Q4 2014 Renault SA Earnings Call

Feb 12, 2015 AM CET
RNO.PA - Renault SA
Q4 2014 Renault SA Earnings Call
Feb 12, 2015 / 07:00AM GMT 

==============================
Corporate Participants
==============================
   *  Dominique Thormann
      Renault SA - EVP, CFO, and Chairman, RCI Banque
   *  Carlos Ghosn
      Renault SA - Chairman and CEO
   *  Bo Andersson
      Renault SA - CEO, AvtoVAZ
   *  Jean-Christophe Kugler
      Renault SA - SVP, and Chairman, Eurasia Region
   *  Thierry Bollore
      Renault SA - Chief Competitive Officer
   *  Stefan Mueller
      Renault SA - EVP, and Chairman, Europe Region

==============================
Conference Call Participants
==============================
   *  Thomas Besson
      Kepler Cheuvreux - Analyst
   *  Georges Dieng
      Natixis - Analyst
   *  Gaetan Toulemonde
      Deutsche Bank - Analyst
   *  Kristina Church
      Barclays - Analyst
   *  Charles Winston
      Redburn - Analyst
   *  Philip Watkins
      Citigroup - Analyst
   *  Philippe Barrier
      Societe Generale - Analyst
   *  Fraser Hill
      BofA Merrill Lynch - Analyst

==============================
Presentation
------------------------------
Unidentified Company Representative   [1]
------------------------------
 Good morning everyone. Welcome to this Renault's fiscal year 2014 results presentation and conference call. It is broadcast live and in replay versions is on our website. The presentation file, press release, activity pack for this call are all available on our website under finance section.

 I would like to point out the disclaimer on slide 2 regarding the information contained within these documents and in particular about forward-looking statements. I invite all participants to read this.

 Today's meeting is scheduled to last 1 hour and 15 minutes. We have two key speakers this morning. First up will be Dominique Thormann, our CFO, who will take you through the highlights of our financial results and then Carlos Ghosn, Renault's CEO, will share with you his review of the operation and the outlook for the year. These presentations will last around 40 minutes and will be followed by Q&A session. Dominic, the floor is yours.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO, and Chairman, RCI Banque   [2]
------------------------------
 Good morning everyone. Despite high volatility in emerging markets and thanks to a better than expected European business, I am pleased this morning to report that we achieved our 2014 guidance. We grew our volumes and revenues at constant exchange rates, the Group and the automotive division improved their operating margins and, finally, we generated a positive automotive operational free cash flow.

 Before going in detail to the financial results I would like to start with a quick summary of our commercial results on slide 5, which we released January 19.

 Group sales increased 84,000 units or 3.2% to 2.71m cars. This year Europe was the main contributor, with an increase of 12.5% in registrations, representing 163 (sic - see slide 5 "163,000") additional cars compared to last year. Outside of Europe our registrations fell 78,000 units or 5.9%. The main declines came from the Americas region, with a drop of 50,000 units, where we limited our exposure to Argentina. In Eurasia and AMI regions we saw slight declines coming mainly from Russia and India. On the contrary, the Asia Pacific region grew its sales thanks to better performance in South Korea.

 Let's turn now to slide 6, which shows Group revenues. In total Group revenues reached EUR41.055b, an increase of 0.3% from last year. At constant exchange rates revenues would have grown 3.1%. Revenues for the automotive division also increased by 0.3% in the period to EUR38.874b versus EUR38.775b in 2013. Revenues from our captive sales finance company, RCI Banque, increased by 1.1% to EUR2.181b in the period.

 The automotive revenue variance analysis shows next on slide 7. Starting on the left-hand side of the page, the first item is foreign exchange, which remained a strong headwind throughout the year at minus EUR1.15b, driven by the weakness of the Russian ruble, Argentinean peso and Brazilian real. This was partially offset by a positive impact coming from the British pound and Korean won. In total adverse foreign exchange rates caused a negative impact of 3 percentage points.

 The second items, volume of new vehicles sold, impacted negatively for 0.8 points despite higher registrations. This gap came from our effort to reduce inventories with independent dealers, whereas they had increased the prior year.

 Geographic mix was almost flat at 0.2 points.

 The fourth item to note is the mix effect, which is almost neutral.

 The fifth item is the price effect, which is positive by 0.8 points. This reflects our constant effort to adjust prices, particularly in emerging markets with weak currencies.

 Sales to partners impacted revenues positively by 3.2 points. This is the fruit of our strategy which aims to optimize the use of our assets. Production of built-up units for Nissan and Smart in Renault plants for the first time in 2014 were significant contributors to this item.

 The last item, named others, represents the activities outside the new-car business, mainly spare parts, our wholly-owned dealers and buyback restatements. The impact here is neutral.

 I will now turn to the automotive revenues -- to the Group operating profit by activity. In 2014 the automotive operating profit was a positive EUR858m versus EUR495m last year. We continued to improve our automotive margin in the second half, reaching 2.5% versus 1.9% in the first half of 2014. On the full year, the automotive operating margin stood at 2.2%, showing almost a full percentage point improvement. RCI Banque posted a EUR751m contribution to Group earnings, in line with last year. In total for 2014 the Group's operating profit stood at EUR1.609b, an improvement of EUR367m compared to 2013. The Group's consolidated operating margin was 3.9% compared to 3% in 2013.

 Slide 9 shows the main variances which explain this increase. I will start the walk-down reading left to right. Cost reduction activities contributed positively for EUR844m. This is a significant improvement compared to 2013 and exceeded our initial expectations. Monozukuri activities explained EUR778m of the variance, while G&A brought an additional EUR66m.

 If we look in a bit more detail, savings from purchasing were a bit lower than last year, coming in at EUR430m. Manufacturing and logistics costs improved significantly with a positive contribution of EUR397m versus EUR41m last year. However, I would like to caution you that this year-over-year variance is not necessarily repeatable to the same extent as savings came mainly from the impact of the competitiveness agreements which reached their peak in 2014. R&D contributed positively for EUR58m and benefited from a higher capitalization rate, due to our new product cadence. Warranty costs negatively impacted for EUR107m compared to minus EUR63m in 2013.

 Raw materials provided a tailwind of EUR134m.

 Mix and net enrichment impacted negatively for EUR226m. As in the first half, this impact is the combination of price increases in emerging markets, the stabilization of competitive pressures in Europe and from the benefits of our new model. However, we will need to enrich some ageing products to maintain their competitiveness as they entered their final year in production and bear the costs of regulatory features.

 Volume and sales to partners delivered a positive EUR121m. This came mainly from the strong increase in our sales departments, as our new-car wholesale volume was impacted by our de-stocking actions.

 RCI Banque, grouped with other businesses, accounted for a minus EUR35m. This decline reflects primarily the decrease in the contribution from our parts and accessories business.

 Lastly, currency was a strong negative, amounting to minus EUR471m. The main culprits remain the Russian ruble and the Argentinean peso. Conversely, the British pound and Turkish lira moved favorably.

