Q4 2013 Renault SA Earnings and Medium Term Plan Update Conference Call

RNO.PA - Renault SA
Q4 2013 Renault SA Earnings and Medium Term Plan Update Conference Call
Feb 13, 2014 / 06:45AM GMT 

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Corporate Participants
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   *  Thierry Huon
      Renault SA - Director IR
   *  Dominique Thormann
      Renault SA - EVP, CFO & CEO RCI Banque
   *  Stefan Mueller
      Renault SA - Chairman, Europe Region
   *  Carlos Ghosn
      Renault SA - Chairman & CEO

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Conference Call Participants
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   *  Thomas Besson
      Kepler Cheuvreux - Analyst
   *  Max Warburton
      Sanford C. Bernstein - Analyst
   *  Charles Winston
      Redburn Partners - Analyst
   *  Jose Asumendi
      JPMorgan - Analyst
   *  Francois Maury
      Oddo Securities - Analyst
   *  Philippe Barrier
      Societe Generale - Analyst
   *  Rabih Freiha
      Exane BNP Paribas - Analyst
   *  Gaetan Toulemonde
      Deutsche Bank - Analyst
   *  Kristina Church
      Barclays Capital - Analyst

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Presentation
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 Thierry Huon,  Renault SA - Director IR   [1]
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 Good morning, everyone. Sorry for the short delay, but welcome to Renault's fiscal year 2013 results presentation and conference call. This call is broadcast live and a replay version is on our website. The presentation file, press release and activity pack for this call are all available on our website in the finance section.

 I would like to point out the disclaimer on page 2 of this pack regarding the information contained within the document, in particular, about forward-looking statements and invite all participants to read this.

 Today's meeting is scheduled to last about 90 minutes. We have two key speakers this morning. First up will be Dominique Thormann, our CFO. He will take you through the headlines of our financial results and then Carlos Ghosn, Renault's CEO, will present the second part of our strategic plan. The presentations will last around 40 minutes and will be followed by a Q&A session.

 Dominique, the floor is yours.

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 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [2]
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 Thank you, Thierry. Good morning, everyone. I'm pleased this morning to tell you that we achieved our 2013 targets despite a tough environment in Europe. We grew our volumes. The auto division achieved a positive automotive free cash flow, and, we generated a positive operating profit.

 Before going to the financial results in detail, I would like to start with a quick summary of our commercial results on slide 5 which we released on January 21.

 Our Group sales increased 79,000 units, or 3.1%, to 2.63m units. As you know, this year, four out of our five regions contributed positively to this performance. Only Asia Pacific declined due to Iran. Excluding this special situation, all regions would have shown positive growth.

 In Europe, our sales were up 2.4%, or 31,000 units, while sales on international markets increased 3.8%, or 48,000 units. Once again, it is worth noting that without Iran our international business would have increased 9.7%.

 Let's turn now to slide 6 with the Group revenues. In total, Group revenues reached EUR40.932b, an increase of 0.5% from last year. Please note that we had some minor adjustments to our 2012 accounts as a result of accounting method changes. You will find a table with related numbers at the end of the pack.

 Revenues for the automotive business increased by 0.4% in the period to EUR38.775b versus EUR38.612b in 2012.

 Revenues from our captive sales financing company RCI Banque increased by 2.3% to EUR2.157b in the period.

 Let's look in detail at the automotive revenue variance analysis on slide 7. Starting on the left-hand side of the page, the first item is foreign exchange which was a strong headwind at minus EUR1.585b driven by the weakness of the Argentinean peso, Brazilian real, the Iranian rial and, to a lesser extent, the Russian ruble. In total, adverse foreign exchange rates caused a negative impact of 4.1 points.

 The second item, volume of new vehicles sold, came in at a positive 1.6 points.

 Geographic mix accounts for plus 0.7 points reflecting primarily the positive development of our business in France and, more globally, a better balanced contribution from Europe and international operations than in previous years. This was particularly true in the second half as this item was flat in the first half of 2013.

 The fourth item to note is the mix effect which is almost neutral. It was the result of the success of our B segment cars, but also the slowdown of our C segment range, particularly before the introduction of the face-lifted version of the Megane family.

 The fifth item is the price effect which is positive by 1.3 points. This is lower than the 2 point improvement we showed you in the first half and is due to the deconsolidation of our business in Iran which explained a big part of the price increase in the first half.

 Sales to partners impacted positively by 1.1 points, reflecting the increase in shipments of powertrain and the ramp-up of Citan deliveries to Mercedes.

 The last item named others represents the activities outside of the new car business, mainly spare parts, our wholly-owned dealers and buyback restatements. The impact is marginally negative at 0.1 points.

 I will now turn from automotive revenues to the Group operating profit by activity. In 2013 the automotive operating profit came to EUR495m, meaning that we were profitable by EUR284m in the second half after earning EUR211m in the first half.

 RCI Banque posted a EUR747m contribution, in line with last year's EUR748m.

 In total for 2013, the Group operating profit stood at EUR1.242b, an improvement of EUR460m compared to 2012.

 Slide 9 shows the main variances which explain this increase. I will start the walk down reading left to right.

 As already seen for revenues, currencies had a negative impact of EUR619m. Once again, the main culprits were the same currencies as on the revenue line.

 The next line shows a EUR112m (sic - see presentation "EUR121m") positive impact coming from the increase in units invoiced.

 Mix, price and enrichment contributed EUR276m. This achievement results from our efforts to defend our pricing in Europe as well as price increases to offset currency declines in emerging countries.

 The impact of our -- the impact of the cost of raw materials is a positive EUR86m.

 For the next part of the walk down we have grouped four items which together form the major part of our cost reduction efforts. Purchasing savings totaled EUR600m split evenly in the first and second halves. Warranty costs increased by EUR63m while manufacturing and logistics costs impacted by EUR41m. The improvement over the first half comes to EUR68m and shows the first positive impact of our competitiveness programs which were deployed throughout the year.

 The R&D charge in the profit and loss account decreased EUR50m, also reflecting discipline in this field.

 The capitalization rate stayed stable at 40.8% versus 41% in 2012. It is worth noting that the depreciation charge remains higher than the amount of capitalized R&D.

 Total savings for the year amounted to EUR628m.

 G&A costs also decreased by EUR18m as a result of strict expense controls.

 Other items yielded a negative EUR80m, while RCI Banque increased its contribution by EUR30m. I will detail RCI Banque later in my presentation.

 Continuing on through the P&L with the other operating income and expense items on slide 10. This year shows an unusual negative result of EUR1.276b.

 The first item in this table is the impact of our decision regarding Iran taken in the first half that I already commented in my presentation in July. In total, we booked a provision of EUR514m.

 The second item relates to the impairment of assets, both tangible and intangible, amounting to a charge of EUR488m. As you know, we run impairment tests on a regular basis and some of our programs required some adjustments in book values.

 The next item is a charge of EUR423m to cover part of the cost of our competitiveness plans implemented in France and, to a lesser extent, in Spain. The cost in 2013 is higher in France than we had suggested previously as more people signed up for the agreement. The total cost of the plan in France through 2016 will probably exceed our initial estimates, but they will be offset by additional savings as well.

 Next the disposal of assets contributed positively by EUR153m.

 Lastly, other miscellaneous items impacted negatively for EUR4m.

 After taking into account these expenses, our EBIT is negative at minus EUR34m versus EUR183m in 2012, as you can see on slide 11.

 Continuing down the P&L, the next item is net financial income and expenses. The net charge was lower than last year by EUR39m at EUR282m despite the higher carry-cost of liquidity.

 Non-cash items had a positive impact of EUR50m, mainly coming from lower provisioning for distressed suppliers.

 The next slide, number 12, shows the impact of associated companies in Renault's P&L. Nissan contributed EUR1.498b to our 2013 results. This was EUR285m more than last year.

