Good evening, everyone. Thank you for joining the presentation of our 2026 H1 results, which I will present with Edouard de Pirey, Valeo CFO. Over the next 20 minutes of our presentation, you will see that we have had a good H1 solidly in line with our guidance and with our Elevate 2028 trajectory. Indeed, the first two engines of our trajectory, profitability and cash, are now confirmed on and running on an upward trend, and the third engine is ready, the return to growth from 2027. On top of that, thanks to our cash generation, we have reduced our debt, which is remarkable for the first half of a year. Naturally, I will first walk you through the highlights, then Edouard will share more on our H1 performance. This presentation will be followed by a Q&A session that we will handle with Edouard.
To start, on Slide four, you will see that we are perfectly in line with our guidance, with continued improvement in profitability and cash flow. The group sales totaled EUR 10.4 billion. Our operating margin stands at 5%, which is 0.5 point higher than H1 last year. It's also 0.3 points higher than the full year 2025, as well as from the bottom of our guidance. Free cash flow after net financial interest amounts to EUR 242 million. That's more than double H1 2025 and more than half of our minimum full-year guidance. Assuming stable conditions, we expect our H2 operating margin and free cash flow to be at least in line with H1. In this context, we reaffirm our guidance for the year. Moving to Slide five now. Our performance in H1 is proof of the three engines powering our Elevate 2028 strategic plan.
As a reminder, the first engine, profit, which has steadily increased since 2022. The second engine is cash, also increasing structurally since last year, and third, a return to growth from 2027. Let's look at this in more detail and moving to Slide six. We have sustained profitability improvement since 2022, despite volatile market conditions, which you are very familiar with, and our operating margin has increased year-on-year. We've held the line and continued this improvement by doing exactly as we said, by right pricing our technologies with higher margin orders, through rigorous and systematic compensation from our customers when needed, and through reduction of our cost and of our break-even point. Moving to Slide seven. We have also improved our cash generation year-on-year since 2022.
In H1, we had strong structural cash generation amounting to EUR 242 million, which, as I already said, is more than half our minimum 2026 guidance. Thanks to this strong cash generation, we have been able to structurally reduce our debt by around EUR 200 million versus the end of 2025 and by around EUR 350 million versus one year ago. It's the first time in 10 years that net debt decreases in a H1 thanks to free cash generated by operations. We made cash generation our top priority, and we are now starting to see the fruit of that. Increased structural cash generation and debt reduction show the effectiveness of the cost-reducing measures we have put in place over the last three years. Our H1 order intake. It is at EUR 12.1 billion, up from H1 2025, and this is consistent with our Elevate 2028 trajectory.
Order intake is 1.4 times OEM sales in H1, equal to our cumulative level of order intake of the last three and a half years. Overall, order intake remains well-balanced, with our Power and BRAIN divisions, each making up a little more than a third, and LIGHT accounting for 25%. On Slide nine, I would like to highlight a few milestones we hit so far this year in the three key regions of our plan. These achievements prepare the return to growth in 2027. In North America first, we broke ground of a new plant in McAllen, Texas. The site supplies the central compute unit for General Motors Software-Defined Vehicle Architecture. This, by the way, is one of the largest orders in Valeo's history.
China, as you know, is a highly volatile market, but thanks to several new large contracts with leading Chinese OEMs, we see a return to growth in H2 with Chinese automakers. Note that our orders are now largely skewed towards Chinese OEMs. More than 80% of the order intake in the country and the remarkable five times order intake ratio with Chinese OEMs that will support growth in China. In India, we continue our strong momentum with investment in a new three-in-one e-axle production line for Mahindra, and we also have a new line for high-definition surround-view camera for local OEMs. We expect sales in India at EUR 700 million in 2028, three times our 2024 sales, and we are on the right track. Finally, some words on our beyond automotive opportunities. There are no borders anymore between the various industry verticals.
Because what counts more for companies is not their experience in automotive or in other fields, but the technologies behind, AI, software, cybersecurity, power electronics, sensing, thermal management, and the ability to scale up. As a great technology and industrial company, Valeo has a lot of opportunities in other fields than auto. We have already been working on some of them for several years, understanding the markets, creating technology differentiations, developing an exciting product offer. These opportunities are not factored into Elevate 2028 financials, but they are indeed increasingly promising. These beyond automotive opportunities stand at different development stages. The production for charging solutions, two and three-wheelers, as well as agriculture, is starting. We have taken orders already in battery energy storage systems, as announced in February, and in defense.
