Half Year 2015 Renault SA Earnings Call

Jul 30, 2015 AM CEST
RNO.PA - Renault SA
Half Year 2015 Renault SA Earnings Call
Jul 30, 2015 / 06:00AM GMT 

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Corporate Participants
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   *  Thierry Huon
      Renault SA - Director of Investor Relations
   *  Dominique Thormann
      Renault SA - CFO
   *  Jerome Stoll
      Renault SA - Chief Performance Officer
   *  Thierry Bollore
      Renault SA - Chief Competitive Officer

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Conference Call Participants
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   *  Kristina Church
      Barclays - Analyst
   *  Thomas Besson
      Kepler Cheuvreux - Analyst
   *  Gaetan Toulemonde
      Deutsche Bank - Analyst
   *  Charles Winston
      Redburn - Analyst
   *  Horst Schneider
      HSBC - Analyst
   *  Jose Asumendi
      JPMorgan - Analyst
   *  Fraser Hill
      BofA Merrill Lynch - Analyst
   *  Philippe Barrier
      Societe Generale - Analyst
   *  Alexander Haissl
      Credit Suisse - Analyst

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Presentation
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Operator   [1]
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 I now hand over to Mr. Huon. Sir, please go ahead.

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 Thierry Huon,  Renault SA - Director of Investor Relations   [2]
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 Yes. Good morning, everyone. Welcome to this Renault's first-half results conference call, which is broadcast live and a replay version 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 slide 2 of this pack, regarding the information contained within this document and in particular about forward-looking statements. I invite all participants to read this.

 Today's call is scheduled to last about one hour. The presentation will be made by Dominique Thormann, our CFO. He will start with a review of our operations and will then follow up with highlights of our financial results and the outlook.

 The presentation will last about 30 minutes and will be followed by a Q&A. For this last part, Dominique will be joined by Thierry Bollore, our CCO, and Jerome Stoll, our CPO.

 Without further ado, I will hand over to Dominique.

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 Dominique Thormann,  Renault SA - CFO   [3]
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 Thank you, Thierry, and good morning, everyone. As you have already seen from the headlines, the Group's financial results for the first half of 2015 mark an encouraging improvement of the auto operating margin despite a contrasted environment. The auto margin rose to 3.1% compared to 1.9% on the first half of 2014. Including RCI Banque's contribution, the Group's consolidated operating margin reached its highest level since we've been reporting IFRS accounts at 4.8% versus 3.7% a year ago.

 Our automotive operating free cash flow is near breakeven due to the seasonality of working capital, but in line with our full-year guidance.

 In the first half we experienced an acceleration of our revenue growth due to the European and sales -- business and sales to partners, a relatively good resilience of emerging markets despite some very adverse situations, and finally, a successful introduction of our CMF C-D products.

 In conclusion, the Group is on track to reach its operating margin target probably sooner than planned.

 In light of these first-half results, we're confirming today our overall guidance for the full year.

 Let me start our performance analysis with our sales figures on slide 6.

 Unit registrations grew 0.8% to 1.376m units. This performance reflects the contrasted situation of the main auto markets. While the worldwide TIV increased only 1.2%, stronger growth occurred in North America, where we are not present, but also in Europe, where we do compete.

 By contrast, markets in Eurasia and the Americas fell 20.3% and 10.6% (sic - see slide 6 "10.2%"). The Asia Pacific market was almost flat, as China, with a mere 3.8% growth, was no longer the main driving force behind worldwide market growth. In this context, our registrations in Europe were up 9.3%, while they decreased 10.5% in international markets. As a result, our non-European business represented 38% sales compared to 43% in the first half of 2014.

 The next set of slides will give you more detail by region. Starting with Europe, on slide 7, the total industry was up 8.5%. We increased our registrations 9.3%, reaching a total of 849,000 units in the first half. While market factors explain the largest part of this improvement, our own performance brought in 8,000 additional registrations.

 As a result, our market share was up at 10.2%, an increase of 10 basis points. We did well in Spain, Italy and in the UK, but lost some share in France and in Germany. This performance came mainly from the success of our B segment car, namely Clio, the leading selling car in France and second overall in Europe; and Captur, also leader in its segment in Europe.

 Renault brand sales increased 10.6% in the first half to 644,000 units, while Dacia sales were up 5.3% at 205,000 units despite a very challenging basis of comparison. The order book improved during the first half. And at the close it represented two months of sales, which is the highest level since the end of 2013.

 In the Americas region, on slide 8, the market declined 10.6%, driven down mainly by Brazil off 19.6% in the half. Argentina was down 16.9% and Colombia also decreased 5.3%. In this environment we managed to defend our market share in Brazil at 7%, where we registered 90,000 units. In Argentina we continued to lose market share as we decided not to increase our exposure to the peso. Sales were down almost 39% in the half, but were up 12% in June since hard currency availability improved somewhat at the end of the period.

 Visibility remains poor for the second half. Even if we may see some improvement in Argentina off a very low base, the situation in Brazil is likely to remain very challenging. We expect that the launch of Oroch in the pickup truck segment will help mitigate some of the weakness in the market.

 In Eurasia, on slide, 9 the market fell by 20.3%, reflecting the sharp fall of Russian registrations, down 36.4% in the first half. This situation should not overshadow the strong performance of the market in Romania, up 16.9%, and, above all, the Turkish market up 50.8%.

 Turning to slide 10, registrations in Africa, Middle East and India were slightly up in the first half, with a 3% increase, resulting from highly contrasted situations. Markets in the Maghreb were down 12.8%, led by Algeria, which suffered from a sudden change in regulations, while Iran was up 15.4% and India up 4.3%. In this context, our registrations grew 0.9% thanks to a solid performance in the Maghreb, where we continued to gain share, offsetting the decline in Iran.

