Annual Report Renault 2003
■ Renault group and strategy
■ Corporate governance
■ Renault’s performance in 2003
■ Consolidated fi nancial statements
■ Main subsidiaries and group organization chart
■ Draft resolutions of the general meeting of shareholders on April 30, 2004
■ Supplemental information Annual Report Renault 2003 Management report approved by the Board of Directors on February 24, 2004. Contents
1. RENAULT GROUP STRATEGY 7
1.1. Presentation of the company and the Group 9 1.1.1. Background and highlights 9 1.1.2. Renault shareholders on December 31, 2003 10 1.1.3. 5-year consolidated figures 11 1.1.4. Main activities 11 1.1.4.1. Automobile Division 12 1.1.4.2. Sales Financing Division 19 1.1.4.3. Strategic shareholdings 19
1.2. The Renault-Nissan Alliance 21 1.2.1. Aims and governance 21 1.2.1.1. The phases and aims of the Alliance 21 1.2.1.2. Governance and operational structure of the Alliance 23 1.2.2. Areas of Renault-Nissan cooperation 25 1.2.2.1. Operational steering bodies and their scope 25 1.2.2.2. Sharing industrial resources 26 1.2.2.3. Close commercial fit 29 1.2.2.4. Staff exchanges 30 1.2.3. Nissan's results 30 1.2.3.1. Sharp increase in earnings 30 1.2.3.2. Nissan makes a growing contribution to Renault’s results 32 1.2.4. Overall performance and financial indicators 32 1.2.4.1. Industrial and commercial presence 32 1.2.4.2. Value of joint operations 35 1.2.4.3. Alliance financial indicators 35
1.3. The profitable growth strategy 38 Goal 1 : Build recognition for our brand identity 38 Goal 2 : Be the most competitive manufacturer on our markets in terms of quality, costs and delivery times 39 Goal 3 : Extend our international reach 40 Goal 4 : Develop Renault's core values 41 Goal 5 : Translate success into financial performance 43
This symbol indicates informations for relating to the guidelines of the Global Reporting Initiative (GRI) on sustainable development reports. See page 250, for a cross-index of GRI indicators.
This @ symbol means that more information is available from Renault's sustainable development website, at the following address : http : //www.sustainability.renault.com, "The men and women of Renault".
Annual Report 2 Renault 2003 2. CORPORATE GOVERNANCE 45
2.1. Composition and operating procedures of the Board of Directors 48 2.1.1. Composition and operating procedures of the Board of Directors 48 2.1.2. Audit of the Board of Directors 54 2.1.3. Assessment of director independence 54 2.1.4. Internal regulation and Directors' Charter 55 2.1.5. Specialized committees of the Board of Directors in 2003 55 2.1.6. Directors' fees 57
2.2. Composition and operating procedures of management bodies 58 2.2.1. Group Executive Committee 58 2.2.2. Renault Management Committee 58 2.2.3. Group Executive Committee and Management Committee at January 1, 2004 58
2.3. Audits 60 2.3.1. Auditors 60 2.3.2. Fees paid to statutory auditors and their networks 61
2.4. Interest of senior executives 62 2.4.1. Remuneration of senior executives and corporate officers 62 2.4.2. Stock options granted to senior executives and the company's corporate officers 63
2.5. Renault and its shareholders 66 2.5.1. Capital and voting rights 66 2.5.2. Share ownership 66 2.5.3. Market Trading of Renault shares 68 2.5.4. Dividends 70 2.5.5. Disclosure policy 70
2.6. Risk management 72 2.6.1. Financial risk 72 2.6.2. Operational risk 78 2.6.3. Legal risk 81 2.6.4. Distribution 83 2.6.5. Human resources 83 2.6.6. Other risks 83
2.7. Chairman’s report on internal control procedures 84 2.7.1. Introduction 84 2.7.2. General control and management environment 85 2.7.3. Management of principal risks 87 2.7.4. Organization of procedures for preparing financial and accounting information 87 2.7.5. The Renault-Nissan Alliance 88
2.8. Auditors’ report on the report of the Chairman 89
Annual Report 3 Renault 2003 3. RENAULT’S PERFORMANCE IN 2003 90