And you saw our announcement this week regarding a first order for a new electric motor for drones, free of critical rare earths. Regarding data centers, different proofs of concept are ongoing with potential customers whose names I cannot reveal at this stage. Lastly, we have recently added humanoids as an interesting business potential, and we presented our first component mock-ups at the Beijing Auto Show. Let me finally remind you that these opportunities do not incur any important investment or costs to us. They stem from our existing technologies and expertise. I will now hand over to Edouard, who will give more details on our performance in the first half.
Thank you very much, Christophe, and good evening, everyone, and thank you for being with us tonight. Let's move directly to our financial performance for H1 2026. As a reminder, you can find the detailed figures, including the standalone Q2 data, in the appendix of this presentation. We start with our top-line performance on slide 12. Total sales were up 0.7% on the like-for-like basis at EUR 10.4 billion, consistent with our full-year objective. OEM sales performed largely in line with the global automotive market, down 0.6 points like-for-like, in a market that contracted itself by 1% over the same period. Aftermarket remains a steady pillar, delivering 2% like-for-like growth. This was supported by solid performance in North America and in Asia, and the rollout of new services with distributors. Miscellaneous sales grew by 16% like-for-like, with the bulk of that growth concentrated in Q1.
Moving to slide 13 with the performance by region. As I said, we performed largely in line with the market, and we benefited from half a point of favorable geo mix. North America was a standout driver, growing 6% like-for-like and outperforming the market by seven points. This was mainly fueled by our Power and BRAIN divisions. Asia, excluding China, also delivered robust growth, up 6% like-for-like and outperforming by three points. As Christophe pointed out, India continues to enjoy strong momentum, keeping us perfectly on track to triple our sales in the region by 2028. In China, the market is highly dynamic, with Chinese OEMs setting the pace. Our sales contracted by 9% like-for-like, resulting in a four-points performance gap, essentially due to international OEMs. In parallel, we are making great strides with Chinese OEMs.
This semester, we recorded 53% of sales and over 80% of orders with Chinese OEMs in China. Europe underperformed by three points, as the outperformance of LIGHT and BRAIN was offset by the performance gap at Power. Moving to our divisions, with Power on slide 14 to start with. The main takeaway here is clear: The division is successfully executing its profitability turnaround. Sales reached EUR 5.1 billion, performing in line with the global market. North America was strong throughout the semester, and e-technologies performed well, most notably in India, where we started production of a complete e-axle system for Mahindra. The major highlight is the operating margin, which surged by 1.3 points to 4.8%. This confirms the success of Power's strategy to restore its cost competitiveness. Moving to BRAIN on slide 15. Overall, the division's performance is strengthening.
Sales were flat at EUR 2.5 billion, outperforming the market by one point. This was mainly driven by solid results in displays, telematics, and vision systems. Momentum in Software-Defined Vehicle continues to build. As Christophe mentioned, we've broken ground on a new site in Texas to serve a major order for General Motors, and we are seeing significant good successes in China with new orders for Autonomous Driving Control Units, or ADCs. Operating margin stood at 5.6%. While this is down year-on-year, it is up sequentially. This reflects sustained investment in R&D, supported by a solid and profitable order book to prepare for the upcoming growth. Turning to LIGHT on Slide 16, sales reached EUR 2.7 billion, up 1% like-for-like, outgrowing the market by two points. The division delivered a solid performance across Europe and China, fueled by new EV production launches with local Chinese champions.
The operating margin improved to 4.7%, which is 20 basis points better than last year, driven by more profitable product launches. Moving to Slide 17, let's now focus on the group's profitability, the first engine of the Elevate 2028 plan. As mentioned by Christophe, in an overall challenging environment, we have held the line and continued to drive improvements in our profitability, confirming that the first engine of the Elevate 2028 plan is on. Our operating margin for the first half 2026 stands at 5.0% at the midpoint of our full-year guidance and 50 basis points up year-on-year. There are three points I'd like to emphasize here. First, the gross margin. It reached 20.7% of sales, matching its 2017 peak. This level is consistent with our ambition to stay sustainably above 19%.