 Continuing on through the P&L with the other operating income and expense items on slide 10, this year these items amounted to a charge of EUR504m, which is significantly lower than last year. Restructuring costs in France, some impairment charges mainly booked in the first half, and provisions linked to a retroactive change in legislation in Germany regarding financing contracts, are the main explanations behind this amount.

 After taking into account these expenses, our EBIT is positive at EUR1.105m compared to minus EUR34m in 2013.

 Continuing down the P&L, the next item is the net financial income and expense item. The net charge was slightly higher than last year by EUR51m at EUR333m due to lower cash in some emerging countries and the non-recurring impact from the change in regulations for RCI Banque in Germany.

 The next slide, number 12, shows the impact of associated companies in Renault's P&L. Nissan contributed EUR1.559b to our 2014 results. This was EUR61m more than prior year. Renault's share in AvtoVAZ's result which is consolidated with a three-month time lag, came to a negative EUR182m, a deterioration of EUR148m. In total the contribution from associated companies fell EUR82m compared to 2013.

 I will turn back to the P&L on slide 13 where the net tax charge for 2014 came to EUR136m compared to EUR433m last year. The lower charge, despite higher pre-tax profits, came from a different geographic mix as well as from the recognition of deferred tax assets, notably in France, for EUR210m.

 Bottom line, net profit after tax increased significantly and came in at EUR1.998b versus EUR695m in 2013. Beyond the operating profit improvement, our net income benefited from the strong reduction in non-recurring charges. After taking into account minorities, the net result per share came in at EUR6.92 versus EUR2.15 in 2015. (sic - see press release "2013").

 Now that I have completed the analysis of the P&L, I will turn to slide 14 which shows the change in net automotive cash. Cash flow from operations totaled EUR3.138b, reflecting primarily improved operating performance.

 Changes in the working capital requirement impacted positively for EUR596m, mainly as a result of higher production in the fourth quarter. Net tangible and intangible investments came to EUR2.651b. This is EUR226m lower than in 2013. This reduction is explained by lower net CapEx, especially for capacity extensions. On the contrary, capitalized R&D increased due to our product cycle. Lastly, leased vehicles accounted for EUR110m less than in 2013. As a result, automotive operational free cash flow came to a positive EUR1.083b.

 Regarding dividend flows, dividends received from quoted companies in the period totaled EUR463m, while dividends paid during the year amounted to EUR542m. Other financial items were negative EUR661m, including the capital increases in our joint ventures in China with Dongfeng as well as in India with Nissan, the cash payments for our higher stake in Alliance Rostec Auto, and then finally the negative impact of currency fluctuations on our balance sheet.

 In summary, net automotive cash increased by EUR343m and came to EUR2.104b versus EUR1.761b at the end of 2013.

 Slide 15 shows you the status of our inventories at the end of the year. As expected, inventories decreased and came in under our 60-days guidance. As Q4 sales were higher than forecast, we cut the number of cars in inventory by almost 30,000 units. This reduction came from our independent dealers, as Group dealer inventory were up 6,000 units. Global stock represented 57 days supply at the end of the year versus 63 days supply at the end of 2013, which is the lowest days supply since the end of 2011.

 I would now like to move on to the automotive liquidity reserve situation on slide 16. Cash and cash equivalents totaled EUR11.4b (sic ? see slides 16 "EUR11.6b") at the end of December, up EUR0.9b compared to 2013. Together with the fully-available undrawn credit lines, the automotive gross liquidity reserve increased EUR0.7b and stands at EUR14.8b at the end of 2014.

 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 10.6% in the year thanks to a favorable geographic mix with a recovering European market and the rise in the penetration rate on new vehicles sold. Average loans outstanding were up 5 percentage points, despite the conversion in euros, which was negatively impacted by the weakening emerging market currencies. The cost of risk stayed under control at 0.43% of outstandings, in line with prior year. Operating expenses remained flat at 1.58% of average outstanding loans.

 In total the pre-tax return on assets reached 2.95% versus 3.07% the prior year, before non-recurring items. The return on equity is slightly down at 18.5% versus 20% in 2013, while the published return on equity, including non-recurring items, stands at 16.4%.

 RCI's liquidity position has also remained strong at EUR6.9b of liquidity reserves at the end of 2014. As you can see on slide 18, RCI Banque's dependence on the capital markets continued to reduce with the successful retail online banking business that you can see on slide 18. Total deposit growth in 2014 represented 33% of RCI's funding requirement.

 Following the successful launch in terms of Zesto savings plans in 2012 and in Germany in 2013, RCI Banque launched a similar product in Austria in May 2014. At the end of December total deposits amounted to EUR6.5b, representing more than 25% of the average outstandings of which EUR4.4b was sourced in Germany. RCI Banque's retail deposit-taking should represent 30% of total outstandings by 2016.

 This completes my financial review for 2013. I will now pass the floor to our CEO, Mr. Carlos Ghosn, and I think you very much for your attention.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [3]
------------------------------
 Good morning ladies and gentlemen. As Dominique Thormann just showed you, Renault's Group guidance for 2014 was fully met. Unit sales and revenue at constant exchange rates were up versus 2013, we improved Group and automotive operating profit and we achieved a positive automotive operational free cash flow. These results were made possible by the rigorous execution of our business plan despite a high level of volatility. While European markets recovered beyond our expectations, our main emerging markets were, on the contrary, particularly adverse.

 Global TIV increased 3.5% to reach 85m units for the first time since 1999. The European market performed better than the global average, with an increase of 5.9%, beyond our initial expectations. The European market was supported by the recovery of the southern European market, in particular the Spanish market, which was up 20%. Also the UK market, strong for the third year in a row, was up 10%. The German market remained solid, up 3%, but more disappointing, the French market was basically flat.

 Regarding our main emerging markets, they were significantly weaker than our initial expectation, due to political, economical or currency turmoil. In Russia, our third-largest market, demand decreased all year long. TIV was down 11% for the full year. In Brazil, our second-largest market, the car demand fell 7%, after a slight decline in 2013. In Argentina registrations collapsed 28%, reflecting a very difficult economic situation. Finally, two other core emerging markets, Turkey and Algeria, also fell 10% and 20% respectively. However both of those markets showed some improvement in the second half.

 In this environment Renault increased its global registrations by 3.2%, while global market share remained stable at 3.2%. Our improved performance came mainly from the good reception of our line-up in Europe. We were the fastest-growing automotive group, with penetration up 0.6 points, reaching 10.1%.

 Clio and Captur continued to be successful in the B segment. Captur led its segment, with a high conquest rate as 50% of buyers who are first-time Renault customers. In the LCV segment Renault launched a new Trafic and remained the number one brand in Europe for the seventeenth consecutive year. Dacia was again the fastest-growing brand in Europe in 2014. Registrations were up 24%, with market share rising 0.4 points. As for Renault brand, Dacia's renewed line-up was key in delivering the strong performance. The brand has also became very popular in the UK, where it was launched in early 2013.

