Good day, and thank you for standing by. Welcome to the Forvia Q1, 2022 Sales Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Michel Favre, Group CFO. Please go ahead.
Thank you, Sandra. Good morning, ladies and gentlemen. Thank you for attending this conference call. With me today, Alicia Mosse, our new Group's Deputy CFO, Selim Ismail, our Finance and Treasury VP, and our strong IR team, Mark and Matthew. I will present today our first quarter 2022 sales figures, as well as our first Forvia guidance for the full year 2022, which means a full year for Faurecia and 11 months of consolidation of HELLA. I will also comment on recent measures taken to increase our financial flexibility in an environment that has become significantly more uncertain and volatile since we announced our full year 2021 results in February. The press release was posted this morning at 7.00 A.M., Paris time, on our website. The slideshow that I am now going to comment is also available on our website.
I will start directly with slide four, which gives an update about the environment in which we are currently operating. As already mentioned, our environment that was already disturbed by shortage of semiconductors and the impact of inflation is now facing new impacts, firstly from the consequences of the war in Ukraine that started on February 24, and from the COVID situation in China, generating plant shutdowns in some regions. Between the S&P Global forecast, the new name of IHS Markit in February, and the latest published last Wednesday, worldwide automotive production has been revised downwards by 3.3 million vehicles or -4%. These are the figures you can see on the right-hand side of the slide. Two thirds of this 3.3 million cut was in Europe, which means a 12% reduction of the European production forecast in the last two months.
This is, of course, a result of the war in Ukraine and its consequences on both production and probably on the demand. I remind you that Europe represent more than 40% of our sales. The rest of IHS Markit downward revisions relates to North America for 0.5 million vehicles and to China for only, I repeat only, 0.4 million vehicles. It seems to us that the recent situation regarding COVID in China has not been fully integrated in this latest forecast. Let me say very bluntly that visibility is limited at this stage. Of course, visibility about the duration and magnitude of the impact of the war in Ukraine, but also visibility about additional risk on activity in China according to the evolution and management of the COVID situation.
In this uncertain and low visibility, we decided at Forvia level to take a conservative assumption for worldwide automotive production. Our latest assumption for 2022 is 15 million vehicles in Europe. This is more cautious than IHS Markit at 16.5, 20 million vehicles in China. This is also more cautious than IHS Markit at 21. Worldwide, we are now assuming the automotive production of 74.2 million vehicles in 2022, which means a third year with very low volumes. On the split, 37 million in the first semester, down by something like 1% respect to last year, and as well, 37.2 million in the second half. To be compared with the as well, very low second half last year.
This is a correction and respect to our initial guidance, which was 40 million vehicles in second half. Let's move to slide five. Before starting to comment on the additional headwinds generated by this tougher environment, let me remind you what is Forvia's direct exposure to Russia and Ukraine. Our exposure to Russia is less than EUR 200 or was, sorry less EUR 250 million for Faurecia plus HELLA, around 1% of total sales. We have no direct exposure to Ukraine. If our direct exposure is limited, consequences of the current market environment have increased pressure on our operations. The first major impact is that cost inflation is further increased versus what was already expected at the beginning of the year.
Raw material prices continue to rise, and even if our pass-through contractual clauses largely protect us against this rise, the net impact will be higher than expected. Inflation on logistic costs, energy costs, and operating costs will also impact our profitability. The second major impact is related to disruption due to bottlenecks in the supply chain and COVID situation in China. Global shortage of semiconductors is not over. Other components or raw materials, such as wire harnesses, palladium, are also facing difficulties due to the war in Ukraine. Lastly, management of the COVID situation in China is already generating plant shutdowns. We have today six plants closed in China. These are very challenging conditions, significantly more challenging than the ones anticipated earlier. Let's now move to our Q1, 2022 sales performance review as from slide seven.
Our Q1, 2022 sales reached EUR 5.3 billion, up 33% on a reported basis. They included a positive currency effect of EUR 129 million, up +3.2%, an organic growth of EUR 46 million, up +1.1%, and the first contribution from HELLA for two months, February and March, as we started consolidation on February 1st, for EUR 1.1 billion, or a contribution of 28.5%. Our 1.1% organic growth relating to Faurecia standalone perimeter compares with a drop of 4.2% in worldwide automotive production during the same period, which means an outperformance of 530 basis points.
