50% of scope three downstream. All that is validated by the SBTi. The managem ent compensation is totally aligned with those targets for the variable remuneration yearly and for the long-term incentives. We are recognized by the ESG rating agencies, all of them, and you know that we entered the CAC 40 ESG Index. 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. 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. In South America is visibility, PTS, and CDA.
If we look at outperformance in Asia, 10 points. India is a strong outperformance, 10 points. China, I already spoke about it, 21 points. Japan, where we have a lot of exposure with Nissan, we have only six points outperformance between 2021 and 2019. South Korea, we are in a transition phase for some products to a new platform. We have only four points, that's what I told you last time. It should start to be corrected at the end of this year. One slide for each one. 12 points outperformance for powertrain. It's mainly driven by 48 V, which is increasing in line with what we told you in our Capital Markets Day in December 2019. We have a strong order intake. We have growth opportunity also in transmission, especially for hybrid. You have few of the cars that we are delivering.
Of course, the 48 V powertrain for the Ami. We have lots of orders coming for low-voltage powertrain. We are obviously part of the EQS with the eAxle, which is considered as a fantastic car, and it is a fantastic car. For 48 V, 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 specific product for electrification, in battery cooling, in heat pump, in flex heater. When we look forward, it will be more than 50% in the second half of this year. You remember, the content per car in electrification for us will be doubled compared to what we have for traditional car. Comfort and driver assistance, 16 points of outperformance. It's 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. That momentum, you have seen with the outperformance in different regions, is extremely strong in North America and China. For visibility, we are number one worldwide, as you know, and we have lots of pixel lighting or matrix beams. Very sophisticated product, which is driving our growth. For thermal, like I said, and visibility, is only an unfavorable short-term customer mix that is affecting our growth potential. 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 of Valeo during the first half of this year. 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 cost, but also the result of a sharp improvement of the industrial efficiency of Valeo. Finally, we were also able to take advantage of the technological platforms that we built during the years 2017 to 2019 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. We suffered from two negative effects. The first one is directly related to the drop of sales we had in H1 2021 compared to H1 2019.
This drop of sales represents around EUR 780 million, very close to EUR 800 million. We consider that the impact is a negative - 0.7 points in terms of gross margin. In addition, in the years 2018 and 2019, we invested heavily in order to prepare the production capacities for our new products, also because we assumed that the evolution of global car production would be much higher than what we observed during this semester. We had, therefore, a negative impact of the fixed costs. Instead of fixed costs, I should say mainly depreciation. The level of depreciation we had in H1 2021 is significantly higher than in H1 2019. Due to the lack of sales, it represented a negative impact of 0.7 points.
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. 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 plant. 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 mix rate had a positive impact of 0.1 points.
All in all, we were almost able to offset the negative impact of volumes and the negative impact of the increase of depreciation mainly thanks to industrial efficiency. 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 Expenditure is mainly driven by the fact that the technological platforms that we created during the year 2017, 2018 and 2019 are very efficient. You know this is what we presented in December 2019 during our Capital Markets Day.
If we spend EUR 100 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 cases, decrease by 60% or even 70% the development cost. This is all the effect 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, at 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. By the same time, when you decrease your gross R&D expenditures, by the same time, you decrease the level of capitalization.
The decrease of the level of capitalization in H1 this year represents 90 basis points. All in all, the IFRS impact represented this semester a negative impact of 180 basis points, which were partially but significantly offset by the decrease of the gross R&D expenditures. If we move to page 23, you can see that the operating margin of 4.6% achieved in H1 2021 is a result of a decrease of the gross margin of 30 basis points compared to H1 2019 and an increase of the R&D expenditures. The global R&D expenditures, I mean the gross expenditure plus the IFRS effect of -40 basis points. If we go to page 24, you have the detail of the P&L. [Which cost nothing.] Which was supported by the operational efficiency.
