Ladies and gentlemen, welcome to Gruffrono Analyst Conference Call. I now hand over to Mr. Thierry Yu. Sir, please go ahead.
Welcome to this call about our €2,000,000,000 fixed cost reduction project that we announced last February. It has broadcast live and in replay versions on our site. The presentation file and press release 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 about forward looking statements. I invite all participants to read this and I remind you that at this stage, this plant is still a project.
Today's conference is scheduled to last about 1 hour 30 minutes. Clotilde Delbos, our acting CEO, will first get you through the details of this presentation before answering the questions you may have. Without further ado, I will hand over to Clotilde.
Thank you, Thierry, and good morning, everyone. As announced in February, we are here to share the details of our €2,000,000,000 saving plan to be implemented over the next 3 years. The objective is simple, rebuild the foundation of a more resilient healthier financial performance. Please bear in mind that this stage this plan is at the project stage. The scheduled changes will be implemented in consultation with the social partners and local authorities through ongoing dialogue.
Before I start, I would like to make 3 comments. 1st, while this planned timing and content are coordinated with those of the Alliance and Nissan, its cost reduction measures rely entirely on Groupe Renault. Our solutions come from the inside. 2nd, 2022 is a cost reduction plan, not a strategic one. You will hear more about our strategy when Luca Demeo, our future COO is in position.
And third, this call including the Q and A is about our 2 to 22 plan only. We will share detailed information on our performance at the end of July when publishing our H1 results as usual. Now back to what brings us together today. Let me share with you my views on what we found why we found ourselves in this situation and why we have to review our performance. First, the economic context did not help.
The slowdown of the automotive market combined with ever stricter regulations over the past 3 years partly contributed to our performance decline and the COVID crisis has only aggravated an already existing situation and led us to take tough decision. 2nd, this adverse economic situation has shown the limits of our business model, which was betting on unprecedented market growth in emerging markets and therefore on record sales. At the time, our model was sustained by a rest of volume for volume and innovation. During these years of intense development driven by growth objectives, the end justified the means. We pay the price of this model today.
Our R and D spending, together with our volume driven sales policy, while lacking pricing power, strongly affected our ability to generate cash. Our ever increasing sites and structural costs are set for growth that did not take place. All we can do is change our mindset, readjust our focus and set new action plans. From now on, our focus is on our financial performance and especially cash generation. Our performance will be based on discipline of execution, all the while keeping customer first and leveraging the alliance.
Our action plans are simple. We'll restore our competitiveness by putting sustainable profitability before volumes. We'll increase operational efficiency mostly by trimming down diversity, improving our quality and optimizing our organization for a leaner structure. We have the leadership, which will be reinforced by the arrival of Luca DeMeo, the determination, the approach and the pragmatism necessary for this transformation. Our over €2,000,000,000 cost reduction target entirely relies on us on our rigorous execution.
Our plan is shaped to lay the foundations of a healthy, sustainable and resilient performance. Reducing our fixed costs is the one and only focus of our plan. We are fully aware that this is not enough to fully restore our competitiveness, but fixed cost reduction is the first stone of the building. Beyond this plan, we will improve our variable costs and price positioning, which will also contribute to enhancing our profitability. On top of this, additional strategic levers will reinforce and feed our performance, and they will be decided by a new CEO.
To reach our target, we reviewed the full scope of the company and went over all functions, all region, all processes with no taboos. The wide open approach led us to identify 3 main contributors to our €2,000,000,000 cost reduction target: engineering, production and our sales and general administrative expenses. As explained earlier, our current difficult situation comes mostly from overly optimistic sales ambition. We thought too big in terms of sales and we strove to achieve these volumes through a diverse complex and costly lineup. By adjusting that, engineering can contribute about €800,000,000 to the plan.
Naturally, our production capacity has followed this race for sales volume. A readjustment can allow us to lower our fixed cost by about €650,000,000 Finally, we thought big in terms of company size and our corporate functions along with our expenses grew accordingly. This needs to be trimmed down and that's why SG and A is the 3rd contributor by about €700,000,000 Let's start with engineering. The key word is less diversity, more efficiency. We identified 3 main levers to boost our efficiency: reducing our diversity, increasing our commonalization and optimizing our structure.
We took a wide scope and reviewed the diversity of our version, of our engines and of our vehicle parts. When reviewing closely the references of our components, we found we could reduce their diversity by percent by 2022, which is a 10 points increase compared to 2019. The same simplification efforts comes from our vehicles and our platforms. In the past years, we've invested massively to extend our lineup. We've ended with no less than 13 platforms, which is too many.
The good news is this investment peak being over, most of our platforms no longer need significant development costs. By 2022, 9 out of the 13 will have reached maturity. By 2026, we'll be able to bring our platform number down to 4, all shared with our partners. This will boost our efficiency as we'll produce more vehicles and less on less platforms. Each of those alliance platform allow us to manufacture more than 600,000 vehicles, our partners' volumes included.
Our relentless efforts on engineering efficiency and diversity reduction will be followed through while preserving our future launches from AB to CD segments, including EVs and LCDs. From 2020 to 2022, we'll launch 22 vehicles across our brands and segments. 5 of those models will be 100 percent electric vehicles, EVs remaining our pillar for our performance. Simplifying our processes enables us to review our organization. We'll concentrate the development of our strategic high value added and core technologies in France, where the key know how and skills must be kept.
We're talking about electrification, connectivity of our vehicles and development of the alliance platforms allocated to Renault according to the Leader Follower program. We'll also leverage our engineering centers around the world, which will bring us even closer to our customers while generating savings. Finally, we can make the best of our subcontractors' base. Today, 80% of our subcontracted business is dealt with 9 suppliers. Over the next 3 years, we'll bring this number down to 4, which will generate substantial economies and scale.
Let's move to manufacturing. We've identified 3 main lines of action to boost our efficiency and reduce our cost. First, we can leverage the digitalization of our plants to be more efficient. 2nd, still through digitalization, we can bring the cost of our process engineering down. And finally, as already mentioned, we need to right size our capacity.
Our Industry 4.0 plan is transforming our plants into a connected competitive production base. Digitalizations allow us to save time, simplify our processes and improve the quality of our vehicles, thanks to continuous traceability and smarter data planning. As a matter of fact, 2 of our plants have been recognized as Industry 4.0 lighthouses by the World Economic Forum. All in all, we can boost our performance from 80 vehicles produced per employee in 2019 to 91 vehicles per employee in 2022. That's an increase of 14%.
