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Good day, and thank you for standing by. Welcome to the Faurecia Third Quarter Sales 2021 Sales. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Michel Favre, Group CFO. Please go ahead.
Thank you. Good morning, ladies and gentlemen. Thank you for attending this conference call. I am with our flagship Investor Relations team, Marc Maillet and Matthieu Fernandez. And of course, I will present our sales figure for the third quarter. The press release was posted this morning at 7:00 a.m. Paris time on our website. The slideshows that I am now going to comment is also available on our website. Slide 2 summarizes the highlights of the past quarter, a quarter that continued to be severely impacted by semiconductor shortage and by the consequent stop-and-gos imposed by our customers. In these very challenging positions with worldwide automotive production only at 15.8 million units in the quarter, down 19.2% year-on-year, we posted sales of EUR 3.426 billion, strongly outperforming worldwide automotive production by 780 basis points. We have performed in every of our business group and in every region. As regards with the group, it is worth mentioning that Faurecia Clarion Electronics posted an organic growth of 7.3% and started its robust momentum. As regard regions, it is also worth mentioning that Asia posted an organic growth of 6.5% with sales above the 2019 Q3 pre-COVID level. In addition, we confirm our full year guidance as recently revised on September 23 after the drastic revision by IHS Markit of its forecast for worldwide automotive production in 2021. Lastly, we are making significant progress in the HELLA acquisition process since we announced it last August. Everything is on track. The takeover offer was launched on September 27 and will end on November 11 with final results to be released on November 16. The antitrust clearances are underway and there is no change to our initial expected schedule of closing the deal early 2022. Faurecia and HELLA have launched the initial steps to be prepared for action at day 1 after the closing, and this is the so-called project One that we are leading together. Let's now move to Slide 4 to discuss the year-on-year sales evolution. The currency effect was positive and limited at EUR 39 million or plus 1% of sales mainly attributable to the Chinese yuan versus the euro. There was no scope effect during the period. So at constant scope and currencies, sales were down 11.4%, which compared to the 19.2% drop in production, reflecting a strong outperformance of 780 basis points, as already mentioned. All business group and regions posted strong outperformance. As regard business group, a Clarion Electronics posted organic growth of 7.3% but all business group posted an outperformance close or exceeding 500 basis points. As regard regions, only Asia posted organic growth of 6.5% with China up 5%, but all regions posted stronger performance between 790 and over 2,000 basis points. On a reported basis, sales were down 10.4% year-on-year. Let's now enter into the details for the business group, and after that, for the regions. Let's start with the business groups at Slide 5. Seating, which represented 38% of group sales in Q3 posted sales of EUR 1.305 billion. Sales were down 14.3% on an organic basis, an outperformance of 490 basis points. Organic sales were down by double digits in Europe and North America, the 2 regions that were the most early hit by semiconductor shortage. They were up 16.3% in Asia driven by sales with Chinese and international OEMs, including new entrants in the Chinese market. Expected sales of the new SOPs were also impacted. These SOPs contributed to sales for EUR 57 million in the quarter after EUR 44 million at the end of June, and this should contribute to circa EUR 140 million in the last quarter. Overall, the contribution estimated at EUR 240 million in 2021. In addition to this lower contribution from SOPs, we also faced a significant operational challenge in the launching phase of greenfield operation in Detroit in Michigan. These operational difficulties, mainly due to head count instability and difficulty to recruit qualified people, will have an impact on Seating profitability in H2, which is now expected to be below that of H1. These operational difficulties must be fixed by the end of the year. Interiors, which represents 29% of group sales in Q3, posted sales of slightly less than EUR 1 billion, precisely EUR 997 million. Sales were down 11.3% on an organic basis, a strong outperformance of 790 basis points. As for Seating, and for the same reason, organic sales were down by double digits in Europe and North America. Sales were up 10.2% in Asia driven by sales to Ford; a major American EV carmaker, I think you have recognized it; and new entrants is the Chinese market. Let's continue on Slide 6 with Clean Mobility and Clarion Electronics. Clean Mobility, which represented 27% of group sales in Q3 posted sales of EUR 928 million. Sales were down 10.5% on an organic basis, a strong performance of 870 basis points. They were down by high single digits in Europe and Asia and by double digits in North America. Nevertheless, in all 3 regions, sales outperformed regional automotive production by at least 500 basis points, which means over 2,000 basis points in Europe boosted by the hybrid, I will say, powertrain, over 1,000 basis points in North America, over 500 basis points in Asia. Clarion Electronics, which represented 6% of group sales in Q3 posted sales of EUR 195 million. Sales were up 7.3% on an organic basis, a strong outperformance of 2,650 basis points. Despite the semiconductor shortage that impacted significantly Clarion Electronics versus initial expectations, organic growth reflected the sales momentum of Clarion Electronics. All regions posted organic growth, in particular, Asia, thanks