Earnings Call: Q4 2011

Feb 16, 2012

Good morning, ladies and gentlemen. As you will have seen in our announcement this morning, Renault achieved its 2011 target of operational free cash flow and has confirmed the trajectory for 2013, which we presented to you a year ago. Our CEO, Mr. Carlos Ghosn, will talk later about the challenges and the achievements in 2011 and beyond. I will focus my presentation on the financial results, starting with an overview of group sales on page five. We published our 2011 commercial results on January 17th. As a reminder, group unit sales increased by 3.6% versus 2010, with an underperformance in Europe and a strong progression in regions outside Europe of over 19%. The growing rate of Renault's international sales mix versus our traditional European markets is a key point that should not be overlooked when assessing our relative financial performance. This becomes apparent when we analyze how this commercial performance translates into our financial statements in 2011. On this slide, we show the full consolidated P&L for the group. Despite revenue growth in the period, the operating margin ended up flat versus 2010. The rest of the P&L showed an improvement of nearly every line, with the exception of the tax charge and the one-off capital gain recorded on the sale of our B shares in Volvo in 2010. I will start my review with the top line, where group revenues reached EUR 42,628,000,000, an increase of 9.4% over last year. On the next slide, number seven, we show the revenue contribution by activity. Automotive revenues grew by 9.4% to EUR 40,679,000,000 in 2011. Renault achieved double-digit growth in automotive revenues in every quarter of the year, with the exception of Q2, when we suffered from supply chain disruptions following the tsunami in Japan. Our captive sales finance company, RCI Bank, increased revenues by 8.3% in 2011. However, as you all know, measuring revenues for sales financing is not the indicator of choice in terms of performance, which I will detail in a few minutes. Slide eight shows the evolution of automotive revenues from 2010 to 2011. Starting on the left-hand side of the page, the first item is foreign exchange, which impacted negatively in 2011 for EUR 403 million. The impacts in Europe were slightly positive thanks to the Swiss franc, but we suffered a negative impact from a basket of various currencies in international regions. The major ones included the Argentinian peso, the Turkish lira, and the Iranian rial. The second item, volume, shows a positive impact of 5.2 points. Above and beyond the growth in unit sales, wholesale invoicing outpaced registrations as dealer stock rose in the period. Negative geographic mix accounts for a minus 0.9 points, as growing sales in regions outside of Europe were achieved at a lower revenue per unit than the group average. The fourth item to note is the mix effect. The increase in net revenue per unit due to product version and option mix impacted for three points of the total change in revenues. Three-quarters of the gain were recorded in the first half of the year. At our half-year presentation, I highlighted the fact that we would suffer from a lower version mix, which resulted from production constraints following the tsunami. The fifth item is the price effect, which is slightly positive at 0.4 points, better than the negative 0.9 points recorded in the first half. Others have already highlighted the increasing pricing pressures in Europe in the second half. We were in part protected from some of this pressure thanks to the Dacia range. Together with the positive price evolution in regions outside of Europe, the net sum for the year was positive. Sales to partners representing mainly sales of parts, components, and built outs to other brands contributed positively for one point. The last item represents the other activities outside of new car sales, mainly spare parts, our wholly owned dealers, and buyback restatements. As already explained at the first half, I would note here the impact of the change of our distribution scheme in China. We moved from an importer to a wholly owned subsidiary, and we therefore now consolidate the revenues invoiced to customers for import duties. The impact on the operating margin is neutral as the costs are also now consolidated, but this change is classified for 276 million of the EUR 708 million in this item. I will now turn from revenue to the operating margin on slide 9. In 2011, the automotive division posted a 0.8% operating margin, down from 1.1% in 2010. I would like to point out, however, that the automotive operating margin was positive in the second half at EUR 109 million, an improvement of EUR 124 million compared to the second half of 2010, despite the challenging situation in Europe. RCI Bank continued its growth and posted a new full-year record with a contribution of EUR 761 million to group operating margin. I will come back to the analysis of this in a few minutes. In total, for 2011, group operating margin was virtually flat, decreasing by EUR 8 million year-over-year. Slide 10 shows the breakdown of the change in operating margin, with the major drivers being volume growth, as well as our efforts on the cost side. Both of these drivers were offset by external headwinds, such as adverse movements in currencies and raw materials. I will start the variance walk reading left to right. Currencies impacted more than expected in 2011 and accounted for a negative EUR 201 million impact. Just over half of this figure related to the Argentinian peso, with the remainder coming from the Iranian rial and the Algerian dinar and Russian ruble. The next item, volume, shows EUR 455 million positive impact coming from the additional 180,000 units invoiced during the year. Mix price impacted negatively for EUR 245 million. The positive price impact was more than compensated by a negative version mix and an overall growth in the cost base of our range due to regulatory changes such as Euro 5. The version mix was aggravated by the lower mix following the tsunami that I called out at the half-year stage for EUR 50 million in this half. The higher cost of raw materials impacted our accounts for EUR 509 million. Here, too, as we told you at the half year, this headwind was larger than initially expected, even if we have seen a relative slowdown in the second half. Monozukuri savings accounted for a positive EUR 500 million. Purchasing, manufacturing, logistics, and warranty all showed a positive trend in efficiencies. The P&L impact of R&D expenses in the year impacted negatively for EUR 125 million. The capitalization rate was 39.1% in the period, stable compared to the 38.5% in 2010. The difference between capitalization and amortization in the period resulted in a positive impact to operating margin of EUR 37 million. G&A had a negative impact in 2011 of EUR 19 million compared to 2010. I would highlight the positive impact of EUR 20 million in the second half, thanks to additional measures taken by the group to control fixed costs. Excluding foreign exchange, RCI's contribution improved by EUR 60 million in the period. The others line represents a host of sundry items, including minor reclassifications in our P&L and scope changes for a total of EUR 49 million. I will now explain the increase in RCI's performance on page 11. The contribution to the group's operating profit margin was mainly driven by the growth in outstanding financings and service contracts, as well as lower net charge-offs. New financing increased by 11% to reach a record annual production of EUR 11.1 billion, despite a volatile capital market, especially in Europe after the summer. RCI benefited both from the sales growth of the Alliance brands and an improvement in its penetration rate of 200 basis points, reaching 33.6%. Average outstanding loans rose to EUR 22.8 billion, and net banking income remained at a strong 5.21%. Cost of risk came in at a very low level of 23 basis points of average outstanding loans, a reduction of 17 basis points compared to last year. This is a combination of two factors. Firstly, retail charge-offs of 35 basis points are explained by the better quality of our loan production in recent years. Secondly, a positive impact from dealer loans resulting from the release of provisions in line with the improved financial health of dealers, notably in France and in Belgium. Finally, operating expenses dropped to 1.58% of outstanding loans and represented 31% of income. In total, the pre-tax return on assets reached a benchmark 3.44% of outstandings, giving a return on equity of 23.3% with a solvency ratio of 11.2%. Now that we have covered the operating margin evolution, I will continue down the P&L with the other operating income and expense items on slide 12. While these items posted a net charge in 2010 of EUR 464 million, the same period this year shows a positive result of EUR 153 million. The first item of EUR 71 million relates mainly to the reversal of a provision taken for the reorganization of buildings for head office functions in the Paris area, which was canceled. The second item in this table relates to the impairment of assets, both tangible and intangible, and in line with accounting regulations, in light of the improved outlook for three vehicle programs, previous impairment charges were in part reversed as the improvement in future cash flow will be able to cover the depreciation. The