Forvia SE (FRVIA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the FORVIA Q1 2022 Sales Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Michel Favre, Group CFO. Please go ahead.

Thank you, Sandra. Good morning, ladies and gentlemen. Thank you for attending this conference call. And with me today, [indiscernible] our new Group Deputy CFO, Selim Hadj-Smail, our Finance and Treasury VP, and our strong IR team, Marc and Matthieu. I will present today our first quarter 2022 sales figures as well as our first FORVIA guidance for the full year 2022, which means full year for Faurecia and 11 months of consolidation of HELLA. I will also comment on recent measures taken to increase our financial flexibility in an environment that has become significantly more uncertain and volatile since we announced our full year 2021 results in February. The press release was posted this morning at 7:00 a.m. Paris Time on our website. The slide show that I am now going to commence is also available on our website. I will start directly with Slide 4, which gives an update about the environment in which we are currently operating. As already mentioned, our environment, that was already disturbed by shortage of semiconductors and the impact of inflation, is now facing new impacts. Firstly, from the consequences of the war in Ukraine that started on February 21, and from the COVID situation in China, generating plant shutdowns in some regions. Between S&P Global forecast, the new name of IHS Markit, in February, and the latest published, last Wednesday, worldwide automotive production has been revised downwards by 3.3 million vehicles, or minus 4%. These are the figures you can see on the right hand side of the slide. 2/3 of this 3.3 million cars was in Europe, which means that 12% reduction of the European production forecast in the last 2 months. This is, of course, the result of the war in Ukraine and its consequences on both production and probably on the demand. And I remind you that Europe represents more than 40% of our sales. The rest of IHS Markit downward revisions relates to North America for 0.5 million vehicles. And to China, for only, I repeat, only 0.4 million vehicles. It seems to us that the recent situation regarding COVID in China has not been fully integrated in this latest forecast. Let me say very bluntly that visibility is limited at this stage. Of course, visibility about the duration and mainly of the impact of the war in Ukraine, but also visibility about additional risk on activity in China according to the evolution and management of the COVID situation. In this uncertain and low visibility, we decided at FORVIA level to take a conservative assumption for worldwide automotive production. Our latest assumption for 2022 is 15 million vehicles in Europe, this is more cautious than IHS Markit at 16.5 million; 20 million vehicles in China, this is also more cautious than IHS Markit at 21 million. Worldwide, we are now assuming the automotive production of 74.2 million vehicles in 2022, which means the third year with very low volumes. And on the split, 37 million in the first semester, down by something like 1% with respect to last year, and as well, 37.2 million in the second half, to be compared with as well very low second half last year. This is a correction with respect to our initial guidance, which was 40 million vehicles in second half. Let's move to Slide 5. Before starting to comment on the additional headwinds generated by this tougher environment, let me remind you what is FORVIA's direct exposure to Russia and Ukraine. Our exposure to Russia is less than 200 -- sorry, less than EUR 250 million for Faurecia plus HELLA, around 1% of total sales, and we have no direct exposure to Ukraine. If our direct exposure is limited, consequences of the current market environment have increased pressure on our operations. The first major impact is that cost inflation is further increased versus what was already expected at the beginning of the year. Raw material prices continue to rise, and even if our pass-through contractor clauses largely protect us against this price, the net impact will be higher than expected. Inflation on logistic costs, energy costs and operating costs will also impact our profitability. The second major impact is related to disruption due to bottlenecks in the supply chain and COVID situation in China. Global shortage of semiconductors is not over. Other components of raw materials such as wire harnesses, palladium are also facing difficulties due to the war in Ukraine. Lastly, management of the COVID situation in China is already generating plant shutdowns. We have today 6 plants closed in China. These are very challenging conditions, significantly more challenging than the ones anticipated earlier. Let's now move to our Q1 2022 sales performance review as from Slide 7. Our Q1 2022 sales reached EUR 