Edited Transcript of PEUP.PA earnings conference call or presentation 28-Jul-20 6:00am GMT

Debora Carley

Paris Jul 28, 2020 (Thomson StreetEvents) — Edited Transcript of Peugeot SA earnings conference call or presentation Tuesday, July 28, 2020 at 6:00:00am GMT Peugeot S.A. – Chairman of the Managing Board Peugeot S.A. – CFO Hello, and welcome to the Groupe PSA half year 2020 results presentation. My name […]

Paris Jul 28, 2020 (Thomson StreetEvents) — Edited Transcript of Peugeot SA earnings conference call or presentation Tuesday, July 28, 2020 at 6:00:00am GMT

Peugeot S.A. – Chairman of the Managing Board

Peugeot S.A. – CFO

Hello, and welcome to the Groupe PSA half year 2020 results presentation.

My name is Molly, and I’ll be your coordinator for today’s event. Please note this conference is being recorded. (Operator Instructions)

I will now hand you over to your host, Carlos Tavares, Chairman of the Management Board; and Philippe de Rovira, Chief Financial Officer, to begin today’s conference.

Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [2]

Good morning, ladies and gentlemen. Welcome to this 2020 H1 Groupe PSA financial results announcement session. We know that you are highly busy people and therefore,appreciate your time. Thank you for your interest in PSA.

I would like to start by telling you something that obviously you know. Over the last few years, we have been highlighting the fact that our company has been operating in a growing chaos. We have been highlighting the fact that it is for us a clear strategy to reduce the break-even points of our company. And 2020 H1 has demonstrated that working in that direction was the right strategy, as we could demonstrate our resilience through this COVID-19 crisis. As you can see, we could deliver a robust 3.7% Automotive adjusted operating margin, which demonstrates that the company could face this crisis while remaining profitable. As a consequence, we are confirming our guidance for the year 2019, 2020, 2021, the floor guidance, which is an all-weather guidance for an all-weather company at no less than 4.5% average over the course of those 3 years. Not only we did this hard work to reduce our break-even point, but we could also protect the net result of the company as the company remains profitable not only on operating basis but also in terms of net results. It is important also to notice that the auto division did not draw any credit facility and we could preserve our business model and remain fully in control of our destiny. This is what we could say on this first slide. So an all-weather company for an all-weather guidance with the floor at 4.5% over the course of the second half of the Push to Pass strategic plan, 3.7% for the operating profit margin. And I would like to say that Opel did also demonstrate a strong resilience, as it was able to maintain its operating profit margin at no less than 2%.

Moving forward, during this COVID-19 crisis, we could focus on a certain number of changes that we are now preparing for the future. One of them is to focus on new expectations from our customers by being able to sell our products online. And that means that we have worked very hard to ensure that we can sell online with a very enjoyable journey with live chat. That means giving the customer the possibility to make the configuration of the requested car. Trade in the used car, finance the new car order and ensure the delivery. So a strong push inside of the company on the selling online channel, which of course becomes a new channel for the overall business of our company. We remain committed to deliver freedom of mobility through a safe, clean and affordable mobility. And moving forward, you will see that the most difficult thing to enjoy is affordability for clean and safe mobility. We also delivered to the market the mobility device that we call the Citroën Ami, which is a 100% electric vehicle for downtown which is extremely compact, extremely suitable for the new life conditions of our citizens in the Western cities. We see also that this trend of selling online cars is now starting quite strongly in the U.K. but also in France. And this technique is now being deployed all over Europe. We have also experienced the fact that, over the last months, we have tested this selling online process by going up to 100% of online sales to our employees in France and all over Europe.

So this crisis has demonstrated the need to accelerate a certain number of changes in our companies, one of them being the selling online channel; another one being affordability for zero-emission safe devices, mobility devices or mobility cars. This is something that I would like to highlight to you today. We are moving fast and strong in that direction. And of course, you can experience this online sale journey by yourselves by just checking in to our sites.

If we continue on the transformation that is a consequence of this COVID-19 crisis. We also demonstrated that remote working is an appropriate way to improve the carbon footprint of our company, reduce the carbon footprint of our company. It is also an excellent way to enjoy a better work-life balance for our employees. And we have demonstrated that it can, of course, lead to a better cost efficiency of the company. We made a very extensive survey of our people. We send questions to 40,000 people in our company across 23 countries and 68 different sites. We got a response rate of 50%, which I am told is a good response rate for these kinds of surveys. And among those 20,000 answers, 79% of the people were in favor of teleworking, and 76% consider that this remote working was compatible with their jobs. This is a rewarding experience, to see that our people are willing to move forward in new ways to find more efficiency and effectiveness and at the same time to unleash their full potential through a better work-life balance and with a lower carbon footprint for the societies in which we operate. Doing this, we have, of course, also accelerated the carbon footprint reduction for our real estate. And we reduced by an additional 6.4% our CO2 footprint, which represents near 29,000 tonnes of CO2 that were reduced. This is the consequence of reducing the real estate’s footprint by almost 1 million square meters. And we are moving fast and strong with this new era of agility, which we believe will give the company an even better capability to adapt to a fast-changing world and, not to say, a chaotic world.

If we move forward. Of course, all of this also demonstrated that the strong values of our company were paramount to the conditions under which we could face this crisis. We have 3 very simple values: working and winning together, which is team spirit, competitive spirit across our teams. They understand that cross-functional work is the reference of our way of working. Agility to adapt very, very quickly to changing conditions. When we decided to stop the operations in our plants on March 16, we were able to implement in the next couple of weeks many very drastic decisions to protect the cash position of the company and the sustainability of the company, and we have demonstrated that the speed at which we were able to adapt to these new conditions was extremely high. We also understand that efficiency and effectiveness is becoming the key success factor for a car company. And by combining cross-functional work, team spirits, competitive spirits with a high level of agility and the sense that we need to continuously look for better efficiencies and effectiveness, then we are able to build a new future with these 3 values. And more and more, these 3 values are representative of the DNA of the PSA Group. And I would like here to express to all of our stakeholders, starting with our employees, my sincere appreciation, my warm thanks for the way they behaved during this COVID-19 crisis. They were fast. They were strong. They were working as a team, and they were highly disciplined. I would like also to express my sincere thanks to our union leaders, as they were always supportive of all the decisions we have made, not always popular and, for — from time to time, quite drastic and quite surprising, but we have with our union leaders a very good and mature dialogue even though their position is always very demanding and rightly so. I would like also, of course, to express my warm thanks, my sincere and personal thanks to all the Executive Committee team members and the team members that were part of the crisis daily meeting we called KTV, for kill the virus, crisis meeting. And their support to the company and their support to their CEO to implement all the drastic decisions that we have made was stellar; and I would like to thank them personally one by one, each of them, for the way they behaved during this difficult period. Of course, I would like also to thank the Supervisory Board, [as we could respect], the dual governance, rigorous dual governance, of our company, and the management had its hands free to manage through and steer the company through this crisis.

So if we consider this, we can understand that keeping net results profitable; keeping operating results profitable; keeping a positive free cash flow, if we exclude the working capital variations; delivering 3.7% of operating profit margin for the Automotive business; confirming the guidance for the second half of the Push to Pass plan with a floor of 4.5% operating profit margin is the foundation of everything we are going to explain to you from now. And I would like to hand over to our CFO, Philippe de Rovira, who is going to explain to you the numbers.

Philippe, the floor is yours.

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Philippe de Rovira, Peugeot S.A. – CFO [3]

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Thank you, Carlos. Good morning, ladies and gentlemen.

It’s a pleasure for me to present to you our financial results for the first half of 2020.

So in H1, despite COVID, Groupe PSA delivered a positive adjusted operating income of EUR 517 million. Of course, all costs related to COVID are included in our adjusted operating income. Nothing has been booked under the adjusted operating income. This positive result goes down to the bottom line, with a positive net income group share of EUR 595 million.

Below the adjusted operating income, restructuring costs amounted to EUR 132 million, sharply down versus H1 ’19. Other operating income and expenses amounted to plus EUR 97 million, resulting mainly from the disposal of the CAPSA joint venture for EUR 247 million, out of which EUR 204 million in this line and the rest in adjusted operating income. Net financial income and expenses amounted to EUR 52 million, an improvement of EUR 218 million compared to H1 ’19 totally driven by the revaluation at the end of June 2020 of the commitment of the group to purchase 30 million shares from Dongfeng prior to the closing of the merger with FCA. Income taxes stood at EUR 222 million, down EUR 103 million compared to H1 ’19.

And finally, share in net earnings of company at equity contributed for EUR 64 million, up EUR 16 versus H1 ’19. The good performance of our finco in partnership with Santander and with BNP Paribas stood at EUR 163 million in H1, partially offset by the negative results of our Chinese joint venture DPCA for minus EUR 83 million.

Let’s now move on the next slide.

Group revenue decreased by 34.5% versus last year at EUR 25 billion in H1. Automotive division revenue was down 35.5% at EUR 19.6 billion. Since May 4, the relaunch of the group’s activities and production has been executed in such a way to be consistent with the recovery in the level of demand. And this has enabled us to strictly control our inventories, as you will see later on in the presentation. June has seen a very strong rebound in terms of sales as well as in order intakes in Europe. And July is following the same trend of fast recovery, driven by the big success of our new launches, in particular the new PEUGEOT 208, the new Peugeot 2008 and the new Opel Corsa.

