Forvia SE

Good morning, and welcome to our H1 2020 results presentation. We, today, will speak about agility and resilience, especially for the first half, and we will also give you an overlook of what we have in front of us and how we intend to deal with that, but let me start with a few messages, which are related to our priorities.

First, a safe working place for our people, and you might have noticed that we have restarted our activities, our industrial activities around the world on a very safe way. Liquidity and cash, very important; resilience, key to the uncertainty and the lasting uncertainty we will have to face in the years to come.

Customer satisfaction, an absolute must. We are in the same boat.

We have to promote this industry. This industry has a lot of potential.

And digital transformation, CO2 neutrality and hydrogen are again, here, the ones on which we are totally focused. In H2, Faurecia will be back on solid profit and cash generation, again, thanks to further resilience actions.

We have started an early stage. We are prepared.

We know how to deal with this. And we are targeting, because of that, around 4.5% operating margin and around €600 million net cash flow with a volume assumption of minus 15% in the second half versus 2019.

We are also ready now to confirm our ambition, the ambition we have communicated during our CMD last November, 8% profitability, 4% cash generation, and this despite lower sales by about €2 billion. Our reaction in this crisis; first, the COVID-19, it's not over, but we are well organized to deal with it.

You see here, we have an international color code, which is allowing us to adapt our protocols and to the seriousness in these different parts. All sites have successfully restarted with strong protocol for protection of employees.

All of this is audited. We are making sure that this robust and respected.

We are preparing for return from the summer break with increased protection for at least 14 days and this, around the world. And we have organized ourselves to make sure that all our sites, wherever they are, would be ready for maximum protection within 48 hours in the case of an cluster.

The strong impact of the COVID-19 is no more to be demonstrated. You see here the profile of our sales during the first half.

In Q1, minus 20%; in February, in China, minus 80%; in the second quarter, minus 50%; in April, in Europe and in America, about minus 90%, but we have touched ground in April. And you see that since then, we are recovering, and we are recovering quite well.

In China, we are already above our 2019 figures. We exited June at 85% of our sales in 2019, which is also true for Europe and North America.

In the first weeks of July, we are at about 90% of 2019. Michel, would you please tell us a little bit more details about our results?

Thank you, Patrick. Good morning, ladies and gentlemen.

Starting with the Slide 6, as you can see, we have a small currency impact. I mean this British -- the Brazilian real and the Argentinian pesos.

We have a scope impact of €417 million and €207 million coming from SAS, 5 months, and €210 million coming from Clarion, four months. So making the organic constant scope constant currency, minus 35.4% to be compared with minus 34.4% for the worldwide market, production market, which means an underperformance of 100 basis point.

But as you can see on the bottom right, the mix of sales was very different between Faurecia and the market. We are mainly in North America and Europe, heavily impacted in Q2.

And whatever the fact that we strongly outperformed all the regions in Q2, we have globally this underperformance due to the geographic mix. We are estimating the geographic mix to 350 basis point negative, which means that, in fact, we outperformed the market by 250 basis points.

This will be fully confirmed in H2. Going now to the operating margin.

So it was a strong challenge, as Patrick was explaining, with a big drop in April and May, starting, in fact, mid-March. So you can see, first is the volume impact.

Volume is on the margin after raw material consumption and component consumption. So a huge €1.3 billion negative impact if you compare to last year.

We reduced our cost by €536 million, and this is mainly composed of €334 million from flexibilization of our direct and indirect labor costs, €112 million on our manufacturing cost and €90 million on our net R&D and SG&A. So a huge effort with all the actions we have implemented.

In this figure, we consider that something like €160 million can be considered as recurring. You can see as well a small scope impact, which means that SAS posted a positive operating margin in this first half, and Clarion was positive as well, as we said before, as we said in the second quarter, which was clearly integrated last year.

Last but not least, €20 million of COVID and relative one-offs. A big part is the cost of the safer restart program.

Another part is some write-offs due to, I would say, the end of some production in China. As you know, there are some small customers, we say, close to bankruptcy.

As a result and this is very important, we have what we call a fall-through of 23%. That means that the drop of sales means 23% of lost operating margin.

This figure, please keep it in mind because it will be our minimum target is the recovery in order to rebuild very quickly very strong operating margin. And clearly, we are targeting 23% to 25% drop-through with the sales coming back.

This is demonstrating all the effectiveness of all the measures we have taken. Zooming now on the regions.

Starting with Europe, a small positive scope impact coming from SAS. Organic sales drop was 36.1%, which means an actual outperformance of 360 basis points.

Now by quarter, as Patrick was explaining, minus 16% in Q1 and minus 15% in Q2, which was clearly a huge, huge drop for the market. Operating margin stood at €113 million versus a profit last year.

This is reflecting a 25% fall-through. As I explained before, it is a minimum target for our European operations to recover in H2 and onwards.

North America, organic sales drop was 41.7% in H1, limited underperformance, but please notice a strong outperformance in Q2 as we were affected by the last end of production in Q1, and this outperformance will continue now in the next month and next years, in fact. By quarter, sales dropped 18% in Q1, 64% in Q2.

And as Patrick was explaining, as the exit point in June was almost close to 100% of the previous sales. Positive scope is coming from SAS and half from Clarion.

Operating margin stood at €184 million versus a profit last year, of course, reflecting a fall-through of 26%, same goes for North America as, of course, Europe. Asia.

Organic sales drop was 23.2% in H1, strongly outperforming the market by 500 basis points. By quarter, sales dropped by 34% in Q1, 14% in Q2.

And as you have seen as the exit point in June is even higher this year than last year. Positive scope is mainly related to Clarion.

Operating margin was a profit, €101 million or 6.9% of sales, reflecting a fall-through of 19%. We are back to China to double our digit margin now, and this will be fully confirmed in H2.

