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Edited Transcript of POM.PA earnings conference call or presentation 19-Jul-19 6:30am GMT

Half Year 2019 Compagnie Plastic Omnium SA Earnings Call

Levallois-Perret Jul 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Compagnie Plastic Omnium SA earnings conference call or presentation Friday, July 19, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Adeline Mickeler

Compagnie Plastic Omnium SA - EVP of Communications

* Jean-Michel Szczerba

Compagnie Plastic Omnium SA - Co-CEO, COO & Director

* Laurent Burelle

Compagnie Plastic Omnium SA - Chairman & CEO

* Rodolphe Lapillonne

Compagnie Plastic Omnium SA - Senior Executive VP, CFO & Chief Information Officer

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Conference Call Participants

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* Gaetan Toulemonde

Deutsche Bank AG, Research Division - Research Analyst

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Presentation

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [1]

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Ladies and gentlemen, good morning, and welcome to this half yearly meeting of the annual results of Plastic Omnium first half results. This meeting is being webcast with simultaneous translation. I'll be giving this presentation with Jean-Michel Szczerba, Mr. Lapillonne and Adeline Mickeler, with the help of the management committee in full attendance this morning. So welcome once again.

The new Plastic Omnium, since the beginning of the year after the disposal of our legacy environment activities, made up of 2 main segments, an industry segment and one of logistics modules and services. The industry segment comprises Intelligent Exterior Systems, intelligent body work, and Clean Energy Systems. These are car liquid propulsion containers, diesel fuel for combustion engines. This represents the full range of our industrial activities. And I think there are some 110 plants. And then our Modules business that is set to grow, certainly, in the front-end vehicle modules where we own 67% of HBPO, who's CEO, Martin Schüler, is with us this morning. He's member of our Management Board. So it's a pure play that represents today's Plastic Omnium.

Now the advantage of PO modules is that it's a very low-investment activity, low operating margin but very high return on capital employed, not very much capital employed. It's a company with free cash flow, that is every top line growth generates free cash flow and also brings in new customers, new clients, new territories. It's not quite an overlap of customers, as well as Intelligent Exterior Systems and Clean Energy. Since there isn't a full overlap of clients and regions at HBPO in Modules, this is the same, and it brings diversity of clients and geographies that are complementary.

Today, if we look at the first half, the market uncertainties and our performance, it will be up to you to describe it, but we believe it to be solid. The automotive industry in the first half, as you all know, experienced its first downturn that began in 2018 that continued, minus 4.5% continued to 6.9% during the half. That's a lot, a lot in absolute terms and also for 2 successive halves. We'll take your questions about the next half. So this period of instability is unfortunately strengthened by the tariff issues between China and the U.S. that are already pretty disruptive because there are the entry tariffs into China, the export of U.S. cars. And also there are consumption postponements. There's the trade war between Brazil and other countries. There's also Brexit, so major uncertainties to-ings and fro-ings between the various sites.

We experienced a half during which China came in at minus 14%, which is considerable, and Germany delivered minus 11%. These are 2 key geographies for us, we underperformed. And you'll see that in greater detail during the presentation. We're not taken by surprise. The last time we met, we said that we announced an efficiency cost reduction plan as of last year, and that we've launched an additional one at the beginning of the year, and that we anticipated here, I think, we were the first flat global markets over the years '19, '20 and '21. For 2019, I don't see it flat, it will be down. That's a certainty. Will it be as flat at this low point for 2021? We're projecting ourselves in that configuration. In other words, if we need to add a light efficiency plan to our existing cost reduction plan, we'll do that.

In fact, we've already decided on the principle that it would need to be launched as of September.

So within all that, we said when we presented our 5-year strategic plan back in December, we indicated that we would outperform the global market by about 5% per year over the next 3 years. We confirm that. We have the tangible elements in hand to confirm the 5%. It was the case in Q1, Q2, and it will be the case in Q3, Q4 of this year in our order book. I know the order book is a concept to be handled cautiously, but our order book allows you to confirm, barring any unexpected downturn, spectacular unplanned by the market that, that we'll consider, but we'll outperform the market.

Our operating margin comes in at 6.6% of sales, integrating, and we're delighted with that, the dilutive aspect of our -- the percentage of the Module business. You'll see that in greater detail in the presentation. Our legacy business, PO industry, that delivers an operating margin of 7.9%. And in these times, I would say that I'm quite satisfied with that, and we have a solid financial structure and strong liquidity that allows us to develop our strategy confidently.

