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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to our 2022 results presentation. On the agenda today, we will start with the 2022 key highlights. Then Olivier will present in more details our 2022 results. And finally, we will communicate the 2023 guidance and our key takeaways.
But we will start with a short video, which is summarizing the key elements of 2022.
[Video Presentation]
Our key highlights. The key words for 2022, growth, resilience, cash generation and deleveraging. The step change in size first, we achieved €25.5 billion of sales, which means plus 63% versus 2021; on an organic basis, plus 17%. And if I exclude the inflation, we are more -- we are above 10%. And resilient operating margin with an H2 operating margin of 5% and 4.4% for the full year above €1.1 billion.
Strong net cash flow at €471 million for 2022, representing 1.9% of our sales and with deleveraging performance, while we went down from 3.1x net debt to adjusted EBITDA ratio at June 30, 2022 to 2.6x at December 31, 2022.
A word about the EBITDA. We were at 12.2% in the second half of H2, above €3 billion for the full year at 11.8%. Performance on our three priorities, which are deleveraging of the company, HELLA integration and sustainable growth.
Deleveraging, we fulfilled our disposal target of €1 billion for 2023. We communicated to the market that we are looking for signatures closings in the first half in order to achieve the cash in the second half. So we are on our way to achieve this.
Another highlight is that we have fully refinanced the acquisition of HELLA. We paid back the bridge to bond and the bridge to equity in February of this year. HELLA integration is working well to the extent that we have increased our cost synergy target and also our sales synergy target, and this is related to the common order intake we achieved in 2022 of €1.8 billion.
Sustainable growth. We showed resilience again, financial resilience. We enjoyed a very strong order intake in 2022 with €31 billion of sales and an operating margin, which is a record for us above 7%, and which will contribute to our 2025 targets. We continued to work on our sustainability road map, and I will tell you a few additional words on this. And we also created MATERI'ACT at the end of last year.
Deleveraging the company. So in July 2022, we announced that we have sold our one-third stake in HBPO to Plastic Omnium for €290 million. This deal was closed in December 2022, and the cash was received.
In December 2022, we announced the sales of Faurecia's interior business in India to TAFE, Tractors and Farm Equipment Ltd., and we also announced an exclusive negotiation with Stellantis about a stake in Symbio with closing expected in H1 2023. In the signed term sheet at the time, we defined the percentage and the valuation.
In February 2023, we announced an exclusive negotiation for the potential of sales to Cummins of Faurecia's commercial vehicle exhaust aftertreatment for Europe and in the United States. And this for an enterprise value of €150 million.
And finally, yesterday, we announced that Motherson Group has committed to acquire 100% of SAS Cockpit Modules for an enterprise value of €540 million. This contemplated transactions announced to date fulfill the €1 billion of disposal program of nonstrategic assets by the end of 2023.
About the integration, I think let me start with the mission statement, we pioneer technology for mobility experiences that matter to people and that matter to people is really the key element of this mission. And this is what we are doing together with HELLA. So commercially, we have a combined go-to-market with a very positive feedback from what we demonstrated at the CES and which we will again demonstrate in Shanghai in April.
The order intake, I just mentioned it. We made income for about €1.8 billion in 2022, and I will tell you what it means. From a process cost optimization, we are working together on the FORVIA Excellence System. This is related to manufacturing. We are focusing on standardization, massification, specialization of our plants and it's working with an excellent momentum.
We deployed a joint purchasing commodity strategy, and we will go one step further. We did it also on our IT organizations. And finally, on the Electronics side. The collaboration is strengthening, and we have now a very clear understanding of our future portfolio.
People, we celebrated together the first anniversary of FORVIA on the 7th of February. It was a nice event. We have common ESG targets, and I will also tell you a few words about this. And we have enhanced opportunities across the group to further improve our collective efficiency and effectiveness.
This quite naturally pushed us to revise and to upgrade our synergies, the cost synergies on one side with more than €300 million now in 2025 EBITDA run rate versus more than €250 million was our previous objectives. What I wanted to say here is that we have a very robust governance and tracking system for these cost synergies. And we also have a target which we are confirming for 2023, which is that we will have in the P&L more than 40% of this global amount.
Revenue synergies, more than €400 million annual sales in 2025. The €1.8 billion I just spoke about, it would represent about €300 million of revenues in 2025 and more than €400 million revenues in 2026. Here, we have, again, a very strong pipeline of opportunities, and we have a very robust outlook beyond 2025.
I would like now to give you an overlook of our €31 billion of order intake and how we believe we are mitigating the risks with, on one hand, our six business groups, the geographies and the segmentation, the customer portfolio and the segmentation.
Here you have on the part which is related to electronics of our global sales, €8.4 billion, representing 27%; China, €6.2 billion, representing 20%. Electric vehicles -- battery electric vehicles and fuel cell electric vehicles, representing €13.3 billion and 43%. Maybe on ICE, if I take this to complement it, we have a market share and global market share of 26%. On the longevity project. So it's related to the engines, the customers have selected to run until they will exit ICEs, our market share is at 40%.
So our strategy is very clearly to focus on passenger vehicles and light commercial vehicles and not or no more on heavier mobility devices. On premium and SUVs, where you have a very high content per vehicle. We achieved €18.8 billion 61% of the global sales. We also did it with a selective order intake process. So we were able to reduce the upfront significantly, and we achieved an operating margin above 7%, which is already reaching the Power25 targeted profitability.
