Forvia SE (FRVIA) Earnings Call Transcript & Summary

Good morning. I wish you a very warm welcome to our H1 2021 results presentation. We will -- with Michel Favre, our CFO, we will present to you the highlights of the first half, the financial review made by Michel, and we will close this presentation with our key takeaways and our guidance for 2021. So if I start with the H1 highlights. So despite adverse impacts related to shortage of semiconductors and raw material inflations, we were able to deliver a very strong EUR 7.8 billion of sales, up 32% on an organic basis, which showed an outperformance of 760 basis points in the second quarter and 170 basis points in the first half. We also delivered an EBITDA margin of 14.2% and an operating margin of 6.6%. Michel will show you the very strong operating leverage we delivered. Our net cash flow at EUR 290 million is above our budget, and is allowing us to significantly deleverage our net debt-to-EBITDA ratio of 1.5x as of June 30. In the meantime, we were also able to deliver a very strong order intake at this first half with EUR 12 billion, considering that a significant amount of sourcing decisions were delayed to the second half. We are on track to reach our EUR 26 billion target for the full year. New perspectives with especially unsuccessful spin-off, which allowed us to achieve 83% of free float and close to 3% now of shares owned by our employees. We also focused on zero-emission hydrogen solutions and ESG strategy, and I will be back on this in a few moments. We strengthened our financial structure, including green bonds at a level of EUR 400 million, we upgraded our full year 2021 guidance on what counts most, the free cash flow. So if I start with the order intake at EUR 12 billion in the first half, we had a very strong activity with Volkswagen Group, which allowed us to source EUR 2.6 billion. China represents 25% of the total order intake, of which 67% with Chinese OEMS. If you take our top 10 customers in China, 5 are Chinese and 5 are international. And inside these top 10, we have 2 electric vehicle specialist, an American and a Chinese. The first Chinese is BYD, and he is in number three position. I think that here we have, in China, a very strong portfolio and very robust portfolio. Faurecia Clarion Electronics represented EUR 1.3 billion, which is confirming our full year 2021 commitment at EUR 2.5 billion. Battery electric vehicles represented an excess of 20% of the total order intake, 24% if we would include Symbio. Hydrogen represented EUR 280 million of order intake, confirming again here, our full year 2021 target of at least EUR 500 million. We also have to speak about our launches, which were successful. We launched about 120 new vehicles in H1 2021. While we did that, we also worked on accelerating our momentum for hydrogen. And you see here a few highlights. In February 2021, we signed a partnership with Renault for hydrogen storage systems for light commercial vehicles. In March, we supplied Stellantis with fuel cell stacks and hydrogen storage systems for light commercial vehicles, preparing to launch the [ CRL ] launch of these vehicles for the end of this year. And in May 2021, we won a contract with SAIC in China to provide hydrogen tanks for commercial vehicles. You see on the right-hand side that in April, we also took the majority stake in CLD, a leading Chinese manufacturer of hydrogen tanks. By the way, it is the only supplier today being homologated for tanks Level 4. Stellantis spin-off went pretty well. We have now a significant free float. We are included in the CAC Next 20 in this effective March 22. We also were very successful with our faur’ESO, our Faurecia Employee Share Ownership, with a significant subscription rate, 22%, while the benchmark is at 16%, so which showed you the confidence our teams have in our plans, our strategy, our future. In addition to our acquisition, I would like to speak about DesignLED. DesignLED is a Scottish company, which is specialized in advanced backlighting technologies. Accelerating our ESG initiatives. So first of all, on Scope 1 and 2, where we have very clearly the target to be CO2 neutral in 2025, we are continuing to deploy our plans. We added to Schneider Electric, KPMG and [ Angie ] in order to achieve the right level of PPAs, the purchasing of green electricity. We also started to deploy in our different plants. This has to be done, fully done in all our plants until 2024, which means that we will equip all our plants with its own production of electricity, which will represent globally around 15% of our needs. And I think that in doing this and also putting in place the financial tools, which are allowing us to accelerate with partners, the deployment, we will deliver our target. We had our first global event celebrating diversity and inclusion with more than 70 trophy winners across 22 countries and more than 100 nationalities. Faurecia Foundation, we have sponsored 11 new solidarity projects worldwide, out of a shortlist of 30 initiatives. All these initiatives are coming from our employees. They are staying the sponsor of these initiatives if they are selected. This is working very well, and we have very nice projects ongoing. Michel, for the financial review.