 Finally, concluding the regional review on slide 11, in the Asia-Pacific region, registrations were off 5.5% despite a positive development of our registrations in South Korea. Chinese sales were down in a difficult market before the launch of the first ever locally produced SUV by the Group. I can tell you that our plant is well on track and will start production on time.

 This ends our sales update and I will now turn to the financial review.

 On slide 13, we show the full P&L for the Group. Starting with top line, Group revenues reached EUR22,197m, an increase of EUR2.3b from last year or 12%. The next line shows an operating margin improvement of more than 1 full point, at 4.8%, compared to the previous period. It results primarily from the volume growth, our business with partners and good control of our cost. Net income came to EUR1,469m, up EUR668m compared to the first half 2014.

 Let me now start with the detailed financial performance review. On the next slide, number 14, we show the revenue contribution by activity. Group revenues for the first half were 12% above last year. The automotive business contributed for EUR21,065m, an increase of 12.4%. Revenues from our captive sales finance company, RCI Banque, were up EUR51m at EUR1,132m.

 I will start by reviewing the breakdown of revenues for the automotive activity on slide 15. Starting on the left-hand side of the page, the first item, volume, shows a positive impact of 3.3 points. Beyond the increase of 0.8% of our registrations, volume benefited from a change in inventory that I will detail later in my presentation.

 The geographic mix is a slight negative of 0.2 points, reflecting stronger growth in sales in Southern Europe than in France. The third item to note is the model mix effect, which had a positive impact of 0.8 points and contributed EUR145m in the first half, while it was negative 0.7 points in the first quarter. One should see here the first impact of Espace and Kadjar sales on our mix.

 The fourth item is the price effect, which is positive by 1.6 points. This is slightly lower than Q1 due to the lesser impact of last year's price increases on sales realized in the first half.

 Sales to partners continued to be strong driver of revenues. During the period this item contributed 5.9 points or EUR1.1b. This came primarily from the strong increase of Rogue production in South Korea and from the Smart Four production in Europe.

 The next item, foreign exchange, contributed positively by EUR225m or 1.2 points. This is mainly explained by the appreciation of the British pound, the Korean won, the US dollar and Argentinian peso against the euro, while the Russian ruble and Brazilian real depreciated.

 The last item, named others, is minor. It represents the other activities outside the scope of new car sales, mainly spare parts, wholly owned dealer businesses and buyback restatements.

 I will now turn from automotive revenues to the Group operating margin variance analysis on slide 16. The first-half operating margin for the Group totaled EUR1,069m, an increase of EUR340m compared to last year. The walk-down on this slide compares this year's impact to the previous period. I will start reading left to right.

 Cost reduction activities contributed positively for EUR219m off of a very challenging base. I remind you that last year we showed a EUR412m improvement in the first half, which was ahead of plan. Total Monozukuri savings amounted to EUR236m in the first half of 2015 compared to EUR390m last year. As usual, the main driver came from purchasing.

 In more detail, Monozukuri cost reductions came from, firstly, purchasing, totaling EUR222m versus EUR206m last year. Warranty costs delivered a positive EUR83m after a negative EUR78m booked last year, related mainly to stricter reserve criteria used for the two-year warranty. Manufacturing and logistic costs decreased only EUR15m, reflecting the ramp-up costs of new products.

 R&D in the profit and loss account increased by EUR82m in the period. As we told you at the end of last year, the launch cycle generated higher R&D spending. In addition, the capitalization rate decreased from 46% in the first half of 2014 to 40% in first half of 2015, in line with our product development milestones. Finally, G&A costs increased EUR17m.

 Raw materials produced a tailwind of EUR28m.

 The mix/price enrichment impact was negative by EUR283m. This deterioration resulted from product enrichment, incentives needed on some aging cars, and marketing expenses related to new product launches. While the positive effect of the product renewal is expected from now on, this trend should continue into the second half, as Euro 6 costs are increasing as well as feature content in our products. It is worth noting that this item is also impacted by the geographic mix of our sales as the European market is one of the most competitive and regulated in the world.

 The next item, which includes Group volumes and sales to partners, shows a EUR263m positive impact. It results from the increase in units invoiced as well as the strong development of our business to partners, which contributes to absorb fixed costs.

 RCI Banque, combined with the other business outside the scope of new car sales, yielded a positive contribution of EUR1m.

 During this half, currency movements produced a tailwind, representing EUR112m. This came mainly from the weakness of the euro vis-a-vis the British pound, US dollar and Argentinian peso.

 In total for the first half of 2015, the Group's operating margin reached EUR1,069m or 4.8% of revenues to be compared to 3.7% in the same period last year.

 Page 17 shows the split by operating sector. The automotive division delivered a EUR656m operating margin or 3.1% of revenues versus 1.9% a year ago. The performance of our sales financing activity was again a solid pillar of our profit pool as RCI Banque delivered a EUR413m contribution to the Group margin, which is EUR32m better than the result achieved in the first half of 2014.

 The next slide, number 18, provides more detail on RCI Banque's performance. New financings in the period increased significantly to EUR7.7b versus EUR6b in the corresponding period last year, reflecting the recovery in Europe.

 Average performing outstanding loans grew 11.1% at EUR27.6b.

 Net banking income stood at 4.93%, down 21 basis points, reflecting the increase of business in Europe, where the margin is usually lower than for international operations.

 The cost of risk improved from 47 basis points of average performing loans last year to 31 basis points this year.

 Finally, costs were contained, keeping our operating expense ratio at 1.54% of average outstanding loans or 4 basis points below last year.