to the strong sales growth with Chinese OEMs. It is worth mentioning that Clarion Electronics succeeded in avoiding any stoppage of production at its customers' plants during the period. Let's now start on Slide 7, the review by region. Europe, which represented 39% of group sales in Q3, a low percentage, posted sales of EUR 1.139 billion. Sales were down 19.9% on an organic basis, a strong outperformance of 970 basis points versus European automotive production that dropped by roughly 30%. This reflected the strong impact of semiconductor shortage on almost all OEMs with the exception of Daimler and Commercial Vehicles that both grew year-on-year. North America, which represented 26% of group sales in Q3, posted sales of EUR 903 million. Sales were down 17.3% on an organic basis, a strong outperformance of 790 basis points versus North American automotive production, which dropped by 25%. As in Europe, this reflected the strong impact of semiconductor shortage on almost all OEMs with the exception of a major EV carmaker, that I cannot name and the Commercial Vehicles that both grew year-on-year. Europe and North America, representing 2/3 of our sales in the quarter, were the most impacted by the shortage. This was reflected in the combined reduction by 440,000 (sic) [ 400,000 ] units of IHS Markit production estimate for Q3 2021 between September and October. IHS Markit production estimate for Q4 in these 2 regions was also reduced by 380 basis points unit between September and October. Let's continue on Slide 8 with Asia and the rest of the world. Asia, which represented 29 total group sales in Q3, posted sales of EUR 1 billion. Sales were up 6.5% on an organic basis, a very strong outperformance of 2,000 basis points versus Asian automotive production that dropped by circa 14%. This growth was driven by Seating, Interiors and Clarion Electronics and by most OEMs, Chinese, international, except the VW and GM groups. More specifically, in China, sales were up 5% on an organic basis, also a very strong outperformance of roughly 2,000 basis points versus Chinese automotive production that dropped by 14%. Both in Asia and China sales significantly exceeded pre-COVID sales of Q3 2019. Rest of the world, including South America, represented 6% of group sales in Q3 and EUR 184 million of sales. In South America, which represented more or less 2/3 of the total, sales were up 28% on an organic basis, a very strong performance of 3,900 basis points versus South American automotive production, mainly driven by the Stellantis group. Now we have reviewed our sales performance in Q3 by business scope and region, let's move on Slide 10 remains the full year guidance as updated on September 23 after the drastic reset of forecasts that released IHS Markit. This reset was a drastic reduction by 6.2% or 5 million units of the forecasted worldwide automotive production in 2021 from 77 million units to circa 78 -- 72, sorry, million units, more or less the figure of the last year 2020. Based on this forecast, we announced our revised figure -- revised financial targets for the year: sales of circa EUR 15.5 billion with a strong outperformance of at least 600 basis points, operating margin between 6% and 6.2% of sales, net cash flow of circa EUR 500 million and net debt-to-EBITDA ratio of maximum 1.5x. We confirm these targets even if varied conditions remain very challenging in Q4. Semiconductor shortage will indeed continue in Q4, even if Malaysia disruptions that mostly impacted Q3 is easing. And 2022 is actually to continue to be impacted with progressive return to normal figures starting only probably in H2. We'll continue to tightly manage day-to-day evolution and short-term performance. Our priority is to continue to pass through inflation and mainly raw material price inflation to our customers. Our operating leverage will continue to improve strong and efficient, thanks to resilience actions implemented to adapt to the volatile environment. As from 2023, when suppliers [ same ] bottlenecks will have disappeared, production levels will return to close or above 90 million units supported by pent-up demand and pressure to rebuild inventories currently at historical very low level. Let me now conclude on Slide 12 with a quick update on our road map for the acquisition of HELLA. As indicated at the beginning of this call, we are fully on track with the acquisition process. The takeover to all shareholders of HELLA was launched as planned on September 27. It will end November 11, and I repeat, final results will be released on November 16. As you know, we have already secured the acquisition of 60% of HELLA shares from the family pool and we are not will be dependent on the final results of the takeover offer to start implementation of synergies from day one. Regulatory clearances from relevant authorities are underway. The U.S. clearance has already been announced, the Brazilian one should be announced shortly. We are confident that the closing should happen early 2022 as anticipated in August. In September, the 2 companies, Faurecia and HELLA launched a common project named project One to be ready for day 1 post closing. The 2 main objectives are: firstly, to ensure that the combined group will be ready to operate efficiently from day 1 to achieve. This objective, governance and organization post-closing are prepared in detail and agreed to ensure a quick start, supported by the right systems and processes. Secondly, to prepare synergy plan in details to be ready to kick off implementation from day 1. To achieve targeted synergies, objectives are converted into very specification plans to ensure swift execution from day 1 and quick P&L impact. And you can be sure that the CFO is very much involved in this process. Thank you very much for your attention. The floor is now yours, and Tracy, now we can go to the procedure of Q&A.