5.3 billion, up 33% on a reported basis. They included a positive currency effect of EUR 129 million or plus 3.2%, an organic growth of EUR 46 million or plus 1.1%, and the first contribution from HELLA for 2 months, February and March, as we started consolidation on February 1 for EUR 1.1 billion or a contribution of 28.5%. Our 1.1% organic growth relating to Faurecia stand-alone perimeter compares with a drop of 4.2% in worldwide automotive production during the same period, which means an outperformance of 530 basis points. The geographic mix in Q1 was unfavorable by 500 basis points, which means that we had an outperformance of more than 1,000 bps, excluding such impact, as you will see that region by region. If we see the quarter, January plus February posted an average organic growth exceeding 5%, but March started to reflect the deteriorated environment with sales down 6%, which is more or less minus 20% in Europe, plus 2% in North America, and China starting to slow down at 6% versus above 20% on average for January, February. So a clear change of pattern from March onwards, which is today confirmed very positive. Let's start on Slide 8 to review by business group. Seating, which represented 32% of Faurecia Group consolidated sales in Q1, posted sales of EUR 1.675 billion. Organic growth was plus 4.5%, which means an outperformance of 870 basis points. This was driven by strong organic growth of plus 43.9% in China, thanks to Chinese OEMs, new entrants, mainly BYD, and a major American electrical vehicle car maker. You know that I cannot mention the name. And also solid organic growth of plus 4.6% in North America, reflecting contribution from the new programs that started in H2 2021. In Europe, sales were down 10.8%. Nevertheless, strongly outperforming European automotive production of minus 18.3%. The drop in sales reflected the impact in March of supply chain disruptions due to the war in Ukraine. As regards to the situation for the greenfield program in the U.S., our [indiscernible] the estimation of over-costs in H1 2022 is unfortunately confirmed at EUR 30 million. Interiors, which represented 22% of Faurecia Group consolidated sales in Q1, posted sales of slightly less than EUR 1.187 billion. Organic sales were down 4.5%, only broadly in line with automotive production. This sales drop reflected lower sales from SAS, accounting for 15% of the business group, that dropped by 9.4% year-on-year, more impacted by shortage of semiconductors and the war in Ukraine in March. You know that the first customer of SAS is Faurecia Group. Organic sales drop of 8.5% in Europe, nevertheless, strongly outperforming the 18.3% drop in European automotive products. Let's continue on Slide 9, with Clean Mobility and Clarion Electronics. Clean Mobility, which represented 21% of Faurecia Group consolidated sales in Q1 posted sales of EUR 1.093 billion. Organic sales were up 1.6%, which means an outperformance of 560 basis points. This was driven by strong organic growth of plus 7.4% in North America, supported by sales to Stellantis and Ford. Resilient organic growth in Europe, broadly stable with strong outperformance versus European automotive production, mainly reflecting sales for commercial vehicles. Clarion Electronics, which represented 4% of group consolidated sales in Q1 posted sales of EUR 223 million. Organic sales were up 7.4% and outperformance over 1,000 basis points. This was driven by strong organic growth of plus 20.8% in China as the impact on activity in Q1 from COVID variant and semiconductor shortage was limited. And strong organic growth of plus 33.8% in North America, with the main contributor was Renault-Nissan Group. On top of Faurecia's 4 business groups that I have just commented, HELLA contributed to our Q1 sales for EUR 1.1 billion, representing the first 2 months of consolidation since it has been consolidated in our accounts since February 1. As HELLA is a listed company with its own public communication and a different fiscal year from that of Faurecia, I cannot comment in more detail about its contribution to sales. All along 2022, we will report the quarterly sales contributions from HELLA as scope effect as a combined figure for all its activities and geographies. In the appendix, we have, nevertheless, given an indication of quarterly 2021 sales for FORVIA proforma. Let's now start on Slide 10, the review by regions. All the comments about regions are related to Faurecia's stand-alone perimeters and do not include sales contribution from HELLA. Europe, which represented 40% of group consolidated sales in Q1 posted sales of EUR 1.765 billion. Organic sales dropped by 8.7%, a stronger performance of 960 basis points compared to the European automotive production that dropped by 18.3% during the quarter. Of course, the 8.7% drop in the quarter related to 20% drop in organic sales in March after the start