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Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Faurecia's Q1 2020 sales. [Operator Instructions] I must also advise you that this conference today, 20th of April 2020, is being recorded. I would like now to hand the conference over to your CFO, Michel Favre. Please go ahead.
Thank you, Stefania. Good morning, ladies and gentlemen. Thank you for attending this conference call. I hope all of you and your families are very well. I am with Olivier Durand, our Deputy CFO; Marc Maillet and Anne-Sophie Jugean, our well-known Investor Relations team. I will present our sales figure for the first quarter as well as the measures taken by the group to face this COVID-19 crisis. The press release was posted this morning at 7:30 Paris Time on our website, and the slide show that I am now going to comment is also available on our website. Let's start on Slide 3 with the key messages and an update about the current situation. As you know, our industry, as the rest of the world, is facing an unprecedented situation with worldwide automotive production down 23.6% in Q1 and expected to be down by close to 35% in H1, according to IHS Markit. Our customers have temporarily shut down most of their production in the countries impacted by the virus. Consequently, we have also had to shut down a large number of our production sites. To date, most of them are temporarily closed in Europe and Americas, while all sites have efficiently and safely restarted in China, even in the province of Hubei. In this context, our Q1 sales amounted to EUR 3.739 billion, significantly outperforming market by 390 basis points despite the strong COVID-19 impact. Reported sales were down 13.5%, including a positive scope effect of EUR 268 million from both Clarion and SAS consolidation. Sales at constant scope and currencies were down 19.7%, outperforming global automotive production by 390 basis points. We have taken drastic measures to face the crisis with 3 priorities. Priority #1 is to protect health and safety of all employees. Priority #2 is to secure our liquidity. And Priority #3 is to be ready for a safe restart of production. I will comment on these 3 priorities more in detail in the next slide of this presentation. In the light of the crisis, Michel de Rosen, Chairman of the Board; and Patrick Koller, our CEO; as well as the Executive Committee have decided to reduce their salary by 20% for at least the second quarter of 2020. Last point, due to the COVID-19 pandemic, the Board of Directors has decided to postpone the Annual Shareholders' Meeting initially planned for Wednesday, May 29, to Friday, June 26. Slide 4 details all the measures we have taken to protect margin and cash in the light of the current unprecedented situation, starting on the left column with operating margin. As regard direct production costs, measures have been taken to ensure the highest cost flexibility. As of today, close to 90% of operators are under temporary unemployment both in Europe and North America. Regarding development costs, we have recoursed to partial unemployment, and we have canceled external support and subcontractors. Drastic cuts were also made to SG&A. Hiring has been frozen since the beginning of the year. Consultancy, external support and travels have been canceled, while additional vacation days were used on top of partial unemployment. To further protect cash generation, we have set a target to reduce CapEx by 30% versus '19, and we are carefully managing R&D programs. Working capital is strictly managed mostly through inventory adjustments while securing the supply chain and through strict monitoring of receivables cash collection and overdues. We have also increased our business awards selectivity according to cash criteria while maintaining a strong order intake in the first quarter. Let me now go through the 3 priorities that guided all our actions since the start of the crisis. Slide 5 is about our absolute #1 priority, health and safety of employees. Since the very beginning of the crisis, all our teams have deployed strict transit management process, and #1 priority has been the protection of employees. Best health practices recommendations have been widely spread all over the group and a travel ban has been introduced. Home office has been applied when possible, and IT capabilities have been strengthened to ensure increased needs for connectivity. A daily follow-up of the crisis has been set up to better evaluate the pandemic's evolution, the production situation, the restart date per customer and per plant as well as the condition for a safe restart of production. Slide 6 is about our second priority, securing liquidity to overcome the crisis and maintaining a sound financial structure. We are monitoring closely our cash position. As of March 31, Faurecia cash position amounted to circa EUR 2.2 billion, including the EUR 600 million recently drawn from the syndicated credit line. In addition, Faurecia has EUR 1.4 billion of available liquidity through; the recently signed Club Deal loan of EUR 800 million with an 18-month maturity and 100% drawn on April 17; the undrawn syndicated credit line for EUR 600 million. This amount of EUR 1.4 billion is not including other short-term bond facilities for other over EUR 300 million. This strong liquidity will allow Faurecia to overcome the cash consumption during the first half of the year, while the second half should resume solid cash generation. As regards financial structure, Faurecia