Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Faurecia Q1 2020 sales. At this time, all participant lines are in a listen-only mode. After the speaker presentation, there will be a question & answer session. To ask a question during this session, you will need to press star and one on your telephone. I must also advise you that this conference today, 20th of April 2020, is being recorded. I would like now to hand the conference over to your CFO Michel Favre. Please go ahead.
Thank you, Stephanie. Good morning, ladies and gentlemen. Thank you for attending this conference call. I hope all of you and your families are very well. I am with Olivier Durand, our Deputy CFO, Marc Maillet, and Anne-Sophie Jugean, our well-known investor relationship team. I will present our sales figure for the first quarter, as well as the measures taken by the group to face this COVID-19 crisis. The press release was posted this morning at 7:30 A.M. Paris time on our website, and the slideshow that I am now going to comment is also available on our website. Let's start on slide three with the key messages and an update about the current situation.
As you know, our industry, as the rest of the world, is facing an unprecedented situation, with worldwide automotive production down 23.6% in Q1 and expected to be down by close to 35% in H1, according to IHS Markit. Our customers have temporarily shut down most of their production in the countries impacted by the virus. Consequently, we have also had to shut down a large number of our production sites. To date, most of them are temporarily closed in Europe and Americas, while all sites have efficiently and safely restarted in China, even in the province of Hubei. In this context, our Q1 sales amounted to EUR 3,739,000,000 , significantly outperforming market by 390 basis points despite the strong COVID-19 impact. Reported sales were down 13.5%, including a positive scope effect of EUR 268 million from both Clarion and SAS consolidation.
Sales at constant scope and currencies were down 19.7%, outperforming global automotive production by 390 basis points. We have taken drastic measures to face the crisis with three priorities. Priority number one is to protect health and safety of all employees. Priority number two is to secure our liquidity. Priority number three is to be ready for a safe restart of production. I will comment on these three priorities more in detail in the next slide of this presentation. In the light of the crisis, Michel de Rosen, Chairman of the Board, and Patrick Koller, CEO, as well as the executive committee, have decided to reduce their salary by 20% for at least the second quarter of 2020. Last point. Due to the COVID-19 pandemic, the board of directors has decided to postpone the annual shareholders meeting, initially planned for Wednesday, May 29th, to Friday, June 26th.
Slide four details all the measures we have taken to protect margin and cash in the light of the current unprecedented situation, starting on the left column with operating margin. As regard direct production cost, measures have been taken to ensure the highest cost flexibility. As of today, close to 90% of operators are under temporary unemployment, both in Europe and North America. Regarding development costs, we have recourse to partial unemployment, and we have canceled external support and some contractors. Drastic cuts were also made to SG&A. Hiring has been frozen since the beginning of the year. Consultancy, external support, and travels have been canceled, while additional vacation days were used on top of partial unemployment. To further protect cash generation, we have set a target to reduce CapEx by 30% versus 2019, and we are carefully managing R&D programs.
Working capital is tightly managed, mostly through inventory adjustment while securing the supply chain and through strict monitoring of receivables, cash collection, and overdues. We have also increased our business awards activity according to cash criteria while maintaining a strong order intake in the first quarter. Let me now go through the three priorities that guided all our actions since the start of the crisis. Slide five is about our absolute number one priority, health and safety of employees. Since the very beginning of the COVID-19 crisis, all our teams have deployed a strict crisis management process, and number one priority has been the protection of employees. Best health practices recommendations have been widely spread all over the group, and a travel ban has been introduced.
Home office has been applied when possible, and IT capabilities have been strengthened to ensure increased needs for connectivity. A daily follow-up of the crisis has been set up to better evaluate the pandemic evolution, the production situation, the restart date per customer and per plant, as well as the condition for a safe restart of production. Slide six is about our second priority, securing liquidity to overcome the crisis and maintaining a sound financial structure. We are monitoring closely our cash position. As of March 31st, Faurecia cash position amounted to circa EUR 2.2 billion, including the EUR 600 million recently drawn from the syndicated credit line. Faurecia has EUR 1.4 billion of available liquidity through the recently signed club deal loan of EUR 800 million with an 18-month maturity and 100% drawn on April 17th. The enrolled syndicated credit line for EUR 600 million.
This amount of EUR 1.4 billion is not including other short-term bond facilities for over EUR 300 million. This strong liquidity will allow Faurecia to overcome the cash consumption during the first half of the year, while the second half should resume solid cash generation. As regards financial structure, Faurecia has a sound balance sheet with no significant short-term repayment before 2020, and an average debt maturity profile above five years, excluding of course, the recent short-term club deal loan. The average cost of our long-term debt is below 2.5%, and the covenant limit of 2.8 consolidated net debt versus last 12 months EBITDA offers significant headroom even during the current crisis. Last but not least, on slide seven is our third priority, being ready for a safe restart of production.