There's no need to say this, but there's no harm in repeating it. The Burelle family that I represent here this morning, through the company I chair, has increased its control and its percentage of interest over Plastic Omnium, the main vehicle in the group. We canceled some treasury shares. We purchased additional shares. There was cancellation of treasury shares. And so in terms of the family holding, it represents about EUR 160 million in investment or cancellation of shares and our percentage of interest, direct and indirect, in Plastic Omnium, direct at 59% plus the external control, just above (inaudible) indirect, our percentage of industry, 50.17%, to show you our position going forward and our industrial enthusiasm maintained at the historical level that you've always seen in this company.

I'd also like to present something that isn't strictly part of Plastic Omnium transaction.

Plastic Omnium is a company we've streamlined and simplified over the past 7 years. We had 7 different businesses, now we just have 1, that of an automotive supplier with manufacturing and service segments that I showed you earlier. We use and we own all our plant equipment throughout and it, company dates back to 1885. It has historic land that's not industrial real estate. We have a company in the group, Sofiparc, and Plastic Omnium has some remaining land assets in our books for some EUR 100 million that we have no use for, and they're not used for industrial purposes. The Board of Plastic Omnium voted yesterday on the principle of a disposal of this real estate to Sofiparc, that is owned by Burelle. The Burelle SA Board will meet next week and if it agrees, this arm's length transaction done by independent real estate appraisers, the majority shareholder didn't take part in the study on the vote. Well, if that is agreed on both sides, it will be sold by Plastic Omnium to Sofiparc. It's in no way a revolution, but it's a relevant item that I wish to present to you, and it remains part of the clarification of the order in which we wish to operate.

Before handing over to Jean-Michel Szczerba, our economic sales, well, I know that this concept of economic sales may sound somewhat strange, but we are in an absolute leadership position in intelligent body parts in China with a JV with a high-quality partner, SAIC, the standard of -- the 50-50 companies, no one company controls it, but our Chinese stake is fundamental for our U.S. and European clients. Not to recognize it, claiming that the accounting rules don't allow us to consolidate revenue would be under information. That's why we continue to present the 50%, the difference of EUR 4.2 billion and EUR 4.6 billion, it's half of our Chinese business. Economic sales up 20%, consolidated sales, because now HBPO is consolidated, rises from 34%, EUR 4.2 billion. Operating margin EUR 281 million, 6.6% of sales, including 7.9%, it depends how you calculate EBITDA, and Jean-Michel Szczerba and Rodolphe Lapillonne will explain the why and wherefore EBITDA up EUR 50 million, EUR 60 million and the half coming in at EUR 511 million, net income at EUR 155 million. Free cash flow for this half low at EUR 30 million, but we confirm our forecast for the year. Net debt after IFRS 16, after the new accounting that incorporates leases for EUR 240 million, so in terms of last year we're lower, except that with the accounting system, we're above that. We could have presented this net debt on a comparable basis to last year. We could have done it in the other way, but that is of no great importance. Over now to Jean-Michel.

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Jean-Michel Szczerba, Compagnie Plastic Omnium SA - Co-CEO, COO & Director [2]

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Good morning, ladies and gentlemen. We're going to go into further detail on the first half. And as you have seen, the market trend in the automobile market is extremely difficult at present and very difficult to forecast. In June 2018, as you can see, analysts were expecting an increase of 2.9% in global auto production in the second half. And in fact, it was down 4.4%. Despite the optimistic forecast, Plastic Omnium launched its first cost reduction plan at the end of August last year. It was further strengthened in January and rightly so since the auto production market was down almost 7% on the first half. In other words, 3x. As far as the forecast, and as Mr. Burelle has said, at present, we do not expect any recovery in 2020 and 2021. Against this backdrop, what should we do? PO's priority as an independent family-owned company and a leading company is to generate free cash flow, generate free cash flow in order to hold up to market pressure and to hold up to the lack of, in the event of a lack of a recovery. This involves reducing cost to improve the cash flow and also to limit our capital expenditure to 6% of sales this year and the same figure will apply to the next 2 years. The cost reduction program, which has been launched in all geographical areas in all businesses, has enabled us to reduce our cost base by over EUR 100 million on an annual basis. And just one entry, and you'll be going -- we've held up 1 item. And that's research and development, which we think is fundamental for the future growth and leadership of the group.