has a sound balance sheet with no significant short-term repayment before 2020 (sic) [ 2022 ] and an average debt maturity profile above 5 years, excluding, of course, the recent short-term Club Deal loan. The average cost of our long-term debt is below 2.5%. And the covenant limit of 2.8x consolidated net debt versus last 12 months EBITDA offers significant headroom even during the current crisis. Last but not least, on Slide 7, is our third priority, being ready for a safe restart of production. Based on recommendations from expert organizations, governments and our experience in China, we have put in place a SAFER TOGETHER program that includes a comprehensive set of procedures and behaviors to be strictly followed at all plants and facilities with 3 main categories: firstly, mandatory personal protective equipment, including masks, gloves, glasses and gel; secondly, required personal protection practices, for example, during meetings, dining and transportation; and lastly, considerations regarding daily life. The procurement of in-house production of all necessary personal protective equipment is secured. For example, masks, for which our requirement is estimated at 2 million to 3 million masks per month for Europe and North America at 100% capacity, and of which we have bought EUR 8 million -- 8 million units, sorry, from China. We are also producing masks in-house, both in Europe and North America, during the shutdown period. And we have bought 4 dedicated machines for mask production and full autonomy. Finally, suppliers' readiness and supply chain continuity are essential for a safe restart. We are strongly encouraging close collaboration with suppliers and openly shares all our internal practices, guidelines and procedures for their own use. On April 9, we had web conferences to which over 1,000 suppliers participated and during which we have shared the group priorities and underlined our collaborative approach. This crisis highlights the necessity for the whole supply chain to work together now and in the future with transparency and mutual support. Let's now review our first quarter sales. Slide 9 shows figures at group level. In Q1 2020, sales amounted to EUR 3.739 billion, down 13.5% on a reported basis. Currencies had a very limited negative impact of EUR 3 million. We had a positive scope effect of EUR 268 million or plus 6.2%, of which EUR 101 million from 2 months of consolidation of SAS and EUR 168 million from 3 months of consolidation of Clarion. At constant scope and currencies, sales were down 19.7%, representing an outperformance of 390 basis points compared to worldwide automotive production that dropped year-on-year by 23.6%. The activity slowdown related COVID-19 impacted China throughout the quarter with a peak in February, and all other regions as from mid-March. Let's now start with the region by region on Slide 10, Europe. Sales amounted to EUR 1.931 billion, down 12.9% on a reported basis. This included a positive scope effect of EUR 80.1 million or 3.6%, a limited negative currency effect of EUR 2.7 million. European sales were down 16.4% at constant scope and currencies, 410 basis points above regional automotive production. This outperformance was mainly explained by our good level of activity with PSA. All the 3 historical BGs outperformed in Europe with a strong outperformance of FCF. In Europe, the COVID-19 crisis started to impact purchase activities in March with sales down by close to 40% versus March '19 following customer plant shutdowns. We continue on Slide 11 with North America. In North America, Q1 sales were down 9.2% on a reported basis. This included a positive scope effect of EUR 74.2 million or plus 6.6%, a positive currency effect of EUR 27.5 million or plus 2.5% mainly due to the U.S. dollar versus the euro. North American sales were down 18.3% at constant scope and currencies, 750 basis points below regional automotive production. This underperformance was mainly due to volumes with Nissan and Ford as well as the effect of the Daimler end of production for Seating, EUR 35 million in the quarter. In North America, the COVID-19 crisis also started to impact process activities as from March with sales down by close to 35% versus March '19. As you are now on Slide 12, in Asia, sales were down 20.4% on a reported basis. This included a positive scope effect of EUR 110.6 million, mainly from Clarion contribution, representing 13.9% of last year's sales, a limited negative currency effect of EUR 2.6 million. Sales in Asia were down 33.9% at constant scope and currencies, 300 basis points below regional automotive production. It's not too strange that we underperform at the Asia level while we outperform both in China and the rest of Asia for us. This is only the consequence of our different mix of sales, China versus the rest of Asia in our sales, where China represented 56% of Asia compared to the mix in automotive production, where China represented only 1/3 in the quarter. In China, sales amounted to EUR 357.3 million, down 40.8% on a reported basis and down 42.1% at constant scope and currencies, 800 basis points above the Chinese automotive production. China was the first country in this world to face the crisis and close plants. Sales in the entire quarter were strongly impacted year-on-year with a peak impact in February and gradual recovery as from March. As of today, all plants have restarted production, including in the province of Hubei, with a loading rate of around 90% to rapidly reach 100% end of