3.1. Economic performance and results in 2003 92 3.1.1. Sales performance and results in 2003 92 3.1.2. Financial results in 2003 101 3.1.3. Outlook 107
3.2. Employee relations performance 108 3.2.1. Workforce 108 3.2.2. Human resources policy 109 3.2.2.1. Forward thinking 109 3.2.2.2. Attracting and motivating employees 111 3.2.2.3. Promoting involvement 117
3.3. Environmental performance 119 3.3.1. The challenges 120 3.3.2. Life-cycle environmental management 122 3.3.3. Protecting the environment and remaining competitive 125 3.3.4. Reducing the environmental impact of activities 126 3.3.5. Maintaining the value of our assets 131 3.3.6. Organizing communications 132
3.4. Social performance 134 3.4.1. Code of good conduct 134 3.4.2. Renault and its stakeholders 134 3.4.3. Renault: Architect of Sustainable Mobility 135 3.4.4. Renault and road safety 137 3.4.5. Contribution to civil society 140
3.5. Research and Development policy 144 3.5.1. Innovation across the range 144 3.5.2. Excellence in safety standards 144 3.5.3. Guaranteeing traveling comfort 145 3.5.4. Protecting the environment 145 3.5.5. The Alliance with Nissan, a catalyst for efficiency 146
Annual Report 4 Renault 2003 4. FINANCIAL STATEMENTS 147
4.1. Consolidated Financial statements 148 4.1.1. Auditors' report on the consolidated financial statements 148 4.1.2. Consolidated financial statements 150
4.2. Parent company Financial statements 202 4.2.1. Auditors' report on the financial statements of the parent company only 202 4.2.2. Special report of the Statutory Auditors regarding the data used to calculate the remuneration of the redeemable shares 204 4.2.3. Statutory auditor's report on regulated agreements 205 4.2.4. Renault SA parent company financial statements 206
5. MAIN SUBSIDIARIES & ORGANIZATION CHART 217
5.1. Main subsidiaries 218
5.2. Organization chart 221
6. GENERAL INFORMATION ABOUT RENAULT 223
6.1. Legal information about Renault 224 6.1.1. General information 224 6.1.2. Special provisions of the articles of incorporation 224
6.2. General information about Renault’s share capital 226 6.2.1. Change in share capital 226 6.2.2. Share capital 226 6.2.3. Changes in capital ownership over five years 226 6.2.4. Stock option plan for subscription to or acquisition of Renault shares 227 6.2.5. Capital increase reserved for employees 227 6.2.6. Capital increase by issuance of securities 227
Annual Report 5 Renault 2003 7. MIXED (ORDINARY AND EXTRAORDINARY) GENERAL MEETING OF APRIL 30, 2004 228
7.1. Presentation of resolutions 229 7.1.1. Approval of the annual accounts and appropriation of the income 229 7.1.2. Agreements referred to in article L.225-38 of the Commercial Code 229 7.1.3. Renewal of two directors' terms in office 229 7.1.4. Ratification of the appointment of three directors 230 7.1.5. Release of three directors from liability as may have arisen in the performance of their duties 230 7.1.6. Report of the statutory auditors on equity loans 230 7.1.7. Authorization for the Company to trade in its own shares on the stockmarket 230 7.1.8. Authorization to issue bonds 231 7.1.9. Authorization to cancel holdings of the Company's own shares 231 7.1.10. Maintaining conditions for fixing the issue price of shares 231 7.1.11. Amendments of articles of association 232 7.1.12. Appointment of a director 232 7.1.13. Formalities 232
7.2. Draft resolutions 233
8. SUPPLEMENTAL INFORMATION 238
Internal regulations of the Board of Directors 239 Board of Directors and committees 239 Director's Charter 242 Procedure concerning the use and/or communication of insider information 243 Environmental data 245 Methodological comments concerning the "Environmental performance of Renault group sites" table 2003 245 Environmental performance of Renault group sites 246 Environmental performance of passenger cars 248 Report on the Environmental Data relating to the Renault Group Sites 249 GRI indicators: cross reference table 250
