Renault SA (RNO) Earnings Call Transcript & Summary

Good evening and thank you for joining us for this conference call, which will be hosted by Luca de Meo CEO of Renault Group; and Thierry Pieton CFO of Renault Group. We'll start with a short introduction made by Luca, and then we'll follow with a Q&A session. Luca, the floor is yours.

So hi, everyone. So thank you for joining this call, especially in such a short notice. As you know, in 2022, we announced our intention to potentially proceed with an IPO for Ampere. And the contemplated dates, as you probably remember, was in the first half of 2024, but we said depending on market conditions. As previously announced, also Renault Group strategic plan, Renaulution, is self-funded. And results, which will be released for 2023, confirm the group's ability to generate sustainable cash flow to finance its future, including the development of Ampere. Over the last semesters, Renault Group has significantly improved its performance to reach levels above initial expectations. And this offers the group greater flexibility and all the freedom of action it needs. So therefore, considering both stronger cash generation than expected and obviously also the current equity market conditions, we have decided as it's, I think, in a pretty pragmatic way to cancel, and I repeat, to cancel the Ampere IPO process. We think this is in the best interest of Renault Group, of its shareholder and, of course, of Ampere. One thing is very clear to all of us and for me, in particular, with Ampere, we have, in the meantime, created a business that is unique in its kind. The IPO project has been a sort of accelerate, allowing us to set it up in record times. We have created a start-up mindset in the company, which allow us to constantly improve and innovate. And this is exactly, what will make Ampere successful in its very challenging environment. Today, we are, I think, also more determined than ever to build the success. We think the Ampere is, first and foremost, an industrial project. And actually, it's the most substantiated answer of the European automotive industry to the challenges coming from West and East and to boost EV democratization in Europe. So since the beginning of November, when we carved it out, Ampere has been operating. And we can now observe day after day the performance and speed that this model and this organizational model generates. We are rolling out our strategy as planned. We are on schedule, when it comes to our 40% cost-reduction road map, and the cost for the Twingo will be, for example, 40% cheaper than the one of the Renault 5. The team is now focused also on ensuring the success of the other 2 crucial launches this year that we'll have in spring and summer. This is the Scenic and the Renault 5, and we have actually already very, very good feedbacks. And of course, the team is also focused on reducing development time, mastering the technology and putting innovation at the core of Ampere. So let me conclude by reminding you that Ampere is also now a key element of Renault Group strategy and next-gen organization. It's 1 among the team of 5 focused businesses that we have set up to address each one of the major automotive value chains. The organization is designed to capture value, where it is today in automotive landscape, not only where it used to be traditionally. And it gives Renault Group an asset that pure players actually don't have: flexibility and the ability to adapt to the changing pace of the shift to EV. So as you will see in few days, it is already demonstrating its ability to take this company, where it has never been before. So thank you for your attention on this quick introduction. And I'll leave it to Thierry and me, of course, to open to your question. I want to involve you, Thierry, also on the exercise. Thank you very much.

Thank you very much, Luca. The first question will come from Albertina from Bloomberg.

Can you hear me?

Yes, we hear.

Yes.

Okay. Two questions, Luca. The first is why now? It's quite still early on. Obviously, if you were to launch an IPO in May, you would have to start making road shows now. But still, like, for example, this week, there will be a Sodexo spin-off. So that will probably test the appetite for French IPOs. And so just curious as why the decision of today. Second question is one of the reasons the fact that you are in talks with Volkswagen on the EV platform for the Twingo, so you actually do not need the IPO because you have cash coming in from Volkswagen and potentially other partners for the development of the platform?

Well, I think, there is the reason why we're doing it now is that in the process, you know that there is a standard process, but the most important thing is that we are realizing more and more the performance of the group is getting better and better. And of course, Thierry will tell you more in a few days about what was '23 for us. And then compared to the initial, let's say, assumption we had 2 years ago, when we announced the Ampere project and potentially the IPO, I think that the cash generation of this company has changed at another level. And that allows us to finance completed approach, including the cash burn that we had anticipated in the first 18 months of Ampere's life. So I think we don't need to go in that direction, and we don't do it. This is basically explanation, and it's better to do it now. We can focus the team on executing each one of the pieces of the puzzles, which is actually happening. And we don't get distracted from other things because we can afford it. On -- I wouldn't comment on the Volkswagen thing, so we have talks to some OEMs. Because the whole idea of the A segment EV platform is a very good idea. We have a very good technical base. We have ability to produce and manufacture cars. We're going to do the car in a very -- in a record time in terms of development. But there's -- you can't link the 2 things basically, if -- just to answer for your question, there's nothing to do with the decision we made. Decision we made is that we realize now that we have all the resources to continue the project on Ampere. You want to do [indiscernible]?

Yes. Just want you to come back on the project...

Sorry, but you confirm that there are talks with some OEMs on EV platform development?

