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Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the 2019 Q1 sales conference call. [Operator Instructions] I must advise you the conference is being recorded today, Tuesday, the 23rd of April 2019. I would now like to hand the conference over to your speaker today, Michel Favre. Please go ahead.
Thank you. Good morning, ladies and gentlemen. Thank you for attending this conference call where I will be presenting our sales figures for the first quarter of the year. The press release was posted this morning at 7, Paris time, on our website. And the slideshow I am now going to comment is also available on our website as well as through the interlink, which is enclosed in the press release.I am today with Marc Maillet, our Head of Investor Relations; and Anne-Sophie Jugean, who joined us recently as Deputy Head of Investor Relations.Slide 2 summarizes some key facts you have to keep in mind while looking at our first quarter sales figures. The first table shows the detailed contribution from 2018 bolt-ons that is included in our first quarter sales. The total contribution amounted to EUR 104.5 million, representing 2.4% of last year Q1 sales. This contribution, assuming no new bolt-on in 2019, should reduce to slightly less than 2% in Q2 and be no material in Q3 and Q4. In February, we announced that our sales outperformance for the year 2009 (sic) [ 2019 ] will be negatively impacted by the end of production of 2 significant Seating programs; one in Cottondale for Daimler; and one in Vigo, Spain, for PSA, respectively, the GLE/GLS and the Berlingo. We also indicated that the full year impact on sales outperformance should be of circa 200 basis points. In Q1 2019, the 2 programs, representing a year-on-year negative impact of EUR 95 million, representing 2.2% of last year Q1 sales.Next item to be mentioned between Q1 2018 and 2019 also following slide -- this slide, sorry, was the impact of the wind-down of our activities in Iran that took place at the end of July 2018. This represented a year-on-year negative impact of EUR 9 million or 0.2% of last year Q1 sales. As you can see, the positive impact of bolt-on contribution is offset by the negative impacts of the Seating programs and Iran. My last comment before looking at the figures is that we are now a fourth business group, Faurecia Clarion Electronics. In Q1, it only included Coagent and Parrot Automotive figures as Clarion will be consolidated only as from 1st of April. Due to time constraints related to the first consideration of Clarion and audit procedures for interim account at June 30, Clarion will be accounted for only 2 months, that is to say April and May in our half year results publication. This lag will be fully recovered at [ September 30 ]Slide 3 shows our group figures for the quarter. Our sales stood at EUR 4.325 billion, up 0.2% on a reported basis. Currencies had a positive effect of 1.3% positive mainly due to the U.S. dollar and the Chinese renminbi partly offset by the Turkish lira and the South American currencies. As a consequence, our sales at constant currency slightly dropped by 1.1% compared to a drop in worldwide automotive production estimated at 6.9%, which means an outperformance of 580 basis points. We are outperforming all regions, even in China except, as expected, in North America. The slight underperformance in North America is attributed to the end of production of the Seating program in Cottondale. Restated for this impact, we also -- we have also outperformed in North America. It is worth mentioning that supported by bolt-on contribution, our sales in China posted a 4.7% growth at constant currencies and have outperformed the Chinese market. This is true even if we restate figures for the bolt-on contribution. All business groups also outperformed worldwide automotive production, as indicated on this slide. The sales performance in Q1 above our sales forecast of February allows us to fully confirm our full year guidance.I will now review sales by region. Starting with Europe on Slide 4, which represented 51% of group sales in the quarter. Our sales stood at EUR 2.217 billion, down 2.7% on a reported basis, including a slight negative currency impact of 0.9% mainly attributable to the Turkish lira. At constant currency, sales are down 1.9%, 300 basis points above automotive production that dropped by circa 4.9% in the quarter. Growth at constant currencies was mainly driven by Clean Mobility, which benefited from a contribution of EUR 13.6 million from Hug Engineering. Europe also benefited from the consolidation of Parrot Automotive since January 1 that contributed for EUR 10 million of sales. Conversely, Seating was negatively impacted as expected by the end of production of the Berlingo program in Vigo, Spain, that represented a year-on-year negative impact of EUR 38.9 million.On Slide 5, let's have a look at North America, which represented 26% of group sales in Q1. Our sales stood at EUR 1.117 billion, up 5.1% on a reported basis, including a positive currency impact of 8% due to the U.S. dollar versus euro. At constant currency, sales were down 2.9%, 40 basis points below automotive production that dropped by 2.5% in the quarter. As already mentioned, this underperformance was not a surprise. It reflected a significant negative impact from the end of production of the Seating GLE/GLS program for Daimler in Cottondale that represented a EUR 56 million negative impact with respect to last year. Restated for that impact, sales in North America grew at constant currencies, outperforming the North American automotive production by almost [ 500 basis points ]. Let me mention that our Clean Mobility operations posted a robust growth in the quarter.On Slide 6, let's move on to Asia, which represented 18% of group sales. Our sales stood at EUR 798 million, up 7.5% on a reported basis, including a positive currency impact of 2.4% due to the Chinese renminbi versus the euro. At constant currencies, sales were up 