Earnings Call: Q4 2012

Feb 14, 2013

Good morning, everyone. Welcome to Renault FY 2012 results presentation and conference call, which is broadcast live and in replay versions on our website. The presentation file, press release, and activity pack for this call are all available on our website in the finance section. I would like to point out the disclaimer on slide 2 of this pack regarding the information contained within this document and in particular about forward-looking statements. I invite all participants to read this. Today's meeting is scheduled to last 90 minutes. We have two key speakers this morning. First up will be Dominique Thormann, our CFO, who will take you through the highlights of the financial results. Carlos Ghosn, Renault CEO, will follow up with a review of the year and the outlook. Presentation will last about 45 minutes and will be followed by a Q&A session. Dominic, hand over. Good morning, everyone. Before going to the financials, I would like to start with a quick reminder of our commercial results on slide 5, which were released last January 18. Our group sales declined 173,000 units or 6.3% to 2.55 million units for the full year. As you see, this decrease reflects a contrasted situation between the drop in Europe and the growth of our non-European business. This trend was particularly true during the second half. In Europe, our sales fell 18% or 279,000 units, while our sales outside Europe increased 9.1% or 106,000 units. With this sales picture in mind, turning to slide 6, the full consolidated P&L for the group reflects this weaker performance compared to the previous period. Starting with the top line, group revenues fell 3.2% from last year, reaching EUR 41 billion 270 million. On the next slide, number 7, we show the revenue contribution by activity. Revenues from our automotive business decreased 3.7%, while they increased 8.5% to EUR 2 billion 110 million in the period from our captive sales financing company, RCI Bank. However, as you all know, measuring revenues for sales financing is not the indicator of choice in terms of their performance, which I will detail in a few minutes. I will start by explaining the breakdown of revenues for the automotive activity on slide 8, which shows annual variances. For those of you who follow us on a quarterly basis, it is worth noting that fourth quarter revenues actually increased 0.8% after the 14.4% decline experienced in quarter 3. If we look in detail and starting from the left-hand side of the page, the first item is foreign exchange, which was negative at EUR 182 million, driven mainly by the Brazilian real and the Iranian rial, which were offset in part by increases in the British pound and Russian ruble. The second item, volume, excluding sales to partners, shows a significant negative impact of 5 points. This is the single biggest variance of 2012. Negative geographic mix accounts for -0.8 points, reflecting primarily the weak business in France and the expansion outside of Europe, where we still generate a lower revenue per unit than the average for the group. However, this gap is narrowing, and as we have told you in the past, the negative geographic mix effect in the second half was less than half the impact in the first. The fourth item of note is the mix effect. The increase in net revenue per unit due to product version and option mix impacted positively for 1.9 points of the total change in revenues. The impact was the same in both halves, resulting primarily from the strong mix improvement in the entry segment with Duster. The fifth item is the price effect, which is positive at 0.8 points. This is higher than the 0.2 points improvement we showed you in the first half, but it includes price increases in Iran and Argentina that were decided to mitigate the currency devaluation and inflation impact. Without these two actions, the price effect would have been roughly flat, Europe included. Sales to partners were slightly down to -0.3% as shipments of engines and components decreased. However, sales of built ups benefited from the first deliveries of the Mercedes Citan small van, which is manufactured in our plant in Maubeuge. The last item, named Others, represents the activities outside of the new car activity, mainly spare parts, our wholly owned dealers, and buyback restatements. I will now turn from automotive revenues to the group operating margin by activity. In 2012, the automotive division was close to breakeven at -EUR 25 million, implying a negative EUR 112 million in the second half, reflecting the worsening situation in Europe. RCI Bank proved once again its strong resilience in difficult economic times and posted a EUR 754 million contribution, not far from the record EUR 761 million achieved last year, which I will comment on in more detail in a few moments. In total, for 2012, the group operating margin stood at EUR 729 million, down EUR 362 million from 2011. Slide 10 shows the main variances which explain this decrease. I will start the walk-down reading left to right. As already seen for revenue, currencies had a negative impact and account for EUR 184 million. The same currencies as on the revenue line explain this impact. The next item shows a EUR 501 million negative impact coming from the decrease in units invoiced, as well as from the geographic mix. As I said previously, volume was the main driver of this margin deterioration. Mix price impacted negatively for EUR 242 million, and despite all our efforts to keep a disciplined pricing policy, the competitive environment did not permit to fully pass through to customers the increased costs of regulations and product content that we put on our cars. The cost of raw materials caused a negative impact of EUR 55 million, considerably less than in 2011, and in line with our initial guidance. For the next part of the walk-down, we have grouped four items, which together form the major part of our Monozukuri cost reduction efforts announced when we launched our strategic plan, Renault 2016 – Drive the Change. Purchasing savings equaled EUR 617 million. Warranty costs increased by EUR 45 million. This apparent deterioration resulted mainly from the absence in 2012 of a provision reversal booked in the prior year, but by no means reflects a quality deterioration. Manufacturing and logistics costs decreased by EUR 74 million, despite the additional costs of the Tangiers plant. As a reminder, this factory was not in production in the prior year, and therefore has no basis of comparison. The R&D charge in the profit and loss account increased by EUR 63 million, with almost flat capitalization rate at 40% versus 39% in 2011. Total Monozukuri savings amounted to a positive EUR 583 million or EUR 528 million net of raw materials. G&A costs decreased EUR 72 million, proof of the strong effort deployed by the company to limit fixed costs, particularly in the declining European environment. Other items yielded a negative EUR 31 million. As I already pointed out, RCI Bank remained flat compared to 2011. I would now like to take a few moments to give you a bit more detail on RCI Bank's performance on the next slide. Despite a higher penetration rate on new car sales of 1.4 points to 35%, new financings in 2012 were down 2.6% at EUR 10.8 billion. However, thanks to the growth of prior years, the average outstanding loans for the period increased to EUR 24.2 billion, up 6.2%, with net banking income remaining above 5%. The cost of risk stayed at a reasonable level at minus 0.38% of average outstandings. This increase of 15 basis points, which we had guided to, compared to the previous period, reflects in part the absence of the positive one-off release of wholesale provisioning in the same period in the prior year when we were over-reserved. Pure retail charge-offs came to 0.49% and remained under control, while dealer charge-offs were negligible. Finally, with strict cost management, operating expenses were kept flat at 1.57% of average outstanding loans. In total, the pre-tax return on assets reached 3.19% versus 3.44% last year, giving a return on equity of 22%. Now that we have covered the operating margin variance, I will continue down the P&L with the other operating income and expense items on slide 12. While these items posted a net positive result in 2011, 2012 shows a significant negative result of EUR 607 million. Let me explain why. The first item in this table relates to the impairment of assets, both tangible and intangible, amounting to a charge of EUR 279 million. As you know, we run impairment tests on a regular basis, and we concluded that certain vehicle and engine programs required some value adjustments. The second item is related to the depreciation of the Iranian rial, which had a negative impact of 304 million. The next item is a charge of EUR 110 million, which relates to restructuring decisions being implemented primarily in South Korea and Spain. Finally, the last item in the table is a sum of several items, the main ones being a retroactive change in duty rates paid to the Brazilian government on CKD activity and capital gains on the sale of lands