The geographic mix in Q1 was unfavorable by 500 basis points, which means that we had an outperformance of more than 1,000 basis points, including this impact, as you will see that region by region. Within the quarter, January plus February posted an average organic growth exceeding 5%, but March started to reflect the deteriorated environment, which was down 6%, which is more or less -20% in Europe, +2% in North America, and China starting to slow down at +6% versus above 20% on average for January and February. A clear change of pattern from March onwards, which is today confirmed for April. Let's start on slide eight, the review by business group. Seating, which represented 32% of Faurecia Group consolidated sales in Q1, posted sales of EUR 1.675 billion.
Organic growth was +4.5%, which means an outperformance of 870 basis points. This was driven by strong organic growth of +43.9% in China. Thanks to Chinese OEMs, new entrants, mainly BYD, and a major American electric vehicle car maker. You know that I cannot mention the name. Also, solid organic growth of +4.6% in North America, reflecting contribution from the new programs that started in H2, 2021. In Europe, sales were down 10.8%, nevertheless, strongly outperforming European automotive production of -18.3%. The drop in sales reflected the impact in March of supply chain disruptions due to the war in Ukraine.
As regards the situation for the Greenfield Program, the U.S., our Highland Park sites for the Jeep Wagoneer, the estimation of over cost in H1, 2022 is unfortunately confirmed at minus EUR -30 million. Interiors, which represented 22% of Faurecia Group consolidated sales in Q1, posted sales of slightly less than EUR 1.187 billion. Organic sales were down 4.5%, only broadly in line with automotive production. These sales drops reflected lower sales from SIS, accounting for 15% of the business group, that dropped by 9.4% year-on-year, more impacted by shortage of semiconductors and the war in Ukraine in March. You know that, as the first customer of SIS is Volkswagen Group.
Organic sales dropped off 8.5% in Europe, nevertheless, strongly outperforming the 18.3% drop in European automotive production. Let's continue on slide nine with Clean Mobility and Clarion Electronics. Clean Mobility, which represented 21% of Faurecia Group consolidated sales in Q1, posted sales of EUR 1,093 million. Organic sales were up 1.6%, which means an outperformance of 560 basis points. This was driven by strong organic growth of +7.4% in North America, supported by sales to Stellantis and Ford. Resilient organic growth in Europe brought this to a strong outperformance versus European automotive production, mainly reflecting sales for commercial vehicles. Clarion Electronics, which represented 4% of group consolidated sales in Q1, posted sales of EUR 223 million.
Organic sales were up 7.4%, an outperformance over 1,000 basis points. This was driven by strong organic growth of +20.8% in China, as the impact on activity in Q1 from COVID variant and semiconductor shortage was limited. A strong organic growth of +33.8% in North America, whose main contributor was the Renault-Nissan Group. On top of Faurecia's four business groups that I have just commented, HELLA contributed to our Q1 sales for EUR 1.1 billion, representing the first two months of consolidation since HELLA has been consolidated in our accounts since February 1st. As HELLA is a listed company with its own public communication and a different fiscal year from that of Faurecia, I cannot comment in more detail about this contribution to sales.
All along 2022, we will report the quarterly sales contributions from HELLA as scope effect as a combined figure for all HELLA activities and geographies. In the appendix, we have nevertheless given an indication of quarterly 2021 sales for Faurecia pro forma. Let's now start on slide 10, the review by regions. All the comments about regions are related to Faurecia standalone perimeters and do not include sales contributions from HELLA. Europe, which represented 40% of group consolidated sales in Q1, posted sales of EUR 1,765 million. Organic sales dropped by 8.7%, a stronger outperformance of 960 basis points compared to the European automotive production that dropped by 18.3% during the quarter.
Of course, the 8.7% drop in the quarter reflected a 20% drop in organic sales in March after the start of the war in Ukraine. All business group posted an outperformance of at least 750 basis points in the region. It is worth mentioning that commercial vehicles and sales to Ford, mainly for Interiors, posted organic growth in the quarter. North America, which represented one quarter of group consolidated sales in Q1, posted sales of EUR 1.089 billion. Organic sales were up 6.4%, an outperformance of 820 basis points compared to the North American automotive production that dropped by 1.8% during the quarter. All business group posted stronger performance of at least 600 basis points in the region.
Growth included the positive effect from the contribution of the new seating programs that started in the second half of 2021, a strong increase in sales with a major American electric vehicle car maker and Renault-Nissan Group. Let's continue on slide 11 with Asia and the rest of the world. Asia, which represented as well close to one quarter of group consolidated sales in Q1, posted sales of EUR 1.14 billion. Organic sales were up 14.6%, which means an outperformance of over 1,000 basis points compared to the Asian automotive production that grew by only 1.1% during the quarter. More specifically, our sales in China grew by 18%, while the Chinese automotive production grew by only 8.9%.
