Q1 2013 Renault SA Sales Conference Call
Apr 24, 2013 AM CEST
RNO.PA - Renault SA
Q1 2013 Renault SA Sales Conference Call
Apr 24, 2013 / 04:00PM GMT
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Corporate Participants
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* Thierry Huon
Renault SA - Director of IR
* Dominique Thormann
Renault SA - EVP, CFO
* Jerome Stoll
Renault SA - EVP, Sales and Marketing & Light Commercial Vehicles
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Conference Call Participants
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* Rabih Freiha
Exane BNP Paribas - Analyst
* Philip Watkins
Citigroup - Analyst
* Laura Lembke
Morgan Stanley - Analyst
* Charles Winston
Redburn Partners - Analyst
* Thomas Besson
CA Cheuvreux - Analyst
* Horst Schneider
HSBC Global Research - Analyst
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Presentation
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Operator [1]
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Ladies and gentlemen, welcome to the first commercial results of Renault Group revenues conference call.
I now hand over to Mr. Thierry Huon. Sir, please go ahead.
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Thierry Huon, Renault SA - Director of IR [2]
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Yes, good evening, everyone. Welcome to Renault first-quarter 2013 conference call, broadcast live and in replay versions on our website. Presentation file and press release for this call are all available on our website in the Finance section. I would like to point out the disclaimer on slide 2 of this pack, regarding the information contained within this document, and in particular about forward-looking statements. I invite all participants to read this.
Today's call is scheduled to last 45 minutes. We have two speakers this evening -- Jerome Stoll, EVP Sales, Marketing and LCV; and Dominique Thormann, EVP and CFO. This presentation will last 20 minutes, and will be followed by a Q&A session. If we don't have the time to take all your questions in these sessions, Alain Meyer and myself will be around to take your calls later.
Without further ado, I will pass the call over to Dominique for a few opening remarks.
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Dominique Thormann, Renault SA - EVP, CFO [3]
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Thank you, Thierry, and good evening, everyone. Before reviewing quarter-one commercial results with Jerome Stoll in a minute, I would like to highlight the key takeaways from this year's first quarter. Firstly -- and this was not a surprise -- the European market was down for the quarter. But the decline was worse than anticipated, with a 10% fall, versus our expectation of about 8%. This has led us to adjust our European and French total industry outlooks for the full year to minus 5%.
Secondly, as expected, quarter-one revenues were impacted by a strong destocking effect resulting from the reduction in the level of independent dealer inventories from the end of December 2012.
Thirdly, while our sales outside Europe are still rising, they were materially impacted during the quarter by the Curitiba plant closure in Brazil -- which we had told you about -- which lasted for five weeks in 2013, in order to increase capacity.
Finally, on a positive note, our new products that we recently launched are doing well, including Europe, as Jerome will detail in a few moments. Given this overall context, we maintain our 2013 guidance, provided that the European and French markets do not worsen from our expectations.
I will now pass over the call to Jerome Stoll, who will review our commercial performance for the first quarter. Jerome?
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Jerome Stoll, Renault SA - EVP, Sales and Marketing & Light Commercial Vehicles [4]
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Thank you, Dominique, and good evening to everyone. Before I go into our sales results, let's have a look at the market. In Q1, the global TIV is still growing plus 0.7%, but on a slower pace due to decreasing markets in India and Europe. The European TIV was weaker than anticipated, at minus 10%; with Germany at minus 13% and France at minus 14%.
The UK is, unexpectedly, the only growing major market at plus 7.6%, which makes it the second-biggest market in Europe. This impacted our performance, and I will go back into this later on. Eurasia and the Americas are still positive, with a respective growth of plus 1.3% and plus 1.6%. Asia-Pacific TIV is up 2%, driven by China, at plus 11%. However, the Indian market is in the red for the first time in the last decade, at minus 11.6%.
Fortunately, this decline is not impacting the SUV segment; and, therefore, not impacting our performance. In this context, Renault registrations are down 4.7% with, again, a European weakness not offset by international growth.
As you can see on the chart, slide 7, this 4.7% decline represents a 31,000 unit registration loss on the quarter. This loss is concentrated on two regions -- Europe, minus 41,000 units; and Americas, minus 9000 units. However, our international registration still outpaced TIV and grew 10,000 units. And for the first time in the first quarter, we reached the 300,000 units sales internationally, despite the closing of our Curitiba plant in the Americas.
