OPmobility SE (OPM) Earnings Call Transcript

Hello, and welcome to the Plastic Omnium 2023 Third Quarter Revenue Call. My name is Laura, and I will be your coordinator for today's event. Please note this call is being recorded. [Operator Instructions] Today, we have Laurent Favre, Chief Executive Officer; and Kathleen Wantz-O’Rourke, Chief Financial Officer as our presenters. I will now hand you over to your host, Laurent Favre to begin today's conference. Thank you.

Yes. Good morning, everybody, and a very warm welcome from my side, Laurent speaking. I'm here together with Kathleen and Stephane as well and to comment to you to present you our Q3 revenue and the perspective for the rest of the year. I hope you can see the slides on your screen, we are on the Page 2, and we are talking now about the executive summary. All in all, we are very happy to confirm a solid growth in revenue in the third quarter as well compared to the market compared to last year. And all in all, the group did record 26.5% cumulative growth since the beginning of the year, outperforming the market by 6.4 points. We have a very robust order intake. It was already a highlight of the first semester. It is, again, a highlight for the third quarter, and that will be a highlight for the complete year, and we will come back to that later on. We are fully on track to deliver our strategy based on very strong historical activities, gaining market share, consolidating the market and delivering a high level of profitability and free cash flow, but also new businesses, again, confirming the relevance of our technological choices. The group continues to invest in all the businesses, again, to address this high level of order intake, and we are convinced that we are fully in line to benefit from the market transformation, which is accelerating. Concerning the environment, since some weeks, the environment did change in some aspects. We have been facing with our traditional OEMs, the flooding in Slovenia, impacting our exterior business. We have the strike in the U.S., which did start middle of September, which is intensifying since some weeks and also since some days, impacting as well our fuel tank business and we do see some volumes going down or being far away from the expectation, especially for BEV for traditional OEMs, and we will come back to that in a couple of minutes to give you a bit more information on that. And for sure, inflation and interest rate remains at a very high level, and we do expect this level of inflation interest rate to remain for the coming quarters. And therefore, we have decided because we always want to be fully transparent with you to adjust our perspective for the full year regarding the operating margin and the free cash flow. But for sure, also to confirm our growth and the outperformance of the market, we are still targeting for 2023. I move to the next slide, talking about the market in the third quarter. You can see on the left part of the slide, what did happen in the first semester. The first semester was very dynamic in terms of market growth. It was mainly due to the fact that last year in the first semester, the level of position was pretty low due to diverse topics like the war in Ukraine. Third quarter in the growth of 3.8%. Inflation is remaining at a very high level as you all know. And I was commenting before the slowdown of some OEMs that is mainly for BEV and what we do see today for BEV for the traditional OEMs, premium and mass market is that the volumes are 30% to 50% below the expectations and that we don't see a positive development in the months to come or even slowing down in the months to comes. We had to face as well frequent stop-and-go's coming from the flooding in Slovenia, but also other supply chain topics. And the UAW strike, which didn't impact us massively or [indiscernible] in September is accelerating. In October, it was a much bigger impact on us. I've seen some [indiscernible] and even higher impact, and I'm sure that we will talk about that later on. High interest rates like for everybody, they're impacting financial costs as well, but that is the topic which is concerning the complete industry. Now when we talk about our Q3 revenue, not the market, but hope here is performing in this environment. Again, the numbers on the left side are concerning our sales in the first semester. You know that in the first semester, we had a 35% of growth, 20% organic growth in the first semester. That means outperforming massively the market. In Q3, we have a growth of 11.5% with diverse effect, FX effect, a negative 1 of EUR 124 million, which is due to currency devaluation. You can see that on the screen and the positive impact of the acquisition, mainly the Varroc Lighting System because we closed the Varroc Lighting System acquisition last year in October, the 6th of October, and that is now fully in our booked since the 1st of October. Organic growth of 6.5%, this concerned industries and modules. We are to see that modules is growing or is outperforming the market more than industry. I start with module with very solid