July 24, 2019 / 4:31 PM / 3 months ago

Valeo sees turning point after further earnings slide

PARIS (Reuters) - French car parts supplier Valeo’s (VLOF.PA) first-half operating profit fell by almost a third amid declining vehicle production in major markets, but it said it was on track to slash costs and deliver on full-year goals.

FILE PHOTO: The logo of Valeo is seen at the high profile startups and high tech leaders gathering, Viva Tech,in Paris, France May 16, 2019. REUTERS/Charles Platiau

Valeo, which makes lighting, self-driving, electrified and fuel-saving systems, said operating profit declined to 514 million euros ($573 million) in January-June from 755 million a year earlier. Net income fell to 162 million euros from 453 million, on a 1% slide in group revenue to 9.776 billion euros.

Its results followed profit warnings by rival suppliers and carmaker clients including Germany’s Continental (CONG.DE) and Mercedes parent Daimler (DAIGn.DE).

Valeo has invested heavily to benefit from ever-tightening emissions regulations and increasing vehicle automation, through a push into electrified cars, sensors and camera systems.

While waiting for the strategy to pay off, the company has been hit by a slowdown in the car market and weakening order intake that forced it to rein in capital spending and pledge 100 million euros in new savings.

Valeo stressed on Wednesday that it had turned a corner, pledging to outperform global auto market growth by a wider margin in 2019 and increase earnings before interest, tax, depreciation and amortization, as it reiterated other full-year goals.

The company is on track to deliver the promised savings and “improve our profitability following the low point recorded in the second half”, Chief Executive Jacques Aschenbroich said.

The profit slide eroded Valeo’s operating margin to 5.3% of sales in the first half from 7.7% a year earlier.

Visibility systems, which include lighting, saw profit decline 15.8% - the biggest divisional decline. Earnings were down 13% in powertrain, 9% lower at thermal systems and broadly flat in comfort and driving assistance.

Order intake, which fell 20.7% to 11.1 billion euros in the first half, will nonetheless come in close to last year’s levels for 2019 as a whole, according to Aschenbroich. He also predicted a margin recovery to at least 6.3% in the second half, as cost-cutting and new supply contracts kick in.

“We feel confident that we are on the right path,” the CEO said, adding that Valeo’s dividend policy would remain unchanged.

Reporting by Laurence Frost and Gilles Guillaume; Editing by Susan Fenton

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