Investor Presentation

Nov 28, 2017

Slides

Hello, everybody. Thank you for attending our first Sogefi Technology Presentation. Jan Albrand, Sogefi, Group CFO, unfortunately, could not be here with us today, but he's going to join us during the Q and A session. Pretension will be held by CEO, Laurent Herbstreit. Please, Laurent, go ahead. So ladies and gentlemen, a warm welcome to this technology presentation. I'm the illustrator de ligato of SoGESI, and I have a passion in life for science, technology and business. I started my studies as an engineer for Ecole Saint Hilaire in Paris. I have a master's degree in solid state physics. And I started working for the 1st 5 years of my life in a company developing, producing and selling batteries. And as batteries will be one of the topics we'll discuss today, I can tell you that I have a direct hands on experience for 5 years in this business. I then entered the automotive industry. I joined Velio in the Starters and Alternators business. I was Research and Development Directors at Velio for starters at the stage I worked on the early versions of the start stop, which was one of the important innovation which Vallejo subsequently developed and brought to the markets. And throughout my career with different supplier automotive supplier companies, I've worked on many different innovations, and I've seen over time how they were successful successfully rolled out into the market. Let's first start with the agenda for today. I will first give you a brief introduction, then we'll go in a deep dive in the technology of sau jifi products. And from there, we look at the importance and the role of technology in Sogefi profitable growth strategy. Sogefi is a young company created in 1980 by Carlo de Benedetti, listed in the Milano Stock Exchange since 1986. Through Cheah Group, the de Benedetti family is the largest shareholder and majority shareholder of Sogefi. One important characteristic of Sogefi and especially in these times of fast technology changes is the strong entrepreneurship DNA of this company. And for me, this is very important because in these times, speed is very important, being agile, being able to spot the future trends and these are the characteristics of entrepreneurs. If we look at the evolution of Sogefi, Sogefi developed through a series of strategic moves and tight cost control. And in 2,005, Sogefi really was among the best Automotive suppliers worldwide with cash flow generation, talking net free cash flow on sales of around 4% to 5%, which still now is a remarkable performance. So that shows that not only has the company a strong DNA, but it also has a strong financial track record. Going through some difficulties at time, the financial performance of the company has started to improve. And I'm happy to mention that in 2016, we generated, I would say, a gain as it was usual for Sergio Fit to generate cash, we generated again €31,000,000 of cash, which is around 2%. Not a bad performance in itself, but still far below the benchmark of the best time at Sogefi, so we still have a way to go. Surjeifi is composed of 3 different business units, and that's very important as a preparation for the deep dive into the technology. In suspensions, the main products are stabilizer bars and coil springs. This is the largest business at Surgessy, and our main competitor is MUBEA. MUBEA is a large German private company, not so much well known from the investors as is not publicly listed. In Filtration, Sogefi is in oil filters, engine air filters, fuel filters, cabin air filters. And here again, our largest competitor is a German private company Mannenhumel. In the Air and Cooling activities, our main products are the air intake manifolds, it is the air part of the air end cooling. And the main cooling products are the coolant pumps, which pump the coolant inside the engine and the coolant outlet housing. And here again, our the leader in this category, our largest competitor is a German company called Mahle, which is far larger than Sogefi. What does that tell us? That tell us that fundamentally when we look at those competitors, these are very good companies with high industrial performance, high technology performance and very good financial results. So that means the businesses in which Sogepi is are sound businesses with good profitability potential. Another important characteristic of Sogefi in these times of rapid changes is the diversity of the customers. Of course, Seu Gifu is in passenger cars, which is the main topic for my presentation today. Seu Gifu is also quite strong in the aftermarket. Our main brands here are the Peurfry brand, the Fram brand, CooperSiam, Technocar Filtri, which is a historical Italian brand. Aftermarket is 20% of total sales, which is quite high for an Automotive supplier. We are then present in the trucks market. We are present as well in the 2 wheelers markets and the 3 wheelers markets mainly in India as of course India is the largest market for 3 wheelers. But as the mobility transportation is evolving, it's an important strength of Sogeti to have this diversity of segments. Taking a closer look at our customers, I'm happy to say that, Suzuki has a very well balanced client mix. And maybe highlighting the fact that Renault Nissan has been an early developer of the electric technology. You know that today if we look in terms of volumes of cars sold, Renault with Zoe, Nissan with Leaf is among the leaders in volumes. We Renault Nissan is one of our key customers as well as Ford, as Fiat Chrysler Group with CNH and PSA, Peugeot Citroen Group. The numbers here are just for Peugeot Citroen. They do not include do not include the General Motors Europe part, which is still included in the GM line because these are 2016 numbers and the deal was just made here. The takeover of the General Motors Europe activities by PSA present interesting opportunities for Sergey to develop business with a new parameter of the group PSA, Opel, Vauxhall. We're very proud of our strong position at Daimler as Sergey is of course well known for his presence at mass producers, but he's also presence as we see on volume brands and on premium brands and premium cards. Last but not least, I would like to point out the last name on this list which is Geely Volvo. Geely is a very dynamic Chinese company, which has acquired Volvo. And we have very interesting development, both with Geely and with Volvo, which is strategically important going forward. As I said, Mercedes Benz is well known for supplying volume cars, is less well known that we have a very strong presence both with premium customers and models, whether that's Ferrari or Porsche on the Cayenne, Audi on the A6, Maserati, BMW, the Mercedes GLK or the E Class, the Volvo XC90, the Jaguar F PACE or the Corvette in North America. This diversity of Most of the automotive suppliers are concentrated on 1, 2, 3, 3, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, 4, Most of the Automotive suppliers are concentrated on 1, 2, 3 large customers where of course they have a good view of what's going on, but Surgessy is in a unique position due to the breadth of the client mix and the diversity of applications. Let's now go into the substance of the presentation, which is really what's going on in the technology. I must tell you that for us in the Automotive industry, these are the most exciting times in my 27 years of career in the Automotive Industry as many parameters are changing at the same time, which is very exciting for us. The current trends are well known, but I would like to emphasize their importance. Air quality is becoming more and more of an important subject whether it's in Europe, in North America or even in China, where of course pollution as well in China as well as in India, pollution is an ever more critical element. CO2 emissions reduction, fuel consumption reduction and weight reduction, which continue to be an important trend. I've highlighted below on those current trends which of the SOGERFI activities could benefit from those higher technology requirements. It's important to emphasize the importance of current trends because I'll move now to the future disruptive trends and the attention sometimes gets so focused on the new trends that some people forget that the current trends still have a very high importance in the competitive going forward. Talking about our suspensions activity, suspension is of course the key factor for Sergey in terms of weight reduction. The stabilizer bar's function is to keep the car horizontal when the car turns. You remember probably the old de chevaux from Citroen, when it was turning, it was slipping on the it was going on the side. The stabilizer bar's function is to keep the car horizontal. The entry level of the product is what we call the solid bar. This is a steel tube. Typical weight per car is 6 kilogram and the price would be €16 A number of customers have already switched to the tube technology, which is a 35% weight reduction and of course higher price for us as the tubes are more expensive and more complex to