Half-year 2020 results: agility and resilience

• The impact of volume drop due to the Covid-19 crisis for €(1,284) million
• Savings from resilience actions taken to mitigate the above-mentioned negative impacts for €536 million
• Covid-related one-offs for €(20) million
• Scope effect & other for €9 million

Operating leverage, calculated as the drop in operating income (excl. Covid-related one-offs and scope effect & other) over drop in sales at constant scope, was contained to 23% (see calculation in appendix)

             

Net cash flow of €(1,045) million vs. €257 million in H1 2019

It was mainly impacted by:

• The negative contribution from operating income for €(114) million (vs. a positive contribution of €645 million in H1 2019)
• A temporary impact of lower activity on working capital requirement for €(647) million, to be largely reversed in H2 2020
• Change in receivables factoring for €(96) million

 

SALES AND PROFITABILITY BY REGION

 

Europe (49% of Group sales)

             
In Europe, the low point in sales was April with continuous volume recovery since May:

• Sales were down 36.1% in H1 at constant scope and currencies (-16% in Q1 and -55% in Q2); in June, sales were down 22% year-on-year
• Strong outperformance of 360bps in H1 (IHS Markit dated July 2020 indicated -39.7%)
• The positive scope effect was attributable to SAS for €122 million and Clarion for €20 million

             

North America (24% of Group sales)

               

             
In North America, the low point in sales was also April with continuous volume recovery since May:

• Sales were down 41.7% in H1 at constant scope and currencies (-18% in Q1 and -64% in Q2); in June, sales were down 14% year-on-year
• Strong outperformance of 520bps in Q2 (-63.9% for Faurecia vs. IHS Markit dated July 2020 at -69.1%) did not fully offset the underperformance in the first quarter (mainly attributable to Seating end of production effect)
• The positive scope effect was attributable to SAS for €49 million and Clarion for €56 million

 

Asia (24% of Group sales)

             
In Asia, which was the first region in time to be impacted by the Covid-19 crisis, the low point in sales was February with continuous volume recovery since March:

• Sales were down 23.2% in H1 at constant scope and currencies (-34% in Q1 and -14% in Q2)
• Strong outperformance of 500bps in H1 (IHS Markit dated July 2020 indicated -28.2%)
• The positive scope effect was attributable to SAS for €32 million and Clarion for €133 million

             
More specifically, in China, recovery was quicker and stronger with sales above 2019 since May; in June, they were up 23% year-on-year:

• Sales were down 18.0% in H1 at constant scope and currencies (-42% in Q1 and +6% in Q2)
• Strong outperformance of 470bps in H1 (IHS Markit dated July 2020 indicated -22.7%)

South America (2% of Group sales)

In South America, the low point in sales was in April/May with gradual volume recovery since then:

• Sales were down 42.1% in H1 at constant scope and currencies (-2% in Q1 and -73% in Q2); in June, sales were down 42% year-on-year
• Strong outperformance of 890bps in H1 (IHS Markit dated July 2020 indicated -51.0%)
• The positive scope effect was attributable to SAS only

 

 

SALES AND PROFITABILITY BY BUSINESS GROUP

 

Performance by Business Group is presented in the table below; it mainly reflected the Covid-19 impact that was previously commented in detail by region.

 

NET INCOME (GROUP SHARE) OF €(433) MILLION, MOSTLY REFLECTING THE DROP IN OPERATING INCOME

 

Group operating income stood at €(114) million, vs. €645 million in H1 2019.

• Amortization of intangible assets acquired in business combinations: net charge of €46 million vs. a net charge of €11 million in H1 2019; the increase mainly reflected Clarion Electronics for €31 million and SAS (5 months) for €12 million.
• Restructuring costs: net charge of €89 million vs. a net charge of €71 million in H1 2019; the increase reflected the measures taken to adapt to the crisis. In the full year, restructuring costs should amount to €230 million (vs. €132 million in 2019, excluding Clarion).
• Other non-recurring operating income and expenses: net profit of €16 million vs. a net charge of €22 million in H1 2019; they included:
  • A profit of €178 million due to the reevaluation of the initial 50% stake held in SAS,
  • A charge of €150 million due to goodwill impairment of Clarion Electronics.
• Net financial result: net charge of €108 million vs. a net charge of €94 million in H1 2019; the increase mainly reflected the gross debt increase.
• Income tax: net charge of €67 million vs. a net charge of €93 million in H12019; it included a charge due to changes in deferred tax assets for €21 million (mainly France and Germany).
• Share of net income of associates: charge of €12 million vs. a profit of €25 million in H1 2019; H1 2019 included a positive contribution of €13 million from SAS, while H1 2020 included a negative contribution of €7 million from Symbio.

Net income before minority interests was a loss of €420 million vs. a profit of €378 million in H1 2019.

Minority interests amounted to €13 million vs. €33 million in H1 2019.

Net income (Group share) was a loss of €433 million vs. a profit of €346 million in H1 2019.

