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Good morning. This is the conference operator. Welcome, and thank you for joining today's Forvia Q3 2024 sales conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions by pressing star and 1 at any time. Should anyone need assistance during the conference call, they may signal an operator by pressing star and 0. At this time, I would like to turn the conference over to Mr. Olivier Durand, Group Chief Financial Officer.

Please go ahead, sir. Good morning, everyone, and welcome to Forvia Q3 sales presentation. I'm here in Nanterre with the investor relations team and Sandrine Doram-Lanchard, our Deputy CFO. We will present this morning, of course, results that are largely in line with our communication of late September. Let me start first of all with a short update on the environment. The key elements have not changed. The environment remains challenging with two clear elements. One is the pause of the electrification, and the second is the significant production decline that we see in H2-24. On the electrification, Clearly, this year has been showing a slowdown and even a stop of electrification in Europe and North America and a slower increase in China. We anticipate that next year we'll see some evolution more towards a rebound of electrification in particular in Europe on the background of the CAFE regulation with the new threshold that will be applicable for the next five years. The dimension of it is still an open question that we will see evolution in the next coming months, and we will come back to this in our annual publication when we give our guidance of 2025. The second element is the production itself. We have clearly a reduction in the second half by around 4%. and on the background of the high inventories in North America and several startup productions that have been delayed from a production standpoint. Those elements were identified in September. They remain valid, and the latest IHS S&P information has not changed anything in this direction. Now let me come back to the news about Forvia itself. First of all, in terms of order intake, we continue to enjoy strong order intake. The first nine months have showed 20 billion euros of orders, and we have been able to obtain those ones on a selective basis, selective in the content, selective in the profitability, and selective in particular in the need of reduction of the upfront cost, which is a key element in the better conversion in cash of our results and activity. You see that we are clearly in the direction of reaching the $30 billion we anticipate for the year, and you see a little bit key elements about where they come from. A lot comes from Asia, a lot from electronics, and a lot of premiums. And let me highlight a few key awards of the period. We got our first award with Xiaomi, Xiaomi is one of the key telecom companies entering now the EV and the car market, and it's very good that we are able to extend our reach with Chinese OEM, also with the latest ones including it. We got a major award with Volvo in the interior for 300 million euros. And we see a renewal of the commercial activity in clean mobility, ultra-low emission, and you see some of the elements and the highlights of the period. It clearly shows a sign of the development, the continuation of hybrid solutions in the context we see on the power trains. It does not mean that there is a renewal of engines, but there is a continuation of the flow, which is encouraging for this key cash core of the group. Now if I move to the actual sales activity of the quarter, let me first start with the overall picture. We have enjoyed €6.4 billion of revenues. This is an outperformance of 420 basic points compared to the market. And this is happening as follows. Organic growth Organic growth minus 0.4% versus a market that was down in the period. And then we have two negative effects related to scope and currency. The scope is negative for the last quarter. We sold activity to Cummins on the commercial vehicle spectrum, which was having still revenue, therefore, in the first nine months of last year. And vice versa, we have the positive of the consolidation of activity in HBBN, in lighting in particular, with LiO2 in China. And on the currency, this is related to the different evolution of the currency in the period. Not only the major ones, but also some secondary ones on which hyperinflation is applicable. So the exact number for the period has been 6,357,000. million of revenues. Now if we go business by business, I will start with sitting, which represents one-third of our activity. We have strong organic growth of 4.9% in this business. This is driven by the growth in Europe and in North America, so we continue to ramp up and to improve the sitting business. This is even more interesting given that we had last year still activity on the contracts in Grand Wagoneer that we transferred in agreement with Stellantis at the end of September of last year. So the comparison is even more favorable. On interiors, interiors is also showing Strong organic growth, 5.9%, basically 10 points of overperformance. This is related to the strong activity in particular in North America and also in Europe. This is also including significant tooling sales, in particular related to the new startup productions that we have, which is contributing to this above the average outperformance this quarter. Clean mobility. So clean mobility is reflecting an underperformance in the period. We have a decline of revenues by minus 10%. Three quarters of this is related to the reduction of activity of Stellantis, which is a which is well known on the back of also the reduction of inventories that the customer is driving. And this is also related to the drop in activity in China with electrification. So I would say that this level of reduction is more on the high side compared to what we can expect in this business given the electrification evolution. Electronics, we have, in fact, some outperformance, and even if the slowdown of the electrification has led to a lower activity than we could expect a year ago. You have North America, which is going with the GM. You have outperformance in Europe driven by Volkswagen. And you have, however, a negative customer mix in China. We'll come back to China when we look at the regional picture. And last but not least, lighting and lifecycle. So lighting is, in