In the future, we will present our revenues within three zones: EMEA, Americas and Asia. And you see here in 2022, we made 45% of our sales in EMEA, sorry, 28% in Americas and 27% in Asia, which is a pretty well-balanced geography. Now when we look at our six core business and more importantly, our customer portfolio, during the CMD, we told you that our target is not to have any OEM above 20% of the group sales. We are here at 18%.
Now if I exclude SAS, we would be with Volkswagen closer to 16%, which would also be the percentage for clean mobility where we will go down from 19% to about 16%, excluding CVI. A short focus on China. In China, between '21 and '22, we multiplied our sales by 1.7x and had a look on the organic part, which is at plus 21.6%. I think it's an impressive figure.
We have achieved in 2022, €5.4 billion of sales. When we look at the split of these sales between the Chinese OEMs and the non-Chinese OEMs, we are growing faster with the Chinese OEMs 2.1x between the two years versus 1.6x for the non-Chinese. And in the non-Chinese, you have an American EV specialist, which had a very strong growth, which would again change a little bit the figures. They have grown by 2.6x during the year 2022 versus '21.
I think that this is an important point as we want to be a key partner of the next export specialists. The other thing I would like also here to add is BYD. We are a very big supplier of BYD, which we believe will be one of the exports champions. We've grown with them by 3x.
Driving more into sustainable future. Maybe I just spent a little bit of time on three of these four items. The first one is that we were the first automotive company being approved by SBTi for a net zero target in 2045. And we are still, I think, the only automotive company having achieved this result.
On net zero, maybe one element, which is very concrete for Scope 1 and 2 versus our reference year 2019. In 2022, we reduced by 32% the tons of CO2 per €1 million of sales, which is giving us, again, an advance versus our targets of about one year. Our target for 2023 will be 40%, minus 40%.
We are also perfectly aligned with under Scope 3. In the CES -- during the CES and next in Shanghai, we will demonstrate how through new architectures through new modularity through a circular economy and MATERI'ACT, we will be able to achieve our Scope 3 2030 target of minus 45%. MATERI'ACT, very important, MATERI'ACT will develop our new materials. It has attracted a lot of attention of our customers.
The target we have here more than 400 people in 2025 and €2 billion in 2030. I do believe that we will have to accelerate. We will achieve 120 people at the end of this year, 20% PhDs. We will be located in the [indiscernible] region, and we have the target to have a run rate until the end of the year of 25-kiloton of compounds. So it's something which is not just and starting a new company, it's something which has already sales and which will, I think, accelerate quickly.
[indiscernible], the results.
Patrick, thank you. Good morning, everyone.
So let me start with the production volume, the environment. As we all know, '22 has been still a year of turbulence in particular in H1, war in Ukraine, lockdowns in China. What is interesting in the evolution is that, in fact, the second half has shown a positive evolution in this matter. The amount of shortages is less prevalent. The change of China COVID policy had limited disruption compared to what we would fear. And third, the case of energy disruption for the winter in Europe is now something that is behind us.
So the 15% in the second half is an encouraging sign, leading to 82 million cars and 7% for the year. Now how did we fare inside this context? So as Patrick mentioned, a clear change in size, the acquisition of HELLA with a consolidation from February 1, plus 63% year-on-year, €25.5 billion of sales on the ICE side of our guidance mentioned to you recently. And even more important, the outperformance of 11% organic growth, 17% markets at 6.7%, so organic growth of 11%. And this organic growth include inflation, but you have had volume content around 5% of a true outperformance.
On the profitability, so resilient profitability for the year, 4.4%. Clearly, with a better second half as we committed, we were at 3.7% in H1. We are at 5% in H2. You see that inside this bridge, there were negative elements, war in Ukraine, Stop & Gos as a consequence were largely driven by H1. And the inflation, I will comment further, but we have clearly progressed on the recuperation and the pass-through of the inflation during the year. Michigan, I will comment in more details when I deal on Seating. But of course, the cost of the Michigan ex program extra costs have been lower than the year before.
Now how did we fare on inflation? So inflation has represented more than €1 billion of additional cost, €1.1 billion, mainly in raw materials, much limited in energy, thanks to the hedging policies that we have put in place as regularly on a forward 12, 18 months basis and labor inflation in which we have been able to do that in a limited manner.
We are putting -- we have activated the contractual mechanism that we have in place. We have put in place still a steering committee to monitor and enforce the pass-through throughout the company. And this has led, in fact, to a recovery over the year, improving and more recurring and leading to a pass-through of €1 billion, which is representing a cumulative inflation pass-through of more than 85% at the end of '22.
This, however, of course, given the impact on additional revenue and still around €100 million negative operating margin represents a dilution effect compared to pre-inflation situation of 1.2%, so in a way, you could look at the 4.4% that we had in '22 and a 5.6% pre-inflation.
Now if I go business group by business group, let me start by Seating. So Seating, first of all, update on the Michigan program. We had still cost inside this program in the second half, less with the actions being taken. The costs are mainly related now to the lack of volume and the cost of operation we have versus the volume actually done.
We have taken two actions. The first one is that the metal activity is now transferred in full to Monterrey in Mexico. And the second part is that we are working with Stellantis on dealing and fixing the activity, which will be effective in full accordance with our customer by Q3 '23.
Now if I exclude the effect of the Michigan program, you see that in the second half, we reached a 4% operating margin for a year of 3.6%. So we are getting better. We are reducing the impact of the Stop & Gos. We are better flexing. But clearly, we have still some work to do in particular in Europe.
I would like to - however, to mention on volume, we have in Seating, strong growth in volume. This is what Patrick was mentioning before in terms in particular in China, BYD and with a U.S. EV carmaker, which is present in China.