 In total the pre-tax return on asset reached 3.08% versus 2.92% in the first half of 2014, while the return on equity reached 16.3%.

 Now that we have covered the operating margin variance, I will continue down the P&L with the other operating income and expense items on page 19. After several years of significant negative impact, other operating income and expense items amounted only to EUR116m. This amount was made up of a provision for the competitiveness agreement in France as well as minor restructuring charges in several other countries.

 Continuing down the P&L, the next item is net financial income and expenses on slide 20. The net charge increased from EUR124m to EUR161m despite lower net indebtedness. The main culprit for this deterioration was the non-cash revaluation of redeemable shares, which are marked to market and impacted for a total of EUR81m.

 The next slide, number 21, shows the impact of associated companies in Renault's P&L. Following Nissan's results published yesterday, the contribution for the second calendar quarter in Renault's accounts came to EUR485m, taking the first half-year impact to EUR979m. This is an improvement of EUR190m compared to the same period last year.

 Renault's share of AVTOVAZ results, which is consolidated with a three-month time lag, posted a negative EUR70m versus a negative EUR55m in the corresponding period last year. This change came from the negative operating result booked in Q4 2014 and Q1 2015 and from an adjustment in the value of shares in our balance sheet.

 I will turn back to the P&L for the last time on slide 22, where the net tax charge for the half came to EUR235m versus EUR264m last year. This lower charge reflects the results from the recognition of the deferred tax assets in France for EUR74m and a different regional profit pool

 Bottom line, net profit after tax came in at EUR1,469m versus EUR801m in the first half of 2014. After taking into account minorities, the net result per share came to EUR5.12 compared to EUR2.75 in the first half of 2014.

 Now that I have completed the analysis of the P&L, I will turn to slide 23 on the evolution of net automotive debt. Cash flow from operations totaled EUR1,727m, flat compared to last year. Changes in the working capital requirement impacted negatively by EUR369m, when it was negative EUR599m a year ago.

 Net tangible and intangible investments came to EUR1,453m in the first half, up EUR212m over last year's level. As a result, the automotive operational free cash flow came to a slight negative of EUR95m in the period.

 Dividends received from quoted companies totaled EUR267m, while dividends paid during the half came to EUR591m. Other financial items were negative for EUR118m.

 In total, our net automotive financial position came to EUR1,567m at the end of June 2015, down from EUR2,104m at the end of December 2014.

 Slide 24 shows the inventory situation across the consolidated chain of both Renault's balance sheet and the independent dealer network. As you can see on the slide, we were at 64 days of business at the end of the half. This is in line with our target.

 Global inventories were a bit higher than a year ago at the end of the half at 510,000 units compared to 495,000 units at the end of June 2014. Independent dealer inventories were at 333,000 units compared to 337,000 a year ago. The Group's dealer stock stood at 177,000 units, up 19,000 units. It's worth noting that the gap between Group dealers and independent dealers continued to narrow and reached its lowest level in several years.

 This completes my review for the first half of [2014]. Before concluding and taking your questions, I would now like to share with you our own views on the rest of year and the risks and opportunities as we see them.

 We're satisfied with our first-half results, which confirm that our strategy is working and has put us on a strong footing to achieve our mid-terms targets. In the short term, as usual, the second half will bring its list of risks and opportunities.

 Pressure from regulatory costs will continue, if not increase, as Euro 6 brings extra costs that we're not able to pass on to customers in full.

 Another source of concern today is the economic situation in Brazil, which is unlikely to improve any time soon. We have already taken measures to adjust our cost structure and we are ready to do more if needed.

 Last but not least, as the European recovery proves to be stronger than anticipated, some bottlenecks are appearing in the supply chain that can extend delivery lead times.

 On the side of opportunities, the ongoing renewal of our product range is key. The first feedback on the Espace and Kadjar are very encouraging. The Oroch, which received a very warm welcome from the press during its reveal, should help to support sales during the downturn in Brazil. In India, after the successful reveal of Kwid, we expect that this product will bring back the brand on a path of growth in the country.

 Momentum in European markets may continue as there is still a lot of room for further positive growth before returning to the previous peak.

 Lastly, foreign exchange may prove a continuing tailwind for the first half as some currencies from emerging countries will benefit from easier comparisons in the second half.

 To conclude my presentation, I want to say that we're looking to the near future with confidence given our results. We're following the course we set in our mid-term plan and have focused our energies on execution. Finally, as I said in my introduction, we're confirming our guidance today for the full year.

 Thank you very much for your attention. I will now hand the call back to the conference operator for questions and answers. Thank you.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions). Kristina Church, Barclays.

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 Kristina Church,  Barclays - Analyst   [2]
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 Yes. Thank you for taking my question. It's Kristina Church. Just going to the EBIT bridge and looking at the mix and net enrichment line, just wondering if you could break that down a little bit further in terms of pricing was obviously positive and you were talking about continued net enrichment in the second half. Do you see this figure remaining negative going into 2016 as well?

 And also if you could comment a little bit more in terms of pricing in the European market. Are you seeing any firming up of pricing there or is mainly the price increase that you saw related to emerging markets and FX moves? Thank you.

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 Dominique Thormann,  Renault SA - CFO   [3]
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 Good morning, Kristina. Let me take the first part of your question and I'll hand over to Jerome for your pricing question. Yes, as I said in my remarks, that bucket is a combination of several factors, some of which obviously we had planned and we had, when we showed you our three-year mid-term plan, we had decided to reinvest some of our cost competitiveness in our vehicle competitiveness with higher feature content. And this so far has proved successful. So this is something that we had planned to do and that is ongoing.

