2014 HALF-YEAR FINANCIAL REPORT

Transcription

1 2014 HALF-YEAR FINANCIAL REPORT Automotive technology, naturally

2 Contents FullLED lighting system The FullLED lighting system is fitted on the new Cadillac Escalade in the United States. 1 2 GROUP PROFILE AND CORPORATE GOVERNANCE 1 KEY FIGURES 2 4 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, Consolidated statement of income Consolidated statement of comprehensive income Consolidated statement of financial position 18 3 INTERIM MANAGEMENT REPORT Order intake Sales Earnings Consolidated statement of cash flows Consolidated statement of changes in stockholders equity Notes to the condensed interim consolidated financial statements Cash flow and financial structure Segment reporting outlook Highlights Stock market data 12 5 STATUTORY AUDITORS REVIEW REPORT ON THE HALF-YEARLY FINANCIAL INFORMATION Risk factors and related party transactions Conclusion on the financial statements Specific verification 46 6 STATEMENT BY THE PERSON RESPONSIBLE FOR THE HALF-YEAR FINANCIAL REPORT 47 FINANCIAL GLOSSARY 48 PRODUCT GLOSSARY 49 SAFE HARBOR STATEMENT 50

3 1 GROUP PROFILE AND CORPORATE GOVERNANCE Valeo is an automotive supplier, partner to all automakers worldwide. As a technology company, Valeo proposes innovative products and systems that contribute to the reduction of CO 2 emissions and to the development of intuitive driving. In 2013, the Group generated sales of 12.1 billion euros and invested over 10% of its original equipment sales in research and development. Valeo has 123 plants, 16 research centers, 34 development centers, 12 distribution platforms and employs 78,600 people in 29 countries worldwide. Valeo is listed on the Paris Stock Exchange and is a member of the CAC 40 index. Board of Directors ypascal Colombani Chairman yjacques Aschenbroich Chief Executive Officer ygérard Blanc ydaniel Camus yjérôme Contamine ysophie Dutordoir ymichel de Fabiani ymichael Jay ynoëlle Lenoir ythierry Moulonguet ygeorges Pauget yulrike Steinhorst Committees Audit & Risks Committee ydaniel Camus Chairman ymichel de Fabiani ynoëlle Lenoir ythierry Moulonguet Appointment, Compensation & Governance Committee ygeorges Pauget Chairman ymichel de Fabiani ymichael Jay yulrike Steinhorst Strategy Committee yjérôme Contamine Chairman ygérard Blanc ysophie Dutordoir ythierry Moulonguet ygeorges Pauget 2014 Half-year Financial Report Valeo 1

4 2 KEY FIGURES Order intake (1) In billions of euros Geographic and client positioning Breakdown of original equipment sales by destination In millions of euros and as a % of original equipment sales, including joint ventures consolidated proportionally H H North America 20% 3% South America 51% Europe and Africa Asia and others 26% Order intake (1) is driven by: innovative products and systems (30% of order intake); and accelerated expansion in Asia (41% of order intake). Sales In millions of euros 5% 19% 3% 20% 5,944 6,347 24% 26% 52% 51% H H South America North America Asia Europe H ( * ) H Sales by market As a % of sales Breakdown of original equipment sales by customer As a % of original equipment sales, including joint ventures consolidated proportionally 15% Aftermarket (2) 22% American 30% German 6,347 million 85% Original equipment 17% French 5% Other 26% Asian (*) Figures for first-half 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the impact of the first-time application of the new consolidation standards as from January 1, 2014 and a change in the presentation in the statement of income of the share in net earnings of equity-accounted companies (see Note 1.4 to the condensed consolidated financial statements for the six months ended June 30, 2014 on page 23, and Financial Glossary on page 48). (1) See Financial Glossary, page 48. (2) Including miscellaneous sales and tooling. 2 Valeo 2014 Half-year Financial Report

5 Key figures 2 Research and Development expenditure, net In millions of euros and as a % of sales, net of customer contributions, subsidies and tax credits Net attributable income In millions of euros and as a % of sales % 5.5% 3.2% 4.1% H ( * ) H H H Operating margin (1) In millions of euros and as a % of sales, including share in net earnings of equity-accounted companies Basic earnings per share In euros % 7.0% H ( * ) H H H Industry data Breakdown of sales by Business Group In millions of euros and as a % of sales EBITDA (1) by Business Group In millions of euros 5,944 25% 6,347 28% % 18% % 28% % 26% H ( * ) H H ( * ) H Powertrain Systems Thermal Systems Comfort & Driving Assistance Systems Visibility Systems Others (*) Figures for first-half 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the impact of the first-time application of the new consolidation standards as from January 1, 2014 and a change in the presentation in the statement of income of the share in net earnings of equity-accounted companies (see Note 1.4 to the condensed consolidated financial statements for the six months ended June 30, 2014 on page 23, and Financial Glossary on page 48). (1) See Financial Glossary, page Half-year Financial Report Valeo 3

6 Key figures 2 Cash flow and financial structure EBITDA (1) In millions of euros and as a % of sales Free cash flow (1) In millions of euros % 11.7% H ( * ) H H ( * ) H Investments In millions of euros and as a % of sales Net debt (1) In millions of euros and as a % of consolidated stockholders' equity, excluding non-controlling interests % 7.1% 21% 22% H ( * ) H H ( * ) H After the dividend payment, the acquisition of Osram's 50% stake in joint venture Valeo Sylvania and the share buyback program. Other profitability indicators ROCE (Return on Capital Employed) (1) ROA (Return on Assets) (1) 28% 29% 18% 19% H ( * ) H H ( * ) H (*) Figures for first-half 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the impact of the first-time application of the new consolidation standards as from January 1, 2014 and a change in the presentation in the statement of income of the share in net earnings of equity-accounted companies (see Note 1.4 to the condensed consolidated financial statements for the six months ended June 30, 2014 on page 23, and Financial Glossary on page 48). (1) See Financial Glossary, page Valeo 2014 Half-year Financial Report