of the war in Ukraine. All Business Groups posted an outperformance of at least 750 basis points is the region. It is worth mentioning that commercial vehicles and sales to Ford, mainly for Interiors, posted organic growth in the quarter. North America, which represented 1/4 of group consolidated sales in Q1, posted sales of EUR 1.089 billion. Organic sales were up 6.4%, an outperformance of 820 basis points compared to the North American automotive production that dropped by 1.8% during the quarter. All Business Groups posted stronger performance of at least 600 basis points in the region. Growth included a positive effect from the contribution of the new Seating programs that started in the second half 2021, a strong increase in sales with a major American electrical vehicle carmaker and Renault-Nissan group. Let's continue on Slide 11 with Asia and the Rest of the World. Asia, which represented as well close to 1/4 of group consolidated sales in Q1, posted sales of EUR 1.140 billion. Organic sales were up 14.6%, which means an outperformance of over 1,000 basis points compared to the Asian automotive production that grew by only 1.1% during the quarter. More specifically, our sales in China grew by 18%, while the Chinese automotive production grew by only 8.9%. This growth in China reflected strong sales in Seating with a Chinese OEM, mainly with BYD, and again, a major American EV maker. Sales in China continued to grow in March, but at a lower pace of plus 6% compared to the growth in the first 2 months of the year as a consequence of the first impacts of COVID-19. Rest of the World, including mainly South America and South Africa, represented 4% of group consolidated sales in Q1 and EUR 186 million. In South America, organic sales were up 12.9%, a very strong outperformance of over 3,000 basis points. This growth was mainly driven by sales to Stellantis group. Now we have reviewed our Q1 sales. Let me focus with Slide 13 on the measures that we have taken in order to increase the group financial flexibility to get through the current market uncertainties. On January 31, 2022, we closed a strategic and transformative acquisition of HELLA, creating the seventh largest automotive supplier in the world. We now hold 81.5% of HELLA, for which we have paid a total of EUR 5.4 billion. EUR 0.5 billion was paid in shares through the capital increase reserved to the Family pool, now holding circa 9% of Faurecia shares capital, and EUR 4.9 billion was paid in cash to other HELLA shareholders and to the Family pool for the part not paid in Faurecia shares, thus de facto increasing our financial debt and leverage. Unexpectedly, late February, the war in Ukraine started and generated significant uncertainty in market conditions, mainly for the European automotive industry. At this stage, visibility of the duration and magnitude of this war impact is low, both in terms of volumes and cost inflation. On top of this, the pandemic in China represents an additional risk on volumes, as already commented. In order to derisk our balance sheet in this temporary unexpected situation, we have taken 2 major decisions that will increase our financial flexibility to get through the current crisis. Firstly, with Selim, we have proactively renegotiated our debt covenant with banks. No doubt about the relevance of our strategy, nor our commitment to deleverage the group post acquisition of HELLA, and our banks proved fully supportive to our request. They agreed the debt covenants will not be tested at the end of June and will be of 3.75x at end of the year instead of 3x before returning to the level of 3x from June 30, 2023, onwards. This new temporary covenant limit at 3.75x has been tailored to offer the maximum headroom even in the worst case, that means a very uncertain environment. When you speak about covenants, we have always to anticipate worst case. And please take it as a worst case. Secondly, we have decided to increase our asset divestment program from a target of EUR 500 million of proceeds to be closed by end of 2023 to a target of EUR 1 billion, and I think we can go further more. This was the result of our strategic review of both Faurecia's and HELLA's assets. On top of this decision, and consistent with the covenant renegotiation for 2022, and the cash generation, the Board of Directors also decided at this meeting held yesterday to propose at the next shareholder meeting to exceptionally suspend dividend payment in 2022 to further contribute to the increase in financial flexibility. On these measures, we give as necessary financial flexibility to navigate the uncertain 2022 environment. And I will add one thing that we have time. As you know, the Bridge for equity, we have until February 2023, and for the Bridge for the bonds and other financings, we have until August 2023. Next slide, Slide 14, comment on our next step of refinancing of