For South America, organic sales drop was 42.1%, strongly outperforming the market. By quarter, sales dropped by 2% in Q1, 73% in Q2.

And you know that they are still inside the coronavirus crisis, so probably Q3 will be still affected. Operating income stood at minus €14 million versus a profit €19 million.

Please notice that this €19 million was boosted last year by some one-off tax profit. I will be quick on the result by, I would say, the business as clearly the regions are impacting mostly these results.

Scope, of course, impacted mainly Interiors with SAS and of course, Clarion Electronics. Clean Mobility strongly outperformed the market by 500 basis points, while other business were impacted by the geographic mix, and Faurecia Clarion, mainly by the drop of volumes of Nissan.

What we indicated and will be fully confirmed in H2 will be the recovery of Seating. Seating will start to strongly outperform the market now onwards.

Only clean Mobility and SAS posted a profit over the period. Fall-through was between less than 20% for Seating, 27% for Interiors, a little more than 30% for Clean Mobility.

Of course, these business will fully confirm the fall-through up in the next weeks and months. Now detailing the profit in the statement on Slide 11.

As commented earlier, we contained operating loss to only minus 1.8% of sales, thanks to our efficient resilient actions. Cost of sales was down 25.9%, down 31.2% on a reported basis.

€446 million savings were generating for flexibilization of labor and manufacturing costs. And nevertheless, with a huge drop of volumes, we lost, of course, some margin.

I would like to highlight that net R&D cost was reduced by 19.4% in constant scope. And for the selling and administrative expenses, the figure was minus 12.6% at constant scope, sorry.

As indicated before, 23% is our minimum for full op. Let's move now to the -- with the lines.

Below the operating margin, where we have the charge on amortization of goodwill, which is both Clarion and now SAS. Restructuring expenses amounted to €89 million.

It will be accelerated, I would say, in H2. We're targeting now €230 million with all the actions we are taking because it is already a fact, it will be -- we are implementing in order to get a saving in Q4 and mainly in 2021.

In the other nonrecurring operating income, you have two different lines. One is the accounting revaluation of the sales because we have to evaluate our share to the price we paid to Continental.

So it is an exceptional €178 million profit. On the other hand, we impair Clarion Electronics for two reasons.

First one, we increased the WACC by 50 basis points due to the crisis. Second thing, we took into account the drop of sales of Nissan.

We adjusted our business plan to the new volumes. But on the other hand, we fully confirm the gains, that is the order intake.

And we fully confirm our indication for 6% minimum margin in 2022. So, altogether, €150 million impairment, which means that the value of Faurecia, Clarion Electronics is €1.1 billion.

Net financial expenses, on one hand, higher debt; on the other hand, lower cost. Income taxes, we were cautious.

So we impaired some tax-deferred asset due to the fact that according to our rules, the recovery is five years. So we adjusted that to the volumes expected for the next years.

I think we are cautious because with the exit and recovery, this will come back probably earlier than we are expecting. So it is today, difficult to give you a guidance on the corporate tax because clearly, it will be very much associated with volumes.

So as a consequence of all this element, net income posted a loss of €433 million versus a profit last year. Net cash flow.

Net cash flow, we faced some major impacts. I think it is reflected in the last column on the right, more than €600 million lost of EBITDA, close to €700 million working capital requirement, negative due to the fact that we have a different, I would say, term between suppliers and customers.

It is well known. We indicated that.

And this will be recovered through the recovery of volumes. Here, we have a one-off on the factoring, by some receivables, reduction of €116 million.

We were able to limit that through the integration of SAS inside the factoring program, so €1.3 billion negative impact. We mitigated that with lower CapEx, lower R&D activation, lower tax cash out.

And this will be accelerated in H2. Our target is to reduce CapEx by 40% -- 40%, 4-0.

In the case of R&D, between minus 10% and minus 15%. Of course, we'll have a higher restructuring cash out.

But altogether, it is like this that we can build a strong net cash flow, around €600 million, for the second half. Now you know that I will say debt management is one of our priority.

We like flexibility, safety, maturity. On the liquidity, it worked.

We draw on, as you know, our syndicated line. We made anyway a Club Deal of €800 million.

We canceled the dividends in respect to the magnitude of the crisis. And we extend -- well, we already extended our factoring program to SAS, and this will clearly ramp up in the Q3 onwards.

We have, today, more than €2.5 billion cash available, plus €600 million undrawn syndicated credit facility. And we have as well other lines, short terms.

Average cost of our debt is below 2.5%. Now we can envisage to refinance and to continue our program.

If you look at this graph, you have light blue column, which is the Club Deal. You have a yellow column, which is half of the syndicated facility.

But if I can say, this blue and yellow column will go to the right and is a blue purple, it is our goal. Now I hand over to Patrick.

Thank you, Michel. As part of what we decided to do during this difficult period of time is to focus our investments, our resources on 14 product lines with strong profitable growth potential.

And I just would like to highlight a few ones like sustainable materials, which is a global product line belonging to Interior, where we are working on green materials, but not only, also bacteria-free materials, self-healing materials, self-cleaning materials, which I believe will be important for the next future. We also worked on cockpit electronics where we are -- have rebundled and reshuffled the different segments on which we want to be.

Display technologies was there. Display technology is a segment on which we are growing very fast, and I will tell you later on a few words about that.

We are very committed to total customer satisfaction. And I think that the best way to demonstrate that it works is through a strong order intake.

And we achieved, in the first half, an excess of €12 billion of order intake. It includes €1.4 billion for Clarion Electronics, which is also, again, here related to display awards and especially one significant award in North America.

