Full Year 2024 Forvia SE Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Michael Foundoukidis - ODDO BHF - Analyst : Michael Foundoukidis from ODDO BHF. A couple of questions. So maybe one by one, it's easier for you. First, on disposals and on the core portfolio that you mentioned, could you be a bit more specific about what you mean by core? Is any of the 6, let's say, business unit disposal out of the equation or maybe it could come? First question.

Question: Michael Foundoukidis - ODDO BHF - Analyst : Maybe second question on the free cash flow, Olivier, on 2025. I mean, could you be a bit more specific on working cap and maybe factoring tailwinds that you would expect? If you could quantify a bit? Olivier Durand - Forvia SE - Executive Vice President, Group Chief Financial Officer, Member of the Executive Committee So in '24, you see the contribution of the working capital as a whole was EUR600 million and 3/4 of it was inventories. The payable actually were negative in '24, given the evolution of the sales and the activity in monolith. So we had a negative of EUR200 million. So what it means is that really working capital inventories and solid customer collection on the receivable. What can you expect in '25 is still a contribution from working capital between EUR200 million and EUR300 million, and it will be from product inventories. As other companies, we have a context in which we can continue to reduce and streamline the operations and further reduce inventories, which is good twice, is good first time in terms of cash flow, but is also reducing the cost of operation, logistics and the like. So that will be for '25.

Question: Michael Foundoukidis - ODDO BHF - Analyst : Okay. Maybe last question on margin development in 2025. So it seems that the year should be relatively back-end loaded. Could you confirm that even in the first half, we would be within the guidance range, especially given the margin in Europe in H2 last year, which was down significantly?

Question: Jose Asumendi - J.P. Morgan Securities plc - Analyst : Jose from JPMorgan. Patrick, my very good wishes. I had just one question for you and then a couple to Martin, but also related. When we look at the business and the margins by region, in Europe, it looks like that at the end of the day where margins need to go higher, right? But production still is obviously below the 2018, 2019 peak levels. From your perspective, do you think production at some point in Europe will recover to higher levels from a macro overall market perspective? And what do you think will take to move production in Europe to higher levels? And is this -- do you think there's an opportunity that maybe Chinese OEMs come in to Europe and start producing and maybe that may help to see that increase in production in the European market? And then second, Martin, welcome, a couple of questions, please. Just related to Europe. And if production in Europe does not rebound, what kind of restructuring measures do you think that the business needs in Europe to leave margins above 5%? Because with the current margins, it's difficult to see the business is generating cash in Europe. And I'm sure there are plans to enhance this profitability. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 28, 2025 / 9:30AM, FRVIA.PA - Full Year 2024 Forvia SE Earnings Call

Question: Jose Asumendi - J.P. Morgan Securities plc - Analyst : As a quick follow-up, Martin, do you think the definition of core and noncore assets within the business may change in the future?

Question: Michael Niedzielski - ROCE Capital - Analyst : I have a couple of questions. The first one has been on the margin guidance. You were at 5.2% this year, and you're guiding for 5.2% to 6%, so midrange, 5.6%, which is a 40 basis points margin expansion at midrange. If I do the math, you have between the synergies at HELLA that you should extract this year, like another EUR70 million and the cost savings in Europe, which is an extra EUR125 million. Between those 2, that's 70 basis points. And then if I include the currency positive impact that you mentioned earlier, that's another 10 basis points. So in total, that's 80 basis points. So technically, if I just do the math, from those mechanical factors, we should go from 5.2% to 6% at the very top end of your range. So the midrange implies a margin contraction, which I would love for you to comment on.