fact, with a growth of 6%, including the consolidation of the HBBL joint venture in China that Ella has. If you look at it from a pure organic perspective, we record an up performance even if the growth is minus 1.4%. This is related in particular to the delays in startup production in several places, in particular China, U.S., mitigating the growth that we have in Europe. Life cycle, the last activity, a smaller one, but a good cash cow, however. The organic growth is negative in the period. It's reflecting the specific investment cycle in the special original equipment activity, which is currently happening, so there is a timing effect in this growth on these activities. I will now move to the regional picture in page 9. Europe and North America are driving the market performance this quarter. We have a strong one in Europe, a very solid one in America. Europe, you have seen that in city, in interior, in lighting. And America, this is on the back also of not only entire density, but also electronics. In Asia, you have two different pictures. You have China that is still with, in fact, another performance. This is related to the mix of customers that we have and also the delay in startup production in different customers. Let me say, however, that the diversification that we are doing will be paying off and that we confirm that we will have outperformance returning in China by at least 300 basic points in 2025. Related to Asia outside China, the organic growth is quite solid at 4.5%, which is an outperformance of around 10 points. And this is driven by the development in Japan on the more diversified customer base and also entry in other places, including India, which is encouraging for part of the plan we have, which is west to east, which is not only about developing China, but it is just as much to develop the rest of the region where historically our presence was limited, but now we have the capacity to expand. So in summary, in our performance of 420 basic points, which is inside the corridor that we enjoyed since the creation of Forvia, between 300 and 500 basic points. Now, if I shift to expectation, I will start by page 11. And, of course, we confirm all the messages that we passed in the call we had in late September. So, first of all, we confirm the guidance we have provided related to 24 in the context of this lower production outlook with 26.8 to 27.2 billion euro of revenues, operating margins between 5.0 and 5.3% of sales, a net cash flow of at least 550 million, and a leverage at 2.0 or below by the end of this year. We confirm also that in this context, we accelerate the initiatives we have to improve the performance with impact clearly in 2025. We have three main activities in this regard. Number one is west to east. It's to enhance our relationship with Chinese OEMs. It's also to expand outside China and to see the opportunities of the development of the rest of this region plus the fact of our growing intimacy with both Chinese and Japanese OEMs. We are already the fifth largest Tier 1 supplier in China, and we will resume our performance of at least 300 basic points in 25 in that country on the backup of the ramp-up of the activity with Sherry and the growth from the SOP that has been delayed recently. We also continue to expand our activity with Chinese OEM outside China. You know that we have with BYD a good cooperation starting in Hungary, but we have been also selected now for the second location that BYD has taken in Europe in Turkey. and we continue to enjoy in this region out of sustainable margin in a double-digit range, which is accretive to the group performance. The second and the third initiatives are both in the same direction, which is a reduction of the cost of operating in the business. First of all, EU Forward's We had announced this plan early this year. We identified clearly early that there was a need for rationalization of footprint and activity in Europe. And we are able to say that we are not only on track on this plan, but we are able to accelerate compared to the initial expectation. We will have, by the end of next year, More than 50% of the head contradictions already done with 5,500 people who have left the group in Europe. We expect a cumulative positive impact of 180 million in the PNL of 2025, mostly next year. And we target to have this plan largely executed earlier i.e., 90% of the head contradictions announced by the end of 2017, giving us around one year advance compared to the initial plan that we had when we announced that in February. The second element is to continue to benefit of synergies of the combination between FORPIA and ELA. We are able now to anticipate 400 million of cumulative cost synergies by the end of 2025 compared to the starting point. It means that we expect between the two around $300 million of cost reductions in the P&L of 2025, i.e. a full one point of self-help in the context in which we are. Last but not least, Of course, our central objective is to reduce the debt and reduce the leverage. The target of 1.5 times of leverage net debt to EBITDA is unchanged. This will be on the back of two elements. One is the improvement of the conversion in cash flow, and second, the completion of the second disposal program that we launched a year ago. On the first item, the cash flow will improve significantly year-on-year on the back of the improvement of the EBITDA given the cost reductions we are working on. And second, by the improvement in capex and capitalized R&D that we derived to below $2 billion, which means that not only the cash flow will improve in value, but will also improve on quality because the improvement between this year and next year will not come from working capital. It will come from IBDA, CAPEX, R&D capitalization. And, of course, the complement to reach the 1.5 times in leverage will be the completion of the second disposal on which we are working and in which we have traction on some of the key files. So in summary, we are in line with the message we passed in September. The Q3 revenues are showing that we are continuing to have our performance, and commercially we are able to reach the level of order intake, which is in line with our expectation in a selective domain. So we are on track to realize the objective of this year and to get the leverage down to 1.5 times next year. On this note, I'm ready for questions you may have this morning.

