Q1 2012 Renault SA Sales Conference Call (English)
Apr 25, 2012 AM CEST
Thomson Reuters StreetEvents Event Transcript
E D I T E D V E R S I O N
RNO.PA - Renault SA
Q1 2012 Renault SA Sales Conference Call (English)
Apr 25, 2012 / 04:00PM GMT
==============================
Corporate Participants
==============================
* Duncan Minto
Renault S.A. - Director, IR
* Jerome Stoll
Renault S.A. - EVP, Sales & Marketing & LCV, Chairman of Europe Region
* Dominique Thormann
Renault S.A. - CFO
==============================
Conference Call Participants
==============================
* Philip Watkins
- Analyst
* Gaetan Toulemonde
Deutsche Bank - Analyst
* Kristina Church
Barclays Capital - Analyst
* Horst Schneider
HSBC Trinkaus & Burkhardt KGaA - Analyst
* Laura Lembke
Morgan Stanley - Analyst
* Charles Winston
Redburn Partners - Analyst
==============================
Presentation
------------------------------
Operator [1]
------------------------------
Ladies and gentlemen, welcome to the Q1 2012 results conference call. And I'll hand over to Mr. Minto. Sir, please go ahead.
------------------------------
Duncan Minto, Renault S.A. - Director, IR [2]
------------------------------
Good evening, everyone. The presentation -- well, welcome to the call, first of all. The presentation file and press release has been sent out by mail. It's also available on the website, for those who haven't received it.
I'd like to point out the disclaimer on slide 2 of the presentation pack, regarding information contained within this document, and in particular about forward-looking statements. I invite all participants to read this.
We have scheduled 45 minutes for today's call. We've got two speakers this evening, Mr. Jerome Stoll, EVP Sales, Marketing, LCV, and Chairman of the Europe region; and Dominique Thormann, EVP and CFO. The presentation should last 20 minutes, which will allow us some time for Q&A. If we can't take everyone's questions this evening, I remind you that myself and Alain Meyer are available for your questions later on.
Without further ado, I shall pass the call over to Mr. Stoll for opening remarks.
------------------------------
Jerome Stoll, Renault S.A. - EVP, Sales & Marketing & LCV, Chairman of Europe Region [3]
------------------------------
Okay, thank you Duncan, and good evening, everyone. My part of this presentation will focus on the commercial performance in Q1. Please note that for this presentation, we are showing how that under the new regional structure, as defined by Renault from April 1, we have included in the annex of this presentation the results under the previous following the formal structure for your information.
To summarize these changes, Africa has been merged with the EuroMed region, resulting in the creation of the new EuroMed Africa region, while Asia-Africa has become Asia Pacific. The Europe, Eurasia and Americas region are unchanged.
First of all, let me start with the outlook I gave at the beginning of the year. Firstly, a difficult first quarter due to the high compression basis. Last year's exceptional performance in Europe was due to the deliveries of the last cars for the strapping incentives in France.
Secondly, continued growth in our international operations. And thirdly, a return to global sales growth from the second quarter linked to our product offensive, with 9 new products, 10 facelifts, and the introduction of 4 new engines. This proved to be true -- however, with both weaker European markets in sales than expected and a stronger performance outside Europe.
We launched one near model in the first quarter -- Pulse in India -- and 6 facelifts with Twingo Phase II and the Megane Range renewal. The full effects of these launches will be seen as of the second quarter.
Now let's start with a more detailed review of the quarter on slide 6, with the TIV evolution by region. In Europe the market was slower than expected in Q1, down 8.1% versus 2011. With the exception of the German market that grew by 1.3%, all other major markets were down, with the French market down 19.4%, Italy 22.7%, Spain down 4.3%. The LCV market is down 11.1% across Europe, with the strongest decreases in South European markets such as Italy, minus 39%, or Spain, minus 22%.
The Eurasian region has again seen the most dynamic markets this past quarter, with an increase of 17.7%. The Eurasian market evolution is very positive, trending towards 2.9 million units for the full year 2012.
Asia-Pacific is the fastest growing region in volume, with a growth of 7.2%, shored by the Japanese market, up 47.5%, recovering from the tsunami last year; and the Indian market, up 14%.
