Good evening to all. Thank you for joining the presentation of our 2025 annual results, which I will do together with Edouard de Pirey, Valeo CFO. As you will see, our results in 2025 are solid. Our guidance for 2026 is in line with our plan, and we are confident about the successful execution of our Elevate 2028 strategy plan. I would like to highlight three important points. Our profitability, it continues to improve. The first engine of our plan is on. We set a historic record for Valeo in terms of free cash flow from our operations before restructuring cost and before interest. This reflects the transformation of our business model to generate more cash structurally. The second engine of our plan is on.
We recorded a solid order intake in 2025, and we are preparing in 2026 numerous production launches, which will contribute directly to the return to growth in 2027. The third engine of our plan will be on in 2027. I will naturally start with 2025 highlights and 2026 guidance. Edouard will walk you through our 2025 performance. This 25 minutes presentation will be followed by a 35 minutes Q&A session that we will handle together, Edouard and I. Let's start. Let's start with 2025 highlights. In 2025, we delivered on profit and cash, and we did so in a demanding environment. The environment has been marked again by volatility in volumes, by program postponements, and by an unfavorable customer and geographic mix, and also by many headwinds, such as trade tariffs, forex variations, and shortages of several components.
To overcome this demanding environment, we relied on our operational excellence. We have been proactive in taking the necessary actions to mitigate its effects on Valeo. On top of it, let me highlight a few topics. We continue to apply strict discipline to our pricing. We have further lowered our breakeven point, and we improved the efficiency of R&D, and we strictly controlled our industrial CapEx, as you will see. Lastly, we continued our work to rebalance our commercial position. Two evidences. One, we are regaining momentum in China with a solid order book, particularly with Chinese OEMs. The second evidence I picked is Beyond Auto. We won in North America, our first business for Battery Energy Storage Systems, a $225 million order that will go into production as soon as next August.
This proactive management fuels the three engines of our trajectory: improved profitability, structurally increased cash generation, and a return to growth in 2027. Moving to Slide 5, we have achieved all the financial objectives we set for 2025, whether in sales, in EBITDA, in operating margin, or in free cash flow. Our total sales reached EUR 20.9 billion. Our operating margin reached 4.7%, an improvement of 0.4 points versus 2024. As mentioned, the group achieved a record level of free cash flow before restructuring on an interest of EUR 756 million, a level never before achieved by Valeo. According to our new definition of free cash flow, that is to say, after net financial expenses, free cash flow reached EUR 371 million. This is comfortably above the 2025 guidance and significantly higher than in 2024.
Slide six. You can clearly see the continuous improvement in our profitability since 2021, which has been confirmed again for 2025. This continuous improvement is based on three levers. First, the right pricing of our technology with high-margins orders, rigorous and systematic compensation from our customers for tariffs, for reduction in program volumes, and productivity from our supply base. Second, improving our gross margin. It reached 20.2% in 2025, up 1.2 point compared to 2024. The cumulative increase since 2023 is 2.3 points. As you know, we are committed to keeping our gross margin high for solid operational execution, improved industrial performance, and widespread use of AI. Third, reducing our breakeven point. We further reduced our SG&A expenses by 6% in 2025 compared to 2024. This represents a cumulative decrease of 10% since 2023.
Slide seven, you can see the improvement in our cash generation, which has been ongoing since 2021. Free cash flow, according to the new definition, reached EUR 371 million. We achieved this thanks to higher profit. Our EBITDA reaching 14.7%. Industrial CapEx reduced by 30% at 3.8% of sales, which represents a decrease of EUR 348 million compared to 2024. The target remains as announced, between 4.5% and 5% during Elevate, but we are not ruling out the possibility of doing better as soon as 2026. Finally, we reduced our gross R&D expenditure by close to EUR 200 million, a decrease of 7% compared to 2024. As announced, the peak in R&D spending is now behind us. Slide eight.
We recorded solid order intake in 2025, reaching EUR 24.6 billion, with a slight acceleration in H2. These orders concern all three divisions and all regions of the world, particularly China, and I will come back to this in a moment. Over the period 2022-2025, the average annual order intake is approximately EUR 26 billion, a level that makes us confident about the expected growth level in our trajectory. As I mentioned, we are regaining momentum in China. We have won major and strategic contracts there in 2025. For example, we won six businesses in Domain Controllers. In electrification, we recorded multiple contracts for our new generation Dual Inverter, our 5-in-1 Deep Integration Power Electronics Module, and our innovative Dual-layer HVAC . These orders are mainly with Chinese OEMs and will be SOP as soon as in 2026.
