Valeo SE (FR) Earnings Call Transcript & Summary

[Audio Gap] And the 50% is scoped downstream, all that is validated by the SBTI. And the management compensation is totally aligned with those target for the variable remuneration yearly and for the long-term incentives. We are recognized by the rating agencies, all of them. And you know that we entered the CAC 40 ESG index. Now if we go to Page 14. You see our outperformance, I already mentioned it, outperformance compared to the market, 11 points in North America; 11 points in Europe; 21 points in China and 10 points in overall Asia; and 25 points in South America. And you see with the different color who is driving our outperformance, in China, is CDA, Thermal and Visibility; in Europe is mainly, CDA and PTS; in North America is mainly CDA and Visibility; in Asia is CDA, Thermal and PTS; and in South America is Visibility, PTS and CDA. Now if we look at the outperformance in Asia, 10 points, India is a strong outperformance, 10 points (sic) [ 20 points ]; China, already spoke about it, 21 points; and Japan, where we have a lot of exposure with Nissan, we have only 6 points outperformance between 2021 and 2019; and South Korea, we are in a transition phase for some products to new platforms, we have only 4 points. But that's what I told you last time to start to be corrected at the end of this year. Now one slide for each one, 12 points outperformance for powertrain. It's mainly driven by 48 volts, which is increasing in line with what we told you in our Capital Markets Day in December 2019. And we have a strong order intake. The growth opportunity also in transmission, especially for hybrid, there are 2 of the class that we are delivering. Of course, the 48-volt transistor, 48-volt powertrain for the AMI. And we have lots of orders coming for low-voltage powertrain. We are obviously part of the EQS with the e-Axle, which is considered as a fantastic car and actually is a fantastic car. And for 48 volts, we are benefiting from the Hyundai-Kia growth. In thermal, one point in thermal, we have 45% of our order intake which is linked to product -- specific product for electrification in battery cooling in each, in heat pump, in FlexHeater. And when we look forward, it would be more than 50% in the second half of this year. And you remember the content per car in electrification for us will be doubled compared to what we have for [indiscernible]. Comfort and driving assistance, 16 points of outperformance is mainly driven by ADAS. I'll come back to that later. We have a very strong momentum in ADAS and a strong momentum in new orders. And that momentum you have seen in the outperformance in different region is extremely strong in North America and China. For visibility, we are #1 worldwide as you know. And we have lots of pixel lighting or matrix beams, so very sophisticated product which is driving our growth in the -- for thermal, like I said. And visibility, it's only an unfavorable short-term customer mix that is affecting our growth potential. And now I'm going to hand over to Robert for some financial figures and then I'll speak later on.