5.1%, strongly above automotive production that dropped by 8% in the quarter. This 5.1% growth included the contribution of EUR 80.4 million (sic) [ EUR 80.9 million ] from bolt-ons, whose detail is on the Slide 2. Even restated for this contribution, sales at constant currencies would have outperformed the Asian automotive production by 220 basis points. Within Asia, sales in China amounted to EUR 604 million. They were up 6.8% on a reported basis and up 4.7% at constant currencies. This represented an outperformance of 1,990 basis points versus the Chinese automotive production that dropped by 15.2%. Sales in China included the above-mentioned contribution for bolt-ons. Even restated for this contribution, sales in China outperformed the Chinese automotive production by 560 basis points. Sales to Chinese OEMs amounted to EUR 224 million and almost doubled versus last year. They represented 39% of sales in the country versus 20% in Q1 2018.Last region on Slide 7 is South America which represented 4% of group sales. Our sales stood at EUR 150 million, down 10.8% on a reported basis because of the strong negative currency impact of 14.9% due to both the Argentinian peso and the Brazilian real. At constant currencies, sales were up 4.2%, 890 basis points above automotive production that dropped by 4.7% in the quarter. Growth at constant currencies was mainly driven by Clean Mobility.Let's now move on the review by business group. Let's start on Slide 8 with Seating, which represented 43% of group sales. Our sales stood at EUR 1.841 billion, up 1.3% on a reported basis, including a positive currency impact of 1.2%. At constant currencies, sales were broadly stable, up 0.1%, to be sharp, 700 basis points above worldwide automotive production that dropped by 6.9% in the quarter. Growth at constant currencies included the bolt-on contribution of EUR 58.5 million from the JV with BYD in Asia. Conversely, it was penalized, as previously commented, by the negative effect of the end of production of 2 Seating programs in North America and Europe, representing a combined year-on-year negative impact of EUR 94.9 million. It is worth mentioning that Asia grew by strong double digit driven by Chinese OEMs and that South America was broadly stable.Let's move on to Slide 9 with Interiors, which represented 30% of group sales. Our sales stood at EUR 1.294 billion, down 4.7% on a reported basis, including a limited positive currency impact of 0.7%. At constant currencies, sales were down 5.5%, outperforming worldwide automotive production by 140 basis points. Sales at constant currencies included the bolt-on contribution of EUR 20.9 million from the JV with Wuling in Asia. Growth in sales with VW in Europe, FCA and Tesla in North America and Chinese OEMs did not offset the challenging market conditions faced by other OEMs.On Slide 10, last but not least in term of growth, is Clean Mobility, which represented 26% of group sales. Our sales stood at EUR 1.144 billion, up 3.4% on a reported basis, including a positive currency impact of 2.1%. At constant currencies, sales were up 1.3%, strongly outperforming worldwide automotive production by 820 basis points. Growth at constant currencies included a bolt-on contribution of EUR 13.6 million from Hug Engineering in Europe and was also driven by solid performance in North America and South America. I will not make specific comments for Faurecia Clarion Electronics, which at this stage represented only 1% of group sales. It only included sales from Coagent and Parrot Automotive, details on Slide 14. Sales from Clarion will be included, as you know, as from April 1.I am now finished with the review of our Q1 2019 sales by region and by business group. Let me, on Slide 11, remind you 2 main events that occurred since the beginning of the year. The first one is the finalization of the acquisition of Clarion on time and in line with our schedule. As already mentioned, we will have as from April 1, in response to the acquisition of Clarion, a sizable and significant new business group. Atsushi Kawabata, former President and Chief Executive Officer of Clarion, has been appointed Executive Vice President and member of Faurecia Executive Committee. [ Within ], Jean-Paul Michel, our former Finance Vice President of Interiors, has been appointed Deputy Executive Vice President. I would like to underline that we have fully completed the financing with the recent 7-year fixed interest bond. Full cost of financing amounts to 2.5%, better than our expectations.The second one is a signature of a Memorandum of Understanding to create a joint venture named "SYMBIO, A FAURECIA MICHELIN HYDROGEN COMPANY." In this 50-50 joint venture we will bring together all our respective fuel cell-related activities, it will develop, produce and market hydrogen fuel cell systems for light vehicles, utility vehicles, trucks and other applications. This reflects our strong conviction that hydrogen technology will be key in tomorrow's world of the zero emissions mobility. And joining forces with Michelin, we aim at creating a world leader in hydrogen fuel cell systems.I will close this presentation on Slide 12 with the confirmation of our full year guidance. Our February assumption that worldwide automotive production should be down 1% in the full year 2019 versus 2018 remained fully valid with a difficult first half and growth resuming in the second half. The latest IHS Markit forecast released last Tuesday indicated now a drop of 0.9%. Based on this assumption and taking into account our Q1 sales figures and outlook for the coming quarters, we fully confirm all the targets we indicated in February: sales growth outperformance at constant currencies of between 100 to -- 150 to 350 basis points, this figure is, of course, without Clarion; operating income up in value and operating margin of at least 7% including Clarion; net cash flow of at least EUR 500 million also including Clarion.Thank you very much for your attention, and we are now ready to answer your questions.