We will probably do better than what we committed for 2020 during the CMD and which was €2.1 billion. And I remind you that what we achieved in '19, the €2.1 billion to €2.2 billion next year, we're fueling our sales growth with Clarion Electronics, which we positioned at €1.6 billion in 2022.

We also increased significantly our awards with our complete seats activities and especially with German OEMs. You see it here, €2.7 billion.

And we progressed very much with Tesla, €0.7 billion in China for Interior and Seating. And we have in front of us the sourcing decisions related to the Berlin new plant.

We also received 31 customer recognition awards, including the GM Supplier of the Year Award, which is prestigious. And not only we improved all our OEM KPI, quality-related KPIs, we also improved significantly our measurement of the customer perception, which we believe counts as much as the measured quality performance.

And we improved it by 10% versus the last half year in 2019, which, again, I believe, is significant. And all of that allowed us to have the right relationship in this tense period of time.

We continued to transform the Company. We did not freeze our activities.

You see it here when you look at the lines 2019, 2020. We continued to work in order to improve our global ecosystems.

We believe in these collaborative ecosystems in order to accelerate innovation and to accelerate our global efficiency. In a nutshell.

H1, we demonstrated, again, a resilient performance. We further enhanced customer relationships.

And this, I think, is demonstrated by these figures. An outperformance of 250 basis points, all regions significantly outperformed during Q2.

Profitability with an operating leverage of 23%. And again, through what we have launched before, so we were ready.

We have not lost any time. Cash and liquidity, €3.1 billion of available cash at June 30 and order intake, I just spoke about that, of €12 billion plus.

In fact, it's more than that. And with the high profitability, this is a record figure for Faurecia.

H2 turnaround measures and guidance. Let us speak about our volume assumptions.

We know that these assumptions are conservative. But as much as we have a good visibility in Q3, we have -- and low visibility in Q4, and I think it's prudent to be conservative at this stage.

We worked with an assumption of minus 15% in the second half with, in the different regions, minus 10% to minus 15% in North America, minus 15% in Europe, and in Asia, minus 5% to minus 10% and if I want to be more precise on China, around minus 5% in China. Specific measures implemented for resilience and cash.

So the first thing is that obviously we are continuing and we are even accelerating our restructuring on our industrial footprint, for sure, but also on our organizations in general, with €230 million in 2020. We maintain a very high flexibilization of our labor, manufacturing, R&D and are in strict control of our SG&As.

And we accelerate global cost optimization programs. And I have to say that we have a specific focus on program management and on R&D efficiency.

We are enhancing cash generation with a CapEx reduction of 40% in 2020, and R&D cost -- gross cost reduction between 10% to 15% and a strong recovering on the working capital, using both levers, inventories and overdues, below -- to bring them below the pre-COVID levels. Factoring level, including SAS, will be restored to about €1 billion at year-end.

We will maintain a sound financial structure, Michel just spoke about that, and I hope that we will be able to act on it very soon. Our H2 2020 guidance, which is corresponding to a return to solid profitability and cash generation, again, with our assumption at minus 15% in the second half.

As Michel said, if we would enjoy higher volumes, we will be very vigilant to achieve an operating leverage between 23% and 25% and unless you guess what we are doing internally and what our business groups are getting prepared to achieve. So sales in this context should be around €7.6 billion, our profitability around 4.5% of sales, and our cash generation, our net cash flow, around €600 million.

And this is allowing us to be back to our midterm profitability ambitions, again, the ones we communicated during our November CMD. So going to this midterm perspective.

So you see here what are the scenarios we might consider. So you have a realistic one, an optimistic one and a more pessimistic one.

The one we have selected is to be at 82 million in 2022 with an -- crossing the 2019 level of 85 million vehicles in 2023. In these different cases, you see that we will not be back to the 91 million vehicles we enjoyed in 2017 before 2025.

We believe that the 82 million is, yes, conservative considering what we see in these first weeks. But again, we have to consider the fourth quarter, and we will have to adjust when we will have the possibility to present to you our quarter three results.

By the way, when you look at the 82 million, they're still 10% below 2017. Three trends are emerging from the crisis.

So first of all, the electrification has not been put in question. In fact, the main discussions today are around the transition period.

How long will this transition period be? It is very clear that incentives might not last for the full time of this transition period, which might be an issue if the industry is not capable or able to converge at the right speed in terms of affordability.

In any case, for us, it means a takeoff of hydrogen, and hydrogen solutions are needed very quickly. It's now that we have to invest.

It's now that the industry will get structured. Another significant trend is the CO2 neutrality, whatever is related to the climate and the climate change.

Here, we have launched a program. We have launched it before the COVID crisis.

We are very much structured, and I will tell you a few words about this. We also believe that the investments and the path forward we saw before the crisis is slowing down as far as autonomous driving is concerned.

We believe that the industry will focus on L2, L2+. The L5, L4 or L4, L3 even will be limited to less than 8% in 2030, which is very much focused on premium vehicles, L4 being not more than 2% at this period of time.

So Faurecia is perfectly prepared for these trends. We are perfectly aligned with these structural changes through the initiatives we have launched and which are significantly -- with a significant momentum.

Accelerating momentum for the fuel cell electric vehicles. So first, a fuel cell vehicle is an electric vehicle.

It's a vehicle where you replace the batteries, buy an fuel cell system, an hydrogen system. We think that this business will start to develop first on commercial vehicles and on trucks, and this is because of the use case.

On the other words, it's a very demanding segment where the total cost of ownership is dictating the decisions of the consumers. We are on track to cross the diesel line in terms of costs in 2025.

And we believe that we will be ready, between 2025 and 2030, with the assumptions you have on this slide, to cross the economic line of equivalent battery electric vehicles. This market will grow fast, and you see €19 billion.

In fact, this market, these assumptions have been calculated with a 2% of hydrogen vehicles in 2030. We believe that the range is between 2% and 5%, so about between 2 million vehicles and 5 million vehicles at this period of time.

