Renault Issues Revenue Warning Amid Slowdown In The Wider Industry

First half profit at the French auto maker Renault saw a drop because of subdued demand for cars globally and a 95 per cent drop in the profits of its alliance partner Nissan following the Carlos Ghosn episode. That prompted Renault to issue a warning of a drop in revenue for the complete year.

In the January to June period, there was an almost 50 per cent drop in the net income of Renault at €970 or $1.08 billion against a 6.4 per cent year on year drop in revenues at €28.05 billion, said the French carmaker on Friday. There was also a drop of 13.6 per cent in operating profit at €1.65 billion.

“Given the degradation in demand, the group now expects 2019 revenues to be close to last year’s,” Renault said as it reversed its earlier forecast of increasing of revenue minus currency effects.

Just like most major auto makers, Renault has been facing a broad-based auto sales downturn which has upended the global auto industry. Renault and Nissan are also faced with headwinds arising since the arrest and ouster of the former chief of both the companies Ghosn. Nissan had brought in charges of financial irregularities against Ghosn in Japan and he is now awaiting trial on the charges. Ghosn has denied all the charges brought against him.

An €826 million drop in earnings from its 43.4 per cent-owned partner Nissan has significantly hit the bottom line of Renault. Following a 95 per cent drop in profits, Nissan has announced the cutting of 12,500 jobs globally even as the Japanese company apparently seemed to blame Ghosn’s leadership for the mess that it is in now.

Notwithstanding the dramatic drop in Nissan’s profits and performance, there was also a 5.9 per cent drop in the operating profit margin of Renault shown by its standalone performance results. In the same period a year ago, the company’s standalone operating profit margin was at 6.4 per cent. Renault’s domestic rival PSA Group had fared better in the first half of the current year. The owner of the Peugeot brand reported a record 8.7 per cent profit margin for the same period in contrast to the overall downturn in the auto industry.

Investors and analysts fear that the performance of Renault as well as Nissan could have been affected by the tensions between the two partners which started with the arrest of Ghosn in November last year and then increased after a failed attempt by the French car maker to merge with its Japanese partner. Renault had also unsuccessfully attempted a merger with Fiat Chrysler following its failure with Nissan.

A lower-than-usual €258 million in joint purchasing savings for Renault was flagged by Citi analyst Raghav Gupta-Chaudhary. “We thought this would be weak in light of the well-documented difficulties with the alliance,” he said.

There was a 7.7 per cent drop in revenues in the core automotive business of Renault which the company attributed to dropping sales in France, as well as in Turkey and Argentina. This business segment of the company also saw a reduction in its profit margin slid from 4.5 per cent in the same period last year to 4 per cent.

(Adapted from IrishTimes.com)

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