Our order intake with Chinese OEMs represented 2.8x our sales. Chinese OEMs represented 63% of our order intake in China. We are rebalancing our business there, and we do this with a focus on the OEMs experiencing strong growth. In 2025, 54% of our sales in the country already come from Chinese OEMs. Of course, and we know it very well, we still have a long way to go, but real progress has been made, and I confirm what we said in November during the CMD, we are targeting a return to growth in China in H2 2026, and a return to outperformance next year. We continue to operate and do business with the utmost care and commitment to ESG.
We're perfectly on track with our roadmap, and we're very proud to have obtained a double A rating from the CDP for both climate and water at the beginning of the year. We continue to be recognized as an ESG leader by rating agencies. Slide 11. You can see our 2026 guidance, and 2026 is the first milestone in our Elevate 2028 plan, and we are confident that by the end of the year, we will be firmly on track. We aim for further improvement in profitability and cash generation in an environment that will remain uncertain. Concretely, in 2026, we're aiming for sales between EUR 20 billion and EUR 21 billion. Our guidance represents a flat organic growth in OEM sales versus last year, given a EUR 400 million impact of forex and perimeter versus last year.
Operating margin between 4.7% and 5.3%. To do so, we will maintain our strict price discipline, benefit from our self-help measures, and keep a strong focus on cost reduction. We target a free cash flow of above EUR 400 million by capping gross R&D below 2025 levels, thanks to further R&D efficiency gains, and by keeping strict control on our industrial CapEx. As already mentioned, in 2026, we will have numerous starts of production throughout the year for all our activities in all regions of the world. I will now hand over to Edouard, who will detail our performance for 2025.
Thank you very much, Christophe, and good evening, everyone, and thank you for being with us today. Let's now dive deeper into the financial performance for full year 2025. As usual, you can refer to the backup slides for H2 and Q4 figures. I will start with the top line on slide 13. Total sales landed at EUR 20.9 billion, up 0.5% like-for-like, EUR 400 million above our guidance. OEM sales came in at EUR 17.3 billion, down 0.6% like-for-like, reflecting the market headwinds Christophe mentioned in his industry remarks. Aftermarket showed resilience with a like-for-like growth of 0.9%. Mobis Now sales grew by 15% like-for-like.
More specifically, in 2025, it includes fair compensations for contracts cancellations, for which around EUR 300 million impairments were booked, as well as R&D and tooling sales, testifying to the good momentum of our order book. Looking at the OEM sales performance by region on slide 14, globally, we had a five points performance gap, largely driven by a negative geo mix of three points. In Europe, we outperformed by two points, with all divisions contributing to the outperformance. In China, which is a key focus area, as you know, we are still in a rebalancing phase. Globally, we underperformed 17 points with an underlying momentum pointing in the right direction, both in terms of sales as well as in terms of order intake. In Asia, excluding China, the performance gap stands at two points.
Within that space, especially India, which we emphasize as a key region for us at the CMD, continues to grow strongly. The region is well on track with the elevated trajectory, with consolidated sales of around EUR 300 million, up 43% year-over-year. Let's now have a look at our divisions. First, Power on slide 15. The division is executing successfully on its cost structure transformation. The increase in operating margin of 1.3 points is evidence to this. This is the result of a deep transformation. We rationalized the footprint, we improved R&D efficiency, and we reduced SG&A. In terms of sales, it is worth mentioning the momentum rebounding in China with local OEMs. More than 38 SOPs with Chinese OEMs over the 2024, 2025 years, and good order intake ratio with them.
Moving to Brain on slide 16, 2025 was a year of consolidation for Brain, marked by the end of several projects in ADAS, as well as SOP delays in North America. On the positive side, there was a good momentum in displays and telematics, and a solid order book, notably in software-defined vehicles, which reflects the attractiveness of our product portfolio and provides a solid foundation for future growth. In this context, the operating margin was down 40 basis points, but remains above group average at 5.4%. Finally, Light on slide 17. The division posted flat sales on a like-for-like basis with contrasting trends. H1 was affected by postponements in North America, and this was offset by a good performance in Europe throughout the year, supported by multiple product launches. A solid momentum in China, especially in H2, with numerous SOPs with Chinese OEMs.
Notably, our Light Division slightly outperformed the Chinese market in Q4. The division posted a 5% operating margin above group average. It is half a point below last year due to the SOP postponements in North America. Moving to Slide 18, let's now focus on the group operating margin. As highlighted by Christoph earlier, we continued to deliver an improvement in profitability in 2025, with an operating margin up 40 basis points to 4.7%. Four key highlights here. First, gross margin progressed by 1.2 percentage points year-on-year, making it the key contributor to the profitability improvement. Gross margin reached its highest level since 2017, at 20.2% in 2025. This level is consistent with our ambition to stay sustainably above 19%. It is the result of two factors.