activity in Germany, but also we are very happy, very pleased to announce that we have been able to produce the first module in Austin, Texas for very important and successful BEV customer. And I'm sure you know who we are talking about. That is a fantastic performance from the team because we've got the award at the beginning of the year. That means when we did start the year, we didn't have the award. We have been able to put in place investment factory and now we are producing the modules and it will help us to continue to grow in this business, but also to diversify in terms of geographies and in terms of customer portfolio. Regarding industries, a very strong momentum in terms of start-up production because we had 11 start-up production in our exterior business, much more than what we had last year. That is the effect of the strong order book as well in the IES business, bumper and tailgate business being the leader in the global market and reinforcing this leadership position. Clean Energy System, or fuel tank business is also having a very strong momentum in order intake with the consolidation of the market, and we will talk about that in a couple of slides. But also in revenues because it is outperforming its addressable market, that is a market with an engine inside. That was about the sales of PO in this -- in the third quarter. On the next slide, you do see that by region. We have put our performance of [ pure ] compared to the market for the quarter and for the year-to-date as well because it's always difficult to evaluate an outperformance only based on the quarter, depending on the number of launches you had the previous year or this year. It's not always irrelevant. If we start with Europe, which is 48% of our sales. You may remember that we want to reduce our dependency on Europe and we are booking orders mainly outside of Europe to diversify in terms of geography. And what I said before with the module in the U.S. will go in this direction. In Europe, we have been able to outperform the market again in Q3, but also in year-to-date, but about 5 points. In the U.S., we are pretty in line with the market in Q3 and also in year-to-date. It depends on the customer portfolio we have. We are suffering in the U.S. with 1 launch not coming at the expected level from a traditional OEM or BEV where the volumes are much lower than expected, where we have been investing and where the volumes are, again, as mentioned, far below the expectation. Hopefully, it will come in the coming months. In China, we had in Q3 a negative performance of 16.8 points. There were some specific topics last year in Q3 for YFPO being very high. If we have a look on the market China year-to-date, we are more or less in line with the market. YFPO, exterior business leading position in the market with 25% market share in the market is outperforming the market is continuing to diversify to purely Chinese electric players like NIO. And also with the Tesla business we have in China, while CES is also suffering in China because the electrification is accelerating and CES is I think for sure reduction in sales compared to the previous years, and that does impact as well the outperformance of PO in the market. The module business in China is mainly for Mercedes and the Mercedes, as you know, not outperforming the market in China. But all in all, we are in line with the market in China year-to-date. Asia, stronger performance in the quarter, strong outperformance in year-to-date, mainly driven by modules in Thailand or in Malaysia, but also fuel tank business, and we do see that the fuel tank business is still developing in many markets, in many countries outside of China and is pushing our outperformance in the rest of Asia, again, outside of China. Now if we go to some business highlights in Q3. We like to talk about launches. We had 50 launches because the launches do represent the growth of Turbo and the effect of the strong order book. We had 50 launches in this quarter, which is much more than what we had last year in the same period with 29. There are some examples here, 6 out of 50, which are representative about the mix of customers we are addressing, but also the diversification in terms of technology and in terms of geography. Again, our target is to be more diversified with our customers, but also with our geographies. Some examples I will comment for GM Chevrolet Equinox a pure EV vehicle being produced in Mexico for GM, which has been launched in the third quarter. BMW iX1 also pure EV in China being produced in Shenyang from BMW where we do produce and deliver all the exterior parts. And the cockpit modules I was mentioning before, Austin, Texas, we did start the production in the previous weeks. We will accelerate in the coming months. It will be about cockpit. It will be about front-end module for 2 vehicles. The 1 -- the most selling cars in the world and also a new pickup being launched in the coming weeks. Highs and hybrid as well, very important business for us. You see some premium OEMs. You know that we like to be exposed to premium OEMs because in terms of