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Renault’s Profits Surge, But Ghosn’s Bonus Gets Cut

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Renault (RNSDF) 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.

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 (NISSAN-MOTOR), with improvements to Renault diesel engines raising research and development (R&D) spending.

Productivity savings all but evaporated to just 6 million euros in the first six months, even as net income rose 8.8% to 1.5 billion euros ($1.74 billion) on 25.19 billion in revenue, which was up by 13.5%.

“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% lower at 08:10 GMT. 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.

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

 

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.

Renault shares fell, reflecting worries that it may struggle to achieve 1.8 billion euros of savings pledged for 2014-16.

“The lack of cost savings is a big concern,” said one London-based analyst.

With 350 million euros in cuts still to be found by year end, CFO Delbos acknowledged it would be close. “You should not bet on a (productivity gain) that will be higher than 350 for the full year,” she said.

R&D costs also increased by 115 million euros partly as a result of “diesel consequences,” second-in-command Thierry Bollore said. Rival automaker Volkswagen (VLKAY) reported on Thursday that profit at its VW brand had fallen by more than a third following the German company’s diesel emissions scandal.

See also: Inside Volkswagen’s Diesel Fraud

Renault is struggling to meet tightening engine standards, while scrambling to patch excess nitrogen oxide (NOx) emissions from some existing models.

On Wednesday, the Renault board cut CEO Ghosn’s bonus by 20% this year after a shareholder vote against his pay package.

Renault’s product offensive has improved pricing, which delivered an 800 million euro boost to first-half revenue, and helped it weather brutal downturns in Russia and Latin America.

Renault said it still planned to inject more capital into Russia’s Avtovaz, the troubled maker of Lada cars controlled by Renault-Nissan, and consolidate its accounts by year end.