Ladies and gentlemen, welcome to the Valeo Q3 sales conference call. I now hand over the call to Mr. Jacques Aschenbroich, Chairman and CEO of Valeo. Sir, please go ahead.
Yeah, thank you. Thank you very much for all of you to attend this call. I'm together with Robert Charvier, our CFO, and Thierry Lacorre, our Investor Relations. As you know, we are facing some headwinds in terms of semiconductor and the impact of the semiconductor crisis on the automotive production.
Nevertheless, we have been able to tighten upwards our EBITDA margin for 2021 to the upper range, that means from 12.8% to 13.4%, up to 13%-13.4%. At a time when all our competitors are having some profit warning, you can wonder why we're able to tighten upward our EBITDA margin. The reason is, or the reasons are extremely clear. First one, we have been extremely cautious at the beginning of the year.
You remember probably our call in February, when we explained to you that we were seeing the impact of the pandemic on the semiconductor crisis and the shortage, and that we saw some raw material price increase. You remember at the beginning of the year, we have tried to evaluate what could it mean on our PNL, on our cost. We said it could be around EUR 80 million.
Therefore, we need a range both on cash and EBITDA. I'm sure that that has been right, the fact that we have been cautious at the beginning of the year has been a rise to our share price. Now, when we look at it, are the EUR 80 million the good level of anticipation? The answer is yes.
Net of the compensation we got from our customers, we would confirm that is around EUR 80 million, the impact on our PNL, of course, in the gross margin. The second reason is, despite the volatility of our customers' short-term orders, our factory are running extremely well. They're running extremely well because you remember that we had a wave of innovation and that wave of innovation went into production in 2019 and 2020.
Innovation has always a negative impact on the plant performance for the launch and the first month or first quarter production. That is now behind us. Our plants, like I said, of course, are impacted by the volatility of the short-term demand, but the KPIs of our plant are extremely performing and extremely good. That is the second reason.
The third reason is the fact that we have extremely good performance in aftermarket. We have seen the growth of 18% like for like in Q3, and 26% on year to date. Don't ask me the profitability of aftermarket, I will never answer that question. You can imagine it's better than the OEM profitability. We have been able to deliver in terms of performance better than our competitors in all our product line. We have been able to set some price increase to compensate the raw material price increase, and we are going to increase prices again early next year. We're extremely proud of our performance for the aftermarket.
The fact that we have been cautious at the beginning of the year, the fact that after the wave of innovation and new product launch, and the fact that the aftermarket business is running extremely well and with price increase, we have been able to, like I said, tighten up our EBITDA margin. For the cash, we say, we stick to the range of EUR 330 million-EUR 550 million, and we speak about Valeo Siemens later on the call.
At the very start of my call, I really want to congratulate the whole team of Valeo. They have been, in that very difficult situation, incredible, really incredible. First, in terms of supply chain and purchasing, we have never stopped any customer, which is a performance, I think.
We are probably the only one that have never stopped any customer. The second is they worked extremely hard to organize the production in a volatile way and to be able to variabilize again and again our cost every time it was possible. At the same time, they have been extremely tight and frugal in the CapEx. We probably will be lower than what we told you at the beginning of the year. That is the reasons why we are able to tighten up our EBITDA margin. We feel extremely confident that, of course, we reach a new target. Now, if you go page three, you remember that ESG and carbon footprint is something extremely important.
We have been investing in that area for a long time. CO2 reduction has been part of our strategy. Safety with ADAS has been part of our strategy in the last 10 years. Of course, you see on page 3 that we are recognized by all the agencies and the rating agencies as number one in our area. More and more, that is part of our DNA. It's part of our culture, and it's part of what we are doing.
We joined the CAC 40 ESG Index, and that is, of course, a recognition. You remember on page 4 that we have a target of zero carbon emission in 2050. But for me, it's far too far away. We have a clear target of reducing 45% until 2030.
We have a yearly target, and it's part of a variable compensation for 1,500 key managers. It's part of our performance shares, and it's something that we are measuring every quarter. We are totally on line with our target for 2021. Moving forward with all the action plans we are having, feeling extremely comfortable that we'll be able to achieve our 2030 target. If you go to the next page five, you see some highlights of what we have achieved in the last few months. We're the first European automotive player to issue EUR 700 million, 7-year maturity for sustainability-linked bonds. Of course, we are proud of that. Moody's revised up our credit rating. We have the world's most high-performance electric assistant for brakes, and that is a program.
