FURCF - Forvia SE (FURCF) Q3 2023 Earnings Call Transcript
2023-10-26 14:16:03 ET
Forvia SE (FURCF)
Q3 2023 Earnings Conference Call
October 20, 2023 02:00 AM ET
Company Participants
Olivier Durand - Executive Vice-President and Group Chief Financial Officer
Conference Call Participants
Christoph Laskawi - Deutsche Bank
Sanjay Bhagwani - Citi
José Asumendi - JPMorgan
Thomas Besson - Kepler Cheuvreux
Giulio Pescatore - BNP Paribas Exane
Stephen Reitman - Societe Generale
Presentation
Olivier Durand
Thank you. Good morning, everyone, and welcome to the presentation of the FORVIA results of Q3 2023. The key message that we would like to convey this morning is, first of all, on the activity, strong organic growth in a market that continues to grow. We have – we are posting €6.5 billion of revenues, 10.7% increase on an organic basis, which is a 7% outperformance on the market growing by 3.7% on the auto production volume.
On the commercial side also, we continue to have a strong order intake, €22 billion in the first nine months, and therefore, our book-to-bill continues to be above one. And it includes improvements on the upfront aspect, which means that it is helping the improvement of the net cash flow on a going-forward basis.
The third message is related to disposals. So first of all, as you have seen, we have completed the €1 billion disposal program that we committed in Q2 of last year. We did it through 5 transactions, and we did it with the amount of €1 billion in cash proceeds, and we did it in 15 months.
In the context of this activity, we identified further possibilities to go beyond this €1 billion and considering the evolution of interest rates and the level that remains high and will probably remain high for a while. We consider necessary to go further. So we have decided to launch a new €1 billion asset disposal program to accelerate the deleveraging and to reduce our debts and our financial expenses.
This means that we will go beyond the POWER25 objective of 1.5x net debt to EBITDA by the end of ‘25. The first transaction has been already signed. We – as we announced at the beginning of this month, BHTC is sold to AUO. And this is a company that is a joint venture between HELLA and MAHLE. This will represent a sale on enterprise value for 100% of €600 million and cash proceeds for our part of €200 million.
Last but not least, we, of course, confirm our guidance for ‘23. Apart from those elements, we would like to highlight 2 key elements. We continue on the road to sustainability, and we are getting more material and more real in this domain. We have just opened our sites for hydrogen production in France. This will be the first mass production plant of storage tanks with a capacity of 100,000 units per year by 2030.
We are becoming, therefore, the first automotive supplier in the world to have production footprint across the major regions. And you will see in Q4 also that we are moving also on other aspects of the sustainability with the formal opening of our material activity in Lyon that will be November, and with the opening of the plant of Symbio, which is about stack in hydrogen, which is the joint venture. We have now with Michelin and Stellantis. So the role for sustainability and supporting the transition of this industry, we are contributing and we are getting extremely material in this respect.
The second aspect is the diversification in China. As you know, we are quite strong across the board and in particular with BYD, but we are expanding, in fact, our collaboration with others, and we would like to highlight, in particular, the strategic cooperation we have signed with CHERY on smart cockpit development.
On the order intake, so €22 billion, and we would like through this slide to present in fact, where we are getting orders. So of course, China, of course, electronics. But I would like to highlight that now we are getting to 50% of our order intake in electric vehicles, whether it’s fuel cells or BEVs. And we continue to expand on premium, of course. And we had a significant conquest on commercial vehicle for Seating of €1.7 billion in inside. So clearly, we are on the different dimension in the good direction.
And in terms of the contents and the financial metrics of those orders, the selectivity that we have defined is paying off. We have a margin that is above our POWER25, ‘25 objectives. And we have upfronts that are – the upfront being the cash investment, you have to do at the beginning of the project before actual production down 20% year-on-year in those nine months. So the quality of the order intake is there.
