Property of Valeo – Duplication prohibited2006 Results and Outlook – February 20071
2006 Results and Outlook
Thierry MorinChairman & CEOThierry MorinChairman & CEOFebruary 13, 2007
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 20072
Agenda
Highlights and key figures
Sales and automotive markets
Results
Cash flow and balance sheet
Business and strategic highlights
Outlook
Highlights &Key Figures
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 20074
2006 Highlights
Customer diversification protects from French OEMs and D3 weakness; noticeable aftermarket recovery
Margin resilience to additional strong raw material headwinds
Competitiveness further strengthened
Portfolio rationalization on its way
Dramatic order intake recovery
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 20075
2006 Key Figures
ChangeIn euro million
Total operating revenues
Operating marginas a % of total op. revenues
Net income as a % of total op. revenues
Basic earnings per share (€)
Net financial debt
2006
10,086
3413.4%
1611.6%
2.10*
968
9,834
3743.8%
1421.4%
1.80*
1 080
+2.6%
-8.8%-0.4 pt
+13.4%+0.2 pt
+16.7%
(112)m
2005
*including €0.47 and €(0.15) related to non strategic activities in 2006 and 2005 respectively
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 20076
Q4-06 Key Figures
ChangeIn euro million
Total operating revenues
Operating marginas % of total op. revenues
Net incomeas % of total op. revenues
Q4-2005Q4-2006
2,514
742.9%
602.4%
2,511
943.7%
411.6%
+0.1%
-21.3%-0.8pt
+46.3%+0.8 pt
Sales & Automotive Markets
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 20078
Total operating revenues
+2.6%In euro million
10,086
2005* 2006
9,834
Perimeter:Currencies:Prices*Volume/mix
+1.5%+0.6%-3.8%
+4.3%*at identical functions
*restated to account for non strategic activities
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 20079
2006 net salesGeographical trends
EuropeNorth America
South America
Asia
*at same perimeter & exchange rate
Light vehicle production
-3%13% of total Sales
--3%3%
+2% 69% of total Sales
+3%+3%
+9% / =*5% of total Sales
+8%+8%
+11% / +4%*11% of total Sales
+9%+9%
Incl. Big 3: -9%
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200710
Customer diversification proves beneficial
+1%
+1%
+14%
-5%-4%
-3%
+6%+3%
-4% +30%
-5% = +9% -6% -1% +15%+3% +11%
20052006
LV production change
= +7%
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200711
Order intake/ OE sales ratio at a 5 year highOrder intake / OE Sales
2001 2002 2003 2004 2005 2006
1.0
1.21.3
1.21.1
1.3
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200712
Order intake- Commodities vs. Innovations
Commodities73%
Innovations27%
Reversible MotorEGR ModuleStARSBlind Spot DetectionNew Clutch Range
Including
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200713
Aftermarket recovery
Sales growth acceleration in 2006- well distributed between OES and IAM
Provides Valeo business model with robust defensive characteristics
-6
-4
-2
0
2
4
6
8
2004 2005 2006
OES IAM TOTAL
In %Change in aftermarket sales
Results*
* As required by IFRS, all 2005 figures are restated mainly to account for non strategic activities
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200715
Results
ChangeIn euro million
Total operating revenues
Gross marginas % of sales
20052006
+2.6%
- 1.3%-0.6 pt
9,834
1,55916.0%
10,086
1,53915.4%
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200716
.
500
1000
1500
2000
2500
3000
3500
4000
.
.
1000
1500
2000
2500
3000
.
