Renault Group's sales revenues jump 25.2% y/y in Q1 on strong volume growth, AvtoVAZ consolidation

28 Apr 2017 Ian Fletcher

Renault Group has seen its sales revenues jump by 25.2% year on year (y/y) during the first quarter of 2017 from a combination of strong volume growth and the consolidation of AvtoVAZ to its financial performance.

IHS Markit Perspective:

  • Significance: Renault Group has seen its sales revenues jump by 25.2% year on year (y/y) to EUR13.1 billion (USD14.3 billion) during the first quarter of 2017.
  • Implications: Its performance during this three month period has been underpinned by the volume growth recorded by its Automotive business, as well as the inclusion of AvtoVAZ in to its financials.
  • Outlook: Renault expects to increase its group revenues beyond the addition of AvtoVAZ, increase operating profit in euros, and generate a positive automotive operational free cash flow during 2017. However, IHS Markit forecasts that the automaker's sales growth, including AvtoVAZ's Lada brand will not be as strong as during 2016, standing at around 5% y/y in 2017 with 3.54 million units.

Renault Group has seen its sales revenues lifted by 25.2% year on year (y/y) during the first quarter of 2017 from several positive factors. The automaker said in a statement that during the three months ended 31 March, it has seen its revenues reach EUR13.1 billion (USD14.3 billion) versus EUR10.4 billion during the same period a year ago. However, the automaker noted that this included EUR750 million of revenues from AvtoVAZ. Excluding this amount gives an improvement of 19.7% y/y to EUR12.5 billion.

This leap has also been driven by the improvement recorded by its Automotive division (excluding AvtoVAZ). Sales revenues have grown by 20.1% y/y to EUR11.9 billion. A large part of this gain has been from the significant increase in volume for the quarter, which excluding Lada has improved by 16.6% y/y to 808,044 units. This has contributed 9.2 percentage points of growth to the Automotive divisions revenues, and was worth EUR914 million. Further contributions came from the increase in its "sales to partners" launch of the Nissan Micra production at Flins (France), which was worth 3.5 percentage points of revenue growth, or EUR350 million; "pricing" contributed 2.4 percentage points, or EUR242 million, from new launches; while a further 3.2 percentage points, or EUR313 million, stemmed from "others". "Product mix" and foreign exchange rates also offered some further modest positivity.

Its consumer finance business, RCI Banque, also offered some positivity to its revenues with a gain of 13.5% y/y to EUR621 million. It boosted the number of new contracts generated by 21.4% y/y to 428,586, amounting to EUR5 billion, a gain of 22.7% y/y, underlining the boost in pricing. The amount of "average performing assets" on its books also jumped by 21.9% y/y to EUR37.9 billion.

Outlook and implications

As with Groupe PSA's results revealed earlier this week, Renault Group offers only its top-line results until it announces its first-half results in July. Nevertheless, it has been an exceptionally impressive showing for the automaker.

AvtoVAZ has now been included in its financial results because of the automaker's re-capitalisation, which Renault has invested heavily in, and it now owns a majority share of the business through holding company Alliance Rostec Auto B.V. While the Russian automaker started to see a recovery in its sales volumes during the first quarter, it likely still requires some work to return to profitability. Indeed, while the group as a whole does not announce profits, AvtoVAZ has revealed separately that it has recorded an operating loss of RUB1 billion (USD17.5 million), down by 84% y/y, although part of this improvement has been driven by one-time benefits, such as changing provisions. It has also warned that threats including increased raw material costs and ongoing market uncertainty from the end of the Russian government's fleet renewal programme and loan subsidies. However, AvtoVAZ hopes that this will be offset by further new launches in the automaker's range during the second half of the year as well as a further improvement in its cost structure, through which it anticipates reducing its losses over the course of the full year and maintaining an objective of returning to operating profit during 2018.

As for the rest of its Automotive business, surging volumes this quarter has been the most important factor to this growth. This has been underlined in the most recent month. A number of factors helped to achieve this. One has been the automaker's performance in its Africa, Middle East, and India region, which was fuelled by its growth in Iran, where it has gained 161.5% y/y from the ending of trade sanctions. Furthermore, in Asia-Pacific it has seen a surge due to growing demand for locally produced models in China such as the Kadjar and the Koleos, which will be joined by the Espace, the Talisman and, eventually, the Captur. Its South Korean operations have also made an important contribution via the introduction of the Samsung SM6 and the QM6. Furthermore, its performances in the important European markets also remain robust.

Renault Group was expected to release a new business plan for the period between 2017 and 2022. Although it has given few indications of its goals for this timeframe, it has earmarked sales revenues of EUR70 billion (at a constant exchange rate), alongside an operating margin of over 7% at the end of the plan. However, in the interim it has said that for 2017 it expects to increase its group revenues beyond the addition of AvtoVAZ (at constant exchange rates), increase Group operating profit in euros, and generate a positive automotive operational free cash flow.

However, IHS Markit anticipates that although the rate of growth of Renault Group's sales growth including AvtoVAZ's Lada brand will not be as strong as 2016, it should be around 5% y/y in 2017, standing at almost 3.54 million units by the end of the year. We also forecast that the Renault Group will build on this to hit 4.2 million at the turn of the decade.

About this article

The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.


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