This growth in China reflected strong sales in seating with a Chinese OEM, mainly with BYD and again a major American EV maker. Sales in China continued to grow in March, but at a lower pace of +6% compared to the growth in the first two months of the year as a consequence of the first impact of COVID-19. Rest of the world, including mainly South America and South Africa, represented 4% of group consolidated sales in Q1 and EUR 186 million. In South America, organic sales were up 12.9%, a very strong outperformance of over 3,000 basis points. This growth was mainly driven by sales to Stellantis Group. Now, we have reviewed our Q1 sales.
Let me focus with slide 13 on the measures that we have taken in order to increase the group financial flexibility to get through the current market uncertainties. On January 31st, 2022, we closed the strategic and transformative acquisition of HELLA, creating the seventh-largest automotive supplier in the world. We now own 81.5% of HELLA, for which we have paid a total of EUR 5.4 billion. EUR 4.5 billion was paid in shares through the capital increase reserve to the family pool, now holding circa 9% of Faurecia share capital. EUR 4.9 billion was paid in cash to other HELLA shareholders into the Family pool for the part not paid in Faurecia shares, thereby de facto increasing our financial debts and leverage.
Unexpectedly, late February, the war in Ukraine started and generated significant uncertainty on market conditions, mainly for the European automotive industry. At this stage, visibility on the duration and magnitude of this war impact is low, both in terms of volumes and cost inflation. On top of this, the pandemic in China represent an additional risk on volumes, as already commented. In order to de-risk our balance sheet in this temporary and unexpected situation, we have taken two major decisions that will increase our financial flexibility to get through the current crisis. Firstly, with Selim, we have proactively renegotiated our debt covenant with banks. No doubt about the relevance of our strategy nor our commitment to deleverage the group post-acquisition of HELLA, and our banks prove fully supportive to our request.
They agree the debt covenant will not be tested at end of June and will be of three point seventy five at end of the year instead of three, before returning to the level of three from June 30th, 2023 onwards. This new temporary covenant limit at three point seventy five has been tailored to offer the maximum headroom even in the worst case, that means a very uncertain environment. When you speak about covenants, we have always to anticipate worst case, and please take it as a worst case. Secondly, we have decided to increase our asset divestments program from a target of EUR 500 million of proceeds to be closed by end of 2023 to a target of EUR 1 billion, and I think we can go furthermore.
This was a result of our strategic review of both Faurecia's and HELLA's assets. On top of this decision, and consistent with the covenant renegotiation for 2022, and the cash generation, the board of directors also decided at this meeting held yesterday to propose at the next shareholder meeting to exceptionally suspend dividend payment in 2022 to further contribute to the increase in financial flexibility. All these measures will give us the necessary financial flexibility to navigate the uncertain 2022 environment. I will add one thing that we have time, as you know, the bridge to equity we have until February 2023. For the bridge to the bonds and other financings, we have until August 2023.
Next slide 14, comments on our next step of refinancing the acquisition of HELLA. First let me remind that we have already secured EUR 1.9 billion of financing late 2021 through a EUR 1.2 billion issuance of sustainability-linked notes due 2027, and EUR 700 million of ESG-linked Schuldschein loans with maturity up to six years. Secondly, at the closing, EUR 500 million was paid through the capital increase reserve to the family pool, and EUR 600 million through available cash. In fact, we anticipated the financing in the first half 2021. We have until mid-February, as I said, for the refinancing of the bridge to equity, and until mid-August for the refinancing of the bridge to bond.
With this time flexibility on the two bridges and our increased financial flexibility for the measures commented on the previous slide, we have the right comfort to wait for adequate market conditions in order to launch the next step of the refinancing process of the acquisition of HELLA at the best conditions. For evident reasons, in whatever the environment, I strongly reaffirm the strong strategic rationale and value creation potential of the combination of Faurecia and HELLA. You know that I will personally contribute to this achievement. We will generate strong cost synergies of at least EUR 250 million. We'll optimize our asset portfolio and divest at least EUR 1 billion by the end of 2023. We will have significant opportunities to optimize cash generation.
I also strongly confirm our commitment to deleverage as quick as possible the group after this sizable acquisition. Let me now on slide 16 unveil our guidance for the full year 2022 as a new combined group Forvia perimeter, which means Faurecia and 11 months of consolidation of HELLA. This guidance, as indicated at the beginning of this call, is based on an updated, and I will say cautious assumption for worldwide automotive production in 2022 of 74.2 million light vehicles. This compares to our previous assumption of 78.7 million in February 2022, before the start of the difficulties, and S&P Global Mobility latest forecast of 77.3 million light vehicles.