As already announced yesterday, Faurecia revenue was down 31% at EUR 6.2 billion. The good news from Faurecia is that the level of business is also clearly improving in June and July.

On next slide, we present the Automotive division’s revenue bridge. So the decrease of auto revenue was obviously mainly driven by the very sharp drop in volumes due to the [open] market downturn. So the volume effect impacted the revenues by nearly 41%. Product mix continues to be positive, driven by the big success of the last launches of the group, in particular the new Peugeot 2008 and 208 and the Opel Corsa. These cars are all available with a full electric version that enable the group to be CO2 compliant in H1. As mentioned, the order book for those 3 new models is very high, which gives us confidence for H2. And the large renewal of the B segment models prior to the crisis [is a clear set]. The pricing remained a positive impact in H1, partially offsetting the FX negative impact mainly coming from the Argentinian peso. The positive impact in the bucket others is linked with the reduction of buyback sales versus last year, in particular due to the slowdown in the activity of short-term rental companies.

On the next slide. Worldwide sales were down more than 45% in H1 2020 at 1 million units sold, with a very strong hit of the coronavirus in all automotive markets. In Europe the market was down 39%. And the group sales were down 47%, in particular as we suffered from an unfavorable market mix, with Spain, Italy, France and the U.K. being the countries most hit by the coronavirus. In Europe, the group sales were also impacted, as expected, by the runout last year of 5 Opel Vauxhall models in order for the group to be sure to compliance from day 1, which was the case in H1.

In Middle East-Africa the group was able to stabilize its volumes despite the strong fall of the market in the region, thanks to significant gains in market share, in particular in Turkey, Egypt and Morocco.

Let’s now have a look at the group adjusted operating profit by division. The group adjusted operating income amounted to EUR 517 million. The auto division reached a margin of 3.7%, clearly confirming our very low break-even point announced during the full year ’19 presentation. Both PCD and OV reached a positive adjusted operating margin in H1. And it is worth mentioning that the auto adjusted operating income was positive in Q2. I will not comment more on Faurecia. Faurecia published already their results yesterday.

So next slide. The operating environment impacted by EUR 2.7 billion our auto adjusted operating income, nearly totally driven by the fall of market demand. On the right-hand side, the group’s performance amounted to more than EUR 800 million. That was mostly driven by all the work done on the costs side. As I told you in April, Groupe PSA has been very reactive since the beginning of the crisis in cutting noncore expenses, significantly reducing G&A in all areas and in adapting marketing expenses to the new volumes. As you can see, significant cost savings were also achieved in production and procurement. In R&D, the group has maintained the development of future products, adapting slightly the planning of some of them and cutting sharply in support functions of R&D. Finally, our level of performance also stems from a positive product mix effect for EUR 188 million as a result of the success of our last launches and as a result of the core model strategy as we are positioning our vehicles on higher profit pools. Lastly, market share impacted negatively for EUR 200 million, as previously commented, mainly due to the loss of market share of OV and a favorable — unfavorable market mix.

On next slide and moving forward to Banque PSA Finance figures on a 100% basis. Adjusted operating income stand at EUR 463 million, down 10% versus last year. The performance of our bank has improved a lot in H1, as shown by the strong penetration rate increase from 28% to nearly 33% mainly driven by the strong progress of Opel Bank, especially in B2C, but let’s observe that there remains upside on B2B side on the OpEx of the Opel Bank. [Growth] partnership with Santander and BNP Paribas are a success. And these results prove the resilience of this business model, allowing us to be more competitive and more profitable based on a derisked funding business model. On the right-hand side of the slide: The cost of risk of the bank logically increased but remains at a very acceptable level.

If we move to the cash flow and net financial position of the auto division. The net — the auto net cash position stood at nearly EUR 7 billion at the end of June 2020 compared to EUR 10.6 billion at the end of ’19. The auto free cash flow was a negative EUR 3.6 billion, which can be entirely explained by the impact of working capital for nearly EUR 3.8 billion. The working cap variation comes nearly exclusively from trade payables at the level — as the level of production of May plus June 2020 was more than halved compared to November plus December ’19. Of course, the good news is that effect on trade payables is a temporary one. Without working capital, the auto free cash flow was positive in H1, which clearly demonstrates PSA’s ability to generate cash even at 50% of its normal volumes.

The other variation of the net financial position comprised mainly the revaluation of the commitment to repurchase 30 million of PSA shares from Dongfeng if Dongfeng does not choose to sell them to third party, as well as new leasing IFRS 16 debt. So all that brings the auto net cash position to EUR 7 billion.

On next slide, we move to the cash flow analysis of the group including Faurecia. The group net cash position stood at EUR 2.9 billion at the end of June compared to EUR 7.9 billion at the end of ’19. The free cash flow of the group was a negative EUR 4.7 billion, essentially driven by working capital for a negative EUR 4.4 billion, with the same effect of trade payables as mentioned in the previous page for the auto.

On next slide, we see that inventories of both the group and our dealers have been strongly reduced, so the level of inventories is 24% lower than the same period last year. The group was very reactive in closing all its plants in order to control its inventories and protect its cash. So we were the first to start production but also probably the last to restart. And as we announced in April, our policy has been to relaunch the production at a rhythm consistent with the level of demand in order to protect the group’s transaction prices and residual values. Last but not least, the decrease in dealer inventory is significantly higher than the market decrease forecasted in H2, which gives room for invoicing in the second part of the year.

On next slide, you will see our new market outlook. So our market outlook remains at minus 25% for the European market, and the actual data for Q2 confirmed our forecast announced during the Q1 revenue call. Our forecast in China remains unchanged at minus 10%. We now forecast the market to drop by 30% in both Latin America and Russia. Previously, we had forecast a drop by minus 25% in LatAm and 20% in Russia. And our operational outlook remains unchanged.

And I will now give the floor black — back to Carlos.

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [4]

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Thank you, Philippe.

Let’s move to the highlights of our Push to Pass plan, starting with the great carmaker with cutting-edge efficiency and then moving to the mobility provider.

If we start with quality. Of course, it is the #1 priority of our company. It is fair to say that we have been progressing, but we should be progressing faster. We see in terms of customer satisfaction on sales and aftersales that we have been progressing against 2019. We need to accelerate. Currently we are in the top 3 worldwide for our sales customer satisfaction, and we are worldwide in the top 5 for aftersales satisfaction. These are the brutal results. They demonstrate that we are now close to the leading pack, but we still need to make many additional efforts to reach the top 1 position, which of course is the most demanding one. On the manufacturing and the direct run ratio, we see, of course, the impact of the COVID-19 crisis in H1, which is not really representative of our performance. What we should highlight is that, since we started the operations in May, things have been moving very smoothly, very appropriately in terms of manufacturing efficiency and also in terms of quality. It is also important to highlight that we have faced some reasonable success in the launches of the new LEV products, seen through the good quality results. This is what we can say on this matter. I think it is also important that we highlight that our products have been very well received by our customers in terms of appeal. And we have 16 models which are top 1 in their segments in the 11 countries covered by our surveys. So 16 models in top 1 position in their segments in terms of overall appeal, so attractive products. Product quality is progressing. Customer satisfaction is progressing. We still need to accelerate to reach the top 1 position. And we see that sales recommendation have been moving up by 1 point against the end of 2019, and aftersales recommendation have been moving up by 2 points against the end of 2019. So more work to be done, more to come. More acceleration is needed, but moving in the right direction.

If we go to the CO2. It is important that we recognize that, through all the studies which are made by independent entities, we are now leading the pack in the CO2 performance of our sales. It is, as you know, something that we have been using as a very offensive business way. We know that we are now compliant from day 1, that we have extremely competitive product offering in terms of CO2 performance segment by segment. We have been experiencing an LEV mix of 6%. This mix is going to increase very soon. In the H2, it will be higher, and the next year even higher, so we are in the right move and preparing for that. We see that, among all the premium multi-energy brands, we are #1 with DS. DS has the best CO2 performance among the premium multi-energy leading brands in the world, and this is seen in European market, of course. And we see that we continue to improve the ICE emissions, which means we still have more ideas to improve the CO2 performance of the company, but I would like to confirm that we will not pay fines in 2020. And I would like to confirm that we are leading the pack in terms of CO2 performance. It’s important that we continue to use CO2 as a competitive feature, a competitive characteristic of our company and not a defensive tool. So now we are on the offensive and not on the defensive mode. It’s important that we all understand that.

It’s also important that we recognize that we are delivering on what we told you, which means that, by 2025, 100% of our models will have a specific electrified version. We are moving and we know that we are now launching the ë-C4. We are preparing for the e-Mokka. We are preparing to launch the e middle-range van with the dual autonomies. And this is something that, of course, represents some of the levers we are using to keep on leading the CO2 race. And this is something that we are proud of because, as you know, we were experts in terms of ICE engines and specifically diesel engines. The company has now completely moved and is around the corner to become a leader in terms of CO2, thanks to the competitiveness of our engineering teams and the competitiveness of our manufacturing teams and our suppliers. So we are leading the race. This is what you should keep in mind.

