Earnings Call: Q2 2021

Jul 22, 2021

Stream and 50% of scope three downstream, all that is validated by the LVTi. And the management compensation is totally aligned with those target for the variable remuneration yearly and for the long term incentives. We are recognized by the ESG rating agencies, all of them, and you know that we entered the Cat 40 ESG Index. Now if we go to Page 14, you see our outperformance. I already mentioned it, outperformance compared to the market, 11 points in North America, 11 points in Europe, 21 points in China and 10 points in overall Asia and 25 points in South America. And you see with the different color, who is driving our outperformance in China is CBA, Thermal and Visibility. In Europe, it's mainly CBA and PTS. In North America, it's mainly CDA and visibility. In Asia, it's CDA, Thermal and PTS. And in South America, is VEability, PTS and the CDA. Now if we look at our performance in Asia, 10 points India is a strong outperformance, 10 points China already spoke about it, 21 points and Japan, where we have a lot of exposure with Nissan. We have only six points outperformance between 2021 and 2019. And South Korea, we are in the transition phase for some products to new platform. We have only four points, but that's what I told you last time. It should start to be corrected at the end of this year. Now one slide for each one. 12 points outperformance for powertrain. It's mainly driven by 48 volt, which is increasing in line with what we told you in our Capital Markets Day in December 2019, and we have a strong order intake. We have growth opportunity also in transmission, especially for hybrid. The we have few of the cars that we are delivering, of course, the 48 volt transistor, 48 volt powertrain for the ME, and we have lots of orders coming for low voltage powertrain. We are obviously part of the AQS with the E Axle, which is considered as a fantastic car, I think, a fantastic car. And for 48, we are benefiting from the Hyundai Kia growth. In Thermal, one point in Thermal, we have 45% of our order intake, which is linked to product specific product for electrification in battery cooling, in heat pump, in flex heater. And when we look forward, it will be more than 50% in the second half of this year. And you remember, the content per car in Electrification for us will be doubled compared to what we have for traditional car. Comfort and value assistance, 16 points of outperformance is mainly driven by ADAS. I'll come back to that later. We have a very strong momentum in ADAS and strong momentum in new orders. And that momentum we have seen in 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, so very sophisticated product, which is driving our growth in the for Thermal, like I said, and the 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 Vario during the first half of this year. So as indicated in the introduction, we have generated an EBITDA margin of 13.4%, which is mainly the result of a very strict control of our cost, but also the result of a sharp improvement of the industrial efficiency of value. And finally, we are also able to take advantage of the technological platforms that we built during the years 2017 to 2019 in order to reduce our R and D cost. If we move to Page 21, you have bridge concerning the evolution of the gross margin between H1 twenty nineteen and H1 twenty twenty one. So we suffered from two negative effects. The first one is directly related to the drop of sales we had in H1 twenty twenty one compared to H1 twenty nineteen. This drop of sales represents around €780,000,000 very close to €800,000,000 We consider that the impact is a negative, is minus 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 capacity for our new products, but also because we assumed that the evolution of the production car global car production would be much higher than what we observed during this semester. So we had, therefore, a negative impact of the fixed cost. And instead of fixed cost, I should say mainly depreciation. The level of depreciation we had in H1 twenty twenty one is significantly higher than in H1 twenty nineteen. And due to the lack of sales, it represented a negative impact of 0.7 points. On the other hand, you can see that the industrial efficiency of value was much better all over the semester compared to H1 twenty nineteen, and it represents an improvement of 0.9 points. And I want to highlight that this industrial efficiency improvement was achieved in an environment which was rather complicated due to the shortage of electronic components and also due to the stop and go of the production of our customers, which created some disturbances in our own plants. But despite this very complicated environment, we were able to improve our industrial efficiency by 0.9 points. In addition, we improved the margin of our tooling sales and the change in perimeter and extent rate had a negative positive impact of 0.1%. So all in all, we were almost able to offset the negative impact of volumes and the negative impact of the increase of depreciation, thanks to mainly thanks to industrial efficiency. In terms now if we move to Page 22, you can see that as far as the R and D expenditures are concerned, you can see that our gross R and D expenditures decreased by 20%. This is more than EUR $212,000,000 between H1 this year and H1 twenty nineteen. 