form. And the higher level of technology is variable wall thickness where we can achieve 45% weight reduction and higher content. This difference of content would be an important element of my presentation as people focus on the evolution of the segments, but inside one product line, there are of course very important difference in content. Moving now to the coil spring, which is the 2nd most important product for Surjeifi in suspensions for weight savings. With the 4 coils, we have an indicative weight per car of 10 kilogram, a price of €20 per car. We have a mid level of technology with higher performance process for the steel, which enables to achieve 25% weight reduction. And we are developing the composites, which offer 50% weight reduction. But you see that the price factor is, of course, much higher for Composite where we are looking at a content per car of €50 Moving now from the current trends to the disruptive trends, connectivity, autonomous driving and shared mobility is what is capturing most of the media attention as this is, I would say, the most spectacular developments. Those developments are important to us, but they do not have strong direct impact. That's why I've written here connected, autonomous and shared trades have limited direct impact for Sergey. Electrification is less spectacular because if you look at the car from the outside, you don't see the difference at a distance between combustion engine and electric car, but this is a key trend for Sogeti filtration and Air and Cooling activities. We've developed with McKinsey, which is one of the top world class consultants, a detailed world database and model to create alternative powertrain scenarios, which I would like to share with you today. As we are in uncertain times, the scenarios method is, I believe, one of the best methods to assess what could be the evolution into the future. In any case, electrification as well as the current trends I mentioned before are calling for is calling for higher technology requirements. When we look at the media, sometimes there is quite a confusion of what it is that we are talking about when we are talking of the evolution of the powertrain. So we've explained here what do we mean when we talk about new energy vehicles. In fact, new energy vehicles covers 2 categories. It covers the electric vehicles, the battery electric vehicles and the fuel cell electric vehicles, which is highlighted here in green, but it also incorporates the hybrids. The hybrids are also new energy vehicles, but inside the hybrids you still have an internal combustion engine. So that means when you look at the evolution and the impact of the evolution for SoGESY, you need to look at the 3 categories, the electric vehicles by themselves, the new energy vehicles as a category and then the total internal combustion engine which includes the conventional internal combustion engine cars plus the hybrids because the hybrids still have significant internal combustion engine inside. So I think that's very important to really differentiate the technology evolutions. To be very precise on what we're talking about, we've included on this page 16 of the presentation the exact definitions of what we're talking about. The pure internal combustion engines is what we know for years. The hybrid we have 3 different categories. We have the mild hybrid, which is 48 volts. Why 48 volts? Because 48 volts is the highest voltage, which is harmless for the individual. That is if a mechanic is plunging his heads into the car, if it's 48 volts, if he gets an electric shock, it's not a problem. Higher than 48 volts could be harmful to human life and that's why people are focusing on developing 48 volt systems for hybrid. Then on the full hybrid electric vehicle, we are of course at higher voltages batteries and the typical case for this is the Toyota Prius, you know that Toyota was very successful being the first introducing this category. An important current trend is what we call the plug in hybrid, which is different from the previous technology. We've given as an example the new Golf GTE. A lot of developments now, including at Toyota, are dedicated to plug in hybrids. The distinctions are important because the technical solutions behind those devices inside the hybrids category are meaningful for strategic products. Then we have the battery electric vehicles, I mentioned the the Renault ZOE, the Nissan LEAF and of course the different Tesla models, which are pure battery electric vehicles. And then the fuel cell electric vehicles such as the Toyota Mirai, which is available and validated for use already on the roads. There is a fair amount of technical development on the fuel cell electric vehicles and I'll share with you what that means for Sergey into the future. When we look at the media, we have the impression that battery electric vehicles and hybrids are already the dominant powertrains. That's not the reality. The reality is that if you look at the world quantities, the world numbers is that if you look at our definition, which is passenger cars and light commercial vehicles, 2% is battery electric vehicles, 4% is hybrid, 17% is diesel and 78% is still the good old gasoline engine. Now of course, if you look at Europe, the split is quite different. Battery electric vehicle is 1%, hybrid is 3% and diesel is 41%. Diesel has already reduced a lot, it was more than 50%, it's been reducing and it will reduce further as I will show. Very meaningful because of the quantities is China. China is 28,000,000 new cars per year And here we are at 2% battery electric vehicle, 3% hybrids, 6% diesel and 90% gasoline. There are 2 main trends far as Powertrain are concerned. The first one is the diesel disruption. It's mainly affecting Europe and it's the combination of several factors, more stringent regulations, the consumers turning away from diesel, the politics, diesel circulation restrictions in large cities and I told you about I will tell you more details about the scenarios, we've developed 2 scenarios, one which we called the base case and one which we call the strong case. And of course, we have more scenarios internally. Those are the ones that I would like to share with you today. In the base case, we consider that from 41% in Europe, the diesel will go down to 25% in 2027. There was a publication yesterday from IHS, which is one of the reference publication in the automotive and their numbers for diesel in Europe in 2027 is a bit higher than the 25%. And you see that the base scenario of Sorge F is already quite aggressive in terms of the diesel reduction. And of course, in the strong case, we are also projecting at 20% the share of the diesel going forward. Now on the electrified powertrain, electrified powertrain including hybrids and electric vehicles. There's lots of technology improvements going on. And of course, politics also play an important role both in France and the U. K. With a ban for diesel and petrol cars, which have been announced for 2,040 as well here in Italy where the government's announced a target of 5,000,000 electric cars as well as in China of course with the increase of electric vehicles. So all in all, on a worldwide basis, we take the 4% plus the 2% I mentioned before, which makes 6% to 30% in 2027 and 33% in the strong case. This is a busy slide. What we've highlighted is to share with you how we construct our scenarios. We have 2 main parameters. 1 is diesel with low diesel and a high diesel version. And then we have another independent parameter, so to speak, which is the low electric vehicle and the high electric vehicle. So our base scenario for 2022 because this is a vision of 2022, our base scenario is calling at a worldwide level for 7% battery electric vehicles and 9% hybrid and 14% diesel. Now if we move to the strong case, which is the upper left corner, you see that we are projecting 11% battery electric vehicle, 13% hybrid, 9% diesel and 68% gasoline. What's important to see is that even if battery electric vehicles and hybrids are growing, the internal combustion engine, which is the sum of 68 plus 9 plus 13 if we look at the top corner in the strong case still remain 89%. So that means, yes, battery electric vehicles and hybrids are growing and we're projecting very significant growth rates. Still in this scenario, in the base case the internal combustion engine which encompasses the pure internal combustion engine plus the hybrids reached 93% in the base case and 89% in the strong case. Moving ahead to 2027, again, we have in the middle highlighted in pink, the base case where we see, of course, a higher share of electric vehicles going to 14% for battery electric vehicles, where we see 16% for the hybrid, 11% diesel, 60% for gasoline. And then if we move to the upper left corner, which is the strong case, we project 19% for EV worldwide, 15% hybrids, 7% diesel, 59%. Now if we do the same reasoning, basically the total ICE is a difference between 100% and the pure battery electric vehicle. So in the base case, we still have in 2027 86% of internal combustion engine and in 2027 