 Renault's share of AvtoVAZ results, which is consolidated with a three-month time lag, came to a negative EUR34m, a deterioration of EUR220m compared to last year when AvtoVAZ benefited from a one-off gain coming from positive changes in its long-term debt conditions.

 In total, the contribution from associated companies fell EUR31m compared to 2012. As a reminder, part of this variance is also due to the absence of a contribution from Volvo which was no longer consolidated starting in September 2012.

 I will turn back to the P&L on slide 13 where the net tax charge for 2013 came to EUR433m compared to EUR549m last year.

 Bottom line net profit after tax came in at a positive EUR695m versus EUR1.712b in 2012. That included the capital gain on the disposal of the Volvo shares.

 After taking in account minorities, the net result per share came to EUR2.15.

 Now that I've completed the analysis of the P&L I will turn to slide 14 on the change in net automotive debt.

 Cash flow from operations totaled EUR2.914b.

 Changes in working capital require -- in the working capital requirement impacted positively for EUR790m.

 Net tangible and intangible investments came to EUR2.877b, flat versus last year.

 As a result, the automotive operational free cash flow came to a positive EUR827m.

 Regarding dividend flows, dividends received from quoted companies in the period totaled EUR432m, while dividends paid during the period amounted to EUR537m.

 Other financial items came to a negative EUR430 -- EUR493m, including the cash payments made for our increased stake in Alliance Rostec Avto which is the joint venture we established to carry the investment in AvtoVAZ and the impact of the deconsolidation of our business in Iran where we had positive cash balances.

 In summary, net automotive cash increased by EUR229m and came to EUR1.761b versus EUR1.532b at the end of last year.

 Slide 15 shows you the status of our inventories at the end of the year. The number of cars has decreased 15,000 units since the end of Q3. In number of days we came in at 63, a decrease of 12 days versus Q3 and two days lower than last year.

 I would now like to move on to the automotive liquidity reserve on slide 16.

 Cash and cash equivalents totaled EUR10.7b at the end of December, up EUR0.6b compared to the end of last year. Together with the fully available undrawn credit lines, the automotive gross liquidity reserve stands at EUR14.1b at the end of 2013.

 I would now like to take a few moments to give you a bit more detail on RCI Banque's performance on slide 17.

 RCI Banque's new financings increased by 5.5% thanks to the continued international development of RCI, notably, with the consolidation of the Turkish and Russian subsidiaries, the rise in penetration rate on new vehicles financed and, finally, an increase in pre-owned vehicle financing contracts of 6% in 2013.

 However, average outstanding loans were flat in the period as the conversion in euros was negatively impacted by the weakening of the Argentinean peso and Brazilian real.

 The cost of risk stayed fully under control at 42 basis points of outstandings, in line with last year.

 Operating expenses were down slightly at 1.56% of average outstanding loans.

 In total, the pre-tax return on assets reached 3.07% versus 3.22% last year, giving a benchmark return on equity of 20%.

 RCI's liquidity position has also remained strong, as we can see on slide 18, with EUR7.5b of liquidity reserves at the end of 2013, up EUR600m over the prior year.

 RCI Banque's dependence on the capital markets was significantly reduced with the successful retail online banking activity that you can see on slide 19. Total deposits taken in 2013 represented 52% of RCI's funding requirements.

 Following the successful launch in France of the Zesto savings plan in 2012, RCI Banque launched a similar savings program in Germany. At the end of December, total deposits amounted to EUR4.3b, of which EUR3b from Germany. RCI Banque's retail deposit taking should represent 20% to 25% of total outstandings by 2015.

 That completes my financial review for 2013. I will now pass the floor to Mr. Carlos Ghosn. Thank you very much for your attention.

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 Carlos Ghosn,  Renault SA - Chairman & CEO   [3]
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 Good morning, ladies and gentlemen. The 2013 financial results that Dominique Thormann has presented to you mark the mid-point of our six year plan, which is Renault 2016 Drive the Change. During my presentation I will take time to comment on the past three years before unveiling the main goals and action plan we have set for the next three years.

 In 2011 Renault's priority were to restore growth in unit sales while generating free cash flow. As you know, our two metrics were to reach 3m unit sales while obtaining a cumulative EUR2b in free cash. In business terms, this meant transforming Renault from a regional to a more global player. 50% of our sales are now generated outside Europe.

 In Europe, our sales are supported by a product offensive with cars that so far have well attracted customers. These cars, three cars particularly, symbolize this renewal.

 The first one to embody our new design strategy and open the way for a full transformation of the line-up is Clio. It is connected vehicle via Airlink, recognized today as being among the best multimedia systems in the world. Clio is also best in class in CO2.

 Next is Captur, the second pillar of our B segment renewal. We launched it in April 2013 and it quickly became the number one selling crossover in France and segment leader in Europe.

 And last but not least ZOE, which is our flagship. Even though sales are still below plan, it is a leading selling EV in Europe and achieves the highest customer satisfaction rate of any car in the Renault range.

 The impact these vehicles have had on our performance in the B segment is significant. Renault has recaptured first place in segment share in Europe and turning a profit. We have also seen notable improvement in third party assessments of the brand's image in France, Spain, Italy, Germany and Turkey.

 At the same time, we expanded the M0 range of products to a total of six vehicles. This highly integrated and competitive platform allowed us to sell over 1m units in 2013 in 111 countries around the world. M0 products are now assembled in eight manufacturing sites.

 Duster has become a global success. It is the number one selling Renault model worldwide, number one SUV in Russia, number two in India, in Brazil, in Argentina. Duster is the driving force behind the M0 vehicles which have become the highest contributors to our profitability.

 In light commercial vehicles, we have also been busy renewing our line-up. With the success of Master, Renault is also number one in the European LCV market and Kangoo EV is the leading selling all-electric LCV. Through our partnership with Daimler, we also started producing and delivering the Citan LCV for the Mercedes brand.

 All of this product activity has made Renault a more global player. The M0 platform has been a key driver in meeting customer requirements in emerging markets. As a result, sales outside Europe increased substantially from 37% of our total in 2010 to 50% today. Five emerging markets now rank in the top 10 markets of Renault, with Brazil coming in second place, Russia in third.

 In addition, with the exception of Algeria where already one in every four cars sold is a Renault, we gained market share in every emerging market since 2011.

 In India where we relaunched our operations in 2012, leveraging Nissan's presence, we achieved a 2.2% market share.

 However, notwithstanding these advances, little did we know when these cars were planned that Europe was on the verge of an even sharper downturn than in 2008 with the debt crisis leading to post-war lows in automotive sales in many countries. Retail sales dried up, affecting the entire automotive value chain as policymakers struggled to contain the crisis.

 We had forecast an increase of 6% in European total industry volumes during the plan period. After an 8% drop between 2008 and 2010 the market actually dropped another 10%, reaching a 20-year low. This caused a 16 points gap which, added to the collapse of the Iranian market for us, could not be offset by our strong momentum in emerging market. As a consequence, our objective of selling 3m vehicles in 2013 was not met.

 However, thanks to the effort of the entire Company we maintained a strong cost and financial discipline and surpassed our cumulative automotive operational cash flow commitment of EUR2b. The past, our objective turned out to be quite different from what we planned, but because we maintained focus on our priority and we acted on them, we were able to withstand a particularly trying environment.

 It is with this lesson learned and strengthened by these achievements that Renault is looking to the future with a renewed confidence. In the next three years, in the field of vehicle and product development, we will implement the Alliance CMF modular platform design strategy which has already been launched by Nissan. This approach will allow us to address the main product challenges of the next several years by giving us the benefits of scale that we could not have given our own size. Thanks to the Alliance, we will be able to sustain this high level of product and technology development, while maintaining the CapEx and R&D ratio below the 9% cap on revenues that we introduced in 2011.

