European recovery lifts Renault profit despite weaker pricing

Renault said on Thursday its first-half profit rose sharply as a European market recovery and currency windfall overcame pricing setbacks for older models, driving margins to a 10-year high.

The tailwinds helped Renault lift group operating profit by almost a half to 1.07 billion euros ($1.17 billion), or 4.8 percent of sales.

"This is our best margin performance since 2005," Chief Financial Officer Dominique Thormann told reporters and analysts at Renault's Boulogne-Billancourt headquarters west of Paris.

"The group is on track to reach its operating margin target - probably sooner than planned."

Under Chief Executive Carlos Ghosn, Renault is stepping up productivity and technology sharing with 43.4 percent-owned Nissan, Daimler and other partners in pursuit of a 5 percent operating margin in 2017.

Growing business with the two affiliates accounted for about half of the group's 12 percent revenue gain - to 22.2 billion euros - as Renault sites began production of the Rogue sport utility vehicle for Nissan and Smart minis for Daimler.

Sajjad Hussain | AFP/Getty Images)

Renault said currency effects contributed 1.2 percentage points of the revenue increase, as overseas earnings were translated into a weaker euro. Sales in Europe were meanwhile lifted by a stronger than forecast recovery, Ghosn said.

Core manufacturing earnings jumped 89 percent to 656 million euros, lifting the auto division margin to 3.1 percent from 1.9 percent. Bottom-line net income surged 86 percent to 1.4 billion euros.

Renault's profit rose in spite of a negative pricing impact of 283 million euros, the company said.

The earnings hit reflected discounts and special offers to shift older models such as the Megane compact, Scenic minivan and even the three-year-old Clio mini - as well as mounting costs arising from tighter Euro 6 engine standards.

Overall pricing should bounce back with the coming Megane and Scenic updates, as well as rising sales of the Kadjar compact SUV launched this year, Renault said.

Renault's product offensive also led to a 396 million euro increase in working capital, which includes vehicle inventories, turning automotive free cash flow to a negative 95 million euros for the first half.