Okay. Thank you, Jacques. I propose to review the profitability value during the first half of this year. So as indicated in the introduction, we have generated an EBITDA margin of 13.4% which is mainly the result of a very strict control of our costs, but also the result of a sharp improvement of the industrial efficiency of value. And finally, we are also able to take advantage of the technological platforms that we built during the years '17 to '19 in order to reduce our R&D cost. If we move to Page 21, you have the bridge concerning the evolution of the gross margin between H1 2019 and H1 2021. So we had -- we suffered from 2 negative effects. The first one is directly related to the drop of sales we had in H1 '21 compared to H1 '19. This drop of sales represents around EUR 780 million, very close to EUR 800 million. We consider that the impact is a negative minus 0.7 points in terms of gross margin. In addition, in the years '18 and '19, we invested heavily in order to prepare the production capacity for our new products, but also because we assumed that the evolution of the production car -- global car production would be much higher than what we observed during this semester. So we had, therefore, a negative impact of the fixed cost. And instead of fixed cost, I should say, mainly depreciation, the level of depreciation we had in H1 '21 is significantly higher than in H1 2019. And due to the lack of sales, it represented a negative impact of 0.7 points. On the other hand, you can see that the industrial efficiency of Valeo was much better all over the semester compared to H1 2019, and it represents an improvement of 0.9 points. And I want to highlight that this industrial efficiency improvement was achieved in an environment which was rather complicated due to the shortage of electronic components and also due to the stop and go of the production of our customers, which created some disturbances in our own plants. But despite this very complicated environment, we were able to improve our industrial efficiency by 0.9 points. In addition, we improved the margin of our tooling sales and the change in perimeter and exchange rates had a positive impact of 0.1 point. So all in all, we were almost able to offset the negative impact of volumes and the negative impact of the increase of depreciation, thanks to -- mainly thanks to industrial efficiency. In terms -- now if we move to Page 22, you can see that as far as the R&D expenditures are concerned. You can see that our gross R&D expenditures decreased by 20%. This is more than EUR 200 million between H1 this year and H1 2019. This is a decrease of 20%, and it represents compared to sales, a decrease of cost of 130 basis points. This decrease of our gross capital expenditures is mainly driven by the fact that the technological platforms that we created during the year '17, '18 and '19 are very, very efficient. And you know this is what we presented in December 2019 during our Capital Market Day. If we spent EUR 100 million in development cost for the first contract of a given product, we can significantly decrease the development cost for the second contract and the third contract. We can, in some case, decrease by 60% or even 70% the development cost. This is all the effects of the technological platforms which were implemented. And we have started, since the beginning of the year, really to take advantage of the efficiency of our technological platform. Of course, by the same time, what I call the IFRS impact, which are linked to the increase of the depreciation of the R&D cost, which were capitalized in the year before 2020, has significantly increased. This is an impact of 90 basis points. And by the same time, when you decrease your gross capital -- your gross R&D expenditures, by the same time, you decrease the level of capitalization. And the decrease of the level of capitalization in H1 this year represents 90 basis points. So all in all, the IFRS impact represented this year -- this semester a negative impact of 180 basis points, which were offset partially but significantly offset by the decrease of the gross R&D expenditures. So if we move to Page 23, you can see that the operating margin of 4.6% achieved in H1 2021 is a result of the decrease of the gross margin of 30 basis points compared to H1 '19 and an increase of the R&D expenditure, the global R&D expenditures. I mean the gross capital expenditures plus the IFRS effect of minus 40 basis points. Now if we go to Page 24, so you have the detail of the P&L, so the gross margin which was supported by the operational efficiency; the R&D expenditures which increased by 40 basis points. But when we look at the gross R&D expenditures or what I call the cash R&D expenditures, represent a decrease of 130 basis points. And when it comes to the line joint venture and associates, you can see that in H1 2021, this line was negatively recorded level of losses of EUR 119 million to be compared with the level of losses of EUR 107 million in H1 2019. Out of the EUR 119 million of -- we have on this line, EUR 124 million were generated by the joint venture, Valeo Siemens. And compared to H1 2019, we have 2 joint ventures, 1 in China and 1 in North America, which recorded a level of profit lower in H1 '21 compared to H1 2019. And Page 25, when we look at the cost below the operating margin, including joint venture and associates, first, you can see that the level of other income and expenses was almost in line with the level of H1 2019. In terms of cost of net debt, we have an improvement of EUR 9 million. In terms of effective tax rate, we have a slight increase of our effective tax rate, which went from 29% in H1 '19 to 31% in H1 2021. And in terms of net income, we achieved a net income of EUR 90 million, 1% of the sales, which represents an earnings per share of EUR 0.38 per share. In terms of return on capital employed, we have an improvement of 100 basis points to 13% compared to 12% in '19. And in terms of, returns on assets, we have the same improvement, 100 basis points at 7%. I propose now to look at the free cash flow generation we had during the first half of this year. So this is a free cash flow generation of EUR 145 million which is based on an EBITDA of EUR 1.205 billion in H1, which represented 13.4% of our sales. In absolute terms, it's almost in line with the EBITDA of H1 2019. But in H1 2019, the EBITDA margin was only 12.5%. When we look at the breakdown of the EBITDA by business group, you can see that first 3 business group, comfort and driving assistance, thermal and visibility, were able to improve their EBITDA margin. Powertrain system show -- has posted a decrease of 50 basis points which is mainly related to the decrease of the dividends from the subsidiaries concerning this business asset equity, which decreased in H1 by EUR 14 million compared to H1 2019. And Page 28, we want to highlight the fact that during the semester, our inventories have increased by EUR 200 million. And this increase was absolutely under the control of the management of Valeo. We decided, in fact, to increase our inventory in order to secure the deliveries to our customers, once again, in a very difficult environment due to the shortage of electronic components. So first of all, we try to secure as much as possible of supply -- our own supply of electronic components. And on top of that, we wanted to secure the deliveries to our customers. It is clear that this increase of inventory is a temporary increase, which will reverse when the situation normalizes. And I mean the situation -- by when situation normalizes, I mean when the shortage of electronic components will decrease or disappear. Page 29. In terms of recorded CapEx, you can see that the tangible CapEx, I mean, the CapEx excluding IFRS 16 decreased by EUR 228 million, and our tangible CapEx represented 4.1% of our sales in H1 this year compared to 6.1% of our sales in H1 2019. This is a sharp decrease. But it's very important to have in mind that we have made a significant effort during the years '18 and '19 in order to prepare the production capacities for the future. And today, we have -- our production capacities are available, and we have production capacities which are really available and we are ready to absorb an increase of the activity without being obliged to increase sharply our recorded CapEx, which means that in terms of cash for the next semester, it will, of course, help us to improve the free cash flow generation. Concerning the IFRS 16 impact, I want to mention the fact that during the first half of this year, we have -- we entered into 2 lease contracts, 2 significant contracts. One, of course, a new building in for comfort and driving assistance, which is a bidding for R&D and for the headquarter of this -- of the business group. This is a bidding, which is leased over a period of 18 years and which represented an impact of EUR 73 million in terms of IFRS 16. And the second contract is linked to the future headquarters of Valeo. So we have a new lease contract, which represented EUR 57 million over a period of -- which represents the future lease over a period of 12 years. And now Page 30, if we look at the free cash flow generation. So you can see that during the semester, we have been impacted by the negative change in operating working capital, minus EUR 218 million, which is a direct consequence of the inventory increase I have already presented or commented. Second, the restructuring cost represented a cash out of EUR 54 million. And the taxes were lower compared to H1 2019, but they represented a cash out of EUR 133 million. In terms of CapEx, so you can see the sharp decrease in terms of cash out from EUR 568 million (sic) [ EUR 566 million ] to EUR 279 million when it comes to the capitalized R&D, and from EUR 400 million to EUR 291 million when it comes to the -- sorry EUR 400 million to EUR 291 million when we speak of capitalized R&D and from EUR 566 million to EUR 279 million when we speak of tangible CapEx. The level of interest was very low, EUR 13 million. This is due to the settlement of all the cash flow hedge instruments which we have put in place when we issued a nondilutive convertible bond in 2016. This convertible bond has been reimbursed. It was denominated in U.S. dollar. It has been reimbursed on June 16 this year and all the hedging instruments linked to this -- to this bond represented a positive impact in terms of cash, which helps us to mitigate the cash out related to the interest. And finally, the other financial items are comprising EUR 89 million of dividend paid either to our shareholders or to the minority shareholders of our subsidiaries. And they are also linked to additional financing to Valeo Siemens of EUR 86 million. So you can see Page 31, that at the end of H1, we had a leverage of 1.25, significantly better than the 2.73 we had 1 year ago or even compared to the 1.96 we had at the end of December 2020. Our objective is to go at the end of '21 to a leverage very comparable to the leverage we had at the end of 2019 below 1.13x end of December 2021. In terms of debt profile, Page 32. So you can see that we -- our debt at the end of June had an average maturity of 3.2 years. We have reimbursed [ EUR 470 million ] linked to a nondilutive convertible bonds we had. This reimbursement took place in June during this semester. And now the next reimbursement will take place in September 2022 when we have to reimburse the EMTN obligation of EUR 600 million. And by the same time, we have, at the end of December, EUR 2.3 billion of credit facilities, which were [ controlled ]. So this is what I wanted to highlight. And now I hand over to Jacques Aschenbroich for the order intake of the period and the guidance.