Maintaining strong discipline, pricing discipline, as reminded by Christoph earlier. Industrial excellence, with smooth launches, operational efficiency, and automation in all our plants, as well as, naturally, the benefits from a streamlined industrial footprint. After gross margin, continued tight cost control brought an additional 10 basis points to the operating margin. SG&A were down again in 2025 by 6%, bringing the cumulative reduction over the last three years to 10%. Third, in contrast to these trends, net R&D expenses went up by one percentage point, reflecting the combined effect of two opposing forces. The benefit of efficiency gains on the one side, which was largely outweighed by amortization and impairments of capitalized R&D on the other side. Let me provide more details about this.
The reduction by EUR 193 million in gross R&D expenses demonstrates the R&D efficiency gains achieved during the year. This is in line with the ambition communicated at the Capital Markets Day. It enabled a decrease of 11% of the capitalized R&D to EUR 930 million. On the other hand, the depreciation of R&D was flat year-on-year, at EUR 623 million. Finally, we booked EUR 234 million for impairment of capitalized R&D, essentially as a consequence of contract cancellations. Finally, the IFRS impact was +0.4 points in 2025, 1.2 points less than in 2024. We expect this impact to be around 1.5 points in 2026.
Fourth and last point regarding operating margin, the net reversal of provisions for unfavorable and loss-making contracts amounted to EUR 50 million for the full year, 0 for the second half, well below the EUR 181 million recorded last year. Turning now to slide 19, on the net income. Two main points to highlight here: the charge of EUR 168 million for other income and expenses, essentially composed of restructuring cost of EUR 156 million, including EUR 110 million related to the one-off self-help measures launched in 2024. The effective tax rate of 43%, it bears the impact of the cash repatriation program initiated in H2, for an amount of EUR 41 million recorded in the P&L, in line with what we had indicated. All in all, the net attributable income stands at EUR 200 million, up 23% year-on-year.
On slide 20, you have an overview of the restructuring program. This is a recap of the P&L and cash implications of the programs underway. In green, we isolated the amounts related to the one-off self-help measures of EUR 400 million announced last year. You see that most of the cost has already been recorded in the P&L, with a small amount of around EUR 20 million left to be recorded in 2026. From a cash standpoint, after the EUR 167 million cashed out in 2025, we expect an amount of around EUR 150 million in 2026. From this program, we do confirm our expectation of annual savings of EUR 300 million as of 2026, after what we've seen in 2025, EUR 200 million already. On top of this, in blue, you have the stretch restructuring charges that we foresee for 2026 and beyond.
We confirm that we foresee an annual charge of EUR 100 million, starting 2026. Keep in mind that there is a slight delay between the recording in the P&L and the cash impact, which is why you see a EUR 100 million cash out in 2027. Turning now to the free cash flow on slide 21. Under our new definition, which is after net financial expenses, we generated free cash flow of EUR 371 million, a 50% increase year-on-year. We have improved cash generation, not just in absolute terms, but also its quality has improved, which demonstrate our ability to structurally generate more cash. Three main levers behind this improvement. First, naturally, profitability. We have largely commented on this. 2025 is the 4th consecutive year of operating margin improvement since 2021, a key to cash generation. Second, CapEx intensity.
With CapEx down 30% in 2025, CapEx intensity was reduced to 3.8% of sales, compared to 5.3% in 2024. We buy better, we reuse, we optimize our footprint, and this is sustainable. As Christoph said earlier, we do confirm what we stated at the Capital Markets Day, CapEx will be kept structurally within a 4.5%- 5.0% range. Third lever, R&D efficiency. I already touched on it earlier by mentioning with capitalized R&D down 11% to EUR 930 million. Note that we achieved the improvement in free cash flow generation despite an unfavorable change in working capital requirements, negative EUR 301 million, and the cash impact of withholding taxes for EUR 41 million. A comment now on the financial structure on slide 22.
The same factors as in the first half are at play, namely, the adverse currency effect impacting the net debt. Hence, at the end of 2025, net financial debt stands at EUR 4.0 billion, higher than at the end of 2024, but lower compared to H1. Gross debt is down by EUR 476 million compared to 2024. The leverage ratio is stable year-on-year at 1.3 times. It is down sequentially from the 1.4 times reached at the end of June. Overall, our financial structure remains sound, with a balanced debt profile and a solid liquidity situation. Finally, you remember that following the repayment of our bond maturing in March 2026 last December, we have no major refinancing needs until 2027.
