Good evening, everyone. Thank you for attending Valeo's 2024 First Semester Results Video Conference. We'll spend one hour together, around 20 minutes of joint presentation with Valeo CFO Édouard de Pirey, followed by a Q&A session. In H1, we continue to improve profitability and cash generation. Our H1 margins and free cash flow are aligned with our full-year guidance. We achieve this thanks to a strict control of our cost and our cash in a low-market context. Our sales reached EUR 11.1 billion, up 1% compared to H1 2023 on a like-for-like basis.
Our EBITDA reached 12.4%, which is up 0.8 points, and our operating margin is at 4.0%, also up 0.8 points compared to H1 2023. And last but not least, our free cash flow has already reached EUR 121 million after one-off exceptional cost of our self-help measures. This represents EUR 277 million more of cash generation on H1 2023.
I would like now to share with you five important highlights from our first semester, well in line with what we presented last February. The reduction in our cost and the customers' compensation, which put us on track with our guidance. A strict management of cash at each level of our organization, reflecting a shift in mindset. The creation of Valeo Power to combine our powertrain and our thermal solutions for all types of vehicle powertrain. This reorganization allows us to reduce our break-even point and to increase the flexibility of our production system.
Indeed, we now combine in the same plants the technologies for combustion engines and the technologies for electric vehicles. We also completed the sale of our thermal commercial vehicle business as a part of our asset disposal program and our new group CSR agreement, which reiterates and reinforces our commitments in that field.
So, as you can see, these half-year results are marked by a strong effort on cost control. The gross margin increased by 1.4 points to reach 18.5%. This is thanks to the good control of our operations and to the first effect of self-help measures. The increase of our R&D expenditures is lower than expected, thanks to increased efficiency of our R&D in the context of, as you know, particularly high order intake in 2022 and 2023. Gross R&D and hiring variance impact have started decreasing from Q2 after reaching their peak in Q1.
Last, we cut costs on SG&A expenses, which decreased by EUR 18 million year-on-year, or 0.2 points. As announced in February, we have introduced a new financial segment reporting around three divisions: Power, Brain, and Light. It's indeed an important step for the group, which is now ready to move forward and to accelerate.
On slide 8, now you can see some illustration of our new comprehensive and competitive offering for all powertrain architectures with advanced technologies for optimized temperature and power management. We'll be able to leverage significant synergies between our two former activities. Next, I'd like to illustrate our recent activity at Brain with a focus on a new sensor which completes our portfolio, the thermal camera. It's the most cost-effective solution to detect pedestrians at night when 75% of fatal pedestrian accidents occur. The sale of this kind of sensor and, of course, the associated software will be supported by the new regulation of automotive emergency braking in the U.S. We have already signed a major contract with a global OEM for this technology. In terms of lighting now, the half-year was marked by a number of launches.
You can see a few iconic ones on slide 10, like the Renault 5 E-Tech Electric, the Lynk & Co Z10, or the BMW 3 Series with our Carpet Light. Over the full year, our Light division expects to bring into production close to 300 new projects. This half-year confirms our trajectory of improved profitability and cash generation and the continued acceleration of our transformation. Therefore, we reaffirm our margins and our free cash flow objectives for 2024 and 2025.
On the other hand, we adjust our sales objectives at around EUR 22 billion in 2024 and between EUR 23.5 billion-EUR 24.5 billion in 2025. This is notably due to the expected continued softness of high-voltage powertrain sales, which we see now around EUR 1 billion for the full year 2024. Now, I'd like to hand over to Édouard for more details on this half-year's performance and results.
Thank you, Christophe, and good evening, everyone. Let's now take a closer look at the financial performance of this H1 of the year 2024. I will let you have a look at the backup slides for Q2 figures. Starting first with the sales by type on slide 13. At the end of June 2024, Valeo sales reached EUR 11.1 billion, +1% like-for-like. Forex had a negative impact of -1.2 points, and scope had a negligible impact of -0.6 points. As far as OEM sales are concerned, they were down 1% like-for-like, largely impacted by low activity of high voltage, and I will come back to it later. Aftermarket recorded a sound growth at +5%, benefiting on one hand from the continuous increase of the average age of cars in the market, and on the other hand from our high-value offering.