and buildings. Continuing down the P&L, the next item is net financial income and expenses on slide 13. The net charge increased from EUR 121 million to EUR 266 million, despite the net debt decrease. This came from a negative EUR 48 million linked to the change in market value in our redeemable shares. A EUR 46 million provision booked against our investments in the FMEA supplier fund created by the French government during the crisis in 2009. Lastly, a EUR 42 million negative impact related to the application of IAS Rule 23. The next slide, number 14, shows the impact of associated companies in Renault's P&L. Nissan contributed EUR 1.234 billion to our 2012 results, 98 million lower than prior year. Nissan's contribution for the fourth calendar quarter came to EUR 199 million, taking the second half impact to EUR 670 million, down 221 million compared to the same period last year. Volvo's results, taken through September, contributed 80 million. This is the last time we will show a contribution from our holding in Volvo, as the shares were disposed of in December. Renault share in AvtoVAZ's results, which is consolidated with a three-month time lag, posted a positive EUR 186 million, an increase of EUR 137 million compared to prior year. This improvement came mainly from the restatement of the impact of a long-term interest-free loan in AvtoVAZ's balance sheet. I will now turn back to the P&L for the last time on slide 15, where the net tax charge for 2012 came to EUR 549 million compared to EUR 508 million last period. This tax burden is mainly driven by profits from our operations in countries where we pay taxes and are outside the perimeter of our French tax consolidation. In addition, following a change in the tax code in France, we limited our ability to recognize deferred tax assets this year. Bottom line, net profit after tax came to a positive EUR 1,735,000,000, including the one-off effects of EUR 924 million capital gain on the disposal of Volvo shares. After taking into account minorities, the net result per share came to EUR 6.51. Now that I've completed the analysis of the P&L, I will turn to slide 16 on the evolution of net automotive debt. Cash flow from operations totaled EUR 2,577,000,000. Changes in the working capital requirement impacted positively for EUR 922 million. I will review this in more detail in a few moments. Net tangible and intangible investments came to EUR 2,902,000,000, up EUR 449 million. As a result, automotive operational free cash flow came to a positive EUR 597 million. Regarding dividend flows, dividends received from quoted companies totaled EUR 507 million, while dividends paid during the half came to EUR 402 million. Other financial items were positive for EUR 1,090 million, including EUR 1,476,000,000 in proceeds from the disposal of the Volvo shares. A capital injection in our affiliate in India for EUR 90 million explains part of the outflow and currency conversion impact of non-euro-denominated debt for EUR 160 million. In summary, net automotive financial debt decreased by EUR 1,791,000,000 in the period. The group now has a net cash position of EUR 1,492,000,000 versus a net debt position of EUR 299 million at the end of 2011. This is the first time since 1999 that Renault is publishing a net cash position at year's end. Slide 17 shows the positive change of EUR 922 million in the working capital requirement. Trade payables remained positive in the period due to the low comparison base at the end of December 2011. Inventories added a positive EUR 574 million, notably thanks to an improved management of industrial stock. Other working capital was slightly negative, impacting by EUR 59 million. Slide 18 shows you the status of our inventories at the end of the year. There are a few messages I would like you to take away from this slide. Overall, inventory stood at a higher level than last year by about 10%. They are above our 50- to 60-day band that we had mentioned at the optimum level we try to manage to. While our own stock levels decreased, those of our independent dealers increased materially. Business in Q4, particularly in Europe, came in below our expectation, causing an imbalance between our production schedule and our sales pace, resulting in pushing too many cars to dealers. As a result, our inventory day supply came to 65, above our target by five days. The situation was exacerbated by three factors. The launch of Clio 4 and Sandero, which are high-volume segments and had just gone into production, required cars to be delivered to the dealerships. This explains about 30,000 units of additional inventory. Production at our Brazilian plant was halted in December for planned work in order to increase needed capacity. So that our dealers would not run totally out of supply in the following weeks and months, we increased their levels of stock. This explains a further 10,000 additional cars. Our expansion outside of Europe finally requires structurally higher levels of inventory. Non-European stock now represents almost 50% of total inventory on this chart, independent dealers and company combined. I would now like to move on to the automotive liquidity reserve situation on slide 19. Cash and cash equivalents totaled EUR 10.1 billion at the end of December, up EUR 2.5 billion compared to the end of last year at EUR 7.6 billion. Together, with the fully available undrawn credit lines, the automotive gross liquidity reserve stands at EUR 13.6 billion at the end of 2012. Despite volatile market conditions, we raised EUR 2 billion of new midterm funding in the period in euros, yen, and yuan. The disposal of our Volvo stake brought in EUR 1,476,000,000. With these actions, we have effectively pre-funded all of our maturing debt of EUR 1.8 billion coming due in 2013. RCI's liquidity position has also remained strong, as we see on slide 20. Despite financial markets that suffered from the growing concerns of sovereign debt, especially in Europe, RCI Bank managed to raise about EUR 5.1 billion in new funding with a maturity greater than one year. At the end of 2012, RCI Bank had a liquidity reserve, enabling us, in a stress scenario, to continue the production of new loans to customers for almost one year without any access to the capital markets. Simultaneously, we also continued to develop Zesto, our online retail savings account, which was launched this time last year. This activity has far exceeded our initial projections, and at the end of the year, Zesto had collected almost EUR 900 million in deposits, which was above our initial projection of EUR 500 million for the year. In France, we will launch a term deposit account in 2013, and outside France, we have started to expand this new source of funding in Germany, where we will launch a similar product next week. This completes my financial review for 2012. I will now pass the floor to Carlos Ghosn for the operational review and financial outlook. Thank you. Thank you, Monsieur Thormann. Good morning, ladies and gentlemen. As Dominique Thormann just showed you, Renault was able to deliver decent results in a particularly challenging European environment, which was offset in part by the positive development of our international business. These results were made possible by the rigorous and meticulous execution of our business plan, Renault 2016 – Drive the Change. 2012 set a new record for the global automotive market, with almost 80 million units sold throughout the world or a 6% increase over prior year. However, this record resulted from a very contrasted situation between Europe and the rest of the world. In Europe, the TIV declined by 8.6% and hit its lowest level since 1993. This drop was much worse than our initial forecast of between 3% and 4% decrease, which we subsequently revised downward as the year unfolded. Outside of Europe, growth continued, fueled by a strong recovery in the U.S. market, up 12.5%, and by the Japanese market, up 27%, as well as robust growth in the BRIC markets with a strong contribution from China, up 7%, which consolidated its position as the largest car market in the world. In this environment, our non-European sales increased significantly, setting up a new milestone at almost 1.3 million units, up 9.1% over last year. However, this positive development was not enough to offset the 18% drop in European sales. Overall, Renault sales declined 6.3% to 2.5 million units globally. Thanks to our international growth strategy based on well-adapted and locally sourced and produced vehicles, Renault outperformed the TIV by four-tenths of a point. For the first time, the group sold more than one car out of two outside of Europe. Today, France remains our single largest market as it represents 22% of our global sales. However, we now count three emerging countries in our top five markets, with Brazil in second position, Russia in the third, and Argentina in fifth. In Europe, our sales declined by 280,000 units or 18%. Let me explain why. First, in addition to the drop in TIV, we suffered from an unfavorable country mix, with the strongest declines coming from France and Southern Europe, where