May and potentially overtake this figure in June. The successful restart of activity in China with no employee contaminated since the beginning of the crisis will serve as an example for safe restart in other regions. Next region is South America on Slide 13. Sales were down 15.2% on a reported basis. They included a limited positive scope effect of EUR 3 million; a significant negative currency effect of EUR 22.7 million representing 15.1% of last year's sales. South American sales were down 2.1% at constant scope and currencies, well above regional automotive production. All 3 historical BGs outperformed in South America, with a strong outperformance of FAS. South America was the latest region to be impacted by the crisis, only in late March. Sales in March were down by close to 20% versus March '19. Slide 14 summarize the figures by business group. Our 3 historical BGs: Seating, Interiors and Clean Mobility, were in line or outperformed the market. Seating sales amounting -- amounted to EUR 1,401.9 million, down 23.9% on a reported basis and also down 23.9% at constant scope and currencies, broadly in line with worldwide automotive productions. Sales benefited from stronger performance with PSA and with Ford, to a lesser extent. Interiors sales amounted to EUR 1,164.9 million. Sales were down 9.9% on a reported basis. They included a positive scope effect of EUR 100 million (sic) [ EUR 101 million ], representing 7.8% of last year's sales from the consolidation of SAS since February 1, a slight negative currency effect of EUR 2.7 million. Sales were down 17.5% at constant scope and currencies, 610 basis points above worldwide automotive production, thanks to sales with FCA, PSA and Renault-Nissan. Clean Mobility sales amounted to EUR 975 million (sic) [ EUR 976 million ], down 14.7% on a reported basis and down 14.7% at constant scope and currencies, 890 basis points above worldwide automotive production. Sales benefited from strong outperformance with Ford, GM, FCA and PSA and market share gain. Lastly, Faurecia Clarion Electronics sales amounted to EUR 197 million. Most of the change in sales was due to the scope effect from the consolidation of 3 months of Clarion for EUR 167 million. Let me conclude this presentation with Slide 15. Our sales performance in Q1 was strongly impacted by the COVID-19 crisis. But it is worth highlighting that in the difficult context, we outperformed the market above our initial expectations. We have clear action plans to face the crisis well structured around our 3 priorities: health and safety of our employees; secure liquidity to get through the crisis; be ready for a safe restart of production as soon as possible, thanks to our SAFER TOGETHER program. Since the very beginning of the crisis, we have taken strong resilience actions to protect both margin and cash. We were forced, because of COVID-19, to postpone our Annual Shareholders' Meeting by 1 month. We don't have today enough visibility and certainty on the evolution of the environment to announce new objectives for the year, but we will do as soon as possible. More generally, we are convinced that this crisis will lead to a new economic model that will be more focused on resilience and based on stronger collaboration and support across the whole supply chain. What I can tell you is that Faurecia has secured everything and Faurecia is very well prepared to restart in very safe conditions and, of course, with a very good [ program ]. Thank you very much for your attention. The floor is now yours. Stefania, can you proceed now to the Q&A sessions?
[Operator Instructions] We will now be taking our first question from the line of Kai Mueller from Bank of America.
[indiscernible]
Kai, sorry. You are very, very far away. Can you go closer to the mic?
Better?
Yes, quite better.
Just the first question is really around your outlook. I know you're obviously not willing to give a guidance right now for the full year, but can you give us a little sense when you go into the second quarter? You obviously said your outperformance was somewhat better in the first quarter. Is it fair to assume that, that outperformance could drop simply by the regional mix as we obviously get much weaker volumes in the second quarter and from Europe and North America? And what is sort of your latest messaging with the OEMs in terms of restarts? We've obviously heard some of the Germans are starting production again. What sort of run rate would you be looking at with those customers? The second point is around your liquidity. You obviously mentioned you've announced this Club Deal of EUR 800 million. You -- it was announced on the 10th of April. You pulled all of it on the 17th of April. Why did you decide to take it all in one go? And can you give us a little bit of color in terms of what your monthly cash burn rate is under these very severe shutdown situations you've been under? And then a third one is really -- sorry, and that obviously hasn't got any implications on your dividend because there was a lack of sort of mention around your 2019 dividend in this release. And then the last one, just a very interesting point you made around -- on your key takeaways. The last point is the crisis will lead to new economic paradigm based on resilience and stronger collaboration and support across the whole supply chain. What should we understand from this? Is this your collaboration with your own suppliers? Or has this got to do with the OEMs working with you as a supplier more closely in this environment?
