, especially under IFRS, net income came to minus €7,400,000,000 down €8,400,000,000 compared to the first half of twenty nineteen. On the next slide, we show the revenue contribution by activity. I remind you that we have created a new line of reporting for our mobility business at the beginning of the year named Mobility Services.
Group revenue for the first half were down 34.3%. Automotive, excluding AVTOVAZ, contributed for almost €15,700,000,000 meaning a decrease of 37%. This implied a 49% fall in Q2 after minus 21% in Q1. AVTOVAZ contributed for €1,100,000,000 a decrease of 30%. Revenues from our captive sales financing company, RCI Bank, were down 6% at €1,600,000,000 While not easy to estimate, our best assumption is that the pandemic impact on our revenues has been close to €8,000,000,000 for the first half, that is to say 80% of the auto revenue fall.
I will now review the breakdown of revenues for the automotive activity excluding AVTOVAZ. The first item, volume, is the most impacted by the confinement as shown by the fall of registration. The impact is negative by almost 30 points, hence a bit less than the registration. The gap between registration and volume comes primarily from the CKD business and inventory changes as we have reduced the stock of the independent dealers. The regional and model mix impact are slightly positive and account for 0.6 points.
Despite this unprecedented situation, the price effect remains positive by 2 points as we have continued to apply a pricing policy as disciplined as possible in such an environment. Sales to partners impacted negatively for 7.3 points in the first half. On top of the already declining businesses, demand for powertrain, LCVs and CKD parts has almost disappeared for several weeks. The next item, foreign exchange, is a negative 1.5 points. This reflects the weakness of the Argentinian peso Brazilian real and to a lesser extent, the Turkish lira.
The last item named other accounted negatively for 8 points. It represent the other activities outside the scope of new car activities. This negative impact results from a contracted contribution from the different item in this bucket. Spare parts, used cars and dealers were negative, while buyback restatement was a positive due to lower volume, especially with short term rental companies. I would stress that spare part activity, which is usually a very resilient business, has been almost stopped during the confinment.
I will now turn from automotive revenues to the group operating margin by operating sector. The automotive segment, excluding AVTOVAZ, posted a negative operating margin for €1,648,000,000 AVTOVAZ in the context of supportive measures for the auto industry from the Russian state managed to limit the negative impact of the volume decrease. It posted a negative €2,000,000 contribution versus a positive €82,000,000 in H1 2019. As already mentioned, we added a segment for the mobility services, which used to be mostly in RCI's contribution. This nascent activity reported a €22,000,000 operating loss in the period.
Our financing activity delivered a €460 €9,000,000 contribution to the group margin versus €591,000,000 last year. I will comment more in detail later in the presentation. The next slide, number 13, provides more detail on the group operating margin variance. The first half operating margin is negative €1,203,000,000 a decrease of €2,857,000,000 compared to last year. As said, we estimate that about €1,800,000,000 of the decrease came from the pandemic.
The rest of the variance is coming from adverse ForEx and raw materials, higher depreciation and weaker intrinsic performance around 1 third each. Let's see this in more details. Let me start with the Monozukuri, which is a negative contribution of €40,000,000 This unusual negative performance comes from purchasing savings totaling €122,000,000 this relatively low performance is the consequence of the collapse in volume in the volume of business and adverse environment for improving the purchasing conditions. Warranty cost change is a positive of €50,000,000 thanks to lower volume and defaults. R and D impacts negatively €433,000,000 despite a reduction in spending of €493,000,000 but the strong decrease in the capitalization ratio of 5.6 points and the increase in the depreciation explained this move.
Manufacturing and logistic costs increased by €59,000,000 Higher depreciation, disruption in the manufacturing and additional costs related to COVID-nineteen are at the origin of this negative performance. I would like to stress that before the COVID-nineteen impact and before the increase in the capitalization ratio and depreciation, the monetary would have been slightly above €300,000,000 Let's get back to the walk down on Page 15. G and A brings €133,000,000 of savings, thanks to the effort put on these expenses, but it can also be explained by the confinement. Raw material is a headwind and reflects higher prices for some materials, especially precious metal, but also lower scrapping activity. Mixed price enrichment is negative at minus €203,000,000 This results mostly from our action to improve the attractiveness of our recent product with higher content, but also from some residual regulatory costs and the less favorable mix.
