OPmobility SE (OPM) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Q3 2021 Plastic Omnium Conference Call. I would like now to hand over to Laurent Favre, Chief Executive Officer; and Kathleen Wantz-O'Rourke, Chief, Financial and Information Systems. Laurent Favre, please go ahead.

Yes. Thank you. And good morning, everybody. Very happy to connect with you today to talk about the Q3 2021 highlights of Plastic Omnium. I'm here with Kathleen, our new CFO since some months. And Kathleen will introduce herself later on in the presentation but also comment the financials. I will start with a big picture of the market and how PO is performing in this very challenging market. Kathleen will talk about the financials. And then we will talk about the outlook for the rest of the year before handing over to you for the Q&A session. If we start with the Q3 performance of Plastic Omnium and, first of all, with the market. As you all know, the market was very strongly impacted by the semiconductor shortage because in total our customers did suffer a lot in the Q3. And the worldwide automotive production went down by 19.5% in the third quarter. The performance of PO in this [ first ] quarter is pretty strong. We are showing again our strong resilience, first of all, in term of sales because our sales went down, I would say, only by 14.4%, meaning much less than the market. And we have a very robust performance in all the major geographies, as you will see later on in the presentation. We had also a very high number of start-up production in all the regions, showing again the strong order intake we had in the past years but also the capacity we will have to recover very fast once the market will be stabilized. And also a very important topic for us: We are growing in Asia. And you know that Asia is a very important region for Plastic Omnium to further develop, to further gain market share. And we have a very strong growth in Japan, in India in Asia; and outperforming the market in China. In this very significant market environment, we are working, first of all, on reinforcing our cost-saving measures. And I will go much more in details to that later on. We have a very strong focus on cost reduction in our Omega program. You know that, last year, we did launch an Omega program with a commitment of EUR 100 million savings already for this year, and we will achieve that. The focus is mainly on cash generation, on maintaining the investments but also on working on our working capital basically to face the volatile market and the production stoppage from our customers, but we have also many activities to mitigate the impact of the inflation with our suppliers and with our customers as well. We don't stop any activity in term of innovation, in term of strategic developments because we do believe the transformation of the market is speeding up. We do see that the demand for passenger cars is still very high. The stock level is pretty low in all the regions, in the U.S., in China as well. And therefore, the market will recover. The market is transforming. And we will be one of the winner, I would say, in this new market. Therefore a lot of activities with order intake, record-high order take; very strong position in BEVs, in all the businesses; very strong position as well in China, where we are gaining market share especially new energy vehicle segment but also very strong activities in hydrogen; and a high number of production starts in all business divisions. That was for the Q3 highlights. If we go down to the market situation. The market situation did change, I will say, dramatically between July and now. You may remember that, in July, IHS was anticipating still close to 80 million cars being produced this year in the world. And in the meantime, in October, this is reduced to 72 million. That means a reduction of close to 17% in the second semester within a couple of months, which does reflect the very volatile and difficult market situation our customers are facing with not enough parts or semiconductor to produce their cars; and the impact, for sure, on the global production and on us basically. Therefore, we do believe, we do assess that this year the market will lose at least 10 million cars, maybe 11 million or more, because of the semiconductor and again not because of the demand but because of lack of capacity in the supply chain. On the next page, you can see that the impact on the customers is pretty diverse. They are most -- they are all, I will say, impacted by the semiconductor, but some of them are able to manage that better than the others. And therefore, some of them are gaining market share in a declining market. That is the case of Toyota. Toyota was already the first one last year but is gaining a lot of market share because they are able to manage much better the situation of the semiconductor, like the competition like, for example, Volkswagen or Nissan, and therefore gaining market share. BMW is gaining market share. Tesla is also gaining market share. And that means also that, depending on your customer mix, your outperformance will be different. Therefore, the notion of outperformance right now is really difficult to assess because it depends on how your customers, our customers are able to manage the semiconductor crisis. And as of today, the winner is Toyota in the mass production. And also BMW and Tesla are performing much better than the competition. Therefore, very difficult market situation for us, for our team; a very challenging market situation for us, for our team. The main challenge for us is not the drop in production. The main challenge is that the market is very volatile, but the market is very unpredictable, meaning that we have a visibility of 1, 2 or 3 weeks max. Sometimes we are informed by our customers only 1 or 2 days before they have to shut down a factory. Therefore, agility is key. We are flexible. You know that we have a very flexible cost structure, that we have more than 20% of temps in our factory. In most of our factories, we have even 30% to 40% of temps. And therefore, we are using [ that ], but the issue is the lack of visibility and the speed. We have to be able to react to the changes in production program from our customers. On top of that, there is a general inflation in the world, as you know, as well. It will be more than 5% in September in the U.S. It will be 3% in Europe. And all the costs are increasing basically. And it's about raw material prices. We have been talking about that already, meaning for us the resin, for example, but also the logistic but also the energy cost. Therefore, all the costs are increasing in a declining market. That is a challenge we are facing. To face that, we are increasing our cost reduction effort. We are using the flex we have in our factories, in our R&D centers as well to reduce cost. We have very, I will say, active and tough distribution with our suppliers and with our customers because -- you know that our aim is always to be able to compensate the inflation with our customers or with our suppliers. We want to avoid the P&L impact on that, which is tricky right now because the inflation is huge. We have been able also to hedge the energy price until end of 2023. That means also to mitigate the impacts of the energy increase on our P&L. And energy for PO is 100 million a year; and therefore very important also, success from the team. And we have a very strong focus on cash. For us, cash is king this year, meaning very strict control on CapEx. We are flexing the [ CapEx ] in line with the activity basically. We are working very hard on maintaining the inventories and -- to a normal level, which is a challenge because again the market is very volatile. Because we want to be ready once the market will recover, but for sure, we want to -- we want as well to mitigate the impacts on our cash; and therefore, a strong focus on inventories. And for sure, discussion. I will say tough and active discussion with our customers, again to find ways to compensate [ the lost ] we have in production but also the cost increase because of the inflation. Therefore, strong focus on cash, strong focus on cost reduction, using the flexibility we have in our cost structure but not stopping any activity regarding the future of Plastic Omnium, meaning mainly innovation, innovation for new energy vehicle, innovation for hydrogen as well because, again, the speed of the transformation of the market is increasing and we want to be ready when the market will recover. It was, in a nutshell, the market situation. I hand over now to Kathleen. Kathleen will guide you through the financials, more numbers, more numbers in details about the PO performance in this challenging environment. And I will come back in a couple of minutes. Kathleen?