The R&D expenditures, which increased by 40 basis points, 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. When it comes to the line, joint venture and associates, we can see that in H1 2021, this line was negatively recorded a level of losses of EUR 119 million, to be compared with a level of losses of EUR 107 million in H1 2019. Out of the EUR 190 million we have on this line, EUR 124 million were generated by the joint venture Valeo Siemens. Compared to H1 2019, we have two joint ventures, one in China and one in North America, which recorded a level of profit lower in H1 2021, compared to H1 2019. Page 25, when we look at the cost below the operating margin, including joint venture and associates.
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 2019 to 31% in H1 2021. In terms of net income, we achieved a net income of EUR 90 million, 1% of the sales, which represents a non-IFRS share of EUR 0.38/ share. In terms of return on capital employed, we have an improvement of 100 basis points to 13% compared to 12% in 2019. In terms of return 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.
This is a free cash flow generation of EUR 145 million, which is based on an EBITDA of EUR 1,205,000 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 at 12.5%. When we look at the breakdown of the EBITDA by business group, you can see that first three business group, Comfort and Driving Assistance, Thermal, and Visibility, were able to improve their EBITDA margin. Powertrain System has posted a decrease of 50 basis points, which is mainly related to the decrease of the dividends from the subsidiaries consolidated at the equity, which decreased in H1 by EUR 14 million compared to H1 2019. Page 28, we want to highlight the fact that during the semester, our inventories have increased by EUR 200 million.
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 delivery to our customers. Once again, in a very difficult environment due to the shortage of electronic components. First of all, we try to secure as much as possible our own supply of electronic components. On top of that, we wanted to secure the delivery to our customers. It is clear that this increase of inventory is a temporary increase, which will reverse when the situation normalize. By when the situation normalize, 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. It's very important to have in mind that we have made a significant effort during the years 2018 and 2019 in order to prepare the production capacities of the future. Today, 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 or recording the 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 entered into two lease contracts, two significant contracts. One for a new building in Taipei for comfort and driving assistance, which is a building for R&D and for the headquarter of the business group. This is a building which is leased over a period of 18 years and which represented an impact of EUR 73 million in terms of IFRS 16. The second contract is linked to the future headquarter of Valeo. We have a new lease contract which represented EUR 57 million, which represents the future lease over a period of 12 years. Now, page 40. If we look at the free cash flow generation.
You can see that during the semester, we have been impacted by a negative change in operating working capital, minus EUR 280 million, which is the direct consequence of the inventory increase I have already presented or commented. Second, the restructuring cost represented a cash out of EUR 54 million. The taxes were lower compared to H1 2019, but they represented a cash out of EUR 133 million. In terms of CapEx, you can see the sharp decrease in terms of cash out from EUR 568 million to EUR 279 million when it comes to the capitalized R&D. From EUR 400 million to EUR 291 million when we speak of capitalized R&D and from EUR 566 to EUR 279 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 were put in place when we issued a non-dilutive convertible bond in 2016. This convertible bond has been reimbursed. It was denominated in U.S. dollars. It has been reimbursed on June 16th this year. All the hedging instruments linked to this bond represented a positive impact in terms of cash, which helped us to mitigate the cash out related to the interest. Finally, the other financial items are comprising EUR 89 million of dividends paid either to our shareholders or to the minority shareholders of our subsidiaries. They are also linked to additional financing to Valeo Siemens of EUR 86 million.
You can see page 51, that at the end of H1, we have a leverage of 1.25x, significantly better than the 2.73x we had one year ago, or even compared to the 1.96x we had at the end of December 2020. Our objective is to go at the end of 2021 to a leverage very comparable to the leverage we had at the end of 2019, below 1.10x as of December 2021. In terms of debt profile, page 32. You can see that our debt at the end of June had an average maturity of 3.2 years. We have reimbursed EUR 470 million linked to the non-dilutive convertible bond we had. This reimbursement took place in June during this semester.