Thank you, Kai. You have preempted a lot of questions of your peers, but thank you. But it's good anyway to hear you. Difficult to give you clear because, for the moment, we have -- every day, we have a better view of restart of production for our customers. You have some unbalances, as you have understood, in countries per countries. We see, for instance, that Germany is reopening their wholesaling activity from automotive. So what will be key, it will be, of course, restart of production of customers, but it will be as well what will be the restart of retail sales. For instance, we had a very positive senior in China in March where retail sales were only down by 40% -- 43%. But I don't want to say that it will happen in Europe or North America, but this will be as well a key figure to avoid staff -- [ careful ] to stop and go. So it's complicated today to give you a clear figure on that. You know that, for instance, we are overexposed with Volkswagen. So it will be very important to see how Volkswagen will manage the volumes, of course, and how, for instance, the PSA as well will manage the volumes. So it's too early to say something. The only good thing for us is that, thanks to our close customers like Volkswagen and PSA, we have outperformed the market almost everywhere. We know that North America, the underperformance will be eliminated, either it will be the second quarter or at the latest the third quarter. But clearly, we are thinking outperformance, but we need to have a better view on our, I will say, next weeks', months' retail sales. So I cannot tell you on the restart because restart, these things are changing. And they are more and more precise from many customers but mainly the German ones. We know when they will restart. We know how they think to restart and what shift to shift, et cetera. So we have a good view of that. We have to -- we need a better view from some of other customers. So this is a key. And it was -- I actually skip o your last question. Of course, in a supply chain where Tier 1, Tier 2, et cetera, are very important, it's very important to work together. It's very important to check that in this crisis, some suppliers are not collapsed. So it was the reason of this convention last week. All our supply purchasing guys are working closely with suppliers to check that they're able to restart. And I can tell you that many customers are doing the same. So this integration in the supply chain, including the safety, is key. Liquidity. We have always been disciplined. We are always managing the worst case as a principle. So we decided to accelerate on the Club Deal to secure, I would say, all the bad scenario. It is off. And I think it's a minimum to do when we have this duty to manage a big group. So this Club Deal was a clear opportunity. I thank again the 4 close banks of Faurecia who has accepted to make this EUR 800 million. It was made in 1 week, so 1 week, 1.5 weeks, so very quick. And this is giving us the full flexibility, liquidity we need whatever are the conditions. And speaking of working capital, we are in the worst case. That means we will have -- we have, sorry, most of April very weak. Most of April has a cash-in of June. When for the purchasing, we have 1 month there with respect to receivables, we are paying March. And we are paying March, including the stop in transit because, as you know, the stoppage was brutal. So we will have 1 month of the connection of the customer disturbance in the working capital, which will be fully recovered in the second half. I can give you a figure of something like EUR 700 million cash burden. On the top of that, we have the fixed costs. You know that fixed costs are more or less 18% of the sales. We have 25% variable -- 75%, sorry, variable cost; 18% fixed cost, including depreciation and amortization; and we have more than 7% -- we had, sorry, more than 7% operating margin. In the -- this fixed cost, we will be probably able to flex more than 50%, including depreciation, I will say, will not be flex, but it is inside the figure. But anyway, that means EUR 120 million or something like that cash burden, cost and cash burden. So it depends on the duration of the crisis, but this is a brutal impact on our both cash and operating margin, which means, to complete my guidance, is that, unfortunately, if you compare to budget or to -- mainly to last year, we will lose sales and significant level of sales with the 25% contribution, which will be a big shock for the group. Saying that, the last question is dividend. We've postponed the shareholder meeting due to the visibility and the uncertainty. So of course, Board will make the decision on dividend at the right time, but of course, Board will make the right decision. I cannot tell anything more.
We will now be taking our next question from the line of Sascha Gommel from Jefferies.
The first one would actually be on the ramp-up and productivity and the lessons you have from China. How should we think about the ramp-up? Because in your comments, you said very good drop-through once you ramp up again. I'm just trying to understand how that works and how you think about that because, I guess, that's very crucial that we see good productivity across the board in the industry in order to bring up earnings and cash. And the second question would be on your cash burn in Q1. So you had -- your cash position went down from 2.2 -- from EUR 2.3 billion to EUR 2.2 billion. There's a EUR 600 million debt impact, but you also had to payout for your SAS joint venture, if I'm correct. So how does that compare to the last year number in the first quarter? Can you give me a little bit of a sense there?
