Renault SA (RNO) Earnings Call Transcript & Summary

Good morning, and welcome to Renault Q1 2022 conference call webcast live and in replay versions on our website. This presentation will be made by Thierry Pieton, Group CFO, and will be followed by a Q&A session, with Denis Le Vot, CEO of Dacia; Fabrice Cambolive, SVP, Renault Brand Sales & Operations; Xavier Martinet, VP of Dacia, Sales Operations and Marketing; Laurent David, SVP Group Control. Thierry, the floor is yours.

Thank you, [ Philippine], and good morning, everyone. Q1 was another tough quarter for the automotive industry, mainly due to the semiconductor crisis. On top of this already challenging environment, we sadly had to face the impact of the conflict in Ukraine. In this context, the group registered 552,000 units in the quarter, 17.1% decrease over the first quarter of '21 or 13.9% excluding the impact of Russia, mainly due to the chip shortage, particularly on the Renault brand side. Renault brand sold 349,000 vehicles, down 19.7%, while Dacia less exposed to the most affected suppliers recorded a 5.8% growth with 128,000 units. Alpine's activity supported by the launch of the new range around its iconic A110 and the expansion of its network rose 67%. Strongly hit by the repercussions of the conflict in Ukraine, Lada sales fell by 33.1% to 61,000 units. All in all, sales from Renault Russia and AVTOVAZ together amounted to 83,000 units in the first quarter of '22, down 31%. However, you will see in this presentation that the group's commercial policy focused on value, our pricing and distribution channel discipline and product defensive have enabled the group to absorb most of the impact of these lower volumes. Just have a look on this slide at Renault brand C-segment launches. Arkana continued be a success with more than 9,000 orders per month in the first quarter, 60% of them in retail, 60% on E-TECH and 78% on the higher trims. Megane E-TECH Electric started very well with more than 10,000 orders in only 2 months, even though the orders are not yet open in all countries and the cars have yet to hit the dealerships. Here again, the highest equipment and engine versions are favored by more than 70% of our clients. You know that the reconquest of the C-segment is a key element for Renaulution. Arkana has paved the way for our product offensive, and I just mentioned Megane E-TECH, but there was a missing piece, a powerful SUV. Our C-SUV, Austral expected in the third quarter of '22 is already getting some solid feedback by journalists. Austral will carry the latest generation of more powerful and efficient E-TECH hybrid, thus has optimum level of fuel efficiency and CO2 emissions, making it one of the most cost-efficient hybrid SUVs. On the SUV side, New Kangoo was awarded Van of the Year for 2022. If we look at the Dacia brand, Dacia Spring is the most affordable European EV for only EUR 19,000 before bonus and continues its momentum with about 5,000 sales per month in the average of the last 2 quarters. It was #2 electric vehicle in France in the first quarter. Jogger, the roomy and affordable family, Dacia is off to a great start with more than 36,000 orders registered in 4 months, 2/3 being LPG and 70% high-trim versions. And even if it's not a launch of the year, I'd like to highlight the success of Sandero, which remains #1 in the retail market in Europe since 2017, and Duster, which has reached 2 million sales since its launch. Finally, our order book, which was already at a record level at the end of 2021 continues to increase with the combined effect of a stronger order intake and the supply chain disruptions. It reached 3.9 months of sales at the end of March. Our orders in the first quarter of '22 for passenger cars and LCVs in Europe experienced a double-digit increase in Q1 versus 2021. You know the Renault Brand's ambition to be 100% electric in 2030 in Europe for passenger cars with an intermediate milestone of 65% of electrified sales by 2025. We're perfectly on track to reach this objective, thanks to the commercial success of our E-TECH lineup, which is accelerating in 2022. In the first quarter, 36% of our clients went on -- went for an electrified version, hybrid or battery EV, which is up 13 points versus the first quarter of 2021. Let's continue with the improvement of our product mix. One of our key goals, as I mentioned, is to reconquer the C-segment. In the first quarter, worldwide C-segment passenger car sales recorded 30% -- represented 30% of our sales, up 3 points versus the first quarter of '21, and our upcoming lineup will help continue the increase. We also continue to improve our channel mix. In the first quarter, retail accounted for 57% of Renault Brand's total sales, up 16 points versus the first quarter of '21. Dacia is still very well represented in the retail segment with more than 85%. All in all, the retail channel represented [ 69% ] of Renault Group sales in the first quarter of '22, up [ 15 ] points versus the first quarter of '21. As I already mentioned, for our new models, high-end versions make up for more than 70% of the mix. As a result, our net pricing improved by 5.6 points versus the first quarter of '21. Now let's see the contribution of our different segments to Q1 revenues compared to last year on Slide 9. As you can see, whereas the volume was down 17%, group revenues were down only 2.7% in Q1 at EUR 9.7 billion. Automotive revenues stood at EUR 9 billion, down 2.7%. AVTOVAZ and Renault Russia's activities amounted to EUR 894 million, down 15.7% due to the impact of the conflict in Ukraine starting from February 24. AVTOVAZ's contribution amounted to EUR 527 million, a decrease of 23.1% versus last year. Renault Russia's revenue was EUR 367 million, only down 2.1% due to destocking and significant price increases. Excluding our Russian activities, automotive revenue was down 1%. The Mobility Services contribution amounted to EUR 8 million versus EUR 5 million in the first