(BFM Bourse) – The automotive supplier generated more cash than expected by consensus for 2023 and intends to do at least as well this year. The group also announced a restructuring in Europe which could eliminate up to 10,000 positions in order to multiply its profitability by around three on the Old Continent.
Ex-subsidiary of PSA and therefore of Stellantis, Forvia demonstrates a pragmatism that its former parent company would certainly not deny. The automotive supplier born from the takeover of the German Hella by the French Faurecia in 2022, delivered its 2023 annual results on Monday and above all announced measures to rationalize its industrial footprint in Europe.
Automotive equipment manufacturers have suffered on the stock market in recent years, particularly due to soaring costs of energy, labor and raw materials. Because, unlike manufacturers, they have less leverage to raise their prices, their rates being contractually defined, which forces them to negotiate with their customers. This results in a lesser capacity to pass on the inflation of their costs.
Although these unfavorable winds have blown a little less strongly in recent months, the sector is experiencing a volume problem. Quoted by Bank of America, S&P Global Mobility expects automotive production of light vehicles to decline by 0.5% in 2024 to 89.6 million units, with a decline of 2.3% in Europe.
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Around 10,000 positions affected
This breakdown in volumes was cited by Forvia this Monday to justify a slashing of its workforce. “While the European automotive market does not offer volume dynamics in the years to come and remains significantly below its 2019 level, it still represents the most important market for the Group, the EMEA region (Europe-Mid- Orient) representing 46% of sales in 2023, but only 22% of operating income”, develops Forvia.
The automotive supplier highlights that European production fell by 16% between 2019 and 2023 and explains that the “latest forecasts” show almost zero growth in the region between 2023 and 2030, compared to 9% for the rest of the region. world over the same period.
“Faced with this development, Forvia must take appropriate measures to strengthen the competitiveness and agility of its European operations (including taking into account structural overcapacity) and achieve significantly higher profitability,” the company continues.
Thus, from 2024 to 2028, Forvia will overhaul its operations in Europe, which will result in the elimination of a maximum of 10,000 positions over five years. Forvia thus intends to generate savings expected at 500 million euros over the full year and to restore its profitability in Europe, with an operating margin increasing from 2.5% in 2023 compared to 7% expected in 2028. The Old Continent would represent by this time 40 % of the company’s sales and 35% of its operating profit, compared to 46% and 22% respectively in 2023.
This initiative is judged positively by analysts. “We consider management’s willingness to tackle competitiveness issues in the European Union as a positive element,” emphasizes Oddo BHF. Although the design office also notes that this confirms the difficult dynamics in this region, the first for all the equipment manufacturers in its coverage. This announcement should not help the market to be more confident in the sector, judges Oddo BHF.
“It’s positive, we must adapt the industrial footprint to the new environment. Autoliv (a Swedish equipment manufacturer, Editor’s note) did it last year, Forvia is doing it this year, it’s necessary”, appreciates for his part a financial intermediary.
Good cash but the outlook is a bit fair
Returning to Forvia’s financial results, last year the group generated sales of 27.25 billion euros, up 14% like-for-like over one year, while its operating profit increased by 35.7 % to 1.44 billion euros for a corresponding margin of 5.3% against 4.3% in 2022.
Oddo BHF emphasizes that operational profitability turned out to be a little lower than expectations but that cash flow on the contrary far exceeded them.
Forvia generated a net cash flow of 649 million euros over the entire year, and 477 million euros in the second half alone, when analysts were expecting a figure of 317 million euros, according to Oddo BHF which evokes “a good surprise”. Which is important given that Forvia’s reduction in debt is one of the main points of attention in the market.
The group’s net debt ratio compared to adjusted gross operating profit (Ebitda) at the end of December stood at 2.1 compared to 2.6 at the end of 2022.
For the 2024 financial year, Forvia expects a turnover of between 27.5 billion euros and 28.5 billion euros, an operating margin of between 5.6% and 6.4%, a flow of net cash flow at least equal to that of 2023, and a ratio of net debt to adjusted Ebitda less than or equal to 1.9 at the end of December 2024.
According to Oddo BHF, analysts expected revenues of 27.8 billion euros for 2024, a margin of 6.1% and a cash flow of 611 million euros. The research office, however, judges that the cash flow outlook “could disappoint” because Hella (which is still listed in Frankfurt) had shown optimism on this subject during its own publication on Friday.
“The debt leverage target of 1.9x at the end of 2024 seems quite prudent to me,” judges the financial intermediary previously cited.
On the Paris Stock Exchange, the market enthusiastically welcomed the publication of Forvia before changing its mind during the session. The stock lost 1.3% around 11:45 a.m. after gaining more than 4% at the start of the session.
Julien Marion – ©2024 BFM Bourse
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