As for our Process Engineering, the digitalization of our prototypes and the maximization of the use of our 3 d printing capacities allows us to generate significant cost savings. Adjusting our capacity is a major contributor to our manufacturing efficiency. As part of Drive the Future, in 2022, we had plans to produce over 5,000,000 vehicles. It's now clear that we will not reach this level of production. Therefore, we need to readjust our capacity.
Our ambition is to bring our capacity down from 4,000,000 to 3,300,000 vehicles a year, harbor, by 2024. This will allow us to have our harbor capacity go under our 2019 point of reference, which is 3,800,000 vehicles and hence increase the capacity of our plants. All in all, compared to 2019, we intend on reducing our capacity by 10% in the next 3 years and even close to 20% by 2024. We would nonetheless keep our flexibility and be able to produce up to 4,900,000 vehicles per year. To right size our capacity, we reviewed each plant, production line by production line in every country.
Our approach is recent. It respects our industrial time frame and our future lineup and it extends beyond 2022. It is a project at this stage and we'll consult with the staff representative bodies. On a case by case basis, we plan to readjust our capacity to the reality of the markets. In some countries like Romania and Morocco, we intend to suspend our plans to expand our capacity.
In Russia, we're studying the adjustment of our production capacity to fit local and export market needs. Worldwide, we plan on rationalizing our gearbox activity. In France, we are working on 4 hypotheses to optimize our industrial center of excellence for electric vehicles and light commercial vehicles in Northern France based on the Douay and Maubouche plants. A reflection on the reconversion of the Dieppe plant at the end of the production of the current Alpine A110. In Flin, the project is to create a circular economy ecosystem on the site, including the transfer of Choisy Leroy's activities.
This hypothesis will be consulted with all stakeholders, especially the social partners and local authorities. Let's move to the 3rd contributor to our plan, SG and A. We have structured ourselves, including the way we operate and work for a company size that we will never that we have never achieved. To tackle this, we've reviewed our fixed marketing expenses. Digitalization allows us to improve on media efficiency.
We'll also optimize our media production costs when it comes to advertising campaigns. Further savings will stem from the adjustment of our business scope, notably in China, where we focus on EVs and LCVs. We've also reviewed our real estate assets, our expenses, our organization, all of which can be either optimized, reduced or downsized. We can be more efficient by reviewing our processes and working better with less. We started with FAST and we're pushing it further with 2% to 22%.
Our G and A spending will be reduced across all functions. In total, the review of our general and marketing costs will account for about €700,000,000 of the saving. The completion of our fixed cost reduction plan will be progressive over the next 3 years. We'll have achieved 30% of our target in 2020, €75,000,000 in 2021 and we'll reach our €2,000,000,000 objective by 2022. The implementation of our plan comes at a cost for a total of €1,200,000,000 This amount will be split over the duration of the plan.
We'll spend 30% in 2020, 50% in 2021 20% in 2022. On top of these action plans, we've taken a look at our assets to optimize our capital allocation. In line with the announced resizing of Renault Retail Group in France, we'll continue our efforts. We are downsizing our RRG scope while reinvesting in our flagship stores in our key countries. We're also adjusting the scope of our business in China by transferring our Dongfeng Renault Automotive Company shares to Dongfeng and refocusing on electric and light commercial vehicles.
As you can see on this slide, our investment peaked to €6,000,000,000 in 2019, but the tie is reversing. We will be able to reduce our R and D and CapEx ratio by 2.5 points and be back at 8% of revenues by the end of the plan. This will stem from the end of the investment cycle and our optimization program. However, the depreciation charge will continue to increase due to the embarked effect. We estimate this increase at about €750,000,000 As a wrap up, we are sharing with you another breakdown of our €2,000,000,000 plan split by the nature of the cost.
The labor costs account for a bit more than 40% with 15,000 potentially impacted position worldwide. In this unprecedented and extremely difficult context, we are adopting a caring responsible approach, taking into account our industrial time, the company's sustainability, while respecting Groupe Renault's employees' rights. For these potential workforce adjustments, we are committed to carrying them out through exemplary dialogue with social partners and local authorities, relying on retraining measures, internal mobility and voluntary departure. We will act in a concerted manner and with a long term vision to continue to ensure the renewal of skills and provide the group with the expertise and know how needed to ensure our competitiveness. Apart from labor costs, marketing and other expenses, along with the optimization of our outsourcing, account for a bit more than half of our €2,000,000,000 plan.
Our 2 to 22 plan was built to be executed within the existing and operating alliance scope. Our common platforms and powertrains, our common technologies, our joint purchasing. The new organization at work within the Alliance with the leader follower approach among others will contribute to further savings and better efficiency for Groupe Renault. The new Alliance scope is wider. It covers all vehicle segments and technologies across all geographies.
It leverages existing collaboration on powertrain and platform, technology and purchasing and pushes them to another level through the leader follower approach. This means more delegation, more responsibility and more efficiency as we'll avoid duplication of efforts and spending. On top of this, the new alliance scopes also creates new areas of collaboration, namely regions. Overall, this boosted efficiency will help us at Groupe Renault to maintain our R and D CapEx and revenue ratios below 8% in the long term beyond 2022. Let's take a few concrete example of the benefit to come out of this alliance scope for Groupe Renault.
As for platforms and powertrains, by extending our common scope to the full vehicle, including the upper body, we'll be able to avoid duplication on our R and D investments, on our validation processes and on our production capacities. For our future models development, depending on their segments and type, we will give leadership to the most expert alliance member. Take the next generation of B SUVs for which Renault has the lead. This means Renault will lead the engineering of the sister cars with a well balanced differentiation with the support of Nissan. At the end, we should be able to lower our model investment by up to 40%.
As for technology, Nissan is for instance taking the lead on autonomous driving system and by doing so, our alliance partner will make the necessary investment to stay one step ahead of the market. Meanwhile, our Groupe Renault vehicles will be equipped with the outcome of Nissan's development after having them fine tuned to our brands and markets. The same goes for the e body architectures for which Renault takes the lead and Nissan will benefit from our developments. On purchasing by standardizing our battery specific needs between Renault and Nissan, we'll be able to pull our volume and negotiate even more competitive prices with our suppliers. This common fare will benefit both Renault and Nissan for their respective electric lineup.
