ZF Friedrichshafen

Overview Key strengths Key risks One of the top-five global auto suppliers, with leading market positions in transmission, powertrain, and chassis technology, as well as in active and passive safety components. Long-term business relationships with most auto original equipment manufacturers (OEMs). Passing higher labor costs on to customers could prove challenging. Lower-than-expected volumes could also pressure margins. Above-sector-average end-market diversification with aftermarket, industrial, and commercial vehicles divisions accounting for about 30% of total sales. Ability to transition the product portfolio toward e-mobility and software-defined vehicles, and withstand competition from tech players. High voltage products have strong appeal, as seen in the e-mobility order book of more than €30 billion. Weak funds from operations (FFO) to debt ratio (about 21% at

...ZF has significantly reduced its leverage from the post-WABCO-acquisition spike in 2020, but free operating cash flow (FOCF) generation remains limited due to high investments and higher cash interest. In 2023, ZF further reduced its debt to EBITDA ratio to 3.5x, down from 3.9x in 2022 and 8.7x in 2020, despite a headwind from the increase in its unfunded pension liabilities (a debt adjustment of about 700 million). Lower leverage resulted mainly from EBITDA growth in 2023 reflecting increased volumes and customer compensation. The EBITDA...

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