 Outside of Europe we also did well in some emerging markets where we consolidated our market share in four of our top five markets.

 Argentina was the exception as we did not want to increase our exposure to the local currency. The success of our entry products was the pillar of our resilience. This was particularly true in Russia and Brazil where the new Logan and new Sandero, launched last year, allowed us to achieve record market share in a very volatile environment. In India we lost ground due to Duster, our best-selling car, which faced fierce price competition. Finally in South Korea the success of Captur, locally named QM3, was the main driving force behind RSM growth, which gained 1 point, almost 1 point of market share.

 2014 also saw a significant increase in our sales to partner business, representing EUR1.25b, as an increase. This is a result of our strategy to optimize the use of our existing assets, particularly in Europe. More specifically this year, on top of components supply business, we started producing built-up cars with the Rogue in South Korea for Nissan for the US market, and the Smart in Slovenia for Daimler.

 Globally these developments allow us to increase our revenue by 0.3% despite a strong negative currency impact. At constant exchange rate, Group revenues would have grown 3.1%.

 On the cost side we exceeded our target with a total reduction of EUR844m. Monozukuri activity contributed EUR778m of improvement while G&A containment added EUR66m. The acceleration of the Alliance synergies and the faster than expected contribution from the competitive agreements in France and in Spain explain this performance.

 With regard to synergies, a major milestone for the Alliance was reached in 2014 with the convergence of four key functions, upstream engineering, manufacturing, purchasing and human resources. Combined with our platform strategy already in place, we are on track to exceed our EUR4.3b synergy target in 2016.

 To conclude, 2014 proved to be a solid base on which to build for the future. The steady efforts implemented to contain our fixed costs, especially in Europe, started to pay off. Combined with higher sales, Renault Group delivered an operating margin improvement of 0.9 points.

 I will now turn to the outlook for 2015. Our assumption is that the global TIV will grow by 2% to a new record, with around 87m cars sold throughout the world. We anticipate a slight increase in the European market of 2%. In emerging economies both market and currency fluctuations are really very uncertain. We are particularly cautious about the Russian market, which could be down between 20% and 30%. For Argentina and Brazil we expect a further single-digit decline. To deal with this context, we will continue to adapt our fixed cost base as needed. We will also maintain a rigorous pricing policy in order to preserve our local profitability, as we did last year.

 To sum up, we obviously can count only on our disciplined implementation of the mid-term plan to improve our performance.

 With five new products, 2015 will be an unprecedented cadence of product-launches year for Renault. Revenue growth in 2015 will be fueled primarily by the full-year impact of new Twingo and Trafic launched successfully late 2014, as well as new products expected this year.

 In Europe the first to come is the new Espace, shown at the Paris motor show last year. It will be available for sale in the spring. This car marks the beginning of the renewal of our upper range. It showcases our commitment for quality and will contribute to the improvement of our brand image.

 At the beginning of the second half, Kadjar, our first C-segment crossover which we presented to the press 10 years ago -- or 10 days ago, will go on sale. Extending our range in this growing crossover segment will open up new opportunities for the brand, as did Captur in the B segment.

 At the end of the year, we will continue our product offensive with the new D sedan. Finally, the successor Megane will be presented at the end of the year for a start of sales early 2016.

 Even if ageing vehicles will need some support, all these new products will reinforce our price positioning and will lift our sales mix progressively.

 Outside Europe, after the successful renewal of Logan and Sandero last year, we will capitalize on this momentum with the rollout of Duster phase 2 in our main emerging markets, notably in Brazil and Russia.

 This year will also see a decisive move to expand our coverage in these emerging markets, mainly through the introduction of two new vehicles. In the passenger car market our first A-entry product will be launched in India in the middle of the year. It will be an innovative vehicle to compete in the entry-price segment where we are not present today. In the LCV market we will launch in the second half a half-tonne pick-up truck in Brazil based on the entry platform. We revealed a concept at the last San Paolo motor show called Oroch, which will give you a good idea of the direction we are taking.

 Beyond volume we aim to increase our revenue per unit thanks to several drivers. The renewal of our upper range and the extension with crossovers should drive our vehicle mix higher. Our commercial policy will continue to focus on a higher trim and option mix. Finally, services offered by RCI Banque along with parts and accessories will also contribute to this improvement. Lastly, the development of our sales to partners, a pillar of our revenue-growth strategy, will accelerate again this year.

 To ensure the competitiveness of these new products and their success, we will pursue our rigorous cost management. This will also help us to mitigate upcoming regulation costs.

 The implementation of our competitiveness agreement in France will continue in 2015, further reinforcing our performance, but at a slower pace than in 2014. As you know, this agreement, which was signed in 2013, called for up to 8,250 voluntary departures, to be partially offset by 750 new hires by 2016.

 At the end of 2014 we were ahead of our targets regarding voluntary departure. As a result we decided to review our initial hiring plan and increase it up to 1,000 people. Half of these recruitments will occur in the plants while the other half will be for other functions, in particular in engineering. Qualitatively this plan will reinforce the Company with specific skills and competencies needed to prepare for the future.

 The second lever is the use of common platforms with Nissan. This year will see a breakthrough as all of our major new products are based on our CMF modular platform. This will provide us an unprecedented scale advantage.

 While strengthening the C segment, historically a key pillar of our profitability, the scale of the CMF platform will fix our recurrent profitability issues in the D segment where we did not achieve a satisfying return with the current vehicles.

 Regarding the entry segment, we capitalize on our entry know-how and the Alliance to develop the CMF A platform, to match the cost structure requested for entry car in emerging markets.

 Thanks to these enablers we should achieve our cost-reduction target this year again and keep our fixed costs under strict control. This is a necessary condition to fully benefit from strong operating leverage.

 Beyond the execution of the plan, we are actively preparing ourselves for the future. The rollout of our Chinese project is on track as we are currently starting the tuning of the plant. Production will begin at the end of 2015. The opening of this new plant will represent a new era for the Group in a country which has become the world's largest automotive market.

 Regarding the global mobility, we are also working on the car of the future which, as you know, must be safer, more connected and more environmentally responsible. In this endeavor we presented two prototype. The first one, called Next Two, foreshadows the autonomous car that could be on the road by 2020 in mature markets. The second one, Eolab, addresses the CO2 emissions challenge, featuring fuel record efficiency, with one liter of fuel per 100 kilometers.

 These are the important topics for the industry for which we are actively working on solutions.

 To conclude, after a solid performance in 2014, we enter 2015 with confidence, in spite of the risks regarding the economic environment. Thanks to the robustness of our plan, good execution and the determination of all Renault's employees, we have all we need to be successful in 2015. After the success of Clio, Captur, and Twingo launches, Espace, the D-sedan, and Kadjar will reestablish Renault brand in the upper segments in Europe. At the same time the entry car in India and the first pick up in Brazil will evidence our ability to expand our presence in emerging market.