Finally, on our new area of collaboration, regions, we've decided to appoint reference player according to each company's competitive advantage in key region and countries. Each reference player will leverage its competitiveness and best practices and generate new opportunities of fixed cost gains, for instance, in distribution and after sales. All in all, this new business model enables the Alliance to bring out the most of each member company's assets and performing capabilities. It sustainably feeds our competitiveness and our profitability. We're switching the focus of our business model, giving priority to profitability over volumes and to efficiency oversize.
The 2 to 22 plan has been designed with lucidity and pragmatism. We have looked right at the group's weaknesses. We have made some tough choices with a true concern for people, employment and this result of timing and needs in preparation for a future where mobility is as important as vehicles. The former race for volume and innovation is not being replaced by a race for short term profitability. Our objective is to achieve a resilient profitability.
22 aims at a sustainable, healthy and responsible performance. After having spent and investing too much, we come back to our basics. It has taken us months to build this plan. We took the time needed to take the difficult yet necessary decision and set the right solid foundation for our future performance, while embracing and preserving who we are. 2022 bears no other target than cost reduction.
Our future CEO, Luca Demeo, will steer the strategic and financial ambition of the plan of the group. Thank you for your attention. And now to your question.
The first question comes from Thomas Besson from Kepler Cheuvreux. Sir, please go ahead.
Thank you very much. It's Thomas Vincent, Kepler Cheuvreux. I have 3 topics, please. If that's okay, I'll go on these 1 by 1. So first question, this plan was announced in February, so probably pre COVID, I don't know, in a world where demand is substantially lower.
Can you explain whether you've gone further to adjust it to lower demand to bring back auto margins and industrial free cash flow to sustainable levels? And for instance, share with us what kind of revenue assumptions or volume assumptions you have for Renault in 2022, please?
Thank you for the questions. Yes, you're right. This was planned before the COVID, but we believe this is the right plan. Might not be enough, but at least it will be implemented relatively rapidly. We have not based this plan on assumption of revenues nor market at the moment, and we will not disclose the potential scenarios that we have built.
But we strongly believe that with this plan, we will build and recover the resilience that we need to cope through any type of crisis.
Okay. Thank you. The second area of questions, please. I'd like to come back to the non manufacturing side of operation, which I think is a relatively important part of your plan. Can you help us understand a little bit in more details what you're doing with the engineering in terms of what's being outsourced, what's done in house?
The 1500 headcount reduction, is that all your in house employee or does it include the outsourced reduction? Can you talk as well about the retail group? Remind us what was the headcount and the contribution of RG approximately at least in terms of headcount revenues and earnings? And finally, I'm not sure you like this question, but I still ask it, on RCI Bank, which has an equity, which is currently above your market cap. Can you give us what you think is an estimated cumulative dividend potential for 2020, 2022?
And therefore, how much it could help support the industrial free cash flow in probably a lower level of activities environment, meaning probably requiring less equity than what we would have imagined 6 months ago. So basically, a bit more detail on the 3 non manufacturing related activities, Engineering, retail group and RCI?
Okay. First, if I may, Thomas, I remind you that here we're talking we're here to talk about the cost reduction project, not about anything else. So there are some questions that I will not answer, but let's go into detail. On the first question, which is on the headcount, it's fully Renault employees. The 15,000 position, which may be impacted after consultation, is Renault employee only.
We're not talking here about interim people or subcontractor or whatever else. It's just Renault. On the R and D part, I guess, the arrival of Gilles Le Bourne has opened some of our eyes, if I may say, on the way we work and the way we could really optimize the way we work, Especially with subcontractors, as you mentioned, as I said during the presentation, currently we have 9 subcontractors to do 80% of our business. We strongly believe that by going down to 4% and leveraging their worldwide position, not having only them working in high cost country, for example, we can really improve the profitability and the efficiency of the engineering. You have noticed that in the plan, we're really talking about efficiency, reducing the diversity of the parts, reducing the diversity of the version of our different model.
And by reducing the diversity, you end up by reducing the workload of the engineering team. You're reducing the validation cost, homologation cost, because you have less to homologate because you have less version. So this is really what we've been working on in terms of the engineering, focusing on less diversity, more efficiency. On RAG, I'm not going to go into detail of what we have in terms of number of people, profitability of the dealers. You know that usually the dealer, the internal dealer as the one that you need for flagship stores in big cities, in strategic implementation.
What we are doing is we're doing some capital allocation decision where we believe that some of the dealers where we're not as a group Renault able to really leverage and enhance their profitability, external dealers can do it a lot better than what we do. This will allow us to reduce our burden in terms of working capital and reinvest part of what we will get from the sale of this dealer internal dealer into the one that we keep to make them even more flagship, if I may say, than what they were in the past. On RCI, I'm not going to answer your question because here we are here to talk about cost reduction project. The only thing I can tell you is that RCI is still a very good tool, a beautiful bank and is working very well in order to support the group in this difficult situation.
Okay. Thank you, Clotilde. I have the last area of topic, I think much quicker answer. I'm not sure it's quicker or easier questions. I'd like to know if F1 is part of your marketing cost savings plan or whether you plan to stay in F1 and whether you can say anything incremental than Jean Dominique's comment from Daimler news coming soon and the link it could have with Renault in terms of saving our inventory strategy?
Thank you. And that will be it for me. Thank you.
Thank you, Thomas. F1, we said publicly and we confirm that we intend to stay in Formula 1. Actually, the news about new regulation, new cap in terms of investment is very good for us, because we have, as you know, a lesser investment in this area than some of our competitors, which were spending a lot of money. So F1, we're here and we stay in the Formula 1. 2nd question on Daimler.
We have relaunched a lot of discussion with Daimler in the last months, as Jean Dominique has said 2 days ago. We're working pretty well, good very good collaboration, trying to find areas to reboost the collaboration with Daimler. And that's basically in order for the 2 companies to enhance their profitability in the various projects that we could do together.
The next question comes from Jose Asumendi from JPMorgan. Sir, please go ahead.
Good morning, Plautil. Jose, JPMorgan. Thank you very much for the presentation. I think very detailed and I think strategically in the definitely in the right direction. I have 2 topics, please.