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, very efficient. And you know this is what we presented in December 2019 during our Capital Market Day. If we spend 100,000,000 in development cost for the first contract of a given product, we can significantly decrease the development cost for the second contract and the third contract. We can, in some case, decrease by 60% or even 70% the development cost. This is all the effects of the technological platforms which were implemented, and we have started since the beginning of the year really to take advantage of the efficiency of technological platform. Of course, at the same time, what I call the IFRS impact, which are related to the increase of the depreciation of the R and D cost, which were capitalized in the year before 2020, has significantly increased. This is an impact of 90 basis points. And by the same time, when you decrease your growth capital your growth R and D expenditures, by the same time, you decrease the level of capitalization. And the decrease of the level of capitalization in H1 this year represents 90 basis points. So all in all, the IFRS impact represented this year this semester a negative impact of 180 basis points, which were offset partially but significantly offset by the decrease of the gross R and D expenditures. So if we move to Page 23, you can see that the operating margin of 4.6% achieved in H1 twenty twenty one is a result of a decrease of the gross margin of 30 basis points compared to H1 twenty nineteen and an increase of the R and D expenditure the global R and D expenditures, I mean the gross EBITDA expenditures plus the IFRS effect of minus of 40 basis points. Now if we go to Page 24, so you have the detail of the P and L. So the gross margin, which was supported by the operational efficiency. The R and D expenditures, which increased by 40 basis points. But when we look at the gross R and D expenditures or what I call the cash R and D expenditures, represent a decrease of 130 basis points. And when it comes to the line joint venture and associate, you can see that in H1 twenty twenty one, this line was negatively recorded level of losses of €119,000,000 to be compared with a level of losses of €107,000,000 in H1 twenty nineteen. Out of the €190,000,000 we have on this slide, 124,000,000 were generated by the joint venture value estimates. And compared to H1 twenty nineteen, we have two joint ventures, one in China and one in North America, which recorded a level of profit lower in H1 twenty twenty one compared to H1 twenty nineteen. And Page 25, when we look at the cost below the operating margin, including joint venture and associates. First, you can see that the level of other income and expenses was almost in line with the level of H1 twenty nineteen. In terms of cost of net debt, have an improvement of EUR 9,000,000. In terms of effective tax rate, we have a slight increase of our effective tax rate, which went from 29% in H1 twenty nineteen to 31% in H1 twenty twenty one. And in terms of net income, we achieved a net income of EUR 90,000,000, 1% of the sales, which represents an earnings per share of EUR $0.03 8 per share. In terms of return on capital employed, had an improvement of 100 basis points to 13% compared to 12% in 2019. And in terms of recurring assets, we have the same improvement, 100 basis points at 7%. I propose now to look at the free cash flow generation we had during the first half of this year. So this is a free cash flow generation of EUR 145,000,000, which is based on an EBITDA of EUR 1,205,000,000.000 in H1, which represented 13.4% of our sales. In absolute terms, it's almost in line with the EBITDA of H1 twenty nineteen. But in H1 twenty nineteen, we the EBITDA margin was only 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 show as positive a decrease of 50 basis points, which is mainly related to the decrease of the dividend from the subsidiaries consolidated at equity, which decreased in H1 by EUR 14,000,000 compared to H1 twenty nineteen. And Page 28, we want to highlight the fact that during the semester, our inventories have increased by EUR 200,000,000. And this increase was absolutely under the control of the management of value. 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. So first of all, we try to secure as much as possible of supply or on supply of electronic components. And top of that, we wanted to secure the delivery to our customer. It is clear that this increase of inventory is temporary increase, which will reverse when the situation normalize. And I mean the situation by when the situation normalize, I mean when the shortage of Aethernet components will decrease or disappear. Page 29, in terms of recorded CapEx, you can see that the sensible CapEx, I mean the CapEx excluding IFRS 16 decreased by €228,000,000 and our tangible CapEx represented 4.1% of our sales in H1 this year compared to 6.1 of our sales in H1 twenty nineteen. This is a sharp decrease, but 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 for the future. And today, we have our production capacities are available, and we have production capacities which are really available, and we are ready to absorb an increase of the activity without being obliged to increase sharply our recorded CapEx, which means that in terms of cash for the next semester, it will, of course, help us to improve the free cash flow generation. Concerning the IFRS 16 impact, I want to mention the fact that during the first half of this year, we have we entered into two lease contracts two significant lease contracts, one for the new building in Ketai for comfort and driving assistance, which is a building for R and D and for the headquarter of this the business group. This is a building which is leased over a period of eighteen years and which represented an impact of EUR 73,000,000 in terms of IFRS 16. And the second contract is linked to the future headquarter of Valeo. So we have new lease contract, which represented EUR 57,000,000 over a period of which represents the future lease over a period of twelve years. And now Page 30, if we look at the free cash flow generation. So you can see that during the semester, we have been impacted by a negative change in operating working capital, minus EUR $280,000,000, which is a direct consequence of the inventory increase I have already presented or commented. Second, the restructuring cost represented a cash out of €54,000,000 And the taxes were lower compared to H1 twenty nineteen, but they represented a cash out of EUR 133,000,000. In terms of CapEx, so you can see the sharp decrease in terms of cash out from EUR $568,000,000 to EUR $279,000,000 when it comes to the capitalized R and D and from €400,000,000 to €281,000,000 when it comes to the sorry, 400,000,000 to €281,000,000 when we speak of capitalized R and D and from five sixty six million to €279,000,000 when we speak of tangible CapEx. The level of interest was very low, euros 13,000,000. 