Apollo Global Management, Inc. ($FRVIA)

Good morning, ladies and gentlemen. First of all, thank you for joining us after we have broadly talked on Friday. However, we have accomplished results over the weekend that I think I really want to share with you. And so I'm very happy to report that we have signed an agreement to sell our Interiors business to Apollo. So we signed the deal on the expected terms that we have communicated in spite of a challenging environment through the Middle East crisis. So we can attain out of that transaction an enterprise value at EUR 1.82 billion and the anticipated net debt reduction of at least EUR 1 billion. Olivier Durand, our CFO, is with me, and he's going to share some further financial details in just a second. The project is obviously subject to works council consultations that we have started this morning and then also the customary regulatory approvals. I'm convinced that this project is possible because it reflects on the strength and the leadership of FORVIA Interiors as well as the expertise and the commitment of our global interiors teams. So it highlights the business group's very solid industrial base, its market positioning and the good value creation potential that the acquirer sees in FORVIA Interiors. So it goes without saying that this is a key milestone in the execution of our IGNITE strategic road map that we discussed during the Capital Market Day on February 24. It is, in fact, sharpening FORVIA's focus on high value-add technology-driven activities. And as well, we strengthened our financial structure by paying debt down, as I commented earlier on. And at the same time, for the Interiors business going out, the business is gaining a very dedicated ownership and Apollo has a very strong sector expertise and an active ownership approach to their automotive activities. So that's going to support the future development and the transformation of the Interiors business in a consolidating market environment. So Olivier, why don't you share the numbers that are now associated with that transaction?

Happy to. Good morning, everyone. Thank you, Martin. So let me provide some color on the key financial terms of the transaction with Apollo. So as mentioned, the agreement implies an enterprise value of around exactly EUR 1.82 billion. This is corresponding to 3.1x the adjusted EBITDA under IFRS of the business. Another data point is to mention that if you take a kind of proxy of the U.S. GAAP, i.e., excluding R&D capitalization and lease, which is more the type of comparison to assess the multiple of a transaction, in fact, the multiple will stand at 4.8x. We confirm the expected net debt reduction of at least EUR 1 billion. And I want to stress that the bridge that we are talking about between enterprise value and net debt reduction is comprehensive. It's taking all items into account, including transaction costs and including the consolidation of the cash of joint ventures in which we have a majority stake. So it takes into account the deduction for minority interest in the joint ventures that we have inside this business. It takes into account the debt adjustment, including the pension liabilities, and it includes all carve-outs and tax cost of the transaction before and after closing. Given the cash position and the distribution of the cash inside this business, the gross debt reduction will be actually higher. It will exceed EUR 1.4 billion. And this is, in fact, the relevant metric to use in order to assess the reduction in financial cost that this transaction entails. On a run rate basis, this reduction will be around EUR 50 million to EUR 70 million in lower financial expenses per year. We expect the closing to happen by year-end subject to the customary conditions precedent, including regulatory approvals. I want to stress that this is a definitive transaction, excluding those basic regulatory approvals. We will continue to manage Interior as a FORVIA business group until that date, and we will benefit from the net cash flow generation that this business has until the actual closing of the transaction, which is most of this year. All proceeds will be allocated to debt reimbursement and which means that, in fact, with the combined -- with the expected organic cash flow generation in '26, we expect to reach a financial leverage of 1.5x, and we expect a net debt to reach EUR 4.5 billion at year-end as we communicated during the Capital Market Day. This means a division by 2 of both the leverage and the level of net debt compared to the initiation of the acquisition of HELLA back in '22. This transaction, therefore, support the full restoration of FORVIA financial structure and is totally aligned with our IGNITE framework, which targets ultimately a leverage ratio of 1.2x by the end of '28. And on this note, I return to Martin.

Yes. Thank you, Olivier. And before talking about the next step, I would like to thank, first of all, Michel de Rosen, our Chair and the entire Board for the support of the project. And then most importantly, also all Interiors employees for their commitment and contributions. And we have seen very good contributions really when it comes to the operational business, but also in terms of preparing this transaction. So again, we expect a close of the project by the year-end, and when the financial effect should kick in as well. And you can imagine what kind of an important milestone this transaction is for the group and for our IGNITE strategy. So I look forward to finishing a successful year together with the colleagues in Interior because the numbers that you have heard about are also considering on the cash side, still the incomes from the Interior business this year. So when looking forward, I mean, it's exciting around for FORVIA. We have our 2 clusters, the growth and the value clusters that are nicely complementary in nature and that we are going to develop. And we have our 3 strategic priorities with best-in-class performance, business transformation, the announcement today falling into that priority and invigorating our culture. So the compass is clear. And then it go without saying on the next 2 pages, also in light of that Interiors transaction, I want to explicitly confirm all elements of our 2026 guidance. And on the next page, we are reiterating also our 2028 ambition. And you can imagine now with that first important step in terms of portfolio transformation, we are obviously also confirming all ambitions and all numbers around 2028. So we are getting ready to unlock what's next. And at the same time, we drive what matters so much every single day. And with that, I would like to open up for questions.