 In accordance with the policy presented last year, I propose to the Board of Directors to increase the dividend to EUR1.9 versus EUR1.72 last year. It will be submitted for approval at the shareholders' meeting.

 In spite of the uncertainties surrounding numerous economies, global car demand should continue to grow, as we said, European market also, while we continue to expect high volatility in our main, emerging market. In this context Renault Group aims to increase further its registrations and revenues at constant exchange rates, continue to improve the Group's operating margin and that of the automotive division, generate positive automotive operational free cash flow.

 Thank you for your attention and now we are ready for your questions.

==============================
Questions and Answers
------------------------------
Unidentified Company Representative   [1]
------------------------------
 Okay. Now I think it's time to start the Q&A. We're going to start with some questions from the room, so Thomas Besson first.

------------------------------
 Thomas Besson,  Kepler Cheuvreux - Analyst   [2]
------------------------------
 Thank you. It's Thomas Besson at Kepler Cheuvreux. Three questions please. First one on the sales to partners and their contribution. You show us an increase of EUR1.25b of revenues and almost EUR120m impact on EBIT because volumes were negative this year. Should we read this as the big improvement in the profitability of this business or is it solely linked with the fact that you will increase production in Korea and Estonia, and it lead to a much better use of your capacities in these plants?

 Second, at current spot rate could you give us an indication of what we should expect for both ForEx and raw mats? It looks like everything is much better except for the ruble, which is terrible. Can you give us an indication, is ForEx going to be positive?

 Do you expect a nice increase for raw mats to your EBIT in 2015?

 And lastly you've shown a massive increase in the Monozukuri and G&A savings in 2014. You highlight the spike in the French competitiveness contribution. But in 2015 and in 2016 you have all the new cars on CMF launched. So shall we think that the EUR4.3b in 2016 ambition is too low? Do you think you can go higher than that or should we stick with EUR4.3b? Thank you.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [3]
------------------------------
 Okay. Well, I'm going to let Dominique Thormann give you the two first answers, which are more linked to the construction of our forecasts, and then I will take the third one.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO, and Chairman, RCI Banque   [4]
------------------------------
 Okay. So, sales to partners we do not disclose. You can understand these are bilateral contracts that we have. Every contract that we have does leave a profit with Renault. You're right that sales to partners has a double effect; there's a margin in the transaction, but it's also -- it also absorbs fixed costs, particularly when they're built-up units.

 Now bear in mind that we've been moving from primarily supplying components and engines to other brands, to more built-up units. Some of these built-up units are co-developed with Renault, for example in the case of Smart, but in other cases they were developed by Nissan in the case of Rogue, which is just a manufacturing contract in South Korea. So each case is very, very different and that's why we don't want to get into making assumptions on profitability. But I can tell you that the profitability -- that there is a positive contribution of course coming from these sales.

 In terms of foreign exchange and raw materials, you're right that current exchange rates are more favorable than the average that we suffered in 2014. I think the best guidance we can give you right now is to write in a zero coming from currencies. If they do stay at today's levels, and that lasts for another 12 months -- and I don't think anyone in this room has a crystal ball -- if that were the case, then it would be a tailwind and no longer a headwind. But don't -- we're not making that assumption in our guidance.

 Raw materials, you're right it was a slight positive in 2014. Today most of what we're seeing is trending favorably. However, there is a bit of a currency effect because many of these materials are quoted in dollars and the current depreciation of the euro is going to offset some of that. So right now a slight tailwind, but nothing material in raw materials.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [5]
------------------------------
 Yes, when we look at the -- in fact your question was about the EUR4.3b of synergies projected from the Alliance, the work on the Alliance. Today, with the results that we had in 2014, obviously EUR4.3b is a conservative number. I think a reasonable target would be to reach EUR5b. I think with all the CMF that are being developed and all the efforts are being launched, again this is -- we're trying our best to try to optimize this number. But very likely we should be more around EUR5b, but we stick to the EUR4.3b as a commitment.

 This is mainly coming from the fact that a lot of things we have been working in the past did not deliver results. For example, we have been working a lot on common platform, but as long as the common platform -- you're not producing on the common platform, we just don't get the results. Now that the production of the common platform are starting, not only you can see the result of the efforts made in the past, plus the efforts today coming from the conversions of the function, we're starting to have a cumulate benefit from past effort and present efforts.

 So I'm very optimistic about synergies coming from the Alliance. And, yes, EUR4.3b is conservative; we have to admit it today. We still keep it as a commitment even though our targets are much higher.

------------------------------
Unidentified Company Representative   [6]
------------------------------
 Next question? Any question in the room. So, Georges.

------------------------------
 Georges Dieng,  Natixis - Analyst   [7]
------------------------------
 Good morning. Georges Dieng of Natixis. Two questions if I may. The first question is the obvious one on emerging markets. If you could maybe give more, let's say, color on the effort you're making in terms of adjusting your cost base, the increase in localization, both of components and assembly in the key markets, i.e. Russia and Brazil.

 And in a market that could be down 20% to 30% in Russia, are you still making profit and how will you be able to do that?

 And as part of the Russian question, there is still the question on AvtoVAZ and what it could mean once AvtoVAZ is fully integrated within your accounts. I know AvtoVAZ is a separately listed company, but obviously they have their own business plan, they have their own restructuring plan and they have a lot of fees to address in terms of debt etc, and I guess the market needs maybe some more transparency on that part of the business.

 And the very last question, sorry about that, on the free cash flow. Once again the bulk of the free cash flow improvement comes from working capital. I think you are very smart at, well, the work. Let's say it's a sizeable amount and obviously the question is how sustainable the contribution of working capital is going forward. Thank you.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [8]
------------------------------
 Okay. Well, I'm going to take the two questions. The first on working capital is interesting because this is the fifth year we have the same question, can you continue this? We say we don't know, it's going to come mainly from operating profit. And we continue, because we are really working extremely seriously, turning every single stone, to make sure that working capital is very disciplined into the Company. And in a certain way I'm very happy, that we were able to continue to squeeze working capital without handicapping our sales by EUR500m.

 I think it was a surprise. We told you we were not expecting to come to EUR1b and the surprise didn't come from the operating profit. It came mainly from the fact that we were capable to continue to squeeze on working capital. These are not one-shot improvement. Frankly we don't need them. We didn't commit to a big number on free cash flow. But it came because the Company is really extremely serious into managing and putting working capital under constraint.

 Can it be sustained? Obviously I'm going to give you the same answer than the last years; I don't think so. We're going to continue to squeeze working capital like this, but at the same time the creativity which has been launched inside the Company in order to squeeze working capital will continue. And I still think the fact that the Company for the last, what, five years, six years, has generated free cash flow, whereas, as you know, it was one of the weak point of Renault in the past where free cash flow was practically always negative, is a completely different approach to business, which is now embedded into the genes of Renault.

