On Friday, Rhino Resource Partners LP (NYSE:RNO) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.
More on the Inventory Move
Laura Lembke – Morgan Stanley: I have three questions please. The first one is just the clarification on your inventory move. If I understood you correctly, you said that the 60,000 unit increase at the independent dealer level and basically 50% of that total inventory that you have is basically outside of Europe. So I was just wondering if you could explain a little bit how the inventory has moved both outside of Europe and internationally between Q2 and Q1 here just to get a little bit of a feel here. The second question would be on your order book and the trends you’re seeing across the different regions in Q2. How much visibility do you have now going forward and also how have order developed on a sequential basis month-on-month in the quarter here? Then my last question would be on the French stimulus and that has been announced this week. How does this alter your prospects on the EVs and how does it also impact basically the ramp up that you are looking to do in electric vehicle business and what that may mean for the economics overall of your EV project?
Dominique Thormann – EVP, CFO, Chairman and CEO, RCI Banque: This is Dominique. I’ll take the inventory question and pass over to Carlos for your two follow-up questions. Basically, as I showed you, our sales are – 47% were outside of Europe, 53% inside of Europe. Our stock situation is pretty much reflects how our sales have been moving. So currently, the inventories actually skewed a little bit more towards the international side, because we have a longer supply chain. There are some countries that have rather lengthy customs and barriers, which we have to go through Algeria, for example. So right now at the end of the half, we were (parts) at a little bit less than 50% of stock in Europe, a little bit over 50% outside of Europe. I’ll hand over to Carlos for your question on the orders.
Carlos Tavares – COO: The order book for Europe is in the range of 1.4, 1.5 months of sales. This is the current situation. Outside of Europe, as I said for Eurasia, Americas and Euromed, the situation is good. Nothing that could be of concern. We see that in Russia, everything we produce we sell. We see that we are still growing share in a very significant manner in Brazil, and our position in Euromed is quite strong. So on that area nothing that is specifically worrying, but of course we still are very vulnerable to the European situation, and we expect to see what will happen next in France, which is for us still a very important market as 25% of our sales are made in France and I will therefore comment about your question on the program that was announced by the French government this week, we believe that it’s a quite good support program for green cars, specifically for zero emission vehicles, and I would like just to reinforce here that we are the only global OEM who has three EV cars on sale, three completely different cars, the Kangoo, small LCV, the Fluence, C segment Sudan and the Twizy and very soon the Zoe. So having these three vehicles already on sale, we are in a very good position to capture any opportunity that could come from this kind of support program. So this support program is expected to help us accelerate the sales of EV. One of the factors I would like to share with you on EV also because sometime we are challenged on the fact are you growing sales quickly enough or not. I would like to tell you that I have given very strict instructions on no discounting or very limited discounting on EV for a very simple question is because we have no competition. There is no reason to make discounts where you don’t have any competitors. So we believe the French plan is supportive of this. Of course, there is an expectation to see if in terms of TIV impact there will be significant one, I think it’s too soon to make any comment on that. We will see in a few months, but at least on the zero emission part where we have already significant offer, I think this is a program that is going to help. It’s going to help not only by the incentives, which are going to be given directly to the final customer, but it’s also helpful because it’s going to accelerate the density of charging units across the country and this is a very positive factor to reduce the autonomy range anxiety that you know exists in the mind of a few customers.
Laura Lembke – Morgan Stanley: Can I just ask a follow-up question regarding the inventory again. What I don’t understand is you basically reduced the inventory at the OEM level by 80,000 units, but this was largely offset by the 60,000 unit increase at the dealer levels. Essentially what happened is the situation from Q1 has been reversed, so what I would like to just understand is whether basically the increase we’ve seen at the independent dealers, is that mainly just driven by the fact that you’ve transferred a lot of costs for the international business now to the dealers or is this actually a sign that the inventory in Europe is not decreasing or actually increasing?
Dominique Thormann – EVP, CFO, Chairman and CEO, RCI Banque: No, it’s the former, because if you look at the split of what’s on our books, so the manufacturer’s inventory, it’s just about identical to the percentage at the dealer level. So if you take total Europe stock, it’s exactly 50% on our books, 50% outside of Europe and if you take what’s on the dealer’s side, it’s 47% on the dealer side, 53% outside of Europe. So we have in total a balance between the percentage of European and non-European stock be it on the manufacturer’s side or on the independent dealer side.
