Q2 2013 Renault SA Earnings Conference Call
Jul 26, 2013 AM CEST
RNO.PA - Renault SA
Q2 2013 Renault SA Earnings Conference Call
Jul 26, 2013 / 06:00AM GMT
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Corporate Participants
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* Thierry Huon
Renault SA - Director of IR
* Dominique Thormann
Renault SA - CFO
* Carlos Tavares
Renault SA - COO
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Conference Call Participants
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* Thomas Besson
Kepler Cheuvreux - Analyst
* Laura Lembke
Morgan Stanley - Analyst
* Philip Watkins
Citigroup - Analyst
* Charles Winston
Redburn - Analyst
* Gaetan Toulemonde
Deutsche Bank - Analyst
* Rabih Freiha
Exane BNP Paribas - Analyst
* Horst Schneider
HSBC - Analyst
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Presentation
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Operator [1]
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Ladies and gentlemen, welcome to Renault's first-half 2013 financial results conference call. I now hand over to Thierry Huon. Sir, please go ahead.
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Thierry Huon, Renault SA - Director of IR [2]
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Good morning, everyone. Welcome to Renault first-half results conference call, which is broadcast live and in replay versions on our website. A presentation file, press release and activity pack for this call are all available on our website in the Finance section.
I would like to point out the disclaimer on slide two of this pack regarding the information contained within this document, and in particular about forward-looking statements. I invite all participants to read this.
Today's meeting is scheduled to last about one hour. As usual, we have two key speakers this morning. First up will be Dominique Thormann, our CFO. He will take you through the highlights of the financial results. And then Carlos Tavares, our COO, will follow up with a review of the operations and the outlook. The presentation will last around 30 minutes and will be followed by a Q&A session.
Without further ado, I will hand over to Dominique.
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Dominique Thormann, Renault SA - CFO [3]
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Thank you, Thierry. Good morning, everyone.
As you will have already seen from the headlines, the Group's financial results for the first half of 2013 show that Renault has managed to improve its operating margin in the Auto division, despite a tougher than expected European market. This came notably from a strong invoicing activity in the second quarter. Due to special items, primarily related to Iran, our EBIT was negative and our net profit came to a bit less than EUR100m. I will come back to these impacts in more detail in a few minutes.
Our free cash flow was slightly negative and remained under control, leaving us on track to achieve a positive Automotive operational free cash flow for the full year, provided no further material deterioration in market conditions in the second half.
In order to analyze the first-half performance, I would like to briefly comment the commercial figures on slide five that Carlos will detail later on. Our Group unit sales declined 1.9% to 1.3m units. The slight decrease hides again a contrasted situation between Europe and business outside of Europe. In Europe our sales were down 7.3%, while sales on international markets increased by 4.3%.
On slide six we have the full P&L for the Group, which shows an operating margin improvement compared to the previous period. This illustrates our efforts in terms of pricing and cost control. Starting with the top line, Group revenues reached EUR20.441b, a decrease of EUR181m from last year or 0.9%. Please note that we had some minor adjustments stemming from accounting method changes in 2012. You will find a table with restated numbers at the end of the pack.
On the next slide, number seven, we show the revenue contribution by activity. Revenues from our captive sales financing company, RCI Banque, decreased 1% to EUR1.058b in the period. However, as you all know, measuring revenues for sales financing is not the indicator of choice in terms of their performance, which I will detail in a few minutes.
I will start by looking at the breakdown of revenues for the Automotive activity on slide eight, which decreased by 0.9% in the period to EUR19.383b. It is worth noting that second-quarter revenues increased 8.2% after the 11.8% decline experienced in Q1.
If we look in detail and starting on the left-hand side of the page, the first item is foreign exchange, which is negative at minus EUR605m. Almost all of our major currencies moved against us. However, the major impact came from the Iranian rial, the Argentinean peso, the Brazilian real as the primary ones.
The second item, volume, shows a negative impact of 0.8 points. This confirms that our business in Q2 was much better than in Q1, when volumes impacted negatively for 11 points. However, part of this improvement stemmed from higher invoices than registrations, leading to independent dealer stock increases.
Geographical mix is almost neutral, despite weak business in France and expansion outside of Europe. This confirms that we have reduced the pricing gap of our vehicles in Europe and overseas markets.
The fourth item to note is the mix effect. The increase in net revenue per unit related to product, version and option impacted for 0.7 points of the total change in revenues.
The fifth item is the price effect, which is positive by 2 points, showing a further sequential improvement. This material step-up in first-half 2013 compared to first-half 2012 reflects a strong effort deployed by the Company to offset the currency effect in some countries, but also reflecting our pricing discipline in a tough environment.
Sales to partners, representing mainly the sales of parts, components and built-ups to other car manufacturers, is positive by 1 percentage point, primarily thanks to Citan deliveries to Daimler.
The last item, named others, represents the other activities outside the new car business, mainly spare parts, our wholly owned dealer subsidiaries and buyback restatements.
I will now turn from Automotive revenues to Group operating margin variances. The first-half operating margin for the Group totaled EUR583m, an increase of EUR75m compared to the same period one year ago, after a positive restatement of EUR26m stemming from IAS 19 rule adjustments already mentioned previously. The walk-down on this slide compares this year's impact to the previous period. I will start the walk-down reading from left to right.
Currencies had a material negative impact in the first half of EUR242m. The same currencies explain this impact as for revenues. The next item, volume, shows a EUR34m negative impact coming from the decrease in units invoiced, including the geographic mix.