Volume and partner account for more than 2 third of the decline with an impact of €2,100,000,000 This is mostly the direct effect of the lockdown in the activity, but also the consequence of the termination of ROG production for Nissan. RCI Bank combined with the other businesses outside of the new car business yields a negative contribution of €294,000,000 Beyond the lower LCI's contribution, this item is largely penalized by COVID-nineteen impact since distribution of cars and spare parts were almost stopped for several weeks. Currency impact is negative €201,000,000 coming mainly from the fall of the Argentinian peso and the Turkish lira. AVTOVAZ contribution declined by €84,000,000 as a consequence of the decline in its activity. RCI generated €7,700,000,000 of new financing in the first half versus €10,900,000,000 in H1 2019.
Average performing assets continued to grow with an increase of 3% and reached €48,100,000,000 Net banking income stood at 4.22%, down 13 basis points. This decrease came partly from the support offered to the customers during the health crisis such as deferring maturities on more than 500,000 financing contracts. Of course, the cost of risk increased with the crisis. It stood at 99 basis points of the average performing assets versus 40 basis points a year ago. Part of this increase can be explained by the statistical methodology used for the calculation of the provisioning and the poor reprocessation rate in the context of the COVID-nineteen.
Operating costs were contained partly thanks to the short time scheme put in place with the government support. The expense ratio stood at 1.29 percent versus 1.36% of average performing assets. As a result, RCI contribution to group operating profit amounted to €469,000,000 versus €591,000,000 last year. Now that we have covered the operating margin variance, I will continue down the P and L with the other operating income and expenses items on slide 17. Other operating income and expenses amounted to minus €804,000,000 versus minus €133,000,000 a year ago.
Several items explain this strong increase. Due to the uncertain environment, we reviewed some programs volume assumptions, which led us to book nearly €450,000,000 of impairment. The restructuring cost and provision increased from €117,000,000 to EUR 166,000,000 coming mostly from early retirement packages. It is worth noting that this amount does not include any significant provisioning for the 2 to 2022 plan. The remainder is mainly due to the termination of our JV for ICE passenger cars in China.
Continuing down the P and L, the next item is net financial income and expenses. The net charge increased from €184,000,000 to €214,000,000 Despite lower cost of debt in many regions, we were penalized by the absence of Daimler's dividend, which amounted to €54,000,000 last year. On the next slide, you see the impact of the associated companies in Renault's P and L. I'm sure you have already seen Nissan's number. Nissan contribution for the 2nd calendar quarter in Renault's accounts came to minus €1,244,000,000 taking the first half impact to minus 4,000,000,000 €817,000,000 I would like to stress that about €4,300,000,000 of this loss are coming from impairment and restructuring charges, of which nearly €2,000,000,000 due to IFRS retreatments.
Contribution from other associates turned negative at minus €75,000,000 compared to minus €14,000,000 reflecting notably the negative results of our Chinese JVs. I will turn back to the P and L where the net tax charge for the first half came to €273,000,000 versus €254,000,000 This amount includes a charge of €268,000,000 coming from AVTOVAZ deferred tax reassessment due to lower midterm business assumption. Bottom line, net profit after tax came in at minus €7,400,000,000 versus €1,000,000,000 in the first half of twenty nineteen. Now that I have completed the P and L, I will turn to Slide 21 on the evolution of the net automotive debt. Cash flow from operation excluding AVTOVAZ and restructuring expenses amounted to €22,000,000 versus €2,274,000,000 a year ago, reflecting the decrease in the operating performance.
Changes in the working capital requirement had a negative impact of €3,829,000,000 versus a negative €131,000,000 a year ago. Net tangible and intangible investment came to €2,544,000,000 in the first half, down €367,000,000 CapEx remains in line with last year's level as it is not easy to curb this kind of spending quickly, while capitalized R and D decreased to €658,000,000 from €984,000,000 And leased vehicle represented an investment of 4 €64,000,000 Restructuring costs led to a cash out of €135,000,000 and free cash flow from AVTOVAZ accounting positively for €110,000,000 In total, our net financial position decreased €6,732,000,000 compared to the end of last year after taking into account neutral dividend flow and financial investment for £427,000,000 mostly for our Chinese JVs. As a result, the group automotive net cash position at nearly €5,000,000,000 versus €1,700,000,000 positive cash at the end of 2019. However, OTO's liquidity reserves improved from last publication and stood at €16,800,000,000 at the end of June versus €10,300,000,000 at the end of March. This amount includes various short term loans and the €5,000,000,000 credit facilities benefiting from the French state guarantee.
We will certainly draw down part of this facility, which expires at the end of the year, to secure our financing position while reducing our short term debt in an environment which remains uncertain. Slide 23 shows the inventory situation in Renault's balance sheet and for the independent dealer network. As you can see on the slide, inventories decreased by 13% versus June 2019. This decrease is the same for the group and the independent dealers. And in terms of backward coverage, this leads to 107 days, but this is meaningless as we had no business in some countries for 2 months in Q2.
