Earnings Call: Q3 2019

Oct 25, 2019

Good afternoon. This is the Corusco conference operator. Welcome and thank you for joining the Sogepi Third Quarter 2019 Results and Perspectives Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask this time, I would like to turn the conference over to Mr. Laurent Ebensreich, CEO of SoGES. Please go ahead, sir. Thank you very much. Here is Laurent Van Straits speaking and together with Guillermo Barrand, Sogefi, Chief Financial Officer and Stefano Canou, Investor Relations. So, welcome to all of you to the Q3 2019 results and perspectives presentation here from Mirada. We will do the presentation in 2 parts. We first speak about the Q3 2019 results. And then in the second part, we'll talk about the perspectives. You have in the documents, which by now has been posted on the Internet in Annex 9 months results, which of course, again and myself will be happy to answer any questions you may have on the whole of the documents. Let's go now to Page 3 of the documents, please. As we start on the highlights for the Q3, I would like to indicate that the figures are at constant accounting principles and excluding the impact the positive impact of the claim we had last year. Remember that there was quality claim in the past, which we resolved in the Q3 of last year with a positive impact of €6,600,000 in the P and L, which impacted both EBITDA and then overlying below. This year has been neutralized in order to have a like for like comparison. So let's start with the top line. The top line, Surgessi, over performed the market by 2 90 basis points during the Q3. EBITDA came out at 12% of sales to be compared with 11.3% in 2018. So that's the first interesting comparison year on year like for like an interesting comparison. The other interesting comparison is to compare with Q1 at 10.6%, 2nd quarter at 11.6% and then 3rd quarter coming up at 12%, which is consistent with the message which we shared with you in April at the end of the Q1. When we say that, so just from now on, despite strong headwinds, we'll show quarter after quarter improvement in profitability. This translates as well in EBIT as the EBIT of the 3rd quarter came out at $13,000,000 3.5 percent on sales to be compared with 2.9% in Q1 and 3.4% in Q2. Net results came out at €1,400,000 versus €900,000 in prior year. Last but not least, positive free cash flow €4,500,000 positive, while in the Q3 of last year, we had a cash consumption of €8,600,000 The actual cash consumption was higher because we also had the cash out for the purchase of the Indian subsidiary minority. But if we neutralize this effect, it's still a swing from minus 8.6 to a +4.5, which means the positive cash flow kind of supports the profitability numbers that we've seen before. In terms of debt now, excluding IFRS, net debt came out at €264,600,000 to be compared with €260,500,000 at the end of 2018. If we now move to Page 4, in terms of the top line split of revenues by geographical area, we have a contrasted picture. Let's start with the negative information. The negative information is that North America, although the market was in production only down by 0.4, So, Agility was down at concentration rate by minus 4.6. There are different impacts there. I would just like to highlight that the strike at General Motors started in September 15, 2019 and therefore has been an impact at the end of the Q1. There were as well other effects. Now turning on to the positive elements. First of all, China, because the reference market in Q3 was only down 5.5%, which is better than what we had before. And in there, the Surjeet came out at minus 16. In itself, it was a good number. But compared with where Surjeet was in the Q1 and Q2, this confirms what I was sharing with you in the previous call that we have new products coming up in all the 3 business units, starting in production. For instance, in Air and Cooling, we have the new coolants pumps, which is starting for Volvo. In suspensions, we have new businesses starting with BMW and Zaner. So the number in itself is not very good, but the trend is confirming that now Sogeti is kind of regaining traction, although we have unfavorable client mix as we still have a large share of our business than we use for and PSA which are underperforming in the Chinese market. Moving now to Europe, 50% of the sales services in Europe is very important and our over performance on the market mainly come from Europe because we are over performing 240 basis points in Europe, which is great. Turning to the next page, on Page 5, revenues by business unit. I would say the number which is kind of surprising here is to see the over performance of filtration because filtration at constant exchange rate had 5.1% growth versus the market is an impressive number. What I suggest is that you look at Page 22, which is a 9 month cumulative on filtration. If you do this, you see that inflation over 9 months is at 1.1%, which is quite good. But that means as well that part of what we see in Q3 is a normalization of Q2, especially in aftermarket, especially in the OEMs segment, the sales were low. In Q2, they are high in Q3, but you should take it too little. This is more normalized. The other numbers for the BU are closer to the durations of the market. Going to Page 6 on the sales by client, this is a standard of the social side. So we've kept it for Q3. But here again, encourage you to look at Page 23, which is a cumulative deal, which is more meaningful. And I'll be happy to answer any questions you may have because the numbers for Q3 are not really representative of our activities with customers. We still have well balanced customer portfolio, but I think the 9 months numbers are more representative of what's going on with our customers. I would like