Clotilde Delbos - CFO Carlos Ghosn - Chairman and CEO

Thomas Besson - Kepler Cheuvreux Charles Winston - Redburn Jose Asumendi - JPMorgan Fraser Hill - Bank of America

Good morning everyone and welcome to the Renault Fiscal 2016 Results Presentation and Conference Call. It is broadcast live and will be available in replay on our website. The presentation slide, press release and activity pack for this call are all available on our website in the finance section. I would like to point the disclaimer on Slide 2 of this pack regarding the information contained within this document and in particular about forward-looking statements. And I invite all participants to read this. Today's meeting is scheduled to last about one hour and fifteen minutes. As usual, we have two speakers today, first up will be Clotilde Delbos, our CFO, he will take you through the headlines of our financial results and then Carlos Ghosn, Chairman and CEO will share his review of 2016 and then the outlook for 2017 and beyond. Their presentation will last about 30 minutes and will be followed by a Q&A session. Clotilde, I will turn the presentation over to you.

Good morning everyone. Thanks to the success of our new models but also to a supportive environments in Europe. I am pleased this morning to report that we have achieved or exceeded all our targets for 2016. Our revenues were in excess of EUR51 billion for the first time and our operating margin was a record 6.4%. Before getting into the financial results, I would like to start with a quick summary of our commercial results on Slide 5 which were released on January 17. For simplification, in my review of the year, when I refer to the automotive division this means automotive excluding AvtoVAZ. Group sales increased 13.3% to 3.18 million units. This performance was achieved during the continuing recovery in the European markets and despite still challenging condition in some emerging markets. In this environment, our business outside Europe was the stronger driver for our growth, with an annual increase of 15.3% in our registration while in Europe they were up 11.8%. Globally, our registration outside Europe represented 43% of our total sales compared with 42% in 2015. All regions outside Europe posted positive results in terms of registrations, the main positive driver where the Africa Middle East India region of 36.4% and the Asia Pacific region of 34.5%. This performance came primarily from the success of our recently launched vehicles. In the AME region, our performance came from the ongoing success of Kwid in India and our growing performance in Iran. In the Asia-Pacific region, we benefited in China from the launches of our first locally produced vehicles. We started in Q1 with KADJAR, our new C Segment SUV and then we launched the new Clio in Q3 replacing the previously imported one. In Korea, we're seeing a good performance from the SM6 and a strong start from the QM6. In the Eurasia region, our registrations were up 2.3% in a market down 6.3%. Our performance in Russia was at minus 2.6% in a market down 10.8 % while Turkey and Romania showed positive contribution. In the Americas region, despite declining demand, we managed to increase our market share thanks to good performance in Argentina and the overall success of our lineup. Let's turn now to Slide 6, which shows group revenues. In total, group revenues were EUR51.243 billion, an increase of 13.1%. Revenues for the automotive division increased by 13.7% in the period to EUR48.995 billion. Revenues from our captive sales finance company RCI Banque increased by 1.3% to EUR2.248 billion in the period. The automotive revenue variance analysis is shown on Slide 7. Starting on the left of the page, the first item is volume showing a positive impact of 8.9 points, this is below our registration increase but as you know, our new car business typically represents about two-third of our automotive revenues. In addition, if our inventory levels were up part of our growth derived from our CKD business in Iran and China which are not captured in the volume effect. The geographical mix impact is a slight positive of 0.2 points and reflects lower growth in region with below groups average price per unit like Americas and Eurasia. The third item to note is the model mix effect. The impact was positive by 0.7 points contributing EUR312 million. This results from the positive impact of our recently renewed models in Europe but mitigated by the success of Kwid in India, which sells for significantly lower price than the group's average. Please note that the change in the trend for these two last items compared with what we shared with you in our Q3 numbers came from the fact that Kwid started to impact in Q4 2015. The first item is the price effect, which is positive by 3.9 point and in line with what we reported for the first nine months. This impact came primarily from the better pricing enjoyed with our new European products and still partly from the carryover of the price adjustments made earlier in emerging markets. Sales to partner continued to be a significant driver. During the period, this time contributed 2.5 points or EUR1.99 billion. The success of the Nissan Rogue in the US supplied partially from our Korean plants in Busan and the strong growth of our CKD business explained this performance. Please note that there was almost no impact from the Nissan MICRA production that started at the end of the fourth quarter. The next item, foreign exchange impacted negatively by EUR1.686 billion or 3.9 points. This is a slightly less negative impact that in the previous quarters as some currencies from emerging market had easier comparables. The last item others was a positive 1.4 points. This represents other activities outside the scope of new car activity mainly spare parts, our wholly owned dealer business and buyback restatements. I will now turn from automotive revenues to the group operating profit by activity. In 2016, the automotive operating profit grew 54% to EUR2.386 billion versus EUR1.546 billion in 2015. We continued to improve our automotive margin in the second half exceeding 5% versus 4.7% in the first half. On the full year, the automotive operating margin came to 4.9%, a 1.3 points improvement. RCI Banque delivered EUR896 million contribution to group earnings, an improvement of 8.1%. In total, for 2016 the group's operating profit showed a robust EUR907 million improvement at EUR3.282 billion giving a group consolidated operating margin of 6.4% compared with 5.2% in 2015. This sets a new margin record for Renault and well exceeded our 5% target. Let's see this in more detail. Slide 9 shows the main variance that explains this increase. I will start the work down reading left to right. Cost reduction activities contributed positively for EUR72 million. As we told you when we published our Q3 results, our Monozukuri activities impacting positively 184 million for the full year have been penalized by cost related to overheated demand and launch costs. In addition, we have decided to increase our R&D spending both in terms of new technologies and additional products. Looking at cost reduction in more detail on Slide 10. Excluding the raw material impact, saving from purchasing were higher than in 2015 at EUR656 million showing a strong performance from our team. Warranty costs impacted negatively by EUR101 million compared with a positive EUR197 million [ph] in 2015. This indicator swung back from after the