Based on recommendations from expert organizations, governments, and our experience in China, we have put in place a SAFER TOGETHER program that includes a comprehensive set of procedures and behaviors to be strictly followed at all plants and facilities with three main categories. Firstly, mandatory personal protective equipment, including masks, gloves, glasses, and gel. Secondly, required personal protection practices. For example, during meetings, dining, and transportation. Lastly, considerations regarding daily life. The procurement or in-house production of all necessary personal protective equipment is secured. For example, masks, for which our requirement is estimated at 2 million- 3 million masks per month for Europe and North America at 100% capacity, and of which we have bought EUR 8 million from China. We are also producing masks in-house, both in Europe and North America during the shutdown period, and we have bought four dedicated machines for mask production and full autonomy.
Finally, supplier readiness and supply chain continuity are essential for a safe restart. We are strongly encouraging close collaboration with suppliers and openly share all our internal practices, guidelines, and procedures for their own use. On April 9th, we held web conferences to which over 1,000 suppliers participated, and during which we have shared the group priorities and underlined our collaborative approach. This crisis highlights the necessity for the full supply chain to work together now and in the future with transparency and mutual support. Let's now review our first quarter sales. Slide nine shows figures at group level. In Q1 2020, sales amounted to EUR 3,739,000,000, down 13.5% on a reported basis. Currencies had a very limited negative impact of EUR 3 million.
We had a positive scoping effect of EUR 268 million or +6.2%, of which EUR 101 million from two months of consideration of SAS and EUR 168 million for three months of consideration of Clarion. At constant scope and currencies, sales were down 19.7%, representing an outperformance of 390 basis points compared to worldwide automotive production that dropped year-on-year by 23.6%. The activity slowdown related to COVID-19 impacted China through the quarter with a peak in February, and all other regions as from mid-March. Let's now start with the review by region on slide 10, Europe. Sales amounted to EUR 1.931 billion, down 12.9% on a reported basis. They included a positive scope effect of EUR 80.1 million or 3.6%. A limited negative currency effect of EUR 2.7 million. European sales were down 16.4% at constant scope and currencies, 410 basis points above regional automotive production.
This outperformance was mainly explained by our good level of activity with PSA. All three historical regions outperformed in Europe with a strong outperformance of FCM. In Europe, the COVID-19 crisis started to impact Faurecia's activities in March, with sales down by close to 40% versus March 2019, following customer plant shutdowns. We continue on slide 11 with North America. In North America, Q1 sales were down 9.2% on a reported basis. They included a positive scope effect of EUR 74.2 million, or +6.6%, a positive currency effect of EUR 27.5 million or +2.5%, mainly due to the US dollar versus the euro. North American sales were down 18.3% at constant scope and currencies, 750 basis points below regional automotive production.
This underperformance was mainly due to volumes with Nissan and Ford, as well as the effect of the Daimler end of production for Seating, EUR 35 million in the quarter.
In North America, the COVID-19 crisis also started to impact Faurecia activities as from March, with sales down by close to 35% versus March 2019. Asia now on slide 12. In Asia, sales were down 20.4% on the reported basis. They included a positive scope effect of EUR 110.6 million, mainly from Clarion contribution, representing 13.9% of last year's sales. A limited negative currency effect of EUR 2.6 million. Sales in Asia were down 33.9% at constant scope and currencies, 300 basis points below regional automotive production.
It might look strange that we underperform at the Asia level while we outperform both in China and the rest of Asia for us. This is only the consequence of our different mix of sales, China versus the rest of Asia in our sales, where China represented 56% of Asia, compared to the mix in automotive production, where China represented only 1/3 in the quarter.
In China, sales amounted to EUR 357.3 million, down 40.8% on a reported basis and down 42.1% at constant scope and currencies, 800 basis points above the Chinese automotive production. China was the first country in this world to face the crisis and close plants. Sales in the entire quarter were strongly impacted year-on-year, with a peak impact in February and gradual recovery as from March. As of today, all plants have restarted production, including in the province of Hubei, with a loading rate of around 90% to rapidly reach 100% end of May and potentially overtake this figure in June. The successful restart of activity in China, with no employee contaminated since the beginning of the crisis, will serve as an example for safe restart in other regions. Last region is South America on slide 13. Sales were down 15.2% on a reported basis.