7 3 INTERIM MANAGEMENT REPORT 3.1 Order intake (1) The order intake surged 25% in the first half of 2014 to 9.1 billion euros, balanced between Asia (41%, including China which alone accounts for 27% of the order intake worldwide), Europe (40%) and the rest of the world, confirming the Group's high growth potential. In addition, innovative products accounted for 30% of the order intake worldwide. 3.2 Sales Global automotive production up 4% despite the sharp decline in production in South America Growth in automotive production was balanced across the main production regions. Production rose in Asia (up 6%), driven by China (up 11%), and benefited from the recovery in Europe (up 4%) and continued growth in North America (up 3%). Production in South America fell sharply however (down 17%). In the first half of the year, sales were up 10% on a like-for-like basis Consolidated sales came in at 6,347 million euros, up 10% on a like-for-like basis (7% as reported) Changes in exchange rates and Group structure had a negative impact of 3.1% and a positive impact of 0.4%, respectively: ychanges in exchange rates reflect the significant depreciation of emerging-market currencies as well as the yen and the dollar against the euro; ychanges in Group structure were mainly attributable to the sale of the Access Mechanisms business (effective April 30, 2013) and the acquisition (effective January 1, 2014) of Osram's 50% stake in joint venture Valeo Sylvania, which is now fully consolidated. Sales (in millions of euros) ( * ) % change First-half First-quarter Second-quarter % change on a like-for-like basis % change on a like-for-like basis % change on a like-for-like basis TOTAL 6,347 5,944 +7% +10% +11% +8% of which: yoriginal equipment 5,432 5,037 +8% +10% +13% +8% yaftermarket % +3% +4% +2% ymiscellaneous % +16% -13% +43% (*) Sales figures for first-half 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the first-time application of the new consolidation standards as from January 1, (1) See Financial Glossary, page Half-year Financial Report Valeo 5

8 Interim management report 3 Sales Original equipment sales came out at 5,432 million euros (85% of total sales), up 10% on a like-for-like basis. This performance reflects the gradual entry into production of the high order intake recorded by the Group over the last three years. In the second quarter, 8% like-for-like growth reflects a high prior-period comparison basis due to the upturn in global automotive production as from the second quarter of Aftermarket sales (12% of total sales) advanced 3% on a like-for-like basis on the back of continued expansion in Asia and emerging countries and despite unfavorable climatic conditions in Europe adversely affecting the Group's business. Miscellaneous sales (3% of total sales), mainly consisting of tooling revenues related to the launch of new projects, increased by 16% like for like. Original equipment sales jumped 10% on a like-for-like basis (including 36% growth in China), beating global automotive production by nearly 7 percentage points Valeo delivered market-beating growth in all production regions, buoyed by its improved product mix combined with technical innovations (new functionalities and market penetration of the Group's CO 2 emissions reduction and intuitive driving technologies), its positioning with regard to German and Asian customers, the growth of its business in Asia and emerging countries, and market share gains in North America. This reflects the gradual entry into production of the high order intake over the last three years. Original equipment sales (by destination, in millions of euros) (1) growth (2) Original equipment sales First-half Automotive production sales growth (3) Market outperformance TOTAL 5,432 5, % +3.6% +6.7 PTS Europe and Africa 2,834 2, % +4% +6 pts North America 1, % +3% +3 pts Asia (excl. China), Middle East & Oceania % +2% +8 pts China % +11% +25 pts South America % -17% +4 pts (1) Sales figures for first-half 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the first-time application of the new consolidation standards as from January 1, (2) Like-for-like. (3) LMC & Valeo estimates. The Group consistently outperformed the market in the main automotive production regions with the exception of China, where original equipment sales growth largely outpaced production in the region (up 25 percentage points). yin China, original equipment sales were up 36% on a like-for-like basis, beating automotive production by 25 percentage points reflecting the Group's high level of investments in this region and the gradual entry into production of the high order intake over the past few years; yin Europe (including Africa), like-for-like original equipment sales rose 10%, beating automotive production by 6 percentage points, driven by the appeal of Valeo's portfolio of high-tech products and a favorable customer mix; y In North America, like-for-like original equipment sales climbed 6%, outpacing automotive production by 3 percentage points, thanks to a favorable customer mix and market share gains. 6 Valeo 2014 Half-year Financial Report