Thank you, sir. This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove your question, please press star and two. The first question comes from Jose Azumendi of J.P. Morgan.

Good morning. A few questions, please. The first element around the... the outlook for 2025. Can you comment a little bit on your expectations for European production? It sounds like you're expecting production to be down in 2025 in Europe. Reading from your press release, North America could be up, and China will be offset in Europe. You could comment a little bit on those dynamics, please. Second, how do you think about our performance to grow our production in 2025 as well? And then third, Can you comment on the cost savings? How much do you expect on your cost actions, specifically Europe? How much do you expect to book in the second half of 2024 and in 2025? Thank you.

Good morning. So on 2025, I think on the production, we only see We plan for flat markets next year with a bit of growth in China and a bit of decline in Europe. Having said that, I think there is one factor that is an uncertainty, which is what will be the impact of the CAFE regulation. And we all know that, in fact, it leads to a real difficulty for this market and for the carmakers. How they will implement it and confront it is not fully clear. So what we are doing is using the initiative of cost reduction that we have launched in order to be as agile as possible, as mobile, and to get our break-even points lower so that we can face any elements. So that's for the production. On the outperformance, since the creation of 4VR, we have been able to reach an outperformance between 300 and 500 basic points. We expect that to continue. And this year, we have been able to do this even though the mix has not been so favorable with China being temporarily with, in fact, an underperformance, which was not the usual situation. So I think it reinforces the strengths of the portfolio, so we anticipate to be with some outperformance next year. We will validate that in the context of our budget exercise, and we will communicate accordingly that I think we should continue to enjoy our performance next year. On the cost savings, So we have three types of cut savings. One is the synergies. So we should enjoy this year 80, 90 million of synergies gains in the P&L compared to the year before and probably at least the same type of value next year. The second is the... is the fact that we have done headcount freeze and external cost selectivity, which is giving additional element. And the third is EU Forward, in which, in terms of headcount evolution, we have a strong start. We have more than 2,000 people announce reduction. But, of course, in terms of cost, given the timing of execution, will be lower. So if we summarize, synergy is 80 to 90 million for the year. Cost savings of the rest is a few tens of millions, and EU forward is a few tens of millions. And that's why you will see a much bigger level of cost reduction next year, because then the combination of EU forward in full execution mode plus the continuation of the synergy gain should lead in a combined fashion to around $300 million of cost reduction in the P&L 25 versus 24, i.e. one point of the revenues.

Very helpful. And the SOP with BYD in Turkey and in Hungary, is it 2026?

It's not. So I think the BYD in Hungary... between late 25 and 26, Turkey is not completely clear so far. Because Turkey, the select club site has been this summer. The site is in Siena, which is a bit away from part of the suppliers. So the timing is not completely known yet. Now the experience of BYD has been to surprise us. in terms of the speed at which they are completing projects. Thank you so much.