Now if I focus on the sales activity of Q3 for FORVIA. So as mentioned, strong organic growth, 10.7%, €6.5 billion of revenues and a reported basis of 2.5%, taking into account the depreciation of the U.S. dollar and the run in the period. As you may remember, U.S. dollar was particularly strong in Q3 of last year, close to parity at some point. So therefore, this evolution.
We have solid outperformance, and you will see this outperformance is across business group and across regions. And I would like to highlight also that the evolution of the car market remains positive in Q3 with the latest assessment and assessment upwards of S&P for the worldwide production.
If I go in some more details by business group first. So you see that Seating and Interiors have, in fact, an outperformance quite similar at 7 – and respectively, at 760 basis points and 730 basis points, which is reflecting the breadth of the activity there. One element, of course, to highlight is that this quarter represents the effective end of our just-in-time operations for the Seating program, Jeep Grand Wagoneer in agreements with Stellantis. And you, of course, remember that it was a cause of severe losses in the past period. So this case is closed.
Regarding Clean Mobility and Electronics. So Clean Mobility outperformance but lower than other ones, which is reflecting. Of course, the developments of the electrification of the car industry, but the fact that we continue to grow and grow above the market is quite positive.
One more element to mention. You see that, in fact, the currency effects in this activity is higher than other ones. This is the manifest of, in fact, the most distribution of Clean Mobility across the regions. This activity is the most balanced in terms of revenues across geographies, which is actually a good thing because electrification is happening at different phase in the different regions. So it’s allowed to mitigate some of these elements.
Electronics, we have a growth of 10.6% on an organic basis, 690 basis points around the average inside FORVIA. Lighting, similar to other business group you have seen before, 10.8% organic growth, 710 bps outperformance. So you see the 710 bps outperformance being the main driver in all the activities. Lifecycle reflecting, in fact, the increased contribution from the truck and the bus segment, also the pass-through of inflation, leading to a 16.1% increase on an organic basis of this activity, which is, of course, quite contributive on the profitability front and has a good cash cycle.
If I move from a regional point of view, you see the overall picture at the group level. But if we look at the different markets, I will start with Asia. Asia growing in Q3, 1.7% on the volume of the market and for us, a 12.1% organic growth, which means that this is the highest outperformance we have similarly to previous quarters, which is reflecting the strength and the distributed activity we have, particularly in China, which is not only about BYD, but it’s also about the other OEMs.
On the other regions, you see that we have an outperformance 490 basis points in Europe and 160 basis points in Americas, which is reflecting also a bit more selectivity that we have in this region, in particular in North America, and of course, to have the minimum activity in Argentina.
Moving on to the key disturbance we have in this period, and the key risk is about the UAW strike. So some key figures about this. What is our exposure to the strike? First of all, we are not directly involved. We are not – we have closed our negotiation with UAW. So we have no outstanding negotiations for this year on the labor conditions and compensations. We will have 2 for renewals next year, but this is next year.
Of course, the strike is impacting us. So far, it has been fairly moderate. You see that our exposure is around €300 million per month. If all activity in North America will stop with Ford, GM and Stellantis. However, so far, this has been quite lower, only €6 million sales impact in September so – and €1 million in margin. In October, around €55 million to €60 million at the current strike level, including the latest announcement of last week of UAW.
And we are putting in place all the actions necessary to mitigate the impact on us about flexibilization of the cost, temporary layoffs, reduction of the purchase and the discretionary spending. So we expect to limit the drop-through to 20% on those revenues, which is so far, as I mentioned, around €60 million in sales, but it’s a key watch item on which we are focused to ensure minimum impact on our performance.
Now if I move to the second topic of this morning is about deleveraging. So we are accelerating and amplifying in fact, our actions in this domain. Number one, we fully closed and completed our first €1 billion asset disposal program. We did it in 15 months, five different operations, all with industrial partners. And we had a limited impact on the – on our financials, lower in revenues. That’s what we expected initially. And in terms of cash proceeds, we completed the €1 billion target.
In the context of this activity, we have identified, of course, larger possibilities. Since the beginning, the portfolio was larger than the €1 billion, obviously, but we have identified other possibilities and considering the fact that interest rates remains at a high level and probably will remain so for a while.
