Valeo SE

Good evening, everyone. Thank you for joining the presentation of our 26 H1 results, which I will present with Edouard Depiré, Valeo CFO. Over the next 20 minutes of our presentation, you will see that we have had a good H1, solidly in line with our guidance and with our Elevate 28 trajectory. Indeed, the first two engines of our trajectory, profitability and cash, are now confirmed on and running on an upward trend. And the third engine is ready, the return to growth from 27. On top of that, thanks to our cash duration, we have reduced our debt, which is remarkable for the first half of a year. Naturally, I will first walk you through the highlights, then Edouard will share more on our H1 performance. This presentation will be followed by a Q&A session that we will handle with Edouard. So to start on slide four, you will see that we are perfectly in line with our guidance with continued improvement in profitability and cash flow. The group sales totaled 10.4 billion euros. Our operating margin stands at 5%, which is 0.5 points higher than H1 last year. It's also 0.3 points higher than the full year 25, as well as from the bottom of our guidance. Free cash flow after net financial interest amounts to 242 million euros. That's more than double H1-25 and more than half of our minimum full-year guidance. Assuming stable conditions, we expect our H2 operating margin and free cash flow to be at least in line with H1. In this context, we reaffirm our guidance for the year. Moving to slide five now, our performance in H1 is proof of the three engines powering our Elevate28 strategic plan. As a reminder, the first engine profit, which has steadily increased since 22. The second engine is cash, also increasing structurally since last year. And third, a return to growth from 27. Let's look at this in more detail moving to slide six. We have sustained profitability improvements since 22, despite volatile market conditions, which you are very familiar with. And our operating margin has increased year on year. We've held the line and continued this improvement by doing exactly as we said, by right pricing our technologies with higher margin orders, through rigorous and systematic compensation from our customers when needed, and through reduction of our costs and of our breakeven points. Moving to slide seven. We have also improved our cash generation year on year since 22. In H1, we had strong structural cash duration amounting to 242 million euros, which, as I already said, is more than half our minimum 26 guidance. Thanks to this strong cash generation, we have been able to structurally reduce our debt by around 200 million euros versus the end of 25 and by around 350 million euros versus one year ago. It's the first time in 10 years that net debt decreases in H1 thanks to free cash generated by operations. We made cash duration our top priority, and we are now starting to see the fruit of that. Increased structural cash duration and debt reduction show the effectiveness of the cost-reducing measures we have put in place over the last three years. Our H1 order intake. It is at 12.1 billion euros up from H1-25, and this is consistent with our Elevate 28 trajectory. Order intake is 1.4 times OEM sales in H1, equal to our cumulative level of order intake of the last three and a half years. Overall, our intake remains well balanced with our power and brain divisions, each making up a little more than a third and light accounting for 25%. On slide nine, I'd like to highlight a few milestones we hit so far this year in the three key regions of our plan. These achievements prepare the return to growth in 27. In North America first, we broke ground of a new plant in McAllen, Texas. The site supplies the central compute unit for General Motors software-defined vehicle architecture. This, by the way, is one of the largest orders in Valeo's history. China, as you know, is a highly volatile market, but thanks to several new loss contracts with leading Chinese OEMs, we see a return to growth in H2 with Chinese automakers. Note that our orders are now largely skewed towards Chinese OEMs. More than 80% of the order intake in the country and the remarkable five times order intake ratio with Chinese OEMs that will support growth in China. In India, we continue our strong momentum with investments in a new 3-in-1 e-axle production line for Mahindra, and we also have a new line for high-definition surround-view camera for local OEMs. We expect sales in India at 700 million euros in 28, three times our 24 sales, and we are on the right track. Finally, some words on our Billion Automotive opportunities. There are no borders anymore between the various industry verticals. Because what counts more for companies is not their experience in automotive or in other fields, but the technologies behind AI, software, cybersecurity, power electronics, sensing, thermal management, and the ability to scale up. As a great technology and industrial company, Velo has a lot of opportunities in other fields than auto. We have already been working on some of them for several years, understanding the markets, creating technology differentiations, developing an exciting product offer. These opportunities are not factored into Elevate 28 financials. but they are indeed increasingly promising. These beyond automotive opportunities stand at different development stages. The production for charging solutions, two and three wheelers, as well as agriculture is starting. We have taken orders already in battery energy storage systems as announced in February and in defense. And you saw our announcement this week regarding a first order for a new electric motor for drones free of critical rears. Regarding data centers, different proofs of concept are ongoing with potential customers whose names I cannot reveal at this stage. And lastly, we have recently added humanoids as an interesting business potential and we presented our first component mock-ups at the Beijing Auto Show. Let me finally remind you that these opportunities do not incur any important investment or costs to us. They stem from our existing technologies and expertise. I will now hand over to Edouard, who will give more details on our performance in the first half.