The gap of around 3 million vehicles between our assumption and S&P Global Mobility latest forecast is mainly related to Europe, for 1.4 million light vehicles. We are now at 15.1 million. In China, for 1.2 million light vehicles, we are now at 20.1 million vehicles assumption. Based on this updated assumption of 74.2 million vehicles produced in 2022, our full year 2022 guidance for Faurecia is sales of between EUR 23 billion and EUR 24 billion. This figure, it is important, includes EUR 1.5 billion from the combined effect of Forex, more or less 3%, and raw material passthrough. This impact of raw material passthrough, of course, is very sizable.
It is as well demonstrating our capacity to pass through more than 80% of the price increase on plastic, steels, semiconductors. An operating margin of between 4% and 5% of sales. Net cash flow, unfortunately, only at breakeven. This guidance reflects mainly low volumes for the third year in a row, and very low volume. We are something like -20% with respect to a normal year. Unfavorable geographic mix due to China's impact. Please take into consideration that we are very cautious on both Europe and China. They are two major markets for us. Increasing cost inflation, even if a significant part of raw material inflation is contractually passed through to customers. This pass-through, nevertheless, generated a dilutive impact on the margin. I will conclude with slide 18 to summarize this call.
Our sales in Q1 were strong, including the first two months of consolidation of Faurecia for a total exceeding EUR 5 billion. We continue to significantly outperform the automotive production. We have even an acceleration of this outperformance. On top of this persistent shortage of semiconductors, we are now facing an environment that has become more uncertain because of the start of the war in Ukraine and the COVID new restriction in China's areas. This led to a new downward revision of expectations for worldwide automotive production in 2022. Due to the low visibility of market conditions, we have increased our financial flexibility and ensured that we have enough headroom to achieve the next step of refinancing the acquisition of Faurecia in the best conditions.
We are more than even convinced that once we have got through the crisis, our potential for profitable growth and value creation offer huge opportunities for all stakeholders. I can tell you that the drop through will happen. Please save the date for our capital market days early November with the visibility that will probably be higher at that time. We'll be able not only to present you our strategic goals for Faurecia business by business and our group medium term objectives for 2025. Thank you very much for your attention. The floor is now yours. Sandra, please, we can go to the Q&A section.
Thank you. As a reminder, we will now begin the question and answer session. If you wish to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound or hash key. Please stand by while we compile a Q&A queue. We've got the first question. It comes from the line of Giulio Pescatore from BNP. Please go ahead.
Hello. Good morning, everybody. Thank you for taking my question. The first one on the free cash flow, can you help us maybe understand the sensitivity of the free cash flow to different levels of growth? I know your market assumption is very conservative, so I think it's important for us to get a sense of the movement in working capital to perhaps a more positive market scenario. Maybe a follow-up on that, what about the free cash flow synergies? You previously said that you were targeting EUR 200 million of free cash flow synergies per annum. Is that number included already in this year, or that's something you think you can realize more starting from 2023? Then a second point, sorry, on the Clean Mobility sale.
You mentioned in the past that you would consider potentially opening up the capital of this business to a third party. I was wondering if you had received any interest from potential buyers. Is this still an option that you would consider potentially? Thank you.
Thank you, Giulio, and good morning. Of course, as the free cash flow is highest restriction in this guidance, it was a frustration for us to put this figure. When the sensitivity first is the EBITDA. You can make the figures mechanically, and you will see that the main difference is EBITDA. One key difficulty is the working capital with inventories. We are in a stop-and-go. We have a high level of inventories end of March again. We have to reduce or to come back to more normal level, globally for the group by something like EUR 400 million, by the end of the year. It is a clear target and I will say challenge. Anyway, inventories are increasing due to the raw material price increase.
It's mechanical, you understand why. We have to offset that CapEx. We have here one dilemma. It is a third year in a row that we're in a crisis. We have an unbelievable order book. We speak, when we speak of, between Faurecia and HELLA, we are speaking of more than EUR 80, probably EUR 90 billion . We have a big order intake last year for both companies. I can tell you that the first quarter with something like EUR 8 billion, more than EUR 8 billion is continuing. Whatever the fact that we are very strict on the pass-through. The topic is that we cannot jeopardize the growth. We cannot because this will be, we have a big cost.
We try to reduce the CapEx, but for the moment, the magnitude of reduction is not the one I would like for the whole group. We're speaking of something like only EUR 100 million in this guidance. It is one thing that we have to continue to work in order to get better achievements that is zero. Synergies, we have for the moment put very small figure in the guidance. It is our reserve. I think we will do better. My conviction is that we'll do better. I will work on that, I can tell you. It is my comment for the moment on cash flow. As I said, in the first pitch, of course, drop through will be above 20%.
