Good morning. This is the conference operator. Welcome, and thank you for joining the Forvia Third Quarter 2022 Sales Conference Call and Webcast. As a reminder, all participants on listen-only mode. After the presentation, there will be an opportunity to ask questions by pressing star and one at any time. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Olivier Durand, Group Chief Financial Officer. Please go ahead, sir.
Yeah, thank you. Good morning, everyone. I'm with Nolwenn Delaunay and Marc Mayer, respectively Deputy CFO and responsible for investor relations for this call. Welcome everyone. This morning we will present, in fact, the updates on Q3, not only on the revenues but also on key events in the period, in particular on deleveraging, the management of the current context, and in particular the energy crisis and the development of our order book. If I go to page 3, on the main events on the commercial side, we have a strong order intake, year to date of EUR 24.5 billion. I want to highlight two things about this. Number one, we are selective. We have beefed up our criteria of selectivity, in particular on the cash aspect.
This is in order to foster our cash generation and also to be in a stronger position in our inflation negotiations. However, the demand is clearly there on the different aspect of our portfolio, and it's interesting to see the quality of the order intake of Q3. We got a major deal with Daimler on the complete seats for EUR 1 billion. We got additional wins in hydrogen and in particular with a long-haul truck leader for mass production of hydrogen storage systems. The accumulated order since the beginning of the year on hydrogen is more than EUR 800 million now, which is confirming our impact in this activity.
The third one that I would like to highlight is that Hella has won around EUR 1 billion of awards in the past quarters with eight different electric vehicle models with German premium manufacturers on digital c-shields. Let me explain what it is. In fact, when you have an electric car, you are now in fact having more flexibility in the front of the car because you don't need a radiator and you don't need the exit of the air in the front of the car. This front, you can use it differently.
With lighting possibilities of LEDs and the innovation of HELLA Lighting, we are proposing solutions to use this one in a flashing and lighting perspective, and also a protection in fact of the sensors and the radar equipment that can be in the front. It's helping in fact the car in terms of design and in terms also of utilization, autonomous driving and other applications. We are clearly a winner in this field. The second thing I would like to mention is the other development of our hydrogen activities in Q3. We have been selected in a significant manner in the context of the IPCEI financing at European level on the hydrogen activity.
We have been allocated EUR 213 million on our tank activity, which we own 100%. We can say also that Symbio, which is our 50/50 joint venture with Michelin, has been granted significant level of financing support from this IPCEI for their own activity. Clearly it allow the development of this activity in a financial improved manner and development of the hydrogen solution for Europe development. The Hella which has still a difference in timing has announced its results for their Q1, i.e. June to August. Two things to mention is the improvement of profitability expected over time and which is in line with in fact our expectation.
The second point is that there will be alignment of the closing calendar with Hella at the end of the year. There will be a short fiscal year of seven months ending December 31st. Next year will be the same calendar, the same quarters, for HELLA and for Forvia as a whole, which will help on the readability of our activity, which is a good thing. Last, an additional confirmation of that we are in a good direction on our ESG practices with the inclusion of Faurecia in the CAC 40 ESG index. On the more financial sides of activities in Q3, a zoom on our deleveraging activities. 1. As announced, we have the sale of HBPO shareholding to Plastic Omnium.
The antitrust proceedings are proceeding well. There are four clearances to get that have been received already, including this week, the one from the European Union. We are on track for a closure expected end of this year. The second thing to mention is that we have different files ongoing. They are progressing quite well, so we expect at least another deal to be announced by the end of the year and possibly several. On the financing side, in complement to the HBPO sale, we achieved EUR half a billion of new financing in Q3, meaning that the remaining refinancing of the acquisition of Hella has been divided by two in Q3 from EUR 1.7 billion remaining in July to less than EUR 900 million currently.
We have other financing that we are looking at to complement this refinancing as soon as possible. Now I will go back to the Q3 sales activity and try to lay out the different elements, both by regions and by business groups. Number one, EUR 6.6 billion, up 92% on a reported basis, clearly, very strong growth. If you look at constant scope, i.e. excluding the consolidation of HELLA, which is representing 54% of this growth, and excluding currencies, you have a 31% growth year-on-year, at constant scope and currencies. This is representing an outperformance of 490 basis points, excluding the current unfavorable geographical mix. As you know, we are heavily present in Europe, and Europe was the one growing the least.
I think what is important, even more than our performance, is the overall growth of the market. The market has increased by 29.5% in Q3 from a low base of last year. This is reflecting not only the recovery of China from lockdown of Q2, but a solid activity in the region. We still have lockdown in some places of the country. The fact that it's growing so much in this remaining constraint environment is a good sign. The second is that even though there are still semiconductor shortages and stop and goes, they are less prevalent than before.
This, the environment of the production, and I think it's true not only for us, but also for our competitors, and our customers, is in fact getting a little bit less constraints from a production standpoint, which is a good thing. As we expect this to remain the case for the rest of the year. You will see that reflected in our upgrade of the guidance. If I move to business groups, start Seating on page 6. Seating represents 30% of our revenues. Strong outperformance in revenues by 1,140 basis points on the back of a strong increase in China.
