Earnings Transcript for EO.PA - Q2 Fiscal Year 2021

Patrick Koller: Good morning. I wish you a very warm welcome to our H1 2021 Results Presentation. We will with Michel Favre, our CFO, we will present to you the highlights of the first half, the financial review made by Michel and we'll close this presentation with our key takeaways and our guidance for 2021. So if I start with the H1 highlights. So despite adverse impacts related to shortage of semiconductors and raw material inflations, we were able to deliver very strong €7.8 billion of sales of 32% on an organic basis, which showed on outperformance of 760 basis points in the second quarter and 170 basis points in the first half. We also delivered an EBITDA margin of 14.2% and an operating margin of 6.6%. Michel will show you the very strong operating leverage we delivered. Our net cash flow at €290 million is above our budget and is allowing us to significantly de-leverage our net debt to EBITDA ratio of 1.5 times as of June 30. In the meantime, we were also able to deliver a very strong order intake at this first half with €12 billion considering that an significant amount of sourcing decisions were delayed to the second half, we are on track to reach our €26 billion target for the full year. New perspectives with especially unsuccessful spinoff, which allowed us to achieve 83% of free float and close to 3% now of shares owned by our employees. We also focused on the zero emission hydrogen solutions and ESG strategy and I will be back on this in a few moments. We strengthened our financial structure including green bonds at a level of €400 million, we upgraded our full-year 2021 guidance on what counts most, the free cash flow. So if I start with the order intake at €12 billion end of first half, we had very strong activity with Foxconn Group [ph] which allowed us to source €2.6 billion. China represents 25% of the total older intake of which 67 with Chinese OEMs. If you take our top 10 customers in China, five are Chinese and five are international and inside these top 10, we have two electric vehicles specialist an American and Chinese. The first Chinese is BYD and he is in number three position. I think here, we have in China, a very strong portfolio, a very robust portfolio. For us, Clara electronics represented $1.3 billion, which is confirming our full year 2021 commitment at €2.5 billion. Battery electric vehicles represented an excess of 20% of the total order intake, 24% if we would include Symbio. Hydrogen represented EUR280 million of order intake confirming again here our full year 2021 target, of at least €500 million. We also have to speak about our launches, which were successful. We launched about 120 new vehicles in H1, 2021. While, we did that, we also worked on accelerating our momentum for hydrogen and you see here a few highlights. In February, 2021, we signed a partnership with Renault for hydrogen storage systems for light commercial vehicles. In March, we supplied Stellantis with fuel cell stacks and hydrogen storage systems for light commercial vehicles, preparing the launch, the CRL launch of these vehicles for the end of this year. And in May 2021, we won a contract with CYC in China to provide hydrogen tanks for commercial vehicles. You see on the right-hand side that in April, we also took the majority stake in CLD and leading Chinese manufacturer of hydrogen tanks. By the way, it is the only supplier today being homologated for tanks level 4. Stellantis spinoff --went pretty well. We have now an significant free float. We are included in the CAC next 20 and this effective March 22. We also were very successful with our ESOP. Our ESOP Employee Share Ownership with a significant subscription rates 22% while the benchmark is at 16%. So which showed you the confidence our teams have in our plans, our strategy, our future. In addition to our acquisition, I would like to speak about Design Led. Design Led is a Scottish company, which is specialized in advanced back lighting technologies. Accelerating our ESG initiatives, so, first of all on scope one and two, where we have a very clearly the target to be CO2 neutral in 2025, we are continuing to deploy our plans. We are added to Schneider electric, KPMG and Angie in order to achieve the right level of PPAs, the purchasing of green electricity. We also started to deploy in our different plants. This has to be done fully done in all our plants until 2024, which means that we will equip all our plants with its own production of electricity, which will represent globally around 15% of our needs. And I think that in doing this and also putting in place the financial tools, which are allowing us to accelerate with partners, the deployment we will deliver our target. We had our first global events, celebrating diversity and inclusion with more than 70 trophy winners across 22 countries and more than 100 nationalities. Faurecia Foundation, we have sponsored 11 new solidarity projects worldwide out of a short list of 30 initiatives. All these initiatives are coming from our employees. They are staying to sponsor of these initiatives if they are selected. This is working very well and we have very nice projects ongoing Michelle, for the financial review.