We believe it makes more sense to look at the forward coverage. Thanks to the good order book, it has improved by 7 days versus H1 2019. Before sharing with you some elements on H2, let me give you an update on our 2022 project plan. I told you when presenting this plan that we should have at least 30% of the €2,000,000,000 saving materializing this year. As you can see on this slide, we achieved €433,000,000 in H1 with engineering contributing more than half of this amount as expected.
This amount is obviously prior to any benefit related to COVID. It's real saving. So I confirm that we are well on track to deliver on our target for the year. To close this presentation, let's face with realism the risk and opportunity for H2. The pace of the recovery is unpredictable given all the unknown on the economy.
On the content cost, while we are working to improve them, the current environment is not helpful and limits our visibility on the speed at which we will be able to achieve our reduction target. And of course, no one can predict the pandemic evolution throughout the world. On the opportunities, we have the Etech technology, which is a clear competitive advantage and has been very well received by the press. It will help to increase the attractiveness of our vehicles and to achieve the CAFE target. We will continue to manage our pricing discipline to increase the revenue per unit sold.
On top of our high order book, we expect also some positive impact from incentives currently being implementing in some markets, especially in Europe. However, given the large uncertainties that is still looming around, we estimate that we are not in a position to give you a reliable guidance for the year. This completes my review for the first half of twenty twenty. Now with Denis, Thierry and myself, we're ready to answer any of your questions. Thank you.
The first question comes from Thomas Besson from Kepler Cheuvreux. Sir, please go ahead.
Thank you very much. It's Thomas Besson at Kepler Cheuvreux. I was wondering if it's possible to ask any question to Luca or if it was contribution was limited to an introduction first?
Well, I think, Thomas, you can answer Luca. I'm here. If I ask a question to Luca, I will see what he I'm here.
Don't worry.
Okay. I give you to Troy then. Sorry for that Luca. It's a bit early to ask you questions, but I still have to ask one. First, welcome and then effectively.
The question is, how much are you willing to push and change Renault? And how far can you go? I mean, we've seen 2 designers have in the last couple of weeks. You already have a great designer at Renault. Is it a signal that many products could disappear, many products could emerge and that you could have, let's say, a different design direction between brands a lot more concentrated than in the past?
So that would be a relatively general question that maybe you can already answer.
No, I think that I can answer very easy. The answer is yes. So I think we have agreed with Laurence, who is I think is a great designer and did a great job that we should reinforce the let's say, the design team to create a team of superstars on that field. You know the people buy cars also because of design. And actually, it's one of the biggest reasons to buy.
So we want to be very, very strong on that. It gives also us a chance to differentiate between the brands. I come from a brand culture in a way. And so I have seen that when you start really working on the potential of the brands that you have in your portfolio, it works. So this is definitely the direction we're going to go.
So, yes, and let me say that I am a product guy. So I think that the first thing I had to attack was the product portfolio thing. We did it with the team together with Clotilde and on with Denis with everybody, with Gilles. And in the last 4 weeks, I think we took as many decision on product that we're taking in the last 2 years, to be honest. So and it's going in the right direction.
It's going in the right direction of betting on segments and markets where there is money, which was for me not the case when I entered the first time the room on the designs, in the design where all the future products were displayed. But we're going very, very fast. People are excited. And the example of Vidal coming and Alejandro, it's of course good to see people so talented that are attracted by the project. But I have also to tell you that there are a lot of great people here in Renault and we just have to put them in the right position on the field, give them responsibility, clear targets.
And I have felt really in the last 4 weeks that people are really willing to take the ball and kick. So this that makes me in a way optimistic in such a complicated, challenging situation. I've seen stuff like this as you know in my career. I know that you can get out relatively quickly if you make the right decision.
Great. Thank you. On that topic of trough and volume versus value shift, I think Clotilde and the team before your arrival have been trying to shift already that. Can you and Clotilde help us reconciling this approach with the bigger push that Renault has done in June, which is more consistent with the previous Renault of having a strong month at the end of each semester. So which one should we think will be privileged effectively from here after what has been done in June?
I will ask Denis to take that and I will comment after him.
Yes. Coming back on the word push, I would not use that word actually because when we look at what happened in June, the market, especially in Europe, you saw were kind of up, right? The market in France was actually bigger than what we had last year. And Renault was pretty much present with consistent offer, electric offer, ICE offer on a market that was boosted by the government incentives. So what happened actually in the month of June is that the orders that we took were up 10%.
