Valeo Pharma Inc

Good evening, this is the conference operator. Welcome and thank you for joining the Valeo first quarter 2026 phase conference call and webcast. As a reminder, all participants are in listen-only mode. After the presentation there will be an opportunity to ask questions. Please note that we will only take two questions per person. Should anyone need assistance during the conference call, They may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Marisa Baldeau, VP Financial Communication and Investor Relations of Valeo. Please go ahead, madam.

Good evening, everyone, and welcome to Valeo's first quarter self-conference phone. I'm Marisa Baldeau, and joining me is our CFO, Edouard de Thierry. The format for today will be a presentation for 10 to 15 minutes, followed by a Q&A session for sales side analysts. For your reference, the press releases and slides are already available on our website at www.baleo.com. A replay of the call will also be available on our website. Before Edouard begins, I want to quickly direct you Director attention to the disclaimer on slide 19 which I invite everyone to read. Thank you again for joining us. Edouard, the floor is now yours.

Thank you, thank you very much Marisa and good evening to all and thank you for joining Valeo's first quarter 2026 sales presentation. So let's start with the key takeaways for the quarter on slide 2. In a global environment that remains volatile, who delivered a solid performance. Total sales were up 1.3% on the like-for-like basis, consistent with our four-year objective. OEM sales decreased slightly like-for-like in a market down by 3%, resulting in a three-point outperformance. All three divisions outperformed. The execution of our Elevate 2028 plan remains on track, Specifically, regarding the growth engine, we confirm our anticipation of a return to growth in China in the second half of the year, and we are laying the groundwork for broader growth resumption in 2027. On this basis, we are reiterating our 26 guidance across all indicators. We look for sales between 20 and 21 billion euros We target operating margin between 4.7 and 5.3% and free cash flow in excess of 400 million euros. These objectives take into account S&P Global Mobility Estimates published in April and assume no significant changes in macroeconomic protections or significant supply chain disruptions. Moving on to slide 3, we are operating in a challenging environment. This is a situation that has persisted for several years, so I guess it now seems to be the new normal for our industry. On a positive note, we have become accustomed to this. We have successfully adapted and demonstrated our agility. We will approach The current challenge is exactly the same way, drawing on the experience of the past crisis and applying the same proven method with consistency and discipline. Regarding the Middle East conflict, our first thoughts obviously are for the people affected and we hope for a swift return to peace. As far as value is concerned, there are very limited direct We have no industrial operations and negligible revenue exposure in the region. We have only one supplier there, a supplier of aluminum tubes that remains fully operational. Logistics flows between Asia and Europe are rooted near the Cape of Good Hope. It has been the case for a couple of years now. We are not energy intensive. Direct energy cost represents 1.5% of sales, 1% for electricity and 2.5% for gas, so in total 1.5% of sales, and we rely on long-term contracts. Finally, we have not observed any material impact on customer demand so far. Nevertheless, we remain vigilant and closely monitor the situation.

That was for the Middle East.