If I move to interior, so interior, we have solid organic growth of 17%. We are getting to €5.5 billion of revenues. Let me highlight that interiors include our sales activity and SAS represents €900 million inside this €5.5 billion in terms of sales.
On profitability, we have improved here as well the profitability between H1 and H2 we are getting to 5.2% in H2. And you see that this business group has improved results compared to '21, which is reflecting repricing in some contracts in North America, a better operational performance in the context of Stop & Go uncertainty and inflation. So a positive trend that will continue for the interior and the part that is the dominant part, which is the part SAS.
Moving to Clean Mobility. So Clean Mobility, €4.7 billion of revenues, organic growth, double digit. This €4.7 billion, if you exclude the activities that we are selling to Cummins on the pro forma basis, you are getting to €4.3 billion, which reflects in fact, the further reduction of our dependency on the exhaust system getting to 16% compared to the 19% on a pro forma basis.
On the profitability side, impact of -- we are at 7.1% and here as well, we have improved in the second half compared to H1. We have, however, dilution effect, in particular, coming from the metal, which has been really the raw material increasing the most. We have also some operational topics that we are dealing with, and we had a bit of investment on the zero emission.
Clearly, the expectation in '23 is to return to the level of '21 in terms of profitability above 9% on the road back to double-digits. Clean Mobility, as Patrick rightly mentioning, so Clean Mobility is obviously our first cash car. And I have to say that the performance again in '22 of Clean Mobility in this domain has been very solid and very strong. The rationale are simple. The activity is simplified, standardization of our activity, a reduction of the number of engines means the reduction of the number of variants of exhaust system, allowing a strong conversion in cash.
In fact, the conversion in cash has been largely above the level of operating income, more in line with the EBITDA that you can imagine on Clean Mobility. So a good trend, and this is confirming what we are expecting from this activity.
On Electronics, so Electronics, of course, is an activity that is completely changing SAP with the HELLA integration. The activity is multiplied by four. Electronics from HELLA is providing a larger portfolio of activities, a technological content, which is very strong in a number of activities. And we are now having 14% of our revenues in Electronics. And to highlight the potential of growth of electronics, I would like to mention that Patrick showed that 27% of our orders are in electronics. So you see, in fact, the momentum that we have in this activity.
From an operating profit point of view, we are at 4% overall with a contrasting situation. So HELLA Electronics, excluding a specific accounting factor on the opening balance sheet with the acquisition of HELLA, 6.7% in electronics with the context of semiconductors, shortages and inflation is a good performance, and we will continue to work in this direction.
On the Faurecia Electronics side, we have record, unfortunately, a loss of minus 1%, which is coming from H1, breakeven in H2. The volume of activity below €1 billion is not the level that is matching the cost structure. The level of order is more than twice this level. And also in some of the countries, in particular in China, we have, in fact, variations in demand and supply from the semiconductor side that has been quite important.
In terms of fixing this activity, we have in '23, we will have up and running our modern plant -- our Phoenix program with a modern plant in China that will obviously improve the profitability and the volume coming from -- on the back of the strong orders that we received the past years, including joint orders that were mentioned by Patrick in the €1.8 billion overall.
On lighting. So lighting is one of the activities coming from the HELLA integration. This is with an activity of €3 billion in 11 months, so close to 3.5% on a 12-month basis. This activity is sustained by the connection with electronics. You see the innovation that are coming in those domains and the fact that we have the electronics with the HELLA activity is, of course, an advantage even more important in the evolution of this market.
From a profitability standpoint, we are at 2.2% in excluding specific the mirror accounting effect that I mentioned on electronics, which is, in fact, with 3.2% in the second half. So we are improving the profitability of Lighting in fact, on a ongoing basis, in line with what we presented to you during the Investor Day.
And finally, the six activity, life cycle solutions. So this is our activities in both B2C and Special Application, an activity of around €1 billion on a 12-month basis. The activity is currently at 10% profitability. Price increases have been put in place during the year with some delay compared to the volume portion inflation. So we believe that, clearly, we confirm, in fact, the potential of this activity in the 11%, 12% range on a going-forward basis and is quite sustainable compared to production activity.
Now if I switch to regions. So here, you see, in fact, the picture of the different regions in which we are operating. Let me highlight, first of all, that '22 has shown, in fact, further relative growth in both Americas and Asia. We have grown both on an organic basis or on a reported basis, more in those regions than in Europe, totally consistent with the message of internationalization and balancing that we have plus 67% in Americas, plus 63% in Asia. All regions have posted double-digit organic growth.
If I look at profitability, the profitability, first of all, of Asia. So Asia, we were double digit in H1, and we are double digit for the year. I wanted to highlight H1 because this has been done in the context of the very severe lockdown that you remember in China. It means the quality and the resilience of our organizations and teams in the country in a very particular context it showed the potential going forward of this activity on top with the growth with EV players and the development of export business from China by the Chinese OEMs.
Europe, Americas we have improved the profitability between H1 and H2 in North America on the back of a positive evolution of Michigan and elsewhere. However, it's clear that the profitability that we have in those regions are far from their potential flexibilization of the cost, fixed cost reduction in Europe, and pass-through being more consistent. This is clearly the focus of the teams, and this is what was shown also in some of the activities, for instance, city.
Now if I look at the details of the P&L, first of all, the operating margin. So on the operating margin, clearly, the profile of our P&L has changed with the acquisition. The gross margin is up even with the dilution of inflation. Why because of the margin and in fact, the level of technological content of the HELLA activities, in particular, in electronics.
