ZF Friedrichshafen AG

The stable outlook reflects our expectation that ZF will be able to maintain solid EBITDA margins of 10%-11%, despite higher R&D costs, and that it will continue to reduce leverage in 2018-2019. We expect ZF will further improve its credit metrics, reaching FFO to debt of 40%-45% by year-end 2019. Supportive factors include our expectation of positive FOCF and potential disposal proceeds. We could consider lowering the rating if ZF's operating performance weakened markedly from the level that we currently anticipate. This could occur if the auto industry experienced a significant downturn, for example. We could also consider lowering the ratings if the company pursued acquisitions, resulting in debt to EBITDA rising sustainably above 3x or FFO to debt falling

...Leading market position with a broad product offering and strong geographical diversification that enhances resilience and allows for economies of scale. With 36.4 billion of revenues in 2017 (a 3.6% increase on 2016), ZF Friedrichshafen (ZF) is very well diversified globally. Europe accounted for about 48% of sales in 2017; NAFTA, about 27%; Asia-Pacific for 21%; and other markets for about 4%. ZF has a broad product portfolio in transmission, powertrain, and chassis technology, and in active and passive safety components. It is also dynamically growing its e-mobility operations that supply customers with electronic systems and electric drives and systems, which should help the company to position itself in an industry that has to comply with increasingly stringent emission standards. We also believe the group's broad geographic diversification will support the group's resilience. ZF's commercial vehicle division and industrial division should further contribute to this, given the different...

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