As you know, we have a very strong historical base, but we have extended this with Chinese OEMs and notably with BYD, which is one of the strong developer of business in China and a winner in the electric vehicle landscape. We are with them in a significant manner. We are also with American electric vehicle car maker in the region. Very positive development from a revenue standpoint in seating. Interiors, we are in fact at an organic growth of 27.7%, slightly below the growth of the market.
This is reflecting in fact the regional mix first of all because by regions we have been quite good and some unfavorable customer mix in Asia in which we grew by 20% only. Moving on in page 7 on Clean Mobility. Clean Mobility represents % of our revenues for both commercial vehicles hydrogen and our ULE solutions for passenger vehicles. The revenues have increased by 22%. This is below the automotive production growth. This is reflecting the development of electric vehicles. I would like to highlight that year to date we have grown organically by 18% compared 9% on the production. A solid performance and very important for us given the cash contribution of our cash cow.
Clarion Electronics, representing only 4% of the total business of the company. This, the performance, is 24% organic growth year-on-year. This is below the market for one reason, which is that in China, the main plant has been affected by lockdowns, measures, of the government related to COVID, in the province of Changsha, in which we are operating. The factory has not been able to operate during several weeks. It's more an external factor than really a level of activity. The order book is solid in Clarion Electronics. Page 8, to reflect the HELLA contribution. One message before we will present from now on the new segment reporting for the Forvia organization. We will highlight, in fact, lighting, electronics and life cycle solution.
Hella has started this in their quarterly publication that was presented a month ago on the revenues. We are doing the same here, and we will do this in full at the end of the year. You see that electronics, in fact, is actually higher than lighting in terms of activity on the back of high demand for energy management solutions and the different component business and body electronics that this business group has. If I move on to a more regional look at our revenues of Q3. All the revenues here are reflecting the total Forvia activity in the region with scope effect reflecting, of course, the Hella consolidation. Europe, strong outperformance of 820 basis points.
This is the case, in fact, on all the major business group, Clarion Electronics being small in the total. Seating, Interiors, Clean Mobility have been slightly below the 30% and above, in fact, the growth of the market, which was 20.3%. North America outperformance of 220 points in the region. This is mainly Seating, Interiors, Clean Mobility, a bit lower on the reasons I mentioned before. Even though we are not talking about profitability strictly on Q3, just to highlight that Island Park evolution, i.e., our Michigan seat business that we have highlighted as being a problematic, is progressing well in on the operational side. We are in a very good direction.
We confirm the trajectory presented in the summer. Moving on to Asia in page 10. Strong market growth, 33.6%. And strong activity on our side. We have an outperformance of 200 basis points on top of the evolution of the production in the overall Asia. Which means that clearly China, which is the main contributor for us in the region, as you know, is performing extremely well. We grew organically by 38.4% in China, and with Seating, BYD being a key contributor. The rest of the world, I will not comment too much. This is related to our activity in South America and South Africa.
Just to say that we are, in fact, quite careful about our activity in South America, and South Africa is a good profit pool. Now moving on to the other topic, a bit more details in page 12 on our disposal program. As a reminder, HBPO sale of a 33% stake represents 30% of the program. As mentioned before, we are on track on the antitrust. The second point is that we anticipate that we will have at least one other announced before the year-end and possibly several. Progress on the other files is good, and I want to highlight other files. We are working on different files, you know, which is clearly above the target of EUR 1 billion.
In fact, to ensure that we are able to complete and that we are not dependent on a single deal and this is clearly working. Moving on in page 13 on the refinancing. You see the detail table is recalling, in fact, what was at stake in this domain. We have in fact initially to finance EUR 5.5 billion. In reality, in cash, EUR 4.9 billion, given that the family that was the owner of Hella has been, in fact, participating to the Faurecia shareholding, and is now the biggest shareholder of Faurecia, reflecting the confidence in the merger of the two companies. The real cash financing was EUR 4.9 billion.
You see that what has been done in the past period, and I would like to highlight the last part since the start of 2022, the capital increase in June, but also what has happened in the summer with the EIB and the syndicated loan that we did with banks in Latin America, mainly Mexico, at good financial conditions, plus the divestment of HBPO remains less than EUR 900 million to do. We are working on the two things. Number one, complete the disposal program. Number two, different financing in order to ensure that we are fully refinancing the acquisition by August 2023, when the bridge to bond matures. Moving on to how to protect our profitability and cash generation.
A highlight on the energy crisis management in page fourteen. As you know, the spot price of energy bills have exploded in the recent period in Europe, and I would like to highlight what is our position and situation on this. We have put hedging in place before this crisis, and this hedging, in fact, allows us to have in fact more than 90%, I think it's 94% of 2023 being covered, which has two benefits. Number one, we know how much will cost the energy next year for us. Number two, we know we have in fact, that is increasing by 1.8 times a major one, but compared to the spot price evolution that you see on the right-hand side, clearly a difference.
The second thing is that we are doing our work internally to protect, in fact, on the energy consumptions. Two things, we had launched before this crisis a self-production program, part of our sustainability activity, and we are on the way to have 1 million square meters of the roof of our plants covered with solar panels. The second is that we have deployed a program of frugality of energy consumption in Europe that we call We Save Energy across all our sites in Europe that will consist in lower heating, that will consist also in some cases in closing some days on the non-production sites, and also, in fact giving pullovers or sweaters to the people so that we can work properly.