Thank you, Robert. As you see, Page 34, we have a level of orders of EUR 10.6 billion, which is a book-to-bill of 1.4x. In 2019, in the first half of the year, we had EUR 11.1 billion of order take, but only a level of book-to-bill of 1.3. If you go Page 35, you see what is linked to the electrification and the high-voltage electrification. I'm going to start with the thermal, what we call eThermal. You have on the left-hand side the products which are mainly impacted which is high-voltage coolant heater, the battery cooling and light composite, the efficient heat pump, unique compact cooling module. The orders we have taken over the last 3 years are EUR 5.2 billion. And like I said, it's more than 45% of the order intake in the first half of this year. And when we project ourselves, in the next quarter should be significantly above 50%. And the top hand, you see the EUR 1.1 billion of secured business by Valeo Siemens. And we feel extremely comfortable that we can reach more than EUR 4 billion between 2021 and 2022 and the EUR 1.1 billion with the amount of book to bill of around 3.3. And if we look at the ADAS, which is another topic where we have incredible growth. The cumulative orders we're having is EUR 14 billion. And what we have reached in the first half of the year is EUR 2 billion is totally linked with our technical platform. So the additional R&D, which will be needed for developing those products and delivering them to our customers will be far lower than what we had in the previous years. So if we go to last page, which is again the guidance for the year. As I stated several times, the market conditions are more difficult than we had expected. So instead of having 10% growth, we expect to have 9% growth compared to 2020. And we confirm the higher part of the range of our guidance, which means EBITDA of 13.4% and a free cash flow of EUR 550 million. And for Valeo-Siemens, the automotive -- the evolution of contribution to the Valeo P&L is exactly in line for the full year and what we had expected, and the cash position for the year is in line with what we had expected which is lower than what we had experienced last year. So that is the presentation we wanted to make. We are ready, Robert and myself, to answer a few questions.

[Operator Instructions] The first question comes from Tom Narayan from RBC Capital Markets.

Yes, Tom Narayan, RBC. So earlier today, Daimler announced it's buying a high-tech supplier making e-motors and bringing it in-house. We've also heard some in-sourcing plans from VW, Renault, Stellantis on e-motors and inverters. It's a question of how big of a problem is this for Valeo? And do you think there's a risk that further in-sourcing happens, perhaps with battery management? And then could you remind us, please, what your raw material contracts, how they work with your OEM customers?

So the in-sourcing, I wouldn't change anything on what we said. At the same time, we have a review and discussion -- technical discussion with all the customers you were mentioning. So the impact of those in-sourcing is not different from -- or potential in-sourcing is absolutely not different from what we had our vision 4 years ago, 5 years ago when we said to go together with Siemens in Valeo Siemens. So the growth potential and the order intake potential is tremendous. So I don't make any more comments. The EUR 4 billion that we can achieve in the 2021, 2022 starting, we feel very, very comfortable about both in power electronics and in e-motors. Concerning the contracts we're having with our customers, I will make 2 comments. One comment is, you remember, in April, we mentioned that the cost net of compensation from our customers due to increase of raw material and the difficulty of the -- due to the shortage of electronic components, it will be around EUR 80 million. We totally confirm that figure. The net of compensation from our customers will be around EUR 80 million for the year, but very much concentrated in the second half of the year. Therefore, we totally confirm that that's the reason why despite that the situation is the -- concerning the market more difficult, we totally confirm our guidance. For the contract, we are active for selling new product, the copper and aluminum, which are around 75% -- [ 75%, 80% ]. And thank you for the team. [indiscernible] Please, please , please. Can you be on mute? Yes, because we hear a lot of -- sorry. And for steel, we have around 50%. But at the same time, we are negotiating with lots of compensation from our personal. Therefore, very, very comfortable that the net impact of all the [ disposals ] and the increase of raw material net of compensation will be around EUR 80 million, like I said, concentrated first half of the year, and therefore, we confirm our guidance.