Michel Favre: Thank you, Patricia. Good morning, ladies and gentlemen. I will start technical slide. Just to remind you that we are in the process to sell our EST that means Equal Status Team business with closing should happen this quarter. Of course, according to IFRS 5 norm, we have listed [ph] 2020 figures and for 2021, you will see the result in one specific line in the profit and loss statement, Going now to the sales. We have puts this slide because it's showing what has happened in the market quarter after quarter. So of course first half 2020 was a big decision [ph] with the lockdowns. What you see is a quick recovery mainly in Q4 2020 and the description due to the shortage of semiconductors. You can see auto production was down by 11% when we compare the volumes of these 2020 with respect to this semester, we said 2021, it is minus 13%, if you compare the volume of production with respect to the first half 2019. With this impact, we posted sales by minus 7%. So it is a note performance of 400 basis points with respect to the last semester and more important is operating margin, with the fact that we are losing more than €700 million of sales, I repeat €700 million of sales, w were able to improve operating margin from 6.2% second half 2020 to 6.6% this first half. Going now to the second performance, difficult to comment because geographic mix is key. The first quarter was we say strong Europe and lower Asia, the opposite is the second quarter, which was currently impacted, we say very positive, was a comment for last year. So we have a huge geographic mix in the second quarter. This explains the plus 61.7% sale with respect to the production of 54.1%. When we go to the first half, we are more balanced. We say, low geographic mix would differ as this point. We outperformed the market by 170 basis point. I have to mention that this outperformance was despite some adverse customer mix. You have seen that for instance, which was the second customer of Faurecia that lost its production. I have to mention that a smaller of currency impact of 5%, totaling to €6 million in this first half. We to that end can confirm the expected outperformance for the full year 600 basis point minimum for this full year. Operating margin, as I was saying very good performance that has boosted of course, if I compare to last year with volume, as a recovery of volume and inside is recovery of volumes. We have our good performance on our capacity to maintain, even improve as a gross margin by product. We suffered from the locomotive price increase, whatever the fact that the past fall was something like 70%. We had an as expected, an adverse impact of €25 million, and can anticipate that we are putting the same figure in our forecast and guidance for the second half. We have very big figure of cost-cutting €177 million. We say only €30 million is downtime. Main part is restructuring and those in part is a strong discipline for the group period where volumes are limited. So this €177 million of course will continue to inflate as expected operating margin of the second half. On the right slide, as I pass away, you can see that we have two one-offs. One is a cost link with the employee. [indiscernible] plant is up €40 million composited based on the fact that we have very positive volume as expected in Brazil for the fiscal fees, which is a tax on sales and we were recovering €13 million. So altogether, no impact no impact -- one off impact this first half. Note to the business group, sitting as expecting big outperformance of photo business point. We were expecting a year performance, but due to the customer mix, it was only for those business point. It will accelerate a lot in the second half. Why? Because we have some very important start up of production in the second quarter with a full year impact. As you know, the [indiscernible] in the States and we have as well the Nissan Frontier. We have -- we'll have later in the year some frames and compensate from Daimler and BMW. With that, we can confirm the expected 700 basis point performance for the full year minimum. Margin wise 6.6%.with full proof of something like 25%. We expect that City will post a 7% operating margin for the full year. In 10 years, one side was more impacted by Ford was the first customer of entire year, but Ford we were able to make an outperformance of 180 basis point mainly led by BV’s and many such BV’s from a very well-known American PV customer. Margin 4.9%, so recovering from we saw loss last year. We have, we say full flow of more than 20% for the entire year's activity, which is good as well. Margin is improving respect to the second half 2020. We expect that for the full year margin for I will say the entire year will be something like 6%. Mobility was as well affected by the Ford production cut in the States. So very slight or tough underperformance of 70 basis points. With results very good machine, 45% for full. We are closer to a double digit machine and we clearly think that we will post double digit margin this year. So very good performance of mobility. [indiscernible] was most impacted activity due to the semiconductors. That has impacted from some of our cost close to €10 million. Indirect impact from the fact that we were protecting our OEM. So we have sacrificed some other standards like aftermarket, with more than €20 million loss of activity and this fact is very profitable. It is why you see that operating margin was slightly negative. In fact it is negative only because we are estimating the cost to put our IT system in place. For the full year, of course from the semiconductors progressive recovery, but altogether, we think that it will be at something like 2% or 2.2% to 3% operating margin for the full year. Going to regions, Europe was by far the most affected region. When you see 3.8, I think we should see with the flood recovery 20% at least more. So we were at least 29.4% up slightly outperforming the market by 120 basis points with a margin of 5.4% at 50 basis points with respect to the second half. 880 basis points with respect to the last year. We have a full flow of a 55%, which is further 5.4%? If you think that sales will increase only by 15% we a 15% for full, we are already at 7% expected. So this 5.4% is as yet a very good result. North America as well very much impacted by semiconductors and mainly by flood. So which is why we have this slide, we say underperformance of 120 basis points. With that we have total recovery of operating margin with respect to last year 3.4% plus €135 million or if you prefer the full flow of 37%. I have to mention that it's 3.4% is reflecting some lack of composition of downtimes and unfortunately there were a lot of downtimes with very short in the States. Now we expect for the full year a 6% margin in Europe, 5% margin in North America. Asia, by far is the best performing zone mainly in China. If you see the outperformance in China, 450 basis point, and as Patrick was mentioning, mainly BVs, local BVs, Chinese BVs and as well one American. So this outperformance is clearly, which is a sign of our dynamism is the fact that we are gaining significant partner share. For that we were able to recover double digit margin more than close to 11% up 70 basis points when compared to H2 2020. So very strong results, very good performance, which says that all the China are increasing. We have merged rest of the world because clearly their rate in terms of rupee is decreasing. We have speaking altogether at 12%. You see the stronger performance which is far better is the best form of we say currencies and [indiscernible] but what is important is of course we have the €30 million tradition, but putting that apart we are above 8% margin and what is more important, we are in Brazil at 6%, and they think in this context to make 6% in Brazil is a good performance. This slide is very important, not only because figures are improving, you see more than €600 million as a gross margin, more than 600 basis point, but it is showing how we are managing and driving our improvement. First, we are protecting our margin of variable costs, our gross margin and we are protecting that whole with best performance. All we're seeing improvement of execution and digitalization and we have a very good, I would say achievement on the labor cost. Second, we are portfolio [ph] cost using the R&D and things that the first half 2020 figures were very low. Now, of course we leverage this achievement. So look at the base that we have in India, Poland, and Mexico, but mainly India. And please notice that capitalized activity in R&D has poorly evolved, which the low base and more important is a fixed cost of management in mid '20 expenses to have flattish figure, I think is a very good performance and this is of course reflecting, also the cost of restructuring we have. So, altogether you understand why we have improved our operating income by €610 million and by 820 basis points of sales. Net income, I will not comment, what is important to notice is first restructuring, €46 million more limited figure and mainly of Ford plants but in US we have to continue to make work. So we keep for the moment as we say, as a guidance of €420 million. Second point, it is the net income from discontinued operations, €31 million. On one side is eco operating margin negative. On the other side, it is expected loss on the sale of the asset and we say for other points, income tax 27%, I think, we will clearly renew as this percentage in the second half. Net cash flow, it was as I said in a point, we were in advance. Where we're not, we have a very good we say working capital management and clearly this figure is showing the performance of the stronger side. Of course it is coming from I will say the recovery on CBD at 14.2%. I will remind you that 14% is a level we're expecting now inside the world medium plant. We have content CapEx and they keep as a fact that CapEx will be for the full year below €550 million, probably around €500 million. We have contained as well as R&D respect to the figure I show you this has the activation which will be amortized is a fact, which would be sold to customers. And we have of course, exceptional cash out of restructuring a little less than we were expecting. So we are today on a very good and our working capital sorry, is very easy, sorry to say that. The second sales were below the last quarter 2020. So it's now moved up. So with this whole month, we can improve our guidance without any problem and of course our guidance is to be much of a €500 million for the full year. Deleveraging is a priority. We are on a good way and now with ratio of 1.5, you see this map that we have of course dividends. We have the [indiscernible] now 28th of July our employees will subscribe. So €87 million inflow will be booked for the second half. The net transaction investments are mainly how mainly in acquisition in hydrogen in China as a famous company sales. So altogether today, I can clearly give you the guidance that will be allowed to around €3 billion of net debt at the end of the year, which is a ratio of 1.3 maximum 1.5. We were directed on financing, we've made we say a tab, which is called a tab [ph] but more important we issued clean bond. I think we were the first and in this sector we issued bond, we had lot of success in subscriber. We have as well renewed our syndicated credit facility at five years for 2026 with better conditions and we have extended it to €1.5 million. Our cost of net debts are below 3%. We have no major repayment before 2025. As you know we lack maturity, we lack flexibility, we have too much liquidity. I shouldn’t have said that, but we have too much liquidity for €3 billion that we added code if we want to reduce that. So I will say, we have sound, very robust I will say capital structure. Now I will hand back to Patrick for some conclusion of his presentation.