The second point I would like to mention is we are a technological company and our R&D expense is proving it more than €2 billion of gross expense of this -- for this new company, which is showing the strength and the potential in terms of technological development and innovation.
And the third is you see that, in fact, in terms of SG&A and even in terms of the absolute R&D, the potential in synergies and the potential in fixed cost reduction that we are working on consistently with the message as earlier on. So 4.4% for the year, 5% in the second half.
Now if I go to the net income, so we registered a loss of €382 million for the year. The vast majority of this is coming from the first half. Let me highlight the cause of this result. Inside this net loss, we have €321 million of nonrecurring charges. The first one is that we have decided to fully disengage from Russia. And we have taken in our books, the consequence of it with the charge for the year of €143 million.
The second is that, of course, the first year of operation, you have integration and financial costs related to the acquisition of HELLA for €51 million. The third is that we have one-off restructuring cost of €86 million. This is related to the Michigan program related to the transfer of the activity of the metal to Monterrey and related to what we are doing to fix the activity in collaboration with Stellantis. And last, we had a level of hyperinflation costs, particularly abnormal.
So on a more recurring basis, we have, in fact, a result that is close to breakeven. Now I would like to comment on the income tax charge, which is obviously a question that people should have. We have an income tax level, which is related to two things. Number one, our regional profit mix is in balance currently. It's caused by the low profitability in Europe and in North America and in particular, in terms of tax in Europe because we have tax losses of €700 million in France that are not used.
The second element in driving the level of tax is actually that in our charges in restructuring and in other nonrecurring, we have a lot of write-off of assets. The good news about write-off of assets, it's not future cash outflows, but the negative is that it's not deductible.
So going forward, we expect, in fact, a progressive normalization of the tax profile. But clearly, the level we have is particular in '22. Last element to highlight on this result is that, of course, our minority interest is increasing compared to '21. This is logical. This is related to the fact that we have 82% of HELLA and HELLA is profitable, and this is good news.
Now if I move to the cash flow. So cash flow of €471 million in '22, mainly in the second half. We have, in fact, clearly the positive element driving this performance is coming from the working capital, is coming from the first effect of our managed by cash program, is coming from the fact that we have collected well from customers and the first element of actions on inventories.
We still have some work to do. The CapEx level, as you see, is with potential of improvement and on the working capital, there is further improvements on inventories that can be done. On the financial expense, of course, an increase year-on-year, which is reflecting the acquisition of HELLA and we can expect the level of financial expense to get to €450 million in '23 with the evolution of interest rates and then going down afterwards.
So deleveraging, as Patrick mentioned at the start of this presentation, significant reduction of our ratio and our debt in six months from 3.1 to 2.6x. You remember that the objective is to get to 1.5%. So we have done 30% of the objective in the first six months. Net debt below €8 billion at €7.9 billion at the end of December. And we have confirmed -- the Board of Directors has confirmed their proposition for no dividend to be paid on the results of '22. So in H1 '23, consistent with the priority of deleveraging.
Let me add that consistently with what we said during the Investor Day, we intend to resume our 40% dividend policy on the net cash flow from the result of '23 with effect in cash in '24. Available cash as a consequence, €4.2 billion. We have also, of course, our SCF lines in Faurecia and HELLA fully undrawn for a total of €2 billion. And you see in this pro forma debt maturity post full reimbursement of the financing bridge on February 2nd, we have limited debt, of course, to repay in '23 and a total of 2.7, if I take the next three years. Of course, now that we have clarity on our disposal program, and we have secured that the timing of the cashing will be in '23. We will work in a more active manner on the, in fact, debt evolution working on financial expense going forward.
Thank you, Olivier.
The 2023 guidance now, starting with our assumptions. So we have chosen to be present at the beginning of the year and to keep the €82 million, which were achieved in 2022 for 2023. When you look on the right-hand side of this slide, you see that we are close to the 2022 figures slightly above in Europe at the level of S&P in America. And we are significantly below in Asia. And if from what we know today, we should consider an opportunity. It would be in Asia, in Asia where, you know it, our margins are the highest.
We will continue to actively work on inflation and especially the accumulated inflation since 2021. We expect the market -- the following market evolution. On the raw materials, we have pluses and minuses. On energy, clearly, we will have an inflation. We will have to pay more, which is also the case of labor inflation.
We estimate that the additional inflation we will have to face in 2023 is at a level of about €400 million. We benchmark with automotive industries to just make sure that we deal with it at the right level. Considering this time, energy and labor, we don't think reasonable to take as an assumption that we will get compensated for 100%. This is why we are guiding at above 90% of compensation, which will be supported by some of the raw materials, which prices are going down.
The guidance on the sales side, after disposal with an estimated minus €1.3 billion, our sales should be between €25.2 billion and €26.2 billion. Our expected outperformance on sales should be between 500 basis points and 800 basis points. Operating margin between 5% and 6% of sales. Net cash flow strictly about 1.5% of sales. Net debt to adjusted EBITDA at December 31, 2023, between 2x and 2.4x.
We are still on track on 2025 on our financial targets, which are sales are circa €30 billion and an operating margin above 7% and net cash flow at 4% of sales and a net debt to adjusted EBITDA below 1.5x at December 31, 2025.
The takeaways, three priorities. I've started with them, I conclude with them, deleveraging the company as quickly as possible. For sure, the positive integration of HELLA and grow on a sustainable way, profitable, of course, but it's part of sustainability. We will do this leveraging Power25 and being FORVIA, there were the two ones we have announced and launched during the CMD of last year.