Thank you very much, Christophe, and good evening, everyone, and thank you for being with us tonight. Let's move directly to our financial performance for H126. As a reminder, you can find the details figures, including the stand-alone Q2 data, in the appendix of this presentation. And we start with our top line performance on slide 12. Total sales were up 0.7% on the like-for-like basis at 10.4 billion euros, consistent with our full year objective. OEM sales performed largely in line with the global automotive market, down 0.6 points like-for-like in a market that contracted itself but 1% over the same period. Aftermarket remains a steady pillar, delivering 2% like-for-like growth. This was supported by solid performance in North America and in Asia and the rollout of new services with distributors. Finally, miscellaneous sales grew by 16% like-for-like, with the bulk of that growth concentrated in Q1. Moving to slide 13 with a performance by region. As I said, we performed largely in line with the market and we benefited from half a point of favorable geomix. North America was a standout driver, growing 6% like for like and outperforming the market by seven points. This was mainly fueled by our power and brain divisions. Asia, excluding China, also delivered robust growth, up 6% like for like and outperforming by three points. As Christophe pointed out, India continues to enjoy strong momentum, keeping us perfectly on track to triple ourselves in the region by 2028. In China, the market is highly dynamic, with Chinese OEMs setting the pace. Our sales contracted by 9% like for like, resulting in a four points performance gap, essentially due to international OEMs. In parallel, we are making great strides with Chinese OEMs. This semester, we recorded 53% of sales and over 80% of orders with Chinese OEMs in China. Lastly, Europe underperformed by three points as the outperformance of light and brain was offset by the performance gap at power. Now moving to our divisions with power on slide 14 to start with. The main takeaway here is clear. The division is successfully executing its profitability turnaround. Sales reached 5.1 billion euros, performing in line with the global market. North America was strong throughout the semester and e-technologies performed well, most notably in India, where we started production of a complete e-axle system for Mahindra. The major highlight is the operating margin, which surged by 1.3 points to 4.8%. This confirms the success of Power's strategy to restore its cost competitiveness. Moving to Brain on slide 15. Overall, the division's performance is strengthening. Sales were flat at 2.5 billion euros, outperforming the market by one point. This was mainly driven by solid results in displays, telematics, and vision systems. Momentum in software-defined vehicles continues to build. As Christophe mentioned, we've broken ground on a new site in Texas to serve a major order for General Motors, and we are seeing significant good successes in China with new orders for Autonomous Driving Control Units, or ADCUs. Operating margins stood at 5.6%. While this is down year on year, it is up sequentially. This reflects sustained investment in R&D, supported by a solid and profitable order book to prepare for the upcoming growth. Turning to light on slide 16, sales reached 2.7 billion euros, up 1% like for like, outgrowing the market by two points. The division delivered a solid performance across Europe and China, fueled by new EV production launches with local Chinese champions. The operating margin improved to 4.7%, which is 20 basis points better than Nastia, driven by more profitable product launches. Moving to slide 17, let's now focus on the group's profitability, the first engine of the Elevate 2028 plan. As mentioned by Christophe, in an overall challenging environment, we have held the line and continue to drive improvements in our profitability, confirming that the first engine of the Elevate 2028 plan is on. Our operating margin for the first half 26 stands at 5.0% at the midpoint of our full year guidance and 50 basis points up year on year. There are three points I'd like to emphasize here. First, the gross margin. It reached 20.7% of sales, matching