Based on this result, we'll propose a dividend of EUR 0.44 per share at the next shareholder meeting in May. This is a progressive increase consistent with our Elevate 2028 plan. Thank you for your attention. I now hand back over to Christophe for the conclusion.
Thank you very much, Edouard. In 2026, as a reminder of our guidance, we aim to further improve our profitability and cash generation despite an uncertain environment. Once again, our 2025 results lay a solid foundation for the successful execution of our Elevate 2028 plan, presented last November, and our expectations for 2026 are perfectly in line with our plan. The three engines of our roadmap are on or about to start. On, for the increased profit and increased cash generation, and about to start in 2027 when it comes to renewing with growth. With Elevate 2028, we aim at making Valeo a stronger company and global leader, even fitter for success. Thank you very much for your attention. Edouard and I are now available to answer your questions.
Thank you. This is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. We will only take two questions per person. The first question is from Jose Asumendi, J.P. Morgan. Please go ahead.
Thank you very much. It's Jose from J.P. Morgan. A couple of questions, please. I would love to understand a bit better the when it comes to the guidance on the margin profile for 2026, if you could maybe provide some details with regards to the growth expected for the company in terms of our performance to grow our production. A little bit the opportunities you have to monetize your strong footprint in China and capture additional growth in China. And also, if the second question, if you could comment around the efficiency gains, cost savings, expected for 2026, and related to that, the work we've been doing to reduce your fixed cost base in Europe as production over Europe facilities will be no peak level for suppliers. Thank you.
Thank you very much, Jose. We'll take the first question. Edouard, you take the second one. When it comes to growth, we've been very clear already at the CMD in November 20, there will be no growth expected in 2026. The return of growth is planned and has been announced as of 2027. I know it's very much expected, but it's coming. It's coming in 2027. We have a flat organic growth in 2026 as per the guidance that we issued today because we're expecting sales between EUR 20 billion and EUR 21 billion. The equivalent of our 2025 sales at same perimeter and at same Forex is EUR 20.5 billion, which is the midpoint of our guidance for 2026.
When it comes to China, I'm very happy with the achievement of our Chinese teams in 2025. You know how important it is for Valeo and for me that we regain momentum in China and we rebalance our customer footprint. I'm very happy with, you know, the order intake with Chinese OEMs in 2025. The order intake is 2.8 times the sales, the OEM sales, with the Chinese OEMs, which I think is a really fantastic performance, demonstrating the competitiveness we have in China, as well as the technology, the appealing technologies that we have. Having this in mind, we are guiding for returning to growth in China earlier than for the rest of the group, and as soon as H2 2026. This is part of the guidance that we issued. Edouard?
Thank you, Christophe, and good evening, Jose, and thank you for your question. As far as the restructuring programs are concerned and all the cost-saving program is concerned, you have in mind that during the CMD, we bridged 2024-2028, with 0.9 points coming from growth and new programs coming in, 1.1 points coming from restructuring self-help measures, and 0.2 points coming from R&D. The more that we go and the more it will go through growth impacts, and at the beginning of the period, beginning 2025 as well as 2026, the main impact is up thanks to the restructuring. As I said earlier, during the call, the impact of self-help measures is already EUR 200 million in 2025, and it represents most of the improvement between 2024 and 2025.
As far as the bridge 2025 to 2026 is concerned, you can consider that the further improvement of restructuring and self-help measures and cost control will be something that half of the operating margin improvement, the other half being more about pricing activities.
Thank you so much. Thank you.
Next question is from Ross MacDonald, Citi. Please go ahead.
Hi, there. Yes, it's Ross MacDonald at Citi. Two questions from me. First one on DRAM. Obviously, a lot of discussion in the market around implications from DRAM, price inflation, availability of those components in 2026. Just be interested, A, if you have full coverage of those components for this year. Maybe more in focus on 2027, how should we think about the inflation and how quickly you can pass that through to your customers? Just maybe an overall update on that situation, how confident you are in the DRAM availability for Valeo. Second one, obviously, the first half sounds like it's a down semester.
Given that you only report twice per year, you know, it's gonna potentially take 12 months until we see the evidence of these self-help measures in the margin. Can you give us some steer on where you see the first half trading in terms of operating margin for Valeo? How close will it be to the full year guidance corridor on the margin side, and maybe link to that the cash generation, how second half loaded we should expect that to be? Maybe just a final question. I know you asked for 2, but just looking at your free cash flow reconciliation, there is a considerable benefit from the other bucket, EUR 175 million for 2025.
Maybe if you could just remind us what's in there and how we should model that for 2026. Any details would be appreciated there. Thanks.