Now the next reimbursement will take place in September 2022, when we have to reimburse a 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 undrawn. 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 1.4. In 2019, the first half of the year, we had EUR 11.1 billion of order intake, 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 am going to start with the thermal, what we call eThermal. You have on the left-hand side the product which are mainly impacted, which is high voltage coolant h eater, the battery cooling and light composite, the efficient heat pump, unique compact cooling module. The orders we have taken over the last three years are EUR 5.2 billion. Like I said, it is more than 45% of the order intake in the first half of this year.
When we project ourselves in the next quarter, should be significantly above 50%. The top end, you see the EUR 1.1 billion of secure 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 represents a book-to-bill of around 3.3. If we look at the ADAS, which is another topic where we have incredible growth. The cumulative orders we are having is EUR 14 billion, and what we have reached in the first half of the year is EUR 2 billion. It's totally linked with our technical platform, 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. If we go to last page, which is again the guidance for the year.
As I said several times, the market conditions are more difficult than we had expected. Instead of having 10% growth, we expect to have 9% growth compared to 2020. We confirm the higher part of the range of our guidance, which mean EBITDA of 13.4% and the free cash flow of EUR 550 million. For Valeo Siemens, the evolution of our contribution to the Valeo P&L is exactly online for the full year than what we had expected. The cash contribution for the year is online with what we had expected, which is lower than what we had experienced last year. That is the presentation I wanted to make. We are ready, Robert and myself, to answer a few questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press zero one on your telephone keypad. We will only take two questions per person. Thank you. The first question comes from Tom Narayan from RBC Capital Markets. Sir, please go ahead.
Hi, yes, Tom Narayan, RBC. Thanks for taking the questions. Earlier today, Daimler announced it's buying a high-tech supplier making e-motors and bringing it in-house. We've also heard some insourcing plans from VW, Renault, Stellantis on e-motors and inverters. I guess the question is how big of a problem is this for Valeo, and do you think there's a risk that further insourcing happens, perhaps with battery management? Could you remind us, please, what your raw material contracts, how they work with your OEM customers? Thank you.
The insourcing, I wouldn't change anything to what we said. At the same time, we have RFQ and technical discussion with all the customers you were mentioning. The impact of those insourcing is not different or potential insourcing is absolutely not different from what we had envisioned four years ago, five years ago when we decided to go together with Siemens in Valeo Siemens. The growth potential and the order intake potential is tremendous. I don't take any more comments. The EUR 4 billion that we can achieve in the 31, 2022 is something 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 two 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 due to the shortage of electronic components 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 well concentrated in the second half of the year. We totally confirm that. That's the reason why, despite that the situation is concerning the market more difficult, we totally confirm our guidance. For the contract, we are passing for any new product, the copper and aluminum, which are around 75%, 80%, and partial for the steel. [Can you bear with me?] Please. Can you be on mute?
Sorry.
Yeah, because we hear a lot of.
Sure.
Sorry. For steel, we are around 50%. At the same time, we are negotiating with lots of compensation from our personnel, therefore, I feel very, very comfortable that the net impact of all the disturbance and increase of raw material, net of compensation, will be around EUR 80 million. Like I said, concentrated for [hat 30 year.] Therefore, we confirm our guidance.
Thank you.
The next question comes from Giulio Pescatore from BNP Paribas. Sir, please go ahead.
Hi. Thanks for taking my question. Giulio from Exane. 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. The second question on the free cash flow. What is going to be driving the acceleration in free cash flow generation in H2? Are you accounting for some reversal of the buildup in inventory you've done, and what if that doesn't materialize? Thank you.
For the first question, I was not expecting that question. I think we accumulated EUR 11 billion plus some orders we had last year and the year before, plus EUR 1.1 billion. It could be around EUR 14 billion, probably, something like that. They are around EUR 13 billion.
Yes, around EUR 13 billion.
EUR 13 billion.
If we deduct the sales of last year.
Yeah. 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. 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 increase of inventory we have done. It will happen once it materialized, but we have been cautious at the speed at which it will materialize, so we took an assumption that we recover only a smaller part of the inventory. Robert, can you tell me?