We have of course starting delivering to our customers next year. We'll give you some targets, probably, middle of next year. We have some innovation which has been presented in the IAA in Munich. We have set cooperation in zone controllers with Leoni. We are concentrating on the domain controller, and they're concentrating on the wiring. Of course, we have got a PACE Award for our innovation in 48V eAccess. Now, if you go to page six, what do we take as a volume? I'll come back maybe to that later on the very difficult forecast that we're having.
We took for our latest assumption the production of 71 million, which is the passenger car plus the passenger car worldwide and in China. We think that we are going to continue our outperformance. I'll come back to that later on. We are tightening up, like I said, our EBITDA margin to the upper range from 12.8% to 13.4%, towards 13%-13.4%. Like I said, we are confirming our cash flow generation objective between EUR 330 million and EUR 550 million. Concerning the estimates, we are very much on track until August in terms of sales.
Unfortunately, our main customers have reduced their volume forecast for the end of the year. Therefore, instead of improving the share, the contribution to share in net earnings of equity accounted companies lower than last year, we think it will be at the same order of magnitude or slightly lower. We want to be like we are always very cautious. You see, on the chart, the new guidance is sales between EUR 16.9 and EUR 17.2. We think it will be closer to 17.2. EBITDA between 13%-13.4%. Let's see what will be, but we're extremely confident that we reach it. The cash, like I said, between EUR 330 million and EUR 550 million.
Now, if we go a little bit more into details. Our sales in Q3 were 3 billion or close to EUR 4 billion, down 10%, compared to 2020. The aftermarket sales, like I said, were up 18%, and the OE sales were down 16%, which is outperformance of 2 points. I'll come back on that next slide. If we exclude the geographical mix outperformance of 6 points. If we look at year-to-date sales, we're up 15% with close to EUR 13 billion. The aftermarket, like I said, is up 26%, and that is one of the contributions, not the only one, to explain our EBITDA tightening up, and the OEM sales are up 13%.
Now, if you look at the outperformance in Q3, the figures of IHS are -16% over there. -18%. Pardon. -18%. Sorry. You have seen that in a worldwide basis, of course, -18%. You have seen what our customers have announced in the last few hours in what they deliver to the market. You know that the inventory is very close to zero. I was in the U.S. last week, and all our customers are saying we have no inventory. We know that it's the same in Europe. We know it's the same in the U.S., in China.
Assuming because there is no inventory, that what is being delivered to the customers is a very close proxy to what has been produced. We have seen that, Volkswagen is -24.4% compared to last year in Q3. Stellantis is -27%. Ford is -14%, GM -27%, Renault -22.3%, BMW -12.2%, Daimler -30%, and Toyota -20%. You see, all those figures show that, it's very, very difficult to reconcile the -18% to what we read from the announcement of our customers. It is what it is. It is a time when we know what we have delivered, our sales to our OE and to our aftermarket customers.
What is exactly the production level, I think it's quite difficult. I take two example. If you go to the next page, where you see our outperformance in the different part of the Asian countries. Our outperformance in Japan is 25 points. Why? Only because our market share in Japan, we have quite a big market share outside of Japan, but the market share in Japan is relatively small. Toyota reduced dramatically its production, so it has a positive impact on our outperformance, which is kind of a paradox. If you take the previous page nine, we have only three points outperformance in North America, only because our exposure to the light truck what we call T1XX in GM is extremely high.
Unfortunately, they had to slow down their production of that product. So you see only with the two examples speaking about outperformance in that very volatile world is quite difficult. So it is what it is. But you have seen something probably, and you'll have probably questions about that. You have seen that most of our customers are really stating that the situation of the semiconductor supply is improving.
You know that Q3 has been very impacted by COVID in Malaysia, in Thailand, in Vietnam, but mainly Malaysia, where there was an administrative shutdown, and that has put a stress in the supply of semiconductor. Since September, early September or first half of September, things are improving step by step, and it's carrying on improving in October.