Thank you, Ralph. I will take the first question, the DRAM. Edouard, you take the H1, H2, and the last question on the free cash flow. Well, for sure, the DRAM situation is quite critical. You know, in our view, there's no way to protect the industry through inventory. This is not the way to go, and it's not the way to go because it's a structural problem that will continue way beyond 2026. That's going to be a problem for 2027 as well. What are we hearing from our memory suppliers? We are hearing that they're willing to protect the automotive industry. That's what we're hearing. With the rationale for them to protect the automotive industry, I see two reasons.
One is, you know, the automotive industry has good forecast and has been able to predict and to forecast its needs for the years to come quite well. Probably the second reason is, you know, the ratio between the price and the memory and the impact it would have on cars if a car would be missed. We're hearing that, you know, these suppliers are willing to give some protection to the automotive industry. Nevertheless, the situation is quite complex, as the situation has been complex in the past on some other products and commodities, and we are working extremely hard with our customers and with our suppliers to manage this complex situation. Maybe a question on cost, because I think you asked the question on the cost impact.
You know, we see that our customers are open for discussing the impact of the of the cost. This is, you know, the lessons from the first discussions we had with all our customers. Edouard?
Good evening, Ross, and thank you for your questions, actually, two and three. First, about the trending of the first half. We do confirm today that the market is quite weak globally, especially in China. This is what we forecasted, actually, when we met at the Capital Markets Day on November last year. This was already on top of our head, and we are trading actually as we planned, and therefore, there is no big question on our side. As far as the balance between H1 and H2 is concerned, as usual, I would say you can count on an H2, which is stronger than H1. This has been the case in the last two and three years. You can count on it again for 2026.
As far as the free cash flow reconciliation is concerned, question is specifically on others, that went from -EUR 218 million- +EUR 175 million in 2025, from 2024 to 2025. The main change behind is about provisions impacts, where we reverse quite much more provisions in 2024 compared to 2025, as I explained earlier, in particular, related to these on-risk contracts.
Maybe I can complement your answer, number 2. We've explained really quite a few times why in the model of automotive suppliers, H2 is better than H1. It's not really about the market, it's more than, you know, our prices, the prices we have with our customers are kind of flat for the year. Every day, every week, you know, our plans are improving. Every day, we are finding ways to reduce the cost. The costs are decreasing week after week and month after month, when the prices are set and flat since the beginning of the year. That creates structurally a higher profitability for suppliers in H2 than H1, and that's true for Valeo as well.
Understood. Can I maybe just push you a little harder on that in terms of the, let's say, the % of EBIT contribution in the first half, you know, just to help model what kind of margin we're talking about in the first half? How should we, how should we think about one H versus two H from a, an EBIT contribution perspective? Thanks.
Well, I think it's too early to say. We did not guide H two versus H one, but I think you have a good understanding of what we did in the last years. I invite you to look at what we did, and I'm convinced that we will deliver, as we said, as a minimum for the full year.
That's clear. Thanks a lot.
Thank you.
The next question is from Thomas Besson, Kepler Cheuvreux. Please go ahead.
Thank you very much. Good evening. Two topics, please, I'd like to cover. First, order intake and revenue growth. If I look at your slide eight, you remind us that you've had more than EUR 25 billion of average order intake over the last four years. But you're still guiding for growth to only really pick up in 2027 and not reach that level at all in the foreseeable future of EUR 25 billion. Can you first confirm that when you talk about order intake, it only relates to the OE business and doesn't include the aftermarket and others? And second, explain why we never seem to see the color of orders.
I was looking at my model for Valeo, and I realized that your revenues for OE and aftermarket in 2025 are only 4% and 6% above 2018. While we've had in between orders that have gone up massively, and we have missing in us that are revenues that are 50% higher, margins 150 basis points lower. Can you please address that topic? That's the first question. And the second would be about free cash flow and debt and the cost of the debt.
So clearly, I think we all like your new definition of free cash flow a lot better, but this time, again, you do a bit better on free cash flow, but your debt is a bit higher than what the market was anticipating. Can you talk about that? Explain why the currency effect has not been neutralized. What happened exactly to your gross cash with the cash repatriation you've made? What we should expect in terms of both P&L and cash impact for the net financial expense in 2060. Thank you.
Well, thank you, Thomas. Two excellent questions. We'll take the first one, Edouard, you take the second one. Well, we know how sensitive, we know how important, returning to growth is for our investors. We know this very well. They are right. They are right because, you know, the operating leverage that we will get from additional sales is going to be a tremendous boost, both for our profitability and for our cash generation. We know that it's extremely important to return to growth, and I think we've been extremely clear during the CMD when and why this is going to come in 2027. First, some clarifications that you requested. The order intake that we book is, since 2022, purely based on OEM business. There's no consideration for aftermarket. Aftermarket comes on top.