reversals impacted positively for EUR 88 million. Three additional vehicle ranges were impaired during the period for a total of EUR 149 million, resulting in a net negative impact of EUR 61 million. The last item in this table is the capital gain on the sales of lands and buildings, mainly in France, for EUR 143 million. Continuing down the P&L, the next item is the net financial and expenses on slide 13. The net charge decreased by EUR 255 million compared to the same period last year. The major contribution came in the reduction of gross debt, including, of course, the reimbursement of the last EUR 2 billion of the loan from the French state. The next slide, number 14, shows the impact of associated companies on Renault's P&L. As we have already published the impact of Nissan's results in the first nine months of 2011, I shall focus my attention on the impact in the fourth quarter of the calendar year. On the back of Nissan's strong results, the contribution for the quarter equaled EUR 523 million. This includes one-off restatements in the period for EUR 164 million. These were mainly due to the change of the taxation rate in Japan and its impact on the IFRS restatements on the value of Nissan's tangible and intangible assets as they were booked in Renault's accounts. Excluding these restatements, the impact of Nissan's results in the fourth quarter 2011 improved EUR 137 million over the same period in 2010. Volvo's results yielded an additional EUR 136 million. I would like to note that following the sale of our B shares in the second half of 2010, we now only take 6.8% of AB Volvo's results into our accounts corresponding to our holding of the A shares, compared to 21.8% through October 2010. Renault share of AvtoVAZ's results, which is consolidated with a three-month time lag, posted a positive EUR 49 million, an improvement of EUR 70 million compared to 2010. I will now turn back to the P&L for the last time on page 15, where the net tax charge for the year came to EUR 508 million compared to EUR 58 million in 2010. The current tax charge in the year totaled EUR 408 million, EUR 68 million higher than in 2010. However, in 2010, we recognized EUR 238 million of deferred tax assets. In 2011, we have impaired EUR 108 million of these deferred tax losses following the change in the Budget Act in France last September and updated our tax planning assumptions. The last line on the P&L statement is net income. In 2011, net profit after tax came in at a positive EUR 2 billion and EUR 139 million, EUR 1 billion 351 million down on 2010. If you were to restate the EUR 2 billion of capital gains made in 2010 with the disposal of the Volvo shares, the net income would have shown an improvement of EUR 649 million year-over-year. After taking into account minorities, the net result per share came to EUR 7.68. Now that I've completed the analysis of the P&L, I will turn to Slide 16 on the evolution of net automotive debt. In 2011, cash flow from operations totaled EUR 2 billion, EUR 910 million, in line with 2010. After showing an unusual negative impact of EUR 437 million at the end of June 2011, due to the disruptions in inventory caused by the tsunami, I had highlighted that this would reverse out in the second half. The change in working capital requirement contributed positively for EUR 627 million for the full year. Slide 17 shows the breakdown of this change in working capital requirement. Trade payables ended up slightly negative for the full year as we took the decision to reduce production at the end of the year following the fall in the order intake in Europe as concerns on the European sovereign debt crisis increased. Fourth quarter production was down 3% on the same period in 2010 and was the only quarter in the year that showed a negative evolution. Inventory reductions impacted positively, which I will cover on the next slide. Receivables were flat on the end of 2010 levels. This figure hides a positive performance at the automotive revenue base for the fourth quarter, which was 11% higher. The item labeled Others in the working capital change came to a positive impact of EUR 520 million. This item includes positive impacts coming from VAT, dealer payments, and social charges, mainly in France at year's end, as well as higher activity on buyback agreements. In order to conclude on the analysis of the change in working capital, Slide 18 shows the breakdown of distribution stock, that is to say, the full chain of inventory on Renault's balance sheet, as well as that in the independent dealer network. Thanks to the aforementioned production cuts, we managed to reduce inventory in the fourth quarter to 52 days of sales. As you know, we calculate this figure based on the sales of the previous quarter. If we were to express this figure as a percentage of the future sales, the indicator would show 57 days. Either way, we're comfortably within the guidance range of between 50 and 60 days of sales and well-positioned going into 2012. Turning to Slide 19 on the net financial debt reduction, net tangible and intangible investments came to EUR 2 billion, EUR 453 million. Net CapEx and R&D expenses represented 7.5% of group revenues, +100 basis points versus 2010. As a result, operational free cash flow came to EUR 1 billion, EUR 84 million. Dividends from associates now considered outside of free cash flow scope totaled EUR 335 million. As announced, and in accordance with our pass-through policy in 2011, we paid EUR 88 million of dividends received from listed companies in 2010. The remaining amount of dividends paid related to those for our minority partners, including OYAK in Turkey. The Others item shows a negative EUR 138 million relating to foreign exchange impacts on debt and the financial investments, including recent investments in AvtoVAZ. For the third year in a row, net automotive financial debt decreased in the year to close 2011 at EUR 299 million. Net debt expressed as a ratio to shareholders' equity was below 2%. Looking at liquidity levels at the automotive division on Slide 20. In 2012, we have been able to achieve two objectives. Firstly, to reduce gross debt with the early reimbursement of the French loan for EUR 2 billion, and thus reduced financial expenses in the P&L. Secondly, we kept the automotive division liquidity reserve at a high level of EUR 11.4 billion, of which EUR 7.6 billion of cash. This liquidity reserve, combined with the maturity profile of long-term debt, will limit the requirement for us to access the capital markets in 2012. As a reminder, in January, we secured a EUR 180 million loan from the European Investment Bank with a maturity to 2016. RCI's liquidity position on Slide 21 also remains strong. At EUR 6.5 billion, RCI's liquidity reserve is sufficient to cover more than two times the total outstanding of commercial paper. Despite the extreme volatility in the financial markets during the year, RCI Bank raised EUR 7.2 billion of new funding with a maturity greater than one year in unsecured bonds, as well as securitized asset sales. 2012 will also see the launch of Zesto, RCI's new online deposit account, which will allow us to further diversify our sources of funds by collecting retail deposits. That completes my financial review for 2011. I will now pass the stage to Chairman Carlos Ghosn. Thank you. Good morning, ladies and gentlemen. 2011 was a challenging year for the automotive industry. You know that. We were confronted with at least four major external events that negatively impacted our performance. First, the raw materials, their significant rise, especially in the first half of the year, negatively impacted our operating margin by EUR 500 million. Second, foreign exchange rates moved against us in many parts of the world and accounted for an additional EUR 200 million negative impact. Third factor was the consequence of the tsunami in Japan on our supply chain, for which we estimate the negative impact to have been EUR 200 million for the full year. Finally, the European sovereign debt crisis led to a pricing environment in Europe that was worse than initially expected. Despite these external headwinds, we remain focused on executing the first year of our midterm plan. Let me highlight some of the key milestones for Renault in 2011. First, international sales grew by more than 19%, taking the share of our sales outside Europe to 43%, up six points on 2010. Brazil and Russia are now respectively the second and fourth largest markets for the group. They are key international pillars in terms of volume and profit. Second, we launched electric car. Renault brought to market two electric vehicles on time, at cost, at the right level of quality, and at the same price as their diesel-powered equivalents. Last, we continued to improve our balance sheet. Net automotive debt decreased to a level not seen for us since 1998. We continue to manage the company with free cash flow as the key aggregate of financial performance. The control on fixed cost and capital investments and the change in working capital contributed to generate over EUR 1 billion of operational free cash flow in 2011. As always, there is room for improvement, and 2011 was no exception. We are far from our potential on the cost side with our Monozukuri program, and we fell short of fully pricing additional vehicle content to our customers. The disruptions in our industrial output quarter by quarter impacted Monozukuri