This achievement is driven by the same factors that we highlighted in previous results calls, namely strong pricing discipline, robust productivity, and industrial efficiency. Second item, SG&A expenses remain tightly managed, down 3% compared to H1 2025. Finally, R&D spending. Net spending was up 2% to 11% of sales. This reflects two opposing trends. On the one hand, gross R&D spending decreased by 3%, consistent with our objective not to grow any more after the 2024 peak. On the other hand, the IFRS impact was of 0.3 points, lower than our guidance for the full year of 1.5 points. This is related to an impairment of capitalized R&D for EUR 85 million following contract cancellations. For the second half, we expect the IFRS impact to be under 1.5 points, resulting in a full-year impact of less than one percentage point. Turning now to net income on Slide 18.
Two main points to note. First, we recognize EUR 78 million in all the income and expenses for restructuring costs, consistent with our plans, including the final leg of our 2024 Save program. Second, the effective tax rate was at 48%. This reflects temporary impacts from our restructuring program in Europe and our ongoing dividend repatriation policy. All in all, net income came in at EUR 105 million, essentially in line with last year. On Slide 19, with a free cash flow of EUR 242 million for the semester, more than double last year's figures, we are confirming that the second pillar of Elevate 2028, the cash engine, is also clearly on. Free cash generation improved in absolute terms and in quality. If we look at the main levers behind this improvement, first, profitability, a topic we have already addressed.
The H1 2026 results provided further evidence of our progress in this area, which is key to strengthening our cash generation capabilities. Second, we maintained tight control over investment spending with both intangible and tangible CapEx down this semester. Specifically, capitalized R&D was down 5% versus last year. Tangible CapEx dropped 12% to 3.6% of sales. As we noted during our full-year 2025 results, this improvement is structural. We expect to sustain this for the full year 2026. We confirm our potential to again keep the CapEx intensity below the long-term objectives of 4.5%-5% of sales. This performance allowed us to reduce our net debt by EUR 194 million over the first six months. As Christophe noted, this is the first time in a decade that we have achieved a net debt reduction in the first half based on free cash flow from operation.
Contrary to last year, Forex had a positive effect of EUR 87 million. To conclude the financial review, Slide 20 focuses on our financial structure. Net debt decreased to EUR 3.8 billion, down from EUR 4.0 billion at the end of 2025. Our leverage ratio improved sequentially to 1.2x adjusted EBITDA, down from 1.3 times in December, and safely below our 3.5x covenant. Our liquidity remains robust with EUR 3.0 billion in cash and EUR 1.6 billion in undrawn credit lines. Finally, the net proceeds from the EUR 600 million bond raised last June gives us the flexibility for an early redemption of our outstanding May 2027 bond, and thus optimize our long-term debt profile. Thank you for your attention. I now hand over back to Christophe for his concluding remarks.
Thank you, Edouard. As you've seen in these results, our Elevate 2028 strategic plan is actively delivering, we reaffirm our guidance. Before we take your questions, there are a couple of takeaways I would like to leave with you. One, our financial discipline is paying off. The first two engines of our plan, profit and cash, are fully running. We have increased our margins. We have achieved an historic H1 debt reduction without relying on any asset disposal. Two, we are ready for return to growth from 2027 with a EUR 12.1 billion order intake and major milestones achieved in North America, in China, in India. Our core automotive business is resilient. Three, we are unlocking low CapEx, potentially high upside horizons in beyond automotive. Thank you 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. We will only take two questions per person. Anyone who has a question may press star and one at this time. The first question is from José Asumendi, JP Morgan.
Thank you very much. Congratulations on the results. Edouard and Christophe. Christophe, can you comment a little bit around the opportunities you see to win orders in two segments, humanoids and data center? Can you comment around the expertise that Valeo brings across both divisions? Geographically, any color as to where would you expect first to win orders? Second, when it comes to margins, I believe the comment that second half margin should be at least with the results we have seen in H1, what gives you the confidence and what are the key drivers to deliver this result in the second half? Thank you so much.
Thank you very much, José. Thank you for your two questions. I will give the second one to Edouard. I will answer the first one. You mentioned data centers and humanoids are as growth opportunities for Valeo, and they are. They are indeed. They are indeed, as I explained, because I believe that, of course, our expertise in automotive is extremely strong. We are an automotive suppliers, but we have developed over the last 100 years, I should say 30 years, an amount of incredible technologies that are, in fact, common to many different industry verticals. We have identified data center infrastructure, and we have identified humanoids as potential ways to use these technologies developed for automotive in these fields. When it comes to data centers expertise, there are two areas on which we've been working now for three years. One is cooling, specifically liquid cooling.