The next question comes from Giulio Pescatore from BNP Paribas.

Giulio from Exane. So the first question is on the order intake of the JV. I was wondering if you could give us a cumulative number as well to maybe compare with the one you gave us back in 2019 just to understand what is the general trend and what is the situation there. Then the second question on the free cash flow. What is going to be driving the acceleration in free cash flow generation in H2? Is it -- are you accounting for some reversal of the buildup in inventory you've done and what if that doesn't materialize?

For the first question, I was not expecting that question. So I think we have cumulated EUR 11 billion. There's some orders we had last year and the year before, plus EUR 1.1 billion, so it could be around EUR 14 billion, probably something like that. So we are around EUR 13 billion.

Yes, around EUR 13 billion if we give out the sales of last year.

Yes. And what it is materializing in terms of sales in the first half of the year, the ramp-up of some of our customers is a little bit slower than we had expected. But for the full year, I think it will be in line with what we had expected in terms of sales. For the free cash flow, Robert will confirm the assumption I'm going to do. We didn't expect that we'll recover the full the increase of inventory we have done. It will happen once it materialized. But we have been cautious of the speed at which it will be materialized. So we took an assumption that we'd recover only a smaller part of the inventory. Robert, can you tell [ your... ]

No, no, this is exactly the point. We have assumed that a small part of the EUR 200 million of inventory increase will be reversed during the second half of the year. By the same time, of course, we will continue to manage in a very strict manner our CapEx and our R&D -- what I call the cash R&D or the R&D gross expenditures. Generally, we have always in second half of the year, we keep generating a higher level of free cash flow compared to H1. And based on what we can see today from the level of activity, we consider that generating a level of free cash flow over the year of around EUR 550 million is okay. But we don't -- I don't mean that we are going to -- we assume we are going to reverse the EUR 200 million of inventory increase.

Okay. And can I just follow up on the first question. So given that the order intake today is just the sum of what you got after 2019 and less the revenue, it's fair to assume that you had no cancellations of -- from customers maybe deciding to go in-house. I mean I'm just thinking about maybe Volvo that was quite vocal about doing everything in-sourced? So there was no cancellation?

No. We have, just on the contrary, some customers that expanded their order intakes, so.

The next question comes from Gabriel Adler from Citi.

Gabriel from Citi. I've got 2. My first question is on CapEx and R&D. You mentioned in the presentation your total PPE and R&D CapEx is now quite a bit below 2019 levels. I think as a proportion of D&A, it's well below 1x compared to being between 1.5 and 2x historically. So my question is simply, how sustainable is this level of investment? Is this a new normal because of the technology platform that you mentioned? Or will R&D and CapEx need to increase again in the future to fund future innovation and growth? And then my second question is on the gross margin bridge. Could you just elaborate, please, on the industrial efficiency bucket you flagged? What are the key drivers here? And is there any temporary element here? Or how should we think about these efficiencies going forward?

I'm going to answer the first -- the second question first. The efficiency of our plants have been very much impacted by all the new projects and new products that we have launched in the year 2019, 2020. Innovation is very interesting, but the launch for new products is always something that is quite complex. And things are now running better -- much, much, much better, but we have still room for improvement. And therefore, I wouldn't be surprised that we still have in the quarters to come, a further increase in efficiency, especially because that increased efficiency has been reached at the moment where the volatility of the product call-off from our customers has been extremely volatile, extremely [ rampant ]. Let me give you an example. In June, the forecasted [ EDI ] from our customers has been 20% higher than the call-off, the actual call-off that has had an impact on the inventory. And of course, an impact for being able to [ viabilize ] our production and adapt our actual production to the actual needs of our customers. So they were always -- all our customers were always overspeaking their needs in the short term. And nevertheless, our team have done a fantastic job to improve the efficiency. So therefore, I'm quite confident that it will further increase. On the CapEx side, the level of CapEx and the sales have been 4.1% in the first...

In terms of the tangible CapEx, excluding IFRS 16?

It should be around 4.5% maybe in the second half of the year. And for the R&D is typically the leveraging of our technological platform. In the Capital Market Day, we said that the gross R&D, the cash R&D should go down from 10.5% or 10.6%. We were down to 9.4%. And we're already at 9.4%. And my impression is that we can further go down. So that is really structural, thanks to the leverage of our technological platform.

Just one additional comment. When you look at the impact on the gross margin point of the segment, which is under the caption fixed cost, which in fact, is mainly depreciation, it represents a negative impact of 70 basis points. But we consider that should have -- with additional level of activity between EUR 350 million and EUR 400 million, we should be able to reduce this negative impact to 0. So you can see that we have -- our production capacities are available. We are ready to absorb a higher level of activity with no additional or with very small recorded CapEx. So I consider today that within the current environment -- and once again, the environment was a bit difficult when I look at all the disruptions we had coming from the production of our customers. I consider that we have still a lot of opportunities in order to improve our profitability should the level of activity, of course, increase in the forthcoming semesters.

The next question comes from Thomas Besson, Kepler Cheuvreux.