 As the cost of regulatory features and technology increase, platform consolidation and scale become inescapable. Through the alliance with Nissan, our modular CMF design strategy will give us two platforms with 3m units. The CMF C-D and the CMF B platforms will count among the industry top five global platforms by units produced. 80% of our future launches in the same timeframe will be produced on these platforms.

 Through this strategy we are expecting saving of at least 30% in development cost and 20% to 30% in procurement costs. Two-thirds of the value of a vehicle will come from standardized modules, which is double the level achieved today.

 With the increase of our sales outside Europe to 50% today, our parts and components sourcing is being adapted to better match our production footprint. By 2016 we are aiming for 80% local sourcing. Maximizing locally-sourced vehicle content is also the only effective way to permanently balance cost and revenue by currency, thereby avoiding unnecessary foreign exchange risks.

 In the case of Europe, cost efficiencies will come from a better utilization of our capacity through a combination of higher Renault volumes coming from our product plan and the allocation of production for the Alliance as well as for partners. The utilization rate of Renault plants will reach over 100% based on a standard two-shift pattern. This reinforces our commitment to honor the terms of the competitiveness agreement signed in France which calls for 710,000 units of local production in 2017.

 A strong product plan and a disciplined pricing policy are tied together. In the past three years, as we were renewing our product line-up, we focused a lot of attention on pricing. Where Renault was selling at a discount to both the price leader as well as against a basket of competitors in the mass market in 2011, we have closed the gap to the leader by more than half and now trade at a premium to the basket, as you can see on this chart. Maintaining that discipline will be all the more important as we continue on our product offensive.

 Pricing is not only about visual or transaction price, it's also about channel mix, fleet mix, sales finance and associated services. At the end of the day, pricing is what determines the quality and depth of the revenue line. There is no problem as a car company that good products would not solve. An efficient, profitable and global product plan remains today the key driver of growth and market expansion. Competitive products are what support our dealers and the entire automotive value chain through sales finance and associated services.

 The product offensive that started successfully in the first half of the plan will accelerate in the second half. Not only will we be renewing core models in our line-up, but we will also be significantly expanding our market coverage to better compete internationally. It is clear that will be done by leveraging as much as possible the scale of the Alliance.

 Building on the success of the M0 range, we are going to launch an additional vehicle in 2015 in order to address [MV] vehicles' demand in emerging market. Our aim is to offer a modern vehicle priced at around EUR5,000, with the focus on India and South America. It will be based on a new Alliance CMF-A platform developed at RNTBCI in Chennai, India.

 In the A-segment in Europe we will launch a new Twingo at the end of this year. It will be produced in Slovenia on the innovative platform developed with our plat -- with our partner Daimler.

 Starting in 2015, our C and D-segments vehicles will be entirely renewed, also using a CMF platform. In Europe, they will be produced in our plants in Douai and Palencia. The CMF platform approach allows us, as an example, to develop the next generation Megane on a 3m unit platform compared to 700,000 on the current platform, or the new D sedan on the same 3m unit platform compared with 160,000 units for Laguna today. We will successfully -- we will successively launch the replacement of Espace, Megane, Scenic and a new D sedan.

 In crossovers, we're going to extend our range following the success of Captur in the B segment with our first foray into the C and D segments. These vehicles are being designed with China in mind.

 Lastly, in addition to renewing the Trafic van for Europe, we're going to broaden our light commercial vehicle range with two new pick-ups, also a first for Renault, in order to better cover global demand. In particular, affordable and rugged pick-ups represent a growing opportunity, especially in South America and in Africa.

 So how does this translate into business objectives for the next three years of our plan? We have set ourselves two key objectives which will measure growth and profit.

 Let's start with growth. In order to capture all aspects of our business, including vehicle sales, associated services, sales to partners, we have decided to focus on optimizing our top line. Our target is to generate EUR50b in consolidated revenues by the end of the plan period which we'll measure in 2017.

 This target assumes our current scope of consolidation and was calculated using a foreign exchange rate consensus forecast available early January 2014. Clearly, any significant changes in currency rates, up or down, could affect our turnover which is consolidated in euros.

 Of course, we will not lose focus on our core automotive business and the importance of obtaining competitive market share. Growth will be primarily driven by vehicle sales which should reach 3.3m units globally by 2017.

 Strengthening our brand remains a priority and we will continue to build on the achievements of the first part of the plan. The product plan, innovation and quality are all intended to reinforce our brand.

 Beyond the extension of our range, we also aim to improve the appeal and competitiveness of our car by introducing innovations that are useful, desirable and affordable. Autonomous and connected vehicles represent a huge business opportunity that will come to the market step by step before full completion by 2020. Airlink is a good first step of what connected multimedia systems represent.

 We intend to maintain our leadership in environmental responsibility. On the one hand, we will continue the development of a competitive offer of electric vehicles. On the other hand, for internal combustion engine, Renault will stay among the leaders in CO2 performance.

 At the end of the day, what matters in terms of product competitiveness is what customers say about our vehicles. Customer satisfaction and overall opinion are the drivers of share and profitability.

 Our renewed sales and marketing team is fully engaged in supporting three simple goals; sustain Renault as the leading French automotive brand in the world, move and sustain Renault up to the number two brand in Europe, sustain the Dacia brand as the undisputed leader in its category.

 As you know, growth without profit is unsustainable. In the auto industry, during the next three years, we will maintain the fiscal discipline that we have demonstrated in the last three years. Our cumulative automotive free cash flow commitment proved to be the right metric to manage the Company with, particularly as we were going through the European crisis. Now that our balance sheet has been restored, which we had committed to doing in 2011, we're targeting a sustainable, consolidated operating profit margin of at least 5% at the plan completion. However, we will not lose the focus on free cash flow and we will hold ourselves to generating a positive automotive free cash flow each year of the plan.

 As you can see from this chart, growth alone will not take us to our objective. Reaching more than 5% will require a significant contribution from the cost side of the equation.

 Our cost reduction activities will continue to drive our competitiveness with a contribution of at least EUR600m per year. But, we must also be pragmatic and recognize that there are events that are unpredictable such as adverse movement in the prices of raw material or currency rates, which could have a negative impact in our profit.

 While other events are more predictable, such as regulatory costs, vehicle enrichment costs, we know today that our ability to pass them on is limited. We know that if we want to reach a sustainable 5%, we have obviously to plan for much more. We also keep in mind that one of the key by-products of sustaining a competitive automotive profit margin is returning to an investment grade rating.

 Every plan sets out its own objectives such as the ones I have just described, but, every plan period is also time spent preparing for the future. Just as we spend time preparing to launch the products and technology that will come to market in the next three years, so too will we be preparing the products and technology to be launched beyond 2016.

 Most significantly we will be preparing our entry in China. China is Renault's new frontier and perhaps its biggest ever. After obtaining all the necessary approval, we signed an agreement to create a joint venture with Dongfeng last December. Leveraging off of Nissan's experience, we immediately began construction of an industrial facility in Wuhan which will have a capacity of 150,000 units by 2016 as a first step. The product plan has already been determined and will focus on crossovers, mainly in the C and D segment in a first stage. We are encouraged by the initial reactions of our customer clinics on this product. Given the scale of our project and its importance to Renault global competitiveness, China will receive our undivided attention.

 At the end of last month we announced a project to further integrate selective key functions in the Alliance. Once this project is approved, following Works Council consultation, purchasing, HR and large parts of engineering, manufacturing and supply chain will be placed under single Alliance leadership. The objective of this change is about increasing synergies and efficiencies for both companies. As you know, from the very first days of its foundation, the Alliance has always been about synergies and improving the performance of each company. By taking this additional step, we have visibility to reach a minimum of EUR4.3b in synergies in 2016.

