Good day, and thank you for standing by. Welcome to the Faurecia third quarter sales, 2021 sales. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. I'd now like to hand the conference over to your speaker today, Michel Favre, Group CFO. Please go ahead.
Thank you. Good morning, ladies and gentlemen. Thank you for attending this conference call. I am with our flagship investor relations team, Marc Maillet and Matthieu Fernandez, and of course I will present our sales figure for the third quarter. The press release was posted this morning at 7 A.M. Paris time on our website. The slideshow that I'm now going to comment is also available on our website. Slide two summarizes the highlights of the past quarter. A quarter that continued to be severely impacted by semiconductor shortage and by the consequent stop and goes imposed by our customers. In these very challenging conditions, with worldwide automotive production only at 15.8 million units a quarter, down 19.2% year-on-year, we posted sales of EUR 3.426 billion, strongly outperforming worldwide automotive production by 780 basis points.
We have performed in every of our business group and in every region. As regards business group, it is worth mentioning that Faurecia Clarion Electronics posted an organic growth of 7.3% and started its robust momentum. As regards regions, it is also worth mentioning that Asia posted an organic growth of 6.5%, which stands above the 2019 pre-COVID level. In addition, we confirm our full-year guidance as recently revised on September 31st after the drastic revision by IHS Markit of its forecast for worldwide automotive production in 2021. Lastly, we are making significant progress in the HELLA acquisition process since we announced it last August. Everything is on track. The takeover offer was launched on September 27 and will end on November 11, with final results to be released on November 16.
The antitrust clearances are underway, and there is no change to our initial expected schedule of closing the deal early 2022. Faurecia and HELLA have launched the initial steps to be prepared for action at day one after the closing, and this is the so-called Project One that we are leading together. Let's now move to slide four to detail the year-on-year sales evolution. The currency effect was positive and limited at EUR 39 million or +1% of sales, mainly attributable to the Chinese yuan versus the euro. There was no scope effect during the period. At constant scope and currencies, sales were down 11.4%, which compared to the 19.2% drop in production, reflecting a strong outperformance of 780 basis points, as already mentioned. All business groups and regions posted strong outperformance.
As regards business groups, Clarion Electronics posted an organic growth of 7.3%, but all business groups posted an outperformance close to or exceeding 500 basis points. As regards regions, only Asia posted organic growth of 6.5%, with China up 5%. All regions posted stronger performance between 790 basis points and over 2,000 basis points. On a reported basis, sales were down 10.4% year-on-year. Let's now enter into the detail for the business groups and after that for the regions. Let's start with the business groups, slide five. Seating, which represented 38% of group sales in Q3, posted sales of EUR 1.305 billion. Sales were down 14.3% on an organic basis, an outperformance of 490 basis points.
Organic sales were down by double digits in Europe and North America, the two regions that were the most hard hit by semiconductor shortage. They were up 16.3% in Asia, driven by sales with Chinese and international OEMs, including new entrants in the Chinese market. Expected sales of the new SOPs were also impacted. These SOPs contributed to sales for EUR 57 million in the quarter after EUR 44 million at the end of June, and they should contribute to circa EUR 140 million in the last quarter. Overall, a contribution estimated at EUR 240 million in 2021. In addition to this lower contribution from SOPs, we also face a significant operational challenge in the launching phase of greenfield operation in Detroit, Michigan.
These operational difficulties, mainly due to account instability and difficulty to recruit qualified people, will have an impact on Seating profitability in H2, which is now expected to be below that of H1. These operational difficulties must be fixed by the end of the year. Interiors, which represented 29% of group sales in Q3, posted sales of slightly less than EUR 1 billion, precisely EUR 997 million. Sales were down 11.3% on an organic basis, a strong outperformance of 790 basis points. As for Seating, and for the same reason, organic sales were down by double digits in Europe and North America. Sales were up 10.2% in Asia, driven by sales to Ford, a major American EV car maker, I think you have recognized it, huh, a new entrant in the Chinese market.
Let's continue on slide six with Clean Mobility and Clarion Electronics. Clean Mobility, which represented 27% of group sales in Q3, posted sales of EUR 928 million. Sales were down 10.5% on an organic basis, a stronger performance of 870 basis points. They were down by high single digits in Europe and Asia, and by double digits in North America. Nevertheless, in all three regions, sales outperformed major automotive production by at least 500 basis points, which means over 2,000 basis points in Europe, boosted by the hybrid, I would say, powertrain, over 1,000 basis points in North America, over 500 basis points in Asia. Clarion Electronics, which represented 6% of group sales in Q3, posted sales of EUR 195 million.