Mix/price enrichment impacted positively for EUR261m. Without the impact of price increases implemented in Iran and Argentina to compensate for weaker currencies, this item would have been only slightly negative and significantly better than last year. This achievement is resulting from our strict pricing discipline, helped by the success of recently launched models. Raw materials were a slight tailwind of EUR13m, in line with our initial expectations.
For the next part of the walk-down, we have grouped four items which together form the major part of our Monozukuri cost reduction efforts. Purchasing savings equaled EUR303m. Warranty came in at a neutral impact. Manufacturing and logistics costs increased by EUR27m and were negatively impacted by production disruptions in the first quarter. The R&D charge in the profit and loss account increased by EUR70m, as the capitalization rate moved from 45% in the first half of 2012 to 40% in the first half of 2013, in relation with development milestones. Total Monozukuri savings therefore came to a positive EUR206m.
G&A cost decreased EUR19m, proof of the strong efforts deployed by the Company to limit fixed costs. RCI Banque had another strong half, despite a slight increase in distribution costs reflecting higher services internationally, as I will explain later. Consequently, its contribution decreased marginally, by EUR8m. Finally, all other items yielded a negative EUR141m, related primarily to buyback restatements, lower spare parts activity and wholly owned dealer business. The remainder came from smaller items.
In total, for the first half of 2013, the Group's operating margin reached EUR583m or 2.9% of revenues, to be compared to 2.5% in the same period last year.
On page 10, we show the split by sector. The Automotive division posted a EUR211m operating margin, corresponding to 1.1% of revenues. This is 0.5 points above last year's performance, achieved in an adverse environment in Europe. It is the result of our constant efforts to restore Auto profitability. However, we should not overlook the performance of our sales financing activity, as RCI Banque posted a EUR372m contribution to Group margin, which is very near the result achieved in the first half of 2012.
I would like to take a few moments to look at the analysis of this performance on the next slide. New financings in the period stayed almost flat at EUR5.5b, versus EUR5.6b in the corresponding period of last year, despite a difficult environment. This resilience stemmed from higher penetration rates for Renault, Dacia and Nissan brands.
Average outstanding loans stayed flat at EUR24b and net banking income decreased 25 basis points, due to the higher distribution costs related to growing international services activity I mentioned previously.
The cost of risk showed a slight improvement, at 0.4 percentage points of average outstandings versus 0.44% last year. The decrease evidenced once again our ability to manage risk even in a volatile economic environment.
Finally, cost management allowed keeping our operating expense ratio at 1.57% of average outstanding loans or 3 basis points above last year. In total, the pre-tax return on assets reached 3.2% versus 3.4% in the first half of 2012, while return on equity remained at around 20%.
Now that we have covered the operating margin variance, I will continue down the P&L with the other operating income and expense items on slide 12. While these items posted a net positive result in the first half of 2012 for EUR37m, the same period this year shows a significant negative result of minus EUR832m.
The first and main item is a charge of EUR512m, which relates to our decision to deconsolidate our business in Iran and to cover all of our pending related risks. This decision is the consequence of stricter sanctions decided by the US government, which now include the automotive sector in the regime. Of course, in the event of an improvement in this situation, we would be able to write back these provisions.
The second item relates to the impairment of assets, both tangible and intangible, amounting to a charge of EUR227m.
The last item accounts for EUR173m and stems from restructuring charges. The bulk of this provision is for the start of the implementation of our competitiveness agreement signed with the unions in the first quarter in France.
On the positive side, we have EUR71m of capital gains resulting from disposal of assets. Lastly, other miscellaneous items impacted positively for EUR9m.
Continuing down the P&L, the next item is net financial income and expenses on slide 13. The net charge decreased from EUR154m to EUR139m. While decreasing, this charge is still relatively high, due to the carry cost and to the impact of IAS 19, which transfers the actuarial cost of pension obligations from the operating margin to the financial result.
The next slide, number 14, shows the impact of associated companies in Renault's P&L. I remind you that Volvo is no longer in our scope of consolidation, since we sold our remaining stake at the end of last year. On the back of Nissan's results published yesterday, the contribution for the second quarter equaled EUR333m, taking the first-half impact to EUR766m, up EUR213m compared to the same period last year. Renault's share in AVTOVAZ results, which is consolidated with a three-month time lag, posted a slight negative of EUR10m versus a positive EUR4m in the corresponding period last year.
I will turn back to the P&L for the last time on page 15, where the net tax charge for the half came to a negative EUR264m, compared to a minus EUR236m in the first half of 2012. This charge is mainly resulting from taxes paid abroad, which amounted to EUR230m. Bottom line, net profit after tax came in at EUR97m. After taking account of minorities, the net result per share came to EUR0.14 compared to EUR2.70 in the first half of 2012.
Now that I've completed the analysis of the P&L, I will turn to slide 16 on the evolution of our net Automotive debt. Cash flow from operations totaled EUR1.655b. Changes in the working capital requirement impacted negatively by EUR138m. I will review this further in a few moments. Net tangible and intangible investments came to EUR1.548b. As a result, Automotive operational free cash flow came to a slight negative of EUR31m.
Dividends received from quoted companies totaled EUR217m. As a reminder, no dividend was received from Volvo in the period. While dividends paid during the half came to EUR524m, reflecting the application of our dividend policy of distributing each year dividends received from associates during the previous year.
Other financial items were negative for EUR462m, including the cash payments for our increased stake in Alliance Rostec Auto, which is a joint venture controlling AVTOVAZ, and the impact of the deconsolidation of our business in Iran. In summary, the net Automotive financial position moved from a positive EUR1.532b to a positive EUR732m.