1 on production, and I'm aware there's so much you can say on the production details. But maybe just a couple of points. First one, there has been some discussion about moving SUV production from Valencia and Baidoli over to UK. Can you confirm if that is an option or that is not being considered as an option? For me, the rationale is basically those labor cost to sales ratios in Spain are definitely more competitive than in the UK.
And I would like to hear your thoughts on that topic, please. 2nd, redesigning for me the Renault Colleus is I think it's very important. Can you give us any details around this vehicle? Is there any plans to produce it in a different site? Or any other discussions you may have on this car?
And then on this, on production, how do you think about the important labor cost to sales metric 2 years down the line. That will be on production, those three items. And then the final question would be, please, the rights issue and state of the balance sheet. Do you think a rights issue is necessary at Renault or not? Thank you very much.
Thank you, Jose. Pretty detailed question, if I may say. On the I'm not going to comment on production allocation because this is not the purpose of this plan and this is what comes at the end of our discussion when you decide to produce a car. I just would like to say that you should not believe every rumor that you see on the newspapers, especially when it comes to allocation of cars between the alliance members. Clearly, no discussion, no decision until it will be announced.
So you should not believe any rumors that you say. I'm not going to go either on the detail of Colios and where it should be produced because it's the same thing. It's a really strategic manufacturing plant, which is not part of this plan here. We're talking to you about capacity, about means, not about cars, not about product planning and where we will produce which car. On the labor cost to sales, well, no, we're going to be able to save around €800,000,000 40 percent of the €2,000,000,000 in terms of labor cost.
So it should help us reduce our labor cost ratio if we were to keep the same turnover as in the past, because obviously, I'm not going to give you any assumption on turnover for the future, but at least 1 point, 1.4 points versus where we were in the past assuming again a stable turnover. As for right issue, this is not also the purpose of the call. We strongly believe that with the current plan that we're putting on the table, the credit facility that we are putting in place and that should hopefully be in place in the next few days. There is no question about a need of a right issue in the future or in the near not in the near or not mid term future, in my view.
The next question comes from Charles Caudicott from Redburn. Sir, please go ahead.
Good morning. Thank you for taking my questions. I've got 3, please. Firstly, I just wanted to ask about the extent to which the plan has already been approved by the French government. Obviously, you've got further discussions to be had with them and with union representatives about your 4 hypotheses in France.
But is there any danger at all that any of this plan could be watered down from those discussions? So that would be my first question. My second one is just going to Slide 19. I just wanted to double check that the savings are all cash savings. So is, for example, any fixed cost reduction coming from lower depreciations after impairing assets?
And also, should we think about these savings as incremental to maybe what we previously been modeling for Monozukuri savings? Or is that essentially the new Monozukuri line in our models? And then my final question was just going to be going to your product plan on Slide 12. I know you've got 2 EVs at the start of 2021. I'm wondering if you can just say anything about that.
Is one of them the Dacia version of the KZE? And what might the other one be?
Okay. Thank you for the question. This plan is a project, as we said, travel time. It has been presented to run aboard last night, in which, obviously, we have state representative. And the further refinement of the plan will be done in the coming weeks relatively fast after consultation with our stakeholders, the various stakeholders, internal stakeholders, local authorities, etcetera, etcetera.
Now I want to reassure you though, because as I said, we are taking the industrial time, if I may say. So especially on the French hypothesis, this we will take the industrial time, which means that we will not, if anything was to be decided, do anything abrupt and the movements would take place mostly after 2022. So there is no risk or very limited risk on the €2,000,000,000 over €2,000,000,000 that we have just announced here that it will not happen because it will partly on the French assumptions take place between 2022 2024. Nevertheless, we are very convinced that what we are proposing is what needs to be done in order to reduce our capacity worldwide in order to enhance our profitability. So it's a very well reasoned, as I say, project that I'm sure we will be able to convince all the various stakeholders that needs to be convinced in order to implement it.
But no matter what, the €2,000,000,000 reduction cost will happen in view of the time frame in which these movements should take place. On the cost savings section, the Slide 19, you are right. It is purely cash cost saving. Any movement on potential impairment, depreciation, etcetera, etcetera, is not included as we're talking about cash here. And then it is really focusing on fixed costs.
So it will come on top of monozukuri saving, especially the purchasing saving, etcetera. Well, no, sorry, let me correct that. Part of that is included in the monozukuri. In the monozukuri, you have purchasing, which is purely a variable cost, which is not included in here, but everything which is linked to the fixed cost embedded in R and D and in manufacturing, obviously, is part of monozukuri. So you have a mixed bag of things which are in monozukuri for the fixed part of manufacturing and R and D.
Portion which is not in manufacturing, everything which is SG and A is not. So it's a mixed bag of 2 things. And for your last question, we're not here again to talk about the cars, the planning, etcetera. I think most of the 2 EVs, which will come by the end of the year, very beginning of next year, have been disclosed anyway. So I will let you refer to our previous communication on that.
Great. Thanks.
The next question comes from Philippe Houchois from Jefferies. Sir, please go ahead.
Yes, good morning. Thank you. I have a question on Slide 21, though, kind of follows up with Charlie was talking about. When we look at your projection of future amortization and depreciation, effectively, those numbers are not really valid because you're giving
us a
€1,200,000,000 charge for this cost reduction plan, but it's likely we will see some asset impairments. Am I right in thinking that this 21 Slide 21 isn't really relevant for our forecasting?
Well, I'm not sure I agree with you. If we give you the slide, it's because it is of use. So no, it's this is what you should take into account if you want to do model forecasting. This is really the last assumption that we have, both in terms of R and D and CapEx cash. And we explained to you what we intend to do on R and D, so you can guess what is the impact also on CapEx.
But the main message on this slide we wanted to give you is the burden on depreciation because when you will look at your model, I guess at some point of time, it will be better to look at EBITDA than at EBIT because the increase in depreciation burden is going to continue for a few years before it finally stabilize.
Okay. Maybe let me ask differently. So you are telling us €1,200,000,000 charge over 3 years for this cost reduction we don't expect returns. The think we all expect there will be some very significant asset write downs in the H1 accounts or the full year accounts. And these will especially if you pull out some products, I know this is not a topic of the call today.
But are we clear that besides the €1,200,000,000 charge, there will be significant charges on previous investments on assets value that we'll see in the course of 2020?