 What is also in there are regulated costs, which are increasing and they're increasing significantly. Those costs, as you move through the different milestone into Euro 6b and especially Euro 6c, you will see those regulated non-feature costs increase. So I expect that to be a negative carrying into H2 of this year and into next year.

 And then finally, we were running the transition, so there's the run-out of our core C segment, which is basically the Megane and Scenic family. Those vehicles will run out at the -- through the second half of this year. That effect will disappear into 2016 as the new -- as those replacement vehicles come into production and mostly into sales in the first half of 2016. So that's how that bucket is composed.

 Now as for pricing in the European market, let me hand over to Jerome.

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 Jerome Stoll,  Renault SA - Chief Performance Officer   [4]
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 Yes. Thank you, Dominique. So as far as we are concerned, in terms of pricing there is no major change in our strategy. It's clear, as you know, because I explained it several times before, we are following two different index. One is what we call [TPVA], which is how do we price our products compared to the competition, to competitor -- basket of competitors that we have in front of us. And the second is how we can improve the revenue per unit against the same basket.

 And as far as the first index is concerned, obviously we have some products which are getting aged, as Dominique was saying, like the Megane, Scenic, Koleos, Laguna, Espace, I mean former Espace. We do not expect to have a pricing positioning which is improving at this stage of the development or life of product. And this is where we have been more competitive, I would say, against the market in order to keep the market share and to be sure that these products will fare well until the end.

 And the second are the new products where we have -- we are currently above what we were expecting, above the basket, and with a kind of resilience which is very satisfactory. Let's say, looking at Clio, for instance, which has been launched some months ago and is still performing quite well. And as you know, Clio is also the second most sold product in Europe. And we are very, very, quite satisfied with that.

 I would like just to add something on this -- the second index I was talking about. We have to try to see how we can improve the revenue per unit. And this is the strategy that we are following now. And this may affect a little bit the product enrichment that Dominique was talking about, because obviously we are trying to sell much more upper version of each model and for the time being is doing quite well.

 Looking at Espace, for instance, where more than 50% of our sales are done with the upper version, same thing with newly launch Kadjar. But it was also the same thing as Captur, and Captur is quite doing well. So this is where you see also part of the enrichment of the product by putting -- by trying to put upper version in our mix of sales to the market.

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 Kristina Church,  Barclays - Analyst   [5]
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 Very clear. Thank you.

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Operator   [6]
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 Thomas Besson, Kepler Cheuvreux.

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 Thomas Besson,  Kepler Cheuvreux - Analyst   [7]
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 Yes. Thank you very much. It's Thomas Besson, Kepler Cheuvreux. I'll start with a question on some of your key new product launches and their timing. Can you give a bit more details about the timeline for Kwid, both in India and LatAm over the next 18 months and the Megane family, please? That would be the first question.

 And the second, you said that effectively Monozukuri gains, well, the cost reduction was against a very big comp. Can you give us an idea of what we should expect for the year? Are we still on for what you view as a normal level around EUR600m or is that going to be changing for this year?

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 Dominique Thormann,  Renault SA - CFO   [8]
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 Good morning, Thomas. Just on your second question, yes, when we presented the plan, we told you that you should expect somewhere around EUR600m per annum for the three years of the plan for a total of EUR1.8b. We over-delivered last year. You're right. We were somewhere in the 800s last year. Now that doesn't mean we get a pass this year. So the guidance that we're giving and that we have been giving since the beginning of the year is to go back to the original planned amounts of approximately EUR600m per annum.

 So, yes, we will be there. But if you're comparing last year to this year then clearly that's going to show a negative variance. But no, we're on plan and things are absolutely on track.

 On the product launches, let me hand over to Jerome, please.

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 Jerome Stoll,  Renault SA - Chief Performance Officer   [9]
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 So for Kwid India, the product has been revealed in the first half, in May. And we're going to start the sales in September/October, let's say October this year. For Latin America, Kwid is supposed to be launched by the late 2016.

 For Megane, the Megane family, we're going to reveal the car, the first model of this product at the Frankfurt Motor Show this September. And we're going to start the sales in the first quarter of 2016 for the first model. But you know there is a big family and it will be throughout the 2016 year that all the family will be launched.

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 Thomas Besson,  Kepler Cheuvreux - Analyst   [10]
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 Great. Thank you very much.

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Operator   [11]
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 Gaetan Toulemonde, Deutsche Bank.

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 Gaetan Toulemonde,  Deutsche Bank - Analyst   [12]
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 Good morning, everybody. I have only one question. Can you put the additional cost of Euro 6 in the context of the mix/net enrichment? Question is simple is that the order of magnitude I would have in mind is approximately EUR500m for you. Is there any impact in the first half? What could be the impact on the second half? And therefore could we have mix and net enrichment significantly higher in the second half due to that? That's roughly my question. Thank you.

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 Dominique Thormann,  Renault SA - CFO   [13]
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 Good morning, Gaetan. Yes, as I said in my remarks, the Euro 6 impact is going to increase, particularly in the second half. It has started impacting the first half. But most of this is going to happen in the second half and then carrying forward into 2016. Now I don't want -- I'd rather not give you a number on the total impact to the Company. This is still -- it's subject to a scope and what you include or exclude from the calculation.

 The fact of the matter is that Euro 6c particularly is expensive. And it's expensive -- it's regulated that way. It's an expensive non-feature component of vehicles. And the important thing to keep in mind is the ability to pass on part of that cost. And it's the difference between what you're able to price and the amount of cost that you're going to have to bear. So -- and that's on a relative basis because the regulation -- this is not a Renault issue. This is an industry issue. So yes, the cost is significant and it's going to increase in second half of 2015.