81%. So today there is a consensus among analysts of the automotive and professional sectors that internal combustion engines are here to stay. Of course, the new technologies will develop, so there is competition, but internal commercial engine is not going to disappear neither tomorrow not even the day after tomorrow. Of course, what's important for Sorge Fie is the projection by region And here, we've broken down the base case by region. Why? Because you know that 60% of Surgefi business today is in Europe. So of course, what is happening in Europe is more important to us as of now. And we see here that for Europe, we project electric vehicles to go up from 1% to 13%, hybrid at comparable level at 14%, As I mentioned before, a decline of the diesel down to 25%, so it's pretty steep decline and gasoline from 54% to 49%. If you look at the world level, we see the breakdown of the different technologies, which I've mentioned before. Let's now look at the evolution of the total market because in the end nobody lives on percentage, we all live on absolute numbers. We see the market for vehicles, passenger cars and light commercial vehicles to grow. We project 1.4% combined annual growth rate in the 1st 5 years and then 2.1% in the subsequent years, which means in absolute terms from 92,000,000 vehicles a year in 2017 up to 110,000,000 in 20.27. And of course, we see that in this projection in the base case, the EV has a fantastic growth rate up to 15,000,000 vehicles in 2027. The hybrids also has a fantastic growth rate going to 17,000,000 vehicles in 20 27. Now if you look at the total internal combustion engine, which is the ICE gasoline, the ICE diesel and the hybrids, we see that in this base case, although I mentioned that it's already quite aggressive, we see the total quantity, the absolute numbers of internal combustion engine vehicles staying around flat, which is very important. So what's written in the press is true, but the press usually doesn't mention that there are things which are continuing because it's better for the headlines to focus on what is new without looking at the total market and how the total market evolves. Let's look now in more details at our products now that we've understood how the market is going up. The main products for filtration is the oil filter, the engine air filter, the fuel filter and the cabin air filter. You also need to understand that the OEM activity of Surgi Filtration is only 40% of our filtration business. 60% of our filtration business is aftermarket. And the aftermarket business is focused not on the new cars which are coming out every year, but on the average of the car park, so it has a very different dynamics. The average age of the car park in Europe is 10 years, which means that with this strong share of aftermarket, Sogefi filtration and therefore Sogefi as a whole because 60% for filtration means 20% for the whole group, gives us a very good resilience to the OEM volumes fluctuations. Now if we move to the Air and Cooling side, the manifold, the coolant pump and the coolant outlet housing, they are mostly OEM products in terms of markets. So what happens when we go to a hybrid powertrain compared with the internal combustion engine where we described just before what our products, I'm on page 24. Well, on the hybrids, the main difference is that we have at least twice the volume for the pumps and the outlet housing. Why? Because the batteries do not like cold temperatures, they do not like high temperatures, that means the batteries need to have a specific cooling circuit, which is different from the cooling circuit for the engine. As you remember that in the hybrid you have a combustion engine, the car needs a circuit for the engine and needs another circuit for the batteries. So that creates double the volume for the cooling activities. And of course, it opens as well new products opportunities such as battery packs, such as the battery pack coolant manifold. What is a coolant manifold? It is a part which distributes the coolant to the battery because the battery in the hybrid is relatively large, so the cooler needs to be distributed all around the battery in order to cool down the battery. When you charge the battery, you need to cool the battery and you need to cool even more the battery if you are overcharging the battery because once the battery is charged and if the charge continues all the energy goes up in heat, so the cooling of the battery is an extremely important factor for the duration of the life of the battery. So Jessie is also working on what we call thermal packs, which is not only the battery packs but it's also including inside the battery pack, the thermal elements for the heat exchange. In the battery pack above is just the pack itself, in the thermal pack we include the heat exchanger elements inside the pack. And the hybrid powertrains offer also opportunities for coolant valves. As the coolant circuits become more complicated and needs to be tightly monitored, this creates opportunities for Coolant Valves. On the filtration side, we have higher technology requirements, but basically all the products we have in filtration continue to be needed for filtration. I just highlight on the bottom right side that as with the hybrid car, the consumers expect to have a better contribution to the environment. There is usually a request for higher performance cabin air filter. I will come to that later in the presentation. But we see the trend starting with the hybrids and of course continuing on the battery electric vehicle. On the battery electric vehicle, from the range of filters that Sur Jiffy is doing, the only filter which is left is the cabin air filter, but what we are seeing is higher performance cabin air filters. If we take the example of a Tesla, in order to have super efficient air cabin filtration on some of the models there is a primary air cabin filter, a secondary cabin air filter and the high performance in that case means also that the car offers a bioweapon defense option in order to protect the occupants of the car from not only the pollutions but even potentially worse attacks. Now moving on the other side on the Air and Cooling, you see that beyond the battery pack, which we had on the previous page, of course, the battery pack for battery electric vehicle is much larger because the full autonomy of the car is resting on the battery. So the battery packs which are needed for battery electric vehicles are significantly more important and more complex technically. The battery electric vehicles also creates the opportunity for what we develop as battery pack coolant manifold module. As the battery is much larger, the distribution of the coolant in the whole surface of the battery becomes more sophisticated. Battery thermal pack as well and also a very interesting development is the electric cooling module, which is basically integrating all the elements which are needed to cool the battery with electric steering. And as I mentioned before, now the volumes for the pumps in that case will be an electric coolant pump, the coolant outlet housing and the coolant valve is also twice because you still have the battery electric vehicle, but you still need to have a coolant and a heating system for the car itself. So therefore, the volumes for electric coolant pump, coolant housing and coolant valve also have an increased effect. Moving on with the fuel cell electric vehicle, we find again the electric coolant pump, the coolant outlet housing, the coolant valve, but again it becomes more interesting for filtration, we still have the of course high performance cabin air filter, but as you know that the fuel cell is working on air, the air which comes in needs to be filtered. So the fuel cell filters what we call the complete system fuel cell air filter becomes very important again as well as water separator as the fuel cell itself is producing water, it's hydrogen and oxygen putting water, so the water separator becomes an important element of the fuel cell electric vehicles creating again opportunities of new products for filtration. The good news as far as surgery fee is concerned is that of course hybrids and battery electric vehicles are the future, but for surgery the future is now. We are already on a number of those cars and we are working also on new developments on this. So as far as hybrids are concerned, so JV is on the BMW 3 Series, the Audi A8, the Mercedes S Class, the Porsche Panamera, the Chrysler Pacifica, Chevrolet Malibu. And again, I'm happy to mention the Geely TX5, which will be the London hybrid cabs developed by Geely. And on the battery electric vehicle, so Jessie is already on the ZOE with Renault, the Smart Fortwo, the Mercedes B Class and the Fiat 500 electric version. So there are lots of new developments, but again for strategy the future is now, It's already ongoing. As a summary, even if all scenarios predict an increase of the electric vehicle, the total ICE powertrains could remain flat or substantial part of the market until 2027 and going forward. Hybrid powertrain is a