OPmobility SE (OPM) Earnings Call Transcript & Summary

Hello, and welcome to the Plastic Omnium 2023 First Quarter Sales Call. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]. I will now hand you over to your host, Kathleen Wantz-O’Rourke, the CFO and IFO of Plastic Omnium to begin today's conference. Thank you.

Good morning to everyone connected this morning, and thank you very much for making the effort to connect so early in the morning. As a note of introduction, the first 3 months of 2023 have been, well, extremely busy for the group on both the operational and commercial fronts. The group is on track for the first quarter, with its 2023 assumptions. Our growth in this quarter has been extremely strong, coming in at 34.5% as reported and at 17.5% on a like-for-like basis, on the back of the recovery of activity following Q1 2022, if you can remember that saw the invasion of Ukraine by Russia, sudden disruptions in the supply chain that led to a significant fall in production particularly in Europe in Q1 2022. Generally speaking, we should see this growth pattern continue during the first semester of 2023 as production progressively recovers from 2 years of supply chain difficulties, which is still -- I'd like to underline, which is still present today, but to a lesser extent, of course. The group maintains its outlook in terms of production volumes for 2023 as we announced in February. And this outlook is based on worldwide production of 82.1 million vehicles, which implies that -- well, the second semester of 2023 will be slower than the first. S&P foresees, according to its April report, a negative production of minus 1.5% in the second semester compared to S2 2022. Our first quarter revenue is fully in line with our expectations. The past quarter has seen the group register, if you go to the second -- on the slide, on the left-hand side, underneath there, the second point, has seen the group register a record order intake in North America across almost all of its activities, and I'll come to this in more detail in a few minutes. The lighting budget -- the lighting business, sorry, is well on track in terms of its first year of existence in the group and the likes of green in terms of execution on our action plan. I would not like, however, to reduce the lighting business to a simple turnaround story. We have also managed to work commercially with our customers, who were showing an increasing interest in our offer, and we are responding to the first RFQs in respect to the Varroc's lighting legacy. We should see the order intake increase in the coming quarters for lighting. Also, as well as you know, the lighting activity will be an important contribution to our global Exterior Solutions offer. Coming on to the next slide. On the left-hand side, according to S&P in their April report, worldwide automotive production progressed by 6.1%, as you can see on this slide, in the first quarter of 2023 year-on-year. As a reminder, production in Q1 2022 fell by minus 3.0% worldwide. On the back of the combination of the three crises that I mentioned earlier: the war in Ukraine, lockdowns in China and the semiconductor shortages. Looking at the group's performance in its major regions in Q1. Europe has shown significant growth on a like-for-like basis coming in at 27.6% and outperforming the market by over 10 points. This is thanks to growth, particularly in Germany, almost 43% growth on a like-for-like basis; and Eastern Europe, over 18% growth on a like-for-like basis. In North America, the group published growth of 26.3%, including acquisitions. On a like-for-like basis, growth for Q1 amounted to 1.5%, underperforming the market, which grew by 9.4% on a yearly basis. Firstly, our intelligent exterior business registered 3 major SOPs, if you can recall, in Q1 2022 in North America, which have not been replicated in this first quarter in 2023. This is a timing issue, and we're expecting a number of starts of production across the board from Q2 onwards. Secondly, we have experienced either production disruptions, Mexico due to component shortages, for example, or a delay in production ramp-up with some other major players in the U.S.A. We are expecting at this stage, the situation to recover in the coming months. In China, as you can see here, the group performed very well against a backdrop of negative growth in terms of production figures, the Chinese market suffered from the follow-up of the COVID lockdowns, fall in demand and ongoing supply chain issues. Our outperformance of 13.8 points is a testimony to the strength of our joint venture YFPO, plus 6.7% on a like-for-like basis and the modules business, plus 61.5% on a like-for-like basis. We expect the Chinese market to remain a tone for the first semester, and remain -- we remain fairly vigilant in respect to the second semester for which the signals appear to be mixed at this stage. S&P foresees negative growth of minus 4.4% in the second semester in China. The market remains difficult to read and anticipate, therefore, in 2023. Even if we are convinced that the long-term fundamentals appear to be intact, with the intentions of a number of Chinese OEMs to stimulate growth by exports. Asia, excluding China, continues to outshine the market