The portfolio grew and of course the market share in France was very big at more than 31% because we hit exactly the demand. I would like also to point out the fact that as a result of this, the inventory decreased, which of course is the opposite of what we could call a push. And at the same time, if you take the H1, because this is just kind of the last 10 weeks we're talking about, but if we take the H1 in Western Europe, the weight of the pure retail on the market has grown in Western Europe by 1.3 points approximately. And for Renault, it has grown by 3 points. So it's bigger actually.
Also I would like to mention that in parallel to this, we have been given up that was not in Europe mostly in Brazil bad channels because we gave up the leasing and we gave up some short term rentals in most of the zones. And last but not least, of course, is the effort on pricing. As you could see in the presentation, €496,000,000 almost €500,000,000 in net pricing, which accounts for more than 2 points on our turnover in only 6 months. So I would say that we were present in Western Europe when the incentive came with the right quantity of card number 1 with a perfect offer. And I would just mention the fact that ZOE, for instance, in those months has taken more than 10,000 orders and 10,000 sales on the Western Terrace area.
And I can reinforce what Denis said. There has been absolutely no push at the end of June. I can assure you that with my several hat as CFO and Deputy CEO, we made sure there was none. And we can also prove that because when you see that we are not at full capacity, not even at the level of where we were last year in terms of production, where even 80% below where we were last year. That means if we wanted to do a push, we would have pushed also production.
So no, clearly, Thomas, I can assure you there has been no push, not at all and there will be none. We're really shifting. As I said in the first half, Luca said the same thing. We're fully aligned. The whole company is aligned.
We need to put this business sustainable and do the right thing and look for value and not for volume.
So, Tomas maybe Thomas, maybe this is Luca. I gave a clear indication. I saw this kind of swing every semester in looking at the data from the last years. That was the reminder in my old times in another company that the worst was specialized in push. So I gave clear indication that we need to kind of stop with the swing.
And you can track us in the next months on a very simple indicator, which is you look at the portfolio above 2 months and the stock below 2 months. So this is for you will be a clear indicator of whether we are pushing or not. If we kind of find that balance as quick as possible, I think that it will mean that we are doing the right things. And we were at the same time last year at the 1.4 months of portfolio, we are at 1.9. So the thing is quickly going in the right direction.
So I give you some kind of hint or KPIs to track us on that one.
Thank you very much. I confess unfortunately we don't have this data, but I'd love to get them if you want to give us the information. I have one last question, if I may. For Clotilde, we still had a solid contribution from RCI Bank in H1. Looking at the deterioration of Nissan's financial situation and Renault's financial situation, there is a decent risk that Renault's credit rating falls further.
Can you talk about your view on the chance of keeping this asset under control or having to put it eventually under a joint venture as other companies had to do in the past? And where you are on that matter please?
Thank you, Thomas, for the question. As you know, you mentioned it, RCI has a solid contribution and is a solid company and we don't see any risk intrinsic risk of to RCI. The question you're right is the spillover effect that could that if there would be an additional downgrade on Renault that it could have on RCI. But we're building our midterm plan, as Luca mentioned. It should be available by the beginning of very beginning of next year.
And we are we discuss regularly with rating agency and they look at they have mostly forward looking. And I'm confident that if we show them a convincing plan based on facts, action already deployed and just waiting to give result because we know that in the automotive industry you need at least 2 to 3 years to make a good step back. If we're able to show them a CONVITC plan, they will be forward looking and that would have no impact on SEI. So that's the way we're working on it.
Great.
Thank you very much to all of you.
The next question comes from Jose Assumendi from JPMorgan. Sir, please go ahead.
Thank you very much. Good morning, Fotilde, and most welcome, Luca. It's Jose JPMorgan. Two topics, please, for Luca. Luca, when you think about regions of priority to do business, what is your impression or your first impressions on the whole emerging market presence of Renault?
And is this something you would like to grow or to scale back? Just your initial thoughts on this topic. And second, there have been a lot of discussions already on the future of plants in France and workforce, etcetera. So maybe could you just share some of the thoughts around when should we expect some additional visibility on this topic? And when should we expect additional announcements?
Thank you.
You have 2 questions. On the globalization process of I've looked at that pretty in detail. It's clear that the company since I left grew worldwide in a very pretty impressive way also with the whole, let's say, story of the alliance. My feeling is that we have in some markets, think about Russia, think about Brazil, really build the presence and yes, a kind of awareness of the brand that is strong in the presence. We are in a very volatile moment.
