UPDATE 1-Renault expense cutting loses steam as profit rises

Renault (RENA.PA) made little development towards promised cost savings in the very first half of the year, the French carmaker said on Thursday, although a revamp of its design variety assisted it accomplish record success. Renault’s grip on expenses damaged in the last straight of a three-year performance drive under Carlos Ghosn, who likewise heads alliance partner Nissan (7201. T), with enhancements to Renault diesel engines raising research and advancement (R&D) spending. Efficiency savings all however evaporated to just 6 million euros in the very first six months, even as earnings increased 8.8 percent to 1.5 billion euros ($ 1.74 billion) on 25.19 billion in profits, which was up by 13.5 percent. “This low level is mainly explained by R&D and some costs associated with our item cadence,” financing chief Clotilde Delbos informed analysts following the results. The expenses obstacle overshadowed a strong sales performance, sending out Renault shares 2.3 percent lower at 0810 GMT. The company is reaping the benefits of an item offensive that has actually seen all significant model lines updated, helping it outmatch demand in many worldwide markets and overtake competing PSA Group (PEUP.PA) as Europe’s second-biggest carmaker. Renault’s operating profit rose 41 percent to 1.54 billion euros, lifting its operating margin from 4.9 percent to 6.1 percent, its greatest under current accounting standards. Profit at the core automotive division was up 65 percent, for a 4.7 percent margin.

Operating revenue beat analysts’ expectations of 1.39 billion euros at group level and 958 million for the automobile department, based on the median of 10 estimates in a Reuters survey. Renault shares fell, reflecting fears that it may have a hard time to accomplish 1.8 billion euros of cost savings pledged for 2014-16. “The lack of expense savings is a big issue,” stated one London-based expert.

With 350 million euros in cuts still to be discovered by year end, CFO Delbos acknowledged it would be close. “You should not bank on a (performance gain) that will be greater than 350 for the complete year,” she said. R&D expenses likewise increased by 115 million euros partially as an outcome of “diesel repercussions”, second-in-command Thierry Bollore said. Rival automaker Volkswagen (VOWG_p. DE) reported on Thursday that earnings at its VW brand name had fallen by more than a third following the German business’s diesel emissions scandal. Renault is struggling to fulfill tightening up engine requirements, while scrambling to spot excess nitrogen oxide (NOx) emissions from some existing models.

On Wednesday, the Renault board cut CEO Ghosn’s bonus offer by 20 percent this year after a shareholder vote versus his pay plan. Renault’s item offensive has actually improved prices, which provided an 800 million euro increase to first-half income, and helped it weather harsh recessions in Russia and Latin America. Renault stated it still planned to inject more capital into Russia’s Avtovaz, the struggling maker of Lada cars controlled by Renault-Nissan, and combine its accounts by year end. (Modifying by Alexander Smith).

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