If you turn to slide 8, you see that our international registrations are up 4 points on the first quarter, and already represent 50% of the sales in Q1 alone. Russia and Brazil are still in our top-three markets; with Russia, however, now at the second place. We gained market share in four out of five key markets -- France, Russia, Germany and Argentina. The Brazilian, Algerian, and Turkish weaker performances are linked to specific issues that I will tackle later on.
Now let's detail our performance in each region. Let's begin with Europe on slide 9, which continued its negative trend. Our market share declined by minus 0.2 points, as you can see on the chart on the right top of the screen. Registration declined by 41,000 units, out of which is everything is linked with a TIV and market mix effect, whereas our performance was up by 2000 units.
As I explained a few minutes ago, the only growing market is the UK, where we are still losing market share in regards with the restoration of our commercial offer implemented early 2012. To illustrate the impact of UK on our performance, I would say that without this country our market share would be up by plus 0.2 points. On a positive note, our market share is up in France by plus 0.8 points; in Germany, by plus 0.2 points; and in Spain, by plus 1.2 points, thanks to the success of Clio IV and new Sandero.
The Group order book, detailed in the bottom right, is regaining momentum after a low point at the end of 2012. It represents 1.5 months of sales. It is still relatively weak, but this level has not been reached since May 2012, which allow us to be moderately optimistic.
Now let's turn to slide 10, where you will see that our product [advancing] is showing positive results in terms of retail market share. This slide shows our market share per channel for the five countries for which data is available on each channel. You can see that the retail channel has declined from 43% to 41% of the TIV. At the same time, OEM registrations have grown from 19% to 21% of the TIV. In this context, our new products allowed us to gain 1.3 points market share on the retail channel. And at the same time, we did not compromise on our well-known disciplined pricing and channel mix policy, since our market share on the short-term rental channel declined by 3.4 points, and our share on OEM registrations remain low, at 7%.
In the Americas, slide 11, our market share is down 0.6 points, as anticipated, due to the closing of our Curitiba plant for six weeks in order to increase the capacities by 100,000 units to 280,000 units per year. Demand for our well-designed offer is still strong, but we were not able to meet it, despite the inventories built up at the end of last year. As such, our market share in market was down 1.4 points in Q1. Thanks to the ramp-up of our capacities and the increase of our number of outlets and the launch of new Master release in March, we intend to regain market share in 2013 in the region. Note that in Argentina, our market share is still up by 0.3 points.
In Eurasia, slide 12, we are still benefiting from our strategy. Capacity optimization last summer shows its positive effects, with our market share up by 1.2 points, at 7.3%. In Russia, Renault is now the second brand after our Lada, with 7.8% market share. Duster is now the third-best selling car on the market, and is leader of the C-segment. We are still working on increasing our distribution network, and plan to open 20 outlets this year.
In Euromed-Africa, we embraced dynamic market. Our registrations are up, but market share is down 0.7 points, at 14.5%. Market share losses in Turkey, Algeria, and Morocco are linked to a transitional phase of our product offer, with new Symbol just launched in March after the previous model was phased out last December. The previous Symbol represented up to 20% of our sales mix in the region in a normal year. With a new version now available, we are confident we can increase our sales and market share in the region, especially within tradition of other new models, as Clio IV, Fluence Phase 2, Dokker, and new Logan.
In Asia Pacific, on slide 14, our market share is stable at 0.7%. The India turnaround is well on its way despite the market down 11.6%. We are less affected by the effects of this declining market -- of the declining market, since Duster is competing in the SUV segment, which is, for now, the only segment still growing year-on-year. With close to 20,000 units sold in the first quarter in India, Renault established record sales. India is now our 11th market for the Group, almost at Spain level; and our market share is 2.4%.
Our performance is also -- on the right -- across our importers' markets, like Australia, Middle East and Israel. In South Korea, we stabilized our sales for the first months last March since October 2011. Our efforts and focus must be pursued to succeed in a Korean revival plan. We will be launching the Captur-based RSM and QM3 model later this year. It was revealed this month at Seoul Motor Show, and got good feedback and received even the best car of the show award.
Before wrapping up this chapter on commercial performance, I would like to illustrate the positive results of our product offensive on slide 15. Clio IV, launched last October, is our second-best-selling model in Q1. It's the number-one model sold on the French market in the quarter. And we are maintaining our strict pricing policy. Sandero -- Sandero's start is excellent, above expectation; and we have registered more than 70,000 orders in Europe and Euromed. ZOE, the EV car -- ZOE revolution started in France last month, and will be rolled out in Q2 in the rest of Europe. It showed a promising start, with 5000 orders taken.
