Renault 2007 Margin Roars Ahead on New Models

The head of Renault said on Thursday he was confident the group would hit its 2009 targets for profitability and volumes despite a downturn in European markets and a possible slowdown in emerging markets.

Renault Logan
AP
Renault Logan

"As much as I am skeptical about the market developments, I remain confident in the capacity of Renault to reach its targets," chief executive Carlos Ghosn told reporters after the French carmaker beat its own operating margin target for 2007.

Renault, which says its alliance with Japan's Nissan Motor makes it the fourth-biggest auto group in the world, said its operating margin rose to 3.3 percent from 2.6 percent, ahead of a 3 percent target.

Renault also raised the dividend to 3.8 euros per share from 3.1.

It maintained an operating margin target of 4.5 percent for 2008 despite a less favourable macro-economic environment and an expected negative currency effect.

Ghosn said the group's volume target -- to sell 800,000 more units in 2009 -- was for all the group's brands and for passenger cars and light commercial vehicles globally.

While the mid-size premium sector was taking a hit in Europe, and this was stunting the take-off of the Laguna saloon, he expected "an explosion" in sales among small models like the Twingo, Clio and Modus.

Ghosn added that while the European market would decline in 2008 and 2009, there would still be big growth in Russia, Brazil or the Middle East.

Renault shares were down 4.9 percent at 70.93 euros at the market close.

"The guidance isn't great," said Agilis Gestion fund manager Frederic Hamm.

Another Paris-based analyst added that investors used Ghosn's cautious guidance to take profits on the stock following its sharp rise at the start of trading on Thursday.

Renault's operating margin compared to the 2.9 percent of French rival PSA Peugeot Citroen Peugeot and Renault's own 2009 target of 6.0 percent.

Italy's Fiat had a 2007 margin of 5.4 percent.

Laguna Languishes

Ghosn told reporters he had to be more cautious about market developments or he would not be credible in light of a decline in the European car markets in 2007 and 2008.

He told a news conference that the group would sell over 10 percent more vehicles in 2008 compared to 2007, when it was up 2.1 percent to 2.48 million units, even if there was a recession in Europe.

He said the Laguna, a quality standard bearer for the group, was well received by clients but its market segment was down, partly because of penalties on bigger engines. He said the group
had relatively high stocks of unsold Lagunas and would cut the rate of production.

The low-cost Logan was doing well and Renault was making an operating margin of between 6 and 7 percent on the model in 27 countries in Europe.

Renault, which on its own ranks fifth in western Europe on 2007 sales and ninth in the world on a 2006 production basis, said its operating income rose to 1.238 billion euros from 877 million.

The average expectation of 24 analysts in Reuters Estimates was for EBIT (earnings before interest and tax) of 1.307 billion euros and an EBITDA (earnings before interest, tax, depreciation and amortization) of 4.258 billion.

Net profit slipped to 2.734 billion from 2.960 billion. This includes earnings contributions from its 44.4 percent stake in Nissan and a 20 percent stake in Swedish truckmaker Volvo.

Ghosn said he expected to sign within weeks the final agreement to buy a 25 percent stake in AvtoVAZ, the Russian maker of Lada cars.

He said that with AvtoVAZ, the Renault-Nissan alliance would be number three in the world after Toyota and General Motors , with 7 million vehicles produced per year.