Thank you, Patrick. Good morning, ladies and gentlemen. I will start with the technical slide. It is to remind you that we are in the process to sell our AST, that means Acoustics and Soft Trim business, which closing should happen this quarter. Of course, according to IFRS 5 norm, we have restated the 2020 figures. And for 2021, you will see the results in one specific line in the profit understatement. Going now to the sales. We have put this slide because it is showing what has happened in the market quarter-after-quarter. So of course, first half 2020 was a big disruption with the lockdowns. You see the quick recovery mainly in Q4 2020 and the disruption due to the shortage of semiconductors. You can see auto production was down by 11% when we compare the volumes of H2 2020 with respect to this semester, I would say 2021, it is minus 13% if you compare the volume of production with respect to the first half 2019. Whatever this impact, we posted sales by minus 7%. So it is an outperformance of 400 basis points with respect to the last semester. And more important is operating margin, whatever the fact that we are losing more than EUR 700 million of sales, I repeat, EUR 700 million of sales, we were able to improve the operating margin from 6.2% second half 2020 to 6.6% this first half. Going now to the sell-out performance. Difficult to comment because geographic mix is key. The first quarter was with, I would say, strong, better Europe and lower Asia. The opposite is the second quarter, which was clearly impacted, I would say, very positively this year. So it was a comment for last year. So we have a huge in geographic mix in the second quarter. This explains the plus 61.7% sale with respect to the production of 54.1%. When we go to the first half, we are more balanced. I would say a low geographic mix, whatever at this point, we outperformed the market by 170 basis points. I have to mention that this outperformance was despite some adverse customer mix. You have seen that [ Ford], for instance, which was the second customer of Faurecia, cut a lot it's production. I have to mention that a smaller currency impact of 5% to EUR [ 286 ] million in this first half. With the trend, we can confirm the expected outperformance for the full year, 600 basis points minimum for this full year. Operating margin. As I was saying, a very good performance that are boosted, of course, if I compare to last year by the volume and the recovery of volume. And [indiscernible] recovery of volumes, we have our good performance on our capacity to maintain, even improve as a gross margin by product. We suffered from the raw material price increase, whatever the fact that the pass-through was something like 70%, we had, and as expected, an adverse impact of EUR 25 million. And I can anticipate that we are putting the same figure in our forecast and guidance for the second half. We have a very big figure of cost cutting, EUR 177 million. I would say only EUR 30 million is downtime. Main part is restructuring. Another part is a strong discipline throughout the group in a period where volumes are limited. So this EUR 177 million, of course, will continue to inflate the expected operating margin of the second half. On the right side -- the right part, sorry, you can see that we have 2 one-offs. One is a cost link with the employee shareholding plan, this is up EUR 14 million, compensated by the fact that we have a very positive rolling as expected in Brazil for PIS-Cofins, which is a tax on sales, and we were recovering EUR 13 million. So altogether, no impact -- has no one-off impact this first half. Going now to the business group. Seating as expecting big outperformance of 400 basis points. We were expecting a higher outperformance, but due to the customer mix, it was only 400 basis points. It will accelerate a lot in the second half. Why? Because we have some very important start-up of production in the second quarter with a full year impact. As you know, the main one is the Jeep Grand Wagoneer compete seat in the States, and we have as well the Nissan Frontier. We have -- we'll have later in the year some friends and compete seat for Daimler and BMW. With that, we can confirm the expected 700 basis point outperformance for the full year, minimum. Margin-wise, 6.6% with fall through of something like 25%. We expect that seating will post a 7% operating margin for the full year. Interiors. Interiors 1 side was more impacted by Ford for the -- this was the first customer of Interiors. But whatever Ford, we were able to make an outperformance of 180 basis points, mainly led by BEVs and [indiscernible] BEVs from a very well-known American BEV customer. Margin, 4.9%. So recovering from, I would say, loss last year. We have, I will say, a fall through of more than 40% for the interiors activity. And which is good as well, margin is improving with respect to the second half 2020. We expect for the full year that margin for, I would say, Interiors will be something like 6%. Clean Mobility was as well affected by the Ford cut -- production cut in the States, so a very slight underperformance of 70 basis points, whatever that, very good margin, 45% fall through. We are close to a double-digit margin, and we clearly think that we will post a double-digit margin this year. So very good performance of Clean Mobility. Clarion Electronics was the most impacted activity due to the semiconductors, direct impact from [ some other ] costs, close to EUR 10 million. Indirect impact from the fact that we were protecting our OEM. So we have sacrificed some other channels like aftermarket, with more than EUR 20 million loss of activity, and this part is very profitable. It is why you see that operating margin was slightly negative. In fact, it is slightly negative only because we are, I will say, estimating the cost to, I will say, put our system, IT system in place. For the full year, of course, [indiscernible] from the semiconductors progressive recovery. But altogether, we think that we will be at something like 2% or 2.2% to 3% operating margin for the full year. Going to regions. Europe was, by far, the most affected region. When you see 3.8, I think we should see with a full recovery, 20% at least more. So we were with 29.4% up slightly outperforming the market by 120 basis points, with a margin of 5.4%, up 50 basis points with respect to the second half, [ 880 ] basis points with respect to last year. We have a fall through of 35%. When -- with this 5.4%, if you think that sales will increase only by 15% with a 15% fall through, we are already at over 7% expected. So this 5.4% is, at the end, a very good result. North American as well very much impacted by semiconductors and mainly by Ford. So it is why we have this slight, I would say, underperformance of 120 basis points. Whatever is that, we have a strong recovery with operating margin with respect to last year, 3.4%, plus EUR 135 million, or if you prefer a fall through of 47%. I have to mention that this 3.4% is reflecting some lack of compensation of downtimes. And unfortunately, there were a lot of downtimes with a very short notice in the States. We expect, for the full year, a 6% margin in Europe, a 5% margin in North America. Asia, by far, as the best-performing zone, mainly in China. You see the outperformance in China, 450 basis points. And as Patrick was mentioning, mainly BEVs, local BEVs, Chinese BEVs, and as well one American. So this outperformance is clearly, I will say, the sign of our dynamism and the fact that we are gaining significant market share. Through that, we were able to recover a double-digit margin more than close to 11%, up 70 basis points compared to H2 2020. So very strong results, very good fall through, which says that all the indicators in China are increased. We have merged South American and rest of the world because, clearly, their weight inside the group is decreasing. We are speaking altogether at 4%. You see strong outperformance, which is far better as pass through of, I would say, currencies and raw material. But what is important is, of course, we have the EUR 13 million PIS-Cofins contribution. But putting that apart, we are above 8% margin. And what is more important, we are in Brazil at 6%. And I think in this context to make 6% in Brazil is a good performance. This slide is very important, not only because figures are improving. You see more than EUR 600 million on the gross margin, more than 600 basis points, but it is showing how we are managing and driving our improvement. First, we are protecting our margin on variable cost, our gross margin. And we are protecting that through, I will say, the pass-through of raw material. All are we seeing improvement of execution and digitization. And we have a very good, I will say, achievement on the labor cost. Second, we are controlling strictly our cost. You see the R&D and please think that the first half 2020 figures were very low. Now of course, we leverage in this, I will say, achievement, the low-cost base that we have in India, Poland and Mexico, but mainly India. And please notice that capitalize-activated R&D has poorly evolved whatever the low base. And more important is the fixed cost management, the sales and administrative expenses to have flattish figure, I think, is a very good performance. And this is, of course, reflecting all the efforts of restructuring we have done. So altogether, you understand why we have improved our operating income by EUR 610 million and by 820 basis points of sales. Net income, I will not comment all the lines. What is important to notice is first restructuring, EUR 46 million, more limited figure, mainly the 2 closures of Ford plants. But anyway, we have to continue to make our own work. So we keep for the moment as, I would say, the guidance of EUR 120 million. Second point, it is the net income from discontinued operations, EUR 31 million. On one side is the operating margin, negative. On the other side, it is the expected loss on the sale of the asset. And I will say for the other points, income tax, 27%, I think we will clearly renew this percentage in the second half. Net cash flow. It was -- as I said in [indiscernible], we were in advance in our road map. We have a very good, I will say, working capital management. And clearly, this figure is showing the performance of Faurecia on this side. Of course, it is coming from the, I will say, the recovery of EBITDA at 14.2%. I remind you that 14% is a level we are expecting now inside our medium-term plan. We have contained CapEx and I keep the fact that CapEx will be for the full year below EUR 550 million, probably around EUR 500 million. We have contained as well as capitalized R&D in respect to the figure I show you, these are the activation, which will be amortized. There is a part which will be sold to customers. And we have of course, and we say, an exceptional cash out of restructuring, a little less than we were expecting. So we are today on a very good, I would say, road map -- on working capital, sorry, is very easy. Sorry to say that. The second quarter sales were below the last quarter 2020 sales. So it is normal to have an inflow. So with this road map, we can, I will say, improve our guidance without any problem. And of course, our guidance is to be much over EUR 500 million for the full year. Deleveraging is a priority. We are on a good way now with a ratio of 1.5. You see in this map that we have, of course, dividends. We have the share purchase [indiscernible]. Now 28th of July, our employees will subscribe. So EUR 87 million inflow will be booked for the second half. The net financial investments are mainly our acquisition in hydrogen in China as a famous company, CLD. So altogether today, I can clearly give you the guidance that we'll be around EUR 3 billion of net debt at the end of the year, with a ratio, within the ratio of 1.3, maximum 1.4. We were very active on financing. We have made, I would say, a [indiscernible] tap. More important, we have issued a green bond. I think we were the first in the sector to issue a green bond with a lot of success and totally subscriber. We have as well renewed our syndicated credit facility at 5 years to 2026 with better conditions. And we have extended it to EUR 1.5 billion. Our cost of net debt are below 3%. We have no major repayment before 2025. As you know, we lack maturity, we lack flexibility. We have too much liquidity. I should not say that, but we have too much liquidity, EUR 3 billion, but we have to [indiscernible] if we want to reduce that. So I will say we have a very sound, very robust, I would say, financial structure. Now I will hand back to Patrick for the conclusion of this presentation.