first step towards a world of multiple powertrains. The rise of EV is still depending on key evolving factors, the range, the car can go, the battery cost, the infrastructures And the good news for us is that as you've understood more volumes for cooling products, new Surrogate products, I've highlighted some of them and higher content for Surrogifi existing products. Let me again do another deep dive into the contents. Oil Filter is one of the largest markets for filtration worldwide. And here again, we have a large diversity of technology levels. Entry level is a typical oil filter spin on, which each time you go to the garage gets changed when we change the oil. Then there is another level, which is the oil filter plus cap. And then depending on the architecture of the engines, the car manufacturers might decide to have a complete module, which includes the cooler for the oil and includes as well a number of valves. In that case, the unit price goes up. And when we look at Surgessy for the current situation, we see a clear average trend going up. I mean the average price goes up because the mix goes up in favor of more modules, because in that case the car manufacturers have decided for architectures which incorporates higher value products. If we look at the Engineered Filter, which in terms of size is a comparable size market to the oil filter worldwide, So Jiffy can provide a filter element which is the base of the competencies of the filtration, but also a filter element and box, you see that the price jumps from €2 to €9, which is a significant difference. And then a complete engine air intake system including the ducts go up to €28. If we now move to the Air Cabin Filter, which is here to stay for a very long time and has a lot of higher requirements. The entry level filter is filtering the pollens. The middle technology is filtering the particles and the orders and the higher level could be on CLARgen or even higher levels of requirements going up to €3 [SPEAKER ARI DE LAARSCHOTTI PROVERA:] Let me compliment and conclude on this section as far as the content of filtration is concerned on the pricing power of our brands. The filtration aftermarket like most Automotive Parts market can be segmented in 3 levels. We have the private labels, which could be private labels from the distributors or could be private labels from the car manufacturers because the car manufacturers have a strong focus on the parts market. The Aurora Repaire brands for instance is a private label brand from the PSA Group. So there is a strong development of the private label segment, which would have a price index of 80 as far as public price. Then we have what we call the mid range and in the mid range, Sergey Fi has the Cooper's Fjams branch, which would be with an 85 price index. And last but not least, Sergeifi has a strong position in the premium segment where most of our activities is today with the Purfel brand, the Fram brand and the TechnoCar Filtree brand, especially here in Italy where TechnoCar is long recognized by the mechanics as a premium brand. Moving now to from Filtration to Air and Cooling and looking at the contents. In that case the pricing effect is even more important. A basic simple entry level manifold starts around €10. In order to increase the performance of the engines, which is very important and even more important now, the car manufacturers could decide to have a part of the tuning of the performance of the engine in the air intake manifold with an actuator, which controls the airflow inside the engine. Let me maybe explain just a little bit about this. The diesel is very important for the manufacturers to meet the CO2 requirements. With the diesel going down because of the public turning away from the diesel, the pressure is increasing at the car manufacturers to improve the performance of the gasoline engines. In order to improve the performance of the gasoline engines, the share of manifolds with actuators is increasing very fast. Another way of improving the performance of the engine is using a turbo. What we see in the projection is a strong growth of the turbo. The turbo enables to increase the pressure of the air coming into the engine, which is increasing the efficiency of the engine. The problem with the turbo is when it increases the pressure, it increases the temperature as well. So you need to cool the air after you've increased the pressure, you need to cool the air of the turbo before it gets into the engine because if the temperature is too high, it decreases the efficiency of the engine. So in all cars where you have a turbo, you have a charged air cooler. Now the trend we are seeing in the market is that from the past where the charge air coolers were in the front of the cars, the car manufacturers are increasingly interested by solution where the charger cooler is included inside the intake manifold, which reduces the total packaging because you can imagine that when the car manufacturers have to design a hybrid car, they don't have more space inside and they have to tuck the battery, they have to tuck the electric motor. So basically, they need space and the space constraints are increasing. So this solution which integrates the cooler inside the intake manifold is very interesting for the car manufacturers. And you see that the price factor here goes from €10 to €23, and then up to €40. On the coolant pump side, there's also lots of technology developments. The typical mechanical pump is actuated by the engine with a rubber band, which makes the pump turn and this prompts the coolant inside the car. There is a second level of technology, which is still a mechanical pump with a cooler for the coolant and a thermostat. And then we also have solutions which are still mechanical but could have on top of it an electric controlled valve in order to control the flow of the coolant as the flow of the coolant is a factor an important factor in the efficiency of the engine. So that's why we see a trend towards smart coolant pump and the smart coolant pump indicated price is €25 to be compared with €8 for the entry level pump. On the outlet side, because as soon as the coolant gets in, it needs to get out of the engine. We have also from the entry level, which is a basic thermostat onoff enabling either the coolant to get in or to be blocked inside the engine to have variable moves through the electric thermostat or even more complex, the start multi way valves which enables a more complex flow and therefore contributes to a higher efficiency of the engines. And here again the price difference goes up from €8 to €13.25 With all those technology changes going on, so JC is looking outside what is happening in the market And what is happening in the market is compared with when I started 27 years ago in the automotive, the importance of the start up is changing. Of course, when we talk about start up, we all think about software, but there's not only start ups in software, there are start ups in all many different kinds of applications. So the start ups are becoming key players of the automotive world. We now have start ups making cars, but also have start ups making all kind of technical development. So existing business, they are creating new businesses in some case. So at Sogeti, we are launching a new initiative which we call Sogeti Ventures And I'm pleased to share that for the first time with you. Our objectives are to, of course, to generate profits from these activities, to add value to existing Sogefi products and to generate new Sogefi products. For this, we monitor the fields relevant to Sogefi, the hand cooling, the filtration and suspensions. Sogefi has no plans to compete into the connected car world. But from this connected car world, we could have some interesting ideas for our own product in Air and Cooling, in Filtration and Suspensions. Once we've identified an interesting start up, we built joint development agreements, technology development agreements, which could be quite complex because this is concerning the intellectual property. Then we are looking at buying 5% to 10% equity because as this startup has an interesting technology, we want to play an active minority shareholder role to make sure that Sergey gets the benefits of these developments. And we look forward year after year to dedicate €3,000,000 to €5,000,000 of cash per year to this initiative. It takes time to find the right start ups to build those agreements, to negotiate those things. But if we this is to be compared with the tangible CapEx investment of Serjeifi this year of around €70,000,000 So it is substantial. And for an individual start up, it could start at 100,000. There's a need to be €1,000,000 right at the start, depending on the size of the start up and the meaningful and the meaning of the products for us going forward. So GP is in, I would say, a world of middle technology. So GP is not in the world of high-tech, of the connected cars, which mean R and D spending of 10% to 15%, we are not in this world. But we are as well not in the world of the low tech, as you've