Renault SA (RNO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Full Year 2020 Financial Results Conference of Groupe Renault. I now hand over to Mr. Thierry Huon. Sir, please go ahead.

Good morning, everyone. Welcome to Renault's Full Year Results Conference Call, which is broadcast live and in replay versions 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 and invite all participants to read this. Today's call is scheduled to last about 1.5 hours. The presentation will start with opening remarks from our CEO, Luca de Meo; then Clotilde Delbos, our Deputy CEO and CFO, will take you through our fiscal year and H2 performance. Then the team, including Denis Le Vot, EVP, CEO of Dacia and Lada Brands; Gilles Le Borgne, EVP, Engineering; and Thierry Piéton, SVP, Deputy CFO, will be available for answering your questions. Without further ado, I will hand over to Luca.

So good morning, everybody. After a first semester of 2020 that, as you know, was very strongly impacted by the COVID lockdown at Renault, I think the message today is that we have managed our way through and recovered better levels of performance in H2 2020. In fact, our operating margin reached 3.5%. And the good news also is that we brought back the auto business into the black. In fact, the 3.5% performance is comparable to the one we had in the second semester of 2019 when the conditions were normal. So I think it's a good news. The reason for that is that we reaped the fruits of all the plans that were put together, so the one we implemented in the first half of the year and the one that we amplified in the second one, you will see. Very important impact from the fixed cost reduction plan. I already mentioned that, during the Renaulution announcement a month ago, we are clearly ahead of our commitment to achieve the EUR 2 billion fixed cost reduction that was planned for in 3 years. But in fact, we think that we will be able to achieve the EUR 2 billion maybe by the end of this year or the beginning of 2022. So in numbers, it means that in 2020, we were able to reduce fixed costs by EUR 1.2 billion net of the COVID impact. So that means we are going twice as fast as we were planning at the beginning. And when you look a little bit more into detail, in fact, engineering has been the strongest contributor to the savings, and engineering has already achieved 2/3 in 1 year, 2/3 of its 3-year target. And this is good news because as you know, in engineering is always the most complicated part. We have also made a lot of efforts on revenue management and improved our pricing policy. This has always been a topic of concern from the financial markets. But I think we proved in Q3 and in Q4 that we have changed the chip in this house. So we respectively managed to cash back 5.5 points in Q3 and 6.2 points in Q4 in net pricing. So I think it's a pretty remarkable performance that shows that we have changed the way we play the game. This performance has been achieved in a certainly improving context in H2 but still adverse, I would say. In fact, even in our domestic markets, France, we had a hard lockdown in November and even the dealers were closed. So it was not a completely normal environment, but we took every opportunity we had to generate profit and cash and benefit from the demand recovery from September, October and also December. Another good sign is that -- of a disciplined and healthy approach to the business was the balance between the demand and the -- from the customer and the production volumes. So when you look at the balance between production volume and order bank, you will see some good signs of recovery because we actually increased our order bank compared to the previous year by 14%, but the stock level went down by 20% compared to December 2019. We managed our channel mix, and we focus on profitability rather than volumes and market shares. If you look a little bit into the details, you will see that Renault has gained in the retail channel market share, which is, as you know, is the most profitable one. And you have example, like I'll take Brazil as a kind of a symbol for that, where we brought down our market share by 2 points. We see margin coming back. We reduced fixed cost by 20%. We had to eliminate one shift. So we did the job and changed the approach, and we're seeing on profitability the result of that. I would also like to mention the resilience of 2 areas of the operation. One is RCI, and also the other one is the AVTOVAZ contribution in H2. And finally, thanks to the -- I would say, the continuing success of the ZOE, most sold electric cars -- electric car in Europe, and very, very good performance of the E-TECH product, so hybrid and plug-in hybrid, that represent more than 1 car -- already 1 car out of 5 for Renault after -- 3 months after the launch, we have achieved our CAFE targets, I would say, relatively comfortably. Of course, the official measurement will come later in this year, but we think that we've made it. So in a nutshell, the resurrection phase has started. Beyond reducing fixed cost and improving our pricing policy, indeed, we also focused on brand development. We protected our investment on the future lineup, which, as you know, will be tech-infused, electrified -- strongly electrified, and shifting into the most profitable segment of the market, namely the C segment. We also started our battle to reduce our variable costs. We have been spending a lot of time with suppliers to negotiate some kind of a new deal with them, which is bringing some -- already some good results. We changed our whole organization, including our approach to common project with the Alliance. And you will see that more is to come in the next weeks. In short, if I may say, to conclude my introduction notes, our result for the second semester shows, my opinion, the capacity of this organization to perform in, I would say, relative -- when the conditions are there from an environment point of view. However, we are completely aware of the fact that we still have a lot, a lot, to do to recover a sustainable financial performance. I'll leave it now to Clotilde for the numbers, and I'll come back in a few minutes.

