Renault SA logo on the exterior of the automaker’s showroom in Paris, France. (Photographer: Christophe Morin/Bloomberg) 

Renault Warns Hard Brexit Would Kill Hopes for 2019 Growth

(Bloomberg) -- Renault SA, which sold half its vehicles in Europe last year, spelled out the potential knock-on effect of a hard Brexit across the region, saying it’ll only meet its forecasts if the U.K. can work out a deal to leave the European Union.

The French carmaker’s prediction for a stable market in Europe this year hinges on an orderly U.K. exit, it said, and only then it would be able to boost revenue as expected. Renault also tempered an operating margin goal, saying it will drop to “around” 6 percent for the year, compared with a margin above this level last year.

The warning brings into stark relief the dire consequences for carmakers across Europe of a hard Brexit. To date, the concerns have centered on the future of U.K. operations of manufacturers like Jaguar Land Rover, and British consumers holding back spending on big ticket items hurting Ford Motor Co. and Volkswagen AG. A no-deal exit would jeopardize 100,000 jobs in Germany, according to a study by German economic institute Halle IWH.

Renault, battling with the aftermath of the arrest of its former chief Carlos Ghosn three months ago, has come through a tough few months with falling sales in Europe and emerging markets to still meet forecasts for last year. Earlier this week, carmaking alliance partner Nissan Motor Co.’s quarterly earnings missed expectations and the Japanese manufacturer slashed its profit forecast for the year.

Renault Warns Hard Brexit Would Kill Hopes for 2019 Growth

The year ahead “will be one of moderate growth,” Chief Executive Officer Thierry Bollore said on a call with analysts. He also outlined a new cost-cutting program dubbed “Fast” to cut fixed cost by 5 percent a year and reduce vehicle development cycles to three years.

Renault’s 2018 revenue decreased 2.3 percent compared to a year earlier, hurt by a withdrawal from Iran to comply with U.S. sanctions, and a drop in diesel engines sold to partners and weaker currencies in emerging markets including Argentina and Turkey. The result was in line with consensus expectations, Jose Asumendi, an analyst at JPMorgan, said in a note.

The shares rose 3.4 percent to 58.61 euros at 9:40 a.m. in Paris trading, valuing the carmaker at 17.3 billion euros ($19.5 billion).

A tougher business environment is adding to pressure on Renault and Nissan to ease tensions in their two-decade old alliance forged by Ghosn. On top of a looming Brexit, record investments in electric cars and a slowing Chinese market have weighed on industry growth. Renault’s new Chairman Jean-Dominique Senard is flying to Japan this week with a brief to mend relations as Nissan seeks to gain more control in the partnership.

The alliance needs to speed up decision-making while significant joint projects are moving forward, Bollore told analysts. Making the partnership irreversible, a goal also pursued by Ghosn, remains Renault’s goal, he said.

Nissan Earnings

Presenting Nissan’s earnings this week, CEO Hiroto Saikawa said the alliance may need to revisit targets for 2022, a set of goals given in 2017 that call for synergies and increased annual vehicle sales.

Alleged misdeeds by the jet-setting Ghosn, who also used to chair Nissan and third alliance partner Mitsubishi Motors Corp., are also under investigation in France.

On Tuesday, Nissan took the unusual step of taking a 9.2 billion yen ($83 million) charge to reflect accumulated payments due to Ghosn, who has said the payments weren’t certain to be made, so didn’t need to be declared. The move escalates the case against the former chairman after Tokyo prosecutors indicted Ghosn for allegedly understating his income at Nissan by tens of millions of dollars. Separately, Renault on Wednesday scrapped millions of dollars in payouts including a non-compete agreement worth two years’ fixed and variable pay.

As the partners sort their future relationship, Renault’s key markets in Europe have taken a worrying turn. Demand for the region has peaked after registrations in the five largest markets show a fifth straight month of declines, going beyond disruption caused by new emissions testing from September, according to Bloomberg Intelligence analyst Michael Dean.

Annual results
20182017
Revenue57.42 bln euros 58.77 bln euros
Operating Profit3.61 bln euros3.85 bln euros
Return on Sales6.3%6.6%
Free cash flow607 mln euros945 mln euros

Nissan sold nearly 1.8 million more cars last year than Renault, but still trails the manufacturer’s profitability. Japan’s third-largest carmaker reported a return on sales of 4.3 percent for the third quarter, up from 3.7 percent last year.

©2019 Bloomberg L.P.