 Now this is not a surprise. This is -- we've known this for quite a while. It's been planned and it's just a matter of fact that it's hitting the accounts as we speak and that this is also, once again, it's part of the plan that we had written. And it's integrated into our calculations that take us to a higher level of overall operating profit.

 So it's not a surprise. It's not something that is going to, all other things being equal, make us more vulnerable to reaching our objectives. It's just something that we have to deal with. And it will depend on our ability to pass on cost. I think that's the best answer I can give you right now.

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 Gaetan Toulemonde,  Deutsche Bank - Analyst   [14]
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 Okay, Dominique. I'll ask the question very briefly the other way round. If I look at the first half, Monozukuri positive impact, equal mix and net enrichment. And the question raised by Thomas earlier, Monozukuri will be a couple of hundred million more. Is it fair to say that it will be more or less equivalent to product mix enrichment, second half through the number?

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 Dominique Thormann,  Renault SA - CFO   [15]
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 You have to -- this is a modeling question. So there's a bit of seasonality involved and when these things hit the books. But Monozukuri will deliver a bigger number in the full year than first half; that's clear. And so the bridge, the walk, will reflect that. Then within that number, within the mix and the enrichment, the Euro 6 component of that is going to increase in the second half.

 Now there are other things that are disappearing from that number because, as we transition the line up, other things will happen. So that's a bit right -- it's a bit premature for me to give you guidance into some of the components in the second half. But the Euro 6 piece of that is going to go up.

 But once again, the issue is offsetting cost with the -- we have higher volumes. We have -- so if you start extracting things and keeping all the other variables constant, then we can get to the wrong conclusion. But that's what I'd like to say now.

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 Gaetan Toulemonde,  Deutsche Bank - Analyst   [16]
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 Okay. I see your point. Thank you.

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Operator   [17]
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 Charles Winston, Redburn.

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 Charles Winston,  Redburn - Analyst   [18]
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 Thank you. Good morning. Yes, Charles from Redburn. Just two, if I could. In the presentation you talked about operating cash at the beginning of the cash flow discussions. I think you said it was flat year on year, which surprised me, given obviously that the profitability in the automotive division increased. Just wondering if you could perhaps talk about that very first column of the cash flow and why it was flat when at least the book profit was up.

 And second question, can you just update us a little bit about your thoughts about particularly Russia but also Latin America in terms of profitability? I think in the past you've said that you'd thought at the very least Russia you should be able to hold at breakeven in the year. Is that still a viable aspiration or has Russia got worse? Thank you.

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 Dominique Thormann,  Renault SA - CFO   [19]
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 Good morning, Charles. Yes, on the cash flow, the -- yes, I said it's flat. It's the -- mainly the depreciation charges is less than in the prior year. And that's why that number is flat.

 Now in terms of profitability in the emerging markets, yes, the guidance we gave you in terms of keeping -- managing to hold a zero-ish position in Russia still holds.

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 Charles Winston,  Redburn - Analyst   [20]
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 That's great. Thank you.

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 Dominique Thormann,  Renault SA - CFO   [21]
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 Excuse me. Jerome would like to add something.

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 Jerome Stoll,  Renault SA - Chief Performance Officer   [22]
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 Just on Russia, just to share with you what we did over the last period of time, we anticipate maybe more than others the fall-down of the market in Russia. And we, late in 2014, we decided already to restructure our production system in order to decrease and not to be in a push system in Russia, but to try to mitigate the downturn of the market with our production level.

 And at the same time, because of the evolution of ruble, we increased dramatically the -- our prices in the last quarter as well, far more what we -- some others made. So -- which put us in the beginning of this year in a fairly better position, with a level of production which is in line with the level of market and what we can anticipate on this market.

 And now we are quite confident in second part of the year because in Russia we're going to have the introduction of Duster phase 2 and some other products which are -- which fits to the market, with automatic gearboxes. And we are even ready, and we decide already to put back an additional production with an additional shift in order to accommodate our ambition in this market. We expect to be in line or slightly above in terms of market share in Russia. And without buying the market, as maybe some people may think, because we did the restructuring before.

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 Charles Winston,  Redburn - Analyst   [23]
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 Great. Thank you.

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Operator   [24]
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 Horst Schneider, HSBC.

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 Horst Schneider,  HSBC - Analyst   [25]
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 Yes. Good morning. It's Horst from HSBC. Thanks for taking my questions. First of all, I want to come back again to this price/mix issue, not that much related to 2015. You briefly mentioned 2016 and how the things will develop. So I just want to know a few items. So if you talk about the launch of the Renault Kwid, will that have a positive impact on price/mix or that will rather dilute then also the margin?

 And then when we talk about all the model launches for next year and the tradeoff against Euro 6, is it fair to assume that the tradeoff is still positive so that we can expect maybe rather a positive price/mix effect next year?

 And then the second question that I have relates more to emerging markets. On Russia you just made the comment. On Brazil I think you said that the risks are about to increase maybe. And do I get it right that you might consider more restructuring in Brazil? And if yes, what sort of restructuring you consider.

 And then I want also to know if you were able to raise the prices or give an update on the price increases you were able to put into place in H1 2015 in these two markets, in Brazil and Russia. Thank you.

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 Dominique Thormann,  Renault SA - CFO   [26]
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 Good morning, Horst. So just on Brazil, what we already told you in -- at the first quarter actually, is that in Brazil we have taken actions in the -- in 2014 actually. When the market started falling rapidly we adjusted our direct labor force in Brazil. So what I meant in my statement today is that if the market were to continue to deteriorate beyond what we're planning now, clearly we would have to do something, as we did in 2014. So it's just we're being very pragmatic, very reactive here.