Americas in the Sunbelt region this quarter was a 2.4% increase, driven by Argentina at plus 9%. The Brazilian market is slightly down, with a 0.7% decrease. The EuroMed Africa region is stable at minus 0.1% versus 2011, with a strong decrease of the Turkish market, down 25%. And on the other end, the Northern African markets are up, with a good momentum in Algeria at plus 39%.
In conclusion, global TIV reached 19.9 million units in the first quarter, with an increase of 4.6% -- that is to say 869,000 units.
If we turn to slide 7, you can see the evolution of Renault Group sales next to that of the TIV for each region. In Q1 2012 the Group's sales faced two different situations. Outside Europe, Renault continued to outperform the market, with a solid performance, especially in Eurasia, America, and EuroMed Africa.
In EuroMed -- in Europe, sorry. In Europe, our sales were impacted by a weaker than expected market, the strong decline of the French market, as well as an unfavorable product lifecycle. I will explore this later on in my presentation. Overall, Group sales decreased by 7.9% in the first quarter.
On the next slide, number 8, you can see the evolution of our sales by region and number of units. As I just said, in Q1 Renault Group's sales fell 7.9% or 55,000 units. The sales strength in Europe was very different to the one outside Europe.
Outside Europe, Renault Itri got sales in each region, with a 12.3% sales increase. International sales accounted for 46% of the sales mix, up 8 points compared to last year. Our strongest performance was in Eurasia and the Americas, with a double-digit growth of 27.5% in Eurasia and 14.5% in Americas.
In Europe sales were down 20%. I would like to remind you that our performance in Europe last year was fueled by the last deliveries of cars that had benefited from the scrapping system in France.
Before looking closer at our performance in Europe, I would like to start with a focus on performance in our international regions. As you can see on slide 9, we increased our market share in 3 regions and remained stable in Asia-Pacific. In Eurasia, the Group achieved a record 6.1% market share, up 0.5 point versus Q1 2011.
Our sales and market share increased thanks to the strong sales of Sandero, up 71%, and Fluence, up 26%. The performance of the two models has more than compensated the slight slowdown of our best-selling car in the region, the Logan, which decreased by 2%.
In the Americas the Group registered the record 6.7% market share, up 0.7 points on last year. In a slightly decreasing Brazilian market, our sales were up 36.5% and our market share up by 1.8 points to 6.8%. In the first quarter of 2012, Renault was the best performer in terms of market share gains in Brazil.
I would also like to highlight the performance in Argentina in the quarter, where unit sales grew by 19.4%. This takes the Argentinian market into the top 5 for the Group.
In EuroMed Africa market share reached 15.3%, up 1.1 points, and engage slowly market the Group gained 1.9 points of market share in Turkey. The Renault brand in Turkey increased plus 0.4 points and remains the leading brand, with a 14.5% market share. And Dacia took 1.5 points of market share, and it is now the seventh bestselling brand in the market, up four places from last year.
In Morocco, the Group established a record market share of 39.5% and Dacia and Renault are leaders on the market and are both increasing their market share. In Asia-Pacific, our market share remained stable at 0.7%, with a continuous market share decrease of 2.8 points from Renault Samsung Motors in South Korea, compensated by our sales to partners in Iran.
To conclude on this international focus, Duster, Sandero, and Logan are the 3 main contributors to our volume growth in the first quarter. And thanks to this performance, the Group's sales outpaced the evolution of the TIV in the markets in which we are present, with a 12.3% increase versus 6.7% for the TIV.
I will now turn to slide 10 on our performance in Europe, representing 54% of our sales in Q1. As anticipated, our sales performance in Europe was down in Q1. Group unit sales fell 20%, and market share decreased 1.3 points to reach 9.1%, in line with our forecast. This decrease equals 87,000 units loss in the fourth quarter.
As you can see in the chart on the bottom right hand side of the slide, this can be explained by two effects. First, a loss of 57,000 units due to TIV evolution, especially with the weakness of the French, Italian, Portuguese, and Belgian markets. And second, a loss of 31,000 units due to performance. Out of that, one third is due to our strategy in the UK, which aims to refocus our operation on more profitable products and sales channels. The other two-thirds are due to the low point in our product lifecycle.