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 growth expenditures. Generally, we have always a second half of the year which is generating a higher level of free cash flow compared to H1. 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. I don't mean that we assume we are going to reverse the EUR 200 million of inventory increase.
Okay. Thank you. Can I just follow up on the first question? Given that the order intake today, just the sum of what you got after 2019 and less the revenue, it's fair to assume that you had no cancellations of some customers maybe deciding to go in-house. I'm just thinking about maybe Volvo that was quite vocal about bringing everything in-sourced, so there was no cancellation.
No. We are just to the contrary. Some customers that expanded their order intake.
Okay. Thank you.
The next question comes from Gabriel Adler from Citi. Sir, please go ahead.
Thank you. Gabriel from Citi. Thanks for taking my question. I have got two. 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 the proportion of D&A, it is well below 1x compared to being between 1.5x and 2x historically. 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? My second question is on the gross margin bridge.
Could you just elaborate, please, on the industrial efficiency bucket that 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? Thank you.
I'm going to answer the second question first. The efficiency of our plants has 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, the launch for new products is always something that is quite complex. Things are now running better, much better, we have still room for improvement. Therefore, I wouldn't be surprised that we still have, in the quarters to come, a further increase in efficiency. Especially because that increase in efficiency has been reached at a moment where the volatility of the product call-off from our customers has been extrem ely volatile. Let me give you an example. In June, the forecasted EDI from our customers has been 20% higher than the actual call-off.
That has had an impact on the inventory. Of course, an impact for being able to viabilize our production and adapt our actual production to the actual needs of our customers, because all our customers were always overstating their needs in a short term. Nevertheless, our team has done a fantastic job to improve the efficiency. Therefore, I'm quite confident that it will further increase. On the CapEx side, the level of CapEx on the sales has been 4.1% in the first half.
In terms of the tangible CapEx, excluding IFRS 16.
It should be around 4.5%, maybe, in the second half of the year. For the R&D, it's typically the leveraging of our technological platform. In the Capital Markets Day, we said that the growth R&D, the cash R&D, should go down from 10.5% or 10.6%, where we were, down to 9.4%. We already are 9.4%, and my impression is that we can further go down. That is really structural, thanks to the leverage of our technological platform.
Okay.
Just one additional comment. When you look at the impact on the gross margin points of the segment, which is under the caption fixed cost, which in fact is mainly a depreciation. It represents a negative impact of 70 basis points. We consider that with additional level of activity between EUR 350 million and EUR 400 million, we should be able to reduce this negative impact to zero. You can see that our production capacities are available. We are ready to absorb higher level of activity with no additional or with very small recorded CapEx. 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.
Great. Thank you very much.
The next question comes from Thomas Besson, Kepler Cheuvreux. Sir, please go ahead.
Thank you very much. It's Thomas Besson, Kepler Cheuvreux. I have two questions overall, please.
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?
Yeah, it's much better.
Okay, fantastic. I have a first question for Robert, please. Really dumb modeling question. Could you please help us on where you expect to land for 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 you on CapEx. The second question is about the joint venture. Are you able today to give us an update on the timing of the contribution of the JV, and its impact on your accounts, please?
The second question, we'll update you the day we take the decision. 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 accounts. Concerning the first question, I think I've been quite explicit on the CapEx, telling 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. 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 31.3% we had in H1. At the end of H1, we apply a budget rate to the net income we have in the different countries. What I can see today is that by the end of the year, we will probably achieve a level of 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 landing at the end of the year. Yes. The associates' losses. It should be below EUR 200 million, which in fact means a level of losses in H2, lower than what we have recorded in H1.
It should be around EUR 80 million.
Yeah. Thank you.
The next question comes from Jose Asumendi from JP Morgan. Sir, please go ahead.
Thank you very much, Jose, JP Morgan. Hello, Jacques and Robert.
Yes. How are you doing?
Good to hear. A couple of questions, please. First, congratulations on the beat to the expectations today. I think you're delivering in line with the plan. I want to get to your EBITDA margin guidance. 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's a chance you could upgrade your EBITDA margin guidance for a year, in the light of a strong first half result. Or maybe it should be, we still be a little bit more cautious for the second half and assume lower second half margins versus the first half. 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.