volumes, they are stable and they are not suffering much more the crisis than the mass market. Audi with a new A6, A7, we are the ones delivering the bumpers in the front and the rear. The 5 series, the new one of BMW for the fuel system, which is also important for our fuel system business in Europe. You may have seen that we announced some weeks ago that we will close the factory of Altenberg in Germany for the Fuel Systems business and we will produce this Fuel system for the 5 series in Lozorno in Slovakia. It's also a matter of consolidation of the market and producing where it makes sense in terms of cost. And the front-end module for this Mercedes is being produced in Mexico. For some examples of the strong momentum in launches, and it will continue and accelerate in the coming quarters. On the next slide, it's about the order intake. That was what we -- I commented before, it was about the launches, not the order intake. You see without numbers because we don't like to disclose the numbers, the order intake in 2020, 2021, 2022 for the full year. Last year and in 2021, we had an order intake being 30% to 40% above the sales level. And this year, we believe that we will be at 2x the yearly revenue for the order intake, it will be a record. It will be around EUR 20 billion of sales, which is fantastic 4Q, which is demonstrating again that we have the right strategy. We are gaining order in all the segments in all the divisions, consolidating the business in the CES ICE activity, which is very important for us, which is proving that we have the right strategy, gaining market share as well in the exterior part business, developing module outside of Europe. I was mentioning the U.S. before, but also having a very strong momentum in hydrogen. I will come back to that in the next slide. Electrification, which is a newer product line of PO, but also in lighting, lighting you know that we had an agenda being focused in Q1, Q2 on performance, on protecting the customers, on reducing the cost, that was done. And now we do see the benefit of that, meaning that the customers do trust us. We had a very strong order intake in Q3. It will continue in Q4. Year-to-date, we are at EUR 1 billion or more than EUR 1 billion order intake, and we are very happy to announce that we book major orders for American, European OEMs with production in North America, meaning in Mexico for us, in Europe, in North Africa. I'd like to say that the competitiveness we have in lighting is also due to the fact that we are only best cost countries in our portfolio, both for production, but also for R&D activities and that is the confirmation of that is the trust of the customer and these orders. We have also four new orders on body shelf. That means the integration of lighting in exterior parts and that does demonstrate again the potential will have by using the synergies between our new lighting division and historical [indiscernible] to continue to grow this business. Therefore, in lighting, we are fully on track to achieve our EUR 1.5 billion [indiscernible] and we are very happy about the [ operable ] performance of the lighting and the capacity, the team had to adapt the structure to the new market condition. On the next one, it's about hydro chain as well here, very strong momentum, EUR 4 billion of order intake. That is 95% for commercial vehicle and heavy-duty mobility. Therefore, for us, great opportunity to diversify the market we are addressing as well to be less dependent on passenger cars and to develop, as mentioned before, with other customers. Strong order intake means as well that we have to put in place an investment everywhere in the world. We like that also very much because we will have a very balanced geography and very balanced customer possible as well, meaning we are today building up capacity and factories in France, close to Compagnie with the mega factory, a giga factory. I don't know how to name it, which will be the biggest in Europe for hydrogen storage. We are also doing the same in Michigan in the U.S. for a major American OEM with a start-up production in 2027. We are finalizing the new factory in Korea for Hyundai, a smaller one, which will start in 2025, and we are starting also to build up capacity in China with our joint venture [indiscernible] with a start-up position in 2026. And we have to extend as well the capacity we have also in place in Belgium in Herentals because we have some ramp-ups in the coming years. Therefore, very, very enthusiastic plan, ambition with a lot of ambition to be the #1 in hydrogen. And from the other side, we do that with a stable approach in terms of investment, meaning that the concept of our factories are very flexible. It's a kind of module in each factory, meaning that we just invest for the capacity, which is really needed by our customers, and therefore, we have a strong interaction with our customers to make sure that we don't over invest depending on how they do see the ramp-up of this new technology. We like to benefit as well from local incentives. We have been already mentioning about some numbers like