performance. In the first quarter of 2011, we struggled to raise production volume to meet a stronger than expected demand due to part shortages. In the second quarter, we lowered production volumes as a consequence of the tsunami, only to accelerate in the third quarter when the availability of components normalized. The rising concerns in Europe and the resulting drop in order take in the fourth quarter once again drove us to sharply reduce production output. The switch from fast to slow four times in one year obviously weighed on our ability to obtain the maximum gains from manufacturing efficiencies, and we incurred higher logistic costs for air freight emergency deliveries. The second area where we did not fully perform was the pricing of vehicle content and specifications onto our customers, in particular in Europe. The supply disruption caused by the tsunami prevented us from manufacturing the required mix of engines, particularly diesel, resulting in the negative impact of EUR 50 million on the second half of 2011. We were selling cars to customers that we were able to produce. In 2012, we will be able to sell cars to customers with the mix, hopefully totally in line with the demand. However, beyond this one-off impact, we have not been able to fully pass on to customers the cost of additional content, be it either for regulatory requirements or competitive enrichment. This weighed on our profitability in a year with few new model introductions from the group in Europe. In this volatile environment, the challenge is to protect performance by reacting and adjusting to the changing business conditions. 2011 demonstrated Renault's ability to rise to that challenge. We achieved the two key objectives set out in the first year of our plan, Renault 2016 Drive the Change, namely an operational free cash flow above EUR 500 million and growth in unit sales and revenues compared to 2010. 2011 results also confirm that we are on the right trajectory for 2013. Therefore, the board of directors proposed a dividend of EUR 1.16 per share to be voted at the next General Assembly of Shareholders in line with the dividend policy announced last year. This corresponds to the value of dividend received from Nissan, Daimler, and Volvo during the year, which will be systematically passed to Renault's shareholders. I will now turn to the outlook for 2012. Our assumption is that global TIV will grow by 4% compared to 2011. As you can see on the slide, the growth is coming from regions outside Europe. Current momentum and visibility in Europe is very low. Our expectations are for a decrease between 3% and 4% compared to 2011, which notably, the French market is set to fall between 7% and 8%. The first quarter in France will show a significant decrease of over 15% due to the high comparison base from the end of the scrapping system in the first quarter of 2011. Considering this scenario, we expect to further grow unit sales this year. Just like last year, the driver of this growth will come from the regions outside Europe, resulting in a non-European sales mix, which would reach at least 47%. I will now turn to a review of our activity and opportunities for 2012 by region, starting with a focus on Brazil. In 2011, Brazil became second largest market for Renault. Our market share increased to 5.7%. Our sales rose by 21% in a market that increased by 3%. Our performance in Brazil accelerated during the year as our market share grew from 4.9% in the first quarter of the year to end with 6.9% in the last quarter. For the last two years, Renault has been one of the fastest-growing brands on the Brazilian market, thanks to a well-positioned and localized product range. Sandero represents more than 40% of our sales and has a segment share of more than 8%. in October 2011, we introduced the Duster. The commonality of parts between Duster and Sandero is over 70% in value, allowing us to maximize localization since day one. With this new product, Renault has taken the leading position in the SUV segment, which represents more than 7% of the Brazilian market. With a full year of sales of Duster in 2012, we aim to gain market share while further reinforcing the image of the Renault brand. We announced in October last year that we will be investing EUR 200 million in Brazil to expand our capacity by 100,000 vehicles in 2013. In our midterm plan, we had targeted 8% market share in 2016. We have now brought this forward by at least one year, thanks to the current sales momentum and our capacity increase. After several years of sluggish performance in the early 2000s, our Americas region is now a solid base of growth of volumes and profitability for the group. Beyond Brazil, we are reinforcing our presence in Argentina, where we localize production of Fluence, and in Colombia, where sales reached 47,000 units. The strong overall growth of volumes in the region led to a profit increase that compensated the negative currency swings of over EUR 100 million in 2011. With more than 160,000 cars sold in 2011, Russia is now Renault's fourth largest market, gaining five positions in one year. Adding volumes from both the Lada and Nissan brands, the Alliance sold 880,000 units in 2011 for a market share of 33%, making Russia the third largest market for the Alliance after China and the United States. Renault outperformed the market in 2011 with a 60% increase in sales, thanks to the success of Logan and Sandero. In 2012, we will start local assembly of Koleos and Latitude, and most importantly, the commercial launch of Duster in March. As for profitability, the Russian market is where we registered the highest profit per vehicle in 2011. This profit base is set to improve as we further expand sales and consolidate our positions in the upper segments. In the coming months, we will inaugurate, with AvtoVAZ, a new production line in Togliatti based on our M0 platform. The first vehicles on this line will be produced for the Lada brand, with Renault-branded vehicles in productions from 2013. Brazil and Russia are two key countries in which the group is already enjoying a strong momentum. On the negative side, within the Asia-Africa region, the performance in South Korea has become a drag on profitability for the group. In 2011, sales decreased in Korea by 30%, due to a competitive weakness in both cost competitiveness and products. A revival plan has been rolled out in January to address these issues. It targets 80% local sourcing, better sales and marketing efficiency, and significant fixed cost reductions. Product attractiveness will also be reinforced with facelifts and optimized powertrains to be launched during the year. The plan targets a return to break even at the latest in 2013. After the failure of previous agreement with Mahindra, Renault has learned from the experience and is relaunching in India jointly with Nissan. 2011 was the start year with the launch of the Renault brand and the opening of 35 dealerships across the country. Two models were launched during the year, Fluence and Koleos. In 2012, Renault will introduce three mass-market cars. In the B segment, we launch the Pulse in January. It will be followed in the second half by a sedan. Both models are based on Nissan's V platform. The most important of our models in 2012 will be Duster, which will be launched in the fall. These three models alone are expected to contribute to Renault's growth by an additional 30,000 vehicles during the year 2012. Growth in 2012 will also be supported by our new plant in Tangier, Renault's first greenfield site since 1999. Initial full-year capacity will be 170,000 vehicles, which will be doubled by mid-2014. Tangier brings additional capacity for our entry range, easing the pressure on our plant in Romania, for which demand is today exceeding supply. Lodgy, Dacia's new midsize MPV, is the first model to be produced in Tangier. By the end of 2012, three models will be in production, with additional versions coming in 2013. Morocco is also a good demonstration of how our group can achieve a strong commercial performance for two brands in the same market at the same time. With over 37% market share, the strong position of both Dacia and Renault brands are proof of how the two-vehicle ranges are complementary and can progress independently one from the other. They are respectively the number one and the number two brands in the country. The performance is not only about volume, but it is also about profitability of vehicles, because the one that we are selling in Morocco is one of the highest in the group. I would now like to turn to Europe. The European market outlook is not positive for 2012. Austerity measures and low consumer confidence are driving demand down. Pricing is under pressure as the industry struggles to overcome the impacts of scrapping incentives and overcapacity. Visibility is low. The Dacia range, and in particular Duster, continues to outperform in this environment as these models are sold without any discounts. Lodgy and the addition of new capacity for our range will boost our sales in 2012. The Renault range will benefit from the launch of four new Alliance powertrains in 2012. On the diesel side, for instance, the model year of Megane will start at a best-in-class consumption level and only 90 grams of CO2 per kilometer. This level is one gram away from competitors' hybrids, but the Megane does not have the dual technology in its cost base. The interest shown by Nissan and Daimler for our engines and gearboxes is a good testimony of our powertrain performance. Our powertrain plant in Cléon should sell 40% of its output in 2012 to Nissan or to Daimler. Production of a light commercial vehicle for Daimler will start at our site in Maubeuge in the summer. 