Thank you, Luca, and good morning, everyone. Before starting the usual analysis, I would like to highlight the key elements of this exercise and more precisely at the second semester. After a catastrophic H1 linked to the COVID lockdown, we have experienced a solid recovery in H2 as the group operating margin reached 3.5%. Of course we've been helped by some recovery in demand after the collapse of H1, but it is also the fruits of our fixed cost reduction plan. I would like to add that part of the impact of these reductions is not yet fully visible in the operating margin as lower capitalization ratio and higher depreciation have weighted for 1.1 points on this indicator. It is also worth giving a look at the EBITDA variance in the second half of 2020 versus H2 2019. Despite a decrease in revenue of EUR 2.4 billion, the EBITDA was up by EUR 130 million. We have booked significant charges for restructuring and impairment, showing that we are not at the end of the process and still working on our cost structure to fuel lasting profitability improvement. Regarding the auto operational free cash flow performance, it has not been as good as we would like, though positive in H2. This is explained by 2 things. First, the absence of RCI dividend payment in 2020 despite its good performance. As you probably know, European Central Bank recommended banks not to pay dividend in 2020, when we were planning at EUR 500 million payment, and to limit dividend payments up until September 2021. We intend to make up for the cancellation with a plan to reach a total dividend payment of EUR 1 billion as soon as possible. Then the working capital development also penalized the free cash flow as part of the cash consumed in H1 has not been recovered in the second one. This is partly related to the fixed cost reduction payables, which have decreased at the same rate as the expenses, and by lower recourse to factoring. Our net debt increased significantly compared to last year, but we are at ease in terms of liquidity position, which stands at EUR 16.4 billion at the end of the year. I will briefly present our commercial performance during the year. As a result of our new organization by brands, it will be the last time I present our sales by region. The worldwide market decreased 14.4%, with all region except Eurasia showing a negative development, especially in Europe and in Americas. In this tough context, Groupe Renault saw its volumes falling by 21.3% in the year to nearly 3 million vehicles. After minus 35% in H1, the drop was still negative in H2 at minus 6.8%. In Europe, our registrations declined by 25.7% with a fall of 42% in H1 and 6.1% in H2. The market was down 23.5% for the year. During the second half, we benefited from the launch of our first hybrid vehicles, with Clio HEV and Captur PHEV, which have encountered a strong success. ZOE has continued to lead the BEV segment and remained the EV best seller in Europe. Thanks to the success of our electrified lineup, the group has met its CAFE objectives. The good surprise of the year came from Eurasia. Driven by Russia and Turkey, our sales in the region were almost flat for the year and up 11% in H2. Sales in Africa, Middle East, India and Pacific were down 23% at the end of the year and 16% in H2. Despite some success in India, we have been penalized by the situation in Algeria where we had to stop our business due to the economic and political situation. In Americas, we lost market share in Brazil where we have favored the quality of our business. Our sales declined 39% for the year and 33% in H2. I will now turn to the financial review. We have -- we show here the revenue contribution by activity. I remind you that we have created a new line of reporting for our mobility business at the beginning of the year named Mobility Services. Group revenues for the year declined 21.7%. Automotive excluding AVTOVAZ contributed for almost EUR 38 billion, meaning a decrease of 23%. This implied a 9% decrease in H2 after minus 37% in H1. AVTOVAZ contributed for EUR 2.6 billion, a decrease of 17.5%, partly explained by the weakness of the ruble, which has declined 12.5% year-over-year. Revenues from RCI Banque were down 7.8% at EUR 3.1 billion, and Mobility Services contribution amounted for EUR 19 million for the year. I will now review the breakdown of revenues for the Automotive activities excluding AVTOVAZ. The first item, foreign exchange, was a negative minus 2.8 points. It was the sole driver which has been much more negative in H2 compared to H1. This reflect the continuing weakness of the Argentinean peso, Turkish lira, Brazilian real and, to a lesser extent, the Russian ruble. The next item, volume, impacted negatively for minus 19.2 points. For the second half, the impact stood at minus 8.6 points. This decline was mostly coming from the fall of the market and, to a lesser extent, from market share losses that can be linked to our strategic shift from volume to value. In addition, we have had the negative impact of the inventories variance. The product mix effect yielded a positive impact of plus 1.1 points, especially in H2 with plus 1.9 points, largely thanks to the ZOE sales increase. The price effect was positive by 3.9 points, showing a solid 5.9 points impact in H2. Of course, part of the increase came from the action taken for covering the currency impact. But I hope that you will see in this a proof that we are serious when we speak of pricing discipline and of our willingness to price the enrichment of our cars. Sales to partners impacted negatively for minus 5.1 points. This means that the decline in H2 has eased as we have had some recovery of demand compared to H1. And the last item, named other, amounted negatively for minus 1 point. The main negative driver has been the weak aftersales business recorded in H1 during the COVID period. I will now turn from Automotive revenues to group operating margin by operating sector. The Automotive segment excluding AVTOVAZ posted a negative operating margin of minus EUR 1.450 billion. For H2 alone, the operating profit was positive at EUR 198 million. AVTOVAZ, in the context of supportive measures for the auto industry from the Russian state, achieved an operating profit of EUR 141 million. The Mobility Services segment posted a negative contribution of minus EUR 35 million. And our financing activity delivered a EUR 1 billion profit contribution to the group margin versus EUR 1.2 billion last year. I want to comment more in detail later in the presentation. On the next slide, we provide you more detail on the group operating margin variance. The group's operating result for the year was negative by minus EUR 337 million. The positive of EUR 866 million recorded in the second half has reduced the loss booked in the first part of the year. Let's start with the monozukuri. The monozukuri bucket showed a positive impact of EUR 36 million, thanks to the positive EUR 76 million booked in the second semester. We have decided to change the presentation to split the cash impact and the noncash one coming from depreciation and from capitalization ratio variance. The performance came from purchasing savings totaling EUR 277 million. This relatively weak performance was the consequence of the low volume of business but also of compensations given to suppliers for lower-than-expected volumes or for currency devaluation for those based in high-inflation countries but having euro sourcing. Warranty cost change was a positive of EUR 19 million. R&D impacted positively for EUR 256 million before taking into account the impact of lower capitalization ratio and higher depreciation. This is a result of the improvement plan presented in May. Manufacturing and logistic costs before depreciation impacted for minus EUR 37 million in the year. Depreciation and capitalization variance weighted for minus EUR 479 million in the year. This impact represents 1.3 points of the auto revenues. It was mainly explained by the EUR 276 million R&D depreciation increase and EUR 99 million lower R&D capitalization ratio. Before continuing the P&L analysis, let me give you an update on our 2o22 plan. I told you when presented this plan that we should have at least 30% of the EUR 2 billion savings materialized in 2020. We have done much better and achieved EUR 1.2 billion savings net of the COVID impact on our cost. This is twice as much what we were planning. Engineering has been the strongest contributor to these savings and has already achieved more than 2/3 