Thank you, Michel. The guidance for 2021, and maybe I'll start with the sales. We haven't changed our volume assumption for the full year, which means that we have increased the volumes for the second half at 39 million vehicles. This allows us to keep our sales target as previously announced, with a strong outperformance we confirm, which will be above 600 basis points. Maybe one comment about the shortage of components, of electronic components. We believe that we touched bottom in the second quarter and that we will see a gradual improvement in the months to come. And finally, exiting this crisis around the end of the first half of next year. But again, with a gradual improvement in the 6 months to come and the following ones. Our operating margin, we confirm it at circa 7% of sales. And we have improved our net cash flow, which is now above EUR 500 million and a net debt-to-EBITDA below 1.5x at year-end. In fact, Michel spoke about EUR 3 billion of net debt, I hope, and we will do whatever we can to be below EUR 3 billion. The takeaways. So in H1, we delivered a strong financial performance with an outperformance of sales of 170 basis points. Strong operating margin, thanks to efficient operating leverage, you saw it, 36%. Deleveraging, thanks to a strong cash generation, and I told you before, this is a clear priority to us, the cash generation and the deleverage of our debt. A solid order intake for future profitable growth, which is allowing us, and this is my conclusion, to confirm our 2022 and our 2025 targets and ambition. The deployment of new perspectives allowed us to increase significantly our free float to 83%. It allowed us also to improve the share owned by our employees at 2.9%, so close to 3%. We are focused on zero-emission hydrogen solutions, and we are doing it quite successfully, also through the acquisition of CLD in China, and we will continue to do M&A in this field. We are delivering on Faurecia's ESG strategy through our ambitious CO2 neutrality program, which is perfectly on track, and recent successful issuance of green bonds. The guidance we just spoke about it. So we are confident to be able to do what we say and to deliver our guidance. Even if the volumes might be smaller than the ones I announced, we have a backup plan in order to deal with whatever event we will have to face. Thank you. And now I'm opening to the questions. Any question on the phone?

