(Update: CFO statements on capital increase and exposure to Russia, stock market reaction, analysts’ comments)
PARIS (Agefi-Dow Jones)–Faurecia announced Tuesday to postpone its capital increase due to the deterioration of market conditions and to suspend the payment of its dividend for 2021. The automotive supplier also delivered financial objectives including Hella for 2022 and reported higher organic sales in the first quarter.
Faurecia intended to carry out a capital increase this semester to refinance one of the bridge loans that enabled it to buy the German group Hella at the start of the year for 5.4 billion euros.
“Given recent market conditions, Faurecia has decided not to launch its capital increase yet, pending more favorable market conditions,” the group announced on Tuesday. The bridge loan linked to the issue of Faurecia shares gives it until February 2023 to carry out a capital increase. Another bridge loan, linked to a bond issue, gives the group room for maneuver until mid-August 2023.
“The markets are closed or almost closed but we have time,” chief financial officer Michel Favre said in a conference call with reporters.
The manager explained that the capital increase was not essential to the company. “But we want to do [cet appel au marché] because in an uncertain world it is better to have a robust financial structure”, he underlined.
Michel Favre did not give the amount the group could raise, simply confirming that it would be lower than the 800 million euros indicated last summer. This figure corresponded to a scenario where Faurecia bought 100% of Hella’s capital, but the company only acquired 81.5%. “We can do much less than 800 million euros,” assured Michel Favre.
However, Citi Bank believes that this decision could disappoint some investors who hoped that the company would give up this call on the market.
“The company is right to suspend this increase without giving it up because this operation will accelerate its deleveraging, which is a good thing,” said a Parisian analyst.
Adjusted bank commitments
To strengthen its financial flexibility, Faurecia has renegotiated its “covenants”, or bank commitments, with its creditors. The covenant will not be tested on June 30, 2022. As of December 31, 2022, the group will have to comply with a ratio of net debt to gross operating surplus (Ebitda) of less than 3.5 then 3 at the end of June 2023.
Faurecia has also decided to double the amount of its asset disposal program from 500 million to 1 billion euros. In addition, the board of directors will propose at the June general meeting to exceptionally suspend the payment of the dividend paid in 2022 for the 2021 financial year.
The company justified all of these decisions by the increase in uncertainties linked to the conflict in Ukraine and by the new restrictions due to Covid-19 in China.
The group also unveiled its 2022 targets for Forvia, the new entity incorporating the consolidation of Hella over 11 months. On this new scope, the group expects to record sales of between 23 billion and 24 billion euros, as well as an operating margin rate of between 4% and 5%. It also expects to generate a free cash flow at breakeven. These projections are based on the assumption of a world production of 74.2 million light vehicles this year.
Faurecia is therefore showing caution, this market forecast being lower than that of S&P Global Mobility (formerly IHS Markit), the market reference firm, which is counting on 77.3 million light vehicles for 2022. Faurecia are very cautious”, underlines the Parisian analyst.
Sales beat expectations in the first quarter
The automotive supplier released these projections as its sales rose in the first quarter. In published data, Faurecia’s sales increased by 32.9% over one year, to 5.32 billion euros. Berenberg notes that the group beat the average analyst forecast by around 5%.
Excluding currency and scope effects, sales rose 1.1% in the first three months of 2022, while global automotive production fell by 4.2% at the same time, according to data from S&P Global Mobility cited by Faurecia . The group’s sales thus recorded an outperformance of 530 basis points compared to the evolution of automobile production.
On the Paris Stock Exchange, the Faurecia share fell 1% to 22.70 euros around 11:30 a.m.
Michel Favre also indicated that Russia had represented just under 250 million euros in revenue last year, or just over 1% of the combined turnover of Faurecia and Hella. The company has no direct exposure to Ukraine, he also said.
The chief financial officer also estimated that there “would still be restrictions” on the supply of semiconductors “until the first half of 2023 or mid-2023”, due to the sharp increase in demand.
-Julien Marion, Agefi-Dow Jones; +33 (0)1 41 27 47 94; [email protected] ed: VLV
FAURECIA FINANCIAL RELEASES:
http://www.faurecia.com/fr/finance
Agefi-Dow Jones The financial newswire
Dow Jones Newswires
April 26, 2022 05:45 ET (09:45 GMT)