OPmobility SE (OPM) Earnings Call Transcript & Summary

Yes. Good morning, ladies and gentlemen. Welcome here in Levallois. For those being connected, welcome to you as well. I'm very happy here with Félicie Burelle and Kathleen to present to you the results of Plastic Omnium in the first semester. We'll talk about numbers, we'll talk about the market, about the perspective for the second semester as well. And we start immediately with the presentation with some business highlights, a kind of summary of our first semester, which is for us very satisfying, taking in consideration the difficult market environment we are in, and we'll talk about that in a couple of minutes, because the market basically remains very unstable, very low in term of volumes and strongly impacted by the inflation. Nevertheless, PO was able to grow by 4.3% compared to last year to generate a much higher margin at 4.6% that what we had in the second semester of 2021, similar market condition, much better margin, and something we are very proud of, that is the free cash flow, EUR 134 million free cash flow while continuing to invest in the transformation of the group in the new technologies. And we will talk about that later in the presentation. Strong net result as well we wanted to highlight today. That is the way we have been able to manage the short term, but also we have been able to prepare the long term on a proper manner. Starting with the strategy, you may remember that in April this year, we had our Capital Market Day. We did present our purpose, our long-term strategy, how to transform the company, how to grow by value in a challenging market, and that is what we have been working on in the first semester also with some acquisition we have been talking about announcing and we'll come back to that later on. But showing that the group is fully on track in terms of its transformation and strategy. The order book is something we are very proud of. You may remember that last year was the strongest year in PO's history in terms of order book. The first semester is even higher in all the divisions, basically, and especially in hydrogen because we have been able to double the order book in the last months in hydrogen, and we will have a specific slide on that. And many SOPs as well in the first semester which is always good for the future growth of the company, and it's even better if the SOPs were smooth, and they were all smooth in all the regions. Therefore, a very strong performance of the group, both in terms of operation strategy as well. And you see the financial numbers which are very satisfying considering the market environment. If we talk about the market, we just wanted to remind you what was the assumption of PO for our guidance for this year. Our assumption was based on the IHS numbers from February. And at this time, IHS was forecasting for this year, 81 million cars being produced, and we decided to discount 5% from this 81 million because we wanted to remain cautious because we thought that the first semester will be pretty low, I mean more or less in line with the second semester of last year. In the meantime, IHS did review its number. Now they are forecasting 78.1 million cars being produced this year with the second semester being higher than the first semester. For us, that is fully in line with our guidance with what we have been talking about in February, that IHS is confirming the purview of the market for this year. For the coming years, you know that IHS is to review as well its numbers with some discounts, taking into account some difficulties in the supply chain in the coming years as well. Now with some concrete numbers, our performance in the first semester compared to the first semester of last year, you see that the market did decline in the first semester compared to last year. It did decline especially because of the ship shortage. That means the situation on ships. It's not really improving globally because 3.4 million cars were lost especially because of ships in the first semester. And the picture is pretty different by region. The region being the most impacted is Europe because in Europe we had as well the war in Ukraine, which it created as well some supply chain issues in the first semester. Nevertheless, PO was able to outperform in all the markets, except in China. And we will talk about China later on if you have some questions about that. But strong order book, strong performance in terms of sales, different market situation depending on the region, Europe being the most impacted again in the first semester. The inflation continues to rise in all the aspects. We wanted here to highlight the inflation rates in the U.S., in Europe as well, which is close to 10%, which is the first time since 30 years, and it is impacting the raw material, the logistics, the labor and all the kind of cost. And that is for us, for our teams, I would say the biggest challenge we have to face is to mitigate the inflation impact, and that is what we have been able to do properly in the first semester, given the market condition. Some numbers to compare our performance to the second semester of last year. Why the second semester of last year? Because it was the new situation. That means market impacted by supply chain issues, but also a market impacted by inflation. You see that the market compared to the second semester of last year did grow only by 2.7%. Our growth was much higher confirming again our strong order book. But what is even more important to highlight, that is our strong operating margin improvement because we have been able to multiply the operating margin by 2.6 to come from 2% last year to 4.6% in the second -- in the first semester of this year. And out of the 4.6%, 5.6% were done with the PO Industry division. Free cash flow, very strong increase of 34% compared to the second semester of last year with a strong CapEx management, strong inventory management, although we were facing huge issues in terms of the supply chain because of all the disruptions we have been experiencing in the first semester of this year. Therefore, we keep our strong focus on efficiency, on our Omega program, and Kathleen will talk about that later on. But our main focus for PO is always cash, and cash is king for us. That is what we need to invest in the future, and we were able in the first semester to generate a high level of cash, although in spite of the difficult market condition. Now coming to the highlight of the first semester, and I wanted to recap or to talk again about what we have been announcing in April this year, but is the purpose of Plastic Omnium driving a new generation of mobility, which is the way we want to continue to grow in a market which is different than in the past. That means to continue to grow by capturing more value by vehicle, by innovating in fields where we are not so strong today. And with a target that in 2030, the group will generate at least EUR 15 billion sales and with 40% of the sales will be