When we look at our own supply from our suppliers and to the market, we see a clear improvement, and we are very, very happy to see that has been confirmed in the announcement from our customers. Now a few pages on our business in the powertrain, which is, of course, both transmission and electric system.
Our content per car, moving forward to the future with electrification, is a content per car that can be multiplied by two with, of course, a strong position in 48V and for the transmission, a very strong position in the aftermarket. When it goes to Valeo Siemens, I spoke about the EUR 750 million of sales in 2021, which is an increase of 45%, but lower than what we had expected.
We are very confident to get EUR 4 billion orders in the year 2021, 2022, and the cumulative orders that we got is EUR 12 billion. You see some of the graphs that we are delivering here. In the thermal system, I told you in the call in July that we have probably not spoken enough about the incredible evolution of that business.
Moving towards electrification, we have very good product in terms of battery cooling, in terms of e-compressor, in terms of e-pump, in terms of e-heater. The content per car could be multiplied by three when we move to electrification. We have had in the year to date, 60% of the orders which are linked to the EV.
The margins because the number of players with the competitors we're having is much lower. Margins are higher. The last business being Comfort and Driving Assistance, you know that we are in terms of both detection and perception. That is all the sensors and the related software, number one worldwide. We have 14 billion of orders, cumulative orders, between 2018 and June 2021.
That is a very fast growing business. We are happy to, of course, carry on developing that business. The Visibility where we are also number one worldwide. We have a book-to-bill in H1 of 1.6. It contributes, of course, to safety and mobility, and there is a lot of evolution in the technology.
Like in all other businesses, we have developed a technological platform, and now we are leveraging those technology platform moving forward, which allow us both to grow and to increase our margins. That is the presentation I wanted to give you. I explained to you why we have been able to tighten upwards our EBITDA margin. We feel extremely comfortable with that new target, and I'm ready to answer a few questions if you want.
Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. As a reminder, we will only take two questions per person. Thank you. We already have one question from Victoria Greer from Morgan Stanley. Please go ahead.
Good evening. A couple of things, please. Firstly, on the guidance, the way that you have been framing the layout of the guidance before. The EUR 18.2 billion revenue and 13.4% EBITDA margin target was that you were showing it as a range. But really the EUR 18.2 billion and the 13.4% was your base case. Should we think about that now or still for the lowered guidance, or should we really be thinking more about the midpoint of the new guidance? You know, when we think about the numbers you're pointing us to. The second question on Valeo Siemens.
Understood, obviously all the factors that mean that the losses, you know, probably will not now improve in 2021 year-over-year. Could you point us towards any way of thinking about your 2022 target for breakeven for Valeo Siemens? Thank you.
For the first question, it also says between 16.9% and 17.2%. I hope that Robert will not say something different, but I think we should be on the upper side, even though it's quite difficult for the standing to make some forecast. The month of October is more or less in line with our prediction. The beginning of the month was lower. The end of the month is quite in line. We think we'll be on the upper side of the turnover. Concerning 2022, in those circumstances, I think we cannot say anything. We cannot say anything about the market. We cannot say anything about the raw material price.
I will not answer any question on 2022. Like I said last time we spoke together, Christophe Périllat, my successor, will host probably before summertime, when we see clearly what's going to happen, a new CMD with all of you to set what we think will happen in the years to come. We have been right until now not to confirm anything about 2022. We don't even know what will be the turnover next year. Maybe not at all the market. Maybe a comment on the market. I don't criticize IHS. It's extremely difficult to make any forecast nowadays.
I've tried to compare what our customers were saying on their delivery and which is I think in Q3 a relatively good proxy on what could have been the production. One of the topics when we speak with our customer is that I don't know and we have not started our budget process yet, but all our customers are complaining that there is no inventory in the market, no inventory at all in the market. Whatever the sales of our customers will be, the production will have to be higher than the sales, because the business cannot work with such a level of inventory. I know that the forecast of IHS for next year is 81-82.6 million cars.
Is that including or not the reconstitution of a minimum level of inventory? We don't have that clear idea. First we need to know what will be the market, global market. We'll have to know what will be the electrification, and I think the electrification will be quicker than we had anticipated. We'll have to look at what could be our P&L. There is lots of work to do from now on to be able to say anything about 2022.
