2006 Results and OutlookDiadema and Cantareira (VSS) Consolidation of 2 Mateur sites (VECS) Iran...

Property of Valeo – Duplication prohibited2006 Results and Outlook – February 20071

2006 Results and Outlook

Thierry MorinChairman & CEOThierry MorinChairman & CEOFebruary 13, 2007


Agenda

Highlights and key figures

Sales and automotive markets

Results

Cash flow and balance sheet

Business and strategic highlights

Outlook

Highlights &Key Figures


2006 Highlights

Customer diversification protects from French OEMs and D3 weakness; noticeable aftermarket recovery

Margin resilience to additional strong raw material headwinds

Competitiveness further strengthened

Portfolio rationalization on its way

Dramatic order intake recovery


2006 Key Figures

ChangeIn euro million

Total operating revenues

Operating marginas a % of total op. revenues

Net income as a % of total op. revenues

Basic earnings per share (€)

Net financial debt

2006

10,086

3413.4%

1611.6%

2.10*

968

9,834

3743.8%

1421.4%

1.80*

1 080

+2.6%

-8.8%-0.4 pt

+13.4%+0.2 pt

+16.7%

(112)m

2005

*including €0.47 and €(0.15) related to non strategic activities in 2006 and 2005 respectively


Q4-06 Key Figures



Operating marginas % of total op. revenues

Net incomeas % of total op. revenues

Q4-2005Q4-2006

2,514

742.9%

602.4%

2,511

943.7%

411.6%

+0.1%

-21.3%-0.8pt

+46.3%+0.8 pt

Sales & Automotive Markets



+2.6%In euro million

10,086

2005* 2006

9,834

Perimeter:Currencies:Prices*Volume/mix

+1.5%+0.6%-3.8%

+4.3%*at identical functions

*restated to account for non strategic activities


2006 net salesGeographical trends

EuropeNorth America

South America

Asia

*at same perimeter & exchange rate

Light vehicle production

-3%13% of total Sales

--3%3%

+2% 69% of total Sales

+3%+3%

+9% / =*5% of total Sales

+8%+8%

+11% / +4%*11% of total Sales

+9%+9%

Incl. Big 3: -9%


Customer diversification proves beneficial

+1%

+1%

+14%

-5%-4%

-3%

+6%+3%

-4% +30%

-5% = +9% -6% -1% +15%+3% +11%

20052006

LV production change

= +7%


Order intake/ OE sales ratio at a 5 year highOrder intake / OE Sales

2001 2002 2003 2004 2005 2006

1.0

1.21.3

1.21.1

1.3


Order intake- Commodities vs. Innovations

Commodities73%

Innovations27%

Reversible MotorEGR ModuleStARSBlind Spot DetectionNew Clutch Range

Including


Aftermarket recovery

Sales growth acceleration in 2006- well distributed between OES and IAM

Provides Valeo business model with robust defensive characteristics

-6

-4

-2

0

2

4

6

8

2004 2005 2006

OES IAM TOTAL

In %Change in aftermarket sales

Results*

* As required by IFRS, all 2005 figures are restated mainly to account for non strategic activities


Results



Gross marginas % of sales

20052006

+2.6%

- 1.3%-0.6 pt

9,834

1,55916.0%

10,086

1,53915.4%


.

500

1000

1500

2000

2500

3000

3500

4000

.

.

1000

1500

2000

2500

3000

.

1000

2500

4000

5500

7000

8500

Some relief in commodity prices at year-end

1,417

2,247

2696

2007

2,814Average Spot price

200620052004200320022001

Aluminum price ($/T)

1,525

4,577

2001 2002 2003 20052004 2006

5,771

2007

Average Spot price 2006: $6,715

+83%

Copper price ($/T)

1,537

3,871

990

2001 2002 2003 20052004 2006 2007

Average Spot price

Zinc price ($/T)

2006: $2,561

+35%

2006: $3,253

+135%

17

27

37

47

57

67

77

2001 2002 2003 20052004 2006 2007

24.6

26.5

52.5

57.9

Monthly average Brent high

Brent price ($/Barrel)2006: $64.9

+20%

2005: $1,899

2005: $54.2l

2005: $1,382

2005: $3,679


Compensated 60%+ of raw material headwindsin 2006

Cumulative impact as a % of sales

0

1

2

3

4

5

6

Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06

2.2

4.9

2.1

Net impactGross impact

1.3

2006 vs. 2005 Gross: (1.9pt)Net: (0.7pt)

(Index 100: 2003 average)