Thank you, Sascha. Ramp-up in China, it was quite quick, as you see. It was quite quick. What was a little, I would say, lazier, don't know if it is the right word, was, of course, the province of Hubei. But the rest of China was starting at a quick pace. And we were surprised by this figure, as it is, of minus 35% in retail sales. We are better than that in China as sales. So we were surprised. April are in the same way. As I said, May will be close to our budget figures. And June, if I take what we have received from customers, that is very important, should be over the budget. So it is a good message. China is not Europe, so we have to be careful. But for the moment, we can say that the restart is important, significant and robust in China. After that, we will see what will happen in Europe and North America and what will be, I will say, the level of, I will say, recovery in these 2 parts. Going to your question, I am not completely sure for Q1, I think, for the cash. You have mentioned, we have actually the impact, including IFRS 16 for SAS would be a small, I would say, contribution, to some view, is EUR 300 million for the level of debt, if you mentioned that. We have a small cash consumption, but we are much better than last year, if it is your question. So no big concern in Q1. My concern is Q2. And to be transparent, my concern is mainly end of May and June due to this brutal stoppage and the fact that we will have to pay anyway the suppliers of March when we'll have very limited cash-in in June.
Okay. And then maybe a follow-up on the first question. How do you make sure that productivity is the same given that -- I mean you have to adhere to social distancing rules in your plants? Can you really be as productive as before in working in the ramp-up situation?
We -- firstly, you're really right because we are managing 2-meters distance from -- between the operators. We are managing, of course, the protection masks, et cetera. So all of this has been organized. All of this is the reality in China. We have the chance, sorry to say that, that China was a kind of experimental case. So what I am speaking is not theory. It is what we are doing today in China. And in China, we were able to protect the productivity because it's more an organization on the lines. When we speak of difficulty, it was clearly on the assembly lines. The rest is nothing. So cut and sew, no problem. Assembly lines, usually we are able to manage this distance. So we don't see -- today, we have not identified any problem on that. The second point, we have cut cost everywhere. So the first volume will be clearly, it is our goal, closer to my margin on variable cost. That means 25%. And if you remember in the past our track record, we were at 20% achievement in the years of, I will say, '12 to -- '13, sorry, to '16. So we have a good track record on that.
We will now be taking our next question from the line of José Asumendi from JPMorgan.
A few questions, please. Can you talk a bit -- a little bit more about the CapEx that you want to do in 2020, a little bit of the progression between first half and second half? I suspect first half is going to be more pronounced in terms of the CapEx part versus the full year figure. How far could you flex CapEx in the first half? That would be the first question. Second question, you already alluded to a lot of the numbers. But as we think about your breakeven point on EBIT margin, how far must sales drop in order for you to hit that breakeven level in terms of EBIT margin? And the third question is around Clarion restructuring. Obviously, sales are difficult. Can you just please explain at least on where you stand on Clarion and how far -- how quickly can you restructure this asset? Is there an opportunity to restructure the asset quicker than expected initially?
Can you repeat the last question because I don't understand your question about Clarion?
Clarion restructuring, whether there's an opportunity to restructure the asset quicker or not.
Okay. Thank you. Well, CapEx, firstly, as you know, we have not started to cut cost in March. We are permanently accelerating things. So we were starting the year on, I would say, good situation, for instance, as to headcount, for cut in some cost we can see, subcontractors, things, et cetera. So this has been amplified, of course, of systematic, if you prefer, in March. But we are always, I will say, better cost base and continue to reduce the cost base. So on CapEx side, first half, I don't know if it will be already at minus 30%. That will be close to the minus 30%. And for the full year, I can assure you that we'll be at minus 30%. We have screened all our CapEx. In a situation like this, we don't need any, of course, I would say, volumes. We have only to protect the new programs. So we are able to manage this 30% reduction, which means probably CapEx at something like between EUR 400 million and EUR 450 million group level. Your second question on EBIT, I have given as a figure 25% more or less on the, I will say, lower sales, plus have some impact on the fixed cost that we cannot fully variabilize, unfortunately. So all together, you know you have seen probably the figures of IHS, and you know, like me, how to make the figures with Q2 for IHS at minus 45% worldwide but mainly minus 55% in Europe. So Q2 will be complicated. So I cannot give you today the figures -- very precise figure. We will fight to keep a positive operating margin that is not today completely secured. I have to be transparent. So it is a priority, but it will be a real daily fight.And your last question about Clarion, we are making the restructuring. We are making the reduction of people as forecasted. The complexity of the current situation is that it is complicated in a downtime period, et cetera, to dismiss people, to make new restructuring plan. So we are preparing things. We will do as quick as possible when things will be more clear. Now we have already, fortunately, what we have achieved, which is it is already a big step. And we'll add some others according to the retailing.