generated with products we don't have today in our turnover, basically, which shows, again, the important transformation of the group. We have 3 access for this strategy, the new growth strategy. That is, first of all, to reinforce our product portfolio to grow our content by vehicle. You know that our divisions are all leaders in their respective markets, and we want to reinforce this leadership of our all divisions. The second one is to invest in new fits which are benefiting from the transformation of the market, like EV mobility and connectivity as well. The third one is to attack the service business which will be in terms of timing in a second step. In the first semester of this year, we have been able to make huge improvement in those topics, starting with the acquisition we are working on in the fees, which are growing with the transformation of the market, meaning electrification and lighting. You can see the time frame here in terms of electrification. We are talking about the company, ACTIA Power, which is today a small company, EUR 22 million of sales last year, which is very strong in the electrification of the EV mobility. And we believe that the EV mobility is offering a lot of opportunities because the electrification is coming later than in the passenger cars and because it is less crowded. And therefore, we have decided to invest in this new technology. These are -- we have also some synergies with the hydrogen business. The signing was some weeks ago, end of June, and the closing should happen in this quarter, basically. And then we have also the lighting. We have now a new division, the PO Lighting division, which has been created after the acquisition of AMS OSRAM, which was the first step of our strategy in terms of lighting. The second step being the discussion we have with Varroc to make the acquisition of the Varroc Lighting System. In total, that should be a division of EUR 1 billion of sales, and the closing is expected in Q4 of this year. Those divisions -- this division in Lighting will give us more opportunity to grow in a growing market, synergies with the other divisions as well. Now when you talk about PO, we talk about operational excellence and starting with our successes with our customers, I was mentioning that the first semester was the highest order book ever for PO, and we believe that will be the case for the full year of this year. That means we will beat our record from last year. I think what is important for PO is the capacity also to gain new customers, not only to develop the business with the current customers, but also to gain new customers, which is key because the mobility market is transforming very fast. And you see here, since 7 years, the new customers who have been able to gain, to acquire. A lot of them are BEV customers also hydrogen, like Hopium, for example, and many of them are in China. There is a name we cannot mention or disclose here, which is Tesla, which is also a very important customer of us. Therefore, we have been able to develop those customers but also to develop new customers in new mobility. You remember that we want to act not only the passenger car segment, but also in the complete mobility segment. Therefore, you see some names like Alstom, Airbus, we are serving with hydrogen, or Siemens, we will serve with the electrification, for example. Therefore, capacity to gain new customers is confirming that PO has the right technology, is able to adapt also to the different customer needs. We had very, I mean, many successes this year in terms of order book. You have some examples here. We could comment all of them, but I want to comment some of them, the Porsche Cayenne because its high volumes is premium. We are very strong in the premium segment, as you know. And here, we are present both in modules and also in our bumper and tailgate business out of Slovakia. The Renault 4ever, which is interesting because that first polycarbonate grill where the lighting is integrated inside and showing again that adding lighting to our portfolio will add also growth potential for us. And still also business in SCR, you see with Stellantis that we have been able to get a big contract to keep the light commercial vehicles of Stellantis in the SCR business. And for sure, newcomers like the Nio, Didi, Xpeng and so on out of China, confirming as well our capacity, as I mentioned before, to convince new customers to follow us with the right technology and with the right approach adapted to those new customers. In terms of order book as well, we are very happy again to confirm that our hydrogen business is spinning up. You remember that we did commit to achieve at least EUR 300 million sales in 2025. And the big part of this sales is already confirmed with the order book we have today which is much higher than in February. We have been able to double it compared to the numbers we announced in February. We had many successes in light commercial vehicles for the storage system with Stellantis and FORVIA but also Hopium. We have also successes in the U.S. where we are installing capacity right now for pickup trucks. We have also a very important success in the U.S. for big trucks, ranch trucks. And we have as well some successes in future system for buses in Europe. Again confirming the ambition of the group, EUR 300 million sales in 2025 and EUR 3 billion in 2030 and confirming as well that hydrogen will play a very important role in the mobility of tomorrow and that PO is very well placed with its technology. Many launches. I mentioned 67 launches in the first semester of 2022. A big part is in China, which is normal because China does represent more or less 50% of the growth of the market. And what is important to notice that 34% of the launches we had in the first semester are for BEVs. That means we are very strongly exposed to the BEV segment because we have the right technologies to serve the BEV passenger car customers, meaning being able to reduce the weight to improve, to increase the ODM of the vehicle, therefore, to support the customers to increase the range, also being able to be very agile in the way we are developing, we are working with them. I won't mention here all the players we are playing with. One, because we are French. For sure, it's important to mention that we are part of the history; BYD, which is the biggest one in China right now before Tesla in terms of electrification, and therefore, a very important player we are working for. And all the other players, you can see here not only in BEV because you can see as well that in Thailand, example, we have been able to get a contract with Ford fuel system. Therefore, very -- I mean, many launches this year in the first semester, sorry, confirming again the strong order book. And a big part of that is BEV confirming as well the strong exposure from PO to the BEV segment. That was about some highlights of the first semester. I hand over now to Félicie and Félicie will talk about innovation and CSR as well.