Slide 17 shows the change in the working capital requirement recorded in the first half, at minus EUR138m. Trade payables remained positive in the period, at EUR579m. Inventories rose in line with the normal seasonal variance, as did receivables. Other working capital items impacted positively for EUR177m.
Slide 18 shows the inventory situation across the consolidated chain of both Renault's balance sheet and independent dealer network. While inventories have been reduced at the Group level in Q2, we have seen an increase at the dealer level. It is worth noting that as our sales mix outside of Europe expands, it increases the level of natural stock due to the longer supply chain. At the end of June, inventory outside of Europe represented 46% of total stock on hand.
The stock rotation figure expressed in the total inventory level at the end of June divided by the sales of the previous quarter stands at 67 days, down from 72 days at the end of Q1. As you know, we need to build some inventories at the end of Q2 ahead of the summer break, and this is especially true this year as we have some new products in high demand. However, we must admit that once again we were a bit optimistic about European demand in Q2 and overproduced in the quarter.
I would now like to move to the Automotive liquidity reserve on slide 19. Cash and cash equivalents totaled EUR9.2b at the end of the first half, slightly below the end of last year. But it is worth noting that we reimbursed, in the first half, the bulk of our long-term debt maturities due this year. Together with the fully available undrawn credit lines, the Automotive gross liquidity reserve stands at EUR12.6b at the end of the first half. We continued during this last quarter to be opportunistic and to raise cash in overseas markets, such as Japan and offshore Chinese issuance.
RCI's liquidity position has also remained strong, as we can see on slide 20. RCI Banque raised about EUR2.3b of new funding with a maturity greater than one year.
In the meantime, we have also continued to develop Zesto, our online retail savings account, which has far exceeded initial projections. At the end of the period under review, Zesto had collected almost EUR1.2b in deposits. Beyond the success in France, we launched at the beginning of the year Renault Bank direkt in Germany, which has already collected an amazing EUR1.4b, out of which EUR300m have been placed in term deposits.
In total, this new activity accounted for EUR1.7b in new funding in the period, and we therefore aim to reach 20% to 25% of RCI's total outstandings in funding by the end of 2016.
This completes my financial review for the first half of 2013. I will now pass the floor to Carlos Tavares for the operational review and outlook. Thank you very much for your attention.
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Carlos Tavares, Renault SA - COO [4]
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Thank you, Dominique. Good morning, ladies and gentlemen. Let me walk you through the operations outlook, starting with the sales.
As Dominique already explained, our overseas sales were up by 4% while the European ones were down by 7%. As a result, our total sales were down by 1.9% and 0.9% in turnover.
If you look at the breakdown per region, you will see that in terms of market share Europe was marginally down, while Eurasia was up. Euromed was slightly down also, mostly for a supply and planning issue. The Americas were down because we had to stop our Curitiba plant for two months in order to increase our manufacturing capacity by 100,000 cars per year. And Asia Pacific was up.
We have revised, as you know, at the end of the first quarter, our forecast for the European TIV, moving down from minus 3% to minus 5%, and we still keep this forecast as the UK market is still quite strong overall. We keep minus 5% for Europe and we have revised our French TIV down to 8%, coming from minus 5% to now minus 8%.
If we move to the next one, you see that the volumes are up in overseas 4.3%. That means that our market share outside of Western Europe has improved, while in Europe we were marginally down, minus 0.06%, which is marginal. And this situation could be stabilized despite a high discipline in pricing, as Dominique mentioned, thanks to the brand new models that appear to be quite successful in this market. Overall, we were down 1.9% and in turnover 0.9%.
If we move to the next slide, you'll see that the major points are related to the fact that our mix of sales continues to move to overseas, as you see, compared to the first half of 2012. We have improved our overseas sales mix by 3 points, moving up from 47% to 50%, which means that step by step Renault is moving to become a global car maker.
You can also notice that in the top 10 markets of Renault we were able to grow share in six of those top 10 markets, as you see on the right-hand side of this slide. We lost share in Brazil because of the manufacturing problem that I mentioned, the need to increase manufacturing capacity and then shut down the plant for two months. This has been now done and we are back on track, expect to recover the lost volumes in the second half.
We also want to notice that in these top 10 markets of Renault, five of them are now non-Europeans. This is an important point to be noticed. So far, on the first half of 2013, the highest sales come from Duster, followed by the new Clio and then by Megane.
If we move now to the regional breakdown, looking at Europe, as I mentioned, we were marginally down in Europe by 0.06%, rounded here to minus 0.1%. We have 9.2% share. France was up by 0.2% and now reaches 24.9% of share. As you see, the overall volumes were down because of the TIV drop, as you know, minus 7% against last year.
Two important highlights. The first, the fact that the Dacia brand has been the strongest -- has seen the strongest market share improvement in the market, 0.42 points ahead of Mercedes, and which is now a total market share of 2%. Also, other highlight, the fact that we continue for the 16th year in a row to be leading the LCV market in Europe, with a 14.2% of share, ahead of Volkswagen.
Let's move now to the breakdown of sales by channel, just to highlight the fact that if you look at the bottom of this slide you see that our sales are mostly focusing on retail and fleet and much less in rental and tactical sales, as you can see on the right-hand side of this slide, which means that the sales of Renault, beyond the pricing discipline that Dominique already highlighted, we also have the discipline to move our business to the most profitable channels, as you can see here. Against the overall market, we have much more focus on retail and fleet and much less focus on short-term rental and OEM tactical sales.
Overall, you can see the breakdown of our business, but this translates a more healthy business model overall in an overall market where unfortunately the retail channel has been decreasing by 1 point over this first half of the year.