2012 will also see an accelerated product launch plan, which will support Renault's current position as the second best-selling brand in Europe. Seven new models will be launched in Europe in 2012. Two electric vehicles, Twizy and Zoe. The all-new Clio 4 in the fall. Three vehicles from Tangier, Lodgy, an entry light commercial vehicle, and a passenger car variant. In December, we will launch the new Sandero, the first vehicle of the existing entry range to be replaced. Adding the 2 new model launch in India, 2012 will see 9 full new introductions globally. We will also launch 10 new facelifts, starting with Scénic and the new Twingo in January. More than just a facelift, Twingo shows the first elements of Renault's new design. Clio 4 and Zoe, to be launched in the fall, will be the first key models to fully integrate this new expression of Renault design. The last topic I will cover is cost. In my opening remark, I highlighted the difficulties encountered with a stop-and-go pattern of our factories during 2011. While forecasting was complicated, we did learn how to reduce a lot of bottlenecks, which will help us operate a leaner industrial system during the year 2012. We also took measures to finish 2011 with inventory aligned to demand, which had not always been the case in the past. A more linear production plan during 2012 should help our group accelerate Monozukuri cost reductions. More importantly, we expect this activity to produce a gain net of the impact of raw materials of at least EUR 300 million. On the fixed cost side, we set ourselves a cap on R&D and CapEx at 9% of group revenues for the period of the plan. Thanks to the global access to technology and platforms through our alliance with Nissan and our strategic partnership with Daimler, Renault is achieving a significant reduction in fixed cost over the cycle. In our midterm plan, we targeted a 200-basis-point reduction of these expenses compared to the prior 10-year average without sacrificing our range expansion or our technological coverage. In 2011, expenditure fell under the 9% cap at 7.5% of revenues while confirming our product and technology launch plan without any delays. Further opportunities are being explored for 2012 in order to remain significantly below the 9%. Within this cap, we are expanding capacity in Morocco, in Brazil, and in Russia. We are pioneers in the launch of the electric vehicle while presenting a benchmark range of both gasoline and diesel engines in Europe. In conclusion, the first year of Renault 2016 Drive the Change was achieved despite a very challenging environment. The outlook for 2012 is for unit sales growth and a positive operational free cash flow. The foundations are in place to maintain the trajectory to achieve our 2013 targets. 2012 is also a key year for our industrial sites in France. Investments at Douai for the mid and upper range total EUR 420 million as we prepare for the arrival of the CMF1 Alliance platform. CMF1 platform covers the next generation of C and D segment cars for Renault. This will be shared with Nissan and Daimler in other sites throughout the world. Thanks to this collaboration, the entry ticket for the CMF-1 platform will see a 40% reduction compared to the previous cycle investments for the C and D segment vehicles in the Renault range. Variable cost reduction will also be significant, as the commonality between Renault and Nissan vehicles will significantly surpass our existing levels and achieve in excess of 50%. At the same time, we are working on the next steps for the second phase of our plan beyond 2013. The auto industry is undergoing a profound transformation as a growing proportion of the market shifts to emerging economies. This is a trend that we are not ignoring, and we must continue to prepare for. Discussions are underway with AvtoVAZ in Russia to further strengthen our cooperation within the Renault-Nissan Alliance. In China, we are moving forward with the authorities on the specifics of Renault's industrial presence in this market. Both of these strategic moves should be presented in 2012. The Alliance with Nissan continues to benefit Renault significantly. With Renault 2016 Drive the Change, our strategy and objectives are crystal clear. Everyone within the company understand that the goal is to reestablish the value of Renault's core business in the eyes of all our stakeholders. Everything now rests on the quality and the depth of the execution. Thank you for your attention. Okay, thank you very much. We will take both questions from the room and from the conf call. Perhaps if I start with a question from the room. Person at the top on the right-hand side, Thomas Besson. Good morning. It is Thomas Besson with Bank of America Merrill Lynch. I have four questions, please. Starting with dividend. You said, Mr. Ghosn, if I remember well, that you would start paying a dividend, including some of Renault's free cash flow relatively soon. You just pay now EUR 1.16, which is nice, but that is recycling dividend paid the previous year. When should we expect Renault shareholders to get a real boost in terms of dividend payment, which could contribute to rerate your core business? That is my first question. Second, can you comment on the overall profitability of the entry range, and could you confirm that it is fair to assess that entry accounts for more than 100% of your auto profits in 2011 and in 2012? Thirdly, could you give us more details on the evolution of the cooperation with Daimler in terms of what kind of cost savings we should expect for Renault in 2013, with Twingo 2014 eventually? Finally, a question probably more for Mr. Thormann. On the working capital swing, could you give us more detail on this 520 million orders swing, which has been a big driver for the beat on free cash flow? Thank you. Okay. Well, on the dividend policy, we are in line with what we said. I said all the dividend we are receiving from our partners, we are going to give them back to the shareholders, and we are going to establish the core business of Renault. In the reestablishment of the core business of Renault, obviously, we are going to pay dividend from the core business of Renault. As you know, the first priority was take care of the debt. We made a good step in 2011 in difficult conditions. We are going to continue to do that. I want the company to be cash. I want the company to be significantly cash. We are going to have every day, every year, to make an arbitrage between how much cash we want to pile up from one side and how much dividend we want to pay to our shareholders from our core business. Knowing that the rules of paying back to the shareholder everything we receive from Nissan, from Daimler, and from Volvo will continue. Hopefully, you can expect that in 2012, 2013, depending on how the European market is going to fare, you are going to start seeing dividend being paid from the core operation of Renault. But without any doubt, it is our objective as a demonstration of core business of Renault is valuable. It is providing cash and paying dividends. The second question was- Profitability of the entry range, that is one. Yeah, it is very profitable. Our profitability today rests on M0, on Megane, and on LCV. We are not very profitable on the B segment, and we are negative on the top segment. You can say, if I tell you the M0 is more than 100% of the profit, the deduction, wrong, would be that everything else is not contributing, which is wrong. In fact, we have many positive contribution, but as we have negative contribution, you can have different conclusion from these statistics. But M0 is very profitable. In a certain way, we would like it to be as profitable as possible. It is not the only pillar of profit. Today, the other one is Megane and is light commercial vehicle. I think the opportunity we have is boost the LCV profitability. This is a clear opportunity for us. With the launch of Clio 4 and the launch of Zoe, boost the profitability of the B segment, which is today very weak, and in some parts, negative. Obviously, with the renewal of the top range, eliminate the drag on Renault results coming from the D segment. Unfortunately, this is going to come only in 2014. The M0 is, in a certain way, competitive advantage for Renault, because from all the car makers we know, we are probably the most profitable in this segment, and with the highest growth. Daimler cooperation? Well, this is very strong. With Dieter, we had a conference yesterday. We were reviewing all the projects. We continued to pile up projects. You know everything we have already announced. I have to be careful about what we announce and what we did not announce. Obviously, the Twingo Smart, we have the Kangoo badge Mercedes starting in summer. The exchange of engine continue to pile up in all direction, from Renault to Daimler, from Daimler to Nissan. Now, using manufacturing starting, where we're going to be building a Daimler engine in Decherd plant of Nissan. We're working together on the electric car. We're working together on the battery. We have a common development now on fuel cells. I can tell you that