So my not only feeling, but the indication and the story we are kind of building is trying to make sure that those markets don't represent a negative surprise in the next 2, 3 years whilst we are refocusing on Europe where we need to reconquer, let's say, profit share of wallet, okay, if I can say it like this. So we are really discussing with the markets to make sure that their plan for the next 2, 3 years is solid, that we don't take unnecessary risk, that we don't put the money, that we don't have on products and project that with the suspicious level of profitability. This is the story. Everybody around the Renault world needs to understand that the only KPI that counts is value, okay? So if we see that this thing produces value, it's okay.
If it doesn't produce value, we don't need it. Very simple. On the French situation, it's pretty complex situation, but we have a plan. There is a discussion going on with different stakeholders. So you can expect us to be, let's say, more vocal about that at the time of the plan where we will tell you exactly what we are trying to do, but always with the same logic, trying to create value out of it and of course respect all, let's say, stakeholder.
I think there is a possibility to come up with something that makes sense.
The next question comes from George Gagias from Goldman Sachs. Sir, please go ahead.
Great. Thank you. First question, if I may, to Luca. Luca, just with respect to Renault's product portfolio and the average selling price that Renault is able to achieve in B segment and C segment vehicles, Do you is the average selling price in general in your view much lower than that at competitors such as SEAT and also PSA? And do you see any issue with respect to the revenue realization that Renault achieves on its products, curtailing ability to be profitable going forward?
Or do you think Renault can achieve the same kind of revenue realization on its B segment and C segment vehicles as its key competitors?
Look, I think that when I mean, it's you have to look at different dimension. When you look at simply the price positioning of the car, the lease price positioning, I think we're pretty much in line. Sometimes we are even higher. The problem I see is that in some cases, we have been too generous on incentives compared to our competitors, maybe pushing cars in some channels where we're trying to quickly get out and that will be the exercise. But the fundamental issue, especially for example, when you look in comparison with PSA that is doing great work is the mix of product.
And so one of the things that obviously I have to push is Renault on, let's say, on higher segment. And I'm not talking about big cars or premium cars. I'm talking just finding back our position in the heart of the European market and on the center of the European market there is more or less right now on the C, C plus segment. That's what we have to do. We have some products there.
They are actually pretty good product. Probably they are undervalued in the market and in the house. So there is some work that can be done from now to the time when the new cars are coming. But you can expect from us pushing for lifting up the center of gravity because we can't do 70% of our volumes on the small car business. This thing is, let's say, pretty dangerous.
And I think Renault can go up. I mean, when I left Renault 23 years ago was at that time the launch of the family of Megane and that was a huge success and that changed the company thing. So we have to do the same, I believe. So I don't know if it answers to all your question, but basically this is the situation. I think there is potential to get back revenue.
We are also looking at the construction of the range, whether the range is kind of favoring the, let's say, the mix. We are going really into the details of the things to find any penny it's available because that's what we want. That's our number one objective.
Thank you. And then the second question is you're obviously in the process of launching your e tech product. Firstly, can you just confirm to us that from a cost perspective, the e Tech product, in your view, is competitive versus 48 volt and plug in hybrid systems being used by your competitors? And then secondly, how do you plan to communicate to the consumer the technical advantages and the unique proprietary nature of E Tech? Do you have a strategy to convey that message to the average person on the street?
Thank you.
Yes. Look, I think I was actually pretty impressed by what Itek is from a technical point of view, from a cost point of view and especially from the benefit that this technology can give to the consumer. So I as I said in my short introduction, I think for Europe, it's probably the best hybrid. For the way people use cars in Europe, it's probably the best technology available in the market. I think we shouldn't be, let's say, shy as we have been maybe in the last years because there are a lot of people doubting about whatever the performance of the engineering performance of our house, the ability, I think that this is really a piece of art, okay?
You can simply I can simply tell you that you can drive with the hybrid, so this is not the plug in hybrid, you can drive basically 80% of the time in the city on electric. So it's really designed for the way European would use a hybrid. We have mixes already in the order thing, which are very, very important, okay, very, very important. So it's definitely, let's say, an alternative to the diesel. So we'd probably be able to compensate very, very quickly.
And I would have loved to have such kind of technology in my different houses, I mean, my different previous life. So we have a plan to make OV Tech one of the key, let's say, pillars of our strategy. We are organizing in Optum an event. I think probably you will also be involved in that event. And you can be able to check by personally what it means.
I mean, I did a trial, I mean, I tried a car, of course, I drove the cars, etcetera, and we had a small exercise and a small challenge. With the hybrid, I did 2.4 liters per 100 kilometers. I mean, we homologate that for around 4. I did 2.4 liter 100 kilometers. Of course, I went with the feet very, very light, but that was the, let's say, the challenge.