If we move now to the Eurasia region, to highlight the fact that we have improved our share by 0.9 points, and mostly in Russia where the share was up by 1.1 point, reaching now 7.8% of the market. As you see, the volumes grew from 104,000 up to 114,000 in the most profitable region of our business.
You can also note that Duster is now the highest SUV sales in this biggest market, which is Russia, ahead of Toyota. Duster is sold at 40,000 sales on this first half, while Toyota was slightly above 20,000. So number one sales in SUV in Russia, and in Russia also Renault is now the second brand in the market overall, just behind the first one, which is Lada.
So, if we move now to the next region, which is Euromed-Africa, as already mentioned, our market share was slightly down, by 0.2 points, as we were surprised by the strength of the TIV and couldn't supply in a timely manner the appropriate number of cars. This is going to be fixed for the second half. And we still have 15.4% of market share in this region. Turkey is our most important market here, with Algeria. Turkey could reach 17.2% market share, which represents an increase of 0.7%.
As you see, total sales went up from 184,000 cars to 197,000 cars. And we expect this to continue to be a growth region for our business, moving forward.
Clio IV, the new Clio, has been a huge success in the most important markets of the region. In Algeria and in Turkey, Clio is now the first in its segment and has reached the third market position in Algeria and the fourth in Turkey. We also continue to work on pushing new frontiers and pushing the boundaries by making more deals with new importers in major African countries like Ghana, Nigeria and Libya.
If we move to the next region now, the Americas, as I mentioned, the Americas had a reduction -- saw a reduction in its market share by 0.5 points down to 6.2%, mostly driven by Brazil, minus 0.8%, now at 6% market share as a consequence of the Curitiba shutdown for the manufacturing capacity increase. As you see, we were 5,000 sales down compared to the previous year on the first half.
You can also notice that Duster was the second most sold SUV in the market, just behind the Ford EcoSport, and that we have launched successfully the new Master, which has reached the first place in its segment in June in the Brazilian market.
If we move now to Asia Pacific, Asia Pacific market share was stable at a still very low market share of 0.7%. This represents for our Company a big opportunity, moving forward. India was the success story, with now a market share of 2.5%, increasing the market share by 2.3 points against last year thanks to the success of Duster.
In India, Renault is now the second European brand, and we continue to see good potential for our business over there. And as an highlight, beyond the fact that we are the first European brand in India, we were also pleased to see that we could sign for a significant fleet of 1,400 taxis in Singapore with our Latitude sedan.
If we now move to the next slide, which is the balance of risks and opportunities for the second half, we would highlight the fact that the European TIV is still very low. As you know, it has been decreasing significantly. And with the new forecast we now foresee that we will be short of 14m cars for this year of 2013, moving down from a peak of 18m a few years ago. So European TIV is still slow and still going down, even if the pace of reduction has been reduced.
In addition to the risks, we have the slowing down in some of the emerging markets that you have of course already noticed, which represents now a risk for our business as we have 50% of our sales outside of Europe. And last risk is the fact that most of the currencies of emerging markets are now weakening, which represents a profit risk for the Company.
On the opportunity side we have a very important factor, which is the fact that we have renewed a significant part of our portfolio. And I would like to highlight the successes of the new Clio, of ZOE and the success of Capture that led to an increase of the number of shifts we have in our Valladolid plant in Spain to face the success that we are having on the marketplace with this product, the fact that we have significantly improved our net pricing performance, and I will come back to this point later on and it still demonstrates that there is still additional potential on this matter, and finally the fact that we have been able to stabilize our fixed costs and there is still an opportunity to reduce them.
So let's go through some of those levers on slide number 33. As it was mentioned by Dominique, our Automotive operating margin went up against last year and is somewhere one of the major drivers of the improvement of the total profit of the Company. We are now working on four major levers to improve the operating profit margin of the Company.
As you know well, we have work on pricing improvement by improving the net pricing of our Company compared to our competitors. We are working on reducing the fixed costs by implementing the French competitiveness agreement. We have a significant direction and a significant activity in reducing our variable costs with our plant managers. And we still have opportunities to grow, mostly overseas but also in share in Europe, thanks to the new models that we have launched successfully.
So if we move through these levers, and on the next slide you will see the net pricing improvement compared to the end of 2011, against the basket of our major competitors that we scrutinize on a segment-by-segment basis in each market. We have improved the net pricing by 6 points against the end of 2011, which has contributed to the results that you have seen.
And you see that, for instance, in Europe we have improved our net pricing by 6.2 points, 5.5 in Eurasia, 6.6 in Latin America and a little bit more than 1 point in Asia Pacific, while in Euromed we could not improve more than 0.3 points. So, overall, 6 points of a net pricing improvement against our competitors. We still have overall a gap against Volkswagen of 5 points, and this gap of 5 points of net pricing, which was a double-digit gap a few years ago, is still a remaining opportunity to improve the profitability of the Company.
Overall, if we look at it region by region, our pricing strategy is now meeting our guidelines in terms of positioning against the basket, but against Volkswagen we still have an opportunity.
So, if we move to the next one, which is the fixed costs, I think it is fair to say that we have strictly controlled our fixed costs, but the remaining opportunity is to reduce them. And this is what the implementation of the French competitiveness agreement is all about, and we expect this trend of fixed cost reduction to accelerate during the second half and through the year of 2014. As you see, during this storm, we have been able to stabilize the overall rate of R&D and CapEx expenses against the turnover at around 8% plus, and we have not compromised the mid- and long-term future of the Company.