The last thing is that, in July, I mentioned that we are launching preventive measures regarding ensuring that we are able to avoid direct problems on our production from energy shortage. Those measures are now in place. We have reviewed 2,600 suppliers in order to check their situation. For a few of them which were at risk, we have defined to buy in advance or to have them produce in consignment for us so that it can be done now rather than in the middle of the winter, which is the most risky period in Europe. On our side, we have done safety measures as well.
We are doing the things that are in our capacity to ensure, in fact, continuity of service, in the winter. In page 16, we have the upgrade of our guidance. Given what is happening currently in the market, with production volume getting better, with constraints overall, getting lower, they remain quite important. We are still in a constraint environment, but this is less the case than before. We are revising two things that were prudent in our guidance. Sorry. One is on the volume. We expected so far 74 million vehicles for the year, i.e. H2 equal H1, and H1 was the war of Ukraine, plus full lockdowns in many China in Q2. We see that in fact, S&P Global Mobility latest forecast is at 79 million.
We see that Q3 and our EDI were strong, so we revised still in a prudent manner to 77 million vehicles. The second is we are taking into account the evolution of currencies and in particular the strength of the US dollar. The average we are taking for the year is 1.05 on the back of the current situation on the US dollar and same on the renminbi or Chinese yuan. The two elements, combined with the other performance we are achieving a strong backlog, allow us to say that in terms of revenues, we should expect EUR 24.5 billion-EUR 25.5 billion compared to EUR 23 billion-EUR 24 billion previously. An increase, a sizable increase, which is the combination of the factors mentioned above.
The second thing is on operating margin and net cash flow, in a prudent manner we maintain the range and the guidance we said before, but it means on operating margin, an absolute increase on the back of the additional revenues I mentioned. In addition, confirming our priority on deleveraging, we are targeting a net debt to EBITDA or equal to three at the end of December.
As a reminder, the waivers of covenants that was negotiated in H1 led to no covenant tests in June, and a move to 3.75 for December 2022, and it's clear that with what I'm mentioning, we have no topic in this respect. In conclusion of my presentation, just to mention that we expect, and you are welcome to come to our capital market day in early November. It will be, in fact, in two days. The first day on the third will be really on medium term strategy, ambition, and also our actions to manage, in fact, the current environment and conclude our deleveraging. The second day will be more focused on ESG strategy priorities on November fourth, and we call that a sustainability day.
You are of course welcome to both of those events. On this note we are available for your questions.
Excuse me, this is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Michael Foundoukidis with ODDO BHF. Please go ahead.
Good morning. Thanks for the presentation. I have three questions. I hope that's okay. The first one is just on the cash flow guide. It seems to be very conservative given that you printed EUR 100 million in the first half. EBIT in the second half is shaping to be up by, I don't know, at least 50%, half and half. We'd expect, very rough terms, at least EUR 300 million of additional cash generation in the second half. I know you mentioned that you need to build safety inventories, but this would need to rise by more than 10% on the inventory balance to nullify cash flow for the second half. How should we think about that? Perhaps I'll stop there and ask the other two questions after that.
Thank you. Indeed, I prefer to remain prudent on the cash flow. I think there are several reasons. One is, in fact, what you mentioned on protecting the winter. I think we have to secure that. If it means a bit of cash out this year, instead of the beginning of next year, I think it's a good one. The second one is inclusion of some activities. The third is that, we did some increase of factoring in H1, and we are not doing this in H2. In fact, excluding factoring, we are talking about an improvement of performance in H2.
Understood. Thank you. My second question is on asset disposals in Hella. Is there an asset value threshold for which you would require minority shareholder approvals?
No. In fact, on the disposal process, we have to ensure that in fact the process is and that the evaluation is confirmed by a third party. Actually I think it's a good thing because this is what we should do anyway. This is, for instance, what has been done for the sale of HBPO and has been presented in detail to the shareholders of Hella during the general assembly at the end of September. Perfectly normal requirements. I think it's a good practice anyway in any disposal.
Very clear. Thank you. My last question is just in terms of the plan for upstreaming disposal proceeds, will this be done through an intragroup loan or through dividends?
Just to come back on the previous point, I would like just to highlight that the disposal program is a Forvia one, and not a Hella one. i.e., we have considered different assets in the Hella portfolio and in the Faurecia portfolio, to be considered inside. We should not consider that EUR 1 billion will come out from Hella. It's not the case. Not at all. Related to upstream, we are looking at the two aspects. Absolutely.
Okay. Thank you very much.
The next question is from Giulio Pescatore with BNP Paribas Exane. Please go ahead.
Hi. Thanks for taking my question. The first one, to go back on the free cash flow guidance, I mean, your margin and top line guidance, your new one, it's quite wide still, and I mean, it does imply a swing of about EUR 300 million from the bottom end to the higher end. Is it fair to assume that if you were to reach the guidance on the upper end, you would in fact generate a positive free cash flow? Then I have another one, but I'll just yeah ask that later, if that's okay.
If we are on the upper side of the revenue side, we should be also good on the profitability and possibly on the cash. I prefer to remain prudent and maybe it can be set conservative, but to remain prudent because of the uncertainty on the environment. I agree with the comment.
Okay, perfect. That's all.
With moderation.