Yes, we have a question over the phone. Victoria Greer from Morgan Stanley.

A couple from me, please. The first on Clarion. Could you give us a bit more color on the chip shortages? Should we think about this mostly as a top line impact or also as a cost impact? And what are your assumptions for the second half that should see that improve? And the second question is around consolidation in the industry. We've obviously seen some moves already, and there is some press reporting suggesting that Faurecia might be involved in one of the situations. I expect that you probably don't want to comment on any specifics, but could you talk structurally about how you see your M&A priorities in the next few years? Do you see yourselves as consolidators? And are there any particular technologies do you look for exposure to? And how would you think about the potential leverage in a consolidation scenario?

About Clarion and how Clarion has managed the crisis. So the first thing is that we benefited from our intimacy with the vendors in Japan, which eased the management of the crisis. We have not stopped our customers. We had a few incompletes, which were build up very quickly in a week time. So we managed the situation quite well. This said, we have cost increases. The components have shown on price inflation, which is between 10% to 20% depending on the type of components. What we also had, we suffered from shutdowns from our customers, not related to us, but related to other electronic suppliers. And finally, and this is what Michel said, in order to protect our customers, we transferred volumes from our dealer options and aftermarket businesses to the OEM business, which, of course, had an impact on the margin. Here again, what I see from what Clarion is reporting, I do believe that we touched bottom in the second quarter and especially May, June were very critical months. I see that the things are improving, the demand is more rational and new capacities will start in -- at the end of Q3 and in Q4. Consolidation, you are right that we do not comment rumors. But you ask for M&A priorities. We would like to add to our portfolio activities, which have a significant profitable growth. We want to have new growth drivers. It's clear that electronic is a significant part of this, especially whatever is related to electric vehicles, whatever is related to ADAS and autonomous driving, but also reinforcing what we are doing in the cockpit electronics. And consolidation, maybe this is one thing. If we would have on our [ mid-years ], opportunities to consolidate and to reinforce our leading positions, we would consider it. It is clear again that we want to have leading positions in all our [ mid-years ].

And could you talk about how you might think about leverage in a scenario like that? Would there be an upper limit that you would think about?

No, I don't want to comment this type of process. All of that is also depending on opportunities on the market. What we will make sure is that we would be able, in whatever case, to deleverage very quickly back to 1x net debt on EBITDA.

Gabriel Adler from Citi.

It's Gabriel Adler from Citi. My first question is on working capital. The working capital inflow that supported your cash generation in the first half looks to be mainly driven by higher trade payables. I think your payable days are now around 170 days compared to about 140 days last year. Could you just comment, please, on how sustainable this level of [indiscernible] payables? And how much of the increase was due to additional reverse factoring of payables? And then the second question is on R&D. Your net R&D remained flat year-over-year and actually declined as a percentage of sales. Could you just remind us of how you expect R&D to trend going forward? And how long do you think this sort of level of R&D is sustainable for?

Okay. So as I said, the working capital is normal to have an inflow when the sales are down. And normally, we have all an inflow of the companies. So we have no big change on the suppliers because we have some increase from, I will say, [indiscernible], et cetera, which has a little inflated, which are not in the sales, as you know, according to IFRS 15, but which has a little inflated our suppliers, but no big change on that. What I can tell you is that on the inventories, we were able in the last quarter last year to decrease inventory, and we have no major increase of inventories in the second quarter whatever the fact that we face some, I will say, disruption or some of the we say stop, stoppage with very short notice, mainly in the States. Going to R&D. We have, I would say, the pressure of electronics on one side, the hydrogen on other side. We have, as you say, this plan that progressively, and this is important for Clarion, we continue to increase our base in India. So I maintain that normally year after year, we'll have a pressure between 10 to 20 basis point increase of R&D weight inside the P&L.

But also to be clear on R&D, we continuously work on reducing our average hourly rate and this through offshoring. We are continuously working on reducing the number of hours per application project. And this through digital productivities, including data-driven productivities. So the target is very clearly to converge to a stable amount of gross costs, which will allow us to reduce our application costs and to transfer the savings to innovation.

Michael [ Jacks ], Bank of America.

I just have 2. The first 1 is on CapEx. If you can please just give some color on the key drivers for the reduction that we've seen and whether or not this will need to be made up in 2022. And then if you could also please just clarify on the guidance? If I understood correctly, you mentioned it would be close to EUR 500 million for the financial year, where in the release, it says below EUR 600 million. That's the first question. And then the second question is just on the factoring of receivables. With net debt now reducing and free cash flow guidance increased, is there any view to perhaps make less use of factoring? That's the first thing. And what is the net cost of factoring at the moment? And does this come through the operating income line item?

