Good morning, this is the conference operator. Welcome, thank you for joining the Forvia first quarter 2023 sales conference call. As a reminder, all participants are in 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.
Thank you. Good morning, everyone. I'm here with Yasmine Sekkat, our new controller, and with Marc Maillet, who is leading our investor relations. We are pleased to report our Q1 sales of 2023. We are starting the year on a strong beat with the sales growth of 29%, to EUR 6.6 billion. This is an organic growth of 17.6%, and I will come in details on this. In page two, I would like to start with the technical aspect.
As we mentioned before in our annual call, further to the deal for the disposal of our SAS cockpit module activity, we are applying as normal the IFRS 5 regulation, which states that you have to report your numbers post major disposal in a pro forma fashion, as if the operation is already closed.
Going forward, all our numbers starting today will be reporting excluding SAS activity and for 23 and also restate 22 for the same event. This is why 14 in fact, in page 4, EUR 6 billion 644 million for Q1 23 to compare with EUR 5 billion 149 million for Q1 22 post implementation of IFRS 5. As mentioned, this is representing 29% growth on a reported basis.
On an organic basis, taking into account the fact that we consolidated HELLA only from February 1, 2022, i.e. only two months of the first quarter of last year. This is, excluding the small Forex impacts, this is 17.6% growth on an organic basis. The final number will be reported by IHS in the coming days, potentially slightly higher than this 2.7%. On the base of what we have, this is representing an outperformance, fairly strong of 1,490 basic points. You have to consider inside two elements.
The geographical mix, which is positive this quarter given the recovery of Europe compared to what happened on the onset of the war in Ukraine in February, March of last year, for 400 basis points. The second element is of course the impact of the inflation pass-through, which is 240 points around.
This is representing, excluding this 850 strong outperformance for Q1. We are pleased to report that all the business groups and the three main regions have outperformed the market growth in this context. I will now move to more details, starting with the business groups. In page 5, starting with seating.
Seating is the, is an activity that has increased very significantly in Q1, 22.5% organic growth to more than EUR 2 billion of revenue. This is on the back of the recovery in Europe and the strength of our Chinese operation in notably with BYD. Interiors, an increase of 17.3% on an organic basis, to close to EUR 1.2 billion.
Interiors are now reflecting the sale of SAS. This is where the IFRS 5 in terms of segment has an impact. You see the recovery and the ramp-up in Europe with the ramp-up of the 7 Series with BMW and the growth that we have in North America, not only with Ford but also Tesla and new EV OEMs.
If I move to page 6, clean mobility. Clean mobility, organic growth of 11.2%, outperforming the market, but on a more moderate basis, given the electrification growing. This is representing still EUR 1.2 billion of revenue in our activity of Q1, with strength in particular in Europe. Electronics. Electronics represents more than EUR 1 billion of revenue in our Q1.
This is the combination of HELLA Electronics and the activity we had before acquisition of HELLA, of Faurecia Clarion Electronics. The combined growth 13.3% on an organic basis, in particular with the strength of HELLA Electronics given the continuous demands on electrification components.
On the, of course, in our numbers, we include the scope effect of the one month, the additional one month of HELLA Electronics, which is representing EUR 247 million. Moving on to lighting in page 7. Lighting, EUR 922 million of revenues in Q1. This is a business coming the acquisition of HELLA, and you see the impacts of the scope effects of the additional one month of EUR 281 million.
The organic growth of the activity, very strong, 22.6%, representing really the conversion in revenue of the order intakes being taken and the strong demand in premium lighting solutions that we enjoy. On lifecycle solution, our aftermarket and specific application activity. This is also coming from HELLA.
EUR 280 million of revenues, and the scope effect of EUR 88 million coming from this additional months of ELI. A solid organic growth of 15.4%, which is driven by the growth of the activity on the commercial vehicle different businesses, and also the price increases that we have done in this activity since the start of the inflation inflation wave. If I go to page 8, you have a zoom on the evolution by regions. Going forward, we will report regions in 3 buckets. EMEA, reflecting Europe and also the activity we have in Middle East Africa, which is mainly South Africa.