the acquisition of HELLA. Firstly, let me remind that we have already secured EUR 1.9 billion of financing late 2021 through a EUR 1.2 billion issuance of sustainability linked notes due 2027, and EUR 7 billion of ESG-linked Schuldschein loans with maturity up to 6 years. Secondly, at the closing, EUR 500 million was paid through the capital increase reserved to the Family pool and EUR 600 million through available cash. In fact, we anticipated the financing in the first half 2021. We have until mid-February, as I said, for the refinancing of the Bridge to equity and until mid-August further refinancing of the Bridge to bond. With this time flexibility of the 2 Bridges, and our increased financial flexibility for the measures commented on the previous slide, we have the right comfort to wait for adequate market conditions in order to launch the next step of the refinancing process of the acquisition of HELLA at the best conditions. For evident reasons in whatever the environment, I strongly reaffirm the strong strategic rationale and value creation potential of the combination of Faurecia and HELLA. And you know that I will personally contribute to this achievement. We will generate strong cost synergies of at least EUR 250 million, will optimize asset portfolio and divest at least EUR 1 billion by the end of 2023. And we will have significant opportunities to optimize cash generation. I also strongly confirm our commitment to deleverage as quick as possible the group after this sizable acquisition. Let's me now on, Slide 16, unveil our guidance for the full year 2022. As a new combined group FORVIA perimeter, which means Faurecia and 11 months of consolidation of HELLA. This guidance, as indicated at the beginning of this call, is based on an updated and, I will say, cautious assumption for worldwide automotive production in 2022 of 74.2 million light vehicles. This compares to our previous assumption of 78.7 million in February 2022 before the start of the difficulties. And S&P Global Mobility latest forecast of 77.3 million light vehicles. The gap of around 3 million vehicles between our assumption and S&P Global Mobility latest forecast is mainly related to Europe for 1.4 million light vehicles, we are now at 15.1 million; and China for 1.2 million light vehicles, we are now at 20.1 million vehicles assumption. Based on this updated assumption of 74.2 million vehicles produced in 2022, our full year 2022 guidance for FORVIA is sales of between EUR 23 billion and EUR 24 billion. In this figure, it is important it includes EUR 1.5 billion from the combined effect of ForEx, more or less 3%, and the raw material pass-through. And this impact of raw material pass-through, of course, is very sizable. It is as well demonstrating our capacity to pass through more than 80% of the price increase on plastic, steel, semiconductors. An operating margin of between 4% and 5% of sales, and net cash flow, unfortunately, only at breakeven. This guidance reflects mainly low volumes for the third year in a row, very low volume. We are something like minus 20% with respect to a normal year. Unfavorable geographic mix due to Chinese impact. Please take into consideration that we are very cautious on both Europe and China, which are 2 major markets for us. Increasing cost inflation, even if a significant part of commodity inflation is contractually pass-through to customers. This pass-through, nevertheless, generated a dilutive impact on the margin. I will conclude with Slide 18 to summarize this call. Our sales in Q1 were strong, including the first 2 months of consolidation of HELLA for total exceeding EUR 5 billion. We continue to significantly outperform the automotive production. We have even an excel addition of this outperformance. On top of this persistence shortage of semiconductors, we are now facing an environment that has become more uncertain because of the start of the war in Ukraine and COVID new restrictions in China's areas. This led to a new downward revision of expectations for worldwide automotive production in 2022. Due to the low visibility of market conditions, we have increased our financial flexibility and ensured that we have enough headroom to achieve the next step of refinancing the acquisition of HELLA in the best conditions. We are more than ever convinced that once we have got through the crisis, our potential for profitable growth and value creation offer huge opportunities for all stakeholders. I can tell you that the drop-through will happen. Please save the date for our Capital Markets Day early November with the visibility that will probably be higher at that time. We'll be able not only to present to you our strategic goals for FORVIA business by business and our group medium-term objectives for 2025. Thank you very much for your attention. The floor is now yours. And Sandra, please we can go to the Q&A section.