They included a limited positive scope effect of EUR 3 million, a significant negative currency effect of EUR 22.7 million, representing 15.1% of last year's sales. South American sales were down 2.1% at constant scope and currencies, well above regional automotive production. All three historical BGs outperformed in South America with a strong outperformance of FAS. South America was the latest region to be impacted by the crisis only in late March. Sales in March were down by close to 20% versus March 2019.
Slide 14 summarize the figures by business group. Our three historical BGs, Seating, Interiors, and Clean Mobility, were in line or outperform the market. Seating sales amounted to EUR 1,401.9 million, down 23.9% on a reported basis and also down 23.9% at constant scope and currencies, broadly in line with worldwide automotive productions. Sales benefited from stronger performance with PSA and with Ford to a lesser extent.
Interior sales amounted to EUR 1,164.9 million. Sales were down 9.9% on a reported basis. They included a positive scope effect of EUR 100 million, representing 7.8% of last year's sales from the consolidation of SAS since February 1st, a slight negative currency effect of EUR 2.7 million. Sales were down 17.5% at constant scope and currencies, 610 basis points above worldwide automotive production, thanks to sales with FCA, PSA, and Renault-Nissan. Clean Mobility sales amounted to EUR 975 million, down 14.7% on a reported basis and down 14.7% at constant scope and currencies, 890 basis points above worldwide automotive production. Sales benefited from strong outperformance with Ford, GM, FCA, and PSA, and market share gain. Lastly, Faurecia Clarion Electronics sales amounted to EUR 197 million. Most of the change in sales was due to the scope effect from the consolidation of three months of Clarion for EUR 167 million.
Let me conclude this presentation with slide 15. Our sales performance in Q1 was strongly impacted by the COVID-19 crisis. It is worth highlighting that in this difficult context, we outperformed the market above our initial expectations. We have clear action plans to face the crisis. Restructured around our three priorities, health and safety of our employees, secure liquidity to get through the crisis, be ready for a safe restart of production as soon as possible thanks to our SAFER TOGETHER program. Since the very beginning of the crisis, we have taken strong resilience actions to protect both margin and cash. We were forced, because of COVID-19, to postpone our annual shareholders meeting by one month. We don't have today enough visibility and certainty on the evolution of the environment to announce new objectives for the year, but we will do as soon as possible.
Most generally, we are convinced that this crisis will lead to a new economic model that will be more focused on resilience and based on stronger collaboration and support across the whole supply chain. What I can tell you is that Faurecia has secured everything, and Faurecia is very well prepared to restart in very safe conditions, and of course, with a very good downfall. Thank you very much for your attention. The floor is now yours. Stefania, can you proceed now to the Q&A sessions?
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, please press star and one if you wish to ask a question. We will now be taking our first question from the line of Kai Mueller from Bank of America. Please go ahead. Your line is now open.
Kai, sorry. Good morning. You are very far away. Can you go closer to the microphone?
Better?
Yes, much better. Good morning.
Good morning. Just the first question is really around your outlook. I know you're obviously not willing to give a guidance right now for the full year, but can you give us a little sense when you go into the second quarter? You obviously said your outperformance was somewhat better in the first quarter. Is it fair to assume that outperformance could drop simply by the regional mix as we obviously get much weaker volumes in the second quarter and from Europe and North America? What is sort of your latest messaging with the OEMs in terms of restarts? We've obviously heard some of the Germans are starting production again. What sort of run rates would you be looking at with those customers? The second point is around your liquidity. You obviously mentioned you've announced this club deal of EUR 800 million.
It was announced on the 10th of April. You pulled all of it on the 17th of April. Why did you decide to take it all in one go? Can you give us a little bit of color in terms of what your monthly cash burn rate is under these very severe shutdown situations you've been under? A third one is really Oh, sorry, that, obviously, has it got any implications on your dividends? There was a lack of sort of mention around your 2019 dividend in this release. The last one, just a very interesting point you made on your key takeaways. The last point is, the crisis will lead to new economic paradigm based on resilience and stronger collaboration and support across the whole supply chain. What should we understand from this?
Is this your collaboration with your own suppliers, or has this got to do with the OEMs working with you as a supplier more closely in this environment?
Thank you, Kai. You have preempted a lot of questions of your peers. It's good anyway to hear you. Difficult to give you clear, because for the moment, every day we have a better view of restart of production of our customers. You have some unbalances, as you have understood, countries per countries. We see, for instance, that Germany is reopening their wholesaling activity from automotive. What will be key? It will be, of course, restart of production of customers, but it will be as well what will be the restart of retail sales. For instance, we had a very positive signal in China in March, where retail sales were only down by 43%.