Americas, we will continue to reflect also inside Americas what is happening in North America, US, Mexico. Asia, in particular with the strength of our activity in China. You see that we have solid organic growth in all three, in particular, in EMEA, reflecting in fact the development in seating interiors and also the recovery of the market. We have Americas with 9.7%, a bit softer than the other regions, reflecting in fact also the selectivity we have in North America.
The strong organic growth of 17.6% in Asia, in particular with the 15% in China, compared to a market that is, that has been soft in Q1 as we know, and an organic growth of 25.9% in the other countries of Asia. Overall, strong start in revenues for the company across the board. In page 10, a small update on our disposal activity.
A reminder, we have signed all the agreement and transactions necessary to complete our commitment of EUR 1 billion cash proceeds by the end of 2023 on disposals. Of course, the first operation that you know was the one in December 2022 with the sale of the stake of HBPO.
We have finished also, we have closed the TAFE operation in India for EUR 40 million, and the other transactions are proceeding well with antitrust application. We are confident that all is proceeding well for cash proceeds in the different activities.
As you would expect in the page 12 and page 13, given the strong starts of the year and an overall environment that is less adverse than feared some months ago, we confirm our guidance as announced on February 20. With the volume production of 82 million vehicle for the year, overall flats, with revenues between EUR 25.2 billion and EUR 26.2 billion post-disposal.
Post-disposal is taking out the SAS activity for the whole year, given the IFRS rules, and also the commercial vehicle business that we sold to Cummins, estimated for closing from July 1st. Operating margin, 5%-6%. Net cash flow above 1.5%. Leverage, net debt Adjusted EBITDA going down to between 2.0-2.4 times.
That will put us in page 13 on a good trajectory for achieving our targets midterm 2025, which is what we announced in the Capital Markets Day on November 3. As a reminder here as well, we are a bit more concerned than the S&P IHS latest forecast at 88 million vehicles compared to 90 million from IHS.
We are anticipating around EUR 30 billion of revenues, operating margin above 7%, net cash flow 4% of sales, which will put us with a leverage below 1.5 times at the end of 2025, i.e., in line with this industry. On this note, we are open for 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 1 on their touch tone telephone. To remove your question from the question queue, please press star 2. Please pick up the receiver when asking questions. The 1st question comes from Thomas Besson of Kepler Cheuvreux.
Thank you very much. I have two questions, please. First, can you discuss what you see on the ground in terms of China trends? I've seen some headlines suggesting that you see some improvement, but for the time being it's been pretty soft. Comparison base are obviously going to make it difficult to read precisely what happened in Q2 and Q3.
Can you give us your perception of how Chinese production is going to develop versus your relatively cautious initial production and IHS trends? First question. The second, could you give us a bit more details on the disposal programs? I think we were expecting you to have closed the Symbio production. Is it possible to have an idea of how much cash you're going to get from it?
Can you get us, give us your view on how many of the transactions you have announced will be closed by the end of June, namely to cash in before the end of June based on the approvals you've had so far? Thank you very much.
Thank you. Good morning, Thomas. China trends. I think the China trend objectively is a little bit difficult to assess. The good point is that as we, the post-COVID has been very, very smooth in reality, in terms of no disruption, almost no disruption in the industry, and the recovery of the activity. We have not seen yet a specific incentive for the automotive industry. I think it's a bit difficult today yet to say, will there be additional strength, additional recovery in China in the second half.
That's one of the reason why we remain with the same guidance of production for the year. We are at 82, IHS standards include, has been so far at 85. I think it reflects a little bit of a cautiousness on our side in China. We have yet to get confirmation of this. I think China is okay, we have still to see whether it can be with a strong second half in terms of activity. On the disposal program. The operations are going well. In fact, on Symbio, we have started to file the antitrust, which means that in terms of calendar, we have no delay.
However, I have to recognize we are three insides inside this partnership. Given the fact that we are three, we have to align the governance. We have to take into account the governance model and the timeline of each of the three, which is one of the reason of a slight delay in the operation from a formal standpoint. I think this is just a matter of weeks. I cannot today communicate anything more than the last time on Symbio. All I can say is that the three partners are very clear on the objective, that the activity of Symbio is going on well.