But this tells you how good this technology is. In terms of cost, clearly, it's more expensive than a normal engine. But technically it's pretty simple. So they actually combines the electric motor in the engine without the gearbox. So I think with the time and with the volume, it will go down in cost and will become a very competitive thing.
You also have to understand that the one of the intelligent thing about the story is that the plug in hybrid is basically the same technology, just with a bigger battery. So it's a modular concept. So the thing doesn't change fundamentally. These are not 2 different things. It's just the same thing with a bigger battery.
So it's pretty smart, I have to say.
Great. And then if I could just squeeze in one more, just with respect to how the profitability evolved during the quarter, is it fair to assume that as you exited June, the automotive margin would have been breakeven or better or at the kind of June production run rate, would you still have been loss making? Thank you.
Well, I guess, it would not be fair to look at the operating margin on just one given month, which is very still particular because you only have really France and a bit of Europe where we started. So I don't think it would be fair to just look at the performance on One Givenments. We have to see when the markets stabilize a little more.
I will ask the next participant to limit their questions to 2 to give the opportunity to many of you to ask questions. Thank you.
The next question comes from Philippe Houchois from Jefferies. Sir, please go ahead.
Yes, good morning. Thank you. And I have two questions, please. The first one, maybe for Clotilde, is more looking at what could be I mean, from some of your peers, we start to paint a picture where it could be kind of a V shape recovery in the working capital outflow that we saw in Q in H1 and the balance sheet that might look a bit more like the year end balance sheet, but it's something we've reached the end of this year. And I was just wondering what you could tell us in terms of directional, keeping in mind, it seems like your inventory reduction has been a bit less marked than what we saw at some of your competitors?
That's my first question for you, Closid. And Luca, welcome back. The question I have is, no, you have worked and successfully so in companies that have a captive finance organizations and others that do not. And I'm just wondering if you have a view of how critical it is for Renault to control RCI or whether you could benefit from having better financial flexibility if Renault did not have control of RCI? Thank you.
Okay, Philippe. Just on the working capital, the working capital is dependent on the speed at which the market recovers. And as we don't give guidance, it's because we think Q3 is going to be good, but we have no clue about Q4. And that's the reason why we did not want to give guidance. Obviously, if the market of Q4 would be roughly at the same level as last year, then you would be in some kind of a V shape.
But I don't think that it is the assumption of most of our competitors nor from the ACA that the market will be back to normal on Q4, I don't think so. So if it were to be the case, yes, then you would have a V shaped recovery on working capital. But this is not the assumption which I see around us when I hear our competitors and our the industry organization talk about the market recovery. And on RCI, my view, but
Is it not fair
Sorry?
No, I'm
just wondering, is it not fair to assume that you may have it seems to me that you may have less road way to increase production because you are entering H2 with a slightly higher level of inventory than some of the peers. Is that something you're concerned about?
Yes, but we have a huge portfolio. I think we have a portfolio which is 20% higher than what it was last year and we have less production because we're still at 80 percent. So you have to take all that into account. On RCI, I'm fully convinced that it's a huge advantage to have a captive, but you asked a question to Luca. So I will turn the mic to Luca.
Yes, please.
Salif, I mean, I think Clotilde is more qualified to answer on the RCI than me, but I spent some times with the team. I think it's a great team. And I really felt that FCI is one of the best captive finance I've seen in my career. I will look at the level of service and the level of penetration they have in some of the business. I think that having some, let's say, in bracket control of the your capital finance gives you a lot of advantages because you are not in a simple transactional commercial relation with them, but you look at them as part of the strategy and there are so many opportunities to actually use that kind of competence and the assets that they have to develop the business that I think now an OEM needs to develop for the future.
So we are thinking at using RCI as really the platform to develop all, for example, new mobility things. And that you can't I think you can do better when you have someone that is in the house that understands everything, what you're doing, that understand the strategies aligned. So you might expect stronger collaboration and complicity between Renault and between the brands and FCI because we have interesting idea for the future and they are an asset for us.
The next question comes from Okschneider from Bank of America. Sir, please go ahead.
Yes, good morning and also welcome to Luca. I've got 2 more can I just one more short term question that is on EBIT bridge for H2? So you were saying in your outlooks that you are planning cost savings of €600,000,000 for the full year. So what does that imply for H2? And also another bridge element is on currencies.
I'm seeing here in July massive weakening of the Russian ruble and the Turkish lira. So maybe some glimpse on the potential H2 currency effect from today's perspective would be great. And the last one for Luca is on product sorry, on product mix because you say you need to move higher to the C plus segment. Doesn't that take a complete life cycle, so saying 5 years, which would suggest that it's no quick fix at Renault? Thank you.