quarter of '21. RCI revenues decreased by 2.9%, most of the impact coming from the decline in wholesale financing due to low level of inventories in the dealerships. I will now start the analysis with a review of the Automotive division revenues on Slide 10. I'll focus on the automotive revenues, excluding AVTOVAZ, for the first quarter at the bottom of the page. Reading from the left-hand side of the slide, this quarter, given the situation, we isolated the effect of Renault Russia operations which impacted by only 0.1 points. Excluding the impact of the Russian ruble captured in the previous box, the ForEx impact was a negative 0.9 points mainly because of the Turkish lira and, to a lesser extent, the Argentinian peso. Then volume impacted by minus 8.9 points, mostly driven by the registration decrease of 13% excluding Renault Russia, already mentioned. Geographic mix was stable. Product mix contributed 2.2 points, mainly due to the success of Arkana launched in the second quarter of '21 and to the launch of Jogger this quarter. The price effect was once again the strongest positive of the quarter with plus 5.6 points. It reflects our continued actions to improve the quality of sales and the pricing of our vehicles as shown previously in the presentation, but also actions to mitigate cost inflation and ForEx impact This effect represents continued pricing improvement over Q3 and Q4 '21, and we will continue to push on pricing. The impact of sales to partners was negative at minus 2.8 points, it's mainly due to the decrease in production of diesel engines and vehicles for our partners, notably linked to the end of production of Master for Opel and Trafic for Fiat. The last item, others, showed a positive contribution of 3.4 points coming mainly from the performance of our aftersales activity as well as Renault Retail Group and lower business with buyback commitments. If you turn to Slide 11, Global inventory stood at 336,000 units versus 487,000 units a year ago and are flat compared to the end of 2021. It's worth noting the low absolute level, which is down 31% compared to March 2021. The backward coverage stood at 63 days. I will now comment on RCI's commercial performance. New contracts decreased by 9.7%, reflecting the lower level of registrations, partially offset by an increased mix of retail customers with very high financing penetration rate and the strong performance on the used cars activity. The improved pricing of our range positively impacted the total new financings in value for the quarter, which amounted to EUR 4.39 billion, up 5.4%. This is another benefit of our commercial policy focused on value. The average performing assets decreased by 4.7% and to EUR 43.7 billion due to the group strategy to optimize dealership inventories. As a result, RCI revenues were down 2.9% to EUR 0.74 billion. Let's talk about the rest of the year. During the full year results, we shared with you our views regarding the challenges and opportunities that we face in the year 2022. I will not come back on them in detail as they are still valid and generally even more so. Since then, however, the conflict in Ukraine has added geopolitical instability on the [ Britain ] side. As you all know, on the 23rd of March, we announced the decision to suspend our industrial activities in Renault Russia and to assess the available options regarding our stake in AVTOVAZ. Negotiations are ongoing and making progress. We'll tell you more as soon as we can. As a consequence, we updated our 2022 financial guidance with an operating margin around 3% and a positive automotive free cash flow. I'd like to reiterate that this updated guidance only reflects the impact of Russia on our financials. On the operating profit side, due to the weight of AVTOVAZ and Renault Russia, which represented together about 10% of our revenues in 2021. And on the free cash flow side, due to the double impact in 2022, of the loss of cash flow contribution of AVTOVAZ and Renault Russia activities and the associated negative working capital requirement variation. Nevertheless, please do not see our free cash flow guidance as a cut of EUR 1 billion, but much more as a cautious stance given the current environment. Outside of the Russian situation, the performance has been at least in line with our expectations. First on volume, regarding the semiconductor crisis, I confirm a forecast loss of production of roughly 300,000 units in the year, mostly in the first half. Visibility is still low, but the situation is starting to improve at a macro level. Secondly, as mentioned during our full year results, raw material and input cost increases will be more than compensated by productivity and pricing. I confirm that this is still the case despite the incremental cost inflation that we're all seeing on the market. We have already started since the beginning of the year to pass inflation through our pricing and will benefit from our lineup renewal with Arkana, Megane E-TECH Electric, Jogger and Austral as the year develops. Thirdly, given the environment, we're addressing our cost structure with renewed energy. Our engineering, manufacturing and purchasing teams are working together to accelerate our variable cost initiatives, both on the existing range and on the upcoming vehicles to secure our competitiveness improvement. We're also identifying our efforts on the fixed cost side, while protecting our investments for the future. When it comes to our midterm targets, we told you during the full year results that we were ahead of our '23, '25 targets. And I wanted to make clear that this has not changed despite the crisis in Ukraine. We will provide you updated midterm financial outlook in the CMD in the fall of 2022. This Capital Market Day will be a unique opportunity for us to demonstrate the in-depth transformation of the group that has started launch by Luca. This concludes my presentation, and I'm now ready to take your questions. Thanks for your attention.