As you will see later in this presentation, despite a tough market in the last quarter, we increased our prices throughout our range with the rollouts of Twingo, Megane, and Scenic 2012 versions. In the midst of this tough environment in Europe, there are nonetheless two positive items from my point of view. First, the stable performance of the Dacia brand at 1.5% market share; and second, in the weaker LCV market, rental Renault reinforced its leadership at the 16.5% market share, an increase of 1.3 points.
That concludes my review of the Q1 unit sales. Despite a very difficult first quarter, I have two reasons to remain somewhat positive for the remainder of the year.
Firstly, as you can see on slide 11, our order book in Europe bottomed out at the end of December 2011 and has risen in each of the last three months. It now stands at 1.5 months of sales, giving me visibility through to June.
Secondly, the impact of the strong model change and the model launch cycle in outcome. With the introduction of Lodgy this month and Clio 4 and Zoe in September. As for the Megane 2012 model year and the Twizy introduction, we are receiving good feedback from customers. Outside Europe, the production ramp up of the Duster in Colombia, Russia, and then in India will allow us to further increase our presence in those regions.
All in all, we will launch nine all-new products this year. If I summarize the Q1 situation -- weak sales in Europe, but growing sales outside Europe. As you can see on slide 13, we expect to accelerate this momentum outside of Europe, thanks to the strength of the Inizio platform and the success of Duster in its new territories.
In Europe, I hope that we have overcome the low point of our sales, thanks to the launch of new products and knowing that our order book is now on the rise. With our European sales in Q2 close to the level of Q2 2011 and a faster pace of growth outside Europe, we should remain on trajectory to achieve unit sales and end June around the same level as last year. It is only the second half of the year that we will be able to think of growth compared to 2011.
Before I pass the floor over to Dominique for the financial presentation, I would like to comment the distribution stock level on slide 14. The stock level expressed in the number of days of sales of the past quarter equals 69 days, but on an exceptionally low sales volume reference. If I look at it in terms of number of days of future sales, that is to say, the quarter to come, this equates to 59 days of sales.
While the indicator is within the range, it is clearly at the upper end, and therefore, the situation needs to be treated with care. Some measures have already been taken to cut production levels in April, and I will personally monitor the situation in order to be able to stay in the 55 to 60 days range through end of June.
Thank you for your attention, and I'll pass the floor to Dominique.
------------------------------
Dominique Thormann, Renault S.A. - CFO [4]
------------------------------
Thank you, Jerome, and good evening, everybody. I will start my part of this presentation with the evolution of the first quarter revenues compared to last year, on slide 16.
Following the decrease in unit sales that has just been commented, Group revenues fell by 8.6% to EUR9.535 million. In the first quarter 2012, the contribution from the automotive division fell by 9.6%, while the contribution of sales financing increased by 12%.
Turning to slide 17, I will start the analysis with a review of the automotive division. In this slide we show you the contribution to the change in automotive revenues for the first quarter, broken down by item. Reading from the left-hand side of the page, the first item is foreign exchange, which was quite neutral in the first quarter, with only a slight negative impact of 0.2 points. The positive impact from the different currencies in Europe such as the Swiss franc, the British pound, or the Swedish kronor, more than compensated -- were more than compensated by the negative impacts coming from our international regions.
The second item, and most important impact in this quarter, is volume. It shows a strong negative variance of 8.9 points. Earlier in the presentation, Jerome showed you that global registrations decreased by 7.9% in the quarter, or 55,000 vehicles. Due to the inventory reduction at independent dealers, wholesale invoices decreased by 32,000 units more than registrations. In total, the combination of the decrease of registrations and the reduction of dealer stock impacted revenues by 8.9 points of the total 9.6% reduction in our automotive revenues, or roughly 90% of the variance.
Next, geographical mix accounts for minus 1.2 points as a result of the higher mix of sales outside Europe, where the revenue per unit is smaller than the Group average. Model and version mix effect is still positive for Q1 at 1.6 points, but on a high comparison base compared to Q1 2011. For the third quarter in a row, the price effect is positive for 0.6 points, despite the fierce competition in the European market.