Sales were up 7.3% on an organic basis, a stronger performance of 2,650 basis points. Despite the semiconductor shortage that impacted significantly Clarion Electronics versus initial expectations, organic growth reflected the sales momentum of Clarion Electronics. All regions posted organic growth, in particular Asia, thanks to the strong sales growth with Chinese OEMs. It is worth mentioning that Clarion Electronics succeeded, sorry, in avoiding any stoppage of production at its customer plants during the period. Let's now start on slide seven, the review by region. Europe, which represented 39% of group sales in Q3, a low percentage, posted sales of EUR 1,439 million.
Sales were down 19.9% on an organic basis, a strong outperformance of 970 basis points versus European automotive production that dropped by roughly 30%. This reflected the strong impact of semiconductor shortage on almost all OEMs, with the exception of Daimler and commercial vehicles that both grew year-on-year. North America, which represented 26% of group sales in Q3, posted sales of EUR 903 million. Sales were down 17.3% on an organic basis, a strong outperformance of 790 basis points versus North American automotive production, which dropped by 25%. As in Europe, this reflected the strong impact of semiconductor shortage on almost all OEMs, with the exception of a major EV car maker that I cannot name, and the commercial vehicles that both grew year-on-year.
Europe and North America, representing two-thirds of our sales in the quarter, was the most impacted by the shortage. This was reflected in the combined reduction by 440,000 units of IHS Markit production estimate for Q3 2021 between September and October. IHS Markit production estimate for Q4 in these two regions was also reduced by 380,000 units between September and October. Let's continue on slide eight with Asia and the rest of the world. Asia, which represented 29% of group sales in Q3, posted sales of EUR 1 billion. Sales were up 6.5% on an organic basis, a very strong outperformance of 2,000 basis points versus Asian automotive production that dropped by circa 14%.
This growth was driven by Seating, Interiors, and Clarion Electronics, and by most OEMs, Chinese and international, except the VW and GM group. More specifically in China, sales were up 5% on an organic basis, also a very strong outperformance of roughly 2,000 basis points versus Chinese automotive production that dropped by 14%. Both in Asia and China, sales significantly exceeded pre-COVID sales of Q3 2019. Rest of the world, including South America, represented 6% of group sales in Q3 and EUR 184 million of sales. In South America, which represented more or less two-thirds of the total, sales were up 28% on an organic basis, a very strong performance of 3,900 basis points versus South American automotive production, mainly driven by the Stellantis group.
Now, we have reviewed our sales performance in Q3 by business group and region. Let me, on slide 10, remind the full-year guidance as updated on September 23rd, after the drastic reset of forecasts released by IHS Markit. The effect was a drastic reduction by 6.2% of 5 million units of the forecasted worldwide automotive production in 2021 from 77 million units to circa 72 million units, more or less the figure of the last year, 2020. Based on this forecast, we announced our revised figure, revised financial targets for the year. Sales of circa EUR 15.5 billion, with a stronger performance of at least 600 basis points. Operating margin between 6% and 6.2% of sales.
Net cash flow of circa EUR 500 million, and net debt to EBITDA ratio of maximum 1.5x . We confirm these targets even if market conditions remain very challenging in Q4. Semiconductor shortage will indeed continue in Q4, even if Malaysia disruptions that mostly impacted Q3 is easing. In 2022 is likely to continue to be impacted with progressive return to normal figures, starting only probably in H2. We'll continue to tightly manage day-to-day evolution and short-term performance. Our priority is to continue to pass through inflation and mainly raw material price inflation to our customers. Our operating leverage will continue to prove strong and efficient, thanks to resilient actions implemented to adapt to the volatile environment.
As from 2023, when supply chain bottlenecks will have disappeared, production levels should return to close or above 90 million units, supported by pent-up demand and pressure to rebuild inventories currently at historical very low level. Let me now conclude on slide 12 with a quick update on our roadmap for the acquisition of HELLA. As indicated at the beginning of this call, we are fully on track with the acquisition process. The takeover to all shareholders of HELLA was launched as planned on September 27. It will end November 11, and I repeat, final results will be released on November 16. As you know, we have already secured the acquisition of 60% of HELLA shares from the family pool, and we are now be dependent on the final results of the takeover offer to start implementation of synergies from day one.
Regulatory clearances from relevant authorities are underway. The UN's clearance has already been announced. The Brazilian one should be announced shortly. We are confident that the closing should happen early 2022 as anticipated in August. In September, the two companies, Faurecia and HELLA, launched a common project named Project One to be ready for day one post-closing. The two main objectives are, firstly, to ensure that the combined group will be ready to operate efficiently from day one. To achieve this objective, governance and organization post-closing are prepared in detail and agreed to ensure a quick start, supported by the right systems and processes. Secondly, to prepare synergy plan in detail to be ready to kick off implementation from day one. To achieve targeted synergies, objectives are converted into very specific plans to ensure swift execution from day one and quick P&L impact.
You can be sure that the CFO is very much involved in this process. Thank you very much for your attention. The floor is now yours. Tracy, now we can go to the procedure of Q&A.
Thank you. We'll now begin the question-and-answer session. To ask a question, you will need to press star and one on your telephone and wait for your name to be announced. Should you wish to cancel the request, please press the hash or the pound key. That's star and one to ask a question. Your first question comes from the line of Tom Narayan of RBC. Please ask your question.
Hi. Yes, Tom Narayan, RBC.
Hello, Tom.
Thanks, Tak. Hi. Thanks for the questions. My first one on raw materials. I know you took, I think it was EUR 80 million in H1, and there was a net impact of EUR 25 million. I think in the H1 call, you said to expect H2 to be similar. Do you still feel that way given recent moves in steel? The second question on the OEM disclosures you provided. First of all, thanks for providing all that. In Asia, you said there was strength there except for VW and GM. Is it safe to say that the strength came from domestic OEMs in China? In North America, it's curious that this, you know, the EV maker you cannot name was not as impacted as other OEMs.
Could you perhaps tell us what specific products you make for that OEM that weren't as negatively impacted? Or was it just that that OEM wasn't as negatively impacted? Thank you.
Thank you, Tom, for your tricky questions. Well, you understand that the American that I cannot mention because they don't want to be mentioned.
Right. Yeah.
any supplier. I have to respect that.
Mm-hmm
As you understand. I'm sorry for that. For raw materials, it's a big question because we have passed through part. We continue to negotiate with customers as the last, I will say two months and one week will be still active.
Uh.
As you know, it is contractual. It is a practice of this sector. Last but not least, the situation of suppliers is very different from chemicals. We are suffering, sorry to say that, from semiconductors and volumes. We are suffering from stopping growth. Imagine today the life of my logistic people, they have change of volumes at any moment, and very brutal, moreover. Their life is complicated, mainly in the just-in-time activity. Last but not least, we have inflation, and not only inflation itself, I will say, of raw materials, we have inflation of salaries. To be cost-cutting, to continue to, I will say, manage day-to-day performance is key.
We are today negotiating with customers as a pass-through, knowing that of course, when the raw material price there will be a reversal, which was the case, if you remember, in 2019, if I'm not mistaken. Of course, we give, as we did in the past, the price decrease. It is very important to continue to have this virtuous, I will say, way to manage. Today, I am confident that we will pass through 80% of the impact of raw material. There will be a small further impact, because we have smoothed the impact in 2021, but I will be confident as well that in 2022, we'll continue. It will be more tricky on the salary inflation, because we have in some cases a big salary inflation.
I was mentioning our accident. I don't know what is the right word in Detroit plant. We are today forced to overpay the people, so it is a salary inflation due to the market conditions. In some area, states for instance, East Europe, I will say the workforce market is very complicated. Now going to your to your point of OEMs. Very difficult to comment how OEMs get semiconductors. What I can tell you is that you have what is the structural market, that means what semiconductor suppliers are delivering, more or less 70% of the need or less because demand could be much higher than the current production. After that, you have the spot market. How much customer will accept to pay on the spot market.
It is difficult to comment on the attitude of each customer. What I can tell you is that it was official. Volkswagen made some arbitration between regions. It is why probably whatever their big commercial success in China, they cannot completely maintain their volumes. GM, more complex one, sir, because as you know, we have a lower view. For Clarion, we were able to maintain. I will say the delivery to our suppliers, and as well it is a daily fight. It is as well the fact that when we get some products on the spot market, we immediately negotiate or transfer the information to customers. We are back by customers.
What I can tell you is that, according to my knowledge, there was no stoppage in Q3, even in October, and I think this is a very big performance in the current context. I think if I go back to, I will say, beginning of this year, we have stopped for our customers by something like four hours. A very low figure in a difficult context.
Okay, perfect. Thank you so much.
Thank you. Your next question comes from the line of Giulio Pescatore of Exane. Please ask your question.
Bonjour, Giulio.
Hi. Morning. Morning, Michel. The first question on the guidance, I guess you are expecting this one. You said that your guidance is based on the IHS revision of September, but we all know that IHS revised again a couple of weeks ago and now Exane is expecting a flat market in 2021. Am I right in thinking that your guidance is valid even in the case the market would be flat in 2021?
We adjusted our forecast in September. As I already said, it does not reflect what you call the EDI. EDI, it is data information we are receiving every day from our customers, because EDI remains very high. Why? Because customers try to take all the products they can, yeah. They want somehow to secure the procurement, which is a paradox, because in the months, we can see big adjustments. Between the first week of the month and the last week of the month, today we see adjustments in sales up to 10% for the group, which means in some zones it could be 25% or more. It is our current situation, and this unfortunately has not finished.
Second thing, I will not adjust, of course, my forecast every time to IHS. I remind you that at the beginning of the year, we were much more cautious than IHS, and you see much more cautious, and unfortunately, we were right. I will not adjust my forecast. I will say what we think. We have today the forecast is of course what we have done end of September, plus our view, with all the discounted, I insist on the discounted, EDI, yeah, that we have seen. We think that we are right. We say we can confirm the guidance with these volumes. After that, as you have understood, it is a day-to-day fact.
Yeah. Makes sense. Thank you. Thank you very much for that. A second question on Seating. You are basically causing the delay in North America to your customer, right? Are you liable to some compensations into the second part of the year?
Compensation for what, sorry? I'm not with you.
For the delays caused in the ramp up of the new platform.
No. On the usual ramp up, except if you have a big difference of time, and in that case, we can of course ask for compensation, but here we are speaking of weeks, so no, we will not ask any compensation. No way. Anyway, one key thing is that we are asking compensation for when something goes up, because we are adjusting to the activity. We are committed to a certain level of capacity, so when the customer brutally, and I say brutally, could be the morning for the night canceled one shift, we cannot act. We are asking for some compensation on that. It is a part, we say, of the way to compensate the, I would say, difficult pattern.
This is a normal, I would say, way to create and adjust item activity, but we are not asking any compensation for the delay of SOP.
Okay. Just to be clear, you are not causing the delay. It's just that the customer is having issues with the ramp-up of its platform.
Mm-hmm.
Okay.
I'm sorry for your question. Seating, the mix was very positive in Q2, and stronger, which if you remember, standard performance with respect to the other business. Strangely, the mix of products were negative, and it is back to positive. We have this as well, this variability, which is a fact, but anyway, we will see. More seating should be normally the best performer in Q4.
Okay. Maybe just one last one. On Clarion, can you maybe comment on what activities are causing the pickup in outperformance and organic growth?
If you remember, we have different, I would say, startup production. Some for Nissan. I was talking to you about the Nissan Leaf and the Nissan Frontier, which was, if I'm not mistaken, June. So with a progressive impact in Q3 and Q4. If you're on top of that, we have some startup production for Changan. So Changan's Chinese OEMs will be a very significant customer now onwards for Clarion.
Thank you very much.
Thank you, Giulio.
Thank you. Your next question comes from the line of Gabriel Adler of Citi. Please ask your question.
Thanks, and good morning.
Good morning.
Morning. My first question is on seating as well, please. I was just hoping you could elaborate maybe a little bit more on what the operational issues you were having in seating were, and if they were just relating to the delay in the ramp-up or if there was anything else. What gives you confidence that the impact on profitability is going to be fixed before the end of 2021, just so that we have some confidence that it isn't going to drag into 2022. My second question is on the HELLA deal, and whether you could maybe just provide some more details on the Project One plan that you announced today. You know, what steps have you already taken to ensure that those synergies can be effective from day one?
Are you in a position yet now to provide any more details maybe on where you think these cost synergies will mainly be coming from? Thank you.
Thank you. I mean, I don't want to say that we are not guilty, as a principal when we have a difficult ramp-up, and you know that it is one of our major risks is to miss a ramp-up. The starts are not often easy, because the availability of people on one side and in some regions, the lack of industrial, I would say, culture. In our case, the difficulty was a greenfield. We have to start from scratch in Detroit. We didn't have any more Seating plant in Detroit. The second one was of course the lockdown because we were unable to send people in the second quarter, and in the third quarter, which is always a difficulty with
Seating is a very large activity, as you know, and the capacity to send people to secure startup production is key. Anyway, now going back to the basics, our main difficulty is first to recruit qualified people. We have to train the people. We have to train the people not only on the products, but on the way to work in automotive. The second big problem we have is the turnover. We face some turnover in a week above 10% for the first two weeks of October. Last week was better, so we are progressively stabilizing. Our problem, if I can speak about cost, is of course that we have to overpay the people to keep them loyal. Second, we need a lot of subcontractors to compensate.
We have a high level of scraps. If you have some penalties from the customer, which is, I think, we say not normal, but it is a consequence. All together, you ask me a figure, I will say that the overcost for the last quarter will be minimum EUR 20 million. It is a significant figure which is of course clearly impacting my margin of turnover with respect to my guidance. No. It is the life we faced that in the past. We will fix it as quick as possible. Going back now to synergies. We have started now you know that we're restricted first. Until the closing, we are restricted. We have to act in a very, I would say strict pattern. We cannot speak of business.
When there is something I would say confidential, we use our consultant BCG. It is the way to prepare the things, to check in details that our plan is clearly reliable. To add, of course, some other synergies. I speak here mainly purchasing for the moment. For the organization, we have an important step, I would say mid-November, to clearly fine-tune the organization for the day one and of course to make the synergies. We'll be more talkative on the synergies when we will be in. Clearly today, what I can tell you is that we are in the ballpark that EUR 200 million is the minimum. We will go back to you to give you more food.
I don't know if we will be able in February or later in April, but anyway, we'll be more talkative. I remind you that with the structure of the company, we'll have full control day one, so we can implement almost all the synergies. Well, except the tower control, which is HELLA listed. We still need some top people on the, I will say, on the legal point of view. Except that, I will be able to achieve 95% of the synergies planned.
Great. Thank you, Michel.
Thank you. Your next question comes from the line of Jose Asumendi of JP Morgan. Please ask your ques-
Good morning, Jose.
Good morning. Couple of questions, please. Thank you for all the details so far. Can you talk a little bit, please, with regards to your greenfield in Michigan and whether you're gonna see or you know whether the group needs any other greenfield facilities to be opened, you know, next year and you know across any of the divisions. Talk a little bit more about you know the facility in Michigan, which OEMs it's supplying currently and whether you know additional OEMs could be booked through that. That would be the first question. Second, can you talk a little bit about restructuring cash outflows for the second half of the year and also 2020, 2022?
Three, can you help me please a little bit with working capital and CapEx in the second half of the year? Thank you.
Last question, José? I'm not completely with you with the first question about Michigan. It is for other. I will say greenfield you which you're mentioning. But Michigan is a Jeep Wrangler. I think you have understood. If you remember, it was a very large business. Now, more than $300 million. To have a greenfield like this, fortunately or unfortunately, we don't have. Well, in 2022, we'll have more some openings of new plants, but more limiting. I would say in the magnitude. I will say in the regions, mainly China, where probably we'll use to have greenfield. I don't want to be over-optimistic, but it will be probably easier to implement.
Going now to the cash. Now, cash flow construction this year will be probably something like EUR 140 million. For next year, we are making our budget, so probably a little more than EUR 100 million. We are accelerating with respect to the, I will say, current pattern, some adjustment on accounts. Working capital, we are under pressure due to the stop-and-go's, so a high level of inventories. We are currently making a plan to adjust in October. If we achieve this plan, normally we can commit to have a positive cash in from working capital. Because as you understand, the level of business in December of 2021 will be unfortunately lower or much lower than 2020.
CapEx will continue to reduce, so I stick on my figures that maximum EUR 500 million cash out this year on CapEx. Is that okay for you?
That's perfect. Thank you so much. Thank you. Thank you.
Thank you. Your next question comes from the line of Victoria Greer of Morgan Stanley. Please ask your question.
Good morning. A couple from me, please. Firstly,
Yes.
The news that we're starting to hear about, the magnesium shortage. Can you talk us through where do you use magnesium directly in your products? And then where do you use aluminum, and are you seeing any shortages right now? Second question on the HELLA deal, you know, perhaps you can't comment on this, but is there anything you can tell us about the progress of the takeover offer, and if you expect to own 100% of HELLA at closing? Thank you.
Thank you, Victoria. I will not say anything about the tender offer because, as you know, people will bring their shares at the last days. Today we have a very partial view. When you see the HELLA share price, normally, the success of the tender offer should be high. It's what I can tell you today, but of course, please be a little patient until the 16th of November. Magnesium, according to my knowledge, nothing. Aluminum, indirectly very small, but very, very small. We are, as you know, but very, very small. I think it is probably $2 million-$3 million indirect purchasing, yeah, not more. Some indirect parts mainly for the cockpit. More detail, moreover.
As you know, we are a big, big purchaser of steel, more than EUR 700 million. Big purchaser of plastic equivalents with some chemicals products, same thing, more or less EUR 700 million. It is the two big, I will say, raw material impacts, plus, the semiconductors because we have some overcost on semiconductors, mainly in the first half, that we are today pass through to our customers. Semiconductors, I cannot tell you that we do not have any impact, but you can take into account that it will be normally much less than EUR 5 million net impact after the full year.
Great. Thank you.
For the direct impact, not the indirect. Direct impact will be huge. Thank you, Victoria.
Thank you. Your next question comes from the line of Martino De Ambroggi of Equita. Please ask your question.
Thank you. Good morning, everybody.
Good morning.
Hi. Hi, Michel. My focus is on Clean Mobility. If you could provide a rough indication on what's your expectation for Q4, if you could remind us what is the operating leverage of this division and, your best estimate, on, the split, for the full year among hybrid, electric, ICE, and the usual split that you provide for this division.
I expect in our we say forecast that your performance will be equivalent in Q4 respect to Q3. The Clean Mobility will I think post a very good figure on profitability side. The operating leverage, as you know, is a little higher for Clean Mobility, close to 30%, respect to some other businesses, more at 25%, and Seating is the lowest at 20%. Second question was about the mix. Complicated to see the mix. Probably, if I take Europe, between BEVs and Hybrid, it will be over 10%. We don't know that our customers will I would say optimize respect to their CAFE I would say management respect to European regulation.
As you know, the BEVs are mainly an impact on Europe, a little in China, but mainly Europe. We continue to see a big increase of hybrid, as we're mentioning, mainly for Stellantis and Volkswagen. As you know, we have a significant market share in Europe on hybrid engines.
Okay, thank you. Just a double-check. You mentioned that the Michigan plant issue will cost EUR 20 million in the second half and full stop. Am I right?
No, EUR 20 million in Q4.
EUR 20 million in Q4.
We have already a cost in Q3, but it's done. When I make my guidance, it's Q3 achievement plus Q4. What I would expect is that, unfortunately, we have another cost of minimum EUR 20 million in Q4.
Okay. Thank you.
Thank you. Your next question comes from the line of Christoph Laskawi of Deutsche Bank. Please ask your question.
Morning.
Hi. Good morning. Thank you for taking my question. It's really only short ones left. The first one would be also on the U.S. and the situation with the labor shortage there. Is it really just a function of salary increases? And with that, obviously, you can be quite confident as long as you're willing to pay, you get the staff. Or with the high turnover, are there other mechanisms working which could make it more complicated, say, even later in Q4? And the second question would be, I understand your comment in a way that the volatility of the production remains pretty high also in October and most likely for Q4 as well.
Do you also see a risk that there might be even early shutdowns in December, say mid-December, that several OEMs decide to close for the year, potentially build slight inventory and then just start off in January, on a cleaner base or so far not part of any discussions that you have?
Thank you for your questions. The first one, I don't want to comment too much on the American market and maybe on some regions. It is well known that some regions are more difficult to operate in the industries than others. Our difficulty is both. One, to find qualified people, because if you want to find people who have not worked in the last four years, they are, and you understand what it means. To find, I will say qualified people. The second point is to keep them, because industry is not, I will say, the nicest work in this world.
I will not say that to make an assembly on a complete seat is a terrible work, but probably people would like to make some other things. We have this difficulty, and I repeat, we have this turnover of people, whatever the fact that we today, we overpay respect to the market by something like 15%-20%. Now we are in the first weeks, first months that we say, so we need really to make people loyal. This will improve week after week in the ramp-up as well. Because we have to demonstrate the capacity, we were at 250 s-cars car set, I would say in the summer. Six weeks months is more than 250.
Very rapid model, I will say the customer stopped during two days. We have to go progressively to more than 300. Like we said, progressively it will be for, I think, at the end of the year, 450 per day. It is a race and it is, I will say, in industry, the capacity to reduce variability. This is our, I will say, goal and our day-to-day work, yeah, in this plant. What is much more positive is that now we can bring people, which was not, I will say, the case until probably early October. Your second question, sorry, was?
Volatility.
Volatility at the end of December. Here, I don't know. You're very right. I don't know. We see customers, I repeat, are giving us, I will say, EDI, so signals much higher than our forecast. We think, and people say after that they cancel shifts sometimes, they cancel days. We see probably semiconductors improving, so I don't know how much will go to automotive sector because automotive sector is only 8%-10% of the worldwide need, so there are as well some arbitrage between sectors. It's difficult for me to comment what will be the trend in December. But it's a key element to secure the level of sales that we have forecasted. I cannot comment today. It will be, unfortunately, my zone of uncertainty.