with an outperformance of 14.7 points in the first quarter for an increase in revenue on a like-for-like basis of 25.9%. This region remains very dynamic for both our modules business, we saw the launch of production for Kia for front-end modules in the first quarter, and that is fuel tanks with a published growth of about 32% in the first quarter of 2023. Moving on. As you can see here, both the industries and module segments reported double-digit growth at the end of this first quarter on a reported and on a like-for-like basis. For the past 2 years, as we've mentioned in several occasions, we have reported on our record order intake, and we are now starting to see the fruit of these orders, which will progressively convert to revenue in the coming 2 to 4 years. PO Industries has been driven by solid growth year-on-year in the Intelligent Exterior Systems business, well above 10% growth on a like-for-like basis. Germany, Eastern Europe and our JV with Yanfeng in China have been significant contributors to this growth, which includes, as mentioned earlier, a mechanical effect from the negative minus 7.0% growth in the first quarter of 2022 due to the three crises as we call them. The Clean Energy Solutions business has enjoyed mid- to high single-digit growth in aggregate across all geographies of which 4.7% like-for-like in Europe. We are starting to see the possible first signs of market consolidation in fuel tanks. And I'll come to this point in a few minutes when I address the topic of order intake. And as #1 worldwide in this market with 22% addressable market share in 2022, which corresponds to roughly 18,000 tanks and SCR systems. We intend to actively pursue commercial success in this area whilst carefully while managing our cost basis so as to limit any compromise on margin and free cash flow moving forward. PO modules has enjoyed double-digit growth across all three of its regions: Europe, NAFTA and Asia. Two regions standouts in particular, Europe and China. As for Europe, our European modules activity is benefiting largely from its excellent position on electrical platforms. And in China, PO modules has benefited also from the general improvement against Q1 2022 in China. That saw in particular, if you recall, our facilities in Beijing, shut down for the winter olympics and also COVID-related shutdowns. Last but certainly not least, our joint ventures have registered growth of 13% on a like-for-like basis, of which YFPO, as I mentioned before, plus 6.7% and our modules JV with SHB in South Korea, well above 20%. On this slide, I'd just like to highlight two examples in particular that stand out. Firstly, the NIO ET5, YFPO was awarded a contract in 2021 for bumpers, tailgates, rocker panels and other exterior parts for these vehicles. The sedan version was launched in September 2022, and the wagon version is to be launched this month. Sales lifetime for YFPO is around EUR 50 million for both versions. The NIO is considered one of the most advanced commercial EVs in the ADAS field today, and the wagon variants will be delivered first to Europe while remaining also available in China. It's considered a strong rival to the Tesla Model 3 in terms of quality and performance. And then I'd like to highlight the GM Chevrolet, Colorado, which is, as you can see from the picture, a midsize pickup truck for which the group was awarded, end of 2019, a contract for fuel tanks for approximately 160,000 vehicles per year. The volumes launched in Q1 2023 are being manufactured in our existing facility in Fairfax in Northern Virginia. And this project as you can understand, is of strategic importance to the group as we were able to win the project from an existing incumbent supplier as a part of our general consolidation strategy in the full fuel tank domain. Moving on, and this is a real highlight of Q1 for the group. We're extremely proud to have secured the significant orders in North America. As we've had the opportunity to express in previous meetings, in addition to new technologies and synergies with existing businesses, our growth strategy also aims at building a more balanced geographical footprint by targeting North America and Asia. And these breakthrough orders are a part of this strategy. Firstly, I'll address the energy storage systems activities. We are pleased to have secured orders for both fuel tank and hydrogen storage solutions with a major OEM. The start of production will be in the second half of this decade. These contracts will secure our leadership in fuel tanks and de-pollution systems and anchor the group in the hydrogen storage and fuel cell space in North America. Investment requirements have been optimized in so far is that we can use the existing capacities for the fuel tank contract with only additional development and tooling CapEx, and we will be, however, building a new facility for the hydrogen business, which we're looking forward to very much. Now coming to the modules business, we are talking about an electric platform dedicated to the production of front-end and cockpit modules with the start of production foreseen in the second semester already for this year and a ramp up through 2024. The project, as you probably realize is very challenging in such a short time frame. Be