That I think it will be a strong partnership, but I can, you have to wait a few weeks for further communication. In terms, in terms of cashing, in the first half, I think at least one operation should cash in between June and July. Between Symbio, the sale of the commercial vehicle, to Cummins and SAS. We still depend on antitrust proceedings, so I prefer to be cautious. At least one between June and July, I think is a logical outcome.
Thank you very much.
The next question is from Michael Jacks of Bank of America.
Hi, good morning. Thanks for taking my questions. I have two. The first one just on pricing. You commented earlier, I think in a conference call, that negotiations still remain tough. Can you just perhaps comment on where exactly you're finding them difficult? And perhaps put some or add some context to the 240 basis points of recovery that you achieved already in Q1, in terms of the percentage recovery that you're seeing at the moment.
My second question is just on the cost side of the equation. We've seen some signs from the broader industrial complex that raw material impacts, for instance, are better than expected in Q1. Perhaps you could just give some color on how you're seeing costs developing relative to your expectations. Thank you.
Thank you. On, on the on the first question, which is about the pass-through of inflation, if I'm correct. We have to distinguish between the end user price evolution and the pricing evolution in between the car makers and the car suppliers like us. Clearly, there is a price pressure or price evolution for car makers versus end user, which was expected.
We know that the prices, the conditions that are faced by the end user is related largely to shortages and exceptional circumstances. It is normal that there is more competition on price and adjustment of some prices or the restart of some rebates in different parts of the world from the car makers.
We did not enjoy a benefit of those price increases as as a car supplier like like our competitors. We are not facing vice versa the consequence in the opposite direction. It is clear that in terms of negotiation of price with car makers, the situation remains of a significant tension because because of the inflation first of all.
I think the last two years largely have shown this. We are now more equipped car makers than us for those negotiations, but they are a fact of life and the fact of what we have to deal with. We target 90% recovery for for the year of the roughly speaking, EUR 400 million of inflation that we expect for the year at Faurecia level.
We are on track with this. What is the most difficult inside this one is in fact the of labor costs, raw material, there are agreements, it's part of life. It's not easy. It's a matter of tough discussion, but it's part of what has been faced by this industry in the past. Energy is a new thing, but we have good reference and good external reference.
Thanks to the hedging that we did, we are, I would say, on the positive side of this evolution compared to other companies. Labor costs, which is inflation of salaries, which is around 200 points above the average that we had in.
Of course, is the most difficult to pass, because the customers would say that this is part of the activity also that we have to swallow and with productivity. This is part of the 90%. This is worked on, but in parallel, this is just reinforcing the needs of what we do in terms of fixed cost reduction and reducing our break-even point, which is part of our strategy as explained in investor day.
Now on pricing of the end user of the car makers versus end user, this is an element that we expected, and this is in a way a logical evolution, given that shortages remain there, but they are less prevalent than before.
On the development of the cost side of the equation, for ST in Q1.
On the development of the... Yeah, sorry. On the development of the cost side of the equation, let's say the evolution, in fact, the content is a bit, the weight is a bit different than before. This is why also the cost, the impact in sales, you know, sales revenue is lower than before. The raw material is obviously the biggest part.
The raw materials are in fact softening and some of them decreasing, with one exception, which is that semiconductors remains with strong tension and with some price increase. On energy, a bit of increase. Additional labor inflation is not too much a Q1 topic, but starting with Q2. That's why the ratio is going down, is because raw material is of course inside the story, the biggest value. There is an evolution in the content.
Yeah. Thank you.
The next question is from Christoph Laskawi of Deutsche Bank.
Good morning. Thank you for taking my questions as well. The first one will be, on North America and the outperformance. You highlighted that you are selective there a bit and, hence the outperformance is slightly lower than in other regions.
Could you just pinpoint us to the point where, that is picking up again and we should expect North America, trending closer to your group run rate? The second question, I mean, I know it's a sales call, but I'll still try a bit on efficiency. Given that revenues have been developing quite good during Q1, and, we're hearing that, in general, operations are a bit more stable? Could you confirm that for Faurecia?