 More than ever, the Alliance is making Renault's plan more robust. This project will allow us to avoid significant costs and investments that we would otherwise have to spend to extend our range and fuel our growth. It will also allow us to reduce costs through more commonality and give us the benefits of greater scale. We are a 2.6m car company starting to benefit from an 8.3m scale.

 Our objective for the second half of our plans are ambitious yet realistic. They are ambitious because they require a high level of discipline and focus on execution, with a strong commitment from every corner of the Company to deliver a level of sustainable performance that was never done in our past. But, they are realistic because we have already made most of the necessary decisions and the investments. The action plan needed to accomplish our goal for the next three years are identified and already started.

 Renault has a clear and focused strategy. Today's automotive world is concentrating around a few high-volume and competitive players. Through the alliance with Nissan and AVTOVAZ, Renault is one of those.

 I know some of you have questioned the speed of our progress and I understand the difficulty in comparing us to others. The Alliance is unique in its longevity in the industry. There is no comparable model. It is the only comprehensive global alliance to have lasted. This doesn't mean that we have reached the full extent of our potential. Far from it. But, it is by pragmatically and carefully planning next steps that we will extract more from the Alliance.

 Our guidance for 2014, which is the first year of the plan, is consistent with the objectives I have just laid out. We're forecasting European market to stabilize, but still at the low level.

 At the same time, growth in emerging markets will still be driven by China, but is more uncertain elsewhere.

 We aim to increase registrations and Group revenues, improve our operating margin, including that of the automotive division, and achieve a positive operational free cash flow.

 Furthermore, I proposed to the Board of Directors that we maintain our dividend at EUR1.72 this year. This means that we are going beyond passing through the dividend received from associate as we had committed for the first part of the plan since the fall of the yen would have meant reducing this year our dividend which is paid in euros. In the future, and subject to generation of sufficient cash, from now on, our dividend policy will aim to offer returns to our shareholders in line with those of our peers.

 Thank you for your attention. We're now available for your questions.

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 Thierry Huon,  Renault SA - Director IR   [4]
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 Thank you Mr. Ghosn. Now we'll open the Q&A sessions, so we'll start with Thomas.



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Questions and Answers
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 Thomas Besson,  Kepler Cheuvreux - Analyst   [1]
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 Thank you. Hi. Thomas Besson, Kepler Cheuvreux. I have three questions please. First, you've made several comments about changes in the industry and Renault Nissan being one of the three, four, five companies that will have several platforms above 2m, 3m units. Can you give us your view about how the smaller players are going to evolve and be eventually captured into one of these bigger organizations? Shall I give all the questions?

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 Carlos Ghosn,  Renault SA - Chairman & CEO   [2]
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 Frankly, I don't spend too much time worrying about what these guys are going to do. I think that we have already enough on our plate. But, I would suspect that a lot of them are going to have to hook to a big player. That's what's going to happen, which means it's going to be very -- maybe the hooking is going to be on a lot of things. For example, you can imagine a smaller company joining the Alliance or getting the technology from the Alliance where they cannot afford to develop it, which, by the way is something that you start to see in Japan where some of the small Japanese players are starting to go to Toyota or go to Nissan in order to get electric trains, platforms, cars coming from the product plan of one company. So, you're going to see more and more of this.

 But I would personally think that you're going to see more alliances, one way or the others, contracts, hooking from the small players to the larger one, because, I'm going to tell you. That means the big change in the auto industry is the fact that now the biggest one are the most competitive. It was not the case 10 years ago. The largest car manufacturers were not the most competitive. Now, between the larger, you have the most competitive, which is a big threat for the smaller players.

 So if you -- and when we see the -- in our negotiation of the contract for the cars coming on C, D for Renault, when you have a platform for 3m cars, well, the negotiations with your suppliers and the cost of the investment is completely different. We can see it. We can measure it. So, we can imagine how difficult it's going to be for the smaller player, particularly those who don't enjoy a high price premium to allow them to compensate for their lack of competitiveness.

 My opinion is they're going to have to hook up one way or the other, and you're going to see a lot of innovative cooperation between car makers coming. Okay.

 And this is driven also by technology. That's not -- this is not an industry of commodity. Electrification of powertrain, autonomous driving, connectivities, the multiplication of the safety features into the car, all of this is going to be driving for more investments, more technology and you're going to have to have also more localization if you want to compete.

 I can give you the example of Russia. That's an interesting example. In Russia, Renault is a leading brand after Lada. We have -- we're very profitable. We have grown in a market which was down. What is the simple reason for this? Yes, we can say our product is pleasing, but this is the same product that we're selling somewhere else, Duster, Sandero, Logan. The big difference is we are much more localized. Much, much more localized. So, when the ruble goes down we suffer, but we suffer much less than our competitors which give us a big advantage. But, if you want to localize you need to have the volume. So, if you can't have the volume by yourself, you're going to have to hook with somebody else. So it's a kind of circle where you have to somehow get a minimum level of scale if you want to be successful. If you can't get it by yourself, you're going to have to hook with somebody else.

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 Thomas Besson,  Kepler Cheuvreux - Analyst   [3]
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 Okay. Second question please. Can you elaborate a bit more on cash redeployment for Renault and Nissan? I mean you're targeting a substantial increase of your operating profit. That should more or less double, or a bit more between 2013 and 2017.

 You've paid a bit of your free cash flow now in dividend. What do you mean by paying something in line with peers? Does that mean a 3% dividend yield, 4% dividend yield?

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 Carlos Ghosn,  Renault SA - Chairman & CEO   [4]
------------------------------
 Yes. Well, as you know, our plan EUR50b in 2017, 5% operating margin makes operating profit at EUR2.5b. This is obviously without AVTOVAZ. But, you know that AVTOVAZ should be consolidated at this time and the objective of AVTOVAZ are very clear; 20% market share in Russia and 6% operating margin. So AVTOVAZ, when Bo Andersson will complete the turnaround of AVTOVAZ, should be a positive addition to Renault. So, there will be at least EUR2.5b of operating profit.

 What we can say today is first, we're stopping the pass-through policy. We think we today have a reasonably good balance sheet in order to go beyond passing through.

 And, the second element is the -- the first reference is what our European peers are doing.

 Obviously, in the European peers the situation is very different from one to the others. But, what we are committing today is to say it will be at least comparable to the European -- to the European peers. That's what we can say today.

 So, we are eliminating the passing through. There will be a payment of dividend from core business and it will be at least at the level of the average European peer.

 Now, the European peer you have very different situation now. So, that's why, for the moment, we just say comparable to the European peers.

------------------------------
 Thomas Besson,  Kepler Cheuvreux - Analyst   [5]
------------------------------
 Okay. Last question for me, please. On a specific segment where you used to make a lot of money, LCVs, what is your expectations of the recovery of that segment in Europe and globally? And, is it fair to say that this is one segment where you should materially improve your operating profit in the next two to three years?

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [6]
------------------------------
 There are two hopes for LCVs, even though we have been a little bit conservative in our plan for LCVs. The first one is a recovery of the European market.

 As you know, this plan has been built with the European market stable, so I admit the fact that it's a little bit conservative, okay. But, you never know with Europe. We prefer to be conservative because there are still a lot of problems ahead that have not been solved.

 But, we are very sensitive to the European operation because it's still about 45% or 50% of our sales. So, we can see immediately when Europe starts to go up, how easy it is for us, not only in terms of volume, but even in terms of profit.

 But we've said, okay, you consider that Europe is stable. LCV in Europe, we are not counting -- we are number one -- we are the number one brand. We are not counting on a big growth of LCV.

 We are renewing our product line-up, but I don't think -- this is not where the opportunity will come. The opportunity will come from the fact that we are mainly a European LCV company, while we have a lot of LCV outside Europe. And, this is where I am expecting much more growth, both into the emerging market and also with Nissan. As you know, we are going to come with two pickup trucks. One of them will use the platform of Nissan of the 1-tonne pickup truck. The other one will be based on an M0 platform. And we think pickup truck will be one area of expansion, very, in a certain way at our reach. This is not a kind of premium market. This is a market which is totally compatible with our existing customer base.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [7]
------------------------------
 Okay. Max.

