RNO Renault SA

By Nick Kostov 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 27, 2019).

PARIS -- Renault SA cut its revenue target and posted sharply lower first-half earnings, saying it was "heavily penalized" by the declining fortunes of alliance partner Nissan Motor Co.

The French auto maker reported a day after Nissan disclosed a plunge in profitability and said it would cut 9% of its global workforce. Renault owns 43.4% of Nissan, while Nissan owns 15% of Renault as part of an auto-making alliance stretching back two decades.

The two partners have clashed publicly in recent months after long-simmering tensions between them exploded. The trigger was the arrest of Carlos Ghosn, the man who forged the alliance and served as chairman of both companies before his detention in Japan last year.

The financial strain at Nissan has only heightened that tension as Renault relies heavily on its Japanese partner to pad its bottom line. Last year, Nissan's contributed EUR1.51 billion, or more than 40% of Renault's profit, following a EUR2.79 billion contribution in 2017.

Renault management, which has sought to bring the two partners closer together, believes Nissan's struggles support the argument for tighter bonds, according to people familiar with their thinking. Nissan executives, meanwhile, have resisted the idea, saying the talk of integration is an unhelpful distraction from their turnaround efforts.

"We are really making sure that we are going to support, help, make everything possible to make it such that Nissan gets back on track. This is our priority," Thierry Bolloré, Renault's chief executive, said Friday.

In May, Renault management pushed for a merger with Fiat Chrysler Automobiles NV as a way to add bulk to tackle the myriad challenges facing the auto industry. The deal ultimately fell apart after Renault failed to get full backing from the French state and Nissan.

Renault and Fiat executives have said they would like to reengage in talks at some point, but Mr. Bolloré acknowledged that the deal is dead for now. "We have no talks any longer with FCA," Mr. Bolloré said. "That's a pity because the fundamentals of the quality of the deal for us are still totally vivid."

Renault has struggled to steady itself after a chaotic period that included the arrest of Mr. Ghosn. The former Renault CEO has been charged with financial misconduct in Japan, allegations he denies and intends to fight in court.

Like other auto makers, Renault is grappling with a slowdown in sales and an increase in investment to develop electric and self-driving cars. European regulators are establishing some of the strictest emissions regimes in the world and, combined with high labor costs, that is pressuring the bottom line of regional auto makers.

The French car maker said its net profit fell to EUR970 million in the six months to the end of June, from EUR1.95 billion the same period last year. Nissan's contribution swung to a EUR21 million loss from a EUR805 million profit.

Renault's revenue fell 6.4% to EUR28.05 billion, hit by falling sales in France, Turkey and Argentina as well as the decline in demand for diesel engines in Europe and the closure of the Iranian market.

The company cut its 2019 revenue outlook and now expects sales to be close to last year's.

Renault's operating income -- a closely watched figure used by analysts to judge underlying performance -- dropped 12% to EUR1.52 billion.

The company backed its guidance for an operating margin of about 6% and positive operational free cash flow in its core auto business.

The car maker said Friday that it expects the global auto market to contract by 3% in 2019, with the European market holding steady as long as the U.K. doesn't leave the European Union without a deal. The Russian market is expected to fall by as much as 3%, while Brazil's could grow by 8%.

-- Max Bernhard in Barcelona contributed to this article.

Write to Nick Kostov at Nick.Kostov@wsj.com

(END) Dow Jones Newswires

July 27, 2019 02:47 ET (06:47 GMT)

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