Do you see efficiency improving just as the start stops are fading out and the volatility is of call-offs is lower, or do you still see quite a lot of volatility in the call-offs which makes it difficult to run operations? Thank you.
On North America, we have a Q1 in which we have clearly out-performance compared to the market. It's however lower than the other regions. This is particularly the case in seating and clean mobility. Going forward, as we mentioned during the investor day in November, we'll be fairly selective in our activity in North America, just in time. You can expect in fact that and also the Highland Park activity, the Grand Wagoneer model remains with low volume. We intend to stop on this one, and we are discussing with the customer in this direction.
I would not expect significant additional growth in North America for the rest for the rest of the year. Driver of growth on our side will be China. And with an extent depending upon the growth of volume, and we re-recovery in Europe that we have started clearly to see in Q1. Related to efficiency and call-offs, and shortages in a way.
Shortages are less prevalent in, and also are not as long as before. Nevertheless, we still see cases of stop and go, and we sometimes still fairly short notice. What I would say is that the extent of the topic is getting lower, but we are not yet in a normal and perfectly smooth activity in some places.
We, but we have to do our homework, which is to be as flexible as possible and to improve on our, on our operations, beyond Highland Park. It's not yet a perfectly smooth activity. Better, it's progressive.
Thank you.
The next question is from Martino De Ambroggi from Equita
Thank you. Good morning, everybody. My focus is on the Clean Mobility Division. If you could provide us an indication on what is your expectation for the rest of the year in terms of growth of sales and why not margin evolution.
The second is on networking capital, because in your previous call you guided for a positive effect between EUR 200 million and EUR 300 million, and was wondering if it's still valid based on the evolution of the market volumes, which is better that you're implied what you imply in your guidance. Last on the labor cost. You mentioned this will start to grow in the second quarter and this is not easy to recover. Could you quantify what is the impact of labor cost you expect for the current year?
Thank you. Good morning. Clean mobility. You see that clean mobility is continuing, in fact, to have growth above the market. Of course, the impact of electrification is moderating this growth. For the year, we expect a growth of activity of overall clean mobility around the evolution of the total company. Excluding, in fact, the impact of the disposal of our commercial vehicle activity to Cummins for North America and Europe. Overall, the same trend as we have reached.
This is related to in fact the mix of region, which is on one side, and on the other side, electrification. We are clearly benefiting in all the deals of our strong position. We are market leader in this activity. In the big remaining contracts that are happening, we are gaining market share. The last element I should mention is that of course, we treat this activity as a cash cow, and I can confirm that the decisions we are taking are going completely in this direction. Why a cash cow?
Given the evolution of the market, there is less innovation, less R&D for the future to do, and I'm excluding hydrogen, of course, in this reasoning. The second is that the number of engines and programs are reducing, the volume per engine and per program is increasing, which means less CapEx, less R&D for the same level of revenue.
You should see that in the cash performance of this activity even more in the future. Related to operating working capital, I confirm in fact this expectation. This is primarily related to inventory, we are having a high level of inventories in the overall FORVIA. This is particularly true in LR.
This is reflecting the difficulty to historically on given the stop and go to have optimized inventories. It's also reflecting certain internal topics, so we are addressing those. I think the fact that stop and go are less prevalent and less durable is helping.
You will see improvement of the inventory and working capital during the year, probably more second half than first half. On labor inflation, salary increases are in our company more in kicking in in Q2 than in Q1. That's why I mentioned this. It's around 2 points. It's a bit more than EUR 100 million of impact on the full year on a full year basis.
We expect to recover a significant part of it, but by far not the totality, and that's why we have the productivity. When we say 90% recovery orientation, you can expect that in fact it means much more than get 90% on other categories. This is particularly the case in energy, which 100% and in raw material of quite a few also. This is, so, labor inflation, we've seen the EUR 400 is between 25% and 30% of the increase.
Thank you.
The next question is from Sanjay Bhagwani of Citi.
Hi, thank you for taking my question also. I have two questions as well. My first one is on could you please maybe provide some color on refinancing? When we actually talk about deleveraging, do you intend to achieve your target net debt to EBITDA just by, let's say, increasing the cash element?