understood from all what I've described, so is in a world where technology is meaningful and becomes even more important due to the new trends. What is key for us is what do those technology trends means for our strategy going forward and that's what I would like to share with you. First of all, with all those changes going on, it's even more important to have a strong and robust profitability improved plan. Our performance drivers to improve our profitability is of course purchasing, 50% of our P and L is dedicated to purchasing, so working with our suppliers on cost reduction and on low cost country sourcing remains a key element. Shop floor, I will go into more detail. Program management for the new products, especially when they are innovative becomes even more important. Indelite cost reduction is a permanent ongoing effort and competitive footprint developing both excellent plants but also located at the right place. Let me tell you where we are at on the shop floor. In parallel with the efforts we did on the scenarios for the market and prioritizing of the technology developments, we also this year spent a fair amount of time in analyzing our costs. Out of 2016 cost base of €1,200,000,000 we carved out the material part, which is 945 €1,000,000 to concentrate on €380,000,000 of transformation costs. From there we focused on €290,000,000 of cost which we analyzed and we found out there is €100,000,000 of addressable costs which we can focus on and we expect substantial savings in the next 3 years from those €100,000,000 At the time where the world is changing, it's even more important to have differentiated product strategies. So I would like to highlight that we have 3 main categories of product strategies. We have the categories which we call harvest, which is applicable to the fuel filter. Because of what we've said, fuel filters is a category where our priority is the improvement of the profitability. In some cases we could have growth because we gain market share, but clearly in the strategy going forward profitability is the number one priority. Then we have products where we are challengers, That means these are products where we are not among the top 5, but for reasons where we see good opportunities for technology development, we have an active challenge of strategy. This is the case in the filtration for the cabin air filter, for the engine air filter where the market share of Sergey could grow. And in the as well in the filtration, we are in challenge our position with Technocar Filtri in Europe with CooperSiam and with Fram. On the Air and Cooling side, the coolant outlet housing and the coolant pump are very exciting challenger strategy position for us. Now, we also have a number of products where we are clear leaders and here that's a different product strategy than the other ones. The oil filter, we are number 4 worldwide for oil filters. We are number 1 in France with the Perfry brand and we also have strong position in some other countries. And in the Manifolds, we are number 2 worldwide with a very strong position being presence both in Europe, in North America as well as in Asia. Also important going forward is the geographical expansion and the cost competitive footprint. We are pleased with our investment in Mexico where we have the 3 business units. The activities is starting for suspensions, stabilizer bars this year in Mexico. It will continue to ramp up next year. In India and in China, we have the 3 business units already present. We are present in Romania with a local country location for Air and Cooling. We are we will start in production next year for filtration in Morocco and we have project in the Europe, Middle East area for suspensions, which is not yet announced, but we are working on this and look forward to announce it in the next months. So beyond the product strategy, which I have described, the geographical expansion and the cost competitive footprint continues to be an important driver of our profitable growth strategy. Of course, all of this costs money. It costs money in terms of investments. If we look back in 2013, so GC invested in tangible CapEx €36,000,000 When I joined in 2015, we further increased investment to €51,000,000 €59,000,000 this year. We aim around €70,000,000 tangible CapEx investment. This takes us at currently at 4.1% of sales, which is still very reasonable for an Automotive supplier in this phase of taking the change. And what do we invest in? We invest of course in Health and Safety, this is always important in quality as this remains an important factor in capacity increase as we are gaining market shares in some areas. In efficiency, some of the productivity which I've described come through investments. In new products, which was a subject of the presentation today highlighting the new products we are working on and of course in new plants as I just mentioned. And of course, the question as we ramp up the investment is, what is the financial logic of doing this? And the financial logic of this is here. If we look in 2015, the return on capital employed of Sergipe in the 3rd quarter was 10.2%. So if the return on capital employed was to stay at 10.5% that might not be a very good idea to increase the tangible CapEx investment. Why? Because in 2015, the benchmark for return on capital employed among 600 key suppliers was 13.5%. So clearly, Sorgeifi was in recovery mode as I indicated. And you see that through the various actions that we've taken, we've increased the return on capital employed to 12.8%. Last year, we reported the return on capital employed of 17.5% in the Q3 of 2017 and we aim at continuing increasing our return on capital employed as we continue increasing our tangible CapEx going forward. Another important indicator is leverage. When I joined the company, the leverage in Q3, I joined in June 2015, the leverage of the company was 3.7 at the time where the market was quite at a high level in the cycle. So of course, as a nomotive supplier with many things to do as far as R and D and tangible, you don't want to stay at that type of leverage. We were successful reducing our leverage to 2.3 in the Q3 of 2016 and to 1.6 in the Q3 of 2017, which means that the leverage that we now have supports the profitable growth strategy which I have presented both in terms of product or geographic expansion. Let me now maybe recap what I've presented to you. What are Sergey Fi's strengths? Sergey Fi has a very strong entrepreneurship DNA. I'm an entrepreneur myself. I left the only sector for 3 years to create a company in another sector and I really enjoy being the administrator of a company with such a strong entrepreneurship DNA, which also makes it very exciting for the startups who start being in contact with us as we are not the typical automotive supplier. This entrepreneurship DNA is especially important in those disruptive times. I'm also happy to share with you that we have a very good intimacy level with the research and development, the purchasing and the top management of the vehicle manufacturers. All the topics which I've mentioned as far as the evolutions of the technology are of course actively discussed at the top levels of the car manufacturers and they expect their suppliers and the management of their suppliers not only to be good suppliers but also to be able to think forward and share with them what the future trends are to be able to propose new solutions. So JF has recognized technical credibility to develop, launch and ramp up innovative products. I'll give you an example on battery packs. We have a couple of battery packs projects right now and of course we are not producing battery packs today, but because the car manufacturers have been working with us for a long time, they are confident that Surjeifi is the right partner to develop, to launch and to ramp up those products in volume for the future, which is not given to all companies. Many companies could do a technical solution whether they will have the credibility to support this in the future could be a question mark. Last but not least, the multi brand aftermarket is providing resilience to OEM volume fluctuations going forward. As I've mentioned, electric vehicle are expected to increase, but total interlockommercial engine will remain a substantial part of the market. New energy vehicles have opportunities, more volume of cooling products, new products and higher content. Our profitable growth strategy starts with a cost reduction plan to sustain profitability and cash generation, differentiated product strategies between harvest, Challenger and leader. And last but not least, we are actively researching external growth opportunities to complement our organic growth. I would like to thank you very much for your attention and I'll be happy to now take some questions. Thank you very much. Okay. We are now ready for the Q and A session. If you can please wait for the microphone before asking your question and if you can state your name and your company. Thank you. Thank you very much for taking my question. Monica Bose from Banca Gimi. I