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 convertible bond in 2016. This convertible bond has been reimbursed. It was denominated in U. S. Dollar. It has been reimbursed on June year. And 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. And finally, the other financial items are comprising EUR89 million of dividend paid either to our shareholders or to the minority shareholders of our subsidiaries. And they are also linked to additional financing to value Siemens of EUR 86,000,000. So you can see Page 31, then at the end of H1, we have a leverage of 1.25, significantly better than the 2.73 we had one year ago or even to compared to the 1.96 we had at the December. Our objective is to go at the 2021 to a leverage very comparable to the leverage we had at the 2019 below when the December. In terms of debt profile, Page 32. So you can see that we our debt at the June had an average maturity of €3.2 We have reimbursed €470,000,000 linked to the non dilutive convertible bonds. We had this reimbursement took place in June during this semester. And now the next reimbursement will take place in September 2022 when we have to reimburse ELTN obligation of EUR 600,000,000. And by the same time, we have, at the December, EUR 2,300,000,000.0 of credit facilities, which were undrawn. So this is what I wanted to highlight. And now I hand over to Jacques Chonois 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 10,600,000,000.0, which is a book to bill of EUR 1,400,000,000.0. In 2019, the first half of the year, we had EUR 11,100,000,000.0 of order intake, but only a level of book to bill of 1,300,000,000.0 If you go Page 35, you see what is linked to the electrification and the high voltage electrification. I'm going to start with the thermal, what we call e thermal. You have on the left hand side the product, which are mainly impacted, which is high voltage coolant heater, the battery cooling and light composite, the efficient heat pump, a unique compact cooling module. The orders we have taken over the last three years are EUR 5,200,000,000.0. And like I said, it's more than 45% of the order intake in the first half of this year. And when we project our sales in the next quarter, it should be significantly above 50%. On the upper end, you see the EUR 1,100,000,000.0 of secured business by various Siemens, and we feel extremely comfortable that we can reach more than EUR 4,000,000,000 between 2021 and 2022, and the EUR 1,100,000,000.0 represents a book to bill of around €3,300,000,000 Now if we look at the ADAS, which is another that topic where we have incredible growth, the cumulative orders we are having is EUR 14,000,000,000. And what we have reached in the first half of the year is EUR 2,000,000,000. It's totally linked with our technical platform. So the additional R and D, which will be needed for developing those products and delivering them to our customers will be far lower than what we had in the previous years. So if we go to last page, which is again the guidance for the year. As I said several times, the market conditions are more difficult than we had expected. So instead of having 10% growth, we expect to have 9% growth compared to 2020. And we confirm the higher part of the range of our guidance, which mean EBITDA of 13.4% and the free cash flow of EUR $550,000,000. And for Value Siemens, the evolution of our contribution to the Value P and L is exactly in line for the full year than what we had expected, and the cash contribution for the year is in line with what we had expected, which is lower than what we had experienced last year. So that is the presentation we wanted to make. We are ready, Robert and myself, to answer a few questions. Thank The first question comes from Tom from RBC Capital Markets. Sir, please go ahead. Hi, yes. Tom Narayan, RBC. Thanks for taking the questions. So earlier today, Daimler announced it's buying a high-tech supplier making e motors and bringing it in house. You know, we've also heard some insourcing plans from VW, Renault, Celantis on e motors and inverters. It's a question of how big of a problem is this for Vallejo? And do you think there's a risk that further insourcing happens perhaps with battery management? And then could you remind us please what your raw material contracts, how they work with your OEM customers? Thank you. So the in sourcing, I wouldn't change anything to what we said. At the same time, we have an HQ and discussion technical discussion with all the customers you were mentioning. So the impact of those in sourcing is not different from our potential in sourcing, it's absolutely not different from what we envisioned four years ago five years ago when we decided to go together with Siemens in various Siemens. So the growth potential and the order intake potential is tremendous. So I don't make any more comments. The EUR 4,000,000,000 that we can achieve in the 2021, 2022 is something we feel very, very comfortable about, both in Power Electronics and in eMotors. 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 difficulty of the due to the shortage of electronic components, will be around EUR 80,000,000. We totally confirm that figure. The net of compensation from our customers will be around EUR 80,000,000 for the year, but very less concentrated in the second half of the year. Therefore, 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 have passed through for LME product, the copper and aluminum, which are around 75. Mhmm. I need to 7580%. And part two for the team. Can you please please can you be can you be a Yeah, because we hear a lot of Sorry. For steel, we have around 50%. But at the same time, we are negotiating with lots of compensation from our customer therefore, I feel very, very comfortable that the net impact of all the disturbance and the increase of raw material, net of compensation will be around EUR 80,000,000, like I said, concentrated for last year. And therefore, we confirm our guidance. Thank you. The next question comes from Julio Pescatoire from NBN P Paribas. Sir, please go ahead. Hi, thanks for taking my question. Giulio from Exane. So the first question is on the order intake of the JV. I was wondering if you could give us a cumulative number as