Thanks, Laurent. As many of you are aware, I took on my role as CFO of the company Plastic Omnium in August this year. And so a few weeks into the job, I just wanted to present myself to you and give you a little bit of feedback on the insights that I've gained in the last couple of weeks: So I accepted this job primarily because I thought it was a fantastic synthesis between -- with over 30 years in different industries both in the manufacturing sector, in the energy sector and in the mobility sector, in public transport in particular, I believe that I do bring some kind of experience in a number of domains that are very relevant today for Plastic Omnium. Looking at the company today, perhaps 1 thing -- 2 things that have -- really stick out in my mind. And it's the very strong culture of operational excellence and the agility with which the teams are able to adapt and react very quickly and without a lot of bureaucracy and complications to the different market situations that we're experiencing at the moment. So I have a lot of respect for the colleagues in the field who are doing that on a day-to-day basis. And in actual fact, operational excellence and manufacturing excellence, that's what we actually sell to our customers. In terms of the future priorities of the CFO, well, I mean, preserving our financial fundamentals is obviously the most important thing any CFO has to do. And I would like just to underline how strong those financial fundamentals are in PO. We're very -- we have very low debt, very strong liquidity; and so we actually have quite a lot of strategic freedom today. And that's why, in our various communications that you would have seen, we're positioning ourselves as a future actor in the consolidation of the market. And so we have a very forward-looking view beyond the current short-term crisis. So in the short term, obviously we are looking at cost reduction measures. We are looking at cash generation. And also, on the finance side and IT side, I'm looking at launching for the midterm a transformation project. We'll be looking at our processes and focusing on digitalization. So there's a lot on the menu. Perhaps moving forward now to the financials, on Slide 7 of the presentation that you have in front of you, I'd summarize Q3 in terms of revenue as reflective of our ability to resist and to outperform a very volatile market and a very unforeseeable situation. So following a very strong rebound in the first half of the year -- and I'd like to insist on that because all of the indicators were perfectly green. In the first half of the year, we had no further internal issues. As you know, the Greer plant broke even in the first half, way ahead of plans. And now we're in a situation where Greer itself is actually generating recurring operational profit. So on the basis of this very strong rebound in the first half, economic revenue in Q3 fell by 14.4% on a like-for-like basis in the third quarter versus a 19.5% fall in the market worldwide. So that represents an outperformance of 5.1 percentage points versus an overall global automotive production decrease. So our performance is underpinned by a large number of production starts, as Laurent mentioned, and that was actually fueled as well by delays from the first semester. And as far as the year-to-date figures are concerned, despite the very challenging Q3, our robust performance in the first half of the year has really supported us in this time and will continue to do so, [ when ] we're up 13.4% on a like-for-like basis. And both business units, as you can see here, show relatively similar double-digit growth rates. Moving on now specifically to the regional performance in Q3. Performance has been robust, as you can see, in all major geographies. And we have overperformed against the market showing -- that shows globally a double-digit percentage decrease in automotive production across the board. There you'll see the 19.5% that I just mentioned earlier. And looking closely, you can see that the outperformance is particularly strong in Europe, where we do over 50% of our sales. In Asia, the performance is driven by Japan, India and Thailand, thanks, for example, to the successful start of the new SCR Compact+ solution for Toyota. And I think Laurent will come back to you on more details, with more details on that. And as mentioned previously, most regions benefited from production launches for new programs, for example, with Stellantis, with Volkswagen, Toyota, Ford and Lucid Air. China held up better than the market, falling 10.5% against a market drop of 15.3%, thanks in particular to our joint venture HBPO. We were also comforted by our premium positioning with Cadillac, BMW and Mercedes. And that has helped to maintain a strong level of sales over the period in China. North America, as you know, is particularly impacted by the chip shortage; and despite this, we have managed to outperform by 7.5 points the market. Mexico once again has proven itself a key geography for the group with the launches for the Ford and Lucid, for example. If I move now on to the synthesis of the 9-month year-to-date situation on Slide 9. This slide basically sums up our year-to-date performance across our regions, each of which showed strong growth despite the very volatile environment. For the 9 months period, economic revenue stood at EUR 5,930 million, up 11.3% on a reported basis and up 13.4% on a like-for-like basis compared to the first 9 months of 2020. While Plastic Omnium surpassed automotive production in all regions, its geographic mix and customer mix resulted in an outperformance at the group level of 3.7 points on a like-for-like basis. So that having been said, I'll now hand over to Laurent Favre, who will guide you through our commercial activity and operational highlights for this third quarter of 2021.