Moving forward. We are now in the way to develop and to validate our new platform strategy which will be totally dedicated to EV cars. As you know, we moved from a 2-platform strategy, mostly ICE strategy, to a 2-multi-energy platform strategy, the e-CMP and the PHEV on EMP2. And now we are preparing to move to a 2 purely EV platform strategy from 2025. From 2023, this new platform, eVMP, will be launched with the first applications. This platform is designed to be fully optimized around the EV powertrain, around the electric powertrain. It will have up to 650 kilometers of WLTP range; an energy storage capacity of 50 kilowatt-hours per meter between the 2 suspensions, which means in the wheelbase; will be front-wheel drive and all-wheel drive up to 250 kilowatts. We will use standard modules for cost efficiency. And we will remain capable in overseas markets to implement and package some hybrid derivatives for the overseas markets, which means this electric vehicle modular platform, eVMP, is going to be our new weapon in the C and [B] segments for our fully dedicated EV products.

And of course, from 2025, we will have a dual-platform strategy which will be totally focused on EVs, totally smart e-CMP platform by that time and the eVMP that I am presenting to you today, which means using the huge capability of our engineering division in terms of delivering great platforms. We are now moving forward to a dual-platform strategy totally dedicated to EV products, and this one is the eVMP dedicated to C and [D] segments. This is what we are right now developing and there are more to come. And the first applications will start from 2023 with an SUV, C segment SUV product. And we also can tell you that we have been doing this work with a limited R&D and CapEx, certainly not numbers that would capture the headlines of our media but numbers that represents the full efficiency and effectiveness of our company in doing frugal things, smart things in a way that is highly efficient. This is what we are right now doing and we intend to continue on this path. That means that this platform will be able to store up to 100 kilowatt-hours of energy, which is totally consistent with the numbers I have shown to you. So more to come.

In terms of our efficiency, of course, H1 was not a good period for the manufacturing systems, as we were impacted with the very low volumes and with a high level of per-unit depreciation, which means that we were moving on the wrong side by EUR 479 on the total manufacturing cost of our products, but we need to recognize that in this minus EUR 479, which means a degradation of our manufacturing costs of those EUR 479, EUR 721 are the result of the volume impact, which means if we put aside the volume impact, which we shouldn’t of course, we still see that we are progressing on the cost reduction. That means that, as soon as we come back to reasonable levels of capacity utilization rates, which will happen during the course of H2, we will get back the cost reduction that we have been implementing during this first half of the year. So things will improve as soon as we reduce the depreciation impact on a per-unit basis, which will be happening in H2.

Our wages-to-revenue ratio. Despite a 35% reduction on our turnover, we see that the wage-to-revenue ratio is forecasted to be at 11% this year, slight degradation against last year, but it is I think interesting to see that, despite the COVID-19, we are still protecting a competitive level of wage-to-revenue ratio. And of course, we will go to a single-digit number by 2021. This is what we expect to do and we are on course to do if external conditions remain reasonably stable.

Another big push that we are currently doing is to reduce the diversity and complexity in the company in terms of overall systems, parts, number of references. We believe there is huge efficiency potential to be captured through the streamlining of the PC technical complexity and diversity items. You see that we will reduce this diversity by 50% up to 2023. Actually, we’ll try to do it by 2022, but no later than 2023, we will reduce this by 50%, which is absolutely significant. And I can tell you it’s not a walk in the park, but it is right now happening in our company and we are halfway on this journey to get the job done. And this is going to improve again the efficiency and the effectiveness of our company compared to our peers.

So that’s where we are. Continuously — we will continue to reduce our break-even point. I would like to remind you that on a Peugeot, Citroën and DS basis we were at 2.6 million cars in 2013. Last year, we were at 1.8 million cars. And we will continue to reduce this break-even point as the best weapon to face all the storms and the chaos that is surrounding our company.

Moving forward and looking at the brands. Peugeot has been doing a stellar job in terms of pricing power management. We are above our benchmark, 1.3% higher than the benchmark, in the B2C sales. We could maintain our market share in Europe at 6.8%. We have a customer order book which is stellar, plus 42% against last year in the 10 biggest European markets, 42% bigger order book than in last year, thanks to the success of our new models, mainly the PEUGEOT 208’s car of the year 2020 and the Peugeot 2008. Both of them have received great success; as much as the electric version of the 208, which represents right now in June 17% of our order book. So a growing mix of our sales that we are step-by-step making a highly profitable sales. This is where we are with Peugeot, great job done by the team, and I would like to congratulate them for that.

Moving forward, on the Citroën. Citroën is now moving strongly on the electric direction not only with the Citroën Ami, which is a totally disruptive, 100% electric mobility device for downtown; very compact, very limited footprint in the urban area for urban mobility; excellent comfort, excellent visibility; and very affordable, as you can get one with a EUR 19.99 per-month fee, which is of course very affordable, after a very limited down payment when you order the product.

What we can say on Citroën is that the pricing power have been stellar, 7.7% higher than the benchmark for Citroën, which means that we are protecting the per-unit profitability of the Citroën products. We are now moving forward with a highly attractive C4; and ë-C4, which is totally electric vehicle that has been unveiled in June 30, a new compact that is redefining the segment rules. We see also that the demand for the C5 Aircross SUV hybrid version is now quite strong, and the first deliveries will start in September. And the customer order book is 10% higher by the end of H1 compared to last year in the 10 biggest European markets, which is also a very good performance. Market share is slightly down by 0.1 points of market share at 4.5% — 4.7%, sorry, 4.7% market share compared to 4.8% last year. So slightly down but with a strong order book and the launch of the C4 moving forward right now.

DS has been delivering a very rewarding performance, not only on pricing, as we are now above our benchmark in consistent — in a consistent manner, as you can see here. So very disciplined and rigorous pricing power management for our premium brand. We see that our market share is growing in Europe. We see that the electrified models represent now 33% of our sales. DS is the leader of all the multi-energy brands in Europe with the lowest average of CO2 emissions, below 80 grams per kilometer. The DS3 Crossback and DS7 Crossback are, respectively, #2 and #3 best-selling premium models in France. And we have completely redefined our business model for DS in China. And we are now preparing to launch the flagship of our premium brand, which is the DS9 sedan, which will represent the flagship of the brands and will somewhere represent and create a halo effect for all the other models.

So step by step since we started in 2014, very consistently, we are moving in the right direction in terms of customer care, in terms of pricing power management, in terms of technology, in terms of quality and in terms of building the right brand portfolio. This is what we are doing. It’s a matter of consistency. It’s a matter of rigor. It’s a matter of understanding that DS is premium. DS is electric. That’s what we are now — right now doing. Thank you.

If I move to Opel. Opel was able to demonstrate its resilience, demonstrating that the PACE! plan was not a gimmick plan. It was a real, concrete turnaround plan, as Opel was able to remain positive in H1 at 2% adjusted operating margin in this period despite the coronavirus crisis. We see that the launch of the new Opel Corsa is a big success. The order book is at plus 44%. And Opel Corsa is contributing to reducing significantly the CO2 emissions. We see that overseas offensive is now delivering the first results. Sales are up in the Middle East, namely in Turkey. And we are now preparing to launch the new Mokka by the beginning of 2021, which then will open the road for one new model every year. It is fair to say that, since we have stopped all the products that needed to be stopped to ensure the appropriate CO2 performance in 2019, we are going through a difficult moment in terms of market share, but we believe that — with the new products coming and the sequence and the [levelization] of this sequence of the new products in the pipeline, we believe that we will come back strong. And I trust that our sales and marketing teams by Opel will do the right job moving forward.

If I continue, I would like to give you some highlights on the regions now, after the brands. In Europe we have been facing a stable market share in terms of Peugeot, Citroën and DS; declining market share in terms of Opel. As I mentioned, we have lost 1.3 points of market share. We see that we are totally compliant on CO2, DS delivering outstanding CO2 results. And of course, we have given the priority to managing the crisis. As you know, Europe represents 90% of our profitability; and the fact that the priority was given to protect the financials of the company, protect the business model, protect the pricing power, make sure that we do the right things in the right way. And this is what the European region has been doing, and it has been for them a very difficult journey. And I would like to recognize that and address to all the European team a very warm thanks for everything they have done to our company. This is something that represents, of course, a big challenge.

If I look at overseas. What is remarkable in overseas is that, given all the crisis that we see around the world, the overall overseas business has remained profitable. If I combine all the other regions, our overseas business is profitable. We can see some quite significant improvements in the Middle East and Africa in terms of market share. You can see it in the numbers. The market share in the Middle East and Africa was significantly progressing. This is something that represents a very strong performance from our sales and marketing teams in those regions. You can see that we also progressed significantly in Eurasia, namely in Ukraine, where — a significant market share improvement also in that region. We were able to deliver a positive free cash flow in Latin America for H1, which is given the conditions also remarkable. And we continue to prepare for the future in India and Asia Pacific; and in China, trying to turn-around the DPCA JV.

And as you know, we have solved the CAPSA issue, the other JV we have in China, as we have sold this company to another Chinese company. And we are now distributing our DS premium products through a national sales company, which of course is much lighter, much more agile and, I believe, much more efficient way of distributing premium products in the Chinese market. By doing this, we have also reduced our manufacturing capacity and reduced the break-even point of our Chinese operations. So moving in the right direction but still not where it should be, more work to do and more results to achieve. I would like also to highlight that our planning in India is delivering what we expect, which means smart CMP programs that will be highly competitive not only for the Indian market but also for many other markets in the world. And this is, of course, a game changer for the PSA Group. Everything we are doing in India in terms of cost competitiveness, in terms of product appeal, in terms of way of developing our products is a game changer for PSA. And I’m quite pleased with the progress even though it’s not yet visible to you, but it will be visible to you very soon. From 2021, you’ll start to see concrete results for this deep and difficult work that has been done over the last 3 to 4 years by our Indian teams. Thank you for their persistency.