we have higher market shares. This explains two-thirds of our annual decrease. The remaining third came from the underperformance of our aging product lineup and from our commercial strategy in the U.K. Concerning our product lineup, 2012 was a transition year, with the majority of our product launches coming at the end of the year. On the French market, A segment cars suffered the most, especially Twingo, from our reluctance to fully enter what we consider as an unsustainable and brand-damaging segment price war. In the U.K., we reduced our product lineup offer and decided to exit unprofitable businesses, and in so doing, we resized our dealer network accordingly. The Dacia brand was able to maintain its European market share. As you may know, Dacia mainly competes in the retail channel. Throughout the year, we maintained a disciplined sales policy focusing on the retail channels, where we fell only half as fast as the overall retail market. Even though we did not reach our sales objective for the reasons I just outlined, we managed to achieve our main target, which was to deliver a positive automotive operational free cash flow for the full year. We chose free cash flow as the main key performance indicator for two reasons. First, to demonstrate that Renault is able to create value in a sustainable manner, and in so doing, create a basis for a fair value for its core business. Second, free cash flow is necessary to secure the integrity of our strategy. We will continue to invest for international expansion, for renewal and extension of our lineup offer, as well as develop state-of-the-art technologies such as clean diesels, low-emission gasoline engines, and electric vehicles. Let me remind you of the key points of our strategy. We intend to secure sustainable growth for Renault using five main levers. First, a large lineup renewal and extension. Second, expansion in emerging markets. Third, synergies from the alliance and from our additional partnerships. Fourth, investments in technological developments. Fifth, obviously, boosting quality and customer satisfaction. In line with this strategy, several milestones have been achieved in 2012. Regarding product renewal, Clio 4 was launched in September, marking a breakthrough in Renault's design and brand identity. Clio 4 was selected as the best safety pick in its class by Euro NCAP. The successful launch of the new Sandero in Europe gave additional support to our product offensive. This car marks the renewal of the original Logan concept, further reinforcing its contribution to our overall performance. Regarding our international expansion, we achieved several key milestones with the start of production of the Tangier plant, the turnaround of our business in India, and the signing of the AvtoVAZ deal. A new production line in Togliatti was inaugurated, which will be common to the three brands, Lada, Renault, and Nissan. Renault-branded vehicles will be in production from the second half of this year. We also signed an agreement for a plant in Algeria, a market where we sold more than 100,000 units last year and enjoy leadership of 26% market share. Regarding our partnership development, we accelerated the synergies with Nissan that amounted to over EUR 2.3 billion last year, from which EUR 1,060,000,000 was to Renault's benefit. Synergies include, as you know, cost avoidance, cost reduction, and additional revenue and subsequent profits. Beside, we entered an operational phase with Daimler as we delivered the first Mercedes-badged light commercial vehicle, called Citan, and engines from our plants in France. This partnership is gaining momentum, and we have now 10 active projects between Renault and Daimler and more within the alliance, ranging from joint development to vehicles like Twingo Smart and component supply. Regarding technical innovation, beyond the development of a full range of electric vehicles, we have been pursuing our effort without interruption to develop and offer best-in-class gasoline and diesel engines. Last year, we introduced the Energy dCi 90 engine on the Clio 4 that makes it a benchmark of its segment with 83 grams of CO2, which is almost on par with the more expensive hybrid technology. This year, we will introduce the Energy TCe 120 engine on Captur, which will enrich our gasoline offer and will contribute further to reducing our CO2 footprint. Turning to quality, which is the cornerstone of our strategy, Renault's Twingo, Clio, Mégane, and Scénic ranked among the best vehicles in a recent German ADAC survey. In France, L'Automobile Magazine just released a survey in which Renault had seven models in the top three of their respective categories in term of reliability. Twingo, Clio 3, Mégane Estate, Scénic, Laguna Estate, and we have received positive results from the last TNS Sofres new European quality survey. I will now turn to the outlook for 2013. Our assumption is that global TIV will grow by 3%, a new record with more than 81 million cars sold throughout the world. As you can see on the slide, the growth should come from regions, again, outside of Europe, but at a slower pace than in 2012. Our expectations for Europe are for a decrease of the TIV of at least 3% compared to 2012, with the French market down between 3% and 5%, but with a likely weaker first half than the second half. It is worth noting that the European auto market will be at its weakest points again since 1993, and countries like Italy and Spain with the lowest registrations in the past 30 years. Outside of Europe, Eurasia should continue to benefit from the positive momentum in Russia, where we expect 5% growth. While the Europe, Euro-Med, Africa region should have a global growth rate at around 7%, the most important markets for us in this region are Algeria and Turkey. They should show a more modest growth rate in 2013. In the Americas, our largest market, which is Brazil, should see also a moderate growth of about 2%. Argentina should be flat, and overall, the region should be up 3%. The Asia-Pacific region should grow by 3%, with China up more than 7.5% and India up 11%. Considering this scenario, we expect to grow unit sale this year and gain market share in all regions, including Europe. I will now turn to our main growth and profit opportunities for 2013. Globalization is a key pillar of our strategy and will continue to be our main driver for this year. In Brazil, we set a new record last year with a 24% increase of our sales and earned one point of market share. To reinforce our potential in this market, we decided to increase capacity by 100,000 vehicles a year in our Curitiba plant to reach a total capacity of 380,000 vehicles. After the success of the Renault Duster, we will benefit from the long-life Clio launch, called in Brazil Novo Clio, which will address a large and popular segment of the Brazilian market. We will introduce the large van Master, which will enhance Renault presence in the light commercial vehicle market. Later in the year, we will introduce the new Renault Logan. In order to increase our capacity, we had to stop production temporarily for two months at the end of 2012. As we speak, the plant is resuming production. As a result, our sales will likely slow at the beginning of this year due to the lack of supply before recovering in the second part of the year, obviously, at a higher level. In Russia, Renault also set a new sales record in 2012 with an increase of 22.7% and the market share of 6.5%. Russia is now Renault third largest market. The Renault Duster launched in March 2012 has been the top-selling SUV in Russia for the past three months. We increased the Moscow plant's capacity to 185,000 vehicles per year by introducing a new work shift inspired by the best practices from Nissan in Mexico. As we announced last December, the Renault Nissan Alliance and Russian Technologies created a joint venture. Once the agreed milestones are delivered in 2014, Renault will own a majority stake in this joint venture that controls AvtoVAZ. This new structure will allow us to accelerate Russian product launches and fully leverage the potential of Europe fastest growing auto market. Renault, Nissan, and AvtoVAZ will have a Russian capacity of at least 1.7 million cars per year starting in 2016, which should allow us to reach and maintain more than 40% market share. In India, we managed a strong turnaround of our business made possible by leveraging the Alliance again with Nissan, thanks to a line-up expansion, partly based on derivative Nissan products and the big success of the Renault Duster, elected Indian Car of the Year in 2013. We were able to earn a 1% share of the Indian market in a few months after many unsuccessful years in this country. This year, we will accelerate the pace of growth due to the expansion of our dealer network from 90 to over 130 franchises. This should allow Renault to cover geographically more than 90% of the Indian market, even though only on a very selected segment coverage. In addition, we are using the Alliance plant in Chennai not only for domestic supply, but as an industrial hub for right-hand drive Duster