------------------------------
 Max Warburton,  Sanford C. Bernstein - Analyst   [8]
------------------------------
 Thank you. It's Max Warburton of Bernstein. Two questions please. One for Dominique. Dominique, just on FX this year, in your budget, what is the likely year-on-year impact of FX in the operating profit walk?

 And then a question for Mr. Ghosn. Mr. Ghosn, you're probably the most highly-regarded CEO when it comes to relations with the Chinese government. The relationship with Dongfeng has been incredibly fruitful and they seem to feel that you have -- you have done more than most to build the industry there.

 When we look at this deal with PSA that's supposedly imminent, is this deal, e.g. them investing in PSA, is it good for Renault? And what advice would you have to them as they make this step?

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [9]
------------------------------
 Okay Max, I'll take the foreign exchange. We wrote in a negative assumption, so we wrote it in as a headwind. As a matter of fact, we showed you a chart. We wrote it in as a headwind for the full plan period. We did this not knowing -- the current turbulence in the market is something that's -- that was on top of our assumption. But, if you look at the impact because of our sourcing, which is now moving more towards the -- where we are localizing production, we are reducing the impact. So, for roughly -- if we take 1,000 hit at the top line, a third of that only falls through to the profit line, as a rough guide.

 So we wrote in a negative number for 2014 in our assumptions.

------------------------------
 Max Warburton,  Sanford C. Bernstein - Analyst   [10]
------------------------------
 How much?

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [11]
------------------------------
 How much? That I can't tell you. But, the order of magnitude is bigger in 2013. It's the biggest that we've suffered recently. But don't forget that we have -- currencies and raw materials often act in opposite directions. So, two years ago we had a EUR500m and some odd million hit to raw materials, whereas foreign exchange was positive by a few million. This year it's the reverse. So, order of magnitude is not going to be very much different. But hoping -- you plan for the worst and hope it doesn't happen. But this year EUR600m. Hopefully, it will be a bit less than that.

------------------------------
 Max Warburton,  Sanford C. Bernstein - Analyst   [12]
------------------------------
 Yes.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [13]
------------------------------
 In fact if I can add something. I don't the impact on us is EUR600m. It's EUR600m minus the pricing that was driven by the collapse of the currencies, just to be fair.

 So, part of the pricing and the mix, which is positive, is not due to our own efforts. It's due to the fact that when the ruble collapsed, well obviously it gives an opportunity to add 1% or 2% or 3% to the price of your cars, even though our pricing has been more conservative than our competitors because of our localization.

 So, the impact on our bottom line is apparently EUR600m. But in net, it's not because some of the pricing we have to admit is driven by the collapse of the currencies.

 Now, on your questions about Dongfeng, yes, we have been working with Dongfeng for more than 11 years. And I think I'm not worried about whatever will happen because I know that Dongfeng has a long tradition of compartmenting their relationship with different car makers.

 When we started the relationship through the contract that Nissan signed with Dongfeng in 2013 a lot of people were worried about the strong relationship existing between Dongfeng and Honda. And, as you know, the relationship between Honda and Nissan I would say is a little bit comparable to the relationship between Renault and PSA.

 Frankly, I don't think this has been a handicap for Nissan. Nissan developed very well, have grown very well. I don't think ever we have seen any passing through of information or strategy, whatever between Honda and Nissan. So, we are pretty confident that the Dongfeng team has a long tradition of putting compartments between their relationship, and I don't consider it good news. I don't consider it bad news. I just think for us it's not relevant. I don't expect any good news. I don't think -- expect any bad news coming out from it at the beginning. But, obviously, this will depend on what will be coming in the next -- in the next years.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [14]
------------------------------
 Okay. Thank you. We are going to take a question from the call now.

------------------------------
Operator   [15]
------------------------------
 Charles Winston, Redburn Partners.

------------------------------
 Charles Winston,  Redburn Partners - Analyst   [16]
------------------------------
 Hi. Good morning. Thanks for taking my questions. Two quick ones from me.

 Could I just go back to the comments Mr. Ghosn made just about pricing in emerging markets? Could you perhaps flesh out some of the actions you've taken so far given that the recent EM currency crisis, and perhaps what we might expect in terms of pricing overall, perhaps also touching on the pricing environment in Europe at the same time?

 And then just secondly, a quick point of clarification. I think in the presentation you talked about Monozukuri gains being at least EUR600m per year throughout the period of the plan. Any idea on cadence of that? In other words, should that be accelerating as we come forward to the end of the period, as new models start going onto the CMS platforms, or should that be EUR600m fairly flat?

 And, does that figure include any cost savings that you've arranged with the talks with the unions in France and Spain? In other words, is the -- that local labor restructuring included in the Monozukuri targets, or is it separate? Thank you very much.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [17]
------------------------------
 So, the first question was?

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [18]
------------------------------
 Pricing in --

------------------------------
 Charles Winston,  Redburn Partners - Analyst   [19]
------------------------------
 On pricing.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [20]
------------------------------
 -- emerging markets, the measures we have taken.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [21]
------------------------------
 Well, obviously it's market by market. The situation is very different wherever you are in Russia, whether you're in Argentina or wherever you are in India because our own situation is not the same. Our level of localization is not the same. So, the pricing opportunities are not decided centrally. They are left at the level of the region. Every region decides. The regions commit to a profit and when they see that the currency is collapsing and it's hitting their bottom line, they need to find the right balance between increasing the price and the volume of their sales.

 They've done it pretty well. Obviously, some regions have been more successful than the others. I think the champion has been our Russian team, which has a record year in terms of profit and Russia today is, in terms of margin, the highest margin country for us and in terms of total profit, the second-largest, most-profitable market after France.

 And obviously Argentina is another case. India is a third case. But, I can tell you that everybody knows that when the currency collapse you have to increase price. The only question is when, how, how much, on what product, and this we leave it to the region. We don't interfere with the region because we are afraid that we'll make mistakes. These are very sensitive decisions to be made, product by product, segment by segment. I would say from time to time even customer -- mix -- channel mix by channel mix.

 The second question?

------------------------------
 Thierry Huon,  Renault SA - Director IR   [22]
------------------------------
 The second question was about our expectations in terms of acceleration of Monozukuri coming from the common platforms.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [23]
------------------------------
 Yes, yes. Well, yes, we are putting EUR600m. Obviously, it's a conservative number. It should accelerate with the renewal of the product line-up because it's easier, because we have a new platform. That's for sure. On top of this, the accord de competitivite in France and in Spain should also help us.

 We have been a little bit prudent because, as you know, into the total delivery cost, what we call the efforts done by our competitiveness, we are including a lot of elements, including enrichment, including regulation, including competitive action. That's why, when we are talking about EUR600m, we are talking about some kind of net, where -- so the total amount is much higher than this. But, from this amount you have to extract some of the regulation costs that you cannot price, or the competitive enrichment that you cannot price.

 But, I agree with you that it should go up, particularly with everything we have been preparing for, which means new platforms, accord de competitivite, higher level of utilization of capacity.

 Let me just open a parenthesis about higher utilization of capacity. Yes, we will be at 100% capacity utilization by the end of the plan because of everything what I explained.

 This doesn't mean that it's okay because we still need many plants to produce 710,000 cars in France, while some of our competitors can do this volume with one plant.

 So, I would say that, from a situation where we have a lot of plants under-utilized, we are moving to a second-best, which is a lot of plants fully utilized, but we are still below the level which consists to say -- if you had to reorganize all of this, would you need all of this? Certainly not, okay?

