Valeo reports the impacts of the application of IFRS 15 and IFRS 9 on 2017 comparative information

The impacts of retrospectively applying IFRS 15 – “Revenue from Contracts with Customers” on 2017 comparative information, as it will be presented in the consolidated financial statements for the six months ended June 30, 2018, are as follows:

• the external cost of components imposed by customers, which was previously accounted for in original equipment sales, is now presented as a deduction from “Raw materials consumed”. This reclassification results in a 425 million euro reduction in sales for 2017 and mainly concerns the Thermal Systems Business Group’s front-end module operations;
• customer contributions to Research and Development (including prototypes), which were previously presented as a deduction from “Research and Development expenditure”, are now presented in sales under “Miscellaneous”. This reclassification to sales represents an amount of 364 million euros for 2017, resulting in a 2.0 percentage point rise in Research and Development expenditure as a percentage of sales (from 6.1% to 8.1%);
• Product Development is usually considered to be related to the production process. Accordingly, customer contributions are recognized in sales over the series production period, although the accounting treatment applied may vary based on projects’ specific contractual or operational features. The application of IFRS 15 results in the deferred recognition of sales, thereby reducing the Group’s operating margin for 2017, including share in net earnings of equity-accounted companies, by 7 million euros (excluding the tax impact).

The retrospective application of IFRS 9 – “Financial Instruments” results in a 12 million euro reduction in net debt at January 1, 2017 and a 2 million euro increase in financial expenses for 2017 relating to the debt renegotiation that took place in 2014 (see Valeo’s 2017 Registration Document, page 294, for a detailed explanation of the application of this standard).

2017 data differ from the amounts presented in the 2017 consolidated financial statements published in February 2018 since they have been adjusted to reflect the impact of retrospectively applying these standards. The data are presented in the pro forma tables below:

Sales by type

Original equipment sales by destination region

Sales by Business Group (including intersegment sales)

EBITDA* by Business Group

* See Financial Glossary, page 6.

Earnings and net debt

* See Financial Glossary, page 6.

Upcoming events

First-half 2018 results: July 25, 2018

Financial Glossary

• Operating margin including share in net earnings of equity-accounted companies corresponds to operating income before other income and expenses.
• EBITDA corresponds to (i) operating margin before depreciation, amortization and impairment losses (included in the operating margin) and the impact of government subsidies and grants on non-current assets, and (ii) net dividends received from equity accounted companies.
• Net debt comprises all long-term debt, liabilities associated with put options granted to holders of non-controlling interests, short-term debt and bank overdrafts, less loans and other long-term financial assets, cash and cash equivalents and the fair value of derivative instruments hedging the foreign currency and interest rate risks associated with these items.