 Now, at the same time, we're launching new cars. And as I said, we're launching a pickup truck. So this is something which should help mitigate part of the market weakness in Brazil. So we're just being -- the message for us is that we're -- to you, from us, is just that we're being very pragmatic in terms of being able to adjust our direct workforce in Brazil. We did the same thing in Russia, by the way, in the last quarter of last year. So there's nothing new and hopefully things will stabilize.

 Now on price/mix, let me hand over to Jerome.

------------------------------
 Jerome Stoll,  Renault SA - Chief Performance Officer   [27]
------------------------------
 Just to add some additional comment on Brazil, okay, for the time being the market is minus 20 and as at the end of first half. And frankly we do not see any improvement for the second half. And all in all the market will be below the minus 20 that we have experienced in the first half. So it's clear that the situation is quite tense in terms of competiveness. And -- but we think that we have some good tools and weapons to compete in this market anyway.

 As far as Russia is concerned, the price in Russia is concerned, as I said, we made the increase in prices late 2014. Therefore, in the first quarter and first half of 2015, we did not increase so much the prices in Russia because we were far ahead the competitor. And now we are -- the competitors are increasing their prices. But we are quite aligned, slightly above our positioning in late 2014. But we have not increased so much the prices the first half of the year in Russia.

------------------------------
 Horst Schneider,  HSBC - Analyst   [28]
------------------------------
 Jerome, just another add-on in relation to emerging markets. But it's still fair to assume, globally speaking, including developed markets, that H2 sales will be higher than H1, right?

------------------------------
 Jerome Stoll,  Renault SA - Chief Performance Officer   [29]
------------------------------
 I'm not sure of that. As far as we are concerned, looking at the different countries, we have in Brazil a situation which is not -- the market is not -- it will be worse in the second half than first half. In Russia we should nominally increase our sales and catching back some market share. And -- but the main part will come from India, where we expect the launch of the Kwid and Lodgy that will -- normally should contribute to our global ambition for the year to increase our volume.

 So for the time being, after the first half, you saw 0.8% increase. But the second half should be -- should confirm our ambition to be above in 2015 compared to 2014 in terms of volume.

------------------------------
 Horst Schneider,  HSBC - Analyst   [30]
------------------------------
 Okay. That's clear. Thank you.

------------------------------
 Dominique Thormann,  Renault SA - CFO   [31]
------------------------------
 Horst, maybe just to follow up on your question on price/mix and how it relates to the lineup. If you look at everything that we're launching today and, as I said in my remarks, you're starting to see a positive impact from the lineup renewal where we're selling at a higher per-unit transaction price. This is true for Espace. Kadjar is adding to the lineup in the core C segment and this is accretive to the mix. And most of our lineup renewals that are coming forward will help.

 Now if you focus strictly on Kwid, yes, it's a small car. It sells at a low price. But it has a low content and it has a low cost. So Kwid is a discussion about margin and share in the local Indian market, which is where it's gong to compete initially. But if you look at the core of the lineup renewal that we have, you should start seeing, as already demonstrated in the first half, you will see that building in the second half and beyond. Especially in 2016 you should see that number go up.

------------------------------
 Horst Schneider,  HSBC - Analyst   [32]
------------------------------
 All right. Interesting. Thank you.

------------------------------
Operator   [33]
------------------------------
 Jose Asumendi, JPMorgan.

------------------------------
 Jose Asumendi,  JPMorgan - Analyst   [34]
------------------------------
 Morning. Jose, JPMorgan. Just a few items, please. Can you help us a bit on sales to partners revenue bridge guidance for the second half please, the trends first half versus second half?

 Second element, change in working capital. The other change in working capital, I think it is EUR459m, inflow in H1. Are you expecting this to turn around in the second half?

 Then third item, simple one, seasonality EBIT for the autos business second half versus first half. I'm just trying to understand with the comments you're providing today, should we see a weaker second half versus first half? Seasonally, if you could just give us some direction, please, on that front. Thank you.

------------------------------
 Dominique Thormann,  Renault SA - CFO   [35]
------------------------------
 Okay. Good morning. On sales to partners, the reason why the variance is high in the first half is because of sales, primarily of sales of Rogue to Nissan manufactured in South Korea, sold in the United States, and Smart Four, manufactured in Europe for sales to the Daimler Group. Neither of those two vehicles were in our sales mix in the first half of last year. This will carry forward into the third quarter. And then into the fourth quarter that big variance will start tapering off because those vehicles were put in production at the -- in the fourth quarter of 2014 and sales to those two partners had started.

 So the sales outlook is good for both of those vehicles. And particularly Rogue, which is a high-volume car for Nissan in the North American market. So you will -- but on a variance basis, that number will decrease.

 Now your question -- I just want to understand. I don't see a particular reason for seasonality in profits. The balance that you see this half between contribution coming from the cost side of the equation and the revenue side of the equation is effectively what we had planned. So far most of our operating profit improvement had come from the cost side of the equation. So right now you're seeing the revenue, the growth side picking up. As you go into future years, clearly the growth side of the equation is going to carry a bigger part of the burden.

 Don't forget our plan is to grow, because we have a plan to reach EUR50b in turnover, but to grow with profits. So today you're seeing the beginning of the growth side of the equation. So -- but there's not a real first half/second half seasonality that you should be particularly concerned about or that you should model in your forecasting.

 And then you had a question on the cash flow but I didn't pick up your -- the number you were referring to.

------------------------------
 Jose Asumendi,  JPMorgan - Analyst   [36]
------------------------------
 The -- on slide 29. You've got a change in working capital, you call it other line, of EUR459m. If I'm reading it right, page 29 of the change in working capital requirement that you show as --.