Pricing Environment in Europe
Charles Winston – Redburn: Just two questions from me. Just wondering if you could comment as to how you see the pricing environment in Europe now and sort of your expectations for the second half are, obviously, many people are expecting pricing to get tougher and perhaps your expectations as to how you would be able to resist that, as maybe as well as you did in the first half? Then just secondly, just getting back to that issue of inventory. Could you perhaps give us some sort of feel or picture as to how the new model launches your planning in the second half might impact the inventory and working capital position? So I imagine there will be degree of inventory build ahead of launches, for instance, and whether that will present a bit of a headwinds to your expectations of working capital management in the period.
Dominique Thormann – EVP, CFO, Chairman and CEO, RCI Banque: I’ll start maybe with the inventory and then hand back over to Carlos for pricing if you don’t mind. First of all, the launch of the vehicles is towards the back end of the year, so you will have an inventory buildup to launch in Q3. So we haven’t seen that yet. There’s a seasonal factor also, at least in the European market, because of the summer shutdown. So there is naturally a bit more of inventory, you know, as you closeout June, going into the July and August selling period where – and the factory shutdown starting basically now. So that’s the normal seasonal pattern that you’re going to see. What I showed you on the slide also is an important factors that total inventory in terms of the number of days on hand went down. Quarter – at the end of Q1, we were at 69 days and we ended up at 61 days at the end of Q2, but that number still has to come down. I said in my remarks that it was still on the high side. What we tried to do is to manage inventory within a band of 50 to 60 days. At 61 days we’re clearly on the high side and we would like that number to come down as the July and August selling period will empty some of the existing on-ground stock. Here I’m speaking primarily of Europe, which is half of the total and that needs to happen as we will ramp up production for – particularly for Clio launch in the last part of the year. I hope that clarifies. Now, I’ll hand over to Carlos for the pricing question.
Carlos Tavares – COO: Thank you, Dominique. For the pricing, as you know, most of you, we have a very specific focus on the net pricing in the five biggest countries in Europe where the fight is the toughest and we have been implementing net pricing increase plan to overcome both Citroen and Peugeot. At the moment, where I’m talking to you, we have already overcome Citroen. Our net pricing which is a transaction price value adjusted after all the discounting and correcting from the equipment content. Our net pricing is already in the G5 in Europe above Citroen excluding the DS series. This is something which is done. We are now moving to get closer and hopefully to overcome Peugeot. Our current plan is to make sure that this job will be done before the end of first quarter 2013. As you may imagine, while I’m telling you this, I’m trying to do it in a more speedy manner, but as you may imagine also, it’s not an easy task. So we are moving now to catch up with Peugeot. By doing this, we will get slightly closer possibly to Volkswagen, which remains our mid and long-term goal in terms of net pricing value adjusted. It’s a huge task. I would like also to share with you that I’m not completely satisfied with the way we are managing the enrichment. I think we also have to improve the way we value the content that we put in the car and possibly we are not optimal there which gives us some room of improvement and another area for hard work beyond the discipline that we are now implementing in our sales and marketing world for the European markets. So that’s the current situation I would like to share with you.
Charles Winston – Redburn: Can I just follow up, just to confirm. Given the plans that you have just set out, just to confirm, those plans are not being knocked back a little bit or impeded given the environment we are seeing, the environment isn’t making that plan more difficult.
Carlos Tavares – COO: No, they are not impeded at all, because we are working on of course relative terms, the concern that we may have both is that in some cases if we overtake somebody, we need to know if it is because we increased on that pricing and it benefits our P&L or if it is because the other guys are discounting like hell. It’s a combination of both, because some of our competitors are in disarray and they may have some desperate moves. So the answer to your question is that I believe it’s a combination of both. I want to see in my P&L a net pricing improvement, which is a part of the reason why we are overtaking people like (Citroen) and a few others. So we need to keep that in mind. We know that even German competitors are increasing their (C&I) and therefore they are coming closer to us even though they are still by far ahead of us. So the answer to your question is no, nothing is impeding us from moving forward, but the question we need to have, both of us is that only part of that can impact the P&L if our competitors are increasing their discounting on their side.