Miscellaneous sales performed strongly, supported by prototype sales preparing the upcoming numerous starts of production in the light division, as Christophe just explained. Moving to slide 14, our global performance was slightly negative at -1 point. It includes -4 points of negative impact of lower sales in high voltage, a situation that has continued since Q3 2023, and -1 point unfavorable geographically mix. By region, Europe performance came out in line with low high-voltage electric powertrain sales, mitigated by strong growth in ADAS and positive growth in the other power divisions' activities. North America outperformed by 1 point. Asia, excluding China, outperformed by 6 points. China performance was down 7 points, mainly due to our customers' mix. Chinese OEMs today represent 47% of our sales in China.
This is 4 points better than last year, but still lower than the share of these OEMs in the Chinese market. We continue to reposition our customers' portfolio. In this H1, 70% of our orders in China were taken with Chinese OEMs. We will see the first benefits of this repositioning in the H2 of 2024. On slide 15, we recorded positive like-for-like growth in all businesses this first semester except in high-voltage powertrain. In fact, in high voltage, we recorded a low level of sales at -43% on H1 2023.
Activity on certain high-voltage platforms in Europe is low since Q3 last year, and we have a very unfavorable comparison basis versus H1 2023, where sales more than doubled versus H1 2022. Power, excluding high-voltage powertrain, was +2%. This relates to traditional thermal and powertrain product lines, which, as you know, are profitable and cash-generating.
Brain was +6%, with a good level of growth of +7% in ADAS and a sustained growth of 4% in interior experience. Finally, Light was +2%. By segment now, starting with the Power division on slide 16, formerly powertrain and thermal business groups now merged into one single division. Sales amounted to EUR 5.7 billion. The division OEM sales underperformed the market by 5 points, including -7 points as high-voltage impact.
Power EBITDA margin was up 0.7 points to 10.3% of sales, supported by the synergies plan resulting from the integration of the high-voltage electrical business, the mix product effect with the growth of profitable and cash-generating activities of traditional businesses within power, and finally, the improved profitability of the thermal system business group, whose EBITDA margin grew by 2.4 points year-on-year to 9%. On slide 17, Brain showed a good financial performance this H1.
Sales came at EUR 2.6 billion, an outperformance of 6 points as far as OEM sales are concerned. As expected, the level of activity was good in Q2, especially in cameras. As you know, Brain is the division which contributes the most to the group's EBITDA. It now includes the Top Column Module business. Brain improved its EBITDA margin significantly by 2.2 points to 15.9% of sales. On slide 18, Light sales amounted to EUR 2.9 billion, an outperformance of 2 points for OEM sales, sustained especially by the EV business in China with Chinese OEMs and with a North American automaker in both North America and in China.
EBITDA margin recorded a good resilience at 12.7% of sales in the context of high costs needed to prepare for numerous production launches, low business levels due to production stoppages at several Japanese automakers, and the depreciation of the yen against the euro.
Slide 19, order intake. In the H1, we booked orders worth EUR 9.1 billion, with significantly better embedded margins. As you know, several OEMs have postponed their projects, pending key choices on their powertrain and electronics architectures, leading to postponed award decisions. We also maintained our high selectivity of order intake to focus on midterm profit as well as on short-term cash generation. As explained earlier this year, this lower level of orders is fully compatible with our midterm growth after exceptional levels we booked in the last two years.
Let's now have a broad view on group's financials performance on slide 20. The group operating margin performance is in line with our 2024 margins and free cash flow targets, and encouraging by showing a sequential improvement over the last semesters despite a challenging market environment. Indeed, at the end of June 2024, EBITDA reached EUR 1.4 billion, +6%.