Thank you, Laurent. So good day to everybody. So indeed, we have had a lot of activities, a lot of ongoing activities on innovation, which is our key second pillar. And I will share with you 3 key initiatives, where we have advanced quite significantly during H1. So the first one, we have launched a new version of our innovation challenge. So far, it was a challenge that was only offered to our people internally. And today, this time, it is open to anyone willing to participate. And we are doing this in partnership with SoScience, who is an open innovation facilitator, which has the special positioning of supporting the development of solution with a positive impact in terms of sustainability. They have developed full community of academic and research player, but also NGOs and nonprofit. And on our side, we will also leverage our venture capital and our corporate advisers and also partners who will support and will help us to challenge and promote all of those programs that will be submitted hopefully in the months to come. So each year, there will be a specific theme. And this year, the theme is how to double the average life span of a vehicle while reducing their environmental impact, but also maintaining their value through a modular but also upgradable design. Why choosing this theme because more than ever today, we are suffering some material constraints and circular economy will and is today already playing a big role in terms of supporting and contributing to tomorrow's new solution. So it's really about how can we have a more disruptive approach in terms of designing and producing cars. So the deadline is September 7 in terms of submission. So I invite anybody to participate to that if they have good ideas on that topic. And we will, at the end of the day, have 3 projects that we will choose with the purpose of incubating them and developing them as part of our innovation road map. Second initiative, so we are launching our PO Software House. So we will put in place a transversal team that will develop in-house necessary software items for all our products and our services and for all divisions. So 2 main reasons why we are doing that. First of all, because as you know, software will represent more and more value within the car itself. And second, it's obviously also to reinforce even more our positioning in terms of competitiveness and attractiveness to all of our mobility customers. So we are currently looking for offices in Paris, where will be the core of the team but we will ramp up also the rest of the team in other countries, best cost countries with strong software capabilities. So official launch to come H2. Third initiative. So we talked about hydrogen and a very good commercial dynamic that we have today. We are doubling our order intake, and we also will secure new orders during H2, which enables us to confirm our ambition for '25 and '30. One of the key partnership that we have, among others, it's our collaboration with Hopium. So we've announced to you some months ago our partnership to develop our homologated Type 4 pressurized high-pressure vessel storage for the upcoming machine that you can see on this slide, with its integrated systems. And since then, we have been working with them to become even more strategic partner, and we will supply to them our exterior parts also for the car, which has an SOP in November 2025. So full integrated offer to this newcomer in hydrogen cars. So that was for innovation. As you know, the third pillar that we have is our strong ESG program called Act For All which is composed of 4 pillars, so responsible entrepreneurship, care for people and the last one, sustainability. So today, we'll provide you some updates on where we stand on that third part of sustainability. So last November, we presented to you our carbon footprint road map, which is based on 3 main objectives. So the first one to be neutral by 2025 on Scope 1 and 2 of our emissions, which represent 10% approximately. On Scope 3, which represents by essence given the industry we are in the bulk of our mission to reduce them by 30% by 2030. And finally, to be neutral on all of those scopes by 2050. And we will do so by reducing our energy consumptions and switch to renewable energies by developing eco-consumption solution and promoting circular economy, as I mentioned earlier. And ultimately, when necessary, compensate those emissions. So we have major achievement on H1. We have launched several projects with our partner, Schneider Electric, to reduce this energy consumption in line with the 12% saving objective that we have took. We have launched 12 PPA on site, including a windmill in Belgium. And we have 22 PPA to come by the end of 2030. We are also working on virtual PPA, and we are now in the RFQ process of securing such virtual PPA to have an SOP by 2025. On top of that, we are also training all of our procurement teams to make them more sensitive to this matter. And we are also assessing our critical, our advanced, all of our critical suppliers and how we have to embark them in this process to neutrality road map. As you know, this road map is approved by SBTi, and it's aligned fully within the 1.5 degree ambition in terms of maintaining the increase in -- sorry, in -- yes. We've been awarded in the Best CO2 strategy at the last Sommet de la Transformation Durable. And most important and most significant, we are quite proud about it. We have increased our ranking on the 2022 EcoVadis. We moved from 75, sorry to 80 out of 100, which puts us in the top 1% of the automotive sector in terms of -- and we got the Platinum status. So circular economy definitely will be a key lever in terms of rolling out this carbon neutrality road map. Three main levers, the first one, partnerships. We've communicated to you about the partnership we have signed with Total Energy to develop special grades that will enable to push up more recycled material and in line with the specifications of the OEMs, which today is a challenge. We will focus more on eco design. And for that, for instance, we have 2 recent initiatives. We will put together a transversal global green material team. Hosted by one of the division, but that will be responsible for tackling this subject for all the group. And also, we have other initiatives like putting second end platform at the disposal of all the PO employees so that they can exchange and promote the use of secondhand materials and tools. And last but not least, innovation, how to come up with longer-lasting products, and that's where the innovation challenge I talked to you earlier will totally support this innovation in terms of how to get to more -- to better circular economy. So that was it for innovation and sustainability. And now I hand it over to Kathleen for a deeper focus on financial results.