unusually positive performance booked in the prior year. R&D contribution contributed negatively by EUR260 million as we significantly increased our spending primarily to continue our product cabinets. It's worth noting that our capitalization rate decreased again to reach 35.7% versus 39.5% in 2015. Manufacturing and logistics cost had a negative contribution of EUR111 million. As I said this came from the ramp-up cost and the depreciations linked to the new models and the additional shifts needed to meet demand. We also faced higher logistic costs due to supply chain constraints. G&A also impacted negatively for EUR112 million versus minus EUR64 million in H1. Turning back to the operating profit workdown on Slide 11. Raw materials provided a positive of EUR331 million versus EUR61 million in 2015 as commodity prices continued to fall for most of 2016 but started to reverse at the end of the year. It is more than likely that this will become a headwind this year. Mix / Net enrichment impacted positively by EUR115 million versus a negative impact of EUR379 million last year. This reflect the impact of our new products in terms of pricing but also lower price increasing in emerging markets in H2 as currency were less adverse Moreover, this indicator has been negatively impacted by advertising cost related to the high numbers of launches that occurred in the year. Volume and sales to partner delivered a positive EUR1.36 billion reflecting the strong increase of our registrations and securities. RCI Banque and other businesses accounted for plus EUR55 million. This results mainly from the positive EUR104 million contribution from RCI before ForEx impact as I will detail later. Finally, currency was a significant negative amounting to EUR702 million and reflects primarily the negative impact of the Argentinean peso and the British pound. Continuing through the P&L with the other operating income and expenses item on Slide 12. This item amounted to a profit of EUR1 million resulting from positives and negatives. On the positive side, we booked a EUR325 million profit stemming from the accounting impact of the first full consolidation of AvtoVAZ. On the negative side, we booked charges related to restructuring and to the new multi-year agreement signed with our unions in France in January. These are the two main factors explaining this result. After taking into account these expenses, our EBIT line amounted to EUR3.283 billion compared to EUR2.176 billion in 2015. Continuing down the P&L, the next item is net financial income and expenses. The net charge increased EUR102 million at EUR323 million due essentially to a change in the mix of our debt in South America which carries a higher cost. The next slide number 14 shows the impact of associated companies in Renault's P&L. Nissan contributed EUR1.741 billion to our 2016 results. This was EUR235 million less than prior year. I remind you that Nissan’s contribution has been negatively impacted by one-off charge related to an airbag supplier. Renault’s share in AvtoVAZ results came to a negative EUR89 million compared to a loss of EUR620 million in 2015. The EUR531 million improvement came partly from AvtoVAZ operating performance but mainly from the reduction in impairments booked this year compared with the year before. For the last time AvtoVAZ results are shown in the associated companies as a P&L will be fully consolidated from 2017 onwards. I will turn back to the P&L of Slide 15 where the net tax charge for 2016 came to EUR1.55 billion compared with EUR366 million in 2015. This rise reflects primarily the increase in our pretax profits notably in France. We also booked some deferred tax asset adjustment partly following a change in accounting and tax rules. Bottom line, net profit after tax increased significantly at EUR3.543 million almost EUR600 million more than in 2015. And net income over revenue reached 6.9% in 2016. After taking into account minorities, the net result per share came to EUR12.57 versus EUR10.35. Now that I have completed the analysis of the P&L. I will turn to Slide 16 which show the change in the net automotive cash. Cash flow from operations totaled EUR4.362 billion, EUR911 million improvement reflecting higher operating profit. Change in the working capital requirements impacted positively by EUR356 million despite an increase in inventories. Net tangible and intangible investments came to EUR3.611 billion, this is EUR530 million higher than in 2015, this expected increase is many explained by CapEx and leased vehicles. As a result automotive operational free cash flow came to positive EUR1.107 billion. Regarding dividend flows, dividend received from ported companies in the period totaled EUR772 million, while dividends paid during the year amounted to EUR794 million. Nissan share buyback brought EUR1.119 billion. Other financial items were negative EUR940 million resulting primarily from AvtoVAZ, recapitalization but also from other smaller acquisition and value adjustment of currencies. The AvtoVAZ consolation impacted negatively for EUR1.205 billion, our net financial position. In summary net automotive cash including AvtoVAZ increased by EUR59 million and came to EUR2.720. Slide 7 shows you the status of our inventories at the end of the year excluding AvtoVAZ. Inventories increased over last year a bit faster than ourselves and we are now almost at our 60-day guidance. Global stock represented 59 days of supply at the end of the year versus 55 days at the end of 2015 which was a bit low. We are comfortable with the current level which should allow us to have a good availability of cars to start the year. I would now like to move to the automotive liquidity reserves situation on Slide 18. Cash and cash equivalent totaled EUR11.800 billion at the end of December, a slight increase compared with the end of 2015. Together with the fully available undrawn credit lines, the automotive gross liquidity reserve increased EUR200 million and stands at EUR15.100 billion at the end of 2016. I would now like to take a few moments to give you a bit more details on RCI Banque’s performance on Slide 19. New financing in the period increased by 15% at EUR11.900 billion primarily reflecting the strong activity in Europe and the rise in the penetration rates on new vehicles. Average performance asset grew at 16% at EUR33.3 billion. Net banking income stood at 4.41%, down 34 basis points reflecting the increase of the European business were margin are usually lower than in emerging markets such as Brazil. In addition, the net banking income has been penalized by a negative ForEx impact coming mainly from South America. The cost of risk stayed at a record low with 31 basis points of average performing assets versus 33 basis points in the prior year. Finally, costs were contained keeping our operating expenses ratio at 1.39% of average performing assets or 8 basis points below 2015. In total, the pretax return on assets reached 2.74% versus 2.97% in 2015 while return on equity reached 18.2% versus 18.7%. As you can see on Slide 20, RCI Banque’s dependence on the capital markets continued to reduce with the successful development of our retail online bank deposits deployed in four European countries. At the end of December, total deposits amounted to EUR12.600 billion. This source of funding represented 33% of group net outstandings in line with our targets. This completes my financial review for 2016 and I will now pass the floor to Mr. Ghosn.