If I look at LCV. Our market share in LCV in Europe has improved to 25%. What is remarkable is that we are now introducing all the electric versions of the LCV range, starting in 2020 with the Peugeot Expert, the Citroën Jumpy and Opel Vauxhall Vivaro. We are on time delivering the electrified versions of our LCV products. That is something that, of course, will be needed for the usage of those products in urban areas. And we were also able to launch the new Peugeot Landtrek. You know that Peugeot is a highly credible brand in terms of pickups given our history, mainly in Africa, and we are back with Peugeot in the pickup world for our overseas markets, with the first sales by the end of this year. The product is coming. The product is highly durable. The product is highly competitive, and the Peugeot brand is credible in this kind of business. So we are pleased with this development that we have done with one of our Chinese partners. This is what we can say on the LCVs and on the carmaker.

Let’s now move to the mobility service provider and give you some highlights about the multibrand aftermarket, where we see that, despite the COVID crisis, the independent aftermarket business was stable, slightly up but marginally up despite the crisis. And by itself, given the context, I think this is a good performance. The business has been protected, thanks to the supply chain which was continuously working and running through the COVID-19 crisis. And I would like to address to our teams from aftersales my warm congratulations and thanks for their ability and their resilience to keep things running through the crisis.

It’s important that we recognize that our sales outside of Europe are growing, starting with China with a 12 — 6% improvement of our turnover in China. It is, of course, rewarding to see that some of our Chinese operations are delivering good results and a profitable growth. It is the case of our IAM business over there. We crossed the line of 5,000 Eurorepar car service garages all over the world, in 26 countries, which is an improvement of 13%. And we are progressing in the circular economy by some M&A operations as much as our own internal developments to increase the size of this business, which I believe has a great future moving forward. It is also important to highlight that our Distrigo distribution model has been a front-runner and has been progressing, as we have now 173 hubs deployed worldwide, with a high cost competitiveness and a very high rate of service which is above 90% on the same-day delivery in average. This is a high level of performance in terms of service rates. And we are now developing outside of Europe with 8 hubs in Turkey, 18 in Brazil, 5 in Argentina…

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Philippe de Rovira, Peugeot S.A. – CFO [5]

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China.

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [6]

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5 in China. And definitely, the assets of the business represents a strong profit contributor and a strong growth lever for the company, including in China.

Moving forward. The used car business was, of course, impacted by the COVID but demonstrated also a significant level of resilience despite some drop in the car revenue and, of course, a certain drop in the number of transactions. We see that, in May and June, the PSA used car brand web visitors increased by 73%. We see that Aramis group has delivered an online strategy which is very strong. In May, June, the year-over-year retail deliveries increased by 32%. The Auto Avaliar transaction in Brazil increased by 50%, versus April, in May and June. And our used car Spoticar multi-brand label is now being deployed all over our regions. So things are moving in the right direction, and we see that we are going to rebound strongly as much as on the new car business.

Moving forward. With the sales finance activity for the hassle-free mobility, we have great results given the context. The net banking revenue was stable despite a drop in the number of cars which were financed. And we had a very strong penetration increase by 5 points; as much as a significant catch up on the Opel Vauxhall financial side with an penetration rate improvement of 9 points, which of course is quite rewarding and gives confidence to the teams to do even better for the next time.

Moving forward. In terms of mobility services, I would like to announce to you today that we are going to create a tech company under the Free2Move label. So Free2Move mobility services will become a specific tech company, an independent affiliate, 100% affiliate, of PSA but a totally independent company to give the team more autonomy; to give them even more agility, capability to design and to develop software, develop a state-of-the-art software platform for mobility services, making sure that we offer in this platform a full range of services through a unique Free2Move app. We have right now more than 1.2 million active B2C and B2B customers, and we are now available in 170 countries around the world. It is important to recognize that, step by step, we are making money with this activity. It’s not only increasing our revenues. Growth was 23% in H1 against last year, and the number of active customers increased by 25% against H1 of last year. So we are growing. And we are growing in a profitable manner, as we are more and more understanding what kind of business model should be implemented to make the operations sustainable.

So creating a new tech company under the leadership of Brigitte Courtehoux, Free2Move goes global, goes tech and becomes a 1% affiliate of PSA for more economy, more agility and stronger growth.

That’s what I wanted to share with you. I would like to conclude this presentation, before we move to Q&A, by telling you that, of course, we are right now under the mandate of the Supervisory Board that approved the merger of PSA and FCA in December 2019. This represents a very long process to move from the signing to the closing around 15 months of hard work. More than 500 people are working daily to deliver all the documents, all the applications; and answer all the questions that are requested to move to the closing. I must say that I am absolutely thrilled by the bottom-up dynamics of this process. What we see in the 25 workflows that are currently working on this matter is that there is a lot of enthusiasm. There is a lot of proactive proposals in terms of additional synergies, and I’m pleased today to tell you that the EUR 3.7 billion of synergies on a yearly basis is a floor of what this merger can deliver. And I can tell you this just because I see the bottom-up flow of new proposals, great proposals, which are made by the workflows and by the 25 workflows, cross-company teams working together in a very good spirit, very amicable spirit.

And I would like to tell you that the choice of Stellantis looks to me quite appropriate, as Stellantis represents a constellation of stars that create light; and that Stellantis will be the company that is going to be totally inclusive of the stars, which are the brands, a 14-brand portfolio which is totally stellar portfolio of brands, everything we need to map the markets; and also fantastic families with such a high level of diversity, diversity of backgrounds, diversity of histories, diversity of education, diversity of citizenships. So Stellantis is going to be all about being inclusive of this diversity to combine all the strengths of all of those entities, all of those talents to be even more competitive facing our peers. And of course, this is the reason why this process is perceived as being very long, but this is how it is. We need to be very professional. We need to be very rigorous. We need to do things in a thoughtful step-by-step manner. This is exactly what we are doing right now. I would like to tell you that we are on time. We are delivering properly against the schedule that we presented back in December 2019, so this hard work, invisible work for all of you, is being done in a highly professional manner. EUR 3.7 billion is the floor. The workflows are generating a significant bottom-up flow of proposals. And this diversity of Stellantis will be one of its strengths. This is going to be the company that will be inclusive of all of those diversities and will transform all of those diversities into competitive edge to face the challenges of the future.

This is what I wanted to share with you today. I would like to thank you for your attention, and I would like now to move to your questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Thomas Besson calling from Kepler Cheuvreux.

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Thomas Besson, Kepler Cheuvreux, Research Division – Head of Automobile Sector [2]

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It’s Thomas Besson of Kepler Cheuvreux. I’ll have 2 topics, please, if I may. Firstly, to continue on the merger topic, could you just make a few comments on the steps to the closing? Is it reasonable to assume that the closing is more likely to happen post both companies’ full year 2020 reporting? And is it fair as well to say that the European Union review represents a main blocking points — I don’t want to say blocking point, the main challenge into that closing? It was the first topic. And the second topic: The European market has been rebounding nicely in June, July both because everybody is happy to be out but also because of the incentive schemes that have been developed across Europe. So I think July is going to be better than June, but can you talk about what you view as a dynamic for the rest of the second half? Are we seeing the peak for the year now? Or do you think we are going to see an underlying strength in Europe, allowing for decent development in Q4 and next year? Or at the opposite, do you believe that the merged companies may have to eventually live in a weaker European market than what was initially planned as a base?

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [3]

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Well, thank you, Thomas. In fact, the 2 questions you are raising are quite connected, and I will try to answer them as best as I can. First of all, one of the big strengths of this Stellantis company is that it comes from the complementarity of FCA and PSA. I think we have demonstrated that PSA can deliver recurrent profits in very different kinds of conditions. This is what we are seeing right now on the H1 2020, thanks to the hard work to reduce the break-even point of PSA. In the same way, FCA has been demonstrating their ability to deliver very strong recurrent profits in the Americas, North America and Latin America. And therefore, the complementarity on the regional business is quite visible and will present a shield against future crises that could be regional crisis or sequential crisis as the COVID-19. So by itself, the creation of Stellantis is going to be an answer to that kind of uncertainty because, of course, the question you raised about the European market moving forward is a very difficult one. And we have to be humble and I have to be humble in our inability to predict the future, which means that the only way for us to face an unpredictable future is to have a very low break-even point for our company and a very agile company to react to those uncertainties. So far, yes, we see that our order book is excellent by the end of H1, plus 15% against last year. Our inventories are very low, minus 24% against last year. So inventory is low. Order book is good. The supply chain system is coming back smoothly and efficiently. So if things remained stable for the rest of the year, we believe that the rebound is going to be good. And we will continue to focus on improving our quality, reducing our waste and reducing the break-even point of the company. That’s what we intend to do. I can say, as our CFO already stated, that July looks like June, a very good month in terms of orders, a very good month in terms of supply chain performance in the plants. We see that we are ramping up nicely shift after shift. The capacity utilization rate is also improving day by day, so, so far, so good, I will say. Now the uncertainty for the future remain. As you know, we do not support subsidies. We do not like subsidies. We don’t like systems that distorts the market conditions. We prefer to be facing our competitors in trying to make our customers happier, which is our thinking is let’s make the customers happy. Let’s understand what they need. And let’s not be dependent on subsidies that distort the market conditions because those subsidies, one day or another, they disappear; and then you see the reality of the gaps that you didn’t work consistently to close. And this is a situation that, of course, we don’t like. So we always consider that the subsidies can disappear overnight. And we always work, thinking that the subsidies will not happen at one point in time.