Thank you, Félicie, and good morning to everybody. This slide has been put together to help you better understand where we have landed in the first half of 2022 compared to the construction of our guidance that we presented in February of this year. I'd just like to recall a few fundamentals that underlie our guidance. Laurent mentioned a couple of those already. When we presented our guidance, we were careful to stress that the turbulent situation made it very difficult to forecast and give visibility on the road ahead, and this is still the situation today. The semiconductor crisis remains ever present with the ongoing sporadic shutdowns in our factories. The war in Ukraine has exacerbated the lack of visibility and has contributed to disrupting even further the supply chain and is fueling inflation as we all know today. And further shutdown of Shanghai in March and April had also a onetime impact on production. On the other hand, on a more positive note, North America, and to a lesser extent, in absolute terms, other Asian countries, excluding China, have grown beyond what was planned for the group in the first half of 2022. So our guidance was based on 2 very clear hypotheses. Firstly, as Laurent mentioned earlier, S&P Global Mobility of 81 million vehicles in February, discounted by 5% and planned by Plastic Omnium at 77 million vehicles for the year 2022. And secondly, we also emphasized that the planned first semester of 2022 would be pretty much in line with that of H2 2021. And for that second semester, we assumed -- and for the second semester, sorry, of 2022, we assumed that there would be the beginning of a recovery of the semiconductor crisis, and we should start to see its effect. Whilst it would be pretty pretentious to suppose that we had correctly anticipated the market, we were well inspired nevertheless to take our precautions as you can see and pursue our flexing and cost reduction efforts on this lower basis for the first half of 2022. In effect, the reported growth for S&P Global Mobility came in at minus 1.2% against H1 2021 and slightly better than flat, in fact, at plus 2.7% against the second half of 2021. Generally speaking, we're in the ballpark of S&P GM at the end of the first semester. H1 2022 economic sales came in at EUR 4.318 billion, demonstrating a strong recovery compared to the second half of 2021 and a plus 6%, 6.6% actually, on a like-for-like basis. Operating margin, as you can see, stands at EUR 179 million, i.e., 4.6% of consolidated sales of which 5.6% for Plastic Omnium Industries in strong progression versus the second half of 2021 which was at 2.5% for the Industries division. For the group, the operating margin is 2.6x better against the H2 2021, which was at 2%. So this progress is thanks to the ongoing cost optimization measures that we've put in place, improved plant operating efficiency, the contribution of the Omega program, of course, and the first successful outcomes of ongoing discussions with various automotive sector players to limit the impact of inflation and production stoppages linked to the successive crisis over the last 3 years. And net result group share, as Laurent mentioned, amounted to EUR 104 million, 2.7% of sales, against 3.8% of sales at the end of June 2021. Revenue for Plastic Omnium Modules enjoyed a strong development with a 4.6% growth in H1 2022 compared to the first semester of 2021. And Plastic Omnium Industries revenues posted a 4.2% growth on a reported basis. At constant exchange rates, Modules grew by 1.6% and Industries grew perfectly in line with market growth compared to the first half of 2021. The group's consolidated revenue, as you can see, excluding joint ventures of course, amounted to EUR 3.921 billion in the first half of 2022, up 3.6% as reported and stable on a like-for-like basis compared to the first half of 2021. Overall, reported economic and consolidated revenue is boosted by a positive currency effect of EUR 160 million and EUR 140 million, respectively. And this is due to the significant weakening of the euro against the U.S. dollar and renminbi. If I move on to the next slide, as you can see, with exception to China, the group has shown strong performance against the market in this very complex environment in its principal regions. When analyzed on a stand-alone basis, Europe has outperformed the market by 5.1 points in a market which has declined by 11.4% in the past, in the first 6 months of 2022 due to the war in Ukraine, the continued chip shortage as we all well know. The share of the European region in group sales weighs 50% of the group in total revenues. Our North American business has outperformed the market by 7 points in a fast-growing auto production market. We've been able to benefit from this development, thanks to the ramp-up of our plants that we've built in 2018. Chinese sales, as you can see, are down 6.8% compared to the first semester of 2021 in a market that was up by 3.5%. The share of economic revenues of the group in China represent 10% of the group in overall terms of sales. Our YFPO joint venture with Yanfeng grew by 3.4%, perfectly in line with market growth. Module volumes grew by 80% over this period, whilst paradoxically, revenue declined by 14.7% on a like-for-like basis. And this is essentially due to an unfavorable mix between the closures with Mercedes, where we enjoy high content per vehicle, and volume growth with a renowned American electric vehicle manufacturer, I won't mention the name like Laurent, but with a low content per unit. Storage Solutions. So the fuel tank business was down 24% in production volumes and 23% in sales in China in the first half of 2021 and principally explained by the decision of Geely to source their fuel tanks to low-cost suppliers but essentially due to the fact that Hyundai has a considerable loss of market share in the first half of 2022 in China. Their volumes went down 31% in the first 6 months of 2022. The strongest outperformance is in Asia, excluding China, with economic sales for the region up 16.1% year-on-year versus auto production that was down 1.7%, with the group benefiting from a recovery in Thailand and India, thanks to new launches, and this region now represents 8% of group economic sales. Moving on, as previously mentioned, operating margin in the first half of 2022 stands at 4.6% of sales, 2.6% the margin of the second half of 2021. Our 2 businesses both considerably improved their operating margins in this first semester. PO Industries increased the margin from EUR 62 million in the second half of 2021 to EUR 159 million at the end of June, representing 5.6% of economic sales. And this includes -- and you should note this, operating expenditure for New Energies of approximately EUR 15 million. And PO Modules, the margin increased from EUR 7 million in the second half of 2021 to EUR 20 million in H1 2022, representing, as you can see here, 1.9% of economic sales. And the EBITDA margin stands at EUR 414 million, representing 10.6% of sales. A quick word on the shutdowns and inflation. As Laurent mentioned, the teams are working hard on productivity measures to mitigate in-house, whatever we can and discussions are ongoing with the various players in the industry to come to arrangements that can at least partially mitigate the impact of both inflation and the shutdowns. We estimate today the gross impact of inflation and shutdowns at approximately EUR 150 million for the first semester of 2022, prior to mitigation measures, of course. Inflation on raw materials, logistics and labor in particular, accounts for approximately 60% of the gross impact and the ongoing shutdowns for circa 40%. In terms of cash, well, the June cash flow comes in at EUR 134 million, 3.4% of revenue, demonstrating once again the strength of the group's management model. Investments remain well controlled over the period, representing 3.9% of sales compared to 4.2% in the second half of 2021. Approximately 10% of the reported CapEx that you can see on this slide have been invested in our New Energies business. And for the remainder of the year, we don't expect the CapEx to exceed between 4% to 4.5% of revenue, including our investments in New Energies. Working capital requirements increased compared to the previous semester reaching EUR 447 million at the end of June versus EUR 498 million at the end of December 2021. This increase of EUR 51 million is due to supply chain difficulties for logistics, but also reflects the seasonality of production start-ups, which will take place in the second half of the year. And I'd just like to underline here that nevertheless, in terms of gross inventories, they remain quite stable when you look at the days of inventories outstanding, the DIO, which remains at 16 days in both December 2021 and at the end of June this year. Net debt decreased by EUR 3 million at the end of December 2021, coming in at EUR 851 million. And this is a testimony to our historically strong financial discipline. Net debt includes the EUR 20 million installment for our participation in Verkor and a negative exchange impact of EUR 39 million. Here, you see our usual overview of our key ratios, just a quick word. Leverage net debt to EBITDA is almost stable at 1.2x. Shareholder equity has improved from EUR 2.058 billion at the end of 2021 to EUR 2.175 billion, and gearing is at 39%, coming down from 41% at the end of December. A last word on liquidity, also a very important ratio and topic for Plastic Omnium. Liquidity has increased by EUR 100 million at the end of June with undrawn and confirmed credit lines, stable year-on-year. Maturity on these undrawn lines stands at 3.5 years, and I'd like to underline as usual that the group has no covenants. And one last word on our debt maturity wall. We have successfully completed a EUR 400 million Schuldschein campaign in May following strong investor demand, and this has enabled the group to extend its June 2023 Schuldschein maturity over an additional 3, 5 and 7 years up until 2029, as you can see in this slide. And for an average weighted service cost of 1.58% against 1.48% previously. And we are really extremely pleased with this outcome and the interest in Plastic Omnium in very volatile financial markets, as you all know. No major repayments are expected before June 2024. So I'd like now to hand back over to Laurent for the outlook and conclusion.