 

 

NET CASH FLOW OF €(1,045) MILLION, MOSTLY REFLECTING THE DROP IN OPERATING INCOME AND THE STRONG TEMPORARY IMPACT OF LOWER ACTIVITY ON WORKING CAPITAL

 

EBITDA stood at €509 million, vs. €1,171 million in H1 2019 reflected the drop of €759 million in operating income, mitigated by higher depreciation and amortization including scope effect.

• Capital expenditure was an outflow of €235 million vs. an outflow of €286 million in H1 2019.
• Capitalized R&D was an outflow of €305 million vs. an outflow of €322 million in H1 2019.

            Capex reduced by 17.9% and capitalized R&D reduced by 5.3% reflected lower activity and flexibilization actions.

• Change in working capital requirement was an outflow of €647 million vs. an outflow of €17 million in H1 2019; it mainly reflected the timing impact of the sharp drop in sales due to the crisis, an impact that should be largely reversed in the second half of the year.
• In addition to change in working capital requirement, factoring of receivables was reduced by €96 million vs. the end of 2019; this net effect included €115 million from the program extension to SAS.
• Restructuring represented an outflow of €54 million vs. an outflow of €61 million in H1 2019.
• Net financial expense was an outflow of €94 million vs. an outflow of €85 million in H1 2019; it reflected the debt increase and one-offs related to actions taken during the crisis to protect liquidity.
• Income tax was an outflow of €109 million vs. an outflow of €152 million in H1 2019.
• Other operational items represented an outflow of €14 million vs. an outflow of €11 million in H1 2019.

Net cash flow stood at €(1,045) million, vs. €257 million in H1 2019.
      ·Net financial investments and other cash elements was an outflow of €369 million vs. an outflow of €1,276 million in H1 2019; it mainly included the investment (50%) in SAS, while H1 2019 included the acquisition of Clarion.

After a negative impact of €91 million related to IFRS16, the Group’s net financial debt stood at €4,034 million at June 30 (vs. €2,524 million at December 31, 2019).

Net-debt-to-EBITDA ratio stood at 2.3x EBITDA at June 30 and should stand at c. 2.5x EBITDA at year-end.

 

H2 2020 TURNAROUND ACTIONS AND GUIDANCE

 

In the second half of the year, Faurecia will continue to deploy measures to further strengthen resilience, enhance cash generation and maintain a sound financial structure.

As regards resilience, Faurecia will continue to:

• Optimize its industrial footprint with increased restructuring budget of around €230 million in the full year (vs. €132 million in 2019, excluding Clarion),
• Maintain flexibilization of labor, manufacturing and R&D costs and strict control of SG&A,
• Accelerate global cost-optimization programs.

As regards cash, Faurecia targets to:

• Reduce capex by c. 40% in the full year (vs. €685 million in 2019),
• Reduce R&D gross cost by 10% to 15% in the full year (vs. €1,330 million in 2019),
• Generate strong positive flow from working capital, with both inventories and overdues below pre-Covid levels at year-end,
• Restore factoring level (including SAS) to c. €1 billion by year-end.

As regards financial structure, Faurecia signed a new bilateral 12-month line of €100 million (undrawn) in July and targets to refinance through long-term bonds the €800 million Club Deal signed during the first half.

Thanks to these measures and based on the assumption that worldwide automotive production in H2 will be down around 15% vs. H2 2019 (vs. IHS Markit dated July 16, 2020 of -11%), including:

• Europe around -15% vs. H2 2019,
• North America between -10% and -15% vs. H2 2019,
• Asia between -5% and -10% vs. H2 2019,

             

             

Faurecia is now targeting for the second half of the year:

• Sales of around €7.6 billion
• Operating margin of around 4.5% of sales
• Net cash flow of around €600 million

The assumptions of worldwide automotive production underlying these targets assume no major new lockdown in any automotive region during the period (main average currency rates for the period estimated at 1.10 for USD/€ and 7.80 for CNY/€).

 

MEDIUM-TERM 2022 AMBITION FOR PROFITABILITY AND CASH GENERATION CONFIRMED THANKS TO STRUCTURAL INITIATIVES AND CONTINUOUS IMPROVEMENT IN RESILIENCE

 

As a consequence of the Covid-19 crisis, Faurecia’s new worldwide automotive production assumptions for the medium-term are as follows:

• 2020: around 64 million vehicles (around -25% vs. 85 million vehicles produced in 2019)
• 2022: between 76 and 85 million vehicles (vs. 87 million vehicles estimated before the Covid-19 crisis)
• 2024: between 85 and 91 million vehicles

These assumptions assume a return of worldwide automotive production to the pre-Covid level of 85 million vehicles produced in 2019 between 2022 and 2024.