well to maybe compare with the one you gave us back in 2019, just to understand what is the general trend and what is the situation there. Then the second question on the free cash flow. What is going to be driving the acceleration in free cash flow generation in H2? Is it are you accounting for some reversal of the buildup in inventory you've done? And what if that doesn't materialize? Thank you. For the first question, I was not expecting that question. So I think we accumulated €11,000,000,000 versus some orders we had last year and the year before, plus €1,100,000,000 so it could be around €14,000,000,000 probably, something like that. So yes, around €13,000,000,000 yes, around €13,000,000,000 €13,000,000,000 if we deduct the sales of that. Yes. And what it is materializing in terms of sales in the first half of the year, the ramp up of some of our customers is a little bit slower than we had expected. But for the full year, I think it will be in line with what we had expected in terms of sales. For the free cash flow, Robert will confirm the assumption I'm going to do. We didn't expect that we recover the full increase of inventory we have done. It will happen once it materialized, but we have been cautious of the speed at which it will materialize. So we took an assumption that we recover only a small part of the inventory. Roger, can you tell us? No, no. This is exactly the point. We have assumed that a small part of the EUR 200,000,000 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 and D what I call the cash R and D or the R and D growth expenditures. Generally, we have always second half of the year, which is generating a higher level of free cash flow compared to H1. And based on what we can see today from the level of activity, we consider that generating a level of free cash flow over the year of around EUR $550,000,000 is okay. But we don't I don't mean that we are going to we assume we are going to leave us the €200,000,000 of inventory increase. Okay. Thank you. And can I just follow-up on the first question? So given that the order intake today is just the sum of what you got after 2019 and less the revenue, It's fair to assume that you had no cancellations of some customers maybe deciding to go in house. I mean, I'm just thinking about maybe Volvo that was quite vocal about bringing everything in in in source. So there was no cancellation. We have just the contrary some customers that extended 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 questions. I've got two. My first question is on CapEx and R and D. You mentioned in the presentation your total PPE and R and D CapEx is now quite a bit below twenty nineteen levels. I think the proportion of D and A is well below 1x compared to being between 1.5x and 2x historically. So my question is simply, how sustainable is this level of investment? Is this a new normal because of the technology platforms that you mentioned? Or will R and D and CapEx need to increase again in the future to fund future innovation and growth? And then my second question is on the gross margin bridge. Could you just elaborate, please, on the industrial efficiency bucket 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? I'm going to answer the first the second question first. The efficiency of our plants have been very much impacted by all the new projects and new products that we have launched in the year twenty nineteen-twenty twenty. Innovation is very interesting, but the launch for new products is always something that is quite complex. And things are now running better much, much, much better, but we have still room for improvement. And therefore, I wouldn't be surprised that we still have in the quarters to come a further increase in efficiency, especially because that increase in efficiency has been reached at the moment where the volatility of the product go off from our customers has been extremely volatile, extremely volatile. Let me give you an example. In June, the forecasted EDI from our customers has been 20% higher than the call off the actual call off, but that has added impact on the inventory. And, of course, an impact for being able to variabilize our production and adapt our actual production to the actual needs of our customers. So they were always all our customers were always overstating their needs in the short term. And nevertheless, our team has done fantastic job to improve the efficiency. So therefore, I'm quite confident that it will further increase. On the CapEx side, the level of CapEx on the sales have been 4.1% in the first In terms of tangible CapEx, excluding IFRS 16? It should be around 4.5 maybe in the second half of the year. And for the ID, it's typically the leveraging of our technical platform. In the Capital Market Day, we said that the gross R D, that the cash R and D should go down from 10.5% or 10.6 so we are down to 9.4%, and we already get 9.4. And my impression is that we can further go down. So that is really structural, thanks to the leverage of our technical platform. Okay. Just one additional comment. When you look at the impact on the gross margin bridge 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. But we consider that should have with additional level of activity between EUR $350,000,000 and EUR 400,000,000, we should be able to reduce this negative impact to zero. So you can see that we have our production capacities are available. We are ready to absorb a higher level of activity with no additional or with very small recorded CapEx. So I consider today that within the current environment and once again, the environment was a bit difficult when I look at all the disruptions that 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 semester. 