Raw material headwinds hide margin consolidation

2,0%

3,0%

4,0%

5,0%

6,0%

2004 2005 2006

Reported operating margin

Operating margin adjusted for cumulative raw material impact

Operating margin adjusted for cumulative raw material impact (2004-2006)


Footprint rationalisation in 2006

Tunisia

BrazilGuarulhos (VSS)

Diadema andCantareira (VSS)

Consolidation of2 Mateur sites (VECS)

IranSaveh (VEC)

ChinaWuxi (VEMS)Nari (Telma) (VES)Changchun (VC)

Opening

Closure/consolidation- disposals*

Czechowice (VECS)Zielonki (VMA)*Poland

December 2005134 sites (44% in LCC)

December 2006129 sites (45% in LCC)

Lacanche (VECS)France

Bietigheim (VMA*) Germany

Santa Perpetua (VMA*)SpainBond Street (VEC)

USA

Juarez (VMA*)

Mexico


Footprint realignment in perspective31/03/2001 – 31/12/2006 ; perimeter changes included

LCC/ HCC breakdown170

129

LCC HCC

Industrial sites walkdown

31/03/2001 Closures Acquis. 31/12/2006Disposals Openings

170

-47

-29

+23+12

129110

71

31/03/2001 31/12/2006

60

58


Purchasing progressively aligned with industrial footprintLCC footprint and production purchasing- 2001- 2006

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

March2001

Dec2001

Dec2002

Dec2003

Dec2004

Dec2005

Dec2006

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

% of purchase amount from LCC % factories in LCC

Value chain

More competitive (manufacturing labor costs, LCC sourcing, logistics)

Less complex


Quality levels: significantly better and more consistent across the organization

Q4-03 Q4-04 Q4-05 Q4-06

Including 11sites at 0 ppm

Including 15sites at 0 ppm

Customer returns in partsper million

Q4-2006

Q4-2005

Single digit PPM sites

185

5332

15

63 sites (47%)

47 sites (39%)


Results (cont.)

2005R&D expenses (net) As % of total op. revenues

SG&AAs % of total op. revenues

Total overheadAs % of total op. revenues

Other income & expensesAs % of total op. revenues

Operating incomeAs % of total op. revenues

2006

(542)5.5%

(643)6.5%

(1,185)12.1%

(50)-0.5%

3243.3%

Change

(545)5.4%

(653)6.5%

(1,198)11.9%

(70)-0.7%

2712.7%

+0.6% (0.1 pt)

+1.7%=

+1.1%(0.2 pt)

+44.0%(0.2 pt)

-16.4%(0.6pt)

In euro million


Operating margin walkdownIn euro million

RawMaterials

2005

FactoryProductivity

Overhead

374 (185)

+115+20

+17

341

2006

Offsettingactions


Results (cont.)


Operating income

Cost of net debtOther financial inc./(expenses)

Income before taxes

TaxesEffective tax rate

Associates and minority interests

Non strategic activities

Net income

2005324

(52)(52)

220

(66)30.0%

(0)

(12)

142

2006271

(57)(9)

205

(75)36.6%

(5)

36

161

-16.4%

+9.6%nm

-6.8%

+13.6%+6.6pt

nm

nm

+13.4%

Cash Flow & Balance sheet


Net financial debt walkdownin euro million

Net debt@ Jan. 1, 2006

Freecash flow

VMAdisposal

Otherdisposals

Others

Net debt@ Dec.31, 2006

Dividends

9681,080

-26 +89

-122-31

-22


Inventory management

6.1%6.4%

654

2005* 2006

6.4%

647

In euro million and % of total operating revenues

* Including VMA


Negative working capital at year end

2004 2005 2006

In euro million and % of total operating revenues

101

69

(12)2.2% 0.7%(0.1)%


Gearing down 5 ppt in H2-06in euro million

1,551

Gearing: 81% Gearing: 63% Gearing: 60% Gearing: 55%

1,263

1,717

1,080

1,742

1,053

1,752

968

30/06/2005 31/12/2005 30/06/2006 31/12/2006


Higher asset turn

2,2

2,3

2,4

2,5

2,6

2,7

2,8

2,9

3

3,1

3,2

2005 20062

2,5

3

3,5

4

4,5

5

5,5

6

Capital Employed* Asset turn (X)

2.7 2.5

3.8 4.0

In euro billion

* Excluding goodwill

Business &Strategic Initiatives


Rewarded innovations

2006 Nissan Global Supplier award for Innovation (ValeoClimate Control Japan)

Automechanika Innovation award for Power Line Communication

StARS winner of the 2006 PACE Award (European products category)

Blind Spot Detection System finalist at Pace Award 2007

First Park4U contractfor Volkswagen


Valeo adds value in Powertrain Efficiency

Power onDemand

Hybridization

ThermalManagement

EngineOperation

TransmissionAutomation

- 10-15%

- 4%

- 3%

- 15-20%

- 5%

- 6%

- 40% Feasible!