If volumes are, and I think probably volumes will be better than 74%, it will be accretive. Of course, it will be accretive for the cash. Second thing, Clean Mobility. Now, Clean Mobility, we don't want to put that in a, we say, in the stock exchange. This is not a topic on the table. It is not a part of the divestment plan. I have always mentioned that, we have some different things as JVs, some activities, that we're putting on sale, but for the whole business, Clean Mobility, no way.
Okay. Thank you.
Thank you. Next question comes from the line of Tom Narayan from RBC. Please go ahead.
Hi. Yes, Tom Narayan, RBC. Hi, Michel.
Good morning.
Good morning. First, I know you gave this earlier in the prepared comments, so I'm sorry. Can you give us the net debt that you have on the balance sheet at the close of Q1, or at least just once again, maybe review what the net debt impact was from the HELLA deal? Just want to make sure I got that right. Then the next one is just understanding the dividend payment elimination for 2022. Curious how should we think about this? You know, to what extent was this kind of potentially in the plan to begin with? I know obviously things have changed, the free cash flow guidance, you know, and the production forecast. Just curious how we should interpret the dividend elimination. Thanks.
Okay. I mentioned that it was for the contribution of HELLA to the net debt, EUR 4.9 billion, because you have EUR 500 million of capital increase reserved to the family. This is the first step. What's the second question? Sorry.
The dividend suspension.
The dividend suspension. Firstly, we are in a period where we have high level of debt. You mentioned that. Second, we have always paid dividend with the cash. You remind us that our guidance was always 40% of the cash flow was dedicated to dividends. With my guidance at zero, and I accept to be challenged on this guidance, it's difficult to pay dividends. We have no reason to increase our debts for that. On the opposite, our goal is to decrease the debts through divestments. The topics will be this year, we will have very probably a lot of announcement, even everything for the EUR 1 billion. On the other hand, as the closing could happen after end of December, or partially or totally.
It is why that respecting our commitments, we will, I will say, focus on deleveraging and to pay dividends in the current condition should have been considered, as I will say, erratic. Is what I can say. We go back to the normal discipline, and it is our mindset that we pay dividends only if we have cash flow.
Sorry, just a quick follow-up. On the divestments, you know, similar question to the prior one. How should we think about that? Do you think about that in terms of, you are always targeting over EUR 1 billion, but initially, let's start with EUR 500 million o r is it one of, you know, we need the liquidity for the balance sheet shoring up, so let's look at divestments? I mean, how should we interpret increasing the divestment amount? Thanks.
We are building a very powerful group. We need to focus on the key business group. All activities which are below EUR 1 billion are under scrutiny. What I can tell you is that, of course, with respect to the fantastic potential of the portfolio in electronics. Electronics, for instance, is more than 23% of our order intake in the first quarter. I repeat, 23%. Of course, we have to focus on that. We have to give our financial means on the promising activity, and we have to divest what is normal or less strategic or more tactical. It is our mindset. It is why it is a fantastic opportunity to serve the activities and to sell the less strategic activities for Faurecia. It is really the mindset and we have to do it.
It is why I have no problem today to say that we want to do at least EUR 1 billion of divestments. This will be, I will say, very positive for the new group portfolio.
Okay. Thank you.
Thank you. Next question comes from the line of Thomas Besson from Kepler Cheuvreux. Please go ahead.
Hi, Thomas.
Hello, Michel. Thank you very much for taking my questions. Can you maybe help us understand whether the guidance is now for you an absolute floor or whether you think things could get worse? I mean, I understood you said that product and maybe demand could be affected by now, but do you agree with me that we are unlikely to see a 5% decline in global production for the year and therefore with your 1% assumption and probably a quite cautious guidance for drop through raw mats, we are at an absolute floor?
Thomas, it's a hard question. Because as usual you will say, but what is the probability that will happen? I will take like this. I think that the probability today that we will be at the 74% is lower or much lower 50%. I don't know if it is 20%/ 25% , whatever b ut of course, we have no clue. We are still expecting that potentially there will be, I will say, a pause in the Ukraine war. I think China is improving. Shanghai could well not next week, but could in two weeks time be open b ut I don't know, to be honest. I feel I am like you. I think that we are conservative. We have used the word cautious for the volumes.
I think we are conservative today.
Yeah. Yeah, I understand. We have limited visibility. I just wanted to make sure that fundamentally it should be seen on the floor.
Fundamentally when you make this guidance i n a period, we need to make a guidance. I think it was expected. You cannot go to the market with an aggressive guidance. We are forced to be conservative in the current pattern. Sorry to say that.
