Earnings Call: Q1 2020

Apr 20, 2020

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Faurestas Q1 twenty twenty Sales. At this time, all participant lines are in a listen only mode. After the speaker presentation, there will be a question and answer session. I must also advise you that this conference today, 04/20/2020, is being recorded. I would like now to hand the conference over to your CFO, Michel Fabre. Please go ahead. Thank you, Stefania. 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 Duran, our Deputy CFO Marc Maillet and Asofie Jejon, our well known Investor Relations team. I will present our sales figure for the first quarter as well as the measures taken by the group to face this COVID-nineteen crisis. The press release was posted this morning at 07:30 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 Quebec. In this context, our Q1 sales amounted to 3,007 and €49,000,000 significantly outperforming market by four ninety basis points despite the strong COVID-nineteen impact. Reported sales were down 13.5%, including a positive scope effect of €268,000,000 from both Clarion and SAS consolidation. Sales at constant currency were down 19.7%, outperforming Global Automotive production by four ninety 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 And 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 Rosanne, Chairman of the Board and Patrick Coller, CEO, as well as the Executive Committee, have decided to reduce their salary by 20% for at least the second quarter of twenty twenty. Last point, due to the COVID-nineteen pandemic, the Board of Directors has decided to postpone the Annual Shareholders' Meeting initially planned for Wednesday, May 29 to Friday, June 26. 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 corner with operating margin. As regard direct production costs, 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 of some contractors. Drastic cuts were also made to SG and A. I think it has been frozen since the beginning of the year. Consultancy, HR 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 20 19, and we are carefully managing R and D programs. Working capital is tightly managed mostly through inventory adjustments while securing the supply chain and through strict monitoring of receivables cash collection and over dues. 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 of one priority, health and safety of employees. Since the very beginning of the 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 situation, the production situation, the restart date per customer and their 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 31, Forester cash position amounted to circa €2,200,000,000 including the €600,000,000 recently drawn from the syndicated credit line. In addition, Faurecia has 1,400,000,000 of available liquidity through The recently signed Club D loan of EUR 800,000,000 with an eighteen month maturity and 100% drawn on April 17. The undrawn syndicated credit line for EUR 600,000,000. This amount of €1,400,000,000 is not including other short term bond facilities for other over €400,000,000 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 to 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 law. The average cost of our long term debt is below 2.5% and the covenant limit of 2.8 consolidated net debt versus last twelve 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 gels. Secondly, required personal protection practices, for example during meetings, dining and transportation. And lastly, considerations regarding daily life. The procurement or in house production of all necessary personal protective equipment is secure. For example, masks for which our requirement is estimated at 2,000,000 to 3,000,000 masks per month for Europe and North America 1 Hundred Percent capacity, and of which we have bought €8,000,000 EPN units 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 mass production and full autonomy. Finally, supplier readiness and supply chain continuity are essential for a self restart. We are strongly encouraging close collaboration with suppliers and hopefully shares all our internal practices, guidelines and procedures for their own use. On April 9, we added web conferences to which over 1,000 suppliers participated and during which we have shared the group priorities and outlined our collaborative approach. This crisis highlights the necessity for the whole 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 twenty twenty, sales amounted to 3,007 and €39,000,000 down 13.5% on a reported basis. Currencies had a very limited negative impact of €3,000,000 We had a positive scoping effect of €268,000,000 or plus 6.2%, of which €101,000,000 from two months of consolidation of SAS and EUR168 million for three months of consolidation of Clarion. At constant scope and currencies, sales were down 19.7%, representing an outperformance of four ninety basis points compared to worldwide automotive production that dropped year on year by 23.6%. The activity slowdown related to COVID-nineteen impacted China for 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 1,000,000,009 and €31,000,000 down 12.9% on a reported basis. They included a positive scope effect of €80,100,000 or 3.6%, a limited negative currency effect of €2,700,000 European sales were down 16.4% at constant scope and currencies, four ten basis points above regional automotive production. This outperformance was mainly explained by our good level of activity with PSA. All three historical BGs outperformed in Europe, with a strong outperformance of FCF. In Europe, the COVID-nineteen crisis started to impact ForeSet 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 