That's the first question. If you could comment a little bit on sequential second half to the first half. 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? As we look at this order book number, like these orders, how many years does it take to translate into revenues? Thank you.
Yeah. Your first question is a very interesting question. You are right. Normally, H2 should be higher than H1. 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 the year, net of compensation from our customers. COVID. If you look at the disturbance on the semiconductor market, it was a very tight market, you remember at the beginning of the year. There were three events that happened.
One is Texas. You remember that in Texas, we have Infineon, we have NXP, and we have Samsung producing there. There was disturbance of few weeks of production. We had the fire in Renesas, which disturbed the production during a few weeks, and now we start to be delivered normally again. Very recently, there was the lockdown in Malaysia due to COVID. In Malaysia, there are a few producers of semiconductor like ON Semiconductor, like NXP and so on. The COVID, I'm not very much afraid of lockdowns that could disturb the market. Might happen, but it's not that can make the situation uncertain.
Is the fact that in some countries where the level of vaccination is very low, like Malaysia, Indonesia, Thailand and so on, those countries where some of the electronic components producer or some other tier X suppliers might produce, we can be impacted, therefore the uncertainty is there. You are right, normally H2 should be higher. Given the level of uncertainty at that stage, I prefer to be cautious. For the Valeo Siemens, I think the sales was around EUR 350 million?
EUR 370 million in H1. In fact, we had a good start with the Q1, which was exactly in line with our expectations. What we have observed during the second quarter is the fact that the product delivered to our customer, were not at the expected level, not because Valeo Siemens was not able to produce. This is not at all the problem. The problem was that our customers obviously had some issues concerning their own supply of electronic components, which had some impact on their own production.
Thank you very much. That order book translating into revenues? Does it translate into revenues?
That should normally be t wo years out, three years out? Four years out. Four years.
Three, four years with one exception. Within 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 quickly. This is a new order which could start to generate sales mid of next year.
Very interesting. Okay. Thank you very much. Thank you.
Thank you.
The next question comes from Sascha Gommel from Jefferies. Please go ahead.
Good evening. Thanks for taking my questions. I have two as well. The first one is a follow-up on the orders. You just briefly touched on it at the end of Jose's question, but can you talk a little bit about, A, the customer split? Is it kind of a couple of large orders or a few smaller orders? Then also the product groups. Is it whole powertrains? Is it inverters? Is it e-motors? That would be great to understand. Then my second question is also coming back to this R&D and CapEx question. We've heard from the EU kind of tougher targets until 2035. We see a lot of OEM announcements accelerating a lot of programs, changing platforms, kind of posting new platforms.
I just wonder, can you still supply to all of these new platforms that come in 2025 and beyond with your kind of platform development? Do you think by the mid 2020s, 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? Thank you very much.
For the second question, you speak about the value, not the velocity, but value.
Yeah.
No, I feel 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, I think the not the velocity, but part of the value part, shouldn't need a higher R&D spending. I think that on the horizon you are mentioning, I've no doubt that we use mainly our technical platform. In a technical platform, it doesn't mean that it's frozen. It means that when we go from generation one to generation two, the additional R&D is much lower than what we spent at the very beginning. You remember the CMD, we have shown you some curve of how much the first order costs, the second, the third, and the fourth. It's exactly the same for the new generation. The additional spending is very limited. The R&D is still very comfortable.
The first question.
Related to the breakdown of the order intake.
The breakdown. In a very similar, normally the order intake is rather large, is normally EUR 200 million minimum. For what we have had in that first half of the year is probably 70% Europe, then 15% Asia, 15% North America, around that level. It's probably at that state, 75% power electronic and 25% electric motor.
That will be reversed, and we have big orders in RFQ and in pre-development with our customers, with the motor and the eAxle. I'm very comfortable that the average that we are having so far will be maintained in the years to come.
That's very clear. Thank you.