in France, EUR 75 million. All in all, we have identified EUR 200 million opportunities in order to support us to finance these very exciting goals. On the next slide, also something we like very much and very strong highlight in the third quarter and being fully in line with ambition to be carbon neutral in 2025 in Scope 1 and 2 and also to reduce our Scope 3 by 30% in 2030. We are fully in line with those targets. I would say, more advanced even than what we thought. And we did celebrate some weeks ago with EDF, a strong partner of PO, 20-year power purchase agreement with EDF Renewables to have green energy to a very competitive cost. That means it will cover 50% of our needs in France of electricity, meaning that 14 -- and on top of that 14 Plastic Omnium sites in France are going to be powered by be renewable energy with 5 new photovoltaic power plants. It's good for the planet. It's good for our CO2 emission, it's good as well to have access to electricity at a very competitive price data points. It combines CO2 targets, CSR, but also financial targets we have. Everything we are doing is always confirmed by EcoVadis, again, platinum second time in a row. We are in the top 1% of the companies assessed by EcoVadis, which is, again, a strong performance of the team, a stronger commitment of the company. On the next slide, perspective and conclusion, you can see and -- I hope you can hear us well that we are very, very, very enthusiastic about the fact that our strategy is the right one to benefit for the market transformation, the huge market transformation in middle and long term. It is proven by the stronger the intake we have, meaning it will be a record year again. That is the feedback from the market, which is always the most important. The customers, they want to work with us. In all activities in the historical activities, which are very important for us because it's about profitability and cash generation. I'm talking about IES, about CES ICE and about HBPO having a strong order book and delivering a strong performance in the first 9 months of the year. And -- which are giving us the opportunity to develop the 3 new activities of PO, which are needed to diversify and to benefit from the market transformation. Lighting with a strong momentum in order intake I was mentioning before, electrification as well with a very strong order intake this year, but also at Georgia as I was talking about before. The context is also very challenging. It's, I would say, more challenging than what we thought at the end of the first semester. There were some events in September, October and also probably in November, impacting the market we are in. I was mentioning before, what did happen in Slovenia, but what is more concerning for us. These are the volumes for some easy platform for traditional OEMs. I was mentioning before, the UAW strike, which was having almost no impact for us in September, but with a potential impact much higher in October, November because now we are talking about much higher numbers in terms of sales. Our factories in the U.S., but also in Mexico are impacted by that, mainly for the fuel tank business, and you know that the Fuel tank business in those platforms is a very important one in terms of operating margin and free cash flow generation. Inflation is still impacting our business, like for everybody. Interest rate as well, impacting the business, the financial cost and therefore, the free cash flow. But we want to continue to invest because we are convinced that we are on the right path to continue to outperform the market in long term and again, to benefit from this market transformation. And that is what we do reflect in our new 2023 objectives with all the transparency, you deserve and you always want to give to you. That means we will outperform the market in terms of sales. We are just slightly the operating margin and free cash flow expectation for the year. Again, not reflecting a worse performance of PO, but just a different market environment I was talking about. And we don't want to compromise on the future of the company. That means we keep investing in new technology, in new geographies to make us fit for the future. And we will be able to continue to do it by deleveraging the company, which is, for sure, a target for all of us. That is basically the conclusion. Growth in the third quarter, growth in the year-to-date, the adjusted outlook I was mentioning before, a strong trust from our customers. Therefore, we are able to accelerate our strategy for the coming years and we keep a very solid and sound financial structure. That means our debt, our liquidity, our capacity to deleverage and to continue to be able to manage both the short term, we need to adapt to the market condition, but also to prepare the long-term we need to invest for the future growth of the company. That was about the Q3 and year-to-date events or the situation at PO, but also the perspective for the rest of the year. And I'm sure that you have plenty of questions, and I will be delighted to answer your questions with Kathleen and Stephane.