Okay. For the 2021 guidance, you would really point us towards the EUR 17.2 number for the revenue line. For the margin, should we be thinking really that you're pointing us towards the 13.4%, or should we think about the midpoint of 13%-13.4% for 2021?
If you want to be cautious, take the middle point. If you want to be optimistic, take the upper point.
Okay. You're not framing the guidance really now as you were before as saying, "Okay, here is the top end and this is the guidance, but there's a scenario that it gets worse." It's more like a normal way of guiding where you give us a range and we think about the midpoint for the margin.
Yeah, exactly. That is too many certainties. If things run well, then it could be on the upper range. But if something bad happens, which we don't or you don't know. It's far too complex. We are very, very sure of getting to 13.4. Being cautious, you should take the midpoint, but I don't exclude that we can go up to the upper range. At that stage, I don't want to be more precise than that.
For Valeo Siemens, I think to sum all that up, we shouldn't think really that the target to be breakeven for the JV contribution for 2022 is still standing because there's too much uncertainty. Is that the message.
Yeah. Lots of uncertainties at that stage. Therefore, there'll be an improvement. Clearly, there'll be improvement compared to this year, but quantifying it at that stage, I think it wouldn't be the way we want to guide you and be very, very precise. For 2022 in all alternatives, there are too many uncertainties so far. Therefore, we are extremely-
Okay.
I'm extremely happy that we never confirm. We never deny, but we never confirm 2022 guidance because it's far too uncertain for the time being. You know, we are very, very short term. Like I said at the beginning, our teams are doing a fantastic job for the supply chain. Our team are doing a fantastic job in our plants. So we have a very, very good position to capture all the upwards opportunity we'll have next year.
Great. Thank you.
Thank you.
We have another question from José Asumend i, J.P. Morgan. Please go ahead.
Hi, it's Jose Asumendi , J.P. Morgan. Afternoon. Jacques, as an initial comment, I think you go down as one of the very few suppliers or not the only supplier that's managed to up the guidance in this kind of a market environment. Well done on that one.
Yeah. Thank you.
I think that's quite a few people are surprised, including me. I just wanted to see if, you know, you could comment on a few topics. I think the first one, can you comment a little bit what's going on by division, CDA, powertrain, thermal, visibility. A little bit, what are you seeing in the business and why is maybe CDA, you know, performing more or growing quicker than all the divisions out there. What it means to the product mix within the business as obviously CDA makes higher EBITDA margins than all the divisions out there. That'll be the first question, please.
There were some comments a few, maybe 18 months ago at the depth of the crisis that our customers would be so much concentrated on electrification that they would set aside everything linked to ADAS and to lighting, for example, that mean what is in the design of the car. You probably remember when we had the call middle July, we don't know. It's too early. Then the second half of the year, we saw that our customers were really balancing their R&D costs and their expenses, both of course in electrification because that is mandatory, but also on the design that is impacting us a lot in the lighting business and on ADAS.
The idea that could have been in the market one year ago that wouldn't happen and is really happening the other way around. All our customers are increasing their. You can see it in lighting, for example, for the future, you have lots of new design of integrating a lot of lighting in the car to differentiate electric cars from normal cars. What we are seeing since the end of last year, and we have seen that in the early part of this year, again now, that our customers are concentrating a lot of part of their expenses and R&D expenses and development and those areas which are impacting us, ADAS and lighting.
I feel extremely comfortable and always, like always will be alone, but that lighting, VIS and ADAS are on the growing path.
Thank you. Two questions please. Two follow-ups. Can you talk about the Valeo Siemens, where we stand there? Are you still able to reduce losses coming into your P&L? What's the P&L takeaway? Probably for a bit more longer term medium term, but has there been any developments or communication with the OEMs, how they want to take the partnership with the Valeo Siemens? That'll be the second question.
Third question, can you talk about Leoni partnership? You know Leoni extremely well. You saw them, you were in business, I remember some time ago. So you have, you know the business extremely well, maybe that way. What, how should we read that connection with Leoni?
Leoni is also, obviously also selling some of the businesses out there. You know, how can we see that partnership evolving in the next quarters? Thank you.