No, no, it's perfectly fair. When you look at your revenue guidance and what you said about currencies and raw materials, could you just help us understand how much these higher revenues because of that effectively dilute your margin guidance?
It's a very good question. Thank you for that, Thomas. Inflation, and we have higher impact in inflation in HELLA's than in Faurecia, due to the breakdown of business. Still, we have a very high pass-through, as you know, very, very high. Still with inflation, I will say, the sales of Clean Mobility by more than 5%. So very big impact. Plastics, we have a good pass-through. Semiconductors still to be, I will say, totally achieved, but probably we'll have 80% as well. So this is playing differently. All together, we are measuring that inflation impact negative, so what we cannot pass through, as a material more or less 18%, 17%/ 18%.
What we have as really very difficult to pass through like transport and energy is around 100 basis points. On top of that, we have the fact that we increase the top line by more than 3% without any profit. This is a dilution of 20-30 basis points. All together, inflation for us is a cost on margin of 120-130 basis points. To be fine-tuned, we'll come back on that with you in July on the final figures, but it is a major impact.
Understood. Last question, please. I would just like to understand the sequence to make sure I understand it correctly. We are going to see lots of news on disposals. Disposals first, probably first half results before or after disposals, and then eventually at one point in H2 or early next year, we see you issue debt and equity. Is that a fair assessment?
I have no fair assessment on that, because I will never say to the market when or if we need equity. Now, of course, you remember your questions in November. Tom, I think it was you. You say 81% only, that means we don't need equity.
Yes.
Which is factually true. I repeat, I said, "No, we need equity because we want to be strong. We want to restore agility for the group, and we think that we'll have other opportunities." Factually, I don't need equity. I can survive without equity, but we want to do something because we want to be back. Sorry to say that. I will not say we don't need EUR 800 million. That's obvious. We need more, less, sorry. We need less, and much less. We will have the divestments, if necessary, and to offset. I will, if you don't mind, keep the freedom to do the equity when it will be the right time to do it and when the conditions will be, I will say, acceptable.
Thank you very much.
In the meantime, we continue to reduce. We have the European Investment Bank and divestments, where we have EUR 300 million normally, that will be contractualized early next year, next month. We have some other opportunities, so we will reduce progressively. I will say the bridge, and on top of that, we'll have the divestments. I consider today that the refinancing of the bridge is not a problem.
Yeah. Thank you very much.
Thank you.
Thank you. Next question comes from the line of Michael Jacks from Bank of America. Please go ahead.
Good morning.
Good morning, Michel. Good morning, everybody. Thanks for taking my questions. The first one is just with regards to the balance sheet. Under your current scenario, what level do you expect net debt to EBITDA to reach at the end of the first half? I know you're not needing to test it anymore. And then again at year-end, relative to the new covenant level of 3.75 x. My second question is just on the guidance. Are you able to elaborate a little bit more on the underlying assumptions that you used for Hella? Thank you.
Sorry for the second part, can you clarify a little? I am not with you.
Yeah. Are you able to elaborate a little bit more in terms of the underlying assumptions from a margin perspective, that you brought in for HELLA? Also, in terms of the cost inflation, it sounds like HELLA's having a slightly disproportionate impact on cost inflation. Are you able to split that out, perhaps?
Yeah. No, I cannot for HELLA because I have not disclosed. Sorry for that. I am restricted. It will be much, as you know, less que in the future. The only thing I can tell you is that, due to the breakdown of activities, inflation is a higher impact due to the semiconductors, because semiconductors pass-through are not contractual. I think HELLA will make his update on that. Going back to your first assumption, for the first half, it will depend on the month of May. It's complicated because we have some factoring impact, we have some 30 days payment. The level of sales of May will be key.
What I will tell you is that today our expectation is that we will be above 3x, or slightly above 3x net debt on EBITDA, but it's too early to comment more.
Okay, that's clear. Maybe just a quick follow-up. When is the reporting period change of HELLA likely to become effective?
Hello. This week, on Friday, there will be the shareholder meeting. This shareholder meeting should approve the change of dates. That means that HELLA will have a seven months exercise from 1st of June to end of December. From 1st of January 2023 will be fully aligned. Which will be, I will say, a fantastic breakthrough for both companies, because if we don't do that should mean for HELLA that they will make different closing end of May, end of June, end of November, end of December, which will be fantastic for the team. I can tell you that the financial teams of HELLA is a fantastic contributor to the integration. I am very proud to join HELLA with these teams.
Very clear. Thank you, Michel.