We consider necessary to go beyond our initial objective of 1.5x net debt EBITDA by the end of ‘25 as reported in the POWER25 plan. And we decided to launch an additional €1 billion cash proceed disposal program. This will be with different operations. There is not a single operation that will represent this €1 billion, is different formats and different operations. In many aspects, similar to the first one.
The first operation has been already signed, which is the disposal of BHTC to AUO, a Taiwanese company. BHTC is a joint venture between HELLA and MAHLE. This has been signed on the 2nd of October. The enterprise value for 100% is €600 million. And in terms of cash proceeds for us and for MAHLE, it will be around €200 million considering the current level of debt. We expect the cash proceeds to arrive, in fact, in the first half of – at the beginning of ‘24, taking into account the antitrust proceedings.
We, of course, confirm our guidance for ‘23. We are taking into account the new risk and large risk that represent the UAW strike, which is having a potential impact larger than what was imagined before. But we confirm all the metrics with revenue between €26.5 million and €27.5 billion for the year, operating margin between 5.2% and 6.2%, a net cash flow above 1.5x and the net debt to EBITDA leverage to be between 2.0x to 2.2x taking into account the cash flow performance and the disposals that I mentioned before of the first €1 billion disposal program.
Regarding midterm objectives, we confirm the POWER25 objective. This – the €1 billion additional disposal that I just mentioned, will, of course, improve the metric on the net debt to EBITDA beyond the rate – beyond this ratio of 1.5x. The impact in terms of revenues is expected to be limited given the combination of type of operation we have in mind. And the impact on operating margin, in fact, should – in terms of ratio should be neutral. And in terms of cash flow, the reduction of financial expenses from this additional disposal with the reduction of the debt itself will, in fact, help the ratio of 4%.
So in summary, Q3, that is solid. Order intake of a good quality. And we are taking action, considering on the activity side, the UAW strike. And on the financial side, the persistence of high interest rates to not only secure our numbers, but to go beyond in particular on our debt. So that, in fact, the level of financial expenses is going down more rapidly than what we imagined before and unsure progress on the financial structure of this company.
And on this note, I’m ready for questions.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] The first question is from Christoph Laskawi of Deutsche Bank.
Christoph Laskawi
Hey, good morning, and thank you for taking my questions. The first one would be on the outperformance and – the divisional outperformance and how we should think about that into Q4 and ‘24 as well. Could you just give a comment on should that largely be unchanged at the rate we’ve seen it? And which of the divisions actually has a lot of SOPs probably driving that even up further? Or are there any impacts we should be aware of?
And then second question, please, on cash. I know this is a revenue call, but with the volatility in production, likely there’s still an impact on working capital as well. Could you comment on cash during Q3? And also, if you’ve seen any changes in payment terms from the OEMs so far? Thank you.
Olivier Durand
Thank you. Good morning. So on outperformance, in the first half, we had an outperformance of 680 basis points. This quarter, we are at 700 bps. We expect a bit of moderation of this in Q4. And this is related, in fact, to the end of the Highland Park program, which is reducing this – the activity by around 1 point. And we have also, in fact, the end of the activity on commercial vehicle since we sold it to Cummins effective end of September.
And the last one, we expect, in fact, an impact of the UAW on the production side, which can play. So a bit lower, in fact, in Q4. The other point, which is more for reported revenues, we do not expect the level of negative impact from currencies that we have seen in Q3, probably half of it, but you can see that directly with the level of activity we have in China and U.S.
On cash, we – so we have to put volatility in perspective. We have been through a level of volatility and unannounced events that has been dramatic in the past, of course, some time ago to COVID, but even the shortages and the Stop & Gos. We have much less of this nowadays. So the only major Stop & Gos aspect is the UAW strike, which has been until, in fact, 10 days ago, limited but we are prepared for it. We have the mergers defined and we activate them according to the events.