production for markets like the U.K. and Ireland. In Korea, we launched a revival plan in January 2012 with the aim to reach a breakeven point by the end of 2013. After reducing our industrial footprint by cutting 15% of our headcount, we are working on the attractiveness of our line-up and better localization of our supply base. We moved from 60% of localization in 2011 to 70% in 2012, and we should reach 80% by the end of this year. We aim now at regaining market share with the launch of our new products. We have received positive feedback so far for the facelifts of the SM3 and SM5 launched at the end of 2012. Before the end of 2013, we will also introduce Captur as an import unit and SM3 Z.E. The next milestone for RSM, Renault Samsung, will start in 2014 with the production of 80,000 Nissan Rogues for export. Lastly, the next frontier for Renault is now China. We sold 30,000 cars in China last year, which is a very small amount compared to a market of more than 18 million units. To play a more significant role there, we will obviously offer an expanded product line-up, and we will have a local manufacturing capacity. We will be strongly leveraging Nissan's large and successful experience in China, as well as the existing supply base in the country. Hopefully, we should get the approval from the Chinese authorities in 2013. Beyond this international expansion, the Alliance is developing a new concept for enlarging its potential on developing markets. This is the sub-entry platform, which will allow Renault to offer affordable vehicles to people not able to buy a new car in emerging markets. Even if growth in the future will be mainly geared towards emerging markets, Europe definitively remains a core business for Renault and offers a clear opportunity for improving our presence as well as our profitability. We are facing tough times in the European market, notably in Southern Europe. However, we see an opportunity to recover in 2013 based not exclusively, but mainly on our product offensive. First, we will benefit fully from the impact of the vehicles launched at the end of 2012, which are now gaining sales momentum. For the Renault brand, Clio 4 has already proven its popularity with more than 95,000 orders. Zoe will come next as the first mass-produced electric-only vehicle completing our zero-emission line-up offer. Our product offensive will continue with the launch of Clio Renault Sport and Clio Estate. The urban crossover Captur to be launched in April will allow us to compete in a growing segment that represents today about 340,000 units in Europe. We will also continue our styling renewal with two facelifts, Kangoo and Scénic, and with the introduction of a Scénic crossover derivative. For Dacia, the New Logan and the New Sandero will continue to fuel the success of our entry range, in addition to the full year impact of Lodgy and Dokker launched last year. Our goal is to achieve growth in Europe and to position Renault as the second brand in the market in a sustainable and profitable manner. While good products are key to achieving this goal, we must also pursue a high level of efficiency in marketing and selling our products. From the other side, our Monozukuri activity continued to deliver savings in line with our plan. However, current European market conditions have led us to increase our objectives in order to restore the competitiveness of our European industrial footprint. In Spain, we signed an agreement with the unions that is improving the competitiveness of our plants and solidifying their future. In France, it is common knowledge that there is an industrial competitiveness issue that must be addressed. The government has already made a move with the recently signed competitiveness package, but Renault needs to go beyond this step for securing its industrial footprint in France. As you know, we are currently negotiating different measures, seeking to improve the competitiveness of our French operations while securing the future of all our plants in the country. It would be a clear win-win deal, but as long as it is under negotiation, you can understand that I cannot be more specific on this issue. Regarding Monozukuri challenge, we achieved in 2012 saving of, as you have seen, almost EUR 600 million. For 2013, we obviously plan to exceed this performance. Our assumption for raw material impact this year is neutral, while it was a EUR 55 million negative in 2012. Fixed cost control is key also to improve profitability. As you know, we set a cap on R&D and CapEx at 9% of group revenues for the period of the plan. Thanks also to our Alliance with Nissan and the strategic partnership with Daimler, once again, we were able to remain below this threshold in 2012, despite the decrease in revenue. This was achieved without compromising our future, as we did not cancel any program nor delay any regional expansion project. Let me give you a few examples. In terms of R&D, we are currently leveraging common platform development with Daimler for the next generation Twingo and with Nissan for the CMF-1, upon which the new Laguna, Espace, and Mégane, as well as Nissan Qashqai and Rogue, will be based. In India, we have gained significant savings by sharing products and manufacturing capacity with Nissan. In Russia, our partnership with AvtoVAZ will give us access to additional capacities without carrying the very high cost of building greenfield capacity. We anticipate that the European market will decrease by at least 3% and the French market will decline between 3% and 5%. Provided that European and French markets are not significantly worse than expected, Renault Group targets for this year are an increase of its unit sales, a positive automotive operating margin, a positive automotive operational free cash flow. I would like to stress that we are expecting a weaker first half than the second half. The Group remains today on a trajectory to achieve the cumulative EUR 2 billion free cash flow set out in our midterm plan for the period 2011-2013. The sharp fall in the European market prevented us from achieving our volume target in 2012. However, we stayed the course and delivered our free cash flow objective. Objectively, Renault is stronger today than before the beginning of a very turbulent times that started with the Lehman shock in 2008. We have rebalanced our regional footprint, both in volume and in profit. We have laid the foundation for our recovery in Europe, both in terms of products and in term of competitiveness, including best-in-class quality. We have deleveraged the balance sheet and now have a net cash position for the first time in almost 15 years. All of this was made possible by remain focused on executing our midterm plan following our well-grounded, consistent, and comprehensive strategy. This strategy, added to our 13-year alliance with Nissan and the line-up renewal and extension, equip us to face the numerous challenges of the automotive industry, and we are confident in the future. Renault is working today to improve its segment coverage, its product quality, its cost efficiency, and is investing to accelerate its regional expansion. We know that is not enough to be among the long-term winners in this industry, so we're doing more. We have developed a unique and performing alliance, several win-win partnerships, a global and successful and profitable entry range concept that will be expanded with the sub-entry platform. Last but not least, Renault is the only OEM offering a comprehensive zero-emission line-up. Our strategy is unique in the industry, and we have a chart to show that it will make the difference. 2012 showed a clear split between the European OEMs, and I would say that Renault is in the middle of these two groups. Either we could be indulgent with ourself by comparing our performance with the weaker ones, or be more in line with the potential of the company and chase after the best ones. You can be sure that the ambition of Renault's management and all its employees is the latter. In 2013, will we do more of the same, only better. Thank you for your attention, and now we are ready for your questions. Thank you, Mr. Ghosn. I think now it's time to take the first questions. Thomas, on the left side. Good morning, Thomas. I have three questions, please. First one on 2013, and focusing on RCI Bank. We have seen yesterday Banque PSA Finance being quite cautious with its outlook, flagging the state of the dealerships in Europe, and the rising cost of risk. Can we expect the level of contribution from RCI Bank to stay at such a record level in 2013, 2014, given rising cost of financing, rising cost of risk? The first question. Shall I give them all now, or one by one? Maybe one by one it would be much better. Okay. Let's go ahead with the answer. Yeah. Yes. We are comfortable with our level of reserves. I think you know that we have been running for many years a very conservative reserve policy at RCI, where we book reserves against performing assets. We do not wait for them to be delinquent. We, right now, are not experiencing, as you saw, just a slight deterioration in 2012. I