[Operator Instructions] And we'll now take our first question from Thomas Besson at Kepler Cheuvreux.

It's Thomas Besson from Kepler Cheuvreux. I have a few questions, please. Firstly, could you just tell us what you have assumed for the strike that seems to be now close to ending. So help us bridge basically the previous guidance, I think consensus was more like a 420, 430 versus now at 380. How much of the 40 million, 50 million reduction comes from the strike in your assumption, please? That's the first question. Second question, have you changed your CapEx assumption for 2023? Or is the new free cash flow guidance, mostly coming from a reduction in EBITDA? Thirdly, could you help us understanding whether it's entirely your industries business, which is going to take a hit or whether modules will also be impacted, I would assume the first answer? And lastly, could you remind us how much exposure you have within your BEV business to what a lot of people call legacy automakers. So notably Volkswagen, Mercedes, Renault or [indiscernible] combined how much of your BEV business is it, please?

I will start, Thomas, with the first and Stephane and Kathleen are working on the next questions. Regarding the strike, we -- hopefully, it will end pretty soon, but you may have noticed that in the previous days, they have extended that to the Texas factory of GM, which is impacting us now in Mexico. That means in two factories in Mexico for the CES ICE business. In September, that is what we told you also. In September, the effect of the strike on our sales was below EUR 10 million. That means it was not relevant. With the current situation and if the strike would continue until the end of the year, we are talking about around EUR 60 million of turnover potentially impacted. And now the question is what is your assumption for the guidance. You have noticed that for the guidance, we say between 770 and 790 is because we don't know what will happen with the strike. We just do see that the strike is intensifying. And therefore, we believe it could last in November, and hopefully, it will start somewhere in November. But that is something we don't know, and therefore, we have decided to go for another. The fixed number in our guidance, but as a kind of spread. But again, the strike now is impacting us in Michigan, but also in Mexico, and that is mainly our fuel tank business, a bit lighting as well but the most important is for us is the fuel tank business. Regarding the CapEx, we will have a higher CapEx this year than what we were expecting, which is in a way good because it is what we want to do in order to develop the company. We will be able to be below the 5% of our sales this year, even if it's higher than what we had in the first half. There are many reasons for that. One reason is I was mentioning before that we have launched a new module factory, it was in October. It was not previously in our expectation for the year because we got the award in Jan and Feb from this BEV player in Austin. Therefore, there are investments we have been doing in the last months in order to launch this factory. We have also some investments which are related to new orders we got for the consolidation of the market in the CES ICE business, not investment in terms of industrial capacity, but project investment as well. We need to develop this kind of product. And also investments, but investments we were targeting for hydrogen and electrification. Therefore, it's a mix of higher investment for order intake, we are very happy to serve module in the U.S. and CES ICE -- for CES ICE systems industrial investment. We have capacity in place. It's much more about project investment and also some investments which were already scheduled to prepare the growth of the company for hydrogen. But all in all, it will be at around 5% of our sales this year, slightly below 5% of our sales. And in the coming years, it will be always around the 5% for sales as we see. Regarding your question module or industry, which is suffering the most, I would say, it depends. But at the end of the day, module is suffering more today than the industry, is suffering more from the stop-and-go's because when you have a dedicated factory and the customers is stopping then it's really difficult to flex. It's not the case for some factories we have in industry because they are serving normally many customers, and they can flex much better. The module is much more different and module is pretty exposed to BEV customers, especially German ones, like Mercedes, like Porsche as well. And the volumes are much lower than expected. Module is exposed as well to new vehicles, which were supposed to be launched 2 years ago from Audi and Porsche and where the launches have been postponed. I want to mention the -- exactly the platforms, but I think you can find that. Therefore, module is today suffering more in operating margin and in free cash flow than the traditional industry business.

BEV exposure.

BEV exposure for the traditional OEMs that was the question of Thomas.

So the traditional -- so we're exposed today, 19% of our sales to BEV, Thomas, if you can recall about 2 years ago, it was roughly about 9%. So we have considerably increased our exposure to BEVs. For traditional OEMs, roughly 15% and the 4% points difference can be attributed 50-50 to Chinese and American BEV manufacturing.

And for the traditional OEMs, I think it's obvious and everybody knows that, that the volumes are 30% to 50% below the requested volumes and the capacity which was put in place, which is, for sure, for some factories of PO, a strong hit, an intense discussion with the customers. But that is a trend we are seeing today. And I believe it's a trend which will continue as well for the market in the coming months. And basically, that is in line with the announcement of many customers you have seen in the recent weeks and months saying that the base market is slowing down and that the volumes are not in line with the expectations. Therefore, we continue to like to be in BEV because in long term, for sure, it will be a growing market. But we are very cautious now when we invest in new capacities for traditional OEMs. We discount much more than what we did discount before, before we did discount 20%, now we are discounting more in the area of 50% because the expense is showing that. For any reason, they are not performing as they were expected. But that is something which is I would say not new, but which is intensifying since some weeks. And we had some customers stopping the production for some days because they are not selling the cars. That is something we didn't see in the first half of the year.

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

Akshat from JPMorgan. Three from my side as well, please. The first one, sorry to come back to operating profit. Can you just go back to all the drivers behind the EUR 50 million, EUR 60 million downgrade on operating profit. I know you have spoken about a few elements. You have mentioned UAW impacting sales by EUR 60 million for the full year. But what are the other elements that have incrementally priority the most? Because if you take a step back at the beginning of the year, you were talking about 3% production growth. And overall, we have seen much stronger production recovery in your key markets, Europe, North America and China. So some more clarity on that topic would be very helpful, please. The second one is on the lighting business. When we think about the second half, I know this is a revenue call, but when you think about the second half, do you still expect to hit breakeven in the second half of the year as you communicated with your first half results? And the last question is on your medium-term target 2025 ambitions that you laid out early on in the year, do you still expect operating profit to grow by a 15% CAGR between 2022 and 2025? And do you still aim to hit your free cash flow target of 3% to 4% of sales? And we should just view today's announcement as a short-term hiccup or do you expect to revisit those 2025 ambitions as well?