rest assured, the building has already been secured and installation is to be completed between this coming summer in the Northern Hemisphere and the end of 2023. We are pleased also to confirm that we have been successful in the renewal of a strategic contract from major European OEMs supply of rear bumpers and other exterior parts. This contract secures revenue for the coming years. And the start of production is planned to begin in 2026. This contract only requires marginal additional CapEx. All in all, on a run rate basis by 2027, 2028, the groups were almost double its annual sales in the U.S.A. We will communicate -- have the opportunity to communicate more details on these programs when we have advanced a bit further with the various customers. Moving on to hydrogen. At the start of 2023, we announced the creation of a new joint venture in China with Rein, a subsidiary of the Shenergy Group. REIN, just so that you understand, is a provider of complete hydrogen energy infrastructure and supply solutions, integrating R&D, manufacturing, sales, service and systems, and Rain occupies more than 50% of's the national market share in this field in China currently. PO has joined forces with Rain with the intention to finalize in the coming weeks, a 50-50 joint venture to address the Chinese commercial mobility segment for both hydrogen storage and systems. Anti-trust approvals have already been obtained. The construction process for the foreseen mega plant will be launched during the course of 2023. Once the JV has been formally incorporated so that production can start in 2026, pending, of course, the certification process. The group overall is doubly confident that it has the right partner to address this promising segment in China and that the momentum that the Chinese government is giving to hydrogen will enable the joint forces of both Rein and PO to accelerate business development in China in this segment. Moving on to lighting. As a reminder, for those of you who are not perhaps is up to date with all the different changes in the group. The group acquired in the second semester last year two lighting activities for Alstom and Varroc as part of its growth strategy. The group has given itself 24 to 36 months to bring these activities to mid-single-digit operating margins and to achieve this, a detailed action plan has been worked out and around 50 employees from PO have been seconded to assist the lighting activity today. A number of very concrete operational topics have been consistently worked through, whether it be the reduction of scrap, reduction of inventory, rightsizing and reorganization, focusing on overdue receivables, for example, or commercial support to secure revenues. The action plan is on track to deliver breakeven in operating margin and cash during the course of 2023. As mentioned earlier, lighting should not be reduced, and I'd like to underline this to a turnaround story only, commercial teams are leveraging the historical PO-customer relationships to continue to develop trust and be invited to bid on new programs in lighting. We are expecting that the ongoing RFQ processes will enable the lighting activity to position itself for growth. Lighting is also, as you know, a key component in our global exterior offer that we are developing, and we will most likely communicate something along these lines in the second semester of 2023. As with Q1 2022, we thought it is important to utilize the first quarter revenue call to focus on one concrete action of our Act for All program. Act for All was established in 2019 as the group's corporate social responsibility initiatives covering health and safety, diversity, business ethics and sustainability. And this year, we have chosen to focus on Turkey and the group's response to the terrible earthquake that strike Southern and Central Turkey in February this year. We have plants in both exterior systems and lighting in Turkey. So this initiative has resonated quite well with our employees across all of the regions of the world. The group has set up with a local foundation, a donation program. Each euro donated by an employee is matched by the group with the aim to provide a number of concrete measures that will facilitate children's education moving forward. Coming quickly now towards the end of this short presentation. The group confirms its 2023 outlook as communicated in February. Growth outperforming the market and operating result in excess of EUR 400 million free cash flow in excess of EUR 260 million. And we also confirm our outlook in terms of automotive production assumptions of 82.1 million vehicles. Just a last word of wrap-up. As you can see, we've had extremely strong momentum in Q1 in terms of revenues, of which -- for which we're very pleased, very much in line with what we have planned in line with our guidance. Very excited about their historical North American order intake, which will ensure perspective moving forward in line with our strategy to rebalance our geographical footprint. Our action plan for lighting is fully on track and in line with the ramp-up expectations that we have. And of course, as I just mentioned earlier, we confirm our outlook for 2023. So this being said, let's move on to questions and answers.