Thank you very much, Kathleen. And we move now to the -- I will say, to the market, to the good side of the market, meaning our activities with our customers. First of all, as mentioned already by Kathleen, by myself, we had many successes, new contracts coming to us from all the regions, all the customers in Q3. You can see some examples on the slide; and some examples, first of all, in the BEV segment. You know that BEV is a very important share of our order intake. It's a very important share of our current turnover as well, and we are continuing to develop our business in the BEV segment. We had many successes in China with Chinese but also American players who are dedicated in BEV segment; but also in North America with a new contract with General Motors for new cars as well, a new SUV BEV, which will be producing in the U.S. We have also very important awards in other fields, not only in BEVs, and there is one I would like to highlight here. That is the first contract we have, the first award we have for FCA, for Fiat Chrysler in Poland. Since Stellantis is a group, it is opening doors to us because -- you know that we are very strong, Plastic Omnium, with PSA, with Peugeot Citroën [indiscernible], but we are not so strong with FCA. And Stellantis is opening us the doors to new opportunities. And the first opportunity we were able to catch up is the contract for the front and the rear bumpers in Poland for the Jeep. And we will use an existing facility of Plastic Omnium because we have capacity available to deliver them and therefore to optimize the load of the -- of a factory in Poland but also to continue to gain market share. And therefore, as we were announcing already some months ago, this -- Stellantis group is a huge opportunity for PO to continue to develop, especially with FCA now in Europe but, I assume -- or I hope, tomorrow in North America as well. On the next slide, you will see also some important SOPs we had in the -- in Q3. Kathleen mentioned that the number of SOPs was very high as well in Q3 in most of the regions. I won't go through all of them. I will only highlight 3 of them because they are more important, I would say, than the others, more important because -- showing that we are able to continue to gain market share. First of all, we have been launching our first -- or the first plastic tailgate in India with Mahindra. India is an important market for us. Tailgate is a very important market, as you know, because it's a segment where we do see a lot of growth opportunities. And PO has launched with success, without any issue the first plastic tailgate in India for a very important customer, a very important player there, meaning Mahindra. We have also launched in Mexico the front, the rear bumpers and the tailgate for Lucid. You know that we are very strong with the other American pure-EV player, Tesla. And now we are developing our business as well with a newcomer, Lucid, very promising as well, showing again that we have the right technology in term of weight, in term of aerodynamics but also in term of agility and speed to support those newcomers and which are offering us many growth opportunities in the future. Therefore, also a successful launch in Mexico for the front, rear bumpers and tailgate for the new Lucid Air. And last but not least, another important item to be highlighted, we have launched a new SCR Compact system for Toyota in Thailand. We know that the combustion engine is basically declining, will decline in the coming years, but we believe that in some regions we will be able to continue to grow; and that we will be able, PO, to optimize the load or the load of -- the utilization, sorry, of our facilities of clean energy system in the coming years by gaining market share and by being focused on some customers and some regions. And this example is pretty important, new SCR Compact being launched in Thailand successfully; and more to come as well in this segment. Therefore, many SOPs in Q3, many commercial successes. And then on this space, you will see some very important examples as well in hydrogen. You know that we are very committed to hydrogen, that we have very high ambition in hydrogen. We want to be #1 in this segment, in the mobility. And we have been able to gain 2 very important orders in hydrogen in Q3. The first one is, I would say, the biggest high-pressure vessel contract available on the market for passenger cars for Hyundai. That is Hyundai STARIA. The start of production will be in 2023. And we will use an existing factory of clean energy system. We will invest EUR 30 million in this factory in Korea. We are launching now the investment to be ready for the start of production middle of 2023; and to be able to produce 35,000 tanks a year, which is high volumes for -- of hydrogen. And I'm very happy, very proud of what the team has been able to do, that we have been selected by Hyundai to be their partner to develop that. And you know that Hyundai is very aggressive in term of hydrogen mobility in all the segment. And we are very happy to be a very important partner of Hyundai in that. Hydrogen, for us, is also a great opportunity to open the door of different kind of mobilities, not only the passenger cars but also truck and buses. And you know that we have successes in hydrogen in those segment but also trains, railway. And we have been also very proud to be selected by Alstom to be their partner to develop the storage system for their trains. And they have very high ambition to develop hydrogen trains -- but also to be the supplier of their trains. And we will start with the French and the Italian ones in the coming years. We will start the production next year, using our facility in Belgium, in Herentals, where we do produce already [ to the ] vessels for the buses. And we will use basically the same line, the same capacity to produce as well storage system for the trains. And therefore, you do see that in hydrogen what we have been committing on is now happening; and that we have now a very large portfolio, all technologies, storage, the stack with our joint venture EKPO and the system. And the order intake is getting full, I would say. And therefore, we do confirm our ambition to EUR 300 million revenues in 2025 at least and EUR 3 billion in 2030, which is a great, I would say, success for PO and growth engine for the future, again not only in passenger cars but in all kind of mobility. Now if we go to the outlook based on the market condition we know today. And as you know, the market is very volatile. Q3 was very weak, as commented before, because the production went down by more than 19% in the world. We do see October being still very strongly impacted by the chip shortage. We hope November should be a bit better. And based on what we know today, we do confirm our guidance. That means we are targeting to grow in revenue. We are targeting to have an operating margin of at least 4%, 4% to 5%. And we are targeting, which is for us, I will say, the main target, to have a very strong cash flow performance because we do target at least EUR 220 million free cash flow for this year in this extremely challenging environment. And that shows again how resilient PO is, how agile we are or flexible our cost structure is and how fantastic the job our teams is able [ to be ] basically in this very difficult market environment. And last but not least, we are speeding up basically. That means the market is challenging. We have to reduce the costs, but we do speed up as well towards innovation. I've been talking about hydrogen, about new contracts in BEV, but also in other kind of field, we are continuing to innovate. We have very strong financial structure. We have been able also to solve all the operational issues we had some years ago. Kathleen did mention the Greer. Greer is making money now. It's not an issue anymore. And therefore, even if the market remains very challenging, we do see a lot of opportunities for us to consolidate this market and to move faster than the others. That was, in a nutshell, our performance in this challenging market environment. And now Kathleen and myself will be very happy to answer your questions.