With this, we are concluding the presentation, and we are opening the Q&A session.
Thank you. Pierre Quéméner with Stifel. I would have two questions. I'll stick to two questions. The first one is on the free cash flow, obviously the core free cash flow. You are looking for a strict 1.5-plus percent free cash flow margin in '23 after 1.9% in '22 and 2% in '21. Why would free cash flow margin weaken since EBITDA recovers? Is it because of lower working cap tailwind? Is it because you are setting a spending? That would be the first one.
And the second one is, at least from my perspective, you, expectedly sales -- announced the disposal of SAS Automotive yesterday, 50% of which have been repurchased to currently three years ago. At that point in time, it seemed, let's say, core to your interior business. What has changed in three years? And what is the profitability of that business? If you can give us some color. And the obvious follow-up would be on the special apps from HELLA. Is it still a disposal candidates? Or are you eventually decided to that score to your portfolio of business given the high profitability? Thank you.
You start with the first one, Olivier, I'll take the two next ones.
So as you mentioned, the last two years, Faurecia, Faurecia standalone, 2% in free cash -- net cash flow in '21, 1.9% in '22. And we are targeting at least 1.5% in '23. So first of all, is at least 1.5%, and I think we are proving recently that sometimes we do better than what we say.
The second element is that I have to take into account of the increase of financial expenses, obviously. Now when you look at the different components, I'm expecting between €200 million and €300 million of positive contribution from working capital in '23 slightly less than in '22. I believe that the potential is there. Inventories we have -- we are starting the job and the second element is that with reduction of shortages, with reduction of Stop & Gos, you are in a better place to manage your inventories in a more consistent manner.
Maybe to complement the answer. We started managed by cash. Last year during -- at the beginning of the second half, and it showed some interesting results. The focus of the company on the cash generation is completely different. We have, in each of our business group now somebody who is directly dedicated in charge of managed by cash. So believe me, the deleveraging of the company is our first priority and the cash generation is clearly one of our key targets.
About SAS, we bought the 50% of SAS owned by contre for €230 million.
€225 million.
€225 million, sorry, three years ago. Three years ago, the world was very different. And especially the inflation part was very different. This module assembly is -- has very high content. It's the main part of the activity of added value. And these plants are not in low-cost countries. They are where the customer plans are. It's a just-in-time activity.
So for all these reasons, we believe today that this activity is not a core activity to us. And by the way, compared to the shares we bought, but also compared to the initial investment, we created value through this deal. SOE was on the next question. We communicated to the market. When I say we, HELLA communicated to the market that an investigation is still ongoing, and it's true. It's still ongoing.
Thank you. Thomas Besson with Kepler Cheuvreux. Three questions, please. First, on free cash flow. Could you just give us an indication on where you see CapEx in absolute terms and percentage in '23, '24? I mean with your production assumptions flat, you probably don't need to increase CapEx a lot. The €200 million, €300 million working cap assumption looks both cautious and optimistic, I don't know how to say that. You have a much higher share of Chinese automakers that typically pay you much later. Can you just explain regionally how that works with your typically European business more easier on working cap?
Second question on inflation. You aim to get 90% back, if I understood correctly, but that seems to assume that you keep lower raw material prices to yourself. Do you think you can do that with more indexation with the automakers? Or we are going to come back to you quicker than they were reimbursing you before? And lastly, on M&A, I mean -- so we understand you could go beyond the €1 billion disposals, as these talks are still ongoing for some of your businesses. If you do go beyond that, is there any plan to redeploy some of that excess cash, for instance, to buy the minorities of HELLA? Or is it something that is still way beyond the current investment? Thank you.
Same thing, you take the first one. I think the next two.
So free cash flow. So first of all, on CapEx, I'm expecting the CapEx in absolute terms to be flat in '23 and perhaps a bit down in '24. The rationale is -- first of all, you have one more month, for HELLA. Second is we are continuing to invest in some of the business, clearly on the back of the strong order intake. So it's -- I think it's a logical number with much less CapEx in certain activities, Clean Mobility to take an example, but rebalancing between portfolio to monitor the growth.
Related to working capital, actually, China, net-net, as a good working capital and the conversion in cash that we have in China is quite good. So the fact that China would be the opportunity for growth compared to what we have should be a positive, if anything, on the working capital. But the main driver overall is inventory management.
Our level of inventory in some of the business has increased by 30% compared to pre-COVID. So this is about going back to a more regular monitoring, which with the, let's say, the reduction of shortages with more visibility, including of supply chain logistics from China, which is, in fact, the factory of the world, so beyond the car industry, that should help plus the measures that we are taking as part of the managed by cash on.
CapEx, when you look at Clean Mobility, we should have by far less CapEx in the years to come with the longevity projects. Very little investment in R&D and in CapEx. When you consider Lighting, which had a significant CapEx spend also because of the life cycle, which was pretty short of 3.5 years, considering the upgrades of the vehicles here. We have two things. First of all, these model year changes are getting less and less numerous. And secondly, what we are doing on the standards is also very much supporting and reduction.
And this is happening. What we are doing here is happening in all the business groups through the excellence systems we put in place. Inflation, you spoke about the target to pass 90% of this inflation. And you said if the raw materials -- if these prices will go down, what will happen? So it depends really customer by customer and how we are dealing with the other inflations, labor inflations and energy inflation. It's clear that we need to consider a global equation to make sure that we have a robust and sustainable model for the years to come.