I have 2 questions for Robert, please. First...

Can you speak louder, please? Because we cannot hear you very well.

Sorry, I'll start again. It's Thomas Besson, Kepler Cheuvreux. Can you hear me now?

Yes, much better.

Okay. I have a first question for Robert, please, really [ some ] modeling question. Could you please help us on where you expect to land for the full year on the following things: on the tax rate, on the joint venture losses and on the total CapEx, so tangible plus intangible CapEx? That's the first question. Sorry, because I'm not sure I understood your [ view ] on CapEx. The second question is about the joint venture. Are you able today to give us an update on the timing of the consolidation of the JV and its impact on your accounts, please?

On the question -- the second question, we'll update you the day we take the decision. So when we take the decision, it will be made public. And at that time, we'll tell you that we made a decision to exercise our call or that Siemens decided to exercise their put, and we will give you at that time the impact on our debt and our accounting. Concerning the first question, I think I've been quite explicit on the CapEx. I told you that the CapEx on the first half of the year was 4.1% of the sales. It should be around 4.5%, maybe less in the second half of the year. So I think I've been answering that question. For the tax rate?

For the tax rate, we will achieve a lower tax rate at the end of the year compared to the 51.3% we had in H1. It's -- at the end of H1, we will supply a budget rate to the different -- to the prospect -- the net income we have in the different countries. But what I can see today is that by the end of the year, we will probably achieve a level of a tax rate, I would say, between 28% and 29%, which is better than what we have at the end of H1. You had another question, I missed the third point, you wanted information concerning the lending at the end of the year.

Yes, the associate's losses, and the what should be, what should you...

It should be -- yes, yes. It should be below EUR 200 million, which, in fact, means level of losses in H2 lower than what we have recorded in H1.

It should be [ EUR 180 million ].

Yes.

The next question comes from José Asumendi from JPMorgan.

José, JPMorgan.

Yes. How are you doing?

Couple of -- good to hear. A couple of questions. First, congratulations on the [ beat ] expectations today. I think you're delivering in line with the plan. I want to get to the -- to your EBITDA margin guidance. And I would like to hear a little bit about the second half versus the first half progression. Some of the categories that you're seeing like raw materials, volume or pricing. I'm getting the impression that maybe there is a chance you could upgrade your EBITDA margin guidance for the year in the light of the strong first half result? Or maybe it should be -- we'll be still a little bit more cautious for the second half and assume lower second half margins versus the first half? But maybe in the light of the stronger volume growth we may have in the second half, maybe you are in a situation to upgrade your margin guidance. So that's the first question, if you could comment a little bit on sequential second half to the first half. And then the second question on Siemens-Valeo. Can you talk a little bit about the revenues you're generating as of the first half on the joint venture? And then as we look at this order number, order book number, like these orders, how many years does it take to translate into revenues?

Yes. Yes, first question is a very interesting question. The -- you are right. Normally H2 should be higher than H1. And if that is the case, our EBITDA margin would be higher in the second half of the year. The only problem is COVID and I'll elaborate on that and the shortage of electronic material and, of course, the increase of raw material. The increase of raw material, there's a lot of work which has been done to have the compensation. Therefore, I feel very comfortable, like I said, of the EUR 80 million, mainly concentrated to the second half of this year net of compensation from our customers. COVID. If you look at the disturbance on the semiconductor market, it was a very, very tight market, you remember at the beginning of the year. Then there were 3 events that happened. One is Texas. And you remember that in Texas, we have Infineon, we have NXP, we have Samsung producing there. And there was disturbance of 2 weeks of production. Then we have the fire in [ Renesas ] , which disturbed the production during a few weeks. And now we start to be delivered normally again. And very recently, there was the lockdown in Malaysia due to COVID. And in Malaysia, there are a few producers of semiconductor like [ Onsemi ], like NXP and so on. So the COVID, I'm not very much afraid of lockdowns that would disturb the market might happen, but it's not that, that makes the situation uncertain. It's the fact that in some countries where the level of vaccination is very, very low, like Malaysia, Indonesia, Thailand and so on, those countries where some of electronic components producer or some other [ TX ] suppliers might produce, we can be impacted and therefore, the uncertainty is there. So you are right, normally, it should be higher. Given the level of uncertainty at that stage, I prefer to be cautious. For the Valeo-Siemens, actually, the sales was around EUR 350 million.

[ EUR 470 million ] in H1. In fact, we started -- we had a good start with the Q1, which was exactly in line with our expectations. And what we have observed during the second quarter, the fact that the level, the product delivered to our customers were not at the expected level not because Valeo-Siemens was not able to produce. This is not the problem, the problem was that our customers obviously had some issues because of their own supply of electronic components, which had some impact on their own production.

And that order book translate into revenues? Does it translate into revenues [ 2 years out, 3 years out ]?

Yes, that should normally lead to the 4 years out, 3, 4 years...

3, 4 years, with one exception, which is the EUR 1.1 billion. We have a new order for a product which is very similar to an existing one, which will be produced very, very quickly. This is a new order, which could start to generate sales mid of next year.

The next question comes from Sascha Gommel from Jefferies.