 But, again, we are realistic people. We are very pragmatic. We look at what can be done and what cannot be done. So, are -- we're moving up from one step to the other, taking into consideration what can be done in the present environment.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [24]
------------------------------
 Okay. Thank you. We are going to take another question from the call.

------------------------------
Operator   [25]
------------------------------
 Jose Asumendi, JPMorgan.

------------------------------
 Jose Asumendi,  JPMorgan - Analyst   [26]
------------------------------
 Morning. I have three items please. The first one, could you please explain what could be the expenses for the implementation of the competitive plan in 2014 and the cost savings derived from it?

 The second one on the 2016 target. The 3.3m units you mentioned, is this including China or excluding it? And how should we think about the development of Brazil over the next three years?

 And then finally, I'm just interested to understand in your planning what is the minimum operating margin that you are targeting for the autos division in the mid-term? And should we just think about it -- this as 2013 is the lowest level you have achieved and we should see a recovery over the next years?

 Thank you.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [27]
------------------------------
 Okay.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [28]
------------------------------
 So, why don't I start with the -- a few of your financial ones. On the competitiveness plan, as you know, according to accounting rules, we reserve our accounts as people sign up for the plan. So there is an initial assumption because the plan is open until 2016. So, there was an initial assumption made of the number of people and the profile of the people because it's driven by individual age and individual situation.

 So, we have a reserve at the end of the plan, which -- at the end of the year 2013, which is in line with the number of people who signed up. We had more in 2013 than we initially assumed, so there's more in 2013 accounts.

 That said, the plan was designed to be front-loaded, so that's relatively good news.

 The guidance that we gave is that the plan should contribute, compared to a do nothing scenario, should improve our competitiveness by EUR500m. And as we go forward, we'll give you more guidance as 2014 becomes clear. But, that's the best number we can use right now.

 As for the two other questions, you had one question on the 3.3m units that the CEO referenced in his speech, and asking whether that includes or excludes China. So the -- China -- as you know, the industrial operations, we are going to be spending 2014 and 2015 building a plant. Today we have very small sales in China. And in 2016, there will be some sales coming out of the factory in China that will be producing cars. But it's not the major driver of the increase in sales in the plan period.

 Then I think you had a question on the operating profit margin. We are guiding to a 5% operating -- consolidated operating profit margin. That is being driven by the automotive side of the business. I think you saw that in our accounts at 3% this year the automotive side is 1.3% and RCI is really pretty much stable compared to last year.

 So I'm not saying that RCI won't improve. It will. I've been tasked by the CEO to make that number go up. But, the main driver is clearly going to be the automotive margin.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [29]
------------------------------
 Okay. Thank you. Francois, in the room.

------------------------------
 Francois Maury,  Oddo Securities - Analyst   [30]
------------------------------
 Francois Maury, Oddo Securities. Today is the most dynamic and profitable market in worldwide, China and the US. So you are not present in these two markets. You have announced something in China. Should we expect something to come in the US and should we -- in fact, should something happen with Mitsubishi? So, could you be more specific on this agreement?

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [31]
------------------------------
 Yes. Well, the -- I don't think frankly it's very reasonable for Renault to envision anything in the US in the foreseeable future because one of the sickness of the past is we had too much planning and not enough occupying the market, okay.

 We've been to Russia, very quickly, but for many years we didn't do anything with Russia. We've been to Brazil very quickly. We didn't do anything with Brazil. It took us eight, nine years to start to make profit in Brazil.

 We have been to India. We took a bath. We had to come back with Nissan. Why? Because this story of going to a market, putting a flag, but then there is no troop to occupy the land doesn't work.

 So, you have to be cautious or -- United States for me is out of the picture because obviously we can plan it. Yes, we can have a great plan. We will have a lot of agreement. But, as long as we don't have a strategy to get the market share and to make a profit, and really get a return on our investments, we are not going to do it. We have plenty of opportunity in the United States. We are just refusing them because now we need to concentrate on China.

 We are not going to go to China to sell 150,000 cars. We -- China, the first step is get our global market share in China. We have today 3% market share in China. Hopefully, we are going -- 3% market share globally. Hopefully we are going to go to 3.5%.

 Obviously, our presence is not on the total market. That's why it's so small. In fact, on the market where we are present we are in much higher -- we have a much higher market share, which means that China is more a 600,000, 700,000 cars a year potential than 150. But, this means, in order to deliver that, you need to build plants, bring cars, make sure we are concentrated on it. And if we open another front, I'm afraid that we are going to fall into some of the weakness of the past, that we rush to establish our presence, but then there is not enough focus. There is not enough focus in order to get the best out of the market.

 The story of Brazil is interesting. Renault went to Brazil in 1997, okay. From 1997 to 2008, practically, we didn't make any money, for 10 years. And we practically didn't progress in terms of market share.

 The market share progression started immediately after when we came with a decent product line-up, we started to do decent work in terms of localization, we started to build the brand and today is one of the most dynamic markets.

 Russia, we were one of the first ones to go to Russia. I think in -- we went -- our first agreement with the Moscow Mayor was in 1997 or 1998. But, for many years nothing happened. Nothing happened.

 So, we had to dynamite, put a little bit of dynamic, create a relationship with AVTOVAZ, build Avtoframos, bring the car, localize and this requires a lot of energy. This requires a lot of focus.

 So, my only point is yes, there are a lot of opportunities in the United States, but now we are going to concentrate on China. There will be plenty of time when we will get our market share in China and get the kind of profit that the other car makers are getting, which is probably 10% plus, operating margin. When we get there, then we can think to other market.

 But I just want you to know that it's not because we don't have ideas, we don't have plans, we don't have opportunities. But because before going into a new opportunity, we just want to make sure that we can get the return and we can do a good job into increasing the presence of the brand and get the profit out of it.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [32]
------------------------------
 I'm going to take a question from the room. Philippe.

------------------------------
 Philippe Barrier,  Societe Generale - Analyst   [33]
------------------------------
 Yes, thank you. Philippe Barrier, Societe Generale. Three questions if I may.

 First question regarding the second part of your mid-term plan. You sum up the situation that Europe will be the bulk of profit -- of gaining profit in the second half of the plan. That means that in Europe, actually, you can get a margin which is normalized, in line with margin you can get in international markets. It means that Europe will go from very low margins to something in line with the Group target at the end of the plan. And so the main improvement will come from this area.

 Second question, regarding the entry price vehicle. You see some risk on the margins in the entry vehicles given the competition and the difficulties we can get on emerging market, the competition and demand going down.

 And third question, regarding AVTOVAZ. Actually, you are going to go over 50% of the JV. How you grade, consider the company, given the -- despite very low earnings are coming in, or loss, were released by AVTOVAZ in 2014.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [34]
------------------------------
 Okay. Can I just try to clarify your first question? We don't give regional breakdowns in terms of profitability. And so I just want to understand what's behind your --

------------------------------
 Philippe Barrier,  Societe Generale - Analyst   [35]
------------------------------
 That question is that the progress should come from Europe over the next three years in that we know that actually international operations are quite profitable and I assume that Europe is at low point. So, I would say given the restructuring and reorganization you are going to make in Europe, is this -- the bulk of progress should come from Europe.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [36]
------------------------------
 Yes. When -- there will be progress in Europe, but let's not forget that in our plan Europe is stable. We told you from the beginning. What we reported in our plan is in 2017 the market in Europe is equal to the market in 2013. That's our report.

 It's a conservative one, but you consider we have been a little bit more bullish on the emerging market because, frankly, we don't think that this volatility and uncertainty on the emerging market will stay for the long-term. So, somehow, if you take the present situation, which I would say present situation we are bullish on emerging market, conservative on Europe. In six months maybe this will change. We'll become more reasonable on emerging market, maybe something else on Europe. So, this is the assumption of the plan.