9 Interim management report Earnings 3 Geographic repositioning (1) In the first half of 2014, Valeo continued to realign its businesses geographically: ythe share of total original equipment sales produced in Asia and emerging countries (including Eastern Europe and Mexico) accounted for 53%; ythe share of original equipment sales produced in North America increased by 3 percentage points to 20%; ythe share of original equipment sales produced in Western Europe decreased by 1 percentage point to 37%. Balanced customer portfolio (1) German and Asian customers' contribution remained stable at 30% and 26% of original equipment sales, respectively. American customers accounted for 22% of original equipment sales, up by 2 percentage points. French customers accounted for 17% of original equipment sales. 3.3 Earnings Operating margin (2) up 15% to 442 million euros, or 7.0% of sales; Net income up 38% to 262 million euros, or 4.1% of sales Gross margin advanced 7% on first-half 2013 to 1,086 million euros, or 17.1% of sales, up 0.1 percentage points on first-half 2013, reflecting: ya positive volume effect (impact of 0.8 percentage points); yeconomic difficulties in South America leading to the depreciation of local currencies, particularly the Brazilian real, and the 17% decline in production volume (negative impact of 0.3 percentage points); yincreases in depreciation and production overheads necessary for the launch of new projects against a backdrop of strong organic growth (negative impact of 0.2 percentage points). Operating margin (2) increased 15% on first-half 2013 to 442 million euros, or 7.0% of sales, up 0.6 percentage points, reflecting: ysound management of selling and administrative expenses offsetting the increase in net research and development (R&D) expenditure required to support growth: yselling and administrative expenses increased 3% to 326 million euros, or 5.1% of sales, down 0.2 percentage points on first-half Administrative and general expenses alone represented 3.5% of sales in first-half 2014, yvaleo is continuing its R&D efforts in response to the high level of order intake. Net R&D expenditure rose 10% to 350 million euros, or 5.5% of sales, edging up by 0.2 percentage points compared with first-half 2013; ythe remeasurement to fair value of the Group's previouslyheld interest in Valeo Sylvania and non-recurring expenses for a net impact of 15 million euros. The Group s operating income (3) advanced 19% to 408 million euros, or 6.4% of sales, after taking into account other expenses, restructuring costs and impairment losses on non-current assets in the amount of 34 million euros. (1) Including joint ventures consolidated proportionally. (2) Including share in net earnings of equity-accounted companies, see Financial Glossary, page 48. Change in the presentation of the consolidated statement of income With the application of IFRS 11, the Group changed the presentation of the consolidated statement of income with the definition of a new indicator "Operating margin including share in net earnings of equity-accounted companies" which not only includes the share in net earnings of associates but also the share in net earnings of joint ventures which are now accounted for by the equity method. All companies consolidated using the equity method, either joint ventures or associates (which were already previously consolidated using the equity method), contribute to the Group's operations and belong to one of its four operating segments. As a result, the Group considered that it would be more appropriate to recognize the share in net earnings of equity-accounted companies within operating income. Since the operating margin is one of the main indicators used to monitor the Group's performance, the share in net earnings of equity-accounted companies is now included in a new statement of income account, "Operating margin including share in net earnings of equity-accounted companies". (3) See Financial Glossary, page Half-year Financial Report Valeo 7

10 3 Cash Interim management report flow and financial structure The cost of net debt totaled 47 million euros, slightly down on first-half Net income surged 38% compared to first-half 2013, coming in at 262 million euros, or 4.1% of sales. The effective tax rate came out at 21% following the recognition of a portion of deferred tax assets due to the improved profitability of the Group's North America-based operations. Excluding non-recurring items, net income (1) increased 21% on first-half 2013 to 278 million euros, or 4.4% of sales. The return on capital employed (1) (ROCE) and return on assets (1) (ROA) increased by 1 percentage point to 29% and 19%, respectively. 3.4 Cash flow and financial structure Free cash flow of 153 million euros In first-half 2014, the Group's free cash flow (1) increased to 153 million euros compared with a free cash flow of 133 million euros for the same period in 2013, despite the increase in working capital requirement (35 million euros). This chiefly reflects: yan 11% increase in EBITDA (1) to 740 million euros (up 0.5 percentage points); ycontained investment outflows of 451 million euros (7.1% of sales) comprising: yinvestments to increase production capacities totaling 294 million euros (recorded), in line with first-half 2013; and ycapitalized development costs totaling 150 million euros (recorded), or 2.4% of sales, in line with first-half Net cash flow (1) of million euros (net outflow) and reflects: yfinancial expenses totaling 64 million euros; and yexpenses related to other financial items amounting to 381 million euros, including in particular the dividend payment (141 million euros) in first-half 2014 (as opposed to the second half in previous years), the acquisition cost of Osram's 50% stake in joint venture Valeo Sylvania (110 million euros) and the share buyback payment (74 million euros). Strong financial position Net debt (1) stood at 525 million euros at June 30, 2014 versus 351 million euros at December 31, 2013 (446 million euros at June 30, 2013) including the dividend payment in first-half 2014, the acquisition cost of Osram's 50% stake in joint venture Valeo Sylvania and the share buyback program. The leverage ratio (net debt/ebitda) came out at 0.4 times EBITDA and the gearing ratio (net debt/stockholders' equity excluding non-controlling interests) stood at 22% of equity. At June 30, 2014, the Group s debt had an average interest rate of 4.91% and an average maturity of 5.5 years. (1) See Financial Glossary, page Valeo 2014 Half-year Financial Report