I have 2 as well. The first one is a follow-up on the orders. And you just briefly touched on it at the end of José's question. But can you talk little bit about, a, the customer split? Is it kind of a couple of large orders or a few smaller orders? And then also the product groups, is it kind of whole powertrains? Is it inverters? Is it e-motors? That would be great to understand. And then my second question is also coming back to this R&D and CapEx question. We heard from the EU kind of tougher targets until '35. We see a lot of OEM announcements, accelerating a lot of programs, changing platforms kind of hosting new platforms. And I just wonder, can you still supply to all of these new platforms that come in '25 and beyond with your kind of platform developments? Or do you think kind of by the mid-'20s, you also need to step up your investment spending again and kind of develop a new platform in order to serve the new platforms of the OEMs?

For the second question, we speak about the Valeo, not the Valeo Siemens, Valeo.

Yes. [indiscernible] Valeo.

Yes. Actually extremely comfortable that when our customers think about platforms, the overall product that we are developing in CDA or in lighting or in thermal and even in PTS to the Valeo Siemens part of the -- Valeo part shouldn't need a higher R&D spending. So I think that on the horizon you are mentioning, I have no doubt that we use mainly our technological platform. In a technological platform, it doesn't mean that it's frozen. It means that when we go from generation 1 to generation 2, the addition of R&D is much lower than what we spent at the very beginning. Remember the CMD, we are showing you some period of how much the first order cost, the second, third and the fourth. It's exactly the same for the new generation, the additional spending is very limited. So the R&D has been very, very comfortable. The first question was related to the breakdown...

The breakdown.

So in Valeo-Siemens, normally, the order intake is rather large, it's normally EUR 200 million minimum. For what we have had in that first half of the year, it's probably 70% Europe, then 15% Asia, 15% North America, along that level. And it's probably, at that stage, 75% power electronics and 25% electric motor. But that will be reversed, and we have big orders in [ H2 ] and in predevelopment with our customers with the motor, the e-Axle. So I'm very comfortable that the average that we are having so far will be maintained in the years to come.

There was just the question concerning the breakdown of the order intake at the Valeo level by business group.

It's very well split.

It was a well-balanced performance between the business group, with 1 business group, which was slightly lagging behind which is visibility. But visibility should catch up during the second half of the year.

Probably, already catched up in [ realtime ].

Yes, yes. So it's not at all a problem. But very much a performance between all the business groups.

The next question comes from Michael Foundoukidis, ODDO Securities.

Michael Foundoukidis, ODDO BHF. So first question is on outperformance. During the Q1 call, you said you were aiming for 5 points versus 2020 this year. You have only 2 points in H1. So could you confirm that you expect a significant acceleration in H2 and give us more color on that? And then the second question, sorry to come back on the JV, sorry, but I'm surprised by your comment earlier on the fact that everything is going exactly as you planned 3, 4 years ago, as we have almost every week, different carmakers [indiscernible] that change their minds and they want to in-source a much greater part of the drivetrains now even including power electronics what you said less than a year ago was not at risk, contrary to motors. So even taking the concrete example you mentioned in your presentation, your comment on the EQS. But it's now unfortunately almost sure that it will not be in the success given the announcement today, right? And maybe as a follow-up, do you believe that the current level of EUR 2 billion orders intake per year for the JV is enough for the JV to continue to grow at a double-digit rate after 2024?

The first question was...

Valeo performance over the year.

Yes. I told you that what we look at the best -- because you can take one figure, the other figure. The best way to compare ourselves is to compare with 2019, the precrisis level. And comparing with 2019 in each one of the regions, we're outperforming more than 10 points. So therefore, afterwards, we are not responsible for the geographical mix. So I'm absolutely convinced that in each region, we've outperformed the market more than 5 points every year. And for the second question, I won't repeat myself. We are negotiating -- even with the customers, we mentioned a lot of [ RFQ ], a lot of programs. So I will not repeat. It doesn't change. And of course, I read over too you mentioned. But at the same time, our people report a discussion, even contracts that we are having and the contracts that could be materialized in the next few months. So I don't change one word of what I've said.

Okay. And just regarding the growth rate post 2024, for the JV?

First, look at -- if you have a book-to-bill of 3.3, that is what we should have in the next few quarters. That means a very strong growth in the years to come.

Yes. No, I'm talking more longer term. I mean because, of course, today [indiscernible] very low book to bill [indiscernible]...

In the longer term -- so hello? What is low? What is low?

The revenues for the JV.

Yes. Of course.

2024.

It was [ 0 ] a few years ago. It will be, what, close to EUR 1 billion this year probably between around EUR 900 million this year to be probably EUR 2 billion next year. So the more the time goes, we won't have 100% loss every year, of course. On the longer term, I'm pretty sure this will be faster and growing more. You have seen all the decisions from the public authorities with the green deal in Europe, with the U.S. administration growing much more advanced in terms of regulation. But China, some customers, you mentioned your -- Daimler today, they say that some of the new programs will be 100% electric. So things will move faster than we had expected and the growth potential for Valeo-Siemens is higher than we had expected.

The next question...

Maybe in complement to what I said, when we make some projection at the horizon of 2030, the size of the market will be probably around EUR 60 billion for electrification. And the share of suppliers that is in a different product category, suppliers like Valeo-Siemens, should be around 40%. So the growth potential is enormous.

The next question comes from Michael Jacks from Bank of America.