now to ask Jan, our CFO to take us through the numbers. Thank you, Laurent. So moving on to Slide 7. As Laurent mentioned earlier, 2018 2019 results are comparable. The 2 things we did was, first, to take out the positive impact of the settlement on the plane, so €6,600,000 in terms of EBITDA and EBIT last year. Second thing, as you all know, on January 1, IFRS 16, which is related to leasing was implemented. And therefore, in order to present comparable figures, we have adjusted prior year figures with the same accounting principle. So like for like, as Laurent mentioned earlier, EBITDA profitability increased from Q3 2018 at 11.3% to 12% in Q3 2019. No big changes in terms of restructuring, roughly the same amount of restructuring as in Q3 of last year. Moving on to Slide 8, so same like for like with EBIT profitability increasing from 3.2% to 3.5%. It is worth mentioning that EBIT was 2.9% in Q1, 3.4% in Q2, increasing to 3.5% in Q3. So a small recovery showing in since the beginning of the year. Financial results weighing less than last year, so from €7,300,000 to €6,600,000 as a result of which net income increased from €900,000 to €1,400,000 It is worth mentioning, I know it I always get question on this, but we still had a high level of tax expense in Q3, €4,400,000. We had €6,000,000 in Q3 of last year. This is due as in prior periods to the fact that we take a prudent approach, first to start with operations such as Morocco and then with regard to the accounting of deferred tax assets, we are pretty cautious. Page 9, gross fixed costs. Usually in prior quarters, we reported on total fixed costs. Total fixed costs include on top of gross fixed costs, restructuring, R and D capitalization and indirect taxes. So we think it was more transparent to talk about the gross fixed costs, which are personal costs plus other direct costs. You can see that gross fixed costs were €68,500,000 in Q3 of last year, down to €66,700,000 in Q3 2019, so €1,800,000 saving quarter on quarter. In terms of percentage, you can see it was 18.3% last year, down to 18% in Q3 2019. And when you look at what it was in Q1 and Q2, fixed costs accounted for 19.1% in Q1, 18.3% in Q2, 18% in Q3. So again, nice improvements over the year. If you move to Page 10, you have a comparison quarter by quarter since the inception of the year. So you can see we still are at a low level of sales, €371,000,000 in Q3 versus roughly €390,000,000 in the previous two quarters. What's worth mentioning is that material costs, which was one of our biggest issues last year, went down from 54.1% to 53.1% in Q2 and Q3. And we are aiming at lowering this part in the next few quarters. Direct labor, let's say, quite unchanged. Cost fixed cost, I mentioned, you can see 19.1%, 18.3%, 18%, so moving in the right direction. And the level of the orders is largely due to non op costs, which are some cleanups with our industry. As a result of which, as you can see, both EBITDA and EBIT increased quarter by quarter since the beginning of the year. If I move to Slide 11, it's a slide we didn't show so far. This is the position of steel prices since 2016. And this explains what happened, what hit our results in 2017 2018. So you have 2 curves there. The yellow one at the bottom is the evolution of the index on which our past agreements with the carmakers are based. And then on top of which you have the red curve and the red curve is the evolution of the price we pay. The difference between the two curves is what we close what we call supply demand. So what happened in 'sixteen? In 2016, the index started moving on top of which the main impact in the steel price increases was that supply demand hit us a lot. So steel makers wanted to recover their margins and therefore on top of material cost increases, they increased their prices. And you can see what happened in 2017 2018, which was very significant impact of supply demand, which as you can guess was not easy to pass through to our card makers because our clients said we had agreements based on the index and therefore they pushed back any demand regarding the supply demand. As you can see on the curve at the top, the price is slightly moving down. It is mainly based on the evolution of the index. There might be an evolution of supply demand to be seen. But what is worth mentioning is that the total price we are paying in terms of steel is going in the right direction and should help us in the coming quarters. Cash flow. Cash flow, again, we have restated Q3 cash flow, which as Laurent mentioned included cash out of €16,700,000 from purchase of our minority shareholders in our Indian subsidiary. So like for like, excluding this cash out of Q3 2018, you can see that we ended Q9 2019 with a positive €4,500,000 cash flow versus a cash burn of 8.6 €1,000,000 last year. So again, quite a good quarter in terms of cash generation. Laurent, you want to take over some perspective? Sure. Thank you, Ian. Moving on to Page 14, perspectives start of course in the next quarter. And the next quarter, again, we have contrasted information. And according to IHS, we see Europe worsening minus 2.3%, while Q3 was okay at 0.1%, great, but it was okay. We see also a worsening in Q4 at minus in North America, sorry, at minus 9.8%. So these are the, I would say, the so called bad news, especially for Sogeti, which is large in Europe and significant in North America. The positive light in the situation in South America, which is seen by IHS by going down only 0.8, which would be good news for South America. And China, which would see a decline in the Q4 of only minus 1.1, which would be given what has happened in the past, good news. In order to understand this, we have to and that's why we put all those numbers here. This is the Q3 was the 5th quarter of reductions