I don't want to say that it will happen in Europe or North America, but this will be as well a key figure to avoid a stop after that stop and go. It's complicated today to give you a clear figure on that. You know that, for instance, we are overexposed with Volkswagen, so it will be very important to see how Volkswagen will manage their volumes, of course, and how, for instance, the PSA as well will manage its volumes. It's too early to say something. The only good signal for us is that thanks to our close customers like Volkswagen and PSA, we have outperformed the market almost everywhere. We know that North America, the underperformance will be eliminated. I don't know if it will be the second quarter or at the latest the third quarter.
Clearly, we are thinking outperformance, but we need to have a better view on our, I will say, next week's, month's, I will say, sales. I cannot tell you on the restart because restart with things that are changing, as they are more and more precise from many customers, many of the German ones. We know when they will restart. We know how they think to restart and when shift to shift, et cetera. We have a good view on that. We need a better view from some other customers. This is a key. I anticipate on your last question, of course, in the supply chain where Tier 1, Tier 2, et cetera, are very important, it's very important to work together. It's very important to check that in this crisis, some suppliers have not collapsed. It was the reason of this convention last week.
All our purchasing guys are working closely with suppliers to check that they are able to restart, I can tell you that many customers are doing the same. This integration inside the chain, including the safety, is key. Liquidity. We have always been disciplined. We are always managing the worst case as a principle. We decided to accelerate on a club deal to secure, I would say, all the bad scenario. It pays off. I think it's a minimum to do when we have this duty to manage a big group. This club deal was a clear opportunity. I thank again the four close banks for [audio distortion], who has accepted to make this EUR 800 million. It was made in one week. One week, one half week. Very quick.
This is giving us the full flexibility, liquidity we need, whatever are the conditions. Now, speaking of working capital, we are in the worst case. That means we are month of April, very weak. Month of April are the cash in of June, when for the purchasing, we have one month delay respect to receivables. We are paying March, and we are paying March, including the stock in transit, because as you know, the stoppage was brutal. We will have one month of the connection of the disturbance in the working capital, which will be fully recovered in the second half. I can give you a figure of something like EUR 700 million cash burden. On the top of that, we have the fixed cost. You know that fixed cost are more or less 18% of the sales.
We have 75% variable cost, 18% fixed cost, including depreciation amortization. We had more than 7% operating margin. In this fixed cost, we will be probably able to flex more than 50%, including depreciation. Depreciation will not be flexed, but it is inside the figure. Anyway, that means EUR 120, something like that, cash burden, cost and cash burden. It depends on the duration of the crisis. This is a brutal impact on our both cash and operating margin, which means to complete my guidance, that unfortunately, if you compare to budget or mainly to last year, we will lose sales and significant level of sales with a 25% contribution, which will be a big shock for the group. Seeing that, the last question is dividend. We postpone the shareholder meeting due to the visibility and uncertainty.
Of course, board will make the decision on dividend at the right time. Of course, board will make the right decision. I cannot tell anything more.
Perfect. That's very helpful. Thank you very much.
We will now be taking our next question from the line of Sascha Gommel from Jefferies. Please go ahead. Your line is open.
Good morning, Sascha.
Hi, good morning. Thank you for taking my questions. The first one would actually be on the ramp-up and productivity and the lessons you have from China. How should we think about the ramp-up? In your comments, you said very good drop through once you ramp up again. I'm just trying to understand how that works and how you think about that, because I guess that's very crucial that we see good productivity across the board in the industry in order to bring up earnings and cash. The second question would be on your cash burn in Q1. Your cash position went down from EUR 2.3 billion to EUR 2.2 billion. There's a EUR 600 million debt impact, but you also had the payout for your SAS joint venture, if I'm correct. How does that compare to the last year number in the first quarter?
Can you give me a little bit of a sense there? Thank you.
Thank you, Sascha. Ramp-up in China, it was quite quick, as you see. It was quite quick. What was a little, I would say lazy, I don't know if it is the right word, was, of course, the province Hubei. The rest of China was starting at a quick pace, and we were surprised by this figure, a bit of -45% in retail sales. We are better than that in China as a sales. We were surprised. April are the same way. As I said, May will be close to our budget figures. In June, if I take what we have received from customers, that is very important, should be over the budget. It is a good message. China is not Europe, we have to be careful. For the moment, we can say that the restart is important, significant, and robust in China.
