Earnings Call: Q4 2018

Feb 14, 2019

Good morning. Welcome to Renault's 2018 financial results presentation and conference call, which is being broadcast live and will be available for replay via our website. The presentation, 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 the presentation regarding the information contained within the document and the forward-looking statement. I invite all participants to read this attentively. We are delighted to have with us today Group Renault's Chief Financial Officer and Executive Vice President, Clotilde Delbos, who will take you through our 2018 financial results highlights, followed by our Chief Executive Officer, Thierry Bolloré, who will share with you our 2018 key achievements and 2019 outlook. Afterwards, after management comments, we will take you through your questions and provide answers. I now turn you over to Clotilde to cover the year in more detail. Clotilde? Thank you, Kimberly, and good morning, everyone. Before reviewing our results in detail, I would like to emphasize that despite a quite challenging environment, especially during H2, we achieved all of our guidance, KPIs, and maintained our operating margin at a very high level. Group Renault delivered EUR 57.4 billion in revenues, a slight decline of 2.3%, but up 2.5% before Forex impact. Our operating margin reached 6.3%, or 6.5% before IFRS 15 impact, and our Automotive operational free cash flow amounted to EUR 607 million. Starting with Slide 5, let's have a quick review of our commercial results released on January 18. Group Renault's unit sales increased 3.2% to 3,900,000 units, including Jinbei and Huasong sales for 166,000 units. At 2017 scope, Group Renault unit sales declined 1.2% in a world market that contracted by 0.3%. Taking a closer look per region, European market was stable, in which Group Renault performed just slightly better at +0.5% compared to 2017. In Eurasia, sales were up 2%, including Lada, in a market that was down 2%. This results from a good performance in Russia and Romania, but was largely offset by the heavy fall in the Turkish market. In the Africa, Middle East, India region, our sales declined by 15.8%, largely due to the closure of the Iranian market and a lack of new product in a highly competitive Indian market. In Americas, sales grew 12.1%, despite the sharp decline in Argentina in H2, thanks to the success of Kwid. The Asia Pacific region increased sales by 68.3% with Jinbei, Huasong. Excluding these brands, sales were down 15.4% as sales in China and South Korea declined. Slide 6 shows group revenues per activity. Group Renault's revenues reached EUR 57.4 million, a decline of 2.3%. Revenues for Automotive, excluding After Sales division, was EUR 51.2 billion, down 4.4%. It should be noted that this change includes the negative impact of a change in accounting treatment related to IFRS 15, which led to the transfer of EUR 555 million in revenues from the Automotive division to the Sales Financing division. Before this impact, the variation would have been -3.4%. As you can see on the slide, growth rate in H1 was significantly better than the second half, which declined 8.4%. H2 has notably been impacted by a downturn in sales to partner, combined with economical and geopolitical headwinds outside of Europe in some of Group Renault's key markets. We were partly able to offset this through pricing. Revenues from After Sales, net of elimination, reached EUR 3 billion, up 11.5%. Revenues from our captive finance company, RCI Bank, increased by 27.7% to EUR 3.2 billion. This change includes the transfer of 555 million already mentioned. Without this effect, revenue growth would have been +5.6%. On the following slide, we take a closer look at the Automotive revenue variance. From left to right, we see in the first bucket a volume decline of EUR 250 million, or -0.5 points. This contraction stemmed mainly from the fall in the demand in Argentina and Turkey in H2, while in Europe our sales were up 0.5% over the year. The geographical mix was stable. Product mix was -0.2 points on the strong success of Kwid in Americas, lower sales from C and D segment cars in Europe, and lower proportion of diesel sales. Price effect impacted positively by 1.4 points, or EUR 742 million, driven by price increases in some emerging markets to mitigate the negative impact of the Forex, but also in Europe to mitigate regulation costs. The downturn in Europe diesel demand and the closure of the Iranian market are the main drivers behind the decline of sales to partners, which impacted negatively by 1.8 points, or minus EUR 946 million. As you can see on the slide, currency had the most significant and negative impact on 2018 revenues, down 4.1 points amounting to EUR 2.2 billion. In this bucket, the Argentinian peso amount accounted for almost half of the impact, while the real and the Turkish lira explained another quarter. In the last item, others, it was a positive of 0.8 points. Beyond the negative effect from the change in allocation between the automotive segment and RCI already mentioned, the performance came from the used vehicle and sales parts activities and lower sales with buyback commitments. Now let's turn to Group Renault's operating profit by activity on slide eight. In 2018, the automotive operating profit, excluding AvtoVAZ, declined 19.8% to EUR 2.2 billion. It represent 4.3% of revenues, a lower margin in H2 at 4.1%, which I will cover in more detail shortly. AvtoVAZ contribution to the operating profit amounted to EUR 204 million compared to EUR 55 million, which marked a new stage in the company's recovery. Excluding various positive one-offs representing a bit more than a third of the operating profit, this would nevertheless be a significant improvement. RCI Bank delivered a EUR 1.2 billion contribution to group earnings, an improvement of 14.7%, notably due to commercial performance and strict cost control. In total for 2018, Group Renault's operating profit stood at EUR 3.6 billion, or 6.3% of revenues, compared with 6.6% in the previous year. Before IFRS 15 impact, the margin would have been 6.5%. Let's have a closer look at slide nine at operating profit variances. To the left of the step chart, we see Group Renault's cost reduction activities contributing EUR 362 million, of which Monozukuri contributed positively EUR 421 million. Looking at cost reduction in more detail on slide 10. Savings from purchasing came to EUR 600 million. It is worth noting that this performance would have been much higher if we had not assisted some of our Turkish suppliers impacted by the lira devaluation, inflation, and fall in demand. Warranty costs were up EUR 83 million, notably because of provision booked for recently launched powertrains and provisioning rate adjustment on some vehicles. R&D impact on the P&L was a positive EUR 38 million. This stems primarily from the capitalization rate rise, which stood at 48.6% versus 40.3% in 2017. This increase is explained by the beginning of R&D capitalization for EV programs and the number of project in development while our product cycle renewal is starting over with Clio 5. Manufacturing and logistic costs had a negative contribution of EUR 134 million due to spending for modernization, higher depreciation, and wage inflation that were not fully offset by high productivity gains. G&A costs increased by EUR 59 million, mostly in H1. This came partly from Group Renault's digitalization efforts. Let's turn back to the operating profit step chart. As expected, raw material were up, largely on higher price for flat steel, other metals and oil derivatives, impacting our operating profit by EUR 356 million. Group Renault's pricing effort explained a positive mix net price enrichment effect of EUR 261 million, despite the negative impact of lower demand for diesel powertrain. This stemmed from price increases in major emerging market, which partially offset weaker