Having given us more information on the financial performance of the group in the first semester, very solid financial performance, as you saw before, especially on cash, now talking to the outlook for the second semester and starting with the market for sure, when we talk about the outlook. You see here the numbers of 2021, 2022. These are the numbers from IHS or S&P Global Mobility, that's the new name, as you know, with the first semester at 37.3 million. That is what we have experienced that is where we were able to perform very strongly, as you saw just before. And the expectation or the forecast of S&P that the second semester should be at 40.8 million. That means a strong growth is expected in the second semester. Our guidance was based, as mentioned many times on the potential market of 77 million vehicles. The first semester is in line with that. We do expect some growth in the fourth quarter, but we remain cautious because we know that the supply chain is still very strongly disrupted, that the sanitary situation in China is not stabilized. And therefore, for us, it will be the same way to manage the company. That means taking care of cash, taking care of investment, keeping our flexibility working on our cost efficiency because there are still some uncertainties in the market and because as well, we want to be able to continue to invest in the transformation of the group, sorry, and in new technologies as we have been able to do in the first semester. Therefore, based on this market assumption and for the current PO perimeter, we confirm the guidance for the year, meaning in terms of sales, the outperformance of the market in terms of operating margin between 5% and 6%, sorry, and in terms of free cash flow, free cash flow higher than EUR 260 million. These are the numbers we are committing to, again, based on the market size, which is assessed by IHS and which is in line with our 77 million cars for this year, which was the base of -- for this guidance. Now we come to the conclusion before handing over to you for the Q&A session. The conclusion is that basically, we are very, very satisfied for -- about the great job done by the PO team. The sales are increasing, but even more important is we have been able to increase very importantly, the margin in the first semester of this year. Even if the market was, again, I repeat it, strongly impacted by the supply chain and by the inflation, showing again that our operational efficiency is improving. We are working on strategic acquisition. That means we are able and we are willing to transform the group to be even fitter for the future with the right product portfolio. We have a very strong order book in the first semester in all our divisions and also in hydrogen, confirming our ambition for hydrogen, our commitment to achieve EUR 300 million sales in 2025 and the EUR 3 billion we are aiming for 2030. We are progressing as well on the carbon neutrality road map as Félicie was showing before. Also here, a strong commitment of the group to be fully carbon neutral in 2025 with Scope 1 and 2. And we remain very robust in terms of financial structure. Kathleen showed you before, the cash situation, the debt situation. Therefore, we are able to continue to invest. We are solid, and we are able to face further market uncertainties, but to invest for the future of the company. Therefore very satisfied with the performance of the group in the first semester. I'm very happy now to answer your questions if you have some to give you more colors on the topics we have been talking about or different topics you want to discuss with us.