[Operator Instructions] Your first question comes from the line of Tom Narayan of RBC.
Tom Narayan, RBC. My first one on raw materials. I know you took, I think, it was EUR 80 million in H1 and there was a net impact of EUR 25 million. And I think in the H1 call you said to expect H2 to be similar. Do you still feel that way given recent moves in steel? And then the second question on the OEM disclosures you provided. First of all, thanks for providing all that. In Asia, you said there was strength there except for VW and GM. Is it safe to say that the strength came from domestic OEMs in China? And then in North America, it's curious that this, the EV maker you cannot name, was not as impacted as other OEMs. Could you perhaps tell us what specific products you make for that OEM that weren't as negatively impacted? Or was it just that, that OEM wasn't as negatively impacted?
You have pretty questions. You understand that the American that I cannot mention because they don't want to be mentioned by any supplier. So I have to respect that, as you understand. I'm sorry for that. For raw materials, it's a big question because we have pass-through path. We continue to negotiate with these customers and the last, I will say, 2 months and 1 week we'd be still active. So anyway, as you know, it is contractual. It is a practice of this sector. And last but not least, the situation of suppliers is very different from carmakers. We are suffering, sorry to say that, from semiconductor sales volumes. We are suffering from stop-and-gos. Imagine today, the life of my logistic people, they have changed volumes at any moment and very good turnover. So their life is complicated mainly in just-in-time activity. But last but not least we have inflation and not only of inflation of [indiscernible], we have inflation of salaries. So to be cost cutting, to continue to, I would say, manage day-to-day performance is key. So we are today negotiating with customers as a pass-through knowing that, of course, when the raw material price there will be a reversal, which was the case, if you remember, in '19 if I'm not mistaken, of course, we will give as we did in the past the price decrease. So it is very important to continue to have this virtuous, I will say, way to manage. So today, I am confident that we will pass through 80% of the impact of raw material. There will be a small further impact because we have smoothed the impact in 2021. But I will be confident as well that in 2022, we'll continue. It will be more tricky on the salary inflation because we have, in some cases, a big salary inflation. And I was mentioning our accident, I don't know what is the right word, in Detroit -- in Detroit plant. We are today first to overpay the people, so it is the salary inflation due to the market conditions. So in some area, States, for instance, is Europe, I would say the workforce market is very competitive. Now going to your point of OEMs, very difficult to comment how OEMs get semiconductors. What I can tell you is that you have what is the structural market. That means what semiconductor suppliers are delivering, more or less 70% of the need. More or less because demand could be much higher than the current production. After that, you have the spot market and how much customers will accept to pay on the spot market. So difficult to comment the attitude of each customer. What I can tell you is that, and I think it was official [ those have ] made some arbitration between regions, which is why probably whatever the big commercial success in China, they cannot completely maintain their volumes. GM, more complex to answer because, as you know, we have a lower view. So for Clarion, we were able to maintain, I will say, the delivery to our suppliers, and as well, it is a daily fight. It is as well as the fact that when we have -- we get some products on the spot market, we immediately negotiate -- not negotiate, transfer information to customers. So we are backed by customers. But what I can tell you is that, according to my knowledge, there was no stoppage in Q3 even in October. And I think this is a very big performance in the current context. And I think if I go back to, I would say, beginning of this year, we have stopped our customers by something like 4 hours. So a very low figure. It's a difficult context.
