Renault's 2020 results: already a de Meo effect?

The presentation of Renault's results did not surprise many people: very heavy losses, very strong impact of Nissan's losses, good stock and mix behaviour, cost reduction plan due in 2023 already largely achieved and a clear improvement in H2, all this was expected. Paradoxically, this seems to indicate that, even before Luca de Meo had time to really make his mark on the company, it would be able to pull through. Meo's effect would then be expected by 2022 or 2023 in a context where the company would already be in a better position.
 
The presentation of Renault's financial results - like the presentation of the Renaulution plan a month earlier - was particularly well prepared and was finally not much commented on, as it contained few surprises.  
Like the speech made by Luca de Meo (LDM) and his teams, the accounts and their deterioration seemed to reflect not only the impact of the Covid crisis but also the damaging effects of the past strategy. Likewise, the marked improvement in the second half of the year is supposed to reflect both the initial effects of the recovery plan and the improvement in production and sales conditions throughout the world once the worst of the health crisis is over.
 
The fact that the return to a positive operating margin in the second half of the year was not enough, in the annual accounts, to erase the very alarming deterioration in the company's situation noted in the first half of the year thus refers both to an economic situation which, in the first half of the year, was exceptionally bad and to the impossibility for Renault's management to erase in such a short time the damage caused by the previous strategy. 
 
Since what is true at Renault is also true at Nissan, the same causes producing the same effects, Renault's losses are more than doubled by the integration of Nissan's losses into its results.
By presenting Nissan's results as significantly improved in the fourth quarter 2020 and Renault's results as significantly improved in H2, Renault's management corrects the potentially disastrous effects of the announcement of an 8 billion euro loss by indicating that the situation could recover as early as 2021. The Stock Exchange seems to have only half adhered to this communication strategy since the share lost 4.43% on Friday, at 38.03 euros.
 However, it is likely that the fall would have been even more brutal if analysts had not been able to hear the very reassuring speeches on Friday morning by Luca de Meo, Clotilde Delbos, Denis Le Vot and Gilles Le Borgne.
 
In fact, it should be remembered that LDM's first public release in July coincided with the announcement of the H1 results: Renault had never before published a net loss of such a magnitude, as it reached 7.3 billion euros for the first six months of the year alone. Since PSA reported a net profit of €595 million at the same time, the "Covid economic situation" alone could not be invoked, the share lost 9% and LDM had to admit that the reasons for these catastrophic results were elsewhere.
 
Admittedly, the "Nissan effect" weighed 4.8 billion euros on the group's results, but Renault's operating loss alone was 2 billion euros for the first six months. It took into account a depreciation of 445 million euros, in order to take into account "revised volume assumptions" downwards "for certain vehicles" as well as provisions for restructuring charges for 166 million euros "mainly linked to the early departure plan in France" but it clearly indicated that, despite the short-time working measures which transferred to the states a significant part of the cost of the adjustment to the drastic drop in sales, Renault was not doing well.
 
"The situation is unprecedented. It is not without appeal", had then indicated the new boss by highlighting the work engaged by C. Delbos and his teams before his arrival to conceive the recovery plan largely centred on profitability and the lowering of the break-even point. It is this one which seems to have allowed that, six months later, the announcements made are finally very close to those of July: the loss increased in six months "only" by 700 million, a third of which is due to Nissan.
 
The operating margin in H2 was 3.5% of sales (compared with 3.7% in H2 2019). As the four managers stressed, provided that the environment does not hold too many unpleasant surprises in terms of raw materials, exchange rate fluctuations and the health crisis, this trend should result in a return to profitability as early as 2021.
Thus the profits would return even before the product plan allows the profits linked to a "return to segment C" for which, according to LDM, Renault has a natural place but missed the last product cycle (that of the SUVs). If this is the case, LDM told us, it is because Gilles Le Borgne's work to cut engineering costs will have increasingly clear effects because the accounts will no longer be burdened either by the weight of the depreciation of the excessively heavy R&D expenditure capitalised in the past or by the abandonment of certain projects and the compensation of partners that still had to be made in S2 in 2020.
 
For the rest, for H2 2020 as for 2021, it is essentially the products and technologies that Renault had put in its Hub before LDM - and before Le Borgne moreover - that make us optimistic: the EVs (Zoé, Twingo and Spring) and the VH and VHR with their original technology have indeed allowed, well before the Renaulution took place, a fairly good positioning of Renault products on the markets that are changing very rapidly in 2020.
In 2021, it will only be a question of continuing to surf this wave, but this could eventually be enough in Europe at least. The LDM effect will then remain essentially media-driven and will only become real afterwards. 
 

22/02/2021

The weekly column by Bernard Jullien is also on www.autoactu.com.

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