[Operator Instructions] We will now take our first question from Thomas Besson at Kepler Cheuvreux.

It's Tom Besson from Kepler Cheuvreux. I have three questions, please. Firstly, could you confirm the lighting contribution to Q1 revenues and the full year expectations in terms of revenue contribution? And make a qualitative comment about the loss run rate in Q1 versus what you had really saw in Q4, please. That's the first question. The second question is more broader. Could you remind us your combined exposure to Tesla and BYD in 2022. In Q1 '23 or in your orders, I know you're not supposed to give the specific exposure to Tesla, which is why I ask the question together with another automaker. Lastly, also a broad question. Could you give us an idea or comment on the impact of China emerging increasingly as an export base for many automakers and practically Chinese production largely exceeding the China market and how you are choosing what you hear the winning automakers in what's going to be likely a Darwinian selection in the year ahead?

Thank you, Thomas, for these questions. First of all, lighting, I mean, what we've decided -- I mean, lighting is now an integral part of PO and an integral part of our industry segment. I understand your question. I think you should -- we did EUR 1 billion in turnover pro forma in 2022 in the lighting -- so we're basically on that run rate for the first quarter. So a contribution of just over EUR 300 million in terms of sales. As far as the loss run rate is concerned, I think you should stick to what we've said. We're well on track to achieving at -- in the coming months, a level of breakeven in terms of operating margin. So I mean if you look at -- you can't compare as I've had the opportunity to mention to a number of you in the past months. You can't compare the situation in 2022 with 2023. So 2022, we onboarded these activities as is. And we've put into place the action plans to be able to achieve that point of breakeven in the course of the coming months, and we're very confident that we can do it. So that's the situation in terms of profitability. For the exposure to Tesla and BYD, First of all, I mean, Tesla isn't -- and BYD aren't in the top 10 of the group's top customers today. So I think that's an important point to retain. Within the next 3 to 4 years, we expect someone like Tesla to represent approximately between EUR 800 million and EUR 1 billion in turnover for the group. BYD at this stage remains part of our Chinese players. We're currently exposed to the Chinese players in China at the end of Q1 at about 21% of our Chinese revenue, which is about 2% of the group's revenue overall. As far as your last question is concerned, the impact of China, the export base, we confirm that China and the OEMs intend to accelerate the export strategy that's the tendency that we're seeing currently. We have the Shanghai Motor Show last week and the feedback that we've had from our teams shows that the Chinese electric vehicles, in particular, are outstanding in terms of technology, in terms of design, in terms of the number of vehicles and the variance that there are, the quality of these vehicles appears to be improving as well quite considerably. And once again, as we've also had the opportunity to mention we're delighted if the Chinese manufacturers choose to export their vehicles wherever that may be. We enjoy quite a considerable market share in China through our joint venture with YF for the plastic parts. And where we will be a partner for these Chinese manufacturers also moving forward.

Can I just ask you to confirm if it's for BYD or the entire Chinese OEMs group? The 2% of consolidated group revenues, please? I'm not sure I understood that.

Sorry, it's for all of the Chinese players.

We'll now move on to our next question from Akshat at JPMorgan.

I'm Akshat from JPMorgan. Three from my side as well, please. The first one coming on the lighting business, you have talked about scrap reduction and inventory reduction of the two main actions that you've already implemented in the business. So firstly, could you talk the key actions that you will be taking in the rest of the year? And a second part of that is after actually have already taken, are you in a position to say that the business will be cash breakeven full year. That is on the lighting business. The second one is on the two business lines, intelligent exterior systems and clean energy systems in 2023, specifically. Do you expect Clean Energy Systems to be still growing top line materially this year? Also, if you could talk about growth above market trends within the IES business, I think you talked about some IES projects ramping up from Q2. And the last one is on the EUR 10 billion order intake in North America. Obviously, a very strong number and a great development in the quarter. Could you just help us understand constituents of that order, probably in terms of the split between IES modules and energy storage.