Michel, I'll take the first one, you take it to next one. CapEx, so the first thing what we have to take into account is that the volumes are not growing. We are still below the 2019 volumes. So the CapEx we are spending is mainly related to increasing our new standards and increasing our digital productivity in our plants. The fact that we have now more and more standards, which are not specific to one program is allowing us to work on capacity productions. And this will continue to be the case, and I think that this will allow us to make further savings on the CapEx in the years to come.

When I said the CapEx for your guidance, I said EUR 500 million. So that means EUR 300 million cash out in the second half. So we are back to the EUR 600 million guidance expected if you see the rise. For the net cost of the factoring, we are something like 2.2%, 2.3%. So it is slightly below the cost of our [ TAPs ] of receivable, of course, because we have no cost on the reverse factoring, as I said often, is not our contract, it is contract from our suppliers. We only facilitate that.

And just to clarify, the factoring of receivables at 2.2%, does that come to operating income?

Of course. Sorry, no, no, of course, not, because it is in the financial expenses, it's the financing.

We'll now take our next question from Tom Narayan from Royal Bank of Canada.

It's Tom Narayan, RBC. Could you help us understand your raw material contracts and exposures? What you expect for H2, most interested in steel, aluminum, those sorts of items? And then next, are you -- would you say you're over-indexed to Ford in North America versus other OEMs? I know gaining market share in North America was a key part of your Capital Markets Day outlook you gave us. And finally, if I could just sneak this in, could you help us understand the strength in margins in China in H1? What specific growth -- sorry, products drove that?

If we speak about raw materials, the total increase we faced in the first half is about EUR 80 million. The net impact of raw materials in H1 is about EUR 25 million. And we expect the second half to be at about the same level. And this is clearly mainly steel and plastics, but mainly steel. Ford in North America, Ford suffered more than its colleagues in North America from the shortage of components. And this had an impact on us, of course. But this doesn't mean that we do not count on the rebound and that we have to put in question the plans we had in terms of growth in North America.

For China, the operating margin, all our business groups are improving, first, and why? Firstly, volumes on one side. Secondly, if you remember, we were implementing a big restructuring cost, merging plants, et cetera, and this is clearly paying. So we have -- what I could say as well, but it is not only true for China, but for the group. The new business has -- we have a bigger number of start-up production. These new businesses are starting for the group at above 8% margin. And for China, it is a double-digit margin. So the contribution of these new programs is quite huge for the group.

And not to forget that the American electric vehicle producer in China is starting to have a significant impact. We are one of its big suppliers, and this is why it is now part of the top 10 of our customers. It's also the case of Lee Auto, which is also an electric vehicle builder, OEM, with which we have a very significant share of supplies. And I think that this is working very well. I spoke about BYD. I could also speak about CCAG. I could speak about FAW. I think that these ones are the ones which are helping us to continue to develop our business in China.

Okay. If I could just follow up, is Ford -- are you over-indexed to Ford in North America?

Do you mean that we are too exposed to Ford? This is what you mean in terms of sales?

Yes. Yes, relative to other OEMs in North America, are you over-indexed or under-indexed to Ford?

Ford is certainly one of our big OEM in America. But we are reducing our exposure while growing with the 2 other big OEMs in the US.

Julia [indiscernible].

So the first one on the margin, the guidance on 2021. There seems to be quite a few things that should improve sequentially in H2, of course, for this one of them, but you mentioned some compensations from downtime that did not really happen in H1, some raw material adjustments that did not happen in H1. And also you mentioned the aftermarket being deprioritized in H1, and that could help margin H2. So I mean, if you put all this together, the guidance that is still a little bit conservative, what am I wrong?

Michel, you are the financial guy. That's not a question for me.

Okay. I don't know what to answer. You're right. But you're right, if I will say we take every impact, of course, our guidance is cautious, but we have to be cautious and to be at minimum 7, as you know, that means that we have to be very confident to be at 7.2, 7.3. If you don't mind, with respect to the recovery of semiconductors, it's a little early to speak of an increase of the guidance.

I think that we have to wait at the end of the third quarter to have a clear understanding of the gradual recovery I spoke about. And I think that until then, it makes sense to be prudent with the volumes.

Okay. Can I just ask a second one. On Clean Mobility, can you maybe share the shareholder intake for that business? Because I mean, I get a lot of attention from the market? And maybe comment on the profitability of commercial vehicles and high horsepower and the grown in those segments versus passenger cars.

The profitability of our Clean Mobility commercial vehicles is at about the level of the passenger vehicles. But my -- what is interesting on the passenger vehicles true is the fact that OEMs are reducing the number of engines they are considering and they are using [ 1, 2 ] platforms. These platforms will have an extended life cycle. And this is very good for us because when you are on these platforms, and as we are the leader on this market, we are on most of them, it is changing the business model. And the profitability of this business will be enhanced through this new reality. On high horsepower, we are looking, especially on how we might deploy our hydrogen activities and benefit from the intimacy we have built with the different customers. And we are considering here is maybe a little bit more emergency stationary power stations.

Okay. Can I just maybe squeeze one last one. I saw that you created this cross-divisional business line for development of sustainable materials with a target of EUR 3 billion in sales by 2030. Can you maybe elaborate a bit on that?