Sales to partners, representing mainly the sale of parts, components, and built-ups to other brands contributed negatively for 0.8 points, due to the lower sales trend in Europe. This activity should enlarge in scope in 2012 with the start of production in the second half of the year of the Mercedes-Benz sedan Citan, a small LCV developed as part of the partnership with Daimler.
The last item, Others, represents the other activities outside of the new car activity, mainly spare parts, as well as the non-new-car activities of our wholly owned dealers, namely Renault Retail Group, as well as restatements related to buyback commitments. It shows a negative contribution of 0.7 points, mainly as a result of lower buyback activity and used car sales.
I will now move on to slide 18 and comment RCI's commercial performance. The number of new contracts written by RCI Banque in the first quarter of 2012 decreased by almost 6% versus the same period in 2011. New financings decreased at a slower pace than new contracts at minus 1.7 points, thanks to a higher average loan value per contract.
Average loans outstanding increased by 12% compared to the first quarter 2011, thanks to the carryover effect of the strong growth recorded in the portfolio in 2011. RCI Banque has continued to demonstrate its ability to access multiple sources of funding. In the first quarter RCI Banque raised EUR1.2 billion in the traditional capital markets and launched an online retail deposit activity called Zesto by RCI Banque in February.
The first months of this new activity are tracking above our internal targets. Before moving on to the Q&A session, I will turn to the last slide, number 19, on our outlook for global total industry volume trends in 2012.
As Jerome stated at the beginning of this presentation, the European market was slightly below our expectations in the first quarter, and on the other hand, the industry growth and performance of the Group outside Europe was slightly better than initial expectations. Due to the volatility and unstable environment, we have decided to maintain our forecast for TIV, even if we have identified some risks and opportunities compared to our guidance given last February.
The European market is more of a risk than it is an opportunity. The outlook for the other regions has upside, and if we have any revisions or changes, we will update you at the half-year stage.
In summary, even if there's downside risk for the European market at this point, it is more than compensated by other global markets. As Jerome has demonstrated, we are on a trajectory to achieve higher registrations in 2012, which allows me to confirm the full-year guidance of a positive automotive operational free cash flow.
This concludes our presentation for this evening. Together with Jerome and the team we will take your questions, so I will now handle call over to the conference operator. Thank you very much for your attention.
==============================
Questions and Answers
------------------------------
Operator [1]
------------------------------
(Operator Instructions) Philip Watkins, Citi.
------------------------------
Philip Watkins, - Analyst [2]
------------------------------
Good evening, thanks for taking my question. I just had two, please. I know this is a sales call, but at the full-year stage, you commented that the automotive business could be profitable in the first half, and I'm wondering whether that's something that you still feel is valid, given that Europe and France have performed slightly less well than expected?
And if I may, on the natural services business, is it possible at all to have any comment around how cost of risk has developed? And also your -- the new online retail deposit business, Zesto. How big could that be in terms of overall funding needs for RCI Banque going forward? Thank you.
------------------------------
Dominique Thormann, Renault S.A. - CFO [3]
------------------------------
Okay. Why don't I start with the cost of risk question? We have not seen any significant move in charge-offs or delinquencies. As a matter of fact, we had a credit committee review earlier this week, and the data still points to a very healthy portfolio that was bought back in the previous quarters, and the incoming production is equally of high quality, so we're not seeing anything trending in an adverse manner.
Now, bear in mind that we're starting from an extremely low base, because we reported a 23 basis point total cost of risk in 2011, which included write -- we had to write back up provisions that had been taken on the dealer portfolio where we over-reserved. So the retail side of the business was trending at 0.35%, and within a few basis points of that, I'm not seeing a significant variance in the current book of business.
Zesto opened for public deposit gathering in February -- mid-February of this year, so it's early days. We think that we can collect close to EUR500 million this year, and we are well on track to achieving that amount. We've exceeded EUR200 million in just a few -- first few weeks of being open for business, so we're quite encouraged with that new product.
Now your first question, you were referring to an answer that we made to the same question, actually, at the full-year earnings announcement. Our official guidance for this year is on the full year, and it's on free cash flow generation, which I've confirmed this evening.
The assumptions that we made when we announced our results back in February took us to a positive contribution at the half-year, given the scenario that we had. Today we are reporting a Q1 which is slightly different from our initial scenario, because as was mentioned on call, Europe was slightly worse than what was expected, but international was slightly better than expected.