Patrick Koller: Thank you, Michel. The guidance for 2021 and maybe I'll start with some with the sales. We haven't changed our volume assumption for the full year, which means that we have increased the volumes for the second half at 39 million vehicles. This allows us to keep our sales target as previously announced with an strong outperformance we confirm which will be above 600 basis points. Maybe one comment about the shortage of components of our electronic components. We believe that we touched bottom in the second quarter and that we will see a gradual improvement in the months to come and finally exiting this crisis around the end of the second -- of the first half of next year, but again with a gradual improvement in the six months to come and the following ones. Our operating margin, we confirm it at 7% of sales and we have improved our net cash flow, which is now above €500 million and a net debt to a EBITDA below 1.5 times at yearend. In fact Michel spoke about €3 billion of net that, I hope and we will do whatever we can to be below €3 billion. The takeaways, so in H1 we delivered a strong financial performance with an outperformance of sales of 170 basis points. Strong operating margin, thanks to efficient operating leverage you saw it 36%. Deleveraging thanks to a strong cash generation and I told you before this is a clear priority to us, the cash generation and the deleverage of our debt. A solid order intake for future profitable growth which is allowing us and this is my conclusion to confirm our 2022 and our 2025 targets and ambition. The deployment of new perspectives allowed us to increase significantly our three float to 83%. It allowed us also to improve the share owned by our employees at 2.9% or close to 3%. We are focused on zero emission hydrogen solutions and we are doing it quite successfully. Also through the acquisition of CLD in China and we will continue to do M&A in this field. We are delivering on Faurecia's ESG strategy through our ambitious CO2 neutrality program, which is perfectly on track and recent success with assurance of green bonds, the guidance we just spoke about it. So we are confident to be able to do what we say and to deliver our guidance even if the volumes might be smaller than the ones I announced, we have a backup plan in order to deal with whatever event we will have to face. Thank you and now I'm opening to the questions.

A - Patrick Koller: Any question on the phone?

