Research Update: ZF Friedrichshafen Outlook Revised To Negative On Slower Cash Flow Improvements; 'BB+' Ratings Affirmed

Germany-based auto supplier ZF Friedrichshafen AG's (ZF's) first-half 2024 revenue and margins were held back by lower production of light vehicles (LV) and commercial vehicles (CV) and greater product launch and research and development (R&D) costs, with its S&P Global Ratings-adjusted EBITDA margin declining to 7.0% from 7.2% in first-half 2023 and 8.3% in full-year 2023. We anticipate that ZF's profitability and cash conversion could remain constrained by the subdued growth prospects in its end markets and likely higher restructuring costs in the next 18 months, such that we view its ability to reduce its indebtedness as slower than we anticipated in our prior base case. At the same time, we understand that ZF is strongly committed to applying its

...- Germany-based auto supplier ZF Friedrichshafen AG's (ZF's) first-half 2024 revenue and margins were held back by lower production of light vehicles (LV) and commercial vehicles (CV) and greater product launch and research and development (R&D) costs, with its S&P Global Ratings-adjusted EBITDA margin declining to 7.0% from 7.2% in first-half 2023 and 8.3% in full-year 2023. - We anticipate that ZF's profitability and cash conversion could remain constrained by the subdued growth prospects in its end markets and likely higher restructuring costs in the next 18 months, such that we view its ability to reduce its indebtedness as slower than we anticipated in our prior base case. - At the same time, we understand that ZF is strongly committed to applying its free cash flow and potential disposal proceeds toward debt reduction, that it is seeking to receive compensation linked to lower production volumes in 2024 and to significantly improve its operating efficiency in Germany in 2024-2028....

Research Update