Renault's Net Loss Reaches 3 bil. Euro During 2009, Achieves Positive Cash Flow Target

Renault has announced that its financial situation tumbled to losses during 2009, as sales have slipped as a result of the global downturn in the demand for vehicles. For the year ending 31 December 2009, the automaker reported that it had seen its sales during the year fall by 10.8% year-on-year (y/y) to 33,712 million euro (US$46,388 million), as the number of vehicles sold fell to 2.31 million units from 2.38 million units the year before (see World: 14 January 2010: Renault Global Sales Fall 3.1% Y/Y in 2009; French President to Speak with CEO on Reported Clio Move). Of this, 31,951 million euro stemmed from its vehicle operations, a fall of 10.7% y/y, while its financing operations slipped by 12% y/y to 1,761 million euro. The company also reported a fall from a positive to a negative operating margin during the year, having achieved a level -1.2% of revenues or a loss of 396 million euro, against a 0.9% operating margin equivalent to 326 million euro in 2008. Renault was pulled down by the vehicle manufacturing and sales side of the business which saw a 300-million-euro drop, affected by the depreciation of the Russian rouble, pound sterling and the Polish zloty. There was also a greater 746 million euro negative affect from the downturn in volumes and its price mix. As a result of other operating income and expenses amounting to charges of 559 million euro against 443 million euro the previous year, the automaker saw an overall operating loss of 955 million euro for the year. Renault's stakes in other vehicle manufacturers has not helped its situation on this occasion, and suffered a net loss equalling 3,068 million euro, of which 1,561 million euro came from associates including Nissan (-902 million euro), Volvo Group (-301 million euro) and AvtoVAZ (-370 million euro). This compared with a net profit of 599 million euro seen in 2008.

Despite the difficult situation that the automaker has been presented with during 2009, it announced that its vehicle manufacturing business had achieved the goal of generating a positive free cash flow during the year of 2,088 million euro. This business generated a cash flow amounting to 1,467 million euro during the year, as tangible and intangible investments were reduced from 3,385 million to 2,302 million euro and working capital requirements reduced by 2,923 million euro, with a 25% reduction in stocks. This helped it reduce the business' net debt by 2,023 million euro to 5,921 million euro.

Renault, Daimler Nearing Agreement on Joint Production—Report

Separately, Renault, and Germany's Daimler are said to be closing in on an agreement which would see joint production of some small car lines from 2013, reports Dow Jones Newswire citing Auto Motor Und Sport. Without identifying its sources, the enthusiast publication said that the co-operation agreement which covers Renault's Twingo and Daimler's Smart could be announced as early as May following the finalising of details. However, provisional details suggested that two-door versions could be manufactured at Smart's Hambach (France) plant, with four door variants being built at Renault's Novo Mesto (Slovenia) plant.

Outlook and Implications

While the headline figures show a difficult year for Renault, as was seen with PSA Peugeot-Citroën yesterday (see France: 10 February 2010: PSA Peugeot-Citroën Losses Jump in FY 2009), the automaker saw a far more healthy second half of the year than in the first, when the full extent of the downturn hit, and scrapping and other market incentives had yet to hit their stride. For Renault, this was particularly seen during the final quarter of the year as these schemes were hitting their climax, and helped along by the low base effect its sales revenues rose by 25% y/y, against declines of 30.8% in the first quarter, 16.9% y/y in the second and 11.3% y/y in the third. The same was true for its operating margins which despite having fallen to -3.9% in the first half of 2009, bounced back to 1.3% during the second, and operating earnings which despite a loss of 955 million euro for the entire year, saw a loss of just 9 million euro in the second half.

Renault has made efforts to cut its costs during the year. As well as those already mentioned, it has managed to cut its combined research and development (R&D) costs and capital expenditure (capex) by almost 30% to a little over 3 billion euro. It has also achieved a further 8% y/y saving general expenses, which amounts to around 20% when compared with 2007. There have been further benefits from the synergies with Alliance partner Nissan, and this supported Renault's positive free cash flow in 2009. It said that it had achieved its plan to have 1.5-billion-euro-worth of further synergies by the end of 2009, and would be targeting a further 1 billion euro of combined savings in 2010.

Looking forward, Renault is expecting the situation to remain difficult in 2010, as an additional 10% of declines are expected in its main European market during the year. As a result, the automaker has again not set any firm financial targets other than achieving another year of positive free cash flow to continue its debt reduction strategy. In order to achieve this, it has said that it will continue its cost reduction policy as well as maintaining a ratio of net capex and R&D expenditure at less than 10% of revenues, and intensify its controls on working capital, as well as the further enhancement of the synergies with Nissan as mentioned above. It also said that it will aim to further broaden the appeal of its model range, with six new launches during the year, which it hopes will continue the momentum seen in the latter half of 2009. However, in the longer term, Renault chief financial officer (CFO) Thierry Moulonguet has said that the group is working on creating a new medium-term plan which he is aiming to present at the end of 2011. Although he did not offer any details to journalists, this is likely to build on some of the lessons that it has learnt during the recent downturn and which should put it on a firmer footing in future. This is something that it is likely to need to put in place with its ambitious plans to become a market leader in the electric vehicle (EV) segment, the success of which is by no means certain. The plan is also likely to underpin the success of its existing partnerships, such as that with AvtoVAZ which is currently being developed, and new relations such as that being discussed with Daimler. It may also target the markets which it is currently lacking such as developing markets, and adding to its expanding presence in Russia with growing its capabilities in Brazil as well as finally embarking on sales in India and China.