Annual Report 6 Renault 2003 1. Renault group strategy 1 Renault group strategy
1.1. Presentation of the Company and the Group 9 1.1.1. Background and highlights 9 1.1.2. Renault shareholders on December 31, 2003 10 1.1.3. 5-year consolidated figures 11 1.1.4. Main activities 11 1.1.4.1. Automobile Division 12 1.1.4.2. Sales Financing Division 19 1.1.4.3. Strategic shareholdings 19
Annual Report 7 Renault 2003 1. Renault group strategy
1.2. The Renault-Nissan Alliance 21 1.2.1. Aims and governance 21 1.2.1.1. The phases and aims of the Alliance 21 1.2.1.2. Governance and operational structure of the Alliance 23 1.2.2. Areas of Renault-Nissan cooperation 25 1.2.2.1. Operational steering bodies and their scope 25 1.2.2.2. Sharing industrial resources 26 1.2.2.3. Close commercial fit 29 1.2.2.4. Staff exchanges 30 1.2.3. Nissan's results 30 1.2.3.1. Sharp increase in earnings 30 1.2.3.2. Nissan makes a growing contribution to Renault's results 32 1.2.4. Overall performance and financial indicators 32 1.2.4.1. Industrial and commercial presence 32 1.2.4.2. Value of joint operations 35 1.2.4.3. Alliance financial indicators 35
1.3. The profitable growth strategy 38 Goal 1: Build recognition for our brand identity 38 Goal 2: Be the most competitive manufacturer on our markets in terms of quality, costs and delivery times 39 Goal 3: Extend our international reach 40 Goal 4: Develop Renault's core values 41 Goal 5: Translate success into financial performance 43
Annual Report 8 Renault 2003 1. Renault group strategy
1.1. Presentation of the company and the Group
1.1.1. Background and highlights
Société Renault Frères was formed in 1898 to manufacture motor vehicles, taking advantage of patents such as the first direct-drive transmission. Based in the Paris suburb of Billancourt, the company achieved international renown through its success in motor sports, and initially specialized in the construction of passenger cars and taxis. During the First World War, it produced substantial volumes of trucks, light tanks and aircraft engines. In 1922, having expanded strongly in the passenger car and commercial vehicle markets, Renault became a limited company. Establishing numerous production centers in France and abroad, Renault gradually emerged as the French market leader. In January 1945, the company was nationalized and renamed "Régie Nationale des Usines Renault", and concentrated on producing the 4 CV. Through to the mid-1980s, Renault followed a strategy of diversification in the industrial, financial and service sectors, while at the same time growing its industrial and commercial activities internationally. The Renault 5, which remains one of the Group's best-selling models ever, was launched in 1972. But in 1984, the company ran into financial difficulties. As a result, it concentrated on restructuring and refocusing on core activities, and returned to profit in 1987. In 1990, Renault became a limited company once again. In the same year, it signed an agreement for close cooperation with the Volvo group. And in 1991 the two Groups linked their car and truck businesses via cross- shareholdings. This arrangement was unwound after plans to merge the two Groups were shelved in late 1993. One year later, the French government opened Renault to outside capital, a first step towards privatization, which took place in July 1996. From the Type A Voiturette, created by Louis Renault in 1898, to the latest arrival, Mégane II, Renault has been the source of many ground-breaking concepts in automotive history: the 4 CV in 1946; the Renault 4 in 1961; the Renault 16, with its rear hatch and modular interior, in 1965; the Renault 5 with its polyester bumpers in 1972; turbo- powered vehicles starting in 1980; Espace in 1984; Twingo in 1993; and Mégane Scenic in 1996 are just some of the models that have contributed to the company's tradition of innovation. 