74,200,000 or plus 6.6%, a positive currency effect of €27,500,000 or plus 2.5% mainly due to the US dollar versus the euro. North American sales were down 18.3% at constant scope and currencies, seven fifty 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 sitting €35,000,000 in the quarter. In North America, the COVID-nineteen crisis also started to impact forestry activities as March, with sales down by close to 35% versus March 2019. Asia now on Slide 12. In Asia, sales were down 20.4% on a reported basis. This included a positive scope effect of €110,600,000 mainly from Clarion contribution, representing 13.9% of last year's sales a limited negative currency effect of €2,600,000 Sales in Asia were down 33.9% at cost of scope and currencies, 300 basis points below regional automotive production. It might look strange that we underperformed at the Asia level, while we outperformed 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 one third in the quarter. In China, sales amounted to €357,300,000 down 40.8% on a reported basis and down 42.1% at cost of corporate currencies, 800 basis points above the Chinese automotive production. China was the first country in this world to face the crisis in closed 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 employees contaminated since the beginning of the crisis, will serve as an example for safety starts 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 €3,000,000 a significant negative currency effect of €22,700,000 representing 15.1% of last year's sales. South American sales were down 2.1% at photoscopic currencies, well above regional automotive production. All three historical BG's outperformed in South America, with a strong outperformance of Pfaff. 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 summarizes the figures by business group. Our three historical businesses, seating, interiors and clean mobility, were in line or outperformed the market. Seating sales amounted to €1,401,900,000,000 down 23.9% on a reported basis and also down 23.9% at constant scope and currencies, broadly in line with worldwide automotive production. Sales benefited from stronger performance with PSA and Wizzford to a lesser extent. Interior sales amounted to €1,164,900,000 Sales were down 9.9% on a reported basis. They included a positive scope effect of €100,000,000 representing 7.8% of last year's sales from the consolidation of SAS since February 1, a slight negative currency effect of €2,700,000 Sales were down 17.5% at cost of scope and currencies, six ten basis points above worldwide automotive production, thanks to sales with FCA, PSA and Renaudisat. Claim mobility sales amounted to €975,000,000 down 14.7% on a reported basis and down 14.7% at constant scope and currencies, eight ninety 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 EUR197 million. Most of the change in sales was due to the scope effect from the consolidation of three months of Clarion for EUR167 million. Let me conclude this presentation with Slide 15. Our sales performance in Q1 was strongly impacted by the COVID-nineteen crisis. But it is worth highlighting that in this difficult context, we outperformed the market above our initial expectations. We have clear actions planned to face the crisis: restructure around our free 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 resilient actions to protect both margin and cash. We were forced, because of COVID-nineteen, 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. More 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 a very safe conditions and of course with a very good DAFO. Thank you very much for your attention. The floor is now yours. Stephania, can you proceed now to the Q begin the question and answer session. We will now be taking our first question from the line of Kai Mueller from Bank of America. Sorry, good morning. You are very, very far away. Can you go closer to the mic? Yes, better. Good morning. 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, 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? And 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 €800,000,000 It was announced on the April 10. You pulled all of it on the April 17. Why did you decide to take it all in one go? And can you give us a little bit color in terms of what your monthly cash burn rate is under these very severe shutdown situations you've been under? And then a third one is really obviously has it got any implications on your dividends because there was a lack of sort of mention around your 2019 dividend in this release. And then the last one, just a very interesting point you made around your 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 is this got to do with the OEMs, working with you as a supplier more closely in this environment? Thank you, Kai. You have presented a lot of questions of your peers, but I try to. But it's good anyway to hear you. Difficult to give you a clear because for the moment, we have every day, we have a better view of restart of production for our customers. Now you have some unbalances, as you have understood, that countries by countries. We see, for instance, that Germany is reopening as selling activity from automotive. So 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%. But 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 staff, after that, stop and go. So 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 this volume. So 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 you will the second quarter or at the latter, the third quarter. But clearly, we are thinking of performance, but we need to have a better view on our, I will say, next weeks, months, I would