[Operator Instructions] We have the first question from Thomas Besson from Kepler Cheuvreux.

I'll start with a question on the guidance. You have on the margin side a very wide guidance, but I'd like you to explain a bit, please. Could you comment on that [ 100 bps ] range? Do you want to be conservative in case Q4 production drops 25% or [ 30% ]? Or is it because you have really limited visibility on what's going to be produced, which customer and where in Q4? And can you confirm that [ relatively you've been ]...

Yes. [indiscernible] question. I mean it's, first of all, the visibility is weak. I mentioned before that we -- most of the time, our customers, they do inform us only a few days before they have to shut down factories. Therefore, we need to adapt. It depends a lot on the product mix and the customer mix. The impact on the margin is not the same if we have to shut down intelligent exterior factory making bumpers or if we have to shut down a module factory. Therefore, the mix is playing a very important role in the operating margin. Depending if we do more modules or more industry parts, I would say the mix will play a very important role because -- you know that the operating margin is very different between the module business, where we have more or less 3%; and the industry business, where the margin is much higher. And therefore, that is something [ we cannot influence ]. That is something we have to live with, but depending on which customers is being the most impacted and also what are they deciding to produce, because -- you know that, the customers, when they are missing semiconductor, they decide to allocate their semiconductor to some cars and some factories, depending on the product mix they want to achieve and the contribution margin they have and so on. And the impact on the operating margin can be higher [ or ] lower, depending on which part of our business is concerned. That's the reason why the range in term of MOP is -- operating margin is pretty high. It's not because we are conservative. It's just because we don't know. And we cannot influence, again, which factories of our customers may be impacted.

Very clear. A second question, please. Kathleen mentioned again the strength of your balance sheet. And you both said that Plastic Omnium wanted to consolidate the industry. I mean I -- obviously I can't ask you for precise details, but do you anticipate that Plastic Omnium has moved before the end of next year? Do you think we are in a particularly positive environment for making M&A operations right now? Or is it too early? Or what's your view on that? Do you believe that you're going to be able to [ move on costs ]? And how much are you willing to spend eventually on a deal, please?