1999 marked the start of a new era in Renault's history with the signing of an Alliance with Nissan, on March 27 in Tokyo. In the same year, Renault acquired a new brand by taking a 51% stake in Romanian carmaker Dacia. In 2000, this expansion continued, with Renault raising its stake in Dacia to 80.1% (increased to 92.7% in 2001) and acquiring a new brand – Samsung Motors in South Korea. In 2001, Renault became the main shareholder in the Volvo group, with a 20% stake, sold Renault V.I. to Volvo and the two companies joined forces to form the world's second-biggest truck manufacturer. In 2002, Renault and Nissan implemented the second stage of their Alliance, aimed at strengthening their equity ties and creating a joint strategic command structure. The plan was endorsed by an Extraordinary General Meeting of Renault Shareholders on March 28, 2002. Renault raised its stake in Nissan from 36.8% to 44.4%. At the same time Nissan took a 15% ownership interest in Renault through Nissan Finance Co., Ltd. To underpin the move to strengthen the Alliance, the French government reduced its holding in Renault to 25.9%. The government’s ownership interest was then further reduced to 15.7% by selling shares both to company employees and on the market. Renault also sold its holding in Irisbus to Iveco. Irisbus will keep the right to use the Renault brand name for its vehicles until June 2005. In terms of new products, 2002 saw the launch of Mégane II (Hatch and Sport Hatch versions), Vel Satis and Espace IV.
Annual Report 9 Renault 2003 1. Renault group strategy
2003 was the year of Mégane II, with five new body styles following on from the two vehicles launched in 2002. With Scénic II, Grand Scénic (unveiled in 2003 and launched early in 2004) , Mégane coupé-cabriolet, Mégane 4-door sedan and Mégane station wagon, a total of 7 models have been launched in 17 months. Mégane II was the best-selling model in Europe in 2003. In Formula 1, Renault finished 4th in the constructors’ championship. The Group signed three major international agreements to build and market X90 (a family vehicle with a €5,000 price tag) in Russia, Iran and Morocco.
1.1.2. Renault shareholders on December 31, 2003
Renault shareholders on December 31, 2003: as a % of share capital 15% 4.1% Nissan Employees
4% Treasury stock Total share capital (%) 15.7% 61.2% French State Public
Renault shareholders on December 31, 2003: as a % of voting rights
19.3% 75.7% French State Public
Voting 5% rights Employees (%)
Annual Report 10 Renault 2003 1. Renault group strategy
1.1.3. 5-year consolidated figures
(Published figures(2)) (in million euro) 1999 2000 2001 2002 2003 Revenues 37,592 40,175 36,351 36,336 37,525 Operating margin 2,205 2,022 473 1,483 1,402 Share in the income of Nissan Motor (330) 56 497 1,335 1,705 Renault net income 534 1,080 1,051 1,956 2,480 Earnings per share (in euro) 2.23 4.5 4.38 7.53 9.32 Share capital 914 914 923 1,086 1,086 Shareholders' equity 8,185 9,652 10,051 11,828 13,591 Total assets 46,422 51,975 50,129 53,228 58,291 Dividend (in euro) 0.76225 0.91 0.92 1.15 1.40 Cash flow 3,314 3,412 1,688 3,578 3,560 Net financial debt 2,700 4,793 3,927 2,495 1,748 Total workforce on December 31 159,608 166,114 140,417 132,351 130,740 1.1.4. Main activities
The strengthening of the Alliance between Renault and Nissan in 2002 made it necessary to reorganize Renault and create a société par actions simplifiée (simplified joint-stock company – s.a.s.). The new entity, Renault s.a.s., is wholly owned by Renault SA and encompasses its principal operating assets. Since the final agreement, signed with Volvo on January 2, 2001, the Group's activities have been divided into two main divisions: Automobile Division; Sales Financing Division. In addition to these two divisions, Renault has two strategic shareholdings: