Earnings Call: Q2 2021

Jul 25, 2021

Good morning. I wish you a very warm welcome to our H1 2021 results presentation. We will, with Michel Fabre, our CFO, we will provide the takeaways and our guidance for 2021. So if I start with the H1 highlights. So despite adverse impacts related to shortage of semiconductors and raw material inflations, We were able to deliver a very strong €7,800,000,000 of sales, up 32% on an organic basis, We delivered an EBITDA margin of 14.2 percent and an operating margin of 6.6%. Michel will show you the very strong operating leverage we delivered, our budget and is allowing us to significantly deleverage our net debt to EBITDA ratio of 1.5x as of June. The target of sourcing decisions were delayed To the second half, we are on track to reach our €26,000,000,000 target for the full year. New perspectives with especially unsuccessful spin off, which allowed us to achieve 83% of chairs owned by our employees. We also focused on 0 emission hydrogen solutions and ESG strategy, and I will be back on this in a few moments. We strengthened our financial structure, including green bonds at a level of €400,000,000 We upgraded our full year 20 €1,000,000 We upgraded our full year 2021 guidance on So if I start with the order intake at €12,000,000,000 in the first half, We had a very strong activity with FOX-1000000000. China represents 25% of the total order intake, of which 67 with Chinese OEMs. If you take our top 10 customers in China, 5 are Chinese and 5 are international. And inside these top 10, We have 2 electric vehicle specialists, an American and the first Chinese is BYD, and he is in number 3 position. I think that here we have in China a very strong portfolio and very robust portfolio. Forrester Clarion Electronics represented €1,300,000,000 which is confirming our full year 2021 commitment at €2,500,000,000 Battery electric vehicles represented an excess of 20% Of the total order intake, 24% if we would include SYMBEO. Hydrogen represented €280,000,000 of Order intake confirming again here our full year 2021 target of at least €500,000,000 We also have to speak about our launches, which were successful. We launched about 100 and 20 new vehicles in H1 2021. While we did that, we also worked on accelerating our momentum for hydrogen, and you see here a few highlights. In February 2021, we signed a partnership with Renault for hydrogen storage systems for light commercial vehicles. In March, we supplied Stellantis with fuel cell stacks and hydrogen storage systems for light commercial vehicles, preparing the launch, the serial launch of these vehicles for the end of this year. And in May 2021, we won a contract with SAIC in China to provide hydrogen tanks for commercial vehicles. You see on the right hand side that in April, we also Took the majority stake in CLD and leading Chinese manufacturer of hydrogen tanks. By the way, it is the only Our supplier today being homologated for tanks level 4. Stellantis spin off went pretty well. We have now a significant free float. We are included in the CAC next 'twenty and this effective March 22. We also were very successful with our Forrezza employee share ownership with a significant subscription rate, 22%, while the benchmark is at 16%, so which showed you the confidence our teams have in our plans, our strategy, our future. In addition to our acquisition, I would like to speak about DesignLED. DesignLED is a Scottish company, which is specialized in advanced backlighting technologies. Accelerating our ESG initiatives. So first of all, on scope 1 and 2, where we have very clearly The target to be CO2 neutral in 2025, we are continuing to deploy our plants. We added to Schneider Electric KPMG and ENGIE In order to achieve the right level of PPAs, the purchasing of green electricity, We also started to deploy in our different plants. This has to be done fully done in all our plants until 2024, which means that we will equip all our plants with its own production of electricity, which will represent globally around 15% of our needs. And I think that in doing this and also putting in place the financial tools which are allowing us To accelerate with partners the deployment, we will deliver our target. We had our 1st global event celebrating diversity and inclusion with more than 70 trophy winners across 22 countries and more than 100 nationalities. For Asia Foundation, we have sponsored 11 new solidarity projects worldwide out of a shortlist of 30 initiatives. All these initiatives are coming from our employees. They are staying the sponsor of these initiatives if they are selected. This is Working very well, and we have very nice projects ongoing. Michel for the financial review. Thank you, Patrick. Good morning, ladies and gentlemen. I will start with the technical slide. It is to remind you that we are in the process to sell our ST, that means Acoustics and Softstream Business, So the closing should happen this quarter. Of course, according to IFRS 5 norm, we have restated the 2020 figures. And for 2021, you will see the result in one specific line in the profit and loss statement. Going now to the sales. We have put this slide because it is showing what has happened in the market Quarter after quarter. So of course, first half twenty twenty was a big disruption with the lockdowns. You see the quick recovery Mainly in Q4 2020 and the disruption due to the shortage of semiconductors. You can see auto production was down by 11% when we compare the volumes of H2 2020 respect to this semester, I will say 2021, it is minus 13% If you compare the volume of production respect to the first half twenty nineteen. Whatever this impact, we posted sales By minus 7%. So it is an outperformance of 400 basis points with respect to the last semester. And more important is operating margin. Whatever the fact that we were losing more than €700,000,000 of sales, I repeat, €700,000,000 of sales, we are able to improve the operating margin from 6.2% second half twenty twenty to 6.6% this first half. Going now to the sellout performance. Difficult to comment because geographic mix is key. The Q1 was with, I would say, Strong, better Europe and lower Asia. The opposite is the 2nd quarter, which was clearly impacted, I will say very positively this year. Sorry, it was a comment from last year. So we have a huge geographic mix in the 2nd quarter. This explains the +-sixty 1.7 percent sell respect to the production of 54.1. When we go to the first half, we are more balanced. We see a low geographic mix. Whatever this point, We outperformed the market by 170 basis points. I have to mention that this outperformance was despite some Adverse customer mix, you have seen that 4th For instance, which was the 2nd customer of Forresia, cut a lot its production. I have to mention that a small currency impact of 5%, 5 percent to €266,000,000 in this first half. With the trend, we can confirm the expected outperformance for the full year, 600 basis points minimum for this full year. Operating margin. As I was saying, very good performance and boosted, of course, if I compare to last year by the volume, as a recovery of volume. And it sizes recovery of volumes. We have our good performance and our capacity to maintain even improve as a gross margin by product. We suffered from the raw material price increase. Whatever the fact that the pass through was something like 70%. We had an, as expected, an adverse impact of €25,000,000 And I can anticipate that we are putting the same figure In our forecast and guidance for the second half, we have a very big figure of cost cutting, €177,000,000 I would say only €30,000,000 is downtime. Main part is restructuring. Another part is a Strong discipline throughout the group in a period where volumes are limited. So this €177,000,000 of course, We continue to inflate the expected operating margin of the second half. On the right side the right path, sorry, you can see that we have One two one offs. 1 is the cost and link with the employee shareholding plan, the Aesop, €14,000,000 compensated by the fact that we have a very positive ruling as expected in Brazil for the PISCOFINS, which is a tax On sales, and we were recovering €13,000,000 So altogether, no impact has no one off impact this first half. Going now to the Business Group. Sitting as expecting, big outperformance of 400 basis points. We were expecting an higher outperformance. But due to the customer mix, it was only 400 basis points. It will accelerate a lot in the second half. Why? Because we have some very important start up of production In the Q2 with a full year impact, as you know, the main one is a Jeep Grand Wagoneer composite in the States, and we have as well the Nissan Frontier. We have we'll have later in the year some frames and competencies for Daimler and BMW. With that, we can confirm the expected 700 basis point outperformance for the full year minimum. Margin wise, 6.6 percent with a fall through of something like 25%. We expect that City will post a 7% of interiors, interiors on one side was more impacted by Ford for the This was the 1st customer of interiors. But whatever Ford, we were able to make an outperformance of 180 basis points, mainly led by BEVs, and this is BEVs, from a very well known American BEV customer. Margin 4.9%, so recovering from, I would say, loss last year. We have, I would say, a full True of more than 40% for the entire year's activity and which is good as well, margin is improving Respect to the second half twenty twenty. We expect for the full year that margin for, I will say, interiors will be something like 6%. Chain Mobility was as well affected by the 4th cat Production cut in the States, so a very slight underperformance of 70 basis points. Whatever that, very good margin, 45% fall through. We are closer to a double digit margin, And we clearly think that we will post a double digit margin this year. So very good performance of Clean Mobility. Clari Electronics was the most impacted activity due to the semiconductors. Direct impact from some other costs, Close to €10,000,000 indirectly passed from the fact that we were protecting our OEM. So we have sacrificed some other channels like aftermarket with more than €20,000,000 loss of activity. And this part is very profitable. It is why you see that operating margin was slightly negative. In fact, it is slightly negative only because we are, I will say, ultimately, the cost to, I will say, put our system IT system in place. For the full year, Of course, the Kisladion will still suffer from the semiconductor's progressive recovery. But Altogether, we think that we will be at something like 2% or 2% to 3% operating margin for the full year. Going to regions. Europe was by far the most affected region. When you see 3.8%, I think we should see with a full recovery 20% at least more. So we were with 29.4 percent up, slightly outperforming the market by 120 basis points With the margin of 5.4%, up 50 basis points respect to the second half, 8 80 basis points respect to last year, We have a full through of 35%. When with this 5.4%, if you think that Sales will increase only by 15%. With the 15% fall through, we are already at our 7% expected. So this 5.4% is At the end, a very good result. North American as well very much impacted by semiconductors and mainly by Ford. So it is why we have this slight, I will say, underperformance of 120 basis points. Whatever that, we have a Strong recovery of the operating margin with respect to last year, 3.4 percent plus €135,000,000 or if you prefer, a full crew of 47%. Now I have to mention that this 3.4% is reflecting some lack of composition of downtimes. And unfortunately, there were a lot of downtimes with a very short notice in the States. Now we expect for the full year a 6% margin in Europe, 5% margin in North America. Asia, by far, has the best performing zone, mainly in China. You see the outperformance in China, 4 50 basis points. And as Patrick was mentioning, mainly BVs, local BVs, Chinese BVs and as well, one American. So this outperformance is clearly, I will say, the sign of our dynamism is the fact that we are gaining significant market share. For that, we were able to recover double digit margin, more than close to 11%, Up 70 basis points compared to H2 2020. So very strong results, very good fall through. We say that all the indicators in China are in green. We have merged South America and the rest of the world because Clearly, the weight inside the group is decreasing. We are speaking altogether at 4%. You see a lot Stronger performance, but it's probably part of the pass through of, I would say, currencies and raw material. But what is important is, Of course, we have the €13,000,000 PISCOFIN contribution. But putting that apart, we are above 8% margin. And what is more important, we are in Brazil at 6%. And I think in this context, to make 6% in Brazil is a good performance. This slide is very important, not only because figures are improving. You see more than €600,000,000 of the gross margin, more than 600 basis points, but it is showing how we are managing and driving our improvement. 1st, we are protecting our marginal variable cost, our gross margin. And we are protecting that through, I will say, the pass through of raw material. All I will say improvement of execution and digitization. And we have a very good, I will say, achievement on the labor cost. 2nd, we are controlling strictly our cost. You see the R and D. And please think that the first half twenty twenty figures were very low. Now of course, we leverage in this, I would say, achievement the locus base that we have in India, Poland and Mexico, but mainly India. And please notice that capitalized activated R and D has poorly evolved whatever the low base. And more important is a fixed cost management, the sales and administrative expenses. To have Flattish figure, I think, is a very good performance. This is, of course, reflecting all the efforts of restructuring we have done. So also you understand why we have improved our operating income by €610,000,000 and by 8 20 basis points of sales. Net income, I will not comment all the lines. What is important to notice is first restructuring, euros46,000,000 more limited figure, mainly as the 2 closures of Ford Plants. But anyway, we have to continue to make our work. So we keep for the moment, As I said, I will say the guidance of €120,000,000 Second point, it is The net income from discontinued operations €31,000,000 On one side is the operating Margin negative. On the other side, it is the expected loss on the sale of the asset. And I would say for the other points, income tax 27%. I think we will Clearly renewed as this percentage in the second half. Net cash flow. It was As I said in April, we were in advance in our road map. We have a very good, I would say, working capital management. And Clearly, this figure is showing the performance of Florencia on this side. Of course, it is coming from, So I will say the recovery on the EBITDA at 14.2%. I remind you that 14% is a level we are expecting now Inside the world medium term plan, we have contained CapEx and they keep the fact that CapEx will be for the full year Below €550,000,000 probably around €500,000,000 We have contained as well as the activities guaranteed. Our respect to the figure I show you, These are the activation which will be amortized. There is a part which will be sold to customers. And we have, of course, I would say an exceptional cash out of restructuring, a little less than we were expecting. So we are today on a very good, I would say, on map. And on working capital, sorry, is very easy. Sorry to say that. The 2nd quarter sales were below the last quarter 2020 sales. So it's normal to have an inflow. So with this road map, we can, I will say, improve our guidance without any problem? And of course, our guidance is to be much over €500,000,000 for the full year. Deleveraging is a priority. We are in the good way now with a ratio of 1.5. You see in this map that we have, of course, dividends. We have the share purchase for the Aesop. Now 28th July, our employees will subscribe. So €87,000,000 inflow will be booked For the second half, the net financial investments are mainly as our acquisition in Hydrogen in China, the famous company Silt. So altogether today, I can clearly give you the guidance that will be Around €3,000,000,000 of net debt at the end of the year, we see a ratio between the ratio of 1.3, maximum 1.4. We were very active on financing. We have made, I would say, a tap, which is called a tap. More important, we have issued a green bond. I think we were the 1st in the sector to issue green bond and we saw a lot of success And totally subscriber, we have as well renewed our syndicated credit facility at 5 years in 2026 With better conditions, and we have extended it to €1,500,000,000 Our cost of net debts are below 3%. We have no major repayment before 2025. As you know, we lack maturity. We lack flexibility. We have too much liquidity. I shouldn't say that, but we have too much equity for €3,000,000,000 But we have some coal if we want to reduce that. So I will say we have a very sound, very robust, I will say, financial structure. Now I will hand back to Patrick for the conclusion of this presentation. Thank you. Thank you, Michel. The guidance for 2021, and maybe I'll start with the sales. We haven't changed our volume assumption for the full year, which means that we have increased the volumes for the second half at 39,000,000 vehicles. This allows us to keep our sales target as previously announced with a strong outperformance we confirm, which will be above 600 basis points. Maybe one comment about the shortage of components of electronic components. We believe that we touch bottom in the second quarter and that we will see a gradual improvement in the months to come and finally, exiting this crisis around the end of the first half of next year, but again, with a gradual improvement in the 6 months to come and the following ones: our operating margin, we confirm it at circa 7% of sales, and we have improved our net cash flow, which is now above €500,000,000 and a net debt to EBITDA below 1.5x at year end. In fact, Michel spoke about €3,000,000,000 of net debt, I hope, and we will do whatever we can to be below €3,000,000,000 The takeaways. So in H1, we delivered a strong financial performance with an Outperformance of sales of 170 basis points. Strong operating margin, thanks to efficient operating leverage, you saw it 36%. Deleveraging, thanks to a strong cash generation, and I told you before, this is a clear Priority to us, the cash generation and the deleverage of our debt. A solid order intake for future profitable growth, which is allowing us, and this is my conclusion, to confirm our 2022 and our 2025 targets and ambition. The deployment of new perspectives allowed us to increase significantly our free float to 83%. It allowed us also to improve the share owned by our employees at 2.9% or close to 3%. We are focused on 0 emission hydrogen solutions, and we are doing it quite successfully, also through the acquisition of CLD in China, and we will continue to do M and A in this field. We are delivering on Faurecia's ESG strategy through our ambitious CO2 neutrality program, which is perfectly on track, and recent successful assurance of green bonds. The guidance we just spoke about it. So we are confident to be able to do what we say and to deliver our guidance, even if The volumes might be smaller than the ones I announced. We have a backup plan in order to deal with whatever event we will have to face. Thank you. And now I'm opening to the questions. Any question on the phone? Yes, we have a question over the phone. Victoria Greer from Morgan Stanley. A couple for me, please. The first on Klaviyen. Could you give us a bit more color on the chip shortages? Should we think about this mostly as a top line impact or also as a cost impact? And what are your assumptions for the second half that should see that improve? And the second question is around consolidation in the industry. We've obviously seen some moves already, and there is some press reporting suggesting that Tresia might be involved in one of the situations. I expect that you probably don't want to comment on any specifics, but could you talk structurally about how you see your M and A priorities the next few years? Do you see yourself as Consolidators, are there any particular technologies you'd look for exposure to? And how would you think about the potential leverage in a consolidation scenario? About Clariant and how Clariant has managed the crisis. So the first thing is that We benefited from our intimacy with the vendors in Japan, which eased under the management of the crisis. We have not stopped our customers. We had a few incompletes, which were build up very quickly in a week time. So we managed the situation quite well. This said, We have cost increases. The components have shown on price inflation, which is between 10% to 20% depending on the type of components. What we also had, we suffered from shutdowns from our customers, not related to us, but related to other electronic suppliers. And finally, and this is what Michel said. In order to protect our customers, we transferred volumes from our dealer options and aftermarket businesses to the OEM business, which, of course, had an impact on the margin. Again, what I see from what Claro is reporting, I do believe that we touched Bottom in the Q2, and especially May, June were very critical months. I see that the things are improving. The demand is more rational, and new capacities We'll start in at the end of Q3 and in Q4. Consolidation, you are right, but we do not comment rumors. But you asked for M and A priorities. We would like to add to our portfolio activities, which have a significant profitable growth. We want to have new growth drivers. It's clear that electronic is a significant Part of this, especially whatever is related to electric vehicles, whatever is related to ADAS and autonomous driving, but also reinforcing what we are doing in the cockpit electronics. And consolidation, maybe this is one thing. If we would have on our Metiers opportunities to consolidate and to reinforce our leading positions, we would consider it. It is clear again that we want to have leading positions in all our METAs. And could you talk about how you might think about leverage in a scenario like that? Would there be an upper limit that you would think about? Now I don't want to comment this type of process. All of that is also depending on opportunities on the market. What we will make sure is that we would be able, in whatever case, to deleverage Very quickly back to onetime net debt on EBITDA. Gabriel Esler from Citi. Please go ahead. Thank you for taking my questions. Good morning. It's Gabriel Adler from Citi. My first question is on working capital. The working capital inflow that supported your cash generation in the first half looks to be mainly driven by higher cash payables. I think your payable days are now around 170 days compared to about 140 days last year. Could you just comment please on how Sustainable this level of fuel trade payables and how much of the increase was due to additional reverse factoring of payables? And then my second question is on R and D. The net R and D remained flat year over year and actually declined as a percentage of sales. Could you just remind us of how you expect R and D to trend going forward? And how long do you think this sort of level of R and D It's sustainable for all. Thank you. Okay. Thank you. Good morning. So as I said, the working capital is not going to have any flow when the sales are down. Normally, we have all any flow of the companies. So we have no big change on the suppliers because we have some increase from, I will Say, monolithic, etcetera, which has a little inflated, which are not in the sense as you know according to IFRS 15, but which has a little inflated our Suppliers, but no big change on that. What I can tell you is that on the inventories, we were able in the last quarter last year to decrease inventory. And we have no major increase of inventory during the Q2. Whatever the fact that we face, some, I will say disruption or somewhere we say stop, stoppage with very short notice, mainly in the states. Going to R and D, We have, I will say, the pressure of electronics on one side, the hydrogen on the other side. We have, as you say, this plan That's progressively and this is important for Clariant, we continue to increase our base in India. So I maintain that normally year after year, we'll have a pressure between 10 to 20 basis point increase of R and D weight inside the P and L. But also to be clear on R and D, We continuously work on reducing our average hourly rates, and this through offshoring. We are continuously working on reducing the number of hours per application project. And this, through digital productivities, including data driven productivities. So the target is very clearly to converge to a stable amount of gross costs, which will allow us to reduce our application costs and to transfer the savings to innovation. Michael Jacks, Bank of America. Please go ahead. Hi, good morning. Thanks for taking my questions. I just have 2. The first one is just on CapEx. If you can please just give some color on the key drivers for the reduction that we've seen and whether or not this will be need to be made up in 2022. And if you could also please just clarify on the guidance. If I understood correctly, you mentioned it would be close to €500,000,000 for the financial year, Where in the release it says below €600,000,000 that's the first question. And then second question is just on the factoring of receivables. With net debt now reducing and free cash flow guidance increased, is there any view to perhaps use make less use of factoring? That's the first thing. And What is the net cost of factoring at the moment? And does this come through the operating income line item? Michel, I'll take the first one. You take it to next one. CapEx. So the first thing, what we have to take into account is that the volumes are not growing. We are still below the 2019 volumes. So the CapEx we are spending is mainly related to increasing our new standards and increasing our digital productivity in our plants. The fact that we have now more and more standards, which are not specific to one program, is allowing us to work on capacity productions. And this will continue to be the case, and I think that this will allow us to make further savings on the CapEx in the years to come. When I said the CapEx for your guidance, I said €500,000,000 So that means €300,000,000 cash out is the second Alf, so we are back to the €600,000,000 guidance expected, if you see the right. For the net cost of the factoring, we are something like 2.2%, 2.3%. So it is slightly below the cost of our debts. Thank you. And because we have no cost on the reverse factory, As I said often, it's not our contract. It is contract from our suppliers. We only facilitate that. Thank you. And just to clarify, the factoring of receivables, that 2.2%, does that come through operating income? Of course. Sorry, no, no, of course not, because this is a financial expenses. It's a financing. We'll now take our next question from Tom Narian from the Royal Bank of Canada. Please go ahead. Yes. Tom Narian, RBC. Thanks for taking the questions. Could you help us understand your raw material contracts and exposures? What you expect for H2? Most interested in steel, aluminum, those sorts of items. And then next, Are you would you say you're over indexed to Ford in North America versus other OEMs? I know gaining market share in North America The key part of your Capital Markets Day outlook you gave us. And finally, if I could just sneak this in. Could you help us understand the strength in margins in China in H1? What specific growth sorry, products drove that? Thanks. If we speak about raw materials, The total increase we face in the first half is about €80,000,000 the net impact of raw materials in H1 is about €25,000,000 And we expect the second half to be at about the same level. And this is clearly mainly TL and plastics, but mainly steel. Ford in North America, Ford suffered more than its colleagues in North America from the shortage of components. And this had an impact on us, of course. But this doesn't mean that we do not count on the rebound And that we have to put in question the plans we had in terms of growth in North America. For China, the operating margin, all our business groups are improving first. And why? Firstly, volumes on one side. Secondly, if you remember, we were implementing a big restructuring cost, Merging plants, etcetera, and this is clearly paying. So we have what I could say as well, but it is not only true for China, but for the group. The new business has a big we have a bigger number of startup production. These new businesses are starting for the group At above 8% margin. And for China, it is a double digit margin. So the contribution of these new programs is quite huge for the group. And not to forget that The American electric vehicle producer in China is starting to have a significant impact. We are one of its big suppliers, And this is why it is now part of the top 10 of our customers. It's also the case of Li Auto, which is also an electric vehicle builder, the OEM, with which we have a very significant share of supplies. And I think that this is working very well. I spoke about BYD. I could also speak about CCAG. I could speak about FAW. I think that these ones are the ones which are helping us to continue to develop our business in China. Okay. Thanks. See, if I could just follow-up. Is Ford are you over indexed to Ford in North America? Do you mean that we are too Post to Ford, this is what you mean in terms of sales? Yes, relative to other OEMs in North America, Are you over indexed or under indexed? Ford is certainly one of our big OEM in America, But we are reducing our exposure while growing with the 2 other big OEMs in the U. S. Giulio Pescatore, Exane. Please go ahead. Hi. Thanks for taking my question. So the first one on the margin, the guidance For 2021, there seems to be quite a few things that should improve sequentially in H2. Of course, Ford is one of them, but you mentioned Some compensation from downtime that did not really happen in H1, some dramatic adjustments that didn't happen in H1. And also, you mentioned aftermarket being Deprioritize in H1, and that could help margin H2. So I mean, if we put all this together, the guidance does feel a little bit conservative. Where am I wrong? Michel, you are the financial guy. That's not a question for me. Okay. I don't know what to answer. You're right. But you're right, if I will say we take every impact. Of course, our guidance is cautious, but we have to be cautious. And to be at minimum 7, as you know, That means that we have to be very confident to be at 7.2%, 7.3%. If you don't mind, respect to the recovery of semiconductors, It's a little early to speak of an increase of the guidance. I think that we have to wait at the end of the third quarter to have a clear standing of the gradual recovery I spoke about. And I think that until then, it makes sense to be prudent with the volumes. Okay. Can I just I don't know, like, ask a second one? On clean mobility, can you maybe share the shareholder intake for that business because I mean, it gets a lot of attention from the market? And Maybe comment on the profitability of commercial vehicles and high horsepower and the growth in those segments versus passenger cars. The profitability of our clean mobility commercial vehicles is at about the level of the passenger vehicles. But what is interesting on the passenger vehicles too is the fact that OEMs are reducing the number of engines they are considering and they are using in our 1, 2 platforms. These platforms will have an extended life cycle. And this is very good for us because when you are on these platforms and as we are the leader on this market, We are on most of them. It is changing the business model. And The ability of this business will be enhanced through this new reality. On high horsepower, we are looking especially on how we might deploy our hydrogen activities and benefit from the intimacy we have built with the different customers. And we are considering here maybe a little bit more emergency stationary power stations. Okay. Thank you. Can I just maybe squeeze one last one? I saw that you created this cross divisional business line for the development of sustainable materials with a target of €3,000,000,000 sales by 2,030. Can you maybe elaborate a bit on that? Yes. We have activities already on biosourced materials for our interior business. We are doing foams on our FASS, so automotive seating business. So we have resources which are dealing with formulations everywhere. The idea here is that we have the competency to develop, to formulate materials Related to transformations, we are doing. So we have both competencies. We understand what is the process and what the process is capable of including viability reductions related to digital applications. And on the other hand, we believe that the value We'll be in the capacity to make available in larger volumes the feedstock. So we think that as we did it With hydrogen, it is the right time to invest in these sustainable materials in which we also include some more sophisticated approaches on smart materials, self healing materials, for example, or antibacterial materials and so on. Sachin Gommel, Jefferies. Please go ahead. Good morning. Thank you for taking my questions as well. The first one is, again, on the margin, on the gross margin. Michel, can you quickly explain how you kind of managed to get the margin up Like by 100 basis points despite revenue being down €700,000,000 compared to the second half of the year. Was there anything in terms of product, regional mix Or anything that we shouldn't consider as sustainable in the first half? So it's a very good question. Thank you, Ma'am. We have firstly, we have the full year of the restructuring cost. 2nd, we have a clear improvement of the labor, I will say, activity, so we say lower weight. Before that, we have what we've just called the VAVE, that means value added value engineering that we are accelerating and paying. But as you say, apart is due to the start of, we say, new products, improving Clearly, the margin respect to the previous products. I think we have to consider 2 things. The cost on one side, We spent money on restructuring, which allowed us and Michel spoke about to keep the SG and As at the level of H1 2020, where you understand that in the frame of a crisis, we reduced our cost drastically. And on the other hand, we have improved our profitability at acquisition time. And this, again, is related to all the efforts we are doing in terms of productivity, in terms of squeeze management and especially using digital and data related productivities. Okay. Very clear. And then I have a follow-up question on M and A. You mentioned kind of Your priority in terms of growth in high or high topical growth areas, so EVs, ADAS, does that specifically then Any M and A activity in Seating and Interior? Or would that not be the case? No, I said that we would also consider consolidating the market in the midyear in which we are already strong because it is generating synergies. It's a low risk activity, and it would reinforce our leadership position in the different markets. We would consider both as long as the opportunity is of a good quality. Perfect. And then my very last question, quickly on the other receivables in the balance sheet that went up sequentially, both kind of other operating and other receivables. Any reason for that given that sales came down? You have in the receivables, don't forget that you have what is called the other sales. On one side, You have SAS. SAS is €800,000,000 of sales, but administratively €4,000,000,000 And as you know, we have 1 month of scope. We have the increase of the Monolith sales, which was a big increase. And this as well is inflating both receivables and payables. No impact on the inventories. Martino D'Ambrogi, Equita. Please go ahead. Thank you. Good morning, everybody. The first question is on the order intake. You collected €12,000,000,000 in the first half. Just to understand where do you plan to close the gap with the €26,000,000,000 guidance for the full year in terms of geographies, in terms of divisions? And The second and the third question are more strategic. One is on the sensitivity to electric cars. I mean, in your business plan assumption, you assumed a certain penetration of electric cars. Could you provide sensitivity to a different assumption in terms of penetration of electric cars? Because it seems that in the past few months, all the carmakers are pushing on this side. So just to have an idea what And the last question is on the Foxconn Stellantis agreement. It was announced some months ago. I understand it's not your job, but what are the implications for your business that you can assume today? So Order intake, we are €12,000,000,000 versus €26,000,000,000 So what I can tell you is that we are perfectly on the trajectory we forecasted, we budgeted. And this despite, as I said, a significant amount of sourcing decisions which were delayed to the second half. So we feel confident that we will be able to achieve the €26,000,000,000 Now where The only thing I can tell you is, because this is what we announced, €2,500,000,000 with eclione Electronics. We are at €1,300,000,000 in the first half, €500,000,000 on the hydrogen side, and we are at €280,000,000 so far. And so we will €1,000,000 so far. And so we will continue to overperform and continue to fuel our future growth exit of 2021 above what we have budgeted. But all the business group will benefit from this order intake. Electric vehicles, we planned for 2,030 and 30% of full electric vehicles being built. What you have to understand that this means For Europe, about 50% of full electric vehicles in 2,030. I haven't seen so far any forecast which is more aggressive than this one. I think that we have to take into account the infrastructure which has to be invested in order to make sure that consumer will follow. I would like just to share with you my understanding of what Ursula van der Leyen said, she said that we should stop producing ICEs in 2,035 If in the different countries of Europe, the adequate infrastructure would be in place. And I think that this is very wise. I think that, yes, we go in this direction without any doubt, and we are confident that this will happen. But it will need most probably some time to synchronize the capacity OEMs have to build and So for the moment, we don't see any reason to increase the 30% we have on a global on a worldwide basis. Foxconn, maybe I should start saying that Foxconn is telling the market that cockpit electronics is fundamental, which is perfectly aligned with our strategic assessment. Foxconn is more on or wants To be more on the hardware and wants to develop software, but in other domains, in the zonal approach and in body controllers, which is not directly in competition with us. Jose Sommendi, JPMorgan. Please go ahead. Good morning, Fabio Michel. Jose, JPMorgan. A couple of questions, please. The first one, can you speak a little bit around this 127,000,000 Brazilian actions in the first half, a little bit more the details behind that? And Sorry, could you please repeat the first question because it was difficult for us here to understand it? Yes. If you could give a bit more details behind the resilience actions. I think it's €177,000,000 bigger You reported in the first half on how we should think about this figure for the second half as this figure was quite strong in the first half? 2nd, Patrick, can you speak a little bit around Clarion? I would love to hear any details around either on the product development or low speed data. Any new progress there on product development? And on Klarion order intake, if you could comment on the Yes. Any notable orders, maybe new clients or so that you are managing to bring on board? And then the third one, Patrick, also on design LED On this company, correct me if I'm wrong, but it looks like the company could have some patents for extra non LED applications. Is this the right case? Is this the case you think you could develop this business on exterior LED For the coming years. Thank you. I will take the first question. Thank you and good morning, Rose. On resilience action of cost reduction, what we have, we have, of course, as you know, last year, we accelerated Clana, so we have a lower cost base in the second half. We have €30,000,000 downtime Is this first half that normally should not happen in the second half? But altogether, you can take Half of this figure, so something like €80,000,000 cost cutting for the second half. So about Clariant. On low speed ADAS, and especially on the autopark and valid parking and so on. When it comes to fusion between ultrasonic and cameras, We are the leading player, but very much deployed in Asia with the Japanese OEMs And now starting also with the Chinese OEMs. We continue to deploy Our sales in America, we have significant growth in America. We were lagging behind last here in Europe. And we will be able at the end of the year to show you that we are also taking off in Europe with our big OEMs. So I think that on the order intake, on the portfolio, we are enhancing it continuously. And what is, for me, very important with Clariant is that we have not lost one single project because of technology. So we might, in some cases, have refused to go down with the prices for good reasons, maybe for bad reasons, but we have never lost one single business because we were not at the expected level in technology, which is for me very encouraging. Design led. We bought Iris Tech, and now we buy design led. What is the purpose of all of that? We want to be able to promote to propose to our OEMs display integrated solutions with the highest possible performance in terms of image quality, but also in terms of low energy consumption. And these companies are contributing to that. These companies are techno companies with patents, as you said, with a very high level of technology. And this is what is allowing us because we were a new entering company in the display field, We immediately went on the larger displays because we did also the right acquisitions on the coatings and all the surface treatments. We recently, for example, entered into a partnership with Corning for glass and cold forming of these glasses. So I think that we have here The network, the ecosystem, which is probably one of the best today to offer this high level of technologies. And we sold them to people who are very demanding like Daimler, for example. And this, I think, is an approach we will continue to have. We will continue to scan the market to find possibilities. Now is design led capable to use its technology outside of the automotive industry? Yes, but we are a pure automotive player. If we can value the patents, we will consider it. We are considering it, by the way, because Clariant has a very significant portfolio of patents, which is extremely interesting and valuable. Thank you. We'll now take our next question from Stephanie Vincent from JPMorgan. Please go ahead. Hi. Thank you so much for taking my questions. Stephanie Vincent from JPMorgan. I just had a couple. One is on Credit rating, just when I go through some of the commentary of some of the other OEs that are in the high BBB or low BBB area, most are Targeting the same sort of leverage metrics that you are around 1 to, let's call it, 1.5 times. You've got similar cash flow, Yes. Faurecia is a little bit lower rated in the mid BB area. Can you provide some commentary in terms of your discussions with the rating agencies, what exactly is causing that? Is it The trajectory for working capital, I believe management has discussed that before or is it some aspect of how your On track actually are struck versus some of the other high double B players because there does seem to be a disconnect there. And just on M and A, thank you so much for talking about the one time leverage target area. Could you also discuss your views in terms of capital allocation? Do you have a, I guess, clearly outlined focus for this extra free cash flow generation. You've talked about going below €3,000,000,000 of net debt, how you would allocate that Towards M and A or dividends as well? I think that will be helpful for credit investors. Okay. Thank you, Stephanie. Sorry, you have everything inside, which is the presentation I made for Investor Day of end of February. So we have no change. So what we have said first is that we are in the rally to continue to improve the rating Regularly, it was what we did since 2013, gaining 1 notch every 2 years. So we target with all our strategic plan goals, with all our figures and improvement of figures to be investment grade, Probably 2024, 2025. It has not changed. One key parameter to do that will be to continue to enhance The industrial profile and to convince we did that with Southern Post, we are still to convince Moody's that we have a strong industrial profile. And what you see is the track record of figures is showing it. On the target of leverage, as Patrick said, it's a normal target that we have to have a minimum of depth To be efficient on the capital, I would say, structure, so to have a minimum one. But anyway, 1 is a normal, I will say, ratio that we would like to have through the cycle. Going to the capital allocation, I remind you that 40% is for dividends and to neutralize, I will say, just a buyback, 60% is for bolt ons and deleveraging. And just to follow-up as well, I guess, on your net debt target of less than €3,000,000,000 by year end, can you make Any commentary in terms of your outlook, I guess, for the Schulzheim notes, which are the ones that are coming to the larger sort of bulk of unsecured debt That's coming to you. Is that something that you're expecting to roll over? Or will you pay that down with excess cash flow? One thing, so €3,000,000,000 if you take all our figures and the expected cash flow, Plus the fact that we will research shares is a little mechanical. I'm sorry to say that, and to be blunt. 2nd, on the debt management, I will not commit today on what I will do on the call, not call whatever. But clearly, I have said that we have considered that €3,000,000,000 of liquidity is a little too high. It's a little bit too high. But here again, I think that we are prudent and that we will wait until the end of the Q3 to understand better how the market will rebound because the market will rebound. We'll take now our last question from Thomas Besson It's Thomas Seynl at Kepler Cheuvreux. Sorry, I missed part of the presentation for Different reasons. So I hope I don't ask questions you already addressed. The first is about hydrogen. I've seen your Orders in 'twenty one, can you remind us your cumulative orders and tell us how much you need to have In cumulative orders, to be able to reach your €500,000,000 revenue target for €25,000,000 That's the first question. The second question, And I would like to come back to the comments you made about the share of EVs in Europe In 2,030? I understand the rational side of your comments. Patrick, unfortunately, the market is It's not necessarily always rational. And he's in the mood to think that BEV share could be more like 75 85% in 2030, even if it may not happen. Could you tell us what kind of flexibility you have, If ever, certainly, governments or private companies managed to install sufficient number of charging points. And certainly, everybody wants to drive that kind of vehicle. And last question, we've talked a lot about What you may do in terms of M and A activity, I think it's a particularly a topic that becomes hotter and hotter by the day. Could you tell us whether you would eventually consider raising equity if you have to do a deal that you don't want to miss Perfect, partner. Thank you. So H2, we are €280,000,000,000 To achieve our targets, we need to complement in the second half our order intake by €220,000,000 And this is the number We need to achieve our midterm target, and we are confident that we will be able to do this. BEVs and what is happening in Europe. First of all, the 2,035 is real or might be confirmed for Europe, not for the other regions. Europe is representing 25% of our sales of clean mobility. So we have, I think, a significant business which will remain even after this period of time. We are thinking about reorganizing our clean mobility business and especially making it on Chinese activity on Chinese legal entity, which will allow significant flexibility on how we will manage it in the years to come, taking into account what might happen on the marketplace. But I'm saying it again, we should not underestimate the infrastructure. I think it was quite easy to convince consumers to switch from diesel to gasoline, from gasoline to hybrid, it's a little bit more difficult to convince them to go to full electric related to some constraints you have on the use cases, which will have to be lifted in the years to come. And I'm not convinced that the cost convergence will happen as it was announced or even it is announced in the moment. But we are not resistant to it, okay? So we and I said it, we believe in 0 emissions. This will come, and we need to be agile and capable to react to the events which will pop up and which will happen on the marketplace. And I think that we have a plan, which will allow us to do so. M and A, yes, if we would have an opportunity which would be of high interest, we would considering raising equity, yes. We will, of course, manage our debt, I'm saying it again with the perspective to be able to deleverage, I would say, 3 years to be back to net debt on EBITDA at around one time. If we do not have more questions, we might we have a question here. We have questions by Internet, so I will read it. I will present, sorry. The first one is from Stefan Puter, BAM France. Do you see scope for the group to participate in large scale sector consolidation? And as your strategy for key mobility in Clariant change Given the faster EV adoption and more and more in sourcing announcements in electronics. I think that it is very clear that when you are active in the electronic field, electronic and software, You have to take into consideration the changes in the future electronic architecture. What I believe is that this architecture is known. All the OEMs will not go there at the same But finally, everybody will converge to this type of architecture, which means More computing power embarked, better connectivity with the cloud and a zonal approach for the electronics. So more software and less decentralized electronics. We are considering each of our segments and are making sure that we measure the risks we have. And what I can tell you is that with the Clariant Electronics today, We believe that we have a very little risk with the exception of IVI, but where we are not very big, which might become a commodity. And this is related to the Foxconn question I had a little bit before. I also would like to tell you that during our CMD 2 years ago, 3 years ago, we spoke about battery packs. At the time, we considered it and abandoned it the year after because of the little added value we could bring. Today, battery packs are different because you put the battery cells directly in the final battery pack, which will be assembled on the car. We are now back on these technologies with a cooling system which is completely new, very innovative, including temperature sensors, And I hope to be soon able to present to you these technologies. So we are continuing also to check what can we do on the electric call slide. Patrick, there is a second one from Gilles Guillaume, Reuters, how do you see the trajectory for the BEVs and hydrogen vehicles wait, sorry, in future for this asset? So we spoke about hydrogen and our target. This is unchanged. I think that if electrification would further Accelerate, it would be good for battery electric vehicles. You will hear people telling you that Hydrogen is the best solution for the heavy mobility, which is true. But what we are seeing on the market is that all light commercial vehicle makers are considering dual power, batteries plus hydrogen. And I think that this is probably the way to significantly accelerate the introduction of hydrogen. This, for example, is a perfect solution for pickup trucks in America. So I think that We will have to be on both, and we will have to continue to work on the hydrogen side, which is doing well. We have technology. And we will be on the market with Sierra production at the end of this year. And on the electric vehicle side, we are working on the electronics, and we are working on the battery pack. And I will be back to present this to you in the few months to come. Thank you very much. I would like to Thank you for your attention. Thank you.