After that, we see what will happen in Europe and North America, and what will be, I will say, the level of recovery existing to pass. Going to your question, I am not competing with you for Q1. I think for the cash, as you have mentioned, we have the impact, including IFRS 16 for Seating and be a small, I would say, contribution to Symbio, is EUR 100 million for the level of debt, if you mentioned that. We have a small cash consumption, but we are much better than last year, if it is your question. No big concern in Q1. My concern is Q2, and to be transparent, my concern is mainly end of May and June, due to this brutal stoppage. The fact that we will have to pay anyway the suppliers of March, when we will have very limited cash in in June.
Okay. Maybe follow up on the first question. How do you make sure that productivity is the same given that you have to adhere to social distancing rules in your plant? Can you really be as productive as before in working in the ramp-up situation?
You're right, because we are managing 2 m distance between the operators. We are managing, of course, the protection mask, et cetera. All of this has been organized. All of this is a reality in China. We have the chance, sorry to say that China was a kind of experimental case. What I am speaking is not theory. It is what we are doing today in China. In China, we were able to protect the productivity, because it's more an organization on the lines. When we speak of difficulties, it was clearly on the assembly lines. The rest is nothing. Cut and sew, no problem. Assembly lines, usually, we are able to manage this distance. We don't see today, we have not identified any problem on that. The second point, we have cut costs everywhere.
The first volume will be clearly, it is our goal, close to my margin on variable cost, that means 25%. If you remember in the past, our track record, we were at 20% achievement in the years of, I will say, 2012 to 2013, sorry, to 2016. We have as well a track record on that.
Okay, perfect. Thank you very much, and all the best.
Thank you, Sascha.
We will now be taking our next question from the line of José Asumendi from JP Morgan. Please go ahead. Your line is now open, sir.
Morning, Sir. Good morning.
Morning, José.
José with JP Morgan. A few questions, please. Can you tell me a little bit more about the CapEx cut in 2020? A little bit the progression between first half and second half. I suspect first half is going to be more pronounced in terms of the CapEx cut versus the full year figure. How far can you flex CapEx in the first half? That will be the first question. Second question, you already alluded to a lot of the numbers, but as we think about your breakeven point on EBIT margin, how far must sales drop in order for you to hit that breakeven level in terms of EBIT margin? The third question is around Clarion restructuring. Obviously, sales are difficult. Can you just give us an update please on where you stand on Clarion and how quickly can you restructure this asset?
Is there an opportunity to restructure the asset quicker than expected, initially? Thank you.
Can you repeat the last question, because I don't understand your question about the asset.
Clarion restructuring.
Okay
whether there's an opportunity to restructure the asset quicker or not.
Okay. Thank you. CapEx. Firstly, as you know, we have not started to cut costs in March. We are permanently accelerating things. We were starting the year on a, I will say, good situation, for instance, for headcounts, for cut in some consistencies, subcontractors things, et cetera. This has been amplified, of course, or systematic, if you prefer, in March, but we are always with better cost base and continue to reduce the cost base. On CapEx side, first half, I don't know if we will be already at -30%, but it will be close to the -30%. For the full year, I can ensure you that we'll be at -30%. We have screened all our CapEx. In a situation like this, we don't need any, of course, I will say, volumes. We have only to protect the new programs.
We are able to manage this 30% reduction, which means probably CapEx at something like between EUR 400 million and EUR 450 million group level. Your second question on EBIT. I have given the figures, 25% more or less on the, I will say, lower sales. Plus some impacts on the fixed cost that we cannot fully viabilize, unfortunately. Altogether, you have seen probably the figures of IHS, and you know like me how to make the figures. We secure two for IHS at -45% worldwide, but mainly -55% in Europe. Q2 will be complicated. I cannot give you today the figures, very precise figure. We will fight to keep a positive operating margin that is not today completely secured. I have to be transparent. It is a priority, but it will be a real daily fight.
Your last question about Clarion, we are making the restructuring, we are making the reduction of people as forecasted. The complexity of the current situation is that it's complicating the downtime period, et cetera, to dismiss people to make new restructuring plan. We are preparing things. We will do as quick as possible when things will be more clear. We have already fortunately what we have achieved, which is already a big step, and we'll add some others according to the high timing.
Thank you. Thank you very much.
Thank you.
We will now be taking our next question from the line of Stephen Reitman from Societe Generale. Please go ahead. Your line is open.
Good morning, Stephen.