know it's maybe it's difficult, but can you try to quantify a split in term of the split on the revenues by gasoline, diesel, hybrid and the rest, it would be very useful for us. And also if you can quantify the weight in term of revenues to premium cars, because I think that these ones will be the ones with a higher content and with higher margins. Thank you very much. Thank you, Monica. We do not share for reasons of competition the detailed information and the detailed split between the various powertrains. What I can tell you is the following. As far as the diesel is concerned, we are of course looking in very much details at the trends here. Sogefi was successful in increasing market share with Renault Nissan. One of the filters which we will start in Morocco will be a diesel filter. So this will increase our market share. And why is that interesting for us? This is interesting for us because you know that in filtration, we need to look at the OEM, but even more important, we need to look at the parts, the OES market into the aftermarket. So for us, increasing our market share in diesel in Europe is a good move as it is going to be very fruitful for OES and aftermarket activities. We can also share with you is that of course the PSA Group is a large player in the diesel market and we are one of the suppliers of Peugeot Citroen. As Peugeot Citroen goes from shared platforms with Opel and Vauxhall to an integration of Opel Vauxhall, we see a good chance for an increase of the diesel engines of Peugeot Citroen on Opel and Vauxhall cars going forward. So that means those two factors give us stabilization of our diesel activities for the time being. Having said that, in terms of market positioning, we are number 3 in Europe for diesel filters applications. So we are not the most impacted by the future reduction of the diesel activities. And we believe that by carefully monitoring both the opportunities to take your market share and then harvesting properly this market, this could contribute to our profitable growth strategy as part of the harvesting. But I will not disclose detailed numbers for competitive reasons. On the hybrid, this is a different story. On the hybrid, what I presented now is in Europe, hybrid is still a very small percentage. So today, hybrid does not make a meaningful element. But if we look at the new businesses we are taking, hybrid starts to be a very significant share of the new developments. Why? Because the first hybrid engines which on the first hybrid cars, the car manufacturers started with the existing engines. But now they are looking at the new generations which is optimized for hybrid and here we have good opportunities for new products, both for filtration and for high end cooling. What I can also share with you is that one time manufacturer who is communicating a lot about environment is developing a hybrid with diesel, which might be counterintuitive, but that means also that in accordance with the latest IHS report, even if diesel is declining, car manufacturers think that diesel might not disappear tomorrow and that is still worth developing new generation of diesel engine for hybrid applications. I cannot give names for confidentiality reasons but that's what is happening on the market. All in all, in order to quantify the impact, let's keep in mind that the 2 largest markets for filtration OEM is oil and air. Combined, diesel and fuel is much smaller than this as far as the impact is concerned. So just to keep the relative numbers in mind. Yes. Renato Gargiulo, Intermonte. The first question, even if we assume your base scenario, so total internal combustion engine powertrains basically flattish over the next few years. Is there, in your view, the risk of a more challenging environment given that market growth clearly will come from the other segments? Then second question about start ups. Are you already working on any new venture? And related to this question, in your scenario, how much your future CapEx or R and D percentage would be for to develop these new applications for electric vehicles? And then my last question, maybe not strictly related to today's presentation, but if you look at your customer portfolio, we see that your exposure to German clients are still relatively lower. Do you have a strategy, even in this case, to reach higher presentation? We know that they prefer to work with German suppliers, but do you have a strategy to increase presentation with them? Thank you. Thank you very much. You're right. The fact that battery electric vehicle and hybrid take a higher share of the growth is our response to this is what I call the differentiated product strategy between clearly focusing on harvesting in some cases, on being a challenger or being a leader in the other case. That's the strategy answer to this differentiated in growth. That means to continue growing in this circumstance means more targeted strategy product by product. That's what I've highlighted in the presentation. So yes, it is a change, but we believe that it's a change which we are in a we have a good answer to these changes for the differentiation in strategy. On the start ups, we have one where we are quite advanced in the discussions. And we have some other which we are looking at for the timing. These are complex subjects and it takes time, so I cannot give you a definite time. Typically, the process takes 18 months to 2 years before it can be firmed up. And in some cases, there might be some information we want to keep confidential for some time before we make them public. That's why I cannot comment too much on this as these are differentiators for the future. On the customer portfolio, we anticipate further growth with Daimler, which is our most important position as far as premium is concerned. I would say that we have very good relationship with BMW and expect also to grow with BMW. But as well, I can tell you that next week, I will be visiting Audi to discuss some further opportunities with Audi. So clearly premium cars and premium car manufacturers is among our priorities. We believe at Sogeti that what is good for us is to keep a balance between the volume car manufacturers and the premium cars. I highlighted premium in this presentation as so as the image now was more focused towards volume than premium, but it doesn't mean that we will not continue to look forward at increasing our presence at volume car manufacturers as well. Thank you. Gabriela Gambarova with Banca Akros. The first question is on composite coil springs. You have been working on this technology for years, And I would like to understand if you have solved the issues or the problems you might have found in the industrialization process? And if possible, to have an outlook on this, on the start of production, if possible? And then the second question is on hybrid. You gave many details. There are many opportunities there. Theoretically, if I take a normal internal combustion engine car and let's that JF supply, I don't know, €100 in terms of components, where could this €100 go for an hybrid platform? On the composite coil spring, the product is a fantastic performance product, as I've mentioned already before. The key factor for us is our ability to produce it in colonies while hitting the right cost to make it a viable market both for the manufacturers and for ourselves. Unfortunately, I'm not able to provide you a firm outlook on this subject for the time being. It continues to be one of our priority developments. On the hybrids, the content is higher. The reason why I'm careful not giving you detailed content per vehicle because I've had the question before on the content per vehicle for gasoline, for diesel, for hybrid, for battery electric vehicle is that you've understood that even for, I would say, normal internal combustion engine, there could be, let's take for filtration, a price difference between €2.28 So the comparison might be misleading because if on the hybrid, the car manufacturer decides to go for higher technology, then the content increase could be as far as 120. On the other hand, if the car manufacturer, because of some other constraint on the engine, would like to decontend some of our products, then it might be 100. It's not going to be lower in any case, but the span of the increase could be quite high and I'm reluctant to give you fixed numbers because it really depends on the architecture where the car manufacturer will take. You discussed the volumes. I was wondering on prices, particularly for the internal combustion engines. Don't you see, don't you expect any additional price pressure because of the decline in volumes expected in the medium term? The second question is on profitability. Should we expect for electric hybrid components higher profitability? Or because of higher R and D efforts and these kind of things, maybe will not be evident such a trend in the at least in the short term? And third question, more general. I know maybe it's difficult to answer, but your competitors. I know it's difficult to talk about competitors, but you showed