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 at Kepler Cheuvreux. I have two questions for you, please. First Can you speak louder, please, because we cannot hear you very well. Sorry, I'll start again. It's Thomas Besson of Kepler Cheuvreux. Can you hear me now? Yes, yes, sounds better. Okay. Fantastic. So I have a first question for Robert, really dumb modeling question. Could you please help us on where you expect to land for the full year on the following things, 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 trying to understood your answer on CapEx. The second question is about the joint venture. Are you able today to give us an update on the timing of the consolidation of the JV and its impact on your account, please? And the question the second question, we'll update you the day we take the decision. So when we take the decision, it will be made public. And at that time, we'll tell you that we made a decision to exercise our call or that senior decided to exercise their put, and we will give you at that time the impact on our debt and other countries. Concerning the first question, I think I've been quite explicit on the CapEx. To you that the CapEx on the first half of the year was 4.1% for the sales. It should be around 4.5%, maybe less than the state on that for the year. So I think I've been answering that question. For the tax rate? For the tax rate, we the we'll achieve a lower tax rate at the end of the year compared to the 31.3% we had in H1. It's at the end of H1, we will apply a budget rate to the different to the profit the net income we have in the different countries. But what I can see today is that by the end of the year, we will probably achieve a level of tax rate, I would say, between 2829%, which is better than what we have at the end of H1. You had another question I missed. The third point you wanted the information concerning the lending at the end of the year? Yes. It's losses and there's actually what should be It should be yes, yes. It should be below EUR 200,000,000, which in fact means a level of losses in H2, lower than what we have recorded in H1. It should be around €18,000,000 Yes. You. The next question comes from Jose Asumendi from JPMorgan. Sir, please go ahead. Good to hear. Couple of questions, please. First, congratulations on beat to the expectations today. I think you're delivering in line with the plan. I want to get to to these to your EBITDA margin guidance. And I would like to hear a little bit about the second half versus the first half progression. Some of the categories that you're seeing like raw materials, volume or pricing. I'm getting the impression that maybe there's a chance to upgrade your EBITDA margin guidance for the year in the light of the strong first half result? Or maybe should we be still be a little bit more cautious for the second half and assume lower second half margins versus the first half? But maybe in the light of the stronger volume growth we may have in the second half, maybe you are in a situation to upgrade your margin guidance. So that's the first question, if you could comment a little bit on sequential second half versus the first half. Then the second question on Siemens value. Can you talk a little bit about the revenues you're generating as of the first half on the joint venture? And then as we look at this order number or the book number, like these orders, how many years does it take to translate into revenues? Thank you. Yeah. Yeah. First question is a is a very interesting question. The you are right. Normally, H2 should be higher than H1. And if that is the case, our EBITDA margin would be higher in the second half of the year. The only problem is COVID, and I'll elaborate on that, and the shortage of electronic material and, of course, the increase of raw material. The increase of raw material, there's a lot of work which has been done to have the compensation. Therefore, I feel very comfortable, like I said, of the EUR 80,000,000, 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, very tight market, you remember, at the beginning of the year. Then there were three events that happened. One is Texas. You remember that in Texas, we have Infineon, we have NXP, we have Samsung producing there. And there was disturbance of few weeks of production. Then we had the fire in Rennesas, which disturbed the production during a few weeks, and now we start to be delivered normally again. And very recently, there was the lockdown in Malaysia due to COVID. And in Malaysia, there are few producers of semiconductor like ONCEV, like NXP and so on. So the COVID, I'm not very much afraid of lockdowns that would disturb the market. It might happen, but it's not that that makes the situation uncertain. Is the fact that in some countries where the level of vaccination is very, very low, like Malaysia, Indonesia, Thailand and so on, those countries where some of the electronic components produce or some other Tier X suppliers might produce, we can be impacted. And therefore, the uncertainty is there. So you are right, normally, H2 should be higher. Given the level of uncertainty at that stage, I prefer to be cautious. For the various Siemens, I think the sales was around EUR $350,000,000. EUR $370,000,000 in In fact, we started we had a good start with the Q1, which was exactly in line with our expectations. And what we have observed during the second quarter is the fact that the level the product delivered to our customer were not at the expected level, not because value estimates were not able produce. This is not 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. And that order book translated into revenues? Does it translate That's into years out. Years out, four years. With one exception, within the EUR 1,200,000,000.0, we have a new order for a product which is very similar to an existing one, which will be produced very, very quickly. This is a new order which could start to generate sales mid of next year. Very interesting. Okay. Thank you very much. Thank you. Thank you. The next question comes from Sascha Goumet 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. And 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? And then also the product groups, is it kind of whole powertrains? Is it inverters? Is it e motors? That would be great to understand. And then my second question is also coming back to this R and D and CapEx question. We've heard from the EU kind of tougher targets until 'thirty five. We see a lot of OEM announcements accelerating, lot of programs changing platforms, kind of hosting new platforms. And I just wonder, can you still supply to all of these new