Yes, good morning. I have two questions. First of all, in terms of how you're budgeting and you're forecasting, how accurate are your internal forecasts when compared to the IHS numbers when they come out? Are you able to be ahead of them in terms of actually seeing how fast the decline is coming and adapt accordingly? My second question, obviously Faurecia was very resilient in 2018, 2019, and I think that was helped by the fact that you had very much prepared for declines in the market, and you had plans in place in order to react very quickly. I'm wondering to what extent you modeled declines in the market and how you've been able to adapt these plans then clearly for much greater crisis we've seen today.
Very good question, Stephen. Since mid-March, we have no procurement request or very poor procurement request from our customers. We were making simulations. We have always what we call, as usual, a base case and a worst case. We were, if I take the last figures of IHS, our base case was before worse than IHS. Now we are close, slightly more cautious than IHS, as we are, because we are discipline and we want to be cautious. Our worst case is of course much worse. We were anticipating that, if it is your question. We were anticipating, and Patrick was always saying, "We have to be clear.
We have to take an assumption where even if May could not be work, in order to be prepared and to see what are all the options to be taken. I cannot say we are totally prepared, but we are clearly anticipating these kind of things since March. If you go back now to our stress case, my stress case were with -30% volumes, but it was -30% volumes with, I will say, a regular impact. Here we are speaking of an impact of -100%, going back to progressively better figures. Second half will be much better. If I take IHS, Europe is -10%. It's not the same to manage a -100% and a -10%, or to manage a full year at -24%, as IHS is forecasting for the full year.
Clearly, to be transparent, I was not prepared to face a -100%, which is not only to variable as cost, which is to eliminate and to see how we address this cost problem using, for instance, downtime and using what are subsidies from customers on this side. It is a complete, I will say, different scenario. I don't know if I have answered to your questions.
No, that's very clear. Thank you.
The shock for the industry and for all the industry will be clearly what I have mentioned. It is the loss on the margin variable cost, plus what the industry is able or not to variabilize at fixed cost.
Clear. Thank you.
We will now be taking our next question from the line of Victoria Greer from Morgan Stanley. Please go ahead. Your line is now open.
Good morning. Just two from me, please. Firstly, your factoring facility, I guess I would assume that stays around the EUR 1 billion level that you've done for some time. What is the cost of maintaining that? Is it costing you more to get those sale of receivables done? Also, I guess same question on the reverse factoring. Then secondly, are you seeing anything yet change about plans for new model launches from the OEMs? We've seen a couple of headlines that some of the U.S. OEMs are thinking about delays. Is there anything in there that we should think about, please?
Yes. Good morning. Thank you for your question. You have, I think, two questions. First is factoring volumes.
Factoring volumes, it's clear that with no sales, no factoring. My line of factoring, which was close to EUR 1 billion the end of March, will drop. Probably end of June will be more at EUR 700 million than EUR 1 billion. Due to the fact that sales will come back, but on a progressive mode. We are mainly factoring sales in Europe and North America. The two impacted markets, most impacted markets at that time.
Yeah.
On cost side, no change. For the moment, no change. I think I have given a figure. We are more or less at 2.5%. 2.5% plus on cost of factory. No change on that. Reverse factoring. No change. One thing, anyway, we are protecting the limits per customer because, for instance, some big customers have asked some big lines. Suppliers are asking as well an extension for this customer. In this period, credit limits are key. We are protecting our credit limits with our banks. Reverse factoring, the cost is not for us anyway.
Don't forget that it's for our suppliers. We have not been advised of any change on that. Reverse factoring, we continue to deploy that, which is important as well on the industrial processes. I think in this world where our suppliers will need money, it is the fantastic tool I was describing before. There is no problem on the Faurecia signature, as the club deal is securing competitively the Faurecia signature. We know that for the banks, Faurecia is not a problem. reverse factoring of this kind is fully secured for our suppliers, which is very important. On the new models, we are trying to see first what will be the decision of our customers, because some programs could be even canceled or simplified. It is marginal. We have already some, I will say, news on that.
We are checking as well if it will be delayed, because we would like, of course, to reduce our R&D cost.
Currently, we think that our growth R&D will be reduced minimum 10%, potentially 15%. We have to see if customers have lost weeks, even one month, even one and a half months. This is under review, customer by customer, program by program, to adjust, first, our timing, second, our cost. What I can tell you is that Faurecia is not jeopardizing any program in this world. We are a very large supplier, and of course, we will secure all these programs for our customers, which is important because I think the customers could face some other difficulties with other suppliers. Same thing, we check that our suppliers will be able to continue to contribute to these programs.
Thank you. The factoring EUR 700 million at the end of June, and I guess that ticks back up through H2, assuming that everything is running more normally.