Understood. Thank you. The second one on interest cost, can you give us an idea of the headwind from the higher interest rate you're seeing in the market that we should expect for next year? I know that only a third of your debt is on variable interest rates, but yeah. Can you just give us a rough idea of what the headwind could be on interest payment?
As we have mentioned, in fact, we have completed the vast majority of the refinancing. We know the interest rates for it. See that, in fact, we have a cost of financing of 3.25% on the existing one. The second point I would like to highlight is the example of what we did with Latam Banks, in which we got 3.35%. Clearly, we have the majority being done. On the remaining parts, it will depend. What I anticipate with the evolution is that we can have an increase short term of interest costs next year by EUR 50 million.
Vice versa, the interest cost of this year has been, in fact, abnormally high. Number one, because of Forex, and number two, a specific integration cost. When you take the combination of this net-nets, I would say that you have a negative of EUR 50 and a positive of EUR 50 easily. The net financial cost for the company for next year, I do not expect an increase.
Okay. That's very interesting. Thank you very much.
The next question is from Christoph Laskawi with Deutsche Bank. Please go ahead.
Good morning. Thank you for taking my question as well. The first one will be on the potential impact from inventory build at the OEMs. Obviously, we saw it today at Renault. Other OEMs have commented in the same direction for Q3. Did you see that as a big driver for your top line during the quarter? Do you expect any changes going into Q4? If you could just comment on the latest run rates of production. A question on the orders that you highlighted both at Hella and at Faurecia. Could you comment on the synergy effect that you potentially had on winning those orders in the RFQs and the discussion with the OEMs? Those are my two. Thank you.
Thank you. Inventory buildup in OEM is a very relative element because we are still today at very low inventories at the OEM level. It is getting a bit better, but it's not yet returning to, let's say, the level that existed before the crisis. But it is an indication of a bit less constraints on the supply chain overall. It doesn't say for me anything about the aspect of retail activity per se yet. Maybe since we talk about inventories, it's still the case that we have high level of inventories on our side. This will get better progressively on two fronts.
Number 1, less stop and go and suppression issues, but it will be progressive. Second, operational improvements that we have to do, which is more a story for next year than in fact immediate effect this year given timing of correction of inventory and then payment terms. This is another reason for me to be prudent on the cash flow. For me, a guidance is the minimum. I hope you understand what I mean. On the synergy effect, you know that the synergies that we have committed in the context of the integration are first of all on cost and purchasing, real estate, back office functions.
This is what is behind the EUR 250 million of synergies by 2025. We have also a potential on revenues, and we got already, I think, EUR 300 million of orders coming from the synergies. One example is the CCH deal obtained by the electronics part of HELLA with a French customer because of the presence in France. I think there is a cross-fertilization based on base, which is not exactly the same between the two companies. This is a good thing. We see actual cases already happening. If anything, I believe it will be higher than what we said initially, which was EUR 600 million.
Thank you. Two follow-ups, if I may. One, I mean, I appreciate the comments on energy that you've given in the presentation and the press release this morning. Are you already starting to discuss with the OEMs to pass on part of the headwind that you see? So the cost headwinds you've made clear, but should we expect that as net, or is there a certain offset rate that you have? Just one follow-up to something that you said before. Did you say interest costs for next year are flat, or are you seeing an increase? I didn't catch that. Thank you.
On energy, yes, we are negotiating a recovery of the excess cost that we are facing, absolutely. Recovery to be as high as on raw material, I'm not so sure, and I'm not bidding for a complete recovery, because it's less structured than raw materials in which you have contract agreements and practice in the past. This circumstance very exceptional. What we have done, thanks to the hedging and thanks to our action, is to moderate this impact heavily. You see it, in fact it's several times less than it could have been.
Clearly we have to share that with the OEMs, and this is part of the negotiations ongoing. On interest, maybe I was probably not clear. I expect for the remaining parts of the refinancing to be at higher cost than what we got so far, for sure. I was just saying that the total financial cost of the company between this year and next year, net-net should not increase, because this year we have exceptional factors in the financial cost related to the integration, related to price, that should not repeat themselves next year. That's why I'm saying net-net, I should not have an increase.
Very clear. Thanks a lot.
The next question is from Jose Asumendi with J.P. Morgan. Please go ahead.
Good morning, Olivier. It's José from J.P. Morgan. Couple of questions, please. Can you comment on the price increases you have carried out sequentially the second half versus the first half? The price increases that are driving revenues in the third quarter. The second question, I'm aware this is a revenue call, but if you could please comment in an environment where global car production is flat, like, can Forvia still improve our earnings and generate cash flow? That's, I think, one of the key questions we frequently get asked around the company. Thank you.
Thank you. On your first question on price increase, I guess you and you are mentioning on inflation recovery. I can confirm what we said in July, i.e., that in H1 we were recovering 80% of it, that we have deals and negotiation to in fact have a better performance in. There is a bit of a mechanical aspect to it, which is that our deals and practices on raw material recovery is based on a lag compared to the external reference price.
Since in fact on many raw materials, we had a peak in May/June, and we have a reduction, not a return to the past, but a moderate reduction compared to this peak. Actually, it means that the lag will be incorporated in the deal and will foster, in fact, the recovery in H2, and that's why we say 90% in H2 is really a normal number. There is the aspect of better governance internally to manage that, but there is also a bit of a mechanical, which is we will get in Q3 something that we didn't get in Q2 because of the evolution of the curves of the main raw materials for us.