As I said, we have to strengthen our fundamentals. This means stepping up growth and supporting it through cash flow generation. We've invested a further EUR 300 million in the first half, but these investments are the last tranche funding of our new -- 6 new plants and 3 new R&D centers. Now to date, we do not have any plans for further plant investments. And in the second half, our investments will decline significantly, and will stand for the year at approximately 6% of sales, just above EUR 500 million. This natural decline in investment will automatically enable us to generate free cash flow of approximately EUR 200 million, and I can confirm this for the year as a whole.

Cost reduction and cash flow generation enables us to pursue our strategy based on 2 pillars, growth and technology. And as you can see, 2019 will be a record year in terms of program launches. 243 programs have been -- will be launched versus 185 last year, with a step-up in the second half, 138 new programs in the second half, which augurs well for market share gains as we go forward. 55% of our launches are done in Asia, which is exactly the geographical breakdown of global auto production. And -- but last and finally, I think it's important to emphasize this, 100 launches in China in 2019. This will enable us to counter this market decline in the market because our sales in China are stable, whereas Chinese production has gone down by over 14% in the first half and Plastic Omnium was stable in a challenging market.

As a manufacturing company, we're always very proud to show our plants. These are our cathedrals in our industrial business, 2 small plants, one in Morocco, a PSA plant, the other one is a Chevrolet plant. And we are launching 2 flagships, one in Slovakia for Jaguar Land Rover and the other one in Greer in South Carolina for BMW. This is a plant that is close to the BMW plant itself. As we said, we've taken control of HBPO to benefit from its growth in order to also to broaden its range of modules. So we have 2 new plants starting in Germany, front-end modules and cockpit modules for Porsche; and in Mexico, front-end modules for Dodge. Overall, today, Plastic Omnium has a homogenous plant network, 128 plants globally, enabling it to respond to the requirements from the global platforms of our customers.

Growth through footprint and also through R&D, we are very proud to present the R&D centers. We're launching our first advanced research center for New Energies in Belgium with 140 engineers focusing on the zero emissions vehicle automobile.

China represents 30% of the global market and has just decided to step up its move towards electric cars. We're opening a new center in Wuhan, which is one of the hydrogen cities and decided upon by the Chinese government and it reflects our own ambitions. And finally, we have decided to extend our new global R&D and digital center in Lyon, which we established 15 years ago, which has smart -- which specializes in smart body parts. This -- these 3 centers represent an investment of over EUR 100 million.

However, traditional research and development, given the major transformation in the next 10 years, are connected decarbonated cars, but this is, it's no longer enough, given that prospect. That's why we're setting up an ecosystem for open innovation with universities, which you can see here, start-ups, partnerships who -- with leading companies in their areas, such as Hella and Brose, with our, through our scientific director, in the first half, we have launched the first Innovation Awards in order to emphasize inventiveness -- the inventiveness of our teams, and we're also launching the first open research lab in order to look ahead to the world of tomorrow. And this is innovation. It's the technological revolution that will bring about the leaders of tomorrow. And Plastic Omnium is very much a part of this goal for a sustainable, responsible company in order to produce a safer, cleaner car.

And last but not least, I would like to conclude by -- with what is most important thing for an automotive equipment manufacturer. That's customers and customer satisfaction by broadening our product range, by broadening our range of services, by broadening our range of systems for the decarbonated and connected car of tomorrow. We are broadening year after year our customer portfolio. We now have 92 customers around the world, including 1/3 in China and our 9 new customers are all Chinese. I can give you names of Chinese clients that you don't know and that even we didn't know a couple of years ago, [Kumo], Hongqi, all these new names will be the future for Plastic Omnium. And I will now hand over to our Senior Executive Vice President and CFO, Rodolphe Lapillonne, who will give you some detailed comments on our first half results.