Your next question comes from the line of Giulio Pescatore of Exane.
So the first question on the guidance, I guess you're expecting this one. You said that your guidance is based on the IHS revision of September, but we all know that IHS revised again a couple of weeks ago and now is expecting a flat market in 2021. So am I right in thinking that your guidance is valid even in the case the market would be flat in 2021?
We adjusted our forecast in September. As what I always said, it's that respect to what you call the EDI. EDI is better information we are receiving every day from our customers because EDI remains very high. Why? Because customers try to take all the products they can and so they want somewhere to secure their procurement, which is a paradox because in the month we can see big adjustment. So between the first week of the month and the last week of the month, today we see adjustment of the sales up to 10% for the group, which means in some zone, it could be 25% or more. So it is our current size and this unfortunately has not finished. Second thing, I will not adjust, of course, my forecast every time to IHS. I remind you that at the beginning of the year, we were much more cautious than IHS and you see we're much more cautious. And unfortunately, we were right. So I will not adjust my forecast I am making. I will say what we think. We have today -- the forecast is, of course, what we have done end of September plus our view with all the discounted, I insist, the discounted EDI that we have seen. And so we think that we are right. We say we can confirm the guidance with these volumes. After that, as you have understood, it is a day-to-day fact.
Yes. Makes sense. Then my second question on Seating. So you are basically causing the delay in North America to your customer, right? So are you liable to some compensation into the second part of the year?
Compensation for what, sorry, I'm not with you.
For the delays caused in the ramp-up of the new platform.
No, no. On the -- usually on the ramp up, except if you have a big difference of time, and in that case, we can, of course, ask for compensation. But here, we are speaking of weeks. So no, we will not ask any compensation. No way. And anyway, one key thing is that we are asking compensation for stop-and-gos because we are adjusting time activity. We are committed to a certain level of capacity. So when the customer brutally, and I say brutally, it could be the morning for the night, canceled 1 shift, we cannot act so we are asking for some compensation on that. So it is a part where we say of -- we say the way to compensate on the, I would say, difficult pattern. So this is a normal, I would say, a way to pay the adjusted time activity, but we are not asking any compensation for the delay of [ supply ].
Okay. So just to be clear, you are not causing the delay. So it's just that the customer is having issues with the ramp-up of its platform? Okay.
Which has changed -- I can take advantage, I'm sorry for your question. Seating, the mix was very positive in Q2 and stronger, we seem to remember, so that performance with respect to the other business. And strangely, the mix of products were negative and it is back to positive. So we have this as well this variability, which is a fact. But anyway, we will see more Seating should be normally the best performer in Q4.
Okay. And sorry, maybe just one last one. On Clarion, can you maybe comment on what is -- what activities are causing the pickup in our performance and organic growth?
If you remember, we have different, I would say, start-up production. Some for Nissan. I was talking about the Nissan LEAF and the Nissan Frontier, which was, if I'm not mistaken, June. So with a progressive impact in Q3 and Q4. On top of that, we have some start-up production for Chang'An. So Chang'An will be -- Chang'An is a Chinese OEM, will be a very significant customer now onwards for client.
Your next question comes from the line of Gabriel Adler of Citi.
My first question is on Seating as well, please. I was just hoping you could elaborate maybe a little bit more on what the operational issues you're having in Seating were and if they're just relating to the delay and the ramp-up of anything else? And what gives you confidence that the impact on profitability is going to be fixed before the end of 2021 just so that we have some confidence that this is even going to drive into 2022? And then my second question is on the HELLA deal and whether you could maybe just provide some more detail on the project One plan that you announced today, and what steps have you already taken to ensure that those synergies can be effective from day 1? And are you in a position yet now to provide any more details maybe on where you think these cost synergy will mainly be coming from?