On the second question. If I understood the question correctly, tell me otherwise. You are saying, if we expect production next year, for instance, to be flat, which I think is a good anticipation, we should not bet on an increase overall, in improving our financials and in particular on the cash flow. On the profitability, we have been impacted by two things. One is this Michigan contract in the States, and clearly with what has been put in place, this will not impact us next year at all. You have a mechanical benefit on this one.
The second is the recovery of inflation, better governance, and, in fact, moderation on the raw material evolution should allow to have clearly a further improvement in next year. The pull on raw material is a full recovery by the end of 2023. Now, moving on to cash flow. We have increased inventories this year, and we will decrease inventories next year. We will have a double effect compared to this year because instead of having a cash out because of inventory, we will have a cash in net-net because of decrease of inventories. There are not only the environment, if the semiconductors continue to be less complicated, still a topic but a bit less complicated, it will help. Second, we are taking measures to beef up our inventory management.
The second point, what we say of activity of orders has a direct cash impact. When we limit our order intake, we limit what we call the upfront. The upfront is what is the amount of cash out that you have to mobilize between the time you sign and the time the production is starting, the time of development. In this time of development, you have R&D, you have CapEx, you have sometime training of people because it can be a new technology or a new process. We have in fact reduced our ambition on order for this year and for next year, saying selectivity will help us save several hundred million in cash flow savings for 2023 and 2024.
It does not change our ambition midterm, given the backlog we have and given the timing for translation. In the context of uncertainties and the priority we have clearly on deleveraging the company, this is the right thing to do. On the back of those elements, we will have cash flow generation next year.
Fantastic. Thank you very much.
The next question is from Pierre Quemener with Stifel. Please go ahead.
Yeah, sure. Do you hear me?
Yeah. Yeah. Good morning.
Good morning, Olivier. Good morning, Marc. I would have two questions, which are forward-looking. The first one, do you plan to have top line growth into next year given that a recession is likely, especially in Europe, which accounts for roughly half of your business? That will be the first question. Probably digging a bit deeper, I guess, when I speak, for instance, with the investors and the main concern is the elephant in the room, your balance sheet, net debt should rise to roughly EUR 8 billion end of this year. What is your plan to accelerate and step up deleveraging into next year? You expect significant free cash flow.
I know you have given some of the bricks answering the previous question, but could you consider stepping up the disposal plan beyond EUR 1 billion, point number one? What could be the level of free cash flow next year given that we are heading once again in a very uncertain environment so as to, let's say, decrease net debt by at least EUR 1 billion into 2023? Thank you.
Thank you. Those are perfectly fair questions. The balance sheet is not the elephant in the room. It is actually the priority in the room. We are perfectly conscious that in this environment, it's even more important. In a normal context, you do a big acquisition, you have to clean up your portfolio of activities. In a context like this one, you have to do it even more, and the faster the better. On disposal, I want to make sure we are doing EUR 1 billion. The portfolio that we have, in fact, identified for the disposal is higher than this level. If we are able on this portfolio to do more, we will do more.
Today, I would say to complete the program of EUR 1 billion and let's see if more is possible. On the aspect of evolution of revenues next year, overall, we are not contemplating a growth of the market, and we believe that within this market, China will be a good element. Europe, it's an uncertainty, but maybe I should say that there is a big difference between the retail market and the production market. The production market remains under constraints. In the European case, during several weeks, the launch of the Ukraine war, production in Europe was blocked because of certain elements that were coming either from Russia or from Ukraine.
When you compare year-on-year, you have to take this into account. We will be cautious. We will, in fact, flex EBITDA is our cost to face the uncertainty so that we are in capacity to adjust if necessary. We expect a bit of top line growth because of the other performance, but that's it. With this, we are targeting significant free cash flow next year, not only because of the activity, but frankly speaking, first of all, because of working capital management and CapEx moderation. The last factor I can mention is that we are on track on the synergy of the integration with Hella.
The impact this year is of course limited because you have an aspect of ramp-up and will be more sizable next year, which is contributing, in fact, to the positive evolution between 2022, 2023. Those key questions are at the center of what we will present in the capital markets day because we want to highlight in detail our plan that we are working to consider, in fact, not only the potential of Forvia, which is a very clear one, but also to face the headwinds of the current environment. Those things will be addressed and can be discussed in detail during the capital markets day. Absolutely.
Yeah. Thank you, Olivier. If I may comment, that's instrumental in the deleveraging. If you wanna get all the positive attention of investors and suppliers into your medium-term plan, I guess the deleveraging will need to be addressed in at first. Thank you.
That's fair.
The next question is from Sanjay Bhagwani with Citi. Please go ahead.
Hello. Good morning, and thank you for taking my question also. I've got three questions as well. My first one is like, as you have clearly mentioned, deleveraging is the key priority for you. Maybe just to get some more color on these divestments. What we have seen in the past few weeks is one of your peers actually announced the sale of their electrically heated catalyst business. Some of these low emission reduction technologies where the private equity consolidator is consolidating different businesses. Could you maybe provide, if you can take that as a cross read for Asia? And in that context, how big is the part of the business which is, let's say, falls into these emission reduction technologies?