That was excellent. Thank you.

The next question is from Michael Jacks of Bank of America.

Hi. Good morning, Olivia. Thanks for the presentation. Perhaps if we can just start with the Rudy's rating downgrade last week. What does that mean for you in terms of your cost of borrowing? My second question is, given the weaker volume development for the year versus the previous expectation, are you still comfortable that you won't need to rely on higher payables or reverse factoring to any greater extent this year to help reach the cash flow target? And then my final question is just referring specifically to the delays in EV projects that you mentioned at the beginning of the presentation. Do your contracts accommodate compensation for delays in SOPs as well as lower volumes? And just in general terms, how comfortable are you that the contract structures allow for adequate compensation should EV volumes disappoint more significantly in 2025? Thank you.

Thank you for the questions. So on the downgrade of Moody's, so as you mentioned, Moody's has downgraded us last week, and they did, in fact, two evaluations. First evaluation is a downgrade by one notch to BS3 on 4VR company, and second, they did a bit of what I would call a technical, but a real one, on the debt itself for subordination aspect to B1. We are now in a situation in which our three rating agencies have very different ratings on us. It's BB Plus on Fitch. It's BB in S&P, both of them with output negative. And then you have Moody's, which is on stable rating, but that's at a lower level. We know that Moody's has a very negative stance on the auto industry, but it is what it is. What we have seen since the announcement Thursday morning is that actually the net fluctuation in spots has been fairly limited. In fact, I think on Friday night it was around 10 basic points. So for the timing, we do not see a direct consequence of this, but it's clear that this is an item that has to be watched in particular because you have investors that may be with restrictions on investment in the B1 rating note. That can be also a restriction in new issuance. Now, let me highlight one thing in this context. Thanks to the refinancing we did in the first half, we have no new significant maturities 24, 25. So I would say the direct impact of this is limited. It's unfortunate, but it is limited. The other point I would like to make is on the notes and the comments made by Moody's, you will see that the first element inside is related to the context and not related to the financial structure of Forvia, but the downgrade is a reality that we have to face. It reinforce, in fact, the central objective and the central motivation we have, which is to reduce the debt of this company. On your second question, We have communicated clearly that the reverse factoring will go down compared to last year, and I confirm this. And I would like also to say that this is not contributing to performance in terms of cash flow in the recent period. On contract and compensation for delays, and reduction of volume. Most of the contracts we have do not have per se a guarantee of volume. So if there are delays or if there is lack of success of a given car, there is not a mechanical compensation. Having said that, two things are done. One is that the upfront costs, in particular the R&D, are renegotiated. so that they can be offset even with lower volume. And second, we negotiate all other elements inside the contract in order to have maximum indirect compensation. And there are many things that can be done because inside the activity, you have always favors or accommodations that are provided by suppliers. Now what we do is that all those accommodations And the Bitcoin code favors have to be paid and have to be paid at a substantial value. So we do compensation, sometimes direct, sometimes also a bit indirect. Related to 25, I think your question is in particular for Europe. In case the CAFE regulation is leading to a fluctuation volatility on the on the motorization of the cars that will be sold next year. We are ready on two aspects. One is on the cost, because anyway we need to get our cost down, just reinforcing the need. And second, we will use any leverage we have in order to ensure that in case something is happening without warning, we are able to be compensated for the loss it can bring. So we are totally aware of the uncertainty that can happen. I think we have now experience of volatility in this business, and we are much more ready than the pre-COVID, pre-shortages to face this type of situation. That's great, Carlo. Thank you, Olivier.

The next question is from Thomas Besson of Kepler-Shiver.

Thank you very much. I have a couple of questions as well, please. In the third quarter, your best businesses and best regions underperformed quite substantially. What are you assuming over the coming quarters and in 2025? Are you going to get any better support from these companies? better businesses and regions or should we expect that to continue? Second, is there any update on your message on disposals? Do you still expect most of these to take place in 2025 and the cash inflows to be in the second half of 2025? And lastly, could you remind us what you assume in terms of 2024 cash inflows? CapEx and Capitalized R&D. I understand your message about 2025 combined below 2 billion. And do you see any short-term risk from potential social action in Germany if it were to happen? Thank you.