platforms that come in 2025 and beyond with your kind of platform developments? Or do you think kind of by the mid-20s, you also need to step up your investment spending again and kind of develop a new platform in order to serve the new platforms of the OEMs? Thank you very much. For the second question, you speak about the value, not the value statement, value. Yes. No, no, it's actually extremely comfortable that when our customers speak about platforms, the overall product that we are developing in CVA or in lighting or in thermal and even in PTS, not the value Siemens part of the value part, shouldn't need a higher R and D spending. So I think that on the horizon you are mentioning, I have no doubt that we use mainly our technical platform. In a technical platform, it doesn't mean that it's frozen between that when we go from generation one to generation two, the addition of R and D is much lower than what we spent at the very beginning. Remember, in the CMD, we are showing you some curve of how much the first order cost to take on the third and fourth. It's exactly the same for the new generation. The additional spend is very limited. So the R and D has been very, very comfortable. The first question was related to the breakdown So of in various Siemens, normally, the order intake is rather large, with normally EUR 300,000,000 For what we have had in that first half of the year, it's probably 70% Europe, then 15% Asia and 15% North America along that level. And it's probably, at that stage, 75% power electronic and 25% electric motors. But that will be reversed, and we have big orders in Air Q and pre development with our customers with the motor and the EXO. So I'm very comfortable that the average that we are having so far would be maintained in the years to come. That's very clear. Thank you. There was just a question concerning the breakdown of the order intake at the value level It's by business very well spread. Right. 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 And I probably already caught up in the Yes, yes, yes. So it's not at all a problem. But a very much much a nice performance between all the business group. That's great. Thanks for the details. The next question comes from Michael from Lucidis, ODDO Securities. Sir, please go ahead. Michael from Lucidis, ODDO BHF. Good evening. So first question is on outperformance. During the Q1 call, you said you were aiming for five points versus twenty twenty this year towards only two points in H1. So could you confirm that you expect a significant acceleration in H2 and give us more color on that? And then the second question, sorry to come back on the JV, sorry, but I'm surprised by your comment earlier on the fact that everything is going exactly as you planned three, four years ago as we have almost every week different carmakers, years that they change their minds, and they want to insource a much greater part of the drivetrain, now even including poor electronics that you sell less than a year ago was not at risk contrary to motors. So even taking the concrete example you mentioned in your presentation, you're currently on the EQS, But it's now unfortunately, I'm not sure that you will not be on the successor given the announcement today, right? And maybe as a follow-up, do you believe that the current level of €2,000,000,000 orders intake per year for the JV is enough for the JV to continue to grow at a double digit rate after 2024? The first question was Aerial performance for the year. Yes. You 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. And comparing with 2019, in each one of the regions, we're outperforming more than 10 points. So therefore, afterwards, we are not responsible for the geographical mix. So I'm absolutely convinced that in each region, we outperform the market more than five times every year. And 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. So I will not repeat, it doesn't change. And of course, I read all what you mentioned. But at the same time, our people report discussion, even contracts that we are having and the contract that could be materialized in the next few months. So I don't change one word of what I've said. Okay. And just regarding the growth rate post 2024 for the JV? So if you have a book to bill of 3.3%, that is what we should have in the next few quarters. That means a very strong growth in the years to come. Yes. No, I'm talking more longer term. I mean because, of course, today In the longer term, are Sorry. What is low? What is low? The revenues for the JV. Yes, of course. Yes, it's 2024. It was zero a few years ago. It will be, what, close to 1,000,000,000 this year, probably between around EUR 900,000,000 to 900,000,000 this year. It should be probably EUR 2,000,000,000 next year. So 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. With China, some customers, you mentioned your Daimler today, they said that some of the new programs will be 100% electric. So things will move faster than we had expected, and the growth potential for various Siemens is higher than we had expected. Okay. Thank you. Next question? Maybe in complement to what I said, when we make some projection at the region of 02/1930, the size of the market will be probably around EUR 60,000,000,000 for electrification. And the share of suppliers, that is in a different product category, suppliers like various Siemens should be around 40%. So the growth potential is enormous. Thank you. The next question comes from Michael Jacks from Bank of America. Sir, please go ahead. Hi, good evening, Jaks, Robert and team. Thanks for taking my questions and welcome on the good results. Unfortunately, I'm going ask a question on the JV as well, but it's slightly different. Based on your discussions with your customers, are there any clear themes starting to emerge on which model variance, vehicle sizes or regions will be favored more or less from an outsourcing perspective? And then secondly, what sort of indications are you getting from the OEMs around contract duration? Are they more or less in line with your other businesses? Or are they different? And then my final question is on ADAS. It's contributing quite significantly