innovations, new products, the upward trend from entry to high level products. So how your competitors are positioned? I know it's a difficult question because you have 3 different businesses and many different components, but just a broad idea. Thank you. What we are seeing for the time being is that our projection for internal combustion engine to be flat is what we are seeing. So actually, even with the increase of battery electric and hybrid electric vehicle, we don't see a decline in battery electric vehicles. The car manufacturers price pressure, I've been 27 years in this industry. Every year, the car manufacturer asking for very high price decrease and then we discuss what is doable, what is not doable in terms of providing price reductions. I would say this is part of the normal environment. I do not expect because of the I would say potential stagnation of internal combustion engine to have significantly higher price down pressures. Price down pressure everyday life. On the electric and hybrid, as you've seen, some of the products for Electric and Hybrid are evolutions of our products. So in that case, the amount of the additional amount of R and D is something which is relatively easy to absorb. In some products are completely new. And in that case, when these are new products, the discussion with the car manufacturers is very different. I insisted on the intimacy and the technical credibility because when the customer is developing a battery pack with Sogefi, of course, they want to pay the lowest price possible, but it's not like reducing the price by $0.10 which is going to make a big difference because in the end, what they want to have is a good battery pack which meets their requirements. So today what we see is on the new products, there is the potential to at the start of the products to have reasonable margins. We do not expect that with the new products we'll have extremely high margins because manufacturer expect a level of transparency on what the costs are. But certainly, on the new products, there is not the same kind of product as there could price pressure, they could be on the spin on the filter which has been existing for 20 years and everywhere it has been reduced through productivity. So because it's a start of a new product, it enables us to reposition the price at the right product. So, I would say overall the net effect of the new products is more positive than is more relative than dilutive on the margins overall. Now on the competitors, as I said in the beginning, it's the most exciting time in my life in the automotive because everyone is looking at those new trends and everyone needs to position vis a vis the car manufacturers and the asset test of that is a decision of the customer. If the customer chooses that company or this company, it's really where the competitive is showing and I would say the current phase, you've seen that on all the products we have, we have a few products we need to harvest. There is a few products where we are leader. There's a bunch of product we are challenger. So for us, when you are challenger, it's a good time. It's a good time because once you have the good relationship and the good credibility, you have a good opportunity to increase your market share compared with the leaders. So without being too specific, I would say that it's more challenging for the leaders, for the ones who could tick the box where I have a lot of challenger and saying they are leaders here, they are leaders there, is more challenging. For the number 1 in diesel filter in Europe, it's certainly a more challenging situation than it is for us who is the number 3 for diesel filters in Europe, as an example. And on the upper side, we see much more market openings than now than I saw when I joined the company in 2015, more opportunities to reshuffle the market Michele Baldelli, Exane BNP Paribas. I have several questions. The first one relates to the cooling of the batteries because from technical understanding, as far as of today, I didn't hear about air cooling, but more liquid cooling. I was wondering is this already in your product range? And sorry if it is because I didn't know about it. And related then to these new products on the air and cooling on battery pack, thermal pack, are we speaking about products already on the market? Or are we going to speak something that will be in the future? Is R and D already done? Do you have already signed contracts with some OEMs? I've got further on, but let's start from this. There are on the market some solutions with air cooling of the batteries, but it is not the dominant trend. The dominant trend is liquid cooling. You're right, liquid coolant. We are actively working with actually 2 different car manufacturers on one being a volume producer for a volume car on which is a full battery electric vehicle on what I have described on page 25 as a battery pack coolant manifold module. It's a very interesting product. It's quite complex product which distributes the coolant in the various parts of the batteries. So it's like a manifold, that's why we call it manifold because it guides the cooling, but it's a module as well because there is a succession of different stages in order to diffuse the coolant on all the right places. So this is something we are working on for a volume car manufacturer. If you go to Page 24, the battery pack coolant manifold, these are all liquid, both are liquid, it's liquid coolant. Both are liquid. Maybe I should have been more specific and say battery pack liquid coolant manifold and battery pack liquid coolant manifold module. In both cases, it is in the first case, the one we are developing is a premium car where we are developing a very interesting battery pack liquid coolant manifold. So both manifolds are liquid manifolds, distribute the liquid. I don't know if it's clear. Yes, it's clear. Thank you for this specification. Then on the presentation, I appreciate a lot the kind of degree of granularity about the products. What is not clear to me are 2 things. 1st, I didn't get about the product the weight on the total sales. I mean, how much on your total sales represents the Engineered cabin air filter or the air cabin filter or the air intake manifold? And second point, which is still important, to understand what is the average price for you of each product, just to understand where is the opportunity for this improvement on the mix side. [SPEAKER JOSE RAFAEL FERNANDEZ:] Thank you, Michele. We decided not to share the weight on total sales of each for competition reasons. The automotive world is one of the most competitive industry. I mean the leaders in each of our business whether it is Mubia or Mannen Rumel or Malle, they are formidable competitors. And we've decided not to share the detail of this. So some of our competitors are connected to the webcast. So they're most welcome to be connected, but there is some level of detail which we'd rather not share because of the competitive field. What I've shared I've depicted to you is the picture enabling you to see a profitable growth strategy for Sergey because if you look from the outside, you could say, powertrain is 2 thirds of our business, what is this going to happen? So I try to answer this question and show that as well on suspensions on hybrids and battery electric vehicles, the content will be higher because the weight is higher and therefore the need for higher technology. Now, on the weight on the impact of these changes both in terms of quantities and in terms of prices, In our profitable growth strategy, profitable comes first. So as far as the perspectives, even if we are developing very exciting new products, we are very selective in the businesses we are taking to make sure that the new products which we are developing will be relative to our growth. So our aim is to continue growing as we've done a little bit faster than the market, not more than that. I've not communicated on double digit growth and I will not because at this point remember in 2015 the company was still burning cash. We are recovering. We are now in a much better situation. We have a good plan going forward, but we need to be selective and we can afford to grow and be selective by prioritizing profitability rather than chasing every rabbit. You imagine on the battery electric vehicles, you have 3 types of players. You have Renault Nissan, which has been a kind of early adopter. We have very good relationship with them and of course we are working with them. Then you have all the other car manufacturers who need to go very fast on hybrid and electric. So there are a lot of potential new business coming up. And then on top of that, you have a third group of players which is the Tesla and all the start ups in electrics. If you look in China, you have an incredible number of new companies which are starting. So with all this potential growth, so is carefully looking at each opportunity to see if we can make it profitable for Sougefi going forward, growing at a reasonable pace, not chasing every opportunity on hybrid and electrics. So that's