As you know, we handled an expert call a few weeks ago, we explained that the data centers are going from air cooling to liquid cooling, we have a lot of expertise in liquid cooling, as you said, because that's what we do in automotive. Basically, we have the technology. Basically, we have the capacity. I think we have all it takes to succeed in this area as the data centers are translating, transferring from air cooling to liquid cooling. In data centers infrastructure, there's as well power electronics, because the voltage that data centers are using are also going to 800 volts. They're going to 48 volts. These are voltage on which Valeo has developed an unbelievable expertise coming from automotive.
We are developing as well full range of products in these areas that can play a role in the future of data centers infrastructure. Relative to humanoids, we've been starting this effort later, maybe a year, a year and a half ago, to the point that at the Beijing Auto Show, we have already showed a few of the key components that we believe have a role to play at Valeo. These are mainly motors. These are mainly actuators. Do you say actuators?
Actuators.
Actuators. Sorry, I was missing the English word. Actuators and motors. There are motors and actuators from many different kinds, depending on the move. We have these technologies, we're developing the products accordingly. The geographies are the geographies of data centers. It means everywhere. It has a lot of advantages for us. It's about growth. It's about potential margin, because obviously the margins we see in this business is not the same as the margin we usually have in automotive, although our margin is getting better. It's as well, no investment because we have the capacity.
We have these plants all over the place, all over the world that we can deliver from, and sovereignty as well because, in this case, people are asking us whether we are capable to do it from Europe, from India, from China, from U.S., because these orders are important or are using public money in some cases. Therefore, there's a need for sovereignty. It's all over the place. Second question for you, Edouard.
Yeah. Good evening, José. Thank you for your question, and happy to answer to it. As you mentioned, we said that H2 margin would be at least equivalent to H1. Where does it come from? Actually, naturally, the market is volatile, is complicated to read, and it's changing. Basically, as we said earlier at your conference, by the way, we do see stability in the calls from our customers for H2, and we are confident regarding volumes. Anything could happen, but today, we see no change in the calls from our customers for H2. As usual, we build step by step the efficiency during the year with our suppliers, with our own activities, while we give our efficiencies to our customers, usually very beginning of the year. This is why we consider that H2 should be okay.
Finally, inflation is, at that stage, very well managed by our teams. They are doing a fantastic job to secure that. On the one hand, we get lower pressure, or we counter the pressure from our suppliers. On the other hand, what has to be passed through the customers is passed through at the end. This is why we could say or explain our ambition of H2 being at least equivalent to H1.
Thank you.
The next question is from Michael Foundoukidis, Oddo BHF.
Yes. Hi, sorry. Michael Foundoukidis, Oddo BHF. Congrats on the results. Two question on my side. First, to come back on the margin side. You had an R&D impact of 30 basis points in H1. You're saying it's going to be below 1.5% in H2, but close to that if you look at the full-year guide. That implies a roughly 4.7% margin underlying in H1 and close to 3.5% in H2. The other way than what José said, why should we be more cautious in H2 versus what you already realized in H1? That's the first question. Maybe on the second one, on adjacent market. I fully understand the opportunity for you, and it makes total sense. Concretely, what sets you apart from your automotive peers in your field on data center or humanoid, for example?
Because you said autos is a great expertise, clearly, it probably is. What is different versus your usual peers in the automotive area? Thank you.
Thank you, Michael. I will take the second question and leave the first one to Edouard. Well, I think it's a question of time to market. It's a question of determination. It's a question of speed. As usual, everything is competition. Automotive is competition. Beyond Auto is competition as well. At the end of the day, it's going to be about Valeo being quicker, being better, being more agile, making sure that we develop the right technologies. Nothing is for sure. Nothing is granted. I can tell you that within Valeo, there's a unique determination. There's a unique ambition to take part of these adjacent markets where the Valeo technologies can play a role. We'll see at the end of the day who wins, who does not win. The characteristic of these markets as well is to be huge.
Most of the eight markets I showed on my slide, Beyond Auto, are extremely significant markets. There's not room for one supplier, for one company. There's going to be room for others, Valeo is absolutely determined to take part in this story.