------------------------------
 Dominique Thormann,  Renault SA - CFO   [37]
------------------------------
 Okay. In the others bucket of working capital, there's a -- it's mostly VAT, receivables, accumulated obligations to employees as well as payables or receivables from the dealer network. So it's all of the bucket that is neither supplier payables, receivables or inventory. And most of that relates to changes in VAT and social charges in European countries and primarily France.

------------------------------
 Jose Asumendi,  JPMorgan - Analyst   [38]
------------------------------
 And this reverses in H2 or should we just model it as an inflow for the year?

------------------------------
 Dominique Thormann,  Renault SA - CFO   [39]
------------------------------
 It -- the best way to model it is that working capital should be a neutral item in the full year.

------------------------------
 Jose Asumendi,  JPMorgan - Analyst   [40]
------------------------------
 Got you. Thank you very much.

------------------------------
Operator   [41]
------------------------------
 Fraser Hill, Bank of America.

------------------------------
 Fraser Hill,  BofA Merrill Lynch - Analyst   [42]
------------------------------
 Hi. Good morning. It's Fraser Hill from Bank of America. I just wonder if you could talk about the delta between your wholesale and your retail for the rest of this year. You've had a pretty helpful impact from wholesale and obviously I understand that ahead of some product launches. I think in Q2 wholesale was plus 3.3% and retail about 0.7%. So how do you see that progressing in the second half of the year?

 And then just to come back to the EBIT bridge, I took on board all the comments about Euro 6 and other mix issues for the rest of the year which may be moderate. But to bring all that together against the EUR283m for the first half, I think most of us expected a number of about EUR500m for mix enrichment for the full year. Is that roughly about the right number for the full year? Thank you.

------------------------------
 Dominique Thormann,  Renault SA - CFO   [43]
------------------------------
 Okay. Let me try with the -- first of all, good morning. For the retail/wholesale, no, I don't expect a very big variance other than the seasonal -- the normal seasonal changes. The one factor that is because of the geographic mix, where we have more European sales and more vehicle launches this year than we have ever had actually. But certainly by comparison to last year you're going to see vehicles ramping up in production at the end of this year that are going to be in the 2016 sales numbers.

 So I -- once again I don't expect something very, very different in terms of that balance. What we are working at, and you've seen it in the June numbers, is that the difference between the stock in the independent or franchise dealer network in Europe and the stock that's on the Company's books is reducing. The dealer turns are improving. And the vehicles that are launched are -- have a base supply which is quite lower than what we've had in past, particularly on run-out models. So as the run-out models disappear, you should start seeing turns -- dealer turns that will improve.

 Now in terms of your EBIT bridge and Euro 6, yes, Euro 6 is going to increase as a cost item in the second half. Now at the same time, enrichment is a way of generating more sales and more profits. And as we told you, we had a deficit in terms of lineup competitiveness across several segments which we're addressing one by one as the vehicles are coming into production. This was already true with Clio, Clio IV. It followed through with Captur. If you compare that to Modus, Twingo, it's the same thing compared to Twingo III. But simultaneously what's happening is that we're generating more revenues and we're generating more profit.

 So that combination is going to continue. The core run-out model that we're managing through the rest of the year is the C segment. And that is -- once that is done then by -- and this is consistent with the product plan that we had announced, once this is done then we will have renewed B segment -- A segment, B segment, C segment. The D and the E segment we -- the Talisman is coming into production also at the end of the year. So this is accretive to the mix and it's accretive to profits. So it's going to be a combination of all of that which should help us continue on expanding our margin.

 So the good news is that the product plan is performing up to expectations and that it is contributing to the profit picture more than the outgoing product plan. So it's -- part of that's going to be in that mix and enrichment bucket. But once again, there's an offsetting revenue and profit number that is -- that's driving the margin.

------------------------------
 Fraser Hill,  BofA Merrill Lynch - Analyst   [44]
------------------------------
 Okay. Thanks.

------------------------------
Operator   [45]
------------------------------
 Philippe Barrier, Societe Generale.

------------------------------
 Philippe Barrier,  Societe Generale - Analyst   [46]
------------------------------
 Yes. Good morning. Philippe Barrier, Societe Generale. Just two questions regarding production. I'd like to know what is the trend now in terms of production given the ramp-up of new products and also the [quality base] regarding Twingo and Trafic. I would like to know what is now the rate of utilization of capacity in Europe and [sum it up for the year]. And in terms of profit, should it be more positive? Or actually do you face a ramp-up cost for new products in place [and sum it up for the year]?

 And the second question regarding the marketing. You are launching many new products at the same time. I don't know what is the reaction of network. I hope that can manage many events at the same time and you just -- you have some difficult times just to organize the launch of all products in the same period.

------------------------------
 Dominique Thormann,  Renault SA - CFO   [47]
------------------------------
 Morning, Philippe. So let me hand over to Thierry Bollore for your questions on capacity utilization, production and run rates, etc.

------------------------------
 Thierry Bollore,  Renault SA - Chief Competitive Officer   [48]
------------------------------
 Hello, Philippe. It's Thierry speaking. So in H1 we have produced 1.453m cars against 1.288m the year before. And in H2 we plan to be at 1.464m against 1.277m last year. So it's a significant increase in production.

 And concerning capacity utilization, globally speaking, we are growing significantly in the way we are using our capacities. And overall, I would say, worldwide, we plan to be around 94% at the end of the year, whereas we were at 92% H1. And if you look at the European side, we plan to be around 83%, whereas we were at 80% H1.

------------------------------
 Dominique Thormann,  Renault SA - CFO   [49]
------------------------------
 Now on your network question and the launches through the distribution network, I'll hand over to Jerome.