That is my first question, and I’ll follow up with the next one for this.
I will try to answer that, if I do not answer your question, tell me 'cause the line is not very good, so there were some cuts. Related to disposals, what I can say is, we have different businesses that we have put in the program. The different sets are following parallel tracks. We are discussing on those sometimes, with a mix of industrial potential partners and potentially investors, private equity. What we are doing is to make sure that any of those transaction is in a balanced manner and in the interest of all stakeholders.
If I take HBPO sale, actually, it's a good thing that the company is owned 100% by one company. There was no strategic benefit ultimately to keep 34% of the company. This is what we are doing. Also in terms of timing, we committed for cash-in end of next year, which means given antitrust that I would say end of the summer, we should have all the deals closed in the EUR 1 billion program. This is ongoing. I cannot give you the detail of those businesses because I want to keep my capacity of negotiation. I hope you appreciate that. Those businesses are not central to our activity.
They are not central to the project of Forvia ultimately. Makes sense to look at options for them. Tell me if I answered completely or there are elements to complement you want.
Thank you. Actually, you answered it. That's very helpful. I mean, you answered it as much as you can. My next question is on the fixed versus floating rate. Can you please confirm? I think Giulio already touched on this, but can you please confirm this is still one-third after the recent refinancing post Q2? And how does the mechanics of this floating rate interest work? For example, let's say the financing or the interest cost that you will be paying in H2, is it determined based on the reference rate what was prevailing at the beginning of H2, or that will be determined where Euribor ends at, let's say, end of the year? Sorry, does that make sense?
As you know, we have a fairly long maturity on our debt, which is fixed. That's why we are saying the dominant part is a fixed bill for us. Now, the bridge loan is of course to be refinanced, and this is where there is variable parts. We can say the remaining EUR 900 million, if we were doing no other disposal, would be variable. The EUR 900 million remaining will be a combination of the disposal and another refinancing.
We are looking at both so that this aspect that is impacting heavily the share price and the questions on Forvia are solved as quickly as possible. That's why I'm saying the impact of variable rate is not full on our side. We have a bit in our debt of variable, I'd say, on the recurring activity, but it's a secondary aspect. We are conscious of this, and I think this is why we are trying also to be creative in our financing. If I may, what we have done with banks in Mexico and Latin America is an example of this.
We got a maturity of 28 at 3.35, in fact, during the summer, which is, I would say, a good one. I expect, in fact, to be able to do a similar one elsewhere, in the coming weeks and months. We are in fact trying not to be dependent on one single market, which will be at very high interest rates.
Thank you. That is very helpful. To confirm on the Latam, I understand the maturity is 2028, but the rate is reference rate plus this 3% number you mentioned or it's fixed rate, like you're gonna be paying like the rate you mentioned till 2028?
It's a fixed rate.
Okay. That is very helpful, actually. Yeah, my last question is on the cost item. I think you provided a really good overview on all the key cost items. Let's say apart from the interest rates and energy, are there any other cost items for the next year we should be thinking of? Like, it can be either headwinds or even tailwinds. For example, let's say the freight and the transport costs are coming down. If you can provide some more color on that, please.
In the domain of inflation, you have in fact four categories. The dominant one for us is raw materials, okay? Energy is actually quite small in reality in value. But it's in fact a good thing that we have been hedging this so that the impact is moderate for us. We have a bit on freight, but I would say on freight, we know already the impact of this because this is what we have been confronted with. On freight, the impact is not too high because we don't have so much international freight. We have regional and local, okay?
On the freight, the sea freight, if and when we are using it, is going down after being at a very abnormal high level. The fourth category is wages. This year we are able to have really a small impact on this aspect. We have only two type of impact. One is you can have some negotiation in a given region, for example, at the OEM level, and in which indirectly we are impacted because we are in the same auto manufacturing environment.
In that case, we are able to negotiate with the OEM, in fact, to pass on, because actually the trigger, I would say it's not the trigger of the OEM, but the negotiation are happening with the OEM perfectly aware of those negotiation. So let's say the discussion and the sharing of the burden can be done. The second case we had this year were more special bonuses in order to let's say limit the impact on people on this additional inflation that we are facing. For next year, we expect a bit of increase in salaries in some jurisdiction.
This should not be too high, and we intend to put it inside the negotiation with the customers, but also to accelerate productivity improvement. What I mean by productivity is productivity thanks to digitalization and operational industrial improvement, but also the fact of, in fact, having more of our in low cost countries. This is the case on the production, but this is also in particular the case on the R&D. As you know, several countries like China, India are extremely good in software and R&D activities, and we have ramped up heavily, in fact, the R&D inside those countries in electronics and other domains.
That in fact means that the aggregate inflation is reduced by this. We expect a bit of an increase. This will be part of the negotiation with labor unions and employees. We are taking this as part of the inflation. Next year I expect less topics related to raw materials. They will be finishing the conversion in the recovery of the raw material with this compensation mechanism with lag that I mentioned earlier.
I expect in fact more on the wages in which we have to do our homework of productivity and in case something abnormal on inflation is happening, we need in fact to take this into account in our negotiations with the OEMs. Thank you, that is very helpful.
The next question is from Thomas Besson with Kepler Cheuvreux. Please go ahead.