of its 3-year target. This is the evidence of our agility and reactivity. It is worth noting that these savings are not at the expense of our future but are coming from better discipline and efficiency. As already mentioned, the full impact of those savings are not yet visible in the operating margin because of higher depreciation and lower capitalization ratio, but these negative effects will progressively disappear. As said during the Renaulution presentation, we believe now that we would be able to achieve the EUR 2 billion saving at the beginning of 2022 latest, rather than at the end of the year, and we are shooting now for EUR 2.5 billion by 2023. In terms of cost associated, we have spent about EUR 340 million in the year. And this is in line with the 30% of the EUR 1.2 billion we mentioned when presenting the plan. Let's go back to the walk-down. G&A brought EUR 172 million of saving, thanks to the effort put on the spendings but also by some decrease related to the confinements. Raw material was EUR 131 million headwind, reflecting higher prices for some materials, mostly precious metal. Mix/price/enrichment was positive EUR 172 million. This results mostly from our actions on pricing especially in H2, which showed a positive impact of EUR 375 million. Volume and partners impact was a negative of EUR 2.6 billion in the year. H2 showed a significant improvement compared to H1 but remained negative by EUR 0.5 billion. RCI Banque, combined with the other businesses outside of the new business -- new car business, yielded a negative impact of minus EUR 223 million, mostly explained by RCI and aftersales. Currency impact was negative EUR 455 million. It comes mostly from the pesos, the real and the ruble, but it takes into account the benefit of the Turkish lira on the cost side. And AVTOVAZ contribution declined by EUR 14 million. Despite a difficult environment, RCI has proven the resilience of its business model and posted an operating profit at EUR 1 billion versus EUR 1.2 billion in 2019. It generated EUR 17.8 billion of new financing, down 16.8% in the year but only minus 3.6% in the second half. RCI hit a new record for penetration rate at 45.3% versus 42% -- 42.2% a year ago. Average performing assets were almost flat at EUR 46.9 billion. This results from a slight increase in the loans to customers, mitigating a decrease in the dealers' financing owing to lower level of inventories. Net banking income stood at 4.17%, down 14 basis points. This decrease came partly from a lower weight of our activity in Latin America and to lower interest revenues linked to moratoria laws during the health crisis. I would like to mention that our online deposit activity, which has been expanded to Spain this year, crossed last year the EUR 20 billion threshold. The cost of risk increased year-over-year with the crisis but improved in H2 versus H1. It stood at 17 basis points of the average performing assets for the year versus 99 basis points at the end of H1 and 42 basis points a year ago. The pandemic impacted 2 ways: on the one hand, primarily through forward-looking impact provision; on the other hand, because of provision on remaining deferred loan and specific corporate exposures. Operating costs were contained and stayed at the same level of last year. And I will now cover the operating -- now that I have covered the operating margin, I will continue down the P&L with the other operating income and expenses. They amounted to minus EUR 1.7 billion versus minus EUR 0.6 billion a year ago and EUR 0.8 billion at the end of June. Several items explained this strong increase. The restructuring costs and provisions stood at minus EUR 600 million for the year. It comes largely from the 2o22 plan, notably in France, which social aspects were negotiated and hence booked in H2. While lower than in H1, impairments remain at a high level in H2 with minus EUR 317 million booked, yielding to minus EUR 762 million for the full year. This is mainly due to revised assumption and decision to not continue some programs in the framework of Renaulution strategic plan. Capital gain was a positive in H2, thanks to some asset disposal. And the remainder was explained by suppliers' compensation for project discontinuations, the stoppage of our production in Algeria and other smaller items. Continuing down the P&L, the next item is net financial income and expenses. The net charge increased from minus EUR 442 million to minus EUR 482 million. This increase is coming from higher average debt across the year, several noncash IFRS restatement and a EUR 38 million dividend decrease from Daimler. The next slide shows the impact of associated companies in Renault's P&L. We have already published the Nissan's contribution for the last calendar quarter in Renault's account. Therefore, the full year contribution came to almost minus EUR 5 billion after the H1 impact of minus EUR 4.8 billion. Contribution from other associates was negative at minus EUR 175 million compared to minus EUR 432 million a year ago when we had booked negative results for our Chinese JV. I will turn back to the P&L. The [ net ] tax charge for the year came to minus EUR 420 million versus minus EUR 1.454 billion for 2019, which included a noncash charge of EUR 753 million due to the discontinuation of the recognition of deferred tax assets on tax losses in France. Bottom line, net profit after tax came in at minus EUR 8 billion, with H2 at minus EUR 0.7 billion. Now that I have completed the analysis of the P&L, I will turn to Slide 20 on the evolution of net Automotive financial position. Cash flow from operation excluding AVTOVAZ and restructuring expenses amounted to EUR 1.85 billion, fully attributable to H2 performance, versus EUR 4.1 billion a year ago, reflecting the decrease in the operating performance and the absence of RCI dividend. Changes in the working capital requirement had a negative impact of minus EUR 1.5 billion versus a positive of EUR 1.8 billion a year ago. For the sole H2, the working capital was a positive of EUR 2.3 billion but obviously not enough to reverse the EUR 3.8 billion negative impact booked in H1. One reason for this is the result of our strong cut in general expenses, which usually offers relatively long payment terms, and the reduction of factoring use in order to optimize our financial costs. Net tangible and intangible investment came to EUR 4.7 billion, down almost EUR 1.2 billion from last year as we have continued our effort to curb our CapEx and R&D spending. CapEx has been reduced by EUR 400 million and R&D by almost EUR 600 million. Leased vehicle impact was down nearly EUR 200 million. Restructuring costs led to a cashout of EUR 339 million versus EUR 135 million in H1. And free cash flow from AVTOVAZ before restructuring accounted positively for EUR 133 million but coming from a large part from an accounting change of reverse factoring following a IFRIC decision in H2. As a result, the operating free cash flow was a negative of EUR 4.6 billion for the year but positive EUR 1.8 billion in H2. Dividend flow was neutral, and financial investment activities in H2 was limited, amounting to EUR 87 million. For the year, it amounted to EUR 355 million. ForEx, IFRS and others impacted negatively for EUR 407 million for the year and EUR 325 million in H2. This came from accounting restatements and a security deposit in Spain for tax litigation. In total, our net Automotive financial position decreased by EUR 5.3 billion compared to the end of last year. And as a result, the group's Automotive net financial position turned negative at EUR 3.6 billion versus a positive EUR 1.7 billion cash position at the end of 2019. However, auto liquidity remained at a high level and stood at EUR 16.4 billion at the end of the year compared to EUR 15.8 billion a year ago. Of course, this amount takes into account the EUR 4 billion loan benefiting from the French state guarantee. RCI liquidity reserve are also at a high level at EUR 16.6 billion, reflecting lower activity and the absence of dividend payment. Slide 22 shows the inventory situation in Renault's balance sheet and for the independent dealer network. As you can see on this slide, inventory decreased by 19% versus end of 2019. This decrease came mainly from the independent dealers and reflect the stricter inventory management put in place. And in terms of backward coverage, this leads to 61 days or 7 days lower than a year ago. I will now turn the call back to Luca for the conclusion.