I mean, first of all, you know that we won't answer your question with all the details we would like -- you would like us to answer, but what we -- I think what Kathleen said is, first of all, that based on what the group did in the past, we have a very strong balance sheet. We have low debt. We have high cash available. Therefore, we'd -- I would say we'll keep cool in this very difficult situation. Our target, the target of our team is to maintain this very sound financial structure because then market will remain challenging next year. I think we are convinced about that. It won't be over in 2022. Therefore, we want to keep this very sound financial structure to be able to face again another year which will be challenging. We want to keep it as well to be able to invest a lot of money, like in hydrogen, what I was mentioning before, or other kind of innovation. And we do see and we know that the consolidation of the market will speed up. We do see many players being -- I mean, facing huge difficulties right now, having liquidity issues, having high debt and not having the capacity to invest in innovation because, what's happening now, it's happening in a very fast-transforming market. Therefore, the consolidation will come, by definition, because some players will need support. We are not in a hurry. We want to be able to consolidate, but we are not forced to do something in the coming months. We don't want to take the first fish coming. We want to take the good fish for us, meaning offering us synergies with our current portfolio, offering us growth in revenues as well and being in line with the market megatrends. These are the expectation we do have. And therefore, we are assessing the opportunities, but we don't have any stress or any hurry to do something in the coming months.

Next question, from Michael Foundoukidis from ODDO BHF.

[indiscernible] maybe a quick follow-up on Thomas's questions regarding your margin range. I mean we had a very positive mix between the 2 business, industries and modules, in Q3. We are already end of October, so could you just explain what will be the case for margins, at the low end or at the high end? Is it more volumes? Is it availability -- ability to pass-on higher costs to consumers maybe by the end of this year? That's the first question.

I think the main issue we are -- I mean the main challenge -- we don't have issue. We have challenges. The main challenge we are facing regarding the margin is what we are mentioning, the volatility and the allocation of the semiconductor from our customers to some factories. And depending on which factories are concerned, for sure, the margin for PO are different because -- I mean you know that in Greer, even if we are making money now, our margin are lower than the rest of the group. And Greer is a factory where BMW didn't lose any car this year on X5, X6 and X7 because they are managing the semiconductor properly and because it's high-margin product for them. And therefore, it's high speed in Greer, but in term of margin, Greer is not, I will say, helping even if the factory is positive now. And I just want to explain with the Greer example that, depending on how the customers are allocating their semiconductor or the chips, there is an impact on us as well in term of profitability in the mix. That is the first point. In term of inflation and all cost increase, it's a challenge for everybody, but the teams are doing a fantastic job between working on productivity; and negotiating with our customers, with our suppliers, I really would say, to mitigate or to reduce the impact on our P&L. The main challenge for us, this -- and beside the fact that the market is volatile and the allocation of the customers from their chips is impacting as well our product mix, the main challenge for us is to -- is the labor, is the people because there is an inflation in the labor market in most of the regions and also because we don't want to do stupid things. We want to keep our staff available once the market will recover. Therefore, we have to manage [ this ] properly between adapting our cost structure, our labor cost structure, to the market condition but without, I was saying, doing stupid things and having either bigger issues once the market will recover. And we know that, for example, in North America some companies are struggling a lot because they are not finding the right people to produce, for example. And we don't want to have these issues. Therefore, in term of labor, we are aggressive, but we are very cautious in the way we are managing that. And that is, I would say, the biggest challenge to be faced by our team. Therefore, to answer your question is a mix of -- the mix of the customers, what they produce and the impact of our margin; and the way we are able to manage the labor cost to -- yes, to remain prepared for the recovery of the market.

And I might just add to that, as I've already mentioned to some of you in the past meetings, roughly half of our contracts in operations do have cost variation clauses. So you can imagine that we're strictly monitoring how we can manage to activate those clauses and pass-through, in particular, the price increases. And at the end of September, we've succeeded in roughly 30%, to pass-through roughly 30% of those price increases.

And to continue on the topics of the financials. We have mentioned many times that the main priority for us is cash. I don't want to say that operating margin is not so important, but cash, it's even more important because cash is also the capacity to invest in the future to be -- to protect the company and also to consolidate the markets. Therefore, we are much more aggressive on cash, I will say, in the actions we are taking, [ inventory ] management, investment and so on, because it is I believe or we believe that is the most important financial indicator to preserve the company and to be ready to invest in innovation and to consolidate the market as well.

Okay. And maybe a follow-up on that, do you expect mix between industries and modules in Q4 to remain roughly the same it was in Q3? Or do you expect any meaningful difference?

No. What we do see right now is that, in the first half of the year, in Europe and mainly France, Spain and so on, we are impacted. Since Q3, Germany is heavily impacted as well; and Eastern Europe. And Q4 will remain the same. You read the newspapers as well. You do see that Wolfsburg was shut down, but Audi is still shutting down Neckarsulm and Ingolstadt and so on. Therefore, Germany is heavily impacted right now. And our module business is also very strongly based in Germany or in Eastern Europe. And they are, I would say, more impacted now than they were impacted in the first months of the year.