Thank you and good morning to everyone. I will first share my assessment of 2016 achievements before commenting on the outlook for 2017 and beyond. 2016 was a very good year for Renault. We achieved record growth, record profitability and a record cash position for the first time, Renault delivered record results two years in a row. As you have just heard our 2016 revenue came to EUR51.2 billion, our operating profit margin reached 6.4%. Finally thanks to continued effective financial discipline our operating cash flow came another year to more than EUR1 billion. These record results will allow us to significantly increase our dividend to EUR3.15 per share subject obviously to approval by the next Annual General Shareholder meeting. With 3,180,000 vehicle registered in 2016 before as you know the consolidation of AvtoVAZ, this means 374,000 more than in 2015. Renault became the number one French automotive group worldwide. Our sales volume and market share were up in all the regions as you've seen. The Renault brand also kept its position as the words leading French automotive brand and ranked second in Europe. Finally, the alliance which now extends to Mitsubishi Motors sold more than 9,960,000 vehicles in 2016 which is 170,000 vehicle gap from the leader if I exclude all the heavy trucks which have been computed by all the car makers who are having this activity. So what are the main takeaways for 2016, continuing the momentum initiated in 2015 we launched 10 products premier that further expanded or thoroughly renewed our lineup. New Mégane and new Scenic successfully completed our C Segment renewal. And in the D segment, global sales rose to more than 145,000 units, an increase of 74%. Our crossover range was extended to meet emerging market needs. We adopted the features of our crossover CAPTUR to fit the Russian and the South American markets we also designed KADJAR and Koleos particularly to meet Chinese customer expectations. In line with our global expansion strategy we entered the LCV pickup truck segments for the first time. After launching the half ton pickup Duster Oroch in 2015 in Brazil, we launched the one ton pickup Renault Alaskan. The addition of Duster Oroch increased our LCV sales volume is Latin America by more than 50% at 60,0000 units. Another milestone was obviously the consolidation of AvtoVAZ as planned with our partner Rostec, we took part in the public offering for the capitalization of AvtoVAZ in December 2016. AvtoVAZ has just launched a new mid-term plan to revive its operating and financial performance, with this plan which included the renewal of the Lada brand lineup we expect AvtoVAZ to return to operating profitability by 2018 in the Russian market that should get back to the 2 million unit mark by 2020. I remind you that the market share of the Alliance brands, Lada, Renault, Nissan, Datsun [ph] totaled today 33% in Russia which represent obviously a great potential of growth for us with the market recovery. 2016 was a strong year but the roots of its achievements did back father in time, last year’s results contain many years of efforts and discipline that we had laid out in our strategic plan, Renault Drive the Change. Our Drive the Change plan was designed to reach two key goals to be measured in 2017 as you know delivering EUR50 billion in revenue and improve profitability to a minimum of 5% operating margin. Both objectives are overachieved a year ahead of schedule. In 2010, which for the record was our reference year, our revenue was EUR38.9 billion and our operating margin was 2.8%. And in addition we had at that moment EUR1.4 billion of net financial debt. Six years forward, it's fair to say that we have come a long way and we did so in a challenging environment. For example, during our planned period, currency rates where adverse like EUR 2 billion in operating profit and local crisis hit some key emerging markets at least for us such as Russia, Brazil, Argentina and Iran. What drove us was to grow our performance in a sustainable way. We worked on the basics, we focused on developing strategic assets in a sound financial approach that will sustain our growth and profitability in 2017 and beyond. Let me point out if you strategic levers we worked on the first one is obviously product renewal and lineup expansion in the past six years with a global portfolio of 38 vehicles we had 32 products premiers including a range of electric vehicle. We both enriched and expanded the product range entering new segments like crossovers pickup truck as well as establishing our presence in new markets. By doing so we achieved a more diversified product mix and a much better balance regional mix. A better regional footprint is our second lever. In 2010, our sales exceeded 100,000 units in eight country, five of them European, in 2016, sales exceeded 100,000 units in eleven countries including Brazil, Russia, Turkey, South Korea and Iran and new ones such as India. We achieved this more balanced regional mix partly because we kept investing despite local crisis. In Latin America we achieved record market share in Brazil in 2016 despite a drop of 20% in the market. In Iran we recovered our 2012 sales volume at almost 110,000 vehicle and gained 3.5 points of market share. Our growing presence in emerging market is also a result of our long-term strategy of investment in local production and with local sources. This is crucial to the cost competitiveness of the company from 2010 to 2016, we build in Tangier, Morocco; Oran, Algeria; Wuhan, China and launched our first common alliance plant in Chennai, in India. We also carefully adapted our vehicle to each market need instead of trying to sell European cars to everyone we develop regional technical centers to ensure we had the right cars with the appropriate level of localization in order to be competitive in the local markets. Kwid for example was designed and built in India with a localization rate of 97% and will be adopted to shoot other markets starting with Latin America already in 2017. Third level is sales to partners, we expanded our business organically as well as through our partnership from 2010 and 2016, Renault sales to partners contributed 40% to the growth of group revenues. The correlated increases in production accelerated the improved competitiveness of Renault plants. We just started the production of the Nissan MICRA in Flins in France and our continuing production of the Nissan Rogue in our Busan plant in South Korea. [indiscernible] Renault builds light commercial vehicle for General Motors and Fiat and we continue to produce to [indiscernible] on the same platform we use for the Renault Kangoo. The combination of sales growth across manufacturing and strict capacity management allow us to reach a utilization rate of 100% using obviously the conventional industry standard which is obviously performance unprecedented for Renault. Fourth level is scale, during the past six years development of shared platform helped us build more cars in more countries at the lower cost and with a lower investment. To reduce our R&D cost we developed a modular design approach allowing the same parts to be integrated into different vehicles. In 2016, CMF platform parts accounted for 60% of vehicle costs compared to less than 10% at the start of our plan. 75% of engines used by Renault are shared within the lines. Kwid in India is built on the alliance CMF platform launch in Chennai and shared with the Datsun brand. We just localized it in our Renault plant in Curitiba, Brazil to start production of the South American version. Another example is our C&D platforms