In the new post-Covid environment, three trends are emerging:

• Acceleration of electrification, driven by CO₂ emission regulation, incentives and increasing environment concerns, leads to increased focus on hydrogen solutions
• Strong momentum for CO₂ neutrality
• Reduction in investment for autonomous driving, focusing now on L2 / L2+ levels

Faurecia is well prepared to seize opportunities related to these trends through:

• Focusing investment on 14 product lines with strong profitable growth potential
• Building a leadership position in fuel cell systems and high-pressure tanks,
• Deploying its ambitious roadmap to achieve CO₂ neutrality

Faurecia’s medium-term performance will continue to benefit from the actions undertaken to significantly reduce breakeven of operations as well as profitable growth drivers in each Business Group:

• Seating through the start of major new programs in 2021 that will contribute to strong market outperformance,
• Interiors through the strong potential from SAS and refocused product portfolio,
• Clean Mobility through increased content per vehicle on low-emission vehicles, leading position in fuel-cell systems and strong growth potential for Commercial Vehicles and Industry,
• Clarion Electronics turnaround through confirmed sales growth and continued cost optimization.

With the new above-mentioned assumptions for worldwide automotive production in the medium-term and thanks to structural and resilience initiatives, Faurecia confirms its 2022 ambition for profitability and cash generation (as announced at its Capital Markets Day held on November 26, 2019), despite lower sales prospects:

      ·Sales now expected at above €18.5 billion (based on an assumption of worldwide automotive production of 82 million vehicles)

            vs. an initial forecast of “above €20.5 billion euros” based on an assumption of worldwide automotive production of 87 million vehicles in 2022

• Operating margin ambition confirmed at 8% of sales
• Net cash flow ambition confirmed at 4% of sales

Faurecia also targets to recover its BB+/Ba1rating by the end of 2022.

Faurecia’s financial presentation and financial report will be available at 9:30am today (Paris time) on the Faurecia website: www.faurecia.com

A webcast will be held today at 10:00am (Paris time). If you wish to follow the presentation using the webcast, please access the following link: https://hosting.3sens.com/Faurecia/20200727-28B7F903/en/form.php

A replay will be available as soon as possible.
You may also follow the presentation via conference call:

• France: +33 (0)1 76 77 22 57
• UK: +44 (0)330 336 9411
• USA: +1 323 794 2093

Financial calendar
October 23, 2020:                            Q3 2020 sales announcement (before market hours)

About Faurecia
Founded in 1997, Faurecia has grown to become a major player in the global automotive industry. With 248 industrial sites, 37 R&D centers and 115,500 employees in 37 countries, Faurecia is a global leader in its four areas of business: Seating, Interiors, Clarion Electronics and Clean Mobility. Faurecia has focused its technology strategy on providing solutions for the “Cockpit of the Future” and “Sustainable Mobility”. In 2019, the Group posted sales of €17.8 billion. Faurecia is listed on the Euronext Paris stock exchange and is a component of the CAC Next 20 index. For more information, please visit www.faurecia.com

 

 

APPENDICES

 

Definitions of terms used in this document

1.     Sales growth

Faurecia’s year-on-year sales evolution is made of three components:

• A “Currency effect”, calculated by applying average currency rates for the period to the sales of the prior year,
• A “Scope effect” (acquisition/divestment),
• And “Growth at constant currencies”.

As “Scope effect”, Faurecia presents all acquisitions/divestments, whose sales on an annual basis amount to more than €250 million.

Other acquisitions below this threshold are considered as “bolt-on acquisitions” and are included in “Growth at constant currencies”.

In H1 2020, there was no effect from “bolt-on acquisitions”; as a result, “Growth at constant currencies” is equivalent to sales growth at constant scope and currencies also presented as organic growth.

1. Operating income
   Operating income is the Faurecia group’s principal performance indicator. It corresponds to net income of fully consolidated companies before:
   • Amortization of intangible assets acquired in business combinations;
   • Other non-recurring operating income and expense, corresponding to material, unusual and non-recurring items including reorganization expenses and early retirement costs, the impact of exceptional events such as the discontinuation of a business, the closure or sale of an industrial site, disposals of non-operating buildings, impairment losses recorded for property, plant and equipment or intangible assets, as well as other material and unusual losses;
   • Income on loans, cash investments and marketable securities; Finance costs;
   • Other financial income and expense, which include the impact of discounting the pension benefit obligation and the return on related plan assets, the ineffective portion of interest rate and currency hedges, changes in value of interest rate and currency instruments for which the hedging relationship does not satisfy the criteria set forth in relationship cannot be demonstrated under IFRS 9, and gains and losses on sales of shares in subsidiaries;
   • Taxes.
2. Net cash-flow
   Net cash-flow is defined as follow: Net cash from (used in) operating and investing activities less (acquisitions)/disposal of equity interests and businesses (net of cash and cash equivalents), other changes and proceeds from disposal of financial assets. Repayment of IFRS 16 debt is not included.
3. Net financial debt
   Net financial debt is defined as follow: Gross financial debt less cash and cash equivalents and derivatives classified under non-current and current assets. It includes the lease liabilities (IFRS 16 debt).

 

Profit and Loss Statement

Cash Flow Statement

Net Cash Flow Reconciliation

Operating leverage calculation

 

Attachment

• PR – Faurecia H1 2020 Results – Agility & Resilience