It's a partnership. You know that in the new definition of the electrification and of the cars, the way to go to more central controller and so on. We think that it's important for Leoni on one side, it's important for us on the other side, when our customers want to have a full system that we partner with a wiring expert. It's nothing less and nothing more than an incredibly successful cooperation, I think, on the technical side and offering a system to our customers. For Valeo Siemens, of course, there's a debate on whether our customers will reintegrate a part of the motor or not. That debate will probably always exist.
What we see as potential orders or program we are working on, they are rather increasing than decreasing, on motor, on E-axle, on inverter, on onboard charger. Of course the technology will move from IGBT to silicon carbide step by step, and that we have forecasted it. I'm sure that the potential of Valeo Siemens is untapped. You know that there'll be a moment in May next year where Siemens can exercise their put. We can exercise our call. No decision has been taken on our side yet. I don't know what will be the decision of Siemens. By definition, we know it at the end of the process.
What I always said is whatever the decision of Siemens is, we'll be ready to take it over if they decide to exercise their put. We'll have the balance sheet, we'll have the plan. But again, we have not taken our decision yet, and we don't know what Siemens will do.
Again, apologies. I didn't get the message. Are the losses coming down this year versus last year as best in the plan? Yeah.
Oh, yeah. Next year, whatever happens, the losses will go down.
This year as well versus last year.
No, no. What I said is, the contribution will be more or less at the same level. I think it will be slightly level, but you should take into consideration that it will be at the same level. I think it will be EUR 2 million less, but because of the market and the volumes being lower than we had anticipated, and that is information that we got there last month.
Yes.
There last month.
the course of the month of September, there were sharp reductions.
Sharp reduction from our main customers. We have to take it into consideration. Will it be better at the end of the year? I don't know. We prefer to tell you that it should be the same order of magnitude.
Very good. Thank you very much. Thank you.
Thank you, Hervé.
Our next question comes from Christoph Laskawi from Deutsche Bank. Please go ahead.
Hi. Good evening. Thank you for taking my question. The first one will be on your negotiations with the OEMs on passing through a bit of freight energy and other cost inflation. Is there any update that you could give us in the sense that they will accept what you try to negotiate? Could we expect an impact in Q4, or have you already seen one in Q3?
Then the second question will be on your comment that your plants are running actually pretty smooth despite the volatility of the customers. Is that the same in Q4? We've seen other suppliers commenting that there have been quite severe stop days also in their production because of the OEMs. Do you see differences by region? If you could update on that, would be great. Thank you.
Maybe I'm going to start with the second question. I never said that I am happy that we have such a volatility. We don't like it. Some of our customers are very cynical and they inform us at the very last moment. Some are planning much better than the others. Don't ask me what customers are in the first category and what customers are in the second category. I will not tell you. What I wanted to say is that the technical performance, that means, the quality of the launch, the customer quality, the use of the factory and our assets, the connection between R&D and production after that enormous wave of new product that we had launched in 2019 and 2020.
The team did a fantastic job. It is true since the beginning of the year, it has improved step by step, has again improved in Q3. When we look at the performance in October, they are very much in line with what we have experienced in September. I would take as an assumption that Q4 should be on the same level or still improving. Again, we are suffering because of the volatility, that is one thing. All the KPI linked to the new projects and the new innovation which is now clearly behind us makes the fact that globally things are moving much better than we had anticipated at the beginning of the year, and that's what we had in the previous years.
On the pass-through, I'll tell you very simply in two things. First, all the costs that we have been incurred until end of September have been one way or the other compensated by our customers. When I told you at the beginning of the call that the EUR 80 million we have taken as trying to anticipate what would be next of our customer compensation would be at the same, at the right level. Both are true. What will happen in the future, I don't know, because you know that we are not at the end of the cost increase. The costs we have incurred so far are totally compensated by the customers. Robert, you want to add something?
Yes. Just we have been able to compensate the cost. The EUR 80 million-
The EUR 80 million.
The EUR 80 million. When we look at the EUR 80 million, in fact, today, the growth costs are higher than what we were expecting at the beginning of the year. We have been able to increase the level of compensation from the customer. The net remains around EUR 80 million.