[Operator Instructions] And we've got the first question. It comes from the line of Giulio Pescatore from BNP.

The first one on the free cash flow. Can you help us maybe understand the sensitivity of the free cash flow to different levels of growth? I know your market assumption is very conservative. So I think it's important for us to get a sense of the movement in working capital to perhaps a more positive market scenario. And maybe a follow-up on that. What about the free cash flow synergies. You previously said that you were targeting EUR 200 million of free cash flow synergies per annum. Is that number included already in this year? Or is that something you think you can realize more starting from 2023? And then a second point, sorry, on the Clean Mobility sale. You mentioned in the past that you would consider potentially opening up the capital of this business to a third party. I was wondering if you had received any interest from potential buyers? And is this still an option that you would consider potentially?

Of course, as the free cash flow is another restriction in this guidance, it was a frustration for us only to put this figure. I would say sensitivity, first is EBITDA. You can mechanically enhance the figures, and you will see that the main difference is EBITDA with 1 key difficulty is the working capital with inventories. We are in the stop and go. We have high level of inventories end of March again. We have to reduce or to come back to a more normal level globally for the group, something like EUR 500 million by the end of the year. It is a clear target and, I will say, challenge. Anyway, inventories are increasing due to the raw material price increase, it's mechanical, you understand why. We have to offset that CapEx, but we have here one dilemma. It is the third year in a row that we're in the crisis. We have an unbelievable order book. When we speak of between Faurecia and HELLA, we are speaking of more than EUR 90 billion. We have a big order intake last year for both companies. And I can tell you that the first quarter with something like more than EUR 8 billion is continuing, which is also a fact that we are very strict on the pass-through. So the pitch is we cannot jeopardize the growth. We cannot because we have a big cost. So we try to reduce the CapEx, but for the moment, mainly to the reduction is not the one, I would like for the old group, and we are speaking of something like only EUR 100 million in this guidance. So it is one thing that we have to continue to work in order to get better achievement that is the hope. Synergies, we have, for the moment, put very small figure in the guidance. It is our result. And I think we will do better. My conviction is that we'll do better. And I will work on that, I can tell you. So it is my comment for the moment on cash flow. As I said, in the first speech, of course, drop through will be above 20%. So if volumes are, and I think probably volumes will be better than 74%. It will be accretive. And of course, it will be accretive for the cash. Second thing, Clean Mobility, we don't want to put that in, I will say, in the stock exchange. So this is not a topic on the table. It is not a partner of the divestment plan. I have always mentioned that we have some different things, JVs, some activities that we are putting on sale, but for the full business Clean Mobility, no way.

Next question comes from the line of Gautam Narayan from RBC.

Tom Narayan, RBC. First, and I know you gave this earlier in the prepared comments, so I'm sorry. But can you give us the net debt on the balance sheet at the close of Q1, or at least just once again, maybe review what the net debt impact was from the HELLA deal? I just want to make sure I got that right. And then the next one is just understanding the dividend payment elimination for 2022. Curious how should we think about this? To what extent was this kind of potentially in the plan to begin with? I know obviously, things have changed, the free cash flow guidance, and the production forecast, but just curious how we should interpret the dividend elimination?

Okay. So I mentioned that it was for the contribution of HELLA to the net debt, EUR 4.9 billion, because you have EUR 500 million of capital increase reserved to the Family. This is the first step. The second question, sorry. Dividend interpretation. Firstly, we are in a period where we have high level of debt, so you mentioned that. Second, we have always paid dividends with the cash. To remind that our guidance was always 40% of the cash flow was dedicated to dividends. With my guidance at 0, and I expect to be challenged on this guidance, it's difficult to pay dividends. We have no reason to increase our debt through that. On the opposite, our goal is to decrease the debt through divestments. The topics will be this year we will have very probably a lot of announcements, even everything for the EUR 1 billion. But on the other hand, the closing could happen after end of December, partially or totally. So it is why that prospecting our commitments, we will, I will say, focus on deleveraging and to pay dividends in the current condition should have been considered, as I will say, erratic is what I can say. So we go back to the normal discipline, and it is our main set that we pay dividends only if we have cash flow.

And on -- sorry, just a quick follow-up. On the divestments, a similar question to the prior one. How should we think about that? Do you think about that in terms of, you are always targeting over EUR 1 billion, but initially, let's start with EUR 500 million? Or is it one of -- we need the liquidity for the balance sheet shoring up, so let's look at divestments. I mean, how should we interpret increasing the divestment amount?

We are building a very powerful group. We need to focus on the key business group. So all activities which are below EUR 1 billion are under scrutiny. And what I can tell you is that, of course, with respect to the fantastic potential of the portfolio in electronics. Electronics, for instance, is more than 23% of our order intake in the first quarter, I repeat 23%. So of course, we have to focus on that. We have to give our financial means on the promising activity, and we have to divest, which is normal of our less strategic or more practical. So it is our mindset. So it is why it is a fantastic opportunity to serve the activities and to sell the less strategic activities for Faurecia. So it is clearly the mindset and we have to do it. So it is why I have no problem today to say that we want to do at least EUR 1 billion of divestments. And this will be, I will say, very positive for the new group portfolio.

Next question comes from the line of Thomas Besson from Kepler Cheuvreux.

Can you maybe help us understand whether the guidance is now for you an absolute floor or whether you think things could get worse? I understood you said that production maybe demand could be affected by now. But do you agree with me that we are unlikely to see a 5% decline in global production for the year, and therefore, with your 1% assumption and probably a quite cautious guidance for drop-through on raw mats, we had an absolute floor?

Thomas, it's a hard question because as usual, you will say, what is the probability that will happen. We'll take like this, I think that the probability today that we will be at 74% is lower, or much lower 50%, although it is 20%, 25% for development. But of course, we have no clue. We are still expecting that potentially, there will be, I will say, a pause in the Ukraine war. I think China is improving. Shanghai could, not next week, but could in 2 weeks' time, be open. But I don't know, to be honest. I think that we are conservative. We have used as we work cautious for the volumes, I think we are conservative today.