Question: Michael Niedzielski - ROCE Capital - Analyst : Okay. Now I mean that's what when you give a range, people usually go for the midrange. But hopefully, you can get towards the top of the range, if not higher. My second question is on free cash flow. So you've guided for an increased free cash flow in 2024, and you were at EUR650 million or EUR664 million, I can't remember exactly, in 2024, including working capital, but excluding the payment of leases. I understand that the working capital benefits because today, in 2024, pretty much all the free cash flow was generated from working capital. If we didn't have the working capital benefits, we would have been in a cash burn situation. So I understand we're going to have further working capital benefits this year, but I think you mentioned something like around EUR300 million, which leaves a gap of an extra EUR300 million, at least maybe actually even like EUR350 million. At the midrange, if we take -- again, of your guidance, if we take your 40 basis points of margin expansion, that's EUR100 million. Even at the top of the range, if we take 0.8%, at 6%, that's EUR200 million, which implies still like EUR100 million shortfall in order to have a free cash flow that's going to be higher in 2025 than in 2024. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 28, 2025 / 9:30AM, FRVIA.PA - Full Year 2024 Forvia SE Earnings Call So can you help me understand and reconcile this guidance on the free cash flow, please? Olivier Durand - Forvia SE - Executive Vice President, Group Chief Financial Officer, Member of the Executive Committee Let me take this one. So I will start with the EBITDA. We expect some evolution of the EBITDA, more or less important depending on the margin. So that's one. The second is, as mentioned, CapEx plus capitalized R&D, at least EUR100 million reduction. Third, indeed, working capital, not the same type of contribution. And let me highlight that I'm making a bit of a difference between receivable payable evolution and inventory reduction given the benefits that it represents in terms of effectiveness and profitability of the company. And last item is this other operational item. You see that it was a negative EUR157 million. This is EUR100 million more than the previous year. It's EUR100 million more than any recent period. We will return to normal, which is also a good guide. After they are -- we are saying EUR100 million on the CapEx, if we can do better, we will do better. So you have this item of other operational that is to be taken into account.

Question: Michael Niedzielski - ROCE Capital - Analyst : No, no, rights issue.

Question: Michael Niedzielski - ROCE Capital - Analyst : 100%?

Question: Michael Niedzielski - ROCE Capital - Analyst : Okay. And talking about the disposals because we have had in the wording of the deleveraging, basically a pushback on the disposals by a year. I understand there needs to be some preparation before carve-out and all that. But you've been arguably working on those disposals for some time now. And I understand you're now considering potentially some bigger disposals. Can you just give us a bit more color on what could be the potential sizes of those bigger disposals? Are we talking about something above EUR1 billion potentially that could meaningfully help the balance sheet situation?

Question: Michael Niedzielski - ROCE Capital - Analyst : Okay. And final question for me for Martin. You have a balance sheet today that, in my opinion, is quite inefficient with a lot of cash and a lot of debt, EUR4.5 billion of cash is probably too much cash. If I compare those metrics versus your peers, I understand you need to have cash for the working capital cycles, but this seems too much. So can we expect you to repay some of the upcoming maturities with your cash balance, which would help reduce the financial expenses line, which is a huge drag on the free cash flow today and which frankly has to come down at some point. So what are your thoughts on optimizing the balance sheet between the cash flow and the debt?

Question: Michael Niedzielski - ROCE Capital - Analyst : So is EUR1 billion, can we expect the next EUR1 billion of maturities of debt maturities to be paid with your existing cash or that's too much? Olivier Durand - Forvia SE - Executive Vice President, Group Chief Financial Officer, Member of the Executive Committee You can expect a significant contribution of this, and you can expect us to be active in the market.

Question: Michael Niedzielski - ROCE Capital - Analyst : Really not a lot left. One is a follow-up to the carve-outs that you are currently undergoing. Are there any more significant costs already associated to that, that you're incurring in '25? Or is it not yet really a headwind on the cost side because we know from peers, it can actually be quite costly. A comment on that would be appreciated. And then just because a competitor of yours or peer of yours commented on order cancellations last night. Did you experience the same? Or have you seen basically no or close to 0 cancellations in the order book?

Question: Michael Foundoukidis - ODDO BHF - Analyst : Michael, sorry, just one follow-up still on the disposal, sorry to insist. But regarding your HELLA stake, any consideration to reduce it a bit? And maybe more broadly, what you would consider as the minimum stake you need to hold in HELLA given your organization today?