So we know that we will not be able to get a compensation for an inflation, on labor, for example, which is -- which was not compensated before. So I think that you have in brackets a normal inflation and you have an additional inflation. And when we are speaking about compensations, we are speaking about this.
Same thing for energy costs. We have the run rate, if I may say so, energy costs, and we have the abnormal energy costs. And we have to deal with that. And also very clearly, we have to work with our customers to reduce the cost. And I see a lot of possibilities if we work together to make this happen.
All the product groups we have within FORVIA are able to develop from award to SOP their products in 20 months. Today, our customers, most of them are doing it still in 36 months. It would mean a very, very significant saving if we would be able to convince them to consider a different timing plan.
About M&A, I said it before, our priority is deleveraging the company. All the synergies we have identified and we have increased our targets. We can execute them within the existing governance and structure. So we do not have in our targets to buy these minorities before the deleveraging of the company might allow it.
Hi, Michael Foundoukidis from ODDO BHF. Maybe a quick follow-up on inflation. And coming back to the 90% that you're targeting, should we expect like in 2022, a gradual improvement throughout the year with H2 being better than H1 on this side? And maybe more generally on the margin side, should we expect margin to improve sequentially again and also linked to Michigan between H1 and H2 this year? And then maybe on volumes and your guidance, what should we think of your guidance? If volumes prove to be closer to S&P assumptions, which is between 3% and 4%. Should we assume the typical 12% to 15% operating leverage that you usually have, especially with China being the source of upside as you rightly mentioned? Thank you.
We expect effectively H2 to be better than H1. In H1, we will have a first quarter, especially in Asia, penalized by the remaining COVID contamination period and also related to, as usual, the Chinese New Year.
So the volumes are below the volumes we had in the first quarter of last year, even if it's very difficult to compare because it was in January this time, the Chinese New Year, so we have seven days working days less in January. But yes, about the inflation, we are discussing these inflation with our customers. Since last year, so we have started discussions about energy, about labor.
And I hope that we will be able to achieve to close these negotiations very quickly. But the volumes I spoke about in Asia might really materialize in the second half, which, again, would improve, as you rightly said, with higher margins, our global results. About our volume assumption. What we said is a 1 million -- 1 billion, sorry, 1 million vehicles are equal circa €300 million and with an EBITDA operating margin fall-through of 12%. Any other question?
So the question we have here from Martino De Ambroggi. What our full year sales? In the press release, you mentioned €1.3 billion full year '23, but it seems to be pro quarter and margin EBITDA and EBIT of all the divested assets?
Yes. So Martino, so indeed, what we are mentioning, €1.3 billion is the impact in terms of sales for the year. Taking into account that SAS, we will apply the IFRS 5 accounting rule, which means that it will be retroactive January 1. So it's the full year of SAS and for the activity that we are selling to Cummins, in fact, we have assumed half a year, taking into account the timing of antitrust and so on. So €1.3 billion is the impact that is anticipated on a full year basis to -- so that you can project what it means the future is 1.5 for the two businesses.
In terms -- the second point is that it means that our guidance for '23 represents, in fact, an organic growth between 5% and 8% or an outperformance between 5% and 8% since we anticipate a flat market of 82 million vehicles. Now related to EBITDA and EBIT, I can say that the two businesses on an aggregate basis is slightly above the average that we have currently.
But our commitments and all our guidance are taking into account, in fact, the impact of this divestiture. So when we say 5% to 6% operating margin, when we say above 1.5% in net cash flow, this is after, in fact, those disposals, and you understand that the six months of the activities sort of coming is not changing things even for future years.
We have a question from Mr. [indiscernible]. Your line is open. [Please ask your question].
[indiscernible]?
So China brand, what -- we are in China for two decades now. And we have a full Chinese management. And this Chinese management is very loyal to us. They are with us for most of them since the beginning of our journey in China. The President of FORVIA in China, Faurecia in China is [indiscernible]. He is with us for, I think, 15 years at least, yes.
So this allows us to have the right intimacy with the Chinese OEMs. And when you take BYD at an early stage, we bought the in-house production of BYD for seats. And this allowed us to be really very much inside the BYD organization.
We also had at an early stage, the target to better balance our sales between international OEMs and Chinese OEMs. And especially also to follow and to support the new entrants, and the pure EV vehicle makers, for example, to name them, but you have many others. And I think that this is working today. And what is also important to them is our capacity to develop Chinese products for Chinese consumers. So we have the relevant R&D resources locally dedicated to the Chinese market. About FCM, I haven't catched the question exactly.
I think the question was about the Clean Mobility dilution aspect of the inflation. And in fact, what is the path in terms of evolution of profitability.
So maybe just one thing. Steel and stain, -- especially stainless steel is the main element of the raw materials used by Clean Mobility. And by the way, of the material content of Clean Mobility. So as these materials have increased very significantly, they have a dilution -- mechanical dilution effect, which is above our other activities.
And this is why I was mentioning earlier on that with the evolution of the steel price which is the dominant part of the inflation, clearly for Clean Mobility. We and evolution on operational aspects as well as, in fact, the sale of the commercial vehicle activity in Europe and North America, we expect to return to more 9% in '23.
And the operational issues, which you mentioned are fixed.
Our next question comes from Mr. Asumendi. Mr. Asumendi, the line is open. [Operator Instructions]
Thank you. It's Jose from JPMorgan. A few questions, please. Patrick, can you outline a little bit more the opportunities to improve the profitability in the electronic expiration? Second, can you talk about what drives the lower end and the higher end of the margin guidance for 2023? And then three, I was thinking, if volumes don't come back to precrisis levels in Europe, are you reassessing your manufacturing footprint in Europe, the manufacturing for space and doing asset write-downs in order to improve the profitability in Europe from the current low single-digit levels to much more, what we used to see from Faurecia is more than 5% plus margin levels in the European region? Thank you.