in car sales and car production. So the importance for everyone who follows automotive and so that's particularly to understand that in these circumstances, so that's why it was hard hit and had poor results both in Q4 2018 and in Q1 2019. Despite the headwinds in Q2, we improved. We improved further in Q3. And I will give you the guidance as the cherry on the cake for this presentation later. Of course, it's important in the Q4 what happens with General Motors. I just said before that the strike started on the 15th September. It has been the UAW GM longest strike since 1970, which could stop this weekend. The votes are going on in the GM plant in the U. S. In Friday, 4 pm, which is today U. S. Time. And to quote Michigan Radio, I would say, it's looking like UAW will ratify the contract. As we speak, there are still £15 was not yet loaded. So results outlook seems positive, but it's not yet done. Moving on to the sales by region on Page 15, depending on the broader picture. So JC is still mostly European company with 60% of sales. We are well balanced in North America. We still have our issue in South America where car production is 4% and services sales is 10%. So we are over exposed to region, which is unstable in terms of macroeconomics and therefore in terms of car sales and production. What I would like to highlight and that's why we've put it in the center of the slide is, so you see sales in Asia is 9% of our stake and it's 52% of the work power production. So as we look at the perspective of the Suezi, this is certainly the region where we see the highest growth potential for the future. Moving on to Page 16, the bottom part of the slide is not new, which is basically where SOGETY is and how we differentiate by product our strategy, the products where we harvest like in the fuel filters, products where we are challenges, which we have many of them and a few products where Zurich has leadership position and therefore, we are developing our leadership. What's good to know is that in each of the business units, since the beginning of the year, we've had interesting awards. As far as situation is concerned, we got a nice order for oil situation with the start of production in 2022. As far as engineering, we've been awarded by a premium German OEM to supply air intake manifold, which will start in production in 2020 in France. And also some successes in with the German OEM, Stabilize Divar for battery electric vehicle. I had mentioned in prior presentations that the electrification of the cars, whether it is hybrid or battery electric vehicle, have, of course, a significance for suspension parts, coils and bars. And we are happy to report that we've been widely stabilized the bar for battery during the year. So which has a positive impact the activity of suspension and this will start in 2020 in our new plant in Romania. Continuing in terms of shaping the perspective of the company, we put on the left side of the graph, the increase in the capital spending, which is of course meant to improve the competitiveness of the company and the profitability of the company. So we had a kind of winning streak from €15,000,000 to €17,000,000 moving up to CapEx from €51,000,000 to €68,000,000 which in ratio to our sales is still a reasonable number. And at the same time, getting the return on capital employed up to 18%, which is quite good in the homebuilding industry. We've been hard hit of course in 2018, as we said, the impact of steel, which has cost us €12,000,000 in the poor 4th quarter with the effect of the volume starting in the 3rd quarter and simplifying in the 4th quarter. For 2019, we plan to continue investing around €60,000,000 which will continue to improve our competitiveness, focusing on Mexico, on Morocco. The dates you have on the right are the dates where we have invested tangible CapEx in those plants. China, where we have now the 3 BUs, which are represented with the plants, which are getting more and more competitive. And last but not least, Romania, where we are very happy with our plans for air and cooling in Romania. And we are also making good progress on suspension in preparing the plant for start production next year. As this one of the first products that this suspension strength in Romania will produce is stabilizer bars for the E Class and the C Class of Mercedes where Surges has been awarded 100% of the front and rear bar. So this will be important. Important as well next year, although it's not on the map here is the start of production for the S Class. Mercedes has awarded Sojuicy for 100% of the front and rear stabilized the bars with new technology, which is variable wall thickness tubes. This will start next year. This is very important because you know that the aircraft is a reference in terms of comforts and ride and handling in the automobile industry and this will start next year. So our colleagues in the space are very busy preparing this launch in France and these launches in London. Going now to the outlook, the first point is there are stronger headwinds ahead because we see recently looking at IHS, a decline of 5.5% in the 4th quarter, so stronger headwinds than we had in Q3. Noting that prior IHS forecast was at -1%. So this shows clearly a trend in terms of the evolution of the market. Having said that, which is the second part of the guidance, the last quarter compared to the previous year will be in line with evolution of the market. Nobody knows it would be what IHS says or less or more. But the guidance of Sureshi is that we will be in line compared with last year with the evolution of the market. And we are happy to say that we see, we forecast our EBIT margin to slightly improve in comparison with the Q4 of 2018. Having said that, I would like to thank you very much for your