1000
2500
4000
5500
7000
8500
Some relief in commodity prices at year-end
1,417
2,247
2696
2007
2,814Average Spot price
200620052004200320022001
Aluminum price ($/T)
1,525
4,577
2001 2002 2003 20052004 2006
5,771
2007
Average Spot price 2006: $6,715
+83%
Copper price ($/T)
1,537
3,871
990
2001 2002 2003 20052004 2006 2007
Average Spot price
Zinc price ($/T)
2006: $2,561
+35%
2006: $3,253
+135%
17
27
37
47
57
67
77
2001 2002 2003 20052004 2006 2007
24.6
26.5
52.5
57.9
Monthly average Brent high
Brent price ($/Barrel)2006: $64.9
+20%
2005: $1,899
2005: $54.2l
2005: $1,382
2005: $3,679
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200717
Compensated 60%+ of raw material headwindsin 2006
Cumulative impact as a % of sales
0
1
2
3
4
5
6
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06
2.2
4.9
2.1
Net impactGross impact
1.3
2006 vs. 2005 Gross: (1.9pt)Net: (0.7pt)
(Index 100: 2003 average)
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200718
Raw material headwinds hide margin consolidation
2,0%
3,0%
4,0%
5,0%
6,0%
2004 2005 2006
Reported operating margin
Operating margin adjusted for cumulative raw material impact
Operating margin adjusted for cumulative raw material impact (2004-2006)
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200719
Footprint rationalisation in 2006
Tunisia
BrazilGuarulhos (VSS)
Diadema andCantareira (VSS)
Consolidation of2 Mateur sites (VECS)
IranSaveh (VEC)
ChinaWuxi (VEMS)Nari (Telma) (VES)Changchun (VC)
Opening
Closure/consolidation- disposals*
Czechowice (VECS)Zielonki (VMA)*Poland
December 2005134 sites (44% in LCC)
December 2006129 sites (45% in LCC)
Lacanche (VECS)France
Bietigheim (VMA*) Germany
Santa Perpetua (VMA*)SpainBond Street (VEC)
USA
Juarez (VMA*)
Mexico
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200720
Footprint realignment in perspective31/03/2001 – 31/12/2006 ; perimeter changes included
LCC/ HCC breakdown170
129
LCC HCC
Industrial sites walkdown
31/03/2001 Closures Acquis. 31/12/2006Disposals Openings
170
-47
-29
+23+12
129110
71
31/03/2001 31/12/2006
60
58
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200721
Purchasing progressively aligned with industrial footprintLCC footprint and production purchasing- 2001- 2006
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
March2001
Dec2001
Dec2002
Dec2003
Dec2004
Dec2005
Dec2006
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
% of purchase amount from LCC % factories in LCC
Value chain
More competitive (manufacturing labor costs, LCC sourcing, logistics)
Less complex
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200722
Quality levels: significantly better and more consistent across the organization
Q4-03 Q4-04 Q4-05 Q4-06
Including 11sites at 0 ppm
Including 15sites at 0 ppm
Customer returns in partsper million
Q4-2006
Q4-2005
Single digit PPM sites
185
5332
15
63 sites (47%)
47 sites (39%)
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200723
Results (cont.)
2005R&D expenses (net) As % of total op. revenues
SG&AAs % of total op. revenues
Total overheadAs % of total op. revenues
Other income & expensesAs % of total op. revenues
Operating incomeAs % of total op. revenues
2006
(542)5.5%
(643)6.5%
(1,185)12.1%
(50)-0.5%
3243.3%
Change
(545)5.4%
(653)6.5%
(1,198)11.9%
(70)-0.7%
2712.7%
+0.6% (0.1 pt)
+1.7%=
+1.1%(0.2 pt)
+44.0%(0.2 pt)
-16.4%(0.6pt)
In euro million
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200724
Operating margin walkdownIn euro million
RawMaterials
2005
FactoryProductivity
Overhead
374 (185)
+115+20
+17
341
2006
Offsettingactions
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200725
Results (cont.)
ChangeIn euro million
Operating income
Cost of net debtOther financial inc./(expenses)
Income before taxes
TaxesEffective tax rate
Associates and minority interests
Non strategic activities
Net income
2005324
(52)(52)
220
(66)30.0%
(0)
(12)
142
2006271
(57)(9)
205
(75)36.6%
(5)
36
161
-16.4%
+9.6%nm
-6.8%
+13.6%+6.6pt
nm
nm
+13.4%
Cash Flow & Balance sheet
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200727
Net financial debt walkdownin euro million
Net debt@ Jan. 1, 2006
Freecash flow
VMAdisposal
Otherdisposals
Others
Net debt@ Dec.31, 2006
Dividends
9681,080
-26 +89
-122-31
-22
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200728
Inventory management
6.1%6.4%
654
2005* 2006
6.4%
647
In euro million and % of total operating revenues
* Including VMA
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200729
Negative working capital at year end
2004 2005 2006
In euro million and % of total operating revenues
101
69
(12)2.2% 0.7%(0.1)%
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200730
Gearing down 5 ppt in H2-06in euro million
1,551
Gearing: 81% Gearing: 63% Gearing: 60% Gearing: 55%
1,263
1,717
1,080
1,742
1,053
1,752
968
30/06/2005 31/12/2005 30/06/2006 31/12/2006
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200731
Higher asset turn
2,2
2,3
2,4
2,5
2,6
2,7
2,8
2,9
3
3,1
3,2
2005 20062
2,5
3
3,5
4
4,5
5
5,5
6
Capital Employed* Asset turn (X)
2.7 2.5
3.8 4.0
In euro billion
* Excluding goodwill
Business &Strategic Initiatives
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200733
Rewarded innovations
2006 Nissan Global Supplier award for Innovation (ValeoClimate Control Japan)
Automechanika Innovation award for Power Line Communication
StARS winner of the 2006 PACE Award (European products category)
Blind Spot Detection System finalist at Pace Award 2007
First Park4U contractfor Volkswagen
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200734
Valeo adds value in Powertrain Efficiency
Power onDemand
Hybridization
ThermalManagement
EngineOperation
TransmissionAutomation
- 10-15%
- 4%
- 3%
- 15-20%
- 5%
- 6%
- 40% Feasible!