First, thank you for your question, Akshat. First of all, the operating margin, you say a deterioration of EUR 50 million to EUR 60 million. No, our guidance was above EUR 400 million. The new one is EUR 370 million to EUR 390 million. That means EUR 10 million to EUR 30 million or EUR 11 million to EUR 31 million less than the previous guidance. Please accept that our target is not your consensus, our target is our guidance. Therefore, compared to the guidance is EUR 10 million to EUR 30 million less. It does reflect what I said before. That means the strike in the U.S. If you consider in -- I was mentioning that it is about EUR 60 million for the quarter in sales. That means only for the month of October. It's about -- it's more than EUR 20 million, EUR 20 million, EUR 25 million plus September. You can assume it's above EUR 30 million in terms of sales. And when you stop completing factories for that, the effect is huge on the operating margin on the free cash flow, because the working capital and so on and so on. I'll let you make the math. But that EUR 30 million, EUR 35 million of sales we are losing at the end of October. There are a very high impact on the operating margin and on the free cash flow because it's not a slowing down of the activity, is a stop, which is something you cannot anticipate and you cannot fix. The base production I was mentioning before, we had some customers stopping factories for one week or some days in France, in Germany, in the U.S. I won't disclose the name of the customer, you can imagine which one. And again, here, it's not only about the sales are going down. It's about you have a factory and you don't produce because we have some factories in France, in Germany and in the U.S., which are mainly dedicated to those platform. Therefore, I understand your point to say the market is globally pretty positive, and therefore, we are having a strong growth, but we had some areas of the world where production is being completely stopped, and that is what is hitting us as well. The module business is struggling to adapt to this stop-and-go's and inflation. I was mentioning before that the module profitability is not at the level we want the module to be right now and that is also impacting us more than the industry business for module. And again, it's mainly due to the fact that we have some factories being dedicated to some customers performing in those platforms and also that the stop-and-go's modules are much more difficult to absorb but we have launched a very aggressive plan to recover in terms of module. That was about the impact in operating margin. Therefore, it's not about the global volumes. The issues for us is it's much more about these pretty brutal stops or slowing down or strikes, which are impacting us basically. The inflation is something which is impacting everybody. I believe, negotiation with the customers are pretty tense. Some negotiations are lasting longer than what we thought, will, I believe, happen in operating margin may not have the impact we were expecting a free cash flow as well because of the delay between the negotiation being closed and the money being paid as well, and that is also an impact for the free cash flow. And the rest of the free cash flow is what I said before, that is interest rate being higher than expected, higher than in the first semester as well. It's part of our life, and we have to adapt to that. But I say there is a consequence on that and on the free cash flow as well, something we like positively is that we are investing more. Therefore, operating margin is EUR 10 million to EUR 30 million less than what we did guide, which I believe is showing that we are able to adapt to a very unpredictable situation, especially the strike in the U.S. and some brutal slowing down in some base customers of PO. Regarding the middle-term perspective, I think we all have to be really cautious for the coming quarters and semesters. And we always want to be transparent with you. And if we adjust our guidance today, it's just because also we do see that as a potential trend as well, not the UAW, for sure, but the BEV, the effect from the inflation on the volumes of cars being produced and being sold. And therefore, for us, it's a will also to manage the company to say we have to adapt. We have to continue to work on our breakeven point because the market in 2024 probably won't grow compared to 2023, but maybe we will talk about that. Lighting. Lighting was fully on track to deliver the breakeven in the second half of the year. But I think it's also impacting now by the strike in the U.S. because we are delivering some customers in Michigan as well and were impacted in lighting as well. And lighting is also very strong in the BEV segment. We like that with Renault, [ we don't know ], with Volkswagen, with SKODA and so on. And if the BEV is going down, the sales in lighting are going down, and we had -- we will have in the second half of the year, 10% less sales than in the first half of the year in lighting for those effects. And therefore, it will be difficult to break even in the second semester, not because of the performance, but because of the market and the exposure to some customers, which are impacting the company. We are continuing to work on the breakeven point on lighting. We have been able to reduce the workforce by more than 15% since one year, which is huge, and we will continue with a target to reduce again the fixed cost by at least 10%, close to 20% in the coming months because we know that next year on lighting, we will have a kind of drop in sales. That is something we have been talking about in the first semester, not because of the performance of the business, but just because of the heritage of the past meaning a pretty weak order intake in the last 2 years before PO came. And meaning that we will have a certain drop in sale next year. We're okay with that. We are adapting. We are working again on the fixed cost. And the feedback from the market, the order intake we are having, I was seeing more than EUR 1 billion. We may be close to EUR 2 billion this year, is showing that we have the right technology and the customer trust and therefore, for us, the lighting will be a nice story. Our target of middle single digit in 2025, we are still targeting for the end of 2025, for sure, depending on the volumes. And then I cannot predict how many BEV, Renault, Volkswagen, SKODA and so on will produce at the end of 2025. That is something we are depending on. But in terms of what we need to do to achieve it, performance, breakeven point, synergy with the rest of the group that we are fully on track on with what we wanted to do. In lighting as well, we are consolidating our footprint. We have decided to close a factory in Brazil as well. And we are also, I would say, optimizing our footprint to use the capacity we have with a less surface, I would say, to be more efficient. That is what the team is doing right now. I think these were questions.