On the first one, about the merger, it’s important that we understand in which condition we are. We made a deal in December 2019 which was approved by the 2 boards, FCA and PSA. The deal was approved. It’s a binding deal. From that moment, the management is in the execution mode; and we are executing the deal, as I said, with a very specific process. It is amazing, the complexity of this process. It’s amazing, the thousands and thousands and thousands of documents that we are producing to make all the necessary filings, so I would like here to express my sincere appreciation to our teams. They are not under the light. They are not under the spotlight, but they are doing a tremendous work, very heavy, very difficult; and they are moving in the right timing. This is the reality. In such a big merger to create, by revenues, the third carmaker in the world, it is quite normal that through the filing process we have many, many questions. We were planning for that. And as you stated, on the European Union antitrust matter, in our plannings we have the Phase 2 as something that needed to be planned for in case we had questions from the authorities. And we have questions from the authorities, which is very normal. I must say the questions are very wise. They are very normal. And we are totally open, totally flexible, totally collaborative to discuss with them and bring all the necessary answers. This is what we have been doing at the high level of the company. Now it’s in the Executive Committee team that things have been discussed, and they are discussed with a good spirit. I must say that the questions that have been raised to us have been raised in a very proper manner, a very relevant manner. And we consider those questions thoughtful, and we are answering those questions as we need to and with good spirit. And if anything needs to be done, any solution needs to be found, we will do so. So we are moving forward in that direction and that was planned in our schedule.

Of course, while we do all of this, we are executing the deal. And as you know, being the future CEO of Stellantis, one thing I will look at quite closely is the cash position of Stellantis the day after the closing. And of course, this is something that is going to be extremely important for the birth of this new company; and there will be quite regarding on this matter, looking at this cash position at day 1 of Stellantis. And as you may imagine, this cash position will depend on the rebound of H2 both on the PSA side as much on the FCA side. So at this stage, what we can do and what I can do with my team is to try to bring the best possible contribution from PSA with a strong rebound on H2. And that’s what we are focused on is while — executing the deal with all the authorities with all the filings, answering all the questions, solving all the issues, if any; and from the other side, leveraging the business and having a strong rebound to reach a cash position by the end of the year that will represent the best possible contribution for the cash position of Stellantis the day after the closing. And then to answer precisely your question: I think the closing will happen in the course of Q1. So it is going to be before the results announcement or after. Frankly, I don’t know, but certainly, in the course of Q1, we predict that, that will happen. And we want to make sure that, at that point in time, the cash position of Stellantis is as good as necessary because we can not bet on the fact that there will not be in 2021 specific events that will challenge, of course, all the carmakers in the world, starting with Stellantis. So this is, Thomas, what I can answer to both of your questions.

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Operator [4]

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The next question comes from the line of José Asumendi calling from JPMorgan.

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José Maria Asumendi, JPMorgan Chase & Co, Research Division – Head of the European Automotive Team [5]

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José of JPMorgan. Carlos and Philippe, a couple of questions, please. Carlos, can you comment a bit around the eVMP platform? Can you give us a bit more color on the how it changes your supplier sourcing, your workforce commitments? But mainly interested if it really changes how you assemble the vehicle in the plant and if there are large investments required to launch this platform, also if you could please just maybe share some thoughts on your Morocco plant. I believe it’s going ahead with a very large quick expansion. If you can share some thoughts on that. Philippe, just 1 little question for you, please: thoughts, please, on the profit bridge for the second half maybe on product mix and SG&A savings.

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [6]

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Well, thank you, José. Thank you for your very fair questions. I will answer eVMP and Morocco; and let Philippe answer the H2 bridge, which of course is a much more difficult question, so I will let my CFO answer that one. On the first 2, eVMP is something that we have been working with our engineering teams for a while. To be very transparent to you: I realized through the road show by early 2020, based on the 2019 results, that the investors were very keen and very eager to know more about our platform strategy. I think that everybody has recognized that our multi-energy dual-platform strategy for the period 2020, 2025 is clearly the right choice to adapt to a very uncertain world, unpredictable world, but of course, beyond the dual multi-energy platform strategy we can assume that there will be full electrification of the mobility devices, which is going to be the consequence of all the regulations that will be impacting the companies and also the consequence of our aggressive stance on CO2 reduction. So we were preparing for what is going to be our platform strategy when there will be mostly electric vehicles to be sold, and our vision is to move from the 2 multi-energy platform strategy to a 2 fully BEV-dedicated platform strategy. So we will keep the approach, which is a compact platform for compact vehicles, B and B+ vehicles; and a larger one for C and D segments, which is the eVMP. For the eVMP, of course, the driver is going to be the ability to package in a highly efficient way standard modules for the cost efficiency that deliver the capability to have more than 100 kilowatt-hours of stored energy in the car, being able to deliver no less than 650 kilometers of range in WLTP terms. We believe that that’s what we need by 2025. In fact, we are putting a strong focus on the packaging efficiency. You know that, by PSA, we have a high level of expertise in terms of chassis, in terms of combining the right kinematics of suspensions with the right packaging of all the components that are needed to deliver the power and the torque to the mobility of the product. And this is what we have been doing.

I must say that, for me, it has been a very rewarding experience because it reminds me of my young days, but our engineers have been making a very great job and being very creative in the way they are delivering this eVMP platform. I’m very pleased by what they have done. And in fact, this new platform will be used by a first application in the C SUV segment by 2023. So this is very soon. And you see that it’s not because we have a dual-platform, multi-energy strategy for this period of uncertainty 2020 to 2025 that we are not preparing for the future. And certainly, we will not let anybody be more competitive than PSA in terms of managing this kind of platform. On top of this, as you know, our strategy is to have a totally integrated manufacturing of the electric powertrain components. We are going to develop and manufacture our own motors. We are developing and manufacturing our automatic electrified transmissions. We are developing and manufacturing our battery packs. And which is news for you today, we have signed our agreement with the Total group and Saft on the ACC battery cell supplier. This has been done by our teams and by the Total teams. We are now just waiting for the approvals of the French state and the German state, which are funding the first applications of this entity. So I’m pleased to announce this to you. The ACC agreement between Total and PSA has been signed. We are moving forward with a fully integrated strategy on powertrain components. And we are moving for a new platform strategy dedicated to EVs using the best expertise of our platform engineers. So we are pleased with that. I want to — also to tell you that one of the drivers for this platform was to use the existing assets in our plants. So as always, PSA is not going to make a bid — a big headline number in terms of spending on those platforms. We have been engineering this platform to be — show that we have a high level of carryover of the equipments we currently have in our plants to make sure that we don’t have to cash-out enormous amounts of money just because we moved from the multi-energy platforms to the pure-EV platforms. This is what we have been doing, and I can tell you that we are spending a few hundreds of million of euros to develop and put this platform in our first plants. It’s very frugal. It’s very smart. It’s not numbers for the headlines, but those numbers will represent the efficiency and the effectiveness of PSA, which of course will become also, I believe, a strong contribution to Stellantis.

In Morocco, we are ramping up right now on our production in the Kenitra plant with the 208. We are pleased by the quality results because the ramp-up has been totally controlled by quality performance and ensuring that at each step of the process we are securing the quality. And there is no commitment from the plant on volume. There is a commitment on quality, but things are ramping up quite nicely. And we expect this year to be using the step 2 capacity level to reach 200,000 capacity in this plant. Moving forward, we will see if there is a need to go to step 3. It is dependent, of course, on many things, including Stellantis. This is also dependent on the improvement that we see on the cost competitiveness of the Moroccan supplier bases. You know that the Moroccan government has been doing outstanding things in terms of attracting very good suppliers and cost-competitive suppliers. We see that in the way we are delivering the cost performance of the PEUGEOT 208 in that plant. We need some time to continue to improve the cost competitiveness of our Moroccan suppliers, but it’s moving as planned. And if we deliver the numbers within the next 18 months, then the road will be open for a third step, if the performance is there but only if the performance is there. This is what I can tell you on Morocco. So far, we are very pleased by the frugality of what we have done. The plant is efficient. People are well trained. The quality is good. The cost competitiveness is there even though we believe that there is more potential to come. And on the H2 steps, I would like to hand over to Philippe.

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Philippe de Rovira, Peugeot S.A. – CFO [7]

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Yes. Thanks, Carlos. So on your questions on — the product mix should be helping us significantly in H2 more than in H1. Conversely, on the SG&A the effects should not be as big in H2 compared to H1 because in SG&A you’ve got the marketing activities. And the forecast for the market, hopefully, in H2 is much better than in H1, so we will have more marketing expenses. So in a nutshell, better product mix in H2 than in H1 but SG&A positive but at a lower level in H2 compared to H1.

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [8]

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Thank you, Philippe. Thank you, José, for your wise questions.