Now, on the supply chain side, we are proactively addressing tensions in the memory market. Since we released full-year results last February, we have made significant progress in terms of coverage. We now have secured more than 90% of our memory volumes for 2026, and we are confident that we will be able to serve customer requirements over this full year. Furthermore, we are in constructive pass-through discussions with our customers and we are managing the technology transition with a dedicated task force. Lastly, obviously, in such an environment, we stay focused on delivering profitability and cash. On the one hand, we are on track to achieve the annual rent of 300 million euros in savings from our self-help measures as of this year. And on the other hand, we maintain strict discipline on CapEx and R&D, keeping our investment spending under tight control to support our cash generation target. Now on slide four, a focus on the third engine of Elevate28, to show that we are executing our roadmap as planned with key milestones unfolding in two of our growth regions. In North America, we have started to build a new site in McAllen in Texas to deliver one of the largest orders in value history, the central compute unit for General Motors. This is an illustration of the conversion of our portfolio of order intakes with production set to start in 2027. Note that the investment of $225 million over five years is well taken into account in our elevated plan. In India now, we announced two new manufacturing lines to support the ongoing rapid development, a new line in Pune for power dedicated to electric powertrain systems designed to support the Mahindra newborn electric platform. And a new line in Sanant for Brain to manufacture vision cameras for several major OEMs in India. Moving now to China on slide five. With the Beijing Auto Show opening tomorrow, we want to illustrate the momentum we are building in the region by highlighting a non-exhaustive list of recent starts of productions. We have several key starts of productions in March-April 26, including the 5-in-1 deep integration power electronics module for a major Chinese automaker, the dual-layer HVAC, which has entered in production in March 26 for several Chinese partners, including Cherry, a domain controller for GD OEM, first of a long list of businesses in this domain for both GDs and Chinese OEMs, and a facia and logo light for the Xiaopang P7. This dynamism confirms that we are on track for a return to growth in China in H2 B0. Looking now at the numbers on slide 6, As I said in the introductory remarks, group sales reached 5.1 billion euros, up 1.3% like for like. Her remittance impact was 0.6 percentage points negative, essentially due to the sale of the powertrain automotive sensor business. Forex had a negative impact of 0.3 percentage points, reflecting the appreciation of the euro versus the US dollar and the Asian currency. OEM sales stood at 4.2 billion euros, slightly down by 0.6% light for light, in a global automotive production down by 3.4%, according to S&P, meaning an up performance of around 3% of the points. Aftermarket remains the steady pillar, growing 1.9% light for light, supported by the performance in North America and Asia, as well as the development of new services with distributors. Miscellaneous sales grew by 37% like for life thanks to tooling and R&D contributions from our customers and helped by a favorable comparison basis. Turning to slide seven now with the performance by region. The three points of performance in OEM sales was supported by a favorable geometric geographic mix impact of 1.5 points. Europe underperformed by 2 points reflecting a decline at power partly offset by the good performance of light and displays and telematics in grey North America was the stand out of the quarter growing 7% light for light and outperforming by 9 points driven by power and grey Asia excluding China also grew like for like and outperformed during the quarter, essentially driven by brain. Note that the momentum in India continued at a brisk pace in accordance with the Elevate roadmap. In China, we outperformed the markets by one point, supported by light. The progress to reposition our customers' portfolio continues. As I mentioned earlier, we are on track for a return to growth in China in H2 2026. My division now starting with power on slide eight. In the first quarter, the division outperformed the automatic productions by two points, bolstered by a strong start in North America. In China, the performance was in line with the market. reflecting the transition phase between the first wave of electrification and the upcoming scale-up with Chinese EV players. Overall, the good performance in E-technologies offset the slowdown in ICE technologies. On slide 9, the Brains division posted an outperformance of 3 points reflecting the continued good performance of D-Space and Telematics thanks to the ramp-up of last year's wins. Momentum in software-defined vehicles continues to develop as demonstrated by the new site in Texas, a point that I commented on earlier. We are also scaling up in India at our salon plant to support local OEMs. Last but not the least, on site 10, Light posted a robust performance in the quarter, recording like-for-like growth of 2% and outperforming the market by 5 points. This is primarily driven by China and Europe. In China, the division continues to gain traction, driven by successes achieved with Chinese OEMs. This has led to robust growth and strong outperformance in the quarter. This is consistent with our earlier statement, which is that light, with its faster cycles from order intake to sales, and a return to growth in China. In Europe, the ramp-up of lighting programs for mainstream and premium customers remains a key driver. As a conclusion, on slide 11, Q1 performance is in line with our full year objective. We are operating in a challenging environment and we have the experience, the proven methodology and the agility to manage the situation effectively. On this basis, we reiterate our guidance for the full year 26. And last, we are executing the Elevate 2028 plan as planned. Thank you very much for your attention and I'm happy to take your questions with Maritza.

Thank you. This is the conference operator. We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your touch-tone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. We will only take two questions per person. The first question comes from José Assumendi of JP Morgan. Please go ahead.

for their presentation and the comments. Just maybe just a couple of questions. I think one, if you can comment a bit more within BRAIN, when do you expect the revenue acceleration to pick up a bit more? Is it kind of a second quarter event or to respect that to follow through maybe second half of the year? And you mentioned in the comments the new US footprint. and I believe also you have the strong of the back of an installation. So any innovation light into the global brain. And then second, when it comes to raw materials and inflation costs, is there a risk that as a result of rising raw materials, across the supply chain, and not just value, but just in general for the supply industry, we might end up with larger headwinds than expected on the back of the recent volatility we're seeing of materials, which may contract margins a bit more than expected in the second half versus the first half. And which mechanisms do you have to pass on price increases, please? Thank you.

Thank you. Thank you very much, José, and good evening. Thank you for your question. So as far as brain growth is concerned, so you have in mind that we have not guided for exactly when this would pick up. We said that we would grow in China in H226. We said that we would outperform the market in China in H27 and that we would have growth in 27. Nevertheless, you are free right that the underlying growth of Brain will come and will support this growth. I hinted that I would be disappointed if Brain would not grow in H2 this year. Clearly, this is part of what we have in mind. Nevertheless, this is not part clearly of the guidance that we offered to the market. as far as the raw materials are concerned. So it is true that there is very clearly an increase of raw materials these days, aluminum, copper, steel, resins, oil, everything. You also have in mind that for most of the raw materials, we are well-indexed with our customers. For what is not indexed, for what is not automatically passed through, we have, I think, a strong track record to be able to pass it through our customers. We have done it in the last few years. We have learned how to do that. Actually, sometimes there is a bit of lag between the actual price increase of the raw material and what you get from the customer. But at the end of the day, we have been able up to now to to pass everything through, and I am confident that we will continue to pass through in the future.