Thank you. So I don't want to say that we are not guilty as a principle when we have a difficult ramp-up. And you know that it is one of a our major risk it is to mix a ramp-up. And the States are not often easy because which says the availability of people on one side, and in some regions, the lack of industrial I would [indiscernible]. In our case, the difficulty was in greenfield. So we have to start from scratch in Detroit. We did not have any more seating plant in Detroit. The second one, it was, of course, the lockdown because we were unable to send people in the second quarter and in the third quarter, which is always a difficulty. Seating is a very large activity, as you know, and the capacity to send people to secure start-up production is key. But anyway, going back to the basics. Our main difficulty is, first, to recruit qualified people. So we have to train the people. We have to train the people not only on the products, but on the way to work in automotive. And the second big problem we have is the turnover. We faced some turnover in a week above 10% for the first 2 weeks of October. Last week was better. So we are progressively stabilizing. But our problem, if I speak about cost is, of course, that we have to overpay the people to keep them loyal. Second, we need a lot of subcontractors to compensate. We have a high level of scraps. It gives us some penalties from the customer, which is, I think, I would say not normal, but it is a consequence. So altogether, you asked me a figure, I will say that the over cost for the last quarter is -- will be minimum EUR 20 million. So it is a significant figure, which is, of course, clearly impacting my margin of [ another ] with respect to my guidance. But it is the life. We faced that in the past. We will fix it as quick as possible. Going back now to synergies. So we have started -- you know that we are affected first until the closing, we are affected. So we have to act in a very, I would say, strict pattern. We cannot speak of business. When there is something, I will say, confidential we use our consultant, BCG. So it is a way to prepare the things to check the details that our plan is clearly reliable to add, of course, some other synergies. I speak here, mainly purchasing for the moment. For the organization, we have an important step, I would say, late November to clarify to the organization for the day 1, and of course, to make the synergies. So we'll be more talkative on the synergies when we will be in. But clearly, today, what I can tell you is that we are in the pattern that EUR 200 million is a minimum, but we will go back to you to give you more food. And I don't if we'll be able in February or later in April, but anyway, we'll be motivated. And I remind you that with the structure of the company, we'll have the full control day 1, so we can implement almost all the synergies except the tower control, which is that HELLA listed we still need some top people on the, I would say, the legal point of view. But except that, we'll be able to achieve 95% of the synergies planned.
And your next question comes from the line of José Asumendi of JPMorgan.
A couple of questions, please, [indiscernible] so far. Can you talk a little bit, please, with regards to your greenfield in Michigan and whether you're going to see -- or whether the group needs any other greenfield facilities to be opened next year and across any of the divisions? And talk a little bit more about the facility in Michigan, which OEMs is supplying currently and whether additional OEMs could be booked to that? That will be the first question. Second, can you talk a little bit about restructuring cash outflows for the second half of the year and also 2022? And then three, can you help me with these a little bit with working capital and CapEx in the second half of the year?
It's the last question, José. So -- and I'm not completely sure with the first question about Michigan. But for other, I will say greenfield what you are mentioning. No, Michigan is a [indiscernible], I think you've understood that. If you remember, it was a very large business, more than $300 million so to have a greenfield like this. Fortunately or unfortunately, we don't have. No. So in 2022, we have more -- some openings of new plants, but more limiting, I would say, in the magnitude. And I will say in the regions, mainly China, where probably we have -- were used to our greenfields. So I don't want to be over optimistic, but it will be probably easier to implement. Going now to the cash. The cash restructuring this year will be probably something like EUR 140 million. For next year, we are making our budget, so probably a little more than EUR 100 million. We are accelerating with respect to the, I would say, current pattern, some adjustment on head counts. Working capital, we are under pressure due to the stop-and-gos. So a high level of inventories. We are currently making a plan to adjust in October. So if we achieve this plan, normally we can commit to have a positive cash in from working capital. Because as you understand, the level of business in December 2021 will be unfortunately lower or much lower than 2020. CapEx will continue to reduce, so I speak on the figures at maximum EUR 500 million cash out this year on CapEx. Is that okay for you?
Perfect.
And your next question comes from the line of Victoria Greer of Morgan Stanley.
A couple for me, please. Firstly, the news that we're starting to hear about the magnesium shortage. Can you talk us through where do you use magnesium directly in your products? And then where do you use aluminum? And are you seeing any shortages right now? And second question on the HELLA deal, perhaps you can't comment on this, but is there anything you can tell us about the progress of the takeover offer and if you expect to own 100% of HELLA at closing?