On the next slide, you can see the Monozukuri results that we have achieved. They do not meet so far our expectations, as we want to deliver this year EUR600m on total Monozukuri gains, but it is fair to say that there is a strong momentum in the Company. The amount of ideas to generate cost reduction is quite outstanding and meeting our expectations, and the second half will be paramount to execute and make sure that all of those ideas are translated into physical evidence and then measured at the P&L level.
If we move to the next slide, which is about the outlook, as it was mentioned, the TIV outlook is a growth of 2% over the year of 2013, Europe at minus 5% and different regions at the levels that you see here. The only overseas region where we see a TIV reduction is in Eurasia but, as you have seen, our market share growth has been so significant that it has overcome the TIV reduction and our volumes in Eurasia are still expected to grow over this year.
If we move to the next slide, this is to confirm our guidance in terms of having in 2013 unit sales above 2012, a positive Automotive operating margin, which is already the case in H1, and a positive Automotive operational free cash flow and, as you saw, we were marginally negative on the first half.
I would like to end my presentation here and thank you for your attention and hand over back to Thierry.
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Thierry Huon, Renault SA - Director of IR [5]
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Thank you, Carlos, for this presentation. So we have about 30 minutes left for the Q&A session. We'll take the first questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions). We have our first question from Thomas Besson from Kepler Cheuvreux. Please go ahead.
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Thomas Besson, Kepler Cheuvreux - Analyst [2]
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Thank you. It's Thomas Besson. Three quick questions, please. First, could you please comment on your order intake in the different regions, particularly in Europe, and tell us whether you think there is still further deterioration to come on the retail side or whether we have seen the trough for that segment? Sorry, I'll ask them one by one.
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Carlos Tavares, Renault SA - COO [3]
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Our order intake in Europe is now stabilized against the previous year of 2012. We are 1.7 months currently, which is a reasonable number even though of course we would like it to be even higher. But it's stabilized against last year. That's, I think, the best way to summarize it.
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Thomas Besson, Kepler Cheuvreux - Analyst [4]
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Okay. And on the retail side? Do you think this is the trough or (multiple speakers)?
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Carlos Tavares, Renault SA - COO [5]
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Yes, this is retail. What I was answering to you was retail.
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Thomas Besson, Kepler Cheuvreux - Analyst [6]
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Okay. Great. On your exposure to emerging markets that you flag as a risk, can you tell us your outlook for H2 for Brazil and Russia in particular, and the evolution of your market share in the two regions in H2, please?
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Carlos Tavares, Renault SA - COO [7]
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What we foresee in the Americas is that we will continue to grow. We consider that we will have still in Brazil a marginal growth and overall in the Americas around 3% growth. Eurasia we plan for minus 4%, possibly Russia at minus 5% and India at minus 3%. I would like to highlight the fact that despite these forecasts we consider that we will continue to grow share in Eurasia, in Russia and in India. And we are now in a catch up mode in the Americas, as we don't consider that the minus 0.5 points of share in the first half is representative of our performance.
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Thomas Besson, Kepler Cheuvreux - Analyst [8]
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Okay. Last question from me, please. On the one-off items, can you be slightly more explicit about both Iran, are you stopping any activity there? And about the other EUR200m plus impairment, tell us what it's related to, please?
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Dominique Thormann, Renault SA - CFO [9]
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Yes. I'll take this one, Thomas. Good morning. The provision in Iran -- the booking entry in Iran is -- there are two things happening simultaneously. We are deconsolidating our affiliate there. Just for a reminder, we don't have any industrial operations, we don't own any industrial assets, we don't own any distribution directly in Iran. It was purely a KD, a kit activity. So what we are reserving today is basically financial assets, cash receivables and equity that we had in our books that is now going to be valued at zero.
So there is -- so this is a precautionary measure, given the new condition in Iran with the Executive Order that was issued in the beginning of June. So new business is stopped and existing business, which is basically the supply chain, is winding down. So that's the best I can describe the situation in Iran as it stands today.
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Thomas Besson, Kepler Cheuvreux - Analyst [10]
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Thank you. And for the other one-offs, please?
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Dominique Thormann, Renault SA - CFO [11]
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So the other items we took in the two major buckets. One is, as I mentioned, charges that we've taken against the competitiveness agreement in France; that's the bulk of it. But there are also some remaining items for the new agreement in Spain. So that's the one that's bucketed under the restructuring charge.
In the impairment charges, we run, as you know, impairment tests every six months with our auditors. So this goes -- we go through all of our different holdings and we go through all the different vehicle lines, mechanical components and equipment. So we've made a number of decisions relating to some small moving vehicle lines. Part of it is also related to the better play situation, where we had a specific vehicle that was developed and with a quick drop exchange -- battery exchange for which we do not see sufficient future volumes to offset the existing assets on our books so they were written down in that number. So that's basically what's behind it. There's a whole host of sundry items, but that's the one I would like to call out.
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Thomas Besson, Kepler Cheuvreux - Analyst [12]
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Very clear. Thank you very much.
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Operator [13]
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We have our next question from Laura Lembke from Morgan Stanley. Please go ahead.
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Laura Lembke, Morgan Stanley - Analyst [14]
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Yes. Good morning. I also have three questions, please. The first one is on your inventory. Put it that way, I think we've now seen a few quarters of, let's say, very active inventory management and I'm just wondering if you can give us confidence that the inventory moves that we are seeing, and by that I mean the shifts between your OEM inventory and the dealer inventory in the respective Q2 and Q4, are actually genuine and really a result of the increasing international presence. So that's my first question.
The second one is can you give us an update on the turnaround efforts at Samsung in Korea, where you are right now? Is the business already breakeven, because I think that's what you were initially guiding for at some point?