there are many more other plans on products and technology going on. This is due to the fact that we don't see ourself as competing. The beauty of this partnership is Daimler doesn't see Renault and Nissan as competitors, and we don't see Daimler as a competitor. Their main points are in truck and the top end. Even in the luxury brand, Mercedes is completely different from Infiniti. The cross-shopping, practically very little cross-shopping in every region. So this is boosting a lot of contribution. You're going to hear much more project in 2012 coming. We are working on a lot of projects, can't talk to you about them, but a lot of significant steps will be done in 2012. So you see that this partnership is going to bring a lot of money. For the moment, we're not counting too many. It's not going to impact significantly 2012, but on the second part of the plan, it's going to be significant. Okay, I'll take the working capital question. Basically, it's in three. The categories that I mentioned in my speech, basically, it's a third, a third, a third, in terms of the impact of the EUR 520 million. So a third would be the VAT, and a third dealer payments, and the remaining third is the deferred social charges and buybacks. So it's just timing differences that at cut-off date, amounted to that number. Okay, we take a second question from the room. Yeah. Phil. three question. First question regarding the profitability in Korea. When do you expect to get profit in this area, given the measures you have taken to reduce the cost and to increase the volume? Second question is regarding the impact of new production launch on the M0 platform. Do you think that in the short term, we may have a pause in term of profitability in this segment due to the launch cost or production costs in new areas or new production taking place in Brazil or Morocco launch cost in 2012? The third question is regarding, coming to that later, on the electrical vehicle. Do you think that it may be a drag in profit in 2012? For this segment, when do you expect to get positive figures or breakeven, at least, on the electrical vehicles in Europe? So first- First you could. Yeah. Well, our target is 2013. We're going to fix the problem in 2012. Frankly, we're going to completely reshuffle the operation in Korea. Completely reshuffle. Completely reshuffle the plant role, the development role. Obviously, it has to be received not only in function of our future strategy in China, but also in cooperation with Nissan. The localization of the part, the product range, the organization we have, the cost level. Korea has been up and down for so many years. It's time that we stop the surprises coming from this market, which mean there are going to be much more integration of Korea within Renault from one side and Nissan from the other side. There are many problems. We're going to fix them, because there is no reason that outside Europe, we can have a situation like this in a market which is very large. And yes, we have very tough competitors, but at the same time, there is no other competition in a certain way. So 2013. Second question was? Frankly, for the moment, I don't see. A lot of competitors trying to imitate Logan and Sandero and Duster, et cetera. It's not working for them. It's not working for us. M0 for us has been a good surprise. We never counted that the profitability will be much higher than the 6% operating margin that we took as a target. We're way above that. Way above that. So it's a good surprise. From time to time, we have good surprises. This is one. And the growth continues. The growth continues. And Morocco is going to reinforce this because Morocco is going to be a monster in term of competitiveness. I think it's going to be much more competitive than Romania because of all the advantage we've got in Morocco, plus support. Plus the support of the Moroccan government. We have negotiated it. The strategy behind Morocco is perfect for the range. We just want to make sure that the execution is going to be at the level of the strategy. I am foreseeing, frankly, a boulevard for the M0 range still for the next 2 to 3 years. There have been some tentatives copying the system. It's still not working. I just want to give you a number that means we obviously are not very good forecaster, but when we started Duster, our initial forecast was 80,000. This was even a reforecast. The first one I heard, 60,000, then 80,000. You know how much we're going to produce for next year? 300,000. So we went from one to five or one to four, which means, again, we're coming, and the low cost, this range of product where you're offering simple car, very generous, at an affordable price, extremely powerful. Now, this having been a success, now we're moving, and again, I mentioned it many times, but you need to know it, now we're moving below this level. Okay? With the A platform, which is going to be a common platform between Renault and Nissan. And obviously, this A platform is going to be localized in India, and the objective is to repeat what we have done with Logan and the M0 platform at a much lower level for emerging market. It's not going to impact 2012, 2013. This is going to be for the second part of the plan. So M0 has been a success, continue to be a success. There have been some copy of the product. But you see, the success is not coming only from the product, it's coming from the system. You have to have high localization rate, you have to be in an LCC country, you have to have good logistical routes, you have to discipline your marketing and sales organization in term of variable marketing expense, fixed marketing expense. You have to completely differentiate it from the Renault system, and we have been able to do that. For a car manufacturer to reproduce not only the car but the system, obviously, it's still not done. So it may happen one day, but it's still not done. Is EV a driver of profitability? Every single EV we launched was with a positive NPV and a decent operating margin. Every one of them. None have been launched by saying, "We're going to lose money, but we're going to gain something else." Obviously, the first six months or one year or two years are not going to be positive. As you know, we have taken the strategy to expense most of the EV. That means we're not trying to depreciate a lot of the EV in the future. We are expensing them. We've seen a hit in 2011. We have had some in 2010. You're going to have a hit in 2012. For me, the EV is an investment for the future. It's an investment for the future. It's good that we're taking the cost now, but this is going to impact positively the second part of the plan. Obviously, Zoe is going to be the masterpiece of the EV. It's coming in October. Launch of sales is October 2012. For the moment, the Kangoo and Fluence are starting. Obviously, we have to push because people are afraid there is no infrastructure. They're not sure that the incentive is going to stay. It's up to us to make it. It's not going to happen passively. We've seen it with Nissan effort on the Leaf. You have to go out, you have to persuade people, and you have to take a stance as a company. You have to lobby government, and then it will be coming. The Leaf has been selling more than 25,000 cars so far between Japan and the United States. I'm very optimistic that this is going to be a very important asset for Renault. We're paying the cost now, which is fine, but the benefit is going to come in the future. Not one program on EV has been launched with a negative NPV or a negative operating margin or even a below average operating margin. Okay. We'll try and take a question from the conference call. We have a question from Mr. Philip Watkins from Citi. Sir, please go ahead. Oh, thanks very much for taking my questions. I just had three, if I may. On the outlook for positive operating free cash flow in 2012, I do not know if you would be comfortable at all in maybe being able to quantify that. I look at consensus, which is I think is around, correct me if I am wrong, EUR 100 million. Does that feel reasonable there? On sales financing, it is obviously still very profitable. How do you feel that will develop in 2012? If I may finally, just on Brazil, I was wondering how the second half progressed in terms of profitability versus the first half, and how you feel about that market this year. Thank you. Now, for free cash flow, obviously, when we have seen what our competitors have told you, we had the impression that we told you too much. Because we do not see any guidance coming from the other car manufacturer, which we understand because of the volatility of 2012. So what I guarantee you is free cash flow is going to be positive, and what I guarantee you is the EUR 2 billion free cash flow accumulate 2011, 2012, 2013 will be delivered. Okay. So obviously, we are going to have to make a step this year. How much it is going to be, frankly, sitting in February and knowing that the European market collapsed about 20% in January. The orders are really all over the place. It would be a little bit foolish to give you a number. Frankly, we obviously have our estimates. They are changing, and that will be changing. But what we can guarantee is positive free cash flow and the step towards the EUR 2 billion 2011, 2012, 2013. I don't think it would be reasonable to give you anything else. Brazil, first half, second half. Yeah. Brazil, first half, second half. I