So what are the opportunities on the electronics? What I can tell you is that the portfolio we have, HELLA has on our automated driving is growing very, very fast. To give you an example, the expected RFQs next year for radars are summing up to €15 billion. And when you look at the x-by-wire modules, they are also increasing very quickly.
So what is very important, and this is also what we are doing on the Clarion part is to have a yearly scanning of all the product lines, just to make sure that we are on the right products, perfectly aligned with the automotive megatrends.
And I think that on the HELLA side, it is the case. On the Clarion side, we have some room for improvements, and this is something we will tackle now. I also believe that when you look at Cockpit electronics versus the electronics, which are proposed by HELLA are different. The content on the Cockpit electronic of software is continuously increasing. And consequently, the content of hardware in this part gets limited and especially limited to the displays.
So this is something we are considering and we are very carefully checking now what -- where should we invest, what are the product lines, which are the most relevant in the years to come. I will jump immediately to the third question, and I will let you answer the second one.
About Europe. The growth we have in Europe, especially on electronic and on some other elements so far will allow us to compensate the expected reduction on Clean Mobility devices. So we should not have an issue with restructurings related to the drop of the ICE business.
While we have taken a very aggressive assumption on the ICE reduction in Europe, not waiting for 2035. This said, if the European automotive industry OEMs would abandon the entry segments, especially electric entry segments, this would have an impact on the global volumes being produced in Europe.
And if this would happen, yes, we would have to do some restructuring. Restructuring in Europe, but investments outside of Europe because if this would happen, it would mean more imports from China. And as I said before, we are strong partners of the potential exporters from China tomorrow.
On the margin guidance driver, I hope I understood correctly the question. So we are at 4.4% in operating margin in '22. Our guidance is 5% to 6%. So first of all, five, in fact, this is the level we already achieved in H2. So I consider that clearly as a floor.
Now if I try to say what are the key drivers? I would say one-third is coming from volume, so 04, 05, one-third is from performance, including Island Park, and one-third from our actions on synergies and fixed cost reduction. And each of them around 04, 05. So everything being equal, I -- if things are going well on those three factors, we are selling. We are quite solid on this guidance and that's it for the operating margin. I was looking at the other question we have on SAS, but...
[indiscernible]. Congrats for your great results. When will the SAS cockpit module session will be closed, what impact on your revenues, EBITDA, thank you.
So it should be closed at the end of the first half as it was mentioned in the different communication. For the revenues we spoke about that. It's a full year. In fact, revenue of €1 billion we are considering here. And for the EBITDA, it's inside and the guidance we have made.
And maybe just to complement this, we will have to apply this accounting rule of IFRS 5, given the size of this business. And that's why, regardless of the timing of closing post antitrust, we are considering the full year impact because this is what the accounting rule is asking. And I want to reaffirm that, in fact, this offer is binding from [indiscernible] option. So it's a clear time line.
[indiscernible]. €1 billion of asset sales. So you are in negotiations for some of them, what is the probability of the failure of these negotiations? We believe that all what is related to the €1 billion and which has been announced so far is pretty robust. If it would not be the case, we would not have made this announcement. But as it was discussed, we are not at the end of our disposal program.
And if we would have any issue, we should be able to compensate. Kepler, which raw materials, in particular, explain the margin hit in Clean Mobility? It's steel and it's stainless steel. So you have two references, market references and both were increasing. But it's also true to say that it is improving in 2023.
So it should fuel an improvement for Clean Mobility.
This has been the raw material by far that has increased the most in what we do.
Jim Williamson. Hi, it's Jim Williamson from Credit sites. The €1 billion divestment program is now completed. But do you envision any additional disposals over 2023?
As I said, we want to focus on light vehicles, passenger vehicles and light commercial vehicles because it's where you have the longevity projects, which are the ones in which we are mostly interested, that's one element of the answer. And independently now from having achieved the €1 billion, our deleveraging priority stays our first priority. And if we would have an opportunity to divest and non-strategic entity or activity, we will certainly consider it.
Christoph [indiscernible]. What are the factoring assumptions for 2023? Olivier?
So as you have seen, we reduced the factoring in H2 '22. We are a bit below €1.3 billion, €1.3 billion was, in fact, the level that we reached when we integrated HELLA in our factoring program and the intention is not to increase from this €1.3 billion. So no contribution in '23.
Tom Swift. Can you please clarify if you intend to perform any bond refinancing transaction this year?
Our plan is now that we have refinanced the acquisition in full. We know what is the disposal assets, and we have a clear visibility of the timing of the cash proceeds. The next step is actually in terms of financial expense and debt management. So this is what we will do.
But also understanding that the liquidity we have is allowing us to be selective.
Yes.
Valerie [indiscernible], what are your targets in decreasing CapEx and inventories?
So my target is decreasing CapEx. But to be conservative, I'm saying that it will be flat for '23 and related to inventories, we have improved in the late part of last year by a bit less than one day. I believe that we have several days to gain in '23 and the impact in cash will be -- will depend on the timing. But this is clearly the focus area.
Maybe one word about upfront management and selectivity. We have set targets for each of our product lines with a minimum performance to be achieved. And if this is not the case, it needs an escalation up to me to make some arbitrage. And in the KPIs we are considering you have the upfront, which is CapEx and R&D mainly. So we are very careful to make sure that we put our money on what really counts from a strategic point of view and where we believe the future growth should come from.
