Renault Warns of Rough Year Ahead After Record Annual Loss

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Renault SA braced investors for another challenging year as lingering coronavirus restrictions and supply-chain challenges threaten the French carmaker coming off a record annual deficit.

The manufacturer reported a net loss of 8 billion euros ($9.7 billion) for 2020, worse than the 7.85 billion euro-deficit projected by analysts. Much of the damage was done during the first half, when lockdowns crippled auto shipments. A scarcity of semiconductors now poses risk to this year’s results.

“2021 is set to be difficult given the unknowns regarding the health crisis as well as electronic components supply shortages,” Chief Executive Officer Luca de Meo said Friday in a statement. “The priority is profitability and cash generation.”

Renault Warns of Rough Year Ahead After Record Annual Loss

Renault said business improved significantly during the final six months of last year, when it generated an operating margin of 3.5% and positive automotive operational free cash flow.

De Meo took over in July after his predecessor was ousted as part of the fallout from the 2018 arrest of former leader Carlos Ghosn. The CEO is now pushing through plans to shore up profits, repair the troubled partnership with Nissan Motor Co. and cut costs by closing sites and eliminating 14,600 jobs.

Renault fell as much as 8.5% in Paris trading, paring this year’s gain to around 7%.

The results for last year were weighed down by Nissan, which accounted for almost 5 billion euros of the loss, mostly accumulated during the first half. The car-making alliance that also includes Mitsubishi Motors Corp. has been shaken to the core, with the three trying to find ways to work together and in some respects turning inward to stem losses.

Cost Cutting

Nissan has embarked on an aggressive turnaround plan that involves slashing production capacity and earlier this month trimmed its loss outlook for the year through March. A surprise operating profit for the most recent quarter was a sign it’s on the path toward a tentative recovery. The company’s decision to make commercial vehicles at a Renault plant in France is an example of how the alliance is working, de Meo said on a call with analysts.

The CEO faces the difficult task of rationalizing a bloated cost structure and excess production capacity while pacifying the French state -- Renault’s most powerful shareholder -- on local jobs. Last month, he unveiled a turnaround plan targeting an operating margin of more than 3% by 2023 and at least 5% by mid-decade. Analysts have said the push lacks ambition considering Renault’s 4.8% return in 2019, before the pandemic hit.

Renault Warns of Rough Year Ahead After Record Annual Loss

Renault has already achieved 60% of its planned 2 billion euros of cost-cutting. While the company didn’t give a detailed outlook for 2021, it warned that a global bottleneck in auto chips could cut its car production by 100,000 vehicles this year, with the shortage reaching its peak in the second quarter.

Renault Warns of Rough Year Ahead After Record Annual Loss

“Our visibility for the time being is pretty limited,” de Meo said.

Diverging Fortunes

Renault’s fortunes diverged during the last few years from its French peer PSA Group, which in January completed a merger with Fiat Chrysler to form Stellantis NV. Carlos Tavares, CEO of the Peugeot and Citroen maker, pulled off the combination after the French state foiled Renault’s attempt to do a deal with Fiat in 2019.

The company will continue expanding its offerings of plug-in hybrid and fully electric models and plans to start selling the mass-market Dacia Spring this quarter.

Renault’s finance unit is planning to pay a 1 billion-euro dividend to the parent as soon as European rules permit, Deputy CEO Clotilde Delbos said on an analyst call. It’s aiming to make the payout later this year as central bank restrictions start to ease.

The Renault board will propose during the annual shareholders’ meeting in April that the parent not pay a dividend to investors with respect to last year.

Sales dropped by more than a fifth last year to 2.95 million vehicles -- a far cry from Ghosn’s goal for more than 5 million cars annually by the end of next year. Renault executives have since pledged to chase profitability over sales volumes.

Global auto shipments are expected to recover this year, but challenges remain. While Volkswagen AG and BMW AG posted better-than-expected preliminary earnings driven largely by China’s recovery, sales in Europe -- the key market for Renault -- slumped to a record low for January as lockdowns again shook the continent’s biggest markets.

©2021 Bloomberg L.P.

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