attention and Jan and myself will be happy to take your questions. Excuse me. This is the Carlsco conference operator. We will now begin question and answer session. The first question is from Monica Gossio of Bancaimi. Please go ahead. Good afternoon, everyone, and thanks for taking my questions. The first one is on Europe, on the performance on the 3rd quarter. Can you please elaborate a little bit more on the reason behind the over 4th month? And I was wondering if this better trend was due to the aftermarket activities. And the second question the second and third questions are related to 2020. Okay, the exit in 2019 is worse than expected. That's not particular news for us. But the real question is what about 2020? I know it's very early, but we would appreciate if you can give us some indication on what do you expect in term of revenues? Or if you expect if you see a downside risk on the IHS estimates that are calling for a plus 0.3% in the car production. And even in the context of a deteriorating scenario or in the context of a downside risk versus the current estimates, do you see potential for a room for an EBIT margin improvement? Thank you. Sorry for the delay. Thank you very much, Monica. Laurent speaking. Hello. Good to have you on the line. Thank you very much for your questions. As far as your first question on Europe, I would like to take you to Page 21 of the presentation where you see that you look at the cumulative for Europe, the reference market is at minus 4.3 percent and so we see at constant exchange rate at minus 1.6%. So we're over performing 270 basis points. So if this is true over 9 months, that means that there is a trend. It's not just a one off. So this is the first point. Why this is going on? This is some of it is linked to aftermarket. I was mentioning about the OES timing effect, which we should not overestimate. So we should not project this all alone. What I would say in Europe is that despite the fact that our sales are going down, which is not good, I would prefer the sales to go up. So, it has done a good job in both improving the profitability in terms of margins as well in terms of reducing the costs. And that's leading really to your next question because the decisions we are taking at Surjeres are of course geared towards immediate needs, but also geared towards how we see the future. So what I would like to tell you on 2020 is not pretty, I must say. I'm in line with what Volker Babiner from Bosch has communicated, which is that one scenario could be that the sales and production of cars in 2020, 2021, 2022, 2023, 2024 up to 2025 could remain more or less constant. Could remain there? More or less constant. Okay. No growth. Yes, okay. And no growth for 5 years would be completely new situation for the automotive. I've been in this industry for 30 years and you should track the numbers since the creation of the car. They've been cycles, but there has not been a period of 5 years with the stagnation of the volumes. So we're already undergoing a revolution in the anomaly sector and more on this will come in future communication from SUEZ. I don't want to spoil the whole call with this matter. I believe that Folt Maderno is right on the money that 2020 in terms of sales and car production could be flat versus 2019. And that means that working internally at SoGES, of course, you know us now for 4 years, we are of course looking at this and working in a prudent way compared with the scenario for 2020. Okay. Okay. Thank you very much for the answer. Thank you. Okay. And the third question, Monica, was on On the margin. On the margin. Yes. If we consider that the view of Fort Mardena is right that it could be kind of stagnation of the volume. That means that all the capacities which have been created for producing raw materials, for producing, they will not be more loaded than they are because supply demand, we have to give some money to our suppliers for supply demand because in some cases, there was growth in the demand in 'seventeen compared to 'sixteen and in the first half of 'eighteen compared with 'seventeen, if you come back to the curve of yen. What we see with the steel, we see the same in plastics as all those of magnitude is that with what is now the 5th quarter growth in Q3, the 5th quarter recession and probably it will be the 6th quarter with the Q4. Of course, this is an environment which for steel and plastic, which are the main components of the automotive, it is not an environment where it's easy for the supplier to increase the prices because the demand is not growing. So on this scenario, if this is the case, then the actions which have been taken by the J. C. Because we've been so hard hit by the steel increase and by some plastics increase could bear some fruits. But I want to remain prudent on that because we don't control the macroeconomics. We are here to take a hypothesis, be prudent with the macroeconomics and work from there. Okay. I'm sorry. There is a lot of noise in the office. So just to sum up, in a segment scenario, do you if I have understood well, you are not seeing any pressure from the raw materials? Is it correct? You saw on the curve which Jan has commented that we see on steel, very slow, very limited, nothing to do with the increase we've had. We don't see an increase. We see a small decrease that has helped us in the second and the third quarter. This is what we are seeing for the time being, which is in line with the depression of the demand because so much of the steel in cars. So if there is a reduction in the volume of cars, of course, the filmmakers are so the 6th quarter of presentation, they have a problem. Okay. So the big chunk of the traffic is going in the car. Yes. Okay. Okay. Thank you. The next question is from Martino D'Ambrogio