So overall, this is somewhat of offsetting impacts in the quarter. We have a plan to get there, but the -- clearly, things need to happen according to plan for us to get to the half-year stage, but we do have a plan to get to a positive mark at the end of the half-year. Once again, visibility is extremely bad, and we've not made any changes to our official guidance.
------------------------------
Philip Watkins, - Analyst [4]
------------------------------
That's great; thank you.
------------------------------
Dominique Thormann, Renault S.A. - CFO [5]
------------------------------
Should we take another question?
------------------------------
Operator [6]
------------------------------
Gaetan Toulemonde, Deutsche Bank.
------------------------------
Gaetan Toulemonde, Deutsche Bank - Analyst [7]
------------------------------
Good afternoon, Gaetan Toulemonde, Deutsche Bank. I would stay around this situation. Can you help us to get a better idea about profitability between Europe and the international operation? When in the first quarter you increased international operation by 13% and probably 15% plus whatever in the first half, is there a very big difference between Europe and international operation, or can you help us to clarify that?
------------------------------
Dominique Thormann, Renault S.A. - CFO [8]
------------------------------
There isn't anything very different in the quarter from what we've reported in February, in terms of -- that the mix or sourcing of profits versus what we had in the second half of 2011. So in terms of sequentially that's happened in the quarter, I mean, it's not going to come as any surprise that January was poor and March was good.
So you're kind of in a trend where you start the year off on a weak month, and we knew that going into it. The order book, I think Jerome showed you how it had fallen off at the end of last year, so you're going into an extremely low volumes environment in January, and you're pulling out of it with an order book which is rising again and gives a better profit contribution at the end of the quarter.
So sequentially, that's what we're seeing. But we've -- the profitability that we're sourcing internationally is clearly helping in that trend.
------------------------------
Gaetan Toulemonde, Deutsche Bank - Analyst [9]
------------------------------
No, maybe we need to move a little bit away from the quarter. First off, for example, if I understood correctly your guidance, we're going to end up with roughly minus 10% in Europe and plus, whatever, 13% outside.
Can this growth outside compensate Europe, knowing that there is some country which are highly profitable, there's some models which are highly profitable on the M0 platform. Can you --
------------------------------
Dominique Thormann, Renault S.A. - CFO [10]
------------------------------
Yes, but don't forget -- Gaetan, don't forget, we've got start up in -- we're starting up in India, for example. So this is early days in India. We have Korea, which is, as was mentioned, not trending favorably.
So the international -- the non-European business is -- it's difficult to aggregate it into a single number and say that the collection of the -- however many countries that represents are all in the same -- at the same development point in their cycles. But look at Brazil, with the launch of Duster in the second half of last year. We didn't have it in the first half of 2011, so comparisons to Brazil will look good.
Russia has not yet launched Duster, and we're -- just as we speak right now, it's launching. So it's not yet impacting Q1. We expect it to impact the remainder of the year favorably. So you're at very different points in the cycle path in these international countries. So you can't aggregate it too high. It's very country-specific at this point.
------------------------------
Gaetan Toulemonde, Deutsche Bank - Analyst [11]
------------------------------
I have a simple mind; that's why I asked the question. I have a second question. Mr. Ghosn earlier this week made an interview, and I think he stated that he expects that international sales could represent 50% of total unit sales as soon as this year. And if I understand that properly, that would underline either a very strong growth outside of Europe or a pretty weak Europe in sales for the next quarters.
------------------------------
Jerome Stoll, Renault S.A. - EVP, Sales & Marketing & LCV, Chairman of Europe Region [12]
------------------------------
Yes, good evening, Jerome Stoll speaking. Yes, he talked about the share of sales outside Europe. Frankly, our expectation was 47% outside Europe. It's true that when you look at the first quarter in Europe, little bit lower than what we were expecting.
The share of our sales outside Europe is increasing a little bit faster. But I don't think that this year it will reach 50%
------------------------------
Gaetan Toulemonde, Deutsche Bank - Analyst [13]
------------------------------
Okay. And you confirm the year -- full-year unit sales of plus 3% or 4% for this year, which is the guidance you gave a few months ago?