think we've done well on the second half. I personally It was up on the second half. But we launched Duster also on the second half, which was a big boost. We're optimistic on Brazil. We're growing in Brazil. There are some where we have been above 7% market share in Brazil, and frankly, we didn't see the full potential of our range. We're not counting on a tremendous growth in Brazil in 2012, but we think there are going to be growth in Brazil in 2012, and we are going to be growing. One of the limits we have today in the Americas is supply. We don't have enough capacity today to support all the sales potential in Brazil. And the momentum continues. That means we don't see any sign I'm talking about our own performance. I'm not talking about the overall market. We don't see any sign of any change into the trend growth for Renault in Brazil. That was it. Take the sales finance question, if you wish. On sales financing, clearly, one item difficult to predict is where charge-offs are going to land. I think we've got a very good book of business that we bought in the past years. We're not seeing anything that is of concern right now. As I said in my speech, we were over-reserved on the dealer side. We actually had to release provisions on the dealer side. On the retail side, it's basically business as usual. If we can keep that number to something that's reasonable, I think we can still deliver good performance. We have opportunities on the service side of the business, which is still expanding. We've rolled out a number of products internationally, where we've discovered that there was more appetite for certain forms of auto-related services and insurance contracts. We created, actually, a new team of, actually, a partnership with Renault, which is much tighter, which we call Renault's RSI, Renault Service International, which allows us to have more firepower in the network outside of Europe. On that, I'm optimistic. Then, the financial markets will be what they will be. So far, as the funding situation, the liquidity situation is good, and we're able to produce the number of loans that the Alliance brands are requiring. So far, touch wood. January was good, by the way. Thank you. Okay, we'll take another question from the call. The next question is from Laura Lemke from Morgan Stanley. Madam, please go ahead. Yeah, good morning. It's Laura Lemke from Morgan Stanley. Thank you for taking my questions. The first one would be on your guidance. You're pretty confident, basically expecting revenues to grow and also a positive free cash flow. I'm just wondering if you could give us any sort of indication, if you think you can maybe also maintain the margin level that you've shown in the second half of 2011 for the auto business. Secondly, regarding your order intake, I think at the end of last year, you kind of mentioned that orders had reached 2008 recession levels in Q4. So I'm just wondering what you're seeing right now and how does your order book compare in Q4, let's say, with Q3, and also, how is the first quarter shaping up now? Also maybe in terms of pricing in Europe, how has this developed against, let's say, over the last couple of months or so, especially in France? Last question, generally, given that you're now almost debt-free, like you said, you confirmed your free cash flow guidance, and you may potentially even be profitable in 2012 in autos, isn't this maybe the right time to reassess the structure of the Alliance you're having with Nissan? Thank you. Okay. I'm going to ask Jean-Charles to give you the latest in term of orders between France and Europe and what is the situation. Again, I don't want you to be too scared because we have seen this movie before, and it may change from one week to the other. But for the moment, the situation is not good. Compared to 2011, it's not good. Compared to 2008, even, it's not good in term of orders. But in the meantime, while he's preparing and preparing the numbers, I would like to tell you about the lines you're saying, how about now you said you want to reestablish the core business of Renault, and then after this, you will reconsider lines. We're far from done. About the core business of Renault, we are far from done. We just at the beginning of it. I really think we have a duty, if we want this Alliance to last in the future, to make a very strong core business of Renault. If not, no matter what I want, and no matter what you want, or no matter what everyone want, this Alliance cannot stay. You cannot build an Alliance with a completely unbalanced creation of value. That's why it's absolutely fundamental that we concentrate onto the creation of value due to the Renault business, and we are geared to that, and this is the main objective of Renault 2016 Drive the Change. When we consider that the core business is start to be reevaluated seriously, and we are on the right track, and we have many opportunities. Let's not forget, in term of potential for Renault. When Renault will enter China, you can imagine the acceleration of growth that we're going to see, because for the moment, we're just selling peanuts in China. We're selling 30,000 cars, importing them from Korea. That's not our ambition. When we're going to have our own plants and we're going to be building a system which is going to be copied on the Nissan system, which is today, as you know, selling 1.2 million cars in China with a capacity going to 2 billion being built. You're going to see the formidable, I hope, acceleration in the growth of Renault. We're starting it in India now, where after the problem that we had with the launch with Mahindra, now we are pooling with Nissan, with Chennai. We're localizing the cars. We're going to go for a very high level of localization. Nissan is doing well, Renault should be doing well. Second acceleration. Third, we are just beginning the Russian strategy. We're seeing the result of the Russian strategy. One of the highest profit margin in the group, and one of the highest growth perspective. Now that we're going to be able to build cars in the Togliatti plant that have been redone by the lines, we're going to have a third acceleration of growth. So frankly, we're far from done in term of establishing the core business of Renault, and only when this will be really absolutely certain, then we can think about other steps at the level of the range. Mr. Stole. Yes. Hello. Stand up. Yes, it works. Yes, regarding the orders, it's clear that, as from mid of October last year, the orders in Europe starting to decline and being at the level of 2008 level. As from the beginning of this year, what we can see is that we're still in line with what we experienced in the beginning of 2009, which means in line with what we experienced in 2008, late 2008. We are 16% in terms of order below 2011 result at the end, in terms of order taking at the end of January. This is basically. It's not especially France, which is affecting, because France at the beginning of 2011 was quite low. But it's more the rest of Europe. Nevertheless, we are still pulled by the international market, where the orders are quite good. Yeah. There is another question about the first half of the year. Frankly, because of the uncertainty on volume and what is going on in Europe, we were not very confident about the way we have seasonalized our budget for the year. I want to give you a trend, we still think even though there is a high volatility in it, we still think that the operating profit on the auto should be positive on the first half. Okay, I think that answers Laura's question. Take another question from the room. Philippe Philippe UBS. I will have my question in English, I guess. Two questions. First one is, you are late comers in China, which is fine, but you have got a joint venture with Dongfeng. How much is the electric vehicle be part of the strategy in China as a differentiation, or are you going to be mostly focused on more conventional vehicles as you try to grow in China? The second question is, the success of Logan M0 over the past several years is phenomenal. The proposition was a very cheaply made car and very attractive in price. As the vehicles get more complicated in next generations, as emerging market consumers become wealthier as well, how is the comparability working between the new generation M0 and the previous generation? In other words, to the extent you can compare the new one versus the old one, how much cheaper is it to make or more expensive? How does the price compare? Is it still the best value proposition around, or is it fundamentally different vehicle? Okay. The first question was- The Chinese, the EV as part of the strategy. Yeah. The Chinese government has said very clear, you cannot expand capacity in China or you cannot enter China without bringing some kind of innovation. You cannot. Okay? We know that we are going to have to bring the EV in China. It may not be under the Renault brand, it may be under another brand, but we are going to have to bring our contribution to the zero emission policy or electric car policy of the Chinese government. This we know. It is part of the basic conditions, and we are willing to do it. But it is still too early to tell you what role it is going to be playing, how much, what product, et cetera. But there is no doubt in my mind that the entry in China will come with also the electric car. The second question was the M0. M0 is low cost only for