currencies, but also from some increases in Europe to cover regulatory costs. Volume and partners impacted negatively for EUR 329 million. This is explained by the decline of our business with partners, and to a lesser extent, to the slight decline in volume of cars sold. RCI Bank and other businesses contribution rose EUR 243 million. This result from the increase in RCI contribution, which I will comment in detail in a minute, and our spare part business dealers and buyback retreatment. Note that this buyback was impacted negatively by IFRS 15 by EUR 112 million. Currency was the main negative on this bridge and weighted for minus EUR 772 million. The Argentinian peso was the main negative contributor. It is fair to add that this buyback would have been worse without our export business from Turkey that mitigated the pain from the collapse of the Turkish lira. AvtoVAZ contribution increased by EUR 149 million versus 2017. As already mentioned, this contribution includes positive one-offs from provision write-back and take-or-pay payments. Without this one-off effect, the margin would have been 4%. This confirm that AvtoVAZ is on solid recovery path. If we continue down the P&L with other operating income and expenses on slide 12. These items amounted to a negative EUR 625 million versus negative EUR 48 million in 2017. This sharp deterioration stems mainly from two factors. On the one hand, the consequences of the Argentinian crisis that led to impairments for more than EUR 200 million. On the other hand, restructuring expenses for EUR 300 million, mainly relating to early retirement measures in France. Let's continue down the P&L. Net financial income and expenses improved slightly to a negative EUR 353 million. Please note that 2017 has been restated for changes in the method used to account for redeemable shares. Improvement in the Group funding cost allowed it to absorb a EUR 31 million expense related to the application of accounting rules linked to hyperinflation situation in Argentina. On slide 14, the contribution of associated companies, primarily Nissan, came to EUR 1.5 billion, compared to EUR 2.8 billion in 2017. Nissan's contribution is down EUR 1.3 billion compared to 2017, which included a non-recurring income of EUR 1 billion linked to the U.S. tax reform and the capital gain on Nissan's sales of its interest in Calsonic Kansei. If we go back to the P&L on slide 15, we see that the next tax charge for 2018 came to EUR 723 million compared to EUR 906 million in 2017, with the same tax rate of 27%. Bottom line, net income after tax declined to EUR 3.45 billion, down 35%. If we exclude non-recurring items already mentioned for Nissan in 2017, net income would have been down 19.5%. Having completed the analysis of the P&L, now let's turn to slide 16, which shows the change in the automotive cash. Cash flow from operation totaled EUR 4.4 billion, versus EUR 4.3 billion in the previous year. It has been penalized by lower operating profit but benefited from the prepayment of RCI dividend for EUR 150 million. Changes in the working capital requirements improved EUR 0.8 billion and showed our continuous effort to optimize our working capital management. Net tangible and intangible investment came to EUR 4.7 billion. This is almost EUR 0.8 billion higher than in 2017. This expected increase came mostly from higher capitalized R&D already mentioned. We have also prepared our industrial base for upcoming new products and increased our capacities in new generation of powertrain. Our global spending in terms of CapEx and R&D exceeded 9% revenue as announced with Drive the Future plan and reached 9.4%. Part of this situation came from the Forex impact that lowered our revenues when most of our R&D spending is in hard currencies. Investment for leased vehicle was similar to last year. Dividend received from listed companies in the period totaled EUR 0.8 billion, while dividend paid during the year amounted to EUR 1.1 billion. Financial investment and others represented a cash-out of EUR 0.3 billion, mainly used for several acquisition, notably in China, and the founding of Alliance Ventures Capital fund. AvtoVAZ recapitalization led to a positive impact of EUR 0.5 billion on our cash position, Group Renault net automotive cash, including AvtoVAZ, increased by EUR 0.5 billion to EUR 3.7 billion. Slide 17 shows the status of our inventories at the end of the year, excluding AvtoVAZ. Global stock stood at 622,000 units versus 613,000 at the end of 2017. Part of the increase came from some industrial issues at the end of the year that should return to a normal situation soon, plus high inventories in Turkey following the collapse in demand. This level represented 70 days of supply versus 57 days at the end of 2017. The ratio has been largely influenced by low sales volume in the fourth quarter of 2018. RCI Bank continues to deliver with a new record year as shown on Slide 18. Commercial performance in new financing increased by 1.5%, up 3.7% in Europe. Average productive assets grew 12% to EUR 44.4 billion, driven by growth in the European region. Net banking income increased to 4.3%, up 23 basis points, with a combined increase in financing and service activities. As of 2018, the cost of risk includes the application of IFRS 9 that requires provisioning on healthy outstandings. Despite the negative effect, the cost of risk stayed at a very low level of 33 basis points compared to 11 basis points in 2017, which included few positive one-offs. This confirms a robust acceptance and recovery policy. Operating expenses amounted to 1.27% of average performing assets, down 5 basis points compared to last year. With a cost-to-income ratio of 29.2%, RCI Bank demonstrates its ability to control cost while accompanying strategic project and business growth. Pre-tax return on assets was 2.74%. Return on equity reached 19.2% versus 18.6% in 2017. This is the best level in the last five years. Bottom line, operating profit reached EUR 1,204,000,000 or 14.7% increase, mainly linked to good commercial performance. The review of RCI performance completes my presentation. I now give the floor to our CEO, Thierry Bolloré, for a review of our 2018 key achievements and presentation of Renault outlook. Thank you, Clotilde. Ladies and gentlemen, good morning. I am very glad to have you today for the presentation of our 2018 results. I will highlight the 2018 key achievement before commenting, of course, the outlook for 2019. There is one very important thing which is clear for us, is to meet our objectives of our strategic plan, Drive the Future. 2018 was clearly a challenging year in which we faced both expected and unexpected difficulties. In times of particularly strong headwinds, Renault showed great resilience. As our CFO just said, the commercial and financial results demonstrated our ability to adapt, and we successfully generated profit in each and every region worldwide. We delivered record sales, positive free cash flow, and virtually sustained operating profit margin in spite of strong adverse conditions, particularly in the second half of the year. We confronted the unexpected collapse of some markets, particularly in Turkey and Argentina, as well as the Iran market shutdown. We were impacted by raw material price increases and high adverse exchange rates. Forex penalized our revenues by EUR 2.2 billion. As the European market, we did our best to adjust to WLTP. We anticipated an evolution of the energy mix. It was faster than expected. We were able to adapt with a slight delay, but to the slowing down of diesel and strong demand for petrol engines, we answered. To give you a quantified objective idea of how external effects strongly impacted our results, we calculated what our 2018 performance would have been without the main headwinds. The picture is quite clear. All in all, 2018 headwinds cost us about EUR 3.6 billion in revenues and one point of operating profit