------------------------------
Jerome Stoll, Renault S.A. - EVP, Sales & Marketing & LCV, Chairman of Europe Region [14]
------------------------------
Actually, I confirmed that by the end of the first semester, we should be in line with what we did last year. For the second half, as Dominique said, you know, it's a little bit (speaking French), so we are -- we expect that the international markets will help to offset some of the countries -- the European countries who are facing difficulties. But all in all, we shall beat our record in 2012.
The range of this success is -- okay, I said 3% to 4%; this is my ambition. I hope that we are going to reach this level.
------------------------------
Gaetan Toulemonde, Deutsche Bank - Analyst [15]
------------------------------
Okay, that's super. Thank you.
------------------------------
Operator [16]
------------------------------
Kristina Church, Barclays.
------------------------------
Kristina Church, Barclays Capital - Analyst [17]
------------------------------
Yes, good evening. Thanks for taking my question. Two questions, actually. Firstly, regarding the outlook in your positive free cash flow. Just given you put a little bit more visibility now in the year than you had at year-end when you set that, can you say what -- are you more confident of that number now, given that where inventory levels are today? Does that look a harder number to achieve, or are you still feeling confident about that?
And then secondly, I was just wondering if you could give a further update on your entry-level brand profitability? I know that you helpfully gave us some of those levels in past, specifically of the Duster model, but also of the brand as a whole. If you could update on that, that would be very helpful.
------------------------------
Dominique Thormann, Renault S.A. - CFO [18]
------------------------------
Christina, yes, it's Dominique Thormann. Listen, no -- visibility, look -- quite honestly, no more, no less than what we told you in February. It was bad in February; it has not improved.
So the -- as I said, and I think has been reinforced by Jerome, we have plans to get to where we need to be, but there are many, many things happening in the external environment that are outside of our control, and you can make as many assumptions as you wish -- visibility through to the end of the first half, we've got a better trending order book than we had when we talked to you in February, so that's good news.
But you're feeding into smaller markets and lower industry volume in some of our key markets. So the glass is half-empty and half -- or half full, and no more, no less than it was back in February. So I can't really tell you that the guidance is -- and that's why we are not changing it, by the way. We are still aiming for the positive free cash flow for the full year.
Your other question on profitability of the M0 line of the entry products. Look, it hasn't structurally changed in a quarter. There are more of them, and as we're speaking more of -- more countries are being rolled out with new product mix that was in the cycle plan. And so profitability, I think we told you -- I'll give you a range, which was above -- it was better than 6 and below 10. So it's still in that band.
------------------------------
Kristina Church, Barclays Capital - Analyst [19]
------------------------------
Okay, thank you.
------------------------------
Operator [20]
------------------------------
Horst Schneider, HSBC.
------------------------------
Horst Schneider, HSBC Trinkaus & Burkhardt KGaA - Analyst [21]
------------------------------
Good evening. It's Horst Schneider from HSBC. I have got three questions. First of all, on your price effect, I'm surprised that that was positive in Q1, and since I guess that the market cannot get more difficult for you, would it be right to assume that the price effect will be also positive in the next few quarters? And I would like to get more details why the price effect was positive for test driven debt.
And then the second question, maybe you can tell us something on your production plans for Q2? You have mentioned that you will -- that you have cut already production in April. So will the production volumes in Europe be in Q2 below Q1?
And then the third question relates to Iran. We know that Peugeot is not anymore able to sell its CKDs to its Iranian joint venture partner, and I think you are still able to do business in Iran. Do you take now market share in Iran? So will Iran be a very positive market for you this year? Thank you.
------------------------------
Jerome Stoll, Renault S.A. - EVP, Sales & Marketing & LCV, Chairman of Europe Region [22]
------------------------------
So I will take the first question regarding the price. Obviously, it's a quick -- it's a key question, and as you have seen on the presentation of Dominique, we are quite positive on these specific items, which reflect what we want, actually, to do and what we have -- and what we are trying to implement. So it is very difficult to comment that, because it's market by market, or competitor by competitor.