Thank you, Victoria. So I did not say anything about the tender offer because, as you know, people will bring their shares at the last days. So today, we have a very partial view. But when you see the HELLA share price, normally the success of the tender offer should be high. It's what I can tell you today, but of course, please be a little patient until the 16th of November. Magnesium, according to my knowledge, nothing. Aluminum, indirectly very small. But very, very small. We are, as you know, but as far as I know I think it is probably EUR 2 million, EUR 3 million indirect purchasing, not more. Some indirect part mainly for the cockpit and no [indiscernible]. So as you know, we are a bit big purchaser of steel, more than EUR 700 million; big purchaser of plastic equivalents with some chemicals products, same thing, more or less EUR 700 million. So it is the 2 big, I will say, raw material impacts plus the semiconductors because we have some other costs on semiconductors mainly in the first half that we are today pass through to our customers. So semiconductors, I cannot tell you that we do not have any impact, but you can take into account that it will be normally much less than EUR 5 million net impact for the full year for the direct impact, not indirect. That impact would be huge. Thank you, Victoria.
Your next question comes from the line of Martino De Ambroggi of Equita.
My focus is on the Clean Mobility. If you could provide a rough indication on what's your expectation for Q4. If you could remind us what is the operating leverage of this division and your best estimate on the split for the full year between -- among hybrid, electric, ICE and the usual split that you provide for this division?
I expect in our, I will say, forecast the outperformance will be equivalent in Q4 with respect to Q3. So -- and the Clean Mobility will be with a good figure on profitability side. The operating leverage, as you know, is a little higher for Clean Mobility, close to 30% with respect to some other businesses more at 25% and Seating is lowest at 20%. First your question was about the mix. Complicated to see the mix. Probably, if I take Europe, between the EVs and hybrid, it will be over 10%. And we don't know that our customers will say optimize with respect to the manage -- I would say management with respect to European regulation. As you know, hybrid is the -- mainly the EVs are mainly an impact on Europe, a little to China, but mainly Europe. So we continue to see a big increase of hybrid, as we're mentioning, mainly for Stellantis and Volkswagen. And as you know, we have a significant market share in Europe on hybrid engines.
Okay. And just to double check. You mentioned that the Michigan plant issue will cost EUR 20 million in the second half and full stop. Am I right?
No. EUR 20 million in Q4.
EUR 20 million in Q4?
Yes. We have already crossed in Q3, but it's done. So when I make our guidance it's Q3, achieved a shipment plus Q4. So what we expect is that, unfortunately, we have another cost of minimum EUR 20 million in Q4.
And your next question comes from the line of Christoph Laskawi of Deutsche Bank.
It's really only short ones left. The first one would be also on the U.S. and the situation with the labor shortage there. Is it really just a function of salary increases? And with that, obviously, you can be quite confident as long as you're willing to pay, you get the staff. Or with the high turn, are there other mechanisms working, which could make it more complicated to even later in Q4?And the second question would be I understand your comments in a way that the volatility of the production remains pretty high also in October and most likely for Q4 as well. Do you also see a risk that there might be even early shutdowns in December, so in mid-December that several OEMs decide to close for the year, potentially build slight inventory and then they start off in January on a cleaner base? Or so far, not part of any discussions that you have?
Thank you for your questions. The first one, I don't want to comment too much on the American pattern and many of some regions, which it is well known that some regions are more difficult to operate on the views of others. Our difficulty is both, one, to find qualified people because if you want to find people that have not worked in the last 4 years, there, as you understand what it means. So to find, I will say, qualified people. And the second point is to keep them because industry is not, I will say, the most nicest first work in this world. I don't -- I will not say that to make an assumption to complete a seat is a terrible work, but probably people would like to make some other things. So we have this difficulty. And I repeat, we have this turnover of people, whatever the fact that we today will overpay respect to the market by something like 15% to 20%. So we did -- we are in the first week -- first month, I will say. So we need really to make people loyal. So this will improve week after week. It's a ramp-up as well because we have to demonstrate the capacity, we were at 150 car set, I will say, in the summer. This month it's more than 250, very rapid model. I will say the customers stopped today. And we have to go possibly to more than 300. And we said progressively, it will be, I think, at the end of the year, 450 per day. So it is a race and it is, I will say, an industry, the capacity to reduce variability. So this is our, I would say, goal and our day-to-day work in this plant and which is much more positive that now we can bring people, which was not, I would say, the case until probably early October. Your second question, sorry, was...
