Renault Commitment 2009
Renault makes three major commitments:
- Position the next Laguna, which will be launched in 2007, among the top three models in its segment in terms of product and service quality;
- Achieve an operating profit margin of 6% in 2009;
- Sell an additional 800,000 units in 2009 as compared to 2005.
“A new, exciting page in the history of Renault is being written, based on the motivation and dedication of the women and men of our company,” said Mr. Ghosn.
An unprecedented product offensive in Renault history
Renault will launch 26 new products better focused on the needs and aspirations of its customers. The strength of the product plan will lead to an unprecedented acceleration of vehicle launches: in addition to the two launched in 2006, Renault will launch an average of eight models each year from 2007 to 2009, which is double the number launched from 1998 to 2005. Half of these cars will expand the lineup.
The product offensive will result in widening the lineup in four directions:
- Renewing the pillars of the existing lineup
- the Megane family, Twingo, Kangoo and Master;
- Developing a luxury range: with five vehicles launched during the plan, Renault will double the volume of its sales in this segment;
- Entering new segments where Renault is currently not present, such as SUVs, 4x4s, crossovers and niche vehicles.
- Developing products to support growth in markets outside Europe, such as with the Logan program.
Renault’s sales outside Europe are expected to grow from 27% of total sales in 2005 to 37% in 2009, an increase of 80%. The average age of Renault products sold in Europe will drop from 3.8 years in 2005 to 2.2 years in 2009. The enrichment of Renault’s offer is expected to increase sales by an additional 800,000 units in 2009 compared to 2005.
Quality and technology commitments
The next Laguna, to be launched in 2007, will be among the top three in its segment in product and service quality. The progress made on this product will be applied with the same diligence to the rest of the lineup throughout the world.
In terms of fuel economy and CO2 emissions reduction, the Renault lineup is among the most efficient in the world today. The company’s objective is further improvement. By 2008, Renault will sell one million cars emitting less than 140 grams of CO2 per kilometer, of which one-third will emit less than 120 grams.
In addition, 50% of gasoline-powered engines for sale in Europe in 2009 will have the ability to operate with a mixture of gasoline and ethanol. By the same date, all diesel engines will be able to operate with 30% diester.
Within the Alliance, Renault is preparing a full range of alternative technologies, such as hybrids, fuel cells and electric vehicles. In France by the end of the plan, Renault will test fuel cell vehicles equipped with the latest Alliance technologies.
As the current European safety leader, Renault will continue to innovate in this field to strengthen its leadership position.
Resources necessary to assure the plan’s success
Renault will improve its competitiveness through a cost reduction program, optimized investments in all areas, and the benefits from synergies developed with Nissan within the Alliance. It will focus on:
- Reducing purchasing costs by 14% in three years;
- Reducing manufacturing costs by 12% and increasing the capacity utilization rate from 60% in 2005 to 75% in 2009;
- Reducing logistics costs by 9%;
- Reducing general and administrative costs from 5.1% of revenues to less than 4% by the end of the plan, with all support functions committed to achieving world-class performance as measured by an independent global benchmarking firm;
- Reducing total distribution costs per unit in Europe by 8%;
- Research and development expenses and investments for new vehicles will not exceed 11.5% of revenues in the period from 2006 to 2009.
Cross-functional management that is focused on customer satisfaction and driven by profit is being established through regional management, globalized functions, program management and 11 cross-functional teams.
Renault, the most profitable European volume car company
Renault’s performance will be measured by the increase in its operating margin. The company commits to reach 6% operating margin in 2009. This achievement - which will be a record for Renault - will be surpassed the following year. This commitment will make and sustain Renault as the most profitable European volume car company.
A linear and significant increase in the dividend - from 1.8 euros per share in 2005 to an objective of 4.5 euros per share in 2009 - will be proposed to Renault’s board of directors, who will submit a yearly resolution to the annual shareholders’ meeting.
“With a clear vision, and prioritized, precise and measurable objectives, I am convinced that Renault will become, in the framework of the Alliance, a great company with sustainable high performance in the global automotive industry,” said Ghosn.
Renault announces 2005 financial results
Slight increase in vehicle sales and revenues
The number of vehicles sold by Renault in 2005 rose by 1.7% to 2,533,000 units, exceeding the 2.5 million mark for the first time. This result reflects contrasting marketplace performances. Sales in Europe declined 4% in a stable market, while international sales climbed 21.2%. Outside Europe, the Group's three brands all contributed to this advance, with the success of Logan and the new SM5 and SM7 models in the Renault Samsung Motors range.
Revenues grew 1.9% on a consistent basis relative to 2004, reaching ?41,338 million.