On FX, I think we today foresee a bigger impact in H2 than in H1 because of what you just said ruble and I think I have in mind something like EUR 300,000,000 or plus something like that for H2. On the fixed cost, obviously, we committed on €600,000,000 You saw in the document that we've done 433 on the first half. But so we're going to look at everything we can do. So maybe we may go beyond that. But remember that last year, we already had started to decrease our cost last year in H2.
So that's why the comparative basis is slightly higher, but we're going to continue to reduce cost everywhere we need and we can in the context. So Thierry is checking the number for FX. I had €500,000,000 for the full year, so that would be 2 plus 3,000,000,000. So that would be what I'm saying basically. And on fixed cost, again, we have already done 4.33 percent net of COVID impact.
We're going to have less COVID impact in H2 and a more difficult comparative basis versus H2 to 2019, panel. So that's basically the orientation. And sorry, I didn't hear the next question. It was for Luca. So Luca?
Yes. I mean, very simply, of course, you said 5 years, maybe 5 years is a long time now to develop a product. I think we're a bit shorter than that. But of course, there were things already in the house in the funnel. So you're looking at end of 2022, 2023 the new family of C and C plus or D segment SUV like the successor of Cajar and Colleos.
And then don't forget the fact that we will be launching by the end of 2022 also the C segment electric platform. So what we are actually working on is to use and to be creative on those 2 platforms. And you can expect some, I would say, some work to be visible in the market already at that time. And I also believe that we have good products right now in the range and we probably need to put the focus on the team also on those segments. It starts from that and then maybe in 2022, end of 2022, 2023, you will start to see the results of this work.
But we have a good base to do that, both in combustion engine means hybridized product and pure electric.
The next question comes from Stefan Ritzman from Societe Generale. Sir, please go ahead.
Yes, good morning. My first question is to Luca coming in from the Volkswagen Group, the efficiency of the platforms that Renault has compared to your previous experience within the Volkswagen Group? And secondly, a question about the Nissan alliance. What is your take given the continued deterioration at Nissan, their focus on cooperation and near term working with you or needing to fix their own operations? Thank you.
I mean, I can't reveal confidential information about my previous employer. So let me give you on the other hand, let's say, a feeling about the efficiency of Renault platforms. I think on the electric platform, I was actually pretty impressed by the technical base that we have. And as you know, this is a platform that we share with Nissan. So it might be in that segment on that technology pretty efficient because of the volume combined by the 2 brands on different regions of the world.
So there is a chance to have something seriously competitive. On the classical platform, I think we are extremely good on the global access platform. So that means all the, let's say, the platforms underpinning, Dacia product and Renault products in global markets, It's this is really very, very good and also very, very flexible, okay? I think that the B segment platform high spec that we're using for Clio and Captur is a platform that we should use more also to do other cars, bigger cars than what we do because there is a technical possibility of doing that. Of course, the volume are big, but they are not huge.
So there is a possibility to leverage volumes. In this case, Nissan is not so helpful because their mix has moved more on the C and D segment worldwide. So we will have to be creative ourselves. And yes, so this is basically my impression and we need to get to find competitiveness on the C segment, but there the alliance can help because they have also huge volume. So this idea of partnering with them, the leader follower thing, one of the key projects will be actually the C segment platform now we develop it.
In general, of course, with those results, the first priority for both companies to focus and fix their miseries internally, okay. So we are on both sides, myself, the team and Ushida san, Gupta, everybody were all working to make sure that the fire doesn't go in all the house, okay? But I think with the discussion that happened in the last weeks months and Jean Dominique was really function to that to bring the parts together. I think we are finding, let's say, a good setup and we're trying to focus on 4, 5 key projects, where we can really prove to each other that by working together, it's going to bring a benefit. So we're making it not too philosophical, very pragmatic and concrete.
And the Japanese are very concrete people. So I think they're starting to appreciate that kind of new way of playing the game. And yes, so we will see in the next months years the result of that, I would, let's say, very operational and pragmatic work. I'm confident that we can give a lot one to each other.
Thank you.
The next question comes from Harald Hendriks from Morgan Stanley. Sir, please go ahead.
Yes. Thanks so much for taking my question. Welcome, Luca, also from us. Two quick questions. 1, you started to address already with the alliance just now with Steven's question.
But the alliance has come up with a strong leader follower model. And I think what's coming out of Nissan and Mitsubishi is already showing some pretty important and very long standing decisions in terms of regional and segment mixes and stuff. Do you will you be able to rely on the alliance to do the same sort of thing for Renault in Europe and in terms of your regional strategies? Because it does seem to me that the overlaps and the potential for cost synergies in the alliance from a sort of full product integration could be very, very significant? And then the second question, same again on technology.