Yes. We have activities already on biosourced materials for our Interior business. We are doing [ forms ] on our FAS, so automotive seating business. So we have resources, which are dealing with formulations everywhere. The idea here is that we have the competency to develop to formulate materials related to transformations we are doing. So we have both competencies. We understand what is the process and what the process is capable of, including viability reductions related to digital applications. And on the other hand, we believe that the value will be in the capacity to make available in larger volumes to feedstock. So we think that, as we did it with hydrogen, it is the right time to invest in these sustainable materials, in which we also include some more sophisticated approaches on smart materials, self-healing materials, for example, or anti-bacteria materials and so on.

Sascha Gommel, Goldman, Jefferies.

The first one is, again, on the margin -- on the gross margin. Michel, can you quickly explain how you kind of manage to get the margin up like by 100 basis points despite revenue being down EUR 700 million compared to the second half of the year? Or is there anything in terms of product, regional mix or anything that we shouldn't consider as sustainable in the first half?

So it's a very good question. Thank you. We have -- firstly, we have as a full year of the restructuring cost. Second, we have a clear improvement of the labor, I would say, activity, so I would say, lower weight. Before that we have what is called VAVE, that means value-added value engineering that we are accelerating and paying. But as you say, a part is due to the start of, I will say, new products improving clearly the margin respect to the previous products.

I think we have to consider 2 things. The cost on one side, we spent money on the restructuring, which allowed us, and Michel spoke about, to keep the SG&As at the level of H1 2020, where you understand that in the frame of a crisis, we reduced our cost drastically. And on the other hand, we have improved our profitability at acquisition time. And this, again, is related to all the efforts we are doing in terms of productivity, in terms of squeeze management, and especially using digital and data-related productivities.

Okay. Very clear. And then I have a follow-up question on M&A. You mentioned kind of your priority in terms of growth in high profitable growth areas. So EVs made us. Does that specifically then exclude any M&A activity in Seating and Interior or would that not be the case?

No, I said that we would also consider consolidating the market in the mid-years, in which we are already strong, because it is generating synergies. It's a low-risk activity, and it would reinforce our leadership position in the different markets. We would consider both as long as the opportunity is of a good quality.

Perfect. And then my very last question, quickly, on the other receivables in the balance sheet that went up sequentially, both kind of other operating and other receivables. Any reason for that, given that sales came down?

You have -- is the receivables, don't forget that you have what is called the other sales. On one side, you have SAS. SAS is EUR 800 million of sales, but administratively EUR 4 billion. And as you know, we have 1 month of scope. If we have the increase of the [ monolith ] sales, which was a big increase, and this as well is affecting both receivables and payables. No impact on the inventories.

Martino De Ambroggi, Equita.

The first question is on the order intake. You collected EUR 12 billion in the first half. Just to understand where do you plan to close the gap with the EUR 26 billion guidance for the full year in terms of geographies, in terms of divisions? And second and the third question are more strategic. One is on the sensitivity to electric cars. I mean, in your business plan assumption, you assume a certain penetration of electric cars. Could you provide sensitivity to a different assumption in terms of penetration of electric cars because it seems that in the past few months, all the carmakers are pushing on this side. So just to have an idea what could be the sensitivity on your accounts? And the last question is on the Foxconn, Cervantes agreement. It was announced some months ago. I understand it's not your job, but what are the implications for your business that you can assume today?

So order intake, we had EUR 12 billion versus EUR 26 million. So what I can tell you is that we are perfectly on the trajectory we forecasted, we budgeted. And this despite, as I said, and significant amount of sourcing decisions, which were delayed to the second half. So we feel confident that we -- that we will be able to achieve the EUR 26 billion. Now when -- the only thing I can tell you is because this is what we announced, EUR 2.5 billion with Clarion Electronics. We are at EUR 1.3 billion in the first half. EUR 500 million on the hydrogen side, and we are at EUR 280 million so far. And so we will continue to overperform and continue to fuel our future growth in China, clearly, with most probably an exit of 2021 above what we have budgeted. But all the business group will benefit from this order intake. Electric vehicles. We planned for 2030, 30% of full electric vehicles being built. What you have to understand that this means for Europe above -- about 50% of full electric vehicles in 2030. I haven't seen so far any forecast, which is more aggressive than this one. I think that we have to take into account the infrastructure, which has to be invested in order to make sure that consumer will follow. I would like just to share with you my understanding of what [indiscernible] and alliance said, she said that we should stop producing ICEs in 2035 if in the different countries of Europe, the adequate infrastructure would be in place. And I think that this is very wise. I think that, yes, we go in this direction without any doubt, and we are confident that this will happen. But it will need most probably some time to synchronize the capacity OEMs have to build and sell electric vehicles and the infrastructure in the different countries. So for the moment, we don't see any reason to increase the 30% we have on a global -- on a worldwide basis. Foxconn. Maybe I should start saying that Foxconn is telling the market that cockpit electronics is fundamental, which is perfectly aligned with our strategic assessment. Foxconn is more on -- or wants to be more on the hardware and wants to develop software, but in other domains, in the zonal approach and in body controllers, which is not directly in competition with us.

José Asumendi, JPMorgan.