There was also a question concerning the breakdown of the order intake at the Valeo level by business group.
It's very well spread.
It was a well-balanced performance between the business group with one business group, which was slightly lagging behind, which is visibility, but visibility should catch up during the second half of the year.
Probably already caught up in pipeline.
Yes. It's not at all a problem. A very homogeneous performance between all the business groups.
That's great. Thanks for the details.
The next question comes from Michael Foundoukidis, Oddo BHF. Sir, please go ahead.
Hi, Michael Foundoukidis, Oddo BHF. Good evening. First question is on outperformance. During the Q1 call, you said you were aiming for 5 points versus 2020 this year. It was only 2 points in H1, could you confirm that you expect a significant acceleration in H2 and give us more color on that? The second question, sorry to come back on the JV. I'm surprised by your comment earlier on the fact that everything is going exactly as you planned three, four years ago, as we have almost every week, different car makers telling us that they change their minds, and they want to in-source a much greater part of the drivetrain. Now even including power electronics that you said less than a year ago was not at risk contrary to motors.
Even taking the concrete example you mentioned in your presentation, your current EQS, that it's now unfortunately almost sure that you will not be on the successor given the announcement today, right? 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? Thank you.
The first question was?
Real performance over the year.
Yeah. 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 pre-crisis level. Comparing with 2019, in each one of the regions, we're outperforming more than 10 points. Therefore, afterwards, we are not responsible for the geographical mix. I'm absolutely convinced that in each region, we outperform the market more than 5 points every year. For the second question, I won't repeat myself. We are negotiating, even with the customers you mentioned, a lot of RFQ, a lot of programs. I will not repeat. It doesn't change.
Of course, I read all what you mentioned, at the same time, our people report discussion, even contracts that we are having and contracts that could be materialized in the next few months. I don't change one word of what I've said.
Okay. Just regarding the growth rate post 2024 for the JV-
Let's look at the.
significance.
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.
Yeah, but I'm talking more longer term.
In the longer term-
book to bill is very low.
Pardon? What is low?
The revenues for the JV.
Yeah, of course.
Versus 2024.
It was zero a few years ago. It will be what, close to EUR 1 billion this year, probably between around EUR 900 million this year. It will be probably EUR 2 billion next year. The more the time goes, we won't have 100% growth every year, of course. At the longer term, I'm pretty sure that things 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 going much more advanced in terms of regulation. The China, some customers, you mentioned your Daimler today. They said that some of the new programs will be 100% electric. Things will move faster than we had expected, and the growth potential for Valeo Siemens is higher than we had expected.
Okay. Thank you.
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. The share of suppliers, that is a different project category, suppliers like Valeo Siemens, should be around 40%. The growth potential is enormous.
The next.
I interrupted you. Go on.
Thank you. The next question comes from Michael Jacks from Bank of America. Sir, please go ahead.
Hi, good evening, Jacques, Robert and team. Thanks for taking my questions and well done on the good results. Unfortunately, I'm going to ask a question on the JV as well, slightly different. Based on your discussions with your customers, are there any KPIs starting to emerge on which model variants, vehicle sizes, or regions will be favored more or less from an outsourcing perspective? 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? My final question is on ADAS. It's contributing quite significantly to your performance, clearly. Can you please give us a sense for the change in penetration or uptake this year in level two or two plus ADAS sensors versus the prior year? Perhaps comment also on LIDAR demand. Thanks.
I'm going to answer the second question first then ask you to repeat for the first one. For the second question, I know that you look at between level two, level three, and so on. We look at with products. That means the front camera, the surround view camera, the ultrasonic sensors, the radar, and so on. The penetration we're having is on those three categories. That means four categories. We have a strong momentum for surround view camera, for front camera. Strong momentum for ultrasonic sensor, where we have generation seven active. We have lots of interface with customers, which are the new players with very advanced cameras or short range radar, which doesn't materialize for the time being in a huge order intake, but give us the foot in their programs when they launch the robotaxis.