Okay. I will conclude the presentation with a couple of charts, first one on the way we see 2021. And I will start with the challenges for this year that we see. The first one obviously is to manage our business with such a low level of visibility on the demand. The beginning of the year has been showing some sign of weakness as the order flow is obviously impacted by the lockdowns and the curfews in many countries in Europe. At the same time, we are facing a significant increase in raw material prices, as you know, and the shortage for some chips that force us to continuously change our production program and to cut it in some cases. Our visibility on the chip supply is, for the time being, pretty limited. We're getting as much as possible in terms of information on a daily base. But at this stage, we're not able to make any solid assumption month by month. It is very hard to say, in fact, what would be the exact precise impact as the situation is changing weekly. But one thing I can say is that we expect the peak of the shortage during Q2 before seeing already a recovery in -- from Q3. And for the full year, our best guess is, let's say, that we have to work on an envelope of a risk of 100,000 vehicles, which we are trying to reduce to the minimum. And last but not least, the emission regulation is continuing to request a higher electrified mix and enriched content, which we're trying to compensate. And I think in general, Renault is, as you will see, pretty well positioned in terms of electrification technology. And we're trying to make it, as soon as possible, not dilutive for our business, as I mentioned during the Renaulution plan. So 2021 should be yet another difficult year or challenging year. But I think we've taken the necessary measures to anticipate and to overcome our next challenges and deal with that uncertainty. In this context, we have decided not to issue guidance for the year. It would not make a lot of sense in our opinion, given the current level of visibility. Several European countries are still in lockdown or curfew, and we don't know, as everybody, for how long. Now to end on the more positive tone, I would like to mention some -- the opportunities that we see for the year. On the opportunity side, we expect, anticipate a strong recovery of the demand when the pandemic will be under control and especially the restriction removed. As I said during the Renaulution presentation, we will -- we are taking this opportunity or, if you want, this challenge or this -- let's say, at the beginning of the year, to intensify our cost reduction plan on every level. We are shooting for -- now for more than the initial target of EUR 2 billion in fixed cost. We are also working very, very strongly on our variable cost, and we will continue our efforts on pricing policy, as you have already seen at the beginning of this year. One special mention is for the new -- the range in the product of Renault here. You see the electrified range of our brands. E-TECH is a success as much as, let's say, pure electric battery cars are a success in the market. It will offer -- will have, let's say, a very positive impact in 2021 because we have the full range available and the full production capacity and will -- this will contribute to improve our product mix. And we are very, very confident also this year, we'll be able -- even probably earlier than what we did during the year in 2020. In 2021, we are confident we will achieve the CAFE. To conclude, basically the key word for 2021 for the time being, at least the first part, is uncertainty. We will address it. The management team and the whole company are, let's say, very compact, very motivated, very focused. And I think there is a strong buy-in on the Renaulution strategy and the whole philosophy of moving from volume to value. And we expect the second semester to be a good, let's say, surprise as it was in 2020. I think we proved with this 3.5% that this company can make it. I also want to take the opportunity to confirm that we -- the Renaulution 2023 targets are our targets, and we are confident that we will achieve them. So thank you for the time being. And I will now take, together with Clotilde and the colleagues, all your questions.