As far as your first question is concerned, Michael, thank you for this question. You have in mind that the IFRS impact is low in H1 at 0.3 points, as I explained, because we had some impairments. I mentioned EUR 85 million of R&D impairments in the first half. You have well in mind that we always said, we continue to say, I confirm today again, that any cancellation is fairly compensated by our customers. You definitely know what fairly compensated means when I speak. At the end of the day, the global impact is zero. It is dilutive at the end of the day because limited margins, but the impact overall in operating margin is rather limited when you have these kind of cancellations. You're fully right.
Yes, today we said that H2 would be as a minimum or equal to or better than H1. It doesn't prevent us to do better in H2.
Thank you.
The next question is from Ross MacDonald, Citi.
Hello. Yes, thank you. I'll stick to the two questions as allocated. Yes, nice quarter. Two questions from me, specifically on China and the second one on Power. Firstly, on China, you talk about this five times book-to-bill with the local OEMs, which is obviously a very nice number. How should we think about how that shapes across divisions and maybe by OEM, if we're to monitor retail sales for the Chinese OEMs, is there a specific player, maybe one or two players that order bank really skews into? Linked to that, do you think that will allow you to outperform light vehicle production in China maybe from 2027? The second question, just on Power, obviously unusual to see such a big margin upswing on down revenue.
Just, maybe if you can help give the building blocks of that upswing in the Power margin, how much is cost savings, how much is customer mix or maybe some pricing benefits? If there's any one-off in that Power margin that we should think about as it relates to the second half, we'd be really keen to understand how we should think about second half Power margins given that big beat in the first half. That's it. Thank you very much.
Well, thank you very much, Ross. Two very interesting questions. The first one on China. Yes, I think the performance of Valeo in China in H1 has been outstanding. Frankly speaking, five times order intake versus sales, it's a tremendous achievement. It means that on the technology side, on the competitiveness side, we are here. We are where we need to be in order to be a key player in the Chinese industry. Remember my strategy. We want to be strong in China because we learn so much over there in terms of technology and how to be competitive and how to meet the Chinese pricing and the Chinese market price, it benefits Valeo all over the world.
The stronger we are in China, the stronger we will be in the rest of the world because we are exporting to the rest of the world the knowledge, the competitiveness, the optimization of the design that we learn every day being in this fitness center. If you look another way at the order intake, in H1, 25% of the order intake of the group has been with Chinese OEMs. 25% of the order intake of the group has been with Chinese OEM. This is 25% what the Chinese OEM represent in the automotive industry. For the first time, we are matching, in terms of order intake, the share of the Chinese OEM in the world. We are matching this share in the share of order intake, which is an extremely important milestone that we have achieved in H1.
Your question is which OEMs, and my answer will be all Chinese OEMs. We don't want to bet on one or the other. We're working with all the Chinese OEMs, and I think that the past is telling us as a lesson that this is what we have to do, because you see from one semester to the next, you see from one year to the next, extremely volatile dynamic from the different customers. We better work with most of them and try to convince each of them that we are the right partner. Your other question is which division. All divisions. The strategy I'm telling you, it's to be strong in China, to be strong in the world. It cannot be a one-division strategy. The three divisions are following the same strategy. They want to grow in China.
They want to be strong in China so that it benefits these three divisions in the rest of the world. Coming to your second question, maybe Edouard will complement what I said. The recovery of Power is remarkable. It's a true remarkable recovery, and I want to thank in front of you all, the performance of the teams of Power for what they have achieved, not just this semester, but if you look at it, of the last two years. It's a mix of a lot of different actions. Of course, cost decrease, cost reduction, and you know that we have allocated most of the EUR 400 million restructuring plan of the group, we have allocated it to Power because Power was the division that was lagging behind in terms of profitability.
We have decided to put most of our effort in Power, and we now see the result of it. I think it's as well, better orders with better margins. This is valid for all the group, but this is particularly true when it comes to Power because you remember that the first orders, the one that we got at the time of Valeo Siemens, were not great orders. We said it, we worked on it, we improved a lot, and the new orders that we take in e-tech technology are much better. To the point that now when we look at e-tech technology, electric technologies within Power, and let's say classic technologies, they have the same gross margin. This is a remarkable achievement.