Operator: Yes, we have a question from the phone. Victoria Greer from Morgan Stanley, please go ahead.

Victoria Greer: Good morning. Couple for me please. The first on Clarion, could you give us a bit more color on the chip shortages? Should we think about this mostly as a topline impact or also as a cost impact? And what are your assumptions for the second half and should see that improve? And second question is around consolidation in the industry, which obviously seems to move already and there is some press report suggestion that the treasury might be involved in one of the situations. I expect that you probably don’t want to comment on any specifics, but could you talk structurally about how you see your M&A priorities the next few years? Do you see yourself as consolidators? Are there any particular technologies you look for exposure to and I would just think about the potential leverage in a consolidation scenario? Thank you.

Patrick Koller: About Clarion, [indiscernible] has managed the crises, the first thing is that we benefited from our intimacy with the vendors in Japan which eased the management of the crisis. We have not stopped our customers. We had a few incompletes, which were build up very quickly and in a week's time. So we managed the situation quite well. This said, we have cost increases, the components have shown a price inflation which is between 10% to 20% depending on the type of components. What we also had we suffered from shutdowns from our customers, not related to us but related to our electronic suppliers and finally, and this is what Michel said, in order to protect our customers, we transferred volumes from our dealer options and aftermarket businesses to the OEM business, which of course had an impact on the margin. Here again, what I see from what Clarion is reporting, I do believe that we touched bottom in the second quarter and especially May, June were very critical months. I see that the things are improving. The demand is more rational and new capacities will start at the end of Q3 and in Q4. Consolidation, you're right that we do not comment rumors, but you asked for M&A priorities. We would like to add to our portfolio activities which have an significant profitable growth. We want to have new growth drivers. It's clear that electronic is an significant part of this, it is especially whatever is related to electric vehicles, whatever is related to aid us and autonomous driving, but also reinforcing what we're doing in the cockpit electronics. And consolidation may be this is one thing. If we would have our opportunities to consolidate and to reinforce our leading position , we would consider it. It's as clear again, that we want to have leading positions in all our nitches.

Victoria Greer: And could you talk about how you might think about leveraging the scenario like that? Would there be an upper limit that you would think?

Patrick Koller: No, I don't want to comment this type of process. All of that is also depending on opportunities on the market. What we will make sure is that we would be able in whatever case to deleverage very quickly back to one time net debt on EBITDA.

Operator: Gabriel [ph] from Citi. Please go ahead.

Unidentified Analyst: My first question is on working capital, the working capital inflow that supported your cash generation in the first half that's mainly driven by higher trade payables. I think your total days are now around 170 days compared to about 140 days last year. If you just comment please on how sustainable this level of trade payables and how much of the increase in Q2 additional of those factors are payables? And then my second question is on R&D, your net R&D remained flat year-over-year and actually declined in percentage to sales. Could you just remind us of how you expect R&D to trend going forward and how long do you think this sort of level of R&D is sustainable for you? Thank you.

Michel Favre: Good morning. So as I said, the working capital is number two of inflow when the sets are down and we believe we have full inflow of the companies. So we have no big change on the supplier because we have some increase from we say minority, which has little inflated. We saw as you know according to IFRS 15 that they were suppliers but no big change on that. What I can tell you is that on the inventories, we were able in the last quarter last year to decrease inventory and we have no major increase of inventory in the second quarter with the fact that we faced some description that we say or something that we said, stoppage is very short notice mainly in the states. Going to R&D we have, we say the pressure of electronics on one side, the hydrogen on the other side. We have as you say, this plan that progressively for Clarion, we continue to increase our base in India. So I maintained that normally you have for the year pressure between 10 to 20 basis point increase of R&D weight inside the P&L.

Patrick Koller: But also to be clear on R&D, we continuously work on reducing our average hourly rate and this through off shoring. We are continuously working on reducing the number of hours per application project and this through a digital productivity including data-driven productivities. So the target is very clearly to converge to a stable amount of gross costs, which will allow us to reduce our application costs and to transfer the savings to innovation.

Operator: Michael Jackson from Bank of America. Please go ahead.

Michael Jackson: Thanks for taking my questions. I just have two. The first one is on CapEx. If you can give some color on the key drivers for the reduction that we've seen and whether or not this will be made up in 2022. And then if you could also please just clarify on the guidance. If I understood correctly, you mentioned it'd be close to €500 million for the financial year where in the release it is about €600 million? That's the first question. And then second question is just on the factoring of receivables. With net debt now reducing and free cash flow guidance increase, is there any view to perhaps make less use of factoring? That's the first thing and what is the net cost of factoring at the moment? And does this come through the operating income line item?

Patrick Koller: Michael, I will take the first one. You take it to the next one. CapEx, so the first thing, what we, what we have to take into account is that to the volumes are not growing. We are still below the 2019 volumes. So the CapEx we are spending is mainly related to increasing our new standards and increasing our digital productivity in our plants. The fact that we have now more and more standards, which are not specific to one program is allowing us to work on capacity productions. And this will continue to be the case. And I think that this will allow us to make further savings on the CapEx in the years to come.