[Operator Instructions] And the first question comes from Thomas Besson from Kepler Cheuvreux.

It's Thomas with Kepler Cheuvreux. Clotilde, can I start with the possibility to pay this EUR 1 billion of dividend you mentioned? I think you have EUR 6.2 billion of equity now at the RCI Banque at the end of 2020, which seems a lot given the decline in activity we have seen because of COVID. Do you think you can pay the EUR 1 billion of dividend over '21/'22, '21 alone, or what the time frame, please, for that? That's the first question.

Yes. Thank you, Thomas. Yes, actually, you have the right analysis. RCI, due to the decrease in activity and is lower capital according to bank regulation and has not been able to pay the final part of -- the dividend on the 2019 results, and so far, nothing on 2020. So yes, we have the capacity to pay the EUR 1 billion, and we're confident that as soon as the European Central Bank lifts its restriction on this payment, we'll be able to pay it. So our hope is that we're going to be able to pay the full amount in 2021. But obviously, it will again depend on the bank. We're going to pay EUR 69 million in H1, which is in order to respect the regulation, this calculation, which is quite complicated for outsiders to try to calculate, the 0.2 of risk average assets, et cetera, et cetera. So -- but our plan is to pay it in 2021 as soon as it is possible, according to the bank regulation.

Okay. Very clear. Coming back to another topic that impacted your 2020 account, the capitalization of R&D has often been a big boost to your account. It's been a big drag with depreciation that you flagged for 2020. Usually, it's correlated with product cycle. Should we expect a more neutral or even a reversal of that in 2021 as you start capitalizing for products that will be launched in H2 '22 or '23 or further? Or is it going to remain a drag in 2021?

Well, thank you again for the question. So the capitalization ratio excluding AVTOVAZ in 2029 (sic) [ 2019 ] was 52.8%. It was 49.1% in 2020, and we expect it to go further down by 2.5 points in 2021. So it will still be a drag, roughly 0.8 points, on our operating profit again in 2021. And it is in line with what we mentioned during Renaulution. Remember, that was one of the reason why we warned you about this impact in Renaulution. And most of the impact is going to be in '21. The impact should ease after '20 -- for '22, '23 and then be neutral or slightly positive between '23 and '25. But it is a drag next year of, let's say, 0.8 points.

Okay. Very clear. Can you discuss the absolute level of CapEx we should expect in 2021, the amount of cashout for restructuring as you are ahead of plan? And can you mention whether you believe Renault will be able to have the net CapEx and R&D to sales ratio back below 10% in '21 after the 11.3% we reached on lower revenues in 2020?

Yes. Well, definitely, we aim at being lower than 10% in 2021, closer to 9% if possible. And this is clearly in line with what we had announced both -- especially in Renaulution, remember, we provide you this information for Renaulution. And I want to underline again: this is not at the expense of the lineup. Everything we're doing, even if we continue to reduce costs faster than expected, is not at the expense of the lineup that was shown a month ago. So that's the first point, extremely important. I'm not going to give you an exact number of CapEx, R&D for next year. But you can compute for your assumption something between 9% and 10% and something which enable us to reach the plan, the restructuring plan we announced as -- if possible, by the end of the year or very beginning of next year. In terms of restructuring costs, it's in line with what we said during the presentation of the plan in May. No change for that. So we're going to continue to have the restructuring cost in 2021. In cashout, especially, it is -- be a bigger number than what we had in 2020, which is normal because as you know, the social measures, especially in France, have been negotiated at the end of this year. We book them, but the cashout is going to be next year and the following one, but mostly 2021.