margin. Nevertheless, we grew in sales and market share and virtually sustained our profitability. This allows us to propose to maintain our dividend to EUR 3.55 per share, subject, of course, to approval by the next annual general shareholder meetings. Now, let's move to what fed our growth and performance in 2018. Our first strength comes from our products. In Europe, we maintain our leadership in the B-segment, thanks to the continued success of Clio, Captur, and Sandero. Clio remains the second best-selling vehicle, and Captur the first crossover in its range. Dacia brand posted a new sales record in Europe with more than half million cars sold in a record market share of 2.9%. This success is partly driven by the performance of the new Duster launched late 2017. Our success goes beyond Europe. In South America, we successfully adapted Kwid to fit the market's need. Over a year after its launch, Kwid has become number one in its segment in Brazil and Argentina, and this performance enabled us to earn roughly one point of market share in both countries. In Brazil, we reached 8.7% market share, and Argentina 14.8%. In Russia, two years after the launch of its recovery plan, AvtoVAZ confirms its recovery. It recorded a 15.6% sales increase with a 20% market share, thanks to the successful renewal of the range. Lada Vesta has become the best-selling vehicle in the country. While benefiting from significant positive one-off, AvtoVAZ reached a 6.7% operating margin, confirming its recovery. In the electric vehicle segment, Renault confirmed its European leadership with a 22.2% market share. Group Renault worldwide EV sales increased by 37% over the year. Growth was driven, of course, by our bestsellers, Zoe and Kangoo Z.E., which sales increased respectively by 27% and 106%. EV is now representing more than 3% of Renault Group's revenue. The profitability of our EV segment improved significantly, thanks to the volume growth scale, of course, and also our efforts to reduce costs. EV will continue to be a growth driver in the upcoming years, and in 2018, we made significant investment, as you know, to expand our production capacities and developed the third generation of electric vehicles. With a diversified profit pool and geographical mix, Renault showed its resilience in 2018. Another major contributor to our performance is a strict cost discipline. We reaped the fruits of our ongoing efforts to boost our competitiveness in 2018, and we generated more than EUR 250 million of productivity gain. Focusing on manufacturing, we reached 77 vehicles per headcount. Compared to 2017, this is a 7% productivity improvement. Five of our plants have already met or exceeded our 2022 target of 100 vehicles per employee. The alliance is also bringing its efficiency. In 2018, we synergized amount for Renault at EUR 2.4 billion. Now, let's move to the outlook. 2019 will indeed be a year of moderate growth, but a year of growth nonetheless, in line with the objective set in our strategic plan, Drive the Future. Our new governance with the arrival of Jean-Dominique Senard as Chairman of the Board is yet another lever to meet these goals. We must keep in mind that the comparison between first half 2019 and first half 2018 is challenging, as we benefited from strong sales during the first half of last year. 2019 should start in a deteriorated context before getting better. We see three main risks for 2019. Firstly, there is uncertainty around European demand. Sales are likely to come under pressure in 2019 as economic growth starts to falter and will be impacted by Brexit. Secondly, regulation implementation. We are prepared for known regulations with a clear roadmap and a robust action plan. Nonetheless, the complexity of these regulations carries some uncertainties as to their implementation, not to mention the lack of visibility on national taxation and cities' environment policies. Thirdly, we face cost inflation, particularly on some raw material like, of course, palladium. Lastly, in high inflation countries, we anticipate some pressure on labor costs. We also see major opportunities for 2018. Our strong product plan, with launches accelerated particularly in the second half of 2019, will help a lot. We are expecting the new Clio and Arkana to contribute significantly to our growth. In India, we will launch a new vehicle to resume our growth. EV will also be a growth pillar, particularly in China with the launch of our new electric vehicle, K-ZE, this year. We are also stepping up our EV offensive by investing, as you know, in JMEV, the fifth largest electric vehicle manufacturer in China. Another opportunity is our pricing policy. The group will continue to do its best effort to price the largest parts of additional costs related to regulations and product enrichment. This should be helped by a disciplined pricing environment as all major players in Europe share the same situation. To drive more flexibility and enhance our pricing policy, we implemented a new sales organization at the end of 2018, splitting marketing and sales functions. Finally, we will accelerate our cost efficiency. Beyond the alliance benefits, which will continue to feed our performance, we just launched a brand-new program called FAST. FAST is a valuable tool to accelerate and push ahead Group Renault's transformation and our ways of functioning towards more agility. This will result in three significant improvements in our performance and efficiency. First, we will reduce development cycle to less than three years, always remain as close as possible to our customers' expectations, and to optimize our R&D resources. Second, we will improve our responsiveness and efficiency by speeding up our digital transformation through new ways of functioning. Third, we will reduce fixed costs by 5% per year over three years. Moving on to our guidance for the year. In 2019, the world market and European market are expected to be stable compared to 2018, provided there is no hard Brexit. The Russian market is expected to grow by at least 3% and the Brazilian market by 10%. Within this context, Renault is aiming to increase group revenue at constant exchange rates and perimeter to achieve a group operating margin around 6% and generate a positive automotive operational free cash flow. Ladies and gentlemen, in this context I have just described, we confirm our Drive the Future objectives, exceed EUR 70 billion in annual revenues, and achieve an operating profit margin of at least 7% by the end of the plan. We will do so while maintaining financial discipline with an objective of a positive free cash flow every year of the plan, supported by a total cumulative target of cost saving linked to EUR 4.2 billion. Thank you for your attention. We will now take your questions. Thank you, Thierry. We will open now the Q&A. We are going to start with some questions from the room, and then we are going to take some from the call. Thomas, as always, number one. Thank you, Thierry. Thank you for the presentation. I have three questions, please. I start with the situation in Europe and your inventories. Can you talk a bit more about what you discussed on the energy mix situation, the development of your business in Europe in Q4, which has been, I think, a bit below your own expectations, the higher inventories? What you anticipate for the new testing cycle, EVAP and others in 2019, whether it is going to be as well a disturbance for the European market? That is the first question. Shall I do the others? Yeah. The second question would be on the guidance. Would you be prepared to qualify what you should expect in terms of absolute group EBIT rather than your above 6% margin? Should we expect to be broadly stable, like consensus? Do you expect the group EBIT to decline slightly? Thirdly, can you detail a bit more what you discussed about the product momentum, which is a bit skewed to the second half, but basically discuss