You see that we have here ambitious targets in order to reduce the cost of what we believe is the next market convergence. Divide the cost by four for the tanks and the storage systems and divide the cost by 10 for the stack and the other components of the hydrogen system.

This is perfectly possible. We have road maps showing how we will deal with this.

And we are in the moment in an industrialization phase of a mass production scheme. What are our competitive advantages in this field?

If I start with the tanks, with the storage systems. We have the best on the market hydrogen wide -- weight, sorry, efficiency.

What does it mean? It's the hydrogen weight content in a tank versus the full weight of this tank.

We have capabilities on system design and packaging. And we have proven, especially to HKMC, that we have a better offer.

We have already awards with European and Asian OEMs. And we have a strong customer intimacy with all OEMs.

By the way, this is true for both. With -- in combination with Michelin, we have the perfect interface, commercial interfaces on the OEMs as well as on the fleets where Michelin is very strong.

On the stack with Michelin again, our Symbio joint venture, we have an advantage on power density, full system competency. We have an existing fleet on the road, and we have awards with European OEMs.

Our targeted sales, you see them here, €3 billion in 2030, 21% market share with tanks and 10% to 12% on the stacks. Our road map on CO2, on CO2 neutrality.

We have three major targets. The first one is related to the internal emissions.

We want to be, here, carbon-neutral, CO2-neutral in 2025. On our controlled emissions, which are all the other emissions with the exception of the ones related to the use of cars, we should be carbon-neutral in 2030.

We are speaking here about 7.5 million tons of CO2. And finally, and this aligned with the industry, we are going to achieve an CO2 neutrality, an global CO2 neutrality in 2050.

We have on these elements dedicated teams, committed teams, deployed action plans. And we are working with Schneider Electric, our partner, in order to reduce the electricity and the heat we consume, which is useless and de-carbonate the energy we are using in all our plants, which will allow us to achieve this CO2 neutrality in 2025.

And of course, as we want to be very transparent, we will have all our plants audited by Science Based Targets. And we are going for the most demanding program, which is corresponding to the 1.5 degrees Celsius temperature increase.

Our profitable growth drivers by business group. If I start with Seating.

We will have to start major new programs in 2021. In fact, we are representing lifetime sales of above €7 billion.

And they will contribute to a strong market outperformance of 700 basis points, at least, 250 basis points of outperformance in the second half of this year, at least. In the Interior, we have a strong potential with SAS, leveraging jet capabilities globally, but not only.

We also have with SAS strong material flow -- internal material flow competencies, which we will use internally, but which we will also sell externally. And I think that this is a differentiator.

We manage the review of two loss-making product lines, but the main reason why we are considering these product lines for further analysis, and they are acoustics and aluminum decoration, it's because, first, we have no possibility to achieve leading positions. And for the second one, aluminum decoration, it's because we are very much focused on the interior, while aluminum decoration has most of its new application on the exterior.

A new product line, I just spoke about that, the material, the sustainable materials. We very much believe in that.

We have gathered all the resources of the group inside one organization in order to accelerate, with our network of universities and academics, on these new materials, which are, I believe, very strongly demanded by the consumers in the next months and years. Low emissions.

Increased content per vehicle, I just will give you a few examples. Electric heated catalyst, it means plus €75 per vehicle.

It's for gasoline engines. And when you look at electrification, even if you take the most aggressive scenario of 30% of electric vehicles in 2030, it means that we will still have 70% of ICEs until then.

Electric valves for bag pressure, for example. Here, again, it's €24, €25 per vehicle.

And for the trucks, for the commercial vehicles and the high horsepower ranges, we have a heated urea doser, which means plus €350 per vehicle or per application. And all of this will generate in 20 -- between 2025 and 2030 an excess of €2 billion of additional sales with a very high profitability.

Clarion Electronics. We are clearly ahead of our road map for cost reduction with annualized recurring savings exceeding 10% of sales.

We have done the work on all the aspects on the organization, of course, on the bill of material, on purchasing. And we are finalizing our plans on the manufacturing footprint.

We are -- we have strong order intake momentum, confirming sales targets of €1.6 billion in 2022, and Michel spoke about the profitability, which we forecast above 6%. Products innovation focus sharpened, sharpened with the consolidation around four global product lines.

These global product lines are cockpit electronics, display technologies and driver assistance. We maintain our 2020 ambition despite lower sales, in fact, €2 billion of lower sales versus what we announced in November last year.

We will do this, we will achieve it through reducing our breakeven point from €15 billion to €13.5 billion. It's 10%, and it means that we will reduce our fixed cost by €400 million, €200 million -- more than €200 million in 2020 and more than €200 million to come until 2022.

We will do this with the full year impact of restructuring actions initiated in 2020 and which will continue in 2021, our R&D and program management efficiency projects, our synergies from SAS acquisition and the turnaround of Clarion Electronics. We will do all of that without jeopardizing our future and our transformation.

We will do this allowing strong investment in innovation. On the cash side, inventory reductions to eight day by 2022.

We were, pre-COVID, at 11 to 12 days. Systematic make-or-buy review, we will also work creating new ecosystems with our supplier base on selected commodities.

We will cap our CapEx at the level of €600 million in 2022. And we will continue to reduce our R&D activation by more than €100 million.

This means that we expect sales above €18.5 billion. We were last year at €20.5 billion.

This is corresponding to 82 million vehicles produced in 2022, an operating margin at 8% of sales, unchanged versus our guidance in '20 -- we proposed that during the CMD, sorry. And a net cash flow at 4% of sales, here, again, unchanged.

In addition to that, we target to recover BB+/Ba1 ratings by the end of 2022. This was the presentation we wanted to make and the exchange we wanted to have with you, and we are now expecting your questions.