Michel Favre: When the, when the said CapEx, so for your guidance, I said its $500 million .So that means count of a €1 million, a cash-out is a short off. So we are back to the €600 million, guidance expected that if you see the rise in. For the net costs of the factoring, we are something like 2.2%, 2.3%. So it is slightly below the cost of our [indiscernible]. Reverse, of course and because we have no cost for fee structuring, as I said often is not our contract. It is contract form ours to payers. We only facilitate that.

Michael Jackson: Thank you. Just to clarify the factoring of receivables, that 2.2% did that come to operating income?

Michel Favre: Yeah. Of course. No, no, of course not because it is a financial expenses. It's a financing.

Operator: Thank you. We'll now take our next question from Tom Narayan from Royal Bank of Canada. Please go ahead.

Tom Narayan: Thanks for taking the question. So could you help us understand your raw material contracts and exposures what you expect for each to most interested in as steel, aluminum, those sorts of items, and then next would you say you're over-indexed to Ford in North America versus other OEMs? I know gaining market share in North America was a key part of your capital markets outlook you gave us. And finally, if I could just sneak this in, could you help us understand the strength and margins in China in each one? You know, what specific growth sorry, products drove that? Thanks.

Patrick Koller: So if we speak about if we speak about raw materials the total increase we face in the first term is about 80 million. The net impact of raw materials in H one is about 25 million. And we expect the second half to be at about the same level. And this is clearly mainly steel and plastics, but mainly steel. Ford in North America, Ford suffered more than it's colleagues in north America from the shortage of components. And this had an impact on us, of course, but this doesn't mean that we do not count on the rebound and that we have to put in question, the plants we had in terms of growth in North America.

Michel Favre: For China as your betting margin, all our business groups are in Poland first in wire, firstly volumes on one side, second issue. Remember when we were implementing a big restructuring Cost, merging accounts etcetera. This is clearly paying. So we have what we said but it is not only true for China, but for the group. This new business has a very bigger number of startup production. These new businesses are starting for the group at above 8% margin in for China. It is a double digit budget. So the contribution of this new programs east quite huge for the group.

Patrick Koller: And not to not to forget that the American electric vehicle producer in China is starting to have a significant impact. We are one of its big suppliers, and this is why is now part of the top 10 of our customers. It's also the case of Lee auto, which is also an electric vehicle or a builder, the OEM which we have a very significant share of supplies. And I think that this is you know, working very well. I spoke about BYD. I could also speak about CCAG, I could speak about FAW. I think that these ones are the ones which are helping us to continue to develop our business in China.

Tom Narayan: Okay. Thank you. If I could just follow up, is Ford, are you over-indexed to Ford in North America?

Patrick Koller: Do you mean that we are too exposed to Ford? This is what you mean in terms of sales?

Tom Narayan: Yeah. Relative to other OEMs in North America, are you over-indexed or under-indexed?

Patrick Koller: Ford is certainly one of our big OEM in America, but we are reducing our exposure while growing with the two other big OEMs in the U.S.

Operator: Julio [ph]. Please go ahead.

Unidentified Analyst: Hi, thanks for taking my question. So the first one on the margin, the guidance on '21, there seems to be quite a few things that should improve sequentially of course, for this one of them but you mentioned some compensations from downtime that did not really happen in H1. Some related adjustment that you don't have in H1. And also you mentioned the aftermarket being deprioritized in H1 that could help margin too. So if you put all this together, a little bit conservative. Where am I wrong?

Patrick Koller: Michel you are the financial guys. That's not the question for me.

Michel Favre: Okay. I don't know what to answer. You are right, if I would say we take every impact. Of course our guidance is cautious, but we have to be cautious and to be at minimum seven as you know, that means that we have to be very confident to be at 7.2-7.3. If you don't mind, respect to the recovery of semiconductors is a little early to speak of the guidance.

Patrick Koller: I think that we have to wait at the end of the first quarter to have a clear understanding of the gradual recovery I spoke about. And I think that until then it makes sense to be prudent with the volumes.

Unidentified Analyst: Okay. Thank you. And I just I don't know, like I'm asking a second one on Clean Mobility, can you maybe share order intake for that business, because you talk a lot attention from the market and maybe comment on the profitability of commercial vehicles and high horsepower and the growth in those segments.

Patrick Koller: The profitability of our Clean Mobility commercial vehicles is at about the level of the passenger vehicles. But, what is interesting on the passenger vehicle is true is the fact that OEMs are reducing the number of engines they are considering and they are using in our one, two platforms. These platforms will have an extended lifecycle, and this is very good for us because when you are on these platforms and as we are the leader on this market, we are on most of them. It is changing the business model and the profitability of this business will be enhanced through this new reality. On high horse power we are looking especially on how we might deploy our hydrogen activities and benefit from the intimacy we have built with the different customers. And we are considering here is maybe a little bit more emergency stationary power stations.

Unidentified Analyst: Okay, thank you. Can I just maybe squeeze one last one? I saw that you created this cross-divisional business line for development cost with materials, with a target of €3 billion in sales by 2030. Can you maybe elaborate a bit on that?

