ZF progresses with strategic realignment

ZF Friedrichshafen AG generated sales of €41.4 billion (2023: €46.6 billion) in the 2024 fiscal year. The nominal decline of around 11 percent is strongly influenced by the one-time effect of the deconsolidation of the axle assembly product line (sales: €2.6 billion). In organic terms, the decline in sales was around 3 percent. Adjusted EBIT amounted to €1.5 (2023: €2.4) billion, which corresponds to an adjusted EBIT margin of 3.6 (2023: 5.1) percent. These figures are in line with the updated guidance that ZF issued in September 2024. The company is consistently pursuing its course of performance programs and strategic realignment that it embarked on two years ago to open up individual business areas for partnerships, enabling them to achieve better growth opportunities.

“The year 2024 has made it clear just how much pressure our industry and our company is under,” said ZF CEO Dr. Holger Klein at the presentation of the annual report in Friedrichshafen on Thursday. ”We’re meeting these challenges with a clear strategic action plan. The goal is to reduce ZF’s debt and develop the company into a more agile and profitable technology leader. This path, which we embarked upon two years ago, is costing us a great deal of energy. Nevertheless, we will continue to pursue it courageously and consistently, because we can see that initial successes are emerging.”

ZF continued to implement its “Strengthening strengths – Unlocking potential” strategy to optimize its portfolio. “This gives us new room to maneuver,” said Klein. “We continue to make targeted investments in core areas such as chassis, commercial vehicle and industrial technology as well as our aftermarket business, which are already among the top three in their respective segments. We are seeking partnerships in the areas of electric mobility, electronics and driver assistance systems to strengthen these areas for the future and to free up growth potential. This will help us to align these divisions even more closely with customers and markets and to create an ecosystem for the mobility of the future that will make us more agile and stronger overall.”

Successful joint-venture setups

In September of last year, ZF completed the spin-off of its Passive Safety Systems Division, which began in 2022. The business unit is now operating independently and successfully in the market under the name ZF LIFETEC. In April 2024, ZF Foxconn Chassis Modules GmbH was founded, a joint venture for passenger-car chassis systems with Foxconn, the world’s largest electronics manufacturer. The development partnership with automotive middleware software developer KPIT Technologies, which has been in effect since 2021, has since been transferred to the independent software company Qorix. Qorix middleware is designed to help vehicle manufacturers cope with the ever-increasing software complexity while maintaining full control over its software architecture. U.S. semiconductor manufacturer Qualcomm recently began working with Qorix to use the middleware on its system-on-chip platforms. “All these steps will enable us to achieve new growth in these business areas, strengthen our financial base and create flexibility for targeted investments,” explained Klein.

In addition to these strategic and structural changes, ZF has already launched performance programs for the passenger car and commercial vehicle business as well as another project to strengthen the competitiveness of its German locations by 2023. “We are on track with these programs, achieving sustainable improvements and continuing to work to compensate for the increasing challenges. This is how we make our company and its jobs fit for the future,” said Klein. He added that Germany would remain a central pillar of ZF in the future, but that it needed a more efficient structure and an adjustment of personnel capacities to the continued expectation of weaker market demand. “We are aware that this means major cutbacks for our employees in some cases. Our goal is to preserve as many jobs as possible and to implement the necessary job cuts in the most socially acceptable way possible,” emphasized Klein. Last year, personnel capacity in Germany was reduced by around 4,000 jobs (full-time equivalents/FTEs), mainly through partial retirement, fluctuation, the expiration of temporary employment contracts, and the collective reduction of weekly working hours.

As of December 31, 2024, ZF employed 161,631 people worldwide (2023: 168,738), which is around 4 percent fewer than in the previous year. In Germany, the number of employees also nominally decreased by around 4 percent to 52,027 (2023: 54,447).