It's based on the S&P volumes forecasted at the time of the booking of the order. It might change later on, but it's done at the time of the booking of the order. Point, number 2, and that's, you know, a pretty important one. Point number 3, if there are some cancellation of orders on a given year, this is deducted from the awards that we receive on the given year. What we publish as an order intake for the year is net order intake between the wins and potentially some cancellations that happened. Now, I have explained, as clearly as possible, during the CMD, that the nature of a significant part of the order intake awarded since 2022 has dramatically changed.
I explained that these are, you know, multi-models, platform-based orders, extremely large orders, where typically the way it's, you know, SOP'd is much more gradual than before. Took the example of, I think four, I picked four examples during the CMD. These four had the characteristics of being multi-models. It means that, you know, when these orders are concerning up to 50 different cars, and the 50 different cars are not SOP'd on the same day. You first have one model, and then the second one, and then the third one, and then two or three years later, you have the last car of the same platform that's typically SOP'd. That creates a profile of growth that's very different from the one that we had before.
The good news is, and we looked at it in many details to prepare for the CMD, because we know how important it is for the investors, and we know how important it is to give a boost to our profitability and cash generation.... the return to growth is back in 2027. I think it was actually totally missed during the CMD. During CMD, this is what I said, and most people understood, well, there's no growth in 2026, which is true. There's no growth in 26. Pretty much everybody since explained that there will not be any growth in 26.
The important and the interesting part of what I said was the return to growth in 2027, and the return to growth of Valeo in 2027, I think is something big, in the sense that it will not be the common behavior of all the suppliers. I think that a lot of suppliers will continue to show flat sales in 2027. Some, by the way, have already shared it. We will have a different behavior, thanks to this order book. I know you can trust or not trust, but I'm telling you from the data we have, there's a return to growth of Valeo in 2027. This is going to happen, and this is going to help us, thanks to operating leverage, to boost both the profit and the free cash flow generation. Edouard, you take the second question.
Thank you, Christophe. Good evening, Thomas, and thank you for your question. Even more, thank you for your comments on the new definition of free cash flow. As far as the debt is concerned, what are the main moving parts? It is exactly the same than at the end of H1, because the exchange rate changes were violent in H1. You remember these big changes? Actually, in H2, the impact is limited. You remember we said in H1, the impact of the net debt or sorry, of the forex on the net debt was EUR 260 million, and now we say EUR 263 million. Exactly the same at the end of June compared to at the end of the year.
Basically, we have our gross debt leveled in EUR and our cash, mostly in China and in North America, so in RMB and in USD. We have repatriated already a big part of it, let's say one third of what we had, in particular in China. This has cost us, as we said, the withholding taxes of EUR 41 million, but we still have some more to repatriate. That's the first point. The second point is that even you repatriate, even it becomes EUR, it's still EUR at the exchange rate of H2. Therefore, the impact on the net debt is still the same at the end of H2 as it was at the end of H1. As far as the cost of debt is concerned, we decreased the gross debt, as I said, of around EUR 500 million, EUR 466 million, to be precise.
We do consider that this year, the P&L and cash impact of the cost of debt would be in the range of EUR 250 million-EUR 260 million.
Thank you very much, very clear. Can I just follow up with asking how long do you think it's going to take to repatriate the rest, if you plan to repatriate the rest, or are you done with your cash repatriation?
Yes, Thomas, we plan to repatriate somehow everything. The bad news is that our Chinese teams are so good that every year they generate even more. It will be repatriation, step by step. I said we repatriate something what, than one third, but they increased back the the cash generation in RMB. We have to balance also, depending on local context, in particular, to secure that we remain a High-Tech status company in China. There's a specific tax impact there. We need to keep some cash in the country for a few more months and years. The repatriation program will continue in the future.
Thank you very much.
Thank you, Thomas.
The next question is from Vanessa Jeffries, from Jefferies. Please go ahead.
Good evening, guys. Well done, the results. Just wondering if you could talk more about your expectations for Power in North America, in particular in 2026, and how you expect the electrification backdrop there to impact sales and profitability when you net off the mix impacts on both. Just on the cash customer compensation for canceled programs, are we expecting any more of that?