And then maybe the last thing, on the FX side, can you just tell us what your expectation is based on today's exchange rate for the full-year burden? Thank you.
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Dominique Thormann, Renault SA - CFO [15]
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Yes. Hi, Laura. On the FX one, I think you saw in our recent opportunity chart, that Carlos showed you, we were calling FX in our risk column. Clearly we've seen movements in currencies that are important to us, in particularly South America and the Russian ruble. So right now, what we're seeing, the major moves have already occurred. But where we see this, given our volumes and the growth of our business, it's a combination of our own business growing in a market where the currency is depreciating that we're calling out as a risk. It's the combination of both. I think we showed that on our slide.
On the inventory side, yes, first of all, as our non-European business grows, the in-transit shipment and the amount of stock that we need, and this is full inventory so this is what's on our books and what is in the distribution chain, be it independent dealers as well as wholly owned subsidiary dealers, importers, as that business grows, the amount of stock that we need and the number of days that we need of supply increases. That's factor number one.
The second one is that our inventories are also a factor of our cycle plan. And when we launch vehicles in very high volume segments, such as Clio or Captur, for example, the amount of production that we need to supply the launch across, for example, Europe in the case of Captur, just fills the pipe. We also have a seasonal factor at the end of June which is, as you know, related to the summer shutdown in August.
So those are just some of the factual explanations of how inventory moves throughout the period. But these units are sold. If they weren't sold, then they wouldn't be in our revenue numbers and they wouldn't be showing up in our financial statements. And the units have been -- as a matter of fact there's considerable de-stocking and sales of vehicles in the current month.
Now, are we at the optimal level? I guess there's always room for improvement. I think that what we showed you is a sequential improvement from March. We dropped 5 days. We're 2 days above where we were at the end of December, so clearly there's a bit of room for improvement in terms of inventory management. But it's something that is a combination of the prediction that you have on the market and your order intake to come and the cycle plan that we have.
So, yes, there's always room for improvement, but we do have a very tight discipline in how we manage working capital in the Company. We're very aggressive on receivable management as well. So it's a package of different initiatives that we have internally that we manage quarter over quarter.
And I think Carlos will take your first question on RSM.
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Carlos Tavares, Renault SA - COO [16]
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Yes. So, related to our Korean business, to give you a little bit the perspective, the time perspective, last year on a local basis we were already on a positive free cash flow. This year, free cash flow will be positive. The local operating profit will be positive. The consolidated operating profit will be positive next year. And the marginal profit rate of our sales is now almost fixed. The remaining issue is the overall efficiency of our distribution, which is still something that we need to reengineer to improve the overall efficiency.
But I would say that the right-sizing in terms of overall fixed cost, the right-sizing of the plant capacity, cost reduction, variable cost reduction and pricing discipline have all been established. And therefore, on local terms we will be profitable this year, but we will need a little bit more time to see a profitable situation back to the black. And that will be done by 2014.
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Laura Lembke, Morgan Stanley - Analyst [17]
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Okay. Thank you very much. That's very clear.
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Operator [18]
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Our next question from Philip Watkins from Citi. Please go ahead.
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Philip Watkins, Citigroup - Analyst [19]
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Yes. Good morning and thank you for taking my questions. I don't know, it's just a follow-up, actually, on Laura's question. But in terms of the inventory days, I don't know if it's possible to articulate what the increase in terms of days might be from the internationalization of the business versus a year ago, i.e. is it going to structurally add around 2 to 3 days to inventories?
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Dominique Thormann, Renault SA - CFO [20]
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Yes. Look, it's a bit difficult to measure that. Now, there's no magic when we -- we gave guidance in terms of the number of days. We've spoken about 60 days several times in the past. You see us bouncing around 65 or 67. The international business just needs more volume. The chain, the supply chain, is just longer. That's just a fact. Now, roughly half of what we have on our books is outside of Europe, but it's going to be very different depending on how fast you clear customs. There are countries where clearing customs is rather a matter of routine, others when it's much longer.
So there isn't a rule of thumb that would really help you in terms of guidance. That's why we show you the consolidated number. I think it's the best guide going forward, because if we get into splitting it country by country or region by region then, as that transforms on the volume side, it's just going to be more confusing than anything else. So the supply chain runs that number, looks at it in a holistic consolidated manner.
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Philip Watkins, Citigroup - Analyst [21]
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Thanks. Actually, in terms of the emerging market currencies, may I ask, is there any hedging done in any significant way?
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Dominique Thormann, Renault SA - CFO [22]
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As a matter of policy, we do not hedge. Now, occasionally there might be something that we would look at in a particularly extreme situation, currencies or countries that get really out of line, but typically we do not.
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Philip Watkins, Citigroup - Analyst [23]
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Thank you. So might you do that now?
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Dominique Thormann, Renault SA - CFO [24]
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Hedging is a double-edged sword. When it looks like it's the right time to do it, you lock in a hedge and the next thing you know the currency's moved against you, and you can look like a fool with currency at the wrong rate. Quite honestly, the best hedge against currency fluctuations is having the right level of localized supply in the markets that we're selling into. So if you have local content, and I think you know that we've made lots of efforts in terms of increasing local content across our different regions, which is the best hedge against currency.
I think Carlos and I firmly believe that financial engineering around currencies that are out of your control isn't something that really gets you anywhere. The best thing to do is to have actual physical balance of revenue and costs in the components of your vehicles. I think that's how we approach it.
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Philip Watkins, Citigroup - Analyst [25]
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That's great. Thank you.