The upfront is our indicator to see what is the maximum cash that we will put out at the time of the start of the project before actually the start of production. So as Patrick mentioned, it's CapEx, it's R&D and is, in fact, the launch costs. So clearly, by having this indicator as a limit, it's a maximum budget that we allow ourselves. So it means that we have to arbitrate between the different projects. It forces on the selectivity. And it's also disciplining us in terms of the conversion in cash of our activity in the contract signature and in the execution.
[indiscernible], you mentioned that you have a maximum 20% of sales per OEM. Do you have a country maximum limit corresponding to this?
What is very clear when you think about the risks related to the different regions, is that you have -- that you need to have a level of profitability, which should be comparable, which is currently not the case when you compare Asia, with Europe and North America. So if the question behind this is, are you not taking too much risks in Asia? The answer is no, as long as we are capable and focused to improve the profitability in Europe and in America, which is what we have to do.
But we cannot, not consider the only region which will have a relative weight of more than 50% of the world production, which is growing. So it's not a handicap. It's an advantage to be strong in Asia. But again, we have to make sure that we are also profitable and good in what we are doing in the other regions.
Question from telephone?
We have one last question from Mr. Laskawi. Mr. Laskawi, the line is open. [Operator Instructions].
Hi, good morning. Thank you for taking my question. It's just one left on the order intake and the margin that you highlighted essentially above 7% is secured. Did you have a higher share of indexation in that? And could you comment on the assumptions with regards to volatility? And how do you protect at 7% in various scenarios to the up and down side, especially when it comes to input cost fluctuation? Thank you.
Thank you for your question. Yes, we are more careful on the contracts we signed with our customers more at least in the previous period. But in the other side, what we are doing is we are -- when we are quoting, we are considering, first of all, a significant discount on volumes usually around 20%, something like this, 15% to 20%, depending on the OEM and the vehicle segment.
And the other thing is that we are considering the existing costs, which will after that, be revised on a six month basis and fully on a yearly basis. So what I can tell you is that considering that we were probably at the peak of the inflation in 2022, and that the 7% -- above 7% operating margin, we announced were calculated on this basis and that we have discounted the volumes, we should not be at risk with these €31 billion.
But it is an important comment you made about the contractualization. We have to be careful, and we have more and more to integrate these elements in our acquisitions, which is more and more accepted by our customers.
Are we at the end? So it seems to be the case. Thank you very much for, -- sorry, Paulo?
A few ones. The intriguing comments you made on whether you might be forced one day to make choices difficult, tough choices on your European manufacturing footprint. It depends on how low European OEMs can keep the prices doesn't seem to be -- if I understood well, doesn't seem to be the trend. The trend right now is for upward prices. And so how big a risk is that? Just want to come back to that. And it wouldn't impact you personally though, because you have strong business in the U.S. -- in China. So that would mean probably just diverting investments in China and enlarging the footprint there. Is that correct in terms of my understanding?
Any worries about the geopolitical risks then with China because that's the other question. And also, speaking of shifted investments, we are trying to track European companies that are allocating more to the U.S. because of IRA. So just wondering if you had to make some tough choices there as well and have shifted part of those investments in the U.S. or if there's anything you may do in the U.S. rather than Europe because of IRA. So a bit of color on those two questions. Thank you.
My comment about the European OEMs is that they have significantly increased their prices. So that the lower segments are becoming unaffordable for a majority of people. And when you think about the electrification, so the battery electric vehicles, small segments. I said it before, but I think that the gap between the Chinese and European is at around €10,000. So for a vehicle, which is at the low end in terms of pricing, so it means a very significant amount.
And on the top of that, you have to take into account that only seven countries in Europe are producing vehicles and that the German OEMs are making a very significant part of their margins in China or with the Chinese market, yes. So I think that somebody recently spoke to me about what happened with the Japanese imports at a time, but the Japanese imports, it was a different question because we were competing against the vehicles.
So we had an offer which was competing against the imports. Here, we might have imports without having a competing offer. So my fear is that I don't know exactly what will be the volumes Europe will achieve probably something around 16 million or 17 million vehicles produced in Europe. But if the low segments would normal be part of the offer, then it would have an impact. But this impact would be for all the chain of the automotive industry in Europe.
As a Tier 1, we would be less impacted not to say, not impacted if you exclude this manufacturing part because we believe to have pretty well identified which OEMs, Chinese OEMs will be lease export champions.
Yes. You spoke geopolitical tensions. We have identified three geopolitical tensions, of course, the war in Ukraine and the assumption we've made is that the war will continue with the current intensity and with conventional weapons.
China/Taiwan, we believe that we could see some escalations, but nothing more than this at least for the period of time we are considering. And we have the third one, which is Iran. But again, this might have an impact on more the energy costs and not much more than this.
IAR, when I take hydrogen, for example, I see that investments made in America are very massive. I also believe that the trucks, the American trucks and the large SUVs are a perfect use case for hydrogen. And here, Europe has to be careful not to be overtaken by America. Maybe a last point when I see import taxes on raw materials, but not on transformed raw materials, the target is questioned and would need to be corrected.
The last point about specifics, I do not remember what it was exactly. The last question -- have I answered your question?
Yes. Did you yourself make some choice on an investment you wanted to make in Europe? Thank you.
No, we haven't had to make this kind of arbitrage so far.
[indiscernible]?
I don't know. It will really be related but not yet, not in 2025.
Okay. So thank you very much for your attention. Thank you.