why on the pricing and volume we are rather picky in order to make sure that we go at a reasonable pace. Last question from my side is on the part that was less of a focus during this presentation, but it's still impacted in my view. And I was wondering on suspension components. If I need to look at the hybrid, there is just one way. It's up because the weight of the car is higher. Is will be the electric vehicles heavier than the internal combustion engine 1 or not? And therefore, suspension can be a little bit more pricey or not? What's your view? I would say that there are you are right on hybrids. Clearly, the weight is higher, so it calls for higher technology for suspensions. On the battery electric vehicles, what we see for the time being is also the need to further reduce the weight because the more the weight is reduced, the more the range of the car is extended. So range anxiety is a key factor in the adoption of the battery electric vehicles. So we see good opportunities on battery electric vehicles going forward. Monica Vazio, IMi. I know that you are in the budget freeze, but could you please give us a rough indication of your expected R and D for the next years? And also in terms of free cash flow generation, you told us that the company is going to invest 3, €5,000,000 in start ups? And what are you expecting in term of free operating cash flow after these investments? Thank you very much. Just roughly. On the Research and Development, in order to compare the numbers of Sogitsky with the rest of the markets, you need to take into account 2 factors. The first factor is that we reported last year 2.3% R and D on sales, which doesn't look like a big number. You have to understand that in the filtration business, 60% of our business is aftermarket. And therefore, if you want to compare with companies which are mostly OEM players, you need to normalize the sales by excluding the aftermarket. And here, we would be 2.93% R and D on sales for the OEM based on OEM sales. The other factor is that in the suspensions business, I've talked a lot about the product, but I'm sure you understood that the process of making the springs and the stop bars is as important as the product. And therefore, in the real development cost, we have a lot of costs in the plant for development, which are not accounted in the R and D, okay? Because R and D is really R and D as we reported and is not including process technicians and a lot of other things which are done in the plant. So if you account for these two differences, then the number for Surgessi is more in the direction of 3.5% or 4% and absolute terms. And we expect this number to increase slightly in the future. Why slightly? Because at the same time as we have more developments, we also have an ongoing effort to reduce the cost of our development activities. Development activities is like any other activity in the automotive, it can be optimized. As it becomes of a higher importance, we also put more efforts in optimizing the cost. For instance, the balance between using external resources and using internal resources, the locations where we do the developments, these are the things we are looking forward going forward. For sure, R and D linked to new products and CapEx will increase, but this is within our profitable growth strategy. So we don't see that this could unbalance our strategy going forward. With the startups, the startups by nature whether we develop with them new products or add value to our products are risky activities. That's the point of a start up is that there is some level of risk. So that means the expected return needs to be higher than it is for the average. So clearly as far as free cash flow projection or return on capital projection, our hurdle rate to go in is of course higher than the current performance of Sogeti because there are some elements of risks. Sometimes we will spend money with more or less success on the market than I would say what we would do for an existing product. And therefore, our expectation is I don't know if I answered the question. What could be a rough free operating cash flow per year after the investments in the startups. So you generated €31,000,000 in 2016. I know that you are in the budget phase. I'm just trying to ask what are your expectation for the next 2 years, 3 years? Also on the back of the new developments in R and D and the investments on start ups, etcetera? Two comments on this. The first one is concerning 2016. You remember that in 2016, we had a number of one offs, which supported the cash flow. As we've shared at the conference call at the end of Q3, we expect cash flow this year comparable with last year, but without the favorable effects of last year. That means that the underlying cash generation is improving this year even with all what we are doing now including the increase of the CapEx. For the next year, it's early to give you a number because we are looking at different opportunities. What I can tell you is that from the underlying cash generation, we expect to continue improving the underlying cash generation. After that, I mentioned the project for Eastern Europe and Middle East for suspensions. Suspension is a capital intensive activity. If we decide to launch this project, of course, this will have an impact on our free cash flow. That's why as this project is not yet decided, I'd rather keep it at that for the moment. And one more question. Without making any favor to your competitors, but just a rough idea, what is the weight of a premium? Obviously, premium cars can be defined in many different ways, but just to have an idea what is the percentage on your sales. And you also mentioned Opel as an opportunity. We already discussed it in our previous calls. But any progress in order to have an idea what could be the real opportunity? Or as I thought at the beginning, there is a risk of additional price pressure on what else? Thank you. On the premium, I understand your question, but for confidentiality reasons, I will not give you more details on the premium. Concerning Opel Vauxhall, there was a meeting 2 weeks ago or last week with the purchasing of PSA who presented the new integrated purchasing of Peugeot, Citroen, DS, Opel and Vauxhall. So it's moving very quickly. The new organization will be in place January 1st for the new purchasing activities. And the PAC Group is also moving quickly in defining as far as engines and car platforms what will be the architecture. And what we see today is rather favorable for Sergey as we have good market high market share with Peugeot, Citro and DS on the engines. As those engines get transferred on the Opel Vauxhall cars, they will replace engines which today are equipped by a competitor because we had a small market share at Opel Vauxhall. So this is not a direct market share gain at PSA. So we but it will be favorable for us. We see it clearly in the diesel projection for the time being. So that's a positive effect. Additional price pressure, of course, the car manufacturers when they merge, it's not the first time that there is a merger on the lines between car manufacturers, they expect more savings. And then it's on Sorgece with our cost reduction plan to find a win win agreement with the car manufacturing in how much more productivity we can give in exchange for how much more business going forward. These are discussions which we are having with the PSA the new PSA Opel Vauxhall Group. Francesca Monfillo from Kairos. Do you have or do you plan to have any incentive plan based on this upselling process from the low entry level and to higher technologies? For internal people, I mean, do you have kind of incentive plan in order to support this up selling process? As far as you mean inside Sergey, you mean for yes, right? For Canada people sales. Okay. I think the most people at Sergey are as excited as I am with all those new technology opportunities. We have a very, I would say, high level of motivation with the new technologies. At this point, I would say we don't have a specific program to involve. I would say that people are naturally excited with the new potential challenges. The job of the management is rather to channel the energy in the right direction as there are so many things going on and arbitrating and making sure we execute on our differentiated product line strategy because there are more opportunities than there was in the past. Yes. As far as the top management of the companies, of the company, we have a stock grant program for the top seventy managers of the company. It's been released officially. I exercised some of my stock grants during the month of November. So this is a program covering 70 people, 70 top people in the company, which is a good incentive long term incentive program with a section which is time based and a section which is performance based. So we think we have an adequate system. Okay. If there are no other questions, I think we can conclude here the presentation. Thank you very much. There is a buffet waiting for us for you. And thank you, Laurent. Thank you to everybody.