Volatility.
Volatility at the end of December. Here, I don't know. You're very right, I don't know. We see customers, I repeat, giving us, I would say, EDI, so signals much higher than our forecast. We think and we say to that, that they can sell chips, sometimes and they can sell base. So we see probably semiconductors improving. So I don't know how much will go to automotive sector because automotive sector is only 8% to 10% of the worldwide need. So there are as well some arbitration between sectors. So it's difficult for me to comment what will be the trend in December. That is a key element to secure the level of sales that we have forecasted. So I cannot comment today. It will be my -- unfortunately, my zone of uncertainty.
Your next question comes from the line of Michael Jacks of Bank of America.
Following on from one of the previous questions on labor, inflationary pressures have also been building in energy and freight rates, but a lot of this have seemed to come late in the quarter and won't fully impact the second half. Outside of the EUR 20 million impact in North America, what is the magnitude of the incremental cost impact you see in Q4 versus Q3? That's the first question. And the second question is to what extent do you think that this non-raw material inflation can be passed on to the OEMs?
I don't have, sorry, the figure between 2 quarters like this. Probably when we see the inflation, it could be up to EUR 20 million, higher cost with respect to inflation. What I can tell you is that when we see the total inflation cost that we are facing between raw material and other costs, we're speaking over 3% for the group from 1 year to another when we enter 2022. So the management of inflation and the capacity to pass through to customers is key. I will not escape. Today, my view is that 2022 budget will be probably impacted by something like 50 basis points due to inflation, but I repeat, to be estimated with the last negotiation with customers.
If I can maybe just ask one more follow-up on freight costs. Is Faurecia exposed to any significant -- in any significant way to sea freight costs? And if so, do contracts tend to be computed on a rolling basis or on an annual basis?
No. It depends on what you highlight. If I speak about transport, it is a yearly cost. But as you know, we have a very, I will say, low level of, I would say, overseas, the transportation, mainly from China to the other, I will say, regions. So we are, fortunately, very poorly impacted. And anyway, due to the fact that often it was a request from our customers because they didn't want to double the tooling, we are passing through that, that we speak here of transport of something, a figure, which will be roughly EUR 5 million for the group. So it's not my first preoccupation. Energy to be understood, but probably we speak of EUR 10 million to EUR 15 million for the group as additional cost as well, this will be probably more tricky to pass. We have one card that with our carbon neutrality, et cetera, we are reducing our electricity consumption. So probably we'd be able to compensate and we compensate by our productivities. So this will be, on inflation, negative net impact globally as a group. I think we'll compensate, not completely sure but we'll compensate. Salary is not tricky because except we see some revisions like South America, et cetera, South Africa, we don't normally have an indexation to customers. But we see a salary increase in North America, mainly in the States, over 5%. In Mexico, we have a change of the profit sharing, which is an impact of 8%. So here, it is big change of contractor clause. So same thing, we have some negotiations in process.
Your next question comes from the line of Alexis Albert of DNCA.
Can you hear me well?
Yes.
Okay. Good. Three questions on my side. First one is regarding the free cash flow. So we are pretty much beginning of November, so we are close to 60 days from the end of the year. So would you confirm that your visibility on your free cash flow guidance is, I mean, 90%, 95%? Is -- am I right, like 90% you know your free cash flow today?
90% that's safely. We have this work on inventories, which is key, as you know -- as you say. So inventories or purchasing, if you remember, which we prefer in October, which is key. After that, we are fine-tuning the CapEx, but this is our decision. And last but not least, the only volatility I can have is the factoring of receivables.
Okay, okay. Good. So EUR 450 million is pretty much done. Second question is regarding the margin. So consensus is 6.2%. I mean the market has been tough, a little bit tougher than, I mean, you talked about all that over the last 15 minutes. But is it fair to assume that something around mid-range? Is it sensible? Does it make sense? Or would that be too optimistic?
About what, sorry?
Mid-range for the guidance so 6.1%. Do you think it's a fair assumption considering the production level and all the stop-and-gos you might get for the next 2 months?
My guess is from 6% to 6.2%. So of course, my forecast is 6.1% at least. The only message I can give you is that I am not happy, of course, with the Detroit accident, which is limiting my margin turnover with respect to my guidance. It is the only message I can give today because usually I have -- I would say, good margin turnover. Today is more what you're saying.
