Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Valeo SA (VLEEF, Financial) improved its profitability and cash generation, with H1 margins and free cash flow aligning with full-year guidance.
- Sales reached EUR11.1 billion, marking a 1% increase on a like-for-like basis compared to H1 2023.
- EBITDA margin improved by 0.8 points to 12.4%, and operating margin increased by 0.8 points to 4.0%.
- The company successfully completed the sale of its thermal commercial vehicle business as part of its asset disposal program.
- Valeo SA (VLEEF) achieved a significant reduction in costs and improved cash management, contributing to a gross margin increase of 1.4 points to 18.5%.
Negative Points
- OEM sales were down 1% like-for-like, largely impacted by low activity in high-voltage powertrain sales.
- The company experienced a negative impact of minus 4 points from lower sales in high-voltage powertrain.
- Performance in China was down 7 points due to an unfavorable customer mix, with Chinese OEMs representing a lower share of sales.
- High-voltage powertrain sales recorded a significant decline of 43% compared to H1 2023.
- The company adjusted its sales objectives downward due to expected continued softness in high-voltage powertrain sales.
Q & A Highlights
Q: Can you comment on the transition from 2024 to 2025 and the key factors driving earnings into next year?
A: Christophe PĂ©rillat, CEO, explained that the transition from 2024 to 2025 will involve less volume impact due to reduced sales assumptions. However, they plan to accelerate cost reduction measures. The company expects to benefit from better contracts signed in 2022, which will impact the P&L starting in 2025. Edouard de Pirey, CFO, added that gross R&D is expected to decrease in the second half of 2024, providing a tailwind.
Q: How will the lower volume assumptions affect the margin impact of the backlog?
A: Christophe PĂ©rillat stated that the profitability of Valeo in future years is linked to the embedded margin of current order intake. The company is focusing on higher-margin orders, and the impact of these new contracts will be seen from 2025. The reduction in volumes will not lower the anticipated profitability lever shared earlier.
Q: Can you provide insights on the gross margin improvement and expectations for the second half?
A: Christophe PĂ©rillat highlighted that the improvement in gross margin is due to better operations, cost reduction programs, and improved pricing from customer discussions. Edouard de Pirey added that renegotiated contracts and new contracts entering production have also contributed to the gross margin improvement.
Q: What is the outlook for Valeo's performance in China, considering the current underperformance?
A: Christophe PĂ©rillat acknowledged the 7-point underperformance in China and emphasized the company's strategy to reposition towards Chinese OEMs. With 70% of order intake from Chinese OEMs in the first half of 2024, Valeo expects better performance in the second half compared to the first.
Q: Is the high-voltage business still loss-making?
A: Edouard de Pirey clarified that the high-voltage business is not loss-making today, contrary to assumptions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