Patrick Koller: Yes. We have activities already on bio sourced materials for our interior business. We are doing foams on our fast automotive seating business. So we have resources which are dealing with formulations everywhere. The idea here is that we have the competency to develop to formulate materials related to transformations we are doing. So we have both competencies. We understand what is the process and what the process is capable of, including viability reductions related to digital applications. And on the other hand, we believe that the value will be in the capacity to make available in larger volumes to feed stock. So we think that as we did it with hydrogen, it is the right time to invest in these sustainable materials. We, in which we also include some more sophisticated approaches on smart materials self-healing materials, for example, or antibacteria materials and so on.

Operator: Sascha Gommel, Jefferies. Please go ahead.

SaschaGommel: Good morning. Thank you for taking my questions as well. The first one is again, the, on the margin on the cost margin Michelle, can you quickly explain how you kind of manage to get the margin up by a hundred basis points despite revenue being down €700 million compared to the second novel of the year? Was there anything in terms of product Legionella mix or anything that, that we shouldn't consider as sustainable in the first half?

Michel Favre: So valuable question, thank you. Well, we have firstly, we have as a full year of that, especially in customer cost. Second, we have a clear improvement of the labor, I would say activity. So Gommel, as we said, lower weight. We felt that we have with, which is called a VAV asset means Value Added Value Engineering as that we are accelerating and paying. But as you say, it is better if you want to start off with new products improving there is a margin with due respect to the previous products.

Patrick Koller: I think we have to consider two things. The cost on one side, we spent money on the restructuring, which allowed us and Michel spoke about to keep the SG&As at the level of H1, 2020, where you understand that in the frame of a crisis, we reduced our costs drastically. And on the other hand we have improved our profitability at acquisition time. And this again is related to all the efforts we are doing in terms of productivity, in terms of squeeze management and especially using digital and data related productivities.

Sascha Gommel: Very clear. And then I, I have a follow question on M&A, you, you mentioned kind of your --your priority in terms of growth in an all high HIV-positive or growth areas. So at UVA data stuff that specifically then exclude any M&A activity in seeking an interior, or would that not be the case?

Patrick Koller: No, I said that we would also consider consolidating the market in a Demetrius in which we are already strong because it is generating synergies it's sudden it's a low risk activity, and it would reinforce our leadership position in the different markets. We, would consider both as long as the opportunity is of a good quality.

SaschaGommel: Perfect. And then my very last question quickly on the on the other receivables, in the balance sheet that went up sequentially and those kind of other operating and other receivables, any reason for that, given that sales came down?

Michel Favre: Now you have the receivables, don't forget that you have, which is called as even the other. On one side, you have SaaS, SaaS is €800 million. And as you know, we have one most of scope. If we have the increase of the Monday lead cells, which was a big increase and this as well, is everything both receivables and payables, no impact on the inventories.

Operator: Martino [ph]. Please go ahead.

Unidentified Analyst: Thank you. Good morning, everybody. This question is on the order intake, you collected 12 billion in the first half. Just understand the word. Do you plan to close the gap with the 26 billion guidance for the 48 in terms of geographies, in terms of divisions? And the second, then the third question are more strategic one is on the sensitivity to electric cars and I mean in your assumption, you assume that certain penetration of electric cars, could you provided sensitivity to a different assumption in terms of penetration of electric cars because it seems that in the past few months all the car makers are pushing on this side. So just to have an idea what could be the sensitivity on your account? And the last question is on the Foxconn agreement. It was announced some months ago I understand it's not your product. What are the implications for your business that you can assume today?

Patrick Koller: So order intake we have €12 billion versus €26 million. So what I can tell you is that we are perfectly on the trajectory and we forecasted we budgeted and this despite as I said, a significant amount of sourcing decisions which were delayed to the second half. So we feel confident that we will be able to achieve the €26 billion. Now when, the only thing I can tell you is because this is what we announced, €2.5 billion with Clarion Electronics we are at €1.3 billion in the first half. €500 million on the hydrogen side and we are €280 million so far and so we will let you know continue to over-perform and continue to fuel our future growth in China clearly with most probably an exit of 2021 above what we have budgeted, but all the business group will benefit from this order intake. Electric vehicles, we planned for 2030 an 30% of full electric vehicles being built. What you have to understand that this means for Europe about 50% of full electric vehicles in 2030. I haven't seen so far any forecast which is more aggressive than this one. I think that we have to take into account the infrastructure which has to be invested in order to make sure that consumer will follow. I would like just to share with you my understanding of what Alliance [ph] said. She said that we should stop producing ICEs in 2035 into different countries of Europe. The adequate infrastructure would be in place and I think that this is very wise. I think that yes, we go in this direction without any doubt and we are confident that this will happen, but it will need most probably some time to synchronize the capacity OEMs have to build and sell electric vehicles and the infrastructure into different countries. So for the moment, we don't see any reason to increase to 30% we have on a global on a worldwide basis. Foxconn maybe I should start saying that Foxconn is telling the market that Cockpit Electronics is fundamental, which is perfectly aligned with our strategic assessment. Foxconn is more on or wants to be more on the hardware and wants to develop software, but in other domains in the zonal approach and in body controllers, which is not directly in competition with us.