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Rodolphe Lapillonne, Compagnie Plastic Omnium SA - Senior Executive VP, CFO & Chief Information Officer [3]

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Thank you, Jean-Michel. Ladies and gentlemen, good morning. I'd now like to move to the financial section of this presentation. The results of this half are solid results. Let's begin by reviewing our sales. As you can see, strong growth in economic sales, close on 21%, coming in at over EUR 4.6 billion. This growth, of course, includes the integration impact of HBPO, but is above all reflective in growth of 0.2% at constant scope and exchange rate. Our joint ventures that you see under the JV line now include Yanfeng PO, the Chinese leader for exterior body part; BPO, the Turkish leader for exterior body parts; and Samlip, the Korean leader for front-end modules. As you can see on the bottom line, our consolidated sales are up by almost 34% and flat at constant scope and exchange rate. As we indicated, the market this half is down by 6.9%. 6.9%, that is a decline of 47 million vehicles at 43.7 million, that's 3.3 million fewer vehicles. With our outperformance of 7.1, we can split it between the first half -- first half was down 6 and the outperformance was 6. Second, it was down 8 and the outperformance was 8, for a total outperformance of 7.1 during the half, thereby confirming our increase on our markets, thanks to our launches and our increased market share.

Let's now consider this outperformance by geographic region. Beginning with North America, which was down by almost 3% the first half, Plastic Omnium post growth of 7.3% in its sales, that's an outperformance of over 10 points. In Europe, the market is down by 8%. Plastic Omnium resists, with a limited decline of 3%, outperforming the market by 5 points. In China, as Jean-Michel indicated, the market sharply down by over 14%. Our sales were flat. Thanks to our new launches, we're outperforming the market by 13.5 points.

Stability also in South America, where the market is down by almost 3%. Lastly, in Asia excluding China, in a market slightly down, Plastic Omnium is outperforming the market by almost 4 points.

Turning now to an analysis of our economic sales by large geographic region in the world, our sales are 54% in Europe, 28% in North America, 16% in Asia, which 8% in China. If we now analyze this split of sales by manufacturer, you see that 42% of our sales are directed towards our German clients, 21% to our American customers, on a par with those from Asia, and French clients now represent 15% of our sales.

Turning now to the profitability by business. As we announced, our business now comprises 2 segments, industry and modules. Let's begin with the column in blue. For H1 2019, our operating margin comes in at EUR 281 million, 6.6% of sales, split 7.9% for industry and 2.5% for modules. The EUR 254 million of industry, a good resistance to market conditions as compared to the previous half because given the investment efforts undertaken last year, earlier this year and in previous years, this is where we find the increase in our amortization. Why do I mention amortization increase? I'd like to draw your attention to the EBITDA trend. EBITDA is up, reaching EUR 511 million for the whole group. And EBITDA in euros, the highest in the history of Plastic Omnium. You see that it is higher than this EBITDA last year first half, which was nevertheless one of our record figures. If you just look at the difference between the EBITDA for the first half and the EBITDA and the operating income of last year, we go from EUR 133 million to EUR 230 million, and this is essentially due to the increased amortization that very useful because they allow us to launch growth. And that of course, accounts for our sales that is outperforming the market. Not quite so nice, of course, because it has an impact on the operating margin, but of course, it's useful impact because it generates both cash and EBITDA. That's why in spite of the trend in one direction of the operating margin, we have good increase in EBITDA. 14% EBITDA is particularly strong in industry.

Let's now continue by moving down the profit and loss account below the operating margin. You see that we have EUR 25 million of the nonrecurring expenses. That's the efforts for the pre-launch of our paint plants for about 1/3 and the continuation of our investment in the footprint, which is the necessary substrate to our savings plan, that's for about 2/3. Financial expenses, as you see are flat one half on half, but are down 1.2% of sales to 0.9%. This stability is in fact, quite deceptive. We mentioned the impact of IFRS 16 on debt, but there's also an impact on the financial expenses. EUR 4.2 million of IFRS 16 on this line, so of course comparable versus last year. Had there not been this change in accounting standards, our financial expenses would be down to EUR 32.7 million. After EUR 55 million in taxes and minority interests, net income group share comes in at EUR 155 million. That's 3.6% of sales.

Moving now to a review of our cash flow statement. As you can see top right, against this backdrop, our operating cash flow is up to EUR 464 million, that's an increase of EUR 42 million over the same period last year. After investments of EUR 308 million, 7.2% of sales, we're generating free cash flow of EUR 30 million. If you take the dividends, the IFRS impact, our debt stands at EUR 1.021 billion. Once again, it's a deceptive debt, as Mr. Burelle pointed out. You need to restate the IFRS impact. And like-for-like, this decrease is EUR 206 million, had we presented the accounts in the same way as last year.