the launch of the CMF platform for Clio, and also the timeline for the new EV products outside China, precisely in Europe? Thank you. Thank you very much. Let us start. Okay. First question about the energy mix anticipation and the impact we are expecting from EVAP and the implementation. I think that the second part of last year was pretty shaky, as you know very well, because there had been many anticipation of sales, which was in fact during the summertime more or less as you could see. Therefore, there was a compensation. But all in all, Q4 was in line with our market share. Frankly speaking, we got through WLTP in a way which was very much under control, I can say. The reality of the change in the market conditions as well has impacted the fluctuation that we have seen at the last quarter. But frankly speaking, we were in line with our market share, and we were in a healthy situation from a sales channel standpoint and the way we have been selling our cars, which means no discount on this type of thing. I think that we have gotten out of 2018 in a healthy manner, and we are entering in 2019 in a healthy manner as well, which is very positive. For the energy mix change, it is clear that we can see permanent drop of diesel. We are much more flexible than we used to be in the past. Now we can really answer the demand in terms of petrol engines. From that standpoint, we enter as well in 2019 in a very strong position. Of course, we have learned a lot from WLTP. WLTP was a very tight event for all the industry, for us as well. We could answer to this challenge in a very good manner, we believe, according to plan. We have learned a lot, which means that for the next steps of regulation change that you mentioned, EVAP, for example, but we have also the Euro 6d full, which is also coming up. Our teams feel much more solid, much more robust in order to answer to these steps with the right experience that we got from WLTP. This, for me, is very key for our next year. The second question is about the guidance. Would you like to give any numbers in absolute terms rather than the guidance we gave in percentage terms? Well, you know our philosophy in terms of guidance, and we stick to that. For sure, we take into account the uncertainty that we have onto the market. It is very clear, for example, in Europe, that suppose that you have a hard Brexit, well, the situation would be completely different, okay? At the same time, we are fueling the company with projects, initiatives, transformation to the extent that our goal is to increase the water under the keel, if you want, and make sure that we have new margin of maneuver so far we can finance our ambition, because this is the goal. We have many ambition. We need to finance them. We need to be healthy. We need to continuously get on the roadmap of our midterm plan. That is the reason why we have launched, for example, this FAST program, in addition to what we have done in the past for all the Monozukuri activities, in addition to what we have done with the digital. Renault Digital is going to deliver close to EUR 1 billion of value, in 2019, and we delivered huge amounts last year as well. All these activities in the company to improve our way of functioning, to be much more fast, active, agile, is really bringing significant amount of money. So far, we can be in a healthier situation as well. The last question is about the product momentum. Could you tell us a bit more about the calendar and what is coming? Clearly speaking, we can say that the first half of 2018 will be a commercial year, which means that there will not be so major launches at the first part of the year. Therefore, all our price discipline that we have put in place, the new organization also that we have put in place with Olivier Murguet, who is in charge of corporate sales as well as regions, business units, is absolutely key and also start delivering the expected results. By doing that, we enter the second part of the year with all our big launches that I have mentioned and which are going to, of course, help and fuel our growth and profitable growth. Thank you. Francois? Francois Moriaud. Question related to the alliance. What seems to be new, at least for me, is the level of distrust among Japanese employees, Nissan employees, against Renault and the Alliance. I would be interested to know if it is something which is new for you, which you consider is focused on a limited number of people, or if it is shared by a lot of people within Nissan. A related question about the current running development project. What does that mean? Does that mean that you will be late? Can you continue to work together? Are you going to be late on certain project? Could you illustrate that with certain project? I am thinking especially on EV program. This is a very key question. First of all, you have noticed that all of us in the alliance, we want more alliance, we want better alliance, we want more efficient alliance. That is a very key point. I can tell you that since the beginning of the events, we have paid Saikawa-san, Masuko-san, and myself a very key attention to make sure that the disturbances would not reach the operational level. Every month, we have done it face to face as well in order to make sure that we are permanently fueling this determination to improve the alliance. This has happened, and I can tell that frankly speaking, all the big projects that we online, we are taking care, we are making sure decisions are being taken, and we are making sure that any type of mistrust will not reach the people of the alliance. At the working level, I did not see that. Of course, there is anxiety because of what has happened. People are questioning themselves. But the reality of what is happening is determination to move forward. The projects are there, decisions are there, and are testifying what I am saying here. At the same time, it is very key, and even before the events of November, that we can improve the Alliance, that we need to improve the Alliance. We need to improve the Alliance, especially in terms of speed, in terms of simplicity of making decision, in terms of answering to the new landscape, which is the one of the automotive sector in the world today. Speed is paramount. Speed is paramount, delivering synergies is paramount, and making sure that all our innovation is being brought into our new offers in terms of products or services is also absolutely key. That is what we are working at the moment. Frankly, of course, the disturbances of the last events are major. They are reality. But, reality as well of what is happening on the field is absolutely major, and frankly, there is a huge dynamic here, a lot of progress in front of us, and now we have to see how we can make the global Alliance much more efficient than what we have even today. Philippe? Thank you. Philippe Houchois, Jefferies. I have got three questions, if you do not mind. The first one of your key indicators in the past was CapEx and R&D spending as a total, about 9% or less of revenue. If my sums are right, it is 10.6% this year. I am sure there is all kinds of reasons why, but what is your plan to get it back down to that level? Or if it is going to be structurally higher, going forward. Should I give my other questions? Yeah. The second one, maybe more for Clotilde, is, are you now in a position where you could actually pay a dividend out of RCI again to the parent? I do not think you need to now, but, just in case, for example, if the dividend from Nissan does not come through, there is compensation there. If you can also, we hear from your U.S. competitors, Ford and GM, the ability to pay 100% of earnings in dividend. I doubt that, but I just wonder what is your view about the ability of actually turning the finco into a very significant dividend payer. Lastly, on the synergies. You are telling us EUR 2.4 billion this year, in line what you said before. We have heard EUR 