Thank you very much for your question. Well, when it comes to poor electrification, there's not going to be much electrification in North America with the current North American administration. We know that, and as you know, some of the programs, some of the awards that we got in the last years, has been canceled. I think it was in 2024 that we've been, you know, very clear on that, and we gave you an order of magnitude of these orders that have been canceled, that have been renegotiated with our customers. Are we going to see in the next months and years some further cancellation of orders? It's always possible.
If any, there will be even more compensation, discussion with our customers to make sure that, you know, we receive fair compensation from our efforts. I think that, you know, the product plan from our customers seem to stabilize all around the world, which I think is very good news. They've definitely stabilized in North America. I think they are stabilizing as well in Europe, given the last communication from the European Commission relative to what's going to happen in 2035. Let's see, you know, in the months to come, if there will be some further cancellations. We will use, you know, the same tools that we have been using to get fair compensation from our customers.
Again, the order intake that we are publishing is net of cancellation, so it gives you know, a view, of, you know, what's going to come in terms of sales for the years to come.
Maybe if I may, Christoph, to add on this compensation topics of any sign. Good evening. Thank you for your question. I would like to highlight again what I said during the Capital Markets Day. We don't like compensation. We much prefer to have production, to have sales, to have growth, to run our plants at the end of the day. Naturally, we fight for fair compensation when it is needed. I want to highlight here that in 25, the compensations for cancellations had basically zero impact on the EBIT. It has impact on the sales, it has impact on the EBITDA, but it has no impact on EBIT. Even it's dilutive at the end of the day, because you increase the sales and you increase the EBIT basically at the same. Sorry, you don't increase the EBIT at the same time.
You also have noted that we had limited cash in 2025 because of these cancellations, and you have seen one of our customers communicating in the last days about this impact on compensation to suppliers with cash out in the years to come. This is one of the reason why you have a negative working capital impact, much, I would say, more than maybe what you expected in 2025. This will be cashed in 2026 and beyond. At the end of the day, compensation will come if needed, but what we would prefer is that it stabilizes, and we can produce and deliver the growth.
Thank you. Just one more on that point. As well as cash compensation, I've heard some of your peers talk about, you know, taking new program orders in lieu of cash compensation. Was wondering if you've done any of that? Obviously, your order growth has to be looked at in the context of tough 2024, but still very positive to see second half orders higher than the first half.
As far as the compensations are concerned, naturally, during the conversation with customers, you can bargain a bit with new developments, new programs, but the orders of magnitude are so high. I said EUR 300 million impairments for contracts cancellation. This is not at all the level of money you are ready to give to customers to get an additional program and to continue to spend R&D and CapEx for this program. There might be some small agreement with customers compensating slight cancellations or slight postponements with new orders, but here we are talking about real programs that are really canceled with lot of money put on the table, invested by Valeo for the customers, and it's just fair to be fully, fairly compensated in cash for these programs.
Thank you so much. I'm sorry, if I could just sneak one last one in. Just on the Battery Energy Storage System contract, if what else do you expect in that space?
Sorry, what is your question on the BESS? Yes, what is your question on BESS?
On BESS, yeah. Just, you know, what else do you expect in that space? Positive to see that contract.
What else do we expect?
As a business.
Yeah.
You mean what else do we expect on top of this contract, right?
That, yeah. Yeah.
Let's first celebrate this contract. I think it's a demonstration that we have, we have a lot of technologies for Beyond Automotive. You know that, I'm quite enthusiastic about the potential of Valeo on Beyond Automotive. Beyond Automotive is, you know, multiple seeds that we have planted here or there. Definitely BESS is one of it. It's a massive market. It's a major market. It's a market where cooling technologies are being needed, and we are an extremely well-positioned leader in cooling technologies. Hopefully, there will be more, and there will be more announcements relative to Beyond Automotive, but we're quite happy with this first one, which is significant, which is starting in production as soon as August.
This is as well what we discover with this kind of, you know, Beyond Automotive, it's usually markets that are developing faster. You don't have three years to wait between the award and the SOP, and the margins are usually non-auto margins, if I may say it this way.
If I can add, Christophe, Vanessa, I think this is also a good demonstration that the automotive technologies of Valeo can be used outside of the automotive in BESS, but also in data centers. You have seen that we announced a few programs, agreements, proof of concept here and there, and it shows that we have promising opportunities here. Let me remind it, this is not included in our Elevate 2028 plan. There is barely no Beyond Automotive sales in the plan.
Yep, that's great to see. Thank you so much.
Thank you, Vanessa.
The next question is from Christoph Laskawi at Deutsche Bank. Please go ahead.