EBITDA margin improved by 0.8 points at 12.4% of sales. Operating margin improved by 0.8 points at 4.0% of sales. This represents EUR 445 million, an increase of 23%. Net attributable income was at EUR 141 million, +18%, and free cash flow generation at EUR 121 million after one-off restructuring costs, up to EUR 277 million. On slide 21, the 0.8 points improvement of our operating margin on H1 2023 came from a +1.4 points from gross margin improvement, even after a slight negative volume effect, thanks to good control of operations and first effects of self-help measures, improved profitability of existing and new contracts.
You will note that the level of provisions reversal on onerous and unfavorable contracts was much lower than last year. B, +0.2 points from strict control of SG&A, as explained by Christophe, and C, -0.8 points of R&D expenditures impact.
These expenses represent the cost of development for the outstanding EUR 70 billion of orders booked in the last two years, reduced, on the other hand, by better R&D efficiency than expected. The IFRS impact is finally limited to 2.4 points. The R&D expenditures will continue to decrease in H2. On slide 22, starting from operating margin, excluding JV and associates at EUR 445 million, all the income and expenses at -EUR 50 million, including EUR 134 million of restructuring charges, balanced by EUR 94 million gain on the disposal of thermal commercial vehicles business. Cost of net debt at -EUR 123 million in the context of higher interest rates. Income taxes at EUR 89 million, implying an effective tax rate of 34%. So, bottom line, Valeo's net attributable income reached EUR 141 million after EUR 32 million of minorities.
As far as our cost reduction initiatives are concerned on slide 23, we already finalized in H1 our restructuring plan we announced in January. We recognized EUR 119 million of charges in the H1 and EUR 25 million as cash expenses. You remember that our project, by allocating EUR 300 million euros in one-off exceptional self-help measures over the two-year period of 2024-2025, we expect to generate run rate cost saving of EUR 200 million euros, with a positive impact from 2026 on an annual basis.
On slide 24, the free cash flow came out at EUR 121 million after one-off restructuring costs, with a positive contribution of EBITDA by EUR 1.4 billion, the strict control of capital expenditures in the context of close to EUR 70 billion euros of order intake received over the last two years, a positive working capital variation, notably thanks to a sustained EUR 290 million reduction in inventories, particularly of semiconductors, and restructuring cost of EUR 44 million, including EUR 25 million of exceptional one-off self-help measures. Bottom line, net cash flow represented an outflow of EUR 43 million euros, reflecting EUR 149 million in net interest, EUR 118 million in dividends, and the EUR 212 million in cash proceeds recorded in all the financial items from the sale of the thermal commercial vehicle business.
The financial structure, to conclude on slide 25, at the end of June 2024, financial net debt stood at EUR 4.0 billion, a stable amount compared with the level of December 2023. Leverage ratio on a 12-month rolling basis has improved at 1.5 times at the end of June. Deleveraging remains our top priority. We expect to decrease the level of net debt at the end of December 2024. Valeo has a sound financial structure based on a balanced debt profile and a solid liquidity situation. Thank you for your attention, and I'll hand over back to Christophe for the conclusion.
Well, thank you very much, Édouard. It's time for conclusion. This half year confirms our trajectory of improved profitability and cash generation and the continued acceleration of our transformation.
Let me focus on our key priorities for the second semester: accelerating our cost control initiatives, generating cost savings from our supply base, and this includes price negotiation with our suppliers, better competitiveness from them, and also design to cost proposals, reducing in H2 our gross R&D to support the cash generation, closing the few customers' discussions which are still open, and completing our divestment program, which means signing the remaining EUR 100 million of divestment transactions by the end of the year. You can trust all the Valeo teams to be fully embarked and to deliver 100% of those priorities. Well, thank you for listening. Édouard and I are now available to answer your questions.
Excuse me, this is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. We will take only two questions per person. Anyone who has a question may press star and one at this time. We will pause for a moment as callers are joining the queue. The first question is from José Asumendi with J.P. Morgan. Please go ahead.
