Renault lifts core profit despite European troubles

French carmaker Renault has said it has increased first-half profitability at its core manufacturing division despite falling sales, riding out Europe's sustained market slump with new models and a firm hand on costs.

While the bottom line was weakened by lost business in sanctions-hit Iran, incurring a €512 million charge, operating profit before one-off expenses rose 15 per cent to €583 million. Revenue fell 0.9 per cent to €20.44 billion.

Renault shares rose after the company reaffirmed full-year goals including a positive auto division operating margin and cash flow.

“We’re on track to achieve the objectives we announced for 2013,” chief executive Carlos Ghosn said in a statement.

A collapse in European car demand has led to crippling price wars and excess capacity, wiping out manufacturers’ profits and in some cases threatening their survival.

Unlike struggling domestic rival PSA Peugeot Citroen , Renault is shielded from the worst of the crisis by its 43.4 per cent stake in Nissan, as well as a timely push into low-cost cars and emerging markets.

Renault shares rose as much as 5.4 per cent to €62.88 and were up 4 per cent as of 7.17am GMT.

“There’s been a great deal of uncertainty in the market about whether Renault would confirm its full-year guidance,” London-based Citi analyst Philip Watkins said in a note.

Mr Watkins credited tight discipline on pricing and costs for what he described as “surprisingly strong results from Renault”.

Net income dropped to €39 million from €734 million, weighed down by €832 million in charges, but the auto division’s operating margin rose to 2.9 per cent from 2.5 per cent.

The group's main Renault brand, challenged in recent years by cheaper offerings including its own no-frills Dacia cars, is fighting back to lift pricing with new models such as the latest Clio subcompact and Captur mini-SUV.

The effort helped offset a "difficult environment" in Europe and exchange-rate headwinds in Latin America, chief financial officer Dominique Thormann said.

“We’ve been able to compensate by raising prices,” he said.

Auto division earnings almost doubled to €211 million, or 1.1 per cent of sales, from €116 million and a 0.6 per cent margin. Divisional cash-burn was also reduced to €31 million from negative cash flow of €207 million a year earlier.

US-led sanctions led to a 47 per cent plunge in Iranian sales - to 28,000 semi-assembled vehicles - and were tightened further in June, prompting the €512 million writedown.

“This provision corresponds to the value of our assets (in Iran), essentially cash that we can no longer repatriate,” the CFO said. Renault has no manufacturing facilities in the country.

Profit took another dent from the bankruptcy of Better Place, an electric-car infrastructure startup that had ordered 100,000 of the French automaker's Fluence battery cars.

Renault took an €85 million charge to compensate suppliers to the Fluence programme - which also claimed an unspecified share of the additional €142 million in writedowns announced for three underperforming vehicles.

Reuters