We look at it that way, more in driving assistance than in level two. If you translate it in level two or three, I would say that we have two or three programs at table three, one with a premium German customers. The other one, which has been announced with Honda in Japan, and we have some others that are coming. We have the new product programs, which is extremely promising. I don't know if it is directly ADAS or not. It's not looking outside of the car, it's looking inside of the car, where we are using and leveraging our existing technological platform, and we have huge orders that we gain already and that we might gain in the next few quarters. For the leaders, at the end of the day, there'll be very few players. I know that some of them have been listed in the U.S. recently.
At the end of the day, I think there'll be Valeo and probably one or two others. The market is taking more time to pick up, but we have lots of inquiry for lots of customers for the existing level two. Now we have four customers, five customers, and then we are developing the level three generation. Now, coming back to your first question, can you repeat it, please?
Yeah, sure. Just wondering if there are any clear themes starting to emerge on, when you discuss with your customers which model variants or vehicle sizes or regions will be favored more or less from an outsourcing perspective. If you look at what's being said at these electrification days, it does sound very binary. Again, I guess the discussion on powertrains historically has sounded binary too, and you know that there's been outsourcing there. Maybe if you can just share some color on that. 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? Thanks.
No. In a different costumers that just announced that they would in-source a very complex topic because they can say they in-source when they do only the assembly of the eAxle. They can say they in-source when they do the assembly of the eAxle plus produce the reducer. Therefore, we have to look at very much in detail what does the word in-sourcing mean, and it means lots of very different topics. For some of the customers that just said in the recent day that they will in-source, we just gained orders, and not short-term orders, very long-term orders. Therefore, we have to really look at very in detail what do the customers mean when they say in-sourcing. Normally, in powertrain, the contract duration is five to seven years.
That's very clear. Thank you.
The next question comes from George Galliers from Goldman Sachs. Sir, go ahead.
Thank you. Thank you for taking my questions. The first question I wanted to ask was just around the cash conversion ratio. If I look at your full year guide, just at face value, the cash conversion ratio in terms of free cash flow to EBITDA is around 22%. 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%-30%. Going forward, what do you see as the appropriate or desired level of cash conversion for Valeo? Do you think 20%-30% is a good proxy for the future, or are you aiming for something much higher?
The second question I had was just a bit of clarity on your revision to your light vehicle production expectation. Clearly, you've made 100 basis points cut. Is that reflective of production lost in the first half and as a result, do you expect the second half production level to be similar to what you anticipated at the beginning of the year? Is that cut actually coming a little bit from production lost in the first half, but also a lower expectation for Q3 and Q4 than you had originally? Thank you.
When we made our investor day, the conversion rate we said at that time was around 30%, Over?
It's lower than 30%. Between 20% and 30%.
Between 20% and 30%.
Yeah.
I think that achieving in the next few years between 25% and 30% is more than credible.
Mm-hmm. Yeah.
You should count with something very similar to that. I agree with your calculation for what we would have achieved in the first half of this year. The other question is it's late at night.
[crosstalk]
It's one of the topic we discussed upside down with our board of director today. If you look at, you remember at the very beginning of the year, we were cautious. As 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. What is done is done. What we see, that we might have further disruption, and the reason I explained to you in the earlier answers. We feel comfortable with 9% growth. 1% means out of 80 to few million cars, around 1 more million cars being lost. We feel very comfortable with that. What we see in the few weeks to come is very much in line with that. We feel comfortable with that figure.
Great. Thank you very much.
The next question comes from Edoardo Spina from HSBC. Sir, please go ahead.
Good evening. Thank you for taking my two questions. First, some feedback on the microchip situation. I believe you had dedicated teams at Valeo looking at the chip shortage. Is their workload decreasing now for them? Do you expect to be able to reassign them to different tasks in the future anytime soon? Do you also think that this microchip supply situation will repeat perhaps in a few years? The 2nd question is on the JV, but on the accounting. Will you be able to recover the losses that you're making in the startup phase as sort of tax credit in the future? If you can remind us the interest that the JV is paying to Valeo this year and maybe next year. Thank you.
