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

Valeo Group

Paris, France, July 17, 2018 – IFRS 15 and IFRS 9 became effective as of January 1, 2018, with comparative periods restated.

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).

  IFRS 15 IFRS 9  
(in millions of euros) 2017 – Published Reclassification of components imposed by customers Reclassification of customer contributions to R&D Customer contributions to Product Development Debt renegotiation that took place in 2014 2017 – Restated
Total sales 18,550 -425 +364 -5 18,484
Cost of sales (15,076) +425 (14,651)
Research and Development expenditure (1,130) -364 (1,494)
As a % of sales 6.1%         8.1%
Operating margin excluding share in net earnings of equity accounted companies 1,455 -5 1,450
As a % of sales 7.8%         7.8%
Share in net earnings of equity accounted companies 22 -2 20
Operating margin including share in net earnings of

equity-accounted companies

1,477 -7 1,470
As a % of sales 8.0%         8.0%
Cost of net debt (73) -2 (75)
Income tax expense (325) +1 (324)
Net attributable income 886 -6 -2 878
As a % of sales 4.8%         4.8%

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

Published (before application of IFRS 15)
 (in millions of euros) Q1 2017 Q2 2017 H1 2017 Q3 2017 Q4 2017 H2 2017 Full-year 2017
Original Equipment 4,174 4,061 8,235 3,751 4,134 7,885 16,120
Aftermarket 487 476 963 446 478 924 1,887
Miscellaneous 106 160 266 104 173 277 543
TOTAL 4,767 4,697 9,464 4,301 4,785 9,086 18,550

 

Pro forma (restated under IFRS 15)
 (in millions of euros) Q1 2017 Q2 2017 H1 2017 Q3 2017 Q4 2017 H2 2017 Full-year 2017
Original Equipment 4,067 3,960 8,027 3,648 4,020 7,668 15,695
Aftermarket 487 476 963 446 478 924 1,887
Miscellaneous 189 254 443 175 284 459 902
TOTAL 4,743 4,690 9,433 4,269 4,782 9,051 18,484

 

Adjustment (restatement under IFRS 15)
 (in millions of euros) Q1 2017 Q2 2017 H1 2017 Q3 2017 Q4 2017 H2 2017 Full-year 2017
Original Equipment -107 -101 -208 -103 -114 -217 -425
Aftermarket 0 0 0 0 0 0 0
Miscellaneous +83 +94 +177 +71 +111 +182 +359
TOTAL -24 -7 -31 -32 -3 -35 -66

 

 

Original equipment sales by destination region

Published (before application of IFRS 15)
 (in millions of euros) Q1 2017 Q2 2017 H1 2017 Q3 2017 Q4 2017 H2 2017 Full-year 2017
Europe & Africa 2,001 1,919 3,920 1,726 1,904 3,630 7,550
Asia, Middle East & Oceania 1,189 1,192 2,381 1,200 1,384 2,584 4,965
of which China 564 548 1,112 557 702 1,259 2,371
excluding China 625 644 1,269 643 682 1,325 2,594
North America 895 857 1,752 732 751 1,483 3,235
South America 89 93 182 93 95 188 370
TOTAL 4,174 4,061 8,235 3,751 4,134 7,885 16,120

 

Pro forma (restated under IFRS 15)
 (in millions of euros) Q1 2017 Q2 2017 H1 2017 Q3 2017 Q4 2017 H2 2017 Full-year 2017
Europe & Africa 1,990 1,910 3,900 1,716 1,898 3,614 7,514
Asia, Middle East & Oceania 1,167 1,171 2,338 1,167 1,344 2,511 4,849
of which China 545 529 1,074 526 668 1,194 2,268
excluding China 622 642 1,264 641 676 1,317 2,581
North America 821 786 1,607 672 683 1,355 2,962
South America 89 93 182 93 95 188 370
TOTAL 4,067 3,960 8,027 3,648 4,020 7,668 15,695

 

Adjustment (restatement under IFRS 15)
 (in millions of euros) Q1 2017 Q2 2017 H1 2017 Q3 2017 Q4 2017 H2 2017 Full-year 2017
Europe & Africa -11 -9 -20 -10 -6 -16 -36
Asia, Middle East & Oceania -22 -21 -43 -33 -40 -73 -116
of which China -19 -19 -38 -31 -34 -65 -103
excluding China -3 -2 -5 -2 -6 -8 -13
North America -74 -71 -145 -60 -68 -128 -273
South America 0 0 0 0 0 0 0
TOTAL -107 -101 -208 -103 -114 -217 -425

 

 

 

Sales by Business Group (including intersegment sales)

Published (before application of IFRS 15)
 (in millions of euros) Q1 2017 Q2 2017 H1 2017 Q3 2017 Q4 2017 H2 2017 Full-year 2017
Comfort & Driving Assistance Systems 938 899 1,837 859 894 1,753 3,590
Powertrain Systems 1,105 1,058 2,163 963 1,174 2,137 4,300
Thermal Systems 1,312 1,282 2,594 1,157 1,252 2,409 5,003
Visibility Systems 1,458 1,495 2,953 1,355 1,500 2,855 5,808
TOTAL 4,767 4,697 9,464 4,301 4,785 9,086 18,550