Thank you.

The next question comes from Christos Laskawi of Deutsche Bank. Please go ahead.

Good evening. Thank you for taking my questions. The first one will be on DRAM, and thank you for providing it. The comment that you secured more than 90% of the volumes. Could you remind us what percentage share you had when you presented the four-year numbers and also how securing the 90% potentially impacted pricing of that? And if you can, any comment on 27 and how it looks for that period would be appreciated. and then the second question will be just on OEM compensation payments if you've seen any of those or bigger payments in Q1 or what to expect also heading into Q2 and it seems like you don't want to report high-voltage and other divisional breakdown revenues anymore. Any specific reason for that or did I just miss that cost of release? Thank you.

Thank you very much Christoph. Thank you for your questions. So, as far as DRAMs are concerned, so you have in mind that we said that our normal amount of purchasing for DRAMs is $150 million a year. Now, talking about overpricing or price increase of DRAM, if I was telling you how much it would be, this would be a... The challenge for our teams then because of negotiations and this is naturally a competitive topic that I cannot make public here. But clearly our objective is to get it compensated by the customers and the discussions we have with them are good understanding on where we are and we are confident that at the end of the day the net impact will be limited. As far as the volumes are concerned, the supply chain, I don't have in mind exactly how much it was in February. We did not disclose it, but I tell you, it was not at all 90%, and we are now not safe yet, but we are convinced that we are able to deliver all the volumes requested by the customers for this year. It has been a very strong job done by our purchasing teams and purchasing teams and I really appreciate all the effort they have put there. Now, seeing what they have been able to do in 2026, I'm sure they will do the same for 2027. I don't say it's done, it's not done yet, but we still have eight months to go to secure the full year 2027 and I'm convinced we will be able to do it by the end of the year. Your second question was about compensations by the customers. As far as the raw material price increase that Jose was mentioning earlier, this has no impact on Q1. You have in mind that Iron War started at the very end of February, and the impact of raw materials was rather limited in the month of March. and all our job actually is to report this increase of prices for the latest possible so if you want no impact. You also mentioned that we did not break down the high voltage. You have in mind that we have gone from the move-up plan 2225 to the elevated 28 plan. So during the move-up, we committed to a certain number of set of KPIs that we changed, and I understand that globally investors and analysts appreciated the change we had in the KPIs at that moment. and we explained at the CMD that we would change the KPIs including changing also the way we report. You have in mind that what we were reporting as high voltage cells were the former value Siemens GED cells which are only motors and power electronic cells for EVs and were not all the e-technologies that we are selling. On top of that, in the meantime, we have changed our organizations and we are not following and we're not able actually to have in order reporting on the daily basis what we sell for IT or e-technologies. We told you what we were aiming at by the end of 28, but we said that we would stop reporting and splitting within the division.

Understood. Thank you.

Thank you, Marcel.

Thank you very much, good evening.

Two questions as well, please. First one, the main driver of your revenue growth, a bit like last year, is your miscellaneous revenues. Can you remind us what this is and why they are higher than a few years ago when you had higher revenues, where the proportion is growing? maybe there's an element of accounting change the second question can you comment on the local content outcome even if it's not voted by the parliament I'm sure it's going to be even weaker after than now but do you believe that it effectively answers what Christophe was trying to champion in terms of reducing the need for European suppliers to Thank you.

Thank you very much, Thomas, for your questions. As far as the miscellaneous cells are concerned, yes, it grows 37%, but you have in mind maybe that it is compared to last year where it was minus 15%. the first quarter of 25 compared to 24. So these miscellaneous sales, you remember, this is the customer contributions to R&D and this is basically a good mark of the future growth because the more you have sales of prototypes of R&D, the more you prepare the future for the growth to come. So there is a strong basis effect from Q124 to Q125 and then from Q125 to Q126.

Sorry, if I can follow up. Sorry, just follow up on that. If I look at rolling 12 months for that line, it's never been at that level ever, even when you have the higher revenues. So has there been any change over the last two, three years on what you are putting in these revenues? Please.

No, there has not been any change in the definition of miscellaneous cells in the last years but there is more R&D review news, there is more prototypes because there are more projects and because there are more things to prepare for the future growth. Thank you.

And I do confirm there is absolutely no change in the definition.