Not to forget outside Europe -- Clio Mio launched in November in Argentina, is now ranked within Argentinean top-10 models of the market. New Symbol reached the top 10 of its market within its first months of commercialization in Turkey. And last year, remember, the original industrialization of Duster was completed in Russia and India. And this month is confirming its blockbuster status, with the bar of 600,000 units bypassed in February since 2010. For the first time this quarter, it became our number-one model sold worldwide.
As you can see on the next slide, this product offensive is being rolled out with new upcoming models. And before I leave the floor to Dominique, I would say that I have reasons to maintain that 2013 will be one of growing market share in the markets where we are present. The European market is tough and uncertain. But we believe it is not far from the bottom. Outside Europe, the meter macroeconomics are still okay, even if some slowdown in some countries, and even in India, that have to be monitored.
Most of our product lineup is modernized. The Renault lineup is one year younger with the launch of Clio, Clio Estate, and Captur. And with Captur, we are entering a new growing B-crossover segment. It was launched this month in France, and will be launching Q2 in the rest of Europe and Euromed; and later in the year in South Korea. Its starts in France this month was very impressive.
With Logan and Logan MCV, the Dacia range is now completed; along with Sandero, launched earlier this quarter. This later model is off to a positive start, exceeding our expectation. This new product lineup and our international strategy will be our best assets in the months to come to achieve our objectives. Thank you for your attention.
I pass over the call to Dominique, who will now review our first-quarter revenues.
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Dominique Thormann, Renault SA - EVP, CFO [5]
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Thank you, Jerome. I will start this part of the presentation with the change in first-quarter revenues compared to last year, on slide 18. For your information, the 2012 figures on the left column are pro forma, restated for the change in the method of consolidation of two affiliates -- FM, Francaise de mecanique, and Indra. You will find a reconciliation table in the appendix.
As you can see, Group revenues fell 11.8%, to EUR8.265 billion in the quarter. The contribution from the automotive division declined 12.6%, while the contribution of sales financing is up 1.9%. I will start the analysis with the review of the automotive division on slide 19.
On this slide, we show the contribution to the change in automotive revenues for the first quarter, broken down by item. From the left-hand side of the page, the first item is foreign exchange, which was negative, with a 2.8 point impact. Just as in Q4 2012, the devaluation of the Iranian rial, along with the weakening of the Brazilian real and Argentinean peso, explains the majority of this impact.
The second item -- and, once again, the most important one -- is volume. Jerome just showed you that global registrations decreased by 4.7% in the quarter. But due to the inventory reduction at independent dealers that I will detail in the next slide, wholesale invoices decreased more than registrations. In total, the combination of registrations and dealer stock reduction impacted revenues by 11 points. Next, geographical mix accounts for minus 1 point, in line with the trend of the previous quarters, as our sales outside of Europe grew year-over-year, while European sales decreased.
The model and version mix effect is positive in Q1, at 1.1 points, which shows the impact of Clio IV launch and the continuing success of Duster outside of Europe. The price effect was positive 1.7 points. This demonstrates our efforts for maintaining our pricing discipline in a difficult European market. But it is mainly the reflection of price increases decided in certain countries outside Europe in order to offset currency weakness.
Sales to partners contributed positively for 1 point, despite lower markets in Europe, due to the start of production sale of the Mercedes Citan, and diesel engines to Daimler, as part of our increasing partnership.
The last item, others, represents the activities outside the new car business -- mainly spare parts, non-new car activities, as well as restatements related to buyback commitments -- it shows a negative contribution of 1.6 points, mainly related to the parts business.
If you turn to slide 20, as I just explained, we have experienced a strong destocking effect at independent dealers, from 314,000 units to 240,000 units in the quarter. At the same time, Group inventories increased by 110,000 units. All in all, total inventories ended in line with last year's levels, at 481,000 units. Due to weak sales in Q1, these inventories represent 72 day of sales, and stand above our 50- to 60-day guideline. However, on a forward-looking basis, our inventory level is about 10 days lower.
It is important to note that these levels of inventory are located outside of Europe, and stem partly from the filling of the distribution channel in fast-growing markets such as Euromed-Africa and Eurasia; and in Brazil, after the factory shutdown, which dried up stocks. Conversely, inventories in Europe have not increased for five months, and stand below Group average in number of days of sales.