For Hella, that means we will try to give the figures at the, I will say, on the same perimeter as Faurecia. It will be much easier next year. Sorry to say that, will be mainly a scope impact, but we'll be more and more talkative in the period.
Thank you.
Thank you. Next question comes from the line of Sascha Gommel from Jefferies. Please go ahead.
Good morning. Thanks for taking my questions. The first one would also be on the guidance. I was hoping if you can give some indication of what the Faurecia guidance would have been ex-HELLA, compared to the initial guidance you gave, in February.
Sasha, good morning. It's complicated because I cannot give the guidance of HELLA. If I give you the guidance for Faurecia, I will be in a trick, huh? I will say more or less equal. More or less.
Okay. I see.
What you can take as an assumption, which is important for the understanding, is that we have 13%, something like that, drop of volumes due to a worse geographical mix. This 13% with the mix is something like 200 basis points. We have more than 100 basis points coming from the inflation, which is a trick, yeah, as well. How to avoid that, I hope that from 2024 onwards should normally raw material come back, at least partially, and this will be probably an upside. We have some small issues like of course Highland Park. I mentioned EUR 30 million, and we have our treasury prudence also. It is to give you how we have tailored the guidance.
Okay. Very clear. Then my second question would be on your stake in HELLA. I think you increased it from the end of January because you own 80.6%, now you own 81.5%. Are you still planning to continue to buy shares or are you now at a level where you stop? C an you comment on it in any capacity?
Hello. We were buying marginally some shares until end of February. We have one small order in the market. In fact, it was executed until the declaration of the war of Russia, and I stopped just after this, I will say, order. Since end of February, no acquisition of titles for HELLA.
Okay. Very clear. Thank you very much, Michel.
Discipline.
Yeah.
We are disciplined, and we try to be consistent, and I can tell you we are focused on how to flexibilize, variabilize, and of course, when volumes will go back, how to deliver the drop through.
Appreciate it. Thank you.
Thank you, Sascha.
Thank you. Next question comes from the line of Christoph Laskawi from Deutsche Bank. Please go ahead.
Christoph.
Good morning. Hey, Michel. Thank you for taking my questions as well. The first one will be on Q1 and the outperformance, which has been pretty solid despite the negative geo mix. Did you see some inventory build at the OEMs, and do you see a risk for Q2 that this might reverse, when the situation normalizes a bit? Following on to that, the EUR 1.5 billion that you factored in the top line guidance for the full year, you just elaborated on the FX and essentially pricing components. Could you comment on how much pricing you realized in Q1 already, or is this really more, starting end of Q2 and for the second half?
When we take that with a look at the margin guide that you provided in the beginning of the year, essentially saying that H1 will be far below H2, I guess this is still standing or should we expect in the consolidated entity a bit more levelled out margin over the semester?
Thank you for the questions because you have a lot of questions, but very good questions. Q1 outperformance is very strong. You have understood that we are at 10%, region by region. Here, very big impact of raw material and probably 3% . I don't have the figures, region by region, but we are speaking 3%-4% is coming from the raw material. This will continue, of course. Geographic mix could be negative. We'll see. OEM inventories probably, yes, with some incomplete cars. You have understood that. They will try to make some inventories. On the other hand, we are still in unbelievable times for delivering the cars. I have one personal experience. I bought early December a car for my son.
The car is not yet confirmed for end of February, end of May. Sorry, end of May. Early December, end of May. In the current period, something doesn't work. Sorry to say that. We have on the one side some inventories on cars, on the other side, some unbelievable timing to deliver the cars. Difficult to comment and to understand what is, I will say, probably the fact that they have to clean this, I will say delivery time, and what is the actual and potential impact of the demand. Third, for the balance, we have the same volumes. We have a growing outperformance. This is visible in our assumption. Of course, normally H2 will be above H1 for the sales due to this gain of market share.
As I mentioned with the order book, it will continue the next year. We have this contribution of additional market shares. There is a small improvement of, we say, the margin, but less than before. Definitely less than before. We are much more balanced between H1 and H2 in our assumptions.
Very clear. Thank you. Just one follow-up on the top line guide and outperformance. In the end, if you take your pro forma numbers that you gave in the presentation, and you add the EUR 1.5 billion, you already get to the midpoint a nd there's no underlying outperformance and production growth affected. As you said, we should just take it also the top line guide as you being cautious in very uncertain times.
You can take 3% for the Forex. 3% are for the raw material. We have a negative geographic mix in our new assumptions. [In ] Europe, probably 300 basis points negative to be confirmed by Mark. On this, we have 500 basis points confirmed for Faurecia. I think Hella should be a minimum of this figure, thanks to electronics.
Excellent. Thank you.