Well done on the good results. Unfortunately, I'm going to ask a question on the JV as well, but much different. Based on your discussions with your customers, are there any [ TFCs ] starting to emerge on which model variant, vehicle sizes or regions will be favored more or less from an outsourcing perspective. And then secondly, what sort of indications are you getting from the OEMs around contract duration? Are they more or less in line with your other businesses? Or are they different? And then my final question is on ADAS. It's contributing quite significantly to your outperformance clearly. Can you give us a sense for the change in penetration or uptake this year in Level 2, 2 plus ADAS sensors versus the prior year? And perhaps comment also on LiDAR demand.

For the first question -- I'll answer the second question first and then ask you to repeat for the first one. For the second question, I know that you look at between Level 2, Level 3 and so on. The -- we look at which products that -- in the front cameras, the [ stand ] view camera, the ultrasonic sensors, the radar and so on. And the penetration we're having is on those 3 categories -- that means we have -- or 4 categories. We have a strong momentum for [ stand ] view camera, for front camera. Strong momentum for ultrasonic sensor where we have generation 7 [indiscernible]. We have lots of interface with customers which are the new players with very advanced cameras or front line radar, which doesn't [ matter ] for the time being in the huge order intake but give us the foot in their programs when they launch the robo-taxis. So we look at it that way, more in driving assistance than in Level 2. If you translate it in Level 2, I would -- level 2 or 3, I would say that we have 2 or 3 programs at Level 3 one with a premium German customers. The other one that has been announced with the [indiscernible] in Japan and we have some others that are coming. We have a new product programs, which is extremely promising. I don't know if it is directly ADAS or not. But it's not looking outside of a car, it's looking inside of a car, where we are using and leveraging our existing technological platform, and we have huge orders that we gained already and that we might gain in the next few quarters. For the LiDAR, the -- at the end of the day, there'll be very few players. I know that some of them has been listed in the U.S. recently. At the end of the day, it'll be Valeo and probably 1 or 2 others. The market is taking more time to pick up, but we have lots of inquiries for lots of customers for the existing Level 2. Now we have 4 customers -- 5 customers. And then we are developing the Level 3 generation. Now coming back to your first question. Can you repeat it, please?

Yes, sure. Just wondering if there are any [ TFCs ] starting to emerge on when you discuss with your customers which model variants or vehicle size or the regions will be favored more or less from an outsourcing perspective. Because I mean if we look at what's been said at these electrification days, it does sound very binary. But then again, I guess the discussion on powertrain historically, it sounded binary too. And you know that there's been outsourcing here. So maybe if you can just share some color on that. And then secondly, what is the sort of average order duration or contract duration on these new wins? Is it similar to your other businesses? Or is it different?

No, and the different customers that just announced that they would in-source, now we have to -- it's a very complex topic because they can say they in-source. When they do, only the [indiscernible] of the e-Axle. They can say they in-source when they do the e-Axle [indiscernible] or the e-Axle plus [ produce the reducer ]. So therefore, we have to look at very much in details what does the word in-sourcing means, and it means lots of very, very different topic. For some of the customers that just said in the recent day that they would in-source, which has gained orders and not short-term orders, very long-term orders. So therefore, we have to really look at very, very in detail what do the customers mean, what do the customers mean when they say in-sourcing. Normally, in powertrain, the contract duration is 5 to 7 years.

The next question comes from George Galliers from Goldman Sachs.

The first question I wanted to ask was just around the cash conversion ratio. If I look at your full year guide, just the face value of the cash conversion ratio in terms of free cash flow to EBITDA is around 22%. And maybe if I adjust that to add back some of the inventory that you've built which you mentioned may not reverse in full for the second half, the cash conversion ratio is something in the region of sort of 27% to 30%. Going forward, what do you see as the appropriate or desired level of cash conversion for Valeo? And do you think 20% to 30% is a good proxy for the future? Or are you aiming for something much higher? And the second question I had was just a bit of clarity on your revision to your light vehicle production expectations. Clearly, you've made 100 basis points cut. Is that reflective of production loss in the first half? And as a result, do you expect second half production level to be similar to what you anticipated at the beginning of the year? Or is that cut actually coming a little bit from production loss in the first half, but also a lower expectation for Q3 and Q4 than you had originally?

When we made our Investor Day, the conversion rate, we said at that time was around 30%, Robert?

Lower. Between 20% and 30%.

Between 20% -- 20% and 30%.

Yes.

So I think that achieving in the next few years between 25% and 30% is more than credible. Therefore, you should count with something very similar to that. And I agree with your calculation for what we would have achieved in the first half of this year. The other question is...

It's later [indiscernible].

It's one of the topics we discussed upside down with our Board of Director today. The -- if you look at -- you remember at the very beginning of the year, we were cautious. And some of you said we might have been too cautious. When we said the market could grow 10% and at that time, IHS was saying 11.9%. Step by step, IHS is coming down to 10% growth between 2020 and 2021. The -- what is done is done. What we see that we might have further disruption -- and the reason I explained to them, to you were in the earlier answers. So we feel comfortable with 9% growth. 1% means out of 800 -- [ 80 -- few million cars ] around [ 1 more million ] cars were being lost. So we feel very, very comfortable with that. What we see is in few weeks to come is very much in line with that. So we feel comfortable with that figure.

The next question comes from Edoardo Spina from HSBC.

