All options are open for rebranded ZF Lifetec
Mr. Frick, you have announced that the ZF Passive Safety Systems division will now become ZF Lifetec. Initially that is a rebranding. What happens next?
The rebranding is an important step. The company is repositioning itself and growing dynamically. We are currently assuming that ZF Lifetec will grow faster than the market. We can see that the company leadership is succeeding in giving the team its own spirit and identity. I believe we are expressing that well with the new ZF Lifetec brand.
You say that sales and profitability have improved. What are the goals for Lifetec and what are the growth drivers?
ZF Lifetec has a very good reputation in the market. We currently assume that we will be able to further increase our market share with our technologies. In a market that is already dispersed, we can be winners in the long term. In terms of market penetration among individual customer groups, and in various regions of the world, we still see significant growth potential that we want to exploit.
Several options are on the table: a complete or partial sale, or an IPO. What else needs to be in preparation?
We will complete the carve-out, in other words the legal independence of ZF Lifetec within the ZF Group, this year. We have a project that will open up all options for us from the second half of the year. We are stingently following this project plan. It it is of crucial importance to us that we continue to support the company's path to success.
If I may try to put it in a nutshell, does this mean that you want to make a decision on one of the options in the second half of the year at the latest - or even in the first half?
We have given ourselves the opportunity to make a decision. Whether we make it this year or later depends on various factors. We will pursue this in our own time, and otherwise simply continue to pursue our strategy of growing and optimizing ZF Lifetec, and improving the quality of our earnings. We have no time pressure. The company has no liquidity needs.
On the other hand, a deal would of course help to reduce debt.
For us, it is not of primary importance that we reduce our gross debt, but that we make qualitative progress. We can see that ZF Lifetec has good profitability. In this respect, it cannot be taken for granted that our leverage ratio will automatically improve as a result of a sale. We will only consider a sale if this is the case to a significant extent.
In other words, a partial sale only at a valuation that does not result in a deterioration in your leverage.
Absolutely correct- it is only acceptable this way.
Have you already held talks with investment banks?
We have a core group of banks that have full capabilities in all aspects. With this group of banks, we see ourselves in a position to carry out any potential transaction quickly. There is a mandated bank that has the lead role. We will initiate all further steps when they become relevant.
We have set ourselves the target of repaying around 500 million euros this year, and that does not include a ZF Lifetec transaction.
Last year, you reduced debt by a few hundred million euros to just under 10 billion euros. What are your plans for this year - without the Lifetec effect?
ZF has announced that around 18 billion euros will be spent on R&D and capital investment over the next three years. We will invest part of this in the current year 2024, and at the same time drive forward debt reduction, which remains an important goal even in times of transformation. We have set ourselves the target of repaying around 500 million euros this year, and that does not include a ZF Lifetec transaction.
There is also currently a debate about Germany as a business location. In your opinion, what would have to happen for you to increase investment here?
We will continue to invest heavily in Germany if it is competitive. At the same time, our production has been following local markets, and the requirements of our customers, for a long time. ZF has a strong presence in China and India, which we are continuing to strengthen because both markets are growing significantly. ZF is also very successfully represented with its technology in North and South America, as well as in Europe. And we reflect the growth dynamics of the various markets in the regions themselves. The situation in the Red Sea currently shows us how fragile supply chains are in areas of geopolitical tensions. I fear that geopolitically we are heading for more difficult times rather than more relaxed ones. In this respect, regionalization remains an important core component of our strategy.
What does that mean for Europe?
If we look at Europe, we can see that the mobility of the future has a logic to it that has political support. However at the moment consumer behavior remains different, and we are following the conditions demanded by the market and our customers. This is exacerbated by the fact that German politicians are setting framework conditions that do not make it easy for the industry. ZF is also dependent on the availability of labor, energy prices and the framework conditions that are important for entrepreneurial activity. The latter have not improved structurally in recent years. The social benefit-oriented legislation of the Federal Republic of Germany has a cost-driving effect, and worsens competitiveness in the country.
Are you questioning Germany as a location?
We are clearly committed to Germany as a business location. And to a significant extent. But we need to reassess this scope in terms of competitiveness. To this end, we have launched a transformation project for Germany in which we are in close dialogue with representatives of the workforce and the trade unions. We will be doing this on a very site-specific and very product-specific basis. Over the next few months, we will be able to derive packages of measures from these discussions, which we will communicate internally first. But the sizeable numbers that we regularly read in the press represent the natural fluctuation at ZF in Germany until 2030.
What we don't need are constantly changing framework conditions.
Let's return to the topic of e-mobility. The EU envisages a faster path than other regions. In the USA, the pendulum could swing in the other direction. How does ZF avoid being caught on the wrong foot technologically?
First of all, we respect political decisions. We also firmly believe that the Paris Climate Agreement is a solid basis. What we don't need are constantly changing framework conditions. The reliability of the framework conditions is very important. However, they must also be credible and realistic. Europe has decoupled itself from what we see elsewhere in the world. China and the USA are moving in the direction of hybrid vehicles in order to be able to represent different usage options with just one vehicle, and also to take account of the development of the charging infrastructure. We also consider this to be the right technology path for Germany and Europe in order to achieve the targets set for 2035. In this respect, we are very consciously promoting technological openness as an important issue.
ZF's interest burden will increase by around 250 million euros this year. What is the outlook in the medium term? And how much refinancing needs to be done this year and next?
We have around 2 billion euros to refinance in each of the years 2025 to 2028. In 2024, it amounts to around 1.8 billion euros. We already covered a good portion last year, and in January of this year, as we were able to place a euro benchmark bond for 800 million euros on the market in January. It was eight times oversubscribed, and we were able to achieve an interest rate of 4.75% for five year bonds. In 2023 we refinancing at rates of over 6%. This shows that we are very well regarded on the capital market. We do not expect our interest burden to increase this year versus last.