Thank you very much, Christophe. Congratulations on the progress done in the H1. A couple of questions, please. Can you comment a little bit the walk from 2024 into 2025? You seem to be getting much, much closer to defining very specifically the target. So can you speak a little bit about what do you expect in the jump, in the walk between 2024 and 2025 to drive earnings into next year? What are the biggest movers there?
And then second, on the bridge on R&D for the H2, should we expect a tailwind, a headwind? How should we think about that move on the profit bridge in the H2 R&D? Thank you.
Well, thank you very much, José. It's good that you took and you asked question about 2025. It means you're comfortable or confident in what we said and what we guided for for 2024. I appreciate that. Going from 2024 to 2025, I would like to get back to what we told you. Sorry, I think it's this camera. What we told you in February. We have showed this bridge from 2024 and 2025, and pretty much it's going to be the same, the same levers, except that you're going to have less volume effect, less volume impact, because we are reducing our sales assumption for 2025.
I think we're doing it in a realistic way. We should not dream. The market is not as good as we planned for it in February 2024, and therefore we acknowledge it. We consider that we have to live with it. Therefore, we are lowering the sales level. We'll have less volume effect. But on the other hand, we're going to have more cost self-help reduction measures. This is the balance that we have. So just take the one that we disclosed in February 2024.
Then you're going to have less volume impact, but we are accelerating on our cost reduction program, as you have seen in the last weeks with the announcement that we made. And I remind you that in 2025, we're going to start benefiting from these better contracts that we signed in 2022 or from 2022 that are going to heat the P&L partly from 2025. Relative to the second question on the bridge R&D, do you want to answer the question, Édouard?
With pleasure, Christophe. Hello, José. So as far as H2 is concerned for R&D, as we said, we plan to have our gross R&D decreasing in H2 compared to H1. So this is definitely a tailwind for us. You remember that we guided at the beginning of the year for IFRS impact of 2.8 points in the H1 and 2 points in the H2. We finally landed at 2.4 for the H1, and we still plan to decrease and go down to 2.0 points of IFRS impact for the H2.
Thank you.
The next question is from Christoph Laskawi with Deutsche Bank. Please go ahead.
Good evening, and thank you for taking my questions. The first one will be just coming back also to a statement that you just made on the order intake and the embedded margin that you have in the backlog. Now, you just lowered the volume assumptions, and I was wondering, could you comment on the margin impact of the backlog that those lower volume assumptions have? Still well supported of your targets in 2025 and later, or how should we think about that? A comment would be appreciated.
And then just on the outperformance or underperformance in China, could you comment on the phasing in H2? Are you seeing the programs that you signed with the local Chinese now ramping up and improving that number, or should we basically expect that to be about the same level? Thank you.
Well, thank you, Christophe, for your questions. Relative to the first one on the order intake and the impact, these new contracts we have in 2025 or from 2025, we have to make our life easy in a certain way. The profitability of Valeo in the future years is absolutely linked to the embedded margin of the order intake that we take today. So there's only one pass. In order to get a significantly higher margin of Valeo in line with our technology profile and the technology of our products in the coming years, we have to select our order intake.
We have to go for higher margin of order intake now. And this is what we have been doing since 2022. And as a reminder, as we take 3 years to develop the product and to validate it, the first sales are going to hit in 2025.
So in 2025, there's an impact in the profitability bridge between 2024 and 2025 from these new orders, the same number that we have been giving in February 2024. It will not be reduced because when we have new contracts or when we have reduction of volumes in 2025, it's a mix of reduction of volumes on existing contracts and reduction of volumes on new contracts. So we don't expect this lever that we have identified and shared with you in full transparency in February during our last release. We don't expect this lever to be lower than what we anticipated back in February. Relative to now the outperformance in China, our underperformance has been 7 points in China for the H1. We don't consider it a good result at all.
Even when we compare to some of our colleagues that gave their prints a few days ago, it's in a certain way better. Nevertheless, we are not satisfied with the level of underperformance we have in China in S1 at 7%. And here as well, there's only one recipe. This recipe is to get more business for the customers that are getting market share in China, and we're going to get less business from the customers that are reducing their market share in China.
