Friedrichshafen, Germany. In the first half of 2023, ZF stood its ground in a globally challenging and volatile market environment. In the first six months of the year, the company generated sales of €23.3 billion (2022: €21.2 billion), an increase of around 10 percent on the prior-year period. Adjusted EBIT totaled €941 million (2022: €851 million), equivalent to an adjusted EBIT margin of 4.0 percent (2022: 4.0 percent).
“The economic environment in the first half of 2023 was difficult again and characterized by many uncertainties,” said ZF Chief Financial Officer Michael Frick when presenting the half-year figures on Wednesday. “High inflation and the consequences of the ongoing war in Ukraine are some of the challenges that ZF and the entire automotive industry continue to face. Moreover, uncertainty surrounding the development of world markets affects the entire economy. Against this background, it is even more important to industrialize our strategically important future products and bring them to the operational business. So they can provide corresponding value to our earnings.”
Stable financial key figures
From January through June 2023, the technology company generated sales of €23.3 billion (2022: €21.2 billion), representing an increase of 10 percent (up 11 percent when adjusted for currency and M&A effects) on the prior-year period. The company reported an adjusted EBIT of €941 million (2022: €851 million). This corresponds to an adjusted EBIT margin of 4.0 percent (2022: 4.0 percent). Adjusted free cash flow is minus €525 million (2022: minus €630 million). Higher investments in property, plant and equipment compared to the previous year, as well as new product launches, were a major driver behind the development of cash flow. In addition, the build-up of inventories due to organic growth adversely affects cash flow.
ZF stands its ground in a challenging market environment
“In a challenging market environment, we have asserted our performance with figures within our expectations. Despite high inflation and higher R&D expenditure, we were able to achieve our earnings target,” added CFO Michael Frick. “Although we are not yet satisfied with the financial results and the next six months will not be easy, we are confident that we will meet our annual targets presented at the beginning of the year. We confirm our full-year outlook, as we continue to follow the measures presented around the same time. We will achieve our annual targets by further reducing our costs, mitigating inflationary effects through cooperative talks with customers and optimizing our inventories. I would like to thank ZF employees for their commitment, which made this result possible in a difficult environment.”
In light of developments to date and despite the apparent cooling of global demand for passenger vehicles, ZF is sticking to its full-year outlook. The company still expects moderate growth in Group sales in 2023 to over €45 billion. This sales growth should lead to an adjusted EBIT margin of between 4.7 and 5.2 percent. Free cash flow is expected to be in the range of €1.0 billion to €1.5 billion.
The equity base remains stable: Due to higher material inventories and higher receivables, the balance sheet total increased from €38.9 billion at the end of 2022 to €39.5 billion as of June 30, 2023. As a result, the equity ratio fell slightly from 22 to 21 percent. In recent months, ZF has placed three green bonds for sustainable financing with a total volume of approximately €1.7 billion – for the first time also in the U.S. market –confirming ZF’s strong positioning on the international financial markets.
“To manage the accelerated transformation in times of crisis, the most crucial task is to focus on change,” explained CFO Michael Frick. “To this end, we are adjusting structures, accelerating processes, simplifying decision-making paths, and maintaining strict cost discipline. That enables us to make targeted investments in profitable and forward-looking technologies.”
Strategic partnership with Foxconn
Based on its Next Generation Mobility strategy, the technology company is further developing its corporate structures to adapt them even better to market requirements. To this end, ZF has entered a 50:50 partnership for passenger car chassis systems with Hon Hai Technology Group (Foxconn), the world’s largest electronics manufacturer. The objective of the strategic partnership is to develop the passenger car axle systems assembly business unit – bundled in ZF Chassis Modules GmbH – and tap into new customer groups.
Optimization of the corporate structure also includes focusing on core business units. Following the sale of the aviation technology business unit at the end of 2022, ZF divested itself in the past six months of its shares in ASAP, a provider of engineering services, and its shares in the Tsetinis consulting company, as planned. Based on the Next Generation Mobility strategy, ZF is merging the Car Chassis Technology and Active Safety Systems Divisions into a new division for chassis, steering and brake technology that is unique in the market. The new Chassis Solutions Division offers the full range of hardware, software and electronics to master the vertical, longitudinal and transverse dynamics of a vehicle. With sales of more than €14 billion, it will be a strong partner for ZF’s customers. The new division will launch on January 1, 2024, and will be headed by Dr. Peter Holdmann.
ZF is also independently establishing the Passive Safety Systems Division so that the business unit can grow faster and operate more successfully in the market. “If there is particular interest in this attractive segment with excellent growth perspectives, we will talk to potential partners about entering as external investors,” explained Michael Frick. “We are keeping all options open and are aiming for a timeframe that is favorable for the capital market regarding a possible transaction.”
As planned, ZF is making progress with the carve-out of the shuttles business unit, which was announced last year and is now ongoing. The business with autonomous shuttles and the associated system technology, spread over several units, is particularly capital-intensive. That is why ZF is bundling it into an independent unit to become attractive to external investors.
ZF focal points at the IAA: Electric mobility and vehicle motion control
In his outlook, CFO Michael Frick also referred to ZF’s presence at the IAA Mobility in Munich. At the trade fair, ZF will focus on electric mobility and vehicle motion control technologies. ZF will be represented at the trade fair grounds in the Bavarian capital (Hall A2, Booth D40) from September 4 to 8. ZF’s presence includes the EVbeat electric concept vehicle, designed for maximum compactness, low weight and maximum efficiency. In addition, ZF will present the latest by-wire technologies from the new Chassis Solutions Division in Munich.