say, sales. So I cannot tell you on the restart because restart with things are changing as they are more and more precise from many customers. I mean, this is German ones. We know when they will restart. We know how they think to restart, when shift to shift, etcetera. So we have a good view on that. We have to we need a better view from some other customers. So this is a key. And it was I anticipate on your last question, of course, in the supply chain where Tier one, Tier two, etcetera, 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. So it is it was the reason of this convention last week. All our supply purchasing guys are working closely with suppliers to check that they are able to restart. And I can tell you that many customers are doing the same. So this integration inside the chain, including the safety, is key. Liquidity. Have always been disciplined. We are always managing the worst case as a principal. So we decided to accelerate on the club deal to secure, I will say, all the bad scenario in case of. And I think it's a minimum to do when we have this duty to manage a big group. So this scheme deal was a clear opportunity. I think, again, a foreclosed bank for SCR, who has accepted to make this EUR 800,000,000, it was made in one week, so one week, one point five week. And so I have very quick. And this is giving us the full flexibility, liquidity we need whatever are the conditions. And now speaking of working capital, we are in the worst case. That means we have we will have we have, sorry, month of April, very weak. Month of April as a cash in of June, when for the purchasing, we have one more delay respect to receivables. We are paying March. And we are paying March, including the stop in transit because, as you know, the stoppage was brutal. So 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 700,000,000 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 25% valuable 75%, sorry, of valuable cost, 18% fixed cost, including depreciation and amortization. And we have more than 7% we had, sorry, more than 7% operating margin. In the 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. But anyway, that means EUR 121,000,000 something like that cash burden cost and cash burden. So it depends on the duration of the crisis, but this is a brutal impact on our both cash and operating margin, which means to complete my guidance, that opportunity, if you compare to budget or to mainly to last year, we will lose sales and significant level of sales with a 25% contribution, which is which will be a big shock for the group. Seeing that, as Larry discussed, dividend, we postponed the short term meeting due to the visibility and uncertainty. So of course, Board will make the decision on division at the right time, but 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 Gomel from Jefferies. Please go ahead. Your line is open. Good morning Sascha. Hi, good morning. Thank you for taking my question. 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? Because in your comments, said a 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. And the second question would be on your cash burn in Q1. So you had the your cash position went down from 2.2 from 2,300,000,000.0 to €2,200,000,000 There's a €600,000,000 debt impact, but you also had to pay out for your SAS joint venture, if I'm correct. So 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, Sacha. Ramp up in China, it was quite quick, as you see, yes? It was quite quick. What was a little, I would say, lazy alternative, it is the right word, of course, the Promise de Roubaix. But the rest of China was starting at a quick pace, and we were surprised by this figure, a repeat of minus 45% in retail sales. We are better than that in China as a sales. So it's we were surprised. April are on 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, it is very important, should be over the budget. So it is a good message. China is not Europe, so we have to be careful. But 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, I will say, recovery in this to pass. Going to your question, I am not competing with you for Q1. I think for the cash, Javier mentioned that we have the impact, including IFRS 16 for SIS and be a smaller, I would say, contribution to St. Bio is EUR 400,000,000 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. So no big concern in Q1. My concern is Q2. And to be transparent, my concern is mainly May and June due to this brutal stoppage and the fact that we will have to pay anywhere the suppliers of March when we'll have very limited cash in June. Okay. And then maybe follow-up on the first question. So how do you make sure that productivity is the same given that, I mean, you have to adhere to social distancing rules in your plan? Can you really be as productive as before in working in the ramp up situation? We firstly, you're right, because we managing two meters distance from the between the operators. We are managing, of course, the protection mask, etcetera. So all of this has been organized. All of this is a reality in China. We have the chance, sorry, to say that, that China was a kind of experimental case. So what I am speaking is not fury, it is what we are doing today in China. And 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. So CAT and Q, no problem. Assembly lines, usually, we are able to manage this distance. So we don't see today, we have not identified any problem on that. The second point, we have cut costs everywhere. So the first volume will be clearly, it is our goal, close to my margin on variable cost, at least 25%. And if you remember in the past, our track record, we were at 20% achievement in the years of, I