Thanks, Akshat. I hope that I've captured everything, please don't hesitate to interrupt if I haven't. In terms of lighting, I mean, the actions that we've -- that I mentioned earlier in the presentation are actions that will be lasting throughout the whole of the year. We haven't obviously finalized everything in the first 3 months of this activity. So these are ongoing actions. Perhaps something that we'll be focusing on a little bit more moving forward in addition to the actions that I've mentioned, the structure costs, the SG&A of lighting in general, but also looking at how we can leverage additional synergies in SG&A with the group, with PO. The cash breakeven, it's not a full year cash breakeven. I said that we will achieve breakeven in cash at some point during the year. The objective remains, the turnaround between the mid-single-digit operating margin and hence, positive cash flow between 24 and 36 months in aggregate. CES, top line growth, we're very pleased that CES is enjoying mid- to high single-digit growth in the first quarter of 2023. We are expecting positive growth to continue throughout the year, even if I mentioned that, generally speaking, for the group, we're sticking to the 82.1 million vehicles in automotive production worldwide, which implicitly indicates that there will be a slower S2 most likely. So we're looking at that. But generally speaking, CES is in the process of acting on this strategy to be an actor in the consolidation of the market. And I think the growth figures that we've been able to demonstrate in Q1 and even last year, demonstrate that this strategy is gradually picking up speed. The question around IES and the growth, I think you referred to what I've said for North America only. It's not a general topic. IES is enjoying exporting Intelligent Exterior Systems business is enjoying excellent growth against 2022. Albeit in North America, where we've had, as I mentioned earlier, Stop & Gos in Mexico, which have impacted the business. And then we have a slower ramp-up in terms of the EDI orders for some of our U.S. customers in some of the facilities, which we expect to come back to the levels that we have planned in the coming months. So it's nothing to be alarmed about. That just explains why we have an underperformance in North America. Coming back to the deals, the 10 billion -- close to EUR 10 billion deals that we've managed to secure in Q1. I'm not in a position at the moment to be able to give the split, unfortunately, Akshat. As I mentioned, we're still working together with the customers on the details of those orders, and we will give you that split in the course of the coming months.

We'll move on to our next question from Giulio Pescatore at BNP.

The first one on supply chain. You mentioned that stopping growth remain prevalent in -- especially in Mexico in Q1. So there were still some volatility in supply chain. Can you maybe comment on the development of this volatility over the course of the quarter? Was there a significant improvement as we headed into March? And what do you expect the question to be for the -- sorry for the remainder of the year. The second question on pricing. I mean, we've seen very good results across the board on top line so far for Asia, hopefully, yourself now, but the market remains very worried about the sustainability of margins and the earnings. And I think that's where it's linked to pricing and inflation pass-through. So can you maybe remind us of what your expectation is in terms of pass-through? And are you seeing any change in the behavior of carmakers in the way they engage in this discussion? Then the third one is on your legacy ICE business. I mean it sounds like you keep gaining market share on this business hence the market that we've been underestimating the profitability and growth potential of this business and for how long the business will continue to grow given the market share potential here?

So was that the ICE Business Studio?

Yes. The last question is on the ICE emission reduction.

Okay. Thank you. Okay. So coming to the supply chain topic and the Stop-&-Gos. Yes. I mean we still are experiencing Stop-&-Gos around the world actually. If I look at -- two of our main businesses that are really experiencing this in particularly the Intelligent Exterior Systems business. At the end of Q1, we had almost 1,700 shifts that were canceled, 19% of which were in the Americas and 78% in Europe. And so if you look, for example -- and a lot of that was in the month of March. If you look at -- we follow it very closely on a weekly basis. In the month of March, you could compare roughly it's in par with September 2022. So we're looking at a peak in Q1 in the Stop-&-Gos, and that's essentially with Stellantis and with Volkswagen -- so there still is a bit of volatility there. The same with the modules business, significantly less, but significantly less than what we've seen in the past 18 months. But we're still seeing Stop-&-Gos in Germany and Mexico and once again in the modules business for Volkswagen and Daimler. Coming to the pricing topic and the inflation to -- just to remind you what our expectations are. As we said in February, we expect more or less to be in line in terms of gross inflation and net inflation impact with 2022 even if the topics aren't exactly the same. In 2022, we had more of a raw material issue, which through the -- having progressed in terms of indexation or contractual mechanisms to compensate this with the OEMs. We're now looking at energy and labor costs. We estimate the gross inflation impact this year be between EUR 200 million and EUR 250 million. We expect to mitigate a significant portion, well over 70% of this as we did in 2022, which represents all in all, between 2% and 3% of sales. The ICE business...

Sorry, before we move there, can you just maybe make this extremely clear. This hasn't changed compared to the beginning of the year. Are you still expecting 70%. You haven't seen any change in behavior from car makers?

