Fixed Income Analysis /

Credit Comment - Automobiles & Parts: Renault - “Renaulution” strategic plan targets are credit supportive

    Sven Kreitmair
    Sven Kreitmair

    Head of Credit Research

    14 January 2021
    Published byUniCredit

    Renault’s (Ba2n/BB+n/BBn) new CEO Luca de Meo today presented its “Renaulution” strategic plan (see presentation and press release summary). The strategic plan is structured in three phases that are launched in parallel: 1. Resurrection, running up to 2023, will focus on margin and cash generation recovery; 2. Renovation, spanning up to 2025, will see renewed and enriched line-ups, feeding brand profitability; and 3. Revolution from 2025 and onwards, will pivot the business model to tech, energy and mobility, making Renault a frontrunner in the value chain of new mobility. The plan aims to move Renault “from volumes to value” and includes the following two main elements:

    • Engineering and manufacturing efficiency, speed and performance – boosted by the company’s alliance with Nissan (Baa3n/BBB-n) and Mitsubishi (--/BBn) – will steer the group’s international footprint towards high-margin business and includes strict cost discipline. Renault’s 2022 fixed-cost reduction plan is to be achieved earlier and pushed further by 2023 to reach EUR 2.5bn, with EUR 3bn targeted by 2025 (including by turning fixed costs into variable costs). Variable costs are to be reduced by EUR 600 per vehicle by 2023. Investment (R&D and capex) will be reduced from about 10% of revenues to below 8% by 2025. Renault said that these efforts will strengthen group’s resilience and lower its breakeven point by 30% by 2023.
    • Dividing the business into four business units with strong identity and positioning (Renault, Dacia-Lada, Alpine and a new business unit, Mobilize, to generate more than 20% of group revenue by 2030 from services, data and energy trading). By 2023, the group aims to achieve a group operating margin of more than 3% (1H20: -6.5%; FY19: 4.8%; FY18: 6.3%), about EUR 3bn of cumulative automotive operational FCF (2021-23; 1H20: EUR -6.4bn) and a reduction in investment (R&D and capex) to about 8% of revenues (FY19: 10.7%; FY18: 9.4%). The main levers for margin improvement are a partial post-COVID-19 market recovery, cost reduction, mix/price/enrichment and RCI/VAZ. By 2025, the group aims to achieve a group operating margin of at least 5%, about EUR 6bn of cumulative automotive operational FCF (2021-25), and a ROCE improvement of at least 15 points compared to 2019. In 2020-25, Renault’s auto division liquidity reserves are targeted to be more than 20% of revenue each year. The Renaulution plan aims to ensure the group’s sustainable profitability while keeping on track with its zero-CO2-footprint commitment in Europe by 2050.