We have the same gross margin for e-tech technologies and classic technologies because we worked on the cost side and we worked as well on the cost for sure, but the move to better margins, better orders margin, as I said. These are the two most important element. I don't know, Edouard, if you want to complement with other factors.
No, nothing. Thank you first, Ross, to pointing out the amazing job done by the teams, because I am also very impressed with what they did. Confirming first what Christophe just said, that gross margin on e-tech and traditional technologies is at the same order of magnitude. Second, there are naturally one-offs, like everywhere, but it is balanced in H1, there are positive and negative one-offs. Globally, this is the actual structural profitability level of power in H1 this year.
Thank you.
The next question is from Thomas Besson, Kepler Cheuvreux.
Thank you very much. Good evening, it's Thomas Besson, Kepler Cheuvreux. I'll start with a couple of questions, please. I'd like to come back to China. If I look at your numbers, I'm very impressed by the orders. I've noticed that the relative performance to the market seems to have deteriorated in Q2. Could you explain why and whether you're still seeing that you'll be able to do better than the market in H2 and 2027? To continue on this China question, having looked at the company for a while, I can't refrain from having a look back at the disclosure you were making between 2009 and 2022 on your China order intake, and in particular, at 2016, 2017. 10 years ago, you had EUR 7 billion of average orders, and we never saw that for different reasons.
What's your degree of confidence that today's huge orders with these China customers will effectively translate into revenues this time around? That's the first question on China. The second question is about Europe. We've seen a lot of announcements by European automakers that are not specifically encouraging for the prospects of their performance and their production in Europe looking forward. Could you tell us whether you believe that you won't need to make a new, massive restructuring plant in 2027, 2028, to just reflect the fact that there is still no local content definition that meets what you are looking for on one end, and the fact that your main customers are losing growth. Thank you.
Thank you very much, Thomas. Related to the first question, I had the opportunity to confirm in this call that we are expecting a growth of Valeo China in H2 with Chinese OEMs. This is what we see in the call of our customers today. I do confirm that. There's a lot of volatility. You said Q1, Q2. Yes, there's a lot of volatility between the quarters. I think BYD was -15% in Q1, +15% in Q2. You see a lot of volatility in the market. Our strength is to be working, as I was answering a question on that before, is to be working with all customers. You know that we don't have any customer-specific joint venture in China. This is not the way we operate.
We operate with Valeo-owned companies. We wish to enlarge our customer base as widely as possible, not to be relying on the success of one or the other customer. There's volatility across the OEM, there's volatility across the models within an OEM. Anyway, when we look at H2 and what we have in our hands in terms of EDI, in terms of call-offs from our customers, we see growth coming with the Chinese OEMs in H2. Your question on order intake, it's not the first time that you're asking this question. Now you're asking it for China specifically, but I know that you have this concern for the full group. I had the opportunity again in this call to say that we expect return to growth for Valeo overall in 2027.
We are preparing for it every single day, through the investment that we make, through the R&D that we have, through the project management that we have. These projects are coming. These investments have been made. The start of production is being done, and we definitely confirm the return to growth in 2027 for the full group and with the Chinese OEM as early as H2 2026. The next point on Europe. I'm not pessimistic at all for Europe. I know it's your idea or it's your theory. There will be, in my opinion, local content regulation in Europe. It's going to come. It was one of the conclusions of the French-German council or meeting between the chancellor and President Macron last week. If you read the conclusions of their meeting, both countries are now supporting a strong IAA.
I know the devil is in the detail, there's a lot of detail to be determined, I believe that we have never been as close as today from a solid and efficient IAA, Industrial Accelerator Act, to protect the European market and jobs. Are we going to need another set of restructuring in 2027, 2028? I don't think so, at least not in the magnitude of what we have done in 2024. Remember that in the CMD Elevate 2028 on November 20th, we have said that we will increase the yearly spending of restructuring costs that used to be in the past EUR 50 million per year to EUR 100 million per year.
We have made this provision in our plan, we know that with this kind of spending, we are reducing the debt of the company, we are increasing the cash generation of the company despite spending, in the future, EUR 100 million per year versus what we used to spend at EUR 50 million per year. Note as well that our order intake is strong in all regions of the world, including in Europe. We expect that we're going to grow in Europe because we have managed to increase our content per car, including in European cars, especially because of the SDV coming. First program was BMW, it's now in production, as you know, IP Next, there are many other programs to come.