Operator: Jose Asumendi, JPMorgan. Please go ahead.

Jose Asumendi: Couple of questions please. The first one, can you speak a little bit around these €127 million residents factors in the first half a little bit more details behind that. And…

Patrick Koller: Sorry. Could, you please repeat the first question because it was difficult for us yet to -- to understand it.

Jose Asumendi: Okay. Yeah. If you could give a bit more detail behind the resilience actions. I think it's €177 million bigger you report in the first half on how we should think about this figure four for the second half, as they say was quite strong in the first half. Second, Patrick, can you speak a little bit around Clarion? I would love to hear any, any details around either on the product development on those data, any new progress there on, on product development and on Clarion or the intake, if you could comment on the, yeah. Any notable orders, maybe new clients, so that you are managing to bring on board. And then the third one Patrick also on, on design led on this company correct me if I'm wrong, but it looks like the company could have some patents for external led applications. Is this the right key? Is this is a case you think you could develop this business on, you know, exterior led for the, for, for the, for the coming years? Thank you.

Michel Favre: I will take the first the first question for queuing [Indiscernible]. On the action of Acosta reduction, what we have, we have, of course, as you know, Anastasia, we accelerated Clarion. So we have a lower cost base is a suit is a single alpha we have downtime is this fast? Nobody should not happen. It's a similar outcome, but altogether you can take alpha of these cigar. So something like €80 million for the seminar.

Patrick Koller: So about Clarion on low speed ADAS and especially, you know on the auto park and valid parking and so on. When it comes to fusion between ultrasonic and cameras, we are the leading player but very much deployed in Asia with the Japanese and OEMs. And now starting also with the Chinese OEMs. We, we continue to deploy ourselves in America. We have significant growth in America. We were lagging behind last year in Europe and we will be able at the end of the year to show you that we are also taking off in Europe with our big OEM. So I think that on the older intake on you know, the portfolio we are and the hen sing it continuously. And what is for me very important with clients is that we, you have not lost one yet single project because of technology. Yeah, so we might, in some cases have refuse to go down with the prices for good reasons, maybe for bad reasons, but we have never lost one single business because we were not at the expected level in technology, which is for me, very encouraging design and design led, we boat Iris stuck and now we buy a design lead. What is the purpose of all of that? We want to be able to promote, to propose to our OEMs or display integrated solutions with the highest possible performance in terms of image quality, but also in terms of low energy consumption. And these companies are contributing to that. These companies are techno companies with patents, as you said, with an, a very high level of technology. And this is what is allowing us, you know, because we were a new enter entering a company in the, in the display field. We immediately went on the lounger displays because we did also the right acquisitions on the coatings and older, the surface straight treatments. We recently, for example entered into an partnership with calming for a glass and a and cold forming of these glasses. So, you know, I think that we have here the network, the ecosystem, which is probably one of the best today to offer this high level of technologies and we sold them to people who are very demanding like Daimler for example and this I think is an approach we will continue to have. We will continue to scan the market to find possibilities. Now is designed led capable to use its technology outside of the automotive industry? Yes, but we are a pure automotive player. If we can value the patents, we will consider it. We are considering it by the way because Clarion has a very significant portfolio of patents, which is extremely interesting and valuable.

Operator: Thank you. We'll now take our next question from Stephanie Vincent from JPMorgan. Please go ahead.

Stephanie Vincent: Hi. Thank you so much for taking my questions. Stephanie Vincent from JPMorgan. I just have a couple. One is on product rating, I get through some of the commentary and some of the other areas that are in the high DD or DDD area may start targeting the same sort of leverage metrics that you are around 1 to 1.5 times about similar cash flow yet Faurecia is a little bit over rated and in the mid DD area. Can you provide some commentary in terms of your discussions with the rating agencies what exactly is causing that? Is it the trajectory for working capital? I believe management has discussed that before or is it some half that is how your contracts actually are struck versus some of the other high DD players because there does seem to be a disconnect there. And just on M&A thank you so much for talking about the one time leverage target area. Could you also discuss your views in terms of capital allocation? Do you have a I guess they have clearly outlined I guess for this extra free cash generation? You talked about going €3 billion net debt. How you would allocate that towards M&A or dividends just would be helpful for private investors?

Michel Favre: So you have everything inside which is presentation I made for Investor Day for end of February. So we have not changed. So what we have said first is that we are in likely to continue to improve the rating. It was what we did since 2013 gaining one notch every two years. So we target with full our strategy planning goals will all our figures and to be investment grade probably 2024 and 2025. It has not changed. One key diameter to do that will be to continue enhance the investor profile and to convince. We did that, we have still to convince with these that we have a strong profile and what you see is a tightly colored figures. On the target of leverage I specifically said it's a normal target that we have minimum of debt to be efficient with capital I would say structural. So to have minimum one but in US one is normal with ratio that we would like to have full cycle. Going through the capital allocation I remind you that 40% is for dividends and to neutralize I would say the share buyback, 60% is for deleveraging.