 So you can expect us to continue this discipline of a positive free cash flow. And I hope we're going to continue to really squeeze the number of working capital even though most of it will come obviously from operating profit.

 Emerging markets, Russia and Brazil, obviously we're being hit today on the short term. But we still think that these two markets are markets for growth in the future. I just want to tell you that particularly for Russia the market goes down very quickly, but it goes up also very quickly. And a couple of time in the past we were caught by the very strong rebound that the Russian market may know. So at the same time it's only bad news. Obviously 11% decrease of the market in 2014. 20% to 29% our forecast for the year 2015. In fact January came at 25% down so we are in the middle of what we are expecting for the year.

 I have with me Bo Andersson, who is the CEO of AvtoVAZ. I have here also Mr. Kugler, who is the head of the Renault business covering -- in the region covering also Russia. I'm going to ask them to tell you what we're doing on the ground in order to make sure that we weather the storm on the short term, but never underestimate the future.

 Nothing that we're doing today is handicapping our capacity to rebound with the Russian market. We have more than 33% -- the Alliance has more than 33% of market share in Russia. This is for us an opportunity to grow our market share. I'm saying probably now that everybody is struggling in Russia we need to continue to localize our product, introduce platforms, strengthen our supplier base, reduce our cost, be ready for when the market grow up we need to reach 40% market share.

 So we are, yes, protecting our business on the short term, but we also want to prepare for the rebound on the Russian market. The Russian market was the most profitable market for the Renault brand, as I had the opportunity to tell you two years ago. Obviously this profitability has been practically washed out during this crisis, but I think our team is doing a great job into hanging on to try to make sure that we are protecting a minimum level of profitability in order to be able to rebound on the good days.

 So maybe I'm going to give the floor to Bo, if you can just give the word about what we're doing on the short time to protect AvtoVAZ.

------------------------------
 Bo Andersson,  Renault SA - CEO, AvtoVAZ   [9]
------------------------------
 So first my name is Bo Andersson. I've been with Renault-Nissan Alliance and AvtoVAZ for 12 months. Before that I was running for GAZ Group for Mr. Deripaska for five years. Before that I was 20-plus years at General Motors in the corporate management.

 What about AvtoVAZ? We all know the challenges. If I look at our focus last year we mainly focused on three things. First, to reduce our losses. We had a target to make profit, operating profit. We didn't make it, but results came in at 3% operating loss, so that's 5.8b. That was better than 2013. We wrote off RUB20b ?- or net loss at RUB25b; we wrote off RUB19b, huge number.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [10]
------------------------------
 Rubles.

------------------------------
 Bo Andersson,  Renault SA - CEO, AvtoVAZ   [11]
------------------------------
 RUB19b, sorry. We wrote off RUB19b. Should have been done maybe before, but what is it? First, we had a transaction with the Russian government for RUB5b that we took back. We had the revaluation of loans. We wrote off RUB2b of obsolete material, RUB2b of questionable debt. So we certainly cleaned up a lot of things.

 Today's market in Russia, we know one thing, as Mr. Ghosn said, general is down 25%. Everyone is expecting anything from 1.5m units to 1.9m. I think safe to say that something in between 1.7m is maybe realistic.

 What is AvtoVAZ's focus? We focus on three things. First, 20% market share, secondly, positive free cash flow and, third, 6% operating margin. What can I say for this year?

 It's very clear we have a good chance to do 20% market share. We came in at roughly 17% in January. I think we will come in at 19% in February because the lower segment was down 30% last year, we were down 19%. The segment below RUB600,000, it's clearly growing this year.

 Second is to reduce losses. Last year we had RUB10b in cost reduction. Or RUB15b; this year we will have RUB15b cost reductions.

 And third, we will use the full benefits of the Alliance. So last year we produced 125,000 vehicles for the Renault-Nissan Alliance. That means that 50% of Renaults being sold in Russia produced by AvtoVAZ.

 If you look at numbers, production cost, assembly cost for vehicles produced at AvtoVAZ in January was RUB17,000 to RUB24,000. If you do a quick math that's EUR226 to EUR300 per car. That includes the labor cost. Labor today in Russia is EUR440 per month. EUR440 per month is the labor cost of a Russian worker. So labor cost, fixed cost with optimization, and material that we use.

 So, in summary, more uncertainty. But, as Mr. Ghosn said, the market can come back fast. The focus for AvtoVAZ is to be 20% market share, positive free cash flow and 6% margin. We have a lot of things in front of us.

 Having worked in Russia for six years the biggest surprise for me is really lack of transparency at AvtoVAZ. Maybe I shouldn't say it, but I'll say it anyway. So my key focus with Renault team is to clean up everything, to question everything, to have full transparency in everything we do. And the biggest challenge is really with the supply base. We have a lot of [ties] in the supplier base, but we are cleaning it up and what I've promised Mr. Ghosn is the end of the year we will have full transparency in all transactions.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [12]
------------------------------
 Yes, thank you Bo. Mr. Kugler, if you want also to give a snapshot about the Renault side based in Moscow (inaudible).

------------------------------
 Jean-Christophe Kugler,  Renault SA - SVP, and Chairman, Eurasia Region   [13]
------------------------------
 So to answer to your question about how to protect our business, I think there are two main things, price increase on one side, localization, as you mention it, on the other side.

 So for price increase, I think that we have been one of the first movers in the market. End of December when the price increase was about 10% average, our price increase was already at 20% without losing market share, increasing a little bit our market share. And we are entering this year, end of January, the average of price increase is 20% in the market and we are at 25%. So resisting with our market share and entering the year with a safe mode, I would say, in terms of business.

 On localization, which is key, you have to know that we are not only very well localized in terms of product. 98% of our sales is coming from local production and, as Bo mentioned it, 50% of our sales is coming from AvtoVAZ production. So 98%, maybe 99% this year. So local product are to be sold.

 And on the other side, we are also very much focused on powertrain/chassis localization. So playing with our suppliers, so playing also with Bo's capacities. For instance, we are now launching with Bo and Nissan a new engine, so localizing an engine. You can understand that it's a strong benefit against our competitor. So it's exactly what we did in Turkey where we are very strong. And we are doing the same thing in Russia, so localization through both train and chassis as well.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [14]
------------------------------
 Thank you Mr. Kugler. So now have a question is about how much risk there is for Renault, particularly on the balance sheet. Maybe Dominique Thormann can tell you in a snapshot what we have in the books today for AvtoVAZ particularly.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO, and Chairman, RCI Banque   [15]
------------------------------
 Exactly. So when you read our balance sheet you'll notice that we've marked the investment in AvtoVAZ at the current ruble exchange rate at the end of December. So we've taken a translation impact through equity. The total amount left on the balance sheet is EUR249m and that includes EUR44m of goodwill. So that's what's on the books today.