No. Well, on the impairment that we may have to pass, first, we're not stopping any car drastically. There is no big stoppage of car. We will continue to produce our car up until their end of life. And on the impairment potential impairment on the restructuring project, they will be booked at a time where we can book it in terms of the consultation.
But I don't expect anything really major at the end of June, for example. There will be some, but it's not that major. So I do sincerely believe that what you have here is the best representation that what will happen as we are not we never said in this plan. This is a cost reduction plan. We never said that we are drastically reviewing down the lineup.
It is we're focusing on what can be a cash benefit. So once you have a car which is being sold and well, there is no reason to stop it. So there is no drastic review of the lineup.
Okay, understood. If I can squeeze another question maybe.
I don't know to what extent
you can explain why the franchise is taking a long time to approve this loan. But it seems part of the discussion is the Airbus battery project in Europe. Is there an issue in terms of Renault participating in this project? And at the same time, there will be an issue with Nissan. Because at the same time, you need to choose, are you going to have a European battery sourcing or are you going to have more global battery cooperation with Nissan?
Is that one of the issues to resolve?
No, I don't think so. First, I want to just clarify one point on the credit facility. The credit facility discussion with the bank is finished. They have signed. The only little thing which is missing is a decree that the French state has to sign in order to apply to Renault the globally a few things, but mostly the 90% guarantee level.
So that's the only thing which is missing and I'm very confident it's going to be signed in the coming days. It's just a question of a few days. That's the first point. On the battery side, we are always looking for competitive offers in terms of battery sourcing. Obviously, it does make sense to look at what we can find as a battery sourcing in Europe.
I think there's a strategic positioning and risk mitigation. So obviously, we had looked in the past. Obviously, I'm not going to unveil all the discussion we had with different partners. We had looked at different potential project in the past. And yes, I think we are interested to see what we can do with this new project, the European project on battery, if it does provide us with a competitive approach, furthermore located in Europe.
So we will look into that. It is not blocking anything. We have announced that we are looking into this solution and we'll discuss that in the French in the Renault Board in the coming weeks in order to formalize what needs to be formalized. And it has not raised any topic with our alliance partner.
Last one, if I can squeeze. Last one, promise. Would you take the loan if the French state doesn't guarantee?
Well, the guarantee is already given. It's just a decree that we're missing. So there at an end, it is not a loan. It is a credit facility that we will use upon needs. It is not a loan.
It's just a credit facility.
Okay. Thank you very much.
The next question comes from Georges Gaglier from Goldman Sachs. Sir, please go ahead.
Good morning and thank you for taking my question. The first question I had was just on your capacity reduction plans. Could you perhaps give us some indication of where your capacity utilization in France is was running in 2019? And what that would be increased to if you were to implement your 4 hypotheses?
Yes. It depends if you look at the 3 shift level or 2 shift level. If we and in 2019, I think we were at around 90% in 2 shift, probably 60% in 3 shifts. But and that shows you that it cannot be competitive. An automotive plant running 2 shifts, it cannot be efficient.
And that's why we are looking into this assumption that you have seen in the presentation and in the press release. Our intent is indeed to make sure that we concentrate our production in France in order to be minimum at 3 shift and to try to go to 4 shift if we can in 6 days in order to be able to attract partners. The intent is really to make France a center of excellence in electric cars, in LCV, concentrating, if possible, upon the discussion that will take place into a lower number of sites in order to really enhance the profitability. We estimate that the transformation value, as we say internally, would increase by 5% to 10% by doing this move, which will enable us to attract partners from the alliance or external to the alliance, bringing us volume in this plant and again making sure that we ensure the future of the plan on the long term when additional competitors, namely in EV, you've seen that Chinese competitors are arriving on the European soil. So we need to make sure that our plants are going to be fully competitive in order to secure their future on the long term.
Okay. And then the second question, just with respect to the leader follower approach, which you're now taking on the upper body of the vehicle. Obviously, this strategy has worked well in LTVs. But I think historically, if we look in the passenger car segment, often manufacturers have been accused of simply badge reengineering and a lot of cannibalization where the upper body metal is identical on 2 vehicles sold from different companies or under different brands. Can you just address whether you have any concerns that sharing the upper body will lead to increased cannibalization of Renault and Nissan products?
Or will there be enough differentiation in the vehicle's appearance that that's not a concern for you?
No, it's not a concern because I think we can do it very intelligently. We've seen what some of our competitors, namely French competitors, have been able to do with various brand in the same portfolio. If you look at their lineup, I don't think that you can say that the cars look alike. It's not the case. What you commonalize is what customers don't see.
And we're very confident we can do it. And we will do it on with the following assumption, I. E, we will include Nissan engineers in our team and vice versa. Nissan will include Renault engineers in their teams to ensure that when they design, we design or they design a platform, they take into account our specification. When we design the upper body, we have designer from Renault in the Nissan team, designer from Nissan in the Renault team to make sure that at the end of the day, what you see is a real Renault product, a real Nissan product.
And to be honest, in most of our cars, when you look at the shopping list of our customers, the Nissan product are way down the list when someone is looking for a Renault product and vice versa. So the risk of cannibalization exists for sure. We take it into account in our economical analysis before we make a decision. In some countries, it might be more than others. But in the most region, there is low cannibalization and we will ensure by the way we work that it will not happen.
It's not a cross badge. It's real differentiation, but lower level of differentiation for what you can't see than in the past, and that's where the savings may come.
Thank you. And if I could just squeeze in one final one. On Slide 25, you give an example of the purchasing benefit on batteries with under $100 per kilowatt hour cited. Can you just confirm, is that at the cell level or the pack level? And is that by 2022?
And what kind of reduction is that versus where you are today? Thank you.
So it's at the pack level in terms of what is concerned, and it is 2022 and beyond.
Great. And can you give any indication of where the PAC level is for you in either 2020 or was in 2019?
It's a competitive information, so we can't give it.
Okay. Thank you very much for taking the questions and the presentation.
Thanks.
The next question comes from Stefan Rittman from Societe Generale. Sir, please go ahead.
Yes, good morning. My question also relates to Slide 25 and will be the follower. And you gave the example of the BSUV being Renault being the leader. Can you explain the economics really of how this works? Because bifurcation then the CSUV, which I would suspect is a much more profitable vehicle lineup with higher margins, is responsibility to be Nissan.