will say, '12 to 2013, sorry, to 2016. So we have as well a track record on that. Okay, perfect. Thank you very much and all the best. Thank you, Cesar. We will now be taking our next question from the line of Jose Ascendo from JPMorgan. A few questions, please. Can you talk a little more about the CapEx start you want to in 2020? A little bit of the progression between first half and second half. I suspect first half is going to be more pronounced in terms of the CapEx start versus the full year figure. How far can you flex CapEx in the first half? That will be your 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? And the third question is around Clarion restructuring. Obviously, sales are difficult. Can you just please have the case on where you stand on Clarion? And how far how quickly can you restructure this asset? Is there an opportunity to restructure the asset quicker than expected initially? Can you repeat the last question? Because I don't understand your question about the client Clarion restructuring, whether there's an opportunity to restructure the asset quicker or not. Okay. Thank you. Well, CapEx, firstly, as you know, we have not started to cut costs in March. We are permanently accelerating things. So we were starting the year on, I would say, good situation, for instance, for the headcounts, for CAT in some consultancy, subcontractors, things, etcetera. So this has been amplified, of course, or systematic, if you prefer, in March. But we are always, I would say, better cost base and continue to reduce the cost base. So on CapEx side, first half, I don't know if we'll be already at minus 30%, that we'll be close to the minus 30%. And for the full year, I can assure you that we'll be at minus 30%. We have screened all our CapEx. In a situation like this, we don't need any, of course, I would say, volumes. We have only to protect the new programs. So we are able to manage this 30% reduction, which means probably CapEx at something like between EUR 400,000,000 and EUR $450,000,000 group level. Your second question on EBIT, I have given as a figure, 25% more or less on the, I will say, lower sales, plus some impacts on the fixed cost that we cannot fully variabilize, unfortunately. So altogether, you know you have seen probably the figures of IHS, and you know like me how to make the figures. And we see Q2 for IHS at minus 45% worldwide, but mainly minus 55% in Europe. So Q2 will be complicated. So 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. So it really is a priority, but it will be a real daily fight. And 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 complicated in the downtime period, etcetera, to dismiss people to make new restructuring plan. So we are preparing things. We will do as quick as possible when things would be more clear. Now we have already, unfortunately, what we have achieved, which is already a big step, and we'll add some others according to the retelling. Thank you. Thank you very much. Thank you. We will now be taking our next question from the line of Stephane Reitman from Societe Generale. Please go ahead. Your line is now Good morning, Stephane. Yes, good morning. I have two questions. First of all, in terms of how you're budgeting and you're forecasting, how accurate you is are your forecast internal forecast 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, very resilient in 2018, '20 '19. 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 model 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, Stefano. Since mid March, we have no procurement request or very poor procurement request from our customers. So we were making simulations. We have always what we call, as usual, a best case and a worst case. We were if I take the last figures of IHS, our best case was before worse than IHS. Now we are close, slightly more cautious than IHS as we have because we are disciplined and we want to be cautious. Our worst case is, of course, much worse. So we were anticipating that, if it is your question. We're anticipating and Patrick was always saying, we have to be We have to take an assumption where even it may, it could not be work in order to be prepared and to see what are all the options to be taken. So we were not fully sorry, I cannot say we are totally prepared, but we are clearly anticipating this kind of things since March. If you go back now to our stress case, my stress case were with minus 30% volumes, but it was minus 30% volumes with, I will say, a regular impact. Here, we are speaking of an impact of minus 100%. Going back to progressively better figures, second half will be If I take IHS, Europe is minus 10%. But it's not the same to manage a minus 100% and a minus 10% or to manage a full year at minus 24% as IHS is forecasting for the full year. So clearly, to be transparent, I was not prepared to face minus 100%, which is not only to variabilize cost, 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. So it is a complete, I will say, different scenario. I don't know if I have answer to your questions. No, that's pretty clear. Thank you. So the shock for the industry and for all the industry will be clearly what I have mentioned, it is the loss on the margin of variable cost plus what the industry is able or not to variabilize at fixed cost. We will now be taking our next question from the line of Victoria Grier from Morgan Stanley. Go ahead. Your line is now open. Good morning. Just two for me, please. Firstly, your factoring facility, I guess, would assume that that stays around the €1,000,000,000 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? And also, guess, same question on the reverse factoring. And 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 to I think two questions. First is factoring volumes, the factoring cost. Factoring volumes, it's clear that with no sales, no factoring. So my line of factoring, which is which was close to EUR 1,000,000,000 end of March, will drop. Probably June, we'll be more at EUR 700,000,000 than EUR 1,000,000,000 due to the fact that sales will come back, but on a progressive mode. And we are mainly factoring sales in Europe and North America. So the two impacted markets, most impacted markets at that On cost side, no change. For the moment, no change. Think I have given a figure. Are more or less at 2.5%, two point five % plus on cost of factoring. 