We will now be taking our next question from the line of Stephen Reitman from Societe Generale.
I have 2 questions. First of all, in terms of how you're budgeting and you're forecasting, how accurate you -- is -- are your forecast -- internal forecasts when compared to the IHS numbers when they come out? Are you able to be ahead of them in terms of actually seeing how fast the decline is coming and adapt accordingly? And my second question, obviously, Faurecia was very, very resilient in 2018, 2019. And I think that was helped by the fact that you had very much prepared for declines in the market, and you had plans in place in order to react very quickly. I'm wondering to what extent you model declines in the market and how you've been able to adapt these plans then clearly for much greater crisis we've seen today.
Very good question, Stephen. Since mid-March, we have no procurement request or very poor procurement request from our customers. So we were making simulations. We have always, what we call, as usual, a best case and a worst case. We were -- if I take the last figures of IHS, our best case was before worse than IHS. Now we are close, slightly more cautious than IHS, as we have because we are very disciplined and we want to be cautious. Our worst case is, of course, much worse. So we were anticipating that, if it is your question. We're anticipating. And Patrick was always saying, we have to be clear, we have to take an assumption where even if may, could not be worked, in order to be prepared and to see what are all the options to be taken. So we were -- not to fully -- I cannot say we are totally prepared, but we are clearly anticipating these kind of things since March. If you go back now to our stress case, my stress case were with minus 30% volumes, but it was minus 30% volumes with, I will say, a regular impact. Here, we are speaking of an impact of minus 100%. Going back to progressively better figures, second half will be much better. If I take IHS, Europe is minus 10%. But it's not the same to manage minus 100% and minus 10% or to manage the full year at minus 24%, as IHS is forecasting for the full year. So clearly, to be transparent, I was not prepared to face a minus 100%, which is not only to variabilize cost, which is to eliminate and to see how we address this cost problem using, for instance, downtime and using what are subsidies from customers on this side. So it is a complete, I will say, different scenario. I don't know if I have answer to your questions.
No, that's very clear.
So the shock for the industry and for all the industry will be clearly what I have mentioned. It is the loss on the margin on variable cost plus what the industry is able or not to variabilize as fixed cost.
We will now be taking our next question from the line of Victoria Greer from Morgan Stanley.
Just 2 from me, please. Firstly, your factoring facility, I guess, I would assume that, that stays around the EUR 1 billion level that you've done for some time. What is the cost of maintaining that? Is it costing you more to get those sale of receivables done? And also, I guess, same question on the reverse factoring. And then, secondly, are you seeing anything yet change about plans for new model launches from the OEMs? We've seen a couple of headlines that some of the U.S. OEMs are thinking about delays. Is there anything in there that we should think about, please?
Yes. Thank you for your questions. You have 2 -- I think, 2 questions. First is factoring volumes, the factoring cost. Factoring volumes is clear that with no sense for factoring. So my line of factoring, which is -- which was close to EUR 1 billion at end of March, will drop. Probably end of June will be more at EUR 700 million than EUR 1 billion due to the fact that sales will come back but on a progressive mode, and we are mainly factoring sales in Europe and North America, so the 2 impacted markets, most impacted markets at the time. On cost side, no change. For the moment, no change. I think I have given a figure. We are more or less at 2.5%, 2.5% plus on cost of factoring. No change on that. Reverse factoring, no change. One thing, anyway. We are protecting the limits per customer because, for instance, some big customers have asked some big lines. Suppliers are asking as well an extension for these customers. So in this period, credit limits are key, and we are protecting our credit limits with our banks. Reverse factoring the cost is not for us anyway, don't forget that. It's for our suppliers. We have not been advised of any change on that. Reverse factoring, we continue to deploy that, which is important as well on the industrial processes. So I think in this world where our suppliers will need money, it is the fantastic tool I was describing before. There is no problem on the Faurecia signature. As the Club Deal is securing competitive insurance and signature, so we know that for the banks, Faurecia is not a problem. So reverse factoring of this kind is cost fully secured of our suppliers, which is very important. On the new models, we see -- we are trying to see, first, what will be the decision of our customers because some programs could be even canceled or simplified. We have -- it is marginal. We have already some, I will say, news on that. We are checking as well if it will be delayed because we would like, of course, to reduce our R&D cost. Currently, we think that our gross R&D will be reduced minimum 10%, potentially 15%. We have to see if customers have lost weeks, even 1 month, even 1.5 months. So this is under review, customer by customer, program by program, to adjust, first, our timing; second, our cost. What I can tell you is that Faurecia is not jeopardizing any program in this world. We have very large suppliers. And of course, we will secure all these programs for our customers, which is important because I think the customers could face some other difficulties with other suppliers. And same thing, we have -- we've checked that our suppliers will be able to continue to contribute to these programs.