I will now move on to slide 21 and comment on RCI's commercial performance. The number of new contracts written by RCI Banque in the first quarter of 2013 decreased by 4% versus the same period of 2012. New financings decreased at a slower pace than the number of new contracts, at minus 3.5 points, thanks to a higher average amount per contract financed. Average loans outstanding increased by 1.4 percentage points compared to the first quarter of 2012.
RCI Banque has continued to demonstrate its ability to access multiple sources of funding. In the first quarter, RCI Banque raised an equivalent of EUR1.2 billion in three capital market transactions, including a US dollar transaction in -- a bond offering in the United States. At the same time, RCI expanded its online retail deposit business in Germany in February, after a successful launch in France in 2012. Early indications are very positive.
Before moving on to the Q&A session, I will turn to the last slide, number 22, which shows our outlook for 2013. As I mentioned in my preliminary remarks, after a weaker-than-expected Q1 2013, the European and the French markets remain uncertain, and we expect them to contract by 5 percentage points this year, with a weaker first half than second half. We maintain our guidance for the full-year 2013, provided that the European and French markets do not worsen from our expectation.
This concludes our presentation. Together with Jerome, we will take your questions. And so I will now hand over the call to the conference operator. Thank you very much for your attention.
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Questions and Answers
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Operator [1]
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(Operator Instructions). Rabih Freiha, Exane.
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Rabih Freiha, Exane BNP Paribas - Analyst [2]
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Yes, hello everyone. Rabih Freiha from Exane. Thank you for taking my questions. My first one would be on your guidance. On your previous release, you had the EUR2 billion cumulative free cash flow generation for 2011-2013. I couldn't find it in the release. Does it still stick? And my second follow-up question on this would be -- you had said that working cap should be flat this year. Should we still expect the EUR300 million free cash flow to complete the EUR2 billion to come from operating profit?
And, second, could you please detail a bit the Group inventories that increased sharply? Could you give a split about the regions, maybe the models, and how you see those developing?
And, lastly, on the markets, you said that Q1 was below your expectations. Obviously, your free cash flow guidance is pinned to the market. Does it mean that, at minus 5%, you don't have much leeway on your guidance for the year? Thank you very much.
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Dominique Thormann, Renault SA - EVP, CFO [3]
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Okay, Robbie. Let me try to get them all in order. And if I miss, just ask it again. I think we'll try to handle all of your questions. In our guidance, as you know, is three things this year -- is higher sales in 2013 compared to 2012; positive automotive COP, consolidated operating profit; and positive free cash flow. That's the commitment that we've taken since the beginning of the year.
Now, the EUR2 billion free cash flow is our plan objective. That was our three-year objective. That started in 2011. Clearly, it remains our objective. And I think we gave you, in terms of guidance at the end of -- on the annual call, we did not give you a number. I think you know how much it takes to get there. It remains our objective.
Once again, all of this is conditioned by what I said at the end of 2012 -- and what I'm repeating today -- it depends on the European and the French market not contracting more than our expectation. So, in answer to one of your other questions, the fact that it fell more than expected in Q1, clearly that removes part of the buffer or part of the downside that we had written in. And, clearly, it takes a bit of comfort out of the forecast. But we are reiterating it at this point in time.
Now, about the rotation and the stock levels, we published -- our number is a rearward-looking number, so we take the period-end stock and we compare it to the sales of the prior period. That's the 72-day number. I'm not happy with that number. Clearly, it is above our guide. And we build our levels of stock to an order portfolio and to a book of business in Europe, which is half of our business. And in the non-European business, you have a much longer supply chain. And when your mix, your European and non-European mix, distorts the way it did in Q1, we suffered from a lower Q1 in Europe compared to a higher non-European sales. I'm not trying to make excuses; these are just explanations.
The second factor that happened is the shutdown of the plant in Brazil. I think I told you that we had to overstock our network in Brazil at the end of 2012 because we were going to shut down for a total of eight weeks; three of them in December, five in the beginning of 2013. So we ended up with too much stock at the end of 2012 in Brazil. It was cleared out in Q1. But since the factory reopened, the time it took to refill the pipe at the end of March ended with too high of a level of stock in Brazil; which, by the way, has been cleared since then. So it was a very temporary phenomenon in Brazil.
