Renault SA, Europes third-largest carmaker, reported today that its first-half revenue was hurt by steep sales drop in Russia, where the company is part of the largest auto-manufacturing group. Following the release of the statement, the shares of the company fell the most in almost five months.
The companys car sales in Russia dropped 7.6% in the first half and Chief Performance Officer Jerome Stoll said, cited by Bloomberg, that there is “a risk” that the full-year contraction in industrywide Russian car sales may exceed 10% amid “a political and economic environment that is absolutely uncertain.”
Renault, together with its Japanese partner Nissan Motor Co. are controlling AvtoVAZ, Russia’s largest carmaker and producer of Lada models. The European Union is projected to impose further stricter sanctions on Russia as soon as today, amid the dispute over Ukraine.
“We’re in a situation where it’s complicated to know what sanctions will be implemented and what their impact will be,” Stoll said at a press conference at Renault headquarters, cited by Bloomberg. “We’ve had relatively high volatility of the ruble over the last few weeks whenever tensions rise.”
However, Renaults net profit for the six months ended June, jumped to 749 million euros($1 billion), compared with 39 million euros for the same period a year ago, when the French company had to book provisions against the disruption of Iranian sales.
Renault also turned back to a 464 million euros operating profit in the first-half period, from a 249 euros million loss registered a year ago. The operating profit was positively affected by the cost-reduction program that Renault have started a year ago.
“Margin improvement comes above all from managing costs,” said Dominique Thormann, Renaults chief financial officer, cited by the Wall Street Journal. “The largest share of cost-cutting came from lower purchasing costs, followed by logistics and research and development”, he added.
Besides the Russian market, Renault registered sales weakness also in other emerging markets, such as Brazil, Algeria and Argentina.
Renault CFO Dominique Thormann also warned that the company expects further downward trend in emerging markets and the main risk is that Renault “limited visibility” in its major emerging markets.
Renault SA was 3.4% down to trade at 67.14 euros per share at 11:22 GMT, giving it a market capitalization of 20.55 billion EUROS. Shares have gained 11.62% for the past year. According to the Financial Times, the 25 analysts offering 12 month price targets for Renault SA have a median target of 80.00 euros, with a high estimate of 96.00 euros and a low estimate of 53.00 euros. The median estimate represents a 15.11% increase from the last price of 69.50 euros.
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