Renault Eliminates Car Debt for First Time in Nissan Link

Renault SA, France’s second-largest carmaker, eliminated debt at the auto-manufacturing unit for the first time in its 14-year tie-up with Nissan Motor Co. as it held back on spending and refrained from cutting vehicle prices.

Renault jumped to a two-year high in Paris trading after saying the automotive unit’s net cash position was 1.49 billion euros ($2 billion) at the end of 2012 compared with net debt of 299 million euros a year earlier, the first time the figure was positive since the Boulogne-Billancourt-based carmaker set up the alliance with its Japanese partner in 1999.

The French manufacturer, which reported earnings for 2012 that beat analyst estimates, said it’s planning on sustaining earnings and cash by adding to its model lineup to take a larger share of a shrinking European car market. Profit was also helped as Renault and Nissan tightened ties last year with Russian carmaker OAO AvtoVAZ.

“It’s clearly positive to have a net cash position as it should have a positive impact on refinancing rates which is crucial in the automotive industry,” Sascha Gommel, a Frankfurt-based analyst at Commerzbank AG, said today in an e-mail. “In addition, it increases the likelihood of dividends from the core business at some point.”

Dividend Raised

The French carmaker plans to raise the dividend 48 percent to 1.72 euros a share, Renault said today in a statement. The combined contribution to earnings from Nissan and AvtoVAZ, as well as from Volvo AB before Renault sold its stake in the Swedish truckmaker, totaled 1.5 billion euros, it said. The profit from AvtoVAZ almost quadrupled to 186 million euros.

Renault rose as much as 7.1 percent to 46.28 euros, the highest intraday price since Feb. 21, 2011, and was trading up 5.9 percent at 12:25 p.m. The stock has gained 12 percent in 2013, valuing the carmaker at 13.5 billion euros.

Earnings before interest, taxes and one-time items, defined as Renault’s operating margin, fell 33 percent to 729 million euros in 2012, the carmaker said. Profit beat the 698 million-euro average of 15 analyst estimates compiled by Bloomberg. Net income declined 15 percent to 1.77 billion euros. Sales fell 3.2 percent to 41.3 billion euros.

New Models

Backed by the revamped Clio subcompact and budget Dacia Logan, the French automaker forecast that its global deliveries will rise this year. It’s also targeting positive automotive-division earnings and operational cash flow in 2013. Even with a contraction in Europe of at least 3 percent, the worldwide car and light-truck market will expand 3 percent this year, with growth of as much as 11 percent in India, it said.

The Nissan-Renault alliance is proceeding with creating a small-car platform in India targeting first-time auto buyers, Rachel Konrad, a spokeswoman for the partnership, said today in an e-mail. Gerard Detourbet, who helped lead the Logan’s development, will lead the project, she said. The Economic Times reported that investment in the platform will total 20 billion rupees ($371 million) and annual capacity will amount to 300,000 vehicles. Konrad declined to comment on figures.

Renault’s worldwide deliveries last year fell 6.3 percent to 2.55 million cars and light vehicles. Sales in Europe tumbled 19 percent, the steepest decline by a large manufacturer in a market that contracted 7.8 percent.

European Pricing

The drop in Europe was “much worse” than Renault expected, Chief Executive Officer Carlos Ghosn told analysts on a conference call. Even so, “we didn’t want to go into a price war” in the region, he said at a press conference in Boulogne-Billancourt. The Spanish and Italian auto markets will probably be at 30-year lows in 2013, he said.

The French carmaker is forecasting a weaker first half of 2013 than in the final six months of this year, the CEO said. Russian operations are the most profitable for the company, the CEO said, and he’s “bullish” on the market and the partnership with AvtoVAZ.

Nissan, Renault and Milan-based UniCredit SpA are setting up a bank in Russia specializing in auto loans, the three companies said today in a separate statement. The two car manufacturers will have a 60 percent stake in the financing venture, which is set to be operational by the end of this year, and the Italian bank will own the rest.

Renault’s automotive operations posted a loss of 25 million euros in 2012 compared with profit of 330 million euros a year earlier. The positive net cash position at the unit was helped by a 924 million-euro gain from the sale of Renault’s remaining 6.5 percent holding in Volvo in December, it said. Operational free cash flow at the division was 597 million euros.

Credit Ratings

The carmaker hopes that eliminating debt at the manufacturing unit will improve credit ratings for the parent company and its RCI Banque financing unit, Chief Financial Officer Dominique Thormann said in an interview. Renault’s debt is one step below investment grade at Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

The carmaker’s earnings-recovery strategy includes plans to eliminate 7,500 jobs through 2016 in France, and the company is in talks with labor unions on raising worker productivity. Renault is also trying to broaden its product range by reviving the Alpine sports-car label and developing the Initiale Paris insignia into a full-fledged luxury brand.

Renault is sticking to a “medium-term” target of earnings at 5 percent of sales, though it won’t reach that figure this year, Ghosn said.

Before it's here, it's on the Bloomberg Terminal.