Thank you. Just a clarification follow-up, if I may. The costs you have been talking about specifically, are those just the pass-through, like the semis that you sourced, plus freight or already energy costs and
No, e-everything.
It takes into account.
Everything.
Everything. Some raw material price increase, the freight cost increase.
The broker costs we are paying.
Exactly. Yeah. Mm.
Are there certain prices that you have fixed for this year, rolling into next year, which might go up, just because you have yearly contracts? Or do you use spot more or less, for most of the stuff anyways?
When you speak about the stuff, purchasing or the price to-
Well, the freight that you might secure and also the energy cost most likely.
Oh, it will be dependent. Some energy costs, we are very well protected until end of next year. Robert?
Yeah. In a lot of contracts for our power, which are long-term contracts.
For the freight, we need to plan very well because the difference between normal sea freight, which has increased a lot, and the exceptional freight is extremely high. Our team need to forecast extremely well the freight not to have
Not to have to pay the spot rate.
The spot rate.
Yeah. Yeah.
The prices are what they are. Our team, I said that at the very beginning, our supply team, supply chain team, our purchasing team, they're working extremely tightly together until now. I see no reason why it should change. They have been doing a fantastic job, which is recognized by all our customers that we have been able, in a very uncertain environment, to deliver them what they were needing.
Thank you.
We have another question from Gabriel Adler. Please go ahead.
Thank you. Gabriel Adler from Citi. There is two questions left on my side. The first is on the JV again. Just wanted to confirm whether there's anything on the cost side that's impacting the lower guidance. Are you increased R&D, for example? Or is this wholly being driven by the slowdown in revenue that you mentioned in the presentation? Can you update us on your expectations for when Siemens might exercise its option? If it happens while the JV is still loss-making at EBITDA level, will you have to pay Siemens for those, as my third question.
I will not answer the second part of the question. I've already answered it so many times. The first question, no, it's the change of forecasting the contribution of Valeo Siemens is 100% linked to the volume reduction from our customers. Nothing else.
Okay. The second one, just on the free cash flow guidance, could you maybe explain what's offsetting the lower earnings that means you've confirmed free cash flow target is at lower CapEx predominantly?
On the positive side, there is a fact that we have reduced more than expected the recorded CapEx this year. We have reduced more than expected the cash R&D. There'll be two uncertainties. One is the inventory. There's no miracle to deliver our customers. We've been obliged to increase slightly our inventory. The main topic is the net between receivable and payable. We are a negative working capital, structurally negative working capital. When the sales go down, we consume cash, and when the sales go up, we don't consume cash. We cannot be more precise because we don't know the profile of the sales in the next few months.
I don't worry a lot because I don't know where it will be in the range. It is something that if we don't recover that cycle between receivable and payable, we recover it in January next year, so it's not a problem structurally. That's the reason why we've been able to tighten the EBITDA margin, but not as much as the working capital margin as a matter of fact, because the reduction of CapEx and the cash R&D will more than offset the increase of inventory. Everything will be played between the in the
Payables and-
Payable and receivable. It will all depend on the evolution of the sales. I'm not worried about that. It's only mechanical, but I cannot tell you if it will be recovered until the end of the year or what part of it will be recovered until the end of the year or early next year. As a matter of fact, structurally, for Valeo, it doesn't matter. Robert, you want to add something?
No, no. That's exactly the point. We have made a forecast for some of our sales, but there is still a lot of volatility around this forecast. This is the reason why we prefer to maintain the current range in terms of free cash flow. Because there are still a lot of uncertainties in terms of activity, but also in terms of our ability to control the reduction of inventories.
Okay, thank you very much. Our next question comes from Thomas Besson from Kepler Cheuvreux. Please go ahead.
Thank you very much. It's Thomas from Kepler Cheuvreux. I have two questions for you. The first is on the guidance for revenue. When I look at the
Sorry, I did not hear. The guidance for what?
For revenues. Sorry, like
For revenues.
When I look at EUR 17.2 billion revenues, implicitly in Q4, you would have a bigger revenue decline than in Q3, so I think 13% or 14% versus 10%. I wanted to understand why you are guiding for implicitly a bigger revenue decline in Q4 than Q3. The second question, maybe more for Robert. On the EBITDA, I would like if it's possible to know what you do anticipate in terms of associate dividend included in the EBITDA and what you anticipate for depreciation, because when you look at the trends guidance, you reduce revenues by about EUR 1 billion at this point, and you reduce EBITDA by EUR 134 million.