Lastly, let's end as we do traditionally, with our key financial metrics in graphic form. You see the increase in EBITDA, reaching EUR 511 million. Debt increased through the impact of IFRS, bringing to us a net debt EBITDA ratio of 1.1, 48% (sic) [46%] gearing, and our ROCE now stands at 17%. This brings to an end the financial part of this presentation, and now back to Mr. Burelle for the outlook in 2019.

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [4]

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Outlook for 2019. We see auto production for 2019 at 87 million units, that is our base for our assumptions. And we're -- for 80 -- this would be 4.3 million cars less than last year, which is a lot, 4.5% decline in automotive production. We -- this confirms our outperformance by 5%. Therefore, we envisage an operating margin slightly down on 2018. We cannot go against these headwinds simply with cost reduction programs. It would be possible, but it would not be a healthy thing to do. So we're going to add to the cost cuts, as I was saying earlier. Our EBITDA will be strong and it of course will be in excess of EUR 1 billion quite easily. And our free cash flow of EUR 200 million was -- has been confirmed 3 times and investments for 2019, '20 and '21 will be well managed since our global tool has excess capacity and we can definitely face up to deal with the recovery in the market, if the recovery materializes. And we have excess capacity, depending on tariffs -- global tariffs, of course. Of course, if the global tariffs were to intervene, we might end up having excess capacity. This is a consequence of a global tariffs market. Here is an example. We manufacture all the X2, 3, 4, 5, 7 series in South Carolina. These cars are exported to the tune of 80% around the world, if they were no longer exported around the world because of customs and tariffs, if there were a barrier of 25% to 40% and we had excess capacity in North America, and we would have a lack of capacity in China, which we would have to offset. But of course, this is an extreme scenario, which we do not expect because we think that at some point, common sense will prevail. But this is our forecast with investments capped at less than 6%, at 6% and with recurring cash flow that is significant and will increase in 2019, '20 and '21.

Now I've been careful, we've all been careful to put figures on 2019, '20 and '21, but we are looking at flatness. We're going for flatness, flat markets for the years ahead. And some people expect a recovery in China, depending on political events, anniversaries, celebrations, we don't really expect. The second half might be better. So ladies and gentlemen, the conclusion from all this is we have to be very watchful and we have to be extremely responsive. And we have to be very agile. We are a very responsive, flexible group. We have a very strong balance sheet, but we have concerns over operating considerations. And now we're ready to take your questions, any questions that you may have.

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Questions and Answers

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [1]

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Ladies and gentlemen, we'd be very happy to take your questions.

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Unidentified Analyst, [2]

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Kepler Cheuvreux, 2 questions. Number one on the second half. Can we expect outperformance to be driven by North America and China? And then in terms of margin, can we expect these regions to be the most profitable for PO, despite the decline in production?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [3]

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It's the -- the questions are so simple. I'm going to let Adeline Mickeler answer them.

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Adeline Mickeler, Compagnie Plastic Omnium SA - EVP of Communications [4]

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After the strong outperformance of the -- in the first half of 2019, 7% of global auto production. We've said in the second half, we are expecting a decline in auto production. So we're looking at minus 2%, minus 3%, mainly due to China. We don't see any stabilization in Chinese production in the second half. And therefore, the outperformance of PO will remain strong in China. As you've seen, over half of our launches this year will be in China. And therefore, they will support, they will bolster this strong outperformance in China. And in the United States, in Mexico, the drivers of growth outperformance will be strong there. The drivers will be China and the United States in the second half. To what extent, well, that always depends on what your reference is, but we've confirmed at least 5% outperformance for 2019 as a whole.

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Unidentified Analyst, [5]

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And I have a second question, if I may. Will the decline -- the sharp decline in production in Germany will upset your forecast for a recovery in Germany or have your cost reduction programs been sufficient to deal with this?

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Jean-Michel Szczerba, Compagnie Plastic Omnium SA - Co-CEO, COO & Director [6]

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Cost reduction programs were started as soon as we acquired Faurecia. The decline in the market simply strengthened the effort to streamline our industrial base. In French, the streamlining efforts will continue.