do not expect much. It might go up a little bit in 2013, but I do not expect a major issue in 2012. All things being equal, we should have an opportunity to deliver a strong contribution in 2013. My two other questions are more looking into 2014, 2015, if possible. Firstly, when looking at your balance sheet, prospective free cash flow generation, is it fair to ask you when we should expect you to pay a dividend from your own free cash flow and not just recycle the dividend received from your associates? How much cash do you need to have on your balance sheet? Are you considering, anyhow, any way, the possibility to buy back some of your own shares, given that the implicit value of your core business remains negative even if it has improved? Well, I think we will propose this year, as we probably mention it, the fact that as usually as we promised, all the dividends we received from our partners and our shareholdings will be paid back to Renault shareholders. But we are not proposing to pay anything more than this, because we don't think, even though the situation of the company is sound, I don't think we are in a position today to be able to pay a dividend on the core business of Renault. When will we starting this? Obviously, our willingness is to start as soon as possible, but, we have to make an evaluation first. I would like a larger contribution to the free cash flow coming from the profit, and not only from the working capital, even though most of the efforts which have been on the working capital are not transitory. These are not temporary things. These are mainly streamlining and making the company leaner fundamentally, which is going to stay in the future. So most of the decrease of the working capital are more organizational elements, making the company much leaner, which is going to stay in the future. But I would like to have more contribution of profit to the free cash flow before resuming paying dividend from the core business of Renault. Now, how much cash we would like to see? Obviously, we don't have a specific number in mind, but just to give you an idea, I would say if today we were finishing the year with EUR 1.4 billion cash by the end of the year, I would say we should have at least double this amount in a certain way. That means having a cash cushion of a little bit more than EUR 3 billion would be a reasonable position. Obviously, if we can have more, depending on the condition, would be good. But at the same time, we are still engaged in a very heavy investment policy. As you know, we're going to start the Chinese project, and the Chinese project is going to take a lot of Renault resources. At the same time, it's a very big potential for growth of the company because this is a market which is going to be, when our production will be ready, more than 20 million cars. So, the potential for Renault is a very fast ramp-up because this is not a new market for us. Because with our association with Nissan, we are coming to a market that we know already, except the fact that we want to move from 30,000, 40,000 cars sold today to hundreds of thousands of cars, which is going to boost a lot the revenue of the company and the profit of the company. I would say, to answer your question, EUR 3 billion would be a reasonable level of cash. Even though I do not put it as a condition, I am just telling you. Now, on the share buyback, for the moment, obviously, we do not have a plan. We would privilege paying dividend, than buying back the shares. I am not excluding it, but what I am saying is, first paying dividends or increasing the dividend before thinking about the share buyback. Thank you. My last question, please, would be on CMF, the cost of the introduction of these common platforms for Renault, and expected benefits in terms of R&D costs and production cost reduction, please. Oh, I can tell you that we have had massive reduction in our investments. We can give you a lot of examples. But it is not only about reducing the investment in term of R&D, research and development, but particularly in the parts that are going into this car. The big transformation for That is why you did not see yet a lot of synergies coming from the alliance, because the platform that are common with a high level of common parts, not only common platform, but common parts, are coming. This is going to benefit all the new generation of products coming from Renault. Our purchasing team is showing us the kind of quotes they are getting already from the suppliers now that they can combine Renault volume with Nissan volume and, for some of the cars also, I would say other partners' volume. These are impressive numbers. The effect of the scale in this industry, whenever you put it to work for you, is massive. I do not know if we shared these numbers already. Did we give any example? We did not share. But, I have no problem about taking one platform and give you an example about how much investment cost have been decreased by just sharing, and second, particularly more than the investment cost, is the parts cost going down due to the fact that you are on a massive scale when you combine the volume with Nissan. Bruno, number one. Bruno Lapierre, MAIF. A couple of questions on the guidance first. To help us understand a bit the guidance, how do you see the working capital evolving this year after the massive swing we saw last year? The working capital for 2013? Yes. Yeah. Every year we tell you we don't expect too much from working capital, and we keep surprising ourselves with how much we can do. Frankly, because long run, when you take a look at it, the company was fat in terms of inventory, the company was not too rigorous in terms of payments, and we are putting everything following the benchmark in the industry, and we're coming with big numbers. There is a strong mobilization of the company around the free cash flow, which allowing this to happen. Reasonably, I think most of the positive free cash flow in 2013 should come from operating profit. You're going to say, "Look, you told us the same thing last year and the year before, and you keep coming with more from the working capital." We are approaching benchmark levels now of the industry in term of inventory, in term of payment conditions, in term of receivables. So when you are approaching benchmark levels, it means you may still beat the benchmark. I'm not saying it's not possible, but your margin of progression here is going to be very limited. So I'm expecting the positive free cash flow in 2013 to come mostly from profit. Two other questions. One technical on the impairment. You did, in fact, on which product or which project, in fact, it was affected? Yeah. Let me just tell you, obviously, it's the most asked question. Why? Because one of our main competitor announced a massive impairment, so when people look at our numbers, say, "Are you sure you have looked at these numbers carefully?" That's why I can tell you this year, we looked very carefully at the amount of impairment. We looked at them not only internally, we looked at them with the audit committee of the company, we looked at them with our auditor to make sure that everything was right. But now I'm going to leave it to Dominic Thormann to give you more details about what is in the impairment. Yeah, we test at several levels. We test at the company level, we test our major affiliates, we test our holdings, and then we test vehicle lines and powertrain. So we really go at a very granular level, very low, and we test with a methodology, once again, which is not ours. There are standards and there are ways of doing this. So we determine different interest rates and different manner of doing things. These are checked by external audit, so we get clearance from the method that we're using, and then we just go down the balance sheet. So this year, we impaired a few vehicle lines. Now, we don't disclose the actual vehicles, but I can guide you to Korea for one part of the explanation, and certain specialty vehicles in Europe, which would account for the balance. But it was all on specific vehicles and associated powertrain. The last question is on the alliance. When do you think it would be adequate to adjust or to adapt the structure of the alliance to the reality of the cooperation between Renault and Nissan, which obviously, in fact, would help the reduction of the discount we have in the core business? No. Look, you have two things here. You have the operational regions, and then you have, when are you going to do something in order to try to reduce, a little bit, the gap of valuation which exists? Because it's true that we have a problem of valuation. When you take a look at the market cap of Renault and you add the sum of the parts, or one of the conclusion is that the core business of Renault is in negative territory, which is a little bit difficult to understand if you have a company which is on a sustainable way generating free cash flow. That means you can have a negative value if your free cash flow generated is negative. But as long as you are generating on a sustainable way, I think this is the fourth year