And I told you, finally, that the average of our European stock is lower than the total Group average, and the European stock has not increased in the last five months. So that one is, I would say, well-contained. And, once again, on a forward-looking basis, our level of stock is about 10 days lower than on a rearward-looking basis.
And then your final question on working capital -- yes, the guidance that we gave you on how we get to a positive free cash flow this year, it's clearly coming from automotive EBIT COP. That's the way we wrote it in the plan. So the guidance that that we're giving you today remains with a flat working capital assumption for the full year.
I hope I got all your questions. If I didn't, please (multiple speakers).
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Rabih Freiha, Exane BNP Paribas - Analyst [4]
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Thank you.
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Operator [5]
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Philip Watkins, Citi.
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Philip Watkins, Citigroup - Analyst [6]
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Good evening. Thanks for taking my questioning. Just another one on the guidance. You've obviously given that caveat, and I understand why, provided European and French markets don't worsen. And you've given us an idea about what your expectation is for those markets. But isn't it more relevant what your expectation is for your own sales? And within that context, I don't know if you can give us those to help us feel comfortable about the guidance. That was my question.
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Dominique Thormann, Renault SA - EVP, CFO [7]
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Yes. I don't want to make a broad statement. Maybe Jerome can help me out a little bit here on this one. But let me try to set it up for you. We're managing a Company where you have half of the business which is in a very weak market -- shrinking -- and with very little or limited visibility; however, with a very fresh product line that is rolling out in rapid cadence. So, we released Clio IV. And then we've got all the derivatives of Clio and all the markets that are being served in Q1. We've got Captur coming; we have ZOE; the whole Sandero program; Logan in front of us, et cetera.
So we have a lot of product coming into the European market. Outside of Europe, you're in a completely different situation where we are basically sold out in many areas, for example in Russia, et cetera. So you are managing to two completely different -- to two completely paces here and two different sets of constraints. So you're absolutely right that our own product cadence, and what we're going to release, was the foundation of why we gave you guidance that we would be selling more in 2013 compared to 2012. That was the foundation of it.
But now, maybe Jerome can give you a little bit more color as to what's happening in the actual marketplace.
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Jerome Stoll, Renault SA - EVP, Sales and Marketing & Light Commercial Vehicles [8]
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Now frankly you said most of the -- our confidence is based on the fact that the product that we are launching -- currently launching, received a very positive answer from the market. Clio IV is already ranking top in the sales in France, and in Europe as well. Captur we expect to really -- to be very impressive with the first contact that we had with the dealers and the customers. It's a very, very positive reaction with a very good transaction price, because we do expect -- because this car is very attractive, we do expect we can reduce dramatically the commercial incentives that we used to give to -- in the past.
And on top of that, still in Europe, Sandero is already also a very top sales, and we have difficulties to deliver the car, actually, because the volume is far above our expectations. So far we are confident, and you saw that the portfolio is in Europe is raising. So we should normally catch market share, catch back the market share that we lost last year and in Europe. These are the reasons why we are quite confident and the consequences and the financial confirmation of outlook.
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Philip Watkins, Citigroup - Analyst [9]
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Thank you. So you, therefore, expect to outperform the French and European markets. Can I conclude that? Or is it over-simplistic?
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Jerome Stoll, Renault SA - EVP, Sales and Marketing & Light Commercial Vehicles [10]
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Yes, yes. We have already -- and as I said on the Q1 -- you saw already that we outperformed the French market. We are increasing our market share in France. And if everything goes right, we should expect we should be above in terms of market share in France. We should be above as well in Europe. So we are gaining market share in these countries. And this has been seen already -- it has been shown already on the first quarter.
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Philip Watkins, Citigroup - Analyst [11]
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Great. Thank you.
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Operator [12]
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Laura Lembke, Morgan Stanley.
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Laura Lembke, Morgan Stanley - Analyst [13]
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Yes, good evening. Thank you for taking my questions. I've got three, please. And the first one, more broadly, can you give us a bit of an update on where European pricing stands right now, both on a year-on-year comparison, but also how it's developed in the first month of the year here, in comparison to Q4?
The second question would be on Brazil. Are the production disruptions now completely over? That's what I understood from your comments here. And when should we expect a pickup in the selling rate in Brazil? And will that already mean that Q2 will be positive on a year-on-year basis again?
And then the last question, based on your Q1 performance and also the order book that you have today, do you think you can be profitable in automotive in H1? Thank you.