Thank you, Thierry. So we'll start the Q&A session with Horst Schneider from Bank of America.

Now you can hear me, right?

Yes, we can. Thank you. Great hat by the way.

My first question is on raw material prices. Basically, you have given after the full year results, the guidance that the impact could double versus in 2021. Now we have seen a substantial inflation of raw material prices again. So therefore, I would be keen to get an update on the expected impact this year. And in that context, could you maybe also outline -- what is the impact of hedging on your raw mat impact? So specifically on nickel, you say that you hedge it a little bit. Can you update us? Or can you provide us a little bit more details when we see the nickel price increase impact, is it this year or is it rather next year? And the second one is also on electric vehicles. You have committed to an NCM battery chemistry -- and now we have seen the inflation of the nickel price. Do you think it makes sense now to switch to an LFP approach since just the cost advantage on NCM is getting just too significant?

Yes. Thanks for the question. So on raw materials, as you mentioned, when we started the year, we had a view which already embedded a lot of -- a significant amount of increase we had said, as you said, about 2x the impact that we had in 2021. I think our view since then obviously has evolved. I think what we see on a full year basis now is at least 3x. So a significant increase versus what we had foreseen. A couple of things that I will say, so maybe also to answer the second part of your question, if you look at our raw material base in toto, it represents about 35% of our purchases. And the way to look at it is about 50% of it is steel. And steel, typically, we have negotiations very early in the year. 90% of the steel is negotiated in January, February. So for us, that's locked in for the rest of the year. The other 50% is basically roughly 30% indexed, 20% non-indexed. On the index side, in the year of 2021, we gradually increased our hedging policy. We were typically around 15% hedged historically. And we've gradually increased that to be around 50%. So you should take that into consideration. For the unhedged portion, generally speaking, there is a lag of about 3 months between the moment there's a hike in the market and the moment we feel it in the income statement. So for unhedged indexed and for rest of nonindexed raw material, the gap is about 3 months. On nickel, specifically, a portion of it is hedged, for the rest of it will apply this 3-month lag. We saw a very significant hike a few weeks ago. Since then, it's gotten better, but still, obviously, it's a significant amount of pressure. On the battery chemistry, I think it's -- as you said, we're committed to NMC. Our view is that from a general cost perspective, it's still an efficient solution. The energy density of NMC is better. The recycling capability with NMC is also better. In the economic equation, the ability to recycle is a significant variable. If you're able to remonetize the battery after second and third life, it changes significantly the dynamics. So for now, no plan to switch from our NMC to LFP, which would be a significant undertaking from an engineering perspective anyway. So no change from that perspective.

Just maybe a quick follow-up, if I may. When you say you are hedged, for how long are you hedged? Is it just for this year or is it on a 3- or 5-year period? As a good example, Volkswagen is doing that?

Yes. It's typically on average on a 2-year period.

2-year period, all right. That's helpful.

Okay.

We now have a question from Thomas Besson, Kepler Cheuvreux.

Thank you. I have 3 questions, please. First, on Russia, you're still negotiating. But basically, can you help us understanding practically how the relationship of Renault with Russia is going to evolve? I think you still have your employees for the time being to address. Basically, if we assume someone is effectively going to take on the responsibility eventually at one point of the industrial assets and the employees, are you still going to have any relations with Russia supply components or allow dealer the operations to effectively run ? Or are you going to stop all relationships to Russia? So basically understanding the rest of the year impact of Russian rollout? The second question, you mentioned a bigger effect of semi shortage in March, April. We've seen that you had to stop the [ VEL ] factory for 10 days. Can you help us understanding the impact such hiccups have on the E-TECH -- Megane E-TECH launch whether you're still comfortable with the fact it's going to be a smooth effect, and it will contribute as expected to in '22. And thirdly, I think, probably more -- probably will be a more theoretical question, I guess. You confirmed the plan to separate the ICE and BEV operations of the group. I think you're doing a carve out right now. It's a bit like for Russia, can you try to help us understanding how that will particularly affect the group, the finance. If you intend to separate each brand between BEV and ICE or that's it. A bit more -- might take your follow-up.