CAMLESS SystemCAMLESS System -20%

MICRO HYBRID with Regenerative brakingMICRO HYBRID with Regenerative braking

MICRO-HYBRID StARS SystemMICRO-HYBRID StARS System

DUAL CLUTCHtransmission

DUAL CLUTCHtransmission

THEMIS™THEMIS™

BELTLESS engineBELTLESS engine

Low consumptionA/C compressorLow consumptionA/C compressor


Motors & Actuators business disposal

Effective on December 27, 2006

Rationale for the disposalLack of critical massLow value added to our Domain strategyAttractive offer

Financial impact€36m positive contribution to P&L (ow. capital gain €41m net)


Projected acquisition of Ford Thermal Systems facility

Consistent with Valeo’s strategy to be a global leader in its core product lines

Acquisition conditional upon reaching a competitive agreement with UAW concerning a new Collective Bargaining Agreement

Transaction designed to eventually provide Ford with market-based prices while allowing for a profitable operation of the plant

Outlook andObjectives


2007 trading conditions

Car production in core markets not stabilizing before H2-2007

Reduction in raw material headwinds


Group re-engineering

Optimization of resources and processes ofprinciple functions:

Starting with Quality and Logistics

Contribute to 2010 margin objective of 6%+


Contact

InvestorInvestor RelationsRelations

Rémy DumoulinRémy Dumoulin43, rue 43, rue BayenBayenFF--75848 Paris Cedex 1775848 Paris Cedex 17FranceFranceTel.: +33 (0) 1.40.55.29.30Tel.: +33 (0) 1.40.55.29.30Fax: +33 (0) 1.40.55.20.40Fax: +33 (0) 1.40.55.20.40EE--mail: mail: [email protected]@valeo.comWeb site: Web site: www.valeo.comwww.valeo.com

mailto:[email protected]

http://www.valeo.com/

Back-up


Quarterly P&L (2005 – 2006)

NET SALESOther operating revenues

TOTAL OPERATING REVENUES

GROSS MARGINas % of net sales

Research & Development expendituresSelling expensesAdministrative expensesOther income & expenses

OPERATING INCOMEas % of operating revenues

Cost of net debtOther financial income and expense

INCOME BEFORE INCOME TAXESIncome taxesEquity in net earnings of associated companies

INCOME FROM CONTINUING OPERATIONS

Non strategic activities

NET INCOME FOR THE PERIODMinority interests

NET INCOME ATTRIBUTABLE TO EQUITYHOLDERS OF THE COMPANY

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q12,630

24

2,654

41515.8%

(176)(51)(122)(31)

592.2%

(16)(7)

36(12)

2

26

(1)

25(2)

23

2,62728

2,655

42016.0%

(169)(50)(118)

(1)

1104.1%

(15)16

111(32)

3

82

(10)

72(1)

71

2,23528

2,263

33515.0%

(150)(46)(101)(21)

452.0%

(14)(6)

25(23)

0

2

6

8(1)

7

2,47836

2,514

36914.9%

(166)(48)(117)(17)

572.3%

(12)(12)

33(8)(5)

20

41

61(1)

60

2,48526

2,511

39015.7%

(163)(49)(110)(14)

803.2%

(13)(12)

55(12)

1

44

(2)

42(1)

41

2,30725

2,332

36515.8%

(154)(45)(107)

(2)

823.5%

(16)(14)

52(16)

0

36

(5)

31(2)

29

2006 2005*

2,67028

2,698

43716.4%

(167)(51)(122)(21)

1043.9%

(13)(14)

77(27)

6

56

(6)

50(3)

47

2,27419

2,293

36716.1%

(156)(46)(113)(13)

582.5%

(10)(12)

36(11)(1)

24

1

250

25

* Restated for non strategic activities


Share InformationShare Data / ADR Data

Share DataBloomberg TickerReuters TickerISIN NumberShares outstanding as per 31.12.2006

FR FPVLOF.PAFR 00013033877,580,617

ADR DataRatio (ordinary share: ADR)Bloomberg TickerReuters TickerISIN NumberTypeExchangeSponsor

1:2VLEEY USVLEEY PKUS 9191343048Level 1OTCJP Morgan Chase

2006 Results and OutlookDiadema and Cantareira (VSS) Consolidation of 2 Mateur sites (VECS) Iran...

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