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Unidentified Analyst, [7]

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MainFirst. Just a point of clarity, EUR 100 million savings annualized, that was in 3 phases, correct? The first started last August. What percentage of -- can we expect for '19 and the remainder for '20, could you give us those figures, please?

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Jean-Michel Szczerba, Compagnie Plastic Omnium SA - Co-CEO, COO & Director [8]

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Well, answer, I'd say, that you saw that in our EUR 100 million plan, there's EUR 50 million for flexibility and EUR 50 million addressing fixed cost of EUR 50 million to make things more flexible, started as of the second half of 2018 and allowed us to account the decline in market over the first half 2019. The savings in structural costs generated EUR 25 million in the first half and there we were able to offset the increase in amortization. So when it will be achieved in 2019? As I said, there will be EUR 100 million full year, so not everything will be achieved in 2019.

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [9]

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Are there any other questions?

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Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [10]

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Deutsche Bank. On the real estate, can you give us some idea of the amounts involved here for -- with Sofiparc?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [11]

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The advisers of the sellers have not met. The buyers Board met yesterday. I've told you what I think about this, but I cannot anticipate the decision here because the majority shareholder does not vote on this. It's the independent Board members who decide on the principle and the amount. Now what I said is that the overall amount on the books of the seller and I cannot accept that PO sells at a loss. These are not items that can offset the operating -- the P&L, but the press -- we will be meeting on Friday to look at this in detail and really when our Board is meeting on this.

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Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [12]

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But the market value, just to give us an idea?

Just to have a rough idea.

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [13]

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The buyer will be telling us how much he wants to pay on the basis of the price expected -- demanded by the seller. I cannot really go into any further detail on that. These are recent constructions in Lyon. We've turned them into office premises and this is less than 5 years ago. So it's more a matter of organizing the tax, financial and human aspects to have them clearly set out, as is our custom at PO. It will have a positive impact on the real estate business of Burelle, but for PO, it's simply a matter of streamlining.

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Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [14]

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And on the tax rate has gone up significantly for PO, can you explain the logic on this? Can we just have a little more detail on the tax rate?

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Rodolphe Lapillonne, Compagnie Plastic Omnium SA - Senior Executive VP, CFO & Chief Information Officer [15]

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Yes, you're quite right, that is -- it varies depending on the regions. But on Page 25 of our annexure, you will see a carryover in cost -- in tax. We go for a recovery of tax over a 3-year period. And if I restate that and that would be a 23.5% tax rate. That wouldn't include everything, but just going back to what you were saying, Gaetan, regarding the geographical mix, which is very important. We made less in those regions where the tax rate was low. We had a plant that was working at full capacity in the United States where we have a 23% tax rate. Now we're in a ramp-up, we're making less money. And the impact is much stronger, of course, in terms of the tax rate.

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Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [16]

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The deprecation of tax carryover, is this a one-off? Or will we see this in the second half? What expected tax rate do you have for 2019 and 2020?

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Rodolphe Lapillonne, Compagnie Plastic Omnium SA - Senior Executive VP, CFO & Chief Information Officer [17]

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I think we'll have our usual guidance with tax, the income tax rate of around 25%. We have a very strict policy regarding tax -- regarding deferred tax. And at Plastic Omnium, we feel that there -- if there is no recovery in the 3 years ahead, then we go for depreciation. This is our principle. We're very, very -- we take a very long-term approach, and we stick to that approach. And thirdly, you talked about the impact on debt, EUR 26 million impact on depreciation charges and on the operating income, plus 2.

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Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [18]

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Looking at the strong increase in depreciation charges, EUR 60 million in the first half, we're going to see that for the year as a whole. Can you give us an idea for the years ahead because this is an important item?

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Rodolphe Lapillonne, Compagnie Plastic Omnium SA - Senior Executive VP, CFO & Chief Information Officer [19]

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As Jean-Michel said, depreciation charges will continue to increase in the second half of this year.

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Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [20]

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To the same extent as in the first half?

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Jean-Michel Szczerba, Compagnie Plastic Omnium SA - Co-CEO, COO & Director [21]

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Yes. So capital expenditure in the second half will be bigger, but in the first half -- beg your pardon, our depreciation charges in the second half will be higher than in the first half, but will be offset by our cost savings program, as indicated, and we are going to remain on that trend for the next 2 or 3 years. And we will see the decline with the cap in investments, but we can't -- the depreciation charges will not go down over the next 3 years.