------------------------------
 Jerome Stoll,  Renault SA - Chief Performance Officer   [50]
------------------------------
 Yes. Good morning. Actually it was not new for us that we're going to have new launches, a batch of new cars to be launched at this time. So we have been working on this since many months with the European -- I'm talking about European market. And we are prepared with that.

 The -- we have to face two different issues that need some attention from our side. First, main part of these new models are new names. And we have to establish a better awareness of these new names throughout Europe. So for France it's very easy because here Renault is so well known that everybody have been able to catch the new name. But for some European countries, we need to spend maybe a little bit more investment in terms of [FMI] in order to establish the awareness of these new names.

 But the main issue that European network is facing today is much more regarding supply, because it's clear that we were expecting the European market to grow by 2%. And as you know, at the end of the first semester the market grew by 8%. And so the supply is much more an issue that we satisfy lead time for the delivery of the car.

 Regarding the network, the issue might be slightly different in all -- in emerging countries where we are new, let's say India or China, where we still have a lot of work to do in order to be -- to come around with the ramp-up that we need to sustain our growth.

------------------------------
 Philippe Barrier,  Societe Generale - Analyst   [51]
------------------------------
 And just a following question. Do you think that you will be able to produce enough Kadjar to offset decline on the Megane, Scenic range so that the C segment should be not so negative given the introduction of Kadjar and higher sales?

------------------------------
 Thierry Bollore,  Renault SA - Chief Competitive Officer   [52]
------------------------------
 Well we believe -- it's Thierry speaking. We believe we have enough capacity. And we have flexibility in order to high up our expectation if the market shows the success we anticipate of these cars. So we believe we will have enough capacity.

------------------------------
 Jerome Stoll,  Renault SA - Chief Performance Officer   [53]
------------------------------
 To add that you should also notice that the end of life of Megane and Scenic is quite good. So we have both sides today in terms of commercial performance. The ramp up of Kadjar, which is very well accepted and the capacity is there to come along with this attractiveness of the product, success of the product. At the end of life of Megane, the Megane family, which is quite good in terms of sales and market share on each relevant segment.

------------------------------
 Philippe Barrier,  Societe Generale - Analyst   [54]
------------------------------
 Okay. Thank you very much.

------------------------------
Operator   [55]
------------------------------
 Alexander Haissl, Credit Suisse.

------------------------------
 Alexander Haissl,  Credit Suisse - Analyst   [56]
------------------------------
 Good morning. This is Alex Haissl at Credit Suisse. Thanks for taking my questions. The first one would be on Dacia brand. What's the strategy over the next few years since you're not involved in the fleet business at all with Dacia, which is more than 50% of the European market? Do you have any intention to expand Dacia brand into the lower-end fleet market in Europe? That would be my first question.

 My second question would be also on Dacia in Italy and in the UK, in both markets where your market shares are relatively low. Can you give us an update here what's the strategy, in particular in the UK?

 And my last question would be on Dacia in Spain. Since the implementation of the government subsidies back in 2012, you've almost doubled the market share. From my understanding, the phased eight, which kicked in in May, is a little bit lower in scale. So what's the risk that you see in Spain for Dacia, which is a big market for the brand? Thank you very much.

------------------------------
 Jerome Stoll,  Renault SA - Chief Performance Officer   [57]
------------------------------
 So Dacia, as you know, a kind of [pepite] for Renault and most of our competitors are trying to copy us. And so, for the time being, the success of this brand and the success of this business is that we stick up to now to the business model which is very, very constrained, I would say, somehow, in terms of marketing expenses, in terms of [gearing] margin and which allow only the development of retail sales, which went quite well up to now. We are -- we reach 2.5% market share on the European market, which is very satisfactory as far as we are concerned.

 Do we have to evolve to catch a broader market by extending the business model to fleet? This is something which is under study. But for the time being no decision is taken because we don't want to destroy what has been the success of this brand until now. And this will be very -- if any decision is taken regarding this evolution, it will be very carefully implemented in order to protect the business model and to -- not to destroy what we have achieved in the retail side by having suddenly a big jump in the fleet or the channel which are maybe with the prices which may affect the equilibrium of this strategy.

 Regarding Italy and UK, okay, Italy, we have a very big success in Italy globally for the Group. This -- the Group achieved a market share in Italy which has never been achieved over the last 30 years, not months, years. So it's an incredible success.

 But it's true that it's much more supported by the development of Renault than development of Dacia. As far as Dacia is concerned, we need to have an offer on LPG, which is, for time being, not yet completely ready. And this affected the potential of Dacia today, but we are working on this specific issue.

 UK, as you know, we launched Dacia in UK very recently, so it's still an ongoing process and ramp-up, I would say. But the acceptance of the product was quite good and we still need to continue on that trend. And I am confident that we're going to have to -- we still have potential of Dacia in UK.

 But my main concern or my main view in UK is to reinforce the position of Renault brand. After having renewed our product lineup, we have a real potential to catch back some lost ground in UK. And I would like our people to be rather balanced in their strategy in UK by trying to revamp the Renault brand as -- at a position that it deserves.

 Spain, okay, we have [PIV], which has protected this activity. We have to see after [PIV] is removed what will be the impact on ourselves.

------------------------------
 Alexander Haissl,  Credit Suisse - Analyst   [58]
------------------------------
 Thank you very much.

------------------------------
 Dominique Thormann,  Renault SA - CFO   [59]
------------------------------
 Okay.

------------------------------
Operator   [60]
------------------------------
 We have no more questions, sirs.

------------------------------
 Thierry Huon,  Renault SA - Director of Investor Relations   [61]
------------------------------
 Okay. So thank you, everyone, who have participated to this call. Of course, the IR team is available all day long for answering the questions you may have. Have a good day. Bye.

------------------------------
Operator   [62]
------------------------------
 Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.




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