Do you also intend to pay off the gross debt? My question is like, can we expect the gross debt itself to go down this year, or the net debt is just a function of keeping the gross debt same and increasing the cash? That is my first question. My second question is on outperformance.
When we look at outperformance in Q1, like even if I take out the geographical mix, pricing and everything, this is still looking very strong at 8.5% of outperformance just from volume and mix. Could you maybe provide some color on what are the key products which are driving this? Can we expect this trend to continue into Q2 as well? Those are my questions. Thank you.
Thank you. First of all, refinancing. The refinancing of the transaction has been closed with the last, the last operation being closed very early February. This topic is behind us. Related to debt management, we are starting, in fact to work on the reduction of the gross debt, given that the refinancing is completed and that we have signed in fact the transactions necessary for our disposal program. The first element of this has been that we have reimbursed $125 million of the debts which were in LR. We will continue to work on the reduction of the gross debt.
However, we will be cautious on this one because we will take into account any evolution of the banking uncertainties that are existing. It's clear that we want to reduce not only the net debt but also the gross debt.
You will see a bit of this progressively during the year. In terms of dividends, as you know, further to the recommendation of our board, there will be no dividend. We will propose to the general assembly no dividend payout in 2023 on the results of 2022 for ACR. We intend, in fact, to resume our historical dividend policy starting with the results of 2023.
It's payout in 2024, which is 40% of our net cash flow from dividend and purchase of shares. On deleveraging as a whole, core objective is between 2.0 and 2.4 times. You can see that if we do all the other operations, we are clearly inside this range. If there is opportunities on volumes and further actions on in H2, we hope to be on the good side of this range.
That will put us clearly in the right direction of our midterm objective, which is 1.5 times in 2025, to be back to a strong balance sheet situation comparable to historical average of equipment suppliers.
On outperformance Q1. You're absolutely right. The outperformance of Q1, even taking out the inflation and taking out the positive regional mix is strong. One point is we have to we have to see what will be the final evaluation of the market of Q1.
Potentially can be a bit above the 2.7%, and let's see what IHS and S&P are reporting finally. Anyway, it's putting us in a good trajectory for our expectation. I think it's when you see by region, you see, of course, the strengths of Europe. You see China and Asia that are strong.
China, on the back of BYD, in particular, in particular in seating. Asia with the development in electronics. In terms of activity overall, I would say seating is seating a good start of the year in volume. Lighting also we, which is confirming the quality of the backlog and the order intake we got. We expect, in fact, electronics of HELLA to further gain traction in the rest of the year. It's indeed a good start of the year.
Thank you. That is very helpful. Actually, on refinancing, I was referring to the bonds that are coming to refinancing, that is in 2025, 2026 and 2027. If I understood it correctly, you may actually pay off part of it. You may even not need to refinance the one which is coming due in 2025. Is that correct?
Two, two things on this. First of all, we have the last part of 23 for the end of the year. For this part, it will be a mix of proposing for renew or renewal and part of it for actual payments. Related to 2025, 2026, 2027, we will be quite opportunistic on depending upon the evolution of interest rates. We are focusing on continuing to extend the maturity progressively.
Thank you, very helpful.
The next question comes from Edoardo Spina of HSBC.
Hi, thank you for taking my two questions. The first one, I wanted to go back to the electrification discussion and ask if you are noticing any updates, any changes in the pace of growth in your order intake, especially in China or, and maybe also Europe, and what that means for your business. You mentioned it's becoming a cash cow that suggests that the revenue should slow down at some point, but you still guide for outperformance. So I wanted to ask about this part?
Secondly, on the hydrogen businesses that you have, if you expect to increase the pace of investment once Stellantis joins you in Symbio, if that also means some direct investment for, you know, for your group, with your own activities, for the hydrogen market, if there is any change there. Thank you.
Thank you. On electrification, we have to look at the different aspects. Thanks to the acquisition of HELLA, our profile versus electrification has changed completely. We are in fact now in a situation in which we have only one activity, clean mobility, and the non-hydrogen part of clean mobility that is in fact depending upon electrification directly.