I'm telling you that the concept of the Twingo is characteristic. It's actually intriguing a few OEMs that so far don't have a solution for that. You know my fight for revamping the segment of small urban cars because I think with electric technology, we can both provide something that is relevant for consumer, at the same time, with the new electric architecture, maybe new type of batteries, et cetera, we can actually prove that we are able to make money with more car, which is not the case with a traditional ICE taking into account all the regulations. So I think that the switch to electric opens up again the opportunity to bring affordable [ urban ] cars for the people that they need. They used to be 10%, 15% of European market, right? And it's going down because of the current regulation on ICE cars. But it changed everything with electric. So we become intriguing for them because we're trying to reopen that handle this year.

And I think to come back on the funding question because it's obviously a key element in the decision making, when we got the Renaulution plan, we had a couple of objectives. The first one was the recovery of the performance of the business. But on the longer term, what we wanted to do is fund the structure that we're putting in place, so [ Fund Horse and Opel ] return to investment grade and gradually raise the dividend; and be able to grow the company in that way. When we built Renaulution, we had already built it in a fashion that wasn't dependent on the IPO. But if we look at the cash generation, since we built that plan, in 2022 versus the initial guidance of EUR 1 billion of free cash flow, we did EUR 2.1 billion. So that was a EUR 1.1 billion upside. This year, we started with a guidance of EUR 2 billion and now we have a guidance of EUR 2.5 billion. We're not going to come off that guidance obviously. So in a couple of years, it's EUR 1.6 billion of incremental cash flow that we generated. So now we have the firm capability to fund the structure, to return to investment grade and the schedule that we're hoping for and to raise the dividend at the same time without having to go on the market to raise additional funds and without diluting the shareholders at the group level. And so, I think, it's the right responsible decision to make. We have an opportunity just to do everything that we were planning on doing with the upside of the cash generation that we now have, which is sustainable and it's going to continue in the future.

Now we have a question from Peter Campbell from Financial Times.

Two, if I may. Did investor concerns over the current European EV slowdown play any part in this decision? And second, and this is more of a kind of a personal question, you've obviously put a lot of your personal credibility as the Renault CEO into this IPO drive. Do you feel in any way that, that might have been damaged by, say, its decision? And is that going to change the way that you think about your leadership of the company in the future?

No. I think that my credibility, of course, is in the overall equation that we are building with different variables on Renault. I think that so far, the -- what we did in Renault was pretty unexpected, I have to say. We're going to bring the company this year at the level that it has never achieved in 125 years. It's not a decision on the IPO or not IPO that I guess will impact my credibility, not only my credibility but the credibility of the whole team, which is more important. So I don't think so. At the end of the day, what is important is that we continue to develop Ampere. I think that Ampere is a very, very solid case. In fact, everything that we have started is going the direction we want to go on manufacturing, on engineering, on the launch of the cars, on the cost side. So I can reassure any -- let's say, any journalist and any analyst that it's -- we are completely on track with what we wanted to do. And I think that even the process of IPO, in fact, accelerated the thing because we had kind of an ideal deadline in front of us, and it pushed the teams to take a lot of good decision. So I see it pretty positive so far. Is the context influencing the decision? I think it's one of the elements because, I mean, we would be -- being totally blind and not looking left and right would have been not totally responsible as a management of team. I think there is a swing on the other side -- on the opposite side with EV, which I consider honestly pretty childish. Because 3 years ago, everybody was telling us that, if we would not go 100% EV, we would have been a bunch of zombies in 10 years. And now everybody is telling that we shouldn't do EV because, whatever, the profitability, the thing, et cetera, et cetera. I think we need to get to -- people like us, they have to keep cool heads all the time. I think that EV will be a dominant technology in Europe because of regulation, okay, and not because of the 2035 ban. A lot of people forget that we have the CAFE in the middle. So 2025, we need to achieve 95 grams CO2 in average for the fleets, okay? 2030, it's 50, okay? And you know that even if you take one of the best combustion engine in Europe, a small hybrid from Renault or Toyota or et cetera, it's actually 80 grams. So you don't need to be a Nobel price in mathematics to understand that you need the big parts of zero-emission cars. So electric car is a train that's already left the station. And Ampere will be one of the drivers for Renault to be one of the champions, when it comes to decarbonization. So the project continues. I think that what is important is that Ampere proves all the numbers and the target we gave ourself. And the IPO is a side dish into this story for me.

We'll now take some questions from sell-side analysts. [indiscernible] from Bernstein.

A couple, if I may. Firstly, have you seen recently any kind of diverging performance from your EV or your ICE models in terms of order books, pricing discounts, et cetera? And secondly, presumably, there are some cases of additional cash burn from Ampere onto Renault's own books. Does that push back your anticipated ratings upgrade? Or is that safe at this point?

Do you want to answer the second one?

Sure. Do you want me to start with the cash burn?

Yes.

Yes. So look, no, again, part of the decision for calling the IPO off is the fact that we're actually generating more cash. So we're in a situation, where we can achieve all the goals that we had set to ourself ahead of schedule without having to go to the market. So it's very short answer: absolutely not, it doesn't postpone the schedule that we had set to ourselves. In fact, we remain ahead and will continue to do so.