Sure. Thanks, Thomas. Look, from a Russia perspective, candidly, I wish I could give you more detail. It's an ongoing discussion with the Russian authorities. And it's making progress. Our goals that we stated when we said -- when we made the announcement of our decisions in Russia have not changed. So with our employees, sort of future as one of the key elements that we have in mind. I'm afraid at this stage, I can't really tell you more. As soon as we have a resolution, trust me, we'll be eager to communicate what that is. All I can say is negotiations are still ongoing and making progress at this stage. On the semi shortage, so yes, so the view on the full year at the total business level hasn't changed. So about -- a loss of about 300,000 units production for the year, as you correctly stated, mostly weighted on the first half of the year. Look, we prioritize the components that we get based on the key assets for us and the key vehicles, in particular, the ones that are key launches for us in the year, the ones that make the most margin in cash and the ones that contribute CAFE. Megane E-TECH is obviously a key project for us this year. So it's clearly at the top of the list of our prioritization. In the stoppage and doing it, the shortage situation has impacts on the production levels. There is a point at which the production is so low that it's better to stop it and to restart it with a high level a bit later, okay? And that's the decision that we made on Megane E-TECH for a few days and do it. It will not impact materially the launch schedule or the launch volume. So Megane E-TECH is still going to be launched in France in the month of May. And in the other countries, in Europe in the month of June. No change from a schedule perspective. No change from, let's say, contribution to the profitability of the group standpoint on this project. Megane, it's clearly one of the cars that we'll want to protect to the maximum for this year, given its strategic importance for us. And then you had the question on the separation. So -- so we announced that we were carrying out a study to separate the ICE powertrain assets and the electric vehicle assets potentially. So we made this announcement in the financial publication of 2021. The project is making progress. The team is very engaged in making it happen. We now have 4 teams dedicated to this, including on the finance side. So we're doing initial work on carve-outs, et cetera. At this stage, all the options are still on the table from something as simple as showing the numbers separately and showing them as a dedicated business or in the case of the electrical side, a full IPO that would take place in the second half of '23 if it was to take place. So we're moving aggressively on those 2 projects. On the ICE powertrain asset side, we've had a lot of interest from partners since we made the announcement. And I would say that project is moving quite significantly as well. So all on track at this stage. Again, the first goal of these projects and in particular, the electric vehicle side, is, first and foremost, to continue to run the business better. So to have a dedicated team with a dedicated business model, dedicated allocation of capital, and so that's what we're focusing on. When we started the Renaulution plan, one of the first decisions that Luca made was to reorganize the group in brands as opposed to the regional organization we had before. And it's very clearly a key contributor to the improvement of the results with a better focus on the products, better focus on the offerings. I think we view the projects on the EV side and the powertrain assets as the next step in that direction. So how can we get the teams to be more focused, he always makes football analogies, right? So he says, I want people to have the Jersey of the team that they support. And I think there's great value in that. So we'll continue to pursue that aggressively. And as you know, we'll have a Capital Market Day in the fall, and we'll be disclosing more detailed plans in terms of what we want to do with these 2 parts of the business.

We have a question from Gabriel Adler, Citi.

So my first question is on the order book. Clearly, with very strong orders at record high, are you seeing any signs of slow growth in order intake evidence that inflation is beginning to impact huge demand for your products in Europe. And related to this, do you have any concerns about where your prices are staying and the impact of further price increases through the year may have on the demand structure in Europe? And then my second question is on the channel mix, the channel mix was very encouraging. Retail segment share increased 57%. I'd just like to understand how sustainable do you think that is and whether you expect to maintain or increase the show in the second half of the year as supply again to rebuild.

Okay. Okay. Thanks for the question. So first, on the order book, yes, it's at really a record -- record level for us, so 3.9 months of order book. And as I said, it's due in part to the shortage of components, but it's also mostly due to the fact that we're taking strong orders, right? And I mentioned in the presentation, double-digit growth in terms of order intake versus the last quarter of -- the first quarter of last year, sorry. At this stage, we don't see a slowdown. So the first 3 months were very encouraging from a demand perspective, both in quantity, in quality perspective. You saw the mix in the order intake, which is very positive towards higher trims towards E-TECH. We've had a lot of interest in the new product launches, in particular, Megane and Jogger. So at this stage, there's no sign of slowdown in terms of the commercial activity. The footfall in the dealerships has been strong as well, which I think is encouraging. From a pricing perspective, there's different ways to do the price increases, right? And one is just pure price increase that the customer feels, the other elements that we've been driving has been improvement of the variable marketing scheme, reduction of bonuses, et cetera, which is another lever. And as you say, we've been working on the channel mix very strongly. We think we still have opportunity in those areas. And in fact, we should see continued improvement throughout the rest of the year. Fabrice, would you like to comment specifically on Renault?

Yes, perhaps a few comments. Regarding the orders trend, I think we are benefiting for a Green Wave in Europe. It means our order take is, despite price increase, quite good in EV and hybrid cars. So this is the first point. The second point, we are also benefiting from our coming back on the C-segment with Arkana, which is strong. And now with first order take from Megane, it means up to now no alert or even a good positive trend in orders on the right channels and on the right energy mix. Regarding price, we already took some price increase decisions that we will see in the coming months, depending on the supply. It means we are also quite confident to manage at the same time price increase and growing order log.

Xavier, on Dacia?