We've heard a lot from Pojo recently highlighting a much more aggressive stance towards BV strategy for 2025 to 2,030, including supply chain integration, battery cell manufacturing and stuff like that. Can you talk about that a little bit more? Because it seems, again, Renault has a huge opportunity here. The technology in house is very strong, especially as part of the total alliance. But how much more needs to be done and how much more needs to be invested to really maximize on that opportunity?
Thank you.
Okay. So hi, Harald. Good morning. So to for me, the story of the regional split of on the Alliance, it's pretty clear. I think there are 2 key playgrounds.
1 is Europe, where we will need to for us in terms of relevance. So we are working to find a good balance between both parties and we're working together. And the other one basically the kind of overlapping is seen in South America and I see good signs. There's been a couple of very interesting decision that we made to help each other. So I think when you look at that, always look at what we will be deciding in Europe and what we will be deciding in South America, because we are not in U.
S, we're basically not in China anymore. So there's not much more that we can do from the geographical point of view. What we can do on the other side is obviously working on criminalizing the technology, the platforms, the engines, connectivity, autonomous driving. And I can tell you that Nakaguro san and Gile Borny are 2 top professionals and they are really, let's say, advancing very, very quickly on trying to find the right setup on the different technology. So I'm pretty confident this is going to work.
The second question? Yes. I think as you said, I could clearly see, let's say, the advantage of being on the EV, let's say, segment from since 10 years. Of course, at the beginning, there was maybe a kind of a brave call from the previous management, I think very courageous and kind of visionary. But after 10 years, it's actually bringing the, let's say, results.
And I could clearly see a lot of competence down to the dealer level because Renault people are used to sell EV and treat with that kind of customer, So this is clearly, as you said, an advantage. And also because of the COVID and all the incentives that are centered into the EVs, I think we can really surf this wave quicker than many others. I mean, Denis was talking about 10,000 orders of ZOE in 1 month. I think July is actually going in the same direction. So let's say this is a good start for us.
And please don't forget what I mentioned about the C segment platform because that will be the next big step for us in our electric offensive. So with the combination of having hybrid, plug in hybrid, electric, I think we are pretty well set for this race. Yes.
And on the battery side, also that we are already we first, we make sure that we have the same strategy and the same technology with Nissan as much as possible. And again, here, Nakagorasan and Gille are working pretty efficiently to make sure that we reduce the diversity in terms of battery. Also that we are looking into the project between Total and PSA and Taft on that. I mean, we have we're in discussion with them to get into it. So and the third point I wanted to mention also is that I think we're pretty advanced versus other in terms of the second line of the the second life of the battery As we have been dealing with that since now almost 8, 10 years, I think we also have a lot of advantage here on what we can do, what we do with partners, what we do with the whole ecosystem on this.
So there's many things that we have been working on, which
are not necessarily very well known externally, but for
which we are indeed pretty externally, but for which we are indeed pretty advanced.
Maybe in this world of bad news, maybe one small news, which might be interesting for you is the whole story of the residual value of batteries, okay? So one of the things that I discovered here is the, let's say, competence and project that are on the field like Clotilde was saying on kind of recycle reusing, refurbishing batteries, okay? But the very interesting thing is actually the real performance in terms of durability of the battery versus the assumption that we took at the beginning, okay. So now we have 10 years experience. We know that they're coming back and we see how resistant on the battery.
And I have to tell you, I was actually surprised because it's better than what we actually put in our books. This is good news, I think, on that field.
Okay. Since we are running out of time, I guess that we can take one more questions.
The next question comes from Pierre Yves Kemenaert from MainFirst. Sir, please go ahead.
Yes. Thanks for taking my question. Good morning to everyone and welcome to my side as well, Luca. Just one question left for me, please. On the free cash flow statement, are there any dividend that has been paid by RCI on the first half to the automotive division?
And what's the plan for the second half of twenty twenty, please?
Well, thank you for the question. There was a dividend planned to be paid on the first half. Unfortunately, you have seen the strong guidance from the European Central Bank to all European Bank not to pay any. So nothing has been paid in the first half. And on the second half, there might not be even possible to pay any view of the latest news from the European Central Bank a few days ago, which is also strongly requesting European Central Bank not to pay any.
So we'll see how it develops, but so far none and maybe none in the second half.
That's very clear. Thank you.
Okay. Thank you, Clotilde. Thank you, everybody. I'm afraid that we have to stop here. But of course, all the IR team is available today to answer the questions you may have.
Have a good day. Bye.