Thank you. It's Thomas Besson of Kepler Cheuvreux. I'll try to ask quick questions, as it's quite late already. First one. Can you help us, Olivier Durand, understand the gross impact in 2023 of these four inflationary headwinds versus what you had in 2022? If you try to think it's probably going to be less than half of what you had, and what would you expect it to be on a net basis? The first question, gross inflationary and rates for 2023. Second, maybe a candid question, but when the market is concerned by your bridge loan 2023, why don't you refinance with banks?
I mean, these banks that have made the loan for the acquisition must be very willing to eventually push forward the lengths of this debt. Is it not a more simple way of addressing this refinancing question than waiting for disposals to happen and probably on lower multiples than we would have hoped six months ago? That's the second question. The third question, could you give us an idea of what the amount of absolute CapEx, both tangible and intangible CapEx, we will get ultimately in 2022, 2023, with your more cautious scenario for flat production next year?
Good questions. On inflation, I expect at least division by two compared to this year. In terms of additional inflation, really, impact of inflation for the year at EBITDA level is probably more than EUR 1 billion if I take Forvia including Hella. Next year it's maybe even one third because the reality is that raw material increase year-on-year will be potentially even a decrease, okay? The energy bill we know. The wages, probably it's around EUR 100 million that we can anticipate on wages of abnormal inflation, if I can put it this way.
Yeah. Net-net 1/3, 40% of what we are facing this year. The recovery rates, so raw material in almost in full, probably the rest will be. I think overall we should say 50%. Of course we hope for more, but net impact will be clearly less than this year. Now on the bridge loan, we know. Of course we have plan B, plan C, okay? Plan A is disposal. We would have done disposal anyway. There is an aspect of management attention, there is an aspect of diversity of activity.
To have EUR 1 billion disposal after such an acquisition would be a normal thing anyway. I think we have to do it. We are progressing on the different files. I hope we can. I believe we will announce one more deal at least by the end of the year. It's not so far in terms of internal progress. After, other aspects are looked at as well in the end, of course. On the CapEx, I would say that compared to this year, we should be at least CapEx and R&D capitalization at least EUR 200 million less than this year.
Yeah. Thank you very much. May I ask you something while I'm on the line? Is it possible to get from you the latest 2022-2023 consensus before your CMD, please?
Yeah.
If you plan to build one.
Marc? Marc is answering. Of course. No, of course.
Thank you very much. Thank you. Thank you for that.
I'm not collected on that, but I will send as promised.
Thank you very much, Marc.
The next question is from Edoardo Spina with HSBC. Please go ahead.
Good morning. Thanks for talking. I only have one set of questions about semiconductor. If you can let us know the exposure you have to semiconductor for Forvia, either as a percentage of sales or a percentage of cost, for 2022 would be great. A ballpark number would be useful. We estimate about 8% of sales. Still on semiconductor, could you discuss the direction of pricing for 2023? We understand there will be inflation in that, and I hear 5%-10% is reasonable inflation for semiconductor. Also if you are paying the semiconductor in dollars or you have local currencies for this. Then finally, the passthrough clauses for semiconductor.
I don't think at the moment you have any, also Hella doesn't, I think. I understand some competitors seem relatively optimistic they will be able to achieve some sort of passthrough on semis, and I was keen to hear your thoughts. Thank you.
Thank you. On semiconductors, actually it's very difficult to say what is the real exposure we have on semiconductors, because I can give you the direct exposure, okay? Which is in relation to our electronics business. The real exposure is not this one. It is the whole supply chain. The cause of stop, definitive stop by Faurecia related to semiconductor is quite small. We have sometimes some cases of incomplete, we have sometimes cases of delays, but it's not the main cause. The main cause is that somewhere else in the supply chain there is another difficulty, and the combination of those difficulties are putting a constraint, the production of an OEM, and then everybody is impacted. The real risk on semiconductor is the volume of the car industry.
Probably we still have 5-10 million cars not being able to be produced because of various supply chain constraints, of which semiconductors remain probably the most important. The real figure is the lack of activity that is happening currently on the production side because of those constraints. I think it's important to take into account when we try to estimate what will happen in 2023. In 2023, there will be two forces in totally opposite direction. One will be progressive further reduction of constraints on semiconductors. Remains, but you see the number of cases going down. I think currently we are at 50% less than the, let's say the average of each one. So that mechanically will mean that part of the non-possible production of today will happen.
There is an opposing force, which is what some of you mentioned, which is the economy because of other factors coming from a recession, okay? Does it mean that net-net, the production overall will go down? That's for me a real question mark. I don't see that. However, we will work to be flexible in case it does happen. We have to take the two factors into account. Semiconductor exposure, not too big directly for us. The problem is the whole activity is constrained. Semiconductor pricing. 5%-10%, yes, compared to the pricing excluding spot buy.
As you know, in order for everyone to try not to be the cause of a stoppage, I was in charge of FCE for one year. I did that unfortunately quite a bit. I have been forced to buy on the market, spot buy, with value sometimes at 100 times the normal price. If there is a progressive positive evolution of semiconductors, those spot buys should recede. By definition, when you take the inflation, it will impact downward. On the listed price, 5%-10% for many, yes. On the aggregate price, I think you have to divide by two. Now on passthrough, we are already getting passthrough on semiconductors. It's not as simple as raw material, I recognize that.