The first one is really a little bit on your near-term performance. You obviously showed us in your slide at the start, the ramp-up in volumes on Slide 5 and how you're sort of getting back to 90% of the volume level in the first weeks of July.

What then drove you to really use expectations of H2 being down 15%? So it means actually a slowdown from the exit rate in the quarter.

And can you give us a little bit of sensitivity around that? Is it fair to then to say that 23% to 25% operating leverage, so in a scenario where you don't have minus 15% volume decline but maybe minus 5%, that your margin is closer to 6% than the 4.5%?

That's the first part. And on the second part is on your hydrogen business.

And in terms of the orders and the interest you've been seeing, can you give us a bit of color who you have the biggest interest for? Is it really trucking?

Are there names such as Nikola, CNH and names that we might know that you're starting to already sign contracts with? And on top of that, are you also working closely then with the Volvo-Daimler JV that has now obviously embarking on a hydrogen trend as well?

Yes. Thank you for your question.

The first one is related to the minus 15%. So if I look at the different regions, I don't think that we have a risk in China.

I think that China is very well under control. They are dealing very quickly and very rapidly to any issues they might have related to the COVID.

When you take the U.S., the U.S. has not put under control the epidemic today.

We have a significant -- sorry, absenteeism, which is related to the amounts that people are getting from the federal government plus from the state for unemployment, which is not motivating them to come back to work. We might have local shutdowns, not massive ones, but local shutdowns, which might be decided by the unions.

We have, in Mexico, a situation which is still very tense and especially in the regions where we have our automotive industry. So we have to be prudent.

We don't know exactly what might happen even if I do not believe in any kind of massive lockdown as we experienced them, but we could have, on some sites, a few issues. In Europe, when we spoke about -- when I said that we had a drop of 90% in April in the U.S.

and in Europe, one big difference was that in the U.S., the dealerships and also the sales per Internet continued. So when the production restarted, the inventories were very low.

It was not the case in Europe. In Europe, we are seeing that apparently, the market is restarting.

But we need to understand better what exactly will be the position of the consumers and what will be the level of demand. And this is, I believe, related to the way the economy will recover.

If we would have a significant unemployment in the second half of the second semester, we might have some social tensions. And I think that at this stage, we need to take this into account.

This said, and it's our duty to be prudent and to make sure that our teams are working on the cost savings, on the restructurings, on whatever we have initiated with the right speed and the right agility. This said, we were also very clear that we gave to all our operational entities operational lever targets to recover when -- if we will enjoy better volumes.

So for us, the better volumes will be good news, and you will get the full benefit of them. The second question related to hydrogen.

We are starting to work with the truck makers but also with the light commercial vehicle OEMs. This is related to the regulations and just the CO2 convergence, which they will also have to achieve and which will not be possible with battery electric vehicles in many cases for strong use cases.

So we are working with all the truck OEMs, with all of them, and they are all interested, and they have all projects. We are also working on solutions for light commercial vehicles where, very often, we have an combination of battery to battery, which has been downsized, and fuel cells.

And I think that this is also an interesting solution for trucks in America or for -- so light trucks and for SUVs. And as the light commercial vehicles are made by our OEMs, the ones we have the highest intimacy, I think we are very well placed.

All of them have projects, I can tell you. And nobody is questioning the future availability of green hydrogen.

Hydrogen is an enabler for renewable energy, and renewable energy is a must The only way to decarbonate electricity is nuclear power stations and renewable. And when you look -- when you consider the renewable, it is also clear that we will need very large surfaces to produce this electricity.

They will not be close to where the populations and the consumers are. It means that we will have to store and to transport this energy, and this will happen through hydrogen.

So a lot of money is made available. You've seen it in France.

You've seen it in Germany. You heard about the Green Deal, which is incorporating it at European Commission.

We see a willingness to invest and to accelerate, and we want clearly to be part of that. We are ready.

We have the organization. We have the technologies.

The point now is to increase the durability, the safety and reduce the cost. But again, these are things we know how to manage that.

It's the materials we have, and we are on track, and we have very solid and robust plans to achieve it.

Can you give us the size of orders you've taken yet?

The order intakes are not significant so far. I think -- we have a lot of requests for quotations, which will have to be decided.

So sourcing decisions will have to be taken in the second half. The orders we already have and which are in progress are related to Asian customers.

We communicated around that. It's Hyundai mainly for trucks.

But it's also the European ones like PSA, like Renault, for which we are doing the equipments for the light commercial vehicles. And we have a significant number of discussions which are ongoing.

And I believe that we will be able to tell you much more, and you would see the acceleration when we will present our 2020 results in February, March next year.

Patrick and Michel, it's Henning from HSBC. I was hoping you could just help me reconcile your statements, your very constructive statements about outperformance in the second half with that top line guidance because the €7.6 billion, it doesn't really imply much outperformance.

So I'm not so not so keen to drill in onto whether it's minus 10% or minus 15% underlying, but more your implied performance relative to your market assumption. So that's the first question around the top line itself.

And then secondly, also on the drop-through. Michel, you've talked about the recurring element of the cost savings, the structural savings in the first half.

I think Patrick mentioned about the further fixed cost reduction. So the second question really is on the implied drop-through in the second half, which as per your guidance is even a little bit higher than the one in the first half despite the narrower revenue decline.

So if you could just please help me reconcile those two elements.

So thank you for your questions. So about outperformance, we will have a clear acceleration of Seating.

We are cautious on the figure because of the geographic mix, which could be stuck in negative again, so it is why we have not given any figure for the moment. You understand because we were challenged a little on this, that as a principle, our guidance must be cautious.

So clearly, we have a small prudence of all the lines, including the top line. Going to the fall-through, drop-through, fall-through, I don't know which is the right expression in English, so 23% to 25%.