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 solution and we can develop the product, have all volunteered to skip their holidays in August. 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, [the whole day] is looking at very much in detail.
Yeah. In fact, there are two scenarios. Either the joint venture, because once again, as Jacques has explained, 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 carry forward in order to recover the receipts. I am 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 carry forward. After that, when we take the control of the joint venture, it is clear that we will be able to have a tax consolidation in Germany, and it could be another positive advantage for Valeo, because we will be able to use those losses to mitigate our tax in Germany.
Okay. Thank you very much. We'll look into more details in the future. Secondly, sorry, about the interest, can you remind us how much Valeo JV is paying to Valeo?
The loan. 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. To give you a precise, it's around EUR 30 million. The annualized interest, which are charged to the company represents around EUR 30 million for Valeo. Of course, we are at parity with Siemens, which means that Siemens is charging the same level of interest to the company.
Thank you very much.
The next question comes from Chris McNally from Evercore ISI.
Thanks so much.
Please go ahead.
Thanks so much. I appreciate it. Getting to the end of the call, I'll try to be straightforward. 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, did you reconfirm the 8% EBITDA margin for 2022 target?
I think we will be in line in 2021. For the further, that what I said at the introduction, my successor will make the point again in the CMD. I don't know exactly when we will organize it, both for Valeo and for Valeo Siemens. 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, Christophe Périllat will organize a CMD, probably at the very beginning of next year.
Okay, perfect. That's clear. Just a big picture question. Has management ever considered whether Valeo would be better suited to be split up into two pieces, where the end markets were more aligned? If you think powertrain and the Siemens JV alongside thermal, and also comfort aligned with visibility. One's driven by ADAS and interior, one's driven by electrification. Just curious, it seems like potentially the sum of the parts could be greater than the whole. Would just love management's perspective on that.
No, it's not relevant for you.
Okay. Thanks so much, gentlemen.
Yes.
The next question comes from Pierre-Yves Quéméner from Stifel . Sir, please go ahead.
Good morning. Sorry, good evening. Just two 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. The second question would be on the order intake from the JV and Valeo Siemens. The EUR 2 billion that you are contemplating on an accumulated basis through 2022, how much of the total RFQ available does that account for? In other words, what is your estimated market share of this second wave of electrification? Thank you.
I said very clearly earlier that our guidance is linked to the upper range of our guidance. We aim for the upper range of the guidance. For the market share, I don't know exactly what it means in terms of market share. It's very difficult to know at that stage. 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 as a market share at that time. I don't have it on top of my mind.
Okay. Thank you.
The next question comes from Giulio Pescatore, Exane BNP Paribas. Sir, please go ahead.
Sorry.
You are coming back. You are cheating. You have already asked your questions.
No. I just have a very quick one. I just was looking into the report, and I saw that you have sold quite a bit of receivables in H1. I was wondering if that's likely to continue in H2, or might even reverse. I don't know what is incorporated in your guidance.
I don't understand your question.
Selling of receivables.
No. We don't sell receivables. No.
Consider that it's no impact. It's neutral. Okay. Thank you.
No, it's very clear. There is no impact. Okay.
We have no more questions.
Okay.
Mr. Aschenbroich, back to you for the conclusion.
Thank you very much, and thank you for taking time to be in our call. I know it's a late call. I would like to reinitiate on what I said, but I think it's a very solid set of numbers in a very adverse situation. We are very comfortable with our business model, which is exactly in line with what we had explained two years ago in the Capital Markets Day at the end of 2019, in terms of leveraging our technological platform to reduce our cash burn needs, reduce our CapEx. We are increasing our EBITDA online with what we are expecting. Of cour se, the turnover is lower than we had expected at that time. The business model is extremely solid, and the potential of our innovation, the potential of our products is very well welcomed by our customers.
There are some headwinds. There are some tailwinds also. We are very comfortable for the guidance. Thank you very much. See you next time. I 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.