we're coming with a positive free cash flow. Obviously, we'd like to see more profit into the free cash flow. But if you have, from one side, a company generating, in a sustainable manner, free cash flow, from the other side, sum of the parts, somehow at a certain point in time, you have a valorization problem. We are conscious of this. But this is one issue. But you have the second one, which is, at the end of the day, the reasons for which we made this alliance is to generate synergies. These synergies are extremely important. Why? Because this will allow the company, like Renault, who is selling 2.5 million cars, to enjoy a scale of 8.1 million cars. That's the reason for which we've done it. Okay? You have the agility of a 2.5 million car company, but at the same time, thanks to the alliance, you have the scale of an 8.1 million car company, which puts you at the top level of the car industry. The main question is, how can you, what do you need in order to continue to improve your synergies? We are today, we have generated this year, and these numbers are always under the controller eye to make sure that we are just not putting numbers to please ourselves. But we think that the potential of synergies that we can reach without moving anything in the organization is above 3 billion. Which means there is still room for fast action in order to generate more synergies. Obviously, whenever you reach these levels, and these levels are based on our own estimate, on benchmark we have done from outside, and from time to time, we bring outside consultant to make sure that we are looking at the right things. At a certain point in time, this amount of synergies will be limited by the organization. The ones that are going to be limited by the organization, we need to obviously start to change the organization in order to continue to optimize synergies. Let me give you one example so we are not in a theoretical. Today, we have a lot of synergies due to the fact that the two powertrain divisions, the powertrain of Nissan and the powertrain division of Renault, are working together and going for common engines and going for common parts and going for common developments and going for the common technology. That is very good. There is more potential for development. At a certain point in time, the fact that we have two powertrain will be, by itself, a wall. It will not allow you to go at higher level of synergy. From an operational point of view, you say, "Well, if I need to reach a higher level of synergy, I am going to need to put the two powertrains together." We are more pursuing the second road for the moment. We are driving for more synergies as much as we can. As long as we can continue to increase the synergies by working better together on commonizing parts, we are going to do it. Because what I do not want is that the fact of changing the organization disperse the attention from what can be done without changing the organization. At a certain point in time, we are going to hit a wall, and then you are going to have to start changing the organization, but always with in mind more synergies. You will have to take also, when you do this, in consideration how to eliminate the gap of valorization, which is much more a corporate issue, not very linked to operational issue. So we are conscious of it. We are driving it in a very pragmatic way, mainly with an eye on the synergies between the two company and also the evolution of our industry. That means we know very well that this industry, particularly with the size. The big change in this industry that now the larger groups are also becoming the more efficient groups. We used to be in an industry where the larger group were not the most efficient. In this case, you had room to do a lot of things. Now, you are in a situation where the companies at the top in term of size become also the most efficient. The room for others is going to be much less than in the past. What we want is to make sure that with our scale, our scale is working fully to our advantage. We have a call from the. For a question from the call now. We have a question from Laura Lemke from Morgan Stanley. Please go ahead. I actually have three questions, please, if I may. The first one, I just wanted to come back on your working capital situation. If I look back about 10, 12 years, your net working capital is now EUR -1.6 billion, which is the most negative it's ever been in your history. That obviously also had a big positive contribution on free cash flow. I am wondering, when I look at receivables days now down to 10, payables days up to 70, how sustainable do you think is all this? Do you have a benefit from the fact that you now have more international business and maybe the payment terms there are more favorable for you? Or should we really expect a headwind from working capital in 2013? I am just trying to get a feel on what you think is a sustainable level of net working capital. On your unit sales, obviously, you are targeting positive sales growth. Your monthly run rate is still negative at the moment. When do you think sales for you can actually inflect this year? Lastly, just coming back to what you mentioned on the platforms, can you clarify your platform strategy again for us? How many platforms will you have, let's say, by 2020? Also with regards specifically to the CMF-1 platform, what level of savings do you expect here? Also, how much commonality do you actually have of that platform with the B segment vehicles? When I look at, for example, VW's MQB, that obviously stretches a little bit further down into the smaller segments. Thank you. Well, let's start with the. Yeah. Okay. It's Dominique. I'll take working capital. Mr. Ghosn made an important comment in addressing this issue. The simple fact is we were not managing it with enough rigor and enough discipline in the past. You know that working capital in a car company becomes extremely complex the more your business becomes international, and the more you start exporting and moving parts and components around the world. The globalization of our industry has made that the use of the balance sheet has actually increased. You might get cost reductions from resourcing parts and components outside of your core manufacturing base. Clearly, this has an impact on your payables. The receivable side is impacted because you're going through importers in certain countries. You have shipment in transit, et cetera. As Renault's business is now 50% outside of Europe, which means outside of the Eurozone, we're now confronted with a number of issues, which include currency, a number of banking restrictions around the world. We've taken a very disciplined approach to this. I actually share things with my colleagues on the executive committee. I chair a monthly receivables committee, which includes every one of the regions. We look at line by line and in very great detail our terms. Our receivable terms are improving. We have a very disciplined approach with the COO around inventory management. All of this leads to our cash flow targets. For planning purposes, Mr. Ghosn mentioned, we're getting to the point where we believe we have a much more efficient balance sheet, more efficient terms, and more industry-standard days of measuring. For planning purposes, the working capital contribution in 2013, it shouldn't be the main contributor to cash flow. I'll tell you one thing, if you don't manage your working capital, it can turn negative on you very quickly. Zero would be a good number for 2013 for modeling purposes, in terms of the contribution that you should expect. For the second question about when we're going to start to see the turn in volume. It depends on two things. Obviously, we know exactly when our volume is going to go up because we have a succession of launches coming of very important cars at the same time that we are ramping up two products, which are going to be important for us, Clio 4 and the new Sandero, plus all the other cars. We have our own scheme, but it will be fair to say that by the middle of the year, the inflection will take place. Except the fact that there is a big joker here, is the European market. We took as a hypothesis, -3% for Europe, -3% to -5% in France, while January doesn't look good. France was at -14%, which surprised us. We were not expecting great months, but not minus 14% in France. For the European, we still don't have the statistics, but it doesn't look like we're going to be at minus 3%. Looks like Europe is going to be way below. But it's a little bit normal because the recovery is going to be slow, and it's going to take some time. The first half is going to be weaker than the second half. I would say a guess from my part would be we should see an inflection in the volume by mid-year, with all the reasonable assumption that we can make. The third question was about the platform. We have with us the head of the planning group, Philippe Klein, who's going to answer your question. Thank you, Mr. Ghosn. Good morning, ladies and gentlemen. I will not give you a simple number. More than platforms, what we are aiming at is