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Jerome Stoll, Renault SA - EVP, Sales and Marketing & Light Commercial Vehicles [14]
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Okay, yes. I will start with the pricing, which is obviously the most difficult question that I could have got. What I can say is that, basically, if I look at the net revenue by unit that we have, it has increased outside Europe. And this is good for the total revenue of the Company. It has increased because of price increase, and also because of the mix effect. That's clear. And the mix effect, you saw that in the revenue snapshot. And the price increase, you saw part of it also in the snapshot. Some of this price increase is just to offset the devolution that we faced in Argentina or Iranian market. So, basically, I would say that outside Europe we are in a positive mode, as far as the prices are concerned.
What about Europe? Europe remains negative in terms of price evolution, due to obviously a strong commercial pressure. But what I would like to stress that we are still implementing our virtuous pricing policy in Europe. And this can be seen with the evolution of the retail customer incentives.
The retail customer incentives on the main market where we are following it -- because we have all the data, and with external auditors or analysts - the retail customer incentives decreased by 2 points compared to our competitor basket in last quarter. And 2 points is really the effect of the introduction of the new model of Clio. Clio has stayed. And now we expect that we will keep on going with the Captur, which is also a very attractive product, with which we should not spend too much money in terms of discount.
So, basically, in terms of customer incentive, it's moving the right way. But obviously the difficulties that you're going to have to see in the result at the end is that this concerns mainly the retail channel. And the retail channel, unfortunately for us, is decreasing a little bit in Europe. And at that time, you will have to consider the mix of our sales, the ones that I showed earlier on my presentation. You will see that the total benefit of our virtuous policy in terms of pricing will not be immediately seen in our bottom line because of this channel mix. This is as far as the pricing is concerned. So, basically, we are still continuing our virtuous policy, reducing the incentives, and this is the best way to show it.
Regarding Brazil, Brazil -- now we have to do, in 10 months, the sales of 12 months. So obviously what you will see in the coming weeks is an increase in our sales volume, because now the production is there. The success of the product is there; here, again, with Duster, but not only with Duster. So I feel here, again, confident that Brazil in terms of market share will continue to grow in the coming months.
Last question I will leave --
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Dominique Thormann, Renault SA - EVP, CFO [15]
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Your last question on the automotive margin -- we do not provide semiannual guidance. So for the -- our full-year guidance is for automotive COP to be positive. The whole -- clearly, that's the driver of our plan this year. So on the full-year basis, that's what we are reiterating today. I think we also said that, at the annual call in January -- and I'll repeat it today -- that we're expecting the second half to be stronger than the first half.
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Laura Lembke, Morgan Stanley - Analyst [16]
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Okay. Thank you very much.
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Operator [17]
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Charles Winston, Redburn Partners.
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Charles Winston, Redburn Partners - Analyst [18]
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Yes, hi, good evening. Thanks for taking my questions. Just a couple of follow-ups, really. The first one, on the pricing side -- in the PSA called this morning, they were asked about the issue of price, including added content. They said, at the time, that the impact of content as a negative on price was much reduced this year compared to last year. In other words, the pricing numbers they were showing in their revenue bridge were actually much more reflective of real pricing. I was wondering if you could say something similar. In other words, is content still a big issue? Or is -- taking into account the comments on mix just made, is pricing certainly more representative?
And the second point, in terms of following up Laura's question in terms of Brazil, with the confidence expressed in the Brazilian pickup that we are seeing, would it be fair to say that overall volumes could well be positive in the second quarter? Thanks a lot.
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Dominique Thormann, Renault SA - EVP, CFO [19]
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Pricing, so -- I think what Jerome was trying to explain is that -- we're speaking about Europe, right? I think your question was specifically about Europe. The pricing environment is such that a lot of it is, first of all, our own decisions in terms of more virtuous practices. But it's also very much related to the product rollout. When you have full model changeovers with higher -- the new car feature value, clearly that gives you a bit more of a support for pricing.
Now, the whole debate or the whole discussion -- I don't know how PSA framed it. But the whole debate or discussion around content, feature content or non-feature content, I don't know how things are boxed or separated in terms of regulatory enrichment and content that is much harder to price for than feature content. We have, as Jerome was saying and showing, a positive mix in terms of per unit revenue; and with the types of vehicles that are coming with higher levels of personalization, higher option take rates.