But on the rule, what we want -- definitely our price are not worsening, if anything continuing in Q1, as you could have seen. But on top of that, we are putting a lot of pressure to still be ahead of this price increase, and early in April we increased again the prices of our products. And we were almost alone to do that in Europe. So I confirm it's my target to be better in term of price.
Regarding what you said in the second half of the year, what I can confirm is my ambition, here again, is to be better in relative position. I mean, if the market is dropping I cannot -- I will be prudent and cautious with this price increase, but I will try to be always gaining prices difference towards my competitors. And this is what we have done and what we are going to have to do in the second half; actually, it's what we have planned to do for the second half.
------------------------------
Horst Schneider, HSBC Trinkaus & Burkhardt KGaA - Analyst [23]
------------------------------
But we are talking about net pricing, right?
------------------------------
Jerome Stoll, Renault S.A. - EVP, Sales & Marketing & LCV, Chairman of Europe Region [24]
------------------------------
I am talking about net prices, yes.
------------------------------
Horst Schneider, HSBC Trinkaus & Burkhardt KGaA - Analyst [25]
------------------------------
Okay.
------------------------------
Unidentified Company Representative [26]
------------------------------
Dominique, do you want to take the one on production?
------------------------------
Dominique Thormann, Renault S.A. - CFO [27]
------------------------------
Yes. Horst, sequentially your question was about production volumes Q2 versus Q1 of this year? So globally, we will be flat and -- but that is with Europe, which will be down in the quarter versus Q1. So flat globally, of which Europe will be down.
------------------------------
Horst Schneider, HSBC Trinkaus & Burkhardt KGaA - Analyst [28]
------------------------------
Okay, good.
------------------------------
Jerome Stoll, Renault S.A. - EVP, Sales & Marketing & LCV, Chairman of Europe Region [29]
------------------------------
Regarding your third question, Iran -- actually I have no commercial or -- problem with our products in Iran. The problem is not there. The problem is to get the financing and to get a way to stick with the international rules, and at the same time, to keep on business. So regarding Iran, what we have done so far in the first quarter is we reached 7% market share. It's 2 points higher than last year, so really we are catching market share. But the problem is really the sourcing rather than the sale.
------------------------------
Horst Schneider, HSBC Trinkaus & Burkhardt KGaA - Analyst [30]
------------------------------
No, the logic of my question was -- I mean, for example, Peugeot is ahead in around about 450,000 units sold in Iran, and now they cannot do any more sales in this country, and I think not many carmakers do at all sales in this country, and therefore I thought that you might gain a substantial market share in the next few quarters.
------------------------------
Jerome Stoll, Renault S.A. - EVP, Sales & Marketing & LCV, Chairman of Europe Region [31]
------------------------------
Yes, but as I said, the problem is not gaining market share, because obviously it's an open space now. But to have the sourcing, the availability in terms of sourcing, to get the products manufactured by our partners in Iran. If we can do more, we are going to gain more. But for the time being, it's not the prime or the attractiveness of our product, which are very successful in Iran, so it's just the limitation in terms of production.
------------------------------
Horst Schneider, HSBC Trinkaus & Burkhardt KGaA - Analyst [32]
------------------------------
Okay, I see. Thank you.
------------------------------
Operator [33]
------------------------------
Laura Lembke, Morgan Stanley.
------------------------------
Laura Lembke, Morgan Stanley - Analyst [34]
------------------------------
Yes, good evening, gentlemen. I actually just have one clarifying question here regarding the pricing. Basically, your peer this morning highlighted that although pricing is actually looking, let's say, more positive on the revenue bridge, actually, the impact of product enrichment is not fully featured in that, whereas it will basically have a negative effect when it comes to the operating performance.
I'm just wondering, when you record your -- basically your pricing year, does that number includes product enrichment, or does it not? And should we therefore not fully assume that this drops down to the bottom line?
------------------------------
Dominique Thormann, Renault S.A. - CFO [35]
------------------------------
Okay, it does not include. We are looking at revenue here, so it does not include product enrichment.
------------------------------
Laura Lembke, Morgan Stanley - Analyst [36]
------------------------------
Okay. Thank you.
------------------------------
Operator [37]
------------------------------
Charles Winston, Redburn Partners.