Okay, okay. Sounds good. And the last question is regarding the bond market. To be fair, I was expecting you to announce today a financing operation with Q3. We are getting close to the end of the year. I know the bond market gets a little bit more difficult to access from mid-November until the end of the year. So when do you think we should expect -- do you work to get the acceptance rates? I mean when do you think we should expect a bond financing operation?
As you know, I cannot comment on the debt.
Yes, of course.
But I will not completely escape. I think the bond market is expecting Faurecia.
I know it is.
Well, that means, yes, as you have understood, closing will happen in January or February. So we'll not get the money today. So what we will do will be, I would say, prefinancing. And you know that I am -- I love to reduce my risk. So of course, I will act to prefinance a part of it.
And just do you need or do you want to know the acceptance rate of the offer? Or you don't really need that information to tap the bond market?
No. Well, I don't need because whatever the success I have already to finance not EUR 4 billion because it is a part of the family, but EUR 3.5 billion.
Okay.
I have any way to prefinance EUR 3.5 billion. I am a part of the cash that they can use. But in Europe, I think the tender will be [indiscernible]. So anyway, I have to go to the market and to finance EUR 5 billion, I would say, minimum. The bridge, I have time.
Your next question comes from the line of Michael Foundoukidis of ODDO.
One last one, a follow-up on Alexis' questions. How should we think of the EUR 800 million rights issue? Does it depend on the success of the minorities takeover, meaning that if you don't have the 40%, you would not necessarily use this financing option?
We -- I cannot answer, as you know, Michael, on that. So if the financing -- it is a part of the financing, as you know, more or less 15% less for the financing. After that, we will remain agile and we want to optimize any way the value creation for shareholders. Sorry to escape on that, but I cannot answer.
Your next question comes from the line of Edoardo Spina of HSBC.
And I have just 1 question. It's about the macro chips. I mean you have a growing exposure to them via Clarion and HELLA. Some OEMs have publicly complained about how suppliers manage the chief procurement process, not about Faurecia, to be clear, or HELLA. But given your past experience with the monolith, do you see any risks or any signs that the OEMs are trying to do the same as the monolith and deal directly with the second actor suppliers even just to secure their supply?
To be honest, I don't know. Probably, yes. Some like to be more involved, but to be blunt, I don't know. And as you know, we are restricted about HELLA. We are restricted to speak about that, but HELLA is not buying so many semiconductors directly, but as well impacted and they're managing that. The attitude of customers what we have understood is very different from one to another. Some are very aggressive to their suppliers. I don't know if it is the smartest way to act because the day that things will come back, I am not sure that suppliers will favor the customers, which are in some cases, actually well understood, issuing them. But better to ask to big, I will say, players like [indiscernible], et cetera, to understand better the market. What I can tell you is that what has been a problem, some fire disaster, some flood disaster, some, I will say, as COVID in Malaysia. For the moment, everything is resolved. So we see the semiconductor production increasing. I don't know what is the magnitude because this will be important to secure 18 million car production for the last quarter, which is a figure higher than the third quarter, but still very low. We see probably some restocking in some regions like China. We see potentially, I would say, an easing in consumer electronics but too early to have a conclusion on that.
And your final question comes from the line of Pierre Quemener of Stifel.
Can you hear me correctly?
Yes.
Okay. Just one final, back on the macro side. Once again, I appreciate that December is a bit far from today's point of view. But just to speak with the month of October, how would you qualify the production flow versus the situation back 4 to 6 weeks ago? You see a significant improvement in your factories in the way that you are producing in October versus early September? Or is it still fairly disrupted and no real improvement?
What we see is 2 weeks, the 2 first weeks very much disrupted. The third week, almost stable. It is this week a lot of closures and due to the [ cease ] of, I don't remember the name of [indiscernible] in English. So difficult to comment. October is a low month, if I can tell you, with respect to, I will say, history. So we don't see yet a big increase or gain of recovery.
Thank you. There are no further questions on the line. Please continue.
Okay, Tracy. Thank you very much. Thank you to all of you for your attendance. And with Marc and Matthieu, we'll remain at your disposal for any questions. Have a very good day, and see you soon. Bye-bye.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.