5 billion-EUR 6 billion over the years. We never saw it in the numbers at Nissan or here. My question is, what is it that means your synergies are leaking, that you cannot retain them? Are you prepared to actually change the way you calculate them and present them so that we can actually give them some credibility? Because frankly, that number is meaningless at this stage. Well, if I may start with the last question. Concerning the synergies, the EUR 2.4 million, we know exactly how much we have in cost reduction, for example. For us, it's around EUR 700 million, if my memory is good. We know where they are. There is not only cost reduction, but we know what is cost avoidance, what is CapEx avoidance, et cetera. We know what is fueling our P&L, at least in Renault, this is very clear, and it's under control. That's a key point for us. Your first question? It was about the R&D and CapEx ratio. Philippe had a surprising number at 10.6. Yeah. It was more like 9.4, so slightly above what we said previously. Yeah. Is this to continue or- I think that you remember in the roadmap of our midterm plan, we mentioned and we said that there will be a peak period of expenditure for R&D and CapEx, which is very much linked to the efforts that we are fueling in order to have the right product plan, the right powertrain and, of course, the right technologies ready. There is a link between this percentage and the fact that we have had these headwinds on our turnover. Very simple. But the vision we have today is that the peak has been reached. That's why I'm not very much anxious that this percentage, provided that we have no major events on the market with turnover, but then there will be adjustments as well, is going to stabilize and get back to the level that we expect. The last question was about RCI? Yeah, just one precision, maybe on your number of CapEx is probably you took also leased vehicles in the number of investment, which is not what we should take. On RCI, very simple. You're right, we did not pay dividend for the last 2 to 3 years for one very simple reason, not because RCI could not, but because RCI was put under the supervision of the European Central Bank, and hence had to increase their reserve and equity, reserve mostly, in terms to satisfy the European Central Bank ratios. This period is behind us, and actually what I said earlier is we started to repay this year a prepayment on the 2018 dividend, which will be fully paid, the last part will be paid in 2019. So now we can start back paying dividend. Are we going to pay 100% of earnings? I don't know. What is more important is the ratio that we have to satisfy, both for rating agency and for the European Central Bank. That is our policy. And anyway, for RCI, like for the rest, we prefer to be on the conservative side and only pay what we can pay. Okay, we are going to take our first question from the call who is on the line. We have a question from Dominic O'Brien from Exane. The floor is yours. Hi, everyone. Thank you for taking my questions. The first one is on the Alliance. I suppose it was this time last year that the Renault board quite publicly tasked Ghosn with making the Alliance irreversible. I do not want to get into what has happened in the past, but looking forward, is this still the primary goal of Renault? If so, what does Renault now have to do to make the Alliance irreversible? In a related question, can you confirm the press reports that Renault was indeed pushing for a merger with Nissan? If that was rejected by Nissan, what do you see now as the next best solution? Would Renault ever consider selling down its stake in Nissan, for example, or would that send the wrong signal on irreversibility? Just one final question just on the operating performance. Could you give us some more details of this new FAST cost savings program? What is the biggest driver of this 5% fixed cost reduction? Is this focused on labor savings? Is this focused on a particular region? How should we think about 2019? Does that mean cost savings will go ahead of this EUR 700 million run rate that you guided to in the midterm plan? Thank you very much. I will start with the Alliance. Clearly speaking, for us, our goal with the Alliance has not changed, which means that we want to make it irreversible. That is very clear. That is clearly also the discussions that we have with our partners. I met Saikawa-san several times since the events. I have been discussing with him. Jean-Dominique Senard met him also in Amsterdam 2 weeks ago, where they spent a couple of hours, I can tell you many hours, to discuss. We discussed about it. We discussed about what is next for sure. We want to make sure that we are getting back to a stabilized situation so far we can think for the future and how we make it happen. That is very key. Concerning what you mentioned about what may have been a plan previously from Mr. Ghosn, frankly speaking, I cannot confirm or deny. The reality is that today we are in the situation you know, but we also are totally convinced that we have to move forward and to have to make it much more efficient, as I said already, much more leasable as well, which is very key for us, and make it such that we can go faster, because this is very key for all our companies with higher commonality, higher synergies for the good sake of each companies. Next. Second question, about FAST program, could you say a bit more about it in terms of implementation, in what regions, and the impact on 2019 savings? FAST is a continuum. Why is it a continuum? Because from the digital experimentation, which became Renault Digital, which is now a war machine in order to deliver digital tools, digital mindset inside the company, change completely our system. It has also helped us to learn how to work much more efficiently, especially for white collar population. We discovered agile methodologies, and when we were looking at that, listening to our people, being so enthusiastic and so efficient to deliver with quality and speed, cost, when we discovered that this methodology could be applied at scale to the company. That's why in 2018, we started to heat up, to warm up, and to make some heavy experiments, we could say, in some areas of the company. We discovered we had appetite for that. We could do it. That it was very much aligned with also our Renault Way, which is key in order to enhance the quality of our people at the disposal of customers, of the company, shareholders, and themselves. That's the reason why we have decided, and this decision was made, frankly speaking, just after summertime, to go at scale. FAST means future ready at scale transformation. That's the reason why as well that we have created a new direction, which is reporting directly to me, which is a direction for transformation of the company. Everybody is concerned. We, of course, have huge, how to say, huge challenges and first priority with engineering, because as I mentioned, we know that in engineering, we have to speed up in order to reduce the cycles and the lead time at which we put new products on the market. We are a big challenge in engineering. We are a big challenge, of course, in marketing and sales. We are a big challenge, in fact, in every direction of the company. So far, our processes are being accelerated with new way of functioning. So far, we are faster, leaner, quicker, and of course, much more cost efficient. That's the reason why the consequence of that is significant gain in terms of fixed cost reduction. Well, frankly speaking, it's close to a EUR 1 billion figure within the next three years. It's as well internal fixed cost. It's also external fixed cost because it's half-half, more or less, in our cost structure, and this is what we are aiming as well. So far, we gain in margin, we gain in ability to finance our project, and to satisfy all our stakeholders. Thank you. We're going to take another question from the call. Who is on the