 So, yes, there will be a recovery of margins in Europe, hopefully because, as you know, with the decrease of the European market, we all suffered in terms of margin. But I -- I would not qualify the improvement in profit as mainly coming from Europe. It's not true.

 The growth in Russia is very important for us. Growth in Brazil is very important for us. The Chinese operation will have no impact, practically, on this part of the plan. It will have an impact for probably the next plan of Renault.

 But, we have plenty of other also opportunity. North Africa, Eastern Europe. We have plenty of opportunity that we want to put at profit.

 What was the second?

------------------------------
 Thierry Huon,  Renault SA - Director IR   [37]
------------------------------
 It was a question about don't we think that the M0 profitability could be attacked by our competition?

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [38]
------------------------------
 Look, it will be. For the moment, it has not been. Logan has been out for now many years. And then after Logan we brought the Sandero. We brought the Duster. Now we have the A platform coming. Well, so far, there is some competition to the M0, but none of them has been really matching our own performance because M0 is not a car. It's a system. So, you have to reproduce the whole -- you have to re-produce the whole system.

 I agree there is a possibility. For the moment, it did not materialize. It may. We don't see it. I don't think -- it may happen, but we don't see it. So we are not thinking that M0 profit is going to go down, but we are also not thinking that we are going to continue to increase the margin on the car of M0. Even though I can tell you Duster has been a great surprise for us. Duster has beaten all the forecasts that we thought from the beginning.

 And the new A platform coming out from India, the clinics are very strong. We really think this is going to be another very successful car into the M0 platform machine.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [39]
------------------------------
 Last question was about AVTOVAZ consolidation.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [40]
------------------------------
 Yes, the consolidation of AVTOVAZ. So first of all, well, there are a number of condition precedents. We have a number of milestones to go through in 2014 because the -- we've not acquired all the necessary shares yet. So, this is a process that was planned. So, we are going through the milestones.

 There then needs to be a number of -- a bit of work on the AVTOVAZ side. They need to produce IFRS-compliant accounts, compliant to the Renault standards. All of this is work in progress currently, and when we get there and when we can demonstrate control, then obviously then the accounting world will allow us to look at consolidation.

 In any event, this is an accounting consolidation. But, this is without recourse to -- the cash will not flow from one company to the other, so this is without recourse to Renault.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [41]
------------------------------
 Yes, the situation of AVTOVAZ today is not very good because, as you know, the market in Russia collapsed in 2013. It has been a surprise for many people. It doesn't look good at the beginning of this year.

 And, at the moment, where AVTOVAZ is investing a lot not only to renew its own line-up, but also to build capacity for Renault and Nissan.

 The only thing I would like you to keep in mind is we hired Bo Andersson. Bo is, in my opinion, one of the best person to manage AVTOVAZ. First because, as you know, he has somebody who knows the industry very well. He has taken plenty of jobs in the past where he has delivered a lot of results.

 And second, he knows Russia very well. He turned around GAZ and, when you look at the numbers of GAZ, it's impressive what has been done.

 So, I think we have here an opportunity to transform, really, AVTOVAZ not only into a very profitable operation that will be consolidated by Renault, but also into a base for production and sourcing for the line. So, we are counting a lot on Bo and his team.

 I just want you to take this in consideration. For me, Russia yes today is a risk. But I see a big opportunity with the new management team that we put in place.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [42]
------------------------------
 Okay. Thank you. Next question from the call.

------------------------------
Operator   [43]
------------------------------
 Rabih Freiha, Exane.

------------------------------
 Rabih Freiha,  Exane BNP Paribas - Analyst   [44]
------------------------------
 Yes, good morning. Rabih from Exane. I have two questions please. The first one, if you could give us a bit more detail on the working cap gain that we saw, the EUR790m? If I'm not mistaken, the guidance was for flat working capital. What has changed between the last time you said that guidance end of October and the last few months of the year? And, also, how should we think of these inventories in 2014 given the number of freeze-outs you have on the Renault core side and the market weakness and emerging markets?

 My second question is regarding the more than 5% operating margin target for 2017. You are qualifying this target as ambitious and realistic. When we look at market expectations today, the market is expecting a margin very close to 2017 target and 2015 already. Do you think these expectations are unrealistic and, why if not? Thank you.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [45]
------------------------------
 Well, yes, while Dominique Thormann is preparing to answer your first question, I can answer the 5%. We said at least 2017. Why we took 2017? Because there are a lot of things coming in 2014, 2015, 2016, and it would be fair that the measures of 2016 have an impact on our objectives.

 So we give you -- if you take the year 2016 as a reference, part of what we will be doing in this plan will not be captured in our objectives. So we wanted really to have a full year impacted by all the measures that we are taking. That's why we took 2017.

 And I said the minimum of 5%, which means obviously we are planning for much more. I don't think -- so if you say -- is the 5% conservative or is it -- it's going to depend a lot on the environment. It's going to depend on a lot of factors. It doesn't depend on us. Is the European market going to be flat or is going to go up, or is it going to go down? That's a big factor for us. Are the emerging market go out of this volatility and problem at the end of 2014 or in the middle of 2014, or is it going to last? Are the exchange rate going to continue to be volatile or not?

 There are a lot of questions independently of us. Obviously, we are planning for much more than 5%. It's clear, both in terms of growth, price and cost. But there are so much uncertainty around us that we had the choice of giving no numbers or giving numbers that takes into consideration all the volatility around us.

 So, if you say -- if you think that Europe is going to grow, that the volatility on the emerging market is going to stop, that the emerging market is going to resume their growth, then yes, I can tell you, assuming that in 2016 we can reach the 5%, is reasonable, okay. But assuming that all of this happens, which obviously we are not sure and let's not forget that for us we are considering Europe as flat for the next years.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [46]
------------------------------
 Yes, Rabih, on the -- on your question on working capital, first of all, the -- what we were aiming to deliver was free cash flow. And we did that even without the contribution of working capital. So, we just did better. I mean it's that simple.

 We learned a lot these last three years. We've taken a lot of cash out of the system. We were totally inefficient on the receivable side. We weren't getting paid very quickly. We were not very good in our supply chain. We had intermediate starts. We had -- we just did a lot better in managing our business.

 So I think it was -- it was something that -- a great lesson learned in the 2011/2013 period which we are going to carry over into 2000 -- into the next period. And the dealer inventory, you have seasonal patterns, depending on when vehicles get launched.

 January was very strong and the dealer inventory is sold out. I mean the dealer has sold out of that inventory that was in transit, or that had already been delivered. So, I'm comfortable with the 63 days. I've given you guidance that we would bring that number down towards the end of the year. We are going to come into a seasonal pattern. Q1 is always a little bit higher as you go into the spring selling season. So, I think this is business as usual and we just manage this very, very tightly, on a month-by-month basis.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [47]
------------------------------
 Okay. Thank you Dominique. Gaetan?

------------------------------
 Gaetan Toulemonde,  Deutsche Bank - Analyst   [48]
------------------------------
 Good morning. Gaetan Toulemonde, Deutsche Bank. I have two questions. The first one, I want to go back, Dominique, on this pre-retirement scheme in France, because you booked EUR400m, which is a big number. So, can you give us an idea how many people are signed up out of the 7,500 people, which is -- what was prepared in the plan? And what are the magnitude of the savings we can expect in 2014 coming from that? Can you summarize that a little bit?

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [49]
------------------------------
 Okay. So it's -- the plan -- the 7,500 people is a net number. So, it's more going out. And then there's -- in future years we are going to be hiring against that number. So, it's I think 8,250 was the number that we initially gave you.

 It's just more people signed up in 2013 than were expected. Now, how many people sign up in 2014 and 2015 is still an open question mark. And, as we cannot make an overall assessment and reserve our accounts based on an assumption, you have to actually physically have people signed up before you can reserve your accounts. So, because more people ended in 2013, doesn't meant that you'll have even more in 2014 and 2015. That's something that we don't know.