which are now one alliance platform on which we build both KADJAR and Koleos in China and obviously other vehicles in Europe and South Korea. Fifth level I have to mention our agreement with the trade unions. They were essential in reestablishing our competitiveness particularly in Europe and will continue to be. In France, our 2013-2016 agreement resulted in an increase of 50% in local production. We also hired three times more employee than committed in the agreement. Last month we renewed our multi-year agreement with signing unions. Over the next three years we would invest EUR500 million to improve our industrial performance and working condition in France. By 2019 we will hire another 3,600 employees starting this year with 1,800 recruitments. Shared platforms better used of industrial capacities increased communalization boosted our competitiveness and contributed to cost reduction which was another major level of the plan. Over the past six years EUR3 billion were delivered from Monozukuri activities especially from purchasing. We worked across the entire vehicle value chain from product definitions to engineering, manufacturing, suppliers and logistics. For instance, in 2016 our local sourcing rate improved to 80% in India and China. It exceeded 60% in Russia which is a leading position in a market where localization has been traditionally difficult for all car makers. In 2016, our performance was lower than it was in previous years. This is due to a EUR260 million increase in R&D which is huge to our strategy to push through all technological innovation and take product expansion - all opportunities in product expansion as they arise and as long as engineering capacities allow. Another adverse factor was the increase of warranty cost and recall costs due to higher internal imperatives on quality and customer satisfaction. As planned part of what we saved from Monozukuri activity was reinvested in product competitiveness. When renewing our lineup we invested in what creates value for customers, we made significant efforts on design which became the number one reason for purchase. We are the first to invest in electric vehicles and became leaders in the European market. Our current range is the most competitive in scope including light commercial vehicles and in price the new Zoe ZE40 offers the best range among mass market EVs and remains the most affordable electric car. We also introduce technological innovation into our vehicle from the B to D segment with new features such as multimedia, touch panel [indiscernible]. For our upper range, we focused on customer experience and we upgraded our offer with Multi-Sense and 4Control technology both improving driving pleasure and driving comfort. Product enrichment was key to the strengthening of our position in Europe. With an enhanced product lineup we were well positioned to benefit from the rebound in the European market that shows our market share which increased to 10.6%. Renault growth is now more global, more sustainable and more profitable. I now give you an outlook for 2017. Let's start with opportunities and risks. There are three major opportunities the first one is the full impact. In 2017 of the 2016 product renewals plus the 2017 product momentum with two important product premiers Alpine and Duster. In total, Duster which as you know is the most sold car of the company. In total, there will be 11 product events around the world. Second, obviously our alliance and synergy and I would say our extended alliance synergy because you have the development of the synergies with Nissan but also you have the new synergies coming with Mitsubishi. We confirm anyway our target to reach EUR5.5 billion by 2018, this is taken into consideration only the Nissan perimeter. Third is the recovery in emerging markets particularly countries which were at a very low level and where we have been building our presence for many years such as Russia for example. On the side of risk, first one is obvious raw materials, we expect pricing headwinds throughout the year. Second, are the Brexit uncertainty and the potential depreciation of the British pound which might accelerate the expected drop of the UK market. And finally the third risk is uncertainty surrounding existing trade agreements. Moving to our guidance for 2017, we expect the global market to grow 1.5% to 2%, the European market is expected to increase by the same amount with the same level 2% increase also for France. Brazil and Russia are expected to be stable while China would continue to grow at plus 5% and India at plus 8% within this context and including AvtoVAZ, Renault is aiming to increase group revenues obviously beyond the impact of AvtoVAZ at constant exchange rates, increase group operating profit in euros and generate a positive automotive operational free cash flow. Beyond 2017, I would like to share a few brief thoughts. Our industry as you know is going to witness a lot of disruptions both in terms of products and services and consequently also in terms of organization and management. By 2030, a lot are expecting electric vehicle to account for 25% of new cars sold in urban areas and virtually all vehicles will be connected to the Internet. It's no surprise for you if I say that the car of the future would be electric, autonomous and connected. On top of those disruptions, customers will expect cars to remain attractive, competitive, safe and fun to drive. Of course they're a good story framework will evolve and will probably become more strict and more demanding. The alliance with the addition of Mitsubishi Motors now represents one car in nine sold worldwide. Going forward its scale will help us to competitively address these new challenges and changes without compromise. Beyond scale which is necessary but not sufficient and where we have a handicap to nobody and an advantage over many, our management, our organization, and our human capital will also need to change and evolve and will be vital resources. Our Drive to Change plan ended in 2016 ahead of schedule with a perfect score card. It was designed to address Renault challenges and reposition the company on a more competitive foundation. It is on that foundation that our new mid-term plan will continue to build Renault future. We aim to continue along a path of strong sustainable growth with our sights to achieve $70 billion in revenues with a margin higher than 7% by the end of the next six- year plan. All of this while maintaining an annual positive free cash flow every year. Sustainability of performance both in terms of growth and profit is the key objective of the next plan. We’re currently working within the alliance with Nissan and Mitsubishi Motors to develop our technologies hand-in-hand to extend our synergies. This will form a cornerstone for all of our next generation products and services. In October, we will share the specifics of the Renault mid-term plan which will run through 20222. This plan will guide Renault and its partners within the alliance throughout the next six years taking their geographical expansion and line up extension a step further. Renault fully delivered the commitment of the current plan a year in advance, you can expect Renault underlines to continue to perform with the same determination for the years to come. Thank you for your attention and now we're ready for your questions. A - Unidentified Company Representative: So as you know we've got people on the call. So we're going to get some questions first from the room and then we’ll alternatively get some questions from the call. So we're going to start with the room. Thomas?