Thank you, Christophe.
Thank you, Thomas.
The next question is from Christoph Laskawi, Deutsche Bank.
Good evening. Thank you for taking my questions. Couple clarifications and then another question, please. The first one, just following up on Thomas' question on China. Now, I think you're stressing in this call that you are returning to growth in H2 with Chinese local OEMs. Is that different to what you said before? The way I read it was more like the group will grow in H2 in China, not only with the local OEMs, but clearly the market had deteriorated over the recent months. A change in that communication would make sense. Just wanted to check if it was basically the same thing you were saying with Q1 and before, or if there was a slight change. Just on the compensation payments of the OEMs and the related impairments. You mentioned a net zero in H1.
Is there always the same timing of the recognition of the impairment and the compensation, or can there be a timing difference between the two? It seems that for some of your peers at least, there can be timing differences, and there could be in one quarter or half, actually, a one-time positive and another one, the respective negative. Just wanted to check if it's always basically a net zero. Last question on the recoveries of the OEMs, or from the OEMs. Could you just comment what you've achieved in H1 so far and what is still to come, compared to your target? Thank you.
Thank you, Christoph. I will take the first and third one. Edouard will take the second one. When it comes to China, I think your question is quite interesting. What we've done is clarifying our objective. The market is extremely volatile, as we said, and I can return to you the question, do you know and can you tell me what's going to be the volumes of the global OEMs in China in H2? This is very difficult to answer this question with the kind of volatility that we have seen in H1. I think we have decided to focus and concentrate on what is really important, and what is really important in China are the Chinese OEM. They are 71% of the Chinese market in H1. They are 78% of the market in the last months of the semester in June.
In June, 78% of the market was in the hands of Chinese OEMs. I cannot really say and take any commitment when it comes to global OEMs and our sales with global OEMs in H2, because I have no idea of what their sales are going to be. When it comes to Chinese OEMs, I can say because they have the momentum, because they're growing their volumes and again, looking at their call-offs, looking at their EDI that I trust for the second semester, I see growth. That was a very important clarification of how our objective has to be understood in China. You take the second one, Edouard, I take the third one.
Yes. If you want, Christoph. Hi, Christoph, and thank you for your question. Definitely when a program is canceled, our teams are laser-focused to get the compensation directly. Frankly speaking, usually our customers themselves, they have to impair according to normal accounting rules, and therefore, it is quite clear for them to respect their commitment towards us. Most of the times we get the compensation as a minimum, the commitment to compensation in the same period, then we recognize the impairment. This was actually the case in H1. We got in H1, the commitments from customer to compensate what we had to impair during the period.
On the other hand, on the cash point of view, it is not necessarily the case. Do you remember last year, we said we had a working cap impact of EUR 300 million because compensations were to be paid throughout four years according to an official also communication from one of our customers. Basically, I do confirm here in H1, the impairments were compensated by commitments from the customer already in H1, but not necessarily cashed in the same period.
Relative to your third question on the recovery. There's two waves of inflation going on. One is linked to the Middle East, the price of oil, and it drives up copper, steel, aluminum, resin, basically raw material. There's another wave, which is driven by the AI expansion, and that's about memories and some electronic components.
The first one is something that we are very familiar with because there's ups and downs on the raw material quite all the time. There are indexes. When there's no indexes, we are used to work this with our customers. I think it was more or less business as usual when it comes to this wave of inflation. Relative to the second one, that's more specific because we have never seen that before. The price of memories is going up. The price of electronic components is likely to go up for some specific electronic components. We had to educate our customers, we had to explain them the market, how it went, and we had to book memories and components in quantities that are high enough to make sure that we deliver all our customers.
By doing so, by booking these volumes, you talk to your customers on a daily basis. It's quantity, it's price, it's commitment. We have these discussions. We had these discussions in H1, and I think we made some outstanding progress, when it comes to how the memory inflation, because that was the first part of the second wave, how it was dealt in the way we work with our customers. I think H1 was a very important semester of progress, in these discussions. We will continue on the same pace in the second half of the year. I cannot give-
Thank you
Unfortunately, more detail because you understand it's a very competitive and sensitive information.
Understood. I was just about to ask for a comment on percentage versus plan that was given in the past, but I take it you don't want to share the additional detail.