Okay. And maybe one last one: We hear more and more about supplier difficulties, especially in the lower tiers, in kind of context with OEMs, let's say, refusing to take orders and increasing [ cash ] difficulties within the supply chain. Do you view this topic as real? And do you consider it as an important risk that could [ weight ] on production rebound in the coming months or quarters?

I think the supply chain is suffering differently. You have the OEMs who are managing the shortage in a very, I will say, agile manner but not fair because they are not helping us or the rest of the supply chain to anticipate because again we are informed on short notice. And they are able to increase their prices to the market. You know that they are all proud of being able to increase prices. They are able to manage their inventories, and they are able to manage their product mix to produce the cars where they are making the highest margin. And therefore, they are suffering but not so much, I would say. Then you have the big Tier 1 suppliers like PO being financially solid, having the possibility, because of our teams, I will say, to manage properly everything which is linked to the inflation; and being able also to have a certain power with our suppliers. And then you have some weaker ones, smaller, [ our ] suppliers, other Tier 1, but being not in the same condition, being smaller; and they are suffering a lot. And we do see more and more not being able to manage the crisis. And I believe Q1, Q2 next year will be very critical for many players in the supply chain because, again, it's coming after a year of the COVID, which was already very tricky for some companies. For us, it was not a good year last year, but in term of debt, you know that we didn't have any major increase, that we were able to maintain our liquidity. It's not the case for all the players. And a second year like that with this volatile market environment; with this difficulty to manage the inventory, the cash and so on, it will be very, very painful for some players, Tier 2 but also some Tier 1 which are maybe not so solid in term of financials like we are, Plastic Omnium. And therefore, yes, I can expect some issues in the coming months in the supply chain due to suppliers facing huge difficulties.

Next question, from [indiscernible] from [indiscernible].

Just a question on your EBIT margin new target, 4% to 5% instead of 6%. It's, I mean, we have seen some results from your closest competitors. So the decrease in their EBIT margin is less than 1 to 2 point, so could you please give us more color on the impact, I mean, on -- what has -- what is the cause of this -- impact of this margin decrease, please? [Audio Gap]

Okay. Can you hear me?

Hello...

Yes. Can you hear me?

Yes.

Okay. Just wait a minute, [indiscernible]. Sorry. We have a technical problem. Just wait a few minutes. Thank you. [Technical Difficulty] Okay, now we have Mr. Favre with us. [indiscernible], you can ask your question. Sorry.

Do we still have -- I mean, first of all, we are very sorry to have this issue. We lost the connection. Do we have still people in the room, in the conference?

Yes. We have [indiscernible] on the call for the -- for a question.

Okay.

Just a question on your EBIT margin. So you mentioned 4% to 5% instead of 6%. So it's a decrease more pronounced than some of your closest peers. So they mentioned 1 point or 0.8 points of decrease. So could you please give us more color on this potentially 2-point decrease in your margin, please?

Yes. I mean, first of all, if you want to understand the margin of our colleagues, you ask our colleagues. It's -- it helps. We can talk about our margin. About our margin, as mentioned before, it depends strongly on the mix. It's not only about the market being down by 10% or 20%. It depends on when do we -- are we impacted. And to give you some examples: In Spain, the production went down by 50% in Q3. And we have a lot of operation in Spain, yes. Therefore, the impact on Spain is huge. In Mexico, the production went down also by more than 30% for us in Q3 because of GM shutting down factories and so on and [ preproducing ] in U.S. And the impact is huge as well. And Spain and Mexico, they are also very profitable countries for us. And therefore, it depends on where the customers are allocating or producing or stopping their production, what they do decide in term of allocation of the chips. And then there is an impact on the mix and the mix for us in term of product. Is it module? Is it industry? But also depending on the customer, on the country, on the margin we have. And therefore, it's something, I assume, which may be trend depending on which customers we are working with and what is your mix with those customers. I don't believe it's a question of performance. It's just a question of your customer mix and the allocation of the chips to the region, to the countries they decide to produce or not to produce the cars. Another important factor for PO, which is, I believe, more challenging than other competitors, is that you have 2/3 of our operation which are just in time or just in sequence. It's our module business, but it's also our exterior business. That means -- just in sequence, just in time means that we know only a few hours in advance what we have to produce exactly in term of mix with bumper, with color, with [indiscernible] and so on. And when the production is very unstable and when the customers are shutting down for one shift and starting again, the impact is much bigger than on other kind of business. And for, for example, our tank business [ is struggling much less ] than our exterior business because on the tank business they have less variants. They don't have [ for ] just in sequence. They produce [ 4 days ] and then [ they stop for ] 1 day. And for IES, for the external business, they have to be -- to have the team available [ to produce chips, to stop, to reproduce ] and so on. Therefore, [ the jeep ] and the [indiscernible] business are much more impacted in term of the capacity to flex than the other kinds of business. And that's a reason why the impact on the MOP is maybe a bit higher when you -- what you could expect, but I believe we are using everything we can to mitigate the impact on the operating margin. And again what is important for us as well is we don't want to catch -- to cut too much the head count because there is an issue in many countries of the world to find the right people and we want to be ready for the -- to recover. It's not the -- only about, I will say, saving the year in term of operating margin. It's also about being ready for the recovery. And we know that some of the players are struggling a lot to find the right [ space ], the right people in some regions. And these are issues we don't want to face as well. Therefore, that's a balance between the mix of customers, countries; the mix of products. And we have a lot of [ jeep ] and [indiscernible] plants but also the fact that we are cautious in the way we are managing our people, our staff to keep the capacity available, especially in some countries, to restart the production, I will say, once the markets will recover.