Thomas Besson, Kepler Cheuvreux. Two questions please, one for you Mr. Ghosn and one for Clotilde Delbos. Mr. Ghosn, can you give us a bit more color on the prospects for Russia both for Renault on a standalone business free AvtoVAZ and know that you have AvtoVAZ within the group as well. From a financial standpoint, the market seems to have taken very negatively these take over for the time being. Can you give us an idea of the magnitude of the earnings swing between 2016, 2017, and 2020, 2021. Is it reasonable to think it could be a EUR400 million, EUR500 million, EUR600 million or a substantial share of your operating profit today.

Obviously that the market is taking negatively the acquisition of AvtoVAZ, I can understand that. I can understand that because when you look at the short term only at the short term it's a lot of risks. But we made a strategic decision to consider a strong presence in all the emerging market and we are addressing them one by one. We addressed Brazil, we addressed India, we are addressing China and we addressed Russia. And we think in Russia we have a substantial upside coming. So for the moment you're seeing nothing and that's what is good about the result is we are showing you record results in 2016. With a lot of engines which don't start to work. Russia did not contribute anything to the performance of the company but Brazil - contribution of Brazil was really minor. Contribution of India also in term of profit is still is minor and China as you know we started. So for the moment, what you're seeing is a very minor contribution from emerging market and a very strong contribution from Europe. That's the bottom line which you're seeing today. Obviously the next plan is Europe continued to perform but all these engine should come to work one after the other. Let me talk about Russia. Russia for me is the biggest potential of additional profit for the company. Why? Because Russia - let’s not forget, obviously we don't share with you profitably per region. But I can tell you that before the crisis. Russia for Renault was the most profitable markets in terms of operating margin per country, the most profitable, by far. So for us and now particularly through this crisis, as you know, a lot of carmakers have left Russia or they have downgraded their operation in Russia, while we have invested heavily in Russia and we have modernized in a certain way we have eaten our rotten bread, okay. And now that the Russian market seems to stabilize, we hope that with the recovery of the raw material, the recovery of oil, the probably lift of the sanctions on the Russian economy, which is foreseeable, I don't know when, but which is foreseeable, you're going to have a recovery of the Russian market and with the recovery of the Russian markets, with the modernized products, heavily localized competitively localized and later put back on truck, you're going to have in my opinion a profit, a cash machine starting in Russia. So I can understand that for the moment, you're seeing only result is unprofitable. You have a lot of provisions. I can understand that, but my duty is to prepare the engines of the future as one. Okay. So I don't think you're going to see anything substantial in 2017. You may not see anything substantial in 2018, because our plan that we shared with you is afterwards to come back to operating profit neutrality in 2018. But I can tell you that after that, Russia should become [indiscernible] to the profitability of the company, not only in margin per unit, but particularly with the volume that we will have. We have 33% market share today. We think we have a shot at 40%. This is number one. And second, this market today is at a very low level. We can reasonably say and if any recovery is going to be particularly beneficial, beneficial for us. And let’s not forget that we have one of the most modern lineup in Russia, plus we have the highest localization rate between all car makers, which put us in substantial advantage for the future. So I agree with you, Russia has been a bad story. Every time, something happened in Russia. We know our share took a hit. We know that, but this is part of the things we need to feature and hopefully you will see that with the performance of Russia coming, all these efforts that we have done bear fruit.

Great. Thank you very much. Two small questions for you, Clotilde. First, in your cash flow, you have a line for leased vehicles that has gone up by more than EUR200 million, it’s almost exactly what misses versus my free cash flow estimate, can you explain why it went up and how much we should expect in 2017/2018? And the second small thing that surprised me is the tax you pay on 2016 earnings, why did you did so much, should we expect the tax rate to remain much higher in 2017-2018 or is there something specific that explains the rate in 2016?

On the leased vehicles, I think it's a market trend as you might have seen. I mean, a lot of customers are not buying cars anymore rental and we are following this market trend. So as many other competitors, we have more and more leased vehicles and that’s the reason why you have a bigger adjustment in our cash flow than you used to have in the past and I don't see any reason why this trend should stop. In my view, it's on the contrary a trend that is going to continue. So that's for the leased vehicles. On the tax, it's true that we have a big tax charge over the year. There are many reasons, as I mentioned in my speech for that. First, obviously as Renault is more and more profitable and has increased its performance in every country, our current tax burden is getting over this year and that is quite normal and it's also true for France. We are now taxable I would say in France. The second reason is mostly from what I already explained at the end of June, we have taken into account already in the first half of the year, the clarification that were given in the norms EIS-12 if my memory is correct. That has led us to better allocate I would say the deferred taxes between P&L and balance sheet. So that is the main impact. Plus on top of it, you know that in France now, there's a new low that whenever you’re taxable, even if you have deferred taxes, you have to pay a portion -- you can only allocate 50% of your deferred taxes to what you have to pay. So those are the main reasons why the tax charge is so high this year. The percentage should go down to something I would say around 30% in the future years.

Okay. So we're going to take the next question from the call. Who is online?

We have a question from Charles Winston from Redburn. Sir, please go ahead.

Yeah. Hi. Good morning. It’s Charles from Redburn here. Two from me as well if you don’t mind, both aimed at Clotilde. Could we talk a little bit about the balance of FX, pricing and enrichments content in perhaps ’17 and ’18? I know it's very difficult to go through, there is a lot of uncertainty about currency, but it's been a big, big significant influence, a lot of the regulatory content, one would imagine that impact is perhaps easing a little bit after two difficult years. Is that still going to be a positive influence in terms of profitability, in other words, pricing net of content still being accretive. And the second question relates to Monozukuri, again, you talked about that being a number one time factors restraining the contribution in 2016, perhaps could you give us a little bit of thinking about how that might develop in ’17 and ‘18 as well. How much might that net figure rebound some of those one-time items fall away? Thank you very much indeed.

Okay. Well, but I'm going to let you answer the first question about enrichment, pricing, et cetera, but let me address Monozukuri first while you’re preparing. Can you put the chart of the Monozukuri evolution, where we see all the cost, because obviously, you can look at this and look Monozukuri costs and say, oh my God, these guys are fat guys sitting down and enjoying growth, but they're not doing anything in term of cost. Can we have it? Yeah. Let me give a little bit of explanation about what happened in 2016 and what may happen in 2017 and 2018. Okay. So we have it, we cannot have it on the big screen? That’s fine. Okay. So all of this, at the end of the day, you end up looking at the number, which is not remarkable. What happened here? First, 101 million on warranty. In a certain way, as you know, we have a head of quality which is today at the executive committee has full power to block the production, recall the cars, no matter what, customer satisfaction first. The next mid-term plan is about sustainability of Renault. Sustainability of Renault means, at the beginning, it’s top level of quality and reliability of the cars. So there is a real mindset transformation in terms of quality. This has a cost. It’s an investment. It starts with additional costs that we are seeing here. Obviously, this is also combined with the launch of a new product, but very likely what you should see in 2017-2018 is this number should go down. Okay. I'm giving you trends here. Okay. These numbers will not go down, R&D will not go down, because we are multiplying. I mean, I want to use the full scale of the alliance to install a technological power of the alliance. So we are ahead in electric cars. It's clear today, we want to be ahead in autonomous cars. We want to be ahead in connected cars and we're going to go ahead also with services. We are one of the most credible group today in this field and we think this field is of nature changing the industry. We want to play our role, so you can expect this to continue. Manufacturing under this will go down for a very simple reason is we have optimized the production in order to catch every single opportunity of sales, which mean additional shifts, freight et cetera, we had air freights, et cetera. We had a lot of our costs that we assume to sustain our growth, but I can tell you in 2017-2018, I don't think we're going to have another 13% growth of our sales, so this should go down. And in G&A, obviously part of this in the G&A are the cost of our success, because we have the bonuses and the profit sharing agreements that we have. So the more we do profit, the more we add to this, so part of it is positive in a certain way, part of it will have to be monitored and we’ll monitor them. So what I can tell you is this is going to remain, it's going to go down, it’s going to go down and this is probably going to go down. Okay. Or if it goes up, it's because just we are exploding the level of profit, which is in a certain way something that nobody's going to be complaining about. So again the performance in purchasing should continue to increase because let’s not forget that we have common platforms. We are adding more to the alliance, both with Mitsubishi now that is not computed in our mid-term plan, that will be computed into the mid-term plan and the fact that more of the cars of the future will be done on the same platform, which is going to allow higher level of localization and at the same time, more sharing. That's about Monozukuri and again we look at the number, you have the impression, guys are on the beach, they’re not working on their cars, they’re just benefiting from growth. Frankly, it’s not the case, but it's fair to say that we need to give you different explanation for the different contributor to cost, but we know that the performance on cost is going to be essential, if you want to maintain the momentum of the company.