So I would say that this is not leading to an issue on working capital. The only caveat I would make is on inventories. We will have reduction of inventories during the year, but it’s more about protection of electronics supplies that is moderating this. But the environment overall is simpler to work wins that it has been clearly before.
Now related to payments from customers, I do not notice anything particular to date. But we are making – collect our overdues. And I would say, for completeness, the fight on inflation remains a tense topic for – but it’s not a deterioration. It’s just the continuation of what we have seen for the past 18 months.
Christoph Laskawi
Thank you.
Operator
The next question is from Sanjay Bhagwani of Citi.
Sanjay Bhagwani
Hello. Thank you very much for taking my question also. I have got two questions. Maybe the first one on the financing cost. Could you please provide some color of how should we think of, let’s say, the financing costs for this year and also probably for the next year? And let’s there are a few moving variables here, first thing is interest rates are staying high, but at the same time, I think your gross debt is also likely to go down.
So maybe like blending all this and again, keeping in mind that one-third of your debt is variable – in variable cost debt. So what – how should the financing costs be for this year and for the next year? That is my first question.
And my second question is on the announced additional disposal program. Could you please provide some color on this, the nature of the disposals, and also how should we think of the timing of this? Thank you very much.
Olivier Durand
Thank you. So on the first question on the financial cost. So from a cash perspective, it will represent, as I mentioned before, between €450 million and €500 million for this year and probably next year will be similar.
On the P&L, there is a bit more than this due to, in fact, hyperinflation in Turkey and Argentina and also mark-to-market on a virtual PPA operation. But the cash impact is around this. It will go down – it was anyway expected to go down in ‘25, given the reduction of gross debt to €6 billion. That is part of the POWER25 program. And it will be even more with the additional €1 billion disposal that we are announcing this morning.
The costs of – the marginal cost of financing on a given operation today for us is between 5% and 7%, depending on instruments. So you can see what is the impact of this €1 billion in helping. That will be more in ‘25 than in ‘24. I think in ‘24, we will have benefit from the BHTC operation and potentially another one, which is a good segue.
To your second question on the disposal program, you can expect the content to have some similarity with the first one, which is several operations, which is simplification of the portfolio, and which is also different timing for different operations. So we expect to realize the vast majority from a cash profit perspective by the end of ‘25. And so helping in fact, the net debt-to-EBITDA leverage.
One more thing on this one, there is no single big operation inside this that will put in question the core businesses that we have in the company. So it’s really about continuation of simplification of the portfolio, management focused on the key elements, and when we can see good operations that can be done, that’s in fact, unsure that the level of gross debt is going down and going down faster than what we committed before, we do it.
Sanjay Bhagwani
Thank you. That’s very helpful.
Operator
The next question is from José Asumendi of JPMorgan.
José Asumendi
Good morning, Olivier. A couple of questions, please. I think the first one, are you accelerating the asset disposal plan because you’re seeing some kind of large deceleration in the market, which could impact the ability for FORVIA to generate cash? Or is this a plan that you’re doing because you’re confident in your car generation. But on top of this, you want to do the asset disposals. I just want to understand a little bit better this incremental asset disposal plan you put in on top.
Second, can you give us a bit of the guidance for just for ‘24 a little bit the moving parts and this when it comes to the growth you’re seeing across different markets, Europe, U.S., China and outperformance of great place.
And the final one, guidance. So we think, at this stage, with the strong pricing power you have in 2023, it should be – it would be possible to achieve the margin – in the upper end of the margin range of 5.2% to 6.2%. Thank you.
Olivier Durand
Good morning, Jose. Thank you for the question in particular for the first one. This disposal program is about going further than what we said before. And we are doing it for two reasons. Number one, in the 15 months in which we have been working on disposal, we have identified larger possibilities, different type of operations. We have, I would say, also learned on the context how to go through this. So that’s the first reason. And the manifest of this is that we have an additional operation, which is the BHTC, which is already signed.
