...February 28, 2024 Forvia is increasing profitability slower than we expected, weighing on leverage metrics. We anticipate S&P Global Ratings-adjusted EBITDA margin will moderately improve to 8.2% in 2024 from 7.9% in 2023, mainly due to higher synergies at Hella and delivering on a more selective order intake. However, we think margin will be hindered by flat auto production, volatility in battery electric vehicle platforms ramp-ups, high capitalized development costs, labor cost inflation, and the overall weak operating margins of its European operations. As such, adjusted funds from operations (FFO) to debt rose to 11.8% in 2023 from 10.5% in 2022, which we deem weak for the rating. FFO to debt will likely improve to about 15% in 2024, on earnings growth, lower cash taxes, and 200 million of proceeds from the planned Behr-Hella Thermocontrol GmbH (BHTC) disposal, but any further profitability setbacks would likely lower rating headroom if not compensated by faster debt reduction. Forvia's...