Yes. Thank you, Mr. Ghosn. On more precision on what you just said for our friends and analysts, one thing that should improve in the coming year is the capitalization rate. You saw that it was very low. So what Mr. Ghosn explained is completely true for the whole span of R&D in terms of impact on the P&L. We should nevertheless benefit from a lower -- higher capitalization rate in the future, which was very low this year. Going back to the other question, well, you know that we have a lot of things in that famous box, which calls price mix, enrichment and others. So in 2016, we had a huge positive impact of the prices we were able to raise in the emerging market in order to offset the big headwind we had on the currency. Obviously in 2017 and 2018, this will depend on the currency movements. We are currently thinking that obviously the currency movements in 2017 and 2018 should be a lot lower. But there is a lot of volatility in these markets and we don't know exactly what it's going to do. On the pricing, the intrinsic pricing, I'm glad to tell you that we have increased our pricing when we follow our TPVA performance on a monthly basis. I can tell you that we have increased our position in terms of pricing in every market. The mix was positive, but you also know that we have an impact of Kwid, but that should ease in the future because Kwid was launched end of 2015 and this year 2016 that had a very negative impact obviously because as you can guess, Kwid is sold at a lower prices and hence the margin we can make on this product is obviously lower than the one that you can make on the premium cars. And on the content, that is a very interesting question. You know that at the beginning of the plan when we presented our strategy, we had the intent to have enrichment in our car in order to reposition our brands and to be more present in the upper segments. This is what we are doing. We have enriched our plan and we are passing through most of the prize to our customers. It's more difficult on everything which is regulatory. You're right that most of the regulatory first phase I would say with [indiscernible] is almost over, even though we also had some impact from the LCV business and that should end in the future, but at the end of the day, what we're looking at when we’re enriching these products is really again to position the brand at a better level and to have the right balance in terms of what we put in the car, what we can price the customer and the volume it does bring us at the end of the day in our books.

You know if I may also add something about pricing, which is a very sensitive issue because I know that there are some rumors on the market Renault is growing because it’s discounting. Yeah. Well, first, growth and profit are our objective, it’s either one or the other. I don't want to be the champion of the highest margin with zero growth. I want to make sure that the total profits of the company are competitive. That's what we’re looking for. So we control that our pricing per market, France, Germany, et cetera compared to a basket of representative car maker are moving in the right direction and we have this control and we are ready to share it with you for those who are particularly preoccupied or sensitive to the rumors that we are the barbarians discounting cars and et cetera. So frankly, this is absolutely not founded. We have all the elements to say, because for you, it's important to understand that this is about sustainability. I'm not after a peak performance in 2016 and ahead of me in 2017. I'm not after peak performance in 2017 and ahead with it. So we know that if we want to build sustainability, we're going to now have to be very disciplined, but very reasonable also in terms of pricing and that's what we're pursuing. We follow it on a regular basis compared to a basket of car makers that are representative compared to our product therefore and what we want is to have the best balance between the growth, significant growth of the company and the pricing which is fair to our product and that would allow us to sustain both the growth and the profitability. But I would encourage all those who are a little bit skeptical about it to really share, we are ready to share with you all the details about the efforts that we are doing in order to maintain pricing as a reasonable level.

Yes. Good morning. [indiscernible] two questions if I may. First question on diesel. Could you share your views on what could be the penetration of diesel in Europe and your own sales and in terms of mix, what could be the possible implications in terms of the margins? And second question on EVs in general. Is this business profitable as we speak? What's a breakeven point? And what would be, let's say, the combined investment for your lines and Renault standalone for the next EV generation?

Okay. Well, first of all, diesel, well, diesel is going to go down. It goes down in our sales. It is going to go down with all car manufacturers, it’s going down country by country and frankly, it's very logical. With diesel bashing that is taking place practically everywhere, with half-truths said about the diesel, while it can only go down, plus the unfortunate event that happened with one of our competitors is not going to help a lot, because now there is suspicion about all carmakers doing something fishy about diesel, which you know very well is not the case because so far only one carmakers has been clearly designated as having a cheating device. All the others are investigation and maybe illusion there may be something, but frankly nothing has been determined and I can say, we have been investigated in France, in Germany, in Britain, in Korea, et cetera, nobody has so far which, we knew from the beginning, because we stated from the beginning, there is no cheating device. But what's going to happen is with the fact that they want to regulate emission in any conditions. Well, diesel is going to become more expensive on top of the fact that the image of diesel is being bashed all the time. So you’re going to have a negative marketing campaign going on, including critical campaign plus objectively diesel cost is going to go up, because you're going to have to put a lot of devices to reduce the emission in kind of utilization and frankly consumers don't even care about that. So diesel is going to go down, it’s going to go down in our sales, it’s going to go down at the level of the industry. Now, the question is how far is it going to go down. We think it's going to disappear from small cars. It may remain a little bit on the higher level, okay, which mean premium, et cetera, some SUVs. That's what we think, but we can be wrong also. I am afraid I may be too optimistic also even with this. So we are preparing for this. We are preparing for this. Obviously as you know, we have a significant offer in gasoline, particularly thanks to the lines. And we are the big player with electric car. So we're going to continue to invest in diesel to make sure that, I'm not saying investing to expand the diesel offer, but it's investing to make sure that our diesels are more competitive, both in emissions and in terms of performance, but at the same time, we know that this percent is going to decrease. So we are heavily investing in gasoline engine and particularly with electric cars. Electric cars, we have the clear intention to continue to be the leader, even though a lot of car makers now are coming to the electric car and recognizing the fact that this industry cannot perform without electric cars. We have an extensive experience. We are today in a positive marginal profit on electric cars, I can tell you because the problem of profitability is how much of the research and development you have made, you put in your car. So I don't want to get into this debate. I can say that it's a one-time fixed cost that I've already paid. Okay. I don't want to reimburse for that. It's already paid. It's varied in the past. I'm analyzing, we're pushing people to sell electric cars with marginal profit and I can tell you marginal profit on electric car today is positive for Renault, which is obviously an advantage. We are encouraged to sell electric car, while most of the other car makers are still in negative territory and we want to advance as much as possible the volume because this is going to be a virtuous circle, where the more you sell, the more you make profit and the more you have an advantage. You can expect our lineup of electric car to become much more sophisticated and much, much wider and the platform is going to be common to the lines. So we're going to have a common electric platform for Nissan, for Renault and also for Mitsubishi. Yeah. You had the second question.