First, some feedback on the microchip situation. I believe you had the dedicated teams at Valeo looking at the chip shortage. So is the workload decreasing now for them? And do you expect to be able to reassign them to different tasks in the future anytime soon? Or do you also think that this microchip supply situation will repeat perhaps in a few years? And the second question is on the JV, but on the accounting. Will you be able to recover the losses that you're making in the start-up phase as a tax credit in the future? And if you can remind us the interest that the JV stake to Valeo this year and maybe next year?

The workload, I'll translate your question in another way. All the people, and it's hundreds of people which are involved in making sure that we find solutions and we can develop the product, have all volunteered to skip their holidays in August. So we think the next weeks will be still complex and the people are incredibly involved and committed into solving the difficulties. For the tax, it's a topic that, of course, Robert is looking at very much in detail.

Yes. In fact, there are 2 scenarios in the joint venture because, once again, we have not -- as Jacques has explained, we have not made our minds yet. We have not yet made our mind concerning that when we take over the joint venture. It will, of course, take some time before the joint venture is able to take advantage of the tax loss carryforward in order to recover the [ losses ]. I'm not going to tell you that it will happen next year or even the year after. We do hope that we will be able to start to recover the tax loss going forward. After that, when we take the control of the joint venture, it's clear that we will be able to have a tax consolidation in Germany. And it could be another positive advantage for Valeo because we'll be able to use those [ overseas ] to mitigate our tax in Germany.

Okay. We'll look into more details in the future. And separately, sorry, about the interest, can you remind us how much [indiscernible] is paying to Valeo?

The interest rate, they have slightly increased because as I have explained to you, we have increased our financing to the joint venture by EUR 86 million during the quarter, which, by the way, was much lower than what was expected at the beginning of the year. But to give you a precise -- to give you a precise, it's around EUR 30 million. The level the annualized interest which are charged to the company represents around EUR 30 million for Valeo. And of course, we are at parity with Siemens which means that Siemens is charging the same level of interest to the company.

The next question comes from Chris McNally from Evercore ISI.

Jacques, you reiterated a lot of the metrics for the Siemens JV. You talked about it being on track from several years ago. Maybe I missed it, but did you reconfirm the 8% EBITDA margin for 2022 target?

I said we'll be in line in 2021 for the [ further ] that's what I said at the introduction. My successor will make the point again in the CMD. I don't know exactly when it will organize it, of course, for Valeo shareholders. The fact that the market is growing much faster with [ that indication ] but I cannot tell you exactly what today, it's something that we are analyzing. Therefore, it's something that once we are ready, [indiscernible] we'll organize the CMD probably at the very beginning of next year.

Okay. Perfect. That's clear. And then just a big picture question. Has management ever considered whether Valeo would be better suited to be split up into 2 pieces, where the end markets were more aligned? If you think powertrain and the Siemens JV alongside thermal and also comfort aligned with visibility once driven by ADAS and interior once driven by electrification. Just curious, it seems like potentially the sum of the parts could be greater than the whole. So would just love the management's perspective on that.

No, it's not a [indiscernible] after [ 3 years ].

The next question comes from Pierre-Yves Quemener from Stifel.

Yes. Just 2 quick follow-ups on what have been said. The first one would be on guidance. You've been very clear on free cash flow and EBITDA margin, but do you still think you'd be able to reach the upper end of the revenue guidance? That would be the first question. And the second question would be on the order intake from the JV and Valeo Siemens. The EUR 2 billion that you are contemplating on a cumulative basis for 2022, how much of the total RFQ available would that account for? In other words, what is your estimated market share of this second wave of electrification?

I said very clearly earlier that our guidance is linked to the upper range of our guidance. So we aim for the upper range of the guidance. For the market share, I don't know exactly what it means in terms of the market share. It's very, very difficult to know at that stage. When I was -- you mentioned the EUR 2 billion sales that we should have next year. We'll come back to you to tell you what we expect of the market share at that time. I don't have it on top of my mind.

The next question comes from Giulio Pescatore, Exane BNP Paribas.

No, then I'll just ask a very quick one. Just I was reading into the report, and I saw that you have some quite a bit of receivables in H1. I was wondering if that slightly will continue in H2 and or might even reverse? I mean, what is incorporated in your guidance?

I don't understand your question.

Selling of receivables. Selling of receivables also...

[indiscernible] Consider that it's no impact. It's neutral. That's very clear. There is no impact.

We have no more questions. Mr. Aschenbroich, back to you for the conclusion.

Thank you very much. And thank you to have taken time to be in our call and also late call. I would not reinitiate what I said, but I think it's a very solid set of numbers in a very adverse situation. We are very comfortable. We are very comfortable with our business model, which is exactly in line with what we had explained 2 years ago in the Capital Market Day at the end of 2019 in terms of leveraging our technological platform to reduce our cash [ needs ], reduce our CapEx. We are increasing our EBITDA on line with what we are expecting. Of course, the turnover is lower than we had expected at that time. But the business model is extremely solid. And the potential of our innovation, the potential of our products is very well welcomed by our customers. So there are some headwinds, but there are some tailwinds also. So we are very, very comfortable for the guidance. So thank you very much. And see you next time. We hope soon we can meet live, I hope. Okay. Bye. Thank you very much.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.