So what is the impact on Renault of giving the leadership on a much more profitable vehicle and taking a less profitable vehicle on leadership yourself? I think it works if you fully believe in the alliance or if you fully believe if we're looking at a eventually merger. But as is being very clearly said, companies are going to stay apart. I'm just wondering how the benefits are divided up really.
I'm not sure I get your question because here we're not talking about sharing the profit of the sale of the cars. We're talking here about sharing the cost of producing, developing and conceiving the cars. And so it's the cost is going to be shared in order to make sure that the 2 company enjoy cars, which will be profitable on the market. So we are sharing the cost of developing the platform. We're sharing the cost of developing the upper body, but obviously each company is going to have to share a portion of the cost.
And so and what we intend also to do is to the extent it is feasible, reduce the number of location where we produce the car. So all that is a cost reduction that we will share. It has nothing to do with having 1 of the company getting the benefit of the margin on the cards of the 2 company. It's not at all the topic here. We're talking about sharing the cost.
And by when I hear you talking about companies falling apart, I think we showed the reverse 2 days ago. The more the relation between Renault, Nissan and Mitsubishi are very good. And on the contrary, what we're doing here is making sure that we strengthen the future of the alliance.
So but so if simply put, if Nissan is making the next generation Qajar, it is still more profitable for it is still more profitable for Ramuh than the previous model Of use? And the previous model of Mexico.
And that's where the 2 company or the 3 companies with Mitsubishi in some topics where we've been so bad in the past in not sharing enough can save up to 40% of the cost. And we made a calculation with a very bad example of last generation. 40% is up to €2,000,000,000 saving to be shared between the companies. So it's huge. So it's a huge saving and it has nothing to do with profitability of the car, which will be put on the street not the profitability, but the margin.
So it's and you have more than in this type of platform, more than 2,000,000 cars on the same platform. So you can imagine very well where we can make so big savings.
And will the alliance then give new metrics or more reliable metrics then about the savings that are actually being achieved by the alliance in the future given the concerns about the lack of profitability that came out in previous communications and what was the reliance up until now?
Yes. We are working on that with the other companies. What could be the good metrics to provide to the market to substantiate the savings that we're talking about. So in the due course, we will provide you with what type of metrics that we will use. We wanted to focus first on the content, on the decision, the line to be followed for the future.
We will provide you with more detail afterwards.
Thank you.
The next question comes from Julio Pesztaco from HSBC. Sir, please go ahead.
Hello. Thank you for taking my question. The first one on the I would like to go back on the redundancy and personnel savings. So can you maybe share how much of that is net and how much of that is gross? And maybe some color on the regional split of this 15,000 potential employee impact?
Net. This is a net number because we want to keep the ability to hire high value added engineer, for example, in France, for example, where we will concentrate on the new technology. I mean, in France, in the France Techno Center, we will really focus on the development of platform, everything which is linked to the electric and electrified technology, connectivity, advanced engineering, e architecture, as we said, in the frame of this leader forward scheme. So we want to have the ability to hire the competency that we may need and that we may lack. So the numbers that we gave you is a net number of what of how many position net may be impacted in the rental environment.
And we will not provide a split per region.
Okay. Thank you. And sorry to go back on the cost of this plan. Is the cost also all cash like the savings? Or it's different because it includes impairments?
Everything is cash. Everything you see on this slide is cash, except on the slide with depreciation, where we wanted to give you, for your modeling purposes, the information on depreciation. Everything else
is
purely cash on every slide.
Okay. And maybe just one last one. On the how much of the savings and cost that you were planning to achieve in 2020 have already been achieved? Or it's mainly an H2 story?
We're completely on track, completely on track of where we want it to be.
The next question comes from Maxime Mallet from Deutsche Bank. Sir, please go ahead.
Yes, good morning. Thanks for taking my question. I actually have only 2 remaining. The first one is, I was wondering out of the €2,000,000,000 of gross cost savings that you've announced, if you can give us any kind of indication about what kind of net figure of the cost saving you think will impact your operating margin in 2022? And the second one is, as you mentioned, the scope effect in the SG and A, the €700,000,000 cost reduction on this specifically.
I just wanted to confirm, is RRG spec sales included in this €700,000,000 That will be all for me. Thank you.
Okay. It's a very good question. Thank you. On the €2,000,000,000 cost saving by 2022, as obviously a portion refers to R and D and a portion of R and D is capitalized. We estimate that it would be around twothree impacted the EBITDA, twothree.
On the scope effect, nothing of the scope effect is embedded in the EUR 700,000,000. That's why we took it really aside. You have the EUR 2,000,000,000 and then you have 2 elements which we wanted to highlight, which are on top of the 2,222 plan, which is the scope, which is more mostly working capital reduction in RRG. And then it's the CapEx, which we hint to on the Slide 21. All the rest is so it's €2,000,000,000 plus the rest.
Understood. Thank you.
The next question comes from Arad Hendricks from Morgan Stanley. Sir, please go ahead.
Yes, good morning guys and thanks so much for taking my question. Clotilde, thanks for taking what seems a very realistic view of your business, which I have to say we don't always get. The key thing, which I think maybe you're not necessarily wanting to address too much, but can you just sort of take us and confirm the math on the cash flows here, which I think you understand is obviously the biggest concern for most investors? We're talking about a €2,000,000,000 cash saving. We're talking about potentially €1,200,000,000 cash out over the next 2, 2.5 years.
And then obviously, you're talking about the sustainability of the business, which is obviously 100% correct. But your answer to the French loan and the future rights issue question was interesting. So in terms of this plan, excluding anything else that Mr. Demayo may add to this, Can you what is the sort of level of free cash flow improvement that you're targeting and that we should take away from this? Can we confirm on the back of this with 75% of these Or would that be far too positive of you
to take away from this? Or would that
be far too positive of you to take away from this?
Thank you for the question. As I said at the beginning, we will not provide any financial guidelines or even hint up until the new CEO comes. I think it would be really unfair. So I will not answer to the first part of your question. I may answer on the second part of your question.
I don't think it would be realistic to believe that in view of the COVID situation, targeting a positive free cash flow after everything, including restructuring expenses, is just not realistic for
2020. No, but sorry, but my question is really I understand 2020, but 2021 and your comments regarding sustainability. I mean, you have to assume that if you're the CEO of this company and you're targeting sustainability, you have to be targeting a positive free cash flow. So I was just asking you to confirm the simple math, a €2,000,000,000 cost reduction on cash. You got the €1,200,000,000 of potentially cash out.