Yes, just the first step of the EVs, I think the combined investment was around 4 billion for the alliance, but this is something of the past and we have now an explanation as you mentioned, so I was wondering this will be and what kind of number should we think about for the next future?

Well, from now on, the investments for electric cars are not different from investments for other costs. So I don't think that it’s going to be -- for us, this is going to require much more investment to the block in new electric car compared to another car, particularly that as you know for the batteries, today, we don't have to invest so much in batteries, because there are so much offer in batteries and there is competition in batteries. One of the reasons for which we started our own battery in 2008, 2009, there was no battery available for electric cars at that moment. Today, we are sourcing from chemical. We have many other suppliers who are doing a good job in term of batteries and there is competition between them. So this is something reassuring, which means we don't have to be involved so much into investment in battery which was not the case at the beginning of that.

Thank you, Mr. Ghosn. So we're going to take a question from the call now. Who is on the line?

We have a question from Jose Asumendi from JPMorgan. Sir, please go ahead.

Thank you. Couple of questions please. Clotilde, maybe on the financials, maybe you can just remind us again on the R&D spending and compensation levels for 2017 that will be very helpful. Also we have seen the rising raw materials for the past months. What's the best way to think about this, coming to reverse this 300 million tailwind in to 2017 and then maybe a bit more strategically for Carlos please, your French competitor was basically saying that they're going to comply with real driving emission standards, already three years ahead of time. So maybe if you could please talk about, a little bit about the implementation of SCR across the fleet and where do you stand on real driving emission standards and then on AvtoVAZ, it’s a simple question. I mean it sounds like what you're saying in terms of the product cycle, in terms of like, in terms of the supplier integration, it looks like you’re ready. So if volumes go up by 5%, would you be making money in 2017 or not and if you’re not making money in 2017 as volumes go up, what is the restriction or what is the impediment to not make money next year? Thank you.

I don’t know how many questions there is here, four questions. So maybe, madam, you can start and I’ll take the rest.

The first one was about R&D capitalization ratio.

Okay. On R&D as Mr. Ghosn said, we're going to continue to invest in order to prepare the future. In terms of capitalization ratio, I cannot give you prognostic today, but I think you can take for modeling purposes that it's going to go back to last year level for to start with and we'll update you during the year. In terms of raw material, as Mr. Ghosn mentioned in his speech, we are today facing huge upward trend on the raw material that we haven't seen the impact yet on 2016 even though it has started in 2016 for many reasons. The first one being that we have semi-annual or annual contract in steel. So 2016 was protected for these increases and for the rest of the commodities between the small hedges that we make and the time it flows to our P&L, it did not impact 2016. So for 2017, we forecast a few hundred millions. Yes, I think you can take as a first assumption that it might reverse the positive impact that we have had this year and it might even be a little more than that, but we cannot make any prognostic, obviously commodity is very volatile. Anything could make it go back down and we're trying to make sure that we negotiate the best contracts with our suppliers. And I can turn back to you Mr. Ghosn on the –

Well obviously, as you know, there is a lot of discussion taking place about the new emissions when they're going to be applied. Will there be enough capacity to validate all the new homologation, because what you don't see today is all car makers going to have to re- homologate all their cars and with the new engines and the workload for the people who are going to be in the homologation is huge. We don't know how they're going to be able to deal with this. So there is a risk here but this is a risk for the industry, no matter how advanced you are in terms of technology and no matter how much investments you made to make your diesel extremely performance in term of emission. We are seeing these bottleneck. We are discussing with the authorities by telling them, you have to be careful because if everybody needs to come and homologate before a certain date, you guys are going to have to face a huge workload. We don't know how you're going to do it. This is number one reason, but for the whole industry. Second, yes, some carmakers are more advanced than others about real driving performance because depending about how much they invested in diesel before. Okay. It's true. Some car makers are more advanced and some carmakers are easier, but they're going to be more advanced and the segment of the market is going down. Let's not forget and we are balancing our effort into not only improving our diesel performance, but we are keeping our eyes on the fact that we need to have a strong gasoline offer and you have to have a strong electric car offer. So we are maintaining this balance, keeping an eye on the fact that the market is shifting, for the moment, the shift is very clear. So we want to maintain our diesel engines competitive, but we are preparing for a battle in our opinion that is going to be much more on gasoline engine, electric cars and plug in hybrid. But car makers are not at the same level in terms of emission because the investment in technology has been very different. For some car makers, diesel was at the center of their power train technology. For other, it's one between different technologies, but I'm glad you are in the second category.

Last question was about AvtoVAZ profitability and the ability to be ahead of your plan in terms of breakeven?

Yeah, exactly. We have announced for you operating profit in 2018, 2018. Obviously, there are a lot of things which can influence that. If the market goes up, it’s positive. If the Russian government continue to support the industry, it's positive. I mean, obviously we are prepared to make AvtoVAZ not only profitable, but very profitable. We didn't go to AvtoVAZ for the sake and lot of for the sake of making volumes. We think this company well managed with a good profit -- product line up can be extremely profitable in Russia and can continue to be the leader in Russia and in a role which is compatible with the Renault. I prefer not to count on anything else than, let's not count on it in 2017. 2018, zero and hopefully on the next part on the following part of the plan, Russia including AvtoVAZ should be a strong contributor to the profitability of the company. What I'm telling you, our goal at the end is to have more than EUR70 billion of revenue and at least 7% of operating margin. I don't consider that AvtoVAZ is going to continue to be a drag on the profitability of the company I consider that AvtoVAZ on the contrary should be one of the highlights and the Russian market should be above the average of the group.