Restructuring costs impact the balance sheet

In the 2024 fiscal year, ZF generated consolidated sales of €41.4 (2023: €46.6) billion. The nominal decline of around 11 percent compared to the previous year’s figure is influenced by the deconsolidation of the axle assembly product line and its transfer to the ZF Foxconn Chassis Modules joint venture as of April 30, 2024, which corresponds to a one-time effect of €2.6 billion. Adjusted for M&A effects and currency influences, organic sales revenues fell by around 3 percent. “The economic development remains weak, and we are seeing lower volumes in both the passenger car and, cyclically, the commercial vehicle segment,” said CFO Michael Frick. Nevertheless, most divisions outperformed the market. The ZF Aftermarket division benefited particularly from lower new vehicle business and higher service requirements. Its sales rose organically by around 12 percent to €3.6 (2023: €3.3) billion in 2024. From a regional perspective, Europe (EMEA) remained the region with the highest sales, accounting for 47 percent, followed by North America with 27 percent and the Asia-Pacific region with 23 percent.

The adjusted EBIT of the ZF Group amounted to €1,504 (2023: 2,367) million, which corresponds to an adjusted EBIT margin of 3.6 (2023: 5.1) percent. Free cash flow adjusted for M&A activities amounted to €305 (2023: €1,382) million. High provisions for restructuring costs of around €600 million led to a net result of minus €1,020 million. As a result, net debt increased to €10,467 million at the end of 2024 (2023: €9,982 million); the equity ratio was 19.2 percent. “Even though we are in the middle of our forecast range as adjusted in September in terms of revenue, EBIT and cash flow, we naturally cannot be satisfied with the financial results in a year of transformation like this,” said Frick, but emphasized: ”The measures we have initiated are necessary to reposition ourselves for future growth. They are starting to take effect, although this is not yet reflected in the 2024 results due to the restructuring costs that have been recognized and will only pay off in this and subsequent years.”

Expenditures in research and development (R&D) were on par with the previous year at €3.6 billion (2023: €3.5 billion). The R&D rate – in relation to the lower revenue – reached 8.6 (2023: 7.6) percent. Investments in property, plant and equipment amounted to €2.3 (2023: €2.2) billion, which corresponds to a capex rate of 5.4 (2023: 4.8) percent.

2024 financing operations

In the 2024 fiscal year, ZF repaid debts of €2.3 billion and created planning security with several financing transactions. In January, ZF issued a €800 million green bond. In April, a green bond transaction followed in the U.S., raising $1.5 billion. By mid-year, ZF had also placed bonded loans with various maturities totaling around €800 million on the market and secured two financing packages from the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) with a total volume of €525 million. The liquidity headroom is €8.1 billion. This includes the undrawn revolving credit facility (RCF) of €3.5 billion, which runs until 2029.

2025 outlook

The outlook for the fiscal year 2025 remains cautious. Particularly for the eurozone and Germany, only weak economic growth is once again expected; the same goes for vehicle markets that could remain below the values of the previous year. In addition, the pressure of the transformation remains high, as do the uncertainties caused by geopolitical and protectionist influences. ZF will continue to be intensively involved in the restructuring that has already been initiated this year. Against this backdrop and assuming stable exchange rates, ZF expects to generate Group sales of more than €40 billion in 2025. The adjusted EBIT margin is expected to be in the range of 3.0 to 4.0 percent, and the adjusted free cash flow is expected to be over €500 million.

Successes with by-wire technologies

In order to exploit the full potential of the chassis business and to continue to act as a leader in innovation, ZF combined the Active Safety Technology and Passenger Car Chassis Technology Divisions into one high-performance unit in January 2024. This has created a new powerhouse: the Chassis Solutions Division. Several customer orders and a successful start of production in the suspension sector show that this strategy is promising: ZF won a major order from a leading North American manufacturer for its brake-by-wire braking system, which will be used in almost five million vehicles.

In the area of steering, the technology group is equipping the electric ET9 flagship from the Chinese manufacturer Nio with the latest steer-by-wire system, which eliminates the need for a mechanical connection between the steering wheel and the front wheels. The ET9 is the first production vehicle in China with steer-by-wire technology to receive the relevant government approval for mass production.

With a comprehensive product portfolio consisting of hardware and software solutions for the motion control of vehicles in vertical, lateral and longitudinal dynamics, ZF provides its customers with unique system know-how from a single source, actively shaping the transformation towards the software-defined vehicle.

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SOURCE: ZF