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Operator [9]

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The next question comes from the line of George Galliers calling from Goldman Sachs.

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George Anthony Galliers-Pratt, Goldman Sachs Group, Inc., Research Division – Equity Analyst [10]

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The first question I had was just on the transaction with FCA. You did mention that the questions from the authorities are very wide, but I was wondering if you could provide any details on what the main area of focus for the EU antitrust probe is. And if you aren’t able to provide details, are you able to confirm that, based on what you know if you do need to make adjustments to your operations, those aren’t likely to prove material to the combined entity post closing? And then the second question I had was on selling online. You mentioned at the beginning of the presentation that this was increasing and becoming a larger part of your business. Can you give us some indication of how the profitability of an online sale compares to one through traditional channels?

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [11]

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Thank you for your 2 questions, George. I will start with the second one. Yes, selling online is certainly a highly profitable channel. As you know, the distribution costs in Europe are extremely high and represent, of course, a big challenge for the distribution world. And selling online is in a breakthrough mode vis-à-vis those distribution costs. So if the question is are selling-online sales profitable — or more profitable than conventional sales, the answer is yes, as long as you have the right tools, as long as the customer satisfaction on the ergonomy of the customer journey is okay. Okay means above 4 in the scale of 5, and this is what we have been working on. So far, the results we have been achieving with our employees are showing the direction. They are telling us that the customer journey is okay. Of course, we have some bumps on the road. We have to reengineer some parts of that customer journey, but I will say customer journey is okay, depending on the ergonomy of the tools you use for the process. And we are learning fast and strong on that matter. We have a dedicated team just to handle those tools, those IT tools. And the profitability of selling-online sales is extremely good because it is facing a distribution cost of conventional sales which is extremely high and represents, of course, risks for the current distribution model. And this is the reason why we are working so hard with our partners to make sure that we improve the customer satisfaction. Because if we have a strong distribution cost, the minimal we can do is to have a strong customer satisfaction at least to be consistent with the distribution cost, but selling online is certainly a channel, a new channel of business that is now supported by a dedicated team in our sales and marketing function because we recognize that this challenge — this channel will grow. And we recognize that it is highly profitable, and therefore we have been putting a lot of energy on this direction.

On your question about FCA. It is much too soon to tell you if there is any material consequence of the discussions we are having right now. It is quite normal that we have some specific questions on LCV, as we are the leader of the European market with 25% market share. So it’s quite normal that, given this situation, we get many questions on this area. We also see that the level of competition, to benefit of the consumer, in LCV Europe is very high. And it will remain very, very high in this area, so I don’t see any risk for the consumer. Competition in the LCV world in Europe will remain extremely high. Therefore, the consumer will have a very wide array of possibilities in this area, but given the leadership of PSA currently in European market with 25% market share, it is quite normal that we get those questions. So we are answering those questions and trying to understand at which extent they are meeting the expectations of the team with which we are interacting, I must say, in a very professional, open-minded tone. It’s very positive. And we intend to keep it positive because, if there is anything we need to solve, then we will solve it. At this stage of the discussions, it’s much too soon to tell you if there will be any material consequences on the companies that are going to merge, but of course, if that was to happen, you will be informed of that. But so far, too soon to say, just a good-spirit, open-minded discussion and the normal questions given the numbers.

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Operator [12]

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The next question comes from the line of Thomas Hanke calling from Handelsblatt.

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Thomas Hanke, Handelsblatt GmbH – Correspondent in Paris [13]

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Two questions, if I may. The first, you — Carlos, you mentioned the battery cell production in the North of France. Could you tell us, will the factory come on stream as planned, or will it be delayed by the consequences of the COVID crisis? And my second question: You’ve been in your remarks a bit frugal regarding Opel. Could you tell a little bit more about your expectations for the development of the Opel market share in 2020 and 2021?

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [14]

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Thank you, Thomas, for your 2 questions. Because we know each other, I am comfortable to tell you that I did not mention the plants in the North of France. This is to say that, if I have mentioned the plants in the North of France, I would have mentioned the plants in Germany so that we keep things balanced. But that’s the plan. The plan is that we will have a plant in France and a plant in Germany, as this venture is supported by the French and the German states. And as you know, Opel is fully involved in this process. And Michael Lohscheller, the CEO of Opel, has been discussing very efficiently with the German government on this matter. And we are pleased. We are very pleased that this is an initiative from Germany and France because, as I said, and this is going to be even stronger, we love diversity. I mean we are inclusive of all the diversities to make a stronger company moving forward. That’s why we are so pleased that ACC is supported by Germany and by France. And I want to confirm that there will be a plant in France and a plant in Germany, given the funding of this initiative, so that we remain relaxed on that manner.

For the Opel, I think the first thing we should, I think, recognize is that the hard work of the Opel team, led by Michael Lohscheller, has been really concrete. The fact that Opel was able to remain profitable in H1 is remarkable. The Opel teams have done a fantastic job because they have hit the nail on the important things. You have seen that the pricing power is still improving. We are now very close to the benchmark, which we could not imagine a few years ago. We see that the cost competitiveness have been improving. Yes, we see that we are going through a difficult moment in terms of market share because we had to stop a significant number of models in 2019, first, because they were not all profitable and, secondly, because some of them were not receiving the right technology in terms of CO2 performance. And of course, it was rather brutal, what we had to do in 2019. And of course, the new products are coming, but you see the new products that we are now bringing to the market are the ones that we prepared by the end of 2017 and by the beginning of 2018. So you see that we have been reasonably fast to bring those products to the market; and now we are entering a pipeline which is very [levelized], one new model every year, starting with the Opel Corsa and then now coming the Opel Mokka. So I expect the share to go up from 2021 based on the new products, based also on a certain number of improvements that we need to do in the way we manage the networks and in the way we communicate our marketing positioning for the brand. So I’m quite confident because I’m — I know better and better the talent of our Opel teams. I know that they are very rigorous in the things they do. They’re very passionate about their brand. I can tell you that we spend a lot of time discussing about the brand identity and the brand features of the Opel products. Yesterday afternoon, we had here in [Main, Hesse] one more meeting with Michael Lohscheller, Mark Adams and the engineers to discuss a certain number of things. I’m very thrilled by the depth and the passion around Opel and I feel very good about it, but I need to recognize with some humility that we are now facing a difficult moment but — in terms of market share. But from early 2021, I think things will improve with the new Mokka, which is an excellent product that you have already seen. It’s a pure Opel with all the features and all the cues that are representative of the Opel brand positioning. And that’s where we are today. So a high level of confidence in the Opel teams; and certainly warm thanks and congratulations for the 2% operating profit margin in H1, which demonstrates that PACE! was not a gimmick plan. It was a really concrete plan. That’s what I can tell you, Thomas. Thank you.

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Thomas Hanke, Handelsblatt GmbH – Correspondent in Paris [15]

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May I just come back to my first question? It was not so much about the balance in the battery cell factory or factories but more on when it will or when they will come on stream.

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [16]

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Oh, that is going to be announced when we are going to make some kind of ceremony, I expect, very soon, but most probably it’s going to be in the period of 2023 to 2025. This is the window that I expect will be the appropriate window to be making the first batteries in our European plants. And in this window we are ideally positioned because we know that, from 2025 to 2030, we will have a big acceleration of LEV cells. If you look at the European Union objectives and you look at the numbers, you understand that, between 2025 and 2030, you need to move your LEV mix from 30% of your sales to 60% of your sales, which means that there will be a big demand of batteries and the electric powertrain components in the period of 2025 to 2030. And this is the moment from which in 2025 our vertical integration in all the components of our electric power plants, including the batteries, will be live, which means we’ll be fully ready to race on the performance and the cost competitiveness in the period that will move from 2025 to 2030. And this is going to be an exciting competition. We have been preparing for this since 2014. The products that we launched in 2019 are the products we decided in 2014. And things you will see between 2023 and 2025 is the result of the strategic moves we have done on the components mostly in 2018, and then step by step, we are moving in that direction. So far, things have been moving smoothly despite the crisis. And then I hope it will stay that way, but I must say that our electric powertrain vertical integration, combined with the new platform strategy, is going to be very, very strong assets for PSA and tomorrow for Stellantis. So I feel very excited and very confident that we have the right strategy. Is it going to be easy? Certainly not. Nothing is easy in our industry, but so far, so good, as they say. Thank you, Thomas.

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Operator [17]

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The next question comes from the line of Philippe Houchois calling from Jefferies.

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Philippe Jean Houchois, Jefferies LLC, Research Division – MD & Senior Automotive Analyst [18]

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I have 2 questions. The first one, maybe for Philippe, if you could disclose how much costs were you able to shift out of your P&L in the first half due to the temporary [government] support schemes. And how much will be coming back possibly in the second half? An order of magnitude will be helpful. Some of your peers have disclosed that. And I was just wondering as well. There’s a lot of discussion in France about the elimination of production tax. How significant would that be for you? I believe you are the largest auto industry producer in France. Would you quantify how much you pay in production tax today in France? And then — and maybe for Carlos: I was just wondering about these LCV EU antitrust investigations. Is it correct to understand that we’re looking at ways for the EU to make sure there is sufficient competition? So that’s an issue on the commercial side on dealer access, et cetera. And is it possible? I know it’s not your preferred scenario. Would it be possible to — for you to consider divesting some of your market share whilst at the same time maintaining control of the manufacturing potentially through the (inaudible) facilities, which will be in a way lesser evil where you would lose some market share but you would maintain industrial scale? If that makes sense to you.