One thing on the sensitivity, please take into account that minus 1% is on the basis that is on the initial sales, €9 billion. So minus 1% additional volume will mean something like €90 million of sales, €20 million of operating margin and more or less, the same cash.

So please, you can take that into your model. On fixed cost, I mentioned, of course, recurring.

So clearly, we are on the horizon to be much over the €200 million we're indicating. There will be some smaller investments on the hydrogen sectors, which is why we are cautious on our figures.

What you have understood is that in our 2022 guidance, which is the way we manage our fixed cost, we are speaking of an aggregated, little more than €300 million of cost reduction or reduced cost between '19 and 2022. And clearly, the major part of it will have been done end of 2020, that means full year 2021.

It is why we are quite, I would say, comfortable on our capacity, not only to recover very quickly, but to drive the initial guidances with, as you have seen, lower volumes. And we have indicated the breakeven, and clearly, it is a major part of our flexibility plan.

Michel, if you allow me one follow-up on the order intake. I think when you talked about the group order intake on Slide 18, you also said that the profitability of that order intake was very strong.

And I was hoping you could maybe quantify that a little bit, maybe relative also to your 2022 margin targets.

Definitely, yes.

Sorry. Internally, we're speaking about hot water or cold water flowing in.

And what I can tell you is in 2022, it will be hot water flowing in. So this order intake will contribute positively to our operating margin.

I might add some words about this order intake just for you to understand that this is done. So it's calculated with the volumes we are considering for 2022.

So everything, our lifetime sales, are now considering the 82 million vehicles. And on the top of that, each time we make an initial business plan, we discount, we call it a marketing discount of the volumes, which the OEM are targeting.

So we are, usually, when we speak about lifetime sales, very prudent and conservative.

Tom Narayan, RBC. My first question on hydrogen.

The advantage suppliers have, of course, is on scale economics where you guys can specialize in a particular component, and then there's a wide number of customers. The suppliers always have the advantage over the OEM in sourcing those components.

When it comes to hydrogen, however, it seems like heavy-duty commercial trucks is the kind of end market, at least most discussed. I know you guys talked about light commercial vehicle.

But focusing on this heavy-duty commercial truck market, there's a smaller number of these OEMs. And as Kai noted earlier, Daimler and Volvo have their own JV, just wondering if there's a concern that on this commercial truck hydrogen market, the OEMs might go in-house on some of the components related to hydrogen.

And then maybe a quick follow-up on the detail on -- you guys have said that Q4 auto production globally, that's where your conservatism is, but you've had good visibility on Q3. Could you perhaps share anything on how July trends have been faring so far in Europe?

We know June was stronger than some people expected, but it might have been some pent-up demand in April and May. Just wondering if you could talk a little about that?

That's it for me.

So when we speak about hydrogen and the hydrogen environment, and we compare this environment with the battery electric vehicle environment, on the battery electric vehicle environment, including the 48 volts, by the way, you can count between 30 and 40 players around the world, not taking into account the vertical integration of the customers. These ones are, of course, including the Chinese players.

And on the top of that, when you look -- when you consider the 30 to 40, you have all the big ones, all the big ones. When you consider hydrogen, the market is not yet consolidated.

The market is -- has no big leader today, and we do not have a lot of players. And when you consider globally the system approach, you have even by far less players.

And when you consider the trucks, you spoke about the trucks. Individually, they will never get the volumes which are needed to achieve the cost base I spoke about.

So on the stack, we need volumes. And only through the volumes, we will be able to converge.

The interesting thing with the stacks is that they are standard modules. And so you can use the same type of stack for many different applications, light vehicles and trucks.

The durability cannot only be achieved through the stack design, but also very much through the system management, the algorithms of the system. Then another point.

Will they integrate themselves? I think that for the OEMs to build an electric motor is much easier than to build an stack.

The technologies you need to build a stack are not the ones the OEMs are mastering. And I'm not speaking about the storage systems.

There's no risk at all to see OEMs getting vertically integrated on these storage systems. So that I believe that finally, we will have less competition and less vertical integration because of the characteristics from a technology point of view.

From a process point of view, from a diversity of processes point of view of the fuel-cell systems. You spoke about July, and you're asking us what do we see in July?

So in July, we see, again, China above the figures of last year. And we see Europe and the U.S., around 90% of the figures of last year.

So we see an Q3, but -- which needs to be confirmed. And we will only know really what Q3 will be, sorry, mid of August, but we see on Q3 which is strong.

And Q4, we have, at this stage, no visibility. We do not have customer programs related to Q4.

So are we prudent? I think Michel said it many times.

Yes, we are prudent. Are we right to be prudent?

I believe so. If we would have proposed to you the minus 15% one month ago, you probably would have considered us as being very optimistic, yes?

So things are moving on quickly. We have to get prepared.

We need to work with agility. We need to be agile in an environment which will stay uncertain for long.

And if the conditions are better than what we are forecasting today, no issue, we will benefit from that, and we will fully benefit from that. And we are also organized to -- through the fall-through, through the operating leverage to fully benefit from better conditions.

First one is actually on your midterm top line guidance. You downgraded kind of the market by 6%, but your sales estimate by 10%, so your outperformance can narrow a little bit for your '22 target.

I was just wondering if you can give us some details why this is the case. And is this a regional mix thing?

Or what is it? And then my second question is actually on cash flow.

The first one is how should we link that strong growth with your quite significant CapEx cuts? Have you been overinvesting in the past?

And then very, very quickly on factoring, how much do you plan to increase factoring beyond 2020?

So however we build the midterm plan, we haven't made these calculations. We have looked, of course, of -- an scenario, and the scenario was the 82 million, which is, I believe, prudent.