Yes. Maybe more comment on the initial comment on Dacia. You see the results that we're having in revenues on the Q1. These results are pretty much based on orders that were taken last year. Since June 1, we actually had 3 price increases on Dacia that are not yet in the revenues. And still, despite these price increases, the -- in the amount between 5% and 8% depending on the model. We've had in March, one of our best order months ever on the Dacia brand. And for example, we took a significant price increase on spring in April due to the issues on the raw materials for EVs and still will be above our objective of orders for spring in April. So again, I mean, I don't see any impact so far on the order trend for our brand.

So to -- so obviously, the topic about how long can we raise prices without seeing a drop on demand is obviously something that we keep a very close pulse on -- 2 things I'd like to add on this. One is residual values are improving as well. And if you keep in mind a lot of our customers are buying the cars with the financing. If residual values continue to raise, to some extent, the price increase is not felt as much as if they take it indirect. The second thing I would say is at the macro level for group, the Dacia brand becomes a very, very attractive value proposition in this market. So in a way, having everyday low price sort of brand in the portfolio, which is performing extremely well, as Xavier just mentioned, is clearly becoming even more of an asset for us than it has been in the past, yes.

So now you have a question from Charles Coldicott from Redburn. Charles?

I had 3, please. So the first, actually, keeping with the price dynamic, I think you said back in February that you expected to increase prices again this year, but that would be helped by the fact that all of your competitors are raising prices. Obviously, we had a very good price performance in Q1. So I was just wondering how that's played out so far and whether you're doing better than the overall market on pricing performance so far this year? My second question on costs. You mentioned renewed efforts on variable cost initiatives and fixed costs. Should we think about that as just bringing forward savings that you had planned for later in the Renaulution plan? Or something on top of the prior targets? And then my third question, going back to the separation of the business into brand and ICE with the potential for an IPO next year. My question was just going to be whether or not you discussed this with Nissan, what their view on the matter would be and whether it creates an opportunity for a restructuring of the alliance.

Thanks for the questions, Charles. So first on the price increase, I think, it's helped by the market, but I think we took our own medicine, right? So we started seeing the price increases significantly earlier than the components crisis. I think our data says that we've caught up significantly versus the competition. On the Renault brand from a list price perspective, I think we've caught up. We still have levers that we can play with continued channel mix improvement, and continuing to work on the bonus scheme with the dealers. Clearly, the signs that we see from a pricing perspective earlier on in the year are very encouraging, which is necessary, right, given the inflationary environment. We had said when we started the year that we would have a price impact that would be of the same magnitude as the one that we had in 2021. Clearly, it's going to be significantly above that. And as I mentioned previously, we'll continue to more than cover the inflation and input costs with productivity and pricing mainly. On the variable cost, I think the way to see it is the way you described it. So it's mostly trying to accelerate some of the things that we had identified during the Renaulution plan. You have to look at variable and fixed separately. I think variable is probably where we still have the biggest opportunity. But the biggest opportunity is more on the medium term, in particular, with the new launches that we're going to do. We've spent significant efforts reducing diversity in the range from a commercial perspective. So simplify the offer to the customer, et cetera. Also from an engineering perspective, the number of parts that we use in the new projects is down almost 40% versus the projects that they've replaced. And that has massive implications in terms of variable cost. It means that you have less engineering to do, first of all, in the development phases. It means that you have better leverage in the negotiation with suppliers since you're buying each part in larger volumes. It means also that you need to stock less inventory that you can have a more efficient after sales business. So I think for us, this is really a key element for the future. And then we're continuing to work on the industrial footprint and adapting the capacity to the evolution that we see on volume, including in the short term. So with the pressure that we see due to the components, we've taken actions in terms of shifts in most of our plants today to adapt the structure to the volume that we see short term. And it's something that we could do and change when the volume picks up. And so we can reput the teams in the factories. If we see the electronic components crisis get better in the second half, which is what we're forecasting. On the fixed cost side, I think over the last couple of years, we've proven that we're able to take fixed cost out when we need to. If you remember in the financial communication of '21, we said we had taken EUR 2.3 billion out. We have a goal to be at EUR 3 billion by the end of '25. So what we're doing is trying to accelerate everything that we had on the radar screen. What I would say though is we're doing it in a way that protects our futures -- our future, right? So there are things that we're sort of sectorizing, I would say, today, in particular around the product development costs. So the R&D and CapEx, we think are at the right level versus where we want to be. So we're going to try to stabilize that and keep it at the level where we're at. We have a significant amount of activity on key product launches, which I've mentioned. So Jogger, Megane E-TECH, Austral towards the end of the year and also Limo in the Mobilize side. We're not going to cut the budget on these launches. They are strategic assets for us, and we want them to be successful. So there are types of costs that we're keeping separate and trying to protect. And all the rest will be as aggressive as we can. And short term, taking all the typical actions that you take when the environment is tough. Then on the separation question and the impact on Nissan, absolutely, Nissan is in the loop with the announcements that we've made. As you can imagine, a project of this magnitude gets -- needs to be approved by all the governance bodies that are in the group and Nissan is represented on our Board. More importantly, we work with them on a daily basis. So this obviously something that we want to discuss with them. I don't -- I can't comment on at this stage on how Nissan will participate to the projects potentially. But clearly, it's something that we're working on together. Too early to talk about changes in the structure of the alliance linked with this project, though at this stage.

