ZF half-year figures reflect challenging environment

“The persistently challenging market environment is reflected in our sales. Meanwhile, our earnings and cash generation are meeting our expectations,” said ZF CFO Michael Frick. “At the same time, we are improving our competitiveness and – in line with the guiding principle ‘Strengthening our strengths’ – continuing to push ahead with the structural development of our company. We are investing primarily in high-margin, forward-looking areas such as commercial vehicles and industrial technology, chassis solutions and the service business.” The more efficient organization of the German locations, as announced last week, with the aim of merging them into several site networks, will be part of this structural realignment.

In this context, Frick pointed out that the ongoing carve-out of ZF LIFETEC (Passive Safety Systems division) is on track: “The last formal measures are currently ongoing. We are exploring all strategic options in an open-ended process to further develop ZF LIFETEC in the best possible way and will act accordingly when the time is right. As a standalone company, ZF LIFETEC is expected to gain the strategic advantage to further enable growth in sales and profitability. The division’s sales once again performed above global light vehicle production in the first half-year of 2024.”

Organic growth close to previous year’s level

From January through June 2024, ZF generated sales of approximately €22 billion (€21.9 billion; 2023: €23.3 billion), representing a decrease of 5.6 percent. Adjusted for exchange rate and M&A effects mainly from the joint venture for car chassis systems agreed with Foxconn – organic sales were nearly unchanged compared to the first half of 2023 (– 0.1 percent). ZF achieved an adjusted EBIT of €780 million (2023: €941 million), equivalent to an adjusted EBIT margin of 3.5 percent (2023: 4.0 percent). Earnings were influenced by continuing high R&D expenditures, at €1.8 billion, declining volumes due to weak trends in vehicle markets and fixed costs for launches of new plants and products. Adjusted free cash flow is minus €494 million (2023: minus €525 million). “Compared to the previous year, free cash flow improved despite high investments and margin pressures,” said Frick.

Net liabilities amounted to €10.5 billion as of June 30, 2024. This represents a decrease of around €1 billion as compared to June 2023. The leverage ratio improved year-on-year from 3.06x to 2.67x. The scope of the company’s liquidity was €7.5 billion at the reporting date. This includes the non-utilized revolving credit facility (RCF) of €3.5 billion that has been extended to 2029.

Financing activities strengthen liquidity

The first half of 2024 was marked by numerous significant financial transactions. In January ZF issued a green euro bond with a volume of €800 million. This was followed in April by a green bond transaction in the U.S. that yielded proceeds of $1.5 billion. During this period, ZF repaid liabilities of €1.35 billion. Only a few weeks ago ZF placed a €650 million bonded loan on the market and secured two loans from the European Investment Bank (EIB) and the European Bank for Recovery and Development (EBRD) with a total volume of €525 million. “With these financial transactions we have gained planning reliability for the coming years,” said CFO Frick. “The strong market demand for the bond issues shows that investors continue to believe in ZF.”

Updated full-year sales outlook

ZF already remarked on the weak economic environment at the beginning of the year and expects conditions to worsen in the second half. With customer call-offs slower than expected and in view of the current weak demand for all-electric vehicles, the company has conservatively adjusted its sales forecast for 2024 to a range between €42.5 billion and €43.5 billion. For the adjusted EBIT margin, ZF confirms its previous full-year projection of between 4.9 and 5.4 percent because the company intends to make further flexibility gains in production and assumes that the effects of the implemented performance measures will intensify over time. ZF is also confirming its original projection of €800 million for free cash flow.

Outlook: ZF at IAA Transportation in Hanover

In his outlook, CFO Michael Frick also referred to ZF’s presence at IAA Transportation in Hanover. The ZF Commercial Vehicle Solutions Division, as the world’s leading commercial vehicle supplier, will present solutions for commercial vehicle customers and fleet operators. ZF will be onsite at the trade fairgrounds (Hall H21, Booth B54) in the Lower Saxony capital from September 17 to 22.