11 Interim management report Segment reporting Segment reporting Strong growth in the Comfort & Driving Assistance Systems Business Group and consistent above-market growth in each of the other Business Groups As is the case for the consolidated Group, the sales performance for the Business Groups reflects the specific product, geographic and customer mix and the relative weighting of the aftermarket in their activity as a whole. Sales ( * ) (in millions of euros) First-half ( ** ) Sales growth OE sales growth on a like-for-like basis Comfort & Driving Assistance Systems 1,124 1,192-6% +16% Powertrain Systems 1,696 1,591 +7% +8% Thermal Systems 1,814 1,703 +7% +10% Visibility Systems 1,801 1, % +9% (*) Including intersegment sales. (**) Sales figures for first-half 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the first-time application of the new consolidation standards as from January 1, Sales for the Comfort & Driving Assistance Systems Business Group were impacted by the sale of the Access Mechanisms business (effective April 30, 2013). In firsthalf 2014, the Business Group's original equipment sales increased by 16% on a like-for-like basis, lifted by the market's growing interest in intuitive driving products (vision, radar and parking assistance systems). Like-for-like original equipment sales for the Powertrain Systems, Thermal Systems and Visibility Systems Business Groups posted balanced growth of 8%, 10% and 9%, respectively, spurred by the ramp-up of innovative solutions which help to reduce CO 2 emissions using Stop-Start, air intake module and LED technology. Total sales for the Visibility Systems Business Group increased 20% following the acquisition (effective January 1, 2014) of Osram's 50% stake in joint venture Valeo Sylvania, which is now fully consolidated. In the first half of the year, EBITDA (1) came out at 740 million euros, or 11.7% of sales EBITDA (in millions of euros) First-half ( * ) % change Comfort & Driving Assistance Systems % as a % of sales +14.2% +12.6% +1.6 pts Powertrain Systems % as a % of sales +12.4% +10.9% +1.5 pts Thermal Systems % as a % of sales +11.0% +11.4% -0.4 pts Visibility Systems % as a % of sales +9.3% +9.7% -0.4 pts (*) The Business Groups' EBITDA figures for the six months ended June 30, 2013 differ from the amounts presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since they have been adjusted to reflect the first-time application of the new consolidation standards as from January 1, Sales for the Visibility Systems Business Group are impacted by changes in accounting standards and changes in scope of consolidation relating to the acquisition of Osram's 50% stake in joint venture Valeo Sylvania, which has been fully consolidated as from January 1, (1) See Financial Glossary, page 48. Based on a comparable scope of consolidation (full consolidation of Valeo Sylvania), the Visibility Systems Business Group's EBITDA margin would have been 8.1% of sales in first-half 2013 compared with the 9.7% margin reported. It would have increased by 1.2 percentage points in first-half 2014 to 9.3% of sales, reflecting the Business Group's, and more specifically Valeo Sylvania's, significantly improved performance during the six months ended June 30, Half-year Financial Report Valeo 9

12 Interim management report outlook outlook Based on the following assumptions: yglobal automotive production up by approximately 3% including an increase in automotive production in Europe of around 2%, and yraw material prices and currencies in line with current levels; Valeo has set the following objectives for 2014: ysales growth outperformance in the main production regions, yoperating margin (1) slightly higher than 7% of sales. 3.7 Highlights Valeo joins the CAC 40 index On June 23, 2014, Valeo joined the benchmark CAC 40 stock exchange index Debt management and ratings In order to extend the average maturity of its debt and take advantage of record low market interest rates, on January 22, 2014 Valeo issued a 700 million euro bond. This bond is redeemable in January 2024 and pays a coupon of 3.25%. The new bond issue allowed the Group to buy back and cancel 354 million euros worth of outstanding 2017 bonds and 227 million euros worth of outstanding 2018 bonds, by means of an exchange transaction, On January 2, 2014, Moody s confirmed Valeo's "Baa3 longterm corporate credit rating with a stable outlook and its Prime-3" short-term corporate credit rating. On April 3, 2014, Standard & Poor's confirmed Valeo's "BBB long-term corporate credit rating with a stable outlook and its A-2" short-term corporate credit rating Acquisitions and disposals (2) On January 9, 2014, an addendum to the partnership agreement signed with Valeo Samsung Thermal Systems Co. Ltd transferred control of this company to Valeo. Previously a joint venture, Valeo Samsung Thermal Systems Co. Ltd has been fully consolidated in the Group's consolidated financial statements as of this date. and contributed 21 million euros to Group sales in the first half of On January 22, 2014, Valeo confirmed the closing of the acquisition of Osram s 50% stake in Valeo Sylvania in accordance with the agreement announced on June 18, In early January 2014, Osram GmbH exercised its put option to sell Valeo its entire stake in their North American joint venture for a price of 104 million US dollars (equivalent to three times 2014 EBITDA as estimated by Valeo). Valeo Sylvania is now fully owned by Valeo. The acquisition of the shares in Valeo Sylvania not already owned by the Group represents a major strategic step in bolstering Valeo's global leadership in automotive lighting systems. On February 18, 2014, Valeo completed the sale of its entire interest in India-based 50%-50% joint venture (part of the former Access Mechanisms business) to Minda Capital Limited. In July 2014, the Chinese authorities approved an addendum to the agreement signed with the joint venture Nanjing Valeo Clutch Co. Ltd which transferred control of this company to Valeo. Nanjing Valeo Clutch Co. Ltd will be fully consolidated in the Group s consolidated financial statements as from July 1, Opening of new sites On February 19, 2014, Valeo opened a new plant in Oragadam, India as part of its emerging market development strategy. On May 30, 2014, in line with the same development strategy, Valeo opened its 26 th plant in China. The Shanghai-based plant has a surface area of almost 80,000 sq.m, making it the Group's biggest. (1) Including share in net earnings of equity-accounted companies, see Financial Glossary, page 48. (2) The accounting impacts of these events are presented in the notes to the condensed interim consolidated financial statements for the six months ended June 30, Valeo 2014 Half-year Financial Report