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [19]

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Well, thank you, Philippe. Thank you for your questions. Before I’ll let Philippe answer the first 2, I would like to answer the third one and make a comment about the 2 first questions. The first thing I would like to highlight here is that, as it was said in the introduction, for the Automotive part of our business, we did not use our credit lines, which means that we were able to enjoy the robustness of our balance sheet through the crisis. And we did not ask for any state guarantee, which means that we remain in total control of our destiny, trying to keep our hands free and do whatever we think is best for our stakeholders and for our company moving forward. So for us, the sense of independence is something that we are very much supportive of, and I would like to highlight that. In the same time, when we talk about short work, it is quite normal that we let each of our employees, being French, German or any other citizenship, enjoy the same benefits as any other citizen in the country. So the people who are working in our facilities, in our company should not be treated in a different way from any other citizen of the country working in another industry. So short work is something that is available for all the citizens in a given country. It is normal that we support the fact that they get access to that kind of support in the same way as any other citizen in another industry. And it would have been awkward that we have prevented those employees from being treated in the same way as any other citizen in the country, which of course we didn’t. We made sure that they could enjoy the same support as any other citizen in the country, hence the fact that, yes, we have used the short work possibilities that were given to us by mainly the French state and the German state, mainly. That’s a comment I wanted to do on those matters.

Regarding the LCV matter. I understand your questions are very thoughtful, absolutely relevant. I must say that your questions are ahead of the discussion, and I don’t know how to answer them because at this stage this is not what we are discussing. At this stage, this is still something that is not on the table. We are just discussing about what is the real situation of the markets. Are we protecting the competition? Because from the European Union antitrust team, what is important is to make sure that the customer can enjoy a very strong competition, and we see that it is the case. We see it is the case. There are many, many other carmakers who are offering LCV proposals to the market. As you know, the competition is very, very tough. It is quite easy. You just have to make some mystery shopper visits and you will see that the competition is extremely high. If we have to discuss on distribution models, we would, of course, be open to that because there is no way and no reason that we would put that aside if that was to be a discussion point, but so far, we are not as far as your questions are understating, Philippe, and therefore I cannot answer precisely your question. I apologize for that. But if we were to go in that direction because we would be requested by the antitrust team to go in that direction, certainly we would. Certainly, we would bring the appropriate proposals on the table because we believe that this Stellantis merger represents something that is a high level of sustainability stake for the future, for the next 20 or 30 years. And we should put things in relative proportions, step back and look what is at stake and not be stiff and not be picky on some limited actions if that was to be needed facing what is at stake. And this is the reason why we keep our minds open and flexible to this discussion, but we are not as far as your question is understating. And I would like to give back the floor to Philippe for your questions on the H1 and the tax.

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Philippe de Rovira, Peugeot S.A. – CFO [20]

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Yes. So on the production tax, well, it’s not clear completely now what will be the measures taken by the government, but what I can tell you is the main taxes paid in France in terms of euros are CVAE and the C3S. My understanding is that it’s the government is heading on the CVAE, so probably we are talking about a stake of a small 3-digit number. That will be the size of [the amount]. On your first question, well, we don’t disclose the number you’re asking, but what we can say on the production, procurement, SG&A and R&D, a significant part of the H1 effect is linked to the short work. Also, to come back on production tax: I think we can be — it will be easier in a few weeks to give more details when we know exactly what the government has in mind.

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Operator [21]

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The next question comes from the line of Stephen Reitman calling from Societe Generale.

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Stephen Michael Reitman, Societe Generale Cross Asset Research – Equity Analyst [22]

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I have 2 questions. First of all, also on cost savings, you’ve clearly shown great ability to reduce your break-even point. I’m just wondering. Now with the crisis, how much do you think of the cost savings you’ve been able to do you will be able to also carry over in terms of permanent cost savings? Faurecia referred to some figures yesterday in their own operations. My second question is about the eVMP, the new electric platform. Where do you think you’re going to be in terms of efficiency and competitiveness? Do you think this is going to be a sector-leading platform in terms of efficiency just as you are as a CO2 leader at the moment with your conventional offerings? In other words, do you think that you can find that this is going to be a European player that can take on the best in the EV space?

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [23]

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Thank you, Steve, for your 2 questions. I’ll try to answer, starting with the second one. I think it is fair to recognize that over the last decades PSA Group has demonstrated a very significant expertise in terms of platform performance and the [chassis] performance. I think it is fair to recognize that, looking at the products that we have delivered to the market. And what we have been doing over the last few months is that we have steered the passion of our engineers towards this new challenge which is about, “How much energy I can store in our products,” while maintaining a very significant level of breathing space for our designers to create the most appealing designs and combining that with a high level of energy storage to deliver a significant range while using standard components that would represent a very good cost competitiveness. This is what we have been doing. And of course, future will tell us if we are competitive enough, but certainly we are trying with the eVMP to break a certain number of paradigms in terms of architecture in terms of the way you store the components and you build the layouts in the platforms. And at the same time, we are trying to do this in a frugal and smart way, which means we are not going to reinvest all of our manufacturing assets. That will be crazy. Certainly that will give some headlines, but this is not the way we work. As you know, we are not trying to be the biggest. We are trying and not always succeeding to be the smartest, which is of course the direction in which we want to go. We want a highly qualitative business. We are not looking for the quantitative side of the business. We want to be doing the right things in a smart way, in a frugal way. And I trust that everything we have seen in the past on the chassis performance will, of course, translate to the future with this eVMP platform that the teams are now engineering and they are quite advanced. And this is the reason why I’m talking to you about it today. And I understood during the last road show that it was a significant expectation from our partners and our investors to know what is coming after the multi-energy platform strategy. This is what we are now preparing for, and the good news is that this is not going to represent a very significant investment. It’s a 3-digit number. And it’s something that we can, of course, [front] in the natural course of action of our company and even more in the course of Stellantis.

So we are quite comfortable with the efficiency of this investment. I’m quite comfortable with the platform efficiency. It was one of the — one of my jobs when I was a young engineer, and I love this. I think they are doing a fantastic job over there. And of course, when time will come, we’ll explain to you more about the platform characteristics. And for the time being, what we can unveil, not to give all the details to our competitors, is what I told you, but we feel quite comfortable that by 2025 we will have a dual pure-EV platform strategy that will succeed to the current dual multi-energy platform strategy in a highly efficient way. And then it’s going to be up to you to evaluate the competitiveness of what we have done against our major competitors, but on this matter, as you know well, it is not the size that gives you the smartest solution. It is the creativity. It’s the passion. It is the framing within which your teams are working that creates, at the end of the day, the best results.

On the cost savings, before I hand over to Philippe on this matter, I just want to tell you that the good thing about this period is that we discovered, mostly in the KTV crisis team, that when you go on the frontline, you can still find a lot of things which are not at the right level of efficiency and effectiveness, many, many, many things, but beyond that you also think that you can operate in a very different way. You see the way we have been using the resources, the human resources, over the last few years has proven to be not exactly the most efficient way during the crisis. We have taken a certain number of lessons from that. We have learned that, at the end of the day, what counts is the spine of the company, the productive and the creative spine of the company. That gives us a lot of ideas to move forward. You see the drastic decision to go 100% on remote working while keeping the possibility for the teams to gather when they think it is appropriate to do so. It’s one example of a drastic decision. The fact that today we are making this conference on an audio call is a small example of this, but we see that there are tons of things that we can do in a different way, which means that we are not over by far on the process of rethinking and reengineering the way we work. And we believe that we can combine a better home life balance with a better efficiency; a better focus in protecting time for strategic thinking about the future of the company, about new businesses, about things that we can do differently. So there is more to come on savings. This is a never-ending story to improve the efficiency and effectiveness of the way we go to market and to do the right things in the right way. And I would like to hand over to Philippe — if you have some additional comments on cost savings.

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Philippe de Rovira, Peugeot S.A. – CFO [24]

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Well, just one. Maybe let’s observe that on the production and procurement bucket, which includes the purchasing productivity, we can observe that, at the end of June, we realized the best performance in terms of processing productivity ever, which is maybe not intuitive in a crisis context, but we should also relate that to the fact that in 2020 we started to have big volumes of Opel and PCD on the same platforms. So you’ll remember that we always say that in the PCD and OV combination, the first years, we will have big savings in R&D and CapEx. And after that, the purchasing will take over, thanks to the combinations of volumes on the same platform. It’s exactly what is happening. And there is more to come because you know that we continue to put all the OV platforms on the — OV cars on the PC platforms. On the SG&A part, well, I have already answered in my answer to José about what was in store for H2, which is of course a much reduced number compared to H1, as I previously mentioned, even if it remained positive compared to last year. So I hope it helps to give some color.

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Operator [25]

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The next question comes from the line of Horst Schneider calling from Bank of America.

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Horst Schneider, BofA Merrill Lynch, Research Division – Research Analyst [26]

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I have got 2, please. When I look at your presentation and I look at the price development, for example, at the Peugeot brand but also Citroën and I look at the same time at the market share that you had in H1. So isn’t it now time basically to push more on pricing, bring pricing back into the range you were targeting anyhow and in contrast to increased market share? And what are you seeing, how long it will take to recoup the market share that you have lost in H1 ’20? That’s question number one. Question number two that I have is on software and electric vehicles. So one of your competitors talks now more and more often about software and what needs to be done on your own and what has got to be brought by suppliers. So with this new platform, you also implement a new software strategy, or you continue to buy software mainly from suppliers.