Of course.
Yeah. Thank you.
We will now be taking our next question from the line of Giulio Pescatore from HSBC. Please go ahead, your line is now open.
Hi, morning.
Morning.
Just one for me. Hello. Hey, can you hear me?
Yes, please. Go ahead.
Okay, perfect. Yeah. Just one question for me. On the OEM, have you seen any phenomenon of stocking up on parts ahead of the shutdown of the plants? If you have, what is the impact that that is going to have on a recovery as things progressively go back to normal in Q2?
You mean that there are some inventories is what you want to say?
Yeah. If OEMs have increased their inventories of parts and the impact of that.
Probably, they have some inventories, firstly, on supply. Because they were stopped brutally. Probably they have some inventories, I think probably limited. The second thing, they will adjust their production according to their future sales. This could is as well a parameter that they manage and we manage, to understand how fast the recovery will be. It will be according to customer by customer as a decision they will take probably in May. One thing, because we have seen that from some customers, they prefer to postpone a little their restart in order to manage that. They prefer not to restart now, I will say late April, but to restart more the first week or the second week of May to absorb that.
Each customer has its own view on this and is clearly taking into account the level of inventories they have everywhere in the chain.
Okay. Thank you.
We will now be taking our next question from the line of Gaetan Toulemonde from Deutsche Bank. Please go ahead, your line is now open.
Good morning. It's Gaetan.
Morning, Gaetan.
I want to understand a little bit better the operating leverage. Traditionally, approximately 20%. If I do my math correctly, EUR 2.5 billion lower revenues in the first half, order of magnitude costs you or has a negative impact on the operating level of EUR 500 million. When you stop everything, when you reduce transportation costs, when you can make savings there, can you help us to better understand the true number behind that 20%? Is it going to be worse? Is it going to be more, knowing that for a couple of months you stop everything and part of that is reimbursed by different governments? Can you help us to clarify that a little bit?
Yes. Gaetan, I try to make the exercise as I am making. That means I am making my delta through respect to last year and to budget. I am losing, as you say, a certain level of sales, depends on the scenario, et cetera. I am losing 25% on margin on variable cost. The first impact is 25%. After that, I have my cost management, where I try to variabilize everything. I have the bonus from last year. Not to forget it. Altogether, the target is to lose maximum 25%. It will be difficult to lose less.
Okay. That's clear. Okay.
I repeat that this indicator of margin of variable cost is key to analyze all the impact on the industry.
Okay. Second and last question. Knowing that in the second quarter, most of the plants are shut down and you have payables, receivables, which is reasonably high, what is going to be the cash burn at the end of H1, order of magnitude? Knowing that in the first quarter is your order of magnitude of EUR 600 million or EUR 700 million.
Due to the working capital impact, and some factoring impacts, et cetera, I think the risk is to burn EUR 1 billion or even a little more.
Okay. Only that. I was working with much higher number. Okay.
EUR 1 billion, sorry. A problem.
No, I know, but you have a very high payables, very receivable. You're going to do less factoring, and my numbers would have been much higher. Okay, that's good enough. Thank you.
We are fighting to do what we have to do.
On total H1.
Yeah. H1. We speak H1.
Okay. That means that the peak will be at the end of May, and you expect some recovery for the month of June. Is that correct? Yes, correct.
Because of the factoring.
Okay.
Because June will be important to recover factoring. Factoring will be lower end of May. Which is obvious because we'll have almost no sales, which is not completely true, but almost no sales in April. We'll have a progressive recovery in May, according as you know, you have some dates given by customers, starting in late April, May, et cetera, but progressive. May sales will be low as well. June will be better. After that, there are some different curves of recovery to be confirmed.
Okay. Thank you.
It's a pleasure.
We will now be taking our next question from the line of Tom Narayan from RBC. Please go ahead. Your line is now open.
Morning, Tom.
Hi. Yeah. Tom Narayan. Thanks, a question. Maybe a follow-up on Gaetan's question. The 25% contribution margin, I think you said that was based off of 18% fixed costs. This seems to be kind of a better fixed cost structure, or at least lower fixed cost than some suppliers who have contribution margins closer to 40%, and they've said that recently. I know you can't really talk about other suppliers, I was just curious, maybe if you could give a little color on why your guys' fixed costs are lower maybe than others. I don't think you answered Gaetan's question on how that changes when you get support from the government through the short term, the wage relief. Maybe any color on how those contribution margins may change because you're getting some fixed cost reduction from the government.