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Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [22]

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If they go up, they would be going up by EUR 100 million this year, do you expect the same kind of increase?

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Jean-Michel Szczerba, Compagnie Plastic Omnium SA - Co-CEO, COO & Director [23]

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No, what I'm saying is that depreciation charges will increase, but then will stabilize thereafter at the record level that they will reach in 2019. And it's only after 2022, that the amount will go down, unless of course we go for new capital expenditure.

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Gaetan Toulemonde, Deutsche Bank AG, Research Division - Research Analyst [24]

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Last question. Some manufacturers are complaining about the pressure on prices, price pressure.

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [25]

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When I was a little boy, it was like that already. And the pressure of manufacturers on equipment prices, I mean -- and the pressure on results, I mean, that's as old as you and I. I mean, I don't see any change, no improvement.

No, I mean, this is -- it's our clients who, rightly or wrongly -- there are 3 different global positions, to give you some info on these figures. Those who are determined to -- they're convinced that there's going to be a 100% shift towards electric vehicles, with investments that reflect that conviction, for example, that's Volkswagen, then you have the position, which has been very well explained by [Mr. Talahesh] who says, "I'm going for it, but you told me to go for it." So if it doesn't work, don't -- then don't tell me it's my fault because you are the ones who are going for this. And then you have the compromise position, which is BMW, whose Management Board is, his Chairman is saying, "We're going to shift to electric power." And the R&D Director is saying that things are going to go more slowly than you think. So those are the 3 -- but all 3 positions are quite legitimate. And I would say this is all at the same time -- at the same time. And I think you have to be flexible, responsible. The Board is still in the scrum. It hasn't come out of the scrum yet, but we're talking about hundreds of billions here in terms of investment through electric vehicles and in write-off of plants for the traditional engines. So the move is still underway. Two questions coming up? Yes, you sir.

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Unidentified Analyst, [26]

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Thank you. I have a question precisely on the topic you mentioned. Do you see as much enthusiasm for hydrogen on the part of public authorities and other European players? Is that, that we hear about the battery, Airbus and needing to have the support of European authorities for that value chain and others in Europe?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [27]

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I need to be careful what I answer here. I'm in favor of your second solution. I think it's the industrial corporations that will show the way based on their technological, human and financial capability. Technology first, the people to implement it and the necessary funding. Money alone first won't generate the people and technology. My Scientific Director, in the first row, agrees with me.

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Unidentified Analyst, [28]

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ODDO BHF. Just a question on M&A. Could the current climate lead you to decide one way or the other, in the midterm?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [29]

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The M&A problem is the timing, and trains don't always pass through when you want to go to the station. The next 5 years will bring disruptions to the market, and unplanned trains will arrive. I'd like it to be rather later than sooner because I'd like to continue our policy of free cash flow. That's been reaffirmed, as Rodolphe has said, but the technological upheavals change, shifts in paradigms, in policies, in manufacturing areas will generate things that we can't plan today.

But for our part, we haven't envisaged, to date, any plans. We have to focus on our P&L and balance sheet, but I know things will present themselves. And there were things that presented themselves that were almost done in the car makers, that didn't happen, will they happen?

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Unidentified Analyst, [30]

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Do you have a limit in terms of control that you wish to maintain, above 50% or not necessarily?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [31]

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You have the control and you have the debt, no, control. I'll opt for control. Yes, madam?

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Unidentified Analyst, [32]

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CM-CIC Market Solutions, I'd like you to return to Brexit, and I'd like to know, in particular, whether the decline in the U.K. was offset by the increase in Eastern Europe? Whether transfer of some of the production of JLR? Or is that to come? Is that to be expected?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [33]

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I'd like to have a clear answer to your query. A fortnight ago, I was at Coventry at JLR, where I tested some very fine new cars, but I didn't emerge with a clear answer to your question. There were 2 production units. There is one in England, and there's one in Slovakia. In a rationalist mindset that is yours, mind you say that in light of uncertainties, I balance my production, both sides, whilst being responsive to offset any negative decision. That would be the logical reasoning.