Yes, I understand we have limited visibility. I just wanted to make sure that fundamentally, it should be seen on the floor.

Fundamentally, when you make this kind of guidance in the period, we need to make a guidance. I think it was expected. But you cannot go to the market with an aggressive guidance. So we are forced to be conservative in the current pattern. Sorry to say that.

No, it's perfectly fair. When you look at your revenue guidance and what you said about currencies and raw materials, could you just help us understanding how much it is the higher revenues because of that effectively dilute your margin guidance?

It's a very good question. Thank you for that, Thomas. Inflation, and we have a higher impact in inflation in HELLA than in Faurecia due to the breakdown of business. Still, we have a very high pass-through, as you know, very, very high. Still was inflating, I would say, the sales of Clean Mobility by more than 5%. So very big impact. Plastics, we have a good pass-through. Semiconductors still to be, I will say, totally, as we said, achieved. But probably, we'll have 80% as well. So this is playing differently. Altogether, we are measuring that inflation impact negative what we cannot pass through as material, more or less 18% -- 17%, 18%. What we have as very difficult to pass-through like cost of energy is around 100 basis points. On top of that, we have the fact that we increased the top line by more than 3% without any profit. And this is a dilution of 20 to 30 basis points. So altogether, inflation for us is cost of margin of 120, 130 basis points. To be fine-tuned, I will come back on that with you in July on the final figures, but it is a major impact.

Understood. Last question, please. I would just like to understand the sequence to make sure I understand it correctly. So we are going to see lots of news on disposals. So disposals first, probably first half results after disposals. And then eventually, at one point in H2 or early next year, we see you issue debt and equity. Is that a fair assessment?

I have no fair assessment on that because I will never say to the market when or if we need equity. Now of course, you remember your questions in November, Tom, I think it was you. You said 81% only, that means we don't need equity, which is actually true. And I repeat, I said, no, we need equity because we want to be strong, we want to restore agility for the group, and we think that we will have other opportunities. So factually, I don't need equity. I can survive without equity, but we want to do something because we want to be back. Sorry to say that. So I will not say we don't need EUR 800 million. That's obvious. We need more -- less, sorry, we need less and much less. And we will have the divestments, if necessary, to offset. So if you don't mind, I will keep the freedom to do the equity when it will be the right time to do it and when the conditions will be, I will say, acceptable. We will continue to reduce. We have the Bank European investments where we have EUR 200 million normally that will be contextualized early next month. We have some other opportunities, so we will reduce progressively, I would say, the Bridge. And on top of that, we will have the divestments. So I consider today that the refinancing of the Bridge is not a problem.

Next question comes from the line of Michael Jacks from Bank of America.

The first one is just with regards to the balance sheet. Under your current scenario, what level do you expect net debt to EBITDA to reach at the end of the first half? I know you're not needing to test it anymore. And then again at year-end relative to the new covenant level of 3.75x. And my second question is just on the guidance. Are you able to elaborate a little bit more on the underlying assumptions that you used for HELLA?

Sorry for the second part, can you little clarify? We're not with you.

Yes. Are you able to elaborate a little bit more in terms of the underlying assumptions from a margin perspective that you brought in for HELLA. Also in terms of the cost inflation, it sounds like HELLA is having a slightly disproportionate impact from cost inflation. Are you able to split that out perhaps?

I cannot for HELLA because I have not disclosed. So sorry for that, I am restricted. It will be much, as you know, let's go in the future. The only thing I can tell you is that due to the breakdown of activities, inflation has a higher impact due to the semiconductors because semiconductors pass-through are not contractual. But I think HELLA will make exactly from that. Going back to your first assumption. For the first half, it will depend on the month of May. So it's complicated because we have some factoring impact. We have some 30 days payment. So the level of sales of May will be key. So what I will tell you is that today, our expectation is that we will be above 3x or slightly above 3x net debt on EBITDA, but it's too early to comment more.

Okay. That's clear. And then maybe just a follow-up. When is the reporting period change of HELLA likely to become effective?