[Operator Instructions] The first question comes from Ross MacDonald of Citi.

Congrats on getting this deal done. I think a lot of investors had assumed this would be second half business, so very impressive. I have 3 quick questions. I think we touched on one previously, just around dis-synergies. So I'm thinking about your business going forward, specifically for things like Interior lighting and seating. How do you think about the loss of the Interior business and the potential dis-synergies over the midterm from a revenue perspective for those businesses? Is it something that customers typically expect for it to bring Interior seating as a combined package? Or do you think that there's limited headwinds from the loss of Interiors from a synergies perspective? That's question number one.

First of all, and thanks for rejoining second day, second workday in a row. On a product level, on a top line level, we are not expecting any dis-synergies. And I tell you what we observed over the last couple of years. FORVIA has strongly driven the concept of cockpit of the future, interior of the future. And you could see in some of the trade shows that we really animated and designed complete interiors of vehicles to give the customers ideas of what's possible. At the same time, we have never come really to combined sourcing of our OE customers. In other words, they buy seats separate from the Interiors. So whereas this engineering exercise, the design exercise helped to position both interiors and seating products, it would never ended up in combined deals and therefore, synergies. What we intend to do on a way forward, we have a unit that's called the XLAB. And the XLAB is basically combining engineers from all of our business groups, and we will retain Interiors' expertise on that XLAB, so that we can continue to create new experience for Interior. But then after the transaction, we are going to fully focus on selling the seating products. And again, that traditionally has been independent from interior product sales.

And my second question is just around the employee transfer. And if you can maybe just confirm how many employees were within Interiors, I had 31,000 in my mind. Will all of those employees transfer over? And you mentioned the Works Council approval. Is that something that we should think of as a formality here? Or is there a potential roadblocks around Works Council as it relates to this deal?

Yes. No, we are selling ultimately the entire business. So all Interior employees one by one are going to go over into the new company. So that's clearly agreed with the buyer. And as far as the Works Council approvals or consultations are concerned, it's a consultation, and that's very well defined in French law. So we started that this morning. We informed the Works Council, and we expect the period of conversations and discussions. We expect that to find a good way towards the deal. So no deal breaker expected as of now. And then you also will have the regulatory approvals, foreign direct investment and so on with different jurisdictions. Given the nature of Apollo's business and ours, also here, as of now, we do not expect roadblocks.

Maybe a final one and just a strategic one. Obviously, you've done this deal at a very challenging time in the automotive supply chain. Is there anything when you look at the business as it stands going forward, excluding Interiors, is there anything within the value clusters that you think actually -- given the valuation we're getting for Interiors, which looks attractive, is there anything within the group that you would think could be further monetized by FORVIA? I know you want to keep the value versus growth segments, but just curious if the opportunity presents itself, if you would look to monetize other parts of the group given the valuations that you're achieving today?

Yes. No, whereas we do not pursue concrete ideas or projects at this point in time. We discussed that during the CMD, right, saying both the organic deleveraging and now in particular, the Interiors deal, we do not have the same pressure as of before. So there is nothing concrete in the make. At the same time, it is an option for the value cluster if opportunities should present themselves.

The next question comes from Stephen Reitman of Bernstein.

So congratulations on the deal. Again, I mean, it was very much following on from the questions that Ross was asking really about the overlaps. I think, you made that very clear that there isn't -- you have been running these separate businesses. But again, on sourcing really, could you just give a little bit more about that, just to sort of reassure us already that the scale impact [indiscernible] going to suffer from the loss of scale.

Yes. No, good question, Stephen, and welcome back to the call this morning. There is obviously lots of plastic material sourcing happening around the Interiors business. And then the second big consumption we have on plastics parts is on the lighting side. So it is important to look at the concrete plastic resins that we purchased for both. And there is only limited overlap, right? You can imagine between the screens of a headlamp and what we put into a door panel, it's quite different materials. So the dis-synergies are going to be very limited in that regard. We estimated it, call it, single million euros of dis-synergies possible on the purchasing side.

[Operator Instructions] Mr. [indiscernible], there are no more questions registered at this time.

All right. We check into the online questions. Just give us a second.