But the reality of the calculation we've made is we reduced by 10% our breakeven point, and we have plans to do that and it's robust, to achieve €13.5 billion. And then when you apply versus this breakeven point our operating leverage, you achieve the figures we are speaking about.

So, we have not made complex or sophisticated calculation to understand if we will over perform the market or if we will not. We, of course, believe that we will over perform the market.

And we committed also at the time to be around 300 basis points above the market. But this is not the calculation we've made, yes?

So please, don't focus on that. It's an indication.

It's just to show that we are capable to achieve, to maintain our profitability and our cash generation targets even with €2 billion less sales.

What I can add is that anyway, because it was inside the guidance, we intend to outperform the market by at least 200 basis point from 2021 onwards. And Patrick was mentioning Seating, but not only Seating, Clarion and, of course, SAS will contribute every day to this target.

You are speaking about CapEx. Yes, we reduced CapEx.

We're reducing at -- we set a figure, which will be slightly over €400 million this year. In our guidance, we'll probably go back to the level of €600 million.

Please take into account that we were in a world making 91 million vehicles. We're speaking of 70 million plus next year.

It could -- normally should be over 80 million or much over 80 million the year after. So of course, we don't need capacity.

So it is why there is no problem to, I will say, reduce CapEx, on the opposite. On factoring, no change, we'll go back to €1 billion, and it is what we have inside our guidance.

I would like to add on the CapEx that we have heavily modernized our plans in the last six years. I'm especially thinking about Clean Mobility where we have implemented everywhere standard cells, automated standard cells.

So as Michel is saying it, we do not need additional capacity. We have a flexible, standardized manufacturing process set up.

And why have we kept by €600 million? We could have gone below.

It's because we have to make new investments, especially on hydrogen, for example, and on the low-emission side. Just spoke about this earlier during the presentation.

So it's including, in fact, the investments we will have to do in order to produce the innovation in the next generations we have.

Understood. And so no impact on the factoring line?

You basically just included in your €1 billion and that's it?

Yes, Sascha.

It's Thomas from Kepler Cheuvreux. I have a few questions as well.

Michel, can you come back on the difference in operating leverage between the business groups and region? I'm thinking again about this short-term guidance that apparently is moving the market today.

Is it fair to say that, listening to Patrick comments, China should give you the best visibility? So the guidance you give for profitability looks very conservative.

It's more the U.S. or Europe that may be at risk?

And the second question, you talked about a €12 billion plus order intake in H1 '19 -- in '20, sorry. Can you give us an idea of what it was last year and talk about the sequence of outperformance we should expect?

We clearly see that Q1 was a low point. You talk about an improvement already in H2.

Is '21 or '22 expected to be the best year? And I'm not sure I understood why we're talking about 300 bps because implicitly, we are talking -- it seems to be more 5 points than 3 points of performance for '21 and '22?

Or am I missing something?

So if I start with the second question about the order intake. We are about €2 billion better than last year.

And we have also to take into account that we achieved €12 billion in the first half with about €3 billion being postponed, delayed from H1 to H2 related to the COVID. And our target for the full year is more than twice the €12 billion, significantly more than twice the €12 billion.

So, it will be and we are confident that we will make it, a new record year and significantly higher than last year. So this was for the order intake for China, U.S.

and Europe. And I will let you speak about the operating levers, Michel.

For China, yes, we will be better. We will have a profitability which will be comparable to last year, which again, is double-digit for U.S.

and Europe. It starts quite well this third quarter but with some risks.

We -- I spoke about them, and we need to understand and qualify these risks. This will -- I think that at the end of August, we will have a much better visibility and especially in the U.S.

And we will have the first programs for the fourth quarter, and we will again be able, during the presentation of our quarter three results, to adjust.

Thank you, Thomas, because your question is quite challenging. And the fact that, of course, leverage is different between regions, not that much, but a little, but mainly between the business group.

And the key points is the margin on raw material consumption. I think I illustrated that different times.

So the margin on order consumption is higher in Clean Mobility and a little higher as well as Interiors, respect to Seating. So this is why Seating able was to post a better fall-through.

Of course, our expectations is that Clean Mobility and Interiors will do better than Seating on this side with the volumes. So the main explanation is that it is, if you remember in my slide, the first one, which was, if I'm not mistaken, the €1.254 billion negative.

So it is a major explanation of the gap in H1 and why these two bases will do better in H2. On outperformance, one basic thing is that we have a geographic mix negative by 350 basis points in H1.

This will be recovered normally in H1 2021. So it will be easy to give you some very good figures of outperformance due to this geographic mix.

So what we are speaking of outperformance is without any geographic mix. And it is, I would say, regions by region, with, I would say, a fixed mix.

So I have -- I insist no problem to commit on 200 basis point minimum from 2021 onwards.

José, JPMorgan. Patrick, Michel, a few questions please around product, if you could please just give us some comments, please.

The first one would be around Clarion. It looks like you want to hit a €2 billion order book there.

Can you give us some, maybe, hints as to which regions or OEMs are driving the growth in order book? The second on Seating, can you give us, for the second half, which product launches are going to drive the sales growth in H2?

The third one, please, on Faurecia and Aptoide. I was very surprised to see the rollout in Brazil already with Volkswagen.

Can you roll out the same product in Europe with some of the OEMs? Have you rolled out already this application across any other OEMs in Europe?

And do you include also the display there? Could this be an opportunity for you going forward?

And the fourth question, please, around product would be the new joint venture, Changchun Xuyang. What kind of product or OEM opportunity does it represent for you in China?

Thank you. So, the first one is related to our order intake with Clarion.