Europe. M0 is not low cost in the emerging market. It is not. In Brazil, it is not low cost. It is average. In Russia, it is not low cost, it is average. You know what I mean? We made it low cost for Europe, but ended up being a good competitive product in the mid-range. In fact, in India, it was even the upper range. That is one of the reasons for which we had a lot of problems in India, because we went with the low-cost image, and in fact, it ended up being a very expensive car. So, I do not want you to think that the platform, the M0 platform, is a low-cost platform. It is not. It is a low cost for Europe. It is a well-positioned mid-range in emerging market, which, by the way, not a lot of car company have been successful into building this kind of segment. I think there is a huge opening in low cost for emerging market. For emerging market. Because for the moment, the low cost in emerging market practically does not exist. The only tentatives are coming from Hyundai, bringing some innovative cars, particularly India, and we are watching very carefully, because this is way below the M0 platform. That is what we are working on, that we call the A platform. I am sorry. The next generation, I can tell you that there is absolutely no car in the next generation which cost is higher than the previous car. None. Again, no sophistication. That means we kept every single development under a very strict cost target objective. Now, this being said, the platform is becoming Logan was a car. It is becoming a line. Logan, the original car, is not the most successful. Today, the most successful car are Sandero and Duster, which were absolutely not conceived at the beginning. So these are development which came much, much later. You are going to see more of this coming on the M0 platform. But this is low cost of Europe, not low cost in emerging markets. Take one question from Georges Dieng. Georges Dieng, Natixis. I have three questions, if I may. We talked a lot about the low-cost strategy. I wanted to elaborate maybe on your views for the premium segments and how you intend to reenter the segment, maybe with the help of Daimler. Second point on the midterm plan, when it was announced, you have put a milestone in terms of margins of 5% in 2013. So I was wondering now with the crisis that we are facing in 2012, whether this target still holds. Final question regarding the Alliance, and maybe the role that you are playing, Mr. Ghosn, within the Alliance. Do you think that the structures currently in place are strong enough to make sure that beyond your mandate, the Alliance will survive as a successful Alliance? Thank you. Okay. The first question was? Premium with Daimler. Well, frankly, I do not think we have no good surprise or bad surprise to announce for you in premium in 2012-2013. Premium is going to be renewed in 2014 onward. We have decided for a new Espace. We have a strong concept. The change is Espace is not going to be European car, it is going to be global car. That is number one. It is going to be done on a platform, which is a Renault, Nissan, Daimler, I would say, platform, which mean the volumes behind are going to be very big, which mean the cost of investment. But 2014, that is why I am not talking about it today. It will come in 2014. We are going to replace, as you know, Laguna and Vel Satis by a new range, which in our opinion is very promising, but again, not before 2014. Then we have recently, as I mentioned, we are working with Daimler into using one of Daimler platform for an additional top of the range cars. It is too early to talk about it today, but this is in a certain way, mandatory for a very simple reason. I do not want the Alliance and the partnership to always being seen, Daimler come and shop in Renault, and Nissan come and shop in Renault, and Renault never shops a bit. Because the way it is going today is we are supplying engines, we are making cars, we are developing Smart, and people are seeing how much Daimler are benefiting from the cooperation, but not seeing very clearly how much Renault is benefiting in term of technology and in term of image. We are giving credibility to the Smart. We are giving credibility to the cost of the Smart. We are adding new product. We're going to do the same thing the other way. You can expect the top range to come 2014, 2015. That's why I'm not talking too much about it today, because 2012, 2013, first step of the plan is going to be without that. 5% more on the midterms. Yeah, it's still a target. Our commitment is on free cash flow. We want really to drive the company on free cash flow. But we know that free cash flow will not be sustainable if we do not approach or envision in a recurrent way, 5% operating margin. So it's still valid. But, again, we're driven by the free cash flow. For me, it is EUR 2 billion free cash flow 2012-2013, then a recurrent free cash flow after, and I don't know how we can generate a substantial free cash flow if we don't reach 5% operating margin. Structure, will the Alliance after you- Yeah. Let me tell you one thing. Obviously, structure is important and companies are going to have to be run independently of people, et cetera. But structure and organization never guarantee anything. Companies are about people. Not one, many people. I do not want to give the illusion that because we are putting together a good organization or a good structure, that this Alliance is going to work mechanically very well. No, because this Alliance is a balance between autonomy, different identity, synergies. It is a balance. We know it is very delicate to work because every single time there is a cooperation between two car manufacturers, some of them are very successful, and others are not. Why are we working very well with Daimler? We are working very well, and you are going to see a lot, and even Dieter is telling all the time, it is wonderful, it is great, et cetera. Daimler did not work very well with many other companies in the past. We know that. Why is this one working, the other did not work. Is it the organization? I do not think so. Is it structure? No, I think it is people. I know you do not like that, but this is the reality. At the end of the day, Alliance partnership, cooperation, work on people, work on culture. It is not one person, it is many people brought into a certain culture of respect, of balance, and of synergies, driving for performance. Obviously, organization and structures are important as a support for that, but not as a substitute. But in the appropriate time, I do not want you to think we are not thinking about it. At the appropriate time, we will bring organization and structure in order to reassure that this is going to continue. But I do not want you to think this is going to replace. The most important element is to make sure that the Alliance and the companies are always going to be driven by people who have, at the same time, the ambition to make them successful, but the balance and the wisdom to know when to stop and when to challenge. Okay, thank you. We will take one question from the call. We have a question from Mr. Horst Schneider from HSBC. Sir, please go ahead. Good morning. It is Horst Schneider from HSBC. Thanks for taking my question. First of all, I would like to come back with regard to certain earnings components for 2012. You have elaborated a bit on pricing trends, but maybe you could clarify this a bit more. What should we expect, or from today's perspective, what do you think is fair to assume in terms of price mix influence in 2012? Will it be similar to 2011? I also would like to know what we should expect in terms of currency effects. I think it will be lower this year, the negative impact compared to 2011, but will it be positive or negative? I would be interested in that. My last question is on AvtoVAZ. What are here the negotiations doing? What should we expect for 2012 on your strategy with AvtoVAZ and the potential increase of the stake? Thank you. Yeah, Horst, on currencies, I think we do not have a crystal ball to see where it is going to go for the full year. What we are seeing right now as we speak is it is not deteriorating as much as it did in the second half of 2011. That is after January, so it is still very early in the year. It depends, some of the currency combinations, as our international footprint develops, it is going to change the relative weights of each one of them. Some of what we are doing in localizing production will tend to decrease the exposure that we have to the currency mix. You are asking a question about pricing in 2012. I think you have to be careful in distinguishing between what is happening outside of Europe and what is happening inside of Europe. I think the pricing trends that we're seeing in Russia, Brazil, other markets where we're operating are very different from what's happening in Europe. Don't forget also that in the number that I showed you, the impact of the tsunami to our 2011 accounts is located in various different buckets. So there were things that impacted logistics and engineering and manufacturing, but there was also a big impact on pricing as well as on the mix of vehicles. That impact will not occur in 2000. Well, we hope it won't occur in 2012, but that was certainly one of the explanations for the deterioration in the second half versus the first half. On AvtoVAZ negotiation, Mr. Ghosn? Well, I think you should see a conclusion within the