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [27]

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Well, Horst, thank you for those questions. I think they are extremely important and I would like to take a few minutes to answer them. You see, first of all, in terms of market share, let’s recognize the numbers. The numbers are telling us that in H1 2020 the Peugeot-Citroën-DS market share combined was stable: Peugeot stable, Citroën slightly down, DS slightly up. So PCD, Peugeot-Citroën-DS, was stable. And the problem we are facing is the problem of OV, where we lost 1.3 points of market share. I think it is fair to say that this is the consequence of the brutal shift from the GM-based brand portfolio to the PSA technology-based Opel portfolio, combined with the significant challenge of CO2 improvement. If you combine the 2 factors, you have the answer to this low point, and I think that we are now on our way to improve this. I can tell you that the energy that is now spent by the Opel teams is outstanding. They are really pushing very hard, including fighting for the volume allocations when they are trying to pull more volumes out of our plants when we are in a pull mode. This is, you see, one of the good things that is connected with the pricing power of our brands. It’s that mostly we manage our operations to keep ourselves in a pull mode, which is, if you’ll remember, a few years ago, 6 years ago, we could not imagine that we could be in European markets in a pull mode. Everything was about push, push and push, which at one point in time represents a value destruction. And we are not in that mode. We manage to be always in a pull mode, which of course creates tension inside of the company to fight for the volume allocations. That may represent at one point in time some limitation, but on the other side it protects our pricing power and our per-unit profitability. If we look on a time window which is the last 7 years, we see that we have been using this money in a way that has been productive for the company with the turnaround of PSA, the acquisition of Opel Vauxhall and now the merger of FCA and PSA. So we are comfortable, perhaps too comfortable, with the current business model, which is a highly qualitative business model, but we consider that the true value creation is to improve at the same time the profit and the share. And this is clear, that we want to improve the share as much as we improve the profit, and we are always working hard to achieve that goal. So I think that OV, from 2021, will improve with the launch of the new Mokka. And from there, the product [levelization] will be there to support a regular improvement of our Opel Vauxhall sales.

Regarding the software. You see, if we look back, again let me take an example. Eventually we have heard some stakeholders saying a few years ago that the OEMs would only assemble the systems, but they will not have knowhow on those systems. And the added value would not be in the OEMS but much more on the Tier 1 suppliers, et cetera, et cetera. We have heard all of this. 25 years ago, we heard about the module engineering of the products and the fact that the models would be assembled externally. Well, 20 years later, that did not happen completely, by far. And I will say that software is the same thing. And I will tell you that, facing all of those comments, what have we done? We have completely localized and completely integrated the electrified powertrain components because we consider that being in control from a technology standpoint, from a manufacturing standpoint, from a quality standpoint and from a cost standpoint of the core of our products is, of course, a strategic matter. And you see we kept a very strong control on the electric powertrains. We are now going to engineer and manufacture most of the components of this electric powertrain. And that was not what we were hearing, both of us, a few years ago; and the reality is very different at the end of the day. The software is, I think, a similar matter. I hear people saying, well, yes, from now on, the products are software on wheels. Perhaps, perhaps not. And it is clear that we will address the software topic in the same way we have been addressing the electric powertrain components. If it is core to our business, if it is core to the customer satisfaction, we will be certainly taking care of that because we will make sure that our company continues to be a high-added-value company. And more and more, we will fight to make sure that our company remains a high-added-value company. And I can guesstimate that it will be the same thing with Stellantis, knowing how we are going to work with the Board. I think it will be the same. So I would like just to cool down a little bit on this matter. If we see that some of the softwares should be done in house, we’ll do that. We will take the necessary steps for that to happen. If we see that it is [provisional] and not related to the core of the mobility device that we want to offer our customers in a safe, clean and affordable manner, then it’s another thing we prefer to buy if it is more competitive to buy. So no dramatic thinking on this matter, just pragmatic thinking and very agile activity to face the changing environment in which we operate. This is, Horst, what I can answer to you.

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Operator [28]

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The final question comes from the line of Tom Narayan calling from RBC.

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Gautam Narayan, RBC Capital Markets, Research Division – Assistant VP [29]

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Tom Narayan, RBC. The first one is very [quick]. Can Automotive free cash flow be positive for 2020? And then I have a couple on CO2. Will the eVMP platform strategy for 2025 include FCA? And then could you maybe discuss the how PHEV versus BEV demand has been for you guys in Europe in H1? We know the public charging infrastructure in France is not as developed as some other countries’ in Western Europe, so maybe perhaps this is driving PHEV. And then lastly, Faurecia yesterday talked about hydrogen as a solution by, I think, 2030 for not only commercial trucks but even like commercial vehicles. We — obviously the HD truck is obvious for a hydrogen solution, but on the commercial — light commercial vehicle side this is one that we haven’t, I haven’t really heard that much about. Curious as to your thoughts on hydrogen as a solution longer term for light — the light commercial vehicle market.

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Carlos Tavares, Peugeot S.A. – Chairman of the Managing Board [30]

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Well, thank you, Tom. Those are 4 great questions, and I will try to answer them to conclude this session. First of all, looking at our track record over the last 7 years, you can imagine that we are going to fight for positive free cash flow in 2020. Will we succeed, or not? It is highly dependent on the conditions under which we are going to operate in the second half of 2020. As you know, we have no control of external factors like lockdowns and that kind of matter. So certainly we will fight for that. Are we going to succeed? I believe that it will be dependent on the external factors, much more than internal factors, but you know our competitive spirit. You know our track record over the last few years, so you can easily understand in which direction we are going to push. And certainly you can count on us to do as much as we can with our teams to get that done, but the risk will be on the external side of the equation, which means are we going to benefit from a reasonably stable environment or not. This is going to be the question mark, but of course, we will fight for that. The second one, you asked me if eVMP will be used by Stellantis. As a matter of respect, I don’t think I would — I should be talking about that kind of choices, first, because we are in a signing-to-closing period. Therefore, that kind of decisions cannot be made right now, of course, but it is quite clear that we believe in the competitiveness of eVMP. And at the appropriate time, we will discuss this with the other part of the family. And I believe that the competitiveness of eVMP will be quite clear to everybody, but so far, that decision is not made and cannot be made before the closing, so I would like to answer to you later on but not now on that matter.

We see on the BEV and PHEV that the mix of orders is 2/3 on BEV, 1/3 on PHEV. Both have been growing quite well. We know that we have a PHEV technology which is highly efficient. Most of our C segment SUV products are in the range of 30 grams per kilometer, which is much lower than the 95 objective that we have this year. So you see that our PHEV versions are a strong component of our CAFE improvement. You see also that our PHEV versions are delivering in all directions for the performance. It’s 300-horsepower, 4-wheel-drive, very low-CO2, very technology-oriented premium products that we are now offering on the Peugeot, Citroën, DS and Opel brands. So we are pleased with that technology, but we need to recognize that the mix within the LEV sales has been moving more on the side of BEV than on the side of PHEV. But both have been growing very strongly. And I told you that we expect the 6% LEV mix to grow strongly on H2 and continue to grow in 2021. In terms of hydrogen, I think we are not — we have not been able to communicate efficiently to the market because we are going to launch in 2021 a specific LCV mid-sized van fleet with a hydrogen technology-based on Peugeot Expert and Citroën Jumpy. And we are going to make this experiment with real customers, real B2B customers, to compare a fleet of mid-sized vans H2 hydrogen powered with the same fleet of mid-sized vans with electric, pure-electric, powertrain. So we are going to compare the electric powertrains to the hydrogen powertrains on the same mid-sized LCVs in 2021 so that we can get real-life feedback from B2B customers, and certainly from there we will move to the next step. We believe that hydrogen is a very interesting technology. We know that in terms of timing it will need some additional time, premature. We also that — know that we are going to move very soon from tanked-to-wheeled CO2 emissions towards life cycle analysis of CO2 emissions, and that may change the picture of those different technologies. So as the NGOs are going to progressively move from tanked-to-wheeled CO2 emissions to life cycle analysis, you’ll see that there will be some kind of different balance between the different technologies. And it’s not over. We have not seen everything we should be listening to. And certainly we are working on both technologies, recognizing that this — there is some time line between the 2. I will say there is at least 10 years or 15 years time line between the 2 technologies. And certainly the hydrogen technology will be probably quite appropriate for fleet management and for products that come back to a single spot every day because the investment to have an hydrogen charging units, as you know well, is quite significant. Therefore, this technology may be very appropriate for this kind of B2B fleet usage. This is what I can tell you, and hopefully, you will have the opportunity to look at those products in 2021 and make yourself an opinion about that. And this is my answer to your question.

Ladies and gentlemen, I would like to thank you very warmly for all of our questions. Your questions are always making us grow. I deeply appreciate them; and try to be as transparent as I can within the limitations of the regulations that we need to respect, as you totally understand.

Thank you. Have a great day. And thank you for your interest and support to PSA. Bye-bye.

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Operator [31]

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Thank you for joining today’s call. You may now disconnect your lines. Hosts, please stay connected.

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