The contribution of the Automobile Division to Group revenues rose 2% to ?39,458 million.
The sales financing subsidiary Renault Crédit International contributed ?1,880 million to revenues (on a consistent basis), stable compared with 2004.
Operating margin of 3.2% and record net income* of ?3,367 million
Group operating margin amounted to ?1,323 million, or 3.2% of revenues, compared with ?2,115 million in 2004 (5.2% of revenues).
The Automobile Division generated operating margin of ?858 million, or 2.2% of revenues, compared with ?1,654 million in 2004 (4.3%). Although Renault saw an increase in profitability at international divisions in 2005, the contribution from European sales fell sharply, mainly due to a less favorable phase in the product cycle.
Sales profitability was impacted by a deterioration in the geographical and product mix, the decline in transaction prices, higher raw material prices and the cost of meeting the Euro 4 emission standards. The R&D expenses of the Automobile Division increased in 2005, chiefly due to the growth of Renault's international business and the preparation of new vehicles under the range expansion plan. At the same time, the Group continued to reduce purchasing costs.
The sales financing subsidiary maintained its steady contribution to Group operating margin, with ?465 million in 2005 (compared with ?461 million in 2004).
Other operating income and expenses showed net income of ?191 million, compared with a net charge of ?243 million in 2004. This item consists principally of capital gains on the sale of land in Spain and the disposal of Renault's 17.88% stake in Nissan Diesel.
As a result, operating income amounted to ?1,514 million, compared with ?1,872 million in 2004.
The net balance on the financing account showed a charge of ?327 million, broadly similar to 2004's ?331 million. This included ?271 million from the marking to market of redeemable shares. Aside from the impact of redeemable shares, the other items on this account translate into a ?56 million charge (compared with ?40 million in 2004).
Renault’s share in the net income of associated companies1 was ?2,597 million. Nissan contributed ?1,825 million in 2005, compared with ?1,689 million in 2004. This does not include non-recurring income of ?450 million generated when the company finalized the transfer of part of its pension liabilities to the Japanese government. The share in the net income of other associated companies, notably AB Volvo, amounted to ?322 million, compared with ?234 million in 2004. 4
Pre-tax net income was ?3,784 million, compared with ?3,464 million in 2004.
After tax, net income (Renault share) amounted to a record ?3,367 million, compared with ?2,836 million in 2004, producing a return on equity of 17.6%. Earnings per share worked out to ?13.19, compared with ?11.16 in 2004.
The Board of Directors will ask the Annual General Meeting of Shareholders on May 4, 2006 to approve an increase of more than 33% in the Renault dividend to ?2.40 per share, compared with ?1.80 per share for 2004.
A sound financial structure
Shareholders' equity increased ?3,797 million to ?19,661 million at December 31, 2005.
Cash flow amounted to ?4,105 million (compared with ?4,596 million in 2004). Operating activities largely financed net capital expenditure for a total of ?2,879 million in 2005 (versus ?3,199 million in 2004). The cash-generative capacity of the Automobile Division was reflected in free cash flow of ?1,226 million before the change in the working capital requirement.
Net automotive debt rose ?685 million to ?2,252 million as a result of:
- a ?533 million decline in the working capital surplus, mainly owing to a rise in inventories;
- a ?257 million impact from marking financial instruments to market (including ?271 million for redeemable shares);
- consolidation changes (+?639 million), mainly the exercise of the option for the acquisition of the Technocentre research facility at Guyancourt, France, which impacted the financial statements by ?594 million.
Aside from these last two items, which had no impact on cash flow in 2005, Renault's operating activities led to a ?227 million reduction in the net financial debt of the Automobile Division.
The net financial debt of the Automobile Division was equivalent to 11.5% of shareholders' equity, compared with 9.9% at December 31, 2004.
Outlook for 2006
In 2006, Renault expects the automobile market to decline slightly in Europe and to grow in the other main countries in which the company operates.
Renault will not benefit from major product launches in 2006, but will profit from the first full year of sales of the new Clio in Europe, as well as the release of phase-two models of Mégane, Espace and Trafic and the phase-three Master. Outside Europe, two new five- and seven-seater station wagon versions will be brought to market in the second half of 2006 to round out the Logan line. Furthermore, action plans focusing on our cost competitiveness, defined within the framework of the new business plan, will be deployed and start to bear fruit in 2006.
Overall, against a backdrop of higher raw material costs than in 2005, an extremely competitive European market and continuous international growth, Renault plans to achieve an operating margin of 2.5% of revenues in 2006 and stable unit sales compared to 2005.
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