This activity represent pro forma post the sale to Cummins only 16% of our revenues of 2022. Vice versa, electrification is actually benefiting quite a bit of other activities. I would say electrification is benefiting all the activities acquired from HELLA.
It's obvious on the electronics, uh, in which we have-- you have not only more semiconductors and electronics in an electric vehicle naturally, but second, we have products like the, um, um, the heat management, uh, it's, uh, inside the car that are, uh, in fact, uh, more important in the, uh, uh, in an electric vehicle.
It is true also for lighting. Uh, lighting, you have an extension of the addressable market with electrification. Why? Because in an electric car, you don't have, uh, in fact-Uh, a radiator, so you have the, the front face of the car, which is available for something else. And this is where we have this concept of physical shields that you see more and more in, uh, in cars, in which in fact, the whole front is available for lighting or for decoration. Uh, we are the leader inside this proposition.
The advantage of it is not only for decoration, for specification, but is also for security. Because in fact, this space is becoming available to put sensors, and sensors for autonomous driving. To have those sensors at the middle of the front of the car is in fact key for ensuring the largest possibilities on autonomous driving.
Clearly from a technological standpoint, we benefit from electrification going forward. The last one is from a customer standpoint, we see the growth of electric vehicle companies. I have to say that we are fairly strong with many of them. BYD, obviously, we are more than doubling our revenues with BYD year on year, Q1 '23 versus Q1 '22.
We have solid growth also with another one that I cannot mention, but you I think you can identify which one it is. Both from a technological and from a customer point of view, we are now, thanks to the acquisition of HELLA, in fact in a positive situation with electrification. Now obviously, the internal activity, the exhaust system activity of clean mobility will go down progressively.
The fact that we gain market share and that we are a very reliable partner will moderate this decrease and will delay this decrease. It's clear that we know about this, and that's why we are managing this business as a cash cow from now on. On hydrogen, we have two activities in hydrogen, Symbio and the tanks.
Symbio is a company in which today we are at 50/50 with Michelin. With the entry of Stellantis, in fact, we'll be at. I can tell you that this entry of Stellantis, which includes, in fact, engagement on privileging Symbio in their purchase, is a testimony of the future, of the good future of Symbio. It shows also interest for hydrogen beyond commercial vehicle, for significant cars, starting with the big ones in the U.S. This company is consolidated on an equity basis.
This company has solid financial support from the IPCEI proceeds from the European Union defined by the French government. The entry of Stellantis will in fact reduce the cash need coming from legacy shareholders, i.e. Michelin, us, going forward.
You can anticipate that in fact on top of the cash proceeds of the buyback of shares of Faurecia Michelin by Symbio, in fact the injection of cash of Symbio going forward will reduce. On the tanks, this is this activity that we have at 100%. We are investing in the development of this activity.
We have good commercial position that represents an investment because we believe in this activity and there is no change on this. No acceleration as well compared to previous estimates.
Okay. Thank you very much.
The next question comes from Jose Asumendi of J.P. Morgan.
Good morning. Morning, Olivier, Marc. Thank you so much.
Good morning.
Morning, morning. A few questions, please. Can you speak a little bit around the operating leverage in your business? I mean, you've had a very strong start of the year. Our performance throughout our production is better than expected. Geographical mix is better than expected.
Am I right assuming that your operating leverage is going to be stronger in 2023 versus what we have seen in the previous years, as you mostly also skew towards Europe and North America? That'll be the first question. Second question, please. Are we still on the camp of sequential higher margins first half 2023 versus second half 2022? Any color will be appreciated. Three, I look at consensus. It looks like it's still going for the lower end of the 5%-6% operating margin guidance.
I'm really struggling to see how we can be on the lower end of the 5%-6% in the light of the strong start of the year, your strong pricing power, your cost savings, your 90% recoveries on inflation costs. Can you give us, can you help us a little bit? Are we trending towards the upper end of the 5%-6%? Thank you so much. Thank you.
Thank you. On the aspect of volume and mix to start with. We remain with the guidance and the reference of 82 million cars. Simply said, because, you know, there are two forces that are yet to be completely estimated for the second half. Which is on the one side, the additional activities and strengths in the consumption and the automotive consumption in China.