The second reason is obviously that the level of interest rates, the level of inflation are high. I think it’s difficult to expect that it will get better in the near term. We don’t want to comment on this. We have the possibility to go further. So we are doing it. So it is an addition compared to the rest, is not a replacement and is not a key focus from the rest.
On the guidance ‘24 and elements on the ‘24. So we will formally provide the guidance about ‘24 in February on the back of our full year results. Having said that, I would – in the current situation, I would expect, in fact, the overall auto production to be marginally up next year potentially on the back of additional growth in China. You see that in fact the production level and production activity in China remains solid and, in fact, better than what people expect.
The revisions of S&P are usually positive on these aspect so marginal increase on the volume. We expect continuation of our outperformance. And in terms of profitability and cash flow, we are, in fact, expecting to deliver on the improvements on the back of synergies since we are doing only 40% of the synergies by the end of ‘23. So you have 60% to go between ‘24 and ‘25.
Improvement of production outperformance. We still have difficulties in this front, and we are getting progressively better so you will see more impact in ‘24. The ends of the JIT operation of Highland Park, which was a drag still on our results in the first nine months. And I would say a mix that is quite positive both on the region and also on the product.
On your question about ‘23. So we provided the guidance in July 5.2% to 6.2% that we confirm. Having said that, I think compared to last summer, the strike of the UAW is not helping. So to be on the high side of the range would mean that the strike is in fact concluding extremely fast. That China would be, in fact, on a very positive trend. So it means quite a bit of elements. So net-net, I see more topic than in July on the full year, mainly on the strike of UAW that was not the focus in July.
José Asumendi
Very clear. Thank you very much.
Operator
[Operator Instructions] The next question comes from Thomas Besson of Kepler Cheuvreux.
Thomas Besson
Thank you. Good morning. It’s Thomas from Cheuvreux. I have a few questions as well, please. Could you update us on compensation and how that has effectively developed in the third quarter versus your expectations, notably on energy and wage costs.
Second question, could you confirm the amount of losses implied still in Q3 by your Michigan operation that are now closed.
And lastly, could you comment on the level of expected multiples for transactions you’re planning until ‘25? Looking at the fact that a lot of auto suppliers seem to be now lining up for selling assets. Thank you.
Olivier Durand
Thank you, Thomas. On compensation, we are progressing. I would say that we are progressing, roughly speaking, as I expected. It means that we are closing some of the deals, but we are not fully done yet for the year. We are expecting to be with at least 85% cumulative pass-through by the end of the year. And this is realistic based on what we see, but it’s clearly an element of volatility and element of tension with the customers.
We see that we have strong order intake that has good condition. We are able to do selectivity. It does not mean that it’s easy to have the balance between order intake and inflation recovery, but this is a necessity. This is an obligation for us. So we will deliver on this one, but it’s tough.
On Michigan, the contract in Michigan, the loss in Q3 is marginal. So it’s not – there is nothing significant. So the losses that you have seen in H1 is really most of what we will have for Q3 and therefore, for the year.
On disposal metrics, maybe I should say that the – in fact, the disposal will have different forms. And we expect some related to form of disposal of activities and some of it, in fact, in reduction of partnership. So to give an overall metric today would be inadequate. What we are counting on is in fact, to have a limited impact on the consolidated revenue €500 million to €700 million, €800 million of revenues. No real dilutive effects on the operating margin.
And on the cash flow, I would say, net-net positive and maybe clearly positive, especially taking into account the reduction of financial cost that it will provide on the €1 billion cash proceeds. So a bit early. But I would say that we expect, in fact, to have operation of the type of the first wave. So once again, not a single dominant one, but several ones, a bit different in order to, in fact, do a combined portfolio of operation that is fair and good for the company. Difficult for me at this stage to provide more details without having [Technical Difficulty].
Thomas Besson
Clear. Thank you very much.
Operator
The next question comes from Giulio Pescatore of BNP Paribas Exane.
Giulio Pescatore
Hi. Thanks for taking my question. The first one on the guidance again. I mean, if I remember correctly, one of your assumptions for GLVP [ph] were based on a very cautious view on China. China, as you said, has been picking up quite strongly. So I was just wondering what keeps you cautious on – in this regard?