So it's going to be a combination of all of these things. But I think we'll get a better read in the second half -- or the second quarter -- so that the first half, once all of our products are out there, to make more definitive statements. But at least things are, in terms of relative pricing, which is ultimately what it's all about, we see -- the data that we have -- shows an improvement in our positions on a relative basis.
Jerome, the Brazilian question on the quarter?
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Jerome Stoll, Renault SA - EVP, Sales and Marketing & Light Commercial Vehicles [20]
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Yes. Just to complement what Dominique said, it's obvious that for all new products, we feel much more confident for the product that are already on the road. Okay, we have to fight with the normal competition, and this is maybe a little bit tougher. We are very happy with the product that we have just launched, with the new design and re-attractiveness. But it is, all in all -- the competition is still tough, no doubt.
As far as Brazil is concerned, the Brazilian -- starting from the market first, it's clear that the Brazilian growth is slowing down, lower than what we were expecting at the beginning when we started the year. But as you probably know, the government was a little bit concerned by the evolution of this market, and it has decided to extend the IPI incentives until the end of the year. And this is, I guess -- will be very good to support the market. And then, because we are successful with our product, we should normally expect to have the benefit of this measure.
As far as the volume is concerned, if we are stable in terms of volume compared to 2012, this would be good. Because, as it has been said, we are working with 10 months of production rather than 12 months of production, which means that it's an increase in terms of market share. But in terms of volume, we expect on a quarterly basis to be maybe higher; but on top of year, maybe at the same level.
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Charles Winston, Redburn Partners - Analyst [21]
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Very clear. Thank you.
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Operator [22]
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Thomas Besson, Cheuvreux.
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Thomas Besson, CA Cheuvreux - Analyst [23]
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Thank you. Hi. Two questions, as well. Can I just check the European assumptions that you are referring? Have you changed these? Or do you maintain those you had at the start of the year, given the weakness in Q1?
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Dominique Thormann, Renault SA - EVP, CFO [24]
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In the beginning of the year, we said Europe would be down 3% to 5%, and France down 5% at best. Today we are saying that both Europe and France would be down 5%.
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Thomas Besson, CA Cheuvreux - Analyst [25]
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Okay. Thanks for the clarification. Can you comment on the profitability of India and Russia, where you have managed to go impressively against weakening markets? Are they both overly profitable, or is it just the case for Russia?
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Dominique Thormann, Renault SA - EVP, CFO [26]
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Thomas, there isn't anything very different in this quarter compared to what we've been telling you in terms of -- directionally, in terms of profit. Clearly, the Eurasia region remains one of our most profitable. At certain points, it is the most profitable, so we are very happy with that one. India is ramping up very quickly now. I think that the numbers that Jerome quoted in his speech give you an indication that, certainly from last year, when we were ramping up and our product introduction costs, and just costs related to manufacturing and startup costs in India, are behind us. So, clearly, as volumes start kicking in, and the mix with Duster is high, we are optimistic on that front.
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Thomas Besson, CA Cheuvreux - Analyst [27]
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Right. The last one for me, please. Your inventories have stayed relatively high. What should we expect at the end of June? Are you going to try to bring that down to around 65 days of sales? Or what should we anticipate there?
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Dominique Thormann, Renault SA - EVP, CFO [28]
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Yes, on the forward basis -- first of all, as I told you, this is not -- they are too high, so they have to come down. And, once again, depending on how you look at it -- if you look at it on the past quarter, or if you look at it on the quarter in front of us, if I look at it on a forward-looking basis, the number would be about 10 days lower than the one that we've just printed. So, yes, the intention is to manage to our guideline.
Now, the difficulty, as I said, is if the mix changes substantially from European and non-European business, given the where the cars are in the distribution channel or in the distribution pipe, it can affect your period-ending numbers by several thousands of units, depending on where they are. So the number, in terms of the 60 days, is a good number in terms of measuring overall distribution efficiency and stock rotations. Clearly, we're disappointed at the number that we have at the end of March, and definitely will endeavor to make that lower number at the end of June.
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Thomas Besson, CA Cheuvreux - Analyst [29]
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Okay. I have a last one, if I may. On Russia, you've done very well against the weakening markets. A lot of companies have sent a rightfully cautious message there, including actually the management of AvtoVAZ at the controls. What is your perception of the development of the Russian market? And do you believe you can continue to go against the trend in that market?