Therefore, we are absolutely determined to reposition the company towards more orders with the winners of the industry in China, more orders with the Chinese OEM. And this is what you see from the two numbers that Édouard, I think, shared with you. Already in H1 2024, we have 47% of our sales in China with this Chinese OEM. It was 43% last year.
Looking forward, looking at the order intake, which tells something about what the sales will be, when we had 50% of our order intake with the Chinese OEM in 2023, in the H1 of 2024, 70% of our order intake is made with the Chinese OEM. So we have this repositioning going on. And since the development times are much shorter in China than in the rest of the world, the impact of this repositioning gets quicker in the results than it is in other regions of the world. And this is the reason why we are confident that we're going to have a better performance than the -7 points underperformance in the second semester versus the first semester.
Understood. Thank you.
For any other questions, please press star and one at this time. The next question is a question from Thomas Besson with Kepler Cheuvreux. Please go ahead.
Thank you very much. It's Thomas Besson, Kepler Cheuvreux. I would like to come back to your gross margin improvement, if it's possible. I'm not sure I completely understood the explanation you gave on your slide. Is it possible to give us some indication on the benefits you had, I assume, from raw materials, maybe some electronic components? Because you actually posted negative organic growth in the OEM business, which actually may have helped as well, given that your HEV business is typically loss-making. But basically, I would appreciate some color about the gross margin improvement and what we should anticipate in the H2, where I would assume your outperformance to be probably a bit better than in the H1. Thank you.
Well, thank you, Thomas. I mean, I think it's an excellent question because the improvement of the gross margin is one of probably the most important and the most interesting news out of this print, and this is why we highlighted this to you during this presentation. First, there's no improvement of the gross margin without good operations, without the fact that our plants are working better than before or are working well. It's something that Valeo, as you know, has been always extremely strong on, extremely focused, extremely rigorous. And I think that the fact that we have an improvement of our gross margin tells something about the excellence of our operations. There's no plant today in Valeo that suffers from some kind of significant disorganization. I think it's a good move.
Second point, when it comes to the improvement of the gross margin, we've mentioned as well the effect of our cost reduction program combined with the better pricing that we got, the discussion, the results of the discussion that we had with our customers. So you have a mix in this gross margin improvement of price efforts following discussions that we have and we have had with our customers and cost improvement. And the cost improvements are coming on the one hand from self-help measures and on the other hand, potentially for some commodities on reduction versus what we had in 2023. And as you know, we suffered from massive increase of some commodities in 2023. I don't know, Édouard, if you want to add something to Thomas' question.
Yes, sure. I would like also to insist on the fact that this was the opportunity in H1 to review existing contracts that were totally renegotiated and improved, as well as the new contract entering into production. This is, for me, good news because it shows that we are capable of growing the normal business, as well as when new contracts are entering, it really improves the gross margin. Now, I would like just to make one point about what you said, Thomas, is you said that EV business is a loss-making business for us. This is not the case today.
I was talking about the high-voltage business, which I assumed was loss-making, but if it's no longer loss-making, I'm very happy for you.
This is what you assume, but in fact, this is not today.
Fantastic. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Mr. Périllat, there are no more questions registered at this time. Back to you for any closing remarks.
Well, thank you very much. No additional questions. That means we have been clear and transparent in our presentation and the explanations that we give. So thank you very much for following this call. I think we've made significant efforts to reduce our costs, to improve the efficiency of our operations. And this is very visible in the presentation of the first semester. And I think this enabled us to reaffirm our operating margin and our free cash flow targets for 2024 and 2025. Coming back to 2024, we are not guiding for the low end of the operating margin guidance.
We are continuing to guide for a higher margin in H2 versus H1, despite a market that is not as good as the industry would expect. But in this difficult context, thanks to our pricing efforts and thanks to our cost reduction efforts, we are confident that we'll be able to continue the progress in H2 versus H1 and therefore deliver and confirm the full content of our guidance. So thank you very much for attending and listening to this call, and we're going to get back together in October. Thank you.