Then the second one on order book. I mean you’re saying that the profitability of the order book is above the target. And it’s interesting because it’s something that we’re hitting a lot, not only from you but also from your competitors. And can you maybe help us understand how this is possible. And – I mean, the market clearly doesn’t believe that this is possible. But can you maybe help us frame how is it possible that you’re obtaining higher implied margins by the recent contracts?
And maybe last one on labor costs. You said you have 2 negotiations with the UAW coming up. Do you think that the – any agreement that the Detroit Three will strike this year, will form a blueprint for you to start the negotiation next year? So should we expect significant inflation in North America for you? Thank you.
Olivier Durand
Good morning. Thank you. On the guidance – on the volume of activity in China, we have been cautious and we remain so because the macroeconomic elements on China are on balance quite negative. Having said that, similar to what S&P has shown, the actual production level and the actual demand is so far better than what was anticipated. And S&P has improved its expectation for the year, I think, to close to 1 million cars in China.
Now the vast majority is already in Q3. So it’s already in a way – in the numbers we are showing for Q3. So on balance on China, we remain cautious. And what we are doing is to make sure to leverage the diversity that we can have in China, diversity from a customer front. We are with 19 of the top 20 international or Chinese OEM in the country. We are developing relationship, for instance, with CHERY with this partnership on the smart cockpit this quarter. We are growing with Li Auto.
So we are making sure to go beyond, in fact, some others and diversify, including from BYD. So we hope that China can be better, but we are making sure to benefit in any case from the diversity and selling probably better the product of HELLA in the country to Chinese OEM.
On the order margin, I understand completely the question. Why we expect to have margin above, in fact, the 7% target we have for ‘25? Inside this, you have the impact of synergies. And you have the impact of cost reductions that we are putting in place to reduce our breakeven point. So this is what is driving the improvement.
Having said that, for this to materialize in the results, clearly, we need to have an operational performance that is better than what it has been in the past, and we are taking the measures to make sure that it does. Some examples, so we stopped the Michigan contract because it was impossible for us to make money out of it. We are selective on some of the domains, including in electronics.
And third, we are making sure the full implementation of our operational reference book, which is called FORVIA Excellence System, which is making sure that all the good practices to operate the plants are put in place, and we have an indicator to follow the full respect of this. And this indicator is growing and is growing in particular where it was weak, which is North America.
And this is making a bit more confident about the realization of what we see in the order book. But I understand the comments, and this is, in fact, good to have this because it’s – it put in visibility what we have to do in front of us.
On the last question you had, which is related to UAW. So once again, we have closed our labor negotiations for the year, and it was before the strike. So there is no relationship to the strike per se. We have 2 locations that are concerned for renewal in ‘24.
Let’s see what is the outcome of the negotiations. And clearly, that will be part of the discussion. But once again, we are expecting inflation, including labor and some energy to remain a topic next year, and we are taking this into account, including in our productivity, which is digitalization and also location of our activity to make sure that we have the best cost possible, so development of Mexico, for instance.
Giulio Pescatore
Thank you. And so you can just follow-up quickly on the order book. So it’s mostly – it’s not better pricing. It’s more driven by the fact that you’re want to be more efficient. But how do we make sure that – in the event of another spike in inflation or another change in the market environment, how do we make sure that the order book is priced correctly, has the right assumption behind it? I mean, are you changing the way you actually collect these orders?
Olivier Durand
So since the beginning of the persistent inflation, we have changed the way we are calculating the margin of the orders. We are taking, in fact, the dilution effect of the inflation into account, which was 2, 3 years ago, probably not the case because it was not expected. So even when you – even if we were compensating the inflation at 100%, which, as you know, we are targeting, but we have to be honest, this is today not possible.
But you have a dilution effect of 1 point. So this is clearly a factor, but this is now taken into account because we cannot count on the inflation to recede. So this is embarked in our calculation, which gives a bit more validity, in fact, to this – to those values.