That was, well appreciated. Thank you.
Thank you. Your next question comes from the line of Michael Jacks of Bank of America. Please ask your question.
Hi. Good morning, Michel. Hi. Thanks for taking my question. Following on from one of the previous questions on labor, inflationary pressures have also been building in energy and freight rates, but a lot of this has seemed to come late in the quarter and won't fully impact the second half. Outside of the EUR 20 million impact in North America, what is the magnitude of the incremental cost impact you see in Q4 versus Q3? That's the first question. The second question is, to what extent do you think that this non-raw material inflation can be passed on to the OEMs? Thank you.
Well, I don't have the figure between two quarters like this. Probably when we see the inflation, it could be up to EUR 20 million higher cost with respect to inflation.
What I can tell you is that when we see the total inflation cost that we are facing between raw material and other costs, we're speaking over 3% for the group from one year to another when we enter 2022. The management of inflation and the capacity to pass through the customer is key. Today my view is that 2022 budget will be probably impacted by something like 50 basis points due to inflation. I repeat, to be estimated with the last negotiation with customers.
Thanks, Michel. If I can maybe just ask one more follow-up on freight costs. Is Faurecia exposed in any significant way to sea freight costs? If so, do contracts tend to be concluded on a rolling basis or on an annual basis?
No, it depends on what you highlight. If I speak about transport, it is a yearly cost. As you know, we have a very, I would say, low level of, I would say, overseas transportation, and mainly from China to the other regions. We are fortunately very poorly impacted. Anyway, due to the fact that often it was a request from our customers because they didn't want to double the tooling, we are passing through on that. We speak here of a transport of something, a figure which will be roughly EUR 5 million for the group. It's not my first preoccupation. Energy, to be understood, but probably we speak of EUR 10 million-EUR 15 million for the group, as initial cost.
As well, this will be probably more tricky to pass. Well, we have one car that with our carbon neutral, etc., we are reducing our electricity consumption. Probably we'd be able to compensate and we compensate by our work productivities. This will be an inflation negative net impact. Globally as a group, I think I will compensate. Not completely sure, but I will compensate. Salary is more tricky because except we say some regions like South America, etc., South Africa, we don't normally have an indexation with customers. We see salary increase in North America, I mean in the States, over 5%. In Mexico, we have a change of the profit sharing, which is an impact of 8%. Here it is a big change of contractual clause.
Same thing, we have some negotiations in process.
Very clear. Thank you.
Thank you. Your next question comes from the line of Alexis Albert of DNCA. Please ask your question.
Hi, good morning. Yeah, good morning, Michel. Can you hear me well?
Yes.
Okay, good. Three questions on my side. First one is regarding the free cash flow. We are pretty much beginning of November, so we are close to 60 days from the end of the year. Would you confirm that your visibility on your free cash flow guidance is, I mean, 90%-95%? Am I right, like 90% you know your free cash flow today?
Well, 90%, absolutely. We have this work on inventories, which is key. Because as you know, as you say, level of inventories are purchasing, if you remember, or if you prefer, in October with the key. After that, well, we are fine-tuning the CapEx, but this is our decision. Last but not least, the only volatility I can have is the factoring of receivables.
Okay. Good. EUR 440 million-EUR 450 million is pretty much done. Second question is regarding the margin. A consensus is 6.2%. I mean, the market has been tough, a little bit tougher than you know. I mean, you talked about all that over the last 50 minutes. You know, is it fair to assume that you know, something around mid-range, is it sensible? Does it make sense or would that be too optimistic?
About what? Sorry.
Mid-range for the guidance. 6.1%, do you think it's a fair assumption, considering the production level and all the stop and goes you might get for the next two months?
My guidance is from 6% to 6.2%. Of course, my forecast is 6.1% at least.
Okay.
The only message I can give you is that I am not happy, of course, with the Detroit accident, which is limiting my margin of maneuver with respect to my guidance. It is the only message I can give today. Because usually I have, I would say, good margin of maneuver. Today is more what you say.
Okay, sounds good. The last question is regarding the bond market. To be fair, I was expecting you to announce today a financing operation with the Q3. We are getting close to the end of the year. I know the bond market gets a little bit more difficult to access from mid-November until the end of the year. When do you think we should expect the acceptance rates? Do you wait to get the acceptance rates? When do you think we should expect a bond financing operation?