of Equita. Please go ahead. Good afternoon. Thank you. The first question is on the 4th quarter guidance. Just because the perimeter changed and we have some accountancy reclassification. Just to be sure and not misunderstand, sales in your scenario will be down like the market 5.5 percent around 3.60%. Am I right? No, what we project for the time being is a prudent stance. As Laurent mentioned, IHS is projecting a market decrease of 5.5%. And for the time being, we project our sales in Q4 with roughly the same trend. Okay. Starting from 390 reclassified last year. And still on the last quarter guidance for EBIT margin, a slight improvement. Just to be sure, last year, the figure I have in mind is 1.1 percent of EBIT margin. Is this the threshold that you see an improvement? It is correct. EBITDA was so on a comparable basis was €37,300,000 in Q4, that's to say 1.7 percent EBITDA. EBIT was more than 3%, let's just say, 1.1%. So we say we probably should do better than in Q4 of last year despite the tough market environment. Okay. Anyway, so not well above 2%. So this is the range you are guiding. Okay, perfect. So just to be sure. The second question is on 2020. Okay. I understood I understand your answer. But looking at what recently Michelin, Renault and others commented that they expect minus 3%, minus 4 percent of volumes for the global market next year. I'm not telling you what you think about it, but if this is the case, do you believe to be able to outperform as it happened in the 1st 9 months of this year? And why? This is early to give you an answer. We usually start the year by saying that our sales evolution will be in line with the market. And then for the last 4 years, as the year evolves, we can confirm or not the fact that we could over perform. This is very dependent on the success of the models on which we are. If some of the models because Suresh doesn't have 100% of the market, we have some market share that some customers. So if the models on which we are have commercial success, then we outperform the market. That's what's happening, basically. Yes. That's very clear, but we're referring to new plans, new platforms, new platforms conquered? That's a good question. The new platforms, if we refer to suspensions, for instance, to the large MRA 2 platform, It's a business which is worth lifetime more than €400,000,000 This is the single largest order from Sogefi. This will start slowly at the end of 2020 with the S Class and then we'll ramp up start the ramp up in 2021 with the C Class. So S Class will start in Dure in France. C Class and S Class will ramp up slowly because you know that CX is on ramp up like crazy and they ramp up safely. So C Class and new class will ramp up in 2021. And then we will see 2022 and then 2023 as a full volume and then the better loads of our plants in Romania going forward in those years. We are in the industry. We are not in consumer goods. So, we ramp up the product as the car manufacturers ramp up. And whether it's on engines for filtration of Ryan and Cooling or royalties for chassis, it is slow. It is slow to come. That's why the work we've been doing on technology and ongoing with the premium, this is something which we in terms of significant volume impacts come in the out years, I mean, 2022, 2023. Some of it is starting in next year, some of it is starting the year after, but this takes time. Okay. And 2 quantitative questions on Maybe one positive thing I could say. You remember we had a press release on a German premium sports car where Surgeshi has developed together with the car manufacturer the cooling module. We can now say it officially is the Porsche Taycan. And Porsche Taycan, as you know, is starting now at the end of the year, and they have very good order portfolio. So again, depending how the car goes and how successful it is in collection, this could be a substantial win positive win for Surjeet Si in 2019. But as this is the 1st electric car, of course, there are still uncertainties. And that's why we probably will start the year with saying that we see so you see sales growing in line with the market. Unless we have confirmation until then that these models are really cranking up the volumes. Yes. And 2 competitive questions on start up costs and the raw materials benefit following the renegotiations you finalized. Could you quantify Q3 year to date and what could be going forward with these two items? Sure. 1, the startup cost which was significant in Q3 as well as in the 1st 6 months we had shared with you was a ramp up of our filtration plants in Morocco. I'm very happy to share with you that we've now started in production a new product, an additional product, which will ramp up slowly in volume in Q4 and be significant in terms of sales for next year. So in that case, this is an element which is a market share gain for Sogeti and therefore will be a positive structural element in terms of getting rid of the cost and moving into absorption of this cost in the plant in Morocco. We have a couple of others, but this one is probably the more significant element. We're talking here of an additional sales filtration of around €20,000,000 next year just for that product. On the raw material side, Sorry to interrupt you. In my notes, I have that the start up cost in the first part were €4,000,000 for the Morocco and other plants. What is the total amount in Q3? If it's something you want to share with us? Again, looking around just to check it, we have the number handy or not. Okay. It was an additional €2,000,000 Right, around €2,000,000 negative. Negative. Our situation has been an outstanding job in lowering the issues we there. And we are now on a much better track. It's still a very competitive product and price, but it's been an important milestone