Are there restrictions on your ability to pay a dividend if you're getting government support? Those are my questions. Thanks.
Okay. First, why different of cost structure? It's not the same for a process, I will say, activity and for an assembly activity. Faurecia, as you know, we have a big part of modules. For instance, cockpit seats, when you take only the activity of cockpit seats, margin of variable costs are much lower.
If you take an activity of processes like e-mobility, we are higher. It depends on the type of activity and the content. What is the assembly content? Usually, assembly means lower margin of variable cost, but much lower CapEx as well. It is a normal game. It is due mainly to the DNA of Faurecia. We are a module, for a big part, a module activity. If you compare to peers. We have no aftermarket activity, which could be as well, which could inflate this part. Seeing that our third parties who subsidies, I don't know if the word subsidies is right, because we are stuck because of decision of governments. I don't know if subsidies is the right word. Anyway, we have, of course, a lot of downtime. I mentioned close to 90% of the people.
This is clearly covered by the different governments, not everywhere. We have as well some, I would say, difference of reality. In U.S. is more what is called lay-off than downtime.
Yeah.
Whatever. That is the same impact on the P&L. We are using that. If your question is on dividend, I don't think that there's a trigger on dividend for that.
Okay. If I may, just one quick follow-up, and I know you don't talk about your OEM customers, but are you seeing maybe at a high level, any difference between the performance or orders between your premium customers versus maybe mass market customers? I know you made a comment on a couple of OEMs in your presentation impacting numbers, but I'm just curious, maybe if the thesis here is that perhaps premium may be faring better than mass market, given the nature of the furloughs on labor and the layoffs may be more kind of affecting mass market versus premium. Any commentary on that?
No. We cannot have any comment because we were brutally stopped in March. We have no learning, sorry to say that, about what could be the trend of the market. What I can tell you only is that March in China, but China is not Europe, the mix was clearly in favor of the international OEM.
Okay.
It's the only thing I can tell you.
Okay. Thank you.
The fact that Germany will probably reopen before the others will boost probably as well the mix of the market.
Okay.
Anyway, it's too early. I think the first thing will be when, whose sellers will be authorized country per country to reopen, which is key because if we are an activity, we need that our customers will sell. Second, what will be the rhythm of recovery in a world where, of course, purchasing power will have been affected, but on the other way, probably people don't want to take so much of the public transport. We don't know. We need a minimum of experience to see how fast this recovery will be. What is strange, is that we are in the same curve as you take the IHS now. We are in the same curve as the 2007, 2009. If you take 2018, 2020.
Yep.
Which means that we can be optimistic, but not this year, but for the years after.
Right.
We will now be taking our next question from the line of Stephanie Vincent from JP Morgan. Please go ahead. Your line is now open.
Thank you very much for taking my question.
Hello.
A couple of modeling questions and then just a macro one, please. Can you discuss, if you haven't already, your outlook for cash restructuring for 2020, and potentially 2021? I think it's helpful, you've discussed a lot about working capital, but can you talk about your working capital balance either as an absolute number or as a percentage of sales when you ended March? My last question is just your outlook on government policy and certain programs. We've heard from IHS, for example, that they're talking about potentially deferment or scrapping of electric vehicle programs in U.S. and potentially some phasing changes for the EU CO2 programs. Is that something that could affect your business or that you're on the lookout for?
I will take your last question first. I have to go back to your first. For IHS, there are some risk on some electric vehicles programs because there were too many programs in this world. There were probably too many fragile companies starting on this. It's clear that the number of programs on electric vehicles will be reduced. Too early now to say something on that. Probably some companies will disappear. Going back now to the working capital. Our working capital, traditionally, before factoring, we have 6% working capital, I will say. I don't see any big change on that. Now, of course, there will be some short-term disturbance, but there is no reason not to come back at this level, even better, in the second half. Your first question was, sorry?
The first question was on cash restructuring, your expectations on that.
Yes. Today, I maintain the EUR 120 million- EUR 130 million cash out for the full year.
Cheers. Thank you very much. Appreciate it.
No change on that. We don't change our restructuring program. Even we could accelerate a little.
Okay. Thank you.
That was our final question for today's call. I would like now to hand back to Michel Favre. Please go ahead.
First, thank you again for your attendance. As I said, we fight, and we are prepared for the restart. This group is under control and I think very well managed. Our next rendezvous will be this new shareholder meeting, the 26th of June, and of course, the half year results in July. Thank you, and sorry to use expression, take care. See you soon. Bye-bye.
That does conclude our conference for today. Thank you for participating. You may all disconnect.