What I can tell you is that we have, in the moment, to kind of balance one-third, one-third, one-third between Japanese OEMs, Chinese OEMs and Western OEMs. Europe is a little bit lagging behind, but we have currently €600 million of RFQs, which will have to be decided, where sourcing decisions will have to be taken until the end of the third quarter.

And we are confident that this will rebalance the Western part and will boost the Western part. On Seating, the question was about the main platforms.

So the main platforms are a German premium international platform, which accounts for €1.8 billion of lifetime sales; and PSA platform for €1 billion; and FCA, a very large platform, which accounts for €1.8 billion; and we have other German premium maker for which we have two platforms simultaneously and which are accounting for €2.2 billion. So, you see that it is, we are speaking about here, the Seating programs, but we have also some others which have started very recently, like, for example, the Hanover complete seats for Volkswagen over the commercial vehicles we won in -- at the end of the first quarter.

Aptoide and displays. Maybe before -- one additional element I would like to give you about Clarion because I think it's important.

In June last year, we worked with 25 OEMs. Today, we are working with 35 OEMs.

And when I say we are working with 35 OEMs, means that we are included in their supplier panels. We receive RFQs, and we have already answered RFQs.

So we are enhancing significantly our addressable market, which is one of the key elements of the growth. And as we presented it during the CMD, it is perfectly -- we are perfectly on track.

On the displays, we made some acquisitions, which are excellent acquisitions, recognized by the market and by our customers. CovaTech, which is a Taiwanese company specialized in optical bonding.

And we have here the last generation of processes, which are allowing to reduce significantly the scrap level on very large displays. We have invested in IRYStec, which is a Canadian-based company, which is capable to compensate the lack of accuracy in your view, which might be related to your age or which might be also related to the sunshine on the displays.

So we are improving very significantly here the quality of the perception. And we have already a contract with Daimler about this.

We have, and you mentioned it, Aptoide, which is the third-biggest app provider worldwide. And yes, this application in Brazil might be extended to Europe.

It's the way it works with Volkswagen, you do not start with the main market. And if it works, you have the possibility then to grow it in -- on an international base.

And this is really our clear target. This is a very good one.

We have another one, which is Creo Dynamics and which is working on acoustics, but especially for electric vehicles or electric applications where we have high or higher frequencies to be filtered as a system. So on these displays, we have an savoir faire, we have an expertise, which is differentiating us, and we are growing very fast.

The €1.4 billion we have achieved with Clarion, 40% out of this is displays. And it's balanced for the remaining part between -- it's also 40%, let me put it this way, on cockpit electronics.

And it's about 20%, maybe a little bit more, on driver assistance, which is more in the moment a Japanese business we want to extend also globally. Xuyang and -- Xuyang with FAW, we are here again speaking about the Volkswagen Group.

Xuyang has the political connections. We have a very clear sales growth commitment, and this is clearly done not only with Xuyang but also with our preferred OEMs.

So we will grow with them in China on the electronics side and not to mention them because they are on the Seating side. We have just signed another joint venture with BAIC.

We were not present with BAIC. BAIC is their partner of HKMC and of Daimler, which is, I think, and very significant move on.

We are buying, in an existing joint venture, the shares of DAS, the Korean seating supplier.

Very impressive, very impressive. One final question please.

On raw materials, do you think there could be -- this could be a substantial tailwind in the second half in general for the business?

We see the raw materials going down. We don't know yet exactly what the magnitude will be.

We are very demanding as far as our teams are concerned. On the steel, we are waiting to have a better visibility and to achieve better prices.

But you see that -- you know that on the steel side, we have also some constraints, which are related to the difficulties to import in some regions, but this has no big impact. I remind you that we have pass-through mechanisms on most of our raw materials so that the impacts up and down are limited on our P&L.

Just one, please. Talking about all the Seating business.

You clearly are still signing some new projects with Volkswagen in various forms. But you didn't mention the SITECH-Brose JV.

Could you comment on what that might mean for you guys? Does that affect any existing contracts?

Or do you know yet how that might look for the Seating competitive situation going forward?

So I think that Volkswagen expressed the willingness to deconsolidate its in-house seating business. And it happened to us.

We could get the transfer of the Hanover-located business in the first quarter. We saw in the press that there is an intention to collaborate with Brose, which would not be an issue for us, no.

We are used to deal with SITECH. We are used to have Brose as a competitor.

If they would do things together, it would be one competitor less. SITECH is a complete seat supplier.

Brose is more a metal supplier. So I don't understand because when we had the first exchanges with them, it was more related to the cockpit, and I don't see here how they could enter into this field.

What will be the key element of this cooperation if this cooperation would finally be confirmed, which I believe is not sure, it will be its competitiveness. And with a work guarantee agreement and tariff agreement, which is lasting until 2029, SOP 2029, it's not evident.

So we are not over concerned by this possibility and maybe one additional thing. Brose market share -- the main market share is with Daimler, 45%.

And I don't know how Daimler will react to this. Okay.

So we have no more questions per phone. We have three written questions, the first one, from Mark Watts, Banca IMI, what is the payment rank in the new €100 million facility?

The answer is very simple. It is, of course, pari passu with the rest of the debts as all the banking lines.

And it is this line to anticipate we say the renegotiation, extension of our syndicated facility.

The two next one will be quick from Laura Cotillard, Amundi [ph], any time line on the Club Deal refinancing, very quickly?

Very quickly, from now onwards.

Ries, Johannes from Apus Capital GmbH. Who are your closest competitor in your hydrogen business?

It is Bosch. We are at par with Bosch.

We have the same parameter. In fact, we are on the full system both.

And I'm not speaking about Toyota. Toyota is an OEM, and so the logic is a little bit different.

Okay. This is it.

So thank you very much for your attention. Thank you very much for your questions, and see you soon during our road shows.

We will start just after the summer break. Thank you very much.

Goodbye. Have a nice break.