CAMLESS SystemCAMLESS System -20%
MICRO HYBRID with Regenerative brakingMICRO HYBRID with Regenerative braking
MICRO-HYBRID StARS SystemMICRO-HYBRID StARS System
DUAL CLUTCHtransmission
DUAL CLUTCHtransmission
THEMIS™THEMIS™
BELTLESS engineBELTLESS engine
Low consumptionA/C compressorLow consumptionA/C compressor
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200735
Motors & Actuators business disposal
Effective on December 27, 2006
Rationale for the disposalLack of critical massLow value added to our Domain strategyAttractive offer
Financial impact€36m positive contribution to P&L (ow. capital gain €41m net)
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200736
Projected acquisition of Ford Thermal Systems facility
Consistent with Valeo’s strategy to be a global leader in its core product lines
Acquisition conditional upon reaching a competitive agreement with UAW concerning a new Collective Bargaining Agreement
Transaction designed to eventually provide Ford with market-based prices while allowing for a profitable operation of the plant
Outlook andObjectives
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200738
2007 trading conditions
Car production in core markets not stabilizing before H2-2007
Reduction in raw material headwinds
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200739
Group re-engineering
Optimization of resources and processes ofprinciple functions:
Starting with Quality and Logistics
Contribute to 2010 margin objective of 6%+
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200740
Contact
InvestorInvestor RelationsRelations
Rémy DumoulinRémy Dumoulin43, rue 43, rue BayenBayenFF--75848 Paris Cedex 1775848 Paris Cedex 17FranceFranceTel.: +33 (0) 1.40.55.29.30Tel.: +33 (0) 1.40.55.29.30Fax: +33 (0) 1.40.55.20.40Fax: +33 (0) 1.40.55.20.40EE--mail: mail: [email protected]@valeo.comWeb site: Web site: www.valeo.comwww.valeo.com
Back-up
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200742
Quarterly P&L (2005 – 2006)
NET SALESOther operating revenues
TOTAL OPERATING REVENUES
GROSS MARGINas % of net sales
Research & Development expendituresSelling expensesAdministrative expensesOther income & expenses
OPERATING INCOMEas % of operating revenues
Cost of net debtOther financial income and expense
INCOME BEFORE INCOME TAXESIncome taxesEquity in net earnings of associated companies
INCOME FROM CONTINUING OPERATIONS
Non strategic activities
NET INCOME FOR THE PERIODMinority interests
NET INCOME ATTRIBUTABLE TO EQUITYHOLDERS OF THE COMPANY
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q12,630
24
2,654
41515.8%
(176)(51)(122)(31)
592.2%
(16)(7)
36(12)
2
26
(1)
25(2)
23
2,62728
2,655
42016.0%
(169)(50)(118)
(1)
1104.1%
(15)16
111(32)
3
82
(10)
72(1)
71
2,23528
2,263
33515.0%
(150)(46)(101)(21)
452.0%
(14)(6)
25(23)
0
2
6
8(1)
7
2,47836
2,514
36914.9%
(166)(48)(117)(17)
572.3%
(12)(12)
33(8)(5)
20
41
61(1)
60
2,48526
2,511
39015.7%
(163)(49)(110)(14)
803.2%
(13)(12)
55(12)
1
44
(2)
42(1)
41
2,30725
2,332
36515.8%
(154)(45)(107)
(2)
823.5%
(16)(14)
52(16)
0
36
(5)
31(2)
29
2006 2005*
2,67028
2,698
43716.4%
(167)(51)(122)(21)
1043.9%
(13)(14)
77(27)
6
56
(6)
50(3)
47
2,27419
2,293
36716.1%
(156)(46)(113)(13)
582.5%
(10)(12)
36(11)(1)
24
1
250
25
* Restated for non strategic activities
Property of Valeo – Duplication prohibited2006 Results and Outlook – February 200743
Share InformationShare Data / ADR Data
Share DataBloomberg TickerReuters TickerISIN NumberShares outstanding as per 31.12.2006
FR FPVLOF.PAFR 00013033877,580,617
ADR DataRatio (ordinary share: ADR)Bloomberg TickerReuters TickerISIN NumberTypeExchangeSponsor
1:2VLEEY USVLEEY PKUS 9191343048Level 1OTCJP Morgan Chase