its 2017 peak. This level is consistent with our ambition to stay sustainably above 19%. This achievement is driven by the same factors that we highlighted in previous results scores, namely strong pricing discipline, robust productivity, and industrial efficiency. Second item, SG&A expenses remain tightly managed, down 3% compared to H125. Finally, R&D spending. Net spending was up 2% to 11% of sales. This reflects two opposing trends. On the one hand, gross R&D spending decreased by 3%, consistent with our objective not to grow anymore after the 2024 peak. On the other hand, the IFRS impact was of 0.3 points, lower than our guidance for the full year of 1.5 points. This is related to an impairment of capitalized R&D for 85 million euros following contract cancellations. For the second half, we expect the IFRS impact to be under 1.5 points, resulting in a full impact of less than 1 percentage point. Turning now to net income on slide 18, two main points to note. First, we recognize 78 million euros in all the income and expenses for restructuring costs consistent with our plans, including the final leg of our 2024 self-help program. Second, the effective tax rate was at 48%. This reflects temporary impacts from our restructuring program in Europe and our ongoing dividend repatriation policy. All in all, net income came in at 105 million euros, essentially in line with last year. On slide 19, with a free cash flow of 242 million euros for the semester, more than double last year's figures, we are confirming that the second pillar of Elevate 2028, the cash engine, is also clearly on. Free cash generation improved in absolute terms and in quality. If we look at the main levers behind this improvement, first, profitability, a topic we have already addressed. The H126 results provided further evidence of our progress in this area, which is key to strengthening our cash generation capabilities. Second, we maintained tight control over investment spending with both intangible and tangible CapEx down this semester. Specifically, capitalized R&D was down 5% versus last year. Tangible capex dropped 12% to 3.6% of sales. As we noted during our full year 25 results, this improvement is structural. We expect to sustain this for the full year 26. We confirm our potential to again keep the capex intensity below the long-term objectives of 4.5% to 5% of sales. This performance allowed us to reduce our net debt by 194 million euros over the first six months. As Christophe noted, this is the first time in a decade that we have achieved a net debt reduction in the first half based on free cash flow from operation. And contrary to last year, Forex had a positive effect of 87 million euros. To conclude the financial review, slide 20 focuses on our financial structure. Net debt decreased to 3.8 billion euros down from 4.0 billion euros at the end of 25. Our leverage ratio improved sequentially to 1.2 times adjusted EBITDA down from 1.3 times in December and safely below our 3.5 times covenant. Our liquidity remains robust, with €3.0 billion in cash and €1.6 billion in undrawn credit lines. Finally, the net proceeds from the €600 million bond raised last June gives us the flexibility for an early redemption of our outstanding May 27 bond and thus optimise our long-term debt profile. Thank you for your attention. I now hand over back to Christophe for his concluding remarks.

Thank you, Edouard. As you've seen in these results, our Elevate28 strategic plan is actively delivering and will reaffirm our guidance. Before we take your questions, there are a couple of takeaways I would like to leave with you. One, our financial discipline is paying off. The first two engines of our plan, profit and cash, are fully running. We have increased our margins. We have achieved an historic H1 debt reduction without relying on any asset disposal. Two, we are ready for return to growth from 27 with a 12.1 billion euro order intake and major milestones achieved in North America, in China, in India. Our core automotive business is resilient. And three, we are unlocking low capex, potentially high upside horizons in Beyond Automotive. Thank you for your attention. Edouard and I are now available to answer your questions.