That implies a relatively low growth rate, compared with what we normally have, in that kind of situation. One question on the implicit revenue decline in Q4. One question on the split of the EBITDA with associates and depreciation, please. Thank you.
For the first question, you know, when you make assumption when it's extremely volatile, you better be cautious. You know, I've said that, for the sales, normally I should be at the upper side of the guidance. Could it be better? I hope it could be better. You know, we have to be extremely cautious on that timing. Take it the way it is. You know, you know me since quite some years now, you know I'm always very cautious and transparent. For the EBITDA, because you have asked the question to Robert, I'll let Robert answer.
For the EBIT, Thomas, the level of dividend paid by the subsidiaries which are consolidated with the equity method is not that big a big amount. We have seen that in H1 there was a reduction from one joint venture in China, which affected the level of EBITDA of Powertrain Systems . It was a reduction compared to 2019 of EUR 14 million. For the second half of the year
The level of dividend will be very similar to the one we had in 2020. We don't expect any significant change. It's a minor impact. We are speaking of, I would say, around EUR 10 million. It's not at all a big topic for the EBITDA.
Okay. Robert, do you mind giving us an indication on where depreciation should stand broadly, for the year, please?
For the year, we consider that the level of depreciation, I make the sum of R&D depreciation and R&D amortization and depreciation of tangible CapEx, we should be at around EUR 1.6 billion.
Okay, great. Thank you very much.
Our next question comes from Tom Narayan from RBC. Please go ahead.
Hi, yes. Tom Narayan, RBC. Thanks for taking the questions. Your commentary earlier seemed to suggest maybe some optimism versus IHS, maybe into 2022, despite the limited visibility. You know, we've been hearing some very dire comments, specifically on magnesium. Not just pass through, but maybe that it could really halt production, especially for European OEMs.
Curious what you're hearing on that. And then the next question, you know, this quarter OEMs have been seeing, you know, price and mix strength, particularly with premium brands. Curious how this translates to your business. Could this mean higher content per vehicle or you're a better ability to secure pricing from them? You know, perhaps this is just a dynamic that benefits OEMs, maybe more so than the suppliers. Thank you.
No, you are right. Maybe I didn't want to give any kind of optimism for 2022. What I wanted to suggest is that at that stage, answering any question on 2022 is extremely difficult. I took one example is the fact that in the present forecast from IHS. Again, I don't know if they and it's a very, very difficult business of forecasting what is happening. We don't know what kind of increase of inventory IHS have taken in their forecast. I took only that example. Of course, there are some other uncertainties is how far the semiconductor crisis will improve.
We have the impression that we totally agree with what has been said by Volkswagen and Stellantis and some others in the last few hours that things are improving. How far it will improve, we'll know that later. We know that later because all of us, and you know that we are probably the number 3 and number 4 purchasers of semiconductors in the automotive world. It will all depend how much of our customers' demand we're able to secure. Things are, well, not finished, but are looking better now than it was looking a few weeks ago. There are still a lot of uncertainties.
I wanted to highlight only one of them, taking into consideration the IHS forecast, whether or not they are including some reconstitution of inventory from our customers. Some question marks, we have plenty of them. Preparing a budget, I'm in the business unfortunately since many decades. It has never been so difficult to prepare a budget, so I cannot say a lot of things about next year. I didn't want to sound like being optimistic for 2022. I only wanted to say it's difficult to forecast at that stage because we have too many uncertainties. Of course, in February next year, we'll give you our guidance for 2022. That's in four months.
What are you hearing anything on this magnesium, how that could be the next big issue?
We are.
Are you not worried?
No. You know, my business is to be optimistic when people are pessimistic, and pessimistic when people are optimistic. There are lots of uncertainties today. You know, who would have thought, only a few weeks ago that there'll be some power shortage in China? You wouldn't have expected it. I wouldn't have expected it. I lived in Brazil 30 years ago, and that is a country where you expect to have a power shortage, but not in China. The magnesium is directly linked to the power supply. Probably some other geopolitical consideration. Is it something we take seriously? Of course, it's something we take seriously. That is part of the uncertainties concerning next year.