next weeks. I cannot be more precise because there is an election coming in Russia, important election the first week of March. So it can change a little bit the discussion. But we are practically near finalization of the deal. So hopefully within the next weeks, we'll be talking about it. Hopefully. Sorry. That means a cash outflow potentially then for 2012, regarding AvtoVAZ? That's right, yeah? No, there will be no cash outflow in 2012. Okay. Maybe you can explain that a bit. Why not? Yeah, exactly. I will. But I don't want you to think that we're driven by the EUR 2 billion free cash flow for 2011, 2012, 2013. That's our commitment. Growing the company, delivering the free cash flow. That's it. Everything will be done in function of that. Then for the second part of the year, of the plan, it's going to be the same thing, growth and free cash flow. Everything else is levers to reach these objectives. When you talk about free cash flow, that includes acquisitions, right? Well, in the case of 2012, yes. We don't want any surprise coming from this deal in 2012. Okay. Thank you. Okay. We will take one question from the room. Gaëtan Auton, Deutsche Bank. A few questions, pretty quick. When Dominique mentioned this positive impact on working capital, EUR 520 million, I still do not really understand the impact, but can it reverse in 2012? Or it is done, it is behind, it is achieved? The way for planning purposes, you tend to plan your working capital to be a neutral factor. It will fluctuate during the year, of course, with seasonality. The disruption that occurred in the first half of the year, gave a very negative impact to working capital at the end of June. The normal seasonality pattern, you can go back 15 years in time, Renault's working capital is never negative at the end of June. This time it was negative by almost half a billion. And in fact, that was due to all of the excess inventory that was piled up, work in progress, unfinished goods, because of the components that we did not receive that would have allowed us to manufacture the cars. We closed the plants earlier in the summer, and we opened much earlier than we normally do. That was the stop-and-go that Mr. Ghosn referred to in his speech, that reversed that out very quickly in the third quarter. Because we ended up stopping production, or slowing production in the fourth quarter, it upset the working capital, in terms of for planning purposes. Some of it might reverse out, but what we did learn within that process is how to operate with a much lower level of intermediate inventory. We also learned how to operate with a much lower level of receivable days on hand. We were collecting a lot faster than we did in the past. Those were two very good learnings from 2011. Some of it will reverse out, but not the totality. Second question, still for you. Sorry. The price mix effect on the operating result, EUR 245 million negative. Can you break it down a little bit more precisely by the different items? Well, what I can tell you is that at the first half, it was minus 91. Okay? The second half, roughly it is about the same thing, and in there is most of the EUR 50 million impact of the tsunami that we found in the second half. Roughly, it is very much in line with what happened in the first half. The deterioration in the mix, because the mix impact was mostly in Europe, and it was mostly due to the tsunami. Okay. Two more quick questions. The first one is, can we get an idea about the pricing environment in Europe? We watch advertising, very aggressive from different car manufacturers. Is it deteriorating from last year? Well, I think in terms of statements, yes. For the reality, we need to see the statistics when that will come. I do not think you are going to see anybody working into any sales organization of any car manufacturer telling you it is not getting worse. They are doing it because it is getting worse, and they are doing it tactically also because they want support from the company to go into this war. Frankly, I would say, let us wait until we see the statistics, and then we can evaluate exactly. It is going to be bad. Europe is going to be a very tough battle in 2012. It is. It is going to be. It is going to be a tough battle because as you know, you have some car makers who are not doing well, who cannot afford to lose volume, and there are some car makers who are going for supremacy. You are going to be in the battle, with people with different objectives. We are not too optimistic, and we are not counting too much into any favorability on pricing in Europe in 2012. Our hope is our mix of sales is going to move much faster toward international sales. I talked to you about 47%. I think we are going to be probably above that in terms of mix of sales. We are more counting into our development in Russia, in India, in Brazil, in Latin America, et cetera, to build a strong profitability and particularly on the M0 range. In Europe, we have the electric car coming. This is an innovation which is going to help us. We have the renewal of an important part of our range also. Clio is important for us. We are very hopeful that this is going to help us a lot into the B segment. You have all the low cost, in Europe, which in the pricing environment, which is going to help also. I think it is going to be bad. Okay. Last question regarding the Clio, you are going to launch it in 6 months time, a little bit more. The current Clio is loss-making. Pricing pressure in that segment is pretty tough. Can you use, in value content, some of the equipment of the M0 platform to reduce significantly the production cost of the model? Can you help us to quantify that? Yeah. I am going to turn to our market experts here. You have a proposal here, reduce content and sell at a lower price, huh? That is what I understand. On the new Clio. To the market. It is clear that the current Clio has a huge content, and we are now permanently working on this. On the new Clio, we are going to bring two major things. First is style, which we consider a real USP of this car, and then additional thing that you are going to see, especially connecting on the car, which we consider really advanced compared to our competitors. These are the points. Nevertheless, the competition is tough and the price definitely will continue on the war status, I would say. Did that answer the question, Gaëtan? Absolutely not. Absolutely not. I don't think the answer was supposed to be very clear. No, the car is very good. There is the new car coming, but again, it's not going to compete on price. We are leaving the price competition for the low cost, for the range. But we want also to have cars in each segment which are sophisticated, good quality, driving performance, safety, and that's where the Tulear is going to be positioned in. So we will see. We have 1 minute remaining. We will try and take the very last question from the call. I am not sure we will be able to take a four-part question, but perhaps a one-part question. The next question is from Mrs. Kristina Church from Barclays Capital. Madam, please go ahead. Okay. I will try and squeeze in 2 questions, if I may. One being, could you just remind us of the hourly rates in Western Europe versus in Romania and in North Africa? My final question, I know we have talked about the Alliance already, but I was just wondering, is there any situation where Nissan would consider buying a larger stake in Renault, given the undervaluation of the Renault share price at the moment? Okay. The hourly rate in Morocco, we have the head of the region, Monsieur Kugler, head of the region. What is today the hourly rate in Morocco, in Tangier, that we are going to pay? Per month, it is around EUR 250 per month. The hourly rate, we have to make a calculation. I do not have it in mind. Yeah, it is about what, 160? Yeah. You got it, Gerard. 200 hours a Yeah. You got it, Gerard. Yeah, but you have to take it fully charged also. Yeah. You have to take it fully charged. But even, can you give the proportion? Let's say if Morocco is one, how much is Romania and how much is average Europe? If Morocco is one, let's say that Romania should be little less than two, and then France should be eight. Okay. One, two to eight. This is the ratio. Morocco, one. Romania, two. France is eight. It is okay? Yep. Does it answer the question? That is the first part. Okay. Now Will Nissan buy Renault shares? Well, let me explain two things. First, in the agreement of the Alliance, no company can buy shares from the other company without the agreement of the board, of the other company, obviously. If Nissan wants to buy a stake in Renault, it has to have the agreement of the board of Renault. It cannot just go on the market and buy. Same thing from Renault. That is number one. Number two, as you know, today, Nissan does not vote with its shares in Renault shareholding, and there are a lot of questions about why should we increase more if we have absolutely no influence from the other party. Even though obviously we are very optimistic on the prospect of the Renault shares, I don't think that there is any prospect today of Nissan buying shares of Renault. Okay. With the answer to that question, our conference comes to an end. Thank you very much for your participation, everyone, this morning. The IR team, for those who have further questions, will be available throughout the day. Thank you very much and have a good day.