 And one last point. What we took, our part of what Bo Andersson's restructuring took place in the last quarter, we cut off, as you know, with a quarter's lag. So we have AvtoVAZ's operating P&L through September 30 and then the restructuring charges that they took, we included that in our associates line that we showed you. So that is behind us now.

------------------------------
Unidentified Company Representative   [16]
------------------------------
 Okay. We're going to take another question from the room before moving to the call. Gaetan.

------------------------------
 Gaetan Toulemonde,  Deutsche Bank - Analyst   [17]
------------------------------
 Good morning. Gaetan Toulemonde, Deutsche Bank. I want to go back a little bit on Monozukuri because I'm a little bit lost. And clearly that's the good surprise vis-a-vis the full-year result. We were expecting EUR600m or you guided us on EUR600m. Came out with EUR800m. Can you disclose a little bit more what that is manufacturing, logistics savings? The EUR400m, is it purely this attrition of the French workforce and what does that mean for the next coming years?

 And on the purchasing side can we expect an acceleration because using common platform with Nissan? Can you summarize a little bit the situation on that point?

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [18]
------------------------------
 Yes, sure. Well, this is a good opportunity for me to allow Mr. Bollore, who is leading the charge on Monozukuri and particularly on what you call the total delivery cost optimization, to explain to you this number. Mr. Bollore.

------------------------------
 Thierry Bollore,  Renault SA - Chief Competitive Officer   [19]
------------------------------
 Yes, good morning Gaetan. The key points explaining the upstream we have had in terms of ?- the upscale in terms of figures is really coming from manufacturing and supply chain. And it is the beginning of the fruits from the converged Alliance. And, for example, for the supply chain, it was very much possible to really bundle a lot of the flows that we have shared with Nissan for example and we could make a lot of savings. And we discovered additional savings thanks to the converged functions that we had put in place in April. That's a given.

 In manufacturing it is absolutely true that now we are really accelerating the pace of taking the best of each in terms of practices. And, for example, we have launched a program that we call the hyper-competitiveness, which is really a catch-up-mode program and even going beyond the floor in terms of performance that we could experiment with Nissan.

 So, bundling all that together, we have created a new dynamic and we get the first fruit of it. That's a fact. And for the what has been explained by our President about platforms and modules, it's also an acceleration with the start up of all the new models that we have now. So these are the key factors of progress.

 We still have to make additional progress, what we call the BOP challenge, which means our way of collaborating with our suppliers. That's to reduce the cost, their cost, and not only the price, with them. And we are accelerating as well the program on that field.

------------------------------
 Gaetan Toulemonde,  Deutsche Bank - Analyst   [20]
------------------------------
 It's probably an area where you have some visibility for the next coming years. So, again, EUR200m more down than what you guided for a few months back. What could be the potential in the next coming years, 2015 and 2016? Could we extrapolate that EUR800m?

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO, and Chairman, RCI Banque   [21]
------------------------------
 You didn't listen to my speech. No, don't extrapolate. We told you when we launched our plan that the cost bucket should total somewhere around EUR1.8b for the full three years. So if you take it by thirds, you land at EUR600m. This year is stronger because the impact of the competitiveness plan in France is stronger and the biggest variance that we have is in the field of manufacturing -- not in purchasing; in manufacturing -- and that's where the EUR800m comes from this year. Now I would not guide you to multiply EUR800m by three.

------------------------------
Unidentified Company Representative   [22]
------------------------------
 What is the first question on the call?

------------------------------
Operator   [23]
------------------------------
 Kristina Church, Barclays.

------------------------------
 Kristina Church,  Barclays - Analyst   [24]
------------------------------
 Yes, it's Kristina Church here. Thank you for taking my questions. My first question is rather longer term in terms of your sum-of-the-parts value. And I was just wondering, your value has been negative for some time in terms of the stub value. And looking at some of your competitors, particularly Fiat out there and what they're doing in terms of unlocking some value, can you see anything that you could do structurally to make that a more realistic value or you're just hoping to just focus on continued generation of cash and profitability to turn that around?

 My second question is looking at, coming back to what you said in terms of the D segment profitability and how historically that hasn't up to the Group level and with the new CMF platform you're hopeful, are you expecting that to become higher than the Group level in terms of profitability or more just hoping to close the gap to bring it in line with the Group? If you could give some comments, that would be great. Thank you.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [25]
------------------------------
 Second question, I'm not sure I understood that question. Okay, thank you.

 We will -- first about the valorization, I think there are plenty of things we can do obviously to valorize structurally, but I think if we do that without the only thing of valorizing the core business of Renault, frankly it would be a waste. What we are doing now is, first, concentrating on the core business of Renault. And the core business of Renault, obviously following the way you calculate, you'd say there is practically no value on the core business of Renault. Well, there is a correlation between the core business of Renault and, from one side, the operating profit of Renault, and also the free cash flow generated by Renault.

 The fact that we have been for now five, six years in a row, generating free cash flow in a substantial way, second, that we are sticking and gradually moving forward, more than 5% operating profit, I think this should deliver at a certain point in time the valorization of the core business of Renault. I think this is absolutely essential. This is for me the priority.

 Now there are a lot of other things we can do obviously, but if we do the other things before doing this, in my opinion we're going to be leaving a lot of value on the table. So now the priority, and that's what Drive the Change is leading at, is positioning in a stable manner Renault above 5% operating margin and in a stable manner Renault with systematic positive free cash flow no matter what.

 That's what we are doing and I don't think we're going to deviate from this until we deliver this. And when we deliver this you will see by itself, and we have seen it in the past, systematically when the markets start to see a positive free cash flow and a positive and sustainable operating profit, core value of Renault comes back to the table and makes a big difference in the valorization of the Group. This doesn't discard the other things, but I think first we need to valorize the core business before doing anything else.

 Now on the second point, on the D segment, well, D segment has been in the past, historically probably one of the worst performing-segments for us. We have a kind of reverse scale compared to the other company groups. You know other companies usually increase their profitability when they go up in grades and when they go up into the line-up. Well, we have it the reverse. That mean we increase profitability when we go down into line-up because our most profitable line up is on the MO platform, which is the entry level constituted by what's called Dacia in Europe and what is called the Logan/Sandero/Duster into the emerging market. That's our highest profitability.

 So what we're doing now is, now that we're doing something unique because I think we have probably one of the most profitable entry-level segments of all car manufacturers, now we are using benchmarks to do the same that other car manufacturers, is establishing profitability into the segment.

 So I would say without any doubt it's a pure, pure, opportunity field because on the D segment the numbers are right now and the profit is this small. So we can only do better. We can do better on the volume. And the launch of Espace, the launch of Kadjar, the launch of D segment, the new D-sedan, is going to be first improving the volume and the market share, second, certainly improving the profitability.

 And I can say that in the contracts we have for all these cars, the profitability should be higher than the average margin that we're looking for the Group which is 5%. Obviously for the moment these are contracts and plans. They need to be executed and they need to deliver. So we can see it as more an opportunity field for Renault.