Whether it is on specific spot buys that we are doing or on other things, we are getting some compensation from the customers. It's complicated, and it's not at the same percentage as standard raw materials, which are oil, plastic, and we actually do in HELLA, in Faurecia, and so in total for Faurecia. It's getting better over time because the negotiations are more and more, how can I say, structured and accepted by other parties because everybody knows that it's a reality. It's painful. It takes time, but it's part of the situation.
Thank you so much.
The next question is from Martino De Ambroggi with Equita. Please go ahead.
Thank you. Good morning, everybody. Still focused on free cash flow this year. Could you quantify the net working capital absorption, and the amount of factoring that you commented is not expected to grow in the second half of the year? Still on the components of the free cash flow, just to double check, in one of your previous answers, you mentioned CapEx will be down EUR 200 million next year, if I understand correctly, and what is the amount for the current year? The second question is on the operating leverage. I understand it's a very complicated environment, but what is a normal operating leverage under the new perimeter, in case of 10% growth or decline in top line? Thank you.
Thank you. Let me start with the factoring. We had a factoring program in place, you know, in Hella. We have extended this program to the new scope, i.e., for Forvia, including Hella. It represented, in fact, more than EUR 200 billion in H1. We are at EUR 1.3 billion, and we will not move from this EUR 1.3 billion in the second half. That's why I was saying that everything being equal, we have 200. You have to look at the operational cash performance of H1 with this contribution of factoring, and that we are not going to extend. We have the capacity.
We have, in fact, lines that are far in excess of this, but it's part of our commitment to not exceed this level. On the other element of working capital, what we expect for the year, in fact, is to be flattish for the year in terms of working capital, which is due to the level of inventory. For me, there is a potential to do better than that, and we are working on doing better than this number. From a cash perspective, I think the impact of it will be much bigger next year.
Inventory is going down, and then the cash impact reflected inside the number. Maybe a bit of positive surprise for the end of the year, and the rest for next year. Related to the EUR 200 million, I was mentioning CapEx and R&D capitalization, which is for this year, overall, EUR 2.5 billion. I was saying at least EUR 200 million in this respect, which I think actually is a minimum, to be honest, because we are doing a lot of CapEx.
With the moderation on new order intake, we have plus digitalization of some of the process. We have clearly the capacity to do better than 200. The last question was on operating leverage. As in theory, the 15% remain valid after it depends a little bit on the business and so on. Everything being equal in a fairly normal environment, 50% is still valid. Except if it's purely Forex.
Thank you.
Just one more thing is that if it is purely the appreciation of the U.S. dollar, it's based on the profitability of our North American business, okay? If we have more revenues, if we have a U.S. dollar appreciating by 5%, to take this example, all the lines of the P&L are increasing by 5%, including the cost. Operating leverage on business, yes. On Forex is more in fact 5%-6%.
Thank you.
The last question is from Stephen Reitman with Société Générale. Please go ahead.
Yes. Good morning, Olivier. I was at Paris Auto Show earlier this week, and what was very impressive was the BYD stand, and it shows the seriousness of their intent on cars. You've already highlighted your increasing business with BYD, particularly in seating. Could you comment on how you see the Chinese business developing? We can clearly see that they are massively improving the quality and the perceived quality of their vehicles and the like. That must be having a quite substantial impact on the quality of the business you're doing with them as well.
Absolutely. The evolution of the Chinese car makers and the new entrants is particularly impressive in reality in a fairly short period of time. BYD is particularly to mention. They are selling more EVs than Tesla in China. I think it's twice as much. In July, they were producing four times what they were producing a year before in the months of July. I don't know the number for August, but it shows. It's more important than this. China is now a net exporter of cars.
Since the beginning of the summer, they sell more cars outside than, in fact, cars are imported from premium brands in the Chinese market. You can expect this to grow heavily. The Chinese carmakers are planning to increase their presence in Europe. I think the Paris Auto Show is a testimony of this. Now, what does it mean for us? We are in fact with the different and quite present with the Chinese OEMs.
If the exports we will be in fact benefiting from this by the production in China and if and when they start to have production sites in the destination countries, I guess we will be with them as well. Actually we will benefit from this. What I hope is that everybody is taking the Chinese competition in a serious manner because they are doing serious cars in good financial conditions. For us, it's a set of customers that are interesting. Thank you.
Mr. Durand, this concludes our Q&A session. The floor is back to you for any closing remarks.
First of all, thank you for the participation and questions of this morning. I just want to reaffirm two things. The first thing is that deleveraging is our priority. It is a complex environment to do it, but this is clearly the case. The disposal program is progressing well. We will not do something creating this in this respect to concrete transactions, but the files are evolving positively. The second point is that we have the outperformance and the, let's say, positive evolution currently of the production, and that's why we have upgraded our guidance. The third is that we are preparing ourself for uncertainties to continue.
You have seen what we are doing on the energy side. We will do the same on flexibilization of the cost to address the volatility, in particular, in Europe, in case of a recession. The last thing is that I hope you will be, as many of you are interested by what we will present in the Capital Market Day and the Sustainability Day to show the ultimate potential of Faurecia and what we are doing, in the meantime, to secure this potential, which for me means, in fact, balance sheet management. Thank you very much. Have a good day.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.