For the time being, that's not the way things are happening. Without being indiscreet, the U.K. part of manufacturing has won against the European part, but that's not surprised -- I don't think we're going to go towards a very soft Brexit. I mean, we don't know if there being a last-minute upset. They're positioning in a soft seamless Brexit and with no impact on customs tariffs.

Seen from here, I think we're slightly more worried than that. If you understood anything about my answer is that I was unclear. In other words, the Slovak plant is oversized as compared to their needs. The English social preference won the day.

The Head of Purchasing and HR of the group. But a major client with whom we have very close long-term relations, good, and they'll remain so. Yes?

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Unidentified Analyst, [34]

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Can you give us some detail about what you call the outperformance of PO versus the auto market? You're giving us figures for the auto market in numbers of cars, and you're giving us the outperformance of PO in terms of sales.

Now can you break that down? How much comes through the increase in the unit increase in cars sold? And what comes from the increase in market share versus your competitors in the auto market? Can you give us that for the first half, but how do you see this going forward?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [35]

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What I can say is that our outperformance is not based on the areas where we have only a presence, and we compared our -- and we don't just compare this to where we sell. We look at our outperformance around the world in relation to global production. But no, I mean, it's good to be clear about that. We look at it global versus global. We don't look at it local versus local.

Now to Adeline may have a more specific answer, I would say it's gains in market share.

But his question is -- the gentlemen's question is more complex. Can you ask it again?

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Unidentified Analyst, [36]

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My question would be, do you, for example, see an increase in the average price of autos? Do you -- it seems to contain more R&D?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [37]

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No, no. Let's take it step by step. Now what I can -- the content per car is increasing.

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Unidentified Analyst, [38]

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Well, that was going to be my second question. The content per car is going up. Is the car becoming more expensive?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [39]

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I don't know. Well, maybe you know, but the content per car is increasing.

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Unidentified Analyst, [40]

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That's important. And in future, do you think this will continue to increase?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [41]

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No, but you're going content per car, yes, but I'll look at it the other way around. It's a content per car with the low added value of modules. So on the new Porsche, what's it called, Taycan, on the new Porsche Taycan, we're building the whole of the front-end on module and the whole of the dashboard of the Porsche Taycan.

[The interpreter cannot hear the answer to what has been said in German by Mr. Burelle.]

EUR 2,000 per car for the Porsche Taycan. Now your question really is very complex.

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Unidentified Analyst, [42]

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Is it -- this is an average figure, EUR 2,000?

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [43]

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No, but I mean, if I have a Porsche Taycan, I want the one that has all the bells and whistles on it. I don't want the basic one. No, I want the whole -- I'll give you a very simple answer. You need to go for market share. When we calculate our market share, it's based on volume. So the fact that we have more headlights on the bumper doesn't mean that we pick up in market share. We're going for overall volume.

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Unidentified Analyst, [44]

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Yes. Okay. Fair enough.

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Adeline Mickeler, Compagnie Plastic Omnium SA - EVP of Communications [45]

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I would simply add one thing here, depends on your position on a given market. I'll give you a very specific example, North America. In North America, the market in the first half of 2019 was down 3%. But when you go into the detail, look at it in detail the figures for North America. If you're looking at the sedan cars, the market is down 6%. When you're on SUVs, the market is stable.

PO has 80% of its sales in North America on SUVs. So as you can see, this is one of the drivers of the outperformance positioning. We position ourselves on segments which don't move in the same way. And this contributes to the outperformance of the group.

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [46]

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No, well, it could -- well, I would like you to be convinced by our answers because what is implicit in what you're saying is really quite negative. So I'd like to be quite sure that we've given you a very clear answer. That's simply -- the answer is important here.

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Unidentified Analyst, [47]

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The second part of my question is how do you see the trend for these factors that are going to give -- deliver the outperformance in the next few years ahead, the positioning that madam has just set out, the added value that you referred to and the shift in market trends?

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Adeline Mickeler, Compagnie Plastic Omnium SA - EVP of Communications [48]

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Well, I think it's, as Jean-Michel was referring to, the 2 pillars of our growth. In our growth, there are 2 components: growth through -- growth in market share and R&D. So there's a volume impact and a price impact.

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Laurent Burelle, Compagnie Plastic Omnium SA - Chairman & CEO [49]

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Any other questions? Ladies and gentlemen, thank you very much for your loyalty. Thank you very much for being with us. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]