And then, so the factoring EUR 700 million at the end of June, and I guess that ticks back up through H2, assuming that everything is running more normally.
Of course.
We will now be taking our next question from the line of Giulio Pescatore from HSBC.
Just one from me. Yes, so just on the -- one question from me. On the OEM, have you seen any phenomenon of stocking up on parts ahead of the shutdown of the plants? And if you had, what is the impact that, that is going to have on the recovery as things progressively come back to normal in Q2?
You mean that if there are some inventories is what you want to say?
Yes, that -- yes, if OEMs have increased their inventories of parts and the impact of that.
Probably, there are some inventories, firstly, on supplier because they were -- has stopped brutally, so probably, they have some inventories, I think probably limited. The second thing is they will adjust their production according to their future sales. So this could be as well a parameter that they manage and we manage to understand how fast the recovery will be. So it will be according to customers by customers as a decision they will take probably in May. And one thing, because we have seen data from some customers, is they prefer to postpone a little the restart in order to manage that. So they prefer not to restart now, I will say, late April but to restart more the first week or the second week of May to absorb that. So each customer has its own view on this and is clearly taking into account the level of inventories they have everywhere in the chain.
We will now be taking our next question from the line of Gaetan Toulemonde from Deutsche Bank.
I want to understand a little bit better the operating leverage, traditionally, approximately 20%. So if I do my math correctly, EUR 2.5 billion lower revenues in the first half, order of magnitude cost 2 or as a negative impact at the operating level of EUR 500 million. Now when you stop everything, when you reduce transportation costs, when you can make savings there, can you help us to better understand the true number behind that 20%? Is it going to be worse or is it going to be more knowing that for a couple of months, you stop everything, and part of that is reimbursed by different governments? Can you help us to clarify that a little bit?
Yes, Gaetan, if you -- I try to make these as I am making. That means I am making my delta for respect to last year and to budget. So I am losing, as you say, a certain level of sales. It depends on the scenario, et cetera. And I am losing 25% on margin on variable cost. So the first impact is 25%. To that, I have my cost management, where I try to variabilize everything. I have the bad news from last year, not to forget it. So all together, the target is to lose maximum 25%. So it will be difficult to lose less.
Okay. That's clear. Okay.
And I repeat that this indicator of margin of variable cost is key to analyze all the impact on the industry.
Okay. Knowing -- second and last question, knowing that in the second quarter, most of the plants are shut down and you have payables, receivable, which is relatively high. What's going to be the cash burn at the end of H1, order of magnitude, knowing that in the first quarter, you have order of magnitude of EUR 600 million or EUR 700 million?
Due to the working capital impact and some factoring impacts, et cetera, I think the risk is to burn EUR 1 billion or even a little more.
Okay. Only that. I was working with a much higher number. Okay.
I won't be -- yes, sorry, is it a problem?
No, no, I know, I know. But you have very high payables, receivables, you cannot do less factoring, and my numbers would have been much higher. Okay. So that's good enough.
So we're expecting to do what we have to do.
On total H1.
Yes, yes, H1. We're speaking of H1.
Okay. So that means that the peak will be at the end of May, and you expect some recovery for the month of June. Is that correct?
Yes.
Correct.
Yes, because of the factoring and because June will be important to execute factoring. Factoring will be lower end of May, which is obvious because we'll have almost no sales, which is the covenant competitor, but almost no sales in April. We'll have a progressive recovery in May, according -- as you know, you have some data given by customers, starting in late April, May, et cetera, but progressive. So May sales will be low as well, and June will be better. After that, there are some different curves of recovery to be confirmed.
We will now be taking our next question from the line of Tom Narayan from RBC.
Yes, maybe a follow-up on Gaetan's question. So the 25% contribution margin, I think you said that was based off of 18% fixed costs. This seems to be kind of a better fixed cost structure, at least lower fixed cost than some suppliers who have contribution margins closer to 40%, and they've said that recently. I know you can't really talk about other suppliers, but I was just curious maybe if you could give a little color on why your guys' fixed costs are lower maybe than others. And then I don't think you answered his question -- Gaetan's question on how that changes when you get support from the government through the short term, the wage relief. Maybe any color on how those contribution margins may change because you're getting some fixed cost reduction from the government. And then are there restrictions on your ability to pay a dividend if you're getting government support? Those are my questions.