going for sharing of modules and components in order to benefit maximum of synergy effect and cover in a modular approach, a range of products. The first direction, the first priority is to converge in that manner on what we call a CMF 1 for the replacement of the C and D segment for us and sharing a significant amount with Nissan. To give you an order of magnitude, we're going to share more than 40% on the value on the different cars among this approach. Then, for the next generation of the smaller car, currently we have basically two platform, the so-called B platform and the N3 platform, which are in fact sharing some genes. What we are working at at the moment is enforce a better convergence, sharing more in terms of components and sharing also with Nissan. Then we're going to be left with two family of modular products. On top of it, we're going to keep, of course, the one necessary for the LCVs, the two big vans in particular. What I would like to say is that obviously the benchmark in term of limited platform commonization, standardization is Volkswagen, that's obvious. We consider that everything we will do in term of commonization and increasing the scale, reducing the number of platform, putting things together, is much more to close the gap with Volkswagen than anything else. When we have a very high level of cost reduction in term of purchasing, because we have the quotes on some of the parts. As you know, the first product coming on this platform is going to be in 2014. So we'll be able to speak more particularly about it. But we don't consider that this is all going to be to profit line. I think this is going to be mainly to maintain our relative competitiveness to the Volkswagen Group. I think the companies with the smaller scale who will not have this leverage are going to be confronting very tough time. Because we have seen on our own case how much leverage purchasing is having now that we're putting the Espace on a common platform of the Alliance while it was a specific platform for Renault, Laguna, et cetera. We see how much cost reduction and investment reduction is massive. But we don't consider it is all good news. We're saying just this is to neutralize the main advantage that we think the Volkswagen Group has in front of the rest of the industry. One more question from the call. We have a question from Mr. Philip Watkins from Citigroup. Sir, please go ahead. Good morning, and thanks for taking my question. I just had a question on Russia and AvtoVAZ in particular. Do you think you will be consolidating this business? If so, when? What do you think is the margin potential of AvtoVAZ? On a similar tack, I know it's very early days in China, but what do you think could be the margin potential of that business as well? Thank you. Yeah. Consolidation is foreseen. Yes. It's a structure with the Alliance buying in with a calendar of share transfers through to the middle of 2014. From that point forward, we will have the option to consolidate AvtoVAZ. So in 2014 accounts, if we deem necessary. Yeah. In AvtoVAZ, there is a lot of transformation taking place. First, we have new platforms coming. Obviously, platforms particularly coming from Renault or platform for the Alliance, which will be used more and more by AvtoVAZ and by Lada. Second, there is a big transformation at the level of the manufacturing and of the supply base using existing manufacturing, using existing suppliers, but with Renault and Nissan know-how and expertise in order for transforming the supply base. There are a lot of things going on in AvtoVAZ. What's interesting is that the recovery of the company has been fast, obviously helped by the fact that the Russian government put the incentive on the market, which was to the advantage of AvtoVAZ. But it would be fair to say that there is no reason to think why AvtoVAZ should not reach the initial objective of the M0 platform, which, as you know, was a 6% operating margin. This is a very reasonable objective to give ourself, not immediately, but when all this transformation will be kicking in. From one side, the potential for improvement is huge. From the other side, part of this potential is going to have to given up to the market because everybody's becoming more competitive in Russia. But I would say a 6% operating margin as a goal, as a potential for AvtoVAZ, is certainly in the cards. When could that be achievable by? I would say by the end of our mid-term plan, we should be there. With all the transformation taking place, we should be there. Russia is becoming a very profitable market, particularly for Renault. Actually, it is our top market today in term of profits. Used to be, for us, a nightmare when we started. Today, it is the most profitable market for the Renault brand number one. So obviously, the product is very successful. As you know, this is M0 platform, mainly base car, but even when we localize Mégane, we are having very good results in Russia. It's a very promising market. As you know, the fundamentals of Russia are very good. This country has very little debt. They practically have no deficit. There is stability in the country. In a certain way, we are reasonably bullish on the Russian market and bullish on the prospects of AvtoVAZ. We're not there yet. There is a lot of things to be done, but at least the potential and the base is present. Given the tight schedule we have, I would ask you to limit your questions to two questions per person, please. Rabi? Good morning. Rabi Faya from Exane. My first question would be on pricing in Europe. I would be interested to see what are the recent trends on pricing, especially that one of your competitors talked about some recent price increases sticking in the market. Is that a view you share? Especially on the Clio, you had feared some price aggressiveness last year when you would launch the product. Is this something you are seeing? My second question would be on the M0 platform. Obviously, you are much above the 6% target you set. Is it fair to say that we have seen the peak in terms of margins, and we should start seeing normalization going forward? If not, when do you see this normalization starting? Thank you. Well, on the pricing, I would prefer to ask our sales people to talk because usually they are the most realistic about what is taking place on the market. I hope he will announce some good news on the market. So far, I did not hear them. One of the reasons for which we lost market share last year, because we just did not want to follow. It is not the only reason, but I said that on certain segments, on certain markets, just say, "Look, this is crazy. We are not going to go there." It is going to damage the brand, and it is unsustainable. It is unsustainable because when you start to be at lower your cost, you know that everybody is doing something crazy. Let me answer, while Jérôme Stoll is preparing on the pricing. Your second question was about the- M0. M0, yeah. As long as you do not have a competitor coming with a product competing against M0, we are going to continue to make a lot of money, which is the case today. Because people are coming with a product which is identical to Logan or identical to Sandero. That is not it. M0 success is a business system. It is not a car. It is not a platform. It is start from supply, localization, definition of the product, which is extremely, I would say, frugal, and also is the way you sell the product. There is very little marketing expense. There is very little or practically little incentive. We follow it from the group. We do not allow the countries to go above a certain level of incentives. We do not allow the countries to go above a certain level of marketing. It is controlled. In order to compete against M0, somebody's going to have to establish a complete system. It's not sufficient to come just with a car. You have the definition of the car, you have the localization of the car, you have to have a very specific sales strategy, marketing strategy. The success of M0 is due to the fact that the business system is difficult. I'm not saying impossible. One day somebody will come with something, but very difficult to copy so far or to understand what are the leverages. That's why today we are oscillating between 6% and 10% operating margin, in a very competitive market. That's why our operations, our international operations, are much more profitable because at the heart of our product offer, we have the M0 platform. Do you think we are going to stay at the same level as M0? I'm sorry? What do you Do you think that we are at the peak, and it should continue or It's a tough question. I think that for the next three years, we don't see anybody coming with a business system comparable to our, for the moment. We don't see. As long we are in this perspective and expecting something between 6% and 10% operating margin, very reasonable. With 1 million cars, which are going to continue to increase, obviously. For the price, it's always the most difficult question I have to answer. What I can say is, it's no doubt that the price pressure is still very strong, especially in European