And then you have the CapEx savings. Net net net, we should be looking at a structural cash improvement of, I don't know, somewhere between €1,500,000,000 €2,000,000,000 now?
Well, obviously, we're looking for the sustainability of the company. So we are looking to improve the basic. Now I will let you make your own assumption for 2021. It will really there's too many elements which are unknown between the markets, between the decision of the new CEO to make any further or more precise assumption on my side. So I will let you do your own assumption.
Okay. Thank you.
The next question comes from Auguste Tweedie from Citigroup. Sir, please go ahead.
Hi there. Good morning and thank you for taking my questions. The first one is, can I just clarify on Slide 21? I mean, look, looking at your CapEx and R and D spending, and I've got my ruler out here, it looks like you're probably targeting, I don't know, sort of €4,500,000,000 And I mean, if we divide that by 8% of sales, We're probably getting a figure of sort of €55,000,000,000 €60,000,000,000 of revenue. Can you confirm if that's the right way to think about that?
And then secondly, could you just discuss again on revenue a little bit more how you're thinking about market share going forward given that you're going to shrink the retail network on your in house dealers and you're going to be spending lower amounts on investment? And then thirdly, could you just discuss how you think about this plan? What if volumes on the shoot to 2022? What areas would you flex within the plan? Is there more scope to cut CapEx?
Thank you.
Okay. So I think you should put your rule away and not try to calculate what is the turnover of 2022, because what we say is that our target is to go back to 8%. We did not mention about 8% by 2020 2 and further, thanks to the Alliance, etcetera, etcetera. So please do not make any assumption on our turnover. This is not the purpose of this call.
In terms of market share, I don't think you understood correctly the RRG staff, because we're not closing dealership. We're selling them to external dealers. So that should not have any specific impact on market share. These specific actions should not have any specific impact on market share. Now we'll see with the new CEO coming what he is, is a strategy, But it's really too early to make any assumption on our wish to increase or lower our market share.
On the last question, obviously, if we were to stay in the same depressed situation as the world is today for the next 3 years, other decision will have to be made, but it's really too early to say on what we could work. Today, we haven't touched the lineup. If we were to touch the lineup, obviously, we could further down reduce the R and D and CapEx, but this will be in my view at the risk of the future. So that's the reason why we didn't take that decision. But worse come to worse, you can also make some further decision clearly.
And that will be the decision of Luca Demeo when he will arrive.
Perfect. Thank you very much for clarifying that.
The next question comes from Tom Narayan from RBC. Sir, please go ahead.
Hi. Yes. Tom Narayan, RBC. Thanks for taking the question. Thanks for providing all of these details.
So I put my ruler away, but I'll ask that question maybe a little differently. Is it mathematically possible for you to generate the same level of turnover with all these cost reductions?
Yes. I think there has been a very good example across the road, I would say, or in the suburbs of Paris. Yes, it is very much possible to change the way you work, to change the way you approach the sales, increasing your pricing power, having big projects with lower cost and higher profitability, just like, again, our preferred competitors has done. So yes, it is clearly possible to do this cost reduction plan and keep the same level of turnover or even increase it.
Okay. And then the €2,200,000,000 a sizable amount. I'm just wondering what has changed to embark on this. In other words, I would think some of these projects would have projects would have already been examined capacity utilization. You're talking about the shifts, 2 shifts is not efficient and the G and A engineering.
Just curious as to what has changed? Is it that you are more able to enact these changes or that the environment has forced you to enact some of these changes?
Well, thank you for the question, because I think it's important. I think the mindset has completely changed. As I explained at the beginning of the presentation, the previous line of conduit, if I may say, was volume sales being the first on the podium, if I may say, innovating a lot, irrespective of whether or not our customers, the Renault customers, were willing to pay for the innovation we were developing. So what we are now with the new management team, and I'm sure it will be the same as Luca de Mayo, is we face reality. We're not looking for being on the top of the world.
What we want is to have a sustainable, profitable company. So it's more down to facts, fact based analysis, realistic analysis, pragmatic analysis and realizing you're right, I guess the shock of the negative results inside the company, the net net result after a Nissan contribution in February was also a very good wake up call that it was time to change and steer the company differently. So it's a complete change of mindset, completely change of goals. We're not looking to volumes. We're looking to making sure the company is sustainable on the long term.
And volume can help also, but if you destroy the brand by pushing the metal, as we say in the industry, you will go to the wall one day or the other. We want to stop that. We have started to stop that. We want to focus on what makes sense. And hence, when you look at it that way, you realize that you don't need that much diversity.
You don't need that much fixed costs around the world and you don't need that much capacity. So it's really a question of changing the priority of the companies.
Okay. Thank you. And then my last one has to do with the stimulus program announced by the French state a couple of days ago, largely as it relates to EVs. Certainly, you guys are pretty far along there. Just wondering if you plan on taking advantage of that stimulus program and if some of these headcount reduction topics in any way interferes with your ability to participate in those programs?
And that's it for me. Thank you.
Well, thank you for the question. I think the decision of the French government to put in place these incentive programs is a very good decision because the market is still very dull and we want to participate to the change in the industry going more to EV where we leader, we have the right cars in order to the right cars to afford to the customers. We're just launching as we speak our new hybrid models with a great technology called E Tech, which we believe is very different from the one of others and to the benefit of the customers. So it's very good and it is to the benefit of the customers to be able to buy these very good cars, EV, electrified in the next days. And then obviously, if it's to the benefit of the customers, it's also to the benefits of the OEM and the whole chain and of the suppliers also.
So there is absolutely no contradiction between this incentive program, which is for the whole industry, irrespective of the brands and of the nationality of the OEMs and what we're doing, which is also to sustain the profitability of a
The next question comes from Horst Schneider from Bank of America. Sir, please go ahead.
Yes. Good morning and also thanks for taking my questions. The first question that I have is when you say all the time that you would give only financial guidelines when LUKOIL EMEA arrives, when will that be already with H1 figures? Or it's going to take longer, let's say, 100 days after his arrival?