As you know, I cannot comment on the date.
Yeah, of course.
I will, but I will just completely escape. I think the bond market is expecting for it, yeah.
I know it is.
Well, that means as you have understood, closing will happen in January or February. We don't give the money today. What we will do will be, I would say, pre-financing. You know that I love to reduce my risk. Of course, I will act to pre-finance the part of it.
Just do you need or do you want to know the acceptance rate of the offer, or you don't really need that information to tap the bond market?
No, well, I don't need because.
Okay.
Whatever the success, I have already to finance not EUR 4 billion, because there is a part of the family, but EUR 3.5 billion.
Okay.
I have a way to pre-finance EUR 3.5. I have a part of the cash that I can use, but anyway, I think the tender offer will be zero.
Okay.
Anyway, I have to go to the market and to finance EUR 5 billion, I would say a minimum.
Okay.
I have time.
Okay, great. Yeah.
I still have to bridge. I have time.
Okay, great. Thank you, Michel. It's all clear. Talk soon. Bye.
Thank you.
Thank you.
Okay.
Your next question comes from the line of Michael Foundoukidis of Oddo. Please ask your question.
The, the-
Hi, Michel.
Good morning, Michael.
Yeah. Good morning.
Yeah.
One last one, follow up on Alexis' questions. How should we think of the EUR 800 million rights issue? Does it depend on the success of the minority takeover? Meaning that if you don't have the 40%, you would not necessarily use this financing option.
I cannot answer, as you know, Michael, on that. The financing, it is a part of the financing, as you know. More or less 15% less than the financing. After that, we will remain agile. We want to optimize any ways of value creation for shareholders. Sorry to escape on that, but I cannot answer.
Okay, thanks.
Thank you. Your next question comes from the line of Edoardo Spina of HSBC. Please ask your question.
Bonjour, Edoardo.
Good morning. Bonjour [French]. Thank you. Good morning. I have just one question. It's about the microchips. I mean, you have a growing exposure to them via Clarion and HELLA. Some OEMs have publicly complained about how suppliers manage the chip procurement process, not about Faurecia, to be clear, or HELLA. Given your past experience with the monozukuri, do you see any risks or any signs that the OEMs are trying to do the same as the monozukuri and deal directly with the semiconductor suppliers, even just to secure their supply? Thank you.
To be honest, I don't know. Probably, yes. Some would like to be more involved, but to be blunt, I don't know.
Okay.
As you know, we are restricted about HELLA. We are restricted to speak about that, but HELLA is not buying so many semiconductors directly, but they are as well impacted, and they're managing that. The attitude of customers that we have understood is very different from one to another. Some are very aggressive to their suppliers. I don't know if it is the smartest way to act, because the days that things will come back, I am not sure that suppliers will favor the customers which are, in some cases, if I have well understood, suing them.
Mm-hmm.
Better to ask the bidders, I'll say players like Continental, et cetera, to understand better this, the market.
Thank you very much.
What I can tell you is that what has been a problem. Some fire disaster, some flood disaster, some, I will say, as well, COVID in Malaysia. For the moment, everything is resolved. So we see as a semiconductor production increasing. I don't know what will be the magnitude, because this will be important to secure 18 million car production for the last quarter, which is a figure higher than the third quarter, but still very low. We see probably some restocking in some regions like China. We see potentially, I will say an easing in consumer electronics, but too early to have a conclusion on that.
Thank you very much.
Thank you. Your final question comes from the line of Pierre-Yves Quemener of Stifel. Please ask your question.
Hello, Pierre.
Yes, good morning. Do you hear me correctly?
Yes.
Okay. Just one final back on the macro side once again. I appreciate that December is a bit far off from today's point of view, but just to speak with the months of October, how would you qualify the production flow versus the situation back four-six weeks ago? You see a significant improvement in your factories in the way that you are producing in October versus early September? Or is it still heavily disrupted and no real improvement? Thank you.
What we see is the first two weeks very much disrupted. The third week, almost stable. It is this week, a lot of closures due to the feast of Toussaint, I don't remember the name of that in English. Difficult to comment. October is a low month, if I can tell you, with respect to, as we say, this story. We don't see yet a big increase or a kind of recovery.
Okay. Thanks very much.
Thank you. There are no further questions on the line. Please continue.
Okay. Thank you very much. Thank you to all of you for your attendance. With Marc and Matthieu, we remain at your disposal for any questions. Have a very good day and see you soon. Bye-bye.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.