Now we have a question from George Galliers, Goldman Sachs.

Yes. The first question, I actually just wanted to start with suppliers because you did mention that through reducing the number of parts and complexity, you have greater leverage with the suppliers. Obviously, many of your suppliers are presently noting the high raw material and other inflationary pressures. Outside of what is in your contracts, what relief do you expect to give to suppliers if any, this year? And can that be a headwind relative to 2021? The second question was just with respect to the improvements we're seeing in the business. You mentioned you've achieved more than EUR 2.3 billion on the fixed costs. We're seeing improvements in these Q1 results on the channel mix, also on the mix within the segments. Obviously, your pricing has been very strong. So it feels like the only piece missing is the volumes. As the semiconductor constraint is in the second half and in 2023, what's a good number to think about in terms of the potential operating leverage for Renault, given where your fixed cost base is today as the volumes return.

Thanks, George. So on the supply side, obviously, as you mentioned, everyone is feeling the inflationary pressure. I already sort of commented on the raw material side, right? So 50% is steel are locked in -- the other 50% is 30-20 between indexed and nonindexed, the indexed part roughly 50% hedged, right? So that's clear. Then there's the indirect effects on our suppliers. So look -- so first of all, as I mentioned, in a similar fashion to what I mentioned on the raw material side, there is about a 3-month lag between the moment there would be a price hike and the moment we would see it. With most of our suppliers, we have contracts in place, and these contracts take us through the year. So there's obviously an element of protection that comes from the contract, I would say. We have daily contacts with them, and this is an industry where you need to be partners with your suppliers. And I think especially since the arrival of Luca, we've tried to make the relationships with suppliers and evolved in a more partnership-oriented fashion. We work together. And so in this environment, our first goal is to protect the profitability of Renault. At the same time, we want our suppliers to be successful, too. And so it's a matter of striking a balance that ensures that both sides are -- continue to be successful. And then I think we've demonstrated that for the part that we have to accept from an inflationary perspective, we're able to pass it on from a pricing perspective. So at this stage, this equation works and it's going to continue to work for the rest of the year right? On the operating leverage. Look, I'll let you do your model yourself in terms of what's the ratio to take from an operating leverage perspective. What I can tell you is with all the efforts that we've put in -- on improving net pricing. The operating leverage is improving. Our fixed cost structure has reduced significantly. As you saw in the publications that we did early on in this year, the breakeven point has dropped by 40%. So when volume comes back, we should see a significant lift in profit. And I think you're right. I think that's really the missing link now. We've made great progress on pricing, great progress on fixed cost. We've become more efficient from an inventory perspective, as you can tell, in some of the numbers that I showed you as well. I think we still have a lot of work to do on variable cost, and I mentioned what we're trying to do there. But yes, I mean, we're when the components crisis impact reduces, there is clearly upside for us.

And we now have a question from Jose Asumendi, JPMorgan.

Three quick ones, please. The first one on product mix. Can you comment, please, on the potential sequential improvement we could see in product mix, thanks to the launch of the Megane Electric and the Austral, how do you expect this to evolve over the next quarters? Second, can you comment on these 2 buckets of sales partners and others, a little bit. Can you remind us of the dynamics behind sales partners and the other bucket? And how does this other bucket contribute to earnings? And then 3, I guess we'll have to wait for October for the CMD. But when you think about the carve-out of BEV versus ICE, are you finding in your initial findings in the initial work additional efficiency opportunities as a result of separating business units that maybe you were not in a position to identify a year ago.