Giulio Pescatore
Understood. Thank you very much.
Operator
The final question is from Stephen Reitman of Societe Generale.
Stephen Reitman
Yes. Thank you. Good morning. Not so much on earnings – not – I know it’s an earnings call, but just maybe to talk a little bit about China. I just come back from a visit to China. And obviously, seeing a lot of these new companies and the Chinese brands that you’re supplying as well. And obviously, the pricing on these vehicles is extraordinarily low when we compare them to European levels. So I was just wondering what you could say about the overall profitability of this kind of business? How you actually price in these markets? And how it kind of compares to operations in the rest of the world? Thank you.
Olivier Durand
Yes. Thank you. You’re absolutely right. The – many of the cars that are proposed by the Chinese carmakers in particular, the new ones, are at price conditions that are selling prices that are quite attractive. There is probably an aspect which is related to the platform themselves on the electric cars because many of them are starting purely from electric so there is this aspect.
But if we take more about our domains, which is more the interior and the lighting, we are making good margin in China, and actually, we are not the only supplier to make good margin in China. And it’s not because we have a pricing that is higher than other regions, as you can imagine. And I think it’s quite related in fact to the direct and pace at which decisions are made for a new car. And even though you have many companies, many carmakers in China, you have the diversity, the number of options on a given range of models is probably lower than in Europe.
And what does it mean? It means that, in fact, the cost and the complexity to deliver the path that we have to the Chinese carmakers is much lower than some other more traditional customers. Meaning that we are able to have less cost, to have less cash out while making a margin that is actually a good one.
So net-net, I would expect that some of this is clearly benefiting also the carmakers in China. Look at the number of options per car in China. I think it’s very different from what we see in Europe and is simplifying the work of everyone actually. Some similarity with Tesla is there.
Stephen Reitman
And on the pace of change as well because obviously, one of the key things we noticed is how quickly the Chinese are changing what seem to be very modern vehicles. They come out with another version very quickly much faster than it’s been the norm among the traditional legacy carmakers. What challenges that posed to you then?
Olivier Durand
So it’s a very important factor. It means that in our pricing and in our cash condition, we are taking this into account. So we expect, in fact, a lifetime that is shorter than in other places. And the second thing is that we are quite focused on the diversification. Meaning to have activity with the different players because you are not sure about which ones will win. And second, you have to consider that there are probably too many players still in China. So we are making sure also that from a financial exposure, we manage the situation so that in case some of them will have difficulties and we had cases in the past. The impact for us is limited, and we have been quite successful in this matter with, in fact, carmakers leaving or stopping activity in China.
So the challenge is really the number of players. And indeed, the fact that models are moving faster. We have been able to be double-digit margin for quite a while now. And I think we know the characteristic of the market, and we are able to benefit from it. And if anything, the merger with HELLA is allowing, in fact, to extend the reach for us by selling the HELLA products more to the Chinese carmakers, that was the case before the acquisition of HELLA by FORVIA.
Stephen Reitman
Thank you very much.
Operator
Mr. Durand at this time, there are no more questions registered, sir.
Olivier Durand
Thank you. So thank you for your attendance this morning. So as you can see, our trajectory is clear. We have solid growth. We have outperformance. We are progressing on our metrics, but we are taking into account also the risks that exists. One risk is about the activity in North America with the UAW strike, which is clearly impacting the – and putting an uncertainty on the level of activity with a potential shift between this quarter and the beginning of next year. So we have put in place all the actions to mitigate the follow-through of this.
And the second, interest rates and inflation are here to stay. So we are taking this into account. We have seen that we are able to go beyond the €1 billion disposal that we initially committed and that’s why we are launching this one to reduce our debt, reduce our financial expenses beyond what we committed in POWER25 to ensure solid financial structure and the flexibility, whatever is the context for FORVIA, our company. Thank you very much.
Operator
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
For further details see:
Forvia SE (FURCF) Q3 2023 Earnings Call Transcript