line? Next question comes from Jose Asumendi from J.P. Morgan. Sir, please go ahead. Thanks very much. Jose, J.P. Morgan. Just a couple of questions, please. The first one, again, on this fixed cost reduction initiative. Can you help us understand a little bit in terms of worker reduction? What does this mean for you, and a little bit some color around white collar and blue collar? Second question, please, for Mr. Vallauri. Apologies for the question. It comes back again to the Renault-Nissan Alliance. Can you just confirm that as we look at vehicles coming on this CMF-B platform 2019 and 2020, can you just confirm that currently there are no delays of contracts of work with suppliers for vehicles coming on this architecture in the next coming 12 to 16 months? Thanks so much. If I start with the last question again, CMF-B is on track. CMF-B, which is our new Alliance platform, is going to be the platform on which we put the new Clio, which is going to be delivered on time. I think there is no specific issue on this topic. If I come back now, it was on the- On the fixed cost reduction. on the fixed cost reduction. As I mentioned, we have as well internal fixed costs and external fixed costs. This helps a lot to manage in a very smooth manner, as well, the upskilling, the reskilling, the mobility of our people, and we have done it already. It's experimental. We have done it last year, for example, for the IT team, and it was extremely interesting to see that the appetite of our people for these type of programs. Why? Because you make the right diagnosis about where are our competencies. Is it okay, not okay? Are the people on the right seats, how we can help them to get upskilled, how to get into mobility programs. This dynamic is creating a lot of enthusiasm, and especially with the new way of functioning, you delegate much more responsibility and power to the people at the level where they can make decisions. This is hugely part of the acceleration of the delivery that I was talking about. That's why we have no specific issues, and I can tell you that our partners in the company, trade unions, they were very enthusiastic as well about this program. Thank you. Is there any question from the room? Stefan? Thank you. Stephen Reitman, Societe Generale in London. I have two questions. The first one, you don't give regional profitability, but could you give us maybe some qualitative information really about what the change has been in the regions in terms of improvement of profitability in Russia and in Latin America? Also the improvement as well in electrified vehicles as well, just to get an idea about what's been happening then in Europe, just so we get some idea on that. Secondly, with the new models that you're going to be launching, we had some insights into them last year when we visited the Technocentre. You certainly seem to be spending more money in terms of the quality of the vehicles. How confident are you that this might involve, then, an improvement in pricing as well, the pricing power of Renault vehicles going forward? Thank you. Thank you. Two questions are pretty much connected. You are absolutely right to say that the international footprint of the company is a big asset today. That is why it is so important that each region is also making profit. I can tell you that Olivier Murguet is very much attentive to make sure that each region is permanently making progress on its profitability base. We are clearly as well having a very key attention to the pricing of our cars, not only for the new cars, we will talk about later, but also on the existing cars. For example, I will take the example of U.K. In U.K., we were in a situation, we had to clean up a little bit our business. This was done under the leadership of Olivier as well by making sure that we are getting back on the right channel, improving our pricing, accepting sometimes a volume drop or market share drop for a while before coming back in a much healthier situation. This is exactly what is happening everywhere in the world today, to make sure that our profit base is getting more and more solid. Concerning the new vehicles, it is true that we are permanently making sure, step by step, generation after generation, that our cars are sustaining the improvement of the brands. From the brands, getting as well a higher pricing power on the market. We are playing with the portfolio of our brands to make sure that we occupy the full field, but the full field with each brand positioned where we want it to be, so far we can optimize the pricing at everywhere on the spectrum. This is exactly what we are doing. Okay. Thank you. Bruno, there is a last question from the room. I'm Bruno Lapierre, Credit Agricole. I have a question on the cash flow. When we look at 2018, the free cash flow is coming in mostly from the working cap, which was positive. And actually the cash flow from operation did not cover the investment. When we look at the guidance for 2019, do you think that in fact the free cash flow that you are targeting is coming from the operations? So mainly that you will get, in fact, a clear free cash flow, or that is coming again from the working capital balance? No, it has clearly to come from operations. It has clearly to make it such that more and more on a regular basis, we are also managing, from a cash standpoint, our operation. This is not yet totally in our culture, to be honest with you. Okay? And we are improving step by step. We have put in place special programs with the control teams, with the regions, with the businesses to make it such that we provide also the tools for the business to have a permanent, not only once every semester, a cash management approach, but to have a permanent cash management approach with the right tools to make it happen. So for sure, for us, it's very key what you say. We want the cash to come from a healthy situation. No doubt. Very key. Yeah, if I may add, you know that working capital is extremely volatile, and it depends on what is the situation of the market in the last quarter. So we cannot depend on working capital. So that actually, as Thierry said, we are very vigilant on that. This year was indeed not a very good year in terms of working capital coming from the operation, but this is clearly in the radar, and we are making all the effort not to depend on working capital, because again, it's very volatile, depending on what is the market situation on last quarter, and we don't want to depend on that. We will turn back to the call. Any question? Next question comes from Horst Schneider from HSBC. Sir, please go ahead. Yes, good morning, and thanks for taking my questions. I have got some guidance related questions. Maybe you can be a bit more specific about the guidance walk-down items for 2019, particularly what we should expect, ceteris paribus for FX, for raw materials, and also if we can continue to expect a pickup in the Monozukuri savings. That is number one. Number two question is on the midterm plan. You reiterated this morning the targets. I personally find the EUR 70 billion revenue target very ambitious, given the fact that some emerging markets just have been worse than expected, let us think about Iran, also China. So, if you want to achieve the 7% operating margin, is it necessary to meet the revenue targets or it is more independent? Can you confirm that the Monozukuri savings will come in as expected towards 2022, even if the volumes are worse than expected? Thank you. No problem. Actually, I will ask in a moment Madame Delbos to answer about the externalities hypothesis of our plan. If I may come back to the midterm plan, the big picture, first. Well, frankly speaking, we had some provision in the figures that we have contemplated, disclosed in terms of volumes. We have some reservation of volumes which were already embedded in our plan, and that's why we don't feel at risk in the way we should manage the increase in