with the start of production here. And with regard to your other question on raw materials, you've seen the nice trend between Q1, Q2 and Q3 and we do expect a further reduction in Q4. Okay. That is already factored in the guidance, I suppose. Yes, it is. Of course. Okay. Thank you. The next question is from Alexandre Rovere of Kepler. Please go ahead. Good afternoon, gentlemen. Thank you for taking my questions. The first one, could you please quantify the GE and Strack impact both on the top line and on the EBIT? And the factors driving the lower outperformance in Q4 versus the 1st 9 months? I just want to understand whether I mean to what extent this has been to the GM's track or to other factors? Or maybe I missed something. Thank you very much. Okay. Thank you, Alessandro. Hello. The GM strike for SOGESI is mainly impacting the air and cooling activity, where we are the number one supplier for Air and Tech Manifolds at GM. We're very happy with this good strategic position. And the hit in terms of sales for us is around €4,000,000 per month. Okay. Thank you. On EBIT, then our team is doing a good job to fix the costs as much as possible. And of course, the cost of the the full cost of the strike is something that we're going to try to address with General Motors in order to see how much we can get some compensation for that. I would say for Surgess, it's something which is significant, but that's not the materiality which it could have for some other suppliers in the auto industry. I'm not sure I got your question your second question, I heard lower outperformance in sales in Q3. Could you tell me more on what is that one of the question? Yes, sorry. I just wanted to understand, you plan to perform in line with the market in Q4. You outperformed in over the 9 months. So I just wanted to understand which factors or which regions drove the lower outperformance in Q4 versus the first time out? Okay. First of all, Georges, we are trying as much as possible to careful in the guidance we are giving. So this is the first element we are we try to be prudent on the guidance. The second element, as you said, is the strike, the GM strike, which is of course something we need to take into account. And basically, again, the unknowns, if you compare the Q3 by customer and the 9 months by customer, you see very important fluctuations. We are in the automotive and let's say the world, we are in the revolution. And in this revolution, there are many surprising things which happened in the short term. The revolution is not for 5 years from now. The revolution is now. We've entered this revolution. And therefore, there are some models which are going up, some models which are going down. There are some engines which are going up, there are some engines which are going up. I'll give you an example with diesel. 6 months ago, the consensus was diesel is dead. Now what we're seeing is both through data and also through customers consumers' polls is that the CO2 matter is becoming so important that the fact that diesel engines now have the same level of NOx emissions as gasoline engine, the same level of fine particles emissions, but have 15% less CO2 emissions is becoming a factor to which people are sensitive. You know, an opinion poll in France has shown being asked to work this for you, your main personal occupation, 52% of the people said the protection of the environment came out first. The second was the evolution of the social system with the return to that and the third was the buying power. So we're already in a change of perception of the consumers on the matters of the environment. And in an interesting way, the quality of the diesel in terms of CO2 consumption compared with gasoline is making a comeback in some cases. You have Volkswagen cars, where if you want to order diesel engine, you have to wait for months because the guys, they have reduced their production capacity and now they have more orders. And that's why we are carefully in our outlook on sales because there are things which are going on, on some models and on some engines, which are very hard to predict. Okay. Maybe I can add some flavor. Maybe we are too prudent in Q4. No one knows where the market is going. IHS in recent quarters was not prudent enough. So now we want to be prudent we don't want to be hit by reversal of the market. So when IHS came up with a 5.5% decrease of the market, I don't say we are taking that for granted, but we do as if this was happening. And we are doing everything to adjust to a decreasing market. I'm not sure it will hit us as IHS is predicting, but we are trying to adjust the GFE to be able to live with a decreasing market. Understood. Thank you very much. And I could add one more thing. Of course, we are quite happy with the trend of the profitability in Q3 and the trend of cash Q2, Q3. Now, having said that, profitability is still low by any standards. So as Jan said, when you have a low profitability, you don't want to build your plans on too much optimism. And one of the reasons why we've been able to buck the trend in Boursomeu Vinicio is one of the few suppliers in the world whose profitability and cash are improving in Q3 compared with Q2 is because we've been very careful in planning and very prudent. The next question is from Francois Rudyard of Intermonte. Please go ahead. Hi, everyone. Thank you for taking my question. First question on the client portfolio mix in Q3. It was a slide you said was maybe not representative. If you could just go back to that slide and tell us why it's not that representative given that the mix of premium O and M is going down. Is it due to the fact the same factor you explained in after the first half results because of the Renault Then second question, 6% of your top line last year and 3 of