------------------------------
 Kristina Church,  Barclays - Analyst   [26]
------------------------------
 Thank you.

------------------------------
Unidentified Company Representative   [27]
------------------------------
 Next question on the call please.

------------------------------
Operator   [28]
------------------------------
 Charles Winston, Redburn.

------------------------------
 Charles Winston,  Redburn - Analyst   [29]
------------------------------
 Hi. Good morning. Thanks for taking my questions. Just could I -- two or three, just very quickly. Could I just confirm the comment that was put on Bloomberg about a delay in terms of the consolidation of AvtoVAZ? There's a headline saying that it won't happen in 2015. Could you confirm that and perhaps talk a little bit about when you think you might consolidate the AvtoVAZ business?

 Secondly, just on price/mix enrichment, would it be fair to assume the impact in 2015 roughly the similar in 2014 given that the Megane will be in run-out for much of the year, or do we think we actually could do a little bit better, given that very strong portfolio of new products that you're launching from quite near the beginning of the year? Do you we think we can actually perhaps do better than we saw in 2014?

 And very finally, a slightly nerdy question about depreciation/impairment. If I look at the financial report, it looks as though the depreciation/impairment charge went from 3,169 down to 2,711. I'm guessing a lot that is actually just from reduction in impairment, one-time impairment charges. I was just wondering if Dominique could perhaps give us a little bit of a background as to what's the mix of that, how much of that is a reduction in impairment and what the impact is in terms of the underlying depreciation charge. Thank you.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [30]
------------------------------
 Thank you. Well, I can tell you that today the condition for the consolidation of AvtoVAZ has nothing to do with the financial numbers or the situation in Russia. It's mainly due -- it's relative to governance. It's very simple. When AvtoVAZ is consolidated inside Renault I need to sign officially a document certifying that everything which is within the perimeter of the Group is under control. I won't sign this document unless Bo, with our audit group, has done the job of making sure that this statement is valid.

 That's why we postponed consolidating in 2015 -- that's the only reason for which we did it ?- until we receive the green light from the auditors and Bo, that everything is under control, there is absolutely no surprise, allowing me to sign the document saying we certify that everything which is within the perimeter of the Group is totally under control.

 That's why I think 2015 was not reasonable and very likely we should consolidate -- under the condition that everything has been really set and organized -- we should be able to consolidate in 2016. We should be. Hopefully we will not until I can really put the signature on the document with the authorization ?- not authorization, with the green light, in a certain way, of our auditors. That's the only reasons for which we postpone. It has nothing to do with any other consideration than this one.

 For us today AvtoVAZ continues to be an opportunity. An opportunity, as we said. To be able to prevail in Russia we need to localize and for us AvtoVAZ is a great tool for localization. Not only we have a lot of capacity in AvtoVAZ, but on top of this we have a lot of suppliers in AvtoVAZ. AvtoVAZ is already a big supplier of the Renault and Nissan cars and should continue to be a big supplier of the Renault and Nissan cars. On top of this Lada is and should continue to be the leading brand in Russia, with a 20% target market share, which should be at reach particularly with weakness of the ruble.

 So I don't want you to think that we are postponing for any financial reason. It's much more governance issues that we have on the table.

 On the mix, if you don't mind.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO, and Chairman, RCI Banque   [31]
------------------------------
 Yes, Charles, so we guided you when we launched our three year plan, we told you that this number would be negative throughout the plan period essentially because we were reinvesting in the competitiveness of our line-up and also because we have to face regulatory cost that we couldn't pass on to our customers.

 That premise hasn't changed. The only caveat is that in 2014 there were significant price increases as were described earlier, for example in Russia, which offset some of that, but this is an extraordinary situation where prices were increased in emerging markets to offset currency declines. Now unless things get very complicated in 2015 I would expect the trend, the underlying trend on the vehicle side to be unchanged in terms of price and mix.

 On the impairment side, you're right; 2013 was not a good year in terms of impairment. We had a lot of charge outs relating to Iran if you'll remember, but we also impaired a number of end-of-life vehicle lines. So the drop in 2014 that you're seeing in the balance sheet relates to much, much lower impairment charges. As a matter of fact, in the second half we had virtually none. I think it was not even EUR10m. So it's very, very small amounts.

------------------------------
 Charles Winston,  Redburn - Analyst   [32]
------------------------------
 Very clear. Thanks a lot.

------------------------------
Unidentified Company Representative   [33]
------------------------------
 Thank you Dominique. The next question on the call please.

------------------------------
Operator   [34]
------------------------------
 Philip Watkins, Citi.

------------------------------
 Philip Watkins,  Citigroup - Analyst   [35]
------------------------------
 Yes, good morning and thank you for taking my questions as well. It was just a follow-up on localization in Russia. I heard the comment obviously about parts. I was wondering in terms of the total value of a car, how much is localized now in Russia and where might that go over the next two years?

 And then also actually on Russia, is there any sign at all of distress in terms of your financial receivables at this stage given where the market's going?

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [36]
------------------------------
 Okay. First, about localization, which is really a main competitive issue today in Russia -- that means the more localized you are, the more competitive we're going to be -- and I can bet you that when the crisis will end up, the people who will be the main winners in terms of market share will be the ones which are the most localized.

 Maybe Bo is going to tell you how much localization he has on Lada and Monsieur Kugler will tell you how much localization we have on Renault so you can have a good picture. But I want tell you in general localization in Russia is one of the lowest in the industry. When you compare to localization of carmakers in China or in India or in the United States or in Brazil, this is one of the lowest, which means ?- and it is one of the lowest even for us. But this is a competitive game. What is important is how far you are from competitors.

 Bo, can you give us the snapshot on the localization of the Lada product?

------------------------------
 Bo Andersson,  Renault SA - CEO, AvtoVAZ   [37]
------------------------------
 So if you take Lada product, for our Russian Lada product it's 81%, so 81% localized. We produce the Lada Largus that is originally Dacia, it's 51%.

 The other question about credit risks, we have roughly 400 dealers. The step we took in January is we put our dealers at prepayment and then we gradually turned back and looked at what is their credit rating. So today 157 dealers have credit, 30 days, the rest of them on prepayment to make sure we don't run into a cash issue.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [38]
------------------------------
 Thank you. Monsieur Kugler.

------------------------------
 Jean-Christophe Kugler,  Renault SA - SVP, and Chairman, Eurasia Region   [39]
------------------------------
 So figures are changing every day because of the devaluation. So the more you are integrated, fact is that figures are changing a lot. But we can tell that we are around 70% in terms of localization.

 But I think that the main point is on what we are working. So today we are implementing a specific plan on raw materials with all the experts at Renault that are focused on raw material that we can have in the country. The second point I already mentioned is engine. So we look at the value and also at the value in ruble. So this is the way our team, the taskforce we implemented in Moscow and working also with the (inaudible) people, is focused, mainly on components and value in ruble.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [40]
------------------------------
 I think it would be fair to say that Renault today, between all the car manufacturers except Lada, is the most localized. It's the most localized. Renault today is the most localized in Russia.