This week, Friday, there will be the shareholder meeting. And this shareholder meeting should approve the change of debt. That means that HELLA will have a 7 months exercise from 1st of June to end of December. And from 1st of January 2023 will be fully aligned, which will be, I would say, a fantastic breakthrough for both companies, because if we don't do that, that should mean for HELLA as they will make different closing end of May, end of June, end of November, end of December, which will be fantastic for the team. And I can tell you that the financial team of HELLA is a fantastic contributor to the integration. I am very proud to join HELLA with these teams. So for HELLA, that means we will try to give the figures, I would say, on the same perimeter as Faurecia, it will be much easier next year. Sorry to say that will be mainly a scope impact, but will be more and more operative in the period.

Next question comes from the line of Sascha Gommel from Jefferies.

The first one would be on the guidance. And I was hoping if you can give some indication of what the Faurecia guidance would have been ex HELLA compared to the initial guidance you gave in February.

It's complicated because I cannot give the guidance of HELLA. So if I give you the guidance of Faurecia, I will be tricked. So I would say, more or less equal. More or less. What you can take as an assumption, which is important too for the understanding, is that we have 13% of the mix drop of volumes due to our geographical mix. And this 13% with the mix is something like 200 basis points. We have more than 100 basis points coming from the inflation, which is a trick as well, but I hope to avoid that. I hoped that after -- from 2021, normally, raw materials should come back at least partially, and this could be probably an upside. We have some small issues that, of course, are the impact, I mentioned EUR 30 million, and we have our crushing products also. So it is to give you how we have tailored the guidance.

Okay. Very clear. And then my second question would be on your stake in HELLA. I think you increased it from the end of Jan, because you owned 80.6%, now you own 81.5%. So are you still planning to continue to buy shares? Or are you now at a level where you stop? Or can you comment in any capacity?

We were buying marginally some shares until end of February. We had one small order in the market. In fact, it was executed until the declaration of the war of Russia and I stopped just after this, I will say, other. So since end of February, no acquisition of titles for HELLA. We are disciplined, and we try to be consistent. And I can tell you, we are focused on how to flexibilize, variabilize, and of course, when volumes will go back, how to deliver those.

Next question comes from the line of Christoph Laskawi from Deutsche Bank.

The first one will be on Q1, the outperformance, which has been pretty solid despite the negative geo mix. Did you see some inventory build at the OEMs? And do you see a risk for Q2 that this might reverse when the situation normalizes a bit? And then following on to that, the EUR 1.5 billion that you effected in the top line guidance for the full year, you just elaborated on the FX and essentially pricing components? Could you comment on how much pricing you realized in Q1 already? Or is this really more starting end of Q2 and for the second half? And when we take that with a look at the margin guide that you provided in the beginning of the year, essentially saying that H1 will be far below H2, I guess this is still standing? Or should we expect in the consolidated entity a bit more leveled out margin of the services?

Thank you for the questions because you have a lot of questions, but very good questions. Q1 outperformance is very strong. You have understood that we are at 10% region by region. Here, very big impact of raw materials, and probably 3 to -- I don't have the figures region by region, but we're speaking 3% to 4% is coming from the raw materials. And this will continue, of course. Geographic mix could be negative, we'll see. OEM inventories, probably yes, with some incomplete cars. You have understood that, and we will try to make some inventories. On the other hand, we have still unbelievable time for delivering the cars. And we have a 1% fixed [indiscernible]. I bought early December a car for my son. The car is not yet confirmed for end of February -- sorry, end of May, early December, end of May. So it's the current pace, so I think it doesn't work. Sorry to say that. So we have, on one side, some inventories on cars, on the other side, some unbelievable timing to deliver the cars. So difficult to comment and to understand what is, I will say, probably the fact that they have to clean this, I will say, delivery time and which is actual and potential impact on the demand. And third, for the balance, we have the same volumes. We have a growing outperformance, so this is visible in our assumption. So of course, normally H2 will be above H1 for the sales due to this gain of market share. And as I mentioned, with the order -- sorry, order intake or order book, it will continue in the next year. So we have this contribution of additional market share. So there is a small improvement of we say the margin, but less than before, definitely less than before. So we are much more balanced between H1 and H2 in our assumptions.

Very clear. Just 1 follow-up on the top line guidance and outperformance. In the end, if you take your proforma numbers that you gave in the presentation at the end, at the EUR 1.5 billion, you already get to the midpoint. And there is no underlying outperformance and production growth affected. So as you said, we should just take it also the top line guidance as you being cautious in very uncertain times.

You have. You can take 3% for the ForEx. 3% for the raw material. We have negative geographic mix in our new assumptions, with low Europe, probably 300 basis points negative, to be confirmed buy back. On this, we have 500 basis points confirm for Faurecia. And I think HELLA should be a minimum of this figure, thanks to electronics.