market with the overcapacity that exist. Nevertheless, what I can say is that, based on our indicators, we are improving relatively compared to our competitors. We are improving because we do believe that we were not selling our cars at the right value. We have made a huge progress in terms of quality. We have made a rather very nice progress in terms of design, which has been acknowledged by all the press, with the introduction of Clio. We do believe that there is a turnaround that we have now to enforce in the market. Based on what we have seen in our indicators, we are now catching up the competitors. We were in the middle of all the competitors. Now we are ahead of Citroën. We are on par with Peugeot, and we are trying to catch back Volkswagen. At least reduce by half the difference that we have in price with them. This is the policy that we are now implementing. Philippe? Yes. Okay, Philippe. Two question, if I may. First question regarding the contribution of the main regions. Actually, I understood that in the past or also in 2012, Brazil or Russia could bring the main part of profit. Could we see a plateau just in the coming year? As for instance, Brazil, the closure of the plant will have some negative impact. At the same time, could we see also some improvement coming from Europe, thanks to new models? Could we have a rough idea of the trend, the profit contribution of each regions or the breakdown between the international sales and the European sales. The second point is regarding the Zoe, because it seems there is a delay to launch the Zoe electrical vehicle. Could have some negative impact in term of profitability, just upfront costs are not covered or fixed costs as well as the launch will take place later than expected. All in all, for the Zoe, could we have a positive impact in some way for the year or in 2014, in term of profitability for the group? Well, you have many questions here, so we're going to maybe give the opportunity to Stefan Mueller, who is the Head of our European operation, to tell you what are the profit perspective in Europe. In the meantime, maybe Dominique Thormann can answer you about how much Brazil and how much Russia count. Let's not forget that we have a big gorilla waiting, which is China. China is a very profitable market. For the moment, contribution to Renault is very limited, 30,000 cars, and mainly cars imported from Korea. When we're going to start our own production, using already the Nissan scale, 1.2 million cars in China, to our benefit immediately on the same platform than Nissan. Renault is going to benefit from a very high growth level, and we're going to be immediately at the level of performance of Nissan in a certain way, because we're going to be benefit from all Nissan experience. It's not a normal start-up in a new country where you're going to start to build. By the way, we're going to have to convince suppliers are here, platforms are here, the engines are here, everything is here. We're just going to have to put all of this together and move fast. So for me, the biggest profit potential for Renault is not yet there. It's coming with the Chinese operation. This being said, we still have a lot of margin for growth in the emerging market. You're talking about Russia and Brazil, but India also, particularly with the success of Duster, is very promising. Yeah, on Brazil and Russia, in fact, we had a swing. Brazil was impacted, I mentioned this in my comments, by the currency, which was much weaker in 2012, particularly in the second half. We had the opposite effect in Russia. So back in euros, it looks like the two diverged. Both are very profitable, but Russia, on a per unit basis, is more profitable, even though they have a smaller number of units sold. But we now have more capacity in Russia on a full year basis in 2013 than we did in 2012. The same thing will happen, but you're right, the first two months in Brazil will be low because of the plant shutdown, which is being reworked for additional capacity in the following 10 months of the year. So that's the situation on those two regions. But both are very profitable. Yeah. Thank you, Dominique. Some explanations and some words on profits in Europe. As Jérôme Stoll has already explained, the European market, and that is no surprise to you, will stay very competitive in 2013. There is going to be a lot of pressure. But in 2013, our goal is to increase profits. How are we going to do that? Well, one element you already saw in the presentation and in the discussion that we had. One is that we are going to increase our market share. Obviously, everything will also depend on how the total market, how the TIV is developing. But our goal is to increase our market share, especially in France. We will be able to do that not only, but mainly thanks to products like these that you see here. So it is mainly fueled by a product offensive. That is one thing we are going to do. The other element, Jérôme Stoll already mentioned, and that is that we are going to also continue to work on improving our price position. That is the second element. The third element will be that at the same point in time, especially in Europe, but not only in Europe, we are going to focus to reduce the costs of manufacturing. So we have launched big initiatives, namely two big initiatives, one focusing on reducing the cost of manufacturing, and another big initiative is on the sales and marketing side in Europe. There are various projects underway to improve our sales and marketing performance. With all of that, we will have a better result in 2013 in Europe. For Zoe, I want you to know that all the R&D already expensed. We had the policy on electric cars to everything we can expense, we expense it, and everything we had to depreciate. It would be fair to say that the only challenge of the way is selling as many cars as we can. That is it. Because we have tried to reduce the fixed cost to the minimum, so we encourage people to sell Zoe. So it is not a situation where the more you sell, the more you lose. It is a situation where, on the contrary, people have an incentive to sell Zoe, because the more you sell, the more this car will justify itself. I have only one question. There is one number in the walk down of the operating profit I do not really understand, which is the price and mix, which is negative EUR 240 million. That underline that the second half was close to zero, which is pretty surprising. Can you explain a little bit this data? Is it much more mix pricing Europe, outside of Europe? Because this number looks too good to be true. Okay. Thank you, Gaetan. The negative in this one is mostly feature content and regulatory content. The enrichment factor is on the negative side. We'll give you a full breakdown of what's behind those numbers. The balance is negative. I think that throughout the year, what we've been telling you is that we really made efforts on pricing in the second half of the year, which improved things. Even though you're still showing a negative number, the gap is closing considerably. That means that for 2013 should be a maximum? We'll tell you that next year. Gaetan will tell us that later. We'll take the very last question from the call. We have the next question from Mr. Horst Schneider from HSBC. Sir, please go ahead. Good morning. Horst Schneider from HSBC. I really have only one question left. It is regarding the split in terms of profits between entry range, and I call the rest just mid and upper range. So the Renault core business. You mentioned that the entry range is still producing a margin somewhere between 6% and 10%, which implies that the other models are still loss-making. I would appreciate if you could give us some indication or plan by when you can reach the break even in the core business or basically on the mid and upper range. In that context, I also want to know where you improve more profit improvement in 2013. Is that more on the entry range, or is it more driven by improvement of the mid and upper range? Thank you. Horst, a big part of the improvement is going to come from the run-out of Clio 3 and the launch of Clio 4. This is a big segment, high volume, where we are improving or increasing the profit contribution from this segment. You are going to also see the Captur when this vehicle comes to market. Its profit contribution is significantly better than the outgoing model, which was not positive. Throughout the year, with the renewal of the M0 range, and as the CEO has just pointed out, maintaining a high level of profitability on M0, clearly the variable and the opportunity to improve profits is on the rest of the range. Clio, Captur are the two best examples. The car that was particularly weak in 2012, Twingo. So the A segment, which is a segment which remained very depressed both in volume and in profit contribution. In terms of guidance, that is what I can give you for planning purposes going into 2013. Okay. I am afraid we have to stop here. Thank you, Mr. Goen. Thank you, Mr. Thormann. The IR team will be available to answer any questions you may have. Have a good day. Thank you.