This is yet to be confirmed, quite frankly, there are signals that are ongoing diverse. There is no clear trend. There are diverse signals ongoing in China this week for the Shanghai Auto Show. I hope to see some. So far, I think really it's a mixed mixed bag of signals.
Cannot count on it yet. The and vice versa, demands and at some point in time, potentially on production impact in Europe still to still to be seen. I don't think this is a topic immediately, but that's why we remained at this level. I think the two the two key factors remain with the same level of uncertainty than they were a couple of months ago, so we have no clear elements to change. On the geographical mix, the strengths of the geographical mix of Q1 is logical and was expected. We are strong in Europe.
Europe was even impacted in Q1 2022, where there were a certain number of products, including RNS that were not available in the first weeks after the start of the war in Ukraine. Of course, on a comparable basis, you have this positive factor. It will not be the same in Q2. We have on board this mix factor in our assumption.
I do not see there any anything specific or new to take. Related to operating leverage, I would say that we are still with the same assumption. On the positive side, we have the actions that we are doing, synergies, cost reduction to reduce our break-even points.
Improvement on the operational efficiency, absolutely. We will continue, and we'll make sure that it does happen. On the other side, negotiation with customers are tough. Inflation pass-through is not an easy thing and in particular on the labor side. Let's say the timing of those two is what we are working on to optimize it.
It's not a natural positive. What we say is operating leverage of 12% on average. If it is China, it's a bit more because our margins in China are above the average. The assumptions that we mentioned in on the back of our annual results 2022, I think remain unchanged.
Profitability H1, we mentioned that H1 2023 will be lower than H2 2023. Remains so. I think it's about timing of the inflation recovery. It's also related to the end of Highland Park topic, in which the remaining cost will be H1 and normally zero in H2.
We expect in fact to be equal or slightly up compared to H2 2022. The range of operating margin, 5%-6%. I have nothing new to say. Once again, if volume is on the positive side compared to the 82, and if it is in China, it will help.
We have to see, we have to see the confirmation. I do not want at this stage to go further in terms of indication than this range of operating margin.
That's very helpful. I didn't quite get one comment. Maybe the line just broke down there. You said first half 2023 lower versus second half 2023 in margin? That's how you said it? Did I understand that right?
what I said, two things. One is the operating margin % lower in H1 2023 compared to H2 2023. Second is that H1 2023 will be equal or slightly above H2 2022.
Very clear. Thank you, Olivier. Thank you very much.
Thank you.
The last question is from Pierre-Yves Quemener of Stifel.
Yeah, thanks. Bonjour, Olivier. Bonjour, Marc. Pierre-Yves, Stifel. I would have two Two question on NAFTA. On the first one, you've already partly answered, Olivier. Could you just refresh us, what would be the kind of losses you would expect from Highland Park in the first half of 2023 before it's back in the black in the H2? Still in NAFTA, second point, should be softer, if I understand you correctly, compared to other region in terms of organic growth in 2023. When should we expect to see NAFTA growth picking up again, in 2024 or more in 2025, given your more selective approach to order intake? Thank you.
Highland Park, we expect, I think we mentioned that last time, around EUR 30 million of impact, negative OM impact in H1 2023. Concerning North America, I think we will have two business that's growing a little bit in different direction. We expect growth in interiors on the back of the deals we have signed and we are signing.
We will be quite careful on seating, in particular on just the investor day we mentioned that in fact the weights of activity between what we call seat structure or the frame, the mechanisms, and the pure assembly just in time will be in fact going towards a reduced weight, a relative weight of just in time. This is particularly the case in North America. Growth in North America not picking up particularly in 2024.
Okay, thank you.
Gentlemen, at this time, there are no more questions registered.
If so, thank you very much for everyone. As you see, a strong sales start of the year, which is encouraging. However, we remain in a volatile environment and we go day by day and we are doing our homework in terms of cost, in terms of working capital improvement, and in terms of cash flow generation to get the reduction of leverage that is at the center of our strategy. Thank you very much. Have a good day.
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