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Jerome Stoll, Renault SA - EVP, Sales and Marketing & Light Commercial Vehicles [30]
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Okay, I will answer this question. You are right to say that the Russian market is getting more -- is giving more concern to all the observers and the players. It's clear that after the Russian government has announced that it will lower its GDP growth forecast from -- if I well remember -- 3.6 to 2.4 for this year, we revised our forecast for the global market. We were at plus 5% at the beginning of the year. Now we are, rather, around 2% growth. So we are still positive. It might be lower than that. But, frankly, we think that, for the time being, with what we have seen and with the product of that we are selling in this country, we are still confident on our ability to reach the volume that we were expected this year -- expecting this year.
So, Duster is doing very, very well. And the rest of the lineup is also doing well. We still have broad portfolio in Russia. So I think that, even if there is an additional decline of 2% down to zero, normally it should not affect dramatically the level of our sales in Russia.
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Thomas Besson, CA Cheuvreux - Analyst [31]
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Okay. Thank you very much.
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Operator [32]
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Horst Schneider, HSBC.
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Horst Schneider, HSBC Global Research - Analyst [33]
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Yes. Good evening. Thanks for taking my questions. I have got a question, basically, first on raw material impact and currency impact in 2013. Maybe you can update us on your guidance, in particular with regard to the impact on earnings. When I look at Q1, I think revenue impact was minus EUR251 million. In H2 last year, we saw also a more significant impact on earnings. So I want to know what is now the impact here from currencies against that. The raw material prices have come down significantly in the last few weeks. Does that positively offset that negative impact a little bit? And I would be interested to which extent.
And then the other thing is with regard to the volumes. Maybe you could quantify what was the development of production in Q1 year-on-year? And what is the outlook for Q2? I would be interested if the production will be down in Q2 year-on-year, or will it be up? And in that context, also, I want to know if the unit sales in Q2 -- on a global basis -- I mean, the comparison base from a year ago is pretty high. The increase, or will they still be slightly down?
And then the last question is, since you have said, Dominique, that your guidance is now less conservative, let me put it that way -- what part of the guidance is now -- looks now the most ambitious? Is it the unit sales gross target? Is it the operating margin, and/or the cash flow? Thank you.
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Dominique Thormann, Renault SA - EVP, CFO [34]
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Okay, Horst, let me try to tackle all of your questions. Let me take the easy one -- production schedule in Q2 is up over 2012. And it is up sequentially over Q1 of 2013, so there is more production to come in the current quarter. So that was one question.
The other one about raw materials, the guidance that we gave you at the beginning of the year on the full package of Monozukuri cost reductions, which include the raw material impact, we've not moved away from that. I think we gave you guidance of about EUR600 million for the full year. Today is -- we're just on a revenue call for Q1, but there's no -- I have no reason to change that right now. And the raw material headwinds that we had in prior years, I think that the way we modeled it for you was close to -- was more of a neutral impact. And currencies, as you know, extremely difficult to model and to predict. You have a whole basket of things happening. But there isn't one, or a combination of currencies, which is going to swing it one way or the other.
And then your question about guidance -- our three objectives are all interrelated. And, in fact, almost -- one cannot happen, really, without the other. So if our automotive operating profit is what is going to drive free cash flow, and that is also going to be driven by unit sales -- which Jerome detailed for you -- so, higher sales yield profit, which yield cash flow, and I think it's in that direction that we're going.
What I meant, and I apologize if I wasn't clear enough, is that Q1 being weaker than we expected in terms of industry, because as you saw we gained share in many countries -- but the total is -- industry is just lower. So based on our forecast that we have today, what we're saying is that our objectives work if the market does not deteriorate further from our expectation. That's what we meant to say. And I apologize if I wasn't clear.
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Horst Schneider, HSBC Global Research - Analyst [35]
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Okay. And Q2 unit sales, up or down year-on-year?
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Dominique Thormann, Renault SA - EVP, CFO [36]
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It's above; it's up.
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Horst Schneider, HSBC Global Research - Analyst [37]
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Okay. Not only production, also sales. Okay.
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Dominique Thormann, Renault SA - EVP, CFO [38]
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Yes, yes, yes, sure.
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Thierry Huon, Renault SA - Director of IR [39]
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Okay. I am afraid that we have to stop here. We are already behind schedule, and I think that you have another call to come. So thank you for being with us this evening. And Alain and myself are available if you have further questions. Bye-bye.
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Operator [40]
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Ladies and gentlemen, this concludes the conference call. Thank you all very much for attending. You may now disconnect.
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