José, JPMorgan. A couple of questions, please. The first one, can you speak a little bit around this EUR 177 million resilience actions in the first half, a little bit more the details behind that? And...

Sorry, could you please repeat the first question because it was difficult for us here to understand it?

Yes. If you could give a bit more details behind the resilience actions. I think it's EUR 177 million figure you reported in the first half, on how we should think about this figure for the second half as this figure was quite strong in the first half? Second, Patrick, can you speak a little bit around Clarion? I would love to hear any details around either on the product development, on low-speed ADAS. Any new progress there on product development and on Clarion order intake? If you could comment on the any notable orders, maybe new clients or so that you are managing to bring on board? And then the third one, Patrick, also on DesignLED, on this company, correct me if I'm wrong, but it looks like the company could have some patents for external LED applications. Is this the right case -- is it the case? Do you think you could develop this business on exterior LED for the coming years?

I will take the first question. On resilience action cost reduction. What we have -- we have, of course, as you know, last year, we accelerated plan. So we have a lower-cost base in the second half. We have EUR 30 million downtime in this first half that normally should not happen in the second half. But altogether, you can take half of this figure, so something like EUR 80 million cost cutting for the second half.

So about Clarion. On low-speed ADAS, and especially on the auto park and valet parking and so on. When it comes to fusion between ultrasonic and cameras, we are the leading player, but very much deployed in Asia with the Japanese OEMs and now starting also with the Chinese OEMs. We continue to deploy ourselves in America. We have a significant growth in America. We were lagging behind last year in Europe, and we will be able, at the end of the year, to show you that we are also taking off in Europe with our big OEMs. So I think that on the order intake, on the portfolio, we are enhancing it continuously. And what is, for me, very important with Clarion is that we have not lost one single project because of technology. So we might, in some cases, have refused to go down with the prices for good reasons, maybe for bad reasons, but we have never lost one single business because we were not at the expected level in technology, which is, for me, very encouraging. DesignLED. We bought [ IRIS stack ] and now we buy DesignLED. What is the purpose of all of that? We want to be able to promote -- to propose to our OEMs, display integrated solutions with the highest possible performance in terms of image quality, but also in terms of low energy consumption. And these companies are contributing to that. These companies are techno companies with patents, as you said, with -- and very high level of technology. And this is what is allowing us because we were a new entering company in the display field. We immediately went on the larger displays because we did also the right acquisitions on the coatings and all the surface treatments. We recently, for example, entered into a partnership with Corning for glass and coat forming of these glasses. So I think that we have here the network, the ecosystem, which is probably one of the best today, to offer this high level of technologies. And we sold them, to people who are very demanding, like Daimler, for example. And this, I think, is an approach we will continue to have. We will continue to scan the market to find possibilities. Now is DesignLED capable to use its technology outside of the automotive industry? Yes, but we are a pure automotive player. If we can value the patents, we will consider it. We are considering it, by the way, because Clarion has a very significant portfolio of patents, which is extremely interesting and valuable.

We'll now take our next question from Stephanie Vincent from JPMorgan.

Stephanie Vincent from JPMorgan. I just had a couple. One is on credit rating. Just when I go through some of the commentary of some of the other OEs that are in the high BB or low BBB area, most start targeting the same sort of leverage metrics that you are around 1 to, let's call it, 1.5x. You've got similar cash flow, yet Faurecia is a little bit lower rated in the mid BB area. Can you provide some commentary in terms of your discussions with the rating agencies? What exactly is causing that? Is it the trajectory for working capital? I believe management has discussed that before. Or is it some asset of how your contracts actually or [indiscernible] versus some of the other high BB players because there does seem to be a disconnect there. And just on M&A, thank you so much for talking about the 1x net leverage target area. Could you also discuss your views in terms of capital allocation? Do you have a, I guess, clearly outlined focus for this extra free cash flow generation you've talked about going below EUR 3 billion net debt? How you would allocate that towards M&A or dividends as well? I think that would be helpful for credit investors.

Okay. Thank you, Stephanie. Sorry, you have everything inside, which is the presentation I made for the Investor Day of end of February. So we have no change. So what we have said first is that we are in the rally to continue to improve the rating regularly. It was what we did since 2013, gaining one notch every 2 years. So we target with all our strategic plan goals, with all our figures and improvement of figures to be investment grade, probably 2024, 2025. It has not changed. One key parameter to do that will be to continue to enhance the industrial profile and to convince we did that with [indiscernible]. We have still to convince [ modes ] that we have a strong industrial profile. And what you see the track record of figures is showing it. On the target of leverage, as Patrick said, the normal target that we have to -- have a minimum of depths to be efficient on the capital, I would say -- I will say, structure. So to have a minimum one. But anyway, one is a normal, I will say, ratio that you will like to have through the cycle. Going to the capital allocation, I remind you that 40% is for dividends and to neutralize, I will say, the share buyback, 60% is for bolt-ons and deleveraging.

And just follow-up as well. I guess on your net debt, target of less than EUR 3 billion by year-end. Can you make any commentary in terms of your outlook, I guess, for the Schuldschein notes, which are the ones that are coming to the larger sort of unsecured debt that's coming due. Is that something that you're expecting to roll over? Or will you pay that down with excess cash flow?