I anticipated your question.
Thank you.
Thank you.
The next question is from Stephen Benhamou, Bank of America.
Yes. Thank you for the question. The first, I just have one clarification regarding your expectation for China. The wording has changed a little bit as you've mentioned. Given your exposure to global OEMs in China, does it mean that we should anticipate no sales decline in H2? Therefore, your initial expectation of back to outperformance in 2027 is also revised down for next year. Thank you.
Thank you, Stephen. It's basically the same question that we had before. It's a clarification. I have no idea what the global OEMs will do and how they will perform in H2. The only thing I know is that Chinese OEMs will continue to grow and to have momentum. This is why we clarified that we will grow with the Chinese OEMs in H2, which is what is extremely important for Valeo in China, of course, in H2 2026. It's even more important for 2027, 2028, because these are the OEMs that will continue to drive volumes in the years to come. We are very comfortable. That's, I think, the second part of your question.
We are very comfortable with the return to growth overall in 2027, given all the order book that we have, all the launches that we are now foreseeing on SDV, on ADAS, on electrification. There's a tremendous amount of SOPs going on that make us comfortable that the return to growth is secure for 2027.
Thanks for the clarification.
The next question is a follow-up from Thomas Besson, Kepler Cheuvreux.
Yes, thank you very much for taking me again, despite being a pain in the I know. The first follow-up would be, just trying to understand how we can reconcile the further decline in CapEx, which is remarkable. I think you're cutting your CapEx by 7% or 8% to 8.2% of revenues down from 8.6% with the rising order intake and the return to growth. How can we reconcile that, and do you expect to have to invest more again, either in the second half or in 2027, or do you think you can permanently go down to a substantially lower level of CapEx than in the past?
Thank you, Thomas, for this follow-up question. I think we've already given the answer in previous calls. We made a lot of changes in the way we spend CapEx. We buy better, we reuse better, we standardize better, and at the end of the day, that's less investment for the same amount of sales. I think it's pretty spectacular. It's the same for R&D, by the way. You asked the question of investment, but it's even more important for R&D because we spend more in R&D than we spend in industrial CapEx. We develop better, we reuse better, we standardize better as well when it comes to R&D. That's the fundamental change that I explained during the CMD of the change in the business model of Valeo.
When we manage to keep our order intake above 19%, and it was, as you saw, even at 20% plus, 20.7% in H1. When we have this level of gross margin, at the same time we can spend less in R&D. We have demonstrated it in 2025, minus EUR 200 million. Another time in H1 2026, minus EUR 40 million. We do the same on CapEx. At the end of the day, it is more cash. This is what we see in 2025. This is what we see as well in the first half of 2026. So what we describe as a virtuous cycle of improving, step-by-step, the cash duration of the group is happening. Despite the high order intake, despite the fact that we are going to grow, despite the return to growth, we need less CapEx and less R&D for the business model of the group.
We have a business model set up for CapEx between 4.5%-5% of sales. This is what we put in our plan. The reality is that we have spent in 2025, 4.2% instead of 4.5%-5%. So we have been better than our plan, and we continue to be better in H1. I am not changing the guidance. The guidance is from 4.5%-5%, but we are working like hell to make sure that we buy better, we reuse better, we standardize better so that we generate, at the end of the day, even more cash than what we have committed for.
Great. Thank you. Finally, Edouard, can you help us gauging the tax rate for the year and for 2027? I think it has been disturbed by the dividend repatriations and, well, the cash repatriations through dividend and by the restructuring level. Should we expect the 48% to stay at that level in H2 in 2027, or should we anticipate that to decline progressively?
Thank you, Thomas, and hi, good evening. As far as the tax rate is concerned, definitely 48% is very high. It is clearly impacted by this repatriation of dividend policy. It will take some time still to do it. You remember I said last year it would take something like three years, so you can count on a quite high level of tax rate for the years 2026 and 2027. Nevertheless, it does not prevent us to continue to work and try to improve as much as we can this number. So I am not promising any miracle here, but clearly, the objective is to take this tax rate down in the future.
Great. Thank you very much, boss.
Gentlemen, that was the last question. I turn the conference back to you for any closing remarks.
Well, thank you very much for attending the call. Thank you for all your questions. Thank you for your interest in Valeo. We're going to meet soon for Q3, Q4, and have a good day. Bye.