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 asking as well an extension for this customer. So in this period, credit limits are key, and we are protecting our credit limits with our bonds. Reverse factoring, cost is not for us anywhere. 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. So I think in this world where our suppliers will need money, it is the fantastic tool I was describing before. There is no problem of the Faurecia signature. As the club did, it's securing competitive Faurecia signature. So we know that for the banks, Faurecia is not a problem. So reverse factoring of this kind is fully secured for our suppliers, which is very important. On the new models, we see we are trying to see first what will be the decision of our customers because some programs could be even and concerned or simplified. We have 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 and D cost. Currently, we think that our gross R and D will be reduced minimum 10%, potentially 15%. We have to see if customers have lost weeks, even one month, even one point five months. So this is under review customer per customer, program per 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 have very large suppliers. And of course, we will secure all these programs for our customers, which is important because I think that customers could face some other difficulties with other suppliers. And same thing, we have we've checked that our suppliers will be able to continue to contribute to this progress. Thank you. And then so the factoring €700,000,000 at the June, and I guess that ticks back up through H2, that is running more normally. Of course. Yes. Thank you. We will now be taking our next question from the line of Giulio Piscatore from HSBC. Just one for you hear me? Yes. Please go ahead. Okay. Perfect. Yes. So just on the one question for me. On the OEM, have you seen any phenomenon of stocking up on parts ahead of the shutdown of the plants? And if you had, what is the impact that, that is going to have on recovery as things progressively go back to normal in Q2? You mean that there are some inventories, is what you want to say? Yes. That OEMs have increased their inventories of parts and the impact of that. Probably, they have some inventories, firstly, on supply, yes, because they were as a stop brutally. So probably, they have some inventories, I think, probably limited. The second thing is they will adjust the production according to their future sales. So this could is as well a parameter that they manage and we manage to understand how fast the recovery will be. So it will be the according to customers by customers as a decision they will take probably in May. And one thing, because we have seen that from some customers, they prefer to postpone a little the restart in order to manage that. So they prefer not to restart now, I will say, late April, but to restart more the first week or the May to absorb that. So each customer has his 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. Hi, Michel. Good morning. It's Gaetan. Hi, Gaetan. I want to understand a little bit better the operating leverage. Traditionally, approximately 20%. So if I do my math correctly, 2,500,000,000.0 lower revenues in the first half order of magnitude cost you or has a negative impact to the operating level of €500,000,000 Now when you stop everything, when you reduce transportation costs, when you can make savings then, 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, Regent. If you could I try to make the exercise as I am making, yes? That means I am making my delta for respect to last year and to budget. So I am losing, as you say, a certain level of sales, right? It depends on the scenario, etcetera. I am losing 25% on margin on variable cost. So 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. So altogether, the target is to lose maximum 25%. It will be difficult to lose less. Okay. That's clear. Okay. And I repeat, as this indicator of margin of variable cost is key to analyze all the impact of the industry. Knowing second and last question. Knowing that in the second quarter, most of the plants are shut down and you have payables receivable, which is relatively high, what's going to be the cash burn at the end of H1 order of magnitude, knowing that in the first quarter, it's your order of magnitude of EUR 600 or EUR 700,000,000? Due to the working capital impact, and some factoring impacts, etcetera, I think the risk is to burn EUR 1,000,000,000 or even a little more. Okay. Only that. I was working with much higher number. Okay. 1,000,000,000, sorry. I have a problem. No, no, I know, I know. But you have very high payables and your receivable, you're gonna do less factoring, and my numbers would have been much higher. Okay. So that's good enough. Thank you. We're fighting to to do what we have to do. On total H1? Yes, yes. H1, we expect H1. So that means that the peak will be at the May, and you expect some recovery at the end for the month of June. Is that