Jose, thanks for the questions. So on the product mix, clearly, it will continue to be positive in the year. We're only very early on in terms of other launches. We haven't started selling Megane E-TECH and Austral will come in the second part of the year. I think on the Dacia brand, Jogger, as I mentioned, is off to a great start. It's significantly above our own expectations. So I think we should forecast for the year continued product mix improvement. If you think about it on the more medium-term, our goal is to raise the portion of the C-segment in our portfolio. We were at 27% a year ago in Q1. We're at 30% today. Our goal is to get to 50% right? And each time we replace or we add -- let's say, the way to look at it, again, is the margin we make on the C-segment is double the margin we make on the B-segment generally speaking. So you can think of the impact that, that will have. In the simulations that we had made in Renaulution, the margin that we have on the C-segment rises from being 15% of the margin of the group to 40%. So definitely a big lever for us. On your second question, the sales to partners and the other buckets. So sales to partners, the key elements that contribute to the drop versus last year are really 2 things. The first one is, we stopped now the programs with Fiat and Opel on the LCV side. Obviously, those are -- they stopped on schedule at the end of last year. So that's a big contribution. The second element is that with the energy mix, we're selling less diesel engines that we used to. Diesel is inferior to LPG for us now. So those are the key contributors. I would say it's going to continue to be negative for the rest of the year, but probably gradually to a lesser extent, because we're getting to the bottom of the curve. We've got new partnerships that are coming into play, in particular within the alliance with Nissan and with Mitsubishi and with also potential external partners. So on the medium term, this is something that should get better. On the other buckets, there's really 3 components to it. The first one is our aftersales business, which is performing very well. And so that helps us from a turnover perspective, it will help on the profitability side as well. The second bucket is Renault Retail Group, which is our owned dealership network, which is performing well. And part of the good performance comes from the same levers as the rest of the business, namely pricing improvement, more discipline on channels, et cetera. They're also benefiting from stronger used vehicle pricing and used vehicle sales. The third bucket -- the third element that's in this bucket is the accounting treatment relative to sales with buyback commitments. So when we sell a car with a commitment to buy it back, we record the revenue over the period of the rental. So in this bucket, you have that accounting reversal from sort of one-off sales smoothing the revenue over the period with a focus on the most profitable channels and also the shortage on components. The proportion of sales with buyback commitments is smaller, which means that we're taking more revenue upfront as opposed to spreading it over the period. So that's what explains the drop in this quarter. I think that effect was already observable last year. So for the rest of the year, we shouldn't see such a lift. Now last question on potential opportunities that we're seeing due to the carve-outs. I think the answer is it's a great question, and it's absolutely, absolutely, yes. So the more you get into understanding to a deep, deep level, the level of profitability of the different parts that contribute to your business. The better you see, it's like the tide is going down and the rocks are appearing in a way. And I think there is certainly an element of that, that we're discovering today. And there is value in the project. If only for that, and I think it goes with what I said about having focused approach on businesses that are strategic for you in the future. So, yes, we're learning a lot, and we'll continue to do so, and we'll take these learnings and try to embed them and in our operations to try to continue to get better.

Now we have a question from Tom Narayan.

Sorry. 3 quick questions for me. So I think in the prepared comments, you said Q1, you had 36% of sales, either BEV or hybrid. Curious if you could just give the breakout of BEV, plug-in hybrids and regular hybrid. And then if you could comment on suburban versus urban take rate of BEV's OEMs that we've been meeting with recently have commented that the biggest obstacle they face with BEV take rate is public charging infrastructure. Curious if you could give us a sense on what you're seeing in terms of public charging infrastructure development and if that really matters, given the suburban versus urban take rate? And then regarding the decision you guys made to use Google specifically in the Megane and other cars you have. A lot of us have attended recent events with Mercedes and BMW, where they showcased their software, which integrates their own mapping. And it seemed quite impressive. Just curious if you could give us some more color on what went into your decision to go with a partner, which presumably costs quite a penny, instead of doing the software in-house yourself?

Look, on the split of -- so first of all, the number you state is correct. So it's 36% BEV and hybrid in the first quarter. It's a 13-points improvement versus last year. So as Fabrice mentioned earlier, we are seeing sort of a Green Wave very clearly. I think it's very mostly on the hybrid side, clearly, I think we play the portfolio, right? So we look at it as an overall offering of electrified product, and we try to play it as a portfolio. Today, clearly, the hybrid is reporting that is representing the biggest portion. However, EV continues to improve, in particular with the great success of Spring. I mentioned spring earlier. Spring is the most affordable EV on the market right now, and we've seen take rates that are very, very good since we made that product available to the general public. So yes, I mean, I don't know, Fabrice, if you want to comment specifically on electrification?

We are clearly improving 2 levers. On one hand, EV even though it will be better with the launch of Megane E-TECH, of course. And on the second point, our lever of hybrid on our core models, Clio, Captur, Arkana is now over 50%. It means we are beating with hybrid, the former diesel mix somewhere.

And then on your last part on. Sorry, I cut you off, would you like to say a thing about that.

Something on that as well. I mean, spring is representing roughly 12% of our orders. So it shows also that the strategy of going with BEV on Dacia on that is working. And when we look at the sum of LPG for Dacia and EV, which bring -- we're getting close to 50% over the last 6 months. So LPG is also clearly an asset for the brand.