Okay. In terms of price mix, the OEMs benefiting, is that something you guys can try to get in some way, maybe content per vehicle or pricing, or does that just simply go to your OEM customers?
No. There are two questions in your question. We saw that in the first half of the year, our customers were really trying to protect their higher margin products like the T1XX, Silverado and so on in the U.S. for GM, where we have a very strong content per car, and that was benefiting us. In terms of content per car, the fact that our customers are really putting into consideration protecting their higher range is normally positive for us. For the pricing, you know, it's a permanent fight. We'll get compensation from our customers.
The fact that we have been, I'll say extremely good, I say it that way, not being too shy, in the supply chain and the fact that we have been able to deliver put us ahead of some of our competitors who have been extremely delinquent in that period in terms of getting compensation.
Okay. Thank you.
I think, I'm going to take a last question, and then we'll stop the call. One last question, please.
Next question comes from Giulio Pescatore, Exane. Please go ahead.
Hi. Thanks for taking my question.
For having the last one, so.
I was getting scared. Going back on the D&A point, thanks for giving us that indication. Am I right in thinking that that's pretty much the same amount that you were expecting at the beginning of the year?
For what?
For D&A, depreciation and amortization.
Yeah, yeah. There is no major change.
No major change. No.
Yeah, because I mean, you compare yourself to some of your competitors. I mean, you're doing a great job operationally, there is no doubt, but a lot of your peers actually guide on EBIT. Am I right in thinking that your EBIT margin is actually lower than what you thought it was gonna be at the beginning of the year, or I'm missing something? Sorry.
No. If you want to say that our EBITDA margin is higher than our competitors, I would agree. You probably know that we are depreciating now capitalized R&D, and that the spread between capitalized R&D and depreciation of R&D is now close to zero. You cannot criticize us when we are capitalizing much more R&D than we are amortizing, and criticize us when we are depreciating the same level of capitalization of R&D and the spread being zero. You have one or the other. We have spent a time when we are capitalizing and increasing our capitalizing what some of our competitors, and you know exactly who, is doing for the time being, which has a positive impact in its EBIT.
We are now depreciating it, which has a negative impact on our EBIT and a positive impact on our EBITDA. I think for a few years the EBITDA will and I told you that since two years now, it's a better proxy of the improvement of our operations. Now, when you compare, you have to compare EBITDA and EBIT, and you have to compare the capitalized R&D of every player and see in what part of your evolution you are. It's behind us, a time when we were capitalizing more than we were depreciating. Now we are depreciating the same level of what we are capitalizing for. The spread between those is very close to zero.
Yeah. Very minor.
It's a very, very positive impact in the cash R&D. You have to compare everything. If you want to let me say that, our EBIT is lower for some of them, yes. Our EBITDA is higher, yes. They are capitalizing much more than we are doing. Now our spread between capitalization and depreciation is zero or close to zero.
Yeah. Thanks for that. The second question on the JV with Siemens. I mean, from the perspective of Siemens, given how the structure of the option work, are you finding it difficult to maybe spend on R&D what you would need to maybe drive innovation and remain competitive, given that, I mean, Siemens knows that the JV is gonna be in your hands in a year or two? Are you finding it a bit more complicated to do that?
No, no. I've said that several times. It's a four-star ranking. We have a JV with Siemens. They are extremely fair partners. Robert is on the board. He's the vice chairman of the board. We have named the CEO. They are extremely fair partners. The board of directors is working extremely seriously to take the best opportunities of what is happening in the market. We have never had any conflicts at the board level between Valeo and Siemens. Never. It's Robert, you want to-
No, I can confirm. The way the board of directors is working is very cooperative, and the joint venture is not at all affected by the concerns that you are raising. In fact, those concerns do not exist, sorry.
Okay. Thank you very much for attending our call. Like I said, in a very adverse situation, I think our team did a fantastic job. One of you said that we are not the only one, but one that I think Jose said that. One of the very few that are able to confirm or to increase the guidance. We are doing it, and it's not thanks to me, it's thanks to the incredible team that Valeo is having. Thanks a lot, and see you sometime.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.