Okay. So we have a few questions on the chat. Let me take the first one. What is the effective economic date of the transaction? And to what extent may the price be adjusted for cash flows between now and completion? So first of all, it's a firm deal. Now, they have the process of regulatory approvals and the transfer. So we expect the transaction to get to closing by the end of the year, probably fairly Q4 of this year. The price of 1.82 [indiscernible] Interior is part of the company until the closing, i.e., the cash flows of the Interior business are part of the evolution of the company. So in terms of IFRS of '25, it will not appear in terms of the operating metrics. That's why our guidance are totally unchanged. But in terms of the net debt reduction, this is part of the net debt reduction we expect during the year. To keep things [indiscernible] if you take the average of the last 2 years, '24 and '25, you are getting at [ 150 million EUR]. The second question, EUR 1.82 billion is corresponding to a 3.1 multiple of the EUR 582 million of adjusted EBITDA IFRS of '25. Is that not a bottom line factor for a company of this size. And between buckets, the notice factor 3 is more for low and medium-sized companies. What about account receivables minus accounts payable inventory, which should be added to the 3.1 multiple of the adjusted EBITDA? Thanks for your feedback. So on the data, you are totally correct, [indiscernible] 582 is what is reported. If the IFRS [indiscernible] of the company exactly the perimeter and the enterprise value is EUR 1.82 billion. Regarding working capital, we have taken into account variations that can happen and this is how it leads to it's incorporated in all the adjustments we are showing you in the bridge. Let me stress once again that the bridge is really reflecting all the adjustments. In fact, the impact of the fact that part of the business is joint ventures. So EUR 1.82 billion is at 100% ownership of everything. So we have to take into account that we don't own 100% some of the companies and a few in particular in China. This is taking into account the debt adjustment of different nature and all the transaction costs, carve-out, separation, fees of the different advisers as well as the tax cost of the transaction. And maybe another element in M&A world in terms of evaluating companies, people are more used to use U.S. GAAP or proxy of U.S. GAAP, which in this case would be the EBITDA excluding R&D capitalization, amortization and lease. If you take this differential, which is more comparable on the worldwide basis, actually, the multiple is 4.8x, which I think is more reflecting, in fact, the value of the deal itself. Do we have some questions on the call itself before we take more questions on the chat?

[Operator Instructions] I confirm Mr. [indiscernible], we had no more questions registered at this time from the audio call.

Well, then we continue with the online questions.

No problem. Next question, what will be the new company brand name managed by Apollo? And that is an answer we cannot share yet. So there will be a new name, and it's going to be published then on time. The next question is what's the exit window of time frame strategy for a PE like Apollo? And will there be another divestiture from Apollo to another [indiscernible] strategic entity as buyer? The thing that we can say is Apollo is in the automotive business for quite a while and have created a fairly large position with the different acquisitions they have done in the last few years, Panasonic, TI, Tenneco. It's becoming a large, in fact, automotive supplier group of companies. So I think this is the strategy they have and to develop the business and to have, in fact, the means to develop this business. We have no other information. The next question, I think FORVIA has around EUR 2.4 billion debt coming up in '26 and '27. And correct me if I'm wrong, but you are mentioning a EUR 1.4 billion gross debt reduction from this asset sale. So can you please explain how you managed to reduce interest costs when you will need to refinance some debt in '26 before they fall current? So in terms of the different items of debt maturities coming '26, '27, we will have EUR 1.4 billion coming from this transaction. We will have another EUR 0.5 billion from the business itself. And we continue our work of cash [indiscernible] and simplification of our flows. You have seen that we have reduced the gross cash a little bit last year. We expect to reduce excluding, in fact, this transaction, the gross cash even more, which means that in terms of new -- in terms of refinancing, we expect limited activity. The exception to it is there is inside those numbers, a bond in HELLA, which is maturing in January 2027, and HELLA will probably refinance part of it in over the course of this year. So that will be the main refinancing transaction. We will monitor, of course, the evolution of interest rates and remain opportunistic on this in the different markets from a credit world in which we operate since we are now having access not only to eurobond [indiscernible] U.S. bonds and smaller activities, Japan, China. Next question. What amount of pensions factoring and reverse factoring, respectively, will travel with the entire business? So in terms of pension is actually EUR 69 million. In terms of factoring, it will depend how we will finish, but it's -- you have seen that we reduced, in fact, the factoring balance by EUR 100 million overall before the transaction itself. And I would say that this is -- we will not reconstruct a position anyway and maybe going further down. And in reverse factoring is actually a small number that is going with this business, EUR 50 million, EUR 70 million in reverse factoring position. Do we have other questions on the call?

[Operator Instructions] Mr. [indiscernible], there are no questions registered at this time.

So I continue and complete the chat. How much of your existing business was tied into your Interiors offering? Is there a risk of losing any seating electronics business now?