------------------------------
 Bo Andersson,  Renault SA - CEO, AvtoVAZ   [41]
------------------------------
 I think Lada is the most localized.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [42]
------------------------------
 No, no.

------------------------------
 Bo Andersson,  Renault SA - CEO, AvtoVAZ   [43]
------------------------------
 I started by saying foreign brands, Lada being number one.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [44]
------------------------------
 But this is important because it's not only because of the attractiveness of the product, but also because we are more localized. So we know that the faster we move into localization, the more advantage we're going to get from this because of the weakness of the ruble.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO, and Chairman, RCI Banque   [45]
------------------------------
 And Philip, just a last comment, no, we're not seeing distress on the receivables side.

------------------------------
 Philip Watkins,  Citigroup - Analyst   [46]
------------------------------
 Thank you.

------------------------------
Unidentified Company Representative   [47]
------------------------------
 Okay, maybe a next question in the room. Philippe Barrier.

------------------------------
 Philippe Barrier,  Societe Generale - Analyst   [48]
------------------------------
 Yes, Philippe Barrier, Societe Generale. Two questions. First is regarding the change in volume in 2015. Actually are you happy with now the level of inventories, 57 days, including Group and the dealers? Actually could we assume that now the growth of the retail sales will be in line with the growth of the Group sales, meaning that the Group will increase volume in 2015 in line with the retail sales?

 And a second question is regarding the lever we can expect from on the industrial side from the South Korean plant as well Sandouville plant. Can we assume that these plant, which are working at now I think good level of utilization, could bring a significant lever in terms of profitability in 2015?

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [49]
------------------------------
 Okay. Well, there is no reason to think that we're going to have a big variation in terms of inventory, which means we're happy with the level of inventory for what we have to sell. Now I'm talking on average for a year. Obviously before you launch a product you always have the build up. So in function of the cadence of launches you may be in different situations, but overall don't expect any big change in this level. Independently of the normal kaizen of improving systematically the situation, there is no breakthrough coming from here.

 On Busan and Sandouville, Busan has been under -- as you know, to get the Rogue contract Busan has to make a bid to get Rogue. And in this bid Busan was engaged into a big productivity drive and cost competitiveness drive, which was gently driven between Renault from one side and Nissan from the other side. And now with the new organization on manufacturing, it's the Alliance which is driving it. So you're going to see a much more competitive plant in the future, not only because it's much global today in terms of work, but also because it's been challenged systematically by the Alliance organization.

 So, yes, part of the improvement of the profitability of the D segment will come from better performance from the plant at Busan, and obviously more localization of the parts, particularly between Korea from one side and now Japan, now that the yen is at JPY120 to the dollar, Japan is again a very competitive country.

 Sandouville, it's a different story. As you know, you know maybe we are engaged into a program to re-enhance the competitiveness of Sandouville. Except, as you know, that the D segment is now going -- you know we have a new plant for the D segment, which is [Douai], and we are preparing and challenging particularly our plants in order to make sure that manufacturing is going to contribute also to the profitability of the business.

 But if we come back to the past, one of the reasons why the D segment was not profitable, one is the scale of D segment was very small for Renault. Now we are on an Alliance scale, much bigger number, the platform. And second, the manufacturing was not at all at a global benchmark. Now it is at global benchmark because we are, between Renault, Nissan and even Daimler, using the best benchmark between the different companies in order to set the bar.

 So manufacturing will bring its own contribution to the enhancement of the profitability. Busan will be more in advance because it's fully loaded plant already and on a stable rhythm. The French plant will have to go through many start ups. We are optimistic, but we just need to prove it.

------------------------------
 Dominique Thormann,  Renault SA - EVP, CFO, and Chairman, RCI Banque   [50]
------------------------------
 On your -- the balance on your first, your question on retail and wholesale, so I showed you in my presentation that we had reduced inventories by about 30,000 units in the period, which was deliberate. This is something that we wanted to do. So we're better balanced today and, given the sales plan that we have, we'll repeat the guidance that we've given you to keep somewhere around 60 days supply, which is if you drop too far below that you lose sales and if you're too high above then you have inefficiencies in terms of stock rotation.

------------------------------
Unidentified Company Representative   [51]
------------------------------
 We are going very near the end of this session so maybe we have time for a very last question from the call. Only one question.

------------------------------
Operator   [52]
------------------------------
 Fraser Hill, Bank of America.

------------------------------
 Fraser Hill,  BofA Merrill Lynch - Analyst   [53]
------------------------------
 yes, hi. It's Fraser Hill from Bank of America. I just wonder if you could talk about your broader pricing backdrop across the whole of your portfolio in Europe. How are you seeing that develop into 2015? Moving away from the model cycle dynamics, are you seeing any actual signs of improvement in your pricing and are you closing the gap versus competitors? Thank you.

------------------------------
 Carlos Ghosn,  Renault SA - Chairman and CEO   [54]
------------------------------
 Pricing in Europe. Stefan, I can't leave the room without giving you the opportunity. Stefan is the Head of the European operation of Renault. So I'm going to let him comment on pricing in Europe.

------------------------------
 Stefan Mueller,  Renault SA - EVP, and Chairman, Europe Region   [55]
------------------------------
 Yes, thank you very much for the question. We are following unchanged from the last year's a competitive pricing strategy in Europe. What does that mean? That means that we are continuing to sell our products above basket price, which is mainly supported of course by new products like Clio and Captur. And, back to your question, looking into the future, of course with the introduction of the new models we are going to significantly improve the model mix but also the version mix, and this should help us to improve pricing even further.

------------------------------
Unidentified Company Representative   [56]
------------------------------
 Okay. Thank you very much. So I think it's time to close the session now. Of course [Arnaud] and I myself will be available all day long for answering any further questions you may have. Have a good day. Thank you for being on the call or in the room today. Bye.




------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the 
Transcript has been published in near real-time by an experienced 
professional transcriber.  While the Preliminary Transcript is highly 
accurate, it has not been edited to ensure the entire transcription 
represents a verbatim report of the call.

EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional 
editors have listened to the event a second time to confirm that the 
content of the call has been transcribed accurately and in full.

------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other 
information on this web site without obligation to notify any person of 
such changes.

In the conference calls upon which Event Transcripts are based, companies 
may make projections or other forward-looking statements regarding a variety 
of items. Such forward-looking statements are based upon current 
expectations and involve risks and uncertainties. Actual results may differ 
materially from those stated in any forward-looking statement based on a 
number of important factors and risks, which are more specifically 
identified in the companies' most recent SEC filings. Although the companies 
may indicate and believe that the assumptions underlying the forward-looking 
statements are reasonable, any of the assumptions could prove inaccurate or 
incorrect and, therefore, there can be no assurance that the results 
contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2018 Thomson Reuters. All Rights Reserved.
------------------------------