The next question comes from George Galliers from Goldman Sachs.

The first question I wanted to start with was just free cash flow. I realized you said there's a lot of uncertainty for this year. But assuming you are able to pay the EUR 1 billion from RCI, would you expect the free cash flow to be positive in 2021? And then the second question I had was just with respect to AVTOVAZ and the assistance measures you mentioned from the Russian government. Could you just elaborate on what those measures are, the financial impact and for how long you expect them to continue?

Well, thank you for the question. On the free cash flow, yes, there is a lot of uncertainty, but the uncertainty is mostly on the first half, as you see, because of the COVID situation, which we clearly hope that will ease at least before summer. And for the semiconductor, which as Luca mentioned, same thing. We should recover production by the -- in the second half as we -- if you look at what IHS has said on that topic, they expect the peak of the lack of semiconductor for March, which in production means the second quarter. So we expect a good H2 and in which we're going to bank in also all the efforts we're doing on pricing and fixed cost. Assuming RCI pay a dividend, clearly, we're targeting to be positive. Clearly. On VAZ, I would like to turn to Denis Le Vot as he's Head of Lada and Dacia Brands.

Thank you. Thank you very much. Thanks for the question. 2020, actually, in Russia showed a good recoup in the second half. This is -- the crisis was really in the first half. So there are 2 main reasons for that. First is the market, as I'm saying, because the market in the second half was up 3% with a minus 10% almost in the first half. This is number one. And number two, the Russian authorities have had a very strong sustained measure being implemented in the second half, mostly 2 of them I could mention. One of them is the fleet sales by the government were advanced in the second half of the year from the year 2021. This is number one. And number two, of course, is the sustainability program that they put in order so that the people may be provided help to buy cars, especially the small cars. That did actually profit mostly to AVTOVAZ. So also, the market share did increase in the second half. So in a market growing by 3%, we grew by 6% in the second half. And this will continue, of course, this year, 2021.

The next question comes from Stephen Reitman from Societe Generale.

Yes. Turning to the slide on the cost reduction analysis, I was just wondering what your feeling is about the SG&A improvements you've made. It seems to be a theme that we're hearing from a lot of the auto companies that they -- the crash cost savings they did in immediate response to the pandemic, they've been able to hold on to a lot of that. And that's led to some surprising beats in the fourth quarter. We'll obviously wait to get some details still. Do you feel that you have done enough? Or is there more to be achieved when you look at the split in between H1 and H2? In particular, I'm looking at the G&A line. Obviously, you can see you've made improvements in R&D and on purchasing. But what else do you think can be done?

Okay. Stephen, thanks for the question. On SG&A, we've done a lot obviously in the first half, thanks to the government measure. We continued in H2. The comparison basis was maybe not as easy in H2 because we had started the cost reduction already in H2 2019. But to answer your question, if you look at the slides on the cost reduction plan, you see that we have done not even half of what we had promised on SG&A. So we still have twice as much to come in 2021 and -- well, mostly 2021. I think we're hoping to finish by the end of the year or very beginning of the following year. So we still have more than half to do. Same for production, as we mentioned, same thing here. Production, we have done 40% of the plan. So we still have 60% to come. And remember, when we presented the plan in May, we say that -- we already said, and we said that again in the month of January with the Renaulution presentation, the first phase was really engineering focused because we had a lot of efficiency to do. And we said that it was what would come from SG&A, and production was to come at later stage, 2021 and '22, because we had to put in place also the social measures. Again, the social measures, especially for SG&A, were negotiated at the end of 2020 and will hence take place in 2021. We're working on the efficiency of these functions, and this is what is planned. So there is more to come in SG&A and production. What was your other question?

Maybe I can...

Yes, please.

I can see the thing -- this is Luca -- you can see the thing in another way is that, in the plan, we had 30% every year. On the SG&A, we are at 50%. So we are ahead of the plan. And the same thing goes for production slightly. There is an inertia effect because it's -- these are things that take a little bit more time. In my view, based on my experience also in other company in the industry, normally the most complicated part is in the engineering part. And the work that Gilles and the team have done has been pretty remarkable. So I think it's a good sign that then we'll be able to do all the rest, if I may say it like this.

Yes. And as Luca said also in introduction and in the conclusion, we're not stopping. We're looking at -- we know the situation is complicated. We have -- we are very proud about the results we have achieved in H2, but we know of the uncertainty we mentioned. So we're continuously looking at additional measures in order to improve and continue to improve the situation. What we've done already in 2020 is -- has had good impact on the breakeven level, and we're going to continue. Remember, we committed to reduce the breakeven point by 30%. We are not yet there. We have done very good progress, but we need to continue for sure.

And if I could ask just on -- a second question on the Mégane crossover or the e-version that you showed. Is it on track for launch for customer deliveries by the end of this year still?