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Operator [26]
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A question from Charles Winston from Redburn. Please go ahead.
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Charles Winston, Redburn - Analyst [27]
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Yes. Hi. Morning. Thanks for taking my call. Just a couple of points. Just firstly on the one-time items, I was just wondering if you could perhaps give us an update as to what we might expect in the second half and also perhaps what the cash one-time items might be in the year. Obviously we saw a little bit of those in the first half, relating to Iran. What might the full-year figure be?
Secondly, can I just confirm that on Iran we've now drawn a line, there's no more costs relating to that which could come through, which is my understanding?
And then thirdly, just on pricing, obviously phenomenal result of pricing at the profit level. Would it be fair and right for us to extrapolate that into the second half, or something of that quantum? Or do you think that perhaps we should temper that a little bit, given the risks in emerging markets? Thank you.
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Dominique Thormann, Renault SA - CFO [28]
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Okay. Let me take the special items one and I'll let Carlos handle the pricing question. The reserves that were made, they're non-cash. These provisions are not cash items. We are booking -- we are deconsolidating Iran. So what was on our books -- and as I said before, we have no industrial assets in Iran. So what was on our books was cash that we had already received but it was in Iran, and since you can't transfer it out of Iran or convert it into something else, we're just reputing that to be worth zero. So that's the deconsolidation effect.
The second thing is that we had receivables. We're also making -- we're taking a very prudent approach, saying that we're booking a reserve against the fact that we're not going to get paid. And the third thing we had in Iran was just the equity, the capital that we had in the company that we owned jointly with Iranian partners.
So, as we're deconsolidating all of that, it's been removed from our consolidated accounts. We had to book something against that and the EUR512m covers all of those items, and that's it. So they're non-cash items.
In terms of the other provisions, once again, the impairment charges and things like that are non-cash. The reserves that we've made for the competitiveness plan in France, for example, those will flow through as cash items as people leave, and that will show up but you'll have the offsetting savings in your labor costs line.
So these reserves, clearly the special items are special. I don't expect anything of this magnitude in the second half. But once again, as a matter of obligation, we run impairment tests every quarter and every six months we will make adjustments when necessary. Last year they were very few, and hopefully this is going to cover what we had this year.
Now, in the second half, as the competitiveness plan is implemented, we're not charging our books with the full cost of the plan because that is not admissible under international accounting standards. So there will be progressively, as the plan is deployed through 2016, items that will be -- charges that will be taken against our P&L in the relevant quarters. So that one I know we have some items coming forward, but on the other items I think that certainly Iran is behind us and then the others are of less significance.
I'll hand over the pricing question to Carlos.
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Carlos Tavares, Renault SA - COO [29]
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Thank you, Dominique. Well, related to the pricing, as you know, when we talk about net pricing we are talking about the transaction price value adjusted, which means we compare different brands with the same amount of equipment, with the same content. And we only look at the final pricing paid by the customer after the rebates, and we do this through mystery shopping surveys.
So this is what we look at. And I still remember that last time, or perhaps two years ago, when we were discussing this matter and we were saying, well, we need to go after this net pricing opportunity, most of our stakeholders were quite skeptical about what we intended to do, which I completely understand. It is very normal that this skepticism was there. Hence the fact that we prefer not to forecast anything. We prefer to do the job and then talk about it once it is done.
What has been done in the last two years is that we have corrected the problem we had against the basket, the basket being for one market, in one segment, we compare the net pricing of our product to the competitors, the basket of competitors that represent more than 80% of the volume of that segment. And we make sure that against that basket our cars are never cheaper and they are always between 100% and 3% more expensive in net pricing basis.
This is what we have done in the last two years all over the world. And I can share with you today that the situation is fixed against the basket all over the world. So, all of our sales and marketing executives have now implemented the strategic pricing policy of the Company, which means that we have fixed this issue against the major competitors.
Now, once we see this, we also see who is the price leader, and we look at the best benchmarks that we can be using as levers to continue to progress and we need to recognize that Volkswagen is one of them. So against Volkswagen, what we are seeing is that against the situation two years ago, which was the fact that we were a double-digit cheaper brand, we are now at 5 points behind Volkswagen.
And of course, because we are making better and better cars, because we have fixed the quality of our products, because we have now fixed the appeal of our products that you can see through the Renault Captur and the new Clio as an example, there is no reason why with more appeal and a high level of quality we could not continue to close this gap, which is of course our intention.
But I would prevent myself from making any forecast for two reasons, because first I would understand your skepticism so I prefer to talk about it when it is done. And secondly, I don't want to make our IR team too nervous about this matter.
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Charles Winston, Redburn - Analyst [30]
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Very clear. Thanks a lot.
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Thierry Huon, Renault SA - Director of IR [31]
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Thank you, Carlos, for that. Since we are running out of time, I would appreciate that you limit yourself to raise only one question.
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Operator [32]
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The next question from Gaetan Toulemonde from Deutsche Bank. Please go ahead.
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Gaetan Toulemonde, Deutsche Bank - Analyst [33]
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Good morning. It's Gaetan at Deutsche Bank. So one question. Regarding this competitiveness plan, can you give us an idea about -- I know that the magnitude of savings will be approximately EUR500m. Can we work with something like EUR100m in the second half of this year, EUR200m next year, EUR200m the year after? Is it the kind of order of magnitude?
And in terms of the provisioning, can you help us a little bit to get an idea about what can happen second half of this year and next year?
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Dominique Thormann, Renault SA - CFO [34]
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Okay, Gaetan. Hi. Good morning. It's Dominique. It's EUR500m compared to a do-nothing scenario. So you can't just take a starting situation and say, okay, chop EUR500m off the operating line and get to a number. So, it's because it's rather complicated in France. It's a plan that goes through 2016. So until it's done, you won't get the full impact of that plan.