Thank you. Next question comes from the line of Gabriel Adler from Citi. Please go ahead.
Hi. Thank you for taking my questions.
Good morning.
Morning, Michel. My first is coming back to the equity raise. I just want to understand. Are there any circumstances where you would consider cancelling the raise? Because you tell us that you don't need to buy out the minority shareholders to control the cash flows of Hella, and you've announced today you've managed to renegotiate debt covenants. Could you just elaborate on why you remain committed to the raise when this is resulting in an overhang for your share price that ultimately makes raising capital more challenging? Then my second question is just on midterm trading. I'd love to hear a little bit more color on China, given your comments that things are getting better there.
Can you elaborate on the feedback you're having from the sales team and teams in China, and whether your expectations for the group for Q2 versus Q1 are for a stronger quarter in Q2? Thank you.
Rights issue, difficult to comment more. In principle, we don't need, but we want to do something because we want to recover agility. If you don't mind, I will stay on this assumption. We see what the group will decide and what my successor will do on that. Second, I will say on China, it's complicated today for the teams. They are, I will say, stuck at home because there are many in Shanghai. They have different information. A lot of plants continue to run, but with lower volumes. You have a big contrasting situation between Changchun, Shenzhen, I will say Shanghai, Wuhan.
As I mentioned, automotive is strategic, so some plants continue to work with people stuck in the plant. Visibility is still limited. China is pragmatic, but with the Omicron, zero- COVID policy seems, at least for us, in our understanding, complicated. I don't think that they will enter into a three years lockdown. Probably they will continue to have some cities exiting from lockdowns and some other cities entering. We are today anticipating a second quarter with an impact of something like minus 20 percent in percent in volumes for China, minimum. We have anticipated the same kind of figure, - 15%/ - 20% percent for the second half.
Okay, thank you.
Respect to previous expectations, of course.
Thank you. Next question comes from the line of Jose Asumendi from JP Morgan. Please go ahead.
Thank you very much. Good morning. Just three questions, please. Can you comment on the growth on outperformance within electronics? What is driving this, the outperformance? Second, can you comment on the availability of semiconductors overall for the auto industry in the second half? What are your assumptions there? Three, can you help us understand a little bit your raw material guidance for the year? Does it include the very high volatility we have seen in the past three months? How conservative is your raw material guidance for the year? As I think the rest of your assumptions are very, very conservative for 2022. Thank you.
I don't know if we are conservative, Jose. We have taken $100 per barrel. If nothing's taken with $110. Sorry. With $110. At least he is correcting me. Still, we know today we have an additional, as I said, burden in North America, but we'll pass through it. Europe is more stabilized. For semiconductors, the yearly negotiations have been done. So we say the new prices from Faurecia was first of January. For HELLA it was first of April. So this is done as well. So I think we have a good visibility on this impact.
Same thing for energy because fortunately we have contracts, so we are amortizing the increase. You were asking for volumes. Sorry. Raw material availability of semis. 37 million cars, I have no doubts that we will have the semis. What I can tell you is that in some cases, we have seen that some car makers are today stocking semis. I will not mention which one, but some are stocking currently some semis, and we help them to store some semis, to be blunt. We have some different situation between customers on that.
At 37 million cars, no doubt, we are convinced that the market will be able for the semis to do up to 42 million cars, of course, to be confirmed with the potential closure in China. I think with this kind of volumes, semis is no more the top one in the reflection.
Thank you.
Thank you. Next question comes from the line of Pierre-Yves Quémener from Stifel. Please go ahead.
Yes. Good morning, everyone. Pierre-Yves Quémener, Stifel. Just one left for me, very quick. Do you have or do you expect any significant impact on your PnL for 2022 and 2023 from the current rise in interest rates?
No. Difficult today to because you know that it is a potential, but of course, we are cautious on that. Anyway, this will not stop us to make the financing. We know that with the current situation, interest rates should will increase by at least 100 basis points, even more, so it is a part of our assumption. We have the chance, thanks to Selim, to be partially hedged. We are, I think, in a good condition on that.
Thanks, Michel. That was very clear.
Other question?
Thank you. There's no more questions at this time. I would like to hand back over to Michel Favre.
Thank you for your attendance. I think you have understood that we have rebased our assumption, I hope, I think, on a very cautious, I will say, volume assumptions. The next appointment for this year for Forvia will be the shareholder meeting of the 1st of June, which will be physical. Please don't hesitate to attend. It will be as well the opportunity to make a new point on the market conditions. I thank you in advance to attend the shareholder meeting. Thank you. Have a good day, and see you soon.
That does conclude our conference for today. Thank you for participating. You may all disconnect.