to your outperformance clearly. Can you 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? And perhaps comment also on LiDAR demand? Thanks. For the first question I'm going to answer the second question first and then ask you to repeat for the first one. For the second question, I know that you look at between level two, level three and so on. The we look at with products, that is the front camera, the sound view camera, the ultrasonic sensors, the RADAR and so on. And the penetration we're having is on those three categories. That means we have or four categories, we have a strong momentum for thermal view camera, for front camera, strong momentum for ultrasonic sensor where we have generation seven ninety nine. We have lots of interface with customers, which are the new players with very advanced cameras or short range radar, which doesn't mandate us for the time being in huge order intake, but give us the foot in their programs when they launch the robotaxis. So we look at it that way, more in driving assistance than in level two. If you translate it in level two level two or three, I would say that we have two or three programmers at level three, one with the premium German customers, the other one which has been announced with Honda in Japan, and we have some others that are coming. We have a new product programs, which is extremely promising. I don't know if it is directly ADAS or not. It's not looking outside of the car, it's looking inside of the car, where we are using leveraging our existing technological platform, and we have huge orders that we gained already and that we might gain in the next few quarters. For the LiDAS, the at the end of the day, there'd be very few players. I know that some of them has been listed in The U. S. Recently. At the end of the day, I think there'd be Vale and probably one or two others. The market is taking more time to pick up, but we have lots of inquiries for lots of customers for the existing level two. Now we have four customers five customers, five customers. And then we are developing the level three generation. Now coming back to your first question, can you repeat it, please? Yes, sure. Just wondering if there are any clear themes starting to emerge when you discuss with your customers which model variance or vehicle sizes or regions will be favored more or less from an outsourcing perspective? Because, I mean, if we look at what's being said at these electrification days, it does sound very binary. But then again, I guess the discussion on powertrains historically has sounded like binary too, and you know that there's been outsourcing it. So maybe if you can just share some color on that. And then secondly, what is the sort of average order duration or contract duration on this new one? Is it similar to your other businesses? Or is it different? No. On the different customer that just announced that they would in source, Now we have to it's a very complex topic because they can say they in source when they do only the assembly of the E Axon. They can say they in source when they do the assembly of the E Axon plus produce the reducer. So therefore, we have to look at very much in details what does the word insourcing means, and it means lots of very, very different topics. For some of the customers that just stayed in the recent day that they will insource, we just gained orders and not short term orders, very long term orders. So therefore, we have to really look at very, very in detail what do the customers mean what do the customers mean when they say insourcing. Normally, in powertrain, the contract duration is five to seven years. That's very clear. Thank you. The next question comes from Jean Gatlier from Goldman Sachs. Sir, please go ahead. Thank you and thank you for taking my questions. The first question I wanted to ask is 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%. And maybe if I adjust that to add back some of the inventory that you've built, which you mentioned may not reverse in full for the second half, the cash conversion ratio is something in the region of sort of 27% to 30%. Going forward, what do you see as the appropriate or desired level of cash conversion to Valeo? And do you think 20% to 30% is a good proxy for the future? Or are you aiming for something much higher? And the second question I had was just a bit of clarity on your revision to your light vehicle production expectations. Clearly, you've made 100 basis points cut. Is that reflective of production loss in the first half? And as a result, do you expect the second half production level to be similar to what you anticipated at the beginning of the year? Or is that cut actually coming a little bit from production loss in the first half, but also a lower expectation for Q3 and Q4 than you had originally? Thank you. When we made our Investor Day, the conversion rate we said at that time was around 30% over. It's slightly lower than 30%. It's between 20% and So 30 I think that achieving in the next few years between 2530% is more than credible. Therefore, you should count with something very similar to that. And I agree with your calculation for what we would have achieved in the first half of this year. The other question is is one of the topics we discussed upside down with our Board of Directors today. The if you look at you remember at the very beginning of the year, we were cautious, and some of you said we might have been too cautious, when we said that the market could grow 10%. And at that time, EHS was staying 11.9%. Step by step, EHS is coming down to 10% growth between 2020 and 2021. The what we've done is done. What we see that we might have further disruption, and the reason I explained to them to you in the earlier answers, so we feel comfortable with 9% growth. 