Now, a do-nothing scenario is not a realistic option, right? So you're comparing yourself, you're comparing an end situation to something that wouldn't have happened anyway. But if you just do it on paper, the gap would be about EUR500m.
I think we've guided you to tell you that the cost of full implementation over the plan period is going to run somewhere around short of EUR400m, and we will be taking this as the employees sign up and are part of the plan. So you know that under accounting rules, when you have restructuring plans that have to do with people, you cannot book these things unless you can identify that you have a certainty of the number of people, the dates and the different conditions around individuals.
So that's where we stand with the plan. But you will see charges going through. We've tried to make it as frontloaded as possible, so that its major impact will be in 2013 and 2014, and then the tail end of the plan in 2015 and early '16. That's the best I can give you right now.
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Gaetan Toulemonde, Deutsche Bank - Analyst [35]
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And the magnitude of saving in H2 this year, compared to the EUR173m you booked in H1, is it something we can compare or not at all?
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Dominique Thormann, Renault SA - CFO [36]
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We'll get something flowing through in H2, because in H1 obviously you're having more costs than any impact, obviously, because just time didn't allow that to happen. But you will get part of that 170-whatever number is back into the second half, yes.
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Gaetan Toulemonde, Deutsche Bank - Analyst [37]
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Okay. Thank you.
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Operator [38]
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The next question is from Rabih Freiha from Exane. Please go ahead.
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Rabih Freiha, Exane BNP Paribas - Analyst [39]
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Yes. Good morning. Rabih Freiha from Exane. Some suppliers in the past week this earning season have mentioned that maybe European production accelerated faster than it's supposed to. Do you agree with the statement?
And can you tell us a bit how Renault's European inventories have developed? If I'm not wrong, in April you had mentioned that your inventories weren't up in 5 months in Europe. Can you please comment on that?
And maybe just a confirmation, can you confirm the flat working capital for this year, please? Thank you.
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Carlos Tavares, Renault SA - COO [40]
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Just one comment for Europe. First, what you need to look at is the fact that we have very successful cars that have been launched recently. I would like to highlight the new Clio and the Captur. Just to give you an example, the Captur was such a high success in the mind of our dealers that we decided to put a second shift in Valladolid even before the start of sales. So of course we had to fill the pipes and meet the high expectations of our sales people. On the same time, we also have a high demand on the new Logan and the new Sandero.
So, all of this contributed to give our sales people the appropriate resources that they need to make the appropriate sales. And as you have seen, it has been very important that we sell the cars that are being demanded by the market or requested by the market, because this is the situation where you can trigger the appropriate pricing discipline. If the market is pulling the cars, you don't have to discount. And of course it overall improves the business in terms of efficiency, marginal profit rates, and in terms of total volume, total amount of profit.
So I would say that there is nothing special about the European inventories, except for the fact that we have filled the pipes with the successful cars that we have launched in the last six months.
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Rabih Freiha, Exane BNP Paribas - Analyst [41]
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Okay. Thanks. And on working cap?
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Dominique Thormann, Renault SA - CFO [42]
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Yes. Working cap, Rabih, is -- look, I don't have any better guidance to give you than what we told you initially. That's the -- basically the plan is for that to be as neutral an amount as possible.
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Rabih Freiha, Exane BNP Paribas - Analyst [43]
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Great. Thank you very much.
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Operator [44]
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Our next question from Horst Schneider from HSBC. Please go ahead.
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Horst Schneider, HSBC - Analyst [45]
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Yes. Good morning. Horst here from HSBC. Not many questions are left. I only want to clarify on volumes. Do you expect now volumes in the second half to be higher than in the first half?
And maybe I have missed it, with regard to Europe outlook is still bleak, but can we expect maybe a positive market growth already in Q3? In my view, already June was not that bad if we adjust it for the number of selling days in a few markets.
And then finally, for the guidance 2013, you now believe that the guidance is realistic, ambitious or rather conservative? Thank you.
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Carlos Tavares, Renault SA - COO [46]
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Let me answer the first part and I'll let Dominique answer the tough question. For the first part, what we foresee is that the volumes in H2 will be higher than in H1. As you saw, we were at minus 1.9%. And we are saying that we will be overall higher for 2013 compared to 2012. So as a consequence, H2 should be higher than H1. That's something that we think will happen and is in the plan.
The second point regarding Europe is that what we expect for Europe is that the market share will grow. The TIV, as you saw, the TIV forecast is minus 5%. It was minus 3% at the beginning of the year. It's now minus 5% and minus 8% in France. But thanks to the new products we have, we expect the market share to grow, and this will of course contribute to reduce the impact of the European TIV decrease, which combined with the overseas sales growth should lead us to have a higher volume in 2013 compared to 2012.
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Dominique Thormann, Renault SA - CFO [47]
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Yes. And, Horst, on the how to qualify our guidance, I think that the best that I can say is what I said in my introductory comments, is that we're confirming guidance provided no further material deterioration in market conditions. And I would like to stay with that statement and not qualify it as being optimistic or pessimistic or any other way than what I said.
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Horst Schneider, HSBC - Analyst [48]
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Okay. Thank you.
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Thierry Huon, Renault SA - Director of IR [49]
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Okay. Thank you, Dominique. Thank you, Carlos. So I guess that we are running out of time so we are going to leave you. But Alain and myself will be available the full day if you have further questions. Have a great day. Thank you.
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Operator [50]
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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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