(BFM Bourse) – The equipment manufacturer born from the takeover of the German Hella by the French Faurecia intends to lower its debt to 6 billion euros at the end of December 2025, by selling assets and generating 2.5 billion euros in cash flow. On the same date, the group expects to achieve sales of around 30 billion euros.
Forvia will spend the second on debt reduction. The automotive supplier was born in February from the takeover of the German Hella by the French Faurecia for 5.4 billion euros, a merger which created the seventh player in the sector.
But this operation, largely financed by borrowing, left the group with a large debt. This has gripped investors, the market hardly appreciating indebted groups when the economy deteriorates and interest rates rise.
Hence the need for Forvia to focus its new strategic roadmap on deleveraging to “alleviate investor fears,” Stifel noted on Wednesday.
The strategic plan presented this Thursday by the equipment manufacturer and entitled “Power25” should thus enable the group to drastically reduce its debt leverage – measured by the ratio of net debt to adjusted gross operating surplus (EBITDA) – from 3.1 at the end of last June to 1.5 in December 2025. In absolute value, net debt would drop from 8.4 billion euros to 6 billion euros.
Lower neutral
To achieve this, the company will carry out a non-strategic asset disposal plan of 1 billion euros by the end of 2023 and expects to generate, in cumulative terms, 2.5 billion euros in cash flow. cumulative free net between the second half of 2022 and the end of 2025. This will also require various actions, in particular a strengthening of the efficiency of R&D expenditure and increased discipline in terms of working capital. The group has also decided not to pay a dividend in 2023.
Forvia will also lower its breakeven point – that is to say the threshold from which the group is profitable – from a worldwide production of 65 million vehicles in 2021 to 61 million vehicles in 2025. This will in particular be made possible via the 250 million euros in cost synergies generated by the integration of Hella within Faurecia.
“More realistic” 2025 objectives
The automotive supplier has also reviewed its financial objectives for 2025 which it had communicated when the Hella takeover project was announced in August 2021. Forvia expects to reach a turnover of around 30 billion euros. euros, against 33 billion previously, generate an operating margin of more than 7% against more than 8.5% previously, and generate a net cash flow representing 4% of turnover.
“Our global automotive production assumption for 2025 is now revised to 88 million units, down 6 million from our previous assumption at Capital Markets Day in February 2021, primarily due to challenging macroeconomic conditions between 2021 and 2023.” said Faurecia CEO Patrick Koller in a statement.
However, this roadmap is proving to have been coldly received by the market. Around 3 p.m., Faurecia shares fell 8.8% to 13.485 euros. Since the beginning of the year, the action has plunged 64.6%.
“The company needed to update its targets for 2025, which are now more realistic. Perhaps some investors hoped that the event would act as a catalyst with perhaps an increase in the synergies of the combination with Hella or the program of disposals of ‘assets. But none of this happened, “says an analyst.
Julien Marion – ©2022 BFM Bourse
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