Next question comes from the line of Gabriel Adler from Citi.

My first is coming back to the equity raise. I just want to understand, are there any circumstances that you would consider canceling the raise? Because you tell us that you don't need to buy out the minority shareholders to control the cash flow to HELLA, and you've announced today, you've managed to renegotiate debt covenants. So could you just elaborate on why you remain committed to the raise when this is resulting in an overhang for your share price that ultimately makes raising capital more challenging. And then my second question is just on Nissan trading. I'd love to get a little bit more color on China given your comments that things are getting better there. Can you elaborate on the feedback you're having from the sales teams in China and whether your expectations for the group for Q2 versus Q1 after a stronger quarter in Q2?

Rights issue, difficult to comment more. As a principle, we don't need, but we want to do something because we want to recover agility. So if you don't mind, I will stay on this assumption. And we see what the group will decide and what my successor will do on that. Second, I would say, on China, it's complicated today for the teams. They are, I will say, stuck at all, because they are mainly in Shanghai. They have different information. A lot of plants continue to run, but with lower volumes. So you have a big contrast situation between Xiangshu and Shenzhen, I will say, Shanghai, Wuhan. As I mentioned, automotive is strategic. So some plants continue to work, which I will say people stuck in the plant. So visibility is still limited. And China is pragmatic. But with the Omicron, zero COVID policy seems, at least for us, in our understanding, complicated. So I don't think that they will enter into a serious lockdown. But probably, they will continue to have some cities exiting from lockdowns and some other cities entering. So we are today anticipating a second quarter with an impact of something like minus 20% in volumes for China minimum. And we have anticipated the same kind of figure, minus 15%, minus 20% for the second half, with respect to previous expectations, of course.

Next question comes from the line of Jose Asumendi from JPMorgan.

Just 3 questions, please. Can you comment on the growth on outperformance within electronics? What is driving the outperformance? Second, can you comment on the availability of semiconductors overall for the auto industry in the second half, what are your assumptions there? And then three, can you help us understand a little bit your raw material guidance for the year? Does it include the very high volatility we have seen in the past 3 months. How conservative is your raw material guidance for the year, as I think the rest of your assumptions are very, very conservative for 2022?

I don't know if we are conservative, Jose. We have taken $100 per barrel if I'm not mistaken. Sorry, we took $110. Analyst is correcting me. And still, we know today, we have an additional, as I said, burden in North America, but we will pass through it. Europe is more stabilized. For semiconductors, the yearly, I will say, negotiations have been done. So we have, we say, the new prices for Faurecia, it was 1st of January; for HELLA, it was 1st of April. So this is done as well. So I think we have a good visibility on this impact. Same thing for energy, because fortunately, we have contracts. So we are amortizing the increase. You asked for volumes, sorry -- availability of semis. 37 million cars I have no doubt that we will have the semis. And what I can tell you is that in some cases, we have seen that some carmakers are today stocking semis. I would not mention which one, but some are stocking currently some semis, and we help them to store some semis, to be blunt. So we have some different situation basing customers on that. But at 37 million cars, no doubt, we are convinced that the market will be able, for the semis to do up to 42 million cars, of course, to be confirmed with potential closure in China. But I think with this kind of volumes, semis is no more the top 1 is the reflection.

Next question comes from the line of Pierre-Yves Quemener from Stifel.

Just one left for me, very quick. How do you expect any significant impact on your P&L for '22 and '23 from the current rise in interest rates?

Difficult today to -- because you know that it is a potential. But of course, we are cautious on that. But any way, this will not stop us to make the financing. We know that with the current situation, interest rates will increase by at least 100 basis points, even more. So it is a part of our assumption. And we have the chance, thanks to Selim to be partially hedged. So we are I think in a good condition on that.

There is no more questions at this time. I would like to hand back over to Michel Favre.

Thank you for your attendance. I think you have understood that we have re-based our assumption, I think, on a very cautious, I would say, volume assumptions. The next appointment for Faurecia and FORVIA will be the shareholder meeting on the 1st of June, which will be physical. So please don't hesitate to attend. It will be as well the opportunity to make a new point on the market conditions, and I thank you in advance to attend the shareholder meeting. Thank you. Have a good day, and see you soon.

That does conclude our conference for today. Thank you for participating. You may all disconnect.