FRANCE: Cost cuts reward Renault
Cost-cutting successes company-wide resulted in Renault boosting its operating margin 27.4% or EUR1.354bn to 3.3% in full year 2007 on global sales up just 2.1%.
Net profit fell 7.6% to EUR2.734bn but group operating rose 41.2% year on year to EUR1.238bn.
Group revenue rose 1.8% year on year to EUR40.682bn on a comparable basis. Automobile division revenues of EUR38.679bn were up 1.6%. Revenue from the France and Europe regions dropped 2.6% but increased 3.1% elsewhere. Revenue from the sales financing division, RCI Banque, was up 4.8% to EUR2.003bn.
Renault president and CEO Carlos Ghosn said Renault, like the rest of the auto industry, faced many challenges during the year from rising energy and raw material costs, volatile, unfavourable exchange rates and sluggish trends in its main European markets.
"In short, our results improved in 2007 despite a marginal contribution from commercial sales and adverse exchange rates, mainly thanks to cost reductions and better operational management," said Ghosn as he presented the 2007 results.
"Outside of Europe, sales grew 16.3%. The Euromed region turned in a record year, crossing the threshold of 400,000 vehicles sold. 2007 was also a good year for the group in the Americas, where sales rose 32.2%, outpacing market growth of 17.9%."
Sales outside Europe now account for 35% of group sales, Ghosn noted.
The automobile division's operating margin rose 54.5% to EUR882m, or 2.3% of revenues, thanks to continued cost reductions, growth in international operations and, Renault said, the competitiveness of its light commercial vehicle range which includes popular vans like the Kangoo.
Despite the negative impact of rising raw material costs, purchasing savings totalled EUR390m, manufacturing and logistical costs fell EUR137m and general and administrative expenses were cut by EUR44m.
Renault earned EUR1.675bn from its share in the net income of associated companies, of which EUR1.288bn came from Nissan and EUR352m from AB Volvo.
Renault, which has committed to a substantial improvement in vehicle quality in recent years, said the number of incidents recorded after vehicles had been three months on the road had been halved while one-year warranty expenses fell 25% between 2005 and 2007.
The share of "fully satisfied customers" rose by 6.3 points during these two years, representing an additional 700,000 individual customers, it claimed.
The automaker said it had improved profitability with wide-ranging efforts to boost productivity and cut costs across the entire company. Regional management committees had diversified the sources of profit - profitability of the Logan programme "advanced considerably" in 2007 and the company is on track to meet its 6% operating margin commitment in 2009.
Discussing the automaker's move to less dependence on established markets, Ghosn said: "… In 2006 I said that we had been investing in Brazil for 10 years without ever making a profit and with only mediocre sales volumes. Today, volumes in this market have increased by 55% and the operating margin is positive. There is still plenty of room for improvement, but we are back on a sound footing."
"In a less favourable macro-economic environment in 2008, Renault can count on the impact of nine new product launches globally and on its expansion into the most dynamic and growing markets for auto sales in the world," the company said in a statement.
"Renault therefore confirms its operating margin target of 4.5% for the year and an increase of more than 10% in group sales compared to 2007.
Added Ghosn: "For [us], 2007 was the year of quality. 2008 will be the year of growth. We expect to increase our sales volumes by over 10%. This rate is unprecedented in [our] history.
"It will not be an easy year given the risks facing our industry. We see two major risks in 2008: a challenging macro-economic environment, which will affect markets, in particular in Europe, and exchange rate volatility, which may have a negative impact on our earnings, as it did in 2007."