Next question, from Akshat Kacker from JPMorgan.

Akshat from JPMorgan. 3 from my side, please. The first one, on supply chain and material shortages, can you talk about availability of key materials for the auto industry in general and especially a few components coming from China? Over the last few days, we have heard about key shortages [ on ] magnesium. Any key bottlenecks that you are looking at? That's the first one, please.

Okay. Akshat, I mean, regarding the supply chain, we don't have any shortage for us, Plastic Omnium. And we were facing some issues in the first quarter, yes, for some resin, for example, in plastic, but now we have been able to stabilize the supply chain. We are buying some semiconductor, but we have been able to stabilize as well the supply chain. Therefore, we don't have risk in our supply chain as of today, which is great. Therefore, we don't have risk with our customers also to have some penalties. We are just suffering from the impact of the supply chain on our customers. That is what I was mentioning before. Looking forward -- there is, I will say, challenge in China right now because of energy shortage in China -- or the way they are managing the energy in China, I would say. And some of our factories are being shut down for some days because in some region of China, as you know, they are just cutting the energy. It is only a local impact. It -- that's of all industries, not only PO, being like that, but it doesn't impact the rest of the world. Regarding magnesium. I think we can expect -- when I say we, it's the complete industry, not only the automotive industry, but we can expect some issues in the coming months because -- you know that 90% of the magnesium is coming out of China and that China is reducing massively the production of magnesium. We do not buy magnesium directly at PO. Therefore, we won't have any direct impact, but we can expect the automotive industry and other industry being impacted by shortage in magnesium in the coming months.

Understood. The second one is on your Omega transformation plan. You obviously confirm the EUR 100 million savings in 2021. What I was more interested in is the purchasing and procurement savings of EUR 100 million over 2021 and 2022. As you were pointing out, we are obviously in a very tricky operating environment and there is disruption across every supply chain. Are you still confident of delivering those purchasing savings over this 2-year time frame?

Yes. I mean exactly as you said. When we talked about our Omega, it was EUR 200 million target for end of 2022. And half of that is in purchasing. I mean in EUR 100 million, and that is still what we are seeing. It helps us to -- I will say, to mitigate the inflation impact, especially in energy. And when we say we have been able to hedge the energy costs until 2023, it's part also of the Omega project. And therefore, yes, we do confirm that we still target EUR 200 million for 2022; and half of that already this year, in purchasing.

And last one, on Greer. You mentioned the plant is running ahead of breakeven in 3Q because of high loading. Are you in a position already to give us some margin targets looking into 2022 and 2023 for this plant specifically?

No, not today, but we are very happy with Greer. I mean, first of all, the volumes are very high. BMW is able to not to lose one car in Greer, which is good for us. It's good because the team is performing well. It would have been an issue if we wouldn't have been able to recover in Greer. Therefore, we don't have any issues. Our target was breakeven this year. It was achieved already in the first semester. As Kathleen mentioned before, now we are making money. Operating margin is positive in Greer. It will continue to increase. New programs will start in the next 18 months in Greer. You know that we have been awarded by GM also because they are outsourcing their exterior business out of Tennessee, Spring Hill, to our operation in Greer -- Anderson. Therefore, we will have additional contribution margin in Greer. And we are launching in the coming 18 months all the new BMW model in Greer, and they should have a better margin. Therefore, for us, Greer, I would say, 2023, 2024, it should be in line with the margin of the group.

Very clear. And the last, clarification on free cash flow and CapEx: You mentioned there is a clear focus on cash, so are you thinking of keeping total CapEx at a level very similar to the first half?

Yes.

The next question, from Pierre-Yves Quemener from Stifel.

Yes. Laurent, Kathleen, just 2 follow-up or clarification. Laurent, you mentioned that October was tough. Is it as tough as September was? That will be the first question.