We start with the people in the room, and we start with Thomas Besson like always. Thomas?

I have a few questions. You had both, one of the best months of the year and one of the worst months of the year in Q2 with June and April. How does it affect your visibility and confidence on the H2 production outlook? Do you have any more visibility? Or is it still on a week-by-week basis? Second question, much more long term. Could you remind us the peak impact and timing of that peak impact for the New Energies contribution to the industry's operating profits? You said EUR 15 million in the second -- in the first half of '22. On the net inflation impact, you managed to limit that to EUR 30 million in H1. What should we assume? Or what do you assume in your guidance for the second half net impact of inflation? And finally, on acquisitions, you've announced a multitude of acquisitions. And for the time being, given a relatively vague idea of the impact of these acquisitions, could you give us a vague impact, but on 2023 of the amount of revenues and the eventual contribution to earnings and guide for the year-end net debt, year-end '22 net debt, post acquisitions?

Good, then I'll do it step by step. The visibility on H2, yes, the June was in terms of volume, a good market. And while April was very weak, we -- it's difficult today to really to give a forecast. We believe will still be weak. We still do see disruption in the supply chain. And Q4, we hope when we talk with our customers that it should stabilize and that the volumes should increase. It's not a forecast, honestly. When we forecast internally, we always discount the volumes from the customers because we want to keep the strong focus on cash and cost efficiency. Therefore really difficult to say today, and we know that the situation in China remain unstable, but we stick to our assumption of the market, 77 million cars being produced. That means we do see a potential growth in the second semester in terms of volumes, even if we are still experiencing stop and goes. Regarding the impact on New Energies, Kathleen mentioned EUR 15 million in the first semester. That is more or less the run rate we have and we will have in the coming semesters as well. While we will generate sales, we should generate as well profit. Therefore, you may remember that we said our target is to have breakeven in 2025, and therefore, that is the run rate plus/minus, we do experience in the coming semesters in terms of New Energies impact on the margin. And regarding the acquisition, we gave you some information during the CMD about the profitability of the acquisition. The biggest one is, for sure, the one in Lighting, and the biggest one in the Lighting is Varroc Lighting Systems, which is a business losing money as of today. The impact for this year will depend on the date of the closing. Therefore, I cannot give you an impact in terms of impact on the debt. We have been communicating that the EV for the lighting activity will be at EUR 650 million and the EV for the electrification is about EUR 50 million. Therefore, you can make the math and assume that it will be more or less plus some free cash flow adjustment, the impact -- the potential impact on the debt. And in terms of expectation, we want to, in 24 to 36 months, we said that we want to have a double-digit EBITDA in this Lighting business. And the first step will be to be positive in 2023. That will be the target. Sorry, the net inflation impact, sorry, I didn't want to escape. No, I think, first of all, it's a very strong performance to a EUR 30 million net inflation impact in the first semester because I know that some of the peers are communicating on very high numbers. It's a daily fight with all the stakeholders, starting with ourselves. It's first of all, about working on efficiency, efficiency, efficiency, productivity. Our teams are doing a fantastic job to do that. The second step is for sure to avoid price increases as much as possible from our suppliers. And that is what we are also doing, what our teams are also doing with very intensive discussions, I could say, or even more. And then for sure, the third one is the pass-through with our customers, which are only partially contractual. You know that for raw material it is most of the time feasible. For the rest, logistic, energy, labor and so on, it's not part of our contracts, therefore, negotiation, negotiation. And we are very happy to have, I would say, only EUR 30 million in the first semester. How do we see the second semester? We believe that in the second semester, the situation will be even more challenging for the automotive industry because the inflation is continuing to increase. It means I don't believe we have achieved the peak of the inflation right now. And therefore, we are still working with the same methods, efficiency, suppliers, customers. But we believe that in the second semester as well, we should have or we will have a net impact because we are always running after the inflation, as you know. That means we are able to pass through to our customers once we have the cost in our books, and that is always a 3- to 6-month's delay. Therefore, our assumption for the second semester is still a net negative impact. Difficult to say numbers because we don't know exactly the inflation impact in the second semester. And our ambition is as we have been able to do in the first semester is to try to mitigate the biggest part of that. If there is no other question in the room, ah, there is another question in the room.