 But, the order of magnitude what we guided to is that the plan is designed to deliver compared to a do-nothing scenario, which is an unrealistic assumption. But you have to have a -- use a baseline. It's designed to deliver EUR500m in improved operating contribution by the end of the plan, on a full year basis.

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 Gaetan Toulemonde,  Deutsche Bank - Analyst   [50]
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 (Inaudible - microphone inaccessible) in terms of saving for 2014/2015, out of what has been projected? EUR400m is a big number.

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 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [51]
------------------------------
 Yes, it's a big number, but it's a number that is commensurate with the number of -- with the number of people. If the plan gets done earlier, so be it.

 But, roughly, the cost -- against the EUR500m it was somewhere around EUR450m in terms of overall reserves. So, order of magnitude now, if more people sign up, but you get a bigger benefit at the end. It's -- and that number we don't know today.

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 Gaetan Toulemonde,  Deutsche Bank - Analyst   [52]
------------------------------
 Okay. I'm not sure if we understood. Anyway, Mr. Ghosn, I have a second question.

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 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [53]
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 I'll take you offline.

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 Gaetan Toulemonde,  Deutsche Bank - Analyst   [54]
------------------------------
 Okay. All right. Thank you. I'm pretty slow. So, I have question for you on this synergies with Nissan. We moved to a pretty big number; EUR4.3b. First question, is it 50/50 between Renault and Nissan because since Nissan is two times bigger than Renault, in theory it should be bigger for Nissan?

 And can you help us to get an idea what could be the P&L impact because --

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [55]
------------------------------
 Yes.

------------------------------
 Gaetan Toulemonde,  Deutsche Bank - Analyst   [56]
------------------------------
 -- there's a lot of cost avoidance? Is this number more cost avoidance? Can you summarize that a little bit?

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [57]
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 Yes, yes. Look, let me give you -- based on the past. The past doesn't mean the future, but is a good indication of what may happen.

 Today, the cost reduction is 40% of the synergies -- cost reduction, which means the 60% are cost avoidance, investment reduction, investment avoidance because let's not forget this is a cash-flow impact -- the synergy. We calculate them on cash flow because we are interested also into reducing investments.

 So, but based on the last years, and this is controlled number, 40% of the synergies are cost reduction and frankly there is no reason to think it's going to be different in the future, even though there is no guarantee. But let's say 40%.

 Now, so when you project EUR4.3b of synergies, which, by the way, are all planned, this is not a black box where we are starting to work about how we are going to make the EUR4.3b. The EUR4.3b are identified, and the planning is for more than EUR4.3b because you'll probably hear internally different numbers. Yes, we are planning for much more, but we want to put it in the bank for the moment -- EUR4.3b.

 If you take 40% of EUR4.3b, you are going to get something like EUR1.6b, EUR1.7b. The repartition so far between Renault and Nissan has been 45% for Renault, 55% for Nissan. And why Renault benefits relatively more, because obviously Renault, being a smaller scale than Nissan, the impact on the Renault is much bigger.

 For example, when you come to a CMF platform, and you are changing from a 700,000 platform to a 3m platform, the -- I would say the jump in performance is much bigger for Renault than for Nissan. Because Nissan had platforms, they were not at 3m, but I would say the jump for Nissan is smaller. So 45%/55% is the historic number. It should not change, even though the size of the two companies are different.

 So, bottom line I would say 40% in cost reduction and repartition 45%/55%.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [58]
------------------------------
 Okay. Thank you. I guess that we have time for one more question, so I will take it from the call.

------------------------------
Operator   [59]
------------------------------
 Kristina Church, Barclays.

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 Kristina Church,  Barclays Capital - Analyst   [60]
------------------------------
 Oh, yes, thank you. My first question is just returning to a question asked earlier on pricing. Could you just give a little bit more detail on European pricing at the moment, and where you see that standing currently and going forward in 2014?

 And then my other question was regarding FX. In terms of your hedging policy, is there any change that you can do there to mitigate some of the impacts of FX, or anything else that we should expect to see slightly differently in 2014? Thank you.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [61]
------------------------------
 Okay. Well, for the European pricing, in fact the best would be to talk to the head of the region in Europe, Stefan Mueller, who is going to be telling you exactly what is the situation, and what's our situation on pricing. Stefan.

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 Stefan Mueller,  Renault SA - Chairman, Europe Region   [62]
------------------------------
 Yes, thank you very much, Mr. Ghosn. So, as Mr. Ghosn has already explained in his speech, we dramatically improved our position in terms of pricing in the last years.

 That means that today, in pricing, on average, in Europe, we are only about 5% below the leader and we are 3% more expensive than the basket.

 Now, in terms of pricing position for the future and strategy, it's as Mr. Ghosn has already explained for us very, very clearly. We are going to maintain and improve this position. Why? Well, it's relatively easy, because we are going to be able to price with every new product that is coming in on a much higher level. That is true for all the products that you will be see coming in the next two to three years, and, we are reasonably optimistic that this is possible because we have seen it now with Clio and Captur. We have been very successful in exactly doing that.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [63]
------------------------------
 And, if I may add something, because we talked about all the new products and the renewal, which are going well, there are also points of vulnerability in Europe, which is the end of life of Megane. That means we are in the last two years of Megane. At the moment, our main competitors have launched their new products.

 As you know, there is a new Golf, there is a new Peugeot, etc. So, one of the reasons for which we are a little bit prudent is because the M1 is going to be a challenge for us in 2014 and 2015. And, hopefully, when we'll come with a new product, with a new design, attractiveness, competitiveness, because it is going to be based on a 3m platform, things are going to change.

 It's one of the reasons for which we are a little bit prudent and we need to build much more profit and cost reduction in order to sustain the movement that we mentioned.

 Can you answer (multiple speakers)?

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO & CEO RCI Banque   [64]
------------------------------
 Yes, Kristina, yes hi. I'll -- on foreign exchange, it's an endless debate in the auto industry, but I think the -- we have not changed our policy. I think in the CEO's speech you heard that the only effective way of really protecting against currency fluctuations is balancing revenues and expenses in the same currency which means having an optimized localization rate in -- where we manufacture, or where we sell actually. So, the cost of hedging some of these very, very volatile currencies in Argentina, for example, is just astronomic and you are just transferring the risk. You also end up having to take a counterparty risk, because somebody's got to be the other side of your hedge contract.

 So, hedging Argentina is just totally impossible right now, and it's just not economical. So no, we have not changed our policy.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman & CEO   [65]
------------------------------
 Yes. Well, if I can just add something about foreign exchange risk and localization. They are obviously linked. At the same time, as you know localization is a question of scale. It's not a question of know-how. But, if you are a small car manufacturer and you want to localize, no supplier is going to take really in consideration a few thousand cars locally. They don't care. The investment is too big. The part of the tooling is too high. The pricing will not be competitive, so they don't do it.

 So, in order to localize you are going to have to have the volume. So, the scale is important, even for localization. As we know, localization is at the base of competitiveness in emerging markets, and the emerging markets are going to be the engine of the growth of the industry.

 Come back to the first question you ask; scale is going to be of essence, particularly when it is benefiting some of the most competitive players in the industry because it's playing at the level of the investments, it's playing at the level of the cost, it's playing at the level of the localization. And, you know, when you add all of this, if somebody has 8m to 9m cars and the other one has a third of this volume, it's a completely unbalanced competition.

------------------------------
 Thierry Huon,  Renault SA - Director IR   [66]
------------------------------
 Okay, thank you Mr. Ghosn. I'm afraid that due to time constraint we have to stop now this Q&A session. So thank you for joining us today.

 Of course, Alain and myself will be available full day for all questions which have not been addressed this morning. Thank you very much. Have a good day.






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