 

Pro forma (restated under IFRS 15)
 (in millions of euros) Q1 2017 Q2 2017 H1 2017 Q3 2017 Q4 2017 H2 2017 Full-year 2017
Comfort & Driving Assistance Systems 962 927 1,889 878 932 1,810 3,699
Powertrain Systems 1,117 1,071 2,188 973 1,193 2,166 4,354
Thermal Systems 1,224 1,201 2,425 1,070 1,166 2,236 4,661
Visibility Systems 1,485 1,529 3,014 1,381 1,526 2,907 5,921
TOTAL 4,743 4,690 9,433 4,269 4,782 9,051 18,484

 

Adjustment (restatement under IFRS 15)
 (in millions of euros) Q1 2017 Q2 2017 H1 2017 Q3 2017 Q4 2017 H2 2017 Full-year 2017
Comfort & Driving Assistance Systems +24 +28 +52 +19 +38 +57 +109
Powertrain Systems +12 +13 +25 +10 +19 +29 +54
Thermal Systems -88 -81 -169 -87 -86 -173 -342
Visibility Systems +27 +34 +61 +26 +26 +52 +113
TOTAL -24 -7 -31 -32 -3 -35 -66

 

 

 

EBITDA* by Business Group

  Published
(before application of IFRS 15)
  Pro forma
(restated under IFRS 15)
  Adjustment
(restatement under IFRS 15)
 (in millions of euros)

(as a % of sales)

  H1 2017 H2 2017 Full-year 2017   H1 2017 H2 2017 Full-year 2017   H1 2017 H2 2017 Full-year 2017
Comfort & Driving Assistance Systems 266 256 522 267 258 525 +1 +2 +3
  14.5% 14.6% 14.5%   14.1% 14.3% 14.2%   -0.4 pts -0.3 pts -0.3 pts
Powertrain Systems 276 290 566 275 289 564 -1 -1 -2
  12.8% 13.6% 13.2%   12.6% 13.3% 13.0%   -0.2 pts -0.3 pts -0.2 pts
Thermal Systems 267 272 539 266 270 536 -1 -2 -3
  10.3% 11.3% 10.8%   11.0% 12.1% 11.5%   +0.7 pts +0.8 pts +0.7 pts
Visibility Systems 392 375 767 391 373 764 -1 -2 -3
  13.3% 13.1% 13.2%   13.0% 12.8% 12.9%   -0.3 pts -0.3 pts -0.3 pts
TOTAL   1,215 1,221 2,436   1,213 1,218 2,431   -2 -3 -5
  12.8% 13.4% 13.1%   12.9% 13.5% 13.2%   +0.1 pts +0.1 pts +0.1 pts

 

* See Financial Glossary, page 6.

 

Earnings and net debt

  Published (before application of IFRS 15 and IFRS 9)   Pro forma (restated under IFRS 15 and IFRS 9)   Adjustment (restatement under IFRS 15 and IFRS 9)
(in millions of euros)

(as a % of sales)

  H1 2017 H2 2017 Full-year 2017   H1 2017 H2 2017 Full-year 2017   H1 2017 H2 2017 Full-year 2017
           
Sales 9,464 9,086 18,550   9,433 9,051 18,484   -31 -35 -66
           
Cost of sales (7,703)  (7,373) (15,076) (7,495)  (7,156) (14,651) +208 +217 +425
    -81.4% -81.1% -81.3%   -79.5% -79.1% -79.3%   +1.9 pts +2.0 pts +2.0 pts
R&D expenditure (582) (548) (1,130) (761) (733) (1,494) -179 -185 -364
    -6.1% -6.0% -6.1%   -8.1% -8.1% -8.1%   -2.0 pts -2.1 pts -2.0 pts
Selling and (454) (435) (889) (454) (435) (889) 0 0 0
administrative expenses -4.8% -4.8% -4.8%   -4.8% -4.8% -4.8%   0.0 pts 0.0 pts 0.0 pts
Operating margin

excluding share in net earnings of equity-accounted companies  

725 730 1,455 723 727 1,450 -2 -3 -5
  7.7% 8.0% 7.8%   7.7% 8.0% 7.8%   0.0 pts 0.0 pts 0.0 pts
Share in net

earnings of equity-accounted companies

29 (7) 22 29 (9) 20 0 -2 -2
                       
Operating margin

including share in net earnings of equity-accounted companies*

754 723 1,477   752 718 1,470   -2 -5 -7
  8.0% 8.0% 8.0%   8.0% 7.9% 8.0%   0.0 pts -0.1 pts 0.0 pts
Net attributable income 506 380 886 504 374 878 -2 -6 -8
  5.3% 4.2% 4.8%   5.3% 4.1% 4.8%   0.0 pts -0.1 pts 0.0 pts
           
Net debt* 1,118 1,852 1,852 1,107 1,842 1,842 -11 -10 -10

 

* 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.