[Operator Instructions] Your first question comes from the line of José Asumendi of JPMorgan.
Michel, a couple of questions, please. The first one on outperformance [ build up ] production towards Q2, Q3, can you expect some improvement maybe across Interior on a quarterly basis versus the level we've seen in Q1? And also can you comment, please, with regards to the transition into RDE? Are we -- do you think carmakers are ready for this challenge going into Q3, Q4? Or where do we start on that? Second point, Shanghai Auto Show, can you share any details, any comments from the auto show and any comments with regards to the overall sentiment in the Chinese car market and if you could just share any anecdotes from the event? And three, on Clarion, can you give us any details of the accelerated restructuring plan you have for the division?
Thank you, José, and thank you for your -- all your questions because you have a lot of questions, we are early morning. So for the outperformance, we confirm that the second quarter will be the top of our guidance. And probably we have, of course, to see how the second half will be. What we can say that second half will be probably more in the bottom of the guidance. We see that all the markets have stabilized. As you know, we see some positive signals in China, to be confirmed. And Europe will be, of course, impacted by the WLTP production of last year which was very important in the second quarter [ being of the fact that ] the second half will be clearly much better in the comparable. You have the specific questions of Interiors. So Interiors was most affected by the commercial mix and mainly in China. We will be better -- it is our expectation, we'll be better in -- from the second quarter onwards. Now going to RDE, sorry, to the question for our customers, we think that they are much better prepared to pass the test than last year as have reduced our number of [ INC ], et cetera. So we consider that the test will be much smoother than last year, to be confirmed, of course. On the Chinese auto show, I have a new quick feedback from the people who have gone there. They were amazed by the -- I would say, the last larger range of electrical cars. And by the quality of the Chinese OEMs, what they are offering to the market, they are clearly catching up with international carmakers. A lot of beautiful cars, so they were really impressed by the quality of the exhibition.Now for Clarion, still Clarion, we are [ reentering ], so we are estimating all our plan. We have put in place, as you know, the management. And I have to say that I'm very proud that [ Gaya ] from the finance is now the deputy in Clarion. And we are very happy, of course, to receive Mr. Kawabata inside our organization. So everything is in place. We will be more talkative on the plan in July, as you can see.
And your next question comes from the line of Horst Schneider of HSBC.
I'm looking here in Q1, at this strong outperformance that you had, and I compare that basically to the full year guidance that you have got in place. This is 150 to 350 basis points excluding Clarion acquisition. How should we look at Q1, that Q1 was then for you in the end better than expected in terms of outperformance? And I want to get a feeling now how conservative your full year guidance is, especially now regarding this outperformance guidance, if you could see maybe more in the course of the year. And then also regarding your EBIT guidance, I know it's not an earnings call here, but maybe you can give us some more feeling now, given the strong growth that you had in Q1, what is now the EBIT development expected for 2019 excluding Clarion since you guide just for the effect including Clarion.
Thank you, Horst, for your 2 questions. I think I was clear in this preliminary with sales production, we were better than expected in the first quarter, there was stabilization month after month. And what is good is that month after month, we're [ expecting ] above our forecast, both in Europe and China because I am anticipating some questions of analysts on that. Saying that, it is, of course -- and I don't want to be too much positive, but of course, we consider that we are building a strong outperformance and that we can be more optimistic than we were in February. So that is what I can say today, and I don't want -- we are not changing as you have seen the guidance. Saying that, for the EBIT, as you know, our, I would say, margin contribution, 20% of the additional sales, so I am very happy to see this kind of additional contribution. We see it clearly as well enhancing my confidence in our capability to achieve on a very positive manner the full year guidance on the profitability. Sorry, I cannot be more talkative, but as you can understand, we are in a better shape today than we were in February.