correct? Yes. Correct. Because of the factoring. Because of the factoring, because June will be important to a continuous factoring. Factoring will be lower May, which is obvious because we'll have almost no sales, which is the covenant competitor, but almost no sales in April. We'll have a progressive recovery in May. According as you know, you have some data given by customers, starting in late April, May, etcetera, but progressive. So May sales will be low as well. And June will be better. After that, yes, 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. Tom Narayan, thanks for taking the question. Yes, maybe a follow-up on Gaye Khan's question. So 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, 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, but I was just curious maybe if you could give a little color on why your guys' fixed costs are lower maybe than others. And then I don't think you answered question on that changes when you get support from the government, through the short term, you know, the wage relief. Maybe any color on how those contribution margins may change because you're getting some fixed cost reduction from the government? And then are there restrictions on your ability to pay a dividend if they're if you're getting government support? Those are my questions. Thanks. Okay. First, why different of cost structure? Because it's not the same for a process, I will say, activity and for an assembly activity. And for RCF, as you know, we have a big part of modules. So for instance, complete seats, when you take the only activity of complete seats, the margin of variable costs are much lower. And if you take an activity of processes like e mobility, we have a higher. So it depends on the type of activity and the content and what is the assembly content. Usually, assembly means lower variable, marginal variable cost, but much lower CapEx as well. So it is a normal game. So it is due mainly to the DNA of Faurecia. We have a module for a big part, a module activity. So if you compare to peers, we have no aftermarket activity, which could be as well, which could inflate this part. Things that second part is subsidies I don't know if it is the word subsidies is right because we are stopped because of decision of governments. So I don't know if it's subsidies, it's the right word. So anyway, we have, of course, a lot of downtime. I mentioned close to 90% of the people. So this is clearly covered by the different governments, not everywhere. We have as well as some, I would say, different of reality. In U. S, it's more, which is called layoff than the downtime, whatever. That is the same impact on the P and L. So we are using that. This if your question is on dividends, I don't think that there is 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 a mass market customers? I know you made a comment on a couple of OEMs in your presentation impacting numbers. But I was 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, maybe more kind of affecting mass market versus premium. Any commentary on that? No, we cannot have any comment because we were brutally stopped in So 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. But anyway, it's too early. We I think the first thing will be when whose sellers will be authorized country by country to reopen, which is key because if we are in activity, we need that our customers will sell. And second, what will be the rise 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 as a public transport. So 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, if you take the IHS now, we're in the same curve as 02/2007, '2 thousand and '9, if you take 2018, '20 '20. Yes. Which means that we can be optimistic, but not this year, but for the years after. We will now be taking our next question from the line of Stephanie Vincent from JPMorgan. Please go ahead. Your line is now open. You very much for taking my question. Couple of modeling questions and then just a macro one, please. So, can you discuss, if you haven't already, your outlook for cash restructuring for 2020, and potentially 2021? And also 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? And then 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 changes, some phasing changes for the EU CO2 programs. Is that something that could affect your business or that you're on the lookout for? So I will take your last question after that. I have to go back to your first. So IHS, there are some risks on some ethical vehicles programs because there were too many programs in this world. And there were probably too many fragile companies starting on this. So it's clear that the number of programs on eTakeaway costs will be reduced. Too early now to say something on that, but probably some companies will disappear. Going back now to the working capital. Our working capital, actually, we have 6% before factoring, we have 6% working capital, I would say. We I don't see any big change on that. 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. Yes. Maintain today, I maintain the EUR 120,000,000, 1 hundred and 30 million cash out for the full year. Cheers. Thank you very much. Appreciate No change on that. We don't change our restructuring program. We 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 Fabre. Please go ahead. 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 hope I think very well managed. And our next rendezvous will be this new shareholder meeting, twenty sixth of June, and of course, the half year results in July. Thank you, and sorry to use the expression, take care. See you soon. Bye bye. That does conclude our conference for today. Thank you for participating. You may all disconnect.