1% means out of eight eighty a few million cars around once more million cars being lost. So we think we feel very, very comfortable with that. What we see is a few weeks to come is very much in line with that. So we feel comfortable with that figure. Great. Thank you very much. The next question comes from Edouard Duskina 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 the dedicated teams at Valeo looking at the chip shortage. Is their workload decreasing now for them? And do you expect to be able to reassign them to different tasks in the future anytime soon? Or do you also think that this microchip supply situation will repeat perhaps in a few years? And the second question is on the JV, but on the accounting, Will you be able to recover the losses that you're making in the start up phase of tax credit in the future? And if you can remind us the interest that the JV is paid to Vallejo this year and maybe next year? Thank you. The workload, I'll translate your questions in another way. All the people, mean, hundreds of people which are involved in making sure that we find solution and we can develop the product have all volunteers to skip their holidays in August. So we think the next weeks will be still complex, and the people are incredibly involved and committed into solving the difficulties. For the tax, it's a topic that, of course, Jose is looking at very much in detail. Yes. Fact, there are two scenarios. Either the joint venture, because once again, we have not as Jacques has explained, we have not made our mind yet we have not yet made our mind concerning yet when we take over the joint venture. It will, of course, take some time before the joint venture is able to take advantage of the tax loss carryforward in order to recover the receipts. I'm not going to tell you that it will happen next year or even the year after. We do hope that we will be able to start to recover the tax loss carryforward. After that, when we take the control of the joint venture, it's clear that we will be able to have a tax consolidation in Germany, and it could be another positive advantage for value because we will be able to use those losses to mitigate our tax in the German. Okay. Thank you very much. We'll look into more details in the future. And secondly, sorry, about the interest, can you remind us how much what LGV is paying to what else? The loan interest rate? 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 86,000,000 during the quarter, which, by the way, was much lower than what was expected at the beginning of the year. But to give you a give you a precise, it's around EUR 30,000,000. The level the annualized interest, which are charged to the company represents around EUR 30,000,000 for value. And of course, we are at parity with Siemens, which means that is charging the same level of interest to the company. Thank you very much. The next question comes from Chris McNally from Evercore ISI. So much. 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, but did you reconfirm the 8% EBITDA margin for 2022 target? I said we will be in line in 2021. For the further that's what I said at the introduction, my successor will make the point again in the CMD. I don't know exactly when he will organize it, but also very well for various units. The fact that the market is growing much faster with that implication, but I cannot tell you exactly what today. It's something that we are analyzing. Therefore, it's something that once we are ready, Chris and Ferreira will organize the CMD probably at the very beginning of next year. Okay. Perfect. That's clear. And then just a a big picture question. So has has management ever considered, you know, whether Valeo would be, you know, better suited to be, you know, split up into into two pieces where the end markets were more, aligned. You know, if you think powertrain and the Siemens JV alongside thermal, and also comfort, aligned with visibility, you know, once driven by ADAS and interior once driven by, you know, electrification. You know, just curious, it seems like potentially, you know, the that some of the parts could be greater than the whole. So we'd we'd just love the management's perspective on that. No. It's not a no, relative to you. Okay. Thanks so much, gentlemen. Thanks. The next question comes from Kirish Kaminer from Citi. Sir, please go ahead. Yes. Good morning. Sorry, good evening. Just two quick follow ups on what have been said. The first one will be on guidance. Do you still you've been very clear on free cash flow and EBITDA margin, but do you still think you'd be able to reach the upper end of the revenue guidance? That would be the first question. And the second question would be on the order intake from the JV and Valleousians. The EUR 2,000,000,000 that you are contemplating on a cumulative 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. So we aim for the upper range of the guidance. For the market share, I don't know exactly what it means in terms of market share. It's very, very difficult to know at that stage. When I was you mentioned the 2,000,000,000 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 Peskatov, Exane BNP Paribas. Sir, please go ahead. Sorry, just You are coming back. Yes. You are cheating. I already have two questions. No. Then I just have a very quick one. I just started 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 and or might even reverse. I don't know what you've incorporated in your guidance. Neutral. Okay. Okay. Thank you. No. That's a they're very clear. There is no no impact. Okay. We have no more questions. Mr. Hashimbra, back to you for the conclusion. So thank you very much, James. Thank you very much for taking time to be in our call and also late call. I would not reinitiate what I said, but I think it's a very solid set of numbers in a very adverse situation. We are very comfortable. We are very comfortable with our business model, which is exactly in line with what we had explained two years ago in the Capital Market Day at the 2019 in terms of leveraging our technological platform to reduce our cash R and D, to reduce our CapEx. We are increasing our EBITDA online with what we are expecting. Of course, the turnover is lower than we had expected at that time. But the business model is extremely solid, and the potential of our innovation, the potential of our products is very well welcomed by customers. So there are some headwinds, but there are some tailwinds also. So we are very, very comfortable for the guidance. Thank you very much, and 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.