13 Interim management report Highlights Innovations and awards As a major focus of Valeo's development strategy, innovation represents nearly a third of the Group's order intake. For the second year in a row, Valeo was named one of the 100 most innovative companies in the world in Thomson-Reuters list of the Top 100 Global Innovators in To meet motorists expectations, Valeo focuses on developing products that reduce CO 2 emissions, and intuitive driving, which brings together the connected vehicle, autonomous driving and the human-machine interface for the mass market. The purpose of the main technological developments is to improve the efficiency of internal combustion engines, electrify powertrains, reduce the amount of energy used by the vehicle s various functions, develop lighter components and improve passenger and driver safety. Cooperation agreement Valeo signed a cooperation, development and license agreement with LeddarTech, a manufacturer of detection and ranging solutions combining infrared LED and time-offlight measurement technology. This agreement will enable Valeo to offer its automaker customers new active safety solutions, particularly in the field of emergency braking in urban areas. On June 18, Valeo and Safran gave a progress report on the research partnership signed in September 2013: a 360 close-range visibility device for military vehicles, based on Valeo technology, and a driver attention monitoring system using Safran's image recognition technology. Valeo also plans to use infrared imaging, a technology in which Safran is market leader, to improve driver visibility in difficult conditions, such as at night or in fog. This will allow Valeo to serve automakers whose vehicles need to be able to detect pedestrians at night in order to receive a favorable Euro NCAP (1) rating. A strong presence at industry trade shows For the first time ever, Valeo took part in the 2014 Consumer Electronics Show (CES), which was held in Las Vegas from January 6 to 10. The Group made an impression with its Valet Park4U system, which allows drivers to leave their car at the entrance of a car park and let the car find a suitable space to park itself, by simply activating the automatic parking feature remotely using their smartphone. In another first, the Group also attended the Automotive World Show in Tokyo from January 15 to 17. Valeo showcased a demo car fitted with a Laser Scanner, a solution used to detect and distinguish stationary objects from pedestrians. This technology is a key component of emergency braking systems, which are to be included as part of Euro NCAP's (1) ratings as of From April 20 to 29, Valeo attended the Auto China motor show in Beijing, where the Group, which celebrates 20 years in China this year, presented the main innovations it will be using as a springboard for its expansion in Asia and, in particular, China. These innovations include the i-stars Stop-Start system (1), the FullLED lighting systems (1), the e-skin2 console (1) as well as solutions to improve in-vehicle air quality. Valeo also attended the Automotive Engineering Exposition in Pacifico Yokohama, Japan, a trade show dedicated entirely to industry professionals. The Group presented its latest innovations, including the Laser Scanner, the Themis valve (1) and the electric supercharger (1). Tech Days and Ride & Drive In the first half of 2014, Valeo organized more "Tech Days" and "Ride & Drive" events. The purpose of the events is to offer the Group s customers the solutions best suited to each market: yon February 6, at a "Ride & Drive" event organized for Fiat Chrysler Automobiles in Turin, Valeo presented 14 demo cars fitted with innovative CO 2 emissions reduction, hybridization and intuitive driving solutions; yon February 21, Valeo organized a "Tech Day" for Suzuki Motor Corporation in Japan in order to showcase its innovations in the fields of CO 2 reduction and intuitive driving. Valeo hopes to reap the benefits of Suzuki's growth strategy in India and emerging countries; yon May 15, at its "Tech Day" at Dongfeng Peugeot Citroen Automobile Company (DPCA), Valeo presented its latest innovations that will support the Group's development in China; yon June 4, Valeo organized a "Ride & Drive" with Toyota Motor Europe's R&D and Purchasing teams, during which the Group presented its technologies in the areas of engine efficiency, safety, comfort and driving assistance. (1) See Product Glossary, page Half-year Financial Report Valeo 11

14 3 Stock Interim management report market data Awards During first-half 2014, Valeo received several awards: yon March 13, Valeo received the technological breakthrough award from the journalists of the French Automotive Press Association (Association française de la presse automobile) for its Valet Park4U system; yon April 7, Valeo received the PACE (Premier Automotive Suppliers' Contribution to Excellence) Award from Automotive News for its innovative "Back-Over Protection System", which offers the advantages of both ultrasonic park assist sensors and a rear camera, while providing added comfort and safety for reversing maneuvers: yon May 22, the Czechowice PTS plant in Poland received a Gold Award from Ford Motor Company for its performance in terms of quality, logistics and costs. This Valeo plant manufactures starters for Ford Fiesta, B-Max, Focus, C-Max and Mondeo vehicles intended for the European, US and Asian markets; yon June 17, PSA Peugeot Citroën awarded Valeo four distinctions, comprising two "Best Plants of 2013" for the quality of communication with the PTS plant in Czechowice, Poland and the THS plant in Athis de l'orne, France, a special distinction for Valeo's commitment to the automaker's "Back in the Race" plan and, finally, special recognition for Valeo's contribution to the Peugeot 308's "European Car of the Year" award. Finally, on June 2, Valeo announced it would be launching the second edition of "Valeo Innovation Challenge" in which the Group offers young engineers worldwide the opportunity to create the equipment that will make cars more intelligent and intuitive by 2030, once again demonstrating the importance the Group places on research and development. 3.8 Stock market data Share performance During the first half of 2014, the average closing price of the Valeo share was euros, with a high of euros on March 5 and April 4 and a low of euros on January 6. Over the first six months of the year, the Valeo share rose 22% from euros on December 31, 2013 to a closing price of euros on June 30, The Valeo share (up 22%) outperformed the CAC 40 index (up 3%) by 19 percentage points. The share outperformed the DJSTOXX Auto index (up 6.5%) by 15.5 percentage points. Changes in ownership structure On June 30, the Company s share capital comprised 79,462,540 shares, unchanged from December 31, In accordance with Article et seq. of the General Regulation of the French financial markets authority (Autorité des marchés financiers AMF), the number of voting rights declared was 84,675,837. Excluding treasury stock, the number of voting rights comes out at 83,160,132. To the best of the Company s knowledge, its main shareholder is the Caisse des dépôts et consignations group including Bpifrance Participations (5.16% of share capital and 9.68% of voting rights). At June 30, 2014, Valeo held 1,515,705 treasury shares (i.e., 1.91% of the share capital without voting rights) versus 1,819,722 shares at December 31, 2013 (2.29%). Ownership structure at June 30, % (9.68%) Caisse des Dépôts et consignations (CDC) including: 3.33% (6.25%) Bpi Participations SA (formerly FSI) 1.83% (3.43%) CDC Savings Funds Number of shares 79,462,540 Number of voting rights 84,675, % (90.32%) Other (1) % of share capital (% of voting rights) (1) Including 1,515,705 treasury shares (1.91% of the share capital). 12 Valeo 2014 Half-year Financial Report