volumes on one hand, and also of course, of revenues. We have many opportunities that we are at the moment triggering in order to compensate the headwinds on one place to a tailwind on other opportunities that we had not yet really matured, cultured, and worked out. That's why we feel confident today of that situation with the visibility we have of the state of the world, that's very clear. You had another question? About Monozukuri, are we on track? Monozukuri. With the plan. Monozukuri, you understood what Madame Delbos said about the result of this year, which is quite exceptional because of the exceptional support that we have provided to some suppliers which were in very difficult conditions. This is very unique piece of action. That's why the dynamic of the Monozukuri is there. It's sustaining with our EUR 4.2 billion cost savings that we have in our midterm plan. And we have, as you understood, other opportunities already being launched in order to continuously fuel higher our ability to have good results in Monozukuri. Now I would like to give the floor to Clotilde concerning externalities. Yeah. In terms of what we could say, obviously, we don't have a crystal ball for the external events. But I would say that for FX, if I look at the spot price today, it's still a headwind, but a lower headwind than what we had in 2018. The headwind is going to be still high, I guess, in the first half, because obviously some of the drop arrive in the second half, so we should have still some headwind in the first half. But globally for the year, the impact on the reporting margin should be lower than what we had today. Again, no crystal ball, but that's the spot price. In terms of raw material, unfortunately today, same thing. If I look at the spot price, it's still going to be headwind, probably in the same type of magnitude that what we had last year and in 2017. The main culprit is palladium. As you know, we use quite a lot of palladium, and the price of palladium is skyrocketing. That's the main culprit, Veronique, I think that's the main one, right? So basically, in terms of raw material, probably exactly the same headwind as what we had for the last two years. If I may add something. The interesting situation as well about pricing, because this for us, very key to see that the industry is also very conscious of what is happening there. At the end of the day, we observe that there is a quite interesting increase of the global pricing in addition to our personal ambition of Renault, to make it more efficient and to have a quality of sales higher and higher. So that is why the global context is such that we expect to have the ability to get the value from these increases from the pricing. Okay. Next question from the call. Next question comes from Raghav Gupta from Citigroup. Thank you. I have got three questions, and the first one is on the second half 2018 EBIT bridge, just to follow up on, I guess, Horst's question. When I compare the revenue and operating profit impact from FX price and mix into the first half 2018 results, and comparing the impact that came through in the second half of 2018, there seems to be a bit of a disconnect with FX impact, a lower negative, and thereby kind of helping your results, while mix price enrichment was much lower. Just wondering if you could talk a little bit about this, firstly. Then secondly, coming back to the FAST program. Historically, cost savings have always been talked to with reference to your alliance partners. The initiatives you have announced today, are they going to be in addition to the 4.2 billion of Monozukuri? If it is independent of this target, will the program benefit other alliance members? Finally, just on Dacia. Historically, this has been a strong contributor towards auto profitability. I know you don't disclose margins by brand, but can you just help us try and understand the magnitude of the opportunity here? How much below peak is the brand currently? What do you see as being the big drivers of improvement other than just, I guess, the model mix and improvement on that side? Thank you very much. Okay. The first question is about the Forex impact in H2 and the drop-through from the revenue line to the EBIT line and the mix-price enrichment in H2 as well. Then a question about FAST, what is coming on top of the Monozukuri, and this is only from Renault, or it is also for the Alliance. Then question I guess that we are not going to answer is the profit by brand. For sure, we will not. I will let the floor to Clotilde for the first question. But before that, I think concerning FAST and its impact onto the Monozukuri, for sure, we intend to continuously fuel higher the Monozukuri. That's the goal, as you understood. We want to keep the basics. You understood, for example, the figures in manufacturing are very steadily in terms of productivity, delivering every year the same productivity. So we keep the basics as well, and we fuel with new programs to get higher in Monozukuri. That's our goal. That's very clear. Concerning the impact of FAST beyond the company, it's a very good question. It's a very interesting question. Because for sure, when, for example, Gaspar Gascón, who is an Alliance guy in engineering, right? He's fueling with absolutely key projects, our ability to reduce the lead time for delivering our products. He's doing that with Alliance teams. It is clear to improve the Alliance functioning, the way of working together in a FAST mode. FAST, like the program, is absolutely key. It's very important that in the Alliance, we are all taking initiatives in each companies, and then we are sharing the initiatives. That's the way we have improved, for example, our industrial system with the Alliance production way. That's the way we are improving also our launches. Our programs have been improved drastically, thanks to copying what Nissan was doing much better than us. We are doing the same, with digital in the other direction, with FAST in the direction that maybe is coming from us. But we are joining force in order to improve as well the Alliance way of functioning. Clotilde? Yeah. So on the difference between H1 and H2. Clearly, H2 has been quite impacted by many things, as you know, Iran, Turkey, Argentina, and those are the two main elements. But you are right, in terms of FX, the impact of FX on the top line was slightly lower in H2 than it was in H1, and the main culprit of H2 FX headwinds was the peso. If you look at the drop-through in terms of the operating margin, it is true that it is completely different on the operating margin because of the currency basket. The peso went directly to the operating margin, but another one who moved a lot in the second half was the Turkish lira. The Turkish lira, on the contrary, is a benefit because it is an export base to us in the operating margin, as we sell a lot of Clio produced in Bursa, sold to Europe. So that is why you do not have the same impact in terms of drop-through from H1 to H2. So that is the first question. Then the second question on the price increases. If you look carefully, we have a better price increase conversion in the second half than we had in the first half. I think it is seven points better in the second half than it is in the first half when you have looked at net of discount. But in the second half, in the mix price enrichment, despite this effort on the prices, we had some mix and content negatives that did lower the impact that you see on the top line. Okay. We will be back in the room. Philippe, again. Yeah, sorry. Just question on the Zoe. You are raising your game on the Zoe in terms of range, updating the product. Now, by the end of the year, we may, I stress the may, have a $40,000 Tesla on the market. There will probably be a Volkswagen, at least dealerships will start showing the car at the end of the year. Where do you position Zoe against Volkswagen and Tesla, looking into probably 2020? And at