We always say it is beginning of 2022. So we are on track, and we are working on it. It's a very, very competitive product. So yes, we are on track. But in fact, I have to tell you, all the projects that we are -- that we presented a month ago are on track in terms of timing and content. So we're trying to be very, very, very disciplined with the thing. And maybe something that on the previous question Clotilde didn't mention. Gilles was showing me a few days ago, let's say, a summary of the entry ticket for the cars. And then we -- he compared the last 5 projects with the next 5 projects. And you can see an average reduction of entry ticket by 40%. This explains why we are able to -- with the limited amount of money, with the same money, to do all the products, all the 24 products that we plan from now to 2025. So -- and this comes from more discipline, a little bit of commonsense approach to utilization of platform components from the alliance, a better logic in all these things. So I am actually very, very impressed by the performance on engineering when it comes to the way we are structuring the projects and the discipline they are having in hitting the cost targets and the timing.

The next question comes from Angus Tweedie from Citigroup.

The first one's for Clotilde. I know you talked about winding down your factoring program this year. Could you perhaps give us some figures so we could think through the impacts of that on your working capital? And then secondly, for Luca, could you perhaps just talk a little bit more on the -- your concerns around the chips? You probably sound a little bit more negative on this than some of your peers. How confident are you that these issues are going to ease and that we can see production and volumes rebound in the second half?

Well, on the factoring, the net debt amount is more than EUR 700 million reduction. Obviously, a portion come for lower volume. But if you look at globally how much we reduced the factoring, it's that way. In terms of points, if I want to look at it in terms of point, we reduced by 6 points roughly the total amount of receivables that we factor. So it's a big amount. And we made that choice also to reduce the cost because the cost was not given last year, so many reason for that. But you're right, you'll have to take that into account to have a better view of our working capital movement. And you can add the same thing on the payable. We -- remember, we said -- we reduced a lot, as you saw, our fixed costs, especially in engineering, which means we reduce a lot our recourse to subcontractors, things that you usually pay with long payment terms. And the impact of that is a reduction of EUR 900 million. So if you take the 2, you understand why working capital, for good reasons, did not rebound fully. It's because we reduced our costs, so you have less payable, and we decided to reduce factoring for cost regime. So you have the answer to the question. I turn to Luca to the other question.

Yes. On the chip side, I think that -- I'm afraid I can't give you much more details because even we don't precisely know. We're waiting also for calendarization from our suppliers in the next days for Q2 and for Q3. We try as usual to be very, very, let's say, prudent in our statements. So it's kind of a daily fight. And that's what we're doing with -- together with our suppliers. We have people visiting them and trying to move parts from left and right. There will be some plant closure here and there, 1 day there, 2 days there. It's a continuous battle. It will be, I think, until the end of the year, although we believe that supply shortage will ease in the -- in H2, but we just have to fight. But what I know is that Renault team is pretty kind of used to crisis, though normally we're very flexible and solution-oriented. So so far, we managed to ease the thing without fundamental impact on the production. But we don't want to give ourself -- we don't want to be overoptimistic, because we have to be focused and try to solve the issues week after week. So sorry, it's not that I don't want to tell you the thing, but it's just that I don't know precisely.

And the good thing is we have quite flexible contracts with our workforce. And you know that usually, in the month of August, we have quite a long period of closing, and we can play with that to recoup in H2. So -- and that's very important that we can use that production capacity to recoup what we may have lost in the few days here or there of the plant closures.

The next question comes from José Asumendi from JPMorgan.

Three questions, please. The first one, can you help us a little bit understand the number of workers you had at the end of 2020 versus 2019? And how many packages have you been offered -- have you offered to the workers in terms of retirement or compensation packages? That's question one. Question two, can you comment, please, on the monozukuri and product mix expectations for 2021, please? And the third question, please, for Luca. Can you comment on 3 topics, please, of collaborations that we're seeing out there? So one, is there a chance to maybe accelerate the collaboration with Nissan on light commercial vehicles in Europe? Two, when I look at your product offering in Valladolid and Palencia, it looks, I think -- it's compelling, right? You've got a 5-seater Kadjar. You've got a B segment based on Captur. Can you do all of that with the existing facilities? Or do you need to do much bigger CapEx expenditure? And three, can you comment, please, on Apple? Obviously, they're looking for someone to build the car in Europe. Is Apple part of your discussions strategically? Or are they not part of your plan?

On the workers, we don't give specific numbers. What we -- you need to know is we're in line with the plan. We're in line with the plan we announced in the month of May, and it's progressing well. So on the monozukuri side, 2021 is not easy to assess. But for sure, the mix/price/enrichment will be positive on the continuation of what we are doing in H2. There is no reason for that to change. As Luca mentioned, we mentioned, and you saw it in the H2 numbers quarter-after-quarter, there's a lot of effort made on price, on improving the mix, choosing the right channels and pricing the enrichment. So that's the first point on your question. On the cost front, obviously, again, we're going to continue to reduce our costs. As we mentioned, we are going faster than expected. So in a cash basis, you should see a reduction of our cost. But again, as mentioned, on the -- you're going to have the impact of the -- and the amortization -- or depreciation, sorry, on the depreciation and capitalization ratio, which probably will offset the R&D positive news on the cash. So I hope that answers your question. Luca, on the other questions?

