(BFM Bourse) – The automotive supplier has published annual results that bear the marks of the inflationary environment. But the generation of cash is a good surprise and the group has announced a disposal project that will allow it to reach its objective of 1 billion euros in asset sales.
Forvia had a year 2022 to forget on the stock market. At the beginning of last year, the automotive supplier finalized the acquisition of more than 80% of the capital of the German company Hella, which gave it its current name (Forvia is indeed an umbrella name which brings together both Faurecia and its subsidiary Hella).
Problem: this operation was carried out in a context of inflation and rising interest rates, leaving the group in debt at a time when investors tend to sanction groups with a strained financial balance sheet.
Especially since, unlike manufacturers, automotive suppliers have a modest “pricing power” (ability to raise prices without losing customers), with the need to negotiate with customers the repercussions of the soaring costs of the energy and manpower. As a result, Faurecia shares experienced the sixth largest drop in the SBF 120 in 2022, with a fall of 62.7%.
Cash flow impresses
But the new year smiles on him more: the Faurecia share has regained 48% since January 1 and gained 4.6% on Monday around 10:20 a.m., after the publication of its annual results.
Strictly speaking, the annual accounts are in line with expectations, sales reached 25.46 billion euros, up 17% excluding currency and scope effects, against an expected figure of 25.2 billion euros on average by analysts, according to Stifel. The operating margin is even slightly lower than expected at 4.4% against 4.5% expected by the consensus. The net result was negative, at 382 million euros, compared to a loss of 79 million in 2021, due to exceptional costs, in particular 143 million euros linked to the decision of Forvia to leave Russia, 51 million of integration and 41 million euros due to the inflation of raw materials, labor and energy.
Still, for a group in debt, attention is focused on cash generation because it is the indicator that shows whether the group is on the right track to reduce its financial liabilities. However, precisely the net cash flow constitutes “the good surprise” of this publication, with an amount of 471 million euros, almost four times higher than consensus expectations (124 million euros), notes Stifel. The group expected him to just reach balance.
Forvia notably benefited from a cash inflow of 374 million euros, linked to the reduction in the working capital requirement which reflects the first effects of its “Manage by cash” cash management program, “mainly the improvement collection of debts and the reduction of 0.6 days of inventories, i.e. a positive effect of 85 million euros”, explains the company. The increase in factoring also constituted a cash inflow of 183 million euros.
Debt is reduced significantly
The other good news from this publication is that Faurecia announced on Sunday evening a plan to sell its SAS Cockpit Modules division (assembly and logistics services) for an enterprise value of 540 million euros to the Indian group Motherson, a sale of which finalization is scheduled for mid-2023. This announcement follows a previous operation, communicated last week, and relating to the sale of its commercial vehicle exhaust gas treatment business for 150 million euros to the American Cummins. By integrating these two asset sale projects, Forvia has already achieved its disposal program for a target amount of 1 billion euros, which it intended to complete around the end of 2023.
“Having completed this program is very positive and will thus make it possible to relieve the group’s balance sheet. Moreover, SAS was not a priori in the list of assets to be sold, which could allow the company to potentially sell other These disposals, combined with a cash flow above expectations, are reassuring on the group’s debt reduction trajectory”, develops a financial analyst.
The company’s indebtedness has indeed decreased significantly, with a debt leverage (measured by the net debt/gross operating income ratio) of 2.6 at the end of December against 3.1 at the end of June. Forvia estimates that this ratio should, at the end of 2023, be between 2 and 2.4 taking into account the announced disposals.
Regarding its other projections for 2023, Forvia expects to generate a turnover of between 25.2 billion euros and 26.2 billion euros, a range which includes the disposals announced by the company. The operating margin is expected between 5% and 6% of sales, i.e. more, in the middle of the range than the 5.2% expected by the consensus, and the net cash flow would represent more than 1.5% of sales business, again according to these projections.
Julien Marion – ©2023 BFM Bourse
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