Okay. First, why difference of cost structure, because it's not the same for a process, I will say, activity and for an assembly activity. And for Asia, as you know, we have a big part of modules. So for instance, complete seats, when you take only the activity of complete seats, margin of variable costs are much lower. And if you take an activity of processes like Clean Mobility, we have higher. So it depends on the type of activity and the content and what is the assembly content. Usually, assembly means lower variable -- margin of variable cost but much lower CapEx as well. So it is a normal game. So it is due mainly to the DNA of Faurecia. We have a module -- for a big part, a module activity, so if you compare to peers. We have no aftermarket activity, which could be as well -- this could inflate this part of things that are second parties' subsidies. I don't know if the word subsidies is right because we are stopped because of decision of governments, so we don't know if subsidies is the right word. So anyway, we have, of course, a lot of downtime. I mentioned close to 90% of the people. So this is clearly covered by the different governments, not everywhere. We have as well some, I would say, difference of clarity. In U.S. is more which is called layoff than downtime. But it is the same impact on the P&L. So we are using that. This -- if your question is on dividend, I don't think that there's a trigger on dividend for that.
Okay. If I may, just one quick follow-up. And I know you don't talk about your OEM customers. But are you seeing maybe at a high level any difference between the performance or orders between your premium customers versus maybe mass market customers? I know you made a comment on a couple of OEMs in your presentation impacting numbers. But I was just curious maybe if the thesis here is that perhaps premium may be faring better than mass market given the nature of the furloughs on labor and the layoffs maybe more kind of affecting mass market versus premium. Any commentary on that?
No, we cannot have any comment because we were brutally stopped in March. So we have no learning, sorry to say that, about what could be the trend of the market. What I can tell you only is that March in China, but China is not Europe, the mix was clearly in favor of the international OEMs. It is the only thing I can tell you. The fact that Germany will probably reopen before the others will boost probably as well the mix of the market. But anyway, it's too early. We -- I think the first thing would be when wholesalers will be authorized country per country to reopen, which is key because if we want activity, we need that our customers will sell. And second, what will be the right time of recovery in a world where, of course, purchasing power will have been affected; but on the other way, probably people don't want to take so much the public transport. So we don't know. We need a minimum experience to see how fast this recovery will be. What is strange is that we are in the same curve -- if you take the IHS now, we're in the same curve as 2007-2009. It should take 2018-2020, which means that we can be optimistic but not this year, for the years after.
We will now be taking our next question from the line of Stephanie Vincent from JPMorgan.
A couple of modeling questions and then just a macro one, please. So can you discuss, if you haven't already, your outlook for cash restructuring for 2020 and potentially 2021? And also, I think it's helpful you've discussed a lot about working capital, but can you talk about your working capital balance either as an absolute number or as a percentage of sales when you ended March? And then my last question is just your outlook on government policy in certain programs. We've heard from IHS, for example, that they're talking about potentially deferment or scrapping of electric vehicle programs in U.S. and potentially some changes, some phasing changes for the EU CO2 programs. Is that something that could affect your business or that you're on the lookout for?
So we take your last question first so that I have to go back to your first. For IHS, there are some risk on some electrical vehicle programs because there were too many programs in this world, and there were probably too many fragile companies starting on this. So it's clear that the number of programs on electrical vehicles will be reduced. Too early now to say something on that, but probably some companies will disappear. Going back now to the working capital, our working capital ratio, we have 6% -- before factoring, we have 6% working capital, I will say. We -- I don't see any big change on that. Now of course, there will be some short-term disturbance, but there is no reason not to come back at this level, even better in the second half. Your first question was, sorry?
The first question was on cash restructuring, your expectations on that.
Yes. I maintain -- today, I maintain the EUR 120 million, EUR 130 million cash-out for the full year. No change on that. We don't change our restructuring program. We -- even we could accelerate a little.
That was our final question for today's call. I would like now to hand back to Michel Favre. Please go ahead.
That's it. Firstly, thank you again for your attendance. As I said, we fight and we are prepared for the restart. This group is under control and, I hope, I think, very well managed. And our next rendezvous will be this new shareholder meeting, the 26th of June and, of course, the half year results in July. Thank you. And sorry to use the expression, take care. See you soon, bye-bye.
That does conclude our conference for today. Thank you for participating, you may all disconnect. Speakers, please stand by.