Yes. So on the Nissan side, on the commercial vehicles, José, you have heard that, I think last week, that Nissan confirmed the production of, let's say, the Kangoo-based commercial vehicle from -- in their range in Maubeuge. So the continuation is alive. The collaboration is alive and kicking. And of course, we are looking at other opportunities. You've seen that we've had a couple of years where sales to partners have been going down, and we are now into a mood of looking for opportunity, especially with -- obviously with Nissan, Mitsubishi and Daimler. So I am relatively optimistic that we'll find a few opportunities in the next year to grow that item on the P&L. The second question was on...

Palencia.

On Palencia, yes.

That plant in Valladolid.

On Palencia and Valladolid, we have -- you will see -- I don't know if you've noticed in the Renaulution, there were a few cars, let's say, focusing on the C segment and B segment-plus architecture and platforms. And they are produced there. So Palencia and Valladolid will be 2 plants where we see business growing. Basically, we are recently also discussing with authorities and trade unions for a new plan. It's part of the discussion. So -- but we are very confident about the performance of our Spanish plants also for the future because they are on the -- as you said, on the right products, okay? And as Renault focuses on the C segment and especially C segment SUV and crossover, I think I can say to my Spanish friends that they might have a pretty -- let's say, they should be optimistic about the future. On the Apple thing, I mean this is kind of -- I see that in the press. We have been -- we haven't been contacted. So tango, you dance in 2. You have to be 2 to dance that. I mean we are obviously open. It looks like we are a very interesting partner. That's what I read from the press. But we also have to mention the fact that we are also strongly linked with Google for our man-machine interface, infotainment system and with Waymo, et cetera. So we are already investing on this kind of technology. But as I said, we open for all opportunities.

The next question comes from Horst Schneider from Bank of America.

Just the first one, some housekeeping issues. I don't know if you mentioned it already, a guidance on raw material price impact, FX impact for 2021 and then maybe also guidance on tax rate for 2021. The second question that I have that relates more strategically to the EV business again because, Luca, you always praised basically the strength of the E-TECH technology. I recently read an article in a German motor magazine -- it was German, I admit -- but they were saying that E-TECH is not drive -- or the E-TECH Clio was not driving as much electric as it should and got a poor rating. When I look at the price of the Clio E-TECH, it's something at EUR 23,000. I just cannot imagine why people should buy this car just because it said by Clio or it said by ZOE or Twingo Electric. And you include the subsidy, these cars are much cheaper than the Clio E-TECH. So I cannot see why the E-TECH gets the success.

Okay. On the guidance, well, raw material, I guess you read the press and you look at the spot price like everybody. So we don't see a positive impact on raw material for sure in 2021. I guess you've seen that the precious material which are used in the cars are spiking. And there is also a lot of tension on the steel market. That being said, it depends on -- it might not be the case in 3 months or in 6 months. But for the moment, you can take as an assumption that raw material is going to be a burden, a bigger burden than what we had in 2020. In terms of FX, difficult also to say, but there has been a lot of movement in H2. So by nature, the -- if you compare H1 2021 versus H1 2020, it should be a negative. There is no reason why not. H2 is unknown at this stage because we are at a very high level in terms of FX. In terms of tax rate, well, I guess you can just take the usual normative tax rate, which is around 28% if my memory is correct, in terms of a normative tax rate for your modernization. On E-TECH?

I say one thing only. Okay. On the -- Horst, on the E-TECH, yes I am -- I think that Renault, when I came to the company, some of the good -- of course, there were some bad surprises obviously. But some of the good surprises was the advantage that Renault has on electric cars, on electric platform, not only the ZOE but also the future and on E-TECH. You said you were reading a German magazine. I will send you French, Italian and Spanish and British magazines, so you can have a kind of a more pan-European view on what the press is saying, because the technology has been praised by everybody, okay? And I drive those cars every day. So I can tell you that with the plug-in hybrid, you get in -- you see a 1 and -- in terms of consumption per 100-kilometer. And with the hybrid, you see a 3 all the time. Okay. This is the reality. And when you say why the people should buy that when there is subsidies on electric cars, I have never made a business case on subsidies. These things is something that will lower down with years. And the hybrid technology will be part of the landscape for the next 10 years easily. So when you say why should they buy that, then you ask yourself why Toyota is selling 80% of hybrid in Europe, and they're making like EUR 20 billion of profit of the year. So hybrid is one of the things Renault has a clear advantage. We have a plan to make -- we are already making more margin on this technology than on classical cars. We have a plan in a matter of 18 to 24 months to make it not dilutive, even on percentage, by reducing the cost. The E-TECH is a very smart technology because you don't have a gearbox in the middle, so you don't have the cost of that. So we are convinced that the thing is really an asset for the company. We have more than 20% on Clio in terms of mix, and we are more than 30% on a plug-in hybrid on the B-plus segment with the Captur. So there must be people that have a different opinion from the one you have or from the one that the journalist is expressing. But the world is interesting because people have different opinion.

Well, the best -- Gilles speaking.