Faurecia's future after PSA: Less debt, more premium sales and hydrogen tech

PARIS -- Faurecia has offered a glimpse of its future outside of PSA Group as an "investment grade" company with more cash and less debt, an increased market share in China and among premium automakers, and a commitment to hydrogen fuel cell technology.

Faurecia began life in 1997 as the product of a friendly takeover of seating specialist Bertrand Faure by Peugeot’s equipment arm, ECIA. Now, Faurecia is preparing for life as a fully independent company after PSA agreed in 2019 to divest its 46 percent controlling stake in the supplier as part of the merger with Fiat Chrysler Automobiles that created Stellantis.

"The upcoming change in Faurecia's shareholding structure will offer new opportunities for value creation," CEO Patrick Koller said Monday at Faurecia’s results presentation and capital markets day. 

Among those opportunities are the possibility of additional M&A activity, Koller and CFO Michel Favre said. Faurecia is committing 60 percent of its net cash flow to deleveraging and potential "bolt on" activity, meaning acquisitions or collaborations. 

"Our priority is to deleverage the company to give us back call the resources and means to be ready to seize an opportunity in due time," Koller said.

The remaining 40 percent will be used for share repurchase and dividend payments. Faurecia is proposing a dividend of 1 euro per share this year, and is targeting an improved credit rating, Favre said.

"Clearly we have the ambition to become investment grade," he said.

Faurecia, which is based outside Paris, ranks No. 8 on the Automotive News Europe list of the top 100 global suppliers with worldwide sales to automakers of $19.9 billion in 2019.

Faurecia’s governance will have a new look after the departure of PSA’s three board members, General Counsel Nolwenn Delauney said. 

"Overall our board will be much more independent" with 82 percent independent board members, versus 61 percent under PSA, she said, adding that the appointment of Jean-Bernard Levy, the CEO of electricity giant EDF, would bring key expertise in the energy field.

The divestment of PSA's shares to Stellantis investors brings a "big change" in Faurecia's shareholding structure, she added.

"We will be moving from a controlled shareholding to a majority free float," Delauney said, with more than 85 percent of share capital. "This will give us increased visibility on the market and more independence."

Koller, Favre and other top executives laid out Faurecia's strategy for the next five years. Among the highlights:

• Sales will increase to 24.5 billion euros in 2025 from 16.5 billion euros in 2021, with an operating margin of 8 percent starting in 2022. Net cash flow will rise from a forecast 500 million euros in 2021 to 1.1 billion euros in 2025, or 4.5 percent of sales.
• In seating, one of Faurecia's core businesses, the supplier is aiming to increase content per vehicle to 820 euros from 710 euros through personalization options, more focus on rear seats, and higher penetration in midsize and fullsize premium segments. Seating revenue will rise to 9.5 billion euros in 2025 from 7 billion euros in 2019. 
• Faurecia is seeking to double seating sales in both North America, through supplying programs such as the Jeep Grand Wagoneer, Ford Super Duty and Volkswagen ID4, and China, with premium domestic customers such as BYD, Li and Nio.
• The supplier is pursuing a similar strategy in interiors, where it hopes to raise sales to 6.5 billion euros in 2025 from 5.4 billion euros in 2019, by focusing on the premium market, where content per vehicle is 570 euros. Faurecia's average interior content is now 350 euros per vehicle. 
• Clean mobility sales will increase to 8.4 billion euros in 2025 from 4.7 billion euros in 2019 driven by increased content per vehicle of emissions-scrubbing technology. Revenue from internal combustion technology will in turn finance Faurecia's long-term ambitions in hydrogen fuel cell systems, where revenue will increase to 3.5 billion euros by 2030 from 50 million euros in 2022. 

Faurecia is pursuing its hydrogen strategy through a joint venture with Michelin called Symbio as well as its own activities. In addition to Faurecia's own target of 3.5 billion euros in revenue by 2030, Symbio will bring in an additional 1.5 billion euros by that year, Faurecia has said.

Recent Symbio contracts include a deal to supply Stellantis commercial vans; and Faurecia has just signed an agreement with Renault on hydrogen tanks for vans. Most experts and industry leaders expect hydrogen will first gain a foothold in commercial vehicles and buses.