------------------------------
Charles Winston, Redburn Partners - Analyst [38]
------------------------------
Yes. Hi, thanks, good evening. I'd just actually like to follow up with that question, and just in terms of probably where PSA said that the difference between their pricing at revenue and pricing at profit after enrichment was about the same as it was in the fourth quarter. And I was just wondering if you could give any sort of guidance as to the likely net impact after enrichment? Just so we can get a handle on that.
Second question is just going to be -- if you could perhaps give us any comments about the order book outside of Europe. If you say it's improved and picked up a bit in Europe, I would imagine that with the new launches outside of Europe, it would look reasonably robust, and I was hoping if you could give us some sort of help there.
And then just finally on the cash flow, I do understand that the lack of visibility and the uncertainty, but I mean, bearing in mind we are towards the end of April and into May, could you make any comments potentially about likely cash flow, industrial cash flow in the first half? Based on your production expectations and the rest of it, do we think that that might remain neutral to positive, or is there likely to be a service top outflow? Thank you very much.
------------------------------
Dominique Thormann, Renault S.A. - CFO [39]
------------------------------
Okay, so on the price and mix. So price drops to the operating profit line, but mix not necessarily in the same portion. Okay? So you can have pricing at the revenue line drop to your operating profit line. Mix, not necessarily, because you're going to have enrichment in there and things that aren't priced. So it's the sum of the two that's going to end up being a number, but if you break them apart, then pricing -- it's revenue, right? So that'll drop to OP.
If on the cash flow side, once again, our guidance is on the full year. We have a seasonality, first of all, in our revenue cycle, but we also have a seasonality in -- which therefore impacts the working capital requirement, and it follows, also, our investment pattern over the year. So there is a plan that's written in, with things that we've experienced in past years, given production cycles, where we are sourcing product from, as we are -- there's more and more international sourcing and local production.
So right now, I'd rather stay with the guidance that I've given you. And once again, the half-year -- as I said, there is -- in response to an earlier question, there's a plan to get to an operating profit at the automotive division. And clearly, that has to happen. Okay? So it's -- they are contingent, one on the other.
------------------------------
Charles Winston, Redburn Partners - Analyst [40]
------------------------------
That's clear. Thank you.
------------------------------
Jerome Stoll, Renault S.A. - EVP, Sales & Marketing & LCV, Chairman of Europe Region [41]
------------------------------
Yes, regarding the order book outside Europe. Actually, we don't have any system to consolidate all of the data, sorry, on these specific items. But we are looking country by country, and following country by country the position.
We are very confident. This is the reason why we can say that we should beat once again record sales this year, because this growth will come from outside Europe. When I look at Brazil, Russia, or other countries like this, you look at the success of our models, namely Duster, for instance, makes that -- my problem is more a problem of production, to follow the sales, and then to get the orders from the customers.
So I'm really confident -- and when you look at Algeria, for instance, the market which increased by almost 42%, or around 40% in the first quarter, the main problem for us is really to follow in terms of supply chain -- manufacturing and supply chain. And this is one of the reasons also that you could have seen that our stocks are a little bit higher than expected. It's also because the lead time to bring all of these products to the last countries and to the end customers are a little bit longer than what we experienced before. But I have no -- really, I'm quite confident on the level of orders that we are taking, regarding the products that we are offering today.
------------------------------
Charles Winston, Redburn Partners - Analyst [42]
------------------------------
Very clear, thank you.
------------------------------
Duncan Minto, Renault S.A. - Director, IR [43]
------------------------------
Okay, well thanks, Charles. That brings us -- we've already gone three minutes passed, so that brings us to the end of the conference this evening. Once again, the IR team, Alain and myself, are available for questions. Thank you very much for participating, and have a good evening. Bye-bye.
------------------------------
Operator [44]
------------------------------
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.
------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the
Transcript has been published in near real-time by an experienced
professional transcriber. While the Preliminary Transcript is highly
accurate, it has not been edited to ensure the entire transcription
represents a verbatim report of the call.
EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional
editors have listened to the event a second time to confirm that the
content of the call has been transcribed accurately and in full.
------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other
information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies
may make projections or other forward-looking statements regarding a variety
of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a
number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the companies
may indicate and believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2017 Thomson Reuters. All Rights Reserved.
------------------------------