As regards Google. So look, I would say for these elements as well as the EV value stream. So software and EV are key value chains for us as a business. And what we did with the team is look at the entire value chain that constitutes these things and look at where we think we need to be doing it internally and where we feel it's better for the customer, more capital efficient, more future-proof to partner with a tech company or someone that's very well positioned in the market. On the connectivity side, we made a decision to partner with Google. I think the partnership brings great assets. I think anyone that's tried to drive Megane E-TECH will can testify that it's a fantastic environment and customers that have seen the cars love it. It brings assets such as Google Assistant, Google Maps, which are fantastic, right? Google Maps is a fantastic thing to have on your car. So I think it's -- for us, it's a winning partnership. And we have lots of interactions with Google, not only on this part of the business but also on other parts, and generally speaking, the relationship with Renault. So in terms of -- what you mentioned in terms of cost, it'd be interesting to see the trade-off to be made between the cost of developing some of these things internally versus purchasing them from someone with whom you have an existing relationships on many different other parts of the business. Certainly, for us, we thought that Google was a good path. So again, I think it's working. I think the proof is in the pudding somehow and how the customers will receive it in the cars. Megane certainly seems to be very well received. In the first context with the press on Austral, this is viewed as a significant asset of Austral as well. So look, I think it's -- at this stage, it sounds like the right decision.

So we have now our last question from Philippe Houchois, Jefferies.

I've got 3 quick ones. The first one is, I understand there are lots of moving parts at Renault right now. But I listen to you is the rising penetration of EVs in your mix, is that a margin headwind? Or are you basically able to offset that and there's basically similar profitability for your ICE offer compared to your EV offers? Second question, just housekeeping. But I think earlier this year, you told us pretty much a EUR 700 million to EUR 800 million dividend from RCI. I understand that has not changed. And -- but you downgrade your cash flow guidance. I know you made some points about we shouldn't think that we just look at positive or breakeven. But what would be -- what was behind this step in the guidance on the cash flow because I don't think Russia was such a big contributor. Yes, you have less auto earnings, but you should still have this growth that helps your working capital in the second half of the year. And the last point on the pricing and affordability and -- what I observed during COVID is that we saw used prices improve much more than new prices. So everything went up, but used improved a lot. Now we're getting a lot of mixed signal on the used pricing environment, whether it's in the U.S. or in Europe. And for me, simply put, when you buy a car, you sell a car. So when used was improving faster, you're effectively helping affordability, now it is potentially reversing? Is that something that you see already in your business? Is that a threat that we should take into account that potentially you need to raise new car prices, but the used pricing dynamics are basically flattening or reversing?

Thanks for the questions. So on the EV mix, the EV cars today in our range need to contribute as much as the ICEs on -- at least on a unitary marginal profit sort of basis, right? So if you take Megane E-TECH, it's not a diluted vehicle for us. And in all the sort of projects that we've got in the development portfolio, the EV vehicles are subject to the exact same threshold in terms of profitability, in terms of return on capital, et cetera, as the ICE vehicles. Okay. So the answer is, we need the segment of our operations, which is the future to be as contributive as the rest of the range. One thing that I'd like to say on this topic is, we've been in the EV game for quite a while. And Zoe has been on the market for, I guess, almost 10 years now. And a lot of the investment that it takes to initially get in the EV business is behind us. So when we develop a new EV, it doesn't cost us more today than when we develop a new ICE vehicle, right? And it's -- I think it's something to keep in mind because it's potentially something that doesn't necessarily apply to all the competition. On your second question on free cash flow, you're correct. The guidance we gave on RCI is EUR 700 million to EUR 800 million of dividends this year. No change from that perspective, should be in the first half okay? On the guidance for free cash flow for the rest of the year, I think to make it -- to answer your question on why is a EUR 1 billion less facially compared to what we had said previously. So first, the impact of Russia is quite significant because we're losing the inflow from Russia. But like the rest of the business, Russia was also operating with a negative working capital. So as the volume reduces -- the year, the volume is cut, you're continuing to pay the suppliers for a while or more than you're getting paid for customers, right? So there's sort of a bleed out of working capital that has a double whammy effect on this year, which clearly will not happen again in the outer years, right? So the impact of Russia in the outer years is nowhere close to $1 billion. So however, this year, it's less than EUR 1 billion or so. Frankly, for simplicity of communication, we were not going to say free cash flow is going to be above 200 or above 250. We just opted for simplicity of saying it's going to be positive. Especially if you think about the fact that we're quite in a volatile type of environment, the impact of the components crisis is still generating pretty significant swings from a working capital's perspective. So we communicated positive free cash flow, which you should take as a conservative position, right? Now on your last question on the pricing and the potential impact on customer values. Maybe I'll let the commercial team comment. But first off, I will say that residual values have been improving and we still have an opportunity to improve them significantly. And I think the new products that we're launching should come with much better residual values than the previous generation. So that should help from a customer standpoint to compensate a bit of the upfront pricing impact. Fabrice, would you like to comment on the Renault brand.

I think regarding used car demand or used car prices, which was your question, I think the offer in terms of used cars in Europe, at least for Renault and Basie will be limited, because of our channel mix oriented on private. It means it should enable us to maintain high prices in used car and therefore, high prices in new car.

All right. Listen, I think that's all we have time for during this session. Thanks very much for your participation this morning and thanks for the questions. As usual, we remain at your disposals for any more details that you would like to get about our performance. Thanks very much, and have a good day.

Thank you.