One thing, EUR 3 billion, if you take all our figures and the expected cash flow plus the fact that we research shares is a little mechanical. I'm sorry to say that and to be blunt. Second, on the debt management, I will not commit today on what I will do on the call, not call, whatever. But clearly, I have said, we have considered that EUR 3 billion of liquidity is a little too high.

It's a little bit too high. But here again, I think that we are prudent and that we will wait until the end of the third quarter to understand better how the market will rebound because the market will rebound.

We'll take now our last question from Thomas Besson from Kepler.

Thomas Besson from Kepler Cheuvreux. Sorry, I missed part of the presentation for different reasons. So I hope I don't ask questions you already addressed. The first is about hydrogen. I've seen your orders in '21. Can you remind us your cumulated orders? And tell us how much you need to have in cumulated orders to be able to reach your EUR 500 million revenue target for '25? That's the first question. The second question, and I would like to come back to the comments you've made about the share of BEVs in Europe in 2030. I understand the the rational side of your comments, Patrick. Unfortunately, the market is not necessarily always rational and is in the mood to think that BEV share could be more like 75% to 85% in 2030, even if it may not happen. Could you tell us what kind of flexibility you have, if ever, certainly, governments or private companies managed to install sufficient number of charging points? And certainly, everybody wants to drive that kind of vehicle. And last question, we've talked a lot about what you may do in terms of M&A activity, and I think it's a peculiar topic that becomes hotter and hotter everyday. Could you tell us whether you would eventually consider raising equity if you have to do a deal that you don't want to miss the perfect partner?

So H2, we are EUR 280 billion. To achieve our targets, we need to complement in the second half, our order intake by EUR 220 million. And this is the number we need to achieve our midterm target. And we are confident that we will be able to do this. BEVs and what is happening in Europe. First of all, the -- the 2035 is real or might be confirmed for Europe, not for the other regions. Europe is representing 25% of our sales of Clean Mobility. So we have, I think, a significant business, which will remain even after this period of time. We are thinking about reorganizing our Clean Mobility business and especially making it on Chinese activity, Chinese legal entity, which will allow a significant flexibility on how we will manage it in the years to come, taking into account what might happen on the marketplace. But I'm saying it again, we should not underestimate the infrastructure. I think it was quite easy to convince consumers to switch from diesel to gasoline, from gasoline to hybrid. It's a little bit more difficult to convince them to go to full electric related to some constraints you have on the use cases, which will have to be lifted in the years to come. And I'm not convinced that the cost convergence will happen as it was announced or even it is announced in the moment. But we are not resistant to it, okay? So we, and I said it, we believe in zero emissions. This will come and we need to be agile and capable to react to the events, which will pop up and which will happen on the marketplace. And I think that we have a plan which will allow us to do so. M&A. Yes, if we would have an opportunity, which would be of high interest, we would considering raising equity. Yes. We will, of course, manage our debt. I'm saying it again with the perspective to be able to deleverage. I would say, 3 years to be back to net debt on EBITDA at around 1x. If we do not have more questions, we might -- we have a question here.

We have a question by Internet. So I will read it. I will read them, sorry. For [indiscernible], Patrick, you have already answered. The first one is from Stephan Puetter, BAM Funds. Do you see scope for the group to participate in large-scale sector consolidation? And has your strategy for Clean Mobility and Clarion changed, given the faster EV adoption and more and more in-sourcing announcements in electronics?

I think that it is very clear that when you are active in the electronic field, electronic and software, you have to take into consideration the changes in the future electronic architecture. What I believe is that this architecture is known. All the OEMs will not go there at the same speed. But finally, everybody will converge to this type of architecture, which means more computing power embarked, better connectivity with the cloud and a zonal approach for the electronics. So more software and less decentralized electronics. We are considering each of our segments and are making sure that we measure the risks we have. And what I can tell you is that with Clarion Electronics today, we believe that we have a very little risk. With the exception of IVI, but where we are not very big, which might become a commodity. And this is related to the Foxconn question I had a little bit before. I also would like to tell you that during our CMD 2 years ago -- 3 years ago, we spoke about battery packs. At the time, we considered it and abandoned it the year after because of the little added value we could bring. Today, battery packs are different because you put the battery cells directly in the final battery pack, which will be assembled on the car. We are now back on these technologies with a cooling system, which is completely new, very innovative, including temperature sensors, and I hope to be soon able to present to you these technologies. So we are continuing also to check what can we do on the electric vehicle side.

Patrick, there is a second one from [indiscernible] of Reuters. How do you see the trajectory for the BEVs and iteration vehicles, wait sorry, in future for this asset?

So we spoke about hydrogen and our target, this is unchanged. I think that if electrification would further accelerate, it would be good for battery electric vehicles. You will hear people telling you that hydrogen is the best solution for the heavy mobility, which is true. But what we are seeing on the market is that all light commercial vehicle makers are considering dual power batteries plus hydrogen. And I think that this is probably the way to significantly accelerate the introduction of hydrogen, This, for example, is a perfect solution for pickup trucks in America. So I think that we will have to be on both, and we will have to continue to work on the hydrogen side, which is doing well. We have the technology. And we will be on the market with [ CRL ] production at the end of this year. And on the electric vehicle side, we are working on the electronics, and we are working on the battery pack, and I will be back to present this to you in a few months to come. Thank you very much. I would like to thank you for your attention. Thank you.