[ Eric Brown, Finance Connect. ] Just 2 questions about inflation you are hedged, I think, for part of your business. So the net impact should be higher in the second half than in the first half and perhaps changing a little because is it becoming more wage inflation and raw material inflation? That's my first question. And about the JV in China, you have had a bad mix effect on the first half. What do you think about the contribution of the JV on the second half?

I mean, first of all, regarding the inflation, we are not hedged. I mean that's only in energy that you can do something. And we want to -- we don't want to disclose what we have been doing, but we were able to make a proper job, not to be impacted this year fully by the energy price increase. And therefore, that is for the complete year. Raw material, we don't see that it is stabilizing or going down, honestly. In total, there are still many discussions with our suppliers, either for raw material suppliers or suppliers delivering parts, but being impacted by the raw material as well or by the energy. And therefore, it's not only the index, but also what our suppliers are experiencing on that. And for sure, in the second semester, we may have as well some impact on labor. In some countries, the negotiation were already done in the first half of the year. But in some countries as well, the employees are expecting a second run of negotiation in the second half because of the inflation situation. And therefore, that is also something which may impact us in the second semester. Therefore, I was saying before that I don't believe that the net impact will be lower in the second semester than in the first semester. Maybe a bit different, but not lower. In terms of China, our joint venture in China was performing very well, as mentioned by Kathleen, in the first semester in term of volume, in term of sales, in line with the market, I would say. And in the coming years, we will be able to increase the market share from 24% to 26%. That is what we have been showing in the CMD for the joint venture scope. That means for the Yanfeng exterior part system. And by the way, we are building 3 new factories in China for this business, showing that we are growing and that we are gaining market share in China. If no question in the room, maybe somebody on the phone?

[Operator Instructions] The first question now comes from the line of Akshat Kacker from JPMorgan.

Akshat from JPMorgan. Just 2 questions from my side, please. The first one on energy shortage risks in Germany and in Europe. Can you talk about the potential direct or indirect impact on your production processes from gas rationing, and how do you plan to mitigate this going forward into the second half? That's the first question. And the second question is coming back to one of Kathleen's slides on revenue drivers in the first half and outperformance. Can you just shed some more light in terms of what you laid out there in terms of ramp down of Mercedes-Benz business, if I caught that correctly. And also how the China JV business was affected by Hyundai market share losses, please?

Okay, I mean, first of all, regarding energy shortage in Europe, how can I say on that. At the end of the day, what we have learned the last 3 years is that we depend on the others as well. Therefore, even if we are working on containment action, even if we are working on how to mitigate or how to find new source of energy in case of, I believe, if there are energy shortage in Europe, that will impact the complete industry and indirectly PO as well. Therefore, we are working with our customers on some alternatives in terms of gas, in terms of energy. But honestly or frankly speaking, if there are shortage in Europe that will impact the complete industry or some other stakeholders. And therefore, I think we will be all in the same boat, difficult to predict if it will happen. We just know that we are doing what we have to do, meaning what I was saying before or Félicie was commenting as well, to reduce the energy consumption. That's part of our carbon neutrality journey and to work on alternative source of energy, which is also good in terms of potential independency. But again, even if we are doing the right job, if there are energy shortage in Europe or in Germany, then we have to assume that the full industry could be impacted, and we could be impacted indirectly as well. Therefore it's not only what we are doing, it is what the industry is doing. Regarding China, as mentioned before, in China, we have 3 activities, the 3 divisions. The business of exterior system, bumpers and tailgate is the joint venture you have been referring to, which is in line with the market performance, which is growing, which is gaining market share. Therefore, investing also in new factories. Therefore we will, in this joint venture, outperform the market in the coming years. Then we have the Module business, our HBPO business in China, that is hat Kathleen said before, which is in terms of volumes outperforming the market, but more with Tesla with the low content by vehicle and with Daimler, where they were suffering from shortages where we have the highest content. Therefore, in terms of sales, the outperformance is negative. But in terms of volume, it is positive. And then we have the fuel system business with a customer mix which is not favorable for us and also the fact that for the fuel system business we're also impacted by the acceleration of the electrification in China. That is the picture by division.