your plants are located in the U. K. It should be this time again for the U. K. To exit before the end of the year maybe. Could you please just give us an update on what's your vision of potential strategic decision you could take concerning your U. K. Operations going forward? And final one, yes, the last time you told us is that you used IHS guidance because it was broadly in line with your internal projections. Is it still the case for Q4 and so for 2020 based on your client your projected client production and what IHS is showing? Thank you very much for your questions. So if you go to Page 6, if we start from the bottom, we see that BMW is relatively flat to today. This is mainly due to, I would say, shifts inside the product portfolio at BMW, which plus is in minus which are compensated. I confirm that with the new orders which we've been booking and on which we are working, our target mid to long term is to grow BMW to 100% of our sales. So although this is not yet showing, this will be a couple of years so that you see the difference coming in. The next one, of course, is Daimler. At Daimler, there are 2 effects. One is that within these numbers, we have cars and we have trucks. And the activity in diamond trucks, especially in Q3, have been turning down due to very strong competition with cotton, Cagnon and Mann. So part of what you see in terms of decline is linked with the heavy duty activities. The other element is linked, as we said last time and you correctly remind this to everyone is that we declare in the Renault accounts all the intake manifold we do for the joint engine Renault Daimler And therefore, this bumps up the Ono numbers. So on the premiums, the German premiums, BMW, Daimler, we confirm that we are on track to go significantly over the years and our growth Daimler additively BMW is to reach 10% of our sales. PSR, I would say the activity is representative. What is going on at 4 is really a Q3 phenomenon because if you look at the 9 months, it's completely inverted actually. So this is really not representative of the deal for 4. It's just due to mix effects and geographic effects. That's okay for the first question? GM, Laurent mentioned the first impact of the UAW strike and another impact, which is throughout all the U. S. Carmakers is that all American carmakers are starting to be strongly hit by the China U. S. War, that's to say they fell a little in China. And this used to be a very large market for them. In terms of exporting some of the cars. Okay. And on Volkswagen Audi? On Volkswagen Audi, this is some old contracts running out. The new contracts which we have taken are not going yet. This is to come. I've repeatedly said that our goal mid, long term is to get BMW and Volkswagen to 10% of our sales. At Volkswagen Audi Portfolio Group, we are more focusing on the premium, on the Porsche which I had mentioned, as well as on Audi rather than on the mass market at Volkswagen for the time being. Although we got a nice order from Volkswagen for suspension for stabilizer bars, we are still a very small player at Volkswagen on a worldwide basis because Volkswagen is number 1 in Europe, we are 60% in Europe. So the numbers mean that we are smaller at Volkswagen. And our growth focus is really on the German premium BMW diameter and to a certain extent, but to a lesser extent, how the import share. Okay. To a lesser extent than BMW and Diamond. Is that okay for the Page 6? Yes. Okay. Let's move now to the U. K. We have not put it again, but you have it in, I think in the last presentation where we put the sales by country, the sales in the UK is 5% of the sales in Australia. So this is significant, but this is not something which is of paramount importance to the economics of Solvaygi. Having said that, you are right, We have 3 plants in the UK and we are since the beginning of the year, we've created the full time position of Chief Risk Officer. At Surjeetin, last year, the function of Chief Risk Officer was shared within ThermoDies. We've split that and therefore we have a weekly call which is led by our Chief Risk Officer to prepare for, of course, the Brexit scenarios with the 3 times in the UK. To your question on possible scenarios, there are two answers. Short term, as everyone, we are trying to get ready for something which doesn't happen. So we've been finding up stocks, additional stocks on top of P1 we usually have. The teams have been made ready to absorb additional logistic problems. So this is short term reaction, but as all the companies of the UK, you prepare and you start, nothing happens. You will be there, you start and you never see the world coming. The world anyway is coming because the impact of Brexit, people don't realize it. Whatever happens, whether there's a hard Brexit, a soft Brexit or no Brexit at all, The damage is done. The damage on the U. K. Car industry has been done by the uncertainties over the past few years. Investments in the automotive 4 years ago were 2.6 £1,000,000,000 a year. Last year, they were for 2018 €600,000,000 from the first half of the year €10,000,000 euros And so that means that no one is creating new capacity. And when you read the announcement from the carmakers, they do as everyone, let's just say, they don't want to be faced with uncertainty. So it means that all the allocations of new production are going elsewhere. It means that no matter what happens in terms of Brexit, there will be an impact on the car industry in the UK. And therefore, there will be an indirect impact on SoeEasy because our clients are moving elsewhere. And so you might follow your clients in that case? Well, we are looking at the different scenarios. In the 4 years since I've come, we have not closed one plant. Why? Because in the beginning, there was some good