Sorry, I was just going to come back on that. You're right to remind me this No, we haven't. I mean, obviously, it's still very difficult, and it's the -- perhaps the discussions are a little bit more forceful with certain OEMs. But generally speaking, it's not a walk in the park. It wasn't last year, and it's not this year. So the good thing is that we started this process very early on. We already started in Q4 2022 to prepare the discussions. And so most of these discussions are now on the table and we expect to make significant progress by the end of S1. Not that it will probably take the whole full year to complete the discussions as usual. But we remain confident that in S1, we would have managed to secure a certain number of discussions with the OEMs even if the discussions are very difficult. In terms of the ICE business, I mean, we've been saying for quite some time that you're underestimating our strength in this business. As you know, our strategy is to be agnostic in terms of powertrain. So we have the capacity to address the ICE segment, the battery electric segment and the hydrogen electric segment. That's an integral part of our -- the group's strategy. We see potential. Yes, we do see potential for growth. We have a 22% market share or addressable market share at the end of 2022. And we have plans to achieve 27% addressable market share in 2027. And the orders that we've managed to secure recently give us quite a lot of confidence that we will be able to achieve this target that we have fixed ourselves. So we want to be in that during the consolidation of the market. Consolidation doesn't mean acquisitions. It means winning new orders against competitors. It means developing the ICE business in geographies that aren't going necessarily full electric. As we can see that, for example, in Asia, excluding China, where we had extremely strong growth, but also in North America. And thirdly, this is probably to a lesser extent, that's still something that is interesting for us is winning potential market share from the OEMs in the externalization process. So some OEMs are starting to externalize their fuel tanks business, moving from steel to plastic. And we said that as a third potential for growth in this area. And the thing about that business is that we already have quite a good industrial footprint. There will be some adjustment necessary, probably in the production capacities according to the ramp-up of the electric -- but generally speaking, there's no significant further investment that will be required for that business.

We'll move on to our next question from Pierre-Yves at Stifel.

Kathleen, a couple of follow-ups, I guess. Just to finish up on the supply chain concerns with [ Stellantis ] still prevalent especially in March. Should we expect that in respect to a normalization already by the end of the semester, or is it too early to say and there's still a lack of visibility that prevails all through the industry at this stage.

Thanks, Pierre. I mean, yes, I think there's still a lot of visibility that prevails. I mean the stop and start as I mentioned earlier, have significantly reduced compared to what we have experienced 18 months ago. Nevertheless, it's always a surprise to us to have these announcement, particularly from one of the major French OEMs quite regularly. So it's very difficult for us to be able to foresee these kind of events. So we remain very attentive to what's happening, and we're adjusting ourselves as it happens.

I've got three more, if I may, VLS should be at breakeven somewhere in June, if I understood you correctly. Should we expect it to be this new entity to be profitable for the balance of the year and show that also imply a reduction in the workforce. So I have to reach a breakeven and turn to a smaller profit, if any, in the second half. Some question. Regarding the industry, I love that you have built your plan on in H2, I understand that you still assume a slight decline by 2% on the LVP in H2 if I understood you correctly. -- in your opening comments. Would you quantify that outlook as, I would say, readily reasonable given icons or there is still macro uncertainties looming especially in China. -- but it could weigh much more on the second half of the year regarding car production. . Last but not least, just trying that one. You mentioned a couple of only customers like Stellantis, BYD or Tesla. I understand that you supply us well the Renault Megane in tech. Regarding the program, how things are doing, is it in line with your expectations in terms of volume, slightly better, slightly worse? Can I have some color would be quite helpful.

Pierre, so first of all, the supply chain, I asked that question already. Breakeven -- full breakeven in June for the Lighting business. I didn't mention a date. I've never mentioned a date. It will be some point of time this year, the earlier the better. of course, I couldn't agree more with you on that one. But we're fairly confident that, that will happen in the coming months. Will the Lighting business be profitable in the balance of the full year. That's not what we have said. We said that we would like to achieve a point of breakeven during the course of the year. And from that point onwards, it should be at least breakeven for 2023. So that won't necessarily compensate the ramp-up towards that point since the beginning of the year. I didn't quite understand, Pierre your question on the workforce. Could you please repeat that?

Yes, sure. My understanding is that you might have to let some people go at VLS to reach that breakeven. Is that correct?