Yes. I mean tough means that there are still many issues with our customers -- I mean for our customers and then impacting us. I would say October won't be much better than September, yes, honestly, what we do see today. Today is the 27th of October. Therefore, I think we know how the month is happening. There are still issues, as mentioned before, in many countries of the world. Germany is heavily impacted but in Mexico, in the U.S. as well. Therefore, we do see October being, I would say, more or less like September. November should be better, if we rely on what we do see and the announcement of the customers. Therefore, we do expect a better November than the October. And October is more or less in line with September.

Okay, great. Then the other one is into 2022. Could -- would you be prepared to share with us the magnitude of the cost inflation challenge that you are facing and which is broad-based if you include raw material, energy, labor, logistics, et cetera? Is it something equivalent to 0.5 point of margin that you need to compensate for into 2022?

I think, first of all, it's too early to share about that. We will do that in a couple of months -- because it's also very volatile. What we do see is, for sure, energy costs are basically increasing by more than 50% since 18 months. That, we have been sharing that, that raw material, we have many raw material in resin and so on. It's 30%. Logistics is much more, and labor as well. That means it's a huge amount in total. What is important for us is not the energy increase. It's how we are able to face that because, if I take the example of energy, we are able to hedge that. We are able to reduce the consumption of energy as well in our factories, therefore, to use less basically. And we are working with our customers to find a way as well to compensate at least partially. Therefore, too early to mention that but very -- I would say, very aggressive targets internally to mitigate a huge part of the inflation, which is important. We are -- I would say we are more concern in the way we have to be able to manage the inflation, because the inflation will last, I believe, for not only the coming months but maybe the coming years, than the way we are manage -- able to manage the production shortage because it's just a topic of the supply chain today. And we hope the market will recover. But too early to share about numbers. We will do that beginning of next year.

Thank you, ladies and gentlemen. We have no more question. [Operator Instructions] Next question, from Antoine Bregeaut from Exane BNP Paribas.

Yes. It was just -- and sorry for the repeat. I think we -- the connection was lost, but you mentioned that Q2 next year should be very challenging for some suppliers. Could you please repeat what you are saying around that? I'm sorry for the repeat.

I was just saying that I think something -- everybody should understand that, depending on where you are in the supply chain, you suffer more or less right now. That means the ones who suffer the less are the customers because they are able to -- I mean the OEMs because they are able to design their products mix. They decide which cars they want to produce or not because of their margin, because of the capacity they have, because of the actions they are able to take to mitigate the impacts on the cost. They are able to increase [indiscernible] prices as well in the market. It's well known because they are proud of that. They increase their prices. And they are able to manage their inventories properly. Therefore, I would say, for them, as of today -- I don't want to say for the long future, but [indiscernible] chip shortage is not an issue at the end. It can become an issue in the coming year, but it's not an issue. And then you have the ones -- I'm not talking about PO but the ones which are the Tier 2 or smaller Tier 1 who are not able to anticipate; who have very high inventories because, if you cannot anticipate, you have inventories as well. You order material and which you don't use. And inventory is cash. And it is coming after a COVID year, which was terrible for many companies, again not for us because -- you know that we have been able to maintain our debt at very low level and to maintain our cash situation as well. And therefore, they will suffer a lot. It's just normal. They are suffering today. And we do see already companies shouting out, I will say, right now, "Suppliers are not suppliers," not able to follow, not able to follow as well if the market recover because they won't be able also to reinvest. And therefore, I believe the industry has to be very cautious for Q1, Q2 next year because many companies won't be able to make it happen. That's the reality, I will say, of the supply chain after 2 years COVID and semiconductor, which are very challenging. That's something we are monitoring very closely, but again it's I want to say for us -- it's not an issue for us. It's not an issue directly because we are solid. It's a concern because, at the end, the supply chain has to work. It can be an opportunity as well in term of consolidation because some of the players are not able to follow, basically.

Thank you. We have no more question. [Operator Instructions]

[indiscernible] there is no question, maybe we make a short conclusion. First of all, thank you for attending. Again, sorry for having this technical issue this morning. I hope that you had the opportunity to ask your questions you wanted to ask. In a nutshell, I think we can be proud of what we are doing in PO. I mean the performance is strong, I would say, if we consider the market environment. We are very -- as you have understood, we are very aggressive in cost reduction action, especially on cash because, I believe, right now cash is even more important than the rest. It is our freedom. It is to preserve our company. It's our capacity to invest and to consolidate the market in the coming years. And in everything we do, we don't forget that we want to be one of the winner of this transformation of the market. Therefore, we continue to invest in innovation. We don't compromise on hydrogen. And we are happy to be able to celebrate many successes in hydrogen, as mentioned before, but also to have a very strong order intake. That's the highest year in the history of PO in term of order intake, which is very important because we believe the demand is high. Just a short-term or a middle-term topic, what's -- the industry is facing, and we want to be ready to recover faster than the others. Therefore, thank you again for attending the meeting, and thank you for the discussion.

Thank you very much. Thank you...

Thank you. Ladies and gentlemen, this concludes today's webcast. Thank you all for your participation. You may now disconnect.