activity and since the reduction in volume and you've seen it in the headcount, what we have been doing is we've been doing a lot of productivity in the plant plant, a lot of cost cutting by putting in place surgery 6 and system. But we'd rather shrink rather than close because closing is very expensive, it's very traumatic, it's very difficult for all the stakeholders. So at this point, we are working out the scenarios, how much can we continue to think and flex and whether or not at some point we need to take another decision. This is too early to assess. These are very important decisions, which we want to consider when we have all the facts and the data on the table. Okay. Thank you. And Francois, you had another question by comparison with the IHS projection. Again, we are very cautious because we have our internal projections, which are based on the EDI, let's just say, on the electric data transmission from the carmakers. These are reliable short term, let's just say, Q4 is quite reliable. Next year, I wouldn't bet too much on it. So for the time being, we listen to what the market is saying in terms of market outlook for 2020. We are trying to be more cautious than the market because we don't want to be hit by headwinds without being prepared. And therefore, we base our next year budget more on cautious assumptions than on uncertain data, which might prove wrong in the coming months. The next question is from Renato Gargiulo of Fidenti. Please go ahead. Yes. Good afternoon. Well, my question is on net debt. Could you please provide a guidance or an indication about your expected full year net debt? And related to ease on working capital, last year, I remember that you experienced some issues with some card makers on payments. With the current situation, do you foresee any more issues? And lastly, on factoring, can we assume this level of factoring for the full year? Thank you. While Jan is putting into the numbers, just a general comment. As Q4 will be most probably the 6th quarter of recession in terms of sales and production of cars. You can imagine that the pressure at the car makers is building up, which shows then in the press release of some of the car manufacturers who come up with hard revisions, both on sales, on profitability and on cash. So the pressure is, of course, increasing coming from the customers on cash. This is just a general picture now. Maybe, Iain, you can share some indications. So in terms of full year debt, we see it roughly in line with the level we have at the end of Q3. In terms of factoring, that should be made up with less factoring than we have a few million less than end September. And to your question on the carmakers, we are very cautious there because as Laurent already said, the industry is in turmoil at present. Some carmakers have financial difficulties. And so we expect we might have trouble getting paid at the end of the year, especially there is a specific market we are very cautious about, which is China, where people are not ashamed to pay you a 6 month slink of unprotected. So this is something we follow very, very closely, but on which we there's not much to be done if the client decide to pay you on January 1 instead of December 31, it will happen. The next question is from Roland Kuehnen of Value Holdings. Yes, good afternoon from Germany. Most of my questions have already been answered, so just one left. Could you please elaborate a bit on your restructuring costs for the full year 2019? I guess in the Q2 call, you guided something about €10,000,000 now, yes, after 3 quarters, €5.7 percent. So more of this will come in Q4, is it relevant or do you have some less restructuring costs in 2019? Thanks a lot. Martin Guarold. Ian is putting together the numbers. So, I brought the numbers. So, you're ready. Go ahead. So, restructuring costs year to date are €5,700,000 in 2019, which used to be €4,200,000 last year. And last year, on a full year basis, we spent €8,300,000,000 and we probably are going to spend €1,000,000 more, but not much Mr. Lebenciz, Mr. Aboran, there are no more questions registered at this time. Excuse me, there's a follow-up question from Martino D'Ambrogio, Quita. Please go ahead. Thank you. Jeff, a quick question on CapEx, because based on the worsening environment, the Conforma, the increase for the full not only the tangible, but also the intangible €10,000,000 increase that you had in your previous call? Jan is putting together the numbers. What we see on the CapEx is one of the main drivers of the CapEx for this year is the CapEx for the suspensions plant in Romania, which we didn't have last year, of course. So The CapEx tangible CapEx, as Laurent already said, we are shooting for roughly €60,000,000 this year. So roughly the same amount as last year. Last year, we closed roughly €58,000,000 Out of the €60,000,000 we have €12,000,000 from Romania, which is the 1st tranche of the new investment in Romania. The KK investment in Romania is closer to €400,000,000 So it's a big plant and a big investment for Sogeti. But this is the first, as Jan said, this is the first step. This year, and of course, we'll continue next year. Then in terms of intangible assets, it's more an accounting issue because it's what we do capitalize and we plan to capitalize roughly €30,000,000 this year instead of €35,000,000 last year. We probably are going to capitalize less than last year because of the evolution of the market. Okay. Thank you. Gentlemen, there are no more questions registered at this time. Okay. Thank you very much for participating to this Q3 2019 results and perspectives conference call. And we look forward to talk to you again once we present the results for the full year. Thank you very much. Bye bye. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.