Well, I mean, we're looking at the general structure of the business and how we want to address the market and address the different activities, whether it be the commercial field, whether it be the R&D whether it be the support functions. And there is some optimization and there are some synergies to be found within the Lighting business itself between AMLS and BLS and with the rest of the group. So there will be -- there has been and there will be some adjustments in capacities. But based on a general view, of where we can do what's better, in which country and with the different approaches that we have towards the different markets that we're in, in the different technologies. To come to the second half, is decline of the second half that is announced by S&P reasonable. The macro, the macro metrics for China. Well, I mean, we're sticking to our outlook of 82.1 million vehicles. That implied growth, as we said, between 0% and 3% roughly for 2023 for the full year. We take that to be reasonable for the market. And so if the first semester of the year is strong on the basis of the fact that the first semester of 2022 was also disturbed by a certain number of exogenous events like the war in Ukraine, like the COVID shutdowns, et cetera, and the supply chain difficulties, then it does make sense. The second semester will be a bit slower. So that seems to us to be reasonable. The macro situation in China, look, it really is anyone's guess. We're seeing a first semester that we believe will be as I mentioned, atone in terms of the dynamics of the market. And the second semester is basically anyone's guess. But we do have some hope that the volumes will also be supported by this strategy, this general strategy that Thomas Besson alluded to earlier in his question, where the Chinese are starting to support their export industry. So it's something that we're following very closely. But obviously, the general dynamic in China is negative at the moment. Coming back to the Renault Megane. I mean, at this stage, I have no -- I don't know the exact answer to this question, Pierre. I have no indication from the field that there's any major issue around the production on this vehicle at this stage, at our end. Obviously, if volumes fall on the OEM side, that will, in turn, impact us at some stage down the track. So something to -- I'll go back and have a look at that with the teams.

[Operator Instructions] We'll now take our next question from Christoph Laskawi at Deutsche Bank.

More or less, follow-ups on, I think, Julien's questions. The first on the OEM negotiations and the commercial agreements, you said to make or expect to make significant progress until the end of Q2. Should we read that comment as you will actually have signed and sealed a lot of contracts, which means you can already book them and we should expect an earnings impact? Or is that, say, the finalization, as you also highlighted, might drag into Q3, Q4 so that we shouldn't expect a bigger earnings impact from those negotiations with H1 results? And then a follow-up also on the start and stops. You mentioned Europe was quite strongly impacted. Is it in the end happening that OEMs are asking you to still fulfill the same volume they initially asked for? And it's just a problem that they had run out of parts? Or do you see sizable cuts in the volume they expect by programs and erratic shift between the programs that you're on and even for the OEMs themselves. If you could comment on that, would be helpful.

Thanks, Christoph. First of all, we have -- we're expecting a certain momentum in these discussions with the OEMs in S1 simply because we started early, as I mentioned before. Now the discussions appear to be on track, a difficult, but constructive. Now it's very difficult to judge exactly how much would be achieved in S1 at this stage. We expect to progress to have a good progression in S1. But most likely, there will be tail-end discussions with the OEMs moving forward, and there will still be some impact into Q3 and Q4. In terms of the Stop-&-Gos Currently, the explanations that we've been getting from the OEMs sort of been in this situation is that the stopping goes, I think, to component shortages. We've heard various topics of Stellantis, for example, where they were missing gearboxes or other components as well. So that's been -- that's sort of like the situation at the moment. In Mexico, we had semiconductors that were seeing. We haven't seen any cuts to the programs as yet. So we have no reason to believe that, that -- that's the situation though we haven't seen any cuts to the program as yet.

This is very helpful. And just -- I mean, I know it's a revenue call, but any impact on working capital so far, I guess, still high inventories ratio remains highly volatile?

In general or specifically for a...

For Stop-&-Gos more or less.

For Stop-&-Gos, sorry. No, it's quite okay. Christoph, because we now so used to the Stop-&-Gos, we're used to flexing our costs on the one side and managing the inventory topic and anticipating the inventory topic on the other side. Quite the opposite of working on our inventories at the moment that were kind of a little bit on the high side at the end of 2022. So we're reviewing those at the moment. So there's no significant impact at this stage on the working capital.

There are no further questions in queue. I will now hand you back to Kathleen to conclude today's conference. Thank you.

Thank you very much, Nora. Thank you to all of you who have joined the conference today. Thank you for your questions, which were challenging and informative and interesting as usual. Should you require any further explanations or you have any further questions that will come up in the coming days, please don't hesitate to contact our Investor Relations group, and we'd be more than pleased to give those answers to you. So thank you once again, and have a great day.

Thank you all.