Thank you. From the room.

[indiscernible]. Two questions. The first one, I'm glad you gave us an idea on the contribution of sales partner in the revenue growth between 2010 and 2016. Can we have the same order of magnitude at the operating result?

The contribution of the partners, yeah, well, I'm going to disappoint you, because it’s going to put us in a very awkward situation also with our partners if we start to declare how much money we make on them. What I can tell you is that sales of our partners are going to increase. I mean, what you're going to see in the next six years is obviously in organic growth of Renault, but also the multiplication of the agreement with partners are going to continue because for the moment, we need not put Mitsubishi on the map, but we have to consider that Mitsubishi has mainly lack of products. And a lot of the products that Renault has is very compatible with the Mitsubishi offer. For example, southeast of Asia, Renault is absent. Southeast of Egypt is a very strong hold of Mitsubishi. Obviously, it would be more natural for a Renault product or Renault based product to become a Mitsubishi product in the southeast of Asia, because then it allows Nissan to continue to have its normal development in the southeast of Asia without having competing under the Mitsubishi brand. So you are going to have a lot of -- sales of partner are going to continue to grow. Again, we are not basing the growth of the company on this and what I want to tell you is sales of partner are profitable. And they are not bad news in terms of profit, which means we are trying to maintain the sales of partners in line with the overall profitability, obviously depending on trucks, volume et cetera, but we're trying to maintain the sales to partner is on the same line of profitability of the company.

Revenues in the coming six, seven years, what would be the impact of sales to partners in that 20 billion increase?

Frankly, I cannot tell you, but what I can tell you is it’s going to grow. Don't expect that that's it. We're going to continue to grow, because the exchanges between Nissan and Renault will continue and exchanges of Nissan -- of Renault and Mitsubishi, we are going to develop on top of the fact that the existing contract particularly unlike commercial vehicles that we have with General Motors, they’re absolutely going well and we have all the signals that they want to renew

I have a second question, which is regarding the productivity of the French plant. When you want to increase that by 40% for the next three years. So two small questions in that number. In the 300 million provisioning you booked last year, is there anything linked to that next three years. And the second point is that what is the magnitude of cost saving you expect through 40% productivity gains?

Yeah. I don't know how much did you put for the –

On the first question, which is on the provision, we have booked almost a totality in the 300 million you had was, there is almost -- it’s the end of the previous plan and it's almost the totality of the new plan is already booked. So you won't have much more to come.

Yeah. We obviously, we have only one option in front of us, which is making our [indiscernible] That’s it. We need to work. And we're doing everything for that. We signed an agreement. We are investing. We are going to be increasing the productivity because we want all the plants to reach 90 vehicle per employee. Today, we are at 63. Yeah, some plans are already above 90, which are doing very well, which mean it's possible to do it, but it requires a lot of effort, it requires a lot of care. We have to pay a lot of attention. It's possible and we have no other option. We have no other option. We have to make the French plants competitive and we have to take it in our hands and we have to sign agreements and we have to always make a kind of trade about calming some of the concerns of the people in the plants and the union in the plant and asking for all the efforts that allow us to be competitive. That mean, that's the only way. I'm not even thinking about alternative solution. I don't think they are realistic, realistic. So moving from 63 to 90 is going to be a substantial improvement in cost from the French plant. This is not going to position the France plant at the top level of the alliance. But this is going to reduce a lot, some of the handicaps that we have been facing in the past with the production from the French people. But for us, the sustainability also for that. Again, I’ll come back to the sustainability of the performance, means we need to transform France into a powerhouse as much as possible and reduce the gap existing in productivity between the French plants and some of the other plants organized. You need to know that today, we compare all the plants of the ones and at the top level, you have today China, the Nissan Chinese plant, Wuhan the way is going to be very high in the classification when it will be at, Wuhan, which is the Renault plant in China is going to be very high into the classification. We have the Mexican plants which are extremely performance. You have some Spanish plants, you have Slovenia, which is very good. So there are ways to make the French plants competitive, we’re just building it step by step, thanks to the good collaboration we have with the unions today. So we're not counting on this for the, but it's going to be a positive contribution to the result of the company.

Okay. So we are going to take the last question from the call. Who is on line?

We have a question from Fraser Hill from Bank of America. Sir, please go ahead.

Hi. Good morning. Just had a question for Carlos on the alliance structure, I’ll take it you haven't dealt I mean your plans today with regard to the structure, but in the past, I think you would always argue that you needed to fix the margin at Renault and improve the profitability there. I know there is more to go, but above 6% now. If that's not a trigger to look at the capital structure of the alliance, what might be when you look forward over the course of this plant through to 2022, are there dynamics or levels of profitability perhaps that might trigger a debate around the capital structure within the group? And maybe more broadly on that, could you talk about the kind of strategic purpose of moving more deeply in a financial integration, now that the operational integration is fairly complete. Thank you.

Yeah. Well, yes, let me very clear here. That mean, we obviously going to continue to converge between Renault Nissan and now Mitsubishi share platforms, purchasing, et cetera. Operationally, we're going to continue the convergence and keeping the identity of the brand separate. This will continue. Now on a capital structure, following the soap opera of the double voting rights and the discussion with the French state, et cetera, Nissan has said very clearly during this discussion that it will not accept any move on capital structure as long as the French state remains a shareholder of Renault. That’s it. So don’t expect any move on the capital structure as long as the French state remains shareholder of Renault, because the Japanese would never accept to be part of an entity, where particularly taking consideration or everything which happened that the French state will be shareholder of Japanese assets. So the day the French decide to get out, everything is open and I can tell you, it wouldn't take too much time, but as long as they are in, they want to continue to be shareholder of Renault and Alliance will continue to move as it is, but it is very clear that the Japanese don't want any shareholder who thinks differently from them.

Okay. Thank you, Mr. Ghosn. I think we are at the end of this session. Thank you very much for your presence, for your questions. And as you know, the IR team of the group is available today if you have further questions. Have a nice day. Thank you. Good bye.