Renault cost-cutting loses momentum as profit surges

Renault made little progress towards promised cost savings in the first half of the year, the French carmaker said on Thursday, although a revamp of its model range helped it achieve record profitability.

The company’s operating profit rose 41 per cent to €1.54 billion, lifting its operating margin from 4.9 per cent to 6.1 per cent, its highest under current accounting standards. Profit at the core automotive division was up 65 per cent, for a 4.7 per cent margin.

Productivity drive

Renault's grip on costs weakened in the final straight of a three-year productivity drive under Carlos Ghosn, who also heads alliance partner Nissan, with improvements to Renault diesel engines raising research and development (R&D) spending.

Productivity savings all but evaporated to just €6 million in the first six months, even as net income rose 8.8 per cent to €1.5 billion on €25.19 billion in revenue, which was up by 13.5 per cent.

"This low level is mainly explained by R&D and some costs related to our product cadence," finance chief Clotilde Delbos told analysts following the results.

The costs setback overshadowed a strong sales performance, sending Renault shares 2.3 per cent lower.

Product offensive

The company is reaping the rewards of a product offensive that has seen all major model lines updated, helping it outpace demand in most global markets and overtake rival PSA Group as Europe’s second-biggest carmaker.

Operating profit beat analysts’ expectations of €1.39 billion euros at group level and €958 million for the auto division, based on the median of 10 estimates in a Reuters poll. – (Reuters)