Well, I guess, we need to let Luca arrive. He arrives, yes, he takes his position on July 1. In view of the context, which is particular, I would say, because of COVID, we don't know exactly what is going to be the recovery of the market. I think you could expect Luca to come and explain his strategy around the end of the year, around the end of the year is my assumption. But he will obviously sign himself.
Then the other question that I have is relating to, I mean, the current business. I know you don't want to comment on H1 results, but when we talked last time at Q1 figures, have the things developed in line with your expectations? Or has anything got worse? I mean, we see all the news flow about Brazil and lockdowns and emerging markets seems to be a bigger problem. We have seen currency movements.
So just I mean and you also say, I mean, if the world develops worse, then we need to readjust the plan. So my question is, what is the expectation on the development of markets here at the moment? Is it more V shaped, U shaped? Has anything changed with the comments you made in Q1?
No. I'm not going to answer your question here. We're really here to talk about the cost reduction project. We'll comment about Then
the other question that I have that
was relating to utilization of the Then the other question that I have that was relating to utilization levels. Because when I look, for example, at IHS data, it shows that you have got quite poor utilization, for example, in some emerging markets. And of course, in France also, the situation is not great, but that's just due to the COVID-nineteen crisis now. So I want to understand what level of utilization you need in developed markets versus emerging markets. The way I understand your emerging market business is also it has got much higher share of labor and you are much more flexible there.
So is the breakeven point in emerging markets same as in developed markets? And maybe you can specify what level of or what is your breakeven point in terms of capacity?
Well, that's a quite detailed question. We looked at
Sorry for
that. That's okay. We look at the whole, obviously, footprint implementation, as I said. And when we believe that there was a real question about our ability to fill the plants in the future, we made the decision and that's what we have done with China. And that's the only places where we have made that decision.
For the rest of the world, we know emerging markets are volatile. It comes, it goes. When it's a difficult situation, it's as you mentioned, in some countries, not all of them, the labor cost adjustment is easier than in other countries and we've done so. We've done so in many countries. And what we know that when the market will come back, this will be very profitable countries.
So we're not adjusting any further in developed countries. We are suspending capacity expansion, as I said, some rationalization in some countries where it's feasible. But it's a complete different analysis, complete different topic than what you have in Europe because of the as I said, the usual volatility. It's not all like Europe where the cycles are a lot longer. And we know what we can adjust short term and rebound very rapidly and very strongly afterwards.
And so what utilization level is needed in Europe, prospectively in emerging markets for making breakeven?
I'm not going to go into detail question.
Okay. Then really last one that I have is regarding profitability, just a snapshot of the past. You never really elaborated on that or sometimes you make some indications in 2019, for example, or maybe also now in Q1? I mean, where's the bigger problem, in developed markets or in emerging markets?
The biggest problem, which
Biggest problem in terms of profitability. I mean, in both regions, the volumes have come down significantly. The problems in emerging markets are different because there's currency, bigger volume slump maybe at some point. And in Europe, the situation might be just temporary. Just want to get a feeling where you think the profitability is higher respectively lower.
I never had the problem in 2019, for example, that Europe was such a big problem. I think this problem in Europe was more initiated really by the crisis,
right? Yes. But Horst, I mean, the whole world has been changed in 2020. I think looking into which region is more profitable than the other in this particular context, I don't think is very relevant. What is important is our cost reduction plan, we're going to reduce by more than EUR 2,000,000,000 our cost reduction throughout the world.
So what we're looking, we're not looking at making a region more profitable than the other. We're looking at making
all region profitable and
sustainably profitable and that's exactly what we're doing.
Jose.
The next question comes from Stephanie Vincent from JPMorgan. Madam, please go ahead.
Hi. Thank you very much for taking my questions. Just on the restructuring program,
I don't know if that's going
to have any impact on how you see the working capital cycle because I think one thing at least from a creditor perspective that we've seen in the industry in general is this reliance on negative working capital positions, which work quite well in up cycles, not quite so well in down cycles. So alongside with your savings program, are you willing to address your views about maybe how much cash you think Renault needs to hold on its books in this new normal world? And following along with that, I guess, you did comment about the French credit facility. No real need for rights issue, if I understood your statement correctly. However, in your view, what is the amount of debt that you would like to keep on Renault's balance sheet as we move further into, let's call it, your 2022 plan?
I think that would be very useful.
Okay. Well, thanks for the question. You're right. We have today a situation as an OEM, and I guess, every French OEM and some others are in the same situation, that structurally, we are of negative working capital because of our strong presence in Europe. It's not the case in emerging countries.
You have positive working capital in emerging countries. But as we are most as we are bigger in Europe than in other region, we have negative working capital. What are we doing to change this situation? Obviously, we're working on the working capital like always, trying to reduce our inventory, trying to reduce many things. But this will not change the structure of the working capital as long as we have a majority of ourselves in Europe.
We are also working into reducing the working capital with this movement on RRG, as we mentioned here, that will also help us reduce our working capital. In order now to answer your questions about the level of debt, the level of cash needed in the company, we have several scenarios, but it's difficult to stabilize them now until we as we don't know we don't know. No, we don't know. We have several scenarios about the length of the pandemic and the recovery shape. Once the market will have stabilized, we will see how much cash we will have used, not only on working capital because this will come back, but mostly on the run rate of the cash expense during the period where we could not sell any vehicles.
And only then we'll be able to reassess and communicate on the level of debt that we intend to keep on our balance sheet and the cash flow target that we should have sorry, the cash at hand that we should have in order to be sustainable in front of any other crisis, even though I don't think that anybody can forecast such a pandemic as the one that we had today. So bear with us a few more weeks months. We need to have a stabilized assumption, which currently is not the case. As you have mentioned, some and some of your colleagues have mentioned on the phone, you still have countries in which way important, which are in quite difficult situation. We need to see a little more the preferred scenario, if I may say, in order to assess what would be our debt profile and our cash liquidity at hand profile.
And if it's okay if I sneak in one other. Are you willing some of the suppliers I know you have been willing to share maybe cash balances at the end of April. Are you willing to share that number?
No. I think we're going to provide you information at the end of July as we said.
Okay. Cheers. Thank you very much.
We have no more questions. Thierry Huynh, please go ahead for the conclusion.
Thank you, everybody, for being on the call this morning. So as usual, my team and myself will be available today to answer the further questions you may have. But please do not try to get more information about the ongoing business. We will be as strict as Clotilde has been this morning.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.