15 Interim management report Stock market data 3 Stock market data First-half Market capitalization at period-end (in billions of euros) Number of shares 79,462,540 79,462,540 79,462,540 79,269,596 Highest share price (in euros) Lowest share price (in euros) Average share price (in euros) Share price at period-end (in euros) Per share data (in euros) First-half 2014 First-half 2013 First-half 2012 First-half 2011 Earnings per share Earnings per share excluding non-recurring items (in euros) Net dividend (1) (1) Eligible for the 40% tax allowance provided for in Article of the French Tax Code (Code Général des Impôts CGI) and subject to a 21% flat-rate tax prepayment on distributed revenues, deducted at source by the paying agent (article 117 quarter i.1 of said Code and article 9 of the amending Finance Law for 2013). These figures are provided for information purposes only. Please contact your financial advisor to discuss the specific tax and social security treatment of your shares. Share price and monthly trading volumes Euros 120 Trading Volumes (Euronext and MTF) ,000, ,000, ,000, ,000, ,000,000 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J Valeo STOXX 600 A&AP (European automobiles and parts index) CAC 40 Monthly trading Volumes 2014 Half-year Financial Report Valeo 13

16 3 Risk Interim management report factors and related party transactions Investor relations Institutional shareholder relations Contact Thierry Lacorre Financial Relations Director Valeo 43, rue Bayen Paris Cedex 17 France Tel: +33 (0) Fax: +33 (0) Individual shareholder relations Contact Valeo 43, rue Bayen Paris Cedex 17 France Tel: +33 (0) (toll-free from landlines in France) Fax: +33 (0) Provisional financial communication calendar ythird-quarter 2014 sales: October 21, 2014 yfull-year 2014 results: second half of February 2015 yfirst-quarter 2015 sales: second half of April 2015 yfirst-half 2015 results: second half of July Risk factors and related party transactions Risk factors The risk factors are identical to those identified in Chapter 2 of the 2013 Registration Document. Related party transactions There were no significant changes in related party transactions during the first half of Valeo 2014 Half-year Financial Report

17 4 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, CONSOLIDATED STATEMENT OF INCOME CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CASH FLOWS CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 21 Note 1 Accounting policies 21 Note 2 Scope of consolidation 28 Note 3 Segment reporting 31 Note 4 Operating data 33 Note 5 Personnel expenses and employee benefits 35 Note 6 Property, plant and equipment and intangible assets 36 Note 7 Other provisions and contingent liabilities 37 Note 8 Financing and financial instruments 38 Note 9 Associates and joint ventures 42 Note 10 Income taxes 43 Note 11 Stockholders' equity and share buyback program 44 Note 12 Breakdown of cash flows Half-year Financial Report Valeo 15

18 4 Consolidated CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS statement of income 4.1 Consolidated statement of income (in millions of euros) Notes First-half 2014 First-half 2013 restated (1) SALES 4.1 6,347 5,944 Cost of sales 4.2 (5,261) (4,933) GROSS MARGIN 1,086 1,011 % of sales 17.1% 17.0% Research and Development expenditure, net 4.3 (350) (318) Selling expenses (103) (97) Administrative expenses (223) (221) OPERATING MARGIN % of sales 6.5% 6.3% Share in net earnings of equity-accounted companies OPERATING MARGIN including share in net earnings of equity-accounted companies % of sales 7.0% 6.4% Other income and expenses 4.4 (34) (41) OPERATING INCOME including share in net earnings of equity-accounted companies Interest expense (52) (55) Interest income Other financial income and expenses (20) (21) INCOME BEFORE INCOME TAXES Income taxes 10 (65) (68) NET INCOME FOR THE PERIOD Attributable to: yowners of the Company ynon-controlling interests Earnings per share: ybasic earnings per share (in euros) ydiluted earnings per share (in euros) (1) The consolidated statement of income for first-half 2013 differs from that presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since it has been adjusted to reflect the impacts of applying the new consolidation standards as from January 1, 2014 on a retrospective basis, and a change in the presentation of the share in net earnings of equity-accounted companies in the statement of income (see Notes and 1.4). The Notes are an integral part of the condensed interim consolidated financial statements. 16 Valeo 2014 Half-year Financial Report