Then maybe a quick follow-up. What surprised you positively then in Q1 on your outperformance? What was better than expected?
To be honest, Europe.
Versus your original expectations in February?
Yes. No, to be honest, Europe because we faced a difficult second half in Europe due to the WLTP program with some smaller downside. China, we were seeing as well the stabilization. So both Europe and China were more robust than expected.
And Europe was driven by particular customers or it was across the board for you?
No, clearly on the customer side with Volkswagen and Peugeot.
And your next question comes from the line of Gaetan Toulemonde of Deutsche Bank.
Michel, it's Gaetan speaking. I remember in February you told us that you have gained a contract from one of your U.S. competitors in seat frames. Since your competitors in the U.S. is not doing that well, did you gain other contract you could tell us today?
Thank you to be with us. We are -- as you know, we don't disclose the order book quarter-by-quarter. We have a good order book in the first quarter. I cannot say something more but nothing specific on Seating. Good order book, positive is what I can say.
Okay. But maybe the reason I'm asking that question is that when you guide this year for 150 to 350 basis point of outperformance, does that mean that in 2020/'21, you could have an acceleration of that organic growth? Or you still believe that we're going to stay in the same order of magnitude?
No, no. Okay, clearly, we have this specific impact of the end of 2 -- the 2 Seating activities, which is the 200 basis points. So I clearly anticipated that in the 2020, we will be at the same guidance but with 200 basis points more. And we'll have an acceleration in 2021 with the 2 platforms of frames we gained in 2017, 2018. And this would add probably 100 to 200 basis points, I would say, additional growth. So it is why we will have an acceleration [ with write down ] from 2020 onwards.
Okay. That's clear. I want your detail. When you mentioned on your full year guidance of the net cash flow, free cash flow in excess of EUR 500 million including Clarion, the impact of Clarion should be fairly neutral on the free cash. Is it correct?
No. No, no, Clarion, we will have the integration costs. We'll have the restructuring costs as well. So we're -- I agree that we can be cautious. But we are estimating a cash outflow in Clarion between EUR 50 million to EUR 70 million, [ as you want ]. But we are today estimating a cash outflow. I agree we can do better, but we have to make our plan. We have to use the 2019 to clearly set our operation in Clarion, to gain market share and to start 2020 onwards on a very positive healthy manner.
[Operator Instructions] You have one more question from the line of Sascha Gommel of Crédit Suisse.
It's actually a follow-up on the Seating question when the frames are ramping up, I was wondering if you can give us some feel of the impact on your profitability if you see any material change on that.
Thank you, Sascha. So as you have seen, as it was clearly indicated in February, this growth resuming from 2020 onwards will be our method. You know it was disclosed that our targeting method is 8% profitability. Clearly, this growth must be inside this guidance. So -- sorry, automatic. So it will be normally slightly accretive of the total respect to the group, I would say, profitability.
And your next question comes from the line of [ Thomas Besson ] -- your next question comes from the line of Stephen Reitman of Société Générale.
I think probably the most impressive part of your results seems to be the outperformance excluding bolt-ons in China, the 560 basis points. Could you go a bit more into detail on that and how you think you're picking the winners?
Thank you, Stephen. We are clearly taking advantage of summer. You know that the commercial mix in China is very important and that you have some customers clearly underperforming the market and we suffered from that in the past and from customers clearly gaining market share. We are clearly supported in this first quarter, mainly by Volkswagen Group.
Okay. And that's presumably Audi?
Not so much. I think -- I don't have the detail, but I think that is the Tiguan mainly, probably to some Audi, but I'm not sure, I cannot confirm that.
Yes. But more on the new SUVs they've been producing at Volkswagen [ brand ] as well.
Okay. Okay? Good.
There are no further questions, so I'd now like to hand the call back to Michel for closing.
Okay. Thank you very much. Thank you for your attendance. Our next appointment will be our shareholder meeting next month. And after that, we will have the traditional first half disclosure in July. And I remind you to book the 26th of November for our Investor Day, which will be, of course, on our medium-term guidance and on the new Faurecia Clarion Electronics Business Group. Thank you, and have a very good day. Bye-bye.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.