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 2004 Results

PARIS, France, 10 February, 2005 - Following a meeting of the Board of Directors, Valeo announced its audited results for 2004.


In millions of euros First nine months 2004* 4th Quarter
2004*		 2004 2003 Change
Sales 7,107 2,332 9,439 9,234 +2.2%
Gross Margin 1,259 409 1,668 1,653 +0.9%
% sales 17.7% 17.5% 17.7% 17.9% - 0.2pt
Operating income 341 117 458 465 -1.5%
% sales 4.8% 5.0% 4.9% 5.0% -0.1pt
Net income from consolidated companies 218 46 264 280 -5.7%
% sales 3.1% 2.0% 2.8% 3.0% - 0.2pt
Net income 134 16 150 181 -17.1%
% sales 1.9% 0.7% 1.6% 2.0% -0.4pt
* unaudited quarterly figures

Sales Evolution

Consolidated sales rose by 2.2% compared with 2003 to 9,439 million euros. Changes in the reporting entity had a positive impact of 4.5% while exchange rate variations led to a 1.9% fall in sales in euros. At constant reporting entity and exchange rates, sales were almost unchanged. In Europe, Valeo sales increased slightly while automobile production increased by 3%. Valeo sales in North America fell by 9% in local currency and at constant reporting entity while automobile production fell by 1%. In Asia, Valeo's comparable sales were up 3% while the number of vehicles produced in the region increased by 8%. Finally, in South America, Valeo sales increased by 25% at constant reporting entity and exchange rates, in line with local automobile production.

Original equipment sales totalled 7,775 millions euros (82% of the year's total sales, as in 2003) and sales to the aftermarket totalled 1,664 million euros. At constant reporting entity and exchange rates, aftermarket sales were stable year-on-year.


Highlights

During 2004 Valeo continued to reinforce its presence in Asia. In particular:
-

2004 was the first full year of the integration of Zexel Valeo Climate Control following the increase of Valeo's shareholding to 50% in the company in December 2003

- In January 2004, Valeo increased its participation in Shanghai Valeo Automotive Electrical Systems from 30% to 50%
- Valeo also acquired an additional 5% interest in Valeo Shanghai Automotive Electric Motors, increasing its total stake to 55%
- The Group increased its stake in Ichikoh to 22.6%
- Finally Valeo created a joint venture with Furukawa Electric which will have offices in Japan, China and North America

In addition, Valeo increased its stake in Valeo Raytheon Systems Inc. from 58.1% to 66.6%. This joint venture won a first order for its blind spot detection system from an American customer.

The Group purchased the remaining shares in Valeo Climatisation in October 2004, taking its shareholding from 93% to 100%.

Valeo continued to take actions to improve its competitiveness. The Group now has 129 sites and 48% of its direct labor is based in low cost countries.

The year was marked by the launch of production of numerous Valeo innovations, in particular the LaneVueTM lane departure warning system which is installed on the Nissan Infiniti and the Citroën C4, and the Start-Stop starter alternator which equips as a world first the Citroen C3.


Results

In millions of euros 2004 2003
Operating income 458 465
Financial result (31) (41)
Other income and expenses (net) (148) (89)
Taxes (15) (55)
Equity in net earnings of associated companies 7 9
Amortization of goodwill (90) (90)
Minority interests (31) (18)
Net income 150 181


From the second quarter, Valeo faced a significant increase in raw material prices and strong supply pressure, in particular for steel.

Management efforts enabled Valeo to limit the drop in the gross margin to 0.2 point to 17.7% of sales, despite an estimated negative impact of raw material prices of 0.5 point.

The Group's operating margin was 4.9% of sales, down by 0.1 point compared to the previous year. Selling and administrative expenses fell by 0.2 point, more than offsetting an increase of 0.1 point in research and development expenses.

Restructuring actions led to an increase in "other income and expenses (net)".

Tax expenses were reduced due to the second part of the tax reimbursement from the tax paid in 2001 on the capital gain from the sale of Valeo's stake in LuK.

The increase in minority interests in consolidated income reflects primarily the consolidation of Zexel Valeo Climate Control from 1 December 2003.

Net income for the year totalled 150 million euros, a drop of 17.1% compared with 2003.


Change in shareholders' equity

Valeo applied recommendation n° 2003-R.01 of the National Accounting Council (Conseil National de la Comptabilité, CNC) which as of 1 January 2004 treats provisions for pensions and other employee benefits according to the same rules as the international standard IAS19.
This first application of the CNC recommendation accounts for 244 million euros of the change in Valeo's shareholders' equity from 1,980 million euros at 31 December 2003 to 1,730 million euros at the end of the period. The capital increase reserved for the Group's employees accounts for 33 million euros of shareholders' equity at the end of the period.


Cash flow and debt levels

Cash from operating activities was 753 million euros, an increase of 31 million euros as compared with 2003. Free cash flow (operating cash less investment in property and intangibles) reached a record level of 296 million euros as compared with 262 million euros in 2003.

After the payment in particular of dividends, equalization tax and the purchase of minority interests in the climate control business, the consolidated net debt level was 500 million euros at the end of the period, 68 million euros less than at 31 December 2003. The debt-to-equity ratio remained the same as the previous year at 27%.


Outlook

The first part of the year should see a fall in automobile production in Europe and North America. In addition, raw material prices (steel, non ferrous metals and plastics) will remain high throughout the period.

The Group's goal is to achieve organic sales growth over the full year exceeding the reference automobile production levels.

Actions will be continued to boost the Group's competitiveness (in particular quality improvement, optimization of the industrial footprint and supplier rationalization).

Valeo will also pursue its strategy of enhancing its technology offering whilst respecting its financial equilibrium. The agreement signed on 10 January 2005 to purchase the Engine Electronics division of Johnson Controls Inc. for 330 million euros will considerably reinforce the Powertrain Efficiency Domain, whose systems contribute to cleaner, more economical vehicles and more efficient vehicles, and strengthen the Group's profitable growth potential.


Valeo is an independent industrial group fully focused on the design, production and sale of components, integrated systems and modules for cars and trucks. Valeo ranks among the world's top automotive suppliers. The Group has 129 plants, 65 R&D centers, 9 distribution platforms and employs 67,300 people in 26 countries worldwide.


For further information please contact:
Kate Philipps, Group Communications Director,
Kate.philipps@valeo.com
Tel.:+ 33.1.40.55.20.65

Rémy Dumoulin, Financial Relations Director,
Remy.dumoulin@valeo.com
Tel.: +33.1.40.55.29.30

 
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