As far as local content is concerned, you have in mind that Christophe has set four main requests. The first request was about the actual number for local content. We said 75%. It is actually 70% in the European Commission proposal. Basically, it's a question of how you compute it. We consider this is a good result and this is acceptable and this is the right direction. Then the second request we had was it is about all vehicles. And the proposal of the European Commission is about PHEVs and EVs. So you might think that it is not what we requested, but actually, in the mind of the European Commission, in 2035, all cars sold in Europe will be either PHEV or EV or wrenched extender. Therefore, we have no issue with this point, and this meets the requirements that we have. The third one, the third request we had was about excluding the battery. and the battery is excluded in the computation. There is a specific clause for battery in the product of the open condition. Last but not least, it was the question of which countries are acceptable, which are part of Europe in the definition. There is a kind of unclear situation here. Are the countries part of a relationship, of a trade relationship with Europe included in the Fair Trade, let's say, agreement and included? This means that Europe would be from Ushuaia to Tokyo, or is it just about Europe 27? And this is where we have still a question and where we ask the European Commission to be clear about and we asked for Europe to be Europe. That is, those are the four points that we mentioned and this is how Christophe reads it afterwards.

Thank you.

The next question comes from Vanessa Jefferies of Jefferies. Please go ahead.

Hey, thank you for the presentation. I need an answer There was no kind of compensation affecting the first quarter. But wondering if there was anything more one-off in nature to be aware of that influenced that strength and power in North America in the first quarter? And if you see that level of outperformance continuing throughout the year?

Thank you, Vanessa. Actually, no, there is no specific one-off to be considered in this outperformance in North America in the first quarter of this year. You have in mind that last year we had quite weak operations in North America, especially with one customer that we faced a lot of postponement of staff of production off with even very low volumes. We are now back. We are back with these customers also with the others. You have seen that we also get continuous awards, continuous recognition from our customers. So clearly, you know, the North American market was before more I would say an old type of craze with not a lot of technology, not a lot of electrification, but also not a lot of other technologies and software-defined vehicle technologies. and it is coming, actually. It is coming, so it is the time. We said it is the time of value in India, but it's also the time of value, actually, in North America because the market is moving towards much more electronics, much more software and this is where we are strong at and this is where we can get businesses from. So this is where this performance in North America comes from.

Thank you. And secondly, on a more general basis, I know you said you haven't seen any material change in demand. but I guess do you envision there will be any pull forward in demand happening in the second quarter?

That's a tough question. Actually, what we are following on a weekly basis is securing we don't see any change in the delivery instructions from our customers. Are they pulling in parts today? Are they increasing the inventories before the second half? I cannot tell. What I can tell you is that I'm following S&P Global Mobility's forecast. I'm following the delivery instructions we receive. We have not seen any sharp increase like put in or decrease because of lack of something. Today we see just delivery instructions as we planned and the semester is really going as we planned from the January 1st.

Thank you. The next question comes from Stéphane Benhamou with Bank of America. Please go ahead.

Good evening. I have three questions, actually, if I may. The first one is to come back on Thomas' question regarding the miscellaneous line. If I'm not mistaken, you benefited from client compensation last year for 300 million euros, The second question is regarding your indexation clauses, so can you please remind us what's the percentage of the WOMAT which are under indexation clauses? and finally a quick one on the guidance so you've confirmed your guidance despite no lower assumptions in terms of light vehicle production so to what extent are you able to compensate for a lower volume environment and should we see the lower end of the guidance as a more credible scenario from now thank you thank you very much Stephen so as far as the claims for 25 as are concerned you remember that these days are mostly into four

last year. So as we are only talking here about Q1, I don't really understand how we could compare. So yes, you're right, there was the 300 million claims that we mentioned for the full year, but this was absolutely not in Q1 25, and this is why it is not comparable. As far as the indexation clauses are concerned, I would say this is a competitive question and I don't want to make, as Christophe always says, I'm not here to make the job of our commercial teams even more complicated, so I will not comment too much on that. What I can tell you is that as far as the L&E raw materials are concerned, we are very well indexed with our customers. Now for the guidance, Isamé, can you rephrase your question because I have not in mind at all that S&P has a view of lower volumes for the full year, so I do not see why we would have to change here.

Well, the thing is that, if I'm not mistaken, your initial guidance was based on the FNPs assumption instead, which was minus 0.4%. No FNPs anticipate a minus 1.8% GLVP decline in 2026. Given the fact that your guidance is based on those new assumptions, I was wondering to what extent you are able to mitigate this lower volume environment and if we should see the lower end of the guidance as a more credible scenario given this lower volume environment.

I did not pay attention exactly to this exact number. Thank you for making them very clear here. I do not see a strong impact today on my forecast. When I review my forecast for the months and quarters to come, I clearly confirm the guidance globally and I would not guide you through the lower end or the higher end of the guidance.

All right, that's clear. Thank you. Thank you much.

There are no more questions registered at this time. Mr. De Pierret, back to you for the conclusion.

Thank you. Thank you very much. And thank you all for your attentive listening. Thank you for your questions. So you have understood this was a solid first quarter that allows us to reiterate our fuller guidance. Next event is our AGM on May 21st and healthcare results on July 22nd. We hope to see you there. Thank you very much and have a good evening.