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

Just two follow-ups on my side on the free cash flow in H2 regarding the price recovery with the OEM. On the free cash flow for H2, and for the full year, the new target for the full year first includes or excludes the proceeds from the real estate disposal in the first half. And therefore, could you elaborate a bit on what would be the trend of free cash flow in H2 given the new targets? That would be the first one. And the second one, just to clarify, you've been talking rather extensively about that. But the tougher negotiations with OEM regarding price compensation. Does that mean that some compensations will not go through or will be eventually much lower than you initially contemplated? That's what you implied, Laurent, in your comments?

Yes. I mean for the inflation, it's -- how can I say that it's always a tough discussion with our customers. With some of them, it is lasting, I would say, more than expected. And we don't want to compromise on the level of compensation. That's how we prefer to postpone the agreement and postponing some agreements is having the consequences that some negotiations will be closed or should be closed until the end of the year may not have the full impact in terms of cash. Therefore, that is a topic we are facing. But again, for us, it's not only about short-term free cash flow optimization. It's about middle term, the right inflation compensation. And therefore, we prefer to postpone by some weeks, some months instead of compromise on the level of the compensation. We don't have any issues with liquidity, with cash availability and so on. We are covered, as you know. And therefore, there is no compromise on the level of what we are able to negotiate. It's not only for inflation. It's -- when a customer is stocking a factory for a complete week, we want also to find a way to get compensated as well. Therefore, today, we have a negotiation with them for inflation, but also for volumes, which are basically impacting us more than the inflation today on the volume's complete shutdown of 50% of lower volumes for some base platforms, the impact is much higher than what we have in inflation. Inflation, all in all, we are more or less able to cover raw material, big part of energy, a big part of freight. Labor is more difficult, but I think it was something we did anticipate. And again, the fight is ongoing with some customers and some negotiations maybe close in the next weeks, but with not the full cash -- free cash flow [indiscernible] effect. We wanted to have. And now the new topic, I would say, is about volumes and about the stop-and-go's we have with some customers.

And for the second half free cash flow PIEs, as you can recall from H1, our operating free cash flow was at EUR 137 million, excluding the deleveraging impact of the sale of disposals, we're guiding on EUR 190 million to EUR 210 million. So that should give you some color on what we expect in the second half.

In the second half, again, we have in the free cash flow, I mean the operating performance of the traditional business is fully in line with the expectation. We have a bit higher investment, I was mentioning before, because that is the consequence of our success in the market. And therefore, it's not a concern for us. It's such a consequence. And that is something we are dealing with now. I would say we are very happy to deal with the investment we need to do to consolidate the ICE market, for example, for CES because long term, it makes a lot of sense, but also to launch a new factory in Austin, Texas because it's a very good module business, and it will help us to increase the margin on module and the free cash flow generation as well. That is that. FX rate, but also lower sales in H2 compared to H1, then you have always an effect on free cash flow as well in working capital as well. And that is something which is in the free cash flow. And we're honest and transparent. We don't want to do stupid things as well just to have a higher number, not reflecting the situation.

We will now take our next question from Giulio at BNP Paribas.