Record Renault earnings strengthen Ghosn’s hand

French carmaker Renault posted record sales and profit for 2017, bolstering Chief Executive Carlos Ghosn's position in the face of government demands for a clearer succession plan and deeper integration with alliance partner Nissan.

Renault’s shares rose on Friday after it unveiled a 17 per cent surge in operating profit to €3.854 billion or 6.6 per cent of revenue - which rose 14.7 per cent to €58.77 billion on buoyant European demand.

The record earnings and margin beat analysts' expectations of €3.65 billion in operating profit. "We were positively surprised by the quality of the beat," Evercore analyst Arndt Ellinghorst said, citing production cost savings that more than tripled to €663 million.

Operating profit at the core automotive division, excluding the recently consolidated AvtoVAZ business in Russia, rose 15.2 per cent to €363 million. The company raised its proposed dividend by 12.7 per cent to €3.55 per share and pledged to maintain its operating margin above 6 per cent in 2018, despite worsening currency effects that wiped €303 million from its full-year profit.

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The strong financial performance may help Ghosn resist pressure from the French government, Renault’s biggest shareholder, for a closer tie-up with Nissan that also serves national interests. The state commands a 15 per cent stake in Renault and two board seats.

But Brazilian-born Ghosn made clear that Renault and Nissan are in no rush to merge - especially on French terms - and reiterated his view that a full tie-up was impossible while France retained a significant Renault stake.

“I don’t see how the Japanese side is going to accept further steps with the French state as a major shareholder,” he told analysts.

President Emmanuel Macron said on Tuesday he was seeking a "clear road map safeguarding the interests of the company, the alliance and all of the French industrial sites".

The carmaker’s board said on Thursday it would ask shareholders in June to back Ghosn for another four-year term, during which he would “take decisive steps to make the alliance irreversible” and “strengthen the succession plan”.

Renault owns 43.4 per cent of its Japanese partner, which in turn controls Mitsubishi Motors via a 34 per cent stake.

Ghosn had been expected to hand over the reins to a new CEO and move to a non-executive chairman role overseeing the Renault-Nissan-Mitsubishi alliance. But the plan foundered on differences with the French state over the alliance’s future shape and direction, sources have said.

Instead, Ghosn promoted deputy Thierry Bollore to the new role of chief operating officer. Some independent directors raised concerns about the hiring process and its failure to identify external candidates, sources have said.

“This is a nomination by the CEO, it’s not a nomination by the board,” Ghosn said. “But I wanted the board to be involved in it, to make sure they feel involved in this decision.”

Ghosn also agreed to cut his salary by about 30 per cent, Renault confirmed, securing government support for his payout.

Shareholders led by the French state voted against his compensation in 2016 but narrowly approved it last year. The package to be submitted in June includes 2.46 million euros in fixed and variable pay, plus up to 80,000 long-term performance shares currently worth another €8.6 million. Net income rose 49.6 per cent to €5.114 billion, helped by a €2.791 billion contribution from Nissan.

Renault's 2017 global vehicle deliveries rose 8.5 per cent, the company disclosed last month, with about one-third of the growth coming from Europe - helped by its new Koleos mid-sized SUV and recently revamped Megane family of compact cars.

- Reuters