Good evening. Thank you for taking my questions. The first one will be a follow-up on Ross's question on DRAM. Could you comment a bit on the sourcing quantity or the size of the build that you have with DRAM? Is an estimate around EUR 250 million-300 million a fair estimate on that? Others in the space have stated to see low double-digit increases on the 2026 contract. Do you have a statement on that, too, or would you confirm roughly that ballpark in price increases for this year? Linked to that, is there any working capital effect to be expected from the higher prices? Do you see another working capital headwind in the free cash guide on the basis of that?
If you could just comment on the working capital assumption in the cash flow guide. Lastly, if I may, just a divisional question. You guided to flat organic for the group. Is this roughly the same across the divisions? In particular, for Brain, should we expect the underperformance versus the market to improve or narrow significantly in 2026? Thank you.
Thank you, Christoph. I will take the first question and hand over to Edward for the last one. We buy approximatively for memories. It's not just DRAM that's impacted, there are other kind of memories that are impacted. You know, the critical memories that we are buying, it's worth around $150 million. I think you mentioned $250 million, though it's in fact around $150 million. I'm talking about, you know, the value of it before any price increase that we might agree on. When it comes to do I confirm or not the percentage of increase, you can understand that for competitive reason, I will not disclose here any confirmation or not of your number.
This is considered as a confidential information. Will it have working capital effect? When you look at, you know, our working cap and you look at, you know, the $150 million, I mean, I don't expect any working capital effect at the level of the group. Edward?
Thank you, Christoph, and good evening, Christoph, and thank you for your question. Regarding the working capital, let me first highlight, in fact, the good results in terms of what we call the level one, which is basically EBITDA minus investment flows. This is the focus of our teams, our operational teams, to secure. On the one hand, they increase the profit, and on the other hand, they reduce the investments in both tangible, especially R&D capitalized, as well as in industrial CapEx. This improvement in 2025, for me, is really the evidence that we are structurally changing Valeo, we are structurally changing the company into a cash-generating business model.
As far as the 2026 and beyond is concerned, you have in mind that during the Capital Markets Day, I said that we do not count on the working capital to deliver the free cash flow. This is still the case. This is clearly what we see. Nevertheless, naturally, as we commented on the customers' compensations, there will be a specific working cap impact, and you could not count on, again, -EUR 300 million of working capital in 2026. We should have a positive working capital in 2026 again. maybe your last question on Brain. we do see Brain coming back to growth, let's say, in H2.
This is the case for every single division fighting to get back to growth, especially China, all in all, will grow in H2, and the group will go back in 2027.
I think we have, just one question left, and one minute left, let's see if we can find a way to answer it.
The next question is from Stephen Reitman, Bernstein. Please go ahead.
Yes. Good evening. I'm sorry, this might take a longer answer, but, looking at the Brain operations, you pointed out the end of several projects for ADAS and delays in production. Could you comment on the state of the sort of like LiDAR in particular? Because obviously we've seen some of the German manufacturers, which you don't, I don't think you're necessarily supplying the LiDAR for them, but basically, sort of gone back to Level 2++. Whereas in China, clearly, we're seeing a more LiDAR uptake, particularly, we've seen, I think, with over Xiaomi, with a new facelift on the SU7. Could you comment on the order intake? You said 2.8 times your normal China sales.
Is that, does that include also LiDAR sales as well to local Chinese car makers as well? Thank you.
Thank you, Stephen. We still believe very much in LiDAR technology. We have developed a Valeo LiDAR to cope with Level three requirements. It doesn't meet, it's not needed, or this kind of LiDAR that we have developed is not needed for Level 2, Level 2+ or Level 2++. I mean, you can always put one more sensor in the car, but you can do a Level 2, Level 2+, Level 2++ without a LiDAR. We have developed a specific technology, LiDAR technology, for Level three applications. It's true that some Level three cars have been postponed because a lot of customers are rushing and are focusing on Level 2, Level 2+, Level 2++, but Level three will come.
We're here as well to prepare, you know, the future, and the future is going to be Level 3, and for that, there will be a need for a Valeo LiDAR. You know, we have quite a lot of Western companies doing LiDAR that do not exist anymore. I think we are more or less the only Western supplier of LiDAR, and as you know, there's a ban at this point of time for Chinese LiDAR in the U.S. I think the circumstances are still pretty good for us. To your last question on, do we have LiDAR business in China? At this point of time, we don't, because the market in China is not a Level three market, it's a Level 2, Level 2+ or Level 2++. Well, I think we are time out.
It has been a long day for you, given the fact that probably most of you have been working on the release from Stellantis this morning, so I will not make it longer. I thank you very much for attending this call, and I expect that, you know, we'll be together on April 23rd for the publication of the Q1 sales. Thank you for your attention. Goodbye.