No, that is an answer we had with Stephen's question and Ross's question. Basically, there is no business that we are going to lose. We are excluding from the Interiors business, the MATERI'ACT perimeter. Remember, MATERI'ACT is the company where we develop and produce sustainable plastic materials. That's going to stay with FORVIA. And there, we have already today a supplier relationship in place with the Interiors business, and that's going to be written over to the new company. So we continue to supply of these sustainable materials to the new company.

Next one, congratulations on the deal. Could you give us more details on the use of the proceeds? So it will be fully used for that reimbursement. And from a financial debt perspective, it will be on maturities, '27 and '28. And we will see which choice will be the most attractive. Next question, can you please remind us the P&L impact from discontinued operation in '26? Frankly speaking, it's not a reminder because we did not mention this one. But what we can say is that we -- during the Capital Market Day, we mentioned that as part of the operation, some of the costs, including the tax cost upon closing could not be booked in '26 -- '25, sorry. And we expect this to be around EUR 150 million. Vice versa, Interior is contributing to the net income. So you should expect a bit less than this EUR 150 million in terms of the net P&L impact in discontinued [indiscernible] something should be around the number, but there are some accounting aspects that can provide some volatility on this. The next question is what is the best estimate of the minority P&L and minority dividend you can give for '26. I assume that the question is not related to the transaction itself. But before answering this one, let me mention that as part of the transaction, we simplify, in fact, our structure and we have less joint ventures as a consequence, meaning that the leakage in terms of minority dividends and minority P&L is reduced. Minority P&L is something like EUR 30 million plus that is going away, in fact, with this transaction starting therefore in '27. In terms of minority P&L for the company itself as a whole, we are in the EUR 100 million, EUR 120 million range, no change on this type of aspect. Next question. Do you expect any rating action following that business reduction in scale, but that is also reducing basically the rating unchanged? I think the rating agencies are fully informed of this transaction coming. We will have communication with them. I think it's a confirmation of executing our plan after in terms of rating evolution, it's, of course, a decision that they take. But clearly, the profile from a debt perspective, from a cash management perspective is improving significantly with this transaction. So I think it's a good element in terms of the financial structure and the credit view of the company for structure. Next question. What will be the impact of the support service function currently being provided by GBS to the Interior activity? Will this support continue as is? Or are there any changes being planned?

Yes, very good question. I mean we are going to hand over an independent self-sustained company to Apollo, which means that we are also going to provide functions and the employees performing these functions in terms of corporate services. So that's going to happen now as part of the separation process that we clearly identify, resources personnel that goes over with the business. So to the earlier question, we are going to transfer all employees that are associated with the Interiors business directly, plus those corporate services that the company will need to operate. Olivier, do we have another question on the chat?

We do. Could you quantify the bridge element in Slide 3, which is the slide of the bridge. Regarding the debt adjustment aside from the EUR 69 million in pension, what are the other parts of this? So we are showing in the bridge, in fact, 3 big blocks. So the first block is minorities. Our minorities is coming from the fact that 1.82 is at 100%. We have some companies in which we own less than 100%. And therefore, there is a deduction for the value of those one as well as the fact that we have some cash position inside those companies and mechanically, since -- and we consolidate those cash position today at 100% when you have the sale, you are paid for the part of the company you actually own. So this is on the first block, and that's -- so that's why it's significant. It means also once again that the complexity of the company will be reduced by this transaction. The second block is debt adjustment in which there is the pension. There is also some working capital and miscellaneous financial adjustment that are taken into account inside this block. And the last one is all the carve-out separation cost. This is also the tax cost of the transaction. We had some tax costs in terms of verticalizing the legal structure according to this perimeter, and we will have a little bit of tax cost mainly in China in terms of tax on capital gains in some jurisdiction, a few of them, as you can imagine, but in China, this is the case. So this bridge once again is providing full view of the impact really of all items so that there is transparency to you, to all related parties, investors and regulators about what is net-net, the debt reduction that this transaction entails. I have another question, I think, which is, can you please quantify some of the elements in the bridge, mainly minorities and debt adjustment? So this is what I mentioned. The 3 blocks are not exactly of the same size, but with the biggest of the 3 on the tax and carve-out and separation cost. And I see no more questions, at least on the chat.

Okay. Then question to the operator, any live question left?

There are no more questions on the web -- on the audio call.

All right. Then let me summarize. First of all, thank you very much for your great interest today that led to a lively session. And you think -- I think you could convince yourself that IGNITE is now in full swing, 2 months after we announced it. And from here, the full attention at FORVIA goes into execution. And that happens on 2 levels. We are delivering the year. That's utmost important. And then we drive the Interiors business to transaction close by the end of the year as well. So thank you very much for your continued interest, and I look forward -- we look forward to talking to you soon. Thank you.