The next question comes from the line of Christoph Laskawi of Deutsche Bank.

It's only 2 brief ones. The first one will be on your indication for Q3, right? I understood it correctly, you have been pointing to another fairly challenging quarter ahead. When we benchmark that was the communication of other suppliers that would actually say that the indications for volumes in July and August have been fairly solid and sequentially up and not as volatile. Could you just please elaborate a bit on if you would confirm the same for the 2 months? Or if you experience something materially different? And then the second question would just be on a working capital indication in H2. This will be tough, obviously, with the volatility of production and if there are changes, it's hard to say. But should we expect the negative effect to completely reverse in H2? Or any guidance would be appreciated.

I mean, regarding the market on Q3, we like to remain cautious basically, even if the call-off of the customers are higher than Q3 last year, I think it is important to remain cautious. Therefore, we don't forecast, frankly speaking, we don't forecast because we don't know the color for the customers, it's maybe what is mentioned by other players higher than last year, which doesn't mean that it is going to translate in higher production volumes because again, the supply chain remains pretty disrupted. We hope that China will stabilize, but again, it depends on the sanitary situation. Therefore, we remain cautious for Q3. We have anyway the capacity to produce more. And we prefer to focus on what we can influence, basically, which is our agility, our cost structure, our way to manage the cash. But yes, the customers are seeing higher volume than in Q3 last year. But we, as PO, we prefer to remain cautious in the way we are managing the operation. Regarding the working capital, we had, as Kathleen mentioned, in the first semester, in terms of days, we have been able to maintain the same level of last year, which is, I think, good in terms of value it is higher than last year, but we do target for the end of the year to improve furthermore our working capital. That means we have clearly the target with our divisions to reduce our working capital in terms of values. That means to work mainly on inventories, and that is what we are doing now to come down to a better situation than at the end of last year in terms of days and values. And for sure, Kathleen and CapEx remain for us priority that means to maintain our CapEx to the level we need. We have -- as you know, we have capacity in our factories to produce more anyway. Therefore, we don't need a lot of CapEx to maintain that. We are working on the efficiency in terms of projects. That means to be more digital, to use even more of the best cost countries to reduce the project cost and therefore, the CapEx cost compared to the revenues. And at the other side, we are investing in hydrogen or other innovation topics to transform the group. But in total, we will be able to maintain our CapEx to a very decent level in the second half of the year as well. Any other question?

We have no further questions on the line. We move now to the written questions.

We have a question from Pierre-Yves Quemener from Stifel. Could you please speak about energy costs and foreseeable salaries hike claims into 2023? Also, what kind of growth impact would you expect? And how confident are you to pass the ladder in your selling prices?

That was for 2023, the question -- for 2023, I would say we will see we do the standard principle, how to eat an elephant piece by piece or the first piece we're the first semester. The second semester is the second piece, where we are confident on energy, but for sure, labor cost may increase. And the best way for us to mitigate that is to work on productivity. And for next year, we will see how the energy will develop. We don't believe that the energy will come down in terms of cost. We believe the energy costs will be high for a longer period of time, and we are preparing ourselves for that. Again, negotiation, productivity to mitigate the impact.

We have another question from Pierre-Yves Quemener from Stifel. The quality of cash flow has been lower in H1 2022 with plus EUR 47 million factoring tailwind, which was negative by EUR 25 million in the first semester of 2021. How should we think about factoring into the balance of the year and into 2023?

Yes, thank you for the question. Well, in actual fact, when you look at the factoring, the stock of factoring, we're very stable at 10% of revenues in December 2021, 10% in June 2022 10% and so there's been no significant change. We've just followed the sales volumes, which have thankfully increased. In terms of the outlook for the second half of the year, we always factor between EUR 300 million and EUR 400 million, and that remains the ballpark figure for the end of December 2022.

Okay, we do not have any further questions online.

And if no question, I really thank you for attending this meeting here or remotely. And again, we are very satisfied with the performance of the first semester and attacking the second semester with some ambition, first of all, to achieve our guidance and then to continue to transform the company. Thank you again, and see you soon. Bye-bye.

Thank you.