Stephanie Vincent: And just follow-up as well on your net debt target of less than €3 billion by yearend, can you make any commentary in terms of your outlook I guess for the short timers which are the ones that are coming to the larger unsecured debt that's coming to you. is that something that you are expecting to roll over or will you pay that down with excess cash?

Michel Favre: One thing the €3 billion you should take and the expected cash flow plus the fact that we increased is mechanical. Second on the debt management, we don’t comment there on what will we do on the coal whatever but clearly you said we consider the €3 billion of liquidity is a little too high.

Patrick Koller: It's a little bit too high, but here again I think that we are prudent and that we will wait until the end of the third quarter to understand better how the market will rebound because the market will rebound.

Operator: We'll take now our last question from Thomas Besson. Please go ahead.

Thomas Besson: Thomas Besson from Kepler Cheuvreux. I need to talk a little, so I hope I don’t ask questions that are already addressed. The first is about hydrogen. I have seen your orders in '21. Can you remind us your cumulative orders and tell us how much you need to have in cumulative orders to be able to reach your €100 million revenue target for '25, the first question. The second question and I'd like to come back to the commercial BVs in Europe in 2030 and rushing inside of your comment Patrick and fortunately the market is not always rush and in the mood to think that BV will be more like 75% to 85% in 2030 if you think that happen. Could you tell us what flexibility you have if ever certainly given months of product companies manage to install sufficient number of charging points and certainly everybody wants to drive that kind of vehicle. And last question, we've talked a lot about what you made in terms of M&A activity. I think if it becomes hotter and hotter a little bit. Could you tell us whether you would eventually consider raising equity if you have to do a deal that you don’t want to make perfect partner. Thank you.

Patrick Koller: So H2, we are €280 million. To achieve our targets, we need to complement in the second half our order intake by €220 million and this is the number we need to achieve our midterm target and we are confident that we will be able to do this. BV's and what is happening in Europe? First of all the 20% to 45% is real might be confirmed for Europe, not for the other regions. Europe is representing 25% of our sales of clean mobility. So we have I think significant business which will remain even after this period of time. We are thinking about reorganizing our clean mobility business and especially making it Chinese activity and Chinese legal entity, which will allow significant flexibility on how we will manage it the years to come taking into account what might happen on the marketplace, but I'm saying it again, we should not underestimate infrastructure. I think it was quite easy to convince consumers to switch from diesel to gasoline from gasoline to hybrid. It's a little bit more difficult to convince them to go to full electric related to some constraints you have on the used cases which will have to be lifted in the years to come and I'm not convinced that the cost convergence will happen as a it was announced or even it is announced in the moment. But we are not resistant to it okay. So we and I said it, we believe in zero emissions. This will come and we need to be agile and capable to react to the events which will pop up and which will happen on the marketplace and I think that we have on plan which will allow us to do so. M&A, yes if we would have an opportunity which would be of high interest, we would considering raising equity, yes. We will of course manage our depth, I'm saying it again with the perspective to be able to deleverage. I would say three years to be back to net debt on EBITDA at around one time.

Thomas Besson: Thank you very much.

Patrick Koller: If we do not have more questions, we might -- we have a question from the internet.

Thomas Besson: Stephen [ph] France. Did you see scope for the group to participate in last year's sector consideration and as you started mobility in change, given the first EV adoption and more interesting announcement in electronics?

Patrick Koller: I think that it is very clear that when you are active in the electronic field, electronic and software, you have to take into consideration the changes in the future electronic architecture. What I believe is that this picture architecture known. All the OEMs will not go over at the same speed but finally everybody will converge to this type of architecture, which means more computing our embarked, better connectivity with the clouds and an zonal approach for the electronic. So more software and less decentralized electronics. We are considering each of our segments and are making sure that we measure the risks we have and what I can tell you is that with Clara electronics today, we believe that we have a very little risk with the exception of IVI but where we are not very big, which might become a commodity and this is related to the Foxconn question I had a little bit before. I also would like to tell you that during our CMD three years ago, we spoke about battery packs. At the time, we considered it and abandoned it year after because of the little added value we could bring. Today battery packs are different because you put the battery cells directly into final battery pack, which will be assembled on the car. We are now back on these technologies with a cooling system which is completely new, very innovative, including temperature sensors and I hope to be soon able to present to you these technologies. So we are continuing also to check what can we do on the electric vehicle side.

Thomas Besson: There is a second one from [indiscernible] how do you see the trajectory for the BVs and new [ph] vendors wait so in future for this asset? So we spoke about hydrogen and our target traces and changed. I think that if electrification would further accelerate, it would be good for battery electric vehicles. You will hear people telling you that hydrogen is the best solution for the heavy mobility, which is true, but what we are seeing on the market is that whole light commercial vehicle makers are considering dual power batteries plus hydrogen and I think that this is probably the way to significantly accelerate the introduction of hydrogen. This for example is a perfect solution for pickup trucks in America. So I think that we will have to be on both and we will have to continue to work on the hydrogen side, which is doing well. We have the technology and we will be on the market with CR production at the end of this year and on the electric vehicle side, we are working on electronics and we are working on the battery pack and I will be back to present this to you in the few months to come.

Patrick Koller: Thank you very much. I'd like to thank you for your attention. Thank you.