19 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of comprehensive income Consolidated statement of comprehensive income (in millions of euros) First-half 2014 First-half 2013 restated (1) NET INCOME FOR THE PERIOD Share of changes in comprehensive income from equity-accounted companies recycled to income 2 2 o/w income taxes - - Translation adjustment 39 (92) Cash flow hedges: ygains (losses) taken to equity 6 (7) y(gains) losses transferred to income for the period 3 2 o/w income taxes (1) 1 Remeasurement of available-for-sale financial assets - - o/w income taxes - - Other comprehensive income (loss) recycled to income 50 (95) Share of changes in comprehensive income from equity-accounted companies not recycled to income (4) 8 o/w income taxes - - Actuarial gains (losses) on defined benefit plans (74) 53 o/w income taxes 16 (1) Other comprehensive income (loss) not recycled to income (78) 61 OTHER COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD, NET OF TAX (28) (34) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Attributable to: yowners of the Company ynon-controlling interests 19 8 (1) The consolidated statement of comprehensive income for first-half 2013 differs from that presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since it has been adjusted to reflect the impacts of applying the new consolidation standards as from January 1, 2014 on a retrospective basis (see Notes and 1.4). The Notes are an integral part of the condensed interim consolidated financial statements Half-year Financial Report Valeo 17

20 4 Consolidated CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS statement of financial position 4.3 Consolidated statement of financial position (in millions of euros) Notes June 30, 2014 December 31, 2013 restated (1) ASSETS Goodwill (2) 6.1 1,313 1,210 Other intangible assets Property, plant and equipment 2,284 2,080 Investments in equity-accounted companies Other non-current financial assets Deferred tax assets NON-CURRENT ASSETS 5,034 4,630 Inventories, net Accounts and notes receivable, net 1,777 1,460 Other current assets Taxes recoverable Other current financial assets Cash and cash equivalents ,408 1,500 Assets held for sale - 2 CURRENT ASSETS 4,511 4,242 TOTAL ASSETS 9,545 8,872 EQUITY AND LIABILITIES Share capital Additional paid-in capital 1,434 1,434 Translation adjustment Retained earnings STOCKHOLDERS EQUITY 2,413 2,381 Non-controlling interests STOCKHOLDERS EQUITY INCLUDING NON-CONTROLLING INTERESTS 2,581 2,528 Provisions for pensions and other employee benefits long-term portion Other provisions long-term portion Long-term debt long-term portion ,524 1,491 Other financial liabilities long-term portion 6 7 Subsidies and grants long-term portion Deferred tax liabilities NON-CURRENT LIABILITIES 2,629 2,448 Accounts and notes payable 2,695 2,347 Provisions for pensions and other employee benefits current portion Other provisions current portion Subsidies and grants current portion 7 13 Taxes payable Other current liabilities Current portion of long-term debt Other financial liabilities current portion 9 21 Short-term debt CURRENT LIABILITIES 4,335 3,896 TOTAL EQUITY AND LIABILITIES 9,545 8,872 (1) The consolidated statement of financial position for December 31, 2013 differs from that presented in the 2013 consolidated financial statements published in February 2014 since it has been adjusted to reflect the impacts of applying the new consolidation standards as from January 1, 2014 on a retrospective basis (see Notes and 1.4). (2) The amount of goodwill for December 31, 2013 differs from that presented in the 2013 consolidated financial statements published in February 2014 since it has been adjusted to reflect the final purchase price accounting for Eltek Electric Vehicles (see Note ). The Notes are an integral part of the condensed interim consolidated financial statements. 18 Valeo 2014 Half-year Financial Report

21 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of cash flows Consolidated statement of cash flows (in millions of euros) Notes First-half 2014 First-half 2013 restated (1) CASH FLOWS FROM OPERATING ACTIVITIES Net income for the period Share in net earnings of equity-accounted companies (32) (8) Net dividends received from equity-accounted companies Expenses (income) with no cash effect Cost of net debt Income taxes (current and deferred) GROSS OPERATING CASH FLOWS Income taxes paid (74) (67) Changes in working capital 12.2 (7) 49 NET CASH FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of intangible assets (169) (154) Acquisitions of property, plant and equipment (288) (273) Disposals of property, plant and equipment and intangible assets 6 6 Net change in non-current financial assets - (8) Acquisitions of investments with gain of control, net of cash acquired 12.3 (107) (1) Disposals of investments with loss of control, net of cash transferred NET CASH USED IN INVESTING ACTIVITIES (557) (259) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to owners of the Company (132) - Dividends paid to non-controlling interests in consolidated subsidiaries (9) (13) Issuance of share capital - - Sale (purchase) of treasury stock (71) 23 Issuance of long-term debt Interest paid (69) (80) Interest received 5 6 Bond exchange premium 12.5 (91) - Repayments of long-term debt 12.5 (584) (323) Acquisitions of equity interests without gain of control - - NET CASH USED IN FINANCING ACTIVITIES (250) (367) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 13 (4) NET CHANGE IN CASH AND CASH EQUIVALENTS (162) (10) NET CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,247 1,207 NET CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,085 1,197 o/w: ycash and cash equivalents 1,408 1,440 yshort-term debt (323) (243) (1) The consolidated statement of cash flows for first-half 2013 differs from that presented in the consolidated financial statements for the six months ended June 30, 2013 published in July 2013 since it has been adjusted to reflect the impacts of applying the new consolidation standards as from January 1, 2014 on a retrospective basis (see Notes and 1.4). The Notes are an integral part of the condensed interim consolidated financial statements Half-year Financial Report Valeo 19