Can you repeat your first question? I'm not sure I understand.

My first question is, do you expect a headwind or a tailwind from your regional and business mix in 2025, knowing that in the second half it's a clear headwind?

Okay. So on this question, so clearly we have underperformance in China this year so far. This is clearly an element related, first of all, to the re-dumping of market share with BYD and also, in fact, the reduction of the international OEM activity. We expect that to evolve. because delayed SOP will materialize in 2025. And second, because of the diversification that we have done. We signed this joint venture with Sherry at the beginning of the year. There will be revenues in the second half. There is a little bit already in Q3. So we expect enough performance in China of 300 basic points. So that's the main negative mix from a regional standpoint that will be less the case. Second, part of the growth that we have in North America in this quarter is related to tooling, so this is more a timing effect and not a structural mix. Let me highlight, however, that on Asia as a whole, which is on an aggregate basis our best margin profile, the outperformance we have outside China with the growing presence we have, the development of diversification in Japan, activity in ASEAN, and also the development of India. So if you look from a total Asia perspective, the underperformance is lower. But you should not see that next year happening. We should see, in fact, China, first of all, coming back to outperformance by at least 300 basis points. On your second question, this proposal, we confirm the expectation to complete the program by the end of 2025 with cashing taken into account completion of deals on the trust, happening more in the second half of 2025. On capex and capitalized R&D, we were, last year, 23, both 2.2 billion on an aggregate basis between the two. We should be below 2.1 this year and below 2 in 2025. I'm expecting to be really between 1.9 and 2 billion in 2025. This year is on the back of reduction of CapEx. Next year will be on the back of CapEx, but also some reduction of capitalized R&D. Thomas, can you repeat your first question?

My first question was about regional and business mix. I think you answered on the regional side. You didn't really answer on the business mix side. My second question was on what you just replied on CapEx and Capitalizer, Andy, I think.

I think you had a question also on the mix, so from a regional standpoint. It's clear. From a business standpoint. It's clear that we have this year more growth in the interior than in other businesses. This is related to the amount of startup production that have been concentrated in particular in the first half. You won't see something of this magnitude next year. You should see something more balanced between the different business groups. The extent will depend on the strength of the rebound of electrification nevertheless. In Germany, social activity, I would say it's a period of the year in which salary evolution are negotiated so there is automatically things of this nature. Of course, this is compounded by the difficulties and the major challenges faced by the German car industry that we all know. I do not see for the time being any direct consequence for us. Let me highlight that we have been able so far to do all the different negotiations related to EU forward in a smooth and calm manner. And this has included several in sensitive countries from a social point of view, including Germany. And in particular, the case of the reduction of the lighting plant in Lippstadt, i.e. the headquarter of ELA, for 700 people that have been agreed in June with the Labour representative in that site. This is something we watch but we are maintaining strong and recurrent coordination and dialogue with labor unions and employee representatives so I think we will continue. Thank you very much.

The next question is from George Gallier of Goldman Sachs.

Yeah, good morning, and thank you for taking my questions. Actually, I just wanted to ask a question around the developments with BYD, clearly a big positive to see you associated with them both in Hungary and also now in Turkey. Can you give us any insight into what the content per vehicle looks like or what you expect it to look like? with respect to the products produced in those plants relative to the content you have already with other OEMs in Europe. Are these contracts going to be comparable to the broader average you see in terms of content per vehicle, or given BYD's well-renowned level of vertical integration, is it reasonable to assume slightly lower content per vehicle? Thank you.