what point do we have another car from you? Because the Zoe is still been a kind of a Clio to behind, and does not really have the same maybe versatility as what Volkswagen is looking at or Tesla is trying to convince clients they have. Clearly, Zoe is not a Tesla, as I confirm, and we do not have the intention to suddenly bodybuild our Zoe, never in the future. No, we have a real full range of electric cars, you know that. We have expressed it, the way we are going to have a vast portfolio of electric cars in the future. It is coming up. It is getting ready. We have our common platform, the EV2020, within the Alliance. We are working at it. We are preparing our products. This is going to be major in order to fuel all segments with the right offer and very modern offer, and it is going to come quick. Okay? We also have, as you understood, the ability to fuel the lower parts of the segments with the smaller cars, very modern cars, which would be very accessible as well. We are going to have a full range of electric cars in order to fuel the market and be extremely competitive. The big advantage we have is that we are making money and good money with some of our electric cars already. Good money means at the level of our profits today. This is an experience that we are the only one to have today. Globally speaking now, there is no longer any anxiety to sell more electric cars so far we would diminish our profits. It is over. It is exactly the contrary. We are full speed, full throttle on this, and that is why we have been investing significantly in 2018 as well, in order to have no limits to answer the market needs. We are investing a lot, as you know, for the next projects, not only in Europe but also in China and all over the world. We are making that happen because we have no fear to fuel not only the growth, but the profitable growth that we need with electric cars today. The offensive is there. I will check that there is no question on the call first. Is there any further questions from the call? We have no further questions. I remind you that if you wish to ask a question, you need to press 01 on your telephone keypad. Thank you. Thomas? Thank you. Just a follow-up question, please. Can you say a few words about the dividends you've opted for? Actually, not increasing the top up, it's not decreasing the top up. I understand your share price is lower and maybe you don't want to put a very high yield. Should we read that as something in connection with your FAST program and you don't want to piss off your French workforce? Or why did you effectively choose not to continue this shareholders' friendly move to effectively pay a rising part of Renault's free cash flow as a dividend? That's the first one. And the second follow-up, there's a big increase in the leasing share in Europe. Everybody's selling cars by just giving a number to people, maybe confusing them and allowing you to raise prices a bit more. I don't know. Can you talk about that, Clotilde, and the share of financing for RCI Bank in leasing and the impact it may have on the residual value risk? For the first question, Olivier also can maybe participate to the answer, so I'll let you think a little bit about that. But concerning the dividend, our choice here, of course, with the board of the company, was to say, "Well, we want to give confidence." As simple as that. We are confident, and that's the reason why we have chosen to be in a stable mode with the dividend that we have chosen. We are just confident. Yeah. So on the leasing share, yeah, it's true that it's a trend that we're looking closely at. Nevertheless, we have one very good instrument, I would say, or asset, which is RCI. We are able, today, to offer leasing to fleets, to offer leasing to individuals. So what we are looking and working extremely closely with the sales, with the European region, because that's mostly where it's happening, in order to be prepared in case this trend increases, and make sure that the piece of the cake that it does represent doesn't go to some other participant of the market. So this is something worth looking closely. I don't know, Bruno, the percentage of leasing we have in our portfolio? No, it's quite low if we speak about the private customer. The only market quite developed is U.K. To answer to your question about residual value, because I guess it's the most important point, we have the risk on residual value in U.K., and we follow very carefully in order not to have, let's say, a bad surprise about the risk with this kind of product. Yeah, this is followed very closely. And actually, currently, the residual value risk has been moving quite a lot last year, but the net of the decrease that you see on some products and the increase that you see on other products or motorization is not damaging us for the moment. Okay, so I guess we have time for one last question. I heard that Daniel Schwarz is on the line. No. Question from the call? Hello, can you hear me? Yeah. Go on, Daniel. Okay. Thank you. My first question would be the support for suppliers in Turkey. Could you quantify that, and will that be a higher or lower number in 2019? The other question is, in the other operating incomes, the EUR 625 million, could you say what of that is cash effective in 2018? Clotilde will take the second question. For the first one, yes, it is hundreds of millions. It is a big amount of money. We are managing in a way that it is not going to happen a second time. Let us put it that way. On the second question, almost nothing is cash. A small portion, maybe, of the restructuring expenses, but not that much. Actually, it is not even an additional cash on the restructuring expenses, because it is what we call in France dispense d'activité, so it is early retirement. Those are people who are still on the payroll of Renault, and we keep on paying a portion of their salary. So it is not additional cash versus what we used to have. The rest being impairment, hyperinflation, things like that, it is non-cash expenses. It looks like Horst would like to ask another question. Horst? Next question comes from Horst Schneider from HSBC. Sir, please go ahead. Yeah, sorry. Thanks for taking my questions again. To Clotilde, what is the impact of IFRS 16 in 2019? Will it lower your net cash? Second question is to Thierry. Since we are now finishing the call, my impression is that you just want to continue the plans that have been set under Carlos Ghosn. Or is there anything major that you would change or that you would say you need some more time, let's say 100 days or until H1, when 10R also arrive, that there's a bigger resetting coming up? Thank you. Clearly speaking, we have a midterm plan. We have a strategic plan, and we follow this roadmap very carefully. This is very important for the stability of the company. The team which has designed the midterm plan is right there. We have done it together. We have done it with our partners as well within the Alliance. This is a very key element of stability, and we just want to speed up and to go faster and to make it with better pricing and get better financial results because we have high ambition. We have to answer to a changing environment, because this is true, the environment is changing in front of us, and we have to not only get prepared, but adapt to it with a higher margin of maneuver. This is my goal. Clotilde. Yeah. On the last question, we have not yet completely finalized the analysis, but our estimate so far is that it will have an impact between 600 million EUR and 800 million EUR on our balance sheet. It's major, but that's okay. I think it's less than what we anticipate for our competitors. Okay, I guess that we have reached the end of this call. Thank you for being on the call or being in the room. Of course, the IR team is fully available today to answer the further questions you may have. Thank you for coming. Have a good day. Goodbye. Thank you very much.