22 4 Consolidated CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS statement of changes in stockholders equity 4.5 Consolidated statement of changes in stockholders equity Number of shares 76,103,667 (in millions of euros) Share capital Additional paid-in capital Translation adjustment Retained earnings The Notes are an integral part of the condensed interim consolidated financial statements. 20 Valeo 2014 Half-year Financial Report Total stockholders' equity including non-controlling interests restated (1) Stockholders' equity Non-controlling interests STOCKHOLDERS' EQUITY AT JANUARY 1, , , ,190 Dividends paid (115) (115) (13) (128) 888,611 Treasury stock ,992,278 Capital increase Share-based payment Other movements TRANSACTIONS WITH OWNERS (81) (81) (12) (93) Net income for the period Other comprehensive income (loss), net of tax - - (87) 59 (28) (6) (34) TOTAL COMPREHENSIVE INCOME (LOSS) - - (87) STOCKHOLDERS EQUITY AT JUNE 30, , , ,267 Dividends paid (1) (1) 650,540 Treasury stock ,642,818 Capital increase Share-based payment Other movements TRANSACTIONS WITH OWNERS (1) 28 Net income for the period Other comprehensive income (loss), net of tax - - (78) 48 (30) (1) (31) TOTAL COMPREHENSIVE INCOME (LOSS) - - (78) STOCKHOLDERS EQUITY AT DECEMBER 31, , , ,528 Dividends paid (132) (132) (9) (141) 304,017 Treasury stock (2) (70) (70) - (70) 77,946,835 Capital increase Share-based payment Other movements - - (1) (1) TRANSACTIONS WITH OWNERS (197) (197) 2 (195) Net income for the period Other comprehensive income (loss), net of tax (69) (33) 5 (28) TOTAL COMPREHENSIVE INCOME (LOSS) STOCKHOLDERS EQUITY AT JUNE 30, , , ,581 (1) The consolidated statements of changes in equity for first-half and full-year 2013 differ from those presented in the 2013 interim and annual consolidated financial statements published in July 2013 and February 2014, respectively, since they have been adjusted to reflect the impacts of applying the new consolidation standards as from January 1, 2014 on a retrospective basis (see Notes and 1.4). (2) In first-half 2014, changes in stockholders' equity attributable to treasury stock include the commitment (74 million euros) given to an investment services provider on May 27, 2014 in connection with the share buyback program (see Note 11). Total

23 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Notes to the condensed interim consolidated financial statements Notes to the condensed interim consolidated financial statements The condensed interim consolidated financial statements of the Valeo Group for the six months ended June 30, 2014 include: ythe accounts of Valeo; ythe accounts of its subsidiaries; yvaleo's share in the net assets and earnings of equityaccounted companies (joint ventures and associates). Valeo is an independent group fully focused on the design, production and sale of components, integrated systems and modules for the automotive sector. As a technology company, Valeo proposes innovative products and systems that contribute to the reduction of CO 2 emissions and to the development of intuitive driving. Valeo is one of the world's leading automotive suppliers and is a partner to all automakers across the globe. Valeo is a French legal entity listed on the Paris Stock Exchange, whose head office is at 43, rue Bayen, Paris. Valeo s condensed interim consolidated financial statements were authorized for issue by the Board of Directors on July 24, Note 1 Accounting policies 1.1 Accounting standards applied The condensed interim consolidated financial statements for the six months ended June 30, 2014 are prepared in accordance with IAS 34 Interim Financial Reporting and with the International Financial Reporting Standards (IFRS) and interpretations published by the International Accounting Standards Board (IASB), as adopted by the European Union and effective at January 1, Pursuant to IAS 34, the Notes to these condensed interim financial statements are designed to: yupdate the accounting and financial information contained in the last published consolidated financial statements at December 31, 2013; yinclude new accounting and financial information about significant events and transactions that occurred during the period. These notes therefore discuss significant events and transactions having occurred in the first six months of 2014 and should be read in conjunction with the information set out in the consolidated financial statements for the year ended December 31, 2013 included in the Group's 2013 Registration Document (1). The accounting principles used to prepare the condensed interim consolidated financial statements for the six months ended June 30, 2014 are the same as those used to prepare the 2013 annual consolidated financial statements, except as regards: ychanges in accounting policies relating primarily to the new and amended standards and interpretations described below, effective as of January 1, The impacts of these changes are detailed in Note 1.4; ythe specific measurements described in Note Standards, amendments and interpretations adopted by the European Union and obligatorily applicable for reporting periods beginning on or after January 1, Standards and amendments on consolidation The IASB published the following standards and amendments on consolidation: yifrs 10 Consolidated Financial Statements ; yifrs 11 Joint Arrangements ; yifrs 12 Disclosure of Interests in Other Entities ; yias 27 (revised) "Separate Financial Statements"; yias 28 (revised) Investments in Associates and Joint Ventures ; yamendments to IFRS 10, IFRS 11 and IFRS 12 Transition Guidance ; yamendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities. These standards and amendments on consolidation adopted by the European Union in December 2012 lead to certain adjustments and restatements in the Group's consolidated financial statements. These are discussed in more detail in Note Other standards, amendments and interpretations The IASB also published the following amendments: yamendments to IAS 32 "Financial Instruments: Presentation Offsetting Financial Assets and Financial Liabilities"; (1) The 2013 Registration Document can be consulted on the Group's website ( or on the website of the AMF ( and may be obtained from the Group by writing to the address stated above Half-year Financial Report Valeo 21