Good morning. Thank you. So BYD, first of all, our activity with BYD is in the sitting domain for the dominant parts. This has been now extended to interiors, and we are discussing also in other domains, both in China and outside China. In relation to Hungary and Turkey, the starting point is in city. On the content and the format, similar to what we are doing with them in China and also in Thailand. I think our goal is to extend the coverage, and we will see that over the course of the developments. This is really the beginning with BYD in Europe, and Turkey has been selected by BYD as a site only in July and August. So you have a kind of pre-selection. The fact that they are already attributing business to us in such an early stage is encouraging. In terms of the integration policy of BYD, is the same logic as in China. And I would say that in terms of profitability, we should expect, in fact, continuing to benefit of the model of Chinese OEM also in Europe because the development will be done in China. So, in fact, some of the recipe of shorter decisions, shorter upfronts, A shorter cycle will be applicable also to the model in Europe. But let's see how it develops, but I think it should be attractive compared to the margin we are currently having in Europe for sure.

Great. Thank you. Very helpful, Carla.

The next question is from Eduardo Espina of HSBC.

Hi. Good morning. Thank you for taking my two questions. First, on the CAFE regulation, if you could clarify what source of uncertainty is for you as a supplier. Do you think a change could have an impact on the total volume produced or maybe the market share or perhaps just the disruption of not knowing which models to produce? And the second question is on the BYD relationship. Just to ask if you expect BYD to have a similar level of virtual integration as they have in China, and also if you expect maybe Chinese competitors to follow BYD or other Chinese OEMs in the future. Thank you.

Thank you. So cafe regulation, I think it's the, to be honest, it's the big question marker of 25. This is representing a major hurdle to pass for some of the carmakers in 2025. The way it will happen is not fully clear at this stage. So the uncertainty is partly related to volume, but I would say for us it's as much volatility in activities. If there is a bit lower volume but the picture of the activity is clear, that's an environment in which we should function well. If they are back and forth, that will be a bit more complicated. But for the time being, what we can do is to try to identify possible risk factors in terms of models be as diversified as possible in terms of activity, and last, to be more agile. So the reduction of the footprint, the concentration of activity, the reduction in some ways of the just-in-time size of the business should allow us to mitigate variations easier than it was the case before. That's what we can do in the CAFE regulation. And Maybe the last point on the category regulation is that five years ago, there was a little bit the same situation. The first year of implementation of the first threshold was creating some uncertainty, and then things have been happening. So maybe there is a little bit of uncertainty in 2025, and hopefully it will be clearer afterwards. On the BYD relationship, BYD in Europe, once again, is a star. So I think that their logic is to try to use largely suppliers they know. And from this standpoint, it's very important to be recognized as an incumbent. We have been in China for... more than 20 years. We are with almost everyone in China. As a supplier, foreign plus local, we are the number five in China if you exclude tires and you exclude battery. So we are an incumbent. We are a Chinese supplier for BYD and for the others. And I guess this is part of the reason why they are selecting us. If we can extend the coverage, it's good, but let's start with what both of us know. BYD is the most vocal Chinese OEM in terms of global ambition, European production expansion, but others are following. Sherry and Lickmutter are coming as well. and we are discussing in particular with one of the two in order also to be a supplier for them if and when they launch production in Europe. So it's not only about BYD, it's about extending the activity and be able to work with the new players from the production standpoint in Europe that are taking and will be taking market share from the traditional ones.

Thank you very much. Just a super quick follow-up on the cafe. I have to ask if your peers and your customers, are you starting to talk more openly about this risk, this uncertainty? Are you starting to build this into the negotiations maybe? Is this an industry discussion already? Thank you.

We are discussing with the customer to understand as much as possible what will happen. That's what we do so far. And we are preparing on our side to be sure to exercise all our rights and all our capacities in case there are fluctuations that will be negative to us.

Thanks. Mr. Duran, there are no questions registered at this time, sir.

In that case, thank you very much for attending this call this morning. So once again, we are, as a conclusion, we are in line with all the messages that we passed in late September call on the guidance 24, on the cost reductions in order to